<PAGE>
THE PILLAR FUNDS
Investment Advisor:
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
THE PILLAR FUNDS (the 'Trust') consist of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
following money market funds (collectively, the 'Funds'; individually, a
'Fund'):
O U.S. TREASURY SECURITIES MONEY MARKET FUND
O PRIME OBLIGATION MONEY MARKET FUND
O TAX-EXEMPT MONEY MARKET FUND
CLASS A
The Trust's Class A Shares are offered without distribution fees (i) to
institutional investors (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of their own funds, (ii) to any
individual or institution (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of funds held by such individual or
institution in a fiduciary, agency, custodial or other representative capacity,
and (iii) any qualified customer who has entered into an agreement with United
Jersey Bank, its affiliates or correspondent banks ("Qualified Customers") if
such individual or institution is able to provide complete shareholder
recordkeeping services with respect to shares purchased and held in such
capacity (persons who own Class A shares of a Fund are referred to herein as
'Shareholders').
CLASS A SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING UNITED JERSEY BANK OR ITS
AFFILIATES OR CORRESPONDENTS), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT
AGENCY.
AN INVESTMENT IN A FUND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
AN INVESTMENT IN ANY OF THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated April 30, 1996 has been filed with the Securities and Exchange
Commission and is available without charge through the Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
APRIL 30, 1996
CLASS A
<PAGE>
SUMMARY
THE PILLAR FUNDS (THE 'TRUST') CONSIST OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES WHICH PROVIDE A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE
CLASS A SHARES OF THE TRUST'S U.S. TREASURY SECURITIES MONEY MARKET, PRIME
OBLIGATION MONEY MARKET AND TAX-EXEMPT MONEY MARKET FUNDS (COLLECTIVELY, THE
'FUNDS'; INDIVIDUALLY, A 'FUND').
What are the Investment Objectives? Each Fund seeks to preserve principal
value and maintain a high degree of liquidity while providing current income.
The Tax-Exempt Money Market Fund also seeks to provide current income that is
exempt from federal income tax. There can be no assurance that a Fund will
achieve its investment objective or be able to maintain a net asset value of
$1.00 per share on a continuous basis. See 'Investment Objectives and Policies.'
What are the Permitted Investments? The U.S. Treasury Securities Money
Market Fund invests exclusively in short-term U.S. Treasury obligations. The
Prime Obligation Money Market Fund invests in short-term, U.S. dollar
denominated obligations of United States issuers and obligations of U.S. and
London branches of foreign banks. The Tax-Exempt Money Market Fund invests in
short-term, U.S. dollar denominated municipal securities of issuers located in
all fifty states, the District of Columbia, Puerto Rico and other U.S.
territories and possessions. At least 80% of total assets of the Tax-Exempt
Money Market Fund will be invested in securities exempt, in the opinion of bond
counsel for the issuer, from federal income taxes. See 'Investment Objectives
and Policies' and 'Description of Permitted Investments.'
Who is the Advisor? United Jersey Bank Investment Management Division, a
division of United Jersey Bank, serves as the Advisor of the Trust. See 'The
Advisor.'
Who is the Administrator? SEI Financial Management Corporation serves as
the Administrator of the Trust. See 'The Administrator.'
Who is the Shareholder Servicing Agent? SEI Financial Management
Corporation acts as dividend disbursing agent and shareholder servicing agent
for the Trust and as transfer agent for the Trust under a separate agreement.
See 'The Shareholder Servicing Agent.'
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. See 'The Distributor.'
How do I Purchase and Redeem Shares? Purchases and redemptions may be made
through the Distributor on a day on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ('Business Day'). A
purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives an order and the Custodian receives
federal funds prior to 12:00 noon, Eastern time, on such Business Day. With
respect to Qualified Customers, purchase orders will be effective as of the
Business Day received by the Distributor if the Distributor receives the order
and payment prior to 4:00 p.m., Eastern time, on such Business Day. Redemption
orders must be placed prior to 12:00 noon, Eastern time, on any Business Day for
the order to be effective that day. See 'Purchase and Redemption of Shares.'
How are Dividends Paid? The net investment income (exclusive of capital
gains) of each Fund is determined and declared on each Business Day as a
dividend for Shareholders of record as of the close of business on that day. Any
capital gains will be distributed at least annually. Dividends are paid monthly
in additional shares unless the Shareholder elects to take the payment in cash.
See 'Dividends.'
<PAGE>
3
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES CLASS A
(As a percentage of average net assets)
<TABLE>
<CAPTION>
U.S. TREASURY PRIME
SECURITIES OBLIGATION TAX-EXEMPT
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee waivers)(1)............................. .35% .34% .28%
Other Expenses................................................... .30% .31% .37%
- -----------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2).................. .65% .65% .65%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Advisor has agreed to voluntarily waive a portion of its fees in an
amount that operates to limit total operating expenses of Class A shares of
each Fund to not more than .65% of average daily net assets of that Fund.
The Advisor reserves the right to terminate its fee waiver at any time in
its sole discretion.
(2) Absent a fee waiver for the Prime Obligation Money Market Fund and the
Tax-Exempt Money Market Fund, the Advisory Fee would be .35% for each Fund
and Total Operating Expenses would be .66% and .72%, respectively, of each
Fund's average daily net assets. Additional information may be found under
'The Advisor,' 'The Administrator' and 'The Distributor.'
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
U.S. Treasury Securities Money Market Fund................................... $7 $21 $36
Prime Obligation Money Market Fund........................................... $7 $21 $36
Tax-Exempt Money Market Fund................................................. $7 $21 $36
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
10 YRS.
- ---------------------------------------------------------------------------------------------
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
U.S. Treasury Securities Money Market Fund................................... $81
Prime Obligation Money Market Fund........................................... $81
Tax-Exempt Money Market Fund................................................. $81
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. The information set forth in the foregoing
table and example relates only to Class A shares. The Trust also offers Class B
shares of each Fund which are subject to the same expenses except that Class B
shares bear certain distribution costs. Financial institutions may impose
separate fees for account services on their Qualified Customers and on
customers for which they are the record owner of shares for the account.
Additional information may be found under 'The Advisor,' 'The Administrator'
and 'The Distributor.'
<PAGE>
4
FINANCIAL HIGHLIGHTS THE PILLAR FUNDS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 22,
1996 on the Trust's financial statements as of December 31, 1995 included in the
Trust's Statement of Additional Information under 'Financial Information.' This
table should be read in conjunction with the Trust's financial statements and
notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
NET
NET ASSET DISTRIBUTIONS ASSETS RATIO OF RATIO OF NET
VALUE NET FROM NET NET ASSET END OF EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL PERIOD AVERAGE NET AVERAGE NET
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS ASSETS
----------- ----------- ------------- ----------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------
U.S. TREASURY SECURITIES
- --------------------------
CLASS A
1995................ $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.05% $ 463,531 0.65% 4.92%
1994................ 1.00 0.03 (0.03) 1.00 3.44 465,125 0.62 3.39
1993................ 1.00 0.02 (0.02) 1.00 2.46 420,947 0.64 2.42
1992(1)............. 1.00 0.02 (0.02) 1.00 2.81* 387,960 0.65 2.67
- ------------------
PRIME OBLIGATION
- ------------------
CLASS A
1995................ $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.40% $ 259,667 0.65% 5.26%
1994................ 1.00 0.04 (0.04) 1.00 3.67 157,378 0.62 3.68
1993................ 1.00 0.03 (0.03) 1.00 2.65 129,780 0.64 2.63
1992(1)............. 1.00 0.02 (0.02) 1.00 2.85* 124,811 0.65 2.63
- ------------
TAX-EXEMPT
- ------------
CLASS A
1995................ $ 1.00 $ 0.03 $ (0.03) $ 1.00 3.42% $ 63,628 0.65% 3.37%
1994................ 1.00 0.02 (0.02) 1.00 2.27 37,745 0.65 2.27
1993................ 1.00 0.02 (0.02) 1.00 1.99 32,994 0.65 1.97
1992(2)............. 1.00 0.02 (0.02) 1.00 2.42* 22,963 0.65 2.39
<CAPTION>
RATIO OF RATIO OF NET
EXPENSES TO NET INCOME
AVERAGE NET AVERAGE NET
ASSETS ASSETS
(EXCLUDING (EXCLUDING
WAIVERS) WAIVERS)
------------- -------------
- -------------------------
U.S. TREASURY SECURITIES
- ------------------------
CLASS A
1995................ 0.65% 4.92%
1994................ 0.62 3.39
1993................ 0.64 2.42
1992(1)............. 0.70 2.62
- ------------------
PRIME OBLIGATION
- ------------------
CLASS A
1995................ 0.66% 5.25%
1994................ 0.62 3.68
1993................ 0.64 2.63
1992(1)............. 0.77 2.51
- ------------
TAX-EXEMPT
- ------------
CLASS A
1995................ 0.72% 3.30%
1994................ 0.68 2.24
1993................ 0.69 1.93
1992(2)............. 0.79 2.25
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
(1) The U.S. Treasury Securities Money Market and the Prime Obligations Money Market Funds commenced operations on
April 1, 1992. Ratios for this period have been annualized.
(2) The Tax-Exempt Money Market Fund commenced operations on April 6, 1992. Ratios for this period have been
annualized.
</TABLE>
<PAGE>
5
THE TRUST
THE PILLAR FUNDS (the 'Trust') consist of open-end management investment
companies that have diversified and non-diversified portfolios. The Trust offers
units of beneficial interest ('shares') in fifteen separate investment
portfolios. Shareholders may purchase shares in each portfolio (except for the
U.S. Treasury Securities Plus Money Market Fund) through two separate classes
(Class A and Class B) which provide for variations in distribution costs, voting
rights, sales load, minimum investment, redemption fees, transfer agency fees
and dividends. Except for these differences between classes, each share of each
portfolio represents an undivided, proportionate interest in that portfolio.
This Prospectus relates to the Class A shares of the Trust's U.S. Treasury
Securities Money Market, Prime Obligation Money Market and Tax-Exempt Money
Market Funds (each of these, a 'Fund'). Each Fund is a diversified mutual fund.
Information regarding the Trust's other portfolios and the Class B shares of the
Funds is contained in separate prospectuses that may be obtained by writing the
Trust's Distributor, SEI Financial Services Company, 680 East Swedesford Road,
Wayne, Pennsylvania 19087 or by calling 1-800-932-7782.
SHARES OF THE TRUST ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR INSURED, GUARANTEED, SPONSORED OR ENDORSED BY, ANY BANK
(INCLUDING UNITED JERSEY BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE OR
STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE U.S.
GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
SHARES OF THE TRUST ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is to preserve principal value and
maintain a high degree of liquidity while providing current income. In addition,
the Tax-Exempt Money Market Fund seeks to provide current income that is exempt
from federal income tax. There is no assurance that the investment objective of
any Fund will be met.
Each Fund intends to comply with regulations of the Securities and Exchange
Commission ('SEC') applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on investments by a Fund. Under
these regulations, each Fund will invest only in U.S. dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only 'eligible securities' that present minimal
credit risks and have a maturity of 397 days or less. For a further discussion
of these rules, see 'Description of Permitted Investments' in this Prospectus.
THE U.S. TREASURY SECURITIES MONEY MARKET FUND
The U.S. Treasury Securities Money Market Fund (the 'Treasury Fund') will invest
exclusively in bills, notes and bonds issued by the U.S. Treasury and separately
traded interest and principal component parts of such obligations that are
transferable through the Federal Book Entry System ('U.S. Treasury
Obligations'). The Fund may also engage in securities lending. For a description
of U.S. Treasury Obligations, see 'Description of Permitted Investments.'
THE PRIME OBLIGATION MONEY MARKET FUND
The Prime Obligation Money Market Fund (the 'Prime Fund') will invest in
eligible securities consisting of: (i) commercial paper and short-term corporate
obligations of U.S. issuers that satisfy the Fund's quality criteria; (ii)
obligations (certificates of deposit, time deposits and bankers' acceptances) of
U.S. commercial banks, U.S. savings and loan institutions and U.S. and London
branches of foreign banks, provided such institutions have total assets of $500
million or more as shown on their last published financial statements at the
time of investment and are insured by the FDIC or the Federal Savings and Loan
Insurance Corporation (the Fund may not invest more than 25% of its total assets
in obligations issued by foreign branches of U.S. banks and London branches of
foreign banks); (iii) U.S. Treasury obligations; (iv) obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the U.S. Government; and (v) repurchase agreements
<PAGE>
6
involving any of such obligations. In addition, the Fund may also engage in
securities lending. For a further description of the Fund's permitted
investments and the above ratings, see 'Description of Permitted Investments' in
this Prospectus and 'Description of Ratings' in the Statement of Additional
Information.
THE TAX-EXEMPT MONEY MARKET FUND
The Tax-Exempt Money Market Fund (the 'Tax-Exempt Fund') will invest at least
80% of its total assets in eligible securities issued by or on behalf of the
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest of which, in the opinion of bond counsel for the issuer, is exempt from
federal income tax (collectively, 'Municipal Securities'). The Tax-Exempt Fund
will primarily purchase municipal bonds, notes and tax exempt commercial paper
rated in one of the two highest short-term rating categories by a nationally
recognized statistical rating organization ('NRSRO') in accordance with SEC
regulations at the time of investment or, if not rated, as determined by the
Advisor to be of comparable quality.
The Tax-Exempt Fund may purchase municipal obligations with demand features,
including floating or variable rate obligations. In addition, the Fund may
invest in commitments to purchase securities on a 'when-issued' basis, and
reserves the right to purchase securities subject to a standby commitment. The
Advisor has discretion to invest up to a total of 20% of the Fund's assets in
taxable money market instruments (including repurchase agreements) and
securities subject to the federal alternative minimum tax. However, the Fund
generally intends to be fully invested in securities exempt from federal income
tax. The Fund may also engage in securities lending.
For additional information regarding risks and permitted investments, see
'Description of Permitted Investments' in this Prospectus and 'Description of
Permitted Investments' and 'Description of Ratings' in the Statement of
Additional Information.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. In addition, it is a fundamental policy of
each Fund to use its best efforts to maintain a constant net asset value of
$1.00 per share although there can be no assurance any Fund will be able to do
so. It is also a fundamental policy of the Tax-Exempt Fund to invest at least
80% of its assets in Municipal Securities. Fundamental policies cannot be
changed with respect to a Fund without the consent of the holders of a majority
of that Fund's outstanding shares.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of each Fund's total assets. See 'Description of
Permitted Investments--Restraint on Investments by 'Money Market Funds.'
2. Purchase any securities which would cause more than 25% of the total assets
of any Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, repurchase agreements
involving such securities and obligations issued by domestic branches of U.S.
banks or U.S. branches of foreign banks subject to the same regulation as U.S.
banks or to investments in tax exempt securities issued by governments or
political subdivisions of governments.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as described in this Prospectus
and in the Statement of Additional Information.
It is a non-fundamental policy of each Fund to invest no more than 10% of its
total assets in illiquid
<PAGE>
7
securities (as defined under 'Description of Permitted Investments').
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
THE ADVISOR
United Jersey Bank Investment Management Division, a division of United Jersey
Bank (the 'Advisor') serves as the Advisor of the Trust. The Advisor makes the
investment decisions for the assets of each Fund and continuously reviews,
supervises and administers each Fund's investment program subject to the
supervision of, and policies established by, the Trustees of the Trust.
United Jersey Bank, 210 Main Street, Hackensack, NJ 07601, was chartered in 1899
and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment experts have, on average, over 20 years of
experience in investment management. As of December 31, 1995, total assets under
management were approximately $4 billion.
United Jersey Bank is a wholly-owned subsidiary of Summit Bancorp, an
interstate bank holding company with $22 billion in assets and over 325 banking
offices in New Jersey and Eastern Pennsylvania as of December 31, 1995.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .35% of the average daily net assets of each Fund. The Advisor
has voluntarily agreed to waive all or a portion of its fees in order to limit
the operating expenses of Class A shares of each Fund to .65%. The Advisor
reserves the right to terminate its fee waiver at any time in its sole
discretion. For the fiscal year ended December 31, 1995, each Fund paid the
Advisor the following advisory fee (shown as a percentage of its average daily
net assets): Treasury Fund, .35%; Prime Fund, .34%; and Tax-Exempt Fund, .28%.
United Jersey Bank has also entered into a Custodian Agreement with the Trust
under which it provides all securities safekeeping services as required by the
Funds and the Investment Company Act of 1940, as amended (the '1940 Act') . The
Trust pays United Jersey Bank (referred to herein in its custodial capacity as
the 'Custodian') a custodian fee, which is calculated daily and paid monthly, at
an annual rate of .025% of the average daily net assets of each Fund.
The Glass-Steagall Act restricts the securities activities of banks such as
United Jersey Bank, but federal regulatory authorities permit such banks to
provide investment advisory and other services to mutual funds. Should this
position be challenged successfully in court or reversed by legislation, the
Trust might have to make other investment advisory arrangements.
THE ADMINISTRATOR
SEI Financial Management Corporation (the 'Administrator'), a wholly-owned
subsidiary of SEI Corporation ('SEI'), serves as the Administrator of the Trust.
The Administrator provides the Trust with administrative services other than
investment advisory services, including regulatory reporting and all necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of each Fund.
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the dividend disbursing agent and
shareholder servicing agent for the Trust. SEI Financial Management Corporation
also acts as the transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the 'Distributor'), a wholly-owned subsidiary of
SEI, acts as the Distributor for the Trust. No compensation is paid to the
Distributor for distribution services for the Class A shares of any Fund. Class
B shares of each Fund bear the costs of their distribution expenses and related
service fees at the annual rate of up to .25% of the average daily net assets of
the Fund. Class A
<PAGE>
8
shares of each Fund are offered without distribution fees (i) to institutional
investors (including United Jersey Bank, its affiliates and correspondent banks)
for the investment of their own funds, (ii) to individuals and institutions
(including United Jersey Bank, its affiliates and correspondent banks) for the
investment of funds held by such individuals or institutions in a fiduciary,
agency, custodial or other representative capacity, if such individuals or
institutions are able to provide complete shareholder recordkeeping services
with respect to shares purchased and held in such capacity, and (iii) any
qualified customer who has entered into an agreement with United Jersey Bank,
its affiliates or correspondent banks ("Qualified Customer").
Class B shares of each Fund are offered to all persons. Consequently, it is
possible that individuals and institutions may offer different classes of the
Funds shares to their customers and thus receive different compensation with
respect to different classes of shares. In addition, individuals and
institutions that are the record owners of shares for the account of their
customers may impose separate fees for account services to their customers. The
Funds may also execute brokerage or other agency transactions through an
affiliate of the Advisor or through the Distributor for which such affiliate or
the Distributor receives compensation.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of the Funds may be made on any Business
Day. State securities laws may require banks and financial institutions
purchasing shares for their customers to register as dealers pursuant to state
laws.
A purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives an order and the Custodian receives
federal funds before 12:00 noon, Eastern time, on such Business Day. Otherwise,
the purchase order will be effective the next Business Day. Generally, an
investor in the Class A shares of the Funds may not purchase shares by check,
third party check, credit card or credit card check. Financial institutions may
impose an earlier cut-off time for receipt of purchase orders directed through
them to allow time for processing and transmittal of these orders to the
Distributor for effectiveness the same day.
The purchase price is the net asset value per Class A share next computed after
the order is effective. The net asset value per Class A share of each Fund is
determined by dividing the total value of its investments and other assets that
are allocated to Class A shares, less any liabilities that are allocated to
Class A shares, by its total outstanding Class A shares. The net asset value per
share is calculated as of 12:00 noon, Eastern time, each Business Day based on
the amortized cost method as described in the Statement of Additional
Information. Purchased shares are first entitled to dividends the day the
purchase order is effective. No certificates representing shares will be issued.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Shareholders who experience
difficulties placing redemption orders by telephone may wish to consider placing
the redemption order by other means.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
For redemption orders received before 12:00 noon, Eastern time, payment will
normally be made the same day by transfer of federal funds. Otherwise, payment
will be made on the next Business Day and, in any event, within seven Business
Days after the redemption order is effective. The redemption price is the net
asset value per share of the Fund next determined after receipt by the
Distributor of the redemption order. Redeemed shares are not entitled to
dividends declared the day the redemption order is effective.
The purchase price and the redemption price is expected to remain constant at
$1.00 per share.
The Funds intend to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities with a market value equal to the redemption
price. In such
<PAGE>
9
cases, an investor may incur brokerage costs in converting such securities to
cash.
PURCHASE OF SHARES - QUALIFIED CUSTOMERS
Accounts for Qualified Customers may be opened through United Jersey Bank, its
affiliates or correspondent banks (the "Bank"). Subsequent purchases of shares
of the Funds may be made through the Bank or directly through the Distributor by
mail or by wire. Purchases may not be made by telephone. Qualified Customers
should contact their Financial Services Advisor ("FSA") for information about
opening an account and purchasing shares of the Funds through United Jersey
Bank. The Bank may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow for processing and transmittal of these orders to
the Distributor for effectiveness the same day. In addition, state securities
laws may require banks and financial institutions purchasing shares for their
customers to register as dealers pursuant to state laws.
The minimum initial investment in the Trust for Qualified Customers is $10,000.
All subsequent purchases must be at least $1,000. A purchase order will be
effective as of the Business Day received by the Distributor if the Distributor
receives the order before 4:00 p.m., Eastern time, on such Business Day.
Direct Purchases - Qualified Customers
By Mail - Subsequent purchases of shares may be made at any time by mailing a
check (or other negotiable bank draft or money order) to the Distributor. When
purchases are made by check, redemptions will not be allowed until the
investment being redeemed has been in the account for 10 Business Days. If a
check received does not clear, the purchase will be canceled and the investor
could be liable for any losses or fees incurred.
By Wire - Subsequent purchases of shares may be made by wire. To buy shares by
wire, call the Distributor toll-free at 1-800-932-7782.
Other Information Regarding Purchases - The purchase price is the net asset
value per share next computed after the order is effective. No certificates
representing shares will be issued.
REDEMPTION OF SHARES - QUALIFIED CUSTOMERS
The FSA through which Qualified Customers may purchase shares is able to assist
Qualified Customers in effecting the redemption of shares held in Fund accounts
through the Distributor. Qualified Customers wishing to effect a redemption with
the assistance of an FSA should contact the Bank or their FSA for additional
information about redemption procedures and cut-off times. Shares may also be
redeemed directly through the Distributor by mail, by telephone, by wire, by ACH
or through a systematic withdrawal plan.
Direct Redemptions - Qualified Customers
By Mail - A written request for redemption must be received by the Distributor
in order to constitute a valid request for redemption. The Distributor may
require that the signature on the written request be guaranteed by a commercial
bank or by a member firm of a domestic stock exchange. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $5,000 worth of shares or less, (2) the redemption check is
payable to the Shareholder(s) of record, and (3) the redemption check is mailed
to the Shareholder(s) at the address of record. Qualified Customers may also
have the proceeds mailed to a commercial bank account previously designated on
the Account Application or by written instruction to the Distributor. There is
no charge for having redemption requests mailed to a designated bank account.
By Telephone, Wire or ACH - Shares may be redeemed by telephone if Qualified
Customers elect that option on the Account Application. Qualified Customers may
have the proceeds mailed to his or her address or wired to a commercial bank
account previously designated on the Account Application. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. Wire and ACH redemption requests may
be made by Qualified Customers by calling the Distributor at 1-800-932-7782, who
will add a wire redemption charge (presently $10.00) to the amount of the
redemption. Accounts may not be closed by telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Qualified Customers
attempting to place redemption orders by telephone may wish to consider placing
the redemption order by other means.
Systematic Withdrawal Plan (SWP) - The Funds offer a Systematic Withdrawal Plan
which may be utilized by Qualified Customers who wish to receive regular
distributions from their account. Upon commencement of the SWP, the account must
have a current value of $10,000 or more. Qualified Customers may elect to
receive automatic payment by check or ACH of $50 or more on a monthly or
quarterly basis.
Other Information Regarding Redemptions - All redemption orders are effected at
the net asset value per share next determined after receipt of a valid request
for redemption, as described above. Net asset value per share is determined as
of 4:00 p.m., Eastern time, on each Business Day. Payment to Shareholders for
shares redeemed will be made within seven days after receipt by the Distributor
of the request for redemption.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment in connection with a purchase. In such circumstances,
the forwarding of redemption proceeds may be delayed until such payment has been
collected. The Funds intend to pay cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, payment may be made wholly
or partly in portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
COMPUTATION OF YIELD
From time to time the Funds may advertise 'current yield' and 'effective
compound yield'. Both yield figures are based on historical earnings and are not
intended to indicate future performance. The 'current yield' of a Fund refers to
the income generated by an investment in a Fund over a seven-day period (which
period will be stated in the advertisement). This income is then 'annualized.'
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The 'effective yield' is calculated similarly but,
when annualized, the income earned by an investment in a Fund is assumed to be
reinvested. The 'effective yield' will be slightly higher than the 'current
yield' because of the compounding effect of this assumed reinvestment. In
addition, the advertised performance on Class A shares will normally be higher
than for Class B shares because Class A shares are not subject to distribution
expenses charged to Class B shares. The actual return to a Shareholder on Class
A shares may be reduced by any administrative or management charges that may be
imposed by individuals or institutions on their customers for account services.
The actual return to Shareholders on Class B shares will be reduced by the
amount of any sales load paid on Class B shares.
The Tax-Exempt Fund may also advertise a 'tax-equivalent yield,' which is
calculated by determining the rate of return that would have been achieved on a
fully taxable investment to produce the after tax equivalent of the Fund's
yield, assuming certain tax brackets for the Shareholder.
The Fund may periodically compare its performance to that of: (i) of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii) broad groups of
comparable mutual funds; (iii) unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or (iv) other investment alternatives. The Fund may use
long-term performance of the capital markets to demonstrate general long-term
risk versus reward scenarios and could include the value of a hypothetical
investment in any of the capital markets. The Fund may also quote financial and
business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under Subchapter M
of the Internal Revenue Code of 1986, as amended (the 'Code'), so as to be
relieved of federal income tax on that part of its net investment income which
is distributed to Shareholders. Each Fund also intends to make sufficient
distributions each calendar year to avoid liability for federal excise tax.
TAX STATUS OF DISTRIBUTIONS
Dividends declared by a Fund in December of any year and payable to Shareholders
of record on a date in that month will be deemed to have been paid by the Fund
and received by the Shareholders on the last day of that month if paid by the
Fund during the following January.
THE TREASURY AND PRIME FUNDS will distribute all of their net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares and
<PAGE>
10
will not qualify for the dividends-received deduction otherwise available to
corporate shareholders. Dividends from net capital gain (the excess of net
long-term capital gain over net short-term capital loss) also will not qualify
for the dividends-received deduction and will be treated as long-term capital
gains, regardless of how long the Shareholder has held shares. Each Fund will
make annual reports to Shareholders of the federal income tax status of all
distributions.
Interest received on direct U.S. obligations that is exempt from tax at the
state level when received directly may be exempt, depending on the state, when
received by a Shareholder from a Fund, provided certain conditions are
satisfied. Interest received on repurchase agreements normally is not exempt
from state taxation. Each Fund annually will inform Shareholders of the
percentage of income and distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from a Fund is considered tax-exempt in their
particular states.
With respect to investments in STRIPS (as defined under 'Description of
Permitted Investments'), which are sold at original issue discount and thus do
not make periodic cash interest payments, a Fund will be required to include as
part of its current income the accreted interest on such obligations even though
the Fund has not received any interest payments on such obligations during that
period. Because each Fund distributes all of its net investment income to its
Shareholders, a Fund may have to sell portfolio securities to distribute such
imputed income which may occur at a time when the Advisor would not have chosen
to sell such securities and which may result in a taxable gain or loss.
The sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
THE TAX-EXEMPT FUND will distribute all of its net investment income (including
net short-term capital gain) to Shareholders. If, at the close of each quarter
of its taxable year, at least 50% of the value of the Fund's total assets
consists of obligations the interest on which is excludable from gross income,
the Fund may pay 'exempt-interest dividends' to its Shareholders. Those
dividends constitute the portion of the aggregate dividends as designated by the
Fund, equal to the excess of the excludable interest over certain amounts
disallowed as deductions. Exempt-interest dividends are excludable from a
Shareholder's gross income for regular federal income tax purposes, but may have
collateral consequences. See the Statement of Additional Information.
The Tax-Exempt Fund may not be an appropriate investment for persons who are
'substantial' users of facilities financed by industrial development or private
activity bonds. See the Statement of Additional Information.
Current federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities to
satisfy the Code's requirements for the payment of 'exempt-interest dividends.'
<PAGE>
11
Any dividends attributable to the Fund's taxable income will be taxable to
Shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits and will not qualify
for the corporate dividends-received deduction. The Fund will make annual
reports to Shareholders of the federal income tax status of distributions.
The Fund does not expect to realize any net capital gains (the excess of net
long-term capital gains over net short-term capital losses). To the extent that
it does, however, it intends to distribute such gains to Shareholders.
Distributions of net capital gains will not qualify for the dividends-received
deduction for corporate shareholders and will be treated as long-term capital
gain regardless of how long a shareholder has held shares.
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase shares is not deductible. Furthermore, entities or persons who are
'substantial users' (or persons related to 'substantial users') of facilities
financed by 'private activity bonds' or certain industrial development bonds
should consult their tax advisers before purchasing shares. For these purposes,
the term 'substantial user' is defined generally to include a 'non-exempt
person' who regularly uses in trade or business a part of a facility financed
from the proceeds of such bonds. See the Statement of Additional Information.
The sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. In
addition to the Funds, the Trust consists of the following portfolios: U.S.
Treasury Securities Plus Money Market Fund, Short-Term Investment Fund, Fixed
Income Fund, New Jersey Municipal Securities Fund, Pennsylvania Municipal
Securities Fund, Intermediate-Term Government Securities Fund, GNMA Fund, Equity
Value Fund, Equity Income Fund, Mid Cap Value Fund, Balanced Growth Fund and
International Growth Fund. All consideration received by the Trust for shares of
any Fund and all assets of such Fund belong to that Fund and would be subject to
liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by a board of trustees
(the 'Trustees') under the laws governing business trusts in the Commonwealth of
Massachusetts. The Trustees
<PAGE>
12
have approved contracts under which, as described above, certain companies
provide essential management services to the Trust.
VOTING RIGHTS
Each share held entitles a Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
DIVIDENDS
The net investment income (exclusive of capital gains) of each Fund is
determined and declared on each Business Day as a dividend to Shareholders of
record as of the close of business on that day. Dividends are paid by the Funds
in additional Class A shares on or about the first business day of the following
month, unless the Shareholder has elected to take such payment in cash.
Shareholders may change their election by providing written notice to the
Administrator at least 15 days prior to the distribution. Currently, capital
gains of a Fund, if any, are distributed at least annually.
The amount of dividends payable on Class A shares will be more than the
dividends payable on the Class B shares because of the distribution expenses
charged to Class B shares.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of the permitted investments for each Fund:
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months to 270 days.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, 'stripped' U.S. Treasury securities (e.g., Receipts and STRIPs), and
privately issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere
in this 'Description of Permitted Investments' for discussions of these various
instruments, and see 'Investment Objectives and Policies' for more information
about any
<PAGE>
13
investment policies and limitations applicable to their use.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. Not more than 10% of the total assets of a Fund will
be invested in such instruments. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, if there is no
secondary market for such security. Restricted securities, including Rule 144A
securities, that meet the criteria established by the Trustees of the Trust will
be considered liquid.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
constructions, equipment, repair or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes. Municipal bonds include general
obligation bonds, revenue or special obligation bonds, private activity and
industrial development bonds.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have actual or constructive possession
of the security as collateral for the repurchase agreement. A Fund bears a risk
of loss in the event the other party defaults on its obligations and the Fund is
delayed or prevented from its right to dispose of the collateral securities or
if the Fund realizes a loss on the sale of the collateral securities. A Fund
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS--Investments by a money market
fund are subject to limitations imposed under regulations adopted by the SEC.
Under these regulations, money market funds may only acquire obligations that
present minimal credit risks and that are 'eligible securities,' which means
they are (i) rated, at the time of investment, by at least two nationally
recognized security rating organizations (one if it is the only organization
rating such obligation) in the highest short-term rating category or, if
unrated, determined to be of comparable quality (a 'first tier security'), or
(ii) rated according to the foregoing criteria in the second highest short-term
rating category or, if unrated, determined to be of comparable quality ('second
tier security'). A security is not considered to be unrated if its issuer has
outstanding obligations of comparable priority and security that have a
short-term rating. The Adviser will determine that an obligation presents
minimal credit risks or that unrated instruments are of comparable quality in
accordance with guidelines established by the Trustees. In addition, the
Trustees must approve or ratify the purchase of unrated securities or securities
rated by only one rating organization by the Prime Fund. In the case of taxable
money market funds, investments in second tier securities are subject to the
further constraint that (i) no more than 5% of a Fund's assets may be invested
in such securities in the aggregate, and (ii)
<PAGE>
14
any investments in such securities of one issuer is limited to the greater of 1%
of a Fund's total assets or $1 million. A taxable money market fund may hold
more than 5% of its assets in the first tier securities of a single issuer for
three business days.
SECURITIES OF FOREIGN ISSUERS--There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments, the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities. Also it may be more difficult to
obtain a judgment in a court outside the United States.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss or rights in the collateral should the borrower of
the securities fail financially or become insolvent. A Fund pays lending and
other fees in connection with securities loans.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits maturing in more than seven days
are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry
<PAGE>
15
system known as Separately Traded Registered Interest and Principal Securities
('STRIPS').
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Fund will maintain with the Custodian a separate account with liquid high
grade debt securities or cash in an amount at least equal to these commitments.
The interest rate realized on these securities is fixed as of the purchase date
and no interest accrues to a Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and it is
possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. Although a Fund generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities, a
Fund may dispose of a when-issued security or forward commitment prior to
settlement if it deems appropriate.
<PAGE>
16
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Summary............................................. 2 The Shareholder Servicing Agent..................... 7
Expense Summary..................................... 3 The Distributor..................................... 7
The Trust........................................... 5 Purchase and Redemption of Shares................... 8
Investment Objectives and Policies.................. 5 Computation of Yield................................ 9
Investment Limitations.............................. 6 Taxes............................................... 9
The Advisor......................................... 7 General Information................................. 11
The Administrator................................... 7 Description of Permitted Investments................ 12
</TABLE>
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
THE PILLAR FUNDS (the 'Trust') consist of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
following money market funds (collectively, 'Funds'; individually, a 'Fund'):
O U.S. TREASURY SECURITIES MONEY MARKET FUND
O PRIME OBLIGATION MONEY MARKET FUND
O TAX-EXEMPT MONEY MARKET FUND
CLASS B
The Trust's Class B Shares are offered to all persons (persons who own Class B
shares of a Fund are referred to herein as 'Shareholders').
CLASS B SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING UNITED JERSEY BANK OR ITS
AFFILIATES OR CORRESPONDENTS), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT
AGENCY.
AN INVESTMENT IN A FUND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
AN INVESTMENT IN ANY OF THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated April 30, 1996 has been filed with the Securities and Exchange
Commission and is available without charge through the Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
APRIL 30, 1996
CLASS B
<PAGE>
2
SUMMARY
THE PILLAR FUNDS (THE 'TRUST') CONSIST OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES WHICH PROVIDE A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE
CLASS B SHARES OF THE TRUST'S U.S. TREASURY SECURITIES MONEY MARKET, PRIME
OBLIGATION MONEY MARKET AND TAX-EXEMPT MONEY MARKET FUNDS (COLLECTIVELY, THE
'FUNDS'; INDIVIDUALLY, A 'FUND').
What are the Investment Objectives? Each Fund seeks to preserve principal
value and maintain a high degree of liquidity while providing current income.
The Tax-Exempt Money Market Fund also seeks to provide current income that is
exempt from federal income tax. There can be no assurance that a Fund will
achieve its investment objective or be able to maintain a net asset value of
$1.00 per share on a continuous basis. See 'Investment Objectives and Policies.'
What are the Permitted Investments? The U.S. Treasury Securities Money
Market Fund invests exclusively in short-term U.S. Treasury obligations. The
Prime Obligation Money Market Fund invests in short-term, U.S. dollar
denominated obligations of United States issuers and obligations of U.S. and
London branches of foreign banks. The Tax-Exempt Money Market Fund invests in
short-term, U.S. dollar denominated municipal securities of issuers located in
all fifty states, the District of Columbia, Puerto Rico and other U.S.
territories and possessions. At least 80% of total assets of the Tax-Exempt
Money Market Fund will be invested in securities exempt, in the opinion of bond
counsel for the issuer, from federal income taxes. See 'Investment Objectives
and Policies' and 'Description of Permitted Investments.'
Who is the Advisor? United Jersey Bank Investment Management Division, a
division of United Jersey Bank, serves as the Advisor of the Trust. See 'The
Advisor.'
Who is the Administrator? SEI Financial Management Corporation serves as
the Administrator of the Trust. See 'The Administrator.'
Who is the Shareholder Servicing Agent? SEI Financial Management
Corporation acts as dividend disbursing agent and shareholder servicing agent
for the Trust and as transfer agent for the Trust under a separate agreement.
See 'The Shareholder Servicing Agent.'
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. The Trust has adopted a distribution plan (the 'Class B
Plan') on behalf of the Class B shares pursuant to Rule 12b-1 of the Investment
Company Act of 1940. See 'The Distributor.'
How Do I Purchase and Redeem Shares? Shares may be purchased through a
financial institution, such as United Jersey Bank, or a broker-dealer that has
entered into a dealer agreement with SEI Financial Services Company
('Intermediaries'). Shares may also be purchased directly through the
Distributor. Shareholders may redeem shares directly through the Distributor. In
addition, Intermediaries through which Shareholders may purchase shares
generally stand ready to assist Shareholders in effecting redemptions of shares
held in their Fund accounts. Purchase and redemption requests may be made on a
day on which both the New York Stock Exchange and the Federal Reserve wire
system are open for business ('Business Day'). The minimum initial investment is
$1,000. The net asset value per share is determined as of 12:00 noon, Eastern
time on each Business Day. See 'Purchases of Shares' and 'Redemption of Shares.'
How are Dividends Paid? The net investment income (exclusive of capital
gains) of each Fund is determined and declared on each Business Day as a
dividend for shareholders of record as of the close of business on that day. Any
capital gains will be distributed at least annually. Dividends are paid monthly
in additional shares unless the Shareholder elects to take the payment in cash.
See 'Dividends.'
<PAGE>
3
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES CLASS B
(As a percentage of average net assets)
<TABLE>
<CAPTION>
U.S. TREASURY PRIME
SECURITIES OBLIGATION TAX-EXEMPT
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee waivers)(1)............................. .35% .34% .28%
12b-1 Fees....................................................... .25% .25% .25%
Other Expenses................................................... .30% .31% .37%
- ----------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2).................. .90% .90% .90%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The Advisor has agreed to voluntarily waive a portion of its fees in an amount that operates to limit total
operating expenses of Class B shares of each Fund to not more than .90% of average daily net assets of that
Fund. The Advisor reserves the right to terminate its fee waiver at any time in its sole discretion.
(2) Absent the fee waiver for the Prime Obligation Money Market Fund and the Tax-Exempt Money Market Fund, the
Advisory Fee would be .35% for each Fund and Total Operating Expenses would be .91% and .97%, respectively, of
each Fund's average daily net assets. Additional information may be found under 'The Advisor,' 'The
Administrator' and 'The Distributor.'
</TABLE>
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1YR. 3 YRS. 5 YRS.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
U.S. Treasury Securities Money Market Fund................................... $9 $29 $50
Prime Obligations Money Market Fund.......................................... $9 $29 $50
Tax-Exempt Money Market Fund................................................. $9 $29 $50
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
10 YRS.
- ---------------------------------------------------------------------------------------------
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
U.S. Treasury Securities Money Market Fund................................... $111
Prime Obligations Money Market Fund.......................................... $111
Tax-Exempt Money Market Fund................................................. $111
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. The information set forth in the foregoing
table and example relates only to Class B shares. The Trust also offers Class A
shares of each Fund which are subject to the same expenses except that there are
no distribution fees. Financial institutions that are the record owner of shares
for the account of their customers may impose separate fees for account services
to their customers. In addition, a wire redemption charge of $10.00 is imposed
for each redemption by wire. Additional information may be found under 'The
Advisor,' 'The Administrator' and 'The Distributor.'
<PAGE>
4
FINANCIAL HIGHLIGHTS THE PILLAR FUNDS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 22,
1996 on the Trust's financial statements as of December 31, 1995 included in the
Trust's Statement of Additional Information under 'Financial Information.' This
table should be read in conjunction with the Trust's financial statements and
notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
NET
NET ASSET DISTRIBUTIONS ASSETS RATIO OF RATIO OF NET
VALUE NET FROM NET NET ASSET END OF EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL PERIOD AVERAGE NET AVERAGE NET
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS ASSETS
----------- ----------- ----------- ----------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------
U.S. TREASURY SECURITIES
- --------------------------
CLASS B
1995.................. $ 1.00 $ 0.05 $ (0.05) $ 1.00 4.80% $ 3,532 0.90% 4.66%
1994.................. 1.00 0.03 (0.03) 1.00 3.17 633 0.87 3.07
1993.................. 1.00 0.02 (0.02) 1.00 2.21 834 0.89 2.17
1992(1)............... 1.00 0.02 (0.02) 1.00 2.56* 436 0.90 2.27
- ------------------
PRIME OBLIGATION
- ------------------
CLASS B
1995.................. $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.14% $ 6,925 0.90% 5.01%
1994.................. 1.00 0.03 (0.03) 1.00 3.40 3,281 0.87 3.89
1993.................. 1.00 0.02 (0.02) 1.00 2.40 377 0.89 2.38
1992(1)............... 1.00 0.02 (0.02) 1.00 2.60* 243 0.89 2.43
- ------------
TAX-EXEMPT
- ------------
CLASS B
1995.................. $ 1.00 $ 0.03 $ (0.03) $ 1.00 3.17% $ 5,238 0.90% 3.14%
1994.................. 1.00 0.02 (0.02) 1.00 2.02 2,790 0.90 1.97
1993.................. 1.00 0.02 (0.02) 1.00 1.74 3,866 0.90 1.72
1992(2)............... 1.00 0.02 (0.02) 1.00 2.17* 2,273 0.90 2.07
<CAPTION>
RATIO OF RATIO OF NET
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET
ASSETS ASSETS
(EXCLUDING (EXCLUDING
WAIVERS) WAIVERS)
------------- -------------
- -------------------------
U.S. TREASURY SECURITIES
- ------------------------
CLASS B
1995.................. 0.90% 4.66%
1994.................. 0.87 3.07
1993.................. 0.89 2.17
1992(1)............... 0.95 2.22
- ------------------
PRIME OBLIGATION
- ------------------
CLASS B
1995.................. 0.91% 5.00%
1994.................. 0.87 3.89
1993.................. 0.89 2.38
1992(1)............... 1.01 2.31
- ------------
TAX-EXEMPT
- ------------
CLASS B
1995.................. 0.96% 3.08%
1994.................. 0.92 1.95
1993.................. 0.94 1.68
1992(2)............... 1.04 1.93
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
(1) The U.S. Treasury Securities Money Market and the Prime Obligations Money Market Funds commenced operations on
April 1, 1992. Ratios for this period have been annualized.
(2) The Tax-Exempt Money Market Fund commenced operations on April 6, 1992. Ratios for this period have been
annualized.
</TABLE>
<PAGE>
5
THE TRUST
THE PILLAR FUNDS (the 'Trust') consist of open-end management investment
companies that have diversified and non-diversified portfolios. The Trust offers
units of beneficial interest ('shares') in fifteen separate investment
portfolios. Shareholders may purchase shares in each portfolio (except for the
U.S. Treasury Securities Plus Money Market Fund) through two separate classes
(Class A and Class B) which provide for variations in distribution costs, voting
rights, sales load, minimum investment, redemption fees, transfer agency fees
and dividends. Except for these differences between classes, each share of each
portfolio represents an undivided, proportionate interest in that portfolio.
This Prospectus relates to the Class B shares of the Trust's U.S. Treasury
Securities Money Market, Prime Obligation Money Market and Tax-Exempt Money
Market Funds (each of these, a 'Fund'). Each Fund is a diversified mutual fund.
Information regarding the Trust's other portfolios and the Class A shares of the
Funds is contained in separate prospectuses that may be obtained by writing the
Trust's Distributor, SEI Financial Services Company, 680 East Swedesford Road,
Wayne, Pennsylvania 19087 or by calling 1-800-932-7782.
SHARES OF THE TRUST ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR INSURED, GUARANTEED, SPONSORED OR ENDORSED BY, ANY BANK
(INCLUDING UNITED JERSEY BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE OR
STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE U.S.
GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
SHARES OF THE TRUST ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is to preserve principal value and
maintain a high degree of liquidity while providing current income. In addition,
the Tax-Exempt Money Market Fund seeks to provide current income that is exempt
from federal income tax. There is no assurance that the investment objective of
any Fund will be met.
Each Fund intends to comply with regulations of the Securities and Exchange
Commission ('SEC') applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on investments by a Fund. Under
these regulations, each Fund will invest only in U.S. dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only 'eligible securities' that present minimal
credit risks and have a maturity of 397 days or less. For a further discussion
of these rules, see 'Description of Permitted Investments' in this Prospectus.
THE U.S. TREASURY SECURITIES MONEY MARKET
FUND
The U.S. Treasury Securities Money Market Fund (the 'Treasury Fund') will invest
exclusively in bills, notes and bonds issued by the U.S. Treasury and separately
traded interest and principal component parts of such obligations that are
transferable through the Federal Book Entry System ('U.S. Treasury
Obligations'). The Fund may also engage in securities lending. For a description
of U.S. Treasury Obligations, see 'Description of Permitted Investments.'
THE PRIME OBLIGATION FUND
The Prime Obligation Money Market Fund (the 'Prime Fund') will invest in
eligible securities consisting of: (i) commercial paper and short-term corporate
obligations of U.S. issuers that satisfy the Fund's quality criteria; (ii)
obligations (certificates of deposit, time deposits and bankers' acceptances) of
U.S. commercial banks, U.S. savings and loan institutions and U.S. and London
branches of foreign banks, provided such institutions have total assets of $500
million or more as shown on their last published financial statements at the
time of investment and are insured by the FDIC or the Federal Savings and Loan
Insurance Corporation (the Fund may not invest more than 25% of its total assets
in obligations issued by foreign branches of U.S. banks and London branches of
foreign banks); (iii) U.S. Treasury obligations; (iv) obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the U.S.
<PAGE>
6
Government; and (v) repurchase agreements involving any of such obligations. In
addition, the Fund may also engage in securities lending. For a further
description of the Fund's permitted investments and the above ratings, see
'Description of Permitted Investments' in this Prospectus and 'Description of
Ratings' in the Statement of Additional Information.
THE TAX-EXEMPT MONEY MARKET FUND
The Tax-Exempt Money Market Fund (the 'Tax-Exempt Fund') will invest at least
80% of its total assets in eligible securities issued by or on behalf of the
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest of which, in the opinion of bond counsel for the issuer, is exempt from
federal income tax (collectively, 'Municipal Securities'). The Tax-Exempt Fund
will primarily purchase municipal bonds, notes and tax-exempt commercial paper
rated in one of the two highest short-term rating categories by a nationally
recognized statistical rating organization ('NRSRO') in accordance with SEC
regulations at the time of investment or, if not rated, as determined by the
Advisor to be of comparable quality.
The Tax-Exempt Fund may purchase municipal obligations with demand features,
including floating or variable rate obligations. In addition, the Fund may
invest in commitments to purchase securities on a 'when-issued' basis, and
reserves the right to purchase securities subject to a standby commitment. The
Advisor has discretion to invest up to a total of 20% of the Fund's assets in
taxable money market instruments (including repurchase agreements) and
securities subject to the federal alternative minimum tax. However, the Fund
generally intends to be fully invested in securities exempt from federal income
tax. The Fund may also engage in securities lending.
For additional information regarding risks and permitted investments, see
'Description of Permitted Investments' in this Prospectus and 'Description of
Permitted Investments' and 'Description of Ratings' in the Statement of
Additional Information.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. In addition, it is a fundamental policy of
each Fund to use its best efforts to maintain a constant net asset value of
$1.00 per share although there can be no assurance any Fund will be able to do
so. It is also a fundamental policy of the Tax-Exempt Fund to invest at least
80% of its assets in Municipal Securities. Fundamental policies cannot be
changed with respect to a Fund without the consent of the holders of a majority
of that Fund's outstanding shares.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of each Fund's total assets. See 'Description of
Permitted Investments--Restraints on Investments by Money Market Funds.'
2. Purchase any securities which would cause more than 25% of the total assets
of any Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, repurchase agreements
involving such securities and obligations issued by domestic branches of U.S.
banks or U.S. branches of foreign banks subject to the same regulations as U.S.
banks or to investments in tax exempt securities issued by governments or
political subdivisions of governments.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as described in this Prospectus
and in the Statement of Additional Information.
It is a non-fundamental policy of each Fund to invest no more than 10% of its
total assets in illiquid
<PAGE>
7
securities (as defined under 'Description of Permitted Investments').
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
THE ADVISOR
United Jersey Bank Investment Management Division, a division of United Jersey
Bank (the 'Advisor') serves as the Advisor of the Trust. The Advisor makes the
investment decisions for the assets of each Fund and continuously reviews,
supervises and administers each Fund's investment program subject to the
supervision of, and policies established by, the Trustees of the Trust.
United Jersey Bank, 210 Main Street, Hackensack, NJ 07601, was chartered in 1899
and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment experts have, on average, over 20 years of
experience in investment management. As of December 31, 1995, total assets under
management were approximately $4 billion.
United Jersey Bank is a wholly-owned subsidiary of Summit Bancorp, an interstate
bank holding company with $22 billion in assets and over 325 banking offices in
New Jersey and Eastern Pennsylvania as of December 31, 1995.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .35% of the average daily net assets of each Fund. The Advisor
has voluntarily agreed to waive all or a portion of its fees in order to limit
the operating expenses of Class B shares of each Fund to .90%. The Advisor
reserves the right to terminate its fee waiver at any time in its sole
discretion. For the fiscal year ended December 31, 1995, each Fund paid the
Advisor the following advisory fee (shown as a percentage of its average daily
net assets): Treasury Fund, .35%; Prime Fund, .34%; and Tax-Exempt Fund, .28%.
United Jersey Bank has also entered into a Custodian Agreement with the Trust
under which it provides all securities safekeeping services as required by the
Funds and the Investment Company Act of 1940, as amended (the '1940 Act'). The
Trust pays United Jersey Bank (referred to herein in its custodial capacity as
the 'Custodian') a custodian fee, which is calculated daily and paid monthly, at
an annual rate of .025% of the average daily net assets of each Fund.
The Glass-Steagall Act restricts the securities activities of banks such as
United Jersey Bank, but federal regulatory authorities permit such banks to
provide investment advisory and other services to mutual funds. Should this
position be challenged successfully in court or reversed by legislation, the
Trust might have to make other investment advisory arrangements.
THE ADMINISTRATOR
SEI Financial Management Corporation (the 'Administrator'), a wholly-owned
subsidiary of SEI Corporation ('SEI'), serves as the Administrator of the Trust.
The Administrator provides the Trust with administrative services, other than
investment advisory services, including regulatory reporting and all necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of each Fund.
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the dividend disbursing agent and
shareholder servicing agent for the Trust. SEI Financial Management Corporation
also acts as the transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the'Distributor'), a wholly-owned subsidiary of
SEI, acts as the Distributor of the Trust.
The Class B shares of each Fund are subject to a distribution plan dated
February 28, 1992 ('Class B Plan'). As provided in the Distribution Agreement
and the Class B Plan, the Trust will pay the Distributor a fee of .25% of the
average daily net
<PAGE>
8
assets of each Fund's Class B shares. The Distributor may apply this fee toward:
a) compensation for its services in connection with distribution assistance or
provision of shareholder services; or b) payments to financial institutions and
intermediaries such as banks (including United Jersey Bank), savings and loan
associations, insurance companies, and investment counselors, broker-dealers,
and the Distributor's affiliates and subsidiaries as compensation for services
or reimbursement of expenses incurred in connection with distribution assistance
or provision of shareholder services. The Class B Plan is characterized as a
compensation plan since the distribution fee will be paid to the Distributor
without regard to the distribution or shareholder service expenses incurred by
the Distributor or the amount of payments made to financial institutions and
intermediaries. The Funds may also execute brokerage or other agency
transactions through an affiliate of the Advisor or through the Distributor for
which such affiliate or the Distributor receives compensation.
Class A shares of each Fund are offered without distribution fees or sales loads
(i) to institutional investors (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of their own funds, (ii) to
individuals and institutions (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of funds held by such individuals or
institutions in a fiduciary, agency, custodian or other representative capacity,
if such individuals or institutions are able to provide complete shareholder
recordkeeping services with respect to shares purchased and held in such
capacity, and (iii) any individual who has entered into an Investment Strategy
Account Agreement with United Jersey Bank, its affiliates or correspondent banks
("ISA Customers").
Class B shares of each Fund are offered to all persons. Consequently, it is
possible that individuals and institutions may offer different classes of shares
of the Funds to their customers and thus receive different compensation with
respect to different classes of shares. In addition, individuals and
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers.
PURCHASE OF SHARES
Shares of the Funds may be purchased through a financial institution, such as
United Jersey Bank, or a broker-dealer that has entered into a dealer agreement
with SEI Financial Services Company. Shares may also be purchased directly
through the Distributor by mail, by telephone, or by wire.
Shares of each Fund are sold on a continuous basis and may be purchased on any
Business Day. The minimum initial investment in the Trust is $1,000; however,
the minimum investment may be waived at the Distributor's discretion. All
subsequent purchases must be at least $50.
Generally a purchase order will be effective as of the Business Day received by
the Distributor if the Distributor receives the order, and the Custodian
receives federal funds, before 12:00 noon, Eastern time, on such Business Day.
Otherwise, the purchase order will be effective the next Business Day.
With respect to ISA Customers, purchase orders will be effective as of the
Business Day received by the Distributor if the Distributor receives order and
payment prior to 4:00 p.m., Eastern time, on such Business Day.
PURCHASES THROUGH INTERMEDIARIES
Customers should contact their Intermediary for information about the
institution's procedures for purchasing shares of the Funds and any charges for
services provided by the institution. Intermediaries may impose an earlier
cut-off time for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor for effectiveness
the same day. In addition, state securities laws may required banks and
financial institutions purchasing shares for their customers to register as
dealers pursuant to state laws.
DIRECT PURCHASES
By Mail
Investors may purchase shares of any Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to 'The Pillar Funds (Fund Name),' P.O. Box
8523, Boston, MA 02266-8523. Third party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check,
redemptions will not be allowed until the investment being redeemed has been
in the account for 10 Business Days. Orders by mail are considered received
after payment by check is converted by the Fund into Federal funds. Subsequent
purchases of shares may be made at
<PAGE>
9
any time by mailing a check (or other negotiable bank draft or money order) to
the Distributor.
Account Application forms can be obtained by
calling SEI Financial Services Company at
1-800-932-7782.
By Telephone or by Wire
If your Account Application has been previously received, you may also purchase
shares by telephone or by wire. To buy shares by telephone or by wire, call SEI
Financial Services Company toll-free at 1-800-932-7782. Shares cannot be
purchased by Federal Reserve wire on days on which the New York Stock Exchange
is closed and on federal holidays upon which wire transfers are restricted.
Automatic Investment Plan (AIP)
A Shareholder may also arrange for periodic additional investments in the Funds
through automatic deductions by Automated Clearing House ('ACH') wire transfer
from a checking account by completing an Optional Services Form. The minimum
pre-authorized investment amount is $50 per month. An Optional Services Form may
be obtained by contacting the Distributor at 1-800-932-7782.
OTHER INFORMATION REGARDING PURCHASES
The purchase price is the net asset value per share next computed after the
order is effective. The net asset value per Class B share of each Fund is
determined by dividing the total value of its investments and other assets that
are allocated to Class B shares, less any liabilities that are allocated to
Class B shares, by its total outstanding Class B shares. The net asset value per
share is calculated as of 12:00 noon, Eastern time, each Business Day based on
the amortized cost method as described in the Statement of Additional
Information. Purchased shares are first entitled to dividends the day the
purchase order is effective. No certificates representing shares will be issued.
Although the methodology and procedures are identical, the net asset value per
share of classes within a Fund may differ because of the distribution expenses
charged to Class B shares.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
EXCHANGES
Some or all of the shares of the Funds for which payment has been received
(i.e., an established account) may be exchanged, at their net asset value plus
any applicable sales charge, for shares of other Funds within the Trust with
sales loads, or at their net asset value for shares of other Funds within the
Trust which do not have sales loads. Exchanges will be made only after
instructions in writing or by telephone (an 'Exchange Request') are received for
an established account by the Distributor.
Shareholders may effect exchanges of shares directly through the Distributor.
Additionally, Intermediaries, through which Shareholders may purchase shares,
generally stand ready to assist Shareholders in effecting through the
Distributor exchanges of shares held in Fund accounts. Shareholders wishing to
effect an exchange with the assistance of an Intermediary should contact that
Intermediary for information about exchange procedures and cut-off times.
If an Exchange Request in good order is received by the Distributor by 12:00
noon, Eastern time, on any Business Day, the exchange usually will occur on that
day. Any Shareholder or customer who wishes to make an exchange must have
received a current prospectus of the Fund in which he or she wishes to invest
before the exchange will be effected.
See the 'Shareholder Services' section of the Statement of Additional
Information for more information.
REDEMPTION OF SHARES
Shares may be redeemed without charge on any Business Day at their net asset
value. Redemption requests received in good order by 12:00 noon, Eastern time,
will be effective on the Business Day received. Requests received after 12:00
noon will be effective on the next Business Day.
<PAGE>
10
REDEMPTIONS THROUGH INTERMEDIARIES
Intermediaries, through which Shareholders may purchase shares, generally stand
ready to assist Shareholders in effecting through the Distributor redemptions of
shares held in Fund accounts. Shareholders wishing to effect a redemption with
the assistance of an Intermediary should contact that Intermediary for
information about redemption procedures and cut-off times.
DIRECT REDEMPTIONS
Shares may be redeemed directly through the Distributor by mail, by telephone or
by wire.
By Mail
A written request for redemption must be received by the Distributor in order to
constitute a valid request for redemption. The Distributor may require that the
signature on the written request be guaranteed by a commercial bank or by a
member firm of a domestic stock exchange. The signature guarantee requirement
will be waived if all of the following conditions apply: (1) the redemption is
for $5,000 worth of shares or less, (2) the redemption check is payable to the
shareholder(s) of record, and (3) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application or by written instruction to SEI Financial Services Company.
There is no charge for having redemption requests mailed to a designated bank
account.
By Telephone
Shares may be redeemed by telephone if the Shareholder elects that option on the
Account Application. The Shareholder may have the proceeds mailed to his or her
address or mailed or wired to a commercial bank account previously designated on
the Account Application. For redemption orders received before 12:00 noon,
Eastern time, payment will normally be made on the next Business Day and, in
any event, within seven Business Days after the redemption order is effective.
Wire redemption requests may be made by the Shareholder by calling SEI Financial
Services Company at 1-800-932-7782. A $10.00 wire redemption charge will be
added to the amount of the redemption. Shareholders may not close their accounts
by telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, Shareholders
who experience difficulties placing redemption orders by telephone may wish to
consider placing the redemption order by other means.
Systematic Withdrawal Plan (SWP)
The Funds offer a SWP which may be utilized by Shareholders who wish to receive
regular distributions from their account. Upon commencement of the SWP, the
account must have a current value of $1,000. Shareholders may elect to receive
automatic payments by check or ACH wire transfer of $50 or more on a monthly or
quarterly basis. An Optional Services Form may be obtained by contacting the
Distributor at 1-800-932-7782.
OTHER INFORMATION REGARDING REDEMPTIONS
All redemption orders are effected at the net asset value per share next
determined after receipt of a valid request for redemption, as described above.
Payment to Shareholders for shares redeemed will be made within seven days after
receipt by the Distributor of the request for redemption. Redeemed shares are
not entitled to dividends declared the day the redemption order is effective.
At various times, any Fund may be requested to redeem shares for which it has
not yet received good payment in connection with their purchase. In such
circumstances, the forwarding of redemption proceeds may be delayed until such
payment has been collected. The Funds intend to pay cash for all
<PAGE>
11
shares redeemed, but under abnormal conditions which make payment in cash
unwise, payment may be made wholly or partly in portfolio securities with a
market value equal to the redemption price. In such cases, an investor may incur
brokerage costs in converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder, the
account of such shareholder in any Fund has a value of less than $1,000, the
minimum initial purchase amount. Accordingly, an investor purchasing shares of
any Fund in only the minimum investment amount may be subject to such
involuntary redemption if he or she thereafter redeems any of these shares.
Before any Fund exercises its right to redeem such shares and to send the
proceeds to the Shareholder, the Shareholder will be given notice that the value
of the shares in his or her account is less than the minimum amount and will be
allowed 60 days to make an additional investment in such Fund in an amount which
will increase the value of the account to at least $1,000.
See 'Purchase and Redemption of Shares' in the Statement of Additional
Information for examples of when the right of redemption may be suspended. The
purchase price and the redemption price is expected to remain constant at $1.00
per share.
CHECKWRITING
CHECKWRITING SERVICE
A Shareholder in any of the Funds may redeem shares by writing checks on his or
her account for $500 or more. Once a Shareholder has signed and returned a
signature card, he or she will receive a supply of checks. The check may be made
payable to any person, and the Shareholder's account will continue to earn
dividends until the check clears.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. Checks
are free, but if payment on a check is stopped upon the shareholder's request or
if the check cannot be honored because of insufficient funds or other valid
reasons, the Shareholder's account will be charged a fee.
COMPUTATION OF YIELD
From time to time the Funds may advertise 'current yield' and 'effective
compound yield.' Both yield figures are based on historical earnings and are not
intended to indicate future performance. The 'current yield' of a Fund refers to
the income generated by an investment in a Fund over a seven-day period (which
period will be stated in the advertisement). This income is then 'annualized.'
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The 'effective yield' is calculated similarly but,
when annualized, the income earned by an investment in a Fund is assumed to be
reinvested. The 'effective yield' will be slightly higher than the 'current
yield' because of the compounding effect of this assumed reinvestment. In
addition, the advertised performance on Class A shares will normally be higher
than for Class B shares because Class A shares are not subject to the
distribution expenses and sales loads charged to Class B shares. The actual
return to a Shareholder on Class A shares may be reduced by any administrative
or management charges that may be imposed by individuals or institutions on
their customers for account services. The actual return to Shareholders on Class
B shares will be reduced by the amount of any sales load and distribution
expenses paid on Class B shares.
The Tax-Exempt Fund may also advertise a 'tax-equivalent yield,' which is
calculated by determining the rate of return that would have been achieved on a
fully taxable investment to produce the after tax equivalent of the Fund's
yield, assuming certain tax brackets for the Shareholder.
The Fund may periodically compare its performance to that of: (i) other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii) broad groups of
comparable mutual funds; (iii) unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or (iv)
<PAGE>
12
other investment alternatives. The Fund may use long-term performance of the
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under Subchapter M
of the Internal Revenue Code of 1986, as amended (the 'Code'), so as to be
relieved of federal income tax on that part of its net investment income which
is distributed to Shareholders. Each Fund also intends to make sufficient
distributions each calendar year to avoid liability for federal excise tax.
TAX STATUS OF DISTRIBUTIONS
Dividends declared by a Fund in December of any year and payable to Shareholders
of record on a date in that month will be deemed to have been paid by the Fund
and received by the Shareholders on the last day of that month if paid by the
Fund during the following January.
THE TREASURY AND PRIME FUNDS will distribute all of their net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares and will not qualify for
the dividends-received deduction otherwise available to corporate shareholders.
Dividends from net capital gain (the excess of net long-term capital gain over
net short-term capital loss) also will not qualify for the dividends-received
deduction and will be treated as long-term capital gains, regardless of how long
the Shareholder has held shares. Each Fund will make annual reports to
Shareholders of the federal income tax status of all distributions.
Interest received on direct U.S. obligations that is exempt from tax at the
state level when received directly may be exempt, depending on the state, when
received by a Shareholder from a Fund, provided certain conditions are
satisfied. Interest received on repurchase agreements normally is not exempt
from state taxation. Each Fund will inform Shareholders annually of the
percentage of income and distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from a Fund is considered tax-exempt in their
particular states.
With respect to investments in STRIPS (as defined under 'Description of
Permitted Investments'), which are sold at original issue discount and thus do
not make periodic cash interest payments, a Fund will be required to include as
part of its current income the accreted interest on such obligations even though
the Fund has not received any interest payments on such obligations during that
period. Because each Fund distributes all of its net investment income to its
Shareholders, a Fund may have to sell portfolio securities to distribute such
imputed income which may occur at a time when the Advisor would not have chosen
to sell such securities and which may result in a taxable gain or loss.
The sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for
<PAGE>
13
six months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
THE TAX-EXEMPT FUND will distribute all of its net investment income (including
net short-term capital gain) to Shareholders. If, at the close of each quarter
of its taxable year, at least 50% of the value of the Fund's total assets
consists of obligations the interest on which is excludable from gross income,
the Fund may pay 'exempt-interest dividends' to its Shareholders. Those
dividends constitute the portion of the aggregate dividends as designated by the
Fund, equal to the excess of the excludable interest over certain amounts
disallowed as deductions. Exempt-interest dividends are excludable from a
Shareholder's gross income for regular federal income tax purposes, but may have
collateral consequences. See the Statement of Additional Information.
The Tax-Exempt Fund may not be an appropriate investment for persons who are
'substantial users' of facilities financed by industrial development or private
activity bonds. See the Statement of Additional Information.
Current federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities to
satisfy the Code's requirements for the payment of 'exempt-interest dividends.'
Any dividends attributable to the Fund's taxable income will be taxable to
Shareholders as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits and will not qualify
for the corporate dividends-received deduction. The Fund will make annual
reports to Shareholders of the federal income tax status of distributions.
The Fund does not expect to realize any net capital gains (the excess of net
long-term capital gains over net short-term capital losses). To the extent that
it does, however, it intends to distribute such gains to Shareholders.
Distributions of net capital gains will not qualify for the dividends-received
deduction for corporate shareholders and will be treated as long-term capital
gains regardless of how long a shareholder has held shares.
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase shares is not deductible. Furthermore, entities or persons who are
'substantial users' (or persons related to 'substantial users') of facilities
financed by 'private activity bonds' or certain industrial development bonds
should consult their tax advisers before purchasing shares. For these purposes,
the term 'substantial user' is defined generally to include a 'non-exempt
person' who regularly uses in trade or business a part of a facility financed
from the proceeds of such bonds. See the Statement of Additional Information.
The sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term
<PAGE>
14
capital loss to the extent of the amount of the prior capital gains distribution
(or any undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. In
addition to the Funds, the Trust consists of the following portfolios:
U.S. Treasury Securities Plus Money Market Fund, Short-Term Investment Fund,
Fixed Income Fund, New Jersey Municipal Securities Fund, Pennsylvania Municipal
Securities Fund, Intermediate-Term Government Securities Fund, GNMA Fund, Equity
Value Fund, Equity Income Fund, Mid Cap Value Fund, Balanced Growth Fund and
International Growth Fund. All consideration received by the Trust for shares of
any Fund and all assets of such Fund belong to that Fund and would be subject to
liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by a board of trustees
(the 'Trustees') under the laws governing business trusts in the Commonwealth of
Massachusetts. The Trustees have approved contracts under which, as described
above, certain companies provide essential management services to the Trust.
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
DIVIDENDS
The net investment income (exclusive of capital gains) of each Fund is
determined and declared on each Business Day as a dividend to Shareholders of
record as of the close of business on that day. Dividends are paid by the Funds
in additional Class B shares on or about the first business day of the following
month, unless the Shareholder has elected
<PAGE>
15
to take such payment in cash. Shareholders may change their election by
providing written notice to the Administrator at least 15 days prior to the
distribution. Currently, capital gains of a Fund, if any, are distributed at
least annually.
The amount of dividends payable on Class B shares will be less than the
dividends payable on the Class A shares because of the distribution expenses
charged to Class B shares.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments for each Fund:
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few to 270 days.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, options (e.g., puts and calls), swap agreements, mortgage-backed
securities (CMOs, REMICs, IOs and POs), when-issued securities and forward
commitments, floating and variable rate securities, convertible securities,
'stripped' U.S. Treasury securities (e.g., Receipts and STRIPs), and privately
issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere in this
'Description of Permitted Investments' for discussions of these various
instruments, and see 'Investment Objectives and Policies' for more information
about any investment policies and limitations applicable to their use.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. Not more than 10% of the total assets of a Fund will
be invested in such instruments. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, if there is no
secondary market for such security. Restricted securities, including Rule 144A
securities, that meet the criteria established by the Trustees of the Trust will
be considered liquid.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
constructions, equipment, repair or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing agreement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes,
<PAGE>
16
certificates of indebtedness, demand notes and construction loan notes.
Municipal bonds include general obligation bonds, revenue or special obligation
bonds, private activity and industrial development bonds.
REPURCHASE AGREEMENTS--Repurchase Agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have actual or constructive possession
of the security as collateral for the repurchase agreement. A Fund bears a risk
of loss in the event the other party defaults on its obligations and the Fund is
delayed or prevented from its right to dispose of the collateral securities or
if the Fund realizes a loss on the sale of the collateral securities. A Fund
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS--Investments by a money market
fund are subject to limitations imposed under regulations adopted by the SEC.
Under these regulations, money market funds may only acquire obligations that
present minimal credit risks and that are 'eligible securities,' which means
they are (i) rated, at the time of investment, by at least two nationally
recognized security rating organizations (one if it is the only organization
rating such obligation) in the highest short-term rating category or, if
unrated, determined to be of comparable quality (a 'first tier security'), or
(ii) rated according to the foregoing criteria in the second highest short-term
rating category or, if unrated, determined to be of comparable quality ('second
tier security'). A security is not considered to be unrated if its issuer has
outstanding obligations of comparable priority and security that have a
short-term rating. In the case of taxable money market funds, investments in
second tier securities are subject to the further constraint that (i) no more
than 5% of a Fund's assets may be invested in such securities in the aggregate,
and (ii) any investments in such securities of one issuer is limited to the
greater of 1% of a Fund's total assets or $1 million. A taxable money market
fund may also hold more than 5% of its assets in the first tier securities of a
single issuer for three business days.
SECURITIES OF FOREIGN ISSUERS--There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments, the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities. Also it may be more difficult to
obtain a judgment in a court outside the United States.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent. A Fund pays lending and
other fees in connection with securities loans.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund
<PAGE>
17
owning the security to which it relates. In certain cases, a premium may be paid
for a standby commitment or put, which premium will have the effect of reducing
the yield otherwise payable on the underlying security. A Fund will limit
standby commitment or put transactions to institutions believed to present
minimal credit risk.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits maturing in more than seven days
are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ('STRIPS').
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Fund will maintain with the Custodian a separate account with liquid high
grade debt securities or cash in an amount at least equal to these commitments.
The interest rate realized on these securities is fixed as of the purchase date
and no interest accrues to a Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and it is
possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. Although a Fund generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities, a
Fund may dispose of a when-issued security or forward commitment prior to
settlement if its deems appropriate.
<PAGE>
18
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Summary............................................. 2 The Distributor..................................... 7
Expense Summary..................................... 3 Purchase of Shares.................................. 8
Financial Highlights................................ 4 Redemption of Shares................................ 9
The Trust........................................... 5 Checkwriting........................................ 11
Investment Objectives and Policies.................. 5 Computation of Yield................................ 11
Investment Limitations.............................. 6 Taxes............................................... 12
The Advisor......................................... 7 General Information................................. 14
The Administrator................................... 7 Description of Permitted Investments................ 15
The Shareholder Servicing Agent..................... 7
</TABLE>
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
THE PILLAR FUNDS (the 'Trust') consist of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
following fixed income funds (collectively, the 'Funds'; individually, a
'Fund'):
O SHORT-TERM INVESTMENT FUND
O FIXED INCOME FUND
O NEW JERSEY MUNICIPAL SECURITIES FUND
O PENNSYLVANIA MUNICIPAL SECURITIES FUND
O INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
O GNMA FUND
CLASS A
The Trust's Class A Shares are offered without distribution fees (i) to
institutional investors (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of their own funds, (ii) to any
individual or institution (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of funds held by such individual or
institution in a fiduciary, agency, custodial or other representative capacity,
if such individual or institution is able to provide complete shareholder
recordkeeping services with respect to shares purchased and held in such
capacity, and (iii) any qualified customer who has entered into an agreement
with United Jersey Bank, its affiliates or correspondent banks ("Qualified
Customers") (persons who own Class A Shares of a Fund are referred to herein as
'Shareholders').
CLASS A SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING UNITED JERSEY BANK OR ITS
AFFILIATES OR CORRESPONDENTS), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT
AGENCY.
AMOUNTS INVESTED IN THE FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated April 30, 1996, has been filed with the Securities and
Exchange Commission and is available without charge through the Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
APRIL 30, 1996
CLASS A
<PAGE>
2
SUMMARY
THE PILLAR FUNDS (THE 'TRUST') CONSIST OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES WHICH PROVIDE A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE
CLASS A SHARES OF THE TRUST'S SHORT-TERM INVESTMENT, FIXED INCOME, NEW JERSEY
MUNICIPAL SECURITIES, PENNSYLVANIA MUNICIPAL SECURITIES, INTERMEDIATE-TERM
GOVERNMENT SECURITIES AND GNMA FUNDS (COLLECTIVELY, THE 'FUNDS'; INDIVIDUALLY, A
'FUND').
What are the Investment Objectives? The investment objectives of the
respective Funds are as follows: The Short-Term Investment Fund--a high level of
total return, primarily through current income, consistent with preservation of
capital; the Fixed Income Fund--a high level of total return, primarily through
current income and capital appreciation, consistent with preservation of
capital; the New Jersey Municipal Securities Fund--current income exempt from
both federal and New Jersey income taxes, consistent with preservation of
capital; the Pennsylvania Municipal Securities Fund--current income exempt from
both federal and Pennsylvania income taxes consistent with preservation of
capital; the Intermediate-Term Government Securities Fund--preservation of
principal value and a high degree of liquidity while providing current income;
and the GNMA Fund--the highest level of current income consistent with
preservation of principal and a high degree of liquidity. There is no assurance
that a Fund will meet its investment objective. See 'Investment Objectives and
Policies.'
What are the Permitted Investments? The Short-Term Investment and Fixed
Income Funds invest at least 65% of their assets in (i) U.S. Treasury
obligations; (ii) obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities; (iii) corporate bonds
and debentures; (iv) short-term commercial paper; (v) short-term bank
obligations; (vi) securities of the government of Canada and its provincial and
local governments; (vii) custodial receipts; and (viii) repurchase agreements
involving such securities. These securities may include securities issued by
foreign issuers which may subject the Funds to risks associated with foreign
investments. The remaining 35% of their assets may be invested in
mortgage-backed securities and asset-backed securities.
The New Jersey and Pennsylvania Municipal Securities Funds invest at least
80% of their assets in municipal obligations which produce interest that, in the
opinion of bond counsel for the issuer, is exempt from federal income tax, and
at least 65% of their assets in obligations which produce interest that is
exempt from applicable state income taxes.
The Intermediate-Term Government Securities Fund invests in obligations
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities.
The GNMA Fund invests primarily in mortgage pass-through securities, with at
least 65% of its total assets generally being invested in instruments issued by
the Government National Mortgage Association ('GNMA').
The investments of the Funds are subject to market and interest rate
fluctuations which may affect the value of a Fund's shares. These fluctuations
may be greater for the Fixed Income and New Jersey and Pennsylvania Municipal
Securities Funds which expect to maintain dollar-weighted average maturities of
greater than five years than for the other Funds which expect to maintain
dollar-weighted average maturities of less than five years. In addition, certain
securities, such as mortgage-backed securities, are subject to the risk of
prepayment during periods of declining interest rates which may affect a Fund's
ability to lock-in longer term rates during such periods. See 'Investment
Objectives and Policies,' 'General Investment Policies,' 'Risk Factors' and
'Description of Permitted Investments.'
Are There Additional Risk Factors for the New Jersey and Pennsylvania
Municipal Securities Funds? The concentration of the New Jersey and
Pennsylvania Municipal Securities Funds in municipal securities issued
<PAGE>
3
primarily by or on behalf of the states of New Jersey and Pennsylvania,
respectively, subjects these Funds to special investment risks, such as the
possible adverse affects of changes in economic conditions and governmental
policies of the states or their underlying governmental units. These Funds will
be more susceptible to such factors than a fund which does not have as great a
concentration in municipal securities of a single state. See 'Additional Risk
Factors for New Jersey Municipal Securities' and 'Additional Risk Factors for
Pennsylvania Municipal Securities.'
Who is the Advisor? United Jersey Bank Investment Management Division, a
division of United Jersey Bank, serves as the Advisor of the Trust. See 'The
Advisor.'
Who is the Administrator? SEI Financial Management serves as the
Administrator of the Trust. See 'The Administrator.'
Who is the Shareholder Servicing Agent? SEI Financial Management
Corporation acts as dividend disbursing agent and shareholder servicing agent
for the Trust and as transfer agent for the Trust under a separate agreement.
See 'The Shareholder Servicing Agent.'
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. See 'The Distributor.'
How do I Purchase and Redeem Shares? Purchases and redemptions may be made
through the Distributor on a day on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ('Business Day'). A
purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives an order prior to 4:00 p.m., Eastern
time, provided the Custodian receives federal funds before 12:00 noon, Eastern
time, on the next Business Day. With respect to Qualified Customers, purchase
orders will be effective as of the Business Day received by the Distributor if
the Distributor receives the order and payment prior to 4:00 p.m., Eastern time,
on such Business Day. Redemption orders must be placed prior to 4:00 p.m.,
Eastern time, on any Business Day for the order to be effective that day. The
purchase and redemption price for shares is the net asset value per share
determined as of the end of the day the order is effective. See 'Purchase of
Shares' and 'Redemption of Shares.'
How are Dividends Paid? Each Fund declares dividends of substantially all
of its net investment income (exclusive of capital gains) daily and distributes
such dividends on or about the first Business Day of the following month. Shares
purchased normally begin earning dividends within two Business Days after an
order is effective. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See 'Dividends.'
<PAGE>
4
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES CLASS A
(As a percentage of average net assets)
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA INTERMEDIATE-TERM
SHORT-TERM FIXED MUNICIPAL MUNICIPAL GOVERNMENT
INVESTMENT INCOME SECURITIES SECURITIES SECURITIES
FUND FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after fee
waivers)(1).................. .43% .50% .42% .19% .35%
Other Expenses................. .37% .30% .38% .61% .45%
- -------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers)(2)(3)........... .80% .80% .80% .80% .80%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GNMA
FUND
- -------------------------------------------
Advisory Fees (after fee
waivers)(1).................. .27%
Other Expenses................. .53%
- -------------------------------
Total Operating Expenses (after
fee waivers)(2)(3)........... .80%
- -------------------------------------------
- -------------------------------------------
</TABLE>
(1) The Advisor and Administrator have agreed to voluntarily waive a portion of
their fees in an amount that operates to limit total operating expenses of
Class A shares of each Fund to not more than .80% of average daily net
assets. The Advisor and the Administrator each reserves the right to
terminate its fee waiver at any time in its sole discretion.
(2) Absent fee waivers, Advisory Fees for each Fund would be .60%,
Administration Fees for each Fund would be .20% and Total Operating Expenses
would be as follows: Short-Term Investment Fund .97%, Fixed Income Fund
.91%, New Jersey Municipal Securities Fund .93%, Pennsylvania Municipal
Securities Fund 1.27%, Intermediate-Term Government Securities Fund 1.05%
and GNMA Fund 1.13%. Additional Information may be found under 'The
Advisor,' 'The Administrator' and 'The Distributor.'
(3) Advisory fees and Other Expenses for the New Jersey Municipal Securities
Fund have been restated to reflect current expenses.
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
All Funds...................................................................... $8 $26 $44
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
10 YRS.
- --------------------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
All Funds...................................................................... $99
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. The information set forth in the foregoing
table and example relates only to Class A shares. The Trust also offers Class B
shares of each Fund which are subject to the same expenses except for a sales
load and certain distribution costs. Financial institutions may impose separate
fees for account services on their Qualified Customers and on customers for
which they are the record owner of shares for the account. Additional
information may be found under 'The Advisor,' 'The Administrator' and 'The
Distributor.'
<PAGE>
5
FINANCIAL HIGHLIGHTS THE PILLAR FUNDS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 22,
1996 on the Trust's financial statements as of December 31, 1995 included in the
Trust's Statement of Additional Information under 'Financial Information.'
Additional performance information is contained in the 1995 Annual Report to
Shareholders and is available upon request and without charge by calling
1-800-932-7782. This table should be read in conjunction with the Trust's
financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
REALIZED
AND NET
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSETS RATIO OF
VALUE NET GAINS OR FROM NET FROM NET ASSET END OF EXPENSES TO
BEGINNING INVESTMENT LOSSES ON INVESTMENT CAPITAL VALUE END TOTAL PERIOD AVERAGE NET
OF PERIOD INCOME SECURITIES INCOME GAINS OF PERIOD RETURN(+) (000) ASSETS
----------- ----------- ----------- ----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------
SHORT-TERM INVESTMENT
- ------------------------
CLASS A
1995.......... $ 9.97 $ 0.55 $ 0.05 $ (0.55) -- $ 10.02 6.19% $ 30,642 0.80%
1994.......... 10.01 0.35 (0.04) (0.35) -- 9.97 3.21 29,187 0.80
1993.......... 10.01 0.29 -- (0.29) -- 10.01 2.96 31,337 0.80
1992(1)....... 10.00 0.27 0.03 (0.27) $ (0.02) 10.01 3.47* 30,998 0.80
- --------------
FIXED INCOME
- --------------
CLASS A
1995.......... $ 9.44 $ 0.59 $ 1.05 $ (0.59) -- $ 10.49 17.76% $ 113,509 0.80%
1994.......... 10.68 0.59 (1.18) (0.59) $ (0.06) 9.44 (5.66) 96,558 0.80
1993.......... 10.38 0.61 0.52 (0.61) (0.22) 10.68 11.05 113,892 0.80
1992(1)....... 10.00 0.49 0.44 (0.49) (0.06) 10.38 11.60* 89,701 0.80
- -----------------------
NEW JERSEY MUNICIPAL
- -----------------------
CLASS A
1995.......... $ 9.93 $ 0.47 $ 0.86 $ (0.47) -- $ 10.79 13.57% $ 28,080 0.41%
1994.......... 10.85 0.48 (0.92) (0.48) -- 9.93 (4.12) 19,977 0.27
1993.......... 10.29 0.50 0.56 (0.50) -- 10.85 10.48 27,064 0.20
1992(2)....... 10.00 0.30 0.29 (0.30) -- 10.29 9.01* 9,395 0.46
- ------------------------------
INTERMEDIATE-TERM GOVERNMENT
- ------------------------------
CLASS A
1995.......... $ 9.51 $ 0.54 $ 0.86 $ (0.54) -- $ 10.37 15.00% $ 28,877 0.80%
1994.......... 10.53 0.51 (1.01) (0.51) $ (0.01) 9.51 (4.85) 26,277 0.80
1993.......... 10.23 0.52 0.32 (0.52) (0.02) 10.53 8.32 34,075 0.80
1992(1)....... 10.00 0.41 0.24 (0.41) (0.01) 10.23 7.95* 16,327 0.80
- -------------------------
PENNSYLVANIA MUNICIPAL
- -------------------------
CLASS A
1995.......... $ 9.55 $ 0.40 $ 0.68 $ (0.40) -- $ 10.23 11.53% $ 3,345 0.80%
1994.......... 10.17 0.36 (0.62) (0.36) -- 9.55 (2.58) 2,734 0.80
1993(3)....... 10.00 0.23 0.17 (0.23) -- 10.17 6.01 2,922 0.80
- ------
GNMA
- ------
CLASS A
1995.......... $ 8.85 $ 0.60 $ 1.09 $ (0.60) -- $ 9.94 19.52% $ 8,750 0.80%
1994.......... 9.85 0.54 (1.00) (0.53) $ (0.01) 8.85 (4.71) 6,983 0.80
1993(3)....... 10.00 0.34 (0.15) (0.34) -- 9.85 2.80* 10,900 0.80
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
RATIO OF AVERAGE NET TO AVERAGE
NET INCOME ASSETS NET ASSETS PORTFOLIO
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS WAIVERS) WAIVERS) RATE
----------- ------------- ----------- ---------
- ----------------------
SHORT-TERM INVESTMENT
- ----------------------
CLASS A
1995.......... 5.52% 0.97% 5.35% 64.85%
1994.......... 3.51 0.94 3.37 68.39
1993.......... 2.94 0.95 2.79 81.92
1992(1)....... 3.50 1.01 3.29 68.15
- --------------
FIXED INCOME
- --------------
CLASS A
1995.......... 5.83% 0.91% 5.72% 35.49%
1994.......... 5.91 0.90 5.81 15.24
1993.......... 5.59 0.91 5.48 49.49
1992(1)....... 6.24 0.94 6.10 23.86
- ---------------------
NEW JERSEY MUNICIPAL
- ---------------------
CLASS A
1995.......... 4.43% 0.93% 3.91% 2.83%
1994.......... 4.65 0.93 3.99 16.81
1993.......... 4.57 1.00 3.77 23.83
1992(2)....... 4.56 1.22 3.80 02.23
- -----------------------------
INTERMEDIATE-TERM GOVERNMENT
- -----------------------------
CLASS A
1995.......... 5.33% 1.05% 5.08% 68.29%
1994.......... 5.13 0.95 4.98 40.27
1993.......... 4.87 1.00 4.67 31.69
1992(1)....... 5.30 1.11 4.99 12.38
- ------------------------
PENNSYLVANIA MUNICIPAL
- ------------------------
CLASS A
1995.......... 4.05% 1.27% 3.58% 36.92%
1994.......... 3.67 1.61 2.86 38.20
1993(3)....... 3.35 1.48 2.67 16.51
- ------
GNMA
- ------
CLASS A
1995.......... 6.29% 1.13% 5.96% 9.69%
1994.......... 5.72 0.97 5.55 102.77
1993(3)....... 4.48 1.08 4.20 252.73
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
(+) Total Return does not reflect sales loads on Class B shares.
(1) The Short-Term Investment, Fixed Income, and Intermediate-Term Government Securities Fund's commenced operations on April
1, 1992. Ratios for this period have been annualized.
(2) The New Jersey Municipal Securities Fund commenced operations on May 4, 1992. Ratios for this period have been
annualized.
(3) The Pennsylvania Municipal Securities Fund--Class A and the GNMA Fund--Class A commenced operations on May 3, 1993.
Ratios for this period have been annualized.
</TABLE>
<PAGE>
6
THE TRUST
THE PILLAR FUNDS (the 'Trust') consist of open-end management investment
companies that have diversified and non-diversified portfolios. The Trust offers
units of beneficial interest ('shares') in one of fifteen separate investment
portfolios. Shareholders may purchase shares in each portfolio (except for the
U.S. Treasury Securities Plus Money Market Fund) through two separate classes
(Class A and Class B) which provide for variations in distribution costs, voting
rights, sales load, minimum investment, redemption fees, transfer agency fees
and dividends. Except for these differences between classes, each share of each
portfolio represents an undivided, proportionate interest in that portfolio.
This Prospectus relates to the Class A shares of the Trust's Short-Term
Investment, Fixed Income, New Jersey Municipal Securities, Pennsylvania
Municipal Securities, Intermediate-Term Government Securities and GNMA Funds
(each of these, a 'Fund'). Each of the Funds is a diversified mutual fund except
for the New Jersey and Pennsylvania Municipal Securities Funds, which are
non-diversified mutual funds. Information regarding the Trust's other portfolios
and the Class B shares of the Funds is contained in separate prospectuses that
may be obtained from the Trust's Distributor, SEI Financial Services Company,
680 East Swedesford Road, Wayne, Pennsylvania 19087 or by calling
1-800-932-7782.
SHARES OF THE TRUST ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR INSURED, GUARANTEED, SPONSORED OR ENDORSED BY, ANY BANK
(INCLUDING UNITED JERSEY BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE OR
STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE U.S.
GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
SHARES OF THE TRUST ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. SEE 'INVESTMENT OBJECTIVES AND POLICIES--RISK
FACTORS; ADDITIONAL RISK FACTORS FOR NEW JERSEY MUNICIPAL SECURITIES; ADDITIONAL
RISK FACTORS FOR PENNSYLVANIA MUNICIPAL SECURITIES.'
INVESTMENT OBJECTIVES AND POLICIES
THE SHORT-TERM INVESTMENT FUND
The investment objective of this Fund is to provide a high level of total
return, primarily through current income, consistent with preservation of
capital. There is no assurance that the investment objective will be met. The
Fund may not invest in certain securities that may earn a higher return but
which are more volatile and riskier than the Fund's permitted investments.
At least 65% of the Fund's assets will be invested in (i) bills, notes and bonds
issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book entry system ('U.S. Treasury obligations') (ii) obligations issued or
guaranteed as to principal and interest by agencies and instrumentalities of the
U.S. Government; (iii) corporate debt obligations rated in one of the three
highest rating categories by a nationally recognized statistical ratings
organization ('NRSRO') or determined by the Adviser to be of comparable quality
at the time of investment; (iv) commercial paper rated in the highest short-term
rating category by an NRSRO or determined by the Adviser to be of comparable
quality at the time of investment; (v) short-term bank obligations (certificates
of deposit, time deposits and bankers' acceptances) of U.S. commercial banks
with assets of at least $1 billion as of the end of their most recent fiscal
year; (vi) securities of the government of Canada and its provincial and local
governments; (vii) custodial receipts evidencing separately traded interest and
principal component parts of U.S. Treasury obligations; and (viii) repurchase
agreements involving such securities. Of this amount, the Fund may, for
temporary defensive purposes, invest up to 35% of its assets in commercial paper
rated in one of the two highest short-term rating categories or determined by
the Adviser to be of comparable quality at the time of investment. Securities
rated A are considered to be investment grade and of high credit quality. Issues
rated A could be more vulnerable to adverse developments than obligations with
higher ratings. In addition, the Fund may invest in corporate bonds and
debentures and commercial paper issued by foreign issuers.
The remaining 35% of the Fund's assets may be invested in (i) mortgage-backed
securities consisting of collateralized mortgage obligations ('CMOs') and real
estate mortgage investment conduits ('REMICs') that are rated in one of the top
two rating categories by an NRSRO and which are backed solely by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (ii) asset-backed securities
secured by company
<PAGE>
7
receivables, truck and auto loans, leases and credit card receivables rated in
one of the top two rating categories by an NRSRO.
The Fund will maintain a dollar-weighted average maturity of three years or
less.
THE FIXED INCOME FUND
The investment objective of this Fund is to provide a high level of total
return, primarily through current income and capital appreciation, consistent
with preservation of capital. There is no assurance that the investment
objective will be met. The Fund may not invest in certain securities that may
earn a higher return but which are more volatile and riskier than the Fund's
permitted investments.
The Fund will be invested in the same investments, and its assets subject to the
same restrictions, as the Short-Term Investment Fund, although the actual
composition of the two Funds will normally differ substantially due to maturity
considerations.
The Fund expects to maintain a dollar-weighted average maturity that will not
exceed fifteen years. The Advisor may vary this maturity substantially in
anticipation of a change in the interest rate environment.
THE NEW JERSEY MUNICIPAL SECURITIES FUND
The investment objective of this Fund is to provide current income exempt from
both federal and New Jersey income taxes, consistent with preservation of
capital. There is no assurance that the investment objective will be met.
The New Jersey Municipal Securities Fund will invest at least 80% of its net
assets in obligations issued by or on behalf of the states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest of which,
in the opinion of bond counsel for the issuer, is exempt from federal income tax
(collectively, 'Municipal Securities'). Under normal circumstances, except when
acceptable securities are unavailable as determined by the Advisor, at least 65%
of the Fund's assets will be invested in Municipal Securities, the interest of
which, in the opinion of bond counsel for the issuer, is exempt from the New
Jersey gross income tax ('New Jersey Municipal Securities'). The Fund will
primarily purchase (i) municipal bonds rated in one of the three highest rating
categories by an NRSRO; (ii) municipal notes rated in one of the two highest
rating categories by an NRSRO; (iii) commercial paper rated in one of the two
highest short-term rating categories by an NRSRO; (iv) any of the foregoing
determined by the Advisor to be of comparable quality at the time of investment;
or (v) securities of closed-end investment companies traded on a national
securities exchange. Securities rated A are considered to be investment grade
and of high credit quality. Issues rated A could be more vulnerable to adverse
developments than obligations with higher ratings.
The Fund expects to maintain a dollar-weighted average portfolio maturity of
less than fifteen years.
The New Jersey Municipal Securities Fund reserves the right to engage in 'put'
transactions although it has no present intention to do so. In addition, the
Advisor has discretion to invest up to a total of 20% of the Fund's assets in
taxable money market instruments (including repurchase agreements) and
securities subject to the federal alternative minimum tax. However, the Fund
generally intends to be fully invested in securities exempt from federal income
tax.
The New Jersey Municipal Securities Fund is a non-diversified investment company
which means that more than 5% of its assets may be invested in each of one or
more issuers. Since a relatively high percentage of assets of the Fund may be
invested in the obligations of a limited number of issuers, the value of shares
of the Fund may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment company would
be. The Fund
<PAGE>
8
intends to satisfy the diversification requirements necessary to qualify as a
regulated investment company ('RIC') under the Internal Revenue Code of 1986, as
amended (the 'Code').
THE PENNSYLVANIA MUNICIPAL SECURITIES FUND
The investment objective of this Fund is to provide current income exempt from
both federal and Pennsylvania income taxes, consistent with preservation of
capital. There is no assurance that this investment objective will be met.
At least 80% of the Fund's assets will be invested in Municipal Securities.
Under normal circumstances, except when acceptable securities are unavailable as
determined by the Advisor, at least 65% of the Fund's assets will be invested in
Municipal Securities, the interest of which, in the opinion of bond counsel for
the issuer, is exempt from Pennsylvania income tax ('Pennsylvania Municipal
Securities'). The Portfolio may invest up to 10% of its assets in securities the
income tax from which is subject to the federal alternative minimum tax.
Municipal Securities that the Fund may purchase include (i) municipal bonds
which are rated BBB or better by Standard & Poor's Ratings Group ('S&P') or Baa
or better by Moody's Investor Service, Inc. ('Moody's') at the time of
investment or, if not rated, determined by the Advisor to be of comparable
quality; (ii) municipal notes which are rated at least SP-1 by S&P or MIG-1 or
V-MIG-1 by Moody's at the time of investment or, if not rated, determined by the
Advisor to be of comparable quality; and (iii) tax-exempt commercial paper rated
at least A-1 by S&P or Prime-1 by Moody's at the time of investment or, if not
rated, determined by the Adviser to be of comparable quality. Bonds rated BBB by
S&P or Baa by Moody's have speculative characteristics. Municipal securities
owned by the Fund which are downgraded below the prescribed investment quality
shall be sold at a time when, in the judgment of the Adviser, the sale is in the
best interest of the Fund.
The Fund may invest in commitments to purchase such securities on a 'when
issued' basis, and reserves the right to engage in 'put' transactions. The Fund
may also purchase other types of tax-exempt instruments as long as they are of a
quality equivalent to the long-term bond or commercial paper ratings stated
above. Although permitted to do so, the Fund has no present intention to invest
in repurchase agreements or purchase securities subject to the federal
alternative minimum tax.
The Fund expects to maintain a dollar-weighted average portfolio maturity of
less than fifteen years.
The Pennsylvania Municipal Securities Fund is a non-diversified investment
company which means that more than 5% of its assets may be invested in each of
one or more issuers. Since a relatively high percentage of assets of the Fund
may be invested in the obligations of a limited number of issuers, the value of
shares of the Fund may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment company would
be. The Fund intends to satisfy the diversification requirements necessary to
qualify as a regulated investment company ('RIC') under the Internal Revenue
Code of 1986, as amended (the 'Code').
THE INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
The objective of this Fund is to preserve principal value and maintain a high
degree of liquidity while providing current income. There is no assurance that
the investment objective will be met.
The Fund will be fully invested in U.S. Treasury obligations and obligations
issued or guaranteed as to principal and interest by the agencies and
instrumentalities of the U.S. Government.
The Fund will maintain a dollar-weighted average maturity of three to ten years.
Under normal circumstances, the Advisor anticipates that the Fund's
dollar-weighted average maturity will be approximately five years; however, the
Advisor may vary this average maturity substantially in anticipation of a change
in the interest rate environment.
THE GNMA FUND
The investment objective of this Fund is to provide the highest level of current
income consistent with preservation of principal and a high degree of liquidity.
There is no assurance that the investment objective will be met.
The Fund invests primarily in mortgage pass-through securities with at least 65%
of its total assets generally being invested in instruments issued by GNMA. The
balance of the Fund's assets may consist of: (i) U.S. Treasury obligations;
(ii) obligations issued or guaranteed as to principal and interest by the
agencies or instrumentalities of the U.S. Government; (iii) repurchase
agreements involving any of such obligations; and (iv) shares of money market
investment companies investing exclusively in such obligations. The Fund
intends to maintain a reasonable cash position in money market instruments
which meet the foregoing criteria so as to provide a high degree of liquidity.
<PAGE>
9
GENERAL INVESTMENT POLICIES
For temporary defensive purposes when the Advisor determines that market
conditions warrant, each Fund (except the GNMA Fund) may invest up to 100% of
its assets in the money market instruments described as permissible investments
for the Short-Term Investment Fund and may hold a portion of its assets in cash.
For temporary defensive purposes when the Advisor determines that market
conditions warrant, the GNMA Fund may invest up to 100% of its assets in those
money market instruments which are among its permitted investments. To the
extent a Fund is engaged in temporary defensive investing, the Fund will not be
pursuing its investment objective.
Each of the Funds except the New Jersey and Pennsylvania Municipal Securities
Funds may purchase mortgage-backed securities issued or guaranteed as to payment
of principal and interest by the United States Government, its agencies or
instrumentalities. The Short-Term Investment and Fixed Income Funds may also
invest in mortgage-backed securities issued by private issuers rated in one of
the two highest rating categories and backed by mortgage pass-throughs issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The
principal governmental issuers or guarantors of mortgage-backed securities are
GNMA, the Federal National Mortgage Association ('FNMA') and the Federal Home
Loan Mortgage Corporation ('FHLMC'). The GNMA Fund may purchase mortgage
pass-throughs, notes or debentures directly issued and guaranteed by GNMA, FNMA,
FHLMC and Federal Home Loan Banks. Obligations of GNMA are backed by the full
faith and credit of the United States Government while obligations of FNMA and
FHLMC are supported by the respective agency only. The Funds may purchase
mortgage-backed securities that are backed or collateralized by fixed,
adjustable or floating rate mortgages.
Each of the Funds may invest in floating or variable rate obligations and may
purchase securities on a when-issued basis. In addition, each Fund reserves the
right to engage in securities lending but has no present intention to do so.
If after purchase the rating of a security held by a Fund drops below investment
quality, such security shall be sold at a time when, in the judgment of the
Advisor, it is not in the Fund's interest to continue to hold such security. For
a description of each Fund's permitted investments and the ratings listed above,
see the 'Description of Permitted Investments' in this Prospectus and
'Description of Permitted Investments,' and 'Description of Ratings' in the
Statement of Additional Information.
RISK FACTORS
The market value of each Fund's fixed income investments will fluctuate in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal will also
affect the value of these investments. Changes in the value of portfolio
securities will not affect cash income derived from these securities but will
affect a Fund's net asset value.
Mortgage-backed securities are subject to prepayment of the underlying
mortgages. During periods of declining interest rates, prepayment of mortgages
underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities, the yield of which reflects prevailing interest
rates. Thus, mortgage-backed securities may not be an effective means of locking
in long-term interest rates for a Fund.
Investments in securities of foreign issuers may subject the Short-Term
Investment and Fixed Income Funds to different risks than those attendant to
investments in securities of U.S. issuers, such as differences in accounting,
auditing and financial reporting standards, the possibility of expropriation or
confiscatory taxation, and political instability. There may also be less
publicly available information with regard to foreign issuers than domestic
issuers. In addition, foreign markets may be characterized by
<PAGE>
10
less liquidity, greater price volatility, less regulation and higher transaction
costs than U.S. markets.
ADDITIONAL RISK FACTORS FOR NEW JERSEY MUNICIPAL SECURITIES
New Jersey Municipal Securities are primarily issued by or on behalf of the
State of New Jersey, its political subdivisions, agencies and instrumentalities.
The concentration in obligations of New Jersey issuers by the New Jersey
Municipal Securities Fund subjects the Fund to special investment risks. In
particular, changes in economic conditions and governmental policies of the
State of New Jersey and its municipalities could adversely affect the value of
the Fund and the securities held by it. For a further description of these
risks, see 'New Jersey Municipal Securities' in the Statement of Additional
Information.
ADDITIONAL RISK FACTORS FOR PENNSYLVANIA MUNICIPAL SECURITIES
Under normal conditions the Fund will be fully invested in obligations which
produce interest income exempt from federal income tax and Pennsylvania state
income tax. Accordingly, the Fund will have considerable investments in
Pennsylvania Municipal Securities. As a result, the Fund will be more
susceptible to factors that adversely affect issuers of Pennsylvania obligations
than a mutual fund which does not have as great a concentration in Pennsylvania
Municipal Securities.
An investment in the Fund will be affected by the many factors that affect the
financial condition of the Commonwealth of Pennsylvania. For example, financial
difficulties of the Commonwealth, its counties, municipalities and school
districts that hinder efforts to borrow and lower credit ratings are factors
which may affect the Fund. See 'Pennsylvania Municipal Securities' in the
Statement of Additional Information.
FUND TURNOVER
Under normal circumstances, it is anticipated that the annual portfolio turnover
rate for each Fund will not exceed 100%.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. In addition, it is a fundamental policy of
the New Jersey and Pennsylvania Municipal Securities Funds to invest at least
80% of total assets in Municipal Securities. Fundamental policies cannot be
changed with respect to a Fund without the consent of the holders of a majority
of that Fund's outstanding shares.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer; provided,
however, that the limitation does not apply to the New Jersey Municipal
Securities or Pennsylvania Municipal Securities Funds. This restriction applies
to 75% of each Fund's total assets.
2. Purchase any securities which would cause more than 25% of the total assets
of any Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities or to investments in tax-exempt securities
issued by governments or political subdivisions of governments. For purposes of
this limitation, (i) utility companies will be classified according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; and (ii) financial services companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as described in this Prospectus
and in the Statement of Additional Information.
<PAGE>
11
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
THE ADVISOR
United Jersey Bank Investment Management Division, a division of United Jersey
Bank (the 'Advisor') serves as the Advisor of the Trust. The Advisor makes the
investment decisions for the assets of each Fund and continuously reviews,
supervises and administers each Fund's investment program subject to the
supervision of, and policies established by, the Trustees of the Trust.
United Jersey Bank, 210 Main Street, Hackensack, NJ 07601, was chartered in 1899
and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment experts have, on average, over 20 years of
experience in investment management. As of December 31, 1995, total assets under
management were approximately $4 billion.
United Jersey Bank is a wholly-owned subsidiary of Summit Bancorp, an
interstate bank holding company with $22 billion in assets and over 325 banking
offices in New Jersey and Eastern Pennsylvania as of December 31, 1995.
Robert B. Lowe is a Vice President of the Advisor and currently manages the
Short-Term Investment, Fixed Income, and GNMA Funds. Mr. Lowe has managed the
Short-Term Investment and Fixed Income Funds since their inception in April,
1992. He has managed the GNMA Fund since its inception in May, 1993. Mr. Lowe
has investment responsibility for equity and fixed income portfolios in the
Princeton Investment Office and joined United Jersey Bank in 1989.
Randolph E. Lestyk has managed the Pennsylvania Municipal Securities Fund since
September, 1994. Mr. Lestyk is a Vice President and Regional Manager of the
Advisor. Mr. Lestyk manages the investment function in Pennsylvania and has
responsibility for both equity and fixed income portfolios. Prior to joining
United Jersey Bank in January, 1994, Mr. Lestyk was involved in equity and fixed
income investing at several financial institutions, serving as Director of Fixed
Income Investing, Head of Trust Investments, and most recently as Senior Vice
President and Chief Investment Officer of a major insurance company in
Pennsylvania.
Charlene P. Palmer is a Vice President of the Advisor and has managed the New
Jersey Municipal Securities Fund since its inception in May, 1992. Mrs. Palmer's
experience has emphasized tax-exempt bonds. She joined United Jersey Bank in
1981.
Frances M. Tendall is a Vice President and Regional Manager (Princeton) of the
Advisor. Mrs. Tendall has managed the Intermediate-Term Government Securities
Fund since its inception in April, 1992 and co-manages the U.S. Treasury
Securities Money Market Fund. Mrs. Tendall joined United Jersey Bank in 1982 and
is currently responsible for managing both equity and fixed income portfolios.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .60% of the average daily net assets of each Fund. The Advisor
has voluntarily agreed to waive all or a portion of its fees in order to limit
the operating expenses of Class A shares of each Fund to .80%. For the fiscal
year ended December 31, 1995, each Fund paid the Adviser the following advisory
fee (shown as a percentage of its average daily net assets): Short-Term
Investment Fund, .43%; Fixed Income Fund, .50%; New Jersey Municipal Securities
Fund, .15%; Pennsylvania Municipal Securities Fund, .19%; Intermediate-Term
Government Securities Fund, .35%; and GNMA Fund, .27%. The Advisor reserves the
right to terminate its fee waiver at any time in its sole discretion.
United Jersey Bank has also entered into a Custodian Agreement with the Trust,
under which it will provide all securities safekeeping services as required by
the Funds and the Investment Company Act of 1940, as amended. The Trust pays
United Jersey Bank (referred to herein in its custodial capacity as the
'Custodian') a custodian fee, which is calculated daily and paid monthly, at an
annual rate of .025% of the average daily net assets of each Fund.
The Glass-Steagall Act restricts the securities activities of banks such as
United Jersey Bank, but federal regulatory authorities permit such banks to
<PAGE>
12
provide investment advisory and other services to mutual funds. Should this
position be challenged successfully in court or reversed by legislation, the
Trust might have to make other investment advisory arrangements.
THE ADMINISTRATOR
SEI Financial Management Corporation (the 'Administrator'), a wholly-owned
subsidiary of SEI Corporation ('SEI'), serves as the Administrator of the Trust.
The Administrator provides the Trust with administrative services, other than
investment advisory services, including regulatory reporting, all necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of each Fund.
The Administrator has agreed to waive all or a portion of its fees in order to
limit the total operating expenses of Class A shares of the New Jersey Municipal
Securities Fund and the Pennsylvania Municipal Securities Fund to .80%. The
Administrator reserves the right to terminate its fee waiver at any time in its
sole discretion.
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the dividend disbursing agent and
shareholder servicing agent for the Trust. SEI Financial Management Corporation
also acts as the transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the 'Distributor'), a wholly-owned subsidiary of
SEI, acts as the Distributor for the Trust. No compensation is paid to the
Distributor for distribution services for the Class A shares of any Fund. Class
B shares of each Fund bear the costs of their distribution expenses and related
service fees at the annual rate of up to .25% of the average daily net assets of
the Fund. In addition, a maximum sales charge of 4% is imposed on the sale of
Class B shares of the Fixed Income and Intermediate-Term Government Securities
Funds, 3% on the sale of Class B shares of the GNMA Fund, and 1% on Class B
shares of the Short-Term Investment, New Jersey Municipal Securities and
Pennsylvania Municipal Securities Funds. Class A shares of each Fund are offered
without distribution fees (i) to institutional investors (including United
Jersey Bank, its affiliates and correspondent banks) for the investment of their
own funds, (ii) to individuals and institutions (including United Jersey Bank,
its affiliates and correspondent banks) for the investment of funds held by such
individuals or institutions in a fiduciary, agency, custodial or other
representative capacity if such individuals or institutions are able to provide
complete shareholder recordkeeping services with respect to shares purchased and
held in such capacity, and (iii) any qualified customer who has entered into an
agreement with United Jersey Bank, its affiliates or correspondent banks
("Qualified Customers").
Class B shares of each Fund are offered to all persons. Consequently, it is
possible that individuals or institutions may offer different classes of shares
of the Funds to their customers and thus receive different compensation with
respect to different classes of shares. In addition, individuals or institutions
that are the record owner of shares for the account of their customers may
impose separate fees for account services to their customers. The Funds may also
execute brokerage or other agency transactions through an affiliate of the
Advisor or through the Distributor for which the affiliate or the Distributor
receives compensation.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of each Fund may be made on any Business
Day. State securities laws may require banks and financial institutions
purchasing shares for their customers to register as dealers pursuant to state
laws.
A purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives the order before 4:00 p.m., Eastern
time, provided the Custodian receives Federal funds before 12:00 noon, Eastern
time, on the next Business Day. However, an order may be cancelled if the
Custodian does not receive Federal Funds before 12:00 noon, Eastern time, on the
next Business Day, and the investor could be liable for any fees or expenses
incurred by the Trust. Generally, an investor in the Class A shares of the Funds
may not purchase shares by check, third party check, credit card or credit card
check. Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow time for processing and
transmittal of these orders to the Distributor for effectiveness the same day.
The purchase price of shares of each Fund is the net asset value next determined
after a
<PAGE>
13
purchase order is effective. The net asset value per Class A share of each Fund
is determined by dividing the total market value of the Fund's investments and
other assets that are allocated to Class A shares, less any liabilities that are
allocated to Class A shares, by the total outstanding Class A shares of the
Fund. A Fund may use a pricing service to provide market quotations. A pricing
service may use a matrix system of valuation to value fixed income securities
which considers factors such as securities prices, yield features, ratings and
developments related to a specific security. Net asset value per share is
determined as of 4:00 p.m., Eastern time, on each Business Day. Purchases will
be made in full and fractional shares of the Trust calculated to three decimal
places. No certificates representing shares will be issued.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Shareholders who experience
difficulties placing redemption orders by telephone may wish to consider placing
the redemption order by other means.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
Shareholders who desire to redeem shares of the Fund must place their redemption
orders prior to 4:00 p.m. Eastern time, on any Business Day, for the order to be
effective on that Business Day. The redemption price of shares is the net asset
value of the Fund next determined after the redemption order is effective.
Payment on redemption will be made as promptly as possible and, in any event,
within seven Business Days after the redemption order is effective.
The Funds intend to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
PURCHASE OF SHARES - QUALIFIED CUSTOMERS
Accounts for Qualified Customers may be opened through United Jersey Bank, its
affiliates or correspondent banks (the "Bank"). Subsequent purchases of shares
of the Funds may be made through the Bank or directly through the Distributor by
mail or by wire. Purchases may not be made by telephone. Qualified Customers
should contact their Financial Services Advisor ("FSA") for information about
opening an account and purchasing shares of the Funds through United Jersey
Bank. The Bank may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow for processing and transmittal of these orders to
the Distributor for effectiveness the same day. In addition, state securities
laws may require banks and financial institutions purchasing shares for their
customers to register as dealers pursuant to state laws.
The minimum initial investment in the Trust for Qualified Customers is $10,000.
All subsequent purchases must be at least $1,000. A purchase order will be
effective as of the Business Day received by the Distributor if the Distributor
receives the order before 4:00 p.m., Eastern time, on such Business Day.
Direct Purchases - Qualified Customers
By Mail - Subsequent purchases of shares may be made at any time by mailing a
check (or other negotiable bank draft or money order) to the Distributor. When
purchases are made by check, redemptions will not be allowed until the
investment being redeemed has been in the account for 10 Business Days. If a
check received does not clear, the purchase will be canceled and the investor
could be liable for any losses or fees incurred.
By Wire - Subsequent purchases of shares may be made by wire. To buy shares by
wire, call the Distributor toll-free at 1-800-932-7782.
Other Information Regarding Purchases - The purchase price is the net asset
value per share next computed after the order is effective. No certificates
representing shares will be issued.
REDEMPTION OF SHARES - QUALIFIED CUSTOMERS
The FSA through which Qualified Customers may purchase shares is able to assist
Qualified Customers in effecting the redemption of shares held in Fund accounts
through the Distributor. Qualified Customers wishing to effect a redemption with
the assistance of an FSA should contact the Bank or their FSA for additional
information about redemption procedures and cut-off times. Shares may also be
redeemed directly through the Distributor by mail, by telephone, by wire, by ACH
or through a systematic withdrawal plan.
Direct Redemptions - Qualified Customers
By Mail - A written request for redemption must be received by the Distributor
in order to constitute a valid request for redemption. The Distributor may
require that the signature on the written request be guaranteed by a commercial
bank or by a member firm of a domestic stock exchange. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $5,000 worth of shares or less, (2) the redemption check is
payable to the Shareholder(s) of record, and (3) the redemption check is mailed
to the Shareholder(s) at the address of record. Qualified Customers may also
have the proceeds mailed to a commercial bank account previously designated on
the Account Application or by written instruction to the Distributor. There is
no charge for having redemption requests mailed to a designated bank account.
By Telephone, Wire or ACH - Shares may be redeemed by telephone if Qualified
Customers elect that option on the Account Application. Qualified Customers may
have the proceeds mailed to his or her address or wired to a commercial bank
account previously designated on the Account Application. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. Wire
<PAGE>
and ACH redemption requests may be made by Qualified Customers by calling the
Distributor at 1-800-932-7782, who will add a wire redemption charge (presently
$10.00) to the amount of the redemption. Accounts may not be closed by
telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Qualified Customers
attempting to place redemption orders by telephone may wish to consider placing
the redemption order by other means.
Systematic Withdrawal Plan (SWP) - The Funds offer a Systematic Withdrawal Plan
which may be utilized by Qualified Customers who wish to receive regular
distributions from their account. Upon commencement of the SWP, the account must
have a current value of $10,000 or more. Qualified Customers may elect to
receive automatic payment by check or ACH of $50 or more on a monthly or
quarterly basis.
Other Information Regarding Redemptions - All redemption orders are effected at
the net asset value per share next determined after receipt of a valid request
for redemption, as described above. Net asset value per share is determined as
of 4:00 p.m., Eastern time, on each Business Day. Payment to Shareholders for
shares redeemed will be made within seven days after receipt by the Distributor
of the request for redemption.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment in connection with a purchase. In such circumstances,
the forwarding of redemption proceeds may be delayed until such payment has been
collected. The Funds intend to pay cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, payment may be made wholly
or partly in portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
<PAGE>
PERFORMANCE
From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The New Jersey and Pennsylvania Municipal Securities Funds may also advertise a
'tax-equivalent yield,' which is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax equivalent of the respective Fund's yield, assuming certain tax
brackets for a Shareholder.
The advertised performance on Class A shares will normally be higher than for
Class B shares because Class A shares are not subject to distribution expenses
and sales loads charged to Class B shares. The actual return to a Shareholder on
Class A shares may be reduced by any administrative or management charges that
may be imposed by individuals or institutions on their customers for account
services. The actual return to Shareholders on Class B shares will be reduced by
the amount of any sales load paid and distribution expenses on Class B shares.
A Fund may periodically compare its performance to that of: (i) other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals;
<PAGE>
14
of (ii) broad groups of comparable mutual funds; (iii) unmanaged indices which
may assume investment of dividends but generally do not reflect deductions for
administrative and management costs; or (iv) to other investment alternatives. A
Fund may quote Morningstar, Inc., a service that ranks mutual funds on the basis
of risk-adjusted performance. A Fund may use long-term performance of the
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. A Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded RICs under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) which is distributed to Shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares and will not qualify for
the dividends-received deduction otherwise available to corporate shareholders.
Any net capital gains will be distributed annually and will be taxed to
Shareholders as long-term capital gains, regardless of how long the Shareholder
has held shares. Capital gains distributions also will not qualify for the
dividends-received deduction. Each Fund will make annual reports to Shareholders
of the federal income tax status of all distributions.
Certain securities purchased by the Funds (such as STRIPS, TRs, TIGRs and CATS,
defined under 'Description of Permitted Investments') are sold at original issue
discount and thus do not make periodic cash interest payments. A Fund will be
required to include as part of its current income the accreted interest on such
obligations even though the Fund has not received any interest payments on such
obligations during that period. Because the Fund distributes all of its net
investment income to its Shareholders, the Fund may have to sell portfolio
securities to distribute such accreted income, which may occur at a time when
the Advisor would not have chosen to sell such securities and which may result
in a taxable gain or loss.
Interest received on direct U.S. Government obligations that is exempt from tax
at the state level when received directly may be exempt, depending on the state,
when received by a Shareholder from a Fund provided certain conditions are
satisfied. Each Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any portion
of the income dividends received from a Fund is considered tax-exempt in their
particular states.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in these months will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 if
<PAGE>
15
paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Sale, exchange or redemption of Fund shares is a taxable event to a Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Fund will not be able to elect to treat
Shareholders as having paid their proportionate share of such foreign taxes.
ADDITIONAL CONSIDERATIONS FOR THE NEW JERSEY MUNICIPAL SECURITIES AND
PENNSYLVANIA MUNICIPAL SECURITIES FUNDS
The New Jersey and Pennsylvania Municipal Securities Funds will each distribute
all of their net investment income (including net short-term capital gain) to
their respective Shareholders. If, at the close of each quarter of its taxable
year, at least 50% of the value of a Fund's assets consist of obligations the
interest on which is excludable from gross income, the Fund may pay
'exempt-interest dividends' to its Shareholders. Those dividends constitute the
portion of the aggregate dividends as designated by the Fund, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's gross income for
federal income tax purposes, but may have collateral consequences. See the
Statement of Additional Information.
Current federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of a Fund to purchase sufficient amounts of tax-exempt securities to
satisfy the Code's requirements for the payment of 'exempt-interest dividends.'
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase or carry shares of the New Jersey and Pennsylvania Municipal Securities
Funds is not deductible for federal income tax purposes. Furthermore, these
Funds may not be an appropriate investment for persons (including corporations
and other business entities) who are 'substantial users' (or persons related to
'substantial users') of facilities financed by industrial development private
activity bonds. Such persons should consult their tax advisers before purchasing
shares. A 'substantial user' is defined generally to include 'certain persons'
who regularly use in their trade or business a part of a facility financed from
the proceeds of such bonds.
NEW JERSEY TAX CONSIDERATIONS
Investors of the New Jersey Municipal Securities Fund will not be subject to the
New Jersey Gross Income Tax on distributions from the Fund attributable to
interest income from (and net gain, if any, from the disposition of) New Jersey
Municipal Securities or obligations of the United States, its territories and
possessions and certain of its agencies and instrumentalities ('Federal
Securities') held by the Fund, either when received by the Fund or when credited
or distributed to the investors, provided that the Fund meets the requirements
for a qualified investment fund by: 1) maintaining its registration as a
registered investment company with the Securities and Exchange Commission;
<PAGE>
16
2) investing at least 80% of the aggregate principal amount of the Fund's
investments, excluding financial options, futures, forward contracts, or other
similar financial instruments relating to interest-bearing obligations,
obligations issued at a discount or bond indexes related thereto to the extent
such instruments are authorized under the regulated investment company rules
under the Code, cash and cash items, which cash items shall include receivables,
in New Jersey Municipal Securities or Federal Securities at the close of each
quarter of the tax year; 3) investing 100% of its assets in interest-bearing
obligations, discount obligations, cash and cash items, including receivables,
financial options, futures, forward contracts, or other similar financial
instruments relating to interest-bearing obligations, discount obligations or
bond indexes related thereto; and 4) complying with certain continuing reporting
requirements.
For New Jersey Gross Income Tax purposes, net income or gains and distributions
derived from investments in other than New Jersey Municipal Securities and
Federal Securities, and distributions from net realized capital gains in respect
of such investments, will be taxable.
Gain on the disposition of Shares is not subject to New Jersey Gross Income Tax,
provided that the Fund meets the requirements for a qualified investment fund
set forth above.
PENNSYLVANIA TAX CONSIDERATIONS
For purposes of the Pennsylvania Personal Income Tax and the Philadelphia School
District Investment Net Income Tax, distributions which are attributable to
interest received by the Pennsylvania Municipal Securities Fund from its
investments in Pennsylvania Municipal Securities or Federal Securities are not
taxable. Distributions by the Fund to a Pennsylvania resident that are
attributable to most other sources may be subject to the Pennsylvania Personal
Income Tax and (for residents of Philadelphia) to the Philadelphia School
District Investment Net Income Tax.
Distributions paid by the Fund which are excludable as exempt income for federal
tax purposes are not subject to the Pennsylvania corporate net income tax. An
additional deduction from Pennsylvania taxable income is permitted for the
amount of distributions paid by the Fund attributable to interest received by
the Fund from its investments in Pennsylvania Municipal Securities and Federal
Securities to the extent included in federal taxable income, but such a
deduction is reduced by any interest on indebtedness incurred to carry the
securities and other expenses incurred in the production of such interest
income, including expenses deducted on the federal income tax return that would
not have been allowed under the Code if the interest were exempt from federal
income tax. Distributions by the Fund attributable to most other sources may be
subject to the Pennsylvania corporate net income tax. It is the current position
of the Pennsylvania Department of Revenue that Fund shares are considered exempt
assets (with a pro rata exclusion based on the value of the Fund attributable to
its investments in Pennsylvania Municipal Securities and Federal Securities) for
purposes of determining a corporation's capital stock value subject to the
Commonwealth's capital stock or franchise tax.
Shares purchased as an investment in the Pennsylvania Municipal Securities Fund
are exempt from Pennsylvania county personal property taxes and (as to residents
of Pittsburgh) from personal property taxes imposed by the City of Pittsburgh
and the School District of Pittsburgh to the extent that the Fund's investments
consist of obligations which are themselves exempt from taxation in
Pennsylvania.
The Fund intends to invest primarily in obligations which produce interest
exempt from federal and Pennsylvania taxes. If the Fund invests in obligations
that are not exempt for Pennsylvania purposes but are exempt for federal
purposes, a portion of the Fund's distributions will be subject to Pennsylvania
personal income tax.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. In
addition to the Portfolios, the Trust consists of the following portfolios: U.S.
Treasury Securities Money Market Fund, U.S. Treasury Securities Plus Money
Market Fund, Prime Obligation Money Market Fund, Tax-Exempt Money Market Fund,
Equity Value Fund,
<PAGE>
17
Equity Income Fund, Mid Cap Value Fund, Balanced Growth Fund and International
Growth Fund. All consideration by the Trust for shares of any Fund and all
assets of such Fund belong to that Fund and would be subject to liabilities
related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by a board of trustees
(the 'Trustees') under the laws governing business trusts in the Commonwealth of
Massachusetts. The Trustees have approved contracts under which, as described
above, certain companies provide essential management services to the Trust.
VOTING RIGHTS
Each share held entitles a Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
DIVIDENDS
Each Fund declares dividends of substantially all of its net investment income
(exclusive of capital gains) daily and distributes such dividends on or about
the first Business Day of the following month. Shares purchased begin earning
dividends on the Business Day after payment is received by the Custodian.
Normally, this will occur within two Business Days after the order is effective.
If any capital gain is realized, substantially all of it will be distributed at
least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class A shares, unless a Shareholder has elected to
take such payment in cash. Shareholders may change their election by providing
written notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of each Fund are paid on a per-share basis. The
amount of dividends payable on Class A shares will be more than the dividends
payable on the Class B shares because of the distribution expenses charged to
Class B shares.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain of the permitted investments for the
Funds:
ASSET-BACKED SECURITIES--Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose
<PAGE>
18
entity, such as a trust, organized solely for the purpose of owning such assets
and issuing such debt.
Asset-backed securities are not issued or guaranteed by the United States
Government, its agencies or instrumentalities; however, the payment of principal
and interest on such obligations may be guaranteed up to certain amounts and for
a certain period by a letter of credit issued by a financial institution (such
as a bank or insurance company) unaffiliated with the issuers of such
securities. The purchase of asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the
obligations superior to that of the holders of the asset-backed securities.
There also is the possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few to 270 days.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, 'stripped' U.S. Treasury securities (e.g., Receipts and STRIPs), and
privately issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere
in this 'Description of Permitted Investments' for discussions of these various
instruments, and see 'Investment Objectives and Policies' for more information
about any investment policies and limitations applicable to their use.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private
<PAGE>
19
guarantees do not extend to the securities' value, which is likely to vary
inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ('CMOs') and real estate mortgage investment
conduits ('REMICs') that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations ('CMOs'): CMOs are debt obligations or
multi-class pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a 'tranche,' is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as 'regular' interests, or 'residual' interests. Guaranteed REMIC pass-through
certificates ('REMIC Certificates') issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates. FNMA REMIC Certificates are
issued and guaranteed as to timely distribution of principal and interest by
FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ('PAC Bonds') generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITs: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ('SMBs'):
SMBs are usually structured with two classes that receive specified proportions
of the monthly interest and principal payments from a pool of mortgage
securities. One class may receive all of the interest payments and is thus
termed an interest-only class ('IO'), while the other class may receive all of
the principal payments and is thus termed the principal-only class ('PO'). The
value of IOs tends to increase as rates rise and decrease as rates fall; the
opposite is true of POs. SMBs are extremely sensitive to changes in interest
rates because of the impact thereon of prepayment of principal on the underlying
mortgage securities and can experience wide swings in value in response to
changes in interest rates and associated mortgage prepayment rates. During times
when interest rates are experiencing fluctuations, such securities can be
difficult to price on a consistent basis. The market for SMBs is not as fully
developed as other markets; SMBs therefore may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment
<PAGE>
20
patterns, based upon current interest rates, current conditions in the relevant
housing markets and other factors. The assumption is necessarily subjective, and
thus different market participants can produce different average life estimates
with regard to the same security. There can be no assurance that estimated
average life will be a security's actual average life.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example.) Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Municipal securities include municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes, construction loan notes and participation interests in municipal
notes. Municipal bonds include general obligation bonds, revenue or special
obligation bonds, private activity and industrial development bonds and
participation interests in municipal bonds.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have actual or constructive possession
of the security as collateral for the repurchase agreement. A Fund bears a risk
of loss in the event of the other party defaults on its obligations and the Fund
is delayed or prevented from its right to dispose of the collateral securities
or if the Fund realizes a loss on the sale of collateral securities. A Fund will
enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
RECEIPTS--Receipts are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying investments.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits maturing in more than seven days
are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal
<PAGE>
21
Farm Credit Bank, the Federal Housing Administration and the Small Business
Administration, and obligations issued or guaranteed by instrumentalities of the
U.S. Government, including, among others, the Federal Home Loan Mortgage
Corporation, the Federal Land Banks and the U.S. Postal Service. Some of these
securities are supported by the full faith and credit of the U.S. Treasury
(e.g., Government National Mortgage Association), others are supported by the
right of the issuer to borrow from the Treasury (e.g., Federal Farm Credit
Bank), while still others are supported only by the credit of the
instrumentality (e.g., Federal National Mortgage Association). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing on the obligation prior to maturity. Guarantees as to the timely
payment of principal and interest do not extend to the value or yield of these
securities nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS--Bills, notes and bonds issued by the U.S. Treasury
and separately traded interest and principal component parts of such obligations
that are transferable through the federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ('STRIPS').
VARIABLE OR FLOATING RATE INSTRUMENTS-- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES (DEBT SECURITIES)--When-issued or
delayed delivery basis transactions involve the purchase of an instrument with
payment and delivery taking place in the future. Delivery of and payment for
these securities may occur a month or more after the date of the purchase
commitment.
A Fund will maintain with the Custodian a separate account with liquid high
grade debt securities or cash in an amount at least equal to these commitments.
The interest rate, if any, realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. Debt
securities are subject to market fluctuation and it is possible that the market
value at the time of settlement could be higher or lower than the purchase
price. Although a Fund generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities for
its portfolio, a Fund may dispose of a when-issued security or forward
commitment prior to settlement if it deems appropriate.
<PAGE>
22
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary........................................... 2
Expense Summary................................... 4
Financial Highlights.............................. 5
The Trust......................................... 6
Investment Objectives and Policies................ 6
Investment Limitations............................ 10
The Advisor....................................... 11
The Administrator................................. 12
The Shareholder Servicing Agent................... 12
The Distributor................................... 12
Purchase and Redemption of Shares................. 12
Performance....................................... 13
Taxes............................................. 14
General Information............................... 16
Description of Permitted Investments.............. 17
</TABLE>
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
THE PILLAR FUNDS (the 'Trust') consist of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
following fixed income funds (collectively, the 'Funds'; individually, a
'Fund'):
O SHORT-TERM INVESTMENT FUND
O FIXED INCOME FUND
O NEW JERSEY MUNICIPAL SECURITIES FUND
O PENNSYLVANIA MUNICIPAL SECURITIES FUND
O INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
O GNMA FUND
CLASS B
The Trust's Class B Shares are offered to all persons (persons who own Class B
shares of a fund are referred to herein as 'Shareholders').
CLASS B SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING UNITED JERSEY BANK OR ITS
AFFILIATES OR CORRESPONDENTS), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT
AGENCY.
AMOUNTS INVESTED IN THE FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
SALES CHARGES ARE IMPOSED BY ALL FUNDS AT THE TIME OF PURCHASE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated April 30, 1996, has been filed with the Securities and
Exchange Commission and is available without charge through the Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
APRIL 30, 1996
CLASS B
<PAGE>
2
SUMMARY
THE PILLAR FUNDS (THE 'TRUST') CONSIST OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES WHICH PROVIDE A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE
CLASS B SHARES OF THE TRUST'S SHORT-TERM INVESTMENT, FIXED INCOME, NEW JERSEY
MUNICIPAL SECURITIES, PENNSYLVANIA MUNICIPAL SECURITIES, INTERMEDIATE-TERM
GOVERNMENT SECURITIES AND GNMA FUNDS (COLLECTIVELY, THE 'FUNDS'; INDIVIDUALLY, A
'FUND').
What are the Investment Objectives? The investment objectives of the
respective Funds are as follows: The Short-Term Investment Fund--a high level of
total return, primarily through current income, consistent with preservation of
capital; the Fixed Income Fund--a high level of total return, primarily through
current income and capital appreciation, consistent with preservation of
capital; the New Jersey Municipal Securities Fund--current income exempt from
both federal and New Jersey income taxes, consistent with preservation of
capital; the Pennsylvania Municipal Securities Fund--current income exempt from
both federal and Pennsylvania income taxes consistent with preservation of
capital; the Intermediate-Term Government Securities Fund--preservation of
principal value and a high degree of liquidity while providing current income;
and the GNMA Fund--the highest level of current income consistent with
preservation of principal and a high degree of liquidity. There is no assurance
that a Fund will meet its investment objective. See 'Investment Objectives and
Policies.'
What are the Permitted Investments? The Short-Term Investment and Fixed
Income Funds invest at least 65% of their assets in (i) U.S. Treasury
obligations; (ii) obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities; (iii) corporate bonds
and debentures; (iv) short-term commercial paper; (v) short-term bank
obligations; (vi) securities of the government of Canada and its provincial and
local governments; (vii) custodial receipts; and (viii) repurchase agreements
involving such securities. These securities may include securities issued by
foreign issuers which may subject the Funds to risks associated with foreign
investments. The remaining 35% of their assets may be invested in
mortgage-backed securities and asset-backed securities.
The New Jersey and Pennsylvania Municipal Securities Funds invest at least
80% of their assets in municipal obligations which produce interest that, in the
opinion of bond counsel for the issuer, is exempt from federal income tax, and
at least 65% of their assets in obligations which produce interest that is
exempt from applicable state income taxes.
The Intermediate-Term Government Securities Fund invests in obligations
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies or instrumentalities.
The GNMA Fund invests primarily in mortgage pass-through securities, with at
least 65% of its total assets generally being invested in instruments issued by
the Government National Mortgage Association ('GNMA').
The investments of the Funds are subject to market and interest rate
fluctuations which may affect the value of a Fund's shares. These fluctuations
may be greater for the Fixed Income and New Jersey and Pennsylvania Municipal
Securities Funds which expect to maintain dollar-weighted average maturities of
greater than five years than for the other Funds which expect to maintain
dollar-weighted average maturities of less than five years. In addition, certain
securities, such as mortgage-backed securities, are subject to the risk of
prepayment during periods of declining interest rates which may affect the
Fund's ability to lock-in longer term rates during such periods. See 'Investment
Objectives and Policies,' 'General Investment Policies,' 'Risk Factors' and
'Description of Permitted Instruments.'
Are There Additional Risk Factors for the New Jersey and Pennsylvania
Municipal Securities Funds? The concentration of the New Jersey and
Pennsylvania Municipal Securities Funds in municipal securities issued
<PAGE>
3
primarily by or on behalf of the states of New Jersey and Pennsylvania,
respectively, subjects these Funds to special investment risks, such as the
possible adverse affects of changes in economic conditions and governmental
policies of the states or their underlying governmental units. These Funds will
be more susceptible to such factors than a fund which does not have as great a
concentration in municipal securities of a single state. See 'Additional Risk
Factors for New Jersey Municipal Securities' and 'Additional Risk Factors for
Pennsylvania Municipal Securities.'
Who is the Advisor? United Jersey Bank Investment Management Division, a
division of United Jersey Bank, serves as the Advisor of the Trust. See 'The
Advisor.'
Who is the Administrator? SEI Financial Management serves as the
Administrator of the Trust. See 'The Administrator.'
Who is the Shareholder Servicing Agent? SEI Financial Management
Corporation acts as dividend disbursing agent and shareholder servicing agent
for the Trust and as transfer agent for the Trust under a separate agreement.
See 'The Shareholder Servicing Agent.'
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. The Trust has adopted a distribution plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the 'Class B Plan') on
behalf of the Class B shares. See 'The Distributor.'
How Do I Purchase and Redeem Shares? Shares may be purchased through a
financial institution, such as United Jersey Bank, or a broker-dealer that has
entered into a dealer agreement with SEI Financial Services Company
('Intermediaries'). Shares may also be purchased directly through the
Distributor. Shareholders may redeem shares directly through the Distributor. In
addition, Intermediaries through which Shareholders may purchase shares
generally stand ready to assist Shareholders in effecting redemptions of shares
held in their Fund accounts. Purchase and redemption requests may be made on a
day on which both the New York Stock Exchange and the Federal Reserve wire
system are open for business ('Business Day'). The minimum initial investment is
$1,000. Shares are offered at net asset value per share plus a maximum sales
charge at time of purchase of 4% for the Fixed Income and Intermediate-Term
Government Securities Funds, 3% for the GNMA Fund and 1% for the Short-Term
Investment, New Jersey and Pennsylvania Municipal Securities Funds. Shareholders
who purchase higher amounts may qualify for a reduced sales charge. The net
asset value per share is determined as of 4:00 p.m., Eastern time on each
Business Day. See 'Purchases of Shares' and 'Redemption of Shares.'
How are Dividends Paid? Each Fund declares dividends of substantially all
of its net investment income (exclusive of capital gains) daily and distributes
such dividends on or about the first Business Day of the following month. Any
capital gain is distributed at least annually. Distributions are paid in
additional shares unless the Shareholder elects to take the payment in cash. See
'Dividends.'
<PAGE>
4
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES CLASS B
(As a percentage of offering price)
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA INTERMEDIATE-TERM
SHORT-TERM FIXED MUNICIPAL MUNICIPAL GOVERNMENT
INVESTMENT INCOME SECURITIES SECURITIES SECURITIES
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge imposed on
purchases.................... 1.00% 4.00% 1.00% 1.00% 4.00%
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
GNMA
FUND
- ------------------------------------------
Maximum sales charge imposed on
purchases.................... 3.00%
- ------------------------------------------
- ------------------------------------------
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
NEW JERSEY PENNSYLVANIA INTERMEDIATE-TERM
SHORT-TERM FIXED MUNICIPAL MUNICIPAL GOVERNMENT
INVESTMENT INCOME SECURITIES SECURITIES SECURITIES
FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after fee
waivers)(1).................. .43% .50% .42% .19% .35%
12b-1 Fees..................... .25% .25% .25% .25% .25%
Other Expenses................. .37% .30% .38% .61% .45%
- ---------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers)(2)(3)........... 1.05% 1.05% 1.05% 1.05% 1.05%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
GNMA
FUND
- --------------------------------------------
Advisory Fees (after fee
waivers)(1).................. .27%
12b-1 Fees..................... .25%
Other Expenses................. .53%
- --------------------------------------------
Total Operating Expenses (after
fee waivers)(2)(3)........... 1.05%
- --------------------------------------------
- --------------------------------------------
</TABLE>
(1) The Advisor and Administrator have agreed to voluntarily waive a portion of
their fees in an amount that operates to limit total operating expenses of
Class B shares of each Fund to not more than 1.05% of average daily net
assets. The Advisor and the Administrator each reserves the right to
terminate its fee waiver at any time in their sole discretion.
(2) Absent fee waivers, Advisory Fees for each Fund would be .60%,
Administration Fees for each Fund would be .20% and Total Operating Expenses
would be as follows: Short-Term Investment Fund 1.22%, Fixed Income Fund
1.16%, New Jersey Municipal Securities Fund 1.18%, Pennsylvania Municipal
Securities Fund 1.55%, Intermediate-Term Government Securities Fund 1.30%
and GNMA 1.37%. Additional Information may be found under 'The Advisor,'
'The Administrator' and 'The Distributor.'
(3) Advisory fees and Other Expenses for the New Jersey Municipal Securities
Fund have been restated to reflect current expenses.
<PAGE>
5
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
1 YR. 3 YRS. 5 YRS. 10 YRS.
- -----------------------------------------------------------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment assuming (1)
the maximum sales charge set forth in the table above, (2) 5% annual return
and (3) redemption at the end of each time period:
Short-Term Investment Fund.................................................... $21 $43 $67 $137
Fixed Income Fund............................................................. $50 $72 $96 $163
New Jersey Municipal Securities Fund.......................................... $21 $43 $67 $137
Pennsylvania Municipal Securities Fund........................................ $21 $43 $67 $137
Intermediate-Term Government Securities Fund.................................. $50 $72 $96 $163
GNMA Fund..................................................................... $40 $62 $86 $154
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. The information set forth in the foregoing
table and example relates only to Class B shares. The Trust also offers Class A
shares of each Fund which are subject to the same expenses except there are no
sales loads or distribution fees. Financial institutions may impose separate
fees for account services on their Investment Strategy Account Agreement
customers ("ISA Customers") and on customers for which they are the record owner
of shares for the account. In addition, a wire redemption charge of $10.00 is
imposed for each redemption by wire. Additional information may be found under
'The Advisor,' 'The Administrator,' 'The Shareholder Servicing Agent' and 'The
Distributor.'
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See 'Purchase of Shares.'
Long-term shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules (the 'Rules') of the National
Association of Securities Dealers, Inc. ('NASD'). The Trust intends to operate
the Class B distribution plan in accordance with its terms and with the NASD
Rules concerning sales charges.
<PAGE>
6
FINANCIAL HIGHLIGHTS THE PILLAR FUNDS
The following information has been audited by Arthur Andersen & LLP, the Trust's
independent public accountants, as indicated in their report dated February 22,
1996 on the Trust's financial statements as of December 31, 1995 included in the
Trust's Statement of Additional Information under 'Financial Information.'
Additional performance information is contained in the 1995 Annual Report to
Shareholders and is available upon request and without charge by calling
1-800-932-7782. This table should be read in conjunction with the Trust's
financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
REALIZED
AND NET
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSETS RATIO OF
VALUE NET GAINS OR FROM NET FROM NET ASSET END OF EXPENSES TO
BEGINNING INVESTMENT LOSSES ON INVESTMENT CAPITAL VALUE END TOTAL PERIOD AVERAGE NET
OF PERIOD INCOME SECURITIES INCOME GAINS OF PERIOD RETURN(+) (000) ASSETS
----------- ----------- ----------- ----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------
SHORT-TERM INVESTMENT
- ------------------------
CLASS B
1995........... $ 9.98 $ 0.53 $ 0.07 $ (0.53) -- $ 10.05 6.13% $ 2,043 1.05%
1994........... 10.03 0.33 (0.05) (0.33) -- 9.98 2.85 769 1.05
1993........... 10.01 0.28 0.01 (0.27) -- 10.03 2.90 205 1.05
1992(1)........ 10.00 0.25 0.03 (0.25) $ (0.02) 10.01 3.23* 193 1.05
- --------------
FIXED INCOME
- --------------
CLASS B
1995........... $ 9.44 $ 0.56 $ 1.04 $ (0.56) -- $ 10.48 17.36% 5,844 1.05%
1994........... 10.68 0.56 (1.18) (0.56) $ (0.06) 9.44 (5.90) 5,525 1.05
1993........... 10.38 0.58 0.52 (0.58) (0.22) 10.68 10.76 6,519 1.05
1992(1)........ 10.00 0.47 0.44 (0.47) (0.06) 10.38 11.39* 1,214 1.05
- ----------------------
NEW JERSEY MUNICIPAL
- ----------------------
CLASS B
1995........... $ 9.93 $ 0.44 $ 0.86 $ (0.44) -- $ 10.79 13.30% $ 25,954 0.66%
1994........... 10.85 0.45 (0.92) (0.45) -- 9.93 (4.35) 21,195 0.52
1993........... 10.29 0.46 0.56 (0.46) -- 10.85 10.09 22,061 0.45
1992(2)........ 10.00 0.29 0.29 (0.29) -- 10.29 8.29* 5,424 0.62
- -----------------------------
INTERMEDIATE-TERM GOVERNMENT
- -----------------------------
CLASS B
1995........... $ 9.51 $ 0.51 $ 0.86 $ (0.51) -- $ 10.37 14.71% $ 3,665 1.05%
1994........... 10.53 0.49 (1.01) (0.49) $ (0.01) 9.51 (5.09) 2,372 1.05
1993........... 10.24 0.49 0.31 (0.49) (0.02) 10.53 7.94 4,903 1.05
1992(1)........ 10.00 0.39 0.25 (0.39) (0.01) 10.24 7.86* 2,190 1.05
- -----------------------
PENNSYLVANIA MUNICIPAL
- -----------------------
CLASS B
1995........... $ 9.55 $ 0.38 $ 0.67 $ (0.38) -- $ 10.22 11.15% $ 269 1.05%
1994........... 10.17 0.33 (0.62) (0.33) -- 9.55 (2.83) 336 1.05
1993(3)........ 9.98 0.20 0.19 (0.20) -- 10.17 6.28* 289 1.05
- ------
GNMA
- ------
CLASS B
1995........... $ 8.84 $ 0.58 $ 1.08 $ (0.57) -- $ 9.93 19.24% $ 1,761 1.05%
1994........... 9.85 0.50 (1.00) (0.50) (0.01) 8.84 (5.05) 1,853 1.05
1993(4)........ 10.01 0.31 (0.16) (0.31) -- 9.85 2.31* 2,633 1.05
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
RATIO OF AVERAGE NET TO AVERAGE
NET INCOME ASSETS NET ASSETS PORTFOLIO
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS WAIVERS) WAIVERS) RATE
----------- ------------- ----------- ---------
- ---------------------
SHORT-TERM INVESTMENT
- ---------------------
CLASS B
1995........... 5.27% 1.22% 5.10% 64.85%
1994........... 3.50 1.20 3.35 68.39
1993........... 2.09 1.13 2.01 81.92
1992(1)........ 3.14 1.26 2.93 68.15
- --------------
FIXED INCOME
- --------------
CLASS B
1995........... 5.58% 1.16% 5.47% 35.49%
1994........... 5.65 1.15 5.55 15.24
1993........... 5.24 1.13 5.16 49.49
1992(1)........ 5.93 1.20 5.78 23.86
- ---------------------
NEW JERSEY MUNICIPAL
- ---------------------
CLASS B
1995........... 4.18% 1.18% 3.66% 2.83%
1994........... 4.40 1.18 3.74 16.81
1993........... 4.34 1.23 3.54 23.83
1992(2)........ 4.44 1.39 3.67 02.23
- -----------------------------
INTERMEDIATE-TERM GOVERNMENT
- -----------------------------
CLASS B
1995........... 5.08% 1.30% 4.83% 68.29%
1994........... 4.83 1.20 4.68 40.27
1993........... 4.59 1.23 4.41 31.69
1992(1)........ 5.00 1.36 4.69 12.38
- -----------------------
PENNSYLVANIA MUNICIPAL
- -----------------------
CLASS B
1995........... 3.80% 1.55% 3.30% 36.92%
1994........... 3.42 1.92 2.55 38.20
1993(3)........ 3.24 1.48 2.81 16.51
- ------
GNMA
- ------
CLASS B
1995........... 6.05% 1.37% 5.73% 9.69%
1994........... 5.47 1.22 5.30 102.77
1993(4)........ 4.70 1.29 4.46 252.73
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
(+) Total Return does not reflect sales loads on Class B shares.
(1) The Short-Term Investment, Fixed Income and the Intermediate-Term Government Securities Fund's commenced operations on
April 1, 1992. Ratios for this period have been annualized.
(2) The New Jersey Municipal Securities Fund commenced operations on May 4, 1992. Ratios for this period have been
annualized.
(3) The Pennsylvania Municipal Securities Fund -- Class B commenced operations on May 13, 1993. Ratios for this period have
been annualized.
(4) The GNMA Fund -- Class B commenced operations on May 5, 1993. Ratios for this period have been annualized.
</TABLE>
<PAGE>
7
THE TRUST
THE PILLAR FUNDS (the 'Trust') consist of open-end management investment
companies that have diversified and non-diversified portfolios. The Trust offers
units of beneficial interest ('shares') in one of fifteen separate investment
portfolios. Shareholders may purchase shares in each portfolio (except for the
U.S. Treasury Securities Plus Money Market Fund) through two separate classes
(Class A and Class B) which provide for variations in distribution costs, voting
rights, sales load, minimum investment, redemption fees, transfer agency fees
and dividends. Except for these differences between classes, each share of each
portfolio represents an undivided, proportionate interest in that portfolio.
This Prospectus relates to the Class B shares of the Trust's Short-Term
Investment, Fixed Income, New Jersey Municipal Securities, Pennsylvania
Municipal Securities, Intermediate-Term Government Securities and GNMA Funds
(each of these, a 'Fund'). Each of the Funds is a diversified mutual fund except
for the New Jersey and Pennsylvania Municipal Securities Funds, which are
non-diversified mutual funds. Information regarding the Trust's other portfolios
and the Class A shares of the Funds is contained in separate prospectuses that
may be obtained from the Trust's Distributor, SEI Financial Services Company,
680 East Swedesford Road, Wayne, Pennsylvania 19087 or by calling
1-800-932-7782.
SHARES OF THE TRUST ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR INSURED, GUARANTEED, SPONSORED OR ENDORSED BY, ANY BANK
(INCLUDING UNITED JERSEY BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE OR
STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE U.S.
GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
SHARES OF THE TRUST ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. SEE 'INVESTMENT OBJECTIVES AND POLICIES--RISK
FACTORS; ADDITIONAL RISK FACTORS FOR NEW JERSEY MUNICIPAL SECURITIES; ADDITIONAL
RISK FACTORS FOR PENNSYLVANIA MUNICIPAL SECURITIES.'
A SALES CHARGE IS IMPOSED BY ALL FUNDS AT THE TIME OF PURCHASE. SEE 'PURCHASE OF
SHARES
- --OTHER INFORMATION REGARDING PURCHASES.'
INVESTMENT OBJECTIVES AND POLICIES
THE SHORT-TERM INVESTMENT FUND
The investment objective of this Fund is to provide a high level of total
return, primarily through current income, consistent with preservation of
capital. There is no assurance that the investment objective will be met. The
Fund may not invest in certain securities that may earn a higher return but
which are more volatile and riskier than the Fund's permitted investments.
At least 65% of the Fund's assets will be invested in (i) bills, notes and bonds
issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book entry system ('U.S. Treasury obligations') (ii) obligations issued or
guaranteed as to principal and interest by agencies and instrumentalities of the
U.S. Government; (iii) corporate debt obligations rated in one of the three
highest rating categories by a nationally recognized statistical rating
organization ('NRSRO') or determined by the Advisor to be of comparable quality
at the time of investment; (iv) commercial paper rated in the highest short-term
rating category by an NRSRO or determined by the Advisor to be of comparable
quality at the time of investment; (v) short-term bank obligations (certificates
of deposit, time deposits and bankers' acceptances) of U.S. commercial banks
with assets of at least $1 billion as of the end of their most recent fiscal
year; (vi) securities of the government of Canada and its provincial and local
governments; (vii) custodial receipts evidencing separately traded interest and
principal component parts of U.S. Treasury obligations; and (viii) repurchase
agreements involving such securities. Of this amount, the Fund may, for
temporary defensive purposes, invest up to 35% of its assets in commercial paper
rated in one of the two highest short-term rating categories or determined by
the Advisor to be of comparable quality at the time of investment. Securities
rated A are considered to be investment grade and of high credit quality. Issues
rated A could be more vulnerable to adverse developments than obligations with
higher ratings. In addition, the Fund may invest in corporate bonds and
debentures and commercial paper issued by foreign issuers.
The remaining 35% of the Fund's assets may be invested in (i) mortgage-backed
securities consisting of collateralized mortgage obligations ('CMOs') and real
estate mortgage investment conduits ('REMICs') that are rated in one of the top
two rating categories by an NRSRO and which are backed solely by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (ii) asset-backed securities
secured by company receivables, truck and auto loans, leases and credit card
receivables rated in one of the top two rating categories by an NRSRO.
The Fund will maintain a dollar-weighted average maturity of three years or
less.
<PAGE>
8
THE FIXED INCOME FUND
The investment objective of this Fund is to provide a high level of total
return, primarily through current income and capital appreciation, consistent
with preservation of capital. There is no assurance that the investment
objective will be met. The Fund may not invest in certain securities that may
earn a higher return but which are more volatile and riskier than the Fund's
permitted investments.
The Fund will be invested in the same investments, and its assets subject to the
same restrictions, as the Short-Term Investment Fund, although the actual
composition of the two Funds will normally differ substantially due to maturity
considerations.
The Fund expects to maintain a dollar-weighted average maturity that will not
exceed fifteen years. The Advisor may vary this maturity substantially in
anticipation of a change in the interest rate environment.
THE NEW JERSEY MUNICIPAL SECURITIES FUND
The investment objective of this Fund is to provide current income exempt from
both federal and New Jersey income taxes, consistent with preservation of
capital. There is no assurance that the investment objective will be met.
The New Jersey Municipal Securities Fund will invest at least 80% of its net
assets in obligations issued by or on behalf of the states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest of which,
in the opinion of bond counsel for the issuer, is exempt from federal income tax
(collectively, 'Municipal Securities'). Under normal circumstances, except when
acceptable securities are unavailable as determined by the Advisor, at least 65%
of the Fund's assets will be invested in Municipal Securities, the interest of
which, in the opinion of bond counsel for the issuer, is exempt from the New
Jersey gross income tax ('New Jersey Municipal Securities'). The Fund will
primarily purchase (i) municipal bonds rated in one of the three highest rating
categories by an NRSRO; (ii) municipal notes rated in one of the two highest
rating categories by an NRSRO; (iii) commercial paper either rated in one of the
two highest short-term rating categories by an NRSRO; (iv) any of the foregoing
determined by the Advisor to be of comparable quality at the time of investment;
or (v) securities of closed-end investment companies traded on a national
securities exchange. Securities rated A are considered to be investment grade
and of high credit quality. Issues rated A could be more vulnerable to adverse
developments than obligations with higher ratings.
The Fund expects to maintain a dollar-weighted average portfolio maturity of
less than fifteen years.
The New Jersey Municipal Securities Fund reserves the right to engage in 'put'
transactions although it has no present intention to do so. In addition, the
Advisor has discretion to invest up to a total of 20% of the Fund's assets in
taxable money market instruments (including repurchase agreements) and
securities subject to the federal alternative minimum tax. However, the Fund
generally intends to be fully invested in securities exempt from federal income
tax.
The New Jersey Municipal Securities Fund is a non-diversified investment company
which means that more than 5% of its assets may be invested in each of one or
more issuers. Since a relatively high percentage of assets of the Fund may be
invested in the obligations of a limited number of issuers, the value of shares
of the Fund may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment company would
be. The Fund intends to satisfy the diversification requirements necessary to
qualify as a regulated investment company ('RIC') under the Internal Revenue
Code of 1986, as amended (the 'Code').
THE PENNSYLVANIA MUNICIPAL SECURITIES FUND
The investment objective of this Fund is to provide current income exempt from
both federal and Pennsylvania income taxes, consistent with preservation of
capital. There is no assurance that this investment objective will be met.
At least 80% of the Fund's assets will be invested in Municipal Securities.
Under normal circumstances, except when acceptable securities are unavailable as
determined by the Advisor, at least 65% of the Fund's assets will be invested in
Municipal Securities, the interest of which, in the opinion of bond counsel for
the issuer, is exempt from Pennsylvania income tax ('Pennsylvania Municipal
Securities'). The Fund may invest up to 10% of its assets in securities the
income tax from which is subject to the federal alternative minimum tax.
Municipal Securities that the Fund may purchase include (i) municipal bonds
which are rated BBB or better by Standard & Poor's Rating Group ('S&P') or Baa
or better by Moody's Investor Service, Inc. ('Moody's') at the time of
investment or, if not rated, determined by the Advisor to be of comparable
quality; (ii) municipal notes which are rated at least SP-1 by S&P or MIG-1 or
V-MIG-1 by Moody's at the time of investment or, if not rated, determined by the
Advisor to be of comparable quality; and (iii) tax-exempt commercial paper rated
at least A-1 by S&P
<PAGE>
9
or Prime-1 by Moody's at the time of investment or, if not rated, determined by
the Adviser to be of comparable quality. Bonds rated BBB by S&P or Baa by
Moody's have speculative characteristics. Municipal securities owned by the Fund
which become downgraded below the prescribed investment quality shall be sold at
a time when, in the judgment of the Adviser, the sale is in the best interest of
the Fund.
The Fund may invest in commitments to purchase such securities on a 'when
issued' basis, and reserves the right to engage in 'put' transactions. The Fund
may also purchase other types of tax-exempt instruments as long as they are of a
quality equivalent to the long-term bond or commercial paper ratings stated
above. Although permitted to do so, the Fund has no present intention to invest
in repurchase agreements or purchase securities subject to the federal
alternative minimum tax.
The Fund expects to maintain a dollar-weighted average portfolio maturity of
less than fifteen years.
The Pennsylvania Municipal Securities Fund is a non-diversified investment
company which means that more than 5% of its assets may be invested in each of
one or more issuers. Since a relatively high percentage of assets of the Fund
may be invested in the obligations of a limited number of issuers, the value of
shares of the Fund may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment company would
be. The Fund intends to satisfy the diversification requirements necessary to
qualify as a regulated investment company ('RIC') under the Internal Revenue
Code of 1986, as amended (the 'Code').
THE INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
The objective of this Fund is to preserve principal value and maintain a high
degree of liquidity while providing current income. There is no assurance that
the investment objective will be met.
The Fund will be fully invested in U.S. Treasury obligations and obligations
issued or guaranteed as to principal and interest by the agencies and
instrumentalities of the U.S. Government. The Fund will maintain a
dollar-weighted average maturity of three to ten years. Under normal
circumstances, the Advisor anticipates that the Fund's dollar-weighted average
maturity will be approximately five years; however, the Advisor may vary this
average maturity substantially in anticipation of a change in the interest rate
environment.
THE GNMA FUND
The investment objective of this Fund is to provide the highest level of current
income consistent with preservation of principal and a high degree of liquidity.
There is no assurance that the investment objective will be met.
The Fund invests primarily in mortgage pass-through securities with at least 65%
of its total assets generally being invested in instruments issued by GNMA. The
balance of the Fund's assets may consist of: (i) U.S. Treasury obligations; (ii)
obligations issued or guaranteed as to principal and interest by the agencies or
instrumentalities of the U.S. Government; (iii) repurchase agreements involving
any of such obligations; and (iv) shares of money market investment companies
investing exclusively in such obligations. The Fund intends to maintain a
reasonable cash position in money market instruments which meet the foregoing
criteria so as to provide a high degree of liquidity.
GENERAL INVESTMENT POLICIES
For temporary defensive purposes when the Advisor determines that market
conditions warrant, each Fund (except the GNMA Fund) may invest up to 100% of
its assets in the money market instruments described as permissible investments
for the Short-Term Investment Fund and may hold a portion of its assets in cash.
For temporary defensive purposes when the Advisor determines that market
conditions warrant, the GNMA Fund may invest up to 100% of its assets in those
money market instruments which are among its permitted investments. To the
extent a Fund is engaged in temporary defensive investing, the Fund will not be
pursuing its investment objective.
Each of the Funds except the New Jersey and Pennsylvania Municipal Securities
Funds may purchase mortgage-backed securities issued or guaranteed as to payment
of principal and interest by the United States Government, its agencies or
instrumentalities. The Short-Term Investment and Fixed Income Funds may also
invest in mortgage-backed securities issued by private issuers rated in one of
the two highest rating categories and backed by mortgage pass-throughs issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The
principal governmental issuers or guarantors of mortgage-backed securities are
GNMA, the Federal National Mortgage Association ('FNMA') and the Federal Home
Loan Mortgage Corporation ('FHLMC'). The GNMA Fund may purchase mortgage
pass-throughs, notes or debentures directly issued and guaranteed by GNMA, FNMA,
FHLMC and Federal Home Loan Banks. Obligations of GNMA are backed by the full
faith and credit of the United States Government while obligations of FNMA and
FHLMC are supported by the respective agency only. The Funds may purchase
mortgage-backed securities that are backed or collateralized by fixed,
adjustable or floating rate mortgages.
Each of the Funds may invest in floating or variable rate obligations and may
purchase securities on a when-issued basis. In addition, each Fund reserves the
right to engage in securities lending but has no present intention to do so.
If after purchase the rating of a security held by a Fund drops below investment
quality, such security
<PAGE>
10
shall be sold at a time when, in the judgment of the Advisor, it is not in the
Fund's interest to continue to hold such security. For a description of each
Fund's permitted investments and the ratings listed above, see the 'Description
of Permitted Investments' in this Prospectus and 'Description of Permitted
Investments,' and 'Description of Ratings' in the Statement of Additional
Information.
RISK FACTORS
The market value of each Fund's fixed income investments will fluctuate in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal will also
affect the value of these investments. Changes in the value of portfolio
securities will not affect cash income derived from these securities but will
affect a Fund's net asset value.
Mortgage-backed securities are subject to prepayment of the underlying
mortgages. During periods of declining interest rates, prepayment of mortgages
underlying these securities can be expected to accelerate. When the
mortgage-backed securities held by a Fund are prepaid, the Fund must reinvest
the proceeds in securities, the yield of which reflects prevailing interest
rates. Thus, mortgage-backed securities may not be an effective means of locking
in long-term interest rates for a Fund.
Investments in securities of foreign issuers may subject the Short-Term
Investment and Fixed Income Funds to different risks than those attendant to
investments in securities of U.S. issuers, such as differences in accounting,
auditing and financial reporting standards, the possibility of expropriation or
confiscatory taxation, and political instability. There may also be less
publicly available information with regard to foreign issuers than domestic
issuers. In addition, foreign markets may be characterized by less liquidity,
greater price volatility, less regulation and higher transaction costs than U.S.
markets.
ADDITIONAL RISK FACTORS FOR NEW JERSEY MUNICIPAL SECURITIES
New Jersey Municipal Securities are primarily issued by or on behalf of the
state of New Jersey, its political subdivisions, agencies and instrumentalities.
The concentration in obligations of New Jersey issuers by the New Jersey
Municipal Securities Fund subjects the Fund to special investment risks. In
particular, changes in economic conditions and governmental policies of the
State of New Jersey and its municipalities could adversely affect the value of
the Fund and the securities held by it. For a further description of these
risks, see 'New Jersey Municipal Securities' in the Statement of Additional
Information.
ADDITIONAL RISK FACTORS FOR PENNSYLVANIA MUNICIPAL SECURITIES
Under normal conditions the Fund will be fully invested in obligations which
produce interest income exempt from federal income tax and Pennsylvania state
income tax. Accordingly, the Fund will have considerable investments in
Pennsylvania Municipal Securities. As a result, the Fund will be more
susceptible to factors that adversely affect issuers of Pennsylvania obligations
than a mutual fund which does not have as great a concentration in Pennsylvania
Municipal Securities.
An investment in the Fund will be affected by the many factors that affect the
financial condition of the Commonwealth of Pennsylvania. For example, financial
difficulties of the Commonwealth, its counties, municipalities and school
districts that hinder efforts to borrow and lower credit ratings are factors
which may affect the Fund. See 'Pennsylvania Municipal Securities' in the
Statement of Additional Information.
FUND TURNOVER
Under normal circumstances, it is anticipated that the annual portfolio turnover
rate for each Fund will not exceed 100%.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. In addition, it is a fundamental policy of
the New Jersey and Pennsylvania Municipal Securities Funds to invest at least
80% of total assets in Municipal Securities. Fundamental policies cannot be
changed with respect to a Fund without the consent of the holders of a majority
of that Fund's outstanding shares.
Each Fund may not:
<PAGE>
11
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer provided,
however, that this limitation does not apply to the New Jersey Municipal
Securities or Pennsylvania Municipal Securities Funds. This restriction applies
to 75% of each Fund's total assets.
2. Purchase any securities which would cause more than 25% of the total assets
of any Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities or to investments in tax-exempt securities
issued by governments or political subdivisions of governments. For purposes of
this limitation, (i) utility companies will be classified according to their
services, for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; and (ii) financial services companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as described in this Prospectus
and in the Statement of Additional Information.
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
THE ADVISOR
United Jersey Bank Investment Management Division, a division of United Jersey
Bank (the 'Advisor') serves as the Advisor of the Trust. The Advisor makes the
investment decisions for the assets of each Fund and continuously reviews,
supervises and administers each Fund's investment program subject to the
supervision of, and policies established by, the Trustees of the Trust.
United Jersey Bank, 210 Main Street, Hackensack, NJ 07601, was chartered in 1899
and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment experts have, on average, over 20 years of
experience in investment management. As of December 31, 1995, total assets under
management were approximately $4 billion.
United Jersey Bank is a wholly-owned subsidiary of Summit Bancorp, an
interstate bank holding company with $22 billion in assets and over 325 banking
offices in New Jersey and Eastern Pennsylvania as of December 31, 1995.
Robert B. Lowe is a Vice President of the Advisor and currently manages the
Short-Term Investment, Fixed Income, and GNMA Funds. Mr. Lowe has managed the
Short-Term Investment and Fixed Income Funds since their inception in April,
1992. He has managed the GNMA Fund since its inception in May, 1993. Mr. Lowe
has investment responsibility for equity and fixed income portfolios in the
Princeton Investment Office and joined United Jersey Bank in 1989.
Randolph E. Lestyk has managed the Pennsylvania Municipal Securities Fund since
September, 1994. Mr. Lestyk is a Vice President and Regional Manager of the
Advisor. Mr. Lestyk manages the investment function in Pennsylvania and has
responsibility for both equity and fixed income portfolios. Prior to joining
United Jersey Bank in January, 1994, Mr. Lestyk was involved in equity and fixed
income investing at several financial institutions, serving as Director of Fixed
Income Investing, Head of Trust Investments, and most recently as Senior Vice
President and Chief Investment Officer of a major insurance company in
Pennsylvania.
Charlene P. Palmer is a Vice President of the Advisor and has managed the New
Jersey Municipal Securities Fund since its inception in May, 1992. Mrs. Palmer's
experience has emphasized tax-exempt bonds. She joined United Jersey Bank in
1981.
Frances M. Tendall is a Vice President and Regional Manager (Princeton) of the
Advisor. Mrs. Tendall has managed the Intermediate-Term Government Securities
Fund since its inception in April, 1992 and co-manages the U.S. Treasury
Securities Money Market Fund. Mrs. Tendall joined United Jersey Bank in 1982 and
is currently responsible for managing both equity and fixed income portfolios.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .60% of the average daily net assets of each Fund. The Advisor
has voluntarily agreed to waive all or a portion of its fees in order to limit
the operating expenses of Class B shares of each Fund to 1.05%. For the fiscal
year ended December 31, 1995, each
<PAGE>
12
Fund paid the Adviser the following advisory fee (shown as a percentage of its
average daily net assets): Short-Term Investment Fund, .43%; Fixed Income Fund,
.50%; New Jersey Municipal Securities Fund, .15%; Pennsylvania Municipal
Securities Fund, .19%; Intermediate-Term Government Securities Fund, .35%; and
GNMA Fund, .27%. The Advisor reserves the right to terminate its fee waiver at
any time in its sole discretion.
United Jersey Bank has also entered into a Custodian Agreement with the Trust,
under which it will provide all securities safekeeping services as required by
the Funds and the Investment Company Act of 1940, as amended. The Trust pays
United Jersey Bank (referred to herein in its custodial capacity as the
'Custodian') a custodian fee, which is calculated daily and paid monthly, at an
annual rate of .025% of the average daily net assets of each Fund.
The Glass-Steagall Act restricts the securities activities of banks such as
United Jersey Bank, but federal regulatory authorities permit such banks to
provide investment advisory and other services to mutual funds. Should this
position be challenged successfully in court or reversed by legislation, the
Trust might have to make other investment advisory arrangements.
THE ADMINISTRATOR
SEI Financial Management Corporation (the 'Administrator'), a wholly-owned
subsidiary of SEI Corporation ('SEI'), serves as the Administrator of the Trust.
The Administrator provides the Trust with administrative services, other than
investment advisory services, including regulatory reporting, all necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of each Fund.
The Administrator has agreed to waive all or a portion of its fees in order to
limit the total operating expenses of Class B shares of the New Jersey Municipal
Securities Fund and the Pennsylvania Municipal Securities Fund to .80%. The
Administrator reserves the right to terminate its fee waiver at any time in its
sole discretion.
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the dividend disbursing agent and
shareholder servicing agent for the Trust. SEI Financial Management Corporation
also acts as the transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the 'Distributor'), a wholly-owned subsidiary of
SEI, acts as the Distributor for the Trust.
The Class B shares of each Fund have a distribution plan dated February 28, 1992
and, for the Pennsylvania Municipal Securities and GNMA Fund, April 30, 1993
('Class B Plan'). As provided in the Distribution Agreement and the Class B
Plan, the Trust will pay the Distributor a fee of .25% of the average daily net
assets of each Fund's Class B shares. The Distributor may apply this fee toward:
a) compensation for its services in connection with distribution assistance or
provision of shareholder services; or b) payments to financial institutions and
intermediaries such as banks (including United Jersey Bank), savings and loan
associations, insurance companies, and investment counselors, broker-dealers,
and the Distributor's affiliates and subsidiaries as compensation for services,
reimbursement of expenses incurred in connection with distribution assistance,
or provision of shareholder services. The Class B Plan is characterized as a
compensation plan since the distribution fee will be paid to the Distributor
without regard to the distribution or shareholder service expenses incurred by
the Distributor or the amount of payments made to financial institutions and
intermediaries. The Funds may also execute brokerage or other agency
transactions through an affiliate of the Advisor or through the Distributor for
which such affiliate or the Distributor receives compensation.
Class A shares of each Fund are offered without distribution fees or sales loads
(i) to institutional investors (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of their own funds, (ii) to individuals
and institutions (including United Jersey Bank, its affiliates and correspondent
banks) for the investment of funds held by such individuals or institutions
in a fiduciary, agency, custodial or other representative capacity if such
individuals or institutions are able to provide complete shareholder
recordkeeping services with respect to shares purchased and held in such
capacity, and (iii) any individual who has entered into an Investment Strategy
Account Agreement with United Jersey Bank, its affiliates or correspondent banks
("ISA Customers").
Class B shares of each Fund are offered to all persons. Consequently, it is
possible that individuals or institutions may offer different classes of shares
of the Funds to their customers and thus receive different compensation with
respect to different classes of shares. In addition, individuals or institutions
that are the record owner of shares for the account of their customers may
impose separate fees for account services to their customers.
<PAGE>
13
PURCHASE OF SHARES
Shares of the Funds may be purchased through a financial institution, such as
United Jersey Bank, or a broker-dealer that has entered into a dealer agreement
with the Distributor. Shares may also be purchased directly through the
Distributor by mail, by telephone, or by wire.
Shares of each Fund are sold on a continuous basis and may be purchased on any
Business Day. The minimum initial investment in the Trust is $1,000; however,
the minimum investment may be waived at the Distributor's discretion. All
subsequent purchases must be at least $50.
Generally, a purchase order will be effective as of the Business Day received by
the Distributor if the Distributor receives the order and payment before 4:00
p.m., Eastern time, on such Business Day.
With respect to ISA Customers, purchase orders will be effective as of the
Business Day received by the Distributor if the Distributor receives the order
and payment prior to 4:00 p.m., Eastern time, on such Business Day.
PURCHASES THROUGH INTERMEDIARIES
Customers should contact their Intermediary for information about the
institution's procedures for purchasing shares of the Funds and any charges for
services provided by the institution. Intermediaries may impose an earlier
cut-off time for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor for effectiveness
the same day. In addition, state securities laws may require banks and financial
institutions purchasing shares for their customers to register as dealers
pursuant to state laws.
DIRECT PURCHASES
By Mail
Investors may purchase shares of any Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to 'The Pillar Funds (Fund Name),' P.O. Box
8523, Boston MA 02266-8523. Third party checks, credit cards, credit card checks
and cash will not be accepted. When purchases are made by check, redemptions
will not be allowed until the investment being redeemed has been in the account
for 10 Business Days. Orders by mail will be executed upon receipt of payment.
If an investor's check does not clear, the purchase will be cancelled and the
investor could be liable for any losses or fees incurred. Subsequent purchases
of shares may be made at any time by mailing a check (or other negotiable bank
draft or money order) to the above listed address.
Account Application forms can be obtained by calling the Distributor at
1-800-932-7782.
By Telephone or by Wire
If your Account Application has been previously received, you may also purchase
shares by telephone or by wire. To buy shares by telephone or
by wire, call the Distributor toll-free at 1-800-932-7782. Shares cannot be
purchased by Federal Reserve wire on days which the New York Stock Exchange is
closed and on federal holidays upon which wire transfers are restricted.
Automatic Investment Plan (AIP)
A Shareholder may also arrange for periodic additional investments in the Funds
through automatic deductions by Automated Clearing House ('ACH') wire transfer
from a checking account by completing an Optional Services Form. The minimum
pre-authorized investment amount is $50 per month. An Optional Service Form may
be obtained by contacting the Distributor at 1-800-932-7782.
OTHER INFORMATION REGARDING PURCHASES
A purchase order for shares will be executed at a per share price equal to the
net asset value next determined after the receipt of the purchase order by the
Distributor plus any applicable sales charge (the 'offering price').
Orders by telephone will not be executed until payment has been received. If a
check received does not clear, the purchase will be cancelled and the investor
could be liable for any losses or fees incurred. No certificates representing
shares will be issued.
The net asset value per Class B share of each Fund is determined by dividing the
total market value of the Fund's investments and other assets that are allocated
to Class B shares, less any liabilities that are allocated to Class B shares, by
the total outstanding Class B shares of the Fund. A Fund may use a pricing
service to provide market quotations. A pricing service may use a matrix system
of valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings and developments related to a
specific security. Net asset value per share is determined as of 4:00 p.m.,
Eastern time, on each Business Day. Purchases will be made in full and
fractional shares of the Fund calculated to three decimal places. Although the
methodology and procedures are identical, the net asset value per share of
classes within a Fund may differ because of the distribution expenses charged to
the Class B shares.
The following table shows the regular sales charge on Class B shares of the
Fixed Income and Intermediate Term Government Securities Funds to a 'single
purchaser' (defined below) together with the reallowance paid to dealers and the
agency commission paid to brokers:
<PAGE>
14
<TABLE>
<CAPTION>
REALLOWANCE
SALES AND
SALES CHARGE AS BROKERAGE
CHARGE AS A PERCENTAGE COMMISSION AS
PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF OF OFFERING AMOUNT OFFERING
PURCHASE PRICE INVESTED PRICE
- -------------------- ------------- --------------- -----------------
<S> <C> <C> <C>
$0-99,999 4.00% 4.17% 3.50%
$100,000-249,999 3.00% 3.10% 2.70%
$250,000-499,999 2.00% 2.05% 1.80%
$500,000-999,999 1.00% 1.01% 0.90%
$1,000,000 and above 0.00% 0.00% 0.00%
</TABLE>
The following table shows the regular sales charge on Class B Shares for the
GNMA Fund to a 'single purchaser' (defined below) together with the reallowance
paid to dealers and the agency commission paid to brokers:
<TABLE>
<CAPTION>
REALLOWANCE
SALES AND
SALES CHARGE AS BROKERAGE
CHARGE AS A PERCENTAGE COMMISSION AS
PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF OF OFFERING AMOUNT OFFERING
PURCHASE PRICE INVESTED PRICE
- -------------------- ------------- --------------- -----------------
<S> <C> <C> <C>
$0-249,999 3.00% 3.10% 2.70%
$250,000-499,999 2.00% 2.05% 1.80%
$500,000-999,999 1.00% 1.01% 0.90%
$1,000,000 and above 0.00% 0.00% 0.00%
</TABLE>
The following table shows the regular sales charge on Class B shares of the
Short-Term Investment, New Jersey Municipal Securities and Pennsylvania
Municipal Securities Funds to a 'single purchaser' (defined below) together with
the reallowance paid to dealers and the agency commission paid to brokers:
<TABLE>
<CAPTION>
REALLOWANCE
SALES AND
CHARGE AS A SALES CHARGE AS BROKERAGE
PERCENTAGE PERCENTAGE COMMISSION AS
AMOUNT OF OF OFFERING OF NET AMOUNT PERCENTAGE OF
PURCHASE PRICE INVESTED OFFERING PRICE
- -------------------- ------------- --------------- -----------------
<S> <C> <C> <C>
$0-999,999 1.00% 1.01% 0.90%
$1,000,000 and above 0.00% 0.00% 0.00%
</TABLE>
The commissions shown in the tables apply to sales through financial
institutions. Under certain circumstances, some financial institutions,
including United Jersey Bank and its affiliates, will be reallowed the entire
sales charge imposed on purchases of Class B shares and may, therefore, be
deemed to be 'underwriters' under the Securities Act of 1933, as amended.
Commission rates may vary among the Funds.
Right of Accumulation
In calculating the sales charge rates applicable to current purchases of a
Fund's shares, a 'single purchaser' is entitled to cumulate current purchases
with the net purchases of previously purchased shares of the Fund and other
portfolios of The Pillar Funds ('Eligible Funds') which are sold subject to a
sales charge.
The term 'single purchaser' refers to (i) an individual, (ii) an individual and
spouse purchasing shares of a Fund for their own account or for trust or
custodial accounts for their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 or 457 of the Code, including related plans of the
same employer. To be entitled to a reduced sales charge based upon shares
already owned, the investor must ask the Distributor for such entitlement at the
time of purchase and provide the account number(s) of the investor and, if
applicable, the investor and spouse, their minor children, and give the ages of
such children. A Fund may amend or terminate this right of accumulation at any
time prior to subsequent purchases.
Letter of Intent
By initially investing at least $1,000 and submitting a Letter of Intent to the
Distributor, a 'single purchaser' may purchase shares of the Fund and the other
Eligible Funds during a 13-month period at the reduced sales charge rates
applying to the aggregate amount of the intended purchases stated in the Letter.
The Letter may apply to purchases made up to 90 days before the date of the
Letter.
Other Circumstances
No sales charge is imposed on shares of the Fund: (i) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers, to
which the Trust is a party; (ii) sold to dealers or brokers that have a sales
agreement with the Distributor for their own account or for retirement plans for
their employees or sold to present employees of dealers or brokers that certify
to the Distributor at the time of purchase that such purchase is for their own
account; (iii) sold to investors who are present or retired employees of United
Jersey Bank or one of its affiliates; (iv) sold to investors who are present
employees of any entity which is a current service provider to the Trust; or (v)
sold to any individual who has entered into an Investment Strategy Account
Agreement with United Jersey Bank, its affiliates or correspondent banks.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
<PAGE>
15
EXCHANGES
Some or all of the shares of the Funds for which payment has been received
(i.e., an established account) may be exchanged for shares at their net asset
value, of other Funds within the Trust with similar, lower or no sales loads.
Exchanges will be made only after instructions in writing or by telephone (an
'Exchange Request') are received for an established account by the Distributor.
Shareholders may effect exchanges of shares directly through the Distributor.
Additionally, Intermediaries, through which Shareholders may purchase shares,
generally stand ready to assist Shareholders in effecting through the
Distributor exchanges of shares held in Fund accounts. Shareholders wishing to
effect an exchange with the assistance of an Intermediary should contact that
Intermediary for information about exchange procedures and cut-off times.
If an Exchange Request in good order is received by the Distributor by 4:00
p.m., Eastern time, on any Business Day, the exchange usually will occur on that
day. Any Shareholder or customer who wishes to make an exchange must have
received a current prospectus of the Fund in which he or she wishes to invest
before the exchange will be effected.
A description of the above and other plans and privileges by which a sales
charge may be reduced is set forth in the 'Shareholder Services' section of the
Statement of Additional Information.
REDEMPTION OF SHARES
Shares may be redeemed without charge on any Business Day at their net asset
value. Redemption requests received in good order by 4:00 p.m., Eastern time,
will be effective on the Business Day received. Requests received after 4:00
p.m. will be effective on the next Business Day.
REDEMPTIONS THROUGH INTERMEDIARIES
Intermediaries, through which Shareholders may purchase shares, generally stand
ready to assist Shareholders in effecting through the Distributor redemptions of
shares held in Fund accounts. Shareholders wishing to effect a redemption with
the assistance of an Intermediary should contact that Intermediary for
information about redemption procedures and cut-off times.
DIRECT REDEMPTIONS
Shares may be redeemed directly through the Distributor by mail, by telephone or
by wire.
By Mail
A written request for redemption must be received by the Distributor in order to
constitute a valid request for redemption. The Distributor may require that the
signature on the written request be guaranteed by a commercial bank or by a
member firm of a domestic stock exchange. The signature guarantee requirement
will be waived if all of the following conditions apply: (1) the redemption is
for $5,000 worth of shares or less, (2) the redemption check is payable to the
Shareholder(s) of record, and (3) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application or by written instruction to the Distributor. There is no
charge for having redemption requests mailed to a designated bank account.
By Telephone
Shares may be redeemed by telephone if the Shareholder elects that option on the
Account Application. The Shareholder may have the proceeds mailed to his or her
address or mailed or wired to a commercial bank account previously designated on
the Account Application. Payment on redemption will be made as promptly as
possible and, in any event, within seven Business Days after the redemption
order is effective. Wire redemption requests may be made by the Shareholder by
calling the Distributor at 1-800-932-7782. A $10.00 wire redemption charge will
be added to the amount of the redemption. Shareholders may not close their
accounts by telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are
<PAGE>
16
genuine, including requiring a form of personal identification prior to acting
upon instructions received by telephone and recording instructions. If market
conditions are extraordinarily active, or other extraordinary circumstances
exist, Shareholders who experience difficulties placing redemption orders by
telephone may wish to consider placing the redemption order by other means.
Systematic Withdrawal Plan (SWP)
The Funds offer a Systematic Withdrawal Plan which may be utilized by
Shareholders who wish to receive regular distribution from their account. Upon
commencement of the SWP, the account must have a current value of $1,000 or
more. Shareholders may elect to receive automatic payment by check or ACH wire
transfer of $50 or more on a monthly or quarterly basis. An Optional Services
Form may be obtained by contacting the Distributor at 1-800-932-7782.
OTHER INFORMATION REGARDING REDEMPTIONS
All redemption orders are effected at the net asset value per share next
determined after receipt of a valid request for redemption, as described above.
Net asset value per share is determined as of 4:00 p.m., Eastern time, on each
Business Day. Payment to Shareholders for shares redeemed will be made within
seven days after receipt by the Distributor of the request for redemption.
At various times, any Fund may be requested to redeem shares for which it has
not yet received good payment in connection with their purchase. In such
circumstances, the forwarding of redemption proceeds may be delayed until such
payment has been collected. The Funds intend to pay cash for all shares
redeemed, but under abnormal conditions which make payment in cash unwise,
payment may be made wholly or partly in portfolio securities with a market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder, the
account of such Shareholder in any Fund has a value of less than $1,000, the
minimum initial purchase amount. Accordingly, an investor purchasing shares of
any Fund in only the minimum investment amount may be subject to such
involuntary redemption if he or she thereafter redeems any of these shares.
Before any Fund exercises its right to redeem such shares and to send the
proceeds to the Shareholder, the Shareholder will be given notice that the value
of the shares in his or her account is less than the minimum amount and will be
allowed 60 days to make an additional investment in such Fund in an amount which
will increase the value of the account to at least $1,000.
See 'Purchase and Redemption of Shares' in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
PERFORMANCE
From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including, but not limited to, the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gain distributions. Each Fund's performance may be compared to other
funds or to relevant indices which may calculate total return without reflecting
sales charges, in which case a Fund may advertise its total return in the same
manner. If reflected, sales charges would reduce these total return
calculations.
The New Jersey and Pennsylvania Municipal Securities Funds may also advertise a
'tax-equivalent yield,' which is calculated by determining the rate of return
that would have to be achieved on a fully taxable investment to produce the
after-tax
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17
equivalent of the respective Fund's yield, assuming certain tax brackets for a
Shareholder.
The advertised performance on Class A shares will normally be higher than for
Class B shares because Class A shares are not subject to the distribution
expenses and sales loads charged to Class B shares. The actual return to a
Shareholder on Class A shares may be reduced by any administrative or management
charges that may be imposed by individuals or institutions on their customers
for account services. The actual return to Shareholders on Class B shares will
be reduced by the amount of any sales load and distribution expenses paid on
Class B shares.
A Fund may periodically compare its performance to that of: (i) other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; of (ii) broad groups of
comparable mutual funds; (iii) unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or (iv) to other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and could
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded RICs under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) which is distributed to Shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares and will not qualify for
the dividends-received deduction otherwise available to corporate shareholders.
Any net capital gains will be distributed annually and will be taxed to
Shareholders as long-term capital gains, regardless of how long the Shareholder
has held shares. Capital gains distributions also will not qualify for the
corporate dividends-received deduction. Each Fund will make annual reports to
Shareholders of the federal income tax status of all distributions.
Certain securities purchased by the Funds (such as STRIPS, TRs, TIGRs and CATS,
defined under 'Description of Permitted Investments') are sold at original issue
discount and thus do not make periodic cash interest payments. A Fund will be
required to include as part of its current income the accreted interest on such
obligations even though the Fund has not received any interest payments on such
obligations during that period. Because the Fund distributes all of its net
investment income to its Shareholders, the Fund may have to sell portfolio
securities to distribute such accreted income which may occur at a time when the
Advisor would not
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18
have chosen to sell such securities and which may result in a taxable gain or
loss.
Interest received on direct U.S. Government obligations that is exempt from tax
at the state level when received directly may be exempt, depending on the state,
when received by a Shareholder from a Fund provided certain conditions are
satisfied. Each Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any portion
of the income dividends received from a Fund is considered tax-exempt in their
particular states.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in these months will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 if
paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Sale, exchange or redemption of Fund shares is a taxable event to a Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Fund will not be able to elect to treat
Shareholders as having paid their proportionate share of such foreign taxes.
ADDITIONAL CONSIDERATIONS FOR THE NEW JERSEY MUNICIPAL SECURITIES AND
PENNSYLVANIA MUNICIPAL SECURITIES FUNDS
The New Jersey and Pennsylvania Municipal Securities Funds will each distribute
all of their net investment income (including net short-term capital gain) to
their respective Shareholders. If, at the close of each quarter of its taxable
year, at least 50% of the value of a Fund's assets consist of obligations the
interest on which is excludable from gross income, the Fund may pay
'exempt-interest dividends' to its Shareholders. Those dividends constitute the
portion of the aggregate dividends as designated by the Fund, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt-interest dividends are excludable from a Shareholder's gross income for
federal income tax purposes, but may have federal alternative minimum tax
consequences. See the Statement of Additional Information.
Current federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of a Fund to purchase sufficient amounts of tax-exempt securities to
satisfy the Code's requirements for the payment of 'exempt-interest dividends.'
Interest on indebtedness incurred or continued by a Shareholder in order to
purchase or carry shares of the New Jersey Municipal Securities Fund or the
Pennsylvania Municipal Securities Fund is not deductible for federal income tax
purposes. Furthermore, these Funds may not be an appropriate investment for
persons (including corporations and other business entities) who are
'substantial users' (or persons related to 'substantial users') of facilities
financed by industrial
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19
development private activity bonds. Such persons should consult their tax
advisers before purchasing shares. A 'substantial user' is defined generally to
include 'certain persons' who regularly use in their trade or business a part of
a facility financed from the proceeds of such bonds.
NEW JERSEY TAX CONSIDERATIONS
Investors of the New Jersey Municipal Securities Fund will not be subject to the
New Jersey Gross Income Tax on distributions from the Fund attributable to
interest income from (and net gain, if any, from the disposition of) New Jersey
Municipal Securities or obligations of the United States, its territories and
possessions and certain of its agencies and instrumentalities ('Federal
Securities') held by the Fund, either when received by the Fund or when credited
or distributed to the investors, provided that the Fund meets the requirements
for a qualified investment fund by: 1) maintaining its registration as a
registered investment company with the Securities and Exchange Commission; 2)
investing at least 80% of the aggregate principal amount of the Fund's
investments, excluding financial options, futures, forward contracts, or other
similar financial instruments relating to interest-bearing obligations,
obligations issued at a discount or bond indexes related thereto to the extent
such instruments are authorized under the regulated investment company rules
under the Code, cash and cash items, which cash items shall include receivables,
in New Jersey Municipal Securities or Federal Securities at the close of each
quarter of the tax year; 3) investing 100% of its assets in interest-bearing
obligations, discount obligations, cash and cash items, including receivables,
financial options, futures, forward contracts, or other similar financial
instruments relating to interest-bearing obligations, discount obligations or
bond indexes related thereto; and 4) complying with certain continuing reporting
requirements.
For New Jersey Gross Income Tax purposes, net income or gains and distributions
derived from investments in other than New Jersey Municipal Securities and
Federal Securities, and distributions from net realized capital gains in respect
of such investments, will be taxable.
Gain on the disposition of Shares is not subject to New Jersey Gross Income Tax,
provided that the Fund meets the requirements for a qualified investment fund
set forth above.
PENNSYLVANIA TAX CONSIDERATIONS
For purposes of the Pennsylvania Personal Income Tax and the Philadelphia School
District Investment Net Income Tax, distributions which are attributable to
interest received by the Pennsylvania Municipal Securities Fund from its
investments in Pennsylvania Municipal Securities or Federal Securities are not
taxable. Distributions by the Fund to a Pennsylvania resident that are
attributable to most other sources may be subject to the Pennsylvania Personal
Income Tax and (for residents of Philadelphia) to the Philadelphia School
District Investment Net Income Tax.
Distributions paid by the Fund which are excludable as exempt income for federal
tax purposes are not subject to the Pennsylvania corporate net income tax. An
additional deduction from Pennsylvania taxable income is permitted for the
amount of distributions paid by the Fund attributable to interest received by
the Fund from its investments in Pennsylvania Municipal Securities and Federal
Securities to the extent included in federal taxable income, but such a
deduction is reduced by any interest on indebtedness incurred to carry the
securities and other expenses incurred in the production of such interest
income, including expenses deducted on the federal income tax return that would
not have been allowed under the Code if the interest were exempt from federal
income tax. Distributions by the Fund attributable to most other sources may be
subject to the Pennsylvania corporate net income tax. It is the current position
of the Pennsylvania Department of Revenue that Fund shares are considered exempt
assets (with a pro rata exclusion based on the value of the Fund attributable to
its investments in Pennsylvania Municipal Securities and Federal Securities) for
purposes of determining a corporation's capital stock value subject to the
Commonwealth's capital stock or franchise tax.
Shares purchased as an investment in the Pennsylvania Municipal Securities Fund
are exempt from Pennsylvania county personal property taxes and (as to residents
of Pittsburgh) from personal property taxes imposed by the City of Pittsburgh
and
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20
the School District of Pittsburgh to the extent that the Fund's investments
consist of obligations which are themselves exempt from taxation in
Pennsylvania.
The Fund intends to invest primarily in obligations which produce interest
exempt from federal and Pennsylvania taxes. If the Fund invests in obligations
that are not exempt for Pennsylvania purposes but are exempt for federal
purposes, a portion of the Fund's distributions will be subject to Pennsylvania
personal income tax.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. In
addition to the Funds, the Trust consists of the following portfolios: U.S.
Treasury Securities Money Market Fund, U.S. Treasury Securities Plus Money
Market Fund, Prime Obligation Money Market Fund, Tax-Exempt Money Market Fund,
Equity Value Fund, Equity Income Fund, Mid Cap Value Fund, Balanced Growth Fund
and International Growth Fund. All consideration received by the Trust for
shares of any Fund and all assets of such Fund belong to that Fund and would be
subject to liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
From time to time, the Funds may experience relatively large purchases or
redemptions due to asset allocation decisions made by the Advisor for its
clients. These transactions may have a material effect on the Funds, since Funds
that experience redemptions as a result of reallocations may have to sell
portfolio securities and because Funds that receive additional cash will have to
invest it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that Funds may be required to sell securities at times when they
would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases and
sales of securities, and such sales may also increase transaction costs. The
Advisor is committed to minimizing the impact of these transactions on the Funds
to the extent it is consistent with pursuing the investment objectives of its
asset allocation decisions on the Funds.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by a board of trustees
(the 'Trustees') under the laws governing business trusts in the Commonwealth of
Massachusetts. The Trustees have approved contracts under which, as described
above, certain companies provide essential management services to the Trust.
VOTING RIGHTS
Each share held entitles a Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
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21
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
DIVIDENDS
Each Fund declares dividends of substantially all of its net investment income
(exclusive of capital gains) daily and distributes such dividends on or about
the first Business Day of the following month. Shares purchased begin earning
dividends on the Business Day after payment is received by the Custodian. If any
capital gain is realized, substantially all of it will be distributed at least
annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the Shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of each Fund are paid on a per-share basis. The
amount of dividends payable on Class B shares will be less than the dividends
payable on the Class A shares because of the distribution expenses charged to
Class B shares.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain of the permitted investments for the
Funds:
ASSET-BACKED SECURITIES--Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the United States
Government, its agencies or instrumentalities; however, the payment of principal
and interest on such obligations may be guaranteed up to certain amounts and for
a certain period by a letter of credit issued by a financial institution (such
as a bank or insurance company) unaffiliated with the issuers of such
securities. The purchase of asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the
obligations superior to that of the holders of the asset-backed securities.
There also is the possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few to 270 days.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), swap
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22
agreements, mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued
securities and forward commitments, floating and variable rate securities,
convertible securities, 'stripped' U.S. Treasury securities (e.g., Receipts and
STRIPs), and privately issued stripped securities (e.g., TGRs, TRs and CATS).
See elsewhere in this 'Description of Permitted Investments' for discussions of
these various instruments, and see 'Investment Objectives and Policies' for more
information about any investment policies and limitations applicable to their
use.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment or mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ('CMOs') and real estate mortgage investment
conduits ('REMICs') that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations ('CMOs'):
CMOs are debt obligations or multi-class pass-through certificates issued by
agencies or instrumentalities of the U.S. Government or by private originators
or investors in mortgage loans. In a CMO, series of bonds or certificates are
usually issued in multiple classes. Principal and interest paid on the
underlying mortgage assets may be allocated among the several classes of a
series of a CMO in a variety of ways. Each class of a CMO, often referred to as
a 'tranche,' is issued with a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal payments on the underlying
mortgage assets may cause CMOs to be retired substantially earlier then their
stated maturities or final distribution dates, resulting in a loss of all or
part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as 'regular' interests, or 'residual' interests. Guaranteed REMIC pass-through
certificates ('REMIC Certificates') issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage
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23
participation certificates. FNMA REMIC Certificates are issued and guaranteed as
to timely distribution of principal and interest by FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ('PAC Bonds') generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITs: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ('SMBs'):
SMBs are usually structured with two classes that receive specified proportions
of the monthly interest and principal payments from a pool of mortgage
securities. One class may receive all of the interest payments and is thus
termed an interest-only class ('IO'), while the other class may receive all of
the principal payments and is thus termed the principal-only class ('PO'). The
value of IOs tends to increase as rates rise and decrease as rates fall; the
opposite is true of POs. SMBs are extremely sensitive to changes in interest
rates because of the impact thereon of prepayment of principal on the underlying
mortgage securities and can experience wide swings in value in response to
changes in interest rates and associated mortgage prepayment rates. During times
when interest rates are experiencing fluctuations, such securities can be
difficult to price on a consistent basis. The market for SMBs is not as fully
developed as other markets; SMBs therefore may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
MUNICIPAL SECURITIES--Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Municipal securities include municipal notes and
municipal bonds.
Municipal securities include municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes, construction loan notes and participation interests in municipal
notes. Municipal bonds include general obligation bonds, revenue or special
obligation bonds, private activity and industrial development bonds and
participation interests in municipal bonds.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to
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24
return the security to the seller at an agreed upon price on an agreed upon date
within a number of days from the date of purchase. The Fund will have actual or
constructive possession of the security as collateral for the repurchase
agreement. A Fund bears a risk of loss in the event of the other party defaults
on its obligations and the Fund is delayed or prevented from its right to
dispose of the collateral securities or if the Fund realizes a loss on the sale
of collateral securities. A Fund will enter into repurchase agreements only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on established guidelines. Repurchase agreements are
considered loans under the 1940 Act.
RECEIPTS--Receipts are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying investments.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits maturing in more than seven days
are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the
Federal Farm Credit Bank, the Federal Housing Administration and the Small
Business Administration, and obligations issued or guaranteed by
instrumentalities of the U.S. Government, including, among others, the Federal
Home Loan Mortgage Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury (e.g., Government National Mortgage Association), others are
supported by the right of the issuer to borrow from the Treasury (e.g., Federal
Farm Credit Bank), while still others are supported only by the credit of the
instrumentality (e.g., Federal National Mortgage Association). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing on the obligation prior to maturity. Guarantees as to the timely
payment of principal and interest do not extend to the value or yield of these
securities nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS--Bills, notes and bonds issued by the U.S. Treasury
and separately traded interest and principal component parts of such obligations
that are transferable through the federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ('STRIPS').
VARIABLE OR FLOATING RATE INSTRUMENTS-- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be
<PAGE>
25
considered illiquid if there is no secondary market for such security.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES (DEBT SECURITIES)--When-issued or
delayed delivery basis transactions involve the purchase of an instrument with
payment and delivery taking place in the future. Delivery of and payment for
these securities may occur a month or more after the date of the purchase
commitment. A Fund will maintain with the Custodian a separate account with
liquid high grade debt securities or cash in an amount at least equal to these
commitments. The interest rate, if any, realized on these securities is fixed as
of the purchase date and no interest accrues to the Fund before settlement. Debt
securities are subject to market fluctuation and it is possible that the market
value at the time of settlement could be higher or lower than the purchase
price. Although a Fund generally purchases securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities for
its portfolio, a Fund may dispose of a when-issued security or forward
commitment prior to settlement if it deems appropriate.
<PAGE>
26
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Summary............................................. 2 The Shareholder Servicing Agent..................... 13
Expense Summary..................................... 4 The Distributor..................................... 13
Financial Highlights................................ 6 Purchase of Shares.................................. 13
The Trust........................................... 7 Redemption of Shares................................ 16
Investment Objectives and Policies.................. 7 Performance......................................... 17
Investment Limitations.............................. 11 Taxes............................................... 18
The Advisor......................................... 12 General Information................................. 21
The Administrator................................... 13 Description of Permitted Investments................ 22
</TABLE>
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
THE PILLAR FUNDS (the 'Trust') consist of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
following equity and balanced funds (collectively, the 'Funds'; individually, a
'Fund'):
O EQUITY VALUE FUND
O EQUITY INCOME FUND
O MID CAP VALUE FUND
O BALANCED GROWTH FUND
O INTERNATIONAL GROWTH FUND
CLASS A
The Trust's Class A Shares are offered without distribution fees (i) to
institutional investors (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of their own funds, (ii) to any
individual or institution (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of funds held by such individual or
institution in a fiduciary, agency, custodial or other representative capacity,
if such individual or institution is able to provide complete shareholder
recordkeeping services with respect to shares purchased and held in such
capacity, and (iii) any qualified customer who has entered into an agreement
with United Jersey Bank, its affiliates or correspondent banks ("Qualified
Customers") (persons who own Class A shares of a Fund are referred to herein as
'Shareholders').
CLASS A SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING UNITED JERSEY BANK OR ITS
AFFILIATES OR CORRESPONDENTS), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT
AGENCY.
AMOUNTS INVESTED IN THE FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated April 30, 1996, has been filed with the Securities and
Exchange Commission and is available without charge through the Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
APRIL 30, 1996
CLASS A
<PAGE>
2
SUMMARY
THE PILLAR FUNDS (THE 'TRUST') CONSIST OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES WHICH PROVIDE A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE
CLASS A SHARES OF THE TRUST'S EQUITY VALUE FUND, EQUITY INCOME FUND, MID CAP
VALUE FUND, BALANCED GROWTH FUND AND INTERNATIONAL GROWTH FUND (COLLECTIVELY,
THE 'FUNDS'; INDIVIDUALLY, A 'FUND').
What are the Investment Objectives? The investment objectives of the
respective Funds are as follows: the Equity Value and Mid Cap Value
Funds--growth of both capital and income; the Equity Income Fund--growth of
capital consistent with an emphasis on current income; the Balanced Growth
Fund--growth of capital consistent with current income; and the International
Growth Fund--long-term capital growth. There is no assurance that a Fund will
meet its investment objective. See 'Investment Objectives and Policies.'
What are the Permitted Investments? The Equity Value, Equity Income and Mid
Cap Value Funds each invest in equity securities consisting of (i) common
stocks; (ii) warrants to purchase common stocks; (iii) securities convertible
into common stocks; and (iv) American Depositary Receipts ('ADRs'). The Balanced
Growth Fund invests in the securities described above and certain fixed income
and money market securities. The International Growth Fund invests primarily in
equity securities of non-U.S. issuers consisting of (i) common stocks; (ii)
warrants to purchase common stocks; (iii) debt securities and preferred stocks
convertible into common stocks; and (iv) ADRs, European Depositary Receipts
('EDRs'), Continental Depositary Receipts ('CDRs') and Global Depositary
Receipts ('GDRs'). The International Growth Fund may also invest in foreign
government debt securities. Because securities fluctuate in value, the shares of
each Fund will also fluctuate in value. The Mid Cap Value Fund may experience
greater fluctuation because it will invest primarily in small to medium
capitalization companies. In addition, the value of shares of the Balanced
Growth and International Growth Funds are subject to market and interest rate
fluctuations that affect the value of their fixed income investments. The
International Growth Fund is non-diversified and may, therefore, concentrate its
portfolio investments in a relatively small number of issuers and may, as a
result, be subject to greater risk with respect to its portfolio securities. The
International Growth Fund may also invest in options, futures and currency
transactions. The Funds' investments in securities of foreign issuers will
subject the Funds to risks associated with foreign investments. See 'Investment
Objectives and Policies,' 'General Investment Policies,' 'Risk Factors,' and
'Description of Permitted Investments.'
Who are the Advisor and Sub-Advisor? United Jersey Bank Investment
Management Division, a division of United Jersey Bank, serves as the Advisor of
the Trust. Wellington Management Company serves as the Sub-Advisor for the
International Growth Fund. See 'The Advisor' and 'The Sub-Advisor.'
Who is the Administrator? SEI Financial Management Corporation serves as
the Administrator of the Trust. See 'The Administrator.'
Who is the Shareholder Servicing Agent? SEI Financial Management
Corporation acts as dividend disbursing agent and shareholder servicing agent
for the Trust and as transfer agent for the Trust. See 'The Shareholder
Servicing Agent.'
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. See 'The Distributor.'
How do I Purchase and Redeem Shares? Purchases and redemptions may be made
through the Distributor on a day on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ('Business Day'). A
purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives an order prior to 4:00 p.m., Eastern
time. However, an order may be cancelled if the Custodian
<PAGE>
3
does not receive federal funds before 12:00 noon, Eastern time, on the next
Business Day. Redemption orders must be placed prior to 4:00 p.m., Eastern time,
on any Business Day for the order to be effective that day. With respect to
Qualified Customers, purchase orders will be effective as of the Business Day
received by the Distributor if the Distributor receives the order and payment
prior to 4:00 p.m., Eastern time, on such Business Day. The purchase and
redemption price for shares is the net asset value per share determined as of
the end of the day the order is effective. See 'Purchase and Redemption of
Shares.'
How are Dividends Paid? Substantially all of the net investment income
(exclusive of capital gains) of the Equity Value, Equity Income, Mid Cap Value
and Balanced Growth Funds is distributed in the form of quarterly dividends to
Shareholders of record on the next to last Business Day of each quarter and is
periodically declared and paid as a dividend to Shareholders of record for the
International Growth Fund. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See 'Dividends.'
<PAGE>
4
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES CLASS A
(As a percentage of average net assets)
<TABLE>
<CAPTION>
EQUITY EQUITY MID CAP BALANCED INTERNATIONAL
VALUE INCOME VALUE GROWTH GROWTH
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after fee waivers)(1)(2)................... .48% .45% .45% .44% .75%
Other Expenses(2)......................................... .32% .35% .35% .36% .75%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(3)........... .80% .80% .80% .80% 1.50%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Advisor has agreed to voluntarily waive a portion of its fees in an
amount that operates to limit total operating expenses of Class A shares of
the Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds to
not more than .80% of average daily net assets; and the Advisor and Sub-
Advisor have voluntarily agreed to waive a portion of their fees in an
amount that operates to limit total operating expenses of Class A shares of
the International Growth Fund to not more than 1.50% of average daily net
assets. The Advisor and Sub-Advisor each reserves the right to terminate its
fee waiver at any time in its sole discretion.
(2) Advisory fees and Other Expenses for the International Growth Fund have been
restated to reflect current expenses.
(3) Absent fee waivers for the Equity Value, Equity Income, Mid Cap Value,
Balanced Growth and International Growth Funds, Advisory Fees would be .75%
for the Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds
and 1.00% for the International Growth Fund, and Total Operating Expenses
would be 1.07%, 1.10%, 1.10%, 1.11% and 1.75%, respectively, of such Funds'
average daily net assets. Additional information may be found under 'The
Advisor,' 'The Sub-Advisor,' 'The Administrator' and 'The Distributor.'
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds........... $ 8 $26 $44
International Growth Fund...................................................... $15 $47 $82
- --------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
10 YRS.
- ---------------------------------------------------------------------------------------------
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds........... $ 99
International Growth Fund...................................................... $179
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. The information set forth in the foregoing
table and example relates only to Class A shares. The Trust also offers Class B
shares of each Fund which are subject to the same expenses except for a sales
load and certain distribution costs. Financial institutions may impose separate
fees for account services on their Qualified Customers and on customers for
which they are the record owner of shares for the account. Additional
information may be found under 'The Advisor,' 'The Sub-Advisor,' 'The
Administrator' and 'The Distributor.'
<PAGE>
5
FINANCIAL HIGHLIGHTS THE PILLAR FUNDS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 22,
1996 on the Trust's financial statements as of December 31, 1995 included in the
Trust's Statement of Additional Information under 'Financial Information.'
Additional performance information is contained in the 1995 Annual Report to
Shareholders and is available upon request and without charge by calling
1-800-932-7782. This table should be read in conjunction with the Trust's
financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
REALIZED
AND NET
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSETS RATIO OF
VALUE NET GAINS OR FROM NET FROM NET ASSET END OF EXPENSES TO
BEGINNING INVESTMENT LOSSES ON INVESTMENT CAPITAL VALUE END TOTAL PERIOD AVERAGE NET
OF PERIOD INCOME SECURITIES INCOME GAINS OF PERIOD RETURN(+) (000) ASSETS
----------- ----------- ----------- ----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------
EQUITY VALUE
- -------------
CLASS A
1995........... $ 10.19 $ 0.25 $ 3.46 $ (0.25) $ (0.84) $ 12.81 36.71% $ 82,677 0.80%
1994........... 11.10 0.21 (0.83) (0.21) (0.08) 10.19 (5.61) 61,407 0.80
1993........... 10.64 0.18 0.46 (0.18) -- 11.10 6.12 67,383 0.80
1992(1)........ 10.00 0.14 0.64 (0.14) -- 10.64 10.51* 62,116 0.80
- ---------------
EQUITY INCOME
- ---------------
CLASS A
1995........... $ 10.26 $ 0.31 $ 3.29 $ (0.31) $ (0.48) $ 13.07 35.55% $ 44,202 0.80%
1994........... 11.17 0.32 (0.81) (0.32) (0.10) 10.26 (4.42) 34,514 0.80
1993........... 10.72 0.29 0.80 (0.29) (0.35) 11.17 10.27 38,237 0.80
1992(1)........ 10.00 0.22 0.72 (0.22) -- 10.72 12.72* 32,538 0.80
- ---------------------
MID CAP VALUE FUND
- ---------------------
CLASS A
1995........... $ 10.83 $ 0.15 $ 1.95 $ (0.15) $ (0.23) $ 12.55 19.49% $ 42,375 0.80%
1994........... 12.32 0.12 (1.27) (0.12) (0.22) 10.83 (9.34) 33,448 0.80
1993........... 10.99 0.11 1.33 (0.11) -- 12.32 13.22 35,648 0.80
1992(1)........ 10.00 0.07 0.99 (0.07) -- 10.99 14.30* 29,507 0.80
- ------------------
BALANCED GROWTH
- ------------------
CLASS A
1995........... $ 9.91 $ 0.44 $ 2.27 $ (0.44) $ (0.13) $ 12.05 27.76% $ 32,145 0.80%
1994........... 10.78 0.37 (0.86) (0.38) -- 9.91 (4.61) 26,921 0.80
1993........... 10.35 0.38 0.43 (0.38) -- 10.78 7.89 25,712 0.80
1992(1)........ 10.00 0.29 0.34 (0.28) -- 10.35 8.53* 16,899 0.80
- ----------------------
INTERNATIONAL GROWTH
- ----------------------
CLASS A
1995(2)........ $ 10.00 $ 0.03 $ 0.75 $ (0.02) $ (0.02) $ 10.74 7.81% $ 9,990 1.50%*
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
RATIO OF AVERAGE NET TO AVERAGE
NET INCOME ASSETS NET ASSETS PORTFOLIO
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS WAIVERS) WAIVERS) RATE
----------- ------------- ----------- -----------
- -------------
EQUITY VALUE
- ---------------
CLASS A
1995........... 2.08% 1.07% 1.81% 61.88%
1994........... 1.92 1.06 1.66 44.98
1993........... 1.74 1.07 1.47 89.91
1992(1)........ 1.82 1.10 1.52 45.68
- ---------------
EQUITY INCOME
- ---------------
CLASS A
1995........... 2.61% 1.10% 2.31% 42.97%
1994........... 2.96 1.08 2.68 37.76
1993........... 2.65 1.10 2.35 89.89
1992(1)........ 2.88 1.14 2.54 58.41
- -------------------
MID CAP VALUE FUND
- -------------------
CLASS A
1995........... 1.28% 1.10% 0.98% 32.96%
1994........... 1.06 1.08 0.78 13.82
1993........... 1.03 1.10 0.73 24.49
1992(1)........ 0.98 1.15 0.63 09.29
- ---------------
BALANCED GROWTH
- ---------------
CLASS A
1995........... 3.89% 1.11% 3.58% 41.63%
1994........... 3.64 1.09 3.35 27.15
1993........... 3.75 1.14 3.41 63.03
1992(1)........ 3.88 1.20 3.48 82.76
- ---------------------
INTERNATIONAL GROWTH
- ---------------------
CLASS A
1995(2)........ 0.79%* 2.11%* 0.18%* 14.32%
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
(+) Total Return does not reflect sales loads on Class B shares.
(1) The Equity Value, the Equity Income, the Mid Cap Value and the Balanced Growth Funds commenced operations on April 1,
1992. Ratios for this period have been annualized.
(2) The International Growth Fund -- Class A commenced operations on May 1, 1995. Ratios for this period have been
annualized.
</TABLE>
<PAGE>
6
THE TRUST
THE PILLAR FUNDS (the 'Trust') consist of open-end management investment
companies that have diversified and non-diversified portfolios. The Trust offers
units of beneficial interest ('shares') in fifteen separate investment
portfolios. Shareholders may purchase shares in each portfolio (except for the
U.S. Treasury Securities Plus Money Market Fund) through two separate classes
(Class A and Class B) which provide for variations in distribution costs, voting
rights, sales load, minimum investment, redemption fees, transfer agency fees
and dividends. Except for these differences between classes, each share of each
portfolio represents an undivided proportionate interest in that portfolio. This
Prospectus relates to the Class A shares of the Trust's Equity Value Fund,
Equity Income Fund, Mid Cap Value Fund, Balanced Growth Fund and International
Growth Fund (each of these, a 'Fund'). Each of the Funds is a diversified mutual
fund, except for the International Growth Fund, which is a non-diversified
mutual fund. Information regarding the Trust's other portfolios and the Class B
shares of the Funds is contained in separate prospectuses that may be obtained
from the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087 or by calling 1-800-932-7782.
SHARES OF THE TRUST ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR INSURED, GUARANTEED, SPONSORED OR ENDORSED BY, ANY BANK
(INCLUDING UNITED JERSEY BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE OR
STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE U.S.
GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
SHARES OF THE TRUST ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. SEE 'INVESTMENT OBJECTIVES AND POLICIES--RISK
FACTORS.'
INVESTMENT OBJECTIVES AND POLICIES
THE EQUITY VALUE FUND
The investment objective of this Fund is growth of both capital and income.
There is no assurance that the investment objective will be met.
The Fund will normally be as fully invested as practicable in equity securities
consisting of common stocks, warrants to purchase common stocks, debt securities
and preferred stocks convertible into common stocks and ADRs. The Advisor will
purchase equity securities which, in the Advisor's opinion, are undervalued in
the marketplace at the time of purchase. For a description of the Fund's
permitted investments, see 'Description of Permitted Investments.'
THE EQUITY INCOME FUND
The investment objective of this Fund is growth of capital consistent with an
emphasis on current income. There is no assurance that the investment objective
will be met.
The Fund will normally be as fully invested as practicable in equity securities
consisting of common stocks, warrants to purchase common stocks, debt securities
and preferred stocks convertible into common stocks and ADRs. For a description
of the Fund's permitted investments, see 'Description of Permitted Investments.'
THE MID CAP VALUE FUND
The investment objective of this Fund is growth of both capital and income.
There is no assurance that the investment objective will be met.
The Fund will normally be as fully invested as practicable in equity securities
consisting of common stocks, warrants to purchase common stocks, debt securities
and preferred stocks convertible into common stocks and ADRs that, in the
Advisor's opinion, are significantly undervalued relative to their actual value
at the time of purchase. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities of mid cap issuers
(i.e.companies with market capitalizations ranging between $250 million and $1.5
billion at the time of purchase). The Fund may also invest in equity securities
of small cap issuers (i.e. companies with market capitalizations between $100
million and $250 million at the time of purchase).
The Advisor will attempt to maintain a highly diversified portfolio in order to
reduce the risks associated with investments in small capitalization
<PAGE>
7
companies which may be subject to greater volatility than investments in
companies with larger capitalizations. For a description of the Fund's permitted
investments, see 'Description of Permitted Investments.'
THE BALANCED GROWTH FUND
The investment objective of this Fund is growth of capital consistent with
current income. There can be no assurance that the investment objective will be
met.
The Fund seeks to achieve growth of capital and current income by investing in a
balanced portfolio of equity securities, fixed income securities and money
market securities. The actual blend will vary according to market and economic
conditions. However, under normal market conditions, at least 25% of the Fund's
total assets will be invested in fixed income securities. This investment policy
may be changed by the Trust's board of trustees (the 'Trustees') at any time;
however, Shareholders will be notified of any such change in advance.
The Fund may invest in the following equity securities: common stocks, warrants
to purchase common stocks, debt securities and preferred stocks convertible into
common stocks and ADRs.
The Fund may invest in the following fixed income securities: obligations issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities ('U.S. Government Securities'); corporate bonds and
debentures rated in one of the three highest rating categories or determined by
the Advisor to be of comparable quality at the time of purchase; mortgage-backed
securities consisting of collateralized mortgage obligations ('CMOs') and real
estate mortgage investment conduits ('REMICs') that are rated in one of the top
two rating categories and which are backed solely by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by the U.S. Government, its agencies
or instrumentalities; and asset-backed securities secured by company
receivables, truck and auto loans, leases and credit card receivables which are
rated in one of the top two rating categories. Securities rated A are considered
to be investment grade and of high credit quality. Issues rated A could be more
vulnerable to adverse developments than obligations with higher ratings.
The Fund may invest in the following money market securities: short-term U.S.
Government Securities; custodial receipts evidencing separately traded interest
and principal components of securities issued by the U.S. Treasury; commercial
paper rated in the highest short-term rating category or determined by the
Advisor to be of comparable quality at the time of purchase; short-term bank
obligations (certificates of deposit, time deposits, and banker's acceptances)
of U.S. commercial banks with assets of at least $1 billion as of the end of
their most recent fiscal year; and repurchase agreements involving such
securities.
THE INTERNATIONAL GROWTH FUND
The investment objective of this Fund is long-term capital growth. There is no
assurance that the investment objective will be met.
The Fund will normally invest at least 65% of its total assets in the following
equity securities of non-U.S. issuers: common stocks, warrants to purchase
common stocks, debt securities and preferred stocks convertible into common
stocks and ADRs, EDRs, CDRs and GDRs. The Fund will purchase equity securities,
including ADRs, EDRs, CDRs and GDRs, that are traded in the United States on
registered exchanges or the over-the-counter market and securities traded on
foreign exchanges. Furthermore, the Fund may purchase equity securities of
foreign or domestic issuer's public offerings, including an initial public
offerings ('IPOs'). The Fund may also invest up to 35% of its assets in foreign
government debt securities and securities issued by supranational agencies when
the sub-advisor believes that they are compatible with the Fund's investment
objective. Such securities will be rated investment grade or better, i.e. rated
in one of the four highest rating categories by a nationally recognized
statistical ratings organization ('NRSRO'), such as Standard & Poor's Ratings
Group or Moody's Investors Service, Inc., or, if not rated, determined to be of
comparable quality as determined by the sub-advisor. As part of its investment
in foreign government debt securities, the Fund may invest up to 10% of its
assets in such
<PAGE>
8
foreign government debt securities that are rated BB (or Ba) or B by an NRSRO,
or, if not rated, determined to be of comparable quality as determined by the
sub-advisor. Securities rated B are considered highly speculative and while the
issuer currently has the capacity to meet debt service requirements, adverse
business, financial or economic conditions would likely impair its capacity or
willingness to pay interest and principal. In addition, the Fund may also invest
in money market instruments as defined in 'General Investment Policies' below.
The Fund will invest in securities of issuers in at least three countries other
than the United States. The Fund may invest in securities of issuers from
countries that are considered to be lesser-developed countries by the
international financial community, but that have securities markets meeting
acceptable standards of liquidity, financial disclosure, government regulation
and protection of foreign investors, as determined by the sub-advisor. Normally,
no more than 25% of the Fund's assets will be invested in such securities. The
Fund may also invest up to 10% of its assets in closed-end investment companies
that invest in the securities of issuers in a single country or region (commonly
referred to as 'country funds'). In addition, the Fund may invest in Brady
Bonds. The Fund may invest in smaller, less well-established companies (i.e.,
companies with market capitalizations below $500 million) which may offer
greater opportunities for capital appreciation than larger, better established
companies. The Fund is non-diversified and may, therefore, concentrate its
portfolio investments in a relatively small number of issuers.
The Fund may engage in currency transactions for hedging purposes. Currency
transactions include forward currency contracts, exchange-listed and
over-the-counter ('OTC') currency futures contracts and options on futures
contracts, exchange-listed and OTC options on currencies, and currency swaps.
The Fund may also employ certain hedging, income enhancement and risk management
techniques, including the purchase and sale of exchange-listed and OTC options,
futures and options on futures involving equity and debt securities, aggregates
of equity and debt securities, and other financial indices. The Fund may write
options and futures only on a covered basis.
In seeking to achieve its investment objective of long-term capital growth, the
Fund's investments will be selected on the basis of fundamental analysis to
identify those markets and securities that provide capital appreciation
potential.
Fundamental analysis involves assessing a company and its business environment,
management, balance sheet, income statement, anticipated earnings and dividends
and other related measures of value. In analyzing companies for investment, the
sub-advisor looks for, among other things, above-average earnings growth, a
strong balance sheet, attractive industry dynamics, strong competitive
advantages, and positive relative value within the context of a security's
primary trading market. In addition to fundamental analysis of companies and
industries, the sub-advisor evaluates the economic and political environments of
the countries in which the securities are traded.
For a description of the Funds' permitted investments and the above ratings, see
'General Investment Policies,' 'Risk Factors,' and 'Description of Permitted
Investments' in this Prospectus and 'Description of Permitted Investments' and
'Description of Ratings' in the Statement of Additional Information.
GENERAL INVESTMENT POLICIES
For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, each Fund may invest up to 100% of its assets in the
money market instruments described under 'The Balanced Growth Fund' above and
may hold cash for liquidity purposes. The money market securities the
International Growth Fund may invest in may be denominated in foreign currencies
or U.S. dollars and consist of short-term U.S. Government obligations,
obligations issued or guaranteed by the agencies and instrumentalities of the
U.S. Government and securities of foreign governments; custodial receipts
evidencing separately traded interest and principal components of securities
issued by the U.S. Treasury; short term corporate securities rated in the
highest short-term rating category or determined by the Advisor or Sub-
<PAGE>
9
Advisor to be of comparable quality at the time of purchase; short-term bank
obligations (certificates of deposit, time deposits and bankers' acceptances) of
U.S. or foreign commercial banks with assets of at least $1 billion as of the
end of their most recent fiscal year; Euro-currency instruments and securities;
and repurchase agreements involving such securities. Furthermore, the
International Growth Fund may hold cash in U.S. dollars, foreign currencies or
multi-national currency units for liquidity purposes. To the extent a Fund is
engaged in temporary defensive investing, the Fund will not be pursuing the
investment objective.
Each of the Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds
seek to invest in equity securities that the Advisor believes are of high
quality. In evaluating the quality of such securities, the Advisor places
particular emphasis on the management history of the issuer and on ratio
analyses which focus on prospective earnings, book value and anticipated growth
rates.
Securities purchased by the Funds may involve floating or variable interest
rates and may be acquired through a forward commitment or on a when-issued
basis.
In addition, each Fund reserves the right to engage in securities lending. The
Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds will
purchase equity securities, including ADRs, that are traded in the United States
on registered exchanges or the over-the-counter market. However, each of these
four Funds reserves the right to invest up to 25% of its assets in foreign
equity securities denominated in foreign currency and traded on foreign markets,
but has no intention to do so.
RISK FACTORS
Because each Fund invests in equity securities, its shares will fluctuate in
value. The market value of the convertible securities purchased by each Fund may
also be affected by changes in interest rates, the credit quality of the issuer
and any call provisions. In addition, investments in smaller, less
well-established companies may subject the Mid Cap Value and International
Growth Funds to certain special risks related to, for example, limited product
lines, markets or financial resources and dependence on a small management
group. Such securities may trade less frequently, in smaller volumes and
fluctuate more sharply in value than exchange listed securities of larger
companies.
The market value of the Balanced Growth and International Growth Funds' fixed
income securities will fluctuate in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. In addition,
the mortgage-backed securities that the Balanced Growth Fund may acquire are
subject to the risk of prepayment during periods of declining interest rates
which may affect the Fund's ability to lock-in longer term rates during such
periods.
Each Fund's investments in securities of foreign issuers may subject the Funds
to different risks than those attendant to investments in securities of U.S.
issuers such as differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory taxation, political
instability and greater fluctuations in value due to changes in currency
exchange rates. There may also be less publicly available information with
regard to foreign issuers than domestic issuers. In addition, foreign markets
may be characterized by less liquidity, greater price volatility, less
regulation and higher transaction costs than U.S. markets. Moreover, the
dividends payable on a Fund's foreign securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to the Fund's Shareholders. Also, it may be more difficult to
obtain a judgment in a court outside the United States. These risks could be
greater in emerging markets than in more developed foreign markets because
emerging markets may have less stable political environments than more developed
countries.
Since the International Growth Fund may invest in foreign currency and
securities denominated in foreign currency, changes in exchange rates between
the U.S. dollar and foreign currencies affect the U.S. dollar value of the
Fund's assets. Rates of exchange are determined by forces of supply and demand
on the foreign exchange markets. These
<PAGE>
10
forces are in turn affected by the international balance of payments and other
economic, political and financial conditions, government intervention,
speculation and other factors. The Fund's net asset value will be reported, and
distributions from the Fund will be made, in U.S. dollars. Therefore, the Fund's
reported net asset value and distributions will be adversely affected by
depreciation of foreign currency relative to the U.S. dollar. A decline in the
value of foreign currency would adversely affect the value of the Fund in dollar
terms. While the Fund may try to hedge its currency risk using currency
transactions, there is no assurance that it will be successful.
The International Growth Fund may invest in lower rated bonds, which are
commonly referred to as 'junk bonds.' These securities are speculative and are
subject to a greater risk of loss of principal and interest than are investments
in higher rated bonds.
The International Growth Fund may invest in options and futures. There are
various risks associated with options and futures, including that the success of
a hedging strategy may depend on an ability to predict movements in security
prices, interest rates or currency exchange rates; there may be little
correlation between the changes in a security's value and the price of futures
or options; a related future or option may not be liquid; an exchange may impose
trading restrictions or limitations; government regulations may restrict trading
in futures and options; and possible lack of full participation in a rise in the
market value of the underlying security.
In addition, the International Growth Fund may invest in equity securities by
participating in an issuer's IPO. Such investments have special risks associated
with them. There is often a high volume of trading in IPO securities, which can
result in greater price volatility. Companies offering such securities may not
have operated previously as a public company, and their share price may
experience significant volatility as the marketplace reacts to their financial
results. Furthermore, some IPO issuers have not conducted operations for a
significant period of time, and may not have developed a management structure
sufficient to cope with the pressures of running a public company.
The International Growth Fund is a non-diversified fund under the Investment
Company Act of 1940, as amended (the '1940 Act'), and therefore may invest a
greater proportion of its assets in the securities of a smaller number of
issuers and may, as a result, be subject to greater risk with respect to its
portfolio securities. The Fund intends to satisfy the diversification
requirements necessary to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the 'Code'), by limiting its
investments so that, at the close of each quarter of the taxable year, (a) not
more than 25% of the market value of the Fund's total assets is invested in the
securities (other than U.S. Government securities) of a single issuer, and (b)
at least 50% of the market value of the Fund's total assets is represented by
(i) cash and cash items (ii) U.S. Government securities and (iii) other
securities limited in respect to any one issuer to an amount not greater in
value than 5% of the market value of the Fund's total assets and to not more
than 10% of the outstanding voting securities of such issuer.
FUND TURNOVER
The Fund turnover rate for each Fund is expected to be less than 100%. With
respect to the Balanced Growth Fund, this applies only to its investments in
equity securities and non-money market, fixed income securities.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. Fundamental policies cannot be changed with
respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of each Fund's total assets. This restriction does
not apply to the International Growth Fund.
2. Purchase any securities which would cause more than 25% of the total assets
of any Fund to be invested in the securities of one or more issuers
<PAGE>
11
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in the obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be classified according to their
services, for example, gas, gas transmissions, electric and telephone will each
be considered a separate industry; (ii) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; (iii) supranational agencies will be deemed to be issuers conducting
their principal business activities in the same industry; and (iv) governmental
issuers within a particular country will be deemed to be conducting their
principal business activities in the same industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as described in this Prospectus
and in the Statement of Additional Information.
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
THE ADVISOR
United Jersey Bank Investment Management Division, a division of United Jersey
Bank (the 'Advisor') serves as the Advisor of the Trust. The Advisor makes the
investment decisions for the assets of each Fund and continuously reviews,
supervises and administers each Fund's investment program subject to the
supervision of, and policies established by, the Trustees of the Trust.
United Jersey Bank, 210 Main Street, Hackensack, NJ 07601, was chartered in 1899
and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment experts have, on average, over 20 years of
experience in investment management. As of December 31, 1995, total assets under
management were approximately $4 billion.
United Jersey Bank is a wholly-owned subsidiary of Summit Bancorp, an interstate
bank holding company with $22 billion in assets and over 325 banking offices in
New Jersey and Eastern Pennsylvania as of December 31, 1995.
Randolph E. Lestyk is Vice President and Regional Manager of the Advisor and has
managed the Mid Cap Value Fund since January, 1996. Prior to joining United
Jersey Bank in January, 1994, Mr. Lestyk was involved in equity and fixed income
investing at several financial institutions, serving as Director of Fixed Income
Investing, Head of Trust Investments, and most recently as Senior Vice President
and Chief Investment Officer of a major insurance company in Pennsylvania.
Richard H. Caro is a Vice President of the Advisor and has managed the Equity
Income Fund since January, 1996. Prior to joining United Jersey Bank in April,
1993, Mr. Caro was associated with several investment counseling firms in New
York City. Mr. Caro has had extensive experience in securities research,
covering several industry groups, and in managing large institutional
portfolios. Mr. Caro currently has responsibility for managing both equity and
fixed income portfolios in the Investment Department.
Fernando Garip is a Vice President of the Advisor and has managed the Balanced
Growth Fund since inception in April, 1992 and the Equity Value Fund since
January, 1996. Mr. Garip also manages the U.S. Treasury Securities Plus Money
Market, U.S. Treasury Securities Money Market and Prime Obligation Money Market
Funds and has responsibility for both equity and fixed income portfolios in the
Investment Department. Mr. Garip joined United Jersey Bank in 1982.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .75% of the average daily net assets of the Equity Value,
Equity Income, Mid Cap Value and Balanced Growth Funds; and at an annual rate of
1.00% of the average daily net assets of the International Growth Fund. The
contractual advisory fee is higher than that paid by most mutual funds with
similar objectives and policies. The Advisor has voluntarily agreed to waive all
or a portion of its fees in order to limit the operating expenses of Class A
shares of the Equity Value, Equity Income, Mid Cap Value and Balanced Growth
Fund to .80%, and total operating
<PAGE>
12
expenses of Class A shares of the International Growth Fund to 1.50%. After such
voluntary fee waiver, the advisory fee is not higher than that paid by most
mutual funds with similar objectives and policies. The Advisor reserves the
right to terminate its fee waivers at any time in its sole discretion. For the
fiscal year ended December 31, 1995, each Fund paid the Advisor the following
advisory fee (shown as a percentage of its average daily net assets): Equity
Value Fund, .48%; Equity Income Fund, .45%; Mid Cap Value Fund, .45%; Balanced
Growth Fund, .44% and International Growth Fund, .38%.
United Jersey Bank has also entered into a Custodian Agreement with the Trust,
under which it provides all securities safekeeping services as required by the
Funds and the 1940 Act. The Trust pays United Jersey Bank (referred to herein in
its custodial capacity as the 'Custodian') a custodian fee, which is calculated
daily and paid monthly, at an annual rate of .025% of the average daily net
assets of the Equity Value, Equity Income, Mid Cap Value and Balanced Growth
Fund, and at an annual rate of .17% of the average daily net assets of the
International Growth Fund.
The Glass-Steagall Act restricts the securities activities of banks such as
United Jersey Bank, but federal regulatory authorities permit such banks to
provide investment advisory and other services to mutual funds. Should this
position be challenged successfully in court or reversed by legislation, the
Trust might have to make other investment advisory arrangements.
THE SUB-ADVISOR
Wellington Management Company ('WMC') serves as the investment sub-advisor to
the International Growth Fund. WMC is a professional investment counseling firm
which provides investment services to investment companies, employee benefit
plans, endowments, foundations and other institutions and individuals. As of
December 31, 1995, WMC has discretionary investment authority with respect to
approximately $109.2 billion of assets. WMC's predecessor organizations have
provided investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. The principal address of WMC is 75
State Street, Boston, MA 02109. WMC is a Massachusetts general partnership, of
which the following persons are managing partners: Robert W. Doran, Duncan M.
McFarland and John R. Ryan.
The International Growth Fund has been managed since its inception by a
committee composed of WMC's Global Equity Strategy Group, a group of global
portfolio managers and senior investment professionals headed by Trond
Skramstad, Senior Vice President of WMC.
The Sub-Advisor is entitled to a fee payable by the Advisor from the Advisor's
fee, which is calculated daily and paid monthly, at an annual rate of .60% of
the average daily net assets of the International Growth Fund up to and
including $50 million; .45% of the average daily net assets of the Fund in
excess of $50 million up to and including $150 million; and .30% of the average
daily net assets of the Fund in excess of $150 million. The Sub-Advisor may from
time to time waive a portion of its fee in order to limit the operating expenses
of Class A shares of the International Growth Fund. The Sub-Advisor reserves the
right to terminate any such fee waiver at any time in its sole discretion. For
the fiscal year ended December 31, 1995, the Advisor paid WMC a sub-advisory fee
of .30% of the average daily net assets of the International Growth Fund.
THE ADMINISTRATOR
SEI Financial Management Corporation (the 'Administrator'), a wholly-owned
subsidiary of SEI Corporation ('SEI'), serves as the Administrator of the Trust.
The Administrator provides the Trust with administrative services, other than
investment advisory services, including all regulatory reporting, necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of each Fund.
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the dividend disbursing agent and
shareholder servicing agent for the Trust. SEI Financial Management Corporation
also acts as the transfer agent for the Trust.
<PAGE>
13
THE DISTRIBUTOR
SEI Financial Services Company (the 'Distributor'), a wholly-owned subsidiary of
SEI acts as the Distributor for the Trust. No compensation is paid to the
Distributor for distribution services for the Class A shares of any Fund. Class
B shares of each Fund bear the costs of their distribution expenses and related
service fees at the annual rate of up to .25% of the average daily net assets of
the Fund. In addition, a maximum charge of 4% is imposed on the sale of Class B
shares of each Fund. Class A shares of each Fund are offered without
distribution fees (i) to institutional investors (including United Jersey Bank,
its affiliates and correspondent banks) for the investment of their own funds,
(ii) to individuals and institutions (including United Jersey Bank, its
affiliates and correspondent banks) for the investment of funds held by such
individuals or institutions in a fiduciary, agency, custodial or other
representative capacity if such individuals or institutions are able to provide
complete shareholder recordkeeping services with respect to shares purchased and
held in such capacity, and (iii) any qualified customer who has entered into an
agreement with United Jersey Bank, its affiliates or corrrespondent banks
("Qualified Customers").
Class B shares of each Fund are offered to all persons. Consequently, it is
possible that individuals and institutions may offer different classes of shares
of the Funds to their customers and thus receive different compensation with
respect to different classes of shares. In addition, individuals and
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
Funds may also execute brokerage or other agency transactions through an
affiliate of the Advisor or through the Distributor for which such affiliate or
the Distributor receives compensation.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of each Fund may be made on any Business
Day. State securities laws may require banks and financial institutions
purchasing shares for their customers to register as dealers pursuant to state
laws.
A purchase order will be effective as of the day received by the Distributor if
the Distributor receives the order before 4:00 p.m., Eastern time. However, an
order may be cancelled if the Custodian does not receive Federal funds before
12:00 noon, Eastern time, on the next Business Day, and the investor could be
liable for any fees or expenses incurred by the Trust. Generall, an investor in
the Class A shares of the Funds may not purchase shares by check, third party
check, credit card or credit card check. Financial institutions may impose an
earlier cut-off time for receipt of purchase orders directed through them to
allow for processing and transmittal of these orders to the Distributor for
effectiveness the same day. The purchase price of shares of each Fund is the net
asset value next determined after a purchase order is effective. The net asset
value per Class A share of each Fund is determined by dividing the total market
value of the Fund's investments and other assets that are allocated to Class A
shares, less any liabilities that are allocated to Class A shares, by the total
outstanding Class A shares of the Fund. A Fund may use a pricing service to
provide market quotations. A pricing service may use a matrix system of
valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings and developments related to a
specific security. Net asset value per share is determined daily as of 4:00
p.m., Eastern time, on each Business Day. Purchases will be made in full and
fractional shares of the Trust calculated to three decimal places. Although the
methodology and procedures for determining net asset value are identical, the
net asset value per share of classes within a Fund may differ because of the
distribution expenses and sales loads charged to Class B shares. No certificates
representing shares will be issued.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Shareholders who experience
difficulties placing redemption orders by telephone may wish to consider placing
the redemption order by other means.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in
<PAGE>
14
the best interest of the Trust or its Shareholders to accept such order.
Shareholders who desire to redeem shares of the Fund must place their redemption
orders prior to 4:00 p.m., Eastern time, on any Business Day, for the order to
be effective on that Business Day. The redemption price of shares is the net
asset value of the Fund next determined after the redemption order is effective.
Payment on redemption will be made as promptly as possible and, in any event,
within seven Business Days after the redemption order is effective.
The Funds intend to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
PURCHASE OF SHARES - QUALIFIED CUSTOMERS
Accounts for Qualified Customers may be opened through United Jersey Bank, its
affiliates or correspondent banks (the "Bank"). Subsequent purchases of shares
of the Funds may be made through the Bank or directly through the Distributor by
mail or by wire. Purchases may not be made by telephone. Qualified Customers
should contact their Financial Services Advisor ("FSA") for information about
opening an account and purchasing shares of the Funds through United Jersey
Bank. The Bank may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow for processing and transmittal of these orders to
the Distributor for effectiveness the same day. In addition, state securities
laws may require banks and financial institutions purchasing shares for their
customers to register as dealers pursuant to state laws.
The minimum initial investment in the Trust for Qualified Customers is $10,000.
All subsequent purchases must be at least $1,000. A purchase order will be
effective as of the Business Day received by the Distributor if the Distributor
receives the order before 4:00 p.m., Eastern time, on such Business Day.
Direct Purchases - Qualified Customers
By Mail - Subsequent purchases of shares may be made at any time by mailing a
check (or other negotiable bank draft or money order) to the Distributor. When
purchases are made by check, redemptions will not be allowed until the
investment being redeemed has been in the account for 10 Business Days. If a
check received does not clear, the purchase will be canceled and the investor
could be liable for any losses or fees incurred.
By Wire - Subsequent purchases of shares may be made by wire. To buy shares by
wire, call the Distributor toll-free at 1-800-932-7782.
Other Information Regarding Purchases - The purchase price is the net asset
value per share next computed after the order is effective. No certificates
representing shares will be issued.
REDEMPTION OF SHARES - QUALIFIED CUSTOMERS
The FSA through which Qualified Customers may purchase shares is able to assist
Qualified Customers in effecting the redemption of shares held in Fund accounts
through the Distributor. Qualified Customers wishing to effect a redemption with
the assistance of an FSA should contact the Bank or their FSA for additional
information about redemption procedures and cut-off times. Shares may also be
redeemed directly through the Distributor by mail, by telephone, by wire, by ACH
or through a systematic withdrawal plan.
Direct Redemptions - Qualified Customers
By Mail - A written request for redemption must be received by the Distributor
in order to constitute a valid request for redemption. The Distributor may
require that the signature on the written request be guaranteed by a commercial
bank or by a member firm of a domestic stock exchange. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $5,000 worth of shares or less, (2) the redemption check is
payable to the Shareholder(s) of record, and (3) the redemption check is mailed
to the Shareholder(s) at the address of record. Qualified Customers may also
have the proceeds mailed to a commercial bank account previously designated on
the Account Application or by written instruction to the Distributor. There is
no charge for having redemption requests mailed to a designated bank account.
By Telephone, Wire or ACH - Shares may be redeemed by telephone if Qualified
Customers elect that option on the Account Application. Qualified Customers may
have the proceeds mailed to his or her address or wired to a commercial bank
account previously designated on the Account Application. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. Wire
<PAGE>
and ACH redemption requests may be made by Qualified Customers by calling the
Distributor at 1-800-932-7782, who will add a wire redemption charge (presently
$10.00) to the amount of the redemption. Accounts may not be closed by
telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Qualified Customers
attempting to place redemption orders by telephone may wish to consider placing
the redemption order by other means.
Systematic Withdrawal Plan (SWP) - The Funds offer a Systematic Withdrawal Plan
which may be utilized by Qualified Customers who wish to receive regular
distributions from their account. Upon commencement of the SWP, the account must
have a current value of $10,000 or more. Qualified Customers may elect to
receive automatic payment by check or ACH of $50 or more on a monthly or
quarterly basis.
Other Information Regarding Redemptions - All redemption orders are effected at
the net asset value per share next determined after receipt of a valid request
for redemption, as described above. Net asset value per share is determined as
of 4:00 p.m., Eastern time, on each Business Day. Payment to Shareholders for
shares redeemed will be made within seven days after receipt by the Distributor
of the request for redemption.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment in connection with a purchase. In such circumstances,
the forwarding of redemption proceeds may be delayed until such payment has been
collected. The Funds intend to pay cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, payment may be made wholly
or partly in portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
<PAGE>
PERFORMANCE
From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The advertised performance on Class A shares will normally be higher than for
Class B shares because Class A shares are not subject to distribution expenses
and sales loads charged to Class B shares. The actual return to a Shareholder on
Class A shares may be reduced by any administrative or management charges that
may be imposed by individuals or institutions on their customers for account
services. The actual return to shareholders on Class B shares will be reduced by
the amount of any sales load paid and distribution expenses on Class B shares.
A Fund may periodically compare its performance to that of: (i) other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii) broad groups of
comparable mutual funds; (iii) unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or (iv) to other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and could
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Funds or
their Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
<PAGE>
15
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under Subchapter M
of the Code, so as to be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which is distributed to Shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares. Only a portion of such
dividends from the Balanced Growth Fund and no portion of the dividends from the
International Growth Fund will qualify for the dividends-received deduction. Any
net capital gains will be distributed annually and will be taxed to Shareholders
as long-term capital gains, regardless of how long the Shareholder has held
shares. Capital gains distributions will not qualify for the corporate
dividends-received deduction. Each Fund will make annual reports to Shareholders
of the federal income tax status of all distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in those months will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 if
paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Investment income received by the International Growth Fund from sources within
foreign countries may be subject to foreign income taxes withheld at the source.
To the extent that the Fund is liable for foreign income taxes so withheld, the
Fund intends to operate so as to meet the requirements of the Code to pass
through to the Shareholders credit for foreign income taxes paid. Although the
Fund intends to meet Code requirements to pass through credit for such taxes,
there can be no assurance that the Fund will be able to do so.
Sale, exchange or redemption of Fund shares is a taxable event to a Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each portfolio. In
addition to the Funds, the Trust consists of the following portfolios: U.S.
Treasury Securities Money Market Fund, U.S. Treasury Securities Plus Money
Market Fund, Prime Obligation Money Market Fund, Tax-Exempt Money Market Fund,
Short-Term Investment Fund, New
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16
Jersey Municipal Securities Fund, Pennsylvania Municipal Securities Fund, GNMA
Fund, Fixed Income Fund and Intermediate-Term Government Securities Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described above, certain
companies provide essential management services to the Trust.
VOTING RIGHTS
Each share held entitles a Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
DIVIDENDS
Substantially all of the net investment income (not including capital gain) of
the Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds is
distributed in the form of quarterly dividends to Shareholders of record on the
next to last Business Day of each quarter; and is periodically declared and paid
as a dividend to Shareholders of record for the International Growth Fund. If
any capital gain is realized, substantially all of it will be distributed at
least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class A shares at the net asset value next
determined following the record date, unless the Shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of each Fund are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a Shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
The amount of dividends payable on Class A shares will be more than the
dividends payable on Class B shares because of the distribution expenses charged
to Class B shares.
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17
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments and associated
risk factors for the Funds:
AMERICAN DEPOSITARY RECEIPTS ('ADRs'), EUROPEAN DEPOSITARY RECEIPTS ('EDRs'),
CONTINENTAL DEPOSITARY RECEIPTS ('CDRs') and GLOBAL DEPOSITARY RECEIPTS
('GDRs')-- ADRs are securities, typically issued by a U.S. financial institution
(a 'depositary'), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts, are securities,
typically issued by a non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. GDRs are issued globally and evidence a similar ownership
arrangement. Generally, ADRs are designed for trading in the U.S. securities
markets, EDRs are designed for trading in European securities market and GDRs
are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and
GDRs may be available for investment through 'sponsored' or 'unsponsored'
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
ASSET-BACKED SECURITIES--Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the United States
Government, its agencies or instrumentalities; however, the payment of principal
and interest on such obligations may be guaranteed up to certain amounts and for
a certain period by a letter of credit issued by a financial institution (such
as a bank or insurance company) unaffiliated with the issuers of such
securities. The purchase of asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the
obligations superior to that of the holders of the asset-backed securities.
There also is the possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder. The market for asset-backed securities is at a
relatively early stage of development. Accordingly, there may be a limited
secondary market for such securities.
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time draft
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
BRADY BONDS--Brady Bonds are debt securities issued under the framework of the
Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas
F. Brady in 1989 as a mechanism for debtor nations to restructure their
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18
outstanding external commercial bank debt. In restructuring its external debt
under the Brady Plan framework, a debtor nation negotiates with its existing
bank lenders as well as multilateral institutions such as the International Bank
for Reconstruction and Development (the 'World Bank') and the International
Monetary Fund (the 'IMF'). The Brady Plan framework, as it has developed,
contemplates the exchange of commercial bank debt for newly issued bonds ('Brady
Bonds'). Brady Bonds may also be issued in respect of new money being advanced
by existing lenders in connection with debt restructuring. Agreements
implemented under the Brady Plan to date are designed to achieve debt and
debt-service reduction through specific options negotiated by a debtor nation
with its creditors. As a result, the financial packages offered by each country
differ. Brady Bonds issued to date may be purchased and sold in the secondary
markets through U.S. securities dealers and other financial institutions and are
generally maintained through European securities depositories.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES--Convertible securities are corporate securities that are
exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of convertible securities tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls) swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, 'stripped' U.S. Treasury securities (e.g., Receipts and STRIPs),
privately issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere
in this 'Description of Permitted Investments' for discussions of these various
instruments, and see 'Investment Objectives and Policies' for more information
about any investment policies and limitations applicable to their use.
EQUITY SECURITIES--Equity securities represent ownership interests in a company
and consist of common stocks, preferred stocks, warrants to acquire common stock
and securities convertible into common stock. Investments in equity securities
in general are subject to market risks that may cause their prices to fluctuate
over time. The value of convertible equity securities is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provision. Fluctuations in the value of equity securities in which a Fund
invests will cause the net asset value of a Fund to fluctuate.
FIXED INCOME SECURITIES--Fixed income securities consist of bonds, notes,
debentures and other interest-bearing securities that represent indebtedness.
The market value of the fixed income investments in which a Fund invests will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily
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affect cash income derived from these securities but will affect a Fund's net
asset value.
FORWARD CURRENCY CONTRACTS--A Fund may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar or between foreign
currencies in which the Fund's securities are or may be denominated. A forward
contract involves an obligation to purchase or sell a specific currency amount
at a future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts, along with futures contracts and option
transactions, are considered to be derivative securities and may present special
risks. Under normal circumstances, consideration of the prospect for changes in
currency exchange rates will be incorporated into a Fund's long-term investment
strategies. However, the Advisor and Sub-Advisor believe that it is important to
have the flexibility to enter into forward currency contracts when it determines
that the best interest of the Fund will be served.
The Fund will convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion. When the Advisor or
Sub-Advisor believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Fund may enter into a currency contract to sell, for a fixed amount of U.S.
dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, a Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an 'offsetting' contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
Generally, a Fund will enter into forward currency contracts only as a hedge
against foreign currency exposure affecting the Fund. If a Fund enters into
forward currency contracts to cover activities which are essentially
speculative, the Fund will segregate cash or readily marketable securities with
its Custodian, or a designated sub-custodian, in an amount at all times equal to
or exceeding the Fund's commitment with respect to such contracts.
To assure that a Fund's foreign currency contracts are not used for leverage,
the net amount the Fund may invest in forward currency contracts is limited to
the amount of the Fund's aggregate investments in foreign currencies.
By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can achieve at some future point in time.
Additionally, although such contracts tend to minimize the rise 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A Fund may enter into
contracts for the purchase or sale of securities, including index contracts or
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery to the Fund of the securities or foreign
currency called for by the contract at a specified price during a specified
future month. When a futures contract on securities or currency is sold, a Fund
incurs a contractual obligation to deliver the securities or foreign currency
underlying the contract at a specified price on a specified date during a
specified future month. A Fund may sell stock index futures contracts in
anticipation of, or during a market decline to attempt to offset the decrease in
market value of its common stocks that might otherwise result; and it may
purchase such contracts in order to offset increases in the cost of common
stocks that it intends to purchase. A Fund may enter into futures contracts
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and options thereon to the extent that not more than 5% of the Fund's assets are
required as futures contract margin deposits and premiums on options and may
engage in futures contracts to the extent that obligations relating to such
futures contracts represent not more than 20% of the Fund's total assets.
A Fund may also purchase and write options to buy or sell futures contracts. A
Fund may write options on futures only on a covered basis. Options on futures
are similar to options on securities except that options on futures give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract, rather than actually to purchase or sell the futures contract,
at a specified exercise price at any time during the period of the option.
When a Fund enters into a futures transaction it must deliver to the futures
commission merchant selected by the Fund an amount referred to as 'initial
margin.' This amount is maintained in a segregated account at the custodian
bank. Thereafter, a 'variation margin' may be paid by the Fund to, or drawn by
the Fund from, such account in accordance with controls set for such accounts,
depending upon changes in the price of the underlying securities subject to the
futures contract. In addition, a Fund will segregate liquid high-grade
securities in an amount equal to its obligations under such contract. A Fund
will enter into such futures and options on futures transactions on domestic
exchanges and, to the extent such transactions have been approved by the
Commodity Futures Trading Commission for sale to customers in the United States,
on foreign exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Advisor or Sub-Advisor applies a hedge at an inappropriate time or judges
interest rates incorrectly, options and futures strategies may lower a Fund's
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other instruments, or if it
could not close out its positions because of an illiquid secondary market.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. Not more than 15% of the total assets of a Fund will
be invested in such instruments. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, if there is no
secondary market for such security. Restricted securities, including Rule 144A
securities, that meet the criteria established by the Trustees of the Trust will
be considered liquid.
INVESTMENT COMPANIES--A Fund may invest up to 10% of its total assets in shares
of other investment companies. Because of restrictions on direct investment by
U.S. entities in certain countries, investment in other investment companies may
be the most practical or only manner in which an international and global fund
can invest in the securities markets of those countries. Such investments may
involve the payment of substantial premiums above the net asset value of such
issuers' fund securities, and are subject to limitations under the 1940 Act.
A Fund does not intend to invest in other investment companies unless, in the
judgment of the Advisor or Sub-Advisor, the potential benefits of such
investment exceed the associated costs relative to the benefits and costs
associated with direct investments in the underlying securities. As a
shareholder in an investment company, a Fund would bear its ratable share of
that investment company's expenses, including its advisory and administration
fees. In accordance with applicable state regulatory provisions, the Advisor has
agreed to waive its management fee with respect to the portion of a Fund's
assets invested in shares of other open-end investment companies. A Fund
continues to pay its own management fees and other expenses with respect to
their investments in shares of closed-end investment companies.
JUNK BONDS--Bonds rated below investment grade are often referred to as 'junk
bonds.' Such securities involve greater risk of default or price declines than
investment grade securities due to changes in the issuer's creditworthiness and
the outlook for economic growth. The market for these securities may be less
active, causing market price volatility and limited liquidity in the secondary
market. This may limit a Fund's ability to sell such securities at their market
value. In addition, the
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21
market for these securities may also be adversely affected by legislative and
regulatory developments. Credit quality in the junk bond market can change
suddenly and unexpectedly, and even recently issued credit ratings may not fully
reflect the actual risks imposed by a particular security.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ('CMOs') and real estate mortgage investment
conduits ('REMICs') that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations ('CMOs'):
CMOs are debt obligations or multi-class pass-through certificates issued by
agencies or instrumentalities of the U.S. Government or by private originators
or investors in mortgage loans. In a CMO, series of bonds or certificates are
usually issued in multiple classes. Principal and interest paid on the
underlying mortgage assets may be allocated among the several classes of a
series of a CMO in a variety of ways. Each class of a CMO, often referred to as
a 'tranche,' is issued with a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal payments on the underlying
mortgage assets may cause CMOs to be retired substantially earlier than their
stated maturities or final distribution dates, resulting in a loss of all or
part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as 'regular' interests, or 'residual' interests. Guaranteed REMIC pass-through
certificates ('REMIC Certificates') issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates. FNMA REMIC Certificates are
issued and guaranteed as to timely distribution of principal and interest by
FNMA.
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Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ('PAC Bonds') generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITS: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ('SMBs'):
SMBs are usually structured with two classes that receive specified proportions
of the monthly interest and principal payments from a pool of mortgage
securities. One class may receive all of the interest payments and is thus
termed an interest-only class ('IO'), while the other class may receive all of
the principal payments and is thus termed the principal-only class ('PO'). The
value of IOs tends to increase as rates rise and decrease as rates fall; the
opposite is true of POs. SMBs are extremely sensitive to changes in interest
rates because of the impact thereon of prepayment of principal on the underlying
mortgage securities and can experience wide swings in value in response to
changes in interest rates and associated mortgage prepayment rates. During times
when interest rates are experiencing fluctuations, such securities can be
difficult to price on a consistent basis. The market for SMBs is not as fully
developed as other markets; SMBs therefore may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
OPTIONS--A put option gives the purchaser of the option the right to sell, and
the writer of the option the obligation to buy, the underlying security at any
time during the option period. A call option gives the purchaser of the option
the right to buy, and the writer of the option the obligation to sell, the
underlying security at any time during the option period. The premium paid to
the writer is the consideration for undertaking the obligations under the option
contract. The initial purchase (sale) of an option contract is an 'opening
transaction.' In order to close out an option position, a Fund may enter into a
'closing transaction,' which is simply the sale (purchase) of an option contract
on the same security with the same exercise price and expiration date as the
option contract originally opened.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to protect against an
increase in the cost of securities that the Fund may seek to purchase in the
future. A Fund purchasing put and call options pays a premium therefor. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered put and call options as a means of increasing the yield
on its portfolio and as a means of providing limited protection against
decreases in its market value. When a Fund sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and the Fund will realize as profit the
premium received for such option. When a call option of which a Fund is the
writer is exercised, the
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Fund will be required to sell the underlying securities to the option holder at
the strike price, and will not participate in any increase in the price of such
securities above the strike price. When a put option of which a Fund is the
writer is exercised, the Fund will be required to purchase the underlying
securities at the strike price, which may be in excess of the market value of
such securities.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ('OTC options') differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates.
Call options on securities or foreign currency written by a Fund will be
'covered,' which means that the Fund will own an equal amount of the underlying
security or foreign currency. With respect to put options on securities or
foreign currency written by a Fund, the Fund will establish a segregated account
with its custodian bank consisting of cash or liquid, high grade debt securities
in an amount equal to the amount the Fund would be required to pay upon exercise
of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid high
grade debt securities with its custodian in an amount at least equals to the
market value of the option and will maintain the account while the option is
open or will otherwise cover the transaction.
Risk Factors. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
RECEIPTS--Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying investments.
REPURCHASE AGREEMENTS--Repurchase Agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have
<PAGE>
24
actual or constructive possession of the security as collateral for the
repurchase agreement. A Fund bears a risk of loss in the event of the other
party defaults on its obligations and the Fund is delayed or prevented from its
right to dispose of the collateral securities or if the Fund realizes a loss on
the sale of the collateral securities. A Fund will enter into repurchase
agreements only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on established guidelines.
Repurchase agreements are considered loans under the 1940 Act.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits maturing in more than seven days
are considered to be illiquid securities.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consists of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ('STRIPS').
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of a Fund's shares.
VARIABLE OR FLOATING RATE INSTRUMENTS-- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES (EQUITY AND DEBT SECURITIES)--
When-issued or delayed delivery basis transactions involve the purchase of an
instrument with payment and delivery taking place in the future. Delivery of and
payment for these securities may occur a month or more after the date of the
purchase commitment. A Fund will maintain with the Custodian a separate account
with liquid high grade debt securities or cash in an amount at least equal to
these commitments. The interest rate, if any, realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement. Debt and equity securities are subject to market fluctuation and it
is possible that the market value at the time of settlement could be higher or
lower than the purchase price. Although a Fund generally purchases securities on
a when-issued or forward commitment basis with the intention of actually
acquiring securities for its portfolio, a Fund may dispose of a when-issued
security or forward commitment prior to settlement if it deems appropriate.
<PAGE>
25
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Summary............................................. 2 The Administrator................................... 12
Expense Summary..................................... 4 The Shareholder Servicing Agent..................... 12
Financial Highlights................................ 5 The Distributor..................................... 13
The Trust........................................... 6 Purchase and Redemption of Shares................... 13
Investment Objectives and Policies.................. 6 Performance......................................... 14
Investment Limitations.............................. 10 Taxes............................................... 14
The Advisor......................................... 11 General Information................................. 15
The Sub-Advisor..................................... 12 Description of Permitted Investments................ 17
</TABLE>
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
THE PILLAR FUNDS (the 'Trust') consist of mutual fund portfolios (collectively,
the 'Funds'; individually, a 'Fund') seeking to provide a convenient and
economical means of investing in one or more professionally managed portfolios
of securities. This Prospectus relates to the following equity and balanced
funds:
O EQUITY VALUE FUND
O EQUITY INCOME FUND
O MID CAP VALUE FUND
O BALANCED GROWTH FUND
O INTERNATIONAL GROWTH FUND
CLASS B
The Trust's Class B Shares are offered to all persons (persons who own Class B
shares of a Fund are referred to herein as 'Shareholders').
CLASS B SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING UNITED JERSEY BANK OR ITS
AFFILIATES OR CORRESPONDENTS), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT
AGENCY.
AMOUNTS INVESTED IN THE FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
SALES CHARGES ARE IMPOSED BY ALL FUNDS AT THE TIME OF PURCHASE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated April 30, 1996, has been filed with the Securities and
Exchange Commission and is available without charge through the Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
APRIL 30, 1996
CLASS B
<PAGE>
2
SUMMARY
THE PILLAR FUNDS (THE 'TRUST') CONSIST OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES WHICH PROVIDE A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE
CLASS B SHARES OF THE TRUST'S EQUITY VALUE FUND, EQUITY INCOME FUND, MID CAP
VALUE FUND, BALANCED GROWTH FUND AND INTERNATIONAL GROWTH FUND (COLLECTIVELY,
THE 'FUNDS;' INDIVIDUALLY, A 'FUND').
What are the Investment Objectives? The investment objectives of the
respective Funds are as follows: the Equity Value and Mid Cap Value
Funds--growth of both capital and income; the Equity Income Fund--growth of
capital consistent with an emphasis on current income; the Balanced Growth
Fund--growth of capital consistent with current income; and the International
Growth Fund--long-term capital growth. There is no assurance that a Fund will
meet its investment objective. See 'Investment Objectives and Policies.'
What are the Permitted Investments? The Equity Value, Equity Income and Mid
Cap Value Funds each invest in equity securities consisting of (i) common
stocks; (ii) warrants to purchase common stocks; (iii) securities convertible
into common stocks; and (iv) American Depositary Receipts ('ADRs'). The Balanced
Growth Fund invests in the securities described above and certain fixed income
and money market securities. The International Growth Fund invests primarily in
equity securities of non-U.S. issuers consisting of (i) common stocks; (ii)
warrants to purchase common stocks; (iii) debt securities and preferred stocks
convertible into common stocks; and (iv) ADRs, European Depositary Receipts
('EDRs'), Continental Depositary Receipts ('CDRs') and Global Depositary
Receipts ('GDRs'). The International Growth Fund may also invest in foreign
government debt securities. Because securities fluctuate in value, the shares of
each Fund will also fluctuate in value. The Mid Cap Value Fund may experience
greater fluctuation because it will invest primarily in small to medium
capitalization companies. In addition, the value of shares of the Balanced
Growth and International Growth Funds are subject to market and interest rate
fluctuations that affect the value of its fixed income investments. The
International Growth Fund is non-diversified and may, therefore, concentrate its
portfolio investments in a relatively small number of issuers and may, as a
result, be subject to greater risk with respect to its portfolio securities. The
International Growth Fund may also invest in options, futures and currency
transactions. The Funds' investments in securities of foreign issuers will
subject the Funds to risks associated with foreign investments. See 'Investment
Objectives and Policies,' 'General Investment Policies,' 'Risk Factors,' and
'Description of Permitted Investments.'
Who are the Advisor and Sub-Advisor? United Jersey Bank Investment
Management Division, a division of United Jersey Bank, serves as the Advisor of
the Trust. Wellington Management Company serves as the Sub-Advisor for the
International Growth Fund. See 'The Advisor' and 'The Sub-Advisor.'
Who is the Administrator? SEI Financial Management Corporation serves as
the Administrator of the Trust. See 'The Administrator.'
Who is the Shareholder Servicing Agent? SEI Financial Management
Corporation acts as dividend disbursing agent and shareholder servicing agent
for the Trust under the Administration Agreement and as transfer agent for the
Trust under a separate agreement. See 'The Shareholder Servicing Agent.'
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. The Trust has adopted a distribution plan (the 'Class B
Plan') on behalf of the Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. See 'The Distributor.'
How Do I Purchase and Redeem Shares? Shares may be purchased through a
financial institution, such as United Jersey Bank, or a broker-dealer that has
entered into a dealer agreement with SEI Financial Services Company
('Intermediaries'). Shares may also be purchased directly through the
Distributor. Shareholders may
<PAGE>
3
redeem shares directly through the Distributor. In addition, Intermediaries
through which Shareholders may purchase shares generally stand ready to assist
Shareholders in effecting redemptions of shares held in their Fund accounts.
Purchase and redemption requests may be made on a day on which both the New York
Stock Exchange and the Federal Reserve wire system are open for business
('Business Day'). The minimum initial investment is $1,000. Shares are offered
at net asset value per share plus a maximum sales charge at time of purchase of
4%. Shareholders who purchase higher amounts may qualify for a reduced sales
charge. The net asset value per share is determined as of 4:00 p.m., Eastern
time on each Business Day. See 'Purchases of Shares' and 'Redemption of Shares.'
How are Dividends Paid? Substantially all of the net investment income
(exclusive of capital gains) of the Equity Value, Equity Income, Mid Cap Value
and Balanced Growth Funds is distributed in the form of quarterly dividends to
Shareholders of record on the next to last Business Day of each quarter and is
periodically declared and paid as a dividend to Shareholders of record for the
International Growth Fund. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the Shareholder elects to
take the payment in cash. See 'Dividends.'
<PAGE>
4
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES CLASS B
(As a percentage of offering price)
<TABLE>
<CAPTION>
EQUITY EQUITY MID CAP BALANCED INTERNATIONAL
VALUE INCOME VALUE GROWTH GROWTH
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge imposed on purchases................. 4.00% 4.00% 4.00% 4.00% 4.00%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
EQUITY EQUITY MID CAP BALANCED INTERNATIONAL
VALUE INCOME VALUE GROWTH GROWTH
FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after fee waivers)(1)(2)................... .48% .45% .45% .44% .75%
12b-1 Fees................................................ .25% .25% .25% .25% .25%
Other Expenses(2)......................................... .32% .35% .35% .36% .75%
- ---------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(3)........... 1.05% 1.05% 1.05% 1.05% 1.75%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Advisor has agreed to voluntarily waive a portion of its fees in an
amount that operates to limit total operating expenses of Class B shares of
the Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds to
not more than 1.05% of average daily net assets; and the Advisor and
Sub-Advisor have voluntarily agreed to waive a portion of their fees in an
amount that operates to limit total operating expenses of Class B shares of
the International Growth Fund to not more than 1.75% of average daily net
assets. The Advisor and Sub-Advisor each reserves the right to terminate its
fee waiver at any time in its sole discretion.
(2) Advisory fees and Other Expenses for the International Growth Fund have been
restated to reflect current expenses.
(3) Absent fee waivers for the Equity Value, Equity Income, Mid Cap Value,
Balanced Growth and International Growth Funds, Advisory Fees would be .75%
for the Equity Growth, Equity Income, Mid Cap Value and Balanced Funds and
1.00% for the International Growth Fund, and Total Operating Expenses would
be 1.32%, 1.35%, 1.35% and 1.36% and 2.00%, respectively, of such Funds'
average daily net assets. Additional information may be found under 'The
Advisor,' 'The Sub-Advisor,' 'The Administrator' and 'The Distributor.'
<TABLE>
<CAPTION>
EXAMPLE
- -----------------------------------------------------------------------------------------------------------------------------------
1YR. 3 YRS. 5 YRS. 10 YRS.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor in each Fund would pay the following expenses on a $1,000 investment
assuming (1) 4% maximum sales charge, (2) 5% annual return and (3) redemption
at the end of each time period:
Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds........... $50 $72 $ 96 $163
International Growth Fund...................................................... $57 $93 $131 $238
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. The information set forth in the foregoing
table and example relates only to Class B shares. The Trust also offers Class A
shares of each Fund which are subject to the same expenses except there are no
sales loads and distribution fees. Financial institutions may impose separate
fees for account services on their Investment Strategy Account Agreement
customers ("ISA Customers") and on customers for which they are the record owner
of shares for the account. In addition, a wire redemption charge of $10.00 is
imposed for each redemption by wire. Additional information may be found under
'The Advisor,' 'The Sub-Advisor,' 'The Administrator,' 'The Shareholder
Servicing Agent' and 'The Distributor.'
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See 'Purchase and Redemption of Shares.'
Long-term shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules (the 'Rules') of the National
Association of Securities Dealers, Inc. ('NASD'). The Trust intends to operate
the Class B distribution plan in accordance with its terms and with the NASD
Rules concerning sales charges.
<PAGE>
5
FINANCIAL HIGHLIGHTS THE PILLAR FUNDS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 22,
1996 on the Trust's financial statements as of December 31, 1995 included in the
Trust's Statement of Additional Information under 'Financial Information.'
Additional performance information is contained in the 1995 Annual Report to
Shareholders and is available upon request and without charge by calling
1-800-932-7782. This table should be read in conjunction with the Trust's
financial statements and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
REALIZED
AND NET
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSETS RATIO OF
VALUE NET GAINS OR FROM NET FROM NET ASSET END OF EXPENSES TO
BEGINNING INVESTMENT LOSSES ON INVESTMENT CAPITAL VALUE END TOTAL PERIOD AVERAGE NET
OF PERIOD INCOME SECURITIES INCOME GAINS OF PERIOD RETURN(+) (000) ASSETS
----------- ----------- ----------- ----------- ----------- --------- --------- --------- -----------
- -------------
EQUITY VALUE
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
1995............ $ 10.21 $ 0.21 $ 3.47 $ (0.22) $ (0.84) $ 12.83 36.35% $ 7,644 1.05%
1994............ 11.12 0.18 (0.83) (0.18) (0.08) 10.21 (5.83) 3,031 1.05
1993............ 10.66 0.16 0.46 (0.16) -- 11.12 5.85 2,741 1.05
1992(1)......... 10.00 0.09 0.67 (0.10) -- 10.66 10.35* 1,562 1.05
- ---------------
EQUITY INCOME
- ---------------
CLASS B
1995............ $ 10.27 $ 0.28 $ 3.29 $ (0.28) $ (0.48) $ 13.08 35.21% $ 9,612 1.05%
1994............ 11.17 0.29 (0.80) (0.29) (0.10) 10.27 (4.56) 5,657 1.05
1993............ 10.73 0.28 0.78 (0.27) (0.35) 11.17 9.94 4,421 1.05
1992(1)......... 10.00 0.15 0.77 (0.19) -- 10.73 12.43* 585 1.05
- ---------------------
MID CAP VALUE FUND
- ---------------------
CLASS B
1995............ $ 10.82 $ 0.12 $ 1.94 $ (0.12) $ (0.23) $ 12.53 19.13% $ 5,653 1.05%
1994............ 12.31 0.10 (1.27) (0.10) (0.22) 10.82 (9.54) 4,567 1.05
1993............ 10.99 0.09 1.32 (0.09) -- 12.31 12.88 2,720 1.05
1992(1)......... 10.00 0.05 1.00 (0.06) -- 10.99 14.08* 637 1.05
- ------------------
BALANCED GROWTH
- ------------------
CLASS B
1995............ $ 9.92 $ 0.42 $ 2.28 $ (0.42) $ (0.13) $ 12.07 27.53% $ 8,452 1.05%
1994............ 10.79 0.35 (0.87) (0.35) -- 9.92 (4.87) 6,737 1.05
1993............ 10.36 0.37 0.42 (0.36) -- 10.79 7.62 8,122 1.05
1992(1)......... 10.00 0.20 0.40 (0.24) -- 10.36 8.15* 2,990 1.05
- ----------------------
INTERNATIONAL GROWTH
- ----------------------
CLASS B
1995(2)......... $ 10.00 $ 0.01 $ 0.75 $ (0.01) $ (0.02) $ 10.73 7.64% $ 621 1.75%*
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
RATIO OF AVERAGE NET TO AVERAGE
NET INCOME ASSETS NET ASSETS PORTFOLIO
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER
NET ASSETS WAIVERS) WAIVERS) RATE
----------- ------------- ----------- -----------
- -------------
EQUITY VALUE
- -------------
<S> <C> <C> <C> <C>
CLASS B
1995........... 1.83% 1.32% 1.56% 61.88%
1994............ 1.67 1.31 1.41 44.98
1993............ 1.51 1.30 1.26 89.91
1992(1)......... 1.64 1.36 1.33 45.68
- ---------------
EQUITY INCOME
- ---------------
CLASS B
1995............ 2.36% 1.35% 2.06% 42.97%
1994............ 2.71 1.33 2.43 37.76
1993............ 2.42 1.35 2.12 89.89
1992(1)......... 2.54 1.40 2.19 58.41
- -------------------
MID CAP VALUE FUND
- -------------------
CLASS B
1995............ 1.03% 1.35% 0.73% 32.96%
1994............ 0.85 1.33 0.57 13.82
1993............ 0.83 1.35 0.53 24.49
1992(1)......... 0.88 1.40 0.53 09.29
- ----------------
BALANCED GROWTH
- ----------------
CLASS B
1995............ 3.64% 1.36% 3.33% 41.63%
1994............ 3.39 1.34 3.10 27.15
1993............ 3.47 1.38 3.14 63.03
1992(1)......... 3.59 1.45 3.19 82.76
- ---------------------
INTERNATIONAL GROWTH
- ---------------------
CLASS B
1995(2)......... 0.45%* 2.38%* (0.18)%* 14.32%
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
(+) Total Return does not reflect sales loads on Class B shares.
(1) The Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds commenced operations on April 1, 1992. Ratios
for this period have been annualized.
(2) The International Growth Fund -- Class B commenced operations on May 4, 1995. Ratios for this period have been
annualized.
</TABLE>
<PAGE>
6
THE TRUST
THE PILLAR FUNDS (the 'Trust') consist of open-end management investment
companies that have diversified and non-diversified portfolios. The Trust offers
units of beneficial interest ('shares') in fifteen separate investment
portfolios. Shareholders may purchase shares in each portfolio (except for the
U.S. Treasury Securities Plus Money Market Fund) through two separate classes
(Class A and Class B) which provide for variations in distribution costs, voting
rights, sales load, minimum investment, redemption fees, transfer agency fees
and dividends. Except for these differences between classes, each share of each
portfolio represents an undivided proportionate interest in that portfolio. This
Prospectus relates to the Class B shares of the Trust's Equity Value Fund,
Equity Income Fund, Mid Cap Value Fund, Balanced Growth Fund and International
Growth Fund (each of these, a 'Fund'). Each of the Funds is a diversified mutual
fund, except for the International Growth Fund, which is a non-diversified
mutual fund. Information regarding the Trust's other portfolios and the Class A
shares of the Funds is contained in separate prospectuses that may be obtained
from the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087 or by calling 1-800-932-7782.
SHARES OF THE TRUST ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR INSURED, GUARANTEED, SPONSORED OR ENDORSED BY, ANY BANK
(INCLUDING UNITED JERSEY BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE OR
STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE U.S.
GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
SHARES OF THE TRUST ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED. SEE 'INVESTMENT OBJECTIVES AND POLICIES--RISK
FACTORS.'
A SALES CHARGE IS IMPOSED BY ALL FUNDS AT THE TIME OF PURCHASE. SEE 'PURCHASE OF
SHARES--OTHER INFORMATION REGARDING PURCHASES.'
INVESTMENT OBJECTIVES AND POLICIES
THE EQUITY VALUE FUND
The investment objective of this Fund is growth of both capital and income.
There is no assurance that the investment objective will be met.
The Fund will normally be as fully invested as practicable in equity securities
consisting of common stocks, warrants to purchase common stocks, debt securities
and preferred stocks convertible into common stocks and ADRs. The Advisor will
purchase equity securities which, in the Advisor's opinion, are undervalued in
the marketplace at the time of purchase. For a description of the Fund's
permitted investments, see 'Description of Permitted Investments.'
THE EQUITY INCOME FUND
The investment objective of this Fund is growth of capital consistent with an
emphasis on current income. There is no assurance that the investment objective
will be met.
The Fund will normally be as fully invested as practicable in equity securities
consisting of common stocks, warrants to purchase common stocks, debt securities
and preferred stocks convertible into common stocks and ADRs. For a description
of the Fund's permitted investments, see 'Description of Permitted Investments.'
THE MID CAP VALUE FUND
The investment objective of this Fund is growth of both capital and income.
There is no assurance that the investment objective will be met.
The Fund will normally be as fully invested as practicable in equity securities
consisting of common stocks, warrants to purchase common stocks, debt securities
and preferred stocks convertible into common stocks and ADRs that, in the
Advisor's opinion, are significantly undervalued relative to their actual value
at the time of purchase. Under normal market conditions, the Fund will invest at
least 65% if its total assets in equity securities of mid cap issuers (i.e.
companies with market capitalizations ranging between $250 million and $1.5
billion at the time of purchase). The Fund may also invest in equity securities
of small cap issuers (i.e., companies with market capitalizations between $100
million and $250 million at the time of purchase).
<PAGE>
7
The Advisor will attempt to maintain a highly diversified portfolio in order to
reduce the risks associated with investments in small capitalization companies
which may be subject to greater volatility than investments in companies with
larger capitalizations. For a description of the Fund's permitted investments,
see 'Description of Permitted Investments.'
THE BALANCED GROWTH FUND
The investment objective of this Fund is growth of capital consistent with
current income. There can be no assurance that the investment objective will be
met.
The Fund seeks to achieve growth of capital and current income by investing in a
balanced portfolio of equity securities, fixed income securities and money
market securities. The actual blend will vary according to market and economic
conditions. However, under normal market conditions, at least 25% of the Fund's
total assets will be invested in fixed income securities. This investment policy
may be changed by the Trust's board of trustees (the 'Trustees') at any time;
however, Shareholders will be notified of any such change in advance.
The Fund may invest in the following equity securities: common stocks, warrants
to purchase common stocks, debt securities and preferred stocks convertible into
common stocks and ADRs.
The Fund may invest in the following fixed income securities: obligations issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities ('U.S. Government Securities'); corporate bonds and
debentures rated in one of the three highest rating categories or determined by
the Advisor to be of comparable quality at the time of purchase; mortgage-backed
securities consisting of collateralized mortgage obligations ('CMOs') and real
estate mortgage investment conduits ('REMICs') that are rated in one of the top
two rating categories and which are backed solely by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by the U.S. Government, its agencies
or instrumentalities; and asset-backed securities secured by company
receivables, truck and auto loans, leases and credit card receivables which are
rated in one of the top two rating categories. Securities rated A are considered
to be investment grade and of high credit quality. Issues rated A could be more
vulnerable to adverse developments than obligations with higher ratings.
The Fund may invest in the following money market securities: short-term
U.S.Government Securities; custodial receipts evidencing separately traded
interest and principal components of securities issued by the U.S. Treasury;
commercial paper rated in the highest short-term rating category or determined
by the Advisor to be of comparable quality at the time of purchase; short-term
bank obligations (certificates of deposit, time deposits, and bankers'
acceptances) of U.S. commercial banks with assets of at least $1 billion as of
the end of their most recent fiscal year; and repurchase agreements involving
such securities.
THE INTERNATIONAL GROWTH FUND
The investment objective of this Fund is long-term capital growth. There is no
assurance that the investment objective will be met.
The Fund will normally invest at least 65% of its total assets in the following
equity securities of non-U.S. issuers: common stocks, warrants to purchase
common stocks, debt securities and preferred stocks convertible into common
stocks and ADRs, EDRs, CDRs and GDRs. The Fund will purchase equity securities,
including ADRs, EDRs, CDRs and GDRs, that are traded in the United States on
registered exchanges or the over-the-counter market and securities traded on
foreign exchanges. Furthermore, the Fund may purchase equity securities of a
foreign or domestic issuer's public offerings, including initial public
offerings ('IPOs'). The Fund may also invest up to 35% of its assets in foreign
government debt securities and securities issued by supranational agencies when
the sub-advisor believes that they are compatible with the Fund's investment
objective. Such securities will be rated investment grade or better, i.e. rated
in one of the four highest rating categories by a nationally recognized
statistical ratings organization ('NRSRO'), such as Standard & Poor's Ratings
Group or Moody's Investors Service, Inc., or, if not rated, determined to be of
comparable quality as determined by the Sub-Advisor. In addition, the Fund may
invest up to 10% of its assets in such foreign government debt
<PAGE>
8
securities that are rated BB (or Ba) or B by an NRSRO, or, if not rated,
determined to be of comparable quality as determined by the sub-advisor.
Securities rated B are considered highly speculative and while the issuer
currently has the capacity to meet debt service requirements, adverse business,
financial or economic conditions would likely impair its capacity or willingness
to pay interest and principal. In addition, the Fund may also invest in money
market instruments as defined in 'General Investment Policies' below.
The Fund will invest in securities of issuers in at least three countries other
than the United States. The Fund may invest in securities of issuers from
countries that are considered to be lesser-developed countries by the
international financial community, but that have securities markets meeting
acceptable standards of liquidity, financial disclosure, government regulation
and protection of foreign investors, as determined by the sub-advisor. Normally,
no more than 25% of the Fund's assets will be invested in such securities. The
Fund may also invest up to 10% of its assets in closed-end investment companies
that invest in the securities of issuers in a single country or region (commonly
referred to as 'country funds'). In addition, the Fund may invest in Brady
Bonds. The Fund may invest in smaller, less well-established companies (i.e.,
companies with market capitalizations below $500 million) which may offer
greater opportunities for capital appreciation than larger, better established
companies. The Fund is non-diversified and may, therefore, concentrate its
portfolio investments in a relatively small number of issuers.
The Fund may engage in currency transactions for hedging purposes. Currency
transactions include forward currency contracts, exchange-listed and
over-the-counter ('OTC') currency futures contracts and options on futures
contracts, exchange-listed and OTC options on currencies, and currency swaps.
The Fund may also employ certain hedging, income enhancement and risk management
techniques, including the purchase and sale of exchange-listed and OTC options,
futures and options on futures involving equity and debt securities, aggregates
of equity and debt securities, and other financial indices. The Fund may write
options and futures only on a covered basis.
In seeking to achieve its investment objective of long-term capital growth, the
Fund's investments will be selected on the basis of fundamental analysis to
identify those markets and securities that provide capital appreciation
potential. Fundamental analysis involves assessing a company and its business
environment, management, balance sheet, income statement, anticipated earnings
and dividends and other related measures of value. In analyzing companies for
investment, the sub-advisor looks for, among other things, above-average
earnings growth, a strong balance sheet, attractive industry dynamics, strong
competitive advantages, and positive relative value within the context of a
security's primary trading market. In addition to fundamental analysis of
companies and industries, the sub-advisor evaluates the economic and political
environments of the countries in which the securities are traded.
For a description of the Funds' permitted investments and the above ratings, see
'General Investment Policies,' 'Risk Factors,' and 'Description of Permitted
Investments' in this Prospectus and 'Description of Permitted Investments' and
'Description of Ratings' in the Statement of Additional Information.
GENERAL INVESTMENT POLICIES
For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, each Fund may invest up to 100% of its assets in the
money market instruments described under 'The Balanced Growth Fund' above and
may hold cash for liquidity purposes. The money market securities the
International Growth Fund may invest in may be denominated in foreign currencies
or U.S. dollars and consist of short-term U.S. Government obligations,
obligations issued or guaranteed by the agencies and instrumentalities of the
U.S. Government and securities of foreign governments; custodial receipts
evidencing separately traded interest and principal components of securities
issued by the U.S. Treasury; short term corporate securities rated in the
highest short-term rating category or determined by the Advisor or Sub-Advisor
to be of comparable quality at the time of purchase; short-term bank obligations
(certificates of deposit, time deposits, and bankers' acceptances) of U.S. or
foreign commercial banks with assets of at least $1 billion as of the end of
their most recent
<PAGE>
9
fiscal year; Euro-currency instruments and securities; and repurchase agreements
involving such securities. Furthermore, the International Growth Fund may hold
cash in U.S. dollars, foreign currencies or multi-national currency units for
liquidity purposes. To the extent a Fund is engaged in temporary defensive
investing, the Fund will not be pursuing its investment objective.
The Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds seek to
invest in equity securities that the Advisor believes are of high quality. In
evaluating the quality of such securities, the Advisor places particular
emphasis on the management history of the issuer and on ratio analyses which
focus on prospective earnings, book value and anticipated growth rates.
Securities purchased by the Funds may involve floating or variable interest
rates and may be acquired through a forward commitment or on a when-issued
basis.
In addition, each Fund reserves the right to engage in securities lending but
has no present intention to do so. The Equity Value, Equity Income, Mid Cap
Value and Balanced Growth Funds will only purchase equity securities, including
ADRs, that are traded in the United States on registered exchanges or the
over-the-counter market. However, each of these four Funds reserves the right to
invest up to 25% of its assets in foreign equity securities denominated in
foreign currency and traded on foreign markets, but has no present intention to
do so.
RISK FACTORS
Because each Fund invests in equity securities, its shares will fluctuate in
value. The market value of the convertible securities purchased by each Fund may
also be affected by changes in interest rates, the credit quality of the issuer
and any call provisions. In addition, investments in smaller, less
well-established companies may subject the Mid Cap Value and International
Growth Funds to certain special risks related to, for example, limited product
lines, markets or financial resources and dependence on a small management
group. Such securities may trade less frequently, in smaller volumes and
fluctuate more sharply in value than exchange listed securities of larger
companies.
The market value of the Balanced Growth and International Growth Funds' fixed
income securities will fluctuate in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. In addition,
the mortgage-backed securities that the Balanced Growth Fund may acquire are
subject to the risk of prepayment during periods of declining interest rates
which may affect the Fund's ability to lock-in longer term rates during such
periods.
Each Fund's investment in securities of foreign issuers may subject the Fund to
different risks than those attendant to investments in securities of U.S.
issuers such as differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory taxation, political
instability and greater fluctuations in value due to changes in currency
exchange rates. There may also be less publicly available information with
regard to foreign issuers than domestic issues. In addition, foreign markets may
be characterized by less liquidity, greater price volatility, less regulation
and higher transaction costs than U.S. markets. Moreover, the dividends payable
on a Fund's foreign securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Fund's
Shareholders. Also, it may be more difficult to obtain a judgment in a court
outside the United States. These risks could be greater in emerging markets than
in more developed foreign markets because emerging markets may have less stable
political environments than more developed countries.
Since the International Growth Fund may invest in foreign currency and
securities denominated in foreign currency, changes in exchange rates between
the U.S. dollar and foreign currencies affect the U.S. dollar value of the
Fund's assets. Rates of exchange are determined by forces of supply and demand
on the foreign exchange markets. These forces are in turn affected by the
international balance of payments and other economic, political and financial
condition, government intervention, speculation and other factors. The Fund's
net asset value will be reported, and distributions from the Fund will be made,
in U.S. dollars. Therefore, the
<PAGE>
10
Fund's reported net asset value and distributions will be adversely affected by
depreciation of foreign currency relative to the U.S. dollar. A decline in the
value of foreign currency would adversely affect the value of the Fund in dollar
terms. While the Fund may try to hedge its currency risk using currency
transactions, there is no assurance that it will be successful.
The International Growth Fund may invest in lower rated bonds, which are
commonly referred to as 'junk bonds.' These securities are speculative and are
subject to a greater risk of loss of principal and interest than are investments
in higher rated bonds.
The International Growth Fund may invest in options and futures. There are
various risks associated with options and futures, including that the success of
a hedging strategy may depend on an ability to predict movements in security
prices, interest rates or currency exchange rates; there may be little
correlation between the changes in a security's value and the price of futures
or options; a related future or option may not be liquid; an exchange may impose
trading restrictions or limitations; government regulations may restrict trading
in futures and options; and possible lack of full participation in a rise in the
market value of the underlying security.
In addition the International Growth Fund may invest in equity securities by
participating in an issuer's IPO. Such investments have special risks associated
with them. There is often a high volume of trading in IPO securities, which can
result in greater price volatility. Companies offering such securities may not
have operated previously as a public company, and their share price may
experience significant volatility as the marketplace reacts to their financial
results. Furthermore, some IPO issuers have not conducted operations for a
significant period of time, and may not have developed a management structure
sufficient to cope with the pressures of running a public company.
The International Growth Fund is a non-diversified fund under the Investment
Company Act of 1940, as amended (the '1940 Act'), and therefore may invest a
greater proportion of its assets in the securities of a smaller number of
issuers and may, as a result, be subject to greater risk with respect to its
portfolio securities. The Fund intends to satisfy the diversification
requirements necessary to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the 'Code'), by limiting its
investments so that, at the close of each quarter of the taxable year, (a) not
more than 25% of the market value of the Fund's total assets is invested in the
securities (other than U.S. Government securities) of a single issuer, and (b)
at least 50% of the market value of the Fund's total assets is represented by
(i) cash and cash items (ii) U.S. Government securities and (iii) other
securities limited in respect to any one issuer to an amount not greater in
value than 5% of the market value of the Fund's total assets and to not more
than 10% of the outstanding voting securities of such issuer.
FUND TURNOVER
The Fund turnover rate for each Fund is expected to be less than 100%. With
respect to the Balanced Growth Fund, this applies only to its investments in
equity securities and non-money market, fixed income securities.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. Fundamental policies cannot be changed with
respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of each Fund's total assets. This restriction does
not apply to the International Growth Fund.
2. Purchase any securities which would cause more than 25% of the total assets
of any Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements
<PAGE>
11
involving such securities. For purposes of this limitation, (i) utility
companies will be classified according to their services, for example, gas, gas
transmissions, electric and telephone will each be considered a separate
industry; (ii) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; (iii)
supranational agencies will be deemed to be issuers conducting their principal
business activities in the same industry; and (iv) governmental issuers within a
particular country will be deemed to be conducting their principal business
activities in the same industry.
3. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as described in this Prospectus
and in the Statement of Additional Information.
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
THE ADVISOR
United Jersey Bank Investment Management Division, a division of United Jersey
Bank (the 'Advisor') serves as the Advisor of the Trust. The Advisor makes the
investment decisions for the assets of each Fund and continuously reviews,
supervises and administers each Fund's investment program subject to the
supervision of, and policies established by, the Trustees of the Trust.
United Jersey Bank, 210 Main Street, Hackensack, NJ 07601, was chartered in 1899
and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment experts have, on average, over 20 years of
experience in investment management. As of December 31, 1995, total assets under
management were approximately $4 billion.
United Jersey Bank is a wholly-owned subsidiary of Summit Bancorp, an interstate
bank holding company with $22 billion in assets and over 325 banking offices in
New Jersey and Eastern Pennsylvania as of December 31, 1995.
Randolph E. Lestyk is Vice President and Regional Manager of the Advisor and has
managed the Mid Cap Value Fund since January, 1996. Prior to joining United
Jersey Bank in January, 1994, Mr. Lestyk was involved in equity and fixed income
investing at several financial institutions, serving as Director of Fixed Income
Investing, Head of Trust Investments, and most recently as Senior Vice President
and Chief Investment officer of a major insurance company in Pennsylvania.
Richard H. Caro is a Vice President of the Advisor and has managed the Equity
Income Fund since January, 1996. Prior to joining United Jersey Bank in April,
1993, Mr. Caro was associated with several investment counseling firms in New
York City. Mr. Caro has had extensive experience in securities research,
covering several industry groups, and in managing large institutional
portfolios. Mr. Caro currently has responsibility for managing both equity and
fixed income portfolios in the Investment Department.
Fernando Garip is a Vice President of the Advisor and has managed the Balanced
Growth Fund since inception in April, 1992 and the Equity Value Fund since
January, 1996. Mr. Garip also manages the U.S. Treasury Securities Plus Money
Market, U.S. Treasury Securities Money Market and Prime Obligation Money Market
Funds and has responsibility for both equity and fixed income portfolios in the
Investment Department. Mr. Garip joined United Jersey Bank in 1982.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .75% of the average daily net assets of the Equity Value,
Equity Income, Mid Cap Value and Balanced Growth Funds; and at an annual rate of
1.00% of the average daily net assets of the International Growth Fund. The
contractual advisory fee is higher than that paid by most mutual funds with
similar objectives and policies. The Advisor has voluntarily agreed to waive all
or a portion of its fees in order to limit the operating expenses of Class B
shares of the Equity Value, Equity Income, Mid Cap Value and Balanced Growth
Funds to 1.05%; and the Adviser and Sub-Adviser have voluntarily agreed to waive
a portion of their fees in an amount that operates to
<PAGE>
12
limit total operation expenses of Class B shares of the International Growth
Fund to not more than 1.75% of average daily net assets. After such voluntary
fee waivers, the advisory fee is not higher than that paid by most mutual funds
with similar objectives and policies. The Advisor reserves the right to
terminate its fee waiver at any time in its sole discretion. For the fiscal year
ended December 31, 1995, each Fund paid the Advisor the following advisory fee
(shown as a percentage of its average daily net assets): Equity Value Fund,
.48%; Equity Income Fund, .45%; Mid Cap Value Fund, .45%; Balanced Growth Fund,
.44% and International Growth Fund, .38%
United Jersey Bank has also entered into a Custodian Agreement with the Trust,
under which it provides all securities safekeeping services as required by the
Funds and the 1940 Act. The Trust pays United Jersey Bank (referred to herein in
its custodial capacity as the 'Custodian') a custodian fee, which is calculated
daily and paid monthly, at an annual rate of .025% of the average daily net
assets of the Equity Value, Equity Income, Mid Cap Value and Balanced Growth
Funds, and at an annual rate of .17% of the average daily net assets of the
International Growth Fund.
The Glass-Steagall Act restricts the securities activities of banks such as
United Jersey Bank, but federal regulatory authorities permit such banks to
provide investment advisory and other services to mutual funds. Should this
position be challenged successfully in court or reversed by legislation, the
Trust might have to make other investment advisory arrangements.
THE SUB-ADVISOR
Wellington Management Company ('WMC') serves as the investment sub-advisor to
the International Growth Fund. WMC is a professional investment counseling firm
which provides investment services to investment companies, employee benefit
plans, endowments, foundations and other institutions and individuals. As of
December 31, 1995, WMC has investment management authority with respect to
approximately $109.2 billion of assets. WMC's predecessor organizations have
provided investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. The principal address of WMC is 75
State Street, Boston, MA 02109. WMC is a Massachusetts general partnership, of
which the following persons are managing partners: Robert W. Doran, Duncan M.
McFarland and John R. Ryan.
The International Growth Fund has been managed since its inception by a
committee composed of WMC's Global Equity Strategy Group, a group of global
portfolio managers and senior investment professionals headed by Trond
Skramstad, Senior Vice President of WMC.
The Sub-Advisor is entitled to a fee payable by the Advisor from the Advisor's
fee, which is calculated daily and paid monthly, at an annual rate of .60% of
the average daily net assets of the International Growth Fund up to and
including $50 million; .45% of the average daily net assets of the Fund in
excess of $50 million up to and including $150 million; and .30% of the average
daily net assets of the Fund in excess of $150 million. The Sub-Advisor may from
time to time waive a portion of its fee in order to limit the operating expenses
of Class B shares of the International Growth Fund. The Sub-Advisor reserves the
right to terminate any such fee waiver at any time in its sole discretion. For
the fiscal year ended December 31, 1995, the Advisor paid WMC a sub-advisory fee
of .30% of the average daily net assets of the International Growth Fund.
THE ADMINISTRATOR
SEI Financial Management Corporation (the 'Administrator'), a wholly-owned
subsidiary of SEI Corporation ('SEI'), serves as the Administrator of the Trust.
The Administrator provides the Trust with administrative services, other than
investment advisory services, including all regulatory reporting, necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of each Fund.
<PAGE>
13
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the dividend disbursing agent and
shareholder servicing agent for the Trust. SEI Financial Management Corporation
also acts as the transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the 'Distributor'), a wholly-owned subsidiary of
SEI, acts as the Distributor for the Trust.
The Class B shares of each Fund are subject to a distribution plan dated
February 28, 1992 ('Class B Plan'). As provided in the Distribution Agreement
and the Class B Plan, the Trust will pay the Distributor a fee of .25% of the
average daily net assets of each Fund's Class B shares. The Distributor may
apply this fee toward: a) compensation for its services in connection with
distribution assistance or provision of shareholder services; or b) payments to
financial institutions and intermediaries such as banks (including United Jersey
Bank), savings and loan associations, insurance companies, and investment
counselors, broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services, reimbursement of expenses incurred in connection with
distribution assistance, or provision of shareholder services. The Class B Plan
is characterized as a compensation plan since the distribution fee will be paid
to the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Funds may also execute brokerage or other
agency transactions through an affiliate of the Advisor or through the
Distributor for which such affiliate or the Distributor receives compensation.
Class A shares of each Fund are offered without distribution fees or sales loads
(i) to institutional investors (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of their own funds, and (ii) to
individuals and institutions (including United Jersey Bank, its affiliates and
correspondent banks) for the investment of funds held by such individuals or
institutions in a fiduciary, agency, custodial or other representative capacity
if such individuals or institutions are able to provide complete shareholder
recordkeeping services with respect to shares purchased and held in such
capacity.
Class B shares of each Fund are offered to all persons. Consequently, it is
possible that individuals and institutions may offer different classes of shares
of the Funds to their customers and thus receive different compensation with
respect to different classes of shares. In addition, individuals and
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers.
PURCHASE OF SHARES
Shares of the Funds may be purchased through a financial institution, such as
United Jersey Bank, or a broker-dealer that has entered into a dealer agreement
with the Distributor. Shares may also be purchased directly through the
Distributor by mail, by telephone, or by wire.
Shares of each Fund are sold on a continuous basis and may be purchased on any
Business Day. The minimum initial investment in the Trust is $1,000; however,
the minimum investment may be waived at the Distributor's discretion. All
subsequent purchases must be at least $50.
Generally, a purchase order will be effective as of the Business Day received by
the Distributor if the Distributor receives the order and payment before 4:00
p.m., Eastern time, on such Business Day.
PURCHASES THROUGH INTERMEDIARIES
Customers should contact their Intermediary for information about the
institution's procedures for purchasing shares of the Funds and any charges for
services provided by the institution. Intermediaries may impose an earlier
cut-off time for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Distributor for effectiveness
the same day. In addition, state securities laws may require banks and financial
institutions purchasing shares for their customers to register as dealers
pursuant to state laws.
<PAGE>
14
DIRECT PURCHASES
By Mail
Investors may purchase shares of any Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) payable to 'The Pillar Funds (Fund Name),' P.O. Box
8523, Boston, MA 02266-8523. Third party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check,
redemptions will not be allowed until the investment being redeemed has been in
the account for 10 Business Days. Orders by mail will be executed upon receipt
of payment. If an investor's check does not clear, the purchase will be
cancelled and the investor could be liable for any losses or fees incurred.
Subsequent purchases of shares may be made at any time by mailing a check (or
other negotiable bank draft or money order) to the above listed address.
Account Application forms can be obtained by calling the Distributor at
1-800-932-7782.
By Telephone or by Wire
If your Account Application has been previously received, you may also purchase
shares by telephone or by wire. To buy shares by telephone or by wire, call the
Distributor toll-free at 1-800-932-7782. Shares cannot be purchased by Federal
Reserve wire on days which the New York Stock Exchange is closed and on federal
holidays upon which wire transfers are restricted.
Automatic Investment Plan (AIP)
A Shareholder may also arrange for periodic additional investments in the Funds
through automatic deductions by Automated Clearing House ('ACH') wire transfer
from a checking account by completing an Optional Services Form. The minimum
pre-authorized investment amount is $50 per month. An Optional Services Form may
be obtained by contacting the Distributor at 1-800-932-7782.
OTHER INFORMATION REGARDING PURCHASES
A purchase order for shares will be executed at a per share price equal to the
net asset value next determined after the receipt of the purchase order by the
Distributor plus any applicable sales charge (the 'offering price').
Orders by telephone will not be executed until payment has been received. If a
check received does not clear, the purchase will be cancelled and the investor
could be liable for any losses or fees incurred. No certificates representing
shares will be issued.
The net asset value per Class B share of each Fund is determined by dividing the
total market value of that Fund's investments and other assets that are
allocated to Class B shares, less any liabilities that are allocated to Class B
shares, by the total outstanding Class B shares of the Fund. A Fund may use a
pricing service to provide market quotations. A pricing service may use a matrix
system of valuation to value fixed income securities which considers factors
such as securities prices, yield features, ratings and developments related to a
specific security. Net asset value per share is determined as of 4:00 p.m.,
Eastern time, on each Business Day. Purchases will be made in full and
fractional shares of the Trust calculated to three decimal places. Although the
methodology and procedures are identical, the net asset value per share of
classes within a Fund may differ because of the distribution expenses charged to
Class B shares.
The following table shows the regular sales charge on Class B shares of the
Funds to a 'single purchaser' (defined below) together with the reallowance paid
to dealers and the agency commission paid to brokers (collectively the
'commission'):
<TABLE>
<CAPTION>
SALES CHARGE REALLOWANCE AND
AS A BROKERAGE
PERCENTAGE OF SALES CHARGE AS COMMISSION AS
AMOUNT OF OFFERING PERCENTAGE OF NET PERCENTAGE OF
PURCHASE PRICE AMOUNT INVESTED OFFERING PRICE
- ------------ ------------- ----------------- ---------------
<S> <C> <C> <C>
$0-99,999 4.00% 4.17% 3.50%
$100,000-
249,999 3.00% 3.10% 2.70%
$250,000-
499,999 2.00% 2.05% 1.80%
$500,000-
999,999 1.00% 1.01% .90%
$1,000,000
and above .00% .00% .00%
</TABLE>
The commissions shown in the table apply to sales through financial
institutions. Under certain circumstances, some financial institutions,
including United Jersey Bank and its affiliates, will be reallowed the entire
sales charge imposed on purchases of Class B shares and may, therefore, be
deemed to be 'underwriters' under the Securities Act of 1933, as amended.
Commission rates may vary among the Funds.
<PAGE>
15
Right of Accumulation
In calculating the sales charge rates applicable to current purchases of a
Fund's shares, a 'single purchaser' is entitled to cumulate current purchases
with the net purchases of previously purchased shares of the Fund and other
portfolios of The Pillar Funds ('Eligible Funds') which are sold subject to a
comparable sales charge.
The term 'single purchaser' refers to (i) an individual, (ii) an individual and
spouse purchasing shares of a Fund for their own account or for trust or
custodial accounts for their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 or 457 of the Code, including related plans of the
same employer. To be entitled to a reduced sales charge based upon shares
already owned, the investor must ask the Distributor for such entitlement at the
time of purchase and provide the account number(s) of the investor and, if
applicable, the investor and spouse, their minor children, and give the ages of
such children. A Fund may amend or terminate this right of accumulation at any
time prior to subsequent purchases.
Letter of Intent
By initially investing at least $1,000 and submitting a Letter of Intent to the
Distributor, a 'single purchaser' may purchase shares of the Fund and the other
Eligible Funds during a 13-month period at the reduced sales charge rates
applying to the aggregate amount of the intended purchases stated in the Letter.
The Letter may apply to purchases made up to 90 days before the date of the
Letter.
Other Circumstances
No sales charge is imposed on shares of the Fund: (i) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers, to
which the Trust is a party; (ii) sold to dealers or brokers that have a sales
agreement with the Distributor, for their own account or for retirement plans
for their employees or sold to present employees of dealers or brokers that
certify to the Distributor at the time of purchase that such purchase is for
their own account; (iii) sold to investors who are present or retired employees
of United Jersey Bank or one of its affiliates; (iv) sold to investors who are
present employees of any entity which is a current service provider to the
Trust; or (v) sold to any individual who has entered into an Investment
Strategy Account Agreement with United Jersey Bank, its affiliates or
correspondent banks.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
EXCHANGES
Some or all of the shares of the Funds for which payment has been received
(i.e., an established account) may be exchanged for shares, at their net asset
value, of other Funds within the Trust with similar, lower or no sales loads.
Exchanges will be made only after instructions in writing or by telephone (an
'Exchange Request') are received for an established account by the Distributor.
Shareholders may effect exchanges of shares directly through the Distributor.
Additionally, Intermediaries, through which Shareholders may purchase shares,
generally stand ready to assist Shareholders in effecting through the
Distributor exchanges of shares held in Fund accounts. Shareholders wishing to
effect an exchange with the assistance of an Intermediary should contact that
Intermediary for information about exchange procedures and cut-off times.
If an Exchange Request in good order is received by the Distributor by 4:00
p.m., Eastern time, on any Business Day, the exchange usually will occur on that
day. Any Shareholder or customer who wishes to make an exchange must have
received a current prospectus of the Fund in which he or she wishes to invest
before the exchange will be effected.
A description of the above and other plans and privileges by which a sales
charge may be reduced is set forth in the 'Shareholder Services' section of the
Statement of Additional Information.
REDEMPTION OF SHARES
Shares may be redeemed without charge on any Business Day at their net asset
value. Redemption requests received in good order by 4:00 p.m., Eastern time,
will be effective on the Business Day received. Requests received after 4:00
p.m. will be effective on the next Business Day.
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16
REDEMPTIONS THROUGH INTERMEDIARIES
Intermediaries, through which Shareholders may purchase shares, generally stand
ready to assist Shareholders in effecting through the Distributor redemptions of
shares held in Fund accounts. Shareholders wishing to effect a redemption with
the assistance of an Intermediary should contact that Intermediary for
information about redemption procedures and cut-off times.
DIRECT REDEMPTIONS
Shares may be redeemed directly through the Distributor by mail, by telephone or
by wire.
By Mail
A written request for redemption must be received by the Distributor in order to
constitute a valid request for redemption. The Distributor may require that the
signature on the written request be guaranteed by a commercial bank or by a
member firm of a domestic stock exchange. The signature guarantee requirement
will be waived if all of the following conditions apply: (1) the redemption is
for $5,000 worth of shares or less, (2) the redemption check is payable to the
Shareholder(s) of record, and (3) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application or by written instruction to the Distributor.There is no
charge for having redemption requests mailed to a designated bank account.
By Telephone
Shares may be redeemed by telephone if the Shareholder elects that option on the
Account Application. The Shareholder may have the proceeds mailed to his or her
address or mailed or wired to a commercial bank account previously designated on
the Account Application. Payment on redemption will be made as promptly as
possible and, in any event, within seven Business Days after the redemption
order is effective. Wire redemption requests may be made by the Shareholder by
calling the Distributor at 1-800-932-7782. A $10.00 wire redemption charge will
be added to the amount of the redemption. Shareholders may not close their
accounts by telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, Shareholders
who experience difficulties placing redemption orders by telephone may wish to
consider placing the redemption order by other means.
Systematic Withdrawal Plan (SWP)
The Funds offer a Systematic Withdrawal Plan which may be utilized by
Shareholders who wish to receive regular distributions from their account. Upon
commencement of the SWP, the account must have a current value of $1,000 or
more. Shareholders may elect to receive automatic payments by check or ACH wire
transfer of $50 or more on a monthly or quarterly basis. An Optional Services
Form may be obtained by contacting the Distributor at 1-800-932-7732.
OTHER INFORMATION REGARDING REDEMPTIONS
All redemption orders are effected at the net asset value per share next
determined after receipt of a valid request for redemption, as described above.
Net asset value per share is determined as of 4:00 p.m., Eastern time, on each
Business Day. Payment to Shareholders for shares redeemed will be made within
seven days after receipt by the Distributor of the request for redemption.
At various times, any Fund may be requested to redeem shares for which it has
not yet received good payment in connection with their purchase. In such
circumstances, the forwarding of redemption proceeds may be delayed until such
payment has been collected. The Funds intend to pay cash for all shares
redeemed, but under abnormal conditions which make payment in cash unwise,
payment may be made wholly or partly in portfolio securities with a market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
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17
Due to the relatively high cost of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder, the
account of such Shareholder in any Fund has a value of less than $1,000, the
minimum initial purchase amount. Accordingly, an investor purchasing shares of
any Fund in only the minimum investment amount may be subject to such
involuntary redemption if he or she thereafter redeems any of these shares.
Before any Fund exercises its right to redeem such shares and to send the
proceeds to the Shareholder, the Shareholder will be given notice that the value
of the shares in his or her account is less than the minimum amount and will be
allowed 60 days to make an additional investment in such Fund in an amount which
will increase the value of the account to at least $1,000.
See 'Purchase and Redemption of Shares' in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
PERFORMANCE
From time to time, the Funds may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. The yield of a Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that period is
generated over one year and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any sales charge imposed, for designated time
periods (including, but not limited to, the period from which the Fund commenced
operations through the specified date), assuming that the entire investment is
redeemed at the end of each period and assuming the reinvestment of all dividend
and capital gain distributions. Each Fund's performance may be compared to other
funds or to relevant indices which may calculate total return without reflecting
sales charges, in which case a Fund may advertise its total return in the same
manner. If reflected, sales charges would reduce these total return
calculations. The advertised performance on Class A shares will normally be
higher than for Class B shares because Class A shares are not subject to
distribution expenses and sales load charged to Class B shares. The actual
return to a Shareholder on Class A shares may be reduced by any administrative
or management charges that may be imposed by individuals or institutions on
their customers for account services. The actual return to Shareholders on Class
B shares will be reduced by the amount of any sales load and distribution
expenses paid on Class B shares.
A Fund may periodically compare its performance to that of: (i) other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii) broad groups of
comparable mutual funds; (iii) unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or (iv) to other investment alternatives. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. A Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and could
include the value of a hypothetical investment in any of the capital markets. A
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the
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18
federal, state, or local income tax treatment of the Funds or their
Shareholders. Accordingly, Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state and local income taxes.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. Each Fund intends to qualify for the
special tax treatment afforded regulated investment companies under Subchapter M
of the Code, so as to be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which is distributed to Shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares. Only a portion of such
dividends from the Balanced Growth Fund and no portion of the dividends from the
International Growth Fund will qualify for the dividends-received deduction. Any
net capital gains will be distributed annually and will be taxed to Shareholders
as long-term capital gains, regardless of how long the Shareholder has held
shares. Capital gains distributions will not qualify for the corporate
dividends-received deduction. Each Fund will make annual reports to Shareholders
of the federal income tax status of all distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in these months will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 if
paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Investment income received by the International Growth Fund from sources within
foreign countries may be subject to foreign income taxes withheld at the source.
To the extent that the Fund is liable for foreign income taxes so withheld, the
Fund intends to operate so as to meet the requirements of the Code to pass
through to the Shareholders credit for foreign income taxes paid. Although the
Fund intends to meet Code requirements to pass through credit for such taxes,
there can be no assurance that the Fund will be able to do so.
Sale, exchange or redemption of Fund shares is a taxable event to a Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each portfolio. In
addition to the Funds, the Trust consists of the following portfolios: U.S.
Treasury Securities Money Market Fund, U.S. Treasury Securities Plus Money
Market Fund, Prime Obligation Money Market Fund, Tax-Exempt Money Market Fund,
Short-Term Investment Fund, New Jersey Municipal Securities Fund, Pennsylvania
Municipal Securities Fund, GNMA Fund, Fixed
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19
Income Fund and Intermediate-Term Government Securities Fund. All consideration
received by the Trust for shares of any Fund and all assets of such Fund belong
to that Fund and would be subject to liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
From time to time, the Funds may experience relatively large purchases or
redemptions due to asset allocation decisions made by the Advisor for its
clients. These transactions may have a material effect on the Funds, since Funds
that experience redemptions as a result of reallocations may have to sell
portfolio securities and because Funds that receive additional cash will have to
invest it. While it is impossible to predict the overall impact of these
transactions over time, there coud be adverse effects on portfolio management to
the extent that Funds may be required to sell securities at times when they
would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases and
sales of securities, and such sales may also increase transaction costs. The
Advisor is committed to minimizing the impact of these transactions on the Funds
to the extent it is consistent with pursuing the investment objectives of its
asset allocation decisions on the Funds.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described above, certain
companies provide essential management services to the Trust.
VOTING RIGHTS
Each share held entitles the Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
DIVIDENDS
Substantially all of the net investment income (not including capital gain) of
the Equity Value, Equity Income, Mid Cap Value and Balanced Growth Funds is
distributed in the form of quarterly dividends to Shareholders of record on the
next to last Business Day of each quarter and is periodically declared and paid
as a dividend to Shareholders of record for the International Growth Fund. If
any capital gain is realized, substantially all of it will be distributed at
least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class B shares at the net asset value next
determined following the record date, unless the Shareholder has elected to take
such payment in cash. Shareholders may change their election by
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20
providing written notice to the Administrator at least 15 days prior to the
distribution.
Dividends and distributions of each Fund are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a Shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
The amount of dividends payable on Class B shares will be less than the
dividends payable on Class A shares because of the distribution expenses charged
to Class B shares.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments and associated
risk factors for the Funds:
AMERICAN DEPOSITARY RECEIPTS ('ADRs'), EUROPEAN DEPOSITARY RECEIPTS ('EDRs'),
CONTINENTAL DEPOSITARY RECEIPTS ('CDRs') and GLOBAL DEPOSITARY RECEIPTS
('GDRs')-- ADRs are securities, typically issued by a U.S. financial institution
(a 'depositary'), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts, are securities,
typically issued by a non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. GDRs are issued globally and evidence a similar ownership
arrangement. Generally, ADRs are designed for trading in the U.S. securities
market, EDRs are designed for trading in European securities markets and GDRs
are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and
GDRs may be available for investment through 'sponsored' or 'unsponsored'
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas and unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
ASSET-BACKED SECURITIES--Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are not issued or guaranteed by the United States
Government, its agencies or instrumentalities; however, the payment of principal
and interest on such obligations may be guaranteed up to certain amounts and for
a certain period by a letter of credit issued by a financial institution (such
as a bank or insurance company) unaffiliated with the issuers of such
securities. The purchase of asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities. For
example, there is a risk that another party could acquire an interest in the
obligations superior to that of the holders of the asset-backed securities.
There also is the possibility that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
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21
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCE--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
BRADY BONDS--Brady Bonds are debt securities issued under the framework of the
Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas
F. Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external commercial bank debt. In restructuring its external debt
under the Brady Plan framework, a debtor nation negotiates with its existing
bank lenders as well as multilateral institutions such as the International Bank
for Reconstruction and Development (the 'World Bank') and the International
Monetary Fund (the 'IMF'). The Brady Plan framework, as it has developed,
contemplates the exchange of commercial bank debt for newly issued bonds ('Brady
Bonds'). Brady Bonds may also be issued in respect of new money being advanced
by existing leaders in connection with debt restructuring. Agreements
implemented under the Brady Plan to date are designed to achieve debt and
debt-service reduction through specific options negotiated by a debtor nation
with its creditors. As a result, the financial packages offered by each country
differ. Brady Bonds issues to date may be purchased and sold in the secondary
markets through U.S. securities dealers and other financial institutions and are
generally maintained through European securities depositories.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES--Convertible securities are corporate securities that are
exchangeble for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities.
Because of the conversion feature, the market value of convertible securities
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer, and any call provisions.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls) swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, 'stripped' U.S. Treasury securities (e.g., Receipts and STRIPs),
privately issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere
in this 'Description of Permitted Investments' for discussions of these various
instruments, and see 'Investment Objectives and Policies' for more information
about any investment policies and limitations applicable to their use.
EQUITY SECURITIES--Equity securities represent ownership interests in a company
and consist of common stocks, preferred stocks, warrants to acquire common stock
and securities convertible into common stock. Investments in equity securities
in general are subject to market risks that may cause their prices to fluctuate
over time. The value of convertible equity securities is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provision. Fluctuations in the value of equity securities in which a Fund
invests will cause the net asset value of a Fund to fluctuate.
FIXED INCOME SECURITIES--Fixed Income securities consist of bonds, notes,
debentures and other interest-bearing securities that represent indebtedness.
The market value of the fixed income investments in which a Fund invests will
change in
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response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal also affect
the value of these investments. Changes in the value of these securities will
not necessarily affect cash income derived from these securities but will affect
a Fund's net asset value.
FORWARD CURRENCY CONTRACTS--A Fund may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar or between foreign
currencies in which the Fund's securities are or may be denominated. A forward
contract involves an obligation to purchase or sell a specific currency amount
at a future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts, along with futures contracts and option
transactions, are considered to be derivative securities and may present special
risks. Under normal circumstances, consideration of the prospect for changes in
currency exchange rates will be incorporated into a Fund's long-term investment
strategies. However, the Advisor and Sub-Advisor believe that it is important to
have the flexibility to enter into forward currency contracts when it determines
that the best interest of the Fund will be served.
The Fund will convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion. When the Advisor or
Sub-Advisor believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Fund may enter into a currency contract to sell, for a fixed amount of U.S.
dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, a Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an 'offsetting' contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
Generally, a Fund will enter into forward currency contracts only as a hedge
against foreign currency exposure affecting the Fund. If a Fund enters into
forward currency contracts to cover activities which are essentially
speculative, the Fund will segregate cash or readily marketable securities with
its Custodian, or a designated sub-custodian, in an amount at all times equal to
or exceeding the Fund's commitment with respect to such contracts.
To assure that a Fund's foreign currency contracts are not used for leverage,
the net amount the Fund may invest in forward currency contracts is limited to
the amount of the Fund's aggregate investments in foreign currencies.
By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can achieve at some future point in time.
Additionally, although such contracts tend to minimize the rise 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A Fund may enter into
contracts for the purchase or sale of securities, including index contracts or
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery to the Fund of the securities or foreign
currency called for by the contract at a specified price during a specified
future
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23
month. When a futures contract on securities or currency is sold, a Fund incurs
a contractual obligation to deliver the securities or foreign currency
underlying the contract at a specified price on a specified date during a
specified future month. A Fund may sell stock index futures contracts in
anticipation of, or during a market decline to attempt to offset the decrease in
market value of its common stocks that might otherwise result; and it may
purchase such contracts in order to offset increases in the cost of common
stocks that it intends to purchase. A Fund may enter into futures contracts and
options thereon to the extent that not more than 5% of the Fund's assets are
required as futures contract margin deposits and premiums on options and may
engage in futures contracts to the extent that obligations relating to such
futures contracts represent not more than 20% of the Fund's total assets.
A Fund may also purchase and write options to buy or sell futures contracts. A
Fund may write options on futures only on a covered basis. Options on futures
are similar to options on securities except that options on futures give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract, rather than actually to purchase or sell the futures contract,
at a specified exercise price at any time during the period of the option.
When a Fund enters into a futures transaction it must deliver to the futures
commission merchant selected by the Fund an amount referred to as 'initial
margin.' This amount is maintained in a segregated account at the custodian
bank. Thereafter, a 'variation margin' may be paid by the Fund to, or drawn by
the Fund from, such account in accordance with controls set for such accounts,
depending upon changes in the price of the underlying securities subject to the
futures contract. In addition, a Fund will segregate liquid high-grade
securities in an amount equal to its obligations under such contract. A Fund
will enter into such futures and options on futures transactions on domestic
exchanges and, to the extent such transactions have been approved by the
Commodity Futures Trading Commission for sale to customers in the United States,
on foreign exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Advisor or Sub-Advisor applies a hedge at an inappropriate time or judges
interest rates incorrectly, options and futures strategies may lower a Fund's
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other instruments, or if it
could not close out its positions because of an illiquid secondary market.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. Not more than 15% of the total assets of a Fund will
be invested in such instruments. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, if there is no
secondary market for such security. Restricted securities, including Rule 144A
securities, that meet the criteria established by the Trustees of the Trust will
be considered liquid.
INVESTMENT COMPANIES--A Fund may invest up to 10% of its total assets in shares
of other investment companies. Because of restrictions on direct investment by
U.S. entities in certain countries, investment in other investment companies may
be the most practical or only manner in which an international and global fund
can invest in the securities markets of those countries. Such investments may
involve the payment of substantial premiums above the net asset value of such
issuers' fund securities, and are subject to limitations under the 1940 Act.
A Fund does not intend to invest in other investment companies unless, in the
judgment of the Advisor or Sub-Advisor, the potential benefits of such
investment exceed the associated costs relative to the benefits and costs
associated with direct investments in the underlying securities. As a
shareholder in an investment company, a Fund would bear its ratable share of
that investment company's expenses, including its advisory and administration
fees. In accordance with applicable state regulatory provisions, the Advisor has
agreed to waive its management fee with respect to the portion of a Fund's
assets invested in shares of other open-end investment companies. A Fund
continues to pay its own management fees and other expenses with respect to
their investments in shares of closed-end investment companies.
<PAGE>
24
JUNK BONDS--Bonds rated below investment grade are often referred to as 'junk
bonds.' Such securities involve greater risk of default or price declines than
investment grade securities due to changes in the issuer's creditworthiness and
the outlook for economic growth. The market for these securities may be less
active, causing market price volatility and limited liquidity in the secondary
market. This may limit a Fund's ability to sell such securities at their market
value. In addition, the market for these securities may also be adversely
affected by legislative and regulatory developments. Credit quality in the junk
bond market can change suddenly and unexpectedly, and even recently issued
credit ratings may not fully reflect the actual risks imposed by a particular
security.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCs)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ('CMOs') and real estate mortgage investment
conduits ('REMICs') that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations ('CMOs'): CMOs are debt obligations or
multi-class pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a 'tranche,' is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as 'regular' interests, or 'residual' interests. Guaranteed REMIC pass-through
certificates ('REMIC Certificates') issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC
<PAGE>
25
guarantees the timely payment of interest, and also guarantees the payment of
principal as payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued and guaranteed as
to timely distribution of principal and interest by FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ('PAC Bonds') generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITs: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ('SMBs'): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ('IO'), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ('PO'). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities and can experience
wide swings in value in response to changes in interest rates and associated
mortgage prepayment rates. During times when interest rates are experiencing
fluctuations, such securities can be difficult to price on a consistent basis.
The market for SMBs is not as fully developed as other markets; SMBs therefore
may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
OPTIONS--A put option gives the purchaser of the option the right to sell, and
the writer of the option the obligation to buy, the underlying security at any
time during the option period. A call option gives the purchaser of the option
the right to buy, and the writer of the option the obligation to sell, the
underlying security at any time during the option period. The premium paid to
the writer is the consideration for undertaking the obligations under the option
contract. The initial purchase (sale) of an option contract is an 'opening
transaction.' In order to close out an option position, a Fund may enter into a
'closing transaction,' which is simply the sale (purchase) of an option contract
on the same security with the same exercise price and expiration date as the
option contract originally opened.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to protect against an
increase in the cost of securities that the Fund may seek to purchase in the
future. A Fund purchasing put and call options pays a premium therefor. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered put and call options as a means of increasing the yield
on its portfolio and as a means of providing limited protection against
decreases in its market value. When a Fund sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof,
<PAGE>
26
the option generally will expire without being exercised and the Fund will
realize as profit the premium received for such option. When a call option of
which a Fund is the writer is exercised, the Fund will be required to sell the
underlying securities to the option holder at the strike price, and will not
participate in any increase in the price of such securities above the strike
price. When a put option of which a Fund is the writer is exercised, the Fund
will be required to purchase the underlying securities at the strike price,
which may be in excess of the market value of such securities.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ('OTC options') differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates.
Call options on securities or foreign currency written by a Fund will be
'covered,' which means that the Fund will own an equal amount of the underlying
security or foreign currency. With respect to put options on securities or
foreign currency written by a Fund, the Fund will establish a segregated account
with its custodian bank consisting of cash or liquid, high grade debt securities
in an amount equal to the amount the Fund would be required to pay upon exercise
of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid high
grade debt securities with its custodian in an amount at least equal to the
market value of the option and will maintain the account while the option is
open or will otherwise cover the transaction.
Risk Factors. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
RECEIPTS--Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying investments.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon
<PAGE>
27
price on an agreed upon date within a number of days from the date of purchase.
The Fund will have actual or constructive possession of the security as
collateral for the repurchase agreement. A Fund bears a risk of loss in the
event of the other party defaults on its obligations and the Fund is delayed or
prevented from its right to dispose of the collateral securities or if the Fund
realizes a loss on the sale of collateral securities. A Fund will enter into
repurchase agreements only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on established
guidelines. Repurchase agreements are considered loans under the 1940 Act.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits maturing in more than seven days
are considered to be illiquid securities.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ('STRIPS').
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, The
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of a Fund's shares.
VARIABLE OR FLOATING RATE INSTRUMENTS-- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES (EQUITY AND DEBT SECURITIES)--
When-issued or delayed delivery basis transactions involve the purchase of an
instrument with payment and delivery taking place in the future. Delivery of and
payment for these securities may occur a month or more after the date of the
purchase commitment. A Fund will maintain with the Custodian a separate account
with liquid high grade debt securities or cash in an amount at least equal to
these commitments. The interest rate, if any, realized on these securities is
fixed as of the purchase date and no interest accrues to the Fund before
settlement. Debt and equity securities are subject to market fluctuation and it
is possible that the market value at the time of settlement could be higher or
lower than the purchase price. Although a Fund generally purchases securities on
a when-issued or forward commitment basis with the intention of actually
acquiring securities for its portfolio, a Fund may dispose of a when-issued
security or forward commitment prior to settlement if it deems appropriate.
<PAGE>
28
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary........................................ 2
Expense Summary................................ 4
Financial Highlights........................... 5
The Trust...................................... 6
Investment Objectives and Policies............. 6
Investment Limitations......................... 10
The Advisor.................................... 11
The Sub-Advisor................................ 12
The Administrator.............................. 12
The Shareholder Servicing Agent................ 13
The Distributor................................ 13
Purchase of Shares............................. 13
Redemption of Shares........................... 15
Performance.................................... 17
Taxes.......................................... 17
General Information............................ 18
Description of Permitted Investments........... 20
</TABLE>
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
THE PILLAR FUNDS (the 'Trust') consist of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
following money market fund (the 'Fund'):
O U.S. TREASURY SECURITIES PLUS MONEY MARKET FUND
The Fund's Shares are offered exclusively through the Money Desk of the Bank
Investment Division of United Jersey Bank (the 'Money Desk') on an agency basis
and are available exclusively to customers of the Money Desk (persons who own
shares of the Fund are referred to herein as 'Shareholders').
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED, ENDORSED OR
GUARANTEED BY, ANY BANK (INCLUDING UNITED JERSEY BANK OR ITS AFFILIATES OR
CORRESPONDENTS), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated April 30, 1996 has been filed with the Securities and Exchange
Commission and is available without charge through the Distributor, SEI
Financial Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
APRIL 30, 1996
<PAGE>
2
SUMMARY
THE PILLAR FUNDS (THE 'TRUST') CONSIST OF OPEN-END MANAGEMENT INVESTMENT
COMPANIES WHICH PROVIDE A CONVENIENT WAY TO INVEST IN PROFESSIONALLY MANAGED
PORTFOLIOS OF SECURITIES. THE FOLLOWING PROVIDES BASIC INFORMATION ABOUT THE
SHARES OF THE TRUST'S U.S. TREASURY SECURITIES PLUS MONEY MARKET FUND (THE
'FUND').
What is the Investment Objective? The Fund seeks to preserve principal
value and maintain a high degree of liquidity while providing current income.
There can be no assurance that the Fund will achieve its investment objective or
be able to maintain a net asset value of $1.00 per share on a continuous basis.
See 'Investment Objective and Policies.'
What are the Permitted Investments? The U.S. Treasury Securities Plus Money
Market Fund invests exclusively in short-term U.S. Treasury obligations and
repurchase agreements with respect to such obligations. See 'Investment
Objectives Policies' and 'Description of Permitted Investments.'
Who is the Advisor? United Jersey Bank Investment Management Division, a
division of United Jersey Bank, serves as the Advisor of the Trust. See 'The
Advisor.'
Who is the Administrator? SEI Financial Management Corporation serves as
the Administrator of the Trust. See 'The Administrator.'
Who is the Shareholder Servicing Agent? SEI Financial Management
Corporation acts as dividend disbursing agent and shareholder servicing agent
for the Trust and as transfer agent for the Trust under a separate agreement.
See 'The Shareholder Servicing Agent.'
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. The Trust has adopted a distribution plan on behalf of
the Fund pursuant to Rule 12b-1 of the Investment Company Act of 1940. See 'The
Distributor.'
How do I Purchase and Redeem Shares? Purchases and redemptions may be made
through the Distributor on a day on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business ('Business Day'). A
purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives an order and the Custodian receives
federal funds prior to 12:00 noon, Eastern time, on such Business Day.
Redemption orders must be placed prior to 12:00 noon, Eastern time, on any
Business Day for the order to be effective that day. See 'Purchase of Shares'
and 'Redemption of Shares.'
How are Dividends Paid? The net investment income (exclusive of capital
gains) of the Fund is determined and declared on each Business Day as a dividend
for Shareholders of record as of the close of business on that day. Any capital
gains will be distributed at least annually. Dividends are paid monthly in
additional shares unless the Shareholder elects to take the payment in cash. See
'Dividends.'
<PAGE>
3
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
U.S. TREASURY
SECURITIES PLUS
MONEY MARKET
FUND
<S> <C>
Advisory Fees (after fee waivers)(1)............................................................. .08%
12b-1 Fees....................................................................................... .03%
Other Expenses................................................................................... .44%
- ------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2).................................................. .55%
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Advisor has agreed to voluntarily waive fees in an amount that operates
to limit total operating expenses of the Fund to not more than .55% of
average daily net assets. The Advisor reserves the right to terminate its
fee waiver at any time in its sole discretion.
(2) Absent fee waivers, Advisory Fees would be .15% and Total Operating Expenses
would be .62% of the Fund's average daily net assets. Additional information
may be found under 'The Advisor,' 'The Administrator' and 'The Distributor.'
<TABLE>
<CAPTION>
EXAMPLE
- -----------------------------------------------------------------------------------------------------------------------------------
1YR. 3 YRS. 5 YRS. 10 YRS.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
An investor in a Fund would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time
period......................................................................... $6 $18 $31 $69
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Fund. Financial institutions that are the record owner
of shares for the account of their customers may impose separate fees for
account services to their customers. Additional information may be found under
'The Advisor,' 'The Administrator' and 'The Distributor.'
<PAGE>
4
FINANCIAL HIGHLIGHTS THE PILLAR FUNDS
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 22,
1996 on the Trust's financial statements as of December 31, 1995 included in the
Trust's Statement of Additional Information under 'Financial Information.' This
table should be read in conjunction with the Trust's financial statements and
notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
NET
NET ASSET DISTRIBUTIONS ASSETS RATIO OF RATIO OF
VALUE NET FROM NET NET ASSET END OF EXPENSES TO NET INCOME
BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL PERIOD AVERAGE NET TO AVERAGE
OF PERIOD INCOME INCOME OF PERIOD RETURN (000) ASSETS NET ASSETS
----------- ----------- ----------- ----------- --------- --------- ------------- -----------
- -------------------------------
U.S. TREASURY SECURITIES PLUS
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1995............... $ 1.00 $ 0.05 $ (0.05) $ 1.00 5.40% $ 64,697 0.55% 5.26%
1994............... 1.00 0.04 (0.04) 1.00 3.60 46,301 0.55 3.42
1993(1)............ 1.00 0.02 (0.02) 1.00 2.66* 89,278 0.55 2.62
<CAPTION>
RATIO OF RATIO OF
EXPENSES TO NET INCOME
AVERAGE NET TO AVERAGE
ASSETS NET ASSETS
(EXCLUDING (EXCLUDING
WAIVERS) WAIVERS)
------------- -----------
- ------------------------------
U.S. TREASURY SECURITIES PLUS
- ------------------------------
<S> <C> <C>
CLASS A
1995............... 0.62% 5.19%
1994............... 0.63 3.34
1993(1)............ 0.68 2.49
</TABLE>
- ------------------
<TABLE>
<S> <C>
* Annualized
(1) The U.S. Treasury Securities Plus Money Market Fund commenced operations on May 3, 1993. Ratios for this period
have been annualized.
</TABLE>
<PAGE>
5
THE TRUST
THE PILLAR FUNDS (the 'Trust') is an open-end management investment company that
has diversified and non-diversified portfolios. The Trust offers units of
beneficial interest ('shares') in fifteen separate investment portfolios.
Shareholders may purchase shares in each portfolio (except for the U.S. Treasury
Securities Plus Money Market Fund) through two separate classes (Class A and
Class B) which provide for variations in distribution costs, voting rights,
sales load, minimum investment, redemption fees, transfer agency fees and
dividends. Except for these differences between classes, each share of each fund
represents an undivided, proportionate interest in that fund. This Prospectus
relates to the Trust's U.S. Treasury Securities Plus Money Market Fund (the
'Fund'). The Fund is a diversified mutual fund. Information regarding the
Trust's other funds is contained in separate prospectuses that may be obtained
by writing the Trust's Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087 or by calling 1-800-932-7782.
SHARES OF THE TRUST ARE NOT DEPOSITS, OBLIGATIONS OR ACCOUNTS (TRUST OR
OTHERWISE) OF, OR INSURED, GUARANTEED, SPONSORED OR ENDORSED BY, ANY BANK
(INCLUDING UNITED JERSEY BANK), ANY STATE OR STATE AGENCY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY.
SHARES OF THE TRUST ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to preserve principal value and maintain
a high degree of liquidity while providing current income. There is no assurance
that the investment objective of the Fund will be met.
The Fund intends to comply with regulations of the Securities and Exchange
Commission ('SEC') applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on investments by the Fund.
Under these regulations, the Fund will invest only in U.S. dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only 'eligible securities' that present minimal
credit risks and have a maturity of 397 days or less. For a further discussion
of these rules, see 'Description of Permitted Investments.'
THE U.S. TREASURY SECURITIES PLUS MONEY MARKET FUND
The Fund will invest in (i) bills, notes and bonds issued by the U.S. Treasury;
(ii) separately traded interest and principal component parts of such
obligations that are transferable through the Federal Book Entry System
(together, 'U.S. Treasury Obligations'); and (iii) repurchase agreements
involving U.S. Treasury Obligations.
For a description of the Fund's permitted investments, see 'Description of
Permitted Investments' in this Prospectus and 'Description of Permitted
Investments' in the Statement of Additional Information.
SECURITIES LENDING
The Fund may make short-term loans of its portfolio securities under contracts
calling for collateral in cash or U.S. Government securities with a value at
least equal to 102% of the value of the loaned securities. The Fund will
continue to collect interest on the securities loaned and will also receive
either interest, through investment of cash collateral, or a fee, if the
collateral is U.S. Government securities. The Fund pays lending and other fees
in connection with securities loans.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of the Fund. In addition, it is a fundamental policy of the
Fund to use its best efforts to maintain a constant net asset value of $1.00 per
share, although there can be no assurance the Fund will be able to do so.
Fundamental policies cannot be changed with respect to the Fund without the
consent of the
<PAGE>
6
holders of a majority of the Fund's outstanding shares.
The Fund may not make loans, except that it may (a) purchase or hold debt
instruments in accordance with its investment objective and policies; (b) enter
into repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
It is a non-fundamental policy of the Fund to invest no more than 10% of its
total assets in illiquid securities (as defined under 'Description of Permitted
Investments').
The foregoing percentage limitations will apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
THE ADVISOR
United Jersey Bank Investment Management Division, a division of United Jersey
Bank (the 'Advisor') serves as the Advisor of the Trust. The Advisor makes the
investment decisions for the assets of the Fund and continuously reviews,
supervises and administers the Fund's investment program subject to the
supervision of, and policies established by, the Trustees of the Trust.
United Jersey Bank, 210 Main Street, Hackensack, NJ 07601, was chartered in 1899
and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment experts have, on average, over 20 years of
experience in investment management. As of December 31, 1995, total assets under
management were approximately $4 billion.
United Jersey Bank is a wholly-owned subsidiary of Summit Bancorp, an interstate
bank holding company with $22 billion in assets and over 325 banking offices in
New Jersey and Eastern Pennsylvania as of December 31, 1995.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .15% of the Fund's average daily net assets. The Advisor has
voluntarily agreed to waive all or a portion of its fees in order to limit the
total operating expenses to .55% of the average daily net assets of the Fund.
The Advisor reserves the right to terminate its fee waiver at any time in its
sole discretion. As of the fiscal year ended December 31, 1995, the Fund paid
the Advisor an advisory fee of .08% of its average daily net assets.
United Jersey Bank has also entered into a Custodian Agreement with the Trust,
under which it will provide all securities safekeeping services as required by
the Fund and the Investment Company Act of 1940, as amended (the '1940 Act').
The Trust pays United Jersey Bank (referred to herein in its custodial capacity
as the 'Custodian') a Custodian fee, which is calculated daily and paid monthly,
at an annual rate of .025% of the average daily net assets of the Fund.
The Glass-Steagall Act restricts the securities activities of banks such as
United Jersey Bank, but federal regulatory authorities permit such banks to
provide investment advisory and other services to mutual funds. Should this
position be challenged successfully in court or reversed by legislation, the
Trust might have to make other investment advisory arrangements.
THE ADMINISTRATOR
SEI Financial Management Corporation (the 'Administrator'), a wholly-owned
subsidiary of SEI Corporation ('SEI'), serves as the Administrator of the Trust.
The Administrator provides the Trust with administrative services, other than
investment advisory services, including regulatory reporting and all necessary
office space, equipment, personnel and facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .35% of the average daily net assets of the Fund.
THE SHAREHOLDER SERVICING AGENT
SEI Financial Management Corporation acts as the dividend disbursing agent and
shareholder servicing agent for the Trust. SEI Financial Management Corporation
also acts as the transfer agent for the Trust.
<PAGE>
7
THE DISTRIBUTOR
SEI Financial Services Company (the'Distributor'), a wholly-owned subsidiary of
SEI, acts as the Distributor for the Trust.
The Fund has a distribution plan dated April 30, 1993 (the 'Plan'). As provided
in the Distribution Agreement and the Plan, the Trust will pay the Distributor a
fee of .03% of the Fund's average daily net assets. The Distributor may apply
this fee toward: a) compensation for its services in connection with
distribution assistance or provision of shareholder services; or b) payments to
financial institutions and intermediaries such as banks (including United Jersey
Bank), savings and loan associations, insurance companies, and investment
counselors, broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services or reimbursement of expenses incurred in connection
with distribution assistance or provision of shareholder services. The Plan is
characterized as a compensation plan since the distribution fee will be paid to
the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Fund may also execute brokerage or other
agency transactions through an affiliate of the Advisor or through the
Distributor for which the affiliate or the Distributor receives compensation. In
addition, financial institutions that are the record owner of shares for the
account of their customers may impose separate fees for account services to
their customers.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of the Fund may be made on any Business Day.
State securities laws may require banks and financial institutions purchasing
shares for their customers to register as dealers pursuant to state laws.
A purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives an order and the Custodian receives
federal funds before 12:00 noon, Eastern time, on such Business Day. Otherwise,
the purchase order will be effective the next Business Day. Financial
institutions may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow time for processing and transmittal of these
orders to the Distributor for effectiveness the same day.
The purchase price is the net asset value per share next computed after the
order is effective. The net asset value per share of the Fund is determined by
dividing the total value of its investments and other assets, less any
liabilities, by its total outstanding shares. The net asset value per share is
calculated as of 12:00 noon, Eastern time, each Business Day based on the
amortized cost method as described in the Statement of Additional Information.
Purchased shares are first entitled to dividends the day the purchase order is
effective. No certificates representing shares will be issued.
The minimum initial investment in the Fund is $100,000; however, the minimum
investment may be waived at the Distributor's discretion.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Shareholders who experience
difficulties placing redemption orders by telephone may wish to consider placing
the redemption order by other means.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
For redemption orders received before 12:00 noon, Eastern time, payment will
normally be made the same day by transfer of federal funds. Otherwise, payment
will be made on the next Business Day and, in any event, within seven Business
Days after the redemption order is effective. The redemption price is the net
asset value per share of the Fund next determined after receipt by the
Distributor of the redemption order. Redeemed shares are not entitled
<PAGE>
8
to dividends declared the day the redemption order is effective.
The purchase price and the redemption price is expected to remain constant at
$1.00 per share.
The Fund intends to pay cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in fund securities with a market value equal to the redemption price. In
such cases, an investor may incur brokerage costs in converting such securities
to cash.
COMPUTATION OF YIELD
From time to time the Fund may advertise 'current yield' and 'effective compound
yield.' Both yield figures are based on historical earnings and are not intended
to indicate future performance. The 'current yield' of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then 'annualized.'
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The 'effective yield' is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The 'effective yield' will be slightly higher than the 'current
yield' because of the compounding effect of this assumed reinvestment.
The Fund may periodically compare its performance to that of: (i) other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii) broad groups of
comparable mutual funds; (iii) unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or (iv) other investment alternatives. The Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. The Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and could
include the value of a hypothetical investment in any of the capital markets.
The Fund may also quote financial and business publications and periodicals as
they relate to fund management, investment philosophy, and investment
techniques.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
TAX STATUS OF THE FUND
The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other Funds. The Fund intends to qualify for the
special tax treatment afforded regulated investment companies under Subchapter M
of the Internal Revenue Code of 1986, as amended (the 'Code'), so as to be
relieved of federal income tax on that part of its net investment income which
is distributed to Shareholders. The Fund also intends to make sufficient
distributions each calendar year to avoid liability for federal excise tax.
TAX STATUS OF DISTRIBUTIONS
Dividends declared by the Fund in December of any year and payable to
Shareholders of record on a date in that month will be deemed to have been paid
by the Fund and received by the Shareholders on the last day of that month if
paid by the Fund during the following January.
The Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to Shareholders. Dividends from net
investment income will be taxable to Shareholders as ordinary income whether
received in cash or in additional shares and will not qualify for the
dividends-received deduction otherwise available to corporate shareholders.
Dividends from net capital gain (the excess of net long-term capital gain over
net short-term capital loss) also will not qualify for the dividends-received
deduction and will be treated as long-term capital gains, regardless of how long
<PAGE>
9
the Shareholder has held shares. The Fund will make annual reports to
Shareholders of the federal income tax status of all distributions.
Interest received on direct U.S. obligations that is exempt from tax at the
state level when received directly may be exempt, depending on the state, when
received by a Shareholder from the Fund, provided certain conditions are
satisfied. The Fund will inform Shareholders annually of the percentage of
income and distributions derived from direct U.S. obligations. Shareholders
should consult their tax advisors to determine whether any portion of the income
dividends received from the Fund is considered tax-exempt in their particular
states.
With respect to investments in STRIPS (as defined under 'Description of
Permitted Investments'), which are sold at original issue discount and thus do
not make periodic cash interest payments, the Fund will be required to include
as part of its current income the accreted interest on such obligations even
though the Fund has not received any interest payments on such obligations
during that period. Because the Fund distributes all of its net investment
income to its Shareholders, the Fund may have to sell fund securities to
distribute such imputed income which may occur at a time when the Advisor would
not have chosen to sell such securities and which may result in a taxable gain
or loss.
The sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be
capital gain or loss which will be long-term if the share has been held for more
than one year and otherwise will be short-term. However, if a Shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed capital gains of the Fund with
respect to such share are included in determining the Shareholder's long-term
capital gains), the Shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which have been included in
determining such Shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
GENERAL INFORMATION
THE TRUST
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. In
addition to the Fund, the Trust consists of the following funds: U.S. Treasury
Securities Money Market Fund, Prime Obligation Money Market Fund, Tax-Exempt
Money Market Fund, Short-Term Investment Fund, Fixed Income Fund, New Jersey
Municipal Securities Fund, Pennsylvania Municipal Securities Fund,
Intermediate-Term Government Securities Fund, GNMA Fund, Equity Value Fund,
Equity Income Fund, Mid Cap Value Fund, Balanced Growth Fund and International
Growth Fund. All consideration received by the Trust for shares of any fund and
all assets of such fund belong to that fund and would be subject to liabilities
related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by a board of trustees
(the 'Trustees') under the laws governing business trusts in the Commonwealth of
Massachusetts. The Trustees have approved contracts under which, as described
<PAGE>
10
above, certain companies provide essential management services to the Trust.
VOTING RIGHTS
Each share held entitles a Shareholder of record to one vote. The shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
DIVIDENDS
The net investment income (exclusive of capital gains) of the Fund is determined
and declared on each Business Day as a dividend to Shareholders of record as of
the close of business on that day. Dividends are paid by the Fund in additional
shares on or about the first business day of the following month, unless the
Shareholder has elected to take such payment in cash. Shareholders may change
their election by providing written notice to the Administrator at least 15 days
prior to the distribution. Currently, capital gains of the Fund, if any, are
distributed at least annually.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of the permitted investments for the Fund:
ILLIQUID SECURITIES--Illiquid securities are securities which cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. Not more than 10% of the total assets of a Fund will
be invested in such instruments. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, if there is no
secondary market for such security. Restricted securities, including Rule 144A
securities, that meet the criteria established by the Board of Trustees of the
Trust will be considered liquid.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have actual or constructive possession
of the security as collateral for the repurchase agreement. A Fund bears a risk
of loss in the event the other party defaults on its obligations and the Fund is
delayed or prevented from its right to dispose of the collateral securities or
if the Fund realizes a loss on the sale of the collateral securities. A Fund
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS--Investments by a money market
fund are subject to limitations imposed under regulations adopted by the SEC.
Under these regulations, money market funds may only acquire obligations that
present minimal credit risks and that are 'eligible securities,' which means
they are (i) rated, at the time of investment, by at least two
<PAGE>
11
nationally recognized security rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a 'first tier
security'), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ('second tier security'). A security is not considered to be
unrated if its issuer has outstanding obligations of comparable priority and
security that have a short-term rating. In the case of taxable money market
funds, investments in second tier securities are subject to the further
constraints in that (i) not more than 5% of a Fund's assets may be invested in
second tier securities and (ii) any investment in securities of any one such
issuer is limited to the greater of 1% of a Fund's total assets or $1 million. A
taxable money market fund may also hold more than 5% of its assets in first tier
securities of a single issuer for three business days.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ('STRIPS').
<PAGE>
12
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Summary............................................. 2 The Shareholder Servicing Agent..................... 6
Expense Summary..................................... 3 The Distributor..................................... 7
Financial Highlights................................ 4 Purchase and Redemption of Shares................... 7
The Trust........................................... 5 Computation of Yield................................ 8
Investment Objective and Policies................... 5 Taxes............................................... 8
Investment Limitations.............................. 5 General Information................................. 9
The Advisor......................................... 6 Description of Permitted Investments................ 10
The Administrator................................... 6
</TABLE>
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
United Jersey Bank Investment Management Division,
a division of United Jersey Bank
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of The
Pillar Funds (the "Trust") and should be read in conjunction with the Trust's
Prospectuses dated April 30, 1996. Prospectuses may be obtained through the
Distributor, SEI Financial Services Company, 680 E. Swedesford Road, Wayne, PA
19087-1658, or by calling 1-800-932-7782.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Investment Objectives and Policies
Description of Permitted Investments................................................................... 2
Description of Ratings ................................................................................ 20
Securities Lending..................................................................................... 24
Investment Limitations................................................................................. 25
Management of the Trust
Trustees and Officers of the Trust..................................................................... 27
The Advisor............................................................................................ 28
The Sub-Advisor........................................................................................ 29
The Administrator...................................................................................... 30
Fund Transactions
General................................................................................................ 31
Trading Practices and Brokerage........................................................................ 32
The Distributor and the Distribution Plans...................................................................... 37
Performance
Computation of Yield................................................................................... 41
Calculation of Total Return............................................................................ 44
Purchase and Redemption of Shares............................................................................... 46
Shareholder Services............................................................................................ 47
Determination of Net Asset Value................................................................................ 48
General Information and History
The Trust.............................................................................................. 49
Description of Shares.................................................................................. 50
Shareholder Liability.................................................................................. 56
Limitation of Trustees' Liability...................................................................... 56
Taxes........................................................................................................... 56
Experts......................................................................................................... 59
Financial Information...................................................................................... 59
Report of Independent Public Accountants.......................................................... F-1
Financial Statements.............................................................................. F-2
</TABLE>
April 30, 1996
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
DESCRIPTION OF PERMITTED INVESTMENTS
Foreign Securities. The Short-Term Investment, Fixed Income and International
Growth Funds may invest in the securities of foreign issuers. In addition, the
Equity Value, Equity Income, Mid Cap Value, Balanced Growth and International
Growth Funds may invest in American Depositary Receipts, American Depositary
Shares and New York Shares, and reserves the right to invest up to 25% of their
assets in foreign equity securities denominated in foreign currencies, except
for the International Growth Fund which will invest at least 65% of its assets
in foreign equity securities. These instruments may subject the Fund to
investment risks that differ in some respects from those related to investments
in obligations of U.S. domestic issuers. Such risks include future adverse
political and economic developments, the possible imposition of withholding
taxes on interest or other income, possible seizure, nationalization, or
expropriation of foreign deposits, the possible establishment of exchange
controls or taxation at the source, greater fluctuations in value due to changes
in currency exchange rates, or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. Such investments may also entail higher custodial fees and
sales commission than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks. In addition, foreign markets may be characterized by
lower liquidity, greater price volatility, less regulation and higher
transaction costs than U.S. markets.
Forward Foreign Currency Contracts. The International Growth Fund may invest in
forward foreign currency contracts. Forward foreign currency contracts involve
an obligation to purchase or sell a specified currency at a future date at a
price set at the time of the contract. Forward currency contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow
the Fund to establish a rate of exchange for a future point in time.
When entering into a contract for the purchase or sale of a security in a
foreign currency, the Fund may enter into a foreign forward currency contract
for the amount of the purchase or sale price to protect against variations,
between the date the security is purchased or sold and the date on which payment
is made or received, in the value of the foreign currency relative to the United
States dollar or other foreign currency.
Also, when the Sub-Advisor anticipates that a particular foreign currency may
decline substantially relative to the United States dollar or other leading
currencies, in order to reduce risk, the Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of its securities denominated in such foreign currency. With respect to
any such forward foreign currency contract, it will not generally be possible to
match precisely the amount covered by that contract and the value of the
securities involved due to changes in the values of such securities resulting
from market movements between the date the forward contract is entered into and
the date it matures. In addition, while forward currency contracts may offer
protection from losses resulting from declines in value of a particular foreign
currency, they also limit potential gains which might result from increases in
the value of such currency. The Fund will also incur costs in connection with
forward foreign currency contracts and conversions of foreign currencies into
U.S. dollars.
Lower Rated Securities. The International Growth Fund may invest in lower-rated
bonds commonly referred to as "junk bonds" or high yield/high risk securities.
These securities are rated "Ba" or lower by Moody's
<PAGE>
Investors Service, Inc. ("Moody's") or "BB" or lower by Standard & Poor's
Ratings Group ("S&P"). These ratings indicate that the obligations are
speculative and may be in default. In addition, the Fund may invest in unrated
securities subject to the restrictions stated in the Prospectus.
Certain Risk Factors Relating to High-Yield, High-Risk Securities. The
descriptions below are intended to supplement the discussion in the Prospectus
under "Risk Factors".
Growth of High Yield Bond, High-Risk Bond Market. The widespread
expansion of government, consumer and corporate debt within the U.S. economy has
made the corporate sector more vulnerable to economic downturns or increased
interest rates. Further, an economic downturn could severely disrupt the market
for lower rated bonds and adversely affect the value of outstanding bonds and
the ability of the issuers to repay principal and interest.
Sensitivity to Interest Rate and Economic Changes. Lower rated bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic down turn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that 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 bond defaulted on its obligations to pay interest
or principal or entered into bankruptcy proceedings, the Fund may incur losses
or expenses in seeking recovery of amounts owed to it. In addition, periods of
economic uncertainty and change can be expected to result in increased
volatility of market prices of high-yield, high-risk bonds and the Fund's net
asset value.
Payment Expectations. High-yield, high-risk bonds may contain
redemption or call provisions. If an issuer exercised these provisions in a
declining interest rate market, the Fund would have to replace the security with
a lower yielding security, resulting in a decreased return for investors.
Conversely, a high-yield, high-risk bond's value will decrease in a rising
interest rate market, as will the value of the Fund's assets. If the Fund
experiences significant unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the Fund's rate of return.
Liquidity and Valuation. There may be little trading in the secondary
market for particular bonds, which may affect adversely the Fund's ability to
value accurately or dispose of such bonds. Adverse publicity and investor
perception, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
Legislation. Federal laws require the divestiture by federally insured
savings and loan associations of their investments in lower rated bonds and
limit the deductibility of interest by certain corporate issuers of high yield
bonds. These laws could adversely affect the Fund's net asset value and
investment practices, the secondary market for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities.
Taxes. The Fund may purchase debt securities (such as zero-coupon or
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by a Fund and
therefore is subject to the distribution requirements of the code. Because the
original issue discount earned by the Fund in a taxable year may not be
represented by cash income, the Fund may have to dispose of other securities and
use the proceeds to make distributions to shareholders.
Mortgage-backed securities. Each of the Funds except the U.S. Treasury
Securities Money Market and U.S. Treasury Securities Plus Money Market Funds may
invest in mortgage-backed securities issued or guaranteed
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by U.S. Government agencies or instrumentalities such as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). The GNMA Fund
may invest in securities issued and guaranteed by Federal Home Loan Banks. In
addition, the Short-Term Investment and Fixed Income Funds may invest in
privately issued mortgage-backed securities. Obligations of GNMA are backed by
the full faith and credit of the United States Government. Obligations of FNMA,
FHLMC and Federal Home Loan Banks are not backed by the full faith and credit of
the United States Government but are considered to be of high quality since they
are considered to be instrumentalities of the United States. The market value
and interest yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages. These
securities represent ownership in a pool of federally insured mortgage loans
with a maximum maturity of 30 years. However, due to scheduled and unscheduled
principal payments on the underlying loans, these securities have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular mortgage-backed
security. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. Government
mortgage-backed securities differ from conventional bonds in that principal is
paid back to the certificate holders over the life of the loan rather than at
maturity. As a result, there will be monthly scheduled payments of principal and
interest. In addition, there may be unscheduled principal payments representing
prepayments on the underlying mortgages. Although these securities may offer
yields higher than those available from other types of U.S. Government
securities, mortgage-backed securities may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of
these securities likely will not rise as much as comparable debt securities due
to the prepayment feature. In addition, these prepayments can cause the price of
a mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.
CMOs. The Short-Term Investment, Fixed Income and Balanced Growth Funds may also
invest in mortgage-backed securities issued by non-governmental entities. The
mortgage-backed securities these Funds may purchase are collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs")
which are rated in one of the two top categories by S&P or Moody's and which are
backed solely by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by the U.S. Government or its agencies and instrumentalities. CMOs
are securities collateralized by mortgages, mortgage pass-throughs, mortgage
"pay-through" bonds (bonds representing an interest in a pool of mortgages where
the cash flow generated from the mortgage collateral pool is dedicated to bond
repayment), and "mortgage-backed" bonds (general obligations of the issuers
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued with
a number of classes or series which have different maturities and are retired in
sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed by U.S.
Government agencies or instrumentalities.
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REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Advisor believes that the estimated average life is the most appropriate measure
of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Advisor will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Advisor will be the
actual average life.
Municipal Securities. The Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds may invest in the
following:
Municipal notes consist of general obligation notes, tax anticipation notes
(notes sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior to receipt of expected non-tax revenues from a
specific source), bond anticipation notes, certificates of indebtedness, demand
notes and construction loan notes.
Municipal bonds consist of general obligation bonds, revenue or special
obligation bonds and private activity bonds, the interest paid on which is
excludable from Federal income tax. Private activity bonds are issued by or on
behalf of States or political subdivisions thereof to finance privately-owned or
operated facilities for business and manufacturing, housing, sports, and
pollution control and to finance activities of and facilities for charitable
institutions. Private activity bonds are also used to finance public facilities
such as airports, mass transit systems, ports, parking and low income housing.
The payment of the principal and interest on private activity bonds is not
backed by a pledge of tax revenues and is dependent solely on the ability of the
facility's user to meet its financial obligations and may be secured by a pledge
of real and personal property so financed.
The Funds may also purchase variable and floating rate demand notes and
synthetic variable rate demand notes. Investments in such floating rate
instruments will normally involve industrial development or revenue bonds which
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate) at a major commercial bank, and
that the Fund involved can demand payment of the obligation at all times or at
stipulated dates on short notice (not to exceed 30 days) at par plus accrued
interest. Such obligations are frequently secured by letters of credit or other
credit support arrangements provided by banks. The Advisor will monitor the
earning power, cash flow and liquidity ratios of the issuers of such instruments
and the ability of an issuer of a demand instrument to pay principal and
interest on demand. The Funds may also purchase participation interests in
municipal securities (such as industrial development bonds and municipal
lease/purchase agreements). A participation interest gives the Fund an undivided
interest in the underlying municipal security. If it is unrated, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a creditworthy financial institution or the payment obligation
otherwise will be collateralized by U.S. Government securities. Participation
interests may have fixed, variable or floating rates of interest and may include
a demand feature. A participation interest without a demand feature or a
participation interest or demand note with a demand feature exceeding seven days
may be deemed to be an illiquid security subject to each Fund's investment
<PAGE>
limitations restricting its purchases of illiquid securities to not more than
15% of its total assets. The Advisor may purchase other types of tax-exempt
instruments as long as they are of a quality equivalent to the bond or
commercial paper ratings applicable to each Fund and satisfy other applicable
requirements.
New Jersey Municipal Securities and Special Considerations Relating Thereto. The
concentration of investments in New Jersey Municipal Securities by the New
Jersey Municipal Securities Fund raises special investment considerations. In
particular, changes in the economic condition and governmental policies of the
State of New Jersey or its municipalities could adversely affect the value of
this Fund and the securities held by it.
The following information is based on official statements relating to
securities offerings of the State of New Jersey (the "State") and various local
agencies that have come to the Fund's attention and available as of the date of
this Statement of Additional Information. The New Jersey Municipal Securities
Fund has not independently verified any of the information contained in the
official statement but is not aware of any fact which would render such
information inaccurate.
General. New Jersey is located at the center of the Middle Atlantic
region which extends from Boston to Washington, and which includes almost
one-fourth of the country's population. The extensive facilities of the Port
Authority of New York and New Jersey, the Delaware River Port Authority and the
South Jersey Port Corporation across the Delaware River from Philadelphia
augment the air, land and water transportation complex which has influenced much
of the State's economy. This central location in the northeastern corridor, the
transportation and port facilities and proximity to New York City make the State
an attractive location for corporate headquarters and international business
offices. A number of Fortune Magazine's top 500 companies maintain headquarters
or major facilities in New Jersey, and many foreign-owned firms have located
facilities in the State.
The State's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. New Jersey's principal manufacturing
industries produce chemicals and pharmaceuticals, electrical equipment and
instruments, printing, machinery and food products. In addition, the State
introduced legalized casino gambling into Atlantic City in the 1970's which has
fostered employment and tourism in Atlantic City.
New Jersey is the ninth largest state in population and the fifth
smallest in land area. It is the most densely populated state in the United
States with an average of 1,062 persons per square mile. New Jersey's population
grew rapidly in the years following World War II, before slowing to an annual
rate of .27% in the 1970's. Between 1980 and 1990, the annual growth rate was
.49% and between 1990 and 1994 accelerated to .52%. While this rate of growth is
less than that for the United States, it compares favorably with other Middle
Atlantic States.
After enjoying an extraordinary boom during the mid-1980's, New Jersey,
as well as the rest of the Northeast, slipped into a slowdown well before the
onset of the national recession, which began in July 1990. By the beginning of
the national recession, construction activity had already been declining in New
Jersey for nearly two years. The onset of recession caused an acceleration of
New Jersey's job losses in construction and manufacturing, as well as an
employment downturn in such previously growing sectors as wholesale trade,
retail trade, finance, utilities and trucking and warehousing.
Reflecting the downturn, the rate of unemployment in the State rose
from a peacetime low of 3.6% during the first quarter of 1989 to a recessionary
peak of 8.4% during 1992. The unemployment rate fell to 6.9% during the first
quarter of 1995.
<PAGE>
Financial Accounting. The State utilizes the fund method of accounting.
Accordingly, the State prepares separate statements for the General Fund,
Special Revenue Funds, Debt Service Funds, Capital Project Funds, Trust and
Agency Funds, Enterprise Funds, University Funds, General Fixed Asset Account
Group and General Long-Term Debt Account Group.
The General Fund is the fund into which all State revenues not
otherwise restricted by statute are deposited and from which appropriations are
made. The largest part of the total financial operations of the State is
accounted for in the General Fund. Revenues received from taxes and unrestricted
by statute, most federal revenue and certain miscellaneous revenue items are
recorded in the General Fund.
Special Revenue Funds are used to account for resources legally
restricted to expenditure for specified purposes. Special Revenue Funds include
the Casino Control Fund, the Casino Revenue Fund, the Gubernatorial Elections
Fund and the Property Tax Relief Fund. Other Special Revenue Funds have been
created which are either reported ultimately in the General Fund or are created
to hold revenues derived from private sources.
Debt Service Funds are used to account for the accumulation of
resources for, and the payment of, principal and redemption premium, if any, of,
and interest on, general obligation bonds. Capital Project Funds are used to
account for financial resources to be used for the acquisition or construction
of major State capital facilities. Trust and Agency Funds are used to account
for assets held in a trust capacity or as an agent for individuals, private
organizations, other governments and/or other funds. The General Fixed Asset
Account Group accounts for the State's fixed assets acquired or constructed for
general governmental purposes. The General Long-Term Debt Account Group accounts
for the unmatured general long-term liabilities of the State.
Enterprise Funds account for operations where the intent of the State
is that the cost of providing goods or services to the general public on a
continuing basis be financed or recovered primarily through user charges, or
where periodic measurement of the results of operations is appropriate for
capital maintenance, public policy, management control or accountability. The
College and University Funds account for the operations of Rutgers, the State
University, the University of Medicine and Dentistry of New Jersey, the New
Jersey Institute of Technology, and the nine State colleges including their
foundations and associations, in accordance with existing authoritative
accounting and reporting principles applicable to universities and hospitals.
The State operates on a fiscal year beginning July 1 and ending June
30. The State Constitution provides that all monies for the support of State
government and all other State purposes, as far as can be ascertained or
reasonably foreseen, must be provided for in one general appropriation law
covering one and the same fiscal year. No general appropriations law or other
law appropriating money for any State purpose shall be enacted if the amount of
money appropriated therein, together with all other prior appropriations made
for the same fiscal year, exceeds the total amount of revenue on hand and
anticipated to be available for such fiscal year, as certified by the Governor.
Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent.
<PAGE>
Financial Results and Projections.
Revenues. Estimated receipts from State taxes and revenues are
forecasts based on the best information available at the time of such forecasts.
The principal taxes in New Jersey are the Sales and Use Tax, the Gross Income
Tax, and the Corporation Business Tax. The fiscal year 1996 Appropriation Act
forecasts Sales and Use Tax collections of $4,356 million, a 5.5% increase over
receipts estimated for fiscal year 1995; Gross Income Tax collections of $4,580
million, a 9.0% increase over receipts estimated in the revised estimates for
fiscal year 1995; and Corporation Business Tax collections of $1,145 million, a
8.6% increase over receipts estimated in the revised estimates for fiscal year
1995. Changes in economic activity in the State and the nation, consumption of
durable goods, corporate financial performance and other factors that are
difficult to predict may result in actual collections being more or less than
forecasted.
Appropriations. The State appropriated approximately $14,737 million for
fiscal year 1993 and $15,492 million for fiscal year 1994. Estimated
appropriations for fiscal years 1995 and 1996 total $15,528 million and $15,995
million, respectively. Of the estimated $15,995 million appropriated in fiscal
year 1995 from the General Fund, the Property Tax Relief Fund, the Casino
Control Fund, the Casino Revenue Fund, and the Gubernatorial Elections Fund,
$6,423.5 million (40.2%) is appropriated for State aid to local governments,
$3,708 million (23.2%) is appropriated for grants-in-aid (payments to
individuals or public or private agencies for benefits to which a recipient is
entitled to by law, or for the provision of services on behalf of the State),
$5,179.6 million (32.4%) for direct State services, $466.3 million (2.9%) for
debt service on State general obligation bonds and $443.9 million (2.9%) for
capital construction.
Fund Balances. The undesignated Fund balances are available for
appropriations in succeeding fiscal years. There have been positive Fund
balances in the General Fund at the end of each year since the State
Constitution was adopted in 1947. Total ending Fund balances for fiscal years
1992, 1993 and 1994 were $836.2 million, $1,149.6 million and $1,264.6 million,
respectively. General Fund balances accounted for $1.4 million, and $760.8
million and $937.4 million of the total ending Fund balances in fiscal years
1992, 1993 and 1994, respectively. Total ending Fund balances are estimated to
be $965.7 million for the fiscal year 1995, of which the General Fund balance is
expected to account for $926.0 million. The estimates for fiscal year 1995 are
preliminary and are subject to change upon completion of the State's year end
audit. The estimates for Total and General Fund balances for the fiscal year
ended 1995 are $549.3 million and $563 million, respectively. The estimates for
fiscal 1996 reflect amounts contained in the Fiscal Year 1996 Appropriations Act
and Supplemental Appropriations enacted through September 1, 1993. It should be
noted that an adverse determination in certain litigation in which the State is
a party would have a significant impact on fiscal 1995 and subsequent fiscal
year fund balances (see "Litigation" section).
Indebtedness of the State.
General Obligation Bonds. The primary method for State financing
of capital projects is through the sale of the general obligation bonds of the
State. These bonds are backed by the full faith and credit of the State. State
tax revenues and certain other fees are pledged to meet the principal payments,
interest payments and if provided, redemption premium payments, if any, required
to fully pay the bonds. As of June 30, 1994, the outstanding general obligation
bonded indebtedness of the State was approximately $3.65 billion. For fiscal
1996, $466.3 million has been appropriated for the debt service obligation on
outstanding indebtedness.
Tax and Revenue Anticipation Notes. In fiscal year 1992 the State
initiated a program under which it issued tax and revenue anticipation notes to
aid in providing effective cash flow management to fund imbalances which occur
in the collection and disbursement of the General Fund and Property Tax Relief
Fund revenues. There are presently no tax and revenue anticipation notes
outstanding. Such tax and revenue
<PAGE>
anticipation notes do not constitute a general obligation of the State or a debt
or liability within the meaning of the State Constitution. These notes
constitute special obligations of the State payable solely from moneys on
deposit in the General Fund and Property Tax Relief Fund and legally available
for such payment.
State Related Obligations.
Lease Financing. The State has entered into a number of leases
relating to the financing of certain real property and equipment. Lease
financing obligations outstanding as of December 31, 1992 totalled $804.8
million.
State Supported School and County College Bonds. Legislation
provides for future appropriations for State aid to local school districts equal
to debt service on a maximum principal amount of $280.0 million of bonds issued
by such local school districts for construction and renovation of school
facilities and for State aid to counties equal to debt service on up to $80.0
million of bonds issued by counties for construction of county college
facilities. The State Legislature is not legally bound to make such future
appropriations, but has done so to date on all outstanding obligations issued
under these laws. As of December 31, 1993, the maximum amount of $280.0 million
of school district bonds has been approved for State support. Bonds or notes in
the amount of $274.1 million have been issued by local school districts, of
which $211.2 million have been retired and $62.8 million are still outstanding.
As of June 30, 1993, $81.9 million of county college bonds or notes have been
authorized or issued, of which $42.0 million have been retired.
Moral Obligation Financing. The authorizing legislation for
certain State entities provides for specific budgetary procedures with respect
to certain obligations issued by such entities. Pursuant to such legislation, a
designated official is required to certify any deficiency in a debt service
reserve fund maintained to meet payments of principal of and interest on the
obligations, and a State appropriation in the amount of the deficiency is to be
made. However, the State Legislature is not legally bound to make such an
appropriation. Bonds issued pursuant to authorizing legislation of this type are
sometimes referred to as "moral obligation" bonds. There is no statutory
limitation on the amount of moral obligation bonds which may be issued by
eligible State entities. The State provides the South Jersey Port Corporation
with funds to cover all debt service and property tax requirements to the extent
earned revenues are anticipated to be insufficient to cover these obligations.
All other entities with moral obligation bonds are expected to generate revenues
sufficient to cover debt service requirements thereon. As of June 30, 1994,
outstanding moral obligation indebtedness totalled $737.9 million, with an
approximate maximum annual debt service requirement of $68.2 million.
New Jersey Transportation Trust Fund Authority. In July 1984, the
State created the New Jersey Transportation Trust Authority (the "Authority"),
an instrumentality of the State organized and existing under the New Jersey
Transportation Trust Fund Authority Act of 1984, as amended (the "Act") for the
purpose of funding a portion of the State's share of the cost of improvements to
the State's transportation system. Pursuant to the Act, the Authority, the State
Treasurer and the Commissioner of Transportation executed a contract (the
"Contract") which provides for the payment of these revenues to the Authority.
The payment of all such amounts is subject to and dependent upon appropriations
being made by the State Legislature and there is no requirement that the
Legislature make such appropriations.
Pursuant to the Act, the aggregate principal amount of the
Authority's bonds, notes or other obligations outstanding at any one time may
not exceed $1.7 billion. This amount is reduced by certain payments to the
Authority by the State in excess of the contract amount. Since January 1985, the
Authority has issued $1.223 billion in bonds. Of these, $1,222.3 million were
outstanding on June 30, 1994. These bonds are special obligations of the
Authority payable from the payments made by the State pursuant to the Contract.
<PAGE>
Economic Recovery Fund Bonds. Legislation enacted during 1992 by
the State authorizes the New Jersey Economic Development Authority ("NJEDA") to
issue bonds for various economic development purposes. Pursuant to that
legislation, NJEDA and the State Treasurer have entered into an agreement (the
"ERF Contract") through which NJEDA has agreed to undertake the financing of
certain projects and the State Treasurer has agreed to credit to the Economic
Recovery Fund from the General Fund amounts equivalent to payments due to the
State under an agreement with the Port Authority of New York and New Jersey. The
payment of all amounts under the ERF Contract is subject to and dependent upon
appropriations being made by the State Legislature. On June 1, 1994, NJEDA
issued $705.3 million in Economic Recovery Fund Bonds.
Miscellaneous. Other State related obligations include bonds of
the New Jersey Sports and Exposition Authority and lease purchase agreements of
the New Jersey Commission on Science and Technology. Amounts outstanding as of
June 30, 1994 totalled $615.1 million and $1.3 million, respectively, for these
two organizations.
State Employees. The State, as a public employer, is covered by the New
Jersey Public Employer-Employee Relations Act, as amended, which guarantees
public employees the right to negotiate collectively through employee
organizations certified or recognized as the exclusive collective negotiations
representatives for units of public employees found to be appropriate for
collective negotiations purposes. Approximately 64,500 employees are paid
through the State payroll system. Of the 64,500 employees, 56,800 are
represented by certified or recognized exclusive majority representatives and
are organized into various negotiation units. The State is conducting
negotiations for successor agreement with various negotiation units affecting
approximately 54,400 employees. The current agreement expired on June 30, 1994.
Three units of State Police employees, representing approximately 2,400
Troopers, Sergeants and Lieutenants are in the second year of a three-year
contract which expires on June 30, 1996. Their agreements call for a 4% wage
increase effective June 24, 1995. The fiscal year 1996 budget is expected to
reduce the workforce through attrition, voluntary furlough and layoff of state
employees during the fiscal year.
Counties and Municipalities. The Local Budget Law imposes specific
budgetary procedures upon counties and municipalities ("local units"). Every
local unit must adopt an operating budget which is balanced on a cash basis, and
items of revenue and appropriation must be examined by the Director of the
Division (the "Director"). This process insures that every municipality and
county annually adopts a budget balanced on a cash basis, within limitations on
appropriations or tax levies, respectively, and making adequate provision for
principal of and interest on indebtedness falling due in the fiscal year,
deferred charges and other statutory expenditure requirements. In addition to
the exercise of regulatory and oversight functions, the Director offers expert
technical assistance to local units in all aspects of financial administration,
including revenue collection and cash management procedures, contracting
procedures, debt management and administrative analysis.
State law also regulates the issuance of debt by local units. The Local
Budget Law limits the amount of tax anticipation notes that may be issued by
local units and requires the repayment of such notes within 120 days of the end
of the fiscal year (six months in the case of the counties) in which they were
issued. The Local Bond Law governs the issuance of bonds and notes by the local
units. No local unit is permitted to issue bonds for the payment of current
expenses (other than Fiscal Year Adjustment bonds). Local units may not issue
bonds to pay outstanding bonds, except for refunding purposes, and then only
with the approval of the Local Finance Board. Local units may issue bond
anticipation notes for temporary periods not exceeding in the aggregate
approximately ten years from the date of first issue. The debt that any local
unit may authorize is limited to a percentage of its equalized valuation basis,
which is the average of the equalized value of all taxable real property and
improvements within the geographic boundaries of the local unit, as annually
determined by the Director of the Division of Taxation, for each of the three
most recent years.
<PAGE>
State law authorizes State officials to supervise fiscal administration
in any municipality which is in default on its obligations or upon the
occurrence of certain other events. State officials are authorized to continue
such supervision for as long as any of the conditions exist and until the
municipality operates for a fiscal year without incurring a cash deficit.
School Districts. New Jersey's school districts operate under the same
comprehensive review and regulation as do its counties and municipalities.
Certain exceptions and differences are provided, but the State supervision of
school finance closely parallels that of local governments.
Litigation. Certain litigation is pending or threatened in which the
State has the potential for either a significant loss of revenue or a
significant unanticipated expenditure, including suits relating to the following
matters:
(a) Several cases are pending in the State courts challenging the
methods by which the State Department of Human Services shares with
county governments the maintenance recoveries and costs for residents
in State psychiatric hospitals and residential facilities for the
developmentally disabled.
(b) Suits have been initiated by various counties in the State seeking
the return of moneys paid by the counties since 1980 for the
maintenance of Medicaid or Medicare eligible residents of institutions
for the developmentally disabled. In March 1994, the State Superior
Court ruled that the counties were entitled to credits for payments
made since 1989. In February 1995 all but one county had resolved its
cost-sharing disputes with the State. One county has filed for
administrative review to contest the State's calculation of the
credits.
(c) A class action on behalf of all New Jersey long-term care
facilities avers that the State has implemented unreasonably low
Medicaid payment rates. A final decision in favor of the plaintiffs
could require the State to make substantial expenditures. A plaintiffs'
motion for a preliminary injunction was denied on May 25, 1995, and
that denial is being appealed to the Third Circuit.
(d) Litigation is pending challenging various portions of the State's
Fair Automobile Insurance Reform Act of 1990, which substantially
altered the State's statutory scheme governing private passenger
automobile insurance.
(e) At any given time, there are various numbers of claims and cases
pending against the State, its agencies and employees seeking recovery
of damages paid out of a fund created pursuant to the State's Tort
Claims Act. The State is unable to estimate its exposure for these
claims and cases. An independent study estimated an aggregate potential
exposure of $50 million for tort claims pending as of January 1, 1982.
It is estimated that were a similar study made of claims currently
pending, the amount of such estimated exposure would be somewhat
higher.
(f) At any given time, there are various claims of contract and other
claims against the State, and State agencies including environmental
claims arising from the alleged disposal of hazardous waste. The State
is unable to estimate its exposure for these claims.
(g) At any given time, there are various numbers of claims and cases
pending against the University of Medicine and Dentistry ("University")
and its employees seeking recovery of damages that are paid out of the
Self Insurance Reserve Fund created pursuant to the State's Tort Claims
Act. An
<PAGE>
independent study estimated an aggregate potential exposure of
$66.5 million for claims pending as of December 31, 1994. In addition,
various other claims are pending against the University seeking damages
or other relief which, if granted, would require the expenditure of
funds (amount not estimated).
(h) Various hospitals have challenged the Commissioner's calculation of
the hospital assessment required by the Health Care Cost Reduction Act
of 1991. The court denied a request by 11 hospitals for injunctive
relief to prevent the assessment after fiscal year 1994. The assessment
is intended to produce approximately $3 million per month from all
State hospitals. On January 17, 1995, the Appellate Division rejected
the hospitals' argument. The Supreme Court denied the hospitals'
petition for certification on April 26, 1995. In a separate case, the
Appellate Division rejected a group of 67 hospital's request for a
refund based on a prior opinion because the appeal had been filed in an
untimely manner.
(i) An individual plaintiff has filed a suit against two members of the
New Jersey Bureau of Securities alleging various causes of action for
defamation, injury to reputation, abuse of process and improper
disclosure of private facts. The State was granted a Motion for Summary
Judgment on January 11, 1995. Plaintiff has filed a notice of appeal.
The State is unable to estimate its exposure for this claim and intends
to defend the suit vigorously.
(j) Fourteen counties have filed suits against various State agencies
and employees, seeking a portion of $412 million in federal funding the
State received for disproportionate share hospital payments made to
county psychiatric facilities. The State contends that it does not have
to share the federal funding because it already paid the counties their
portion of disproportionate share hospital payments. The State has
requested oral argument.
(k) In October 1993, a suit was filed against the Governor and various
State Commissioners alleging violations of numerous laws allegedly
resulting from the existence of chromium contamination in the
State-owned Liberty Park in Jersey City. No immediate relief was
sought, but injunctive and monetary relief was asked for. The
complaints were amended and the plaintiffs filed another suit seeking
cessation of all construction and penalties against the transporter of
soil to the park. The cases have been consolidated and referred to
mediation.
(l) Various labor unions filed suit on October 17, 1994, challenging
State legislation dealing with the funding of several public employee
pension funds. The suit alleges, among other things, that certain
provisions of the legislation violate the contract, due process and
taking clauses of the United States and New Jersey Constitutions, and
that the changes constitute a breach of the States fiduciary duty to
two of the pension systems. Plaintiffs seek to permanently enjoin the
State from administering the changes. An adverse determination in this
matter would have a significant impact on the State's fiscal 1996
budget. The State has filed motions to dismiss and for summary
judgment. The State intends to vigorously defend this action.
(m) A case has been filed in federal district court seeking
injunctive relief and damages in excess of $19 million from the
State's Department of Environmental Protection and several of its
officers based on alleged violations of the Commerce Clause and
Contracts Clause of the U.S. Constitution. The State intends to
vigorously defend this action.
(n) A complaint was filed in Tax Court on May 23, 1994 against the
State and certain of its officials challenging the constitutionality of
waste licensure renewal fees collected by the Department of
<PAGE>
Environmental Protection. The State is unable to estimate its exposure
for this claim and intends to defend this suit vigorously.
Pennsylvania Municipal Securities and Special Considerations Relating thereto.
The following information as to certain Pennsylvania risk factors has been
provided in view of the policy of concentrating in Pennsylvania Municipal
Securities by the Pennsylvania Municipal Securities Fund. This information
constitutes only a brief summary, does not purport to be a complete description
of Pennsylvania risk factors and is principally drawn from official statements
relating to securities offerings of the Commonwealth of Pennsylvania that have
come to the attention of the Pennsylvania Municipal Securities Fund and were
available as of the date of this Statement of Additional Information. The Fund
has not independently verified any of this information but is not aware of any
fact which would render such information inaccurate.
General. Pennsylvania has historically been dependent on heavy industry
although recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic growth
in Pennsylvania are in the service sector, including trade, medical and health
services, education and financial institutions. Agriculture continues to be an
important component of the Commonwealth's economic structure, with nearly
one-fourth of the Commonwealth's total land area devoted to cropland, pasture
and farm woodlands.
In 1994, the population of Pennsylvania was 12.09 million people.
According to the U.S. Bureau of the Census, Pennsylvania experienced a slight
increase from the 1985 estimate of 11.77 million. Pennsylvania has a high
proportion of persons 65 or older. The Commonwealth is highly urbanized, with
almost 85% of the 1990 census population residing in metropolitan statistical
areas. The cities of Philadelphia and Pittsburgh, the Commonwealth's largest
metropolitan statistical areas, together comprise approximately 50% of the
Commonwealth's total population.
Pennsylvania's average annual unemployment rate remained below the
national average between 1986 and 1990. Slower economic growth caused the rate
to rise to 6.9% in 1991 and 7.5% in 1992. The resumption of faster economic
growth resulted in a decrease in the Commonwealth's unemployment rate to 7.1
percent in 1993. Seasonally adjusted data for March 1995, the most recent month
for which data is available, shows an unemployment rate of 6.0% compared to an
unemployment rate of 5.5% for the United States as a whole.
Financial Accounting. Pennsylvania utilizes the fund method of
accounting and over 150 funds have been established for the purpose of recording
receipts and disbursements, of which the General Fund is the largest. Most of
the operating and administrative expenses are payable from the General Fund. The
Motor License Fund is a special revenue fund that receives tax and fee revenues
relating to motor fuels and vehicles (except one-half cent per gallon of the
liquid fuels tax which is deposited in the Liquid Fuels Tax Fund for
distribution to local municipalities) and all such revenues are required to be
used for highway purposes. Other special revenue funds have been established to
receive specified revenues appropriated to specific departments, boards and/or
commissions. Such funds include the Game, Fish, Boat, Banking Department, Milk
Marketing, State Farm Products Show, State Racing and State Lottery Funds. The
General Fund, all special revenue funds, the Debt Service Funds and the Capital
Project Funds combine to form the Governmental Fund Types.
Enterprise funds are maintained for departments or programs operated
like private enterprises. The largest of the Enterprise funds is the State
Stores Fund, which is used for the receipts and disbursements of the
Commonwealth's liquor store system. Sale and distribution of all liquor within
Pennsylvania is a government enterprise.
<PAGE>
Financial information for the funds is maintained on a budgetary basis
of accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.
Revenues and Expenditures. Pennsylvania's Governmental Fund Types
receive over 57% of their revenues from taxes levied by the Commonwealth.
Interest earnings, licenses and fees, lottery ticket sales, liquor store
profits, miscellaneous revenues, augmentations and federal government grants
supply the balance of the receipts of these funds. Revenues not required to be
deposited in another fund are deposited in the General Fund. The major tax
sources for the General Fund are the 6% sales and use tax (33.7% of General Fund
revenues in fiscal 1994), the 2.8% personal income tax (32.0% of General Fund
revenues in fiscal 1994) and the 10.99% corporate net income tax (10.2% of
General Fund revenues in fiscal 1994). Tax and fee proceeds relating to motor
fuels and vehicles are constitutionally dedicated to highway purposes and are
deposited into the Motor License Fund. The major sources of revenue for the
Motor License Fund include the liquid fuels tax, the oil company franchise tax,
aviation taxes and revenues from fees levied on heavy trucks. These revenues are
restricted to the repair and construction of highway bridges and aviation
programs. Lottery ticket sales revenues are deposited in the State Lottery Fund
and are reserved by statute for programs to benefit senior citizens.
Pennsylvania's major expenditures include funding for education ($6.4
billion of fiscal 1994 expenditures, the projected $6.7 billion of the fiscal
1995 budget and the proposed $6.9 billion of the fiscal 1996 budget) and public
health and human services ($11.7 billion of fiscal 1994 expenditures, the
projected $12.8 billion of the fiscal 1995 budget and the proposed decreases of
the fiscal 1996 $12.3 billion budget).
Governmental Fund Types: Financial Condition/Results of Operations
(GAAP Basis). Reduced revenue growth and increased expenses contributed to
negative unreserved-undesignated fund balances of the Governmental Fund Types at
the end of the 1990 and 1991 fiscal years, largely due to operating deficits in
the General Fund and State Lottery Fund during those years. Actions taken during
fiscal 1992 to bring the General Fund back into balance, including tax increases
and expenditure restraints, resulted in a $1.1 billion reduction to the
unreserved-undesignated fund deficit for combined Governmental Fund Types and a
return to a positive fund balance. Financial performance continued to improve
during fiscal 1994 resulting in a positive unreserved-undesignated balance for
combined governmental types at June 30, 1994, as a result of a $289.2 million in
the balance. These gains were produced by continued efforts to control
expenditure growth. At the end of fiscal 1994, the total fund balance and other
credits for the total Governmental Fund Types was $1,981.9 million, a $22
million increase from the balance at June 30, 1994. During fiscal 1994, total
assets increased by $1,424.9 million to $8,521.3 million, while liabilities
increased $655.6 million to $5,792.1 million.
General Fund: Financial Condition/Results of Operations.
<PAGE>
Five Year Overview (GAAP Basis). The five year period from fiscal 1990
through fiscal 1994 was marked by public health and welfare costs growing at a
rate double the growth rate for all the state expenditures. Rising caseloads,
increased utilization of services and rising prices joined to produce the rapid
rise of public health and welfare costs at a time when a national recession
caused tax revenues to stagnate and even decline. During the period from fiscal
1990 through fiscal 1994, public health and welfare costs rose by an average
annual rate of 9.4% while tax revenues were growing at an average annual rate of
5.8%. Consequently, spending on other budget programs was restrained to a growth
rate below 4.7% and sources of revenues other than taxes became larger
components of fund revenues. Among those sources are transfers from other funds
and hospital and nursing home pooling of contributions to use as federal
matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession in
the economy. A $2.7 billion tax increase enacted for fiscal 1992 brought
financial stability to the General Fund. That tax increase included several
taxes with retroactive effective dates which generated some one-time revenues
during fiscal 1992. The absence of those revenues in fiscal 1993 contributed to
the decline in tax revenues shown for fiscal 1993. Fiscal 1994 tax revenues
increased by 4.1%, but a decline in other revenues caused by the end of medical
assistance pooled financing in fiscal 1993 held total revenues to a 1.8% gain.
Expenditure for fiscal 1994 rose by 4.3%.
During fiscal 1992 enactment of over $2.7 billion in General Fund tax
increases and implementation of expenditure control initiatives have helped the
General Fund balance return to a surplus at June 30, 1992, of $87.5 million. The
actions taken to increase revenues and restrain expenditure growth were
necessary to offset the effects on General Fund finances of a period of slow
economic growth including a national economic recession. The recession caused
tax revenues during fiscal 1991 to be below the amount received during fiscal
1990 while spending, particularly for public health and welfare programs to
support needy individuals, increased by over 21%. Public health and welfare
expenditures continued their rapid increase with a 23.9% increase during fiscal
1992 as caseloads and costs continued upward. Some of these increased costs were
met through the use of pooled financing techniques that use private
contributions and intergovernmental transfers to substitute for state funds
match for federal governmental grants-in-aid. Debt service expenditures
escalated as the amount of tax anticipation note borrowing increased in response
to the fiscal pressures brought about by slow economic growth and the recession.
Fiscal 1992 Financial Results (GAAP Basis). During fiscal 1992, the
General Fund recorded a $1.1 billion operating surplus. This operating surplus
was achieved through legislated tax rate increases and tax base broadening
measures enacted in August 1991, and by controlling expenditures through
numerous cost reduction measures implemented during the fiscal year. As a result
of the operating surplus, the General Fund balance increased to $87.5 million at
June 30, 1992.
Fiscal 1993 Financial Results (GAAP Basis). The fund balance of the
General Fund increased by $611.4 million during the fiscal year, led by an
increase in the unreserved balance of $576.8 million over the prior fiscal year
balance. At June 30, 1993, the fund balance totaled $698.9 million and the
unreserved-undesignated balance totaled $64.4 million.
Fiscal 1994 Budget (GAAP Basis). The fund balance of the General Fund
increased by $194.0 million due largely to an increased reserve for encumbrances
and an increase in other designated funds. At June 30, 1994, the fund balance
totalled $892.9 million and the unreserved-undesignated balance totaled $79.1
million. A continuing recovery of the Commonwealth's financial condition from
the effects of the national economic recession of 1990 and 1991 is demonstrated
by this increase in the balance and a return to a positive
unreserved-undesignated balance. For the third consecutive fiscal year the
increase in the unreserved-undesignated balance exceeded the increase recorded
in the budgetary basis unappropriated surplus during the fiscal year.
<PAGE>
Fiscal 1995 Budget (Budgetary Basis). The approved fiscal 1995 budget
provides for $15,665.7 million appropriations from commonwealth funds, an
increase of 4.0 percent over appropriations, including supplemental
appropriations, for fiscal 1994. Medical assistance expenditures represent the
largest single increase in the budget ($221 million) representing a nine percent
increase over the prior fiscal year. The budget includes a reform of the
state-funded public assistance program that added certain categories of
eligibility to the program but also limited the availability of such assistance
to other eligible persons. Education subsidies to local school districts were
increased by $132.2 million to continue the increased funding for the poorest
school districts in the state.
Several tax reductions were enacted with the fiscal 1995 budget.
Estimated fiscal year revenues, net of the enacted tax cuts, were increased
$296.5 million in the revised projection for fiscal 1994. The increase
represents a 1.9 percentage point increase in the rate of growth anticipated for
fiscal 1995 to 6.3 percent, excluding the effect of the fiscal 1995 tax
reductions, and is largely due to actual and anticipated higher collections of
the corporate net income tax, the sales and use tax and miscellaneous
collections. For the March 1995 fiscal year-to-date official estimate used for
enactment of the budget. Collections of corporation taxes are $195.8 million
(7.3 percent) above the official estimate through March. The sales tax is also
above estimate while the personal income tax is $30.2 million (0.9 percent)
under the official estimate through March.
After a review of the fiscal 1994 budget in January 1995, $64.9 million
of additional appropriation needs were identified for the fiscal year. Of this
amount, the largest are for medical assistance ($21.8 million) and general
assistance cash grants ($10.3) million). The balance of the additional
appropriation needs are for their public welfare programs, educational
subsidiaries and office relocation costs due to a fire. The supplemental
appropriations requested are proposed to be funded from appropriation lapses
estimated to total $172 million for the fiscal year.
Proposed Fiscal 1996 Budget: The proposed General Fund budget submitted
by the Governor to the General Assembly on March 7, 1995, is balanced on a
modified cash basis assuming the drawdowns of approximately $333.0 million of
the projected $336.2 million year-end balance for fiscal 1994. Appropriations of
commonwealth funds are proposed to be $16,094.9 million, a 2.3 percent increase
over the estimated $15,730.6 million total current fiscal year appropriations
and supplemental appropriations. The rate of increase is among the lowest rates
of increase proposed over the last decade.
A major contribution to the overall low rate of increase in
appropriated commonwealth funds is the proposed 1.8 percent increase to medical
assistance costs paid from this funds. In recent fiscal years such costs
increased an average 14.4 percent per year. The Governor's budget proposes a
number of cost reduction strategies for the medical assistance program that
total $332 million and are responsible for the small costs increase in fiscal
1996.
The revenue projections in the proposed budget are based on an
expectation for economic growth in the nation to average 2.5 percent for the
first half of 1995 gradually slowing to a 1.7 percent rate for 1996. The
Commonwealth believes these rates of economic growth are conservative estimates
based on forecasts it has reviewed. Fiscal 1996 commonwealth revenues are
projected to increase 3.6 percent before deducting the estimated costs of the
various tax reductions approved in July 1994. Revenues on a cash basis, that is
net of those 1994 tax reductions and the proposed tax reductions for fiscal
1995, are estimated to increase by 1 percent over current estimates for the 1994
fiscal year.
Tax changes proposed by the Governor for the fiscal 1995 budget are
aimed at improving the competitiveness of the Commonwealth's corporate tax rates
and are estimated to reduce commonwealth
<PAGE>
revenues for fiscal year 1995 by $214.8 million representing 1.3% of
anticipated revenues. The largest part of this cost is from a proposed
acceleration of the currently scheduled reduction of the corporate net income
tax rate to 9.99 percent. The Governor's proposed budget is currently being
reviewed in committee hearings in the General Assembly.
Commonwealth Debt. Current constitutional provisions permit
Pennsylvania to issue the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster, (ii) electorate
approved debt, (iii) debt for capital projects subject to an aggregate debt
limit of 1.75 times the annual average tax revenues of the preceding five fiscal
years, (iv) tax anticipation notes payable in the fiscal year of issuance. All
debt except tax anticipation notes must be amortized in substantial and regular
amounts.
General obligation debt totaled $5.076 million at June 30, 1994. Over
the 10-year period ended June 30, 1994, total outstanding general obligation
debt increased at an annual rate of 1.3% and for the five years ended June 30,
1994, at an annual rate of 1.5%. All outstanding general obligation bonds of the
Commonwealth are rated AA- by Standard and Poor's Corporation, A1 by Moody's
Investors Service, and AA- by Fitch Investors Service. The ratings reflect only
the views of the rating agencies.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
already outstanding, may not exceed in aggregate 20% of the revenues estimated
to accrue to the appropriate fund in the fiscal year. The Commonwealth is not
permitted to fund deficits between fiscal years with any form of debt. All
year-end deficit balances must be funded within the succeeding fiscal year's
budget. Pennsylvania issued a total of $600.0 million of tax anticipation notes
for the account of the General Fund in fiscal 1995, all of which matured on June
30, 1995, and were paid from fiscal 1995 General Fund receipts.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years. Currently, there are no bond anticipation notes outstanding.
State-related Obligations. Certain state-created agencies have
statutory authorization to incur debt for which no legislation providing for
state appropriations to pay debt service thereon is required. The debt of these
agencies is supported by assets of, or revenues derived from, the various
projects financed and the debt of such agencies is not an obligation of
Pennsylvania although some of the agencies are indirectly dependent on
Commonwealth appropriations. The following agencies had debt currently
outstanding as of December 31, 1994: Delaware River Joint Toll Bridge Commission
($56.3 million), Delaware River Port Authority ($233.9 million), Pennsylvania
Economic Development Financing Authority ($659.9 million), Pennsylvania Energy
Development Authority ($162.1 million), Pennsylvania Higher Education Assistance
Agency ($1,283.8 million), Pennsylvania Higher Educational Facilities Authority
($1,965.8 million), Pennsylvania Industrial Development Authority ($357.3
million), Pennsylvania Infrastructure Investment Authority ($227.5 million),
Pennsylvania Turnpike Commission ($1,252.6 million), Philadelphia Regional Port
Authority ($63.9 million) and the State Public School Building Authority ($286.8
million). In addition, the Governor is statutorily required to place in the
budget of the Commonwealth an amount sufficient to make up any deficiency in the
capital reserve fund created for, or to avoid default on, bonds issued by the
Pennsylvania Housing Finance Agency ($2,060 million of revenue bonds and $240
million of notes outstanding as of December 31, 1994), and an amount of funds
sufficient to alleviate any deficiency that may arise in the debt service
reserve fund for bonds issued by The Hospitals and Higher Education Facilities
Authority of Philadelphia ($1.64 million of the loan principal was outstanding
as of December 31, 1994.) The budget as finally adopted by the legislation may
or may not include the amounts requested by the Governor.
<PAGE>
Litigation. Certain litigation is pending against the Commonwealth that
could adversely affect the ability of the Commonwealth to pay debt service
on its obligations, including suits relating to the following matters:
(a) approximately 3,500 suits are pending against the Commonwealth pursuant to
the General Assembly's 1978 approval of a limited waiver of sovereign immunity
which permits recovery of damages for any loss up to $250,000 per person and
$1,000,000 per accident ($32.0 million appropriated from the Motor License Fund
in fiscal 1994 has been decreased to $27.0 million for fiscal 1995; (b) the ACLU
filed suit in April 1990 in federal court demanding additional funding for child
welfare services (no available estimates of potential liability), which the
Commonwealth then sought dismissal based on, among other things, the settlement
in a similar Commonwealth court action that provided for more funding in fiscal
1991 as well as a commitment to pay to counties $30.0 million over 5 years (on
April 12, 1993, the court dismissed all claims except for the constitutional
claims of some of the plaintiffs and two Americans with Disabilities Act
claims). The district court has since denied the ACLU's motion for class
certification. The parties have stipulated to a judgment against the plaintiffs
in order for plaintiffs to appeal the denial of class certification to the Third
Circuit. In December of 1994, the third Circuit reversed Judge Kelly's ruling,
finding that he erred in refusing to certify the class. Consistent with the
Third Circuit's ruling, the District Court recently certified the class, and the
parties have resumed discovery; (c) in 1987, the Supreme Court of Pennsylvania
held that the statutory scheme for county funding of the judicial system was in
conflict with the Pennsylvania Constitution but stayed judgment pending
enactment by the legislature of funding consistent with the opinion (the
legislature has yet to consider legislation implementing the judgment); (d)
several banks have filed suit against the Commonwealth contesting the
constitutionality of a 1989 law imposing a bank shares tax on banking
institutions. Pursuant to a Settlement Agreement dated as of April 2, 1995, the
Commonwealth agreed to enter a credit in favor of Fidelity in the amount of
$4,100,000 in settlement of the constitutional and non-constitutional issues
including interest. Pursuant to a separate Settlement Agreement dated as of
April 21, 1995, the Commonwealth settled with the intervening banks, referred to
as "New Banks." As part of the settlement, the Commonwealth agreed neither to
assesses nor attempt to recoup any new bank tax credits which had been granted
or taken by any of the intervening banks; (e) in November 1990, the ACLU brought
a class action suit on behalf of the inmates in thirteen Commonwealth
correctional institutions challenging confinement conditions and including a
variety of other allegations. On August 1, 1994, the parties submitted a
proposed settlement agreement to the Court for its review. The Court held
hearings on the proposed Settlement Agreement in December 1994. The Court
approved the Settlement Agreement with a January 17, 1995 Memorandum. On
February 3, 1995, the Commonwealth paid $1.3 million in attorney's fees to the
plaintiffs' attorneys in accordance with the Agreement. The remaining $100,00 in
attorneys' fees will be paid upon dismissal of the preliminary injunction
relating to certain health issues. The parties are currently complying with
monitoring provisions outlined in the Agreement. The monitoring phase will
expire on January 6, 1998; (f) in 1991, a consortium of public interest law
firms filed a class action suit alleging that the Commonwealth had failed to
comply with the 1989 federal mandate with respect to certain services for
Medicaid-eligible children under the age of 21. In July 1994, the Court denied
the plaintiffs' request to proceed as a class action and dismissed five of the
eighteen plaintiff organizations from the case. The parties have reached a
tentative settlement agreement which they have submitted to the court for
approval; (g) litigation has been filed in both state and federal court by an
association of rural and small schools and several individual school districts
and parents challenging the constitutionality of the Commonwealth's system for
funding local school districts -- the federal case has been stayed pending
resolution of the state case and the state case is in the pre-trial discovery
stage. The trial has not yet been scheduled. Following a status conference among
counsel, Judge Pellegrini issued an Order, dated April 6, 1995, in which certain
deadlines were established for exchange of information and depositions for
expert witnesses. An additional status conference is scheduled for July 10, 1995
(no available estimate of potential liability); (h) The Pennsylvania Medical
Society sued the Commonwealth for payment of the full Medicare co-pay and
deductible for outpatient services to medical assistance clients who are also
eligible for Medicare. The Commonwealth received a favorable decision in the
United Stated District Court but the Pennsylvania Medical Society appealed the
decision and won a reversal in the United States Third Circuit
<PAGE>
Court. After similarly unfavorable decisions by every other appellate court that
addressed the issue, the Commonwealth implemented a new payment system effective
January 23, 1995. Preliminary estimated costs to the Commonwealth are
approximately $50 million per year; and (i) On November 11, 1993, the
Commonwealth of Pennsylvania, Department of Transportation and
Envirotest/Synterra Partners ("Envirotest"), a partnership, entered into a
"Contract for Centralized Emissions Inspection Facilities." Thereafter,
Envirotest acquired certain land and constructed approximately 85 automobile
emissions inspection facilities throughout various regions of the Commonwealth.
By Act of the General Assembly in October 1994 (Act No. 1994-95), the program
was suspended and the Department of Transportation was prohibited from expending
funds to implement the program. On April 12, 1995, Envirotest Systems
Corporation, Envirotest Partners (successor to Envirotest/Synterra Partners) and
the Commonwealth of Pennsylvania entered into a Standstill Agreement pursuant to
which the parties will proceed to discuss the resolution of claims which
Envirotest might have against the Commonwealth arising from the suspension of
the emissions testing program. The Office of General Counsel believes it is
premature at this time to estimate the nature and size of Envirotest's potential
claim in this matter.
Philadelphia. (For the fiscal year ending June 30, 1991, Philadelphia
experienced a cumulative General Fund balance deficit of $153.5 million. The
audit findings for the fiscal year ending June 30, 1992 place the cumulative
General Fund balance deficit at $224.9 million.)
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist Philadelphia in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt and to make factual findings and recommendations to the
assisted city concerning its budgetary and fiscal affairs. An intergovernmental
cooperation agreement between Philadelphia and PICA was approved by City Council
on January 3, 1992, and approved by the PICA Board and signed by the Mayor on
January 8, 1992. At this time, Philadelphia is operating under a five year
fiscal plan approved by PICA on May 2, 1994. The latest five year plan was
presented to PICA by the Mayor on March 15, 1995 and PICA is scheduled to act on
it at the authority's April 17, 1995 meeting.
To date, PICA has issued $1,418,680,000 of its Special Tax Revenue
Bonds. This financial assistance has included the refunding of certain city
general obligation bonds, funding of capital projects and the liquidation of the
Cumulative General Fund balance deficit as of June 30, 1992, of $224.9 million.
The audited General Fund balance of the city as of June 30, 1994, showed a
surplus of approximately $15.4 million, up from approximately $3 million as of
June 30, 1993.
No further bonds are to be issued by PICA for the purpose of financing
a capital project or deficit as the authority for such bond sales expired
December 31, 1994. PICA's authority to issue debt for the purpose of financing a
cash flow deficit expires on December 31, 1996. Repurchase Agreements. Each of
the Funds except the U.S. Treasury Securities Money Market Fund may invest in
repurchase agreements. Repurchase agreements are agreements by which a person
(e.g., a portfolio) obtains a security and simultaneously commits to return the
security to the seller (a member bank of the Federal Reserve System or a primary
securities dealer, as recognized by the Federal Reserve Bank of New York) at an
agreed upon price (including principal and interest) on an agreed upon date
within a number of days (usually not more than seven) from the date of purchase.
The resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of the
underlying security.
<PAGE>
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Funds will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Advisor monitors
compliance with this requirement). Under all repurchase agreements entered into
by the Funds, the Custodian or its agent must take possession of the underlying
collateral. However, if the seller defaults, the Funds could realize a loss on
the sale of the underlying security to the extent that the proceeds of sale
including accrued interest are less than the resale price provided in the
agreement including interest. In addition, even though the United States
Bankruptcy Code provides protection for most repurchase agreements, if the
seller should be involved in bankruptcy or insolvency proceedings, the Funds may
incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the Funds are treated as an unsecured creditor and
required to return the underlying security to the seller's estate.
Standby Commitments and Puts. The Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds may purchase securities
at a price which would result in a yield to maturity lower than that generally
offered by the seller at the time of purchase when they can simultaneously
acquire the right to sell the securities back to the seller, the issuer, or a
third party (the "writer") at an agreed-upon price at any time during a stated
period or on a certain date. Such a right is generally denoted as a "standby
commitment" or a "put." The purpose of engaging in transactions involving
standby commitments or puts is to maintain flexibility and liquidity to permit
the Funds to meet redemptions and remain as fully invested as possible in
municipal securities. The right to put the securities depends on the writer's
ability to pay for the securities at the time the put is exercised. The Funds
would limit their put transactions to institutions which the Advisor believes
present minimum credit risks, and the Advisor would use its best efforts to
initially determine and continue to monitor the financial strength of the
sellers of the options by evaluating their financial statements and such other
information as is available in the marketplace. It may, however be difficult to
monitor the financial strength of the writers because adequate current financial
information may not be available. In the event that any writer is unable to
honor a put for financial reasons, the Fund would be a general creditor (i.e.,
on a parity with all other unsecured creditors) of the writer. Furthermore,
particular provisions of the contract between the Fund and the writer may excuse
the writer from repurchasing the securities; for example, a change in the
published rating of the underlying municipal securities or any similar event
that has an adverse effect on the issuer's credit or a provision in the contract
that the put will not be exercised except in certain special cases, for example,
to maintain portfolio liquidity. The Fund could, however, at any time sell the
underlying portfolio security in the open market or wait until the portfolio
security matures, at which time it should realize the full par value of the
security.
Municipal Securities purchased subject to a put may be sold to third persons at
any time, even though the put is outstanding, but the put itself, unless it is
an integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. Sale
of the securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the portfolio security. The maturity of
the underlying security will generally be different from that of the put. There
will be no limit to the percentage of portfolio securities that the Fund may
purchase subject to a standby commitment or put, but the amount paid directly or
indirectly for all standby commitments and puts which are not integral parts of
the security as originally issued held in the Fund will not exceed 1/2 of 1% of
the value of the total assets of such Fund calculated immediately after any such
put is acquired.
Variable Amount Master Demand Notes. The Tax-Exempt Money Market, the Equity
Income, Balanced Growth and International Growth Funds may invest in variable
amount master demand notes which may or may not be backed by bank letters of
credit. These notes permit the investment of fluctuating amounts
<PAGE>
at varying market rates of interest pursuant to direct arrangements between the
Trust, as lender, and the borrower. Such notes provide that the interest rate on
the amount outstanding varies on a daily, weekly or monthly basis depending upon
a stated short-term interest rate index. Both the lender and the borrower have
the right to reduce the amount of outstanding indebtedness at any time. There is
no secondary market for the notes. It is not generally contemplated that such
instruments will be traded.
When-Issued Securities. The Funds may acquire fixed income securities on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of commitment to purchase. The Funds will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the Custodian, and the Funds will
maintain liquid assets (cash, U.S. Government securities or liquid, high quality
debt instruments) in an amount at least equal in value to the Funds' commitments
to purchase when-issued securities. If the value of these assets declines, the
Funds will place additional liquid assets in the account on a daily basis so
that the value of the assets in the account is at all times equal to the amount
of such commitments.
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
Description of Commercial Paper Ratings
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1 +,1 and 2, to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1 reflect a "very strong" degree of safety regarding timely payment.
Commercial paper issues rated Prime-1 by Moody's are judged by Moody's to be of
the "highest" quality on the basis of relative repayment capacity.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch Investors Services, Inc. ("Fitch"). Paper rated Fitch-1 is regarded as
having the strongest degree of assurance for timely payment. The rating Fitch-2
(Very Good Grade) is the second highest commercial paper rating assigned by
Fitch which reflects an assurance of timely payment only slightly less in degree
than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff and
Phelps, Inc. ("Duff"). Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated Duff-2 is
regarded as having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals.
Risk factors are small.
The designation A1 by IBCA Limited ("IBCA") indicates that the obligation is
supported by a very strong capacity for timely
<PAGE>
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment are supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high
likelihood that principal and interest will be paid on a timely basis.
Description of Municipal Note Ratings
Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-1. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection form established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing or both. Short-term municipal securities rated MIG-2 or
VMIG-2 are of high quality. Margins of protection are ample although not so
large as in the preceding group.
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment:
o Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
S&P note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus(+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Description of Corporate Bond Ratings
Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree. Debt rated A has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated BB and B is regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rate B has greater vulnerability to default but
presently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions would likely impair capacity
or willingness to pay interest and repay principal. The B rating category also
is used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
<PAGE>
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Bonds which
are rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's bond ratings, where specified, are applied to senior bank obligations
and insurance company senior policyholder and claims obligations with an
original maturity in excess of one year. Obligations relying upon support
mechanisms such as letters-of-credit and bonds of indemnity are excluded unless
explicitly rated.
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating on
a bank's ability to repay senior obligations extends only to branches located in
countries which carry a Moody's sovereign rating. Such branch obligations are
rated at the lower of the bank's rating or Moody's sovereign rating for the bank
deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings do
not incorporate an opinion as to whether payment of the obligation will be
affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance company
obligations are exempt from registration under the U.S. Securities Act of 1933
or issued in conformity with any other applicable law or regulation. Nor does
Moody's represent that any specific bank or insurance company obligation is
legally enforceable or is a valid senior obligation of a rated issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
<PAGE>
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions
liable to but slight market fluctuation other than through changes in the money
rate. The prime feature of an AAA bond is a showing of earnings several times or
many times interest requirements, with such stability of applicable earnings
that safety is beyond reasonable question whatever changes occur in conditions.
Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond
question and are readily salable, whose merits are not unlike those of the AAA
class, but whose margin of safety is less strikingly broad. The issue may be the
obligation of a small company, strongly secured but influenced as to rating by
the lesser financial power of the enterprise and more local type market.
Bonds rated A are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
Bonds rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings. Bonds rated
BB are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. Bonds rated B are
considered highly speculative. While bonds in this class are currently meeting
debt service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.
Bonds rated BBB+, BBB, or BBB- are considered below average protection factors
but still considered sufficient for prudent investment. Considerable BBB
variability in risk during economic cycles. Bonds rated BB+, BB or BB- are
considered below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
Bonds rated B+, B or B- are considered below investment grade and possessing
risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
Bonds rated Duff-1 are judged by Duff to be of the highest credit qualify with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly. Bonds rated A are obligations for which there is a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
Bonds rated BBB are obligations for which there is currently a low expectation
of investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or
<PAGE>
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories. Bonds rated BB are obligations for which
there is a possibility of investment risk developing. Capacity for timely
repayment of principal and interest exists, but is susceptible over time to
adverse changes in business, economic or financial conditions. Bonds rated B are
obligations for which investment risk exists. Timely repayment of principal and
interest is not sufficiently protected against adverse changes in business,
economic or financial conditions.
Bonds rated AAA by Thomson BankWatch indicate that the ability to repay
principal and interest on a timely basis is very high. Bonds rated AA indicate a
superior ability to repay principal and interest on a timely basis, with limited
incremental risk compared to issues rated in the highest category. Bonds rated A
indicate the ability to repay principal and interest is strong. Issues rated A
could be more vulnerable to adverse developments (both internal and external)
than obligations with higher ratings.
Bonds rated BBB indicate an acceptable capacity to repay principal and interest.
Issues rated "BBB" are, however, ore vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
While not investment grade, the BB rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations. Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated issues. Adverse
developments could well negatively affect the payment of interest and principal
on a timely basis.
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements requiring that the loans be
continuously secured by cash, U.S. Government securities, or any combination of
cash and such securities, as collateral equal at all times to 102% of the market
value of the securities lent. Such loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans for the Fund exceed
one-third of the value of a Fund's total assets taken at fair market value. A
Fund will continue to receive interest or dividends on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
government securities. However, a Fund will normally pay lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Advisor or the Sub-Advisor to be
of good standing and when, in the judgment of the Advisor or the Sub-Advisor,
the consideration which can be earned currently from such securities loans
justifies the attendant risk. Any loan may be terminated by either party upon
reasonable notice to the other party. The Funds may use the Distributor or a
broker/dealer affiliate of the Advisor as a broker in these transactions.
INVESTMENT LIMITATIONS
The following investment limitations are fundamental policies of each Fund which
cannot be changed with respect to a Fund without the consent of the holders of a
majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of a Fund's shares present
at a meeting, if more than 50% of the outstanding shares of a Fund are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares,
whichever is less.
Each Fund may not:
<PAGE>
1. Acquire more than 10% of the voting securities of any one issuer, with
the exception of the International Growth Fund which may invest more
than 5% of its total assets in the securities of a single issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only
in an amount not exceeding 10% of the value of total assets. Any
borrowing will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of the Fund's assets, asset
coverage of at least 300% is required. In the event that such asset
coverage shall at any time fall below 300%, the Fund shall, within
three days thereafter or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce
the amount of its borrowings to such an extent that the asset
coverage of such borrowings shall be at least 300%. This borrowing
provision is included for temporary liquidity or emergency purposes.
All borrowings in excess of 5% of the value of a Fund's total
assets will be repaid before making additional investments and any
interest paid on such borrowings will reduce income.
4. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed
10% of total assets taken at current value at the time of the
incurrence of such loan, except as permitted with respect to securities
lending.
5. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodities contracts;
provided that this shall not prevent a Fund from investing in readily
marketable securities of issuers which own or invest in real estate, or
commodities or commodities contracts; and provided that the
International Growth Fund can invest in futures contracts, commodities
and commodities contracts.
6. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term
credits as necessary for the clearance of security transactions.
7. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a Fund security.
8. Purchase securities of other investment companies except as
permitted by the Investment Company Act of 1940, as amended (the
"1940 Act") and the rules and regulations thereunder. Under these
rules and regulations, as currently in effect, the Funds are
prohibited from acquiring the securities of other investment
companies if, as a result of such acquisition, the Funds own more than
3% of the total voting stock of the company; securities issued by
any one investment company represent more than 5% of the total
Funds assets; or securities (other than treasury stock) issued
by all investment companies represent more than 10% of the total
assets of the Funds. These investment companies typically incur
fees that are separate from those fees incurred directly by the
Fund. A Fund's purchase of such investment company securities
results in the layering of expenses, such that shareholders
would indirectly bear a proportionate share of the operating expenses
of such investment companies, including advisory fees.
9. Issue senior securities (as defined in the 1940 Act) except in
connection with permitted borrowings as described above or as permitted
by rule, regulation or order of the Securities and Exchange Commission.
10. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or any
investment advisor of the Trust owns beneficially more than 1/2 of 1%
of the shares or securities of such issuer and all such officers,
trustees, partners and directors owning
<PAGE>
more than 1/2 of 1% of such shares or securities together own more than
5% of such shares or securities.
Non-Fundamental Policies. The following investment policies are
non-fundamental policies which may be changed by the Board of Trustees
without shareholder approval.
No Fund may:
1. Invest in illiquid securities in an amount exceeding, in the aggregate,
15% (10% for money markets) of a Fund's total assets. An illiquid
security is a security which cannot be disposed of within seven days in
the usual course of business at approximately the price at which it is
being carried on a Fund's book, and includes repurchase agreements
maturing in more than seven days, time deposits with a withdrawal
penalty, non-negotiable instruments and instruments for which no market
exists.
2. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
3. Except for the International Growth Fund, write or purchase puts,
calls, options, warrants, or combinations thereof; except that (i) the
Tax-Exempt Money Market, New Jersey Municipal Securities and
Pennsylvania Municipal Securities Funds may purchase securities subject
to a put and (ii) the Equity Value, Equity Income, Mid Cap Value and
Balanced Growth Funds may purchase warrants.
The foregoing percentages will apply at the time of the purchase of a security.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and executive officers of the Trust and their principal occupations for
the last five years are set forth below.
JAMES B. GRECCO - Trustee - Date of Birth: 02/17/33 - President, Grecco
Auto Body Inc. (1986 - present); President , Grecco Auto Imports, Inc. (1970 -
present); President, Joyce Motor Corp. (1979 - present); President, Grecco Auto
Leasing Inc. (1964 - present); President, Grecco Lincoln Mercury Inc. (1964 -
present).
CHRISTINE H. YACKMAN - Trustee - Date of Birth: 12/30/61 - Executive and
Corporate Officer, Edgeboro Disposal, Inc. and Affliated Companies (1991 -
present); Officer Manager, Herbert Sand Co., Inc.(1981 - 1986)
ARTHUR L. BERMAN - Trustee - Date of Birth: 07/027/27 - President of
Bertek, Inc. (1972-1994)
RAYMOND KONRAD - Trustee - Date of Birth: 9/17/36 - Chairman and Chief
Executive Officer of American Compressed Gases, Inc. (1961 - present).
<PAGE>
ROBERT A. NESHER - Chairman of the Board of Trustees* - Date of Birth:
08/17/46 - Retired since 1994. Director, Executive Vice President of SEI
Corporation 1986-94. Director and Executive Vice President of the Administrator
and Distributor (1981-1994).
DAVID G. LEE - President, Chief Executive Officer - Date of Birth: 4/16/52 -
Senior Vice President of the Distributor since 1993. Vice President of the
Distributor since 1991. President, GW Sierra Trust Funds prior to 1991.
KEVIN P. ROBINS - Vice President, Assistant Secretary - Date of Birth: 4/15/61 -
Senior Vice President, General Counsel of the Administrator and the Distributor
since 1994. Vice President and Assistant Secretary of the Administrator and
Distributor 1992-94. Associate, Morgan, Lewis & Bockius LLP (law firm) prior to
1992.
KATHRYN L. STANTON - Vice President, Assistant Secretary - Date of Birth:
11/19/58 - Vice President and Assistant Secretary of the Administrator and
Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1989-94.
RICHARD W. GRANT - Secretary - Date of Birth: 10/25/45 - 2000 One Logan Square,
Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm),
Counsel to the Trust, Administrator and Distributor.
SANDRA K. ORLOW - Vice President, Assistant Secretary - Date of Birth: 7/12/65 -
Vice President and Assistant Secretary of the Administrator and Distributor
since 1983.
STEPHEN G. MEYER - CPA, Controller and Chief Financial Officer* - Date of Birth:
7/12/65 - SEI Corporation, Director- Internal Audit and Risk Management- SEI
Corporation- 1992 to March 1995; Coopers & Lybrand, Senior Associate- 1990-1992;
Vanguard Group of Investments, Internal Audit- Prior to 1990.
JOSEPH M. LYDON - Vice President, Assistant Secretary - Date if Birth: 9/27/59 -
Director of Business Administration of Fund Resources, SEI Corporation since
1995. Vice President of Fund Group and Vice President of the Adviser, Dreman
Value Management and President of Dreman Financial Services, Inc. prior to 1995.
TODD CIPPERMAN - Vice President, Assistant Secretary - Date of Birth: 2/14/66 -
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
- --------------------
* "Interested person" within the meaning of the 1940 Act.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for Trustees who are not affiliated
with the Administrator. During the period ended December 31, 1995, the Trust
paid approximately $19,250.00 in fees to the unaffiliated Trustees. Compensation
of officers and Trustees of the Trust affiliated with the Administrator is paid
by the Administrator.
- ---------------------------
* Mr. Nesher is a Trustee who may be deemed to be an "interested"
person of the Trust as the term is defined in the 1940 Act.
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Name of Person, Position Aggregate Pension or Estimated Annual Total Compensation
Compensation From Retirement Benefits Benefits Upon From Registrant and
Registrant(1) Accrued As Part of Retirement Fund Complex Paid to
Fund Expenses Trustees for the
Fiscal Year Ended
December 31, 1995 /1/ /2/
<S> <C> <C> <C> <C>
Arthur L. Berman Trustee $5,250.00 N/A N/A $5,250.00 for
services on 1 board
Thomas Ehrhart/3/ $3,500.00 N/A N/A $3,500.00 for
Trustee services on 1 board
Raymond Konrad, Trustee $7,000.00 N/A N/A $7,000.00 for
services on 1 board
Pasquale V. Mazzarulli/4/ $3,500.00 N/A N/A $3,500.00 for
Trustee services on 1 board
James B. Grecco N/A N/A N/A N/A
Trustee*
Christine H. Yackman N/A N/A N/A N/A
Trustee*
Robert A. Nesher $0 N/A N/A $0
Trustee**
</TABLE>
1 Amounts do not include travel expenses.
2 Mssrs. Konrad and Nesher are not on the Board of Trustees for any
other investment company in the "Fund Complex" (as that term
is defined in the Securities and Exchange Act of 1934, as amended).
3 Retired effective May 22, 1995.
4 Retired effective December 7, 1995.
* Trustee elected after the fiscal year ended December 31, 1995.
** A Director who is an "interested person" as defined in the Investment
Company Act of 1940, as amended.
THE ADVISOR
The Trust and United Jersey Investment Management Division, a division of United
Jersey Bank, (the "Advisor") have entered into an advisory agreement (the
"Advisory Agreement") dated February 28, 1992. The Advisory Agreement provides
that the Advisor shall not be protected against any liability to the Trust or
its shareholders by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
The Advisor will not be required to bear expenses of the Trust to an extent
which would result in a Fund's inability to qualify as a regulated investment
company under provisions of the Internal Revenue Code.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Funds by a majority of the outstanding shares of the Funds, on
not less than 30 days nor more than 60 days written notice to the Advisor, or by
the Advisor on 90 days written notice to the Trust.
<PAGE>
As compensation for its services to the Trust for the periods ended December 31,
1993 and December 31, 1994, the Advisor received fees of $3,435,520 and
$3,972,000 after waivers of $976,843 and $1,098,000 in fees, respectively.
For the fiscal year ended December 31, 1995, the Funds paid the following
advisory fees:
<TABLE>
<CAPTION>
Fund Fees Paid (000) Fee Waivers (000)
1995 1995
<S> <C> <C>
U.S. Treasury Securities Money Market $1,379,851.47 $11,366.64
Fund
Prime Obligation Money Market Fund $775,370.30 $11,245.37
Tax-Exempt Money Market Fund $169,810.03 $28,361.70
Short-Term Investment Fund $136,320.55 $53,136.74
Fixed Income Fund $549,171.71 $116,571.88
New Jersey Municipal Securities Fund $68,649.20 $214,460.18
Pennsylvania Municipal Securities Fund $0.00 $18,779.15
Intermediate-Term Government $112,419.25 $77,884.28
Securities Fund
GNMA Fund $25,325.25 $30,565.16
Equity Value Fund $367,084.20 $208,115.23
Equity Income Fund $208,394.28 $135,831.09
Mid Cap Value Fund $191,284.62 $129,855.76
Balanced Growth Fund $166,656.67 $115,293.71
International Growth Fund $15,494.38 $25,007.40
U.S. Treasury Securities Plus Money $43,958.44 $41,490.09
Market Fund
</TABLE>
THE SUB-ADVISOR
The Advisor and Wellington Management Company which acts as investment
sub-advisor to the International Growth Fund (the "Sub-Advisor") have entered
into a sub-advisory agreement (the "Sub-Advisory Agreement"). The Sub-Advisory
Agreement provides that the Sub-Advisor shall not be protected against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
<PAGE>
The continuance of the Sub-Advisory Agreement, after 2 years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Sub-Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Fund by a majority of the outstanding shares of the Funds, on not
less than 30 days nor more than 60 days written notice to the Sub-Advisor, or by
the Sub-Advisor on 90 days written notice to the Trust.
For the fiscal year ended December 31, 1995, the Sub-Advisor received the
following fee from the Advisor:
<TABLE>
<CAPTION>
Fund Fees Paid (000) Fee Waivers (000)
<S> <C> <C>
International Growth Fund $12,150.99 $12,150.99
</TABLE>
THE ADMINISTRATOR
The Trust and SEI Financial Management Corporation (the "Administrator") are
parties to an Administration Agreement dated February 28, 1992. The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of five years after
the date of the Agreement and shall continue in effect for successive periods of
two years subject to review at least annually by the Trustees of the Trust
unless terminated by either party on not less than ninety days written notice to
the other party.
The Administrator, a wholly owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, PA 19087-1658. Alfred P. West, Jr.,
Henry H. Greer and Carmen V. Romeo constitute the Board of Directors of the
Administrator. Mr. West is the Chairman of the Board and Chief Executive Officer
of the Administrator and of SEI. Mr. Greer is the President and Chief Operating
Officer of the Administrator and of SEI. SEI and its subsidiaries are leading
providers of funds evaluation services, trust accounting systems, and brokerage
and information services to financial institutions, institutional investors and
money managers. The Administrator also serves as administrator to the following
other mutual funds: The Achievement Funds Trust, The Advisors' Inner Circle
Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, Conestoga Family of Funds,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, First American Funds, Inc., First
American Investment Funds, Inc., Insurance Investment Products Trust, Inventor
Funds, Inc., Marquis Funds(R), Monitor Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., Rembrandt Funds(R), 1784 Funds, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI International
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI
Classic Funds and STI Classic Variable Trust.
As compensation for its services to the Trust during the periods ended December
31, 1993 and December 31, 1994, the Administrator received fees of $1,965,634
and $2,229,000, respectively.
For the fiscal year ended December 31, 1995, the Funds paid the following
administrative fees:
<TABLE>
<CAPTION>
Fund Fees Paid (000) Fee Waivers (000)
1995 1995
<S> <C> <C>
U.S. Treasury Securities Money Market $794,951.46 N/A
Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Prime Obligation Money Market Fund $449,500.26 N/A
Tax-Exempt Money Market Fund $112,391.00 N/A
Short-Term Investment Fund $63,152.82 N/A
Fixed Income Fund $221,916.00 N/A
New Jersey Municipal Securities Fund $56,645.11 $33,586.56
Pennsylvania Municipal Securities Fund $0.00 $5,076.44
Intermediate-Term Government $63,435.01 N/A
Securities Fund
GNMA Fund $18,630.29 N/A
Equity Value Fund $153,388.07 N/A
Equity Income Fund $91,794.46 N/A
Mid Cap Value Fund $85,638.43 N/A
Balanced Growth Fund $75,187.52 N/A
International Growth Fund $8,100.35 N/A
U.S. Treasury Securities Plus Money $199,380.52 N/A
Market Fund
</TABLE>
FUND TRANSACTIONS
GENERAL
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Advisor and/or Sub-Advisor is responsible for
placing the orders to execute transactions for the Fund. In placing orders, it
is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities, and the firm's risk in positioning the
securities involved. While the Advisor and/or Sub-Advisor generally seeks
reasonably competitive spreads or commissions, the Trust will not necessarily be
paying the lowest spread or commission available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Advisor
and/or Sub-Advisor will deal directly with the dealers who make a market in the
securities involved
<PAGE>
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will primarily consist of dealer spreads
and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Advisor and/or Sub-Advisor selects brokers or dealers to execute
transactions for the purchase or sale of portfolio securities on the basis of
its judgment of their professional capability to provide the service. The
primary consideration is to have brokers or dealers execute transactions at best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. The Advisor's and/or Sub-Advisor's determination
of what are reasonably competitive rates is based upon the professional
knowledge of the Advisor's and/or Sub-Advisor's trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty.
As described above, bonds, debentures and money market securities are bought and
sold directly with a dealer without payment of a brokerage commission. In these
instances, while there is no direct commission charged, there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission.
The Advisor and/or Sub-Advisor may allocate, out of all commission business
generated by all of the funds and accounts under management by the Advisor
and/or Sub-Advisor, brokerage business to brokers or dealers who provide
brokerage and research services. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends, assisting in determining portfolio
strategy, providing computer software used in security analyses, and providing
portfolio performance evaluation and technical market analyses. Such services
are used by the Advisor and/or Sub-Advisor in connection with its investment
decision-making process with respect to one or more funds and accounts managed
by it, and may not be used exclusively with respect to the fund or account
generating the brokerage.
As provided in the Securities Exchange Act of 1934, higher commissions may be
paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Trust believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker/dealers who
provide daily portfolio pricing services to the Trust or who have agreed to
defray other Trust expenses such as custodian fees. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
<PAGE>
For the fiscal year ended December 31, 1995, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
<TABLE>
<CAPTION>
Fund Total Dollar Amount of Total Dollar Amount of % of Directed
Brokerage Commissions for Transactions Involving Brokerage to Total
Research Services Directed Brokerage Brokerage
Commissions for Research
Services
<S> <C> <C> <C>
U.S. Treasury Securities N/A N/A N/A
Money Market Fund
Prime Obligation Money Market N/A N/A N/A
Fund
Tax-Exempt Money Market Fund N/A N/A N/A
Short-Term Investment Fund N/A N/A N/A
Fixed Income Fund N/A N/A N/A
New Jersey Municipal N/A N/A N/A
Securities Fund
Pennsylvania Municipal N/A N/A N/A
Securities Fund
Intermediate-Term Government N/A N/A N/A
Securities Fund
GNMA Fund N/A N/A N/A
Equity Value Fund $210,168.60 $210,168.60 100%
Equity Income Fund $ 96,145.98 $ 96,145.98 100%
Mid Cap Value Fund $ 83,235.92 $ 82,235.92 100%
Balanced Growth Fund $ 35,559.65 $ 35,559.65 100%
International Growth Fund $0 $0 N/A
U.S. Treasury Securities Plus N/A N/A N/A
Money Market Fund
</TABLE>
<PAGE>
The Advisor and/or Sub-Advisor may place a combined order for two or more
accounts or funds engaged in the purchase or sale of the same security if, in
its judgment, joint execution is in the best interest of each participant and
will result in best price and execution. Transactions involving commingled
orders are allocated in a manner deemed equitable to each account or fund. It is
believed that the ability of the accounts to participate in volume transactions
will generally be beneficial to the accounts and funds. Although it is
recognized that, in some cases, the joint execution of orders could adversely
affect the price or volume of the security that a particular account or trust
may obtain, it is the opinion of the Advisor and/or Sub-Advisor and the Trust's
Board of Directors that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
Advisor and/or Sub-Advisor may, at the request of the SEI Financial Services
Company ("SFS" or the "Distributor"), give consideration to sales of shares of
the Trust as a factor in the selection of brokers and dealers to execute Trust
portfolio transactions.
It is expected that the Trust may execute brokerage or other agency transactions
through the Distributor or Summit Discount Brokerage Co. (formerly UJB Discount
Brokerage), an affiliate of the Advisor, both of which are registered
broker-dealers, for a commission in conformity with the 1940 Act, the Securities
Exchange Act of 1934, as amended, and rules promulgated by the Securities and
Exchange Commission (the "SEC"). Under these provisions, the Distributor or
Summit Discount Brokerage Co. is permitted to receive and retain compensation
for effecting portfolio transactions for the Trust on an exchange if a written
contract is in effect between the Distributor and the Trust expressly permitting
the Distributor or Summit Discount Brokerage Co., to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by the Trust for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other renumeration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
For the fiscal year ended December 31, 1993, the Funds paid the following
brokerage commissions:
<TABLE>
<CAPTION>
Fund Total Brokerage Commissions Amount Paid to the Distributor
<S> <C> <C>
U.S. Treasury Securities Money Market N/A N/A
Fund
Prime Obligation Money Market Fund N/A N/A
Tax-Exempt Money Market Fund N/A N/A
Short-Term Investment Fund N/A N/A
Fixed Income Fund N/A N/A
New Jersey Municipal Securities Fund N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Total Brokerage Commissions Amount Paid to the Distributor
<S> <C> <C>
Pennsylvania Municipal Securities Fund N/A N/A
Intermediate-Term Government N/A N/A
Securities Fund
GNMA Fund N/A N/A
Equity Value Fund $285,799.00 $22,650.00
Equity Income Fund $207,206.00 $50,950.00
Mid Cap Value Fund $19,670.00 $1840.00
Balanced Growth Fund $71,308.00 $24,689.00
U.S. Treasury Securities Plus Money N/A N/A
Market Fund
</TABLE>
The International Growth Fund had not commenced operations as of December 31,
1993.
For the fiscal year ended December 31, 1994, the Funds paid the following
brokerage commissions:
<TABLE>
<CAPTION>
Fund Total Brokerage Commissions Amount Paid to the Distributor
<S> <C> <C>
U.S. Treasury Securities Money Market N/A N/A
Fund
Prime Obligation Money Market Fund N/A N/A
Tax-Exempt Money Market Fund N/A N/A
Short-Term Investment Fund N/A N/A
Fixed Income Fund N/A N/A
New Jersey Municipal Securities Fund N/A N/A
Pennsylvania Municipal Securities Fund N/A N/A
Intermediate-Term Government N/A N/A
Securities Fund
GNMA Fund N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Total Brokerage Commissions Amount Paid to the Distributor
<S> <C> <C>
Equity Value Fund $120,600.00 $46,550.00
Equity Income Fund $87,892.00 $10,080.00
Mid Cap Value Fund $46,214.00 $7,050.00
Balanced Growth Fund $32,932.00 $13,000.00
U.S. Treasury Securities Plus Money N/A N/A
Market Fund
</TABLE>
The International Growth Fund had not commenced operations as of December 31,
1994.
For the fiscal year ended December 31, 1995, the Funds paid the following
brokerage commissions:
<TABLE>
<CAPTION>
Fund Total Brokerage Amount Paid to % of Aggregate % of Aggregate
Commissions the Distributor Brokerage Dollar Amount of
Commissions Paid Transactions
to the Distributor Involving Payment
of Commissions
<S> <C> <C> <C> <C>
U.S. Treasury Securities Money N/A N/A N/A N/A
Market Fund
Prime Obligation Money Market N/A N/A N/A N/A
Fund
Tax-Exempt Money Market Fund N/A N/A N/A N/A
Short-Term Investment Fund N/A N/A N/A N/A
Fixed Income Fund N/A N/A N/A N/A
New Jersey Municipal N/A N/A N/A N/A
Securities Fund
Pennsylvania Municipal N/A N/A N/A N/A
Securities Fund
Intermediate-Term Government N/A N/A N/A N/A1
Securities Fund
GNMA Fund N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Total Brokerage Amount Paid to % of Aggregate % of Aggregate
Commissions the Distributor Brokerage Dollar Amount of
Commissions Paid Transactions
to the Distributor Involving Payment
of Commissions
<S> <C> <C> <C> <C>
Equity Value Fund $210,168.60 $13,100.00 6.23% 0.27%
Equity Income Fund $96,145.98 $750.00 0.78% 0.26%
Mid Cap Value Fund $83,235.92 $660.00 0.79% 0.40%
Balanced Growth Fund $35,559.65 $180.00 0.51% 0.26%
International Growth Fund $44,707.48 N/A N/A N/A
U.S. Treasury Securities Plus N/A N/A N/A N/A
Money Market Fund
</TABLE>
"Regular brokers or dealers" of the Trust are the ten brokers or dealers that,
during the most recent fiscal year, (i) received the greatest dollar amounts of
brokerage commissions from the Trust's portfolio transactions, (ii) engaged as
principal in the largest dollar amounts of portfolio transactions of the Trust,
or (iii) sold the largest dollar amount of the Trust's shares. At December 31,
1995, the following Funds held securities of the Trust's "regular brokers or
dealers" as follows: the Prime Obligation Money Market Fund held $53,999,748 in
repurchase agreements with Nomura Securities and $4,985,650 in commercial paper
with Merrill Lynch and the U.S. Treasury Securities Plus Money Market Fund held
$14,034,851 in repurchase agreements with Nomura Securities and $13,336,166 in
repurchase agreements with Lehman Brothers.
THE DISTRIBUTOR AND THE DISTRIBUTION PLANS
SEI Financial Services Company, a wholly owned subsidiary of SEI, and the Trust
are parties to a distribution agreement ("Distribution Agreement") dated
February 28, 1992 which applies to all classes of shares of the Funds.
The Distributor receives no compensation for distribution of Class A shares.
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the Qualified Trustees, or by a majority vote of the outstanding
securities of the Trust upon not more than 60 days written notice by either
party. "Qualified Trustees" are Trustees of the Trust who are not interested
persons and have no financial interest in the Agreement or any related agreement
or plan.
The Distribution Plan adopted by the U.S. Treasury Securities Plus Money Market
Fund shareholders (the "Distribution Plan") provides that the Trust will pay the
Distributor a fee of up to .03% of the Portfolio's average daily net assets
which the Distributor can use to compensate broker/dealers and service
providers, including United Jersey Bank and its affiliates, which provide
distribution related services to shareholders or their customers who
beneficially own Shares of the Fund.
<PAGE>
The Class B Distribution Plan adopted by the Class B shareholders (the "Class B
Distribution Plan") provides that the Trust will pay the Distributor a fee of up
to .25% of the Class B Portfolio's average daily net assets which the
Distributor can use to compensate broker/dealers and service providers,
including United Jersey Bank and its affiliates, which provide distribution
related services to Class B shareholders or their customers who beneficially own
Class B Shares.
Services under each of the Plans may include establishing and maintaining
customer accounts and records; aggregating and processing purchase and
redemption requests from customers; placing net purchase and redemption orders
with the Distributor; automatically investing customer account cash balances;
providing periodic statements to customers; arranging for wires; answering
customer inquiries concerning their investments; assisting customers in changing
dividend options, account designations, and addresses; performing sub-accounting
functions; processing dividend payments from the Trust on behalf of customers;
and forwarding shareholder communications from the Trust (such as proxies,
shareholder reports, and dividend distribution, and tax notices) to these
customers with respect to investments in the Trust. Certain state securities
laws may require those financial institutions providing such distribution
services to register as dealers pursuant to state law.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Trust, according to an opinion issued
to the staff of the SEC by the Office of the Comptroller of the Currency,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as providing shareholder services. Should future
legislative, judicial or administrative action prohibit or restrict the
activities of financial institutions in connection with providing shareholder
services, the Trust may be required to alter materially or discontinue its
arrangements with such financial institutions.
The Trust has adopted each Plan in accordance with the provisions of Rule 12b-1
under the 1940 Act which regulates circumstances under which an investment
company may directly or indirectly bear expenses relating to the distribution of
its shares.
Continuance of each Plan must be approved annually by a majority of the Trustees
of the Trust and by a majority of the Qualified Trustees. Each Plan requires
that quarterly written reports of amounts spent under the respective Plan and
the purposes of such expenditures be furnished to and reviewed by the Trustees.
Neither Plan may be amended to increase materially the amount which may be spent
thereunder without approval by a majority of the outstanding shares of the
Trust. All material amendments of either Plan will require approval by a
majority of the Trustees of the Trust and of the Qualified Trustees.
The following Funds' Class B Shares charge a sales load:
<TABLE>
<CAPTION>
Fund Dollar Amount of Loads Dollar Amount of Loads Retained by SFS
1993 1994 1995 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities N/A N/A N/A N/A N/A N/A
Money Market Fund
Prime Obligation Money N/A N/A N/A N/A N/A N/A
Market Fund
Tax-Exempt Money Market Fund N/A N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Dollar Amount of Loads Dollar Amount of Loads Retained by SFS
1993 1994 1995 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Short-Term Investment Fund $281.57 $5,748.70 $15,341.80 $491.00 $0 $160.64
Fixed Income Fund $240,062.05 $62,111.02 $54,105.50 $8,592.00 $82.70 $2,112.70
New Jersey Municipal $167,152.55 $91,703.93 $75,388.24 $32,806.00 $0 $3,083.49
Securities Fund
Pennsylvania Municipal $2,926.92 $1,415.00 $560.31 $162.00 $1.08 $35.64
Securities Fund
Intermediate-Term Government $100,311.22 $35,942.48 $54,745.14 $9,992.00 $9.64 $1,768.23
Securities Fund
GNMA Fund $98,579.07 $20,343.61 $5,637.27 $2,689.00 $0 $285.51
Equity Value Fund $45,929.44 $33,476.10 $133,599.25 $5,302.00 $0 $4,977.99
Equity Income Fund $144,489.37 $92,897.04 $111,481.39 $5,411.00 $0 $4,040.13
Mid Cap Value Fund $68,670.21 $120,627.48 $46,672.58 $4,258.00 $103.04 $1,350.68
Balanced Growth Fund $210,257.61 $54,009.66 $54,483.83 $13,564.00 $0 $1,314.81
International Growth Fund N/A N/A $17,355.50 N/A N/A $673.21
U.S. Treasury Securities N/A N/A N/A $11,065.00 N/A N/A
Plus Money Market Fund
</TABLE>
<PAGE>
For the fiscal year ended December 31, 1995, the Funds incurred the following
distribution expenses:
<TABLE>
<CAPTION>
Fund Class Total Total Sales Printing Other Costs
Distribution Distribution Expenses Costs
Expenses Expenses as a
% of net
assets
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities B $4,143.84 .25% $4,143.84 N/A N/A
Money Market Fund
Prime Obligation Money B $11,007.81 .25% $11,007.81 N/A N/A
Market Fund
Tax-Exempt Money Market Fund B $10,524.47 .25% $10,524.47 N/A N/A
Short-Term Investment Fund B $3,044.66 .25% $3,044.66 N/A N/A
Fixed Income Fund B $13,626.60 .25% $13,626.60 N/A N/A
New Jersey Municipal B $57,652.67 .25% $57,652.67 N/A N/A
Securities Fund
Pennsylvania Municipal B $677.54 .25% $677.54 N/A N/A
Securities Fund
Intermediate-Term B $6,852.88 .25% $6,852.88 N/A N/A
Government Securities Fund
GNMA Fund B $4,378.57 .25% $4,378.57 N/A N/A
Equity Value Fund B $11,921.50 .25% $11,921.50 N/A N/A
Equity Income Fund B $17,865.66 .25% $17,865.66 N/A N/A
Mid Cap Value Fund B $13,001.27 .25% $13,001.27 N/A N/A
Balanced Growth Fund B $18,641.39 .25% $18,641.39 N/A N/A
International Growth Fund B $409.96 .25% $409.96 N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Class Total Total Sales Printing Other Costs
Distribution Distribution Expenses Costs
Expenses Expenses as a
% of net
assets
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities A $17,089.31 .03% $17,089.31 N/A N/A
Plus Money Market Fund
</TABLE>
During the period ended December 31, 1994, the Distributor received the
following amounts pursuant to the Class B Distribution Plan:
<TABLE>
<CAPTION>
Amount Received
Funds Distribution Fees Front-end Sales Load
<S> <C> <C>
U.S. Treasury Securities Money Market $1,866.00 N/A
Fund
Prime Obligation Money Market Fund $3,771.00 N/A
Tax-Exempt Money Market Fund $7,919.00 N/A
Short-Term Investment Fund $1,238.00 N/A
Fixed Income Fund $16,039.00 N/A
New Jersey Municipal Securities Fund $61,126.00 N/A
Pennsylvania Municipal Securities Fund $876.00 N/A
Intermediate-Term Government $8,878.00 N/A
Securities Fund
GNMA Fund $6,358.00 N/A
Equity Value Fund $7,636.00 N/A
Equity Income Fund $13,781.00 N/A
Mid Cap Value Fund $10,076.00 N/A
Balanced Growth Fund $19,710.00 N/A
International Growth Fund N/A N/A
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
U.S. Treasury Securities Plus Money $20,930.00 N/A
Market Fund
</TABLE>
During the period ended December 31, 1993, the Distributor received the
following amounts pursuant to the Class B Distribution Plan:
<TABLE>
<CAPTION>
Amount Received
Funds Distribution Fees Front-end Sales Load
<S> <C> <C>
U.S. Treasury Securities Money Market $2,255.00 N/A
Fund
Prime Obligation Money Market Fund $615.00 N/A
Tax-Exempt Money Market Fund $6,912.00 N/A
Short-Term Investment Fund $491.00 $281.51
Fixed Income Fund $8,592.00 $240,062.05
New Jersey Municipal Securities Fund $32,806.00 $167,152.55
Pennsylvania Municipal Securities Fund $162.00 $2,926.92
Intermediate-Term Government $9,992.00 $100,311.22
Securities Fund
GNMA Fund $2,689.00 $98,579.07
Equity Value Fund $5,302.00 $45,929.44
Equity Income Fund $5,411.00 $144,489.37
Mid Cap Value Fund $4,258.00 $68,670.21
Balanced Growth Fund $13,564.00 $210,251.61
International Growth Fund N/A N/A
U.S. Treasury Securities Plus Money 11,065.00 N/A
Market Fund
</TABLE>
PERFORMANCE
COMPUTATION OF YIELD
<PAGE>
Money Market Funds. From time to time the U.S. Treasury Securities Money Market,
U.S. Treasury Securities Plus Money Market, Prime Obligation Money Market and
Tax-Exempt Money Market Funds advertise their "current yield" and "effective
compound yield". Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of the Funds refers to the
income generated by an investment in a Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized".
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The current yield of the Funds will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective compound
yield of the Funds is determined by computing the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula: Effective Yield = (Base
Period Return + 1) 365/7) - 1. The current and the effective yields reflect the
reinvestment of net income earned daily on portfolio assets.
The Tax-Exempt Money Market Fund may also calculate its tax equivalent yield as
described under "Other Yields" below.
For the 7-day period ended December 31, 1995, the Money Market Funds' current,
effective and tax-equivalent yields were as follows:
<TABLE>
<CAPTION>
Fund Class Current Yield Effective Yield Tax-Equivalent
Yield
<S> <C> <C> <C> <C>
U.S. Treasury Securities Money Market A 4.72% 4.83% N/A
B 4.46% 4.56% N/A
Prime Obligation Money Market A 5.14% 5.27% N/A
B 4.97% 5.01% N/A
Tax-Exempt Money Market A 4.15% 4.24% 6.01%
B 3.90% 3.98% 5.65%
U.S. Treasury Securities Plus Money Market A 5.05% 5.18% N/A
</TABLE>
<PAGE>
Other Yields. The Short-Term Investment, Fixed Income, New Jersey Municipal
Securities, Pennsylvania Municipal Securities, Intermediate-Term Government
Securities, GNMA, Equity Value, Equity Income, Mid Cap Value, Balanced Growth
and International Growth Funds may advertise a 30 day yield. These figures will
be based on historical earnings and are not intended to indicate future
performance. The yield of these Funds refers to the annualized income generated
by an investment in the Funds over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during that
period generated each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated 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 reimbursement); c = the
current 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 tax equivalent yield for the Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds is computed by dividing
that portion of the Fund's yield which is tax-exempt by one minus a stated
federal and/or state income tax rate and adding the product to that portion, if
any, of the Fund's yield that is not tax-exempt. (Tax equivalent yields assume
the payment of federal income taxes at a rate of 31% and, if applicable, New
Jersey income taxes at a rate of 6.5% and Pennsylvania income taxes at a rate of
2.8%).
Yields are one basis upon which investors may compare the Funds with other
funds; however, yields of other funds and other investment vehicles may not be
comparable because of the factors set forth above and differences in the methods
used in valuing portfolio instruments.
The yield of these Funds fluctuates, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
For the 30-day period ended December 31, 1995 the yields on the Funds, other
than the Money Market Funds, were as follows:
<TABLE>
<CAPTION>
Fund Class Current Yield Tax Equivalent Yield
<S> <C> <C> <C>
Short-Term Investment A 5.10% N/A
B 4.80% N/A
Fixed Income A 5.12% N/A
B 4.67% N/A
New Jersey Municipal A 4.00% 6.40%
Securities B 3.71% 5.94%
Pennsylvania Municipal A 3.93% 5.94%
Securities B 3.63% 5.48%
Intermediate-Term Government A 4.95% N/A
Securities
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
B 4.51% N/A
GNMA A 5.79% N/A
B 5.37% N/A
Equity Value A 2.09% N/A
B 1.76% N/A
Equity Income A 2.44% N/A
B 2.10% N/A
Mid Cap Value A 1.14% N/A
B 0.86% N/A
Balanced Growth A 3.44% N/A
B 3.06% N/A
International Growth A N/A N/A
B N/A N/A
</TABLE>
CALCULATION OF TOTAL RETURN
From time to time, the Short-Term Investment, Fixed Income, New Jersey Municipal
Securities, Pennsylvania Municipal Securities, Intermediate-Term Government
Securities, GNMA, Equity Value, Equity Income, Mid Cap Value, Balanced Growth
and International Growth Funds may advertise total return on an "average annual
total return" basis and on an "aggregate total return" basis for various
periods. Average annual total return reflects the average annual percentage
change in the value of an investment in a Fund over the particular measuring
period. Aggregate total return reflects the cumulative percentage change in
value over the measuring period. Aggregate total return is computed according to
a formula prescribed by the SEC. The formula can be expressed as follows: P (1 +
T)/n/ = ERV, where P = a hypothetical initial payment of $1,000; T = average
annual total return; n = number of years; and ERV = ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the designated time period
as of the end of such period or the life of the fund. The formula for
calculating aggregate total return can be expressed as (ERV/P)-1.
The calculation of total return assumes reinvestment of all dividends and
capital gain distribution on the reinvestment dates during the period and that
the entire investment is redeemed at the end of the period. In addition the
maximum sales charge for each Fund is deducted from the initial $1000 payment.
Total return may also be shown without giving effect to any sales charges.
Based on the foregoing, the average total returns for the Funds from inception
through December 31, 1995 were as follows:
<PAGE>
<TABLE>
<CAPTION>
Fund Class Average Annual Total Return
One Year Five Ten Since
Year Year Inception*
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market A 5.05% ** ** 3.48%
B (no load) 4.80% ** ** 3.22%
B (load) N/A ** ** **
Prime Obligations Money Market A 5.40% ** ** 3.69%
B (no load) 5.14% ** ** 3.43%
B (load) N/A ** ** **
Tax-Exempt Money Market A 3.42% ** ** 2.54%
B (no load) 3.17% ** ** 2.28%
B (load) N/A ** ** **
Short-Term Investment A 6.19% ** ** 3.98%
B (no load) 6.13% ** ** 3.81%
B (load) 5.08% ** ** 3.53%
Fixed Income A 17.76% ** ** 8.13%
B (no load) 17.36% ** ** 7.85%
B (load) 12.70% ** ** 6.67%
New Jersey Municipal Securities A 13.57% ** ** 6.84%
B (no load) 13.30% ** ** 6.46%
B (load) 12.17% ** ** 6.17%
Pennsylvania Municipal Securities A 11.53% ** ** 4.68%
B (no load) 11.15% ** ** 4.49%
B (load) 10.00% ** ** 4.10%
Intermediate-Term Government Securities A 15.00% ** ** 6.26%
B (no load) 14.71% ** ** 6.00%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
B (load) 10.08 ** ** 4.84%
GNMA A 19.52% ** ** 5.73%
B (no load) 19.24% ** ** 5.37%
B (load) 15.71% ** ** 4.17%
Equity Value A 36.71% ** ** 10.96%
B (no load) 36.35% ** ** 10.70%
B (load) 30.84% ** ** 9.50%
Equity Income A 35.55% ** ** 12.68%
B (no load) 35.21% ** ** 12.41%
B (load) 29.78% ** ** 11.18%
Mid Cap Value A 19.49% ** ** 8.49%
B (no load) 19.13% ** ** 8.21%
B (load) 14.37% ** ** 7.03%
Balanced Growth A 27.76% ** ** 9.36%
B (no load) 27.53% ** ** 9.08%
B (load) 22.47% ** ** 7.89%
International Growth A N/A ** ** 7.81%
B (no load) N/A ** ** 7.64%
B (load) N/A ** ** 3.30%
U.S. Treasury Securities Plus Money A 5.40% ** ** 4.04%
Market
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
B (no load) N/A N/A N/A N/A
B (load) N/A N/A N/A N/A
</TABLE>
* April 1, 1992 except for the New Jersey Municipal Securities Fund, which
commenced operations on May 4, 1992. The Pennsylvania Municipal Securities-Class
A and GNMA-Class A Funds commenced operations on May 3, 1993. The Pennsylvania
Municipal Securities-Class B and GNMA-Class B Funds commenced operations on May
13, 1993 and May 5, 1993, respectively. The International Growth-Class A and
International Growth-Class B Funds commenced operation as of May 1, 1995 and May
4, 1995, respectively.
** Not in operation during period.
The Funds' performance may from time to time be compared to other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services) or
financial and business publications and periodicals, broad groups of comparable
mutual funds, unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs or
to other investment alternatives. The Funds may quote Morningstar, Inc., a
service that ranks mutual funds on the basis of risk-adjusted performance. The
Funds may quote Ibbotson Associates of Chicago, Illinois, which provides
historical returns of the capitals markets in the U.S. The Funds may use long
term performance of these capital markets to demonstrate general long-term risk
vs. reward scenarios and could include the value of a hypothetical investment in
any of the capital markets. The Funds may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for each Fund's redemptions in cash.
The Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of securities held by
the Funds in lieu of cash. Shareholders may incur brokerage charges on the sale
of any such securities so received in payment of redemptions. However, a
shareholder will at all times be entitled to aggregate cash redemptions from all
Funds of the Trust during any 90-day period of up to the lesser of $250,000 or
1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of
disposal or valuation of the Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of a Fund for any period during
which the New York Stock Exchange, the Advisor and/or Sub-Advisor, the
Administrator and/or the Custodian are not open for business.
<PAGE>
SHAREHOLDER SERVICES
The following is a description of plans and privileges by which the sale charges
imposed on the Class B shares of the Short-Term Investment, Fixed Income, New
Jersey Municipal Securities, Pennsylvania Municipal Securities,
Intermediate-Term Government Securities, GNMA, Equity Value, Equity Income, Mid
Cap Value, Balanced Growth and International Growth Funds may be reduced.
Right of Accumulation: A shareholder qualifies for cumulative quantity discounts
when his or her new investment, together with the previous net purchases of that
shareholder in the Funds reaches a discount level. See "Purchase and Redemption
of Shares" in the Prospectuses for the sales charge on quantity purchases.
Letter Of Intent: The reduced sales charges are also applicable to the aggregate
amount of purchases made by any such purchaser previously enumerated within a
13-month period pursuant to a written Letter of Intent provided by the
Distributor, and not legally binding on the signer or a Fund which provides for
the holding in escrow by the Administrator of 5% of the total amount intended to
be purchased until such purchase is completed within the 13-month period. A
Letter of Intent may be dated to include shares purchased up to 90 days prior to
the date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, the
Administrator will surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference.
Distribution Investment Option: Distributions of dividends and capital gains
made by the Funds may be automatically invested in shares of one of the Funds if
shares of the Funds are available for sale. Such investments will be subject to
initial investment minimums, as well as additional purchase minimums. A
shareholder considering the Distribution Investment Option should obtain and
read the prospectus of the other Funds and consider the differences in
objectives and policies before making any investment.
Reinstatement Privilege: A shareholder who has redeemed his or her shares of any
of the Funds has a one-time right to reinvest the redemption proceeds in shares
of any of the Funds at their net asset value as of the time of reinvestment.
Such a reinvestment must be made within 30 days of the redemption and is limited
to the amount of the redemption proceeds. Although redemptions and repurchases
of shares are taxable events, a reinvestment within such 30-day period in the
same fund is considered a "wash sale" and results in the inability to recognize
currently all or a portion of a loss realized on the original redemption for
Federal income tax purposes. The investor must notify the Transfer Agent at the
time the trade is placed that the transaction is a reinvestment.
Exchange Privilege: Subject to the restrictions set forth below, some or all of
the shares of the Short-Term Investment, Fixed Income, New Jersey Municipal
Securities, Pennsylvania Municipal Securities, Intermediate-Term Government
Securities, GNMA, Equity Value, Equity Income, Mid Cap Value, Balanced Growth
and International Growth Funds for which good payment has been received (i.e.,
an established account) may be exchanged for shares of other Funds of the Trust
with similar or lower sales loads or for shares of the Trust's Funds which do
not have a sales load, at their net asset value. In addition, subject to the
restrictions set forth below, some or all of the shares of the U.S. Treasury
Securities Money Market, Prime Obligation Money Market and Tax Exempt Money
Market Funds for which good payment has been received may be exchanged for
shares, at their net asset value, plus any applicable sales charge, of other
Funds within the Trust with sales loads or at their net asset value for shares
of other Funds within the Trust which do not have sales loads. Exchanges will be
made only after instructions in writing or by telephone (an "Exchange Request")
are received for an established account by the Distributor.
A shareholder may exchange the shares of these Funds, for which good payment has
been received, in his or her account at any time, regardless of how long he has
held his or her shares.
<PAGE>
Each Exchange Request must be in proper form (i.e., if in writing, signed by the
record owner(s) exactly as the shares are registered; if by telephone-proper
account identification is given by the dealer or shareholder of record), and
each exchange must involve either shares having an aggregate value of at least
$1,000 or all the shares in the account. Each exchange involves the redemption
of the shares of a Fund to be exchanged and the purchase at net asset value
(i.e., without a sales charge) of the shares of the other Funds. Any gain or
loss on the redemption of the shares exchanged is reportable on the
shareholder's federal income tax return, unless such shares were held in a
tax-deferred retirement plan or other tax-exempt account. If the Exchange
Request is received by the Distributor in writing or by telephone on any
business day prior to the close of the New York Stock Exchange, the exchange
usually will occur on that day if all the restrictions set forth above have been
complied with at that time. However, payment of the redemption proceeds by the
Funds, and thus the purchase of shares of the other Funds, may be delayed for up
to seven days if the Funds determine that such delay would be in the best
interest of all of its shareholders. Investment dealers which have satisfied
criteria established by the Funds may also communicate a shareholder's Exchange
Request to the Funds subject to the restrictions set forth above. No more than
five exchange requests may be made in any one telephone Exchange Request.
Stop-Payment Requests: Investors may request a stop payment on checks by
providing the Trust with a written authorization to do so. Oral requests will be
accepted provided that the Trust promptly receives a written authorization. Such
requests will remain in effect for six months unless renewed or canceled. The
Trust will use its best efforts to effect stop-payment instructions, but does
not promise or guarantee that such instructions will be effective. Shareholders
requesting stop payment will be charged a $20 service fee per check which will
be deducted from their accounts.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Money Market Funds is calculated by adding
the value of securities and other assets, subtracting liabilities and dividing
by the number of outstanding shares. Securities will be valued by the amortized
cost method which involves valuing a security at its cost on the date of
purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price a Fund would receive if it sold the instrument. During
periods of declining interest rates, the daily yield of a Fund may tend to be
higher than a like computation made by a company with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio securities. Thus, if the use of amortized cost
by a Fund resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in that Fund would be able to obtain a somewhat higher
yield than would result from investment in a company utilizing solely market
values, and existing investors in the Fund would experience a lower yield. The
converse would apply in a period of rising interest rates.
The Funds' use of amortized cost and the maintenance of each Fund's net asset
value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the
1940 Act, provided that certain conditions are met. The regulations also require
the Trustees to establish procedures which are reasonably designed to stabilize
the net asset value per share at $1.00 for the Funds. Such procedures include
the determination of the extent of deviation, if any, of the Funds current net
asset value per share calculated using available market quotations from the
Funds amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews of
the amount of the deviation and the methods used to calculate such deviation. In
the event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the Trustees
believe that the extent of any deviation may
<PAGE>
result in material dilution or other unfair results to shareholders, the
Trustees are required to take such corrective action as they deem appropriate to
eliminate or reduce such dilution or unfair results to the extent reasonably
practicable. Such actions may include the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; or establishing a net
asset value per share by using available market quotations. In addition, if the
Funds incur a significant loss or liability, the Trustees have the authority to
reduce pro rata the number of shares of the Funds in each shareholder's account
and to offset each shareholder's pro rata portion of such loss or liability from
the shareholder's accrued but unpaid dividends or from future dividends while
each other Fund must annually distribute at least 90% of its investment company
taxable income.
The securities of the Income, Equity, Balanced Growth and International Growth
Funds are valued by the Administrator. The Administrator may use an independent
pricing service to obtain valuations of securities. The pricing service relies
primarily on prices of actual market transactions as well as trader quotations.
However, the service may also use a matrix system to determine valuations of
fixed income securities, which system considers such factors as security prices,
yields, maturities, call features, ratings and developments relating to specific
securities in arriving at valuations. The procedures of the pricing service and
its valuations are reviewed by the officers of the Trust under the general
supervision of the Trustees. Although the methodology and procedures are
identical, the net asset value per share of Class A and Class B shares of these
Funds may differ because of the distribution expenses charged to Class B shares.
A pricing service values portfolio securities which are primarily traded on
a domestic exchange at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. A Fund security that is
primarily traded on a foreign securities exchange is generally valued at its
preceding closing value on the exchange, provided that if an event occurs after
the security is so valued that is likely to have changed its value, then the
fair value of those securities will be determined through consideration of other
factors by or under the direction of the Board of Trustees. A security that is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
Certain of the securities acquired by a Fund may be traded on foreign exchanges
or over-the-counter markets on days on which the Fund's net asset value is
calculated. In such cases, the net asset value of the Fund's shares may be
significantly affected on days when investors can neither purchase nor redeem
shares of the Fund.
GENERAL INFORMATION AND HISTORY
THE TRUST
The Trust is an open-end management investment company established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated September 9, 1991. The Declaration of Trust permits the Trust to offer
separate series of units of beneficial interest ("shares") and different classes
of shares of each series. This Statement of Additional Information relates to
the shares of the Trust's U.S. Treasury Securities Plus Money Market Fund and to
the Class A and Class B shares of the Trust's U.S. Treasury Securities Money
Market, Prime Obligation Money Market, Tax-Exempt Money Market (together, the
"Money Market Funds"), Short-Term Investment, Fixed Income, New Jersey Municipal
Securities, Pennsylvania Municipal Securities, Intermediate-Term Government
Securities, GNMA (together, the "Income Funds"), Equity Value, Equity Income,
Mid Cap Value, International Growth (together, the "Equity Funds") and Balanced
Growth Funds (collectively, the "Funds"). Shareholders may purchase shares of
each Fund (except the U.S. Treasury Securities Plus Money Market Fund) through
two separate classes (Class A and Class B) which provide for variations in
distribution and transfer agent costs, voting rights and dividends. In addition,
a sales load is imposed on the sale of Class B shares of certain of the Funds.
Except for differences between Class A and Class B shares pertaining to
distribution and transfer agent costs, each share of each Fund represents an
equal proportionate interest in that Fund. See "Description of Shares".
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds each of which represents an equal proportionate interest in
that Fund with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the Funds; shareholders have no preemptive
rights. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares or classes of a series. All consideration
received by the Trust for shares of any additional series and all assets in
which such consideration is invested would belong to that series and would be
subject to the liabilities related thereto. Share certificates representing
shares will not be issued.
<PAGE>
The names and addresses of the holders of 5% or more of the outstanding
shares of any Fund as of February 1, 1996 and the percentage of outstanding
shares of such Fund held by such shareholders as of such date are, to Trust
Management's knowledge, as follows:
<TABLE>
<CAPTION>
Fund Name and Address Percent of
Beneficial Ownership
<S> <C> <C>
U.S. Treasury Securities
Money Market:
Class A Shares United Jersey Bank 99.99%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Class B Shares Investment Corp. 12.80%
545 Eight Ave., Suite 401
New York, NY 10018-4307
Bak A. Lum 6.73%
Employees Pension Plan
Harvey B. Fine Trustees
P.O. Box 1634
Linden, NJ 07038
Newark Beth Israel Medical Center 11.84%
201 Lyons Ave.
Newark, NJ 07112
Eugene W. Binkowski & Harriet 23.68%
Binkowshi JTTN
194 Wheaton Pl.
Rutherford, NJ 07070
Josef A. Weitzmann Fiedler 7.11%
UJB Central c/o Insurance Services
Group
30 Nassau St.
Princeton, NJ 08542-4522
First Presbyterian Pre-School 8.14%
& Kindergarten
c/o Sandra Kurth
12 Standish Court
Tenafly, NJ 07670
Prime Obligation
Money Market:
Class A Shares United Jersey Bank 99.30%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Name and Address Percent of
Beneficial Ownership
<S> <C> <C>
Class B Shares Medical Brokers, Inc. 11.12%
Two Princess Road
Lawrenceville, NJ 08648
Tax-Exempt Money Market:
Class A Shares United Jersey Bank 98.76%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Class B Shares Albert Kleinman 8.51%
153 Charlotte Pl.
Englewood Cliffs, NJ 07632
Arthur Shlossman 5.89%
16 Arden Place
Summitt, NJ 07901
Phoebe T. Biddle 5.74%
360 Rosedale Road
Princeton, NJ 08540
P.K Sharma & 15.90%
Sarika Sharma JTTN
28 Laurie Drive
Englewood Cliffs, NJ 07832
Ignazio Cangialosi 7.61%
417 Saddle Bank Trail
Franklin Lakes, NJ 07417
Short-Term Investment: 13.15%
Class A Shares United Jersey Bank
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ
United Jersey Bank 76.61%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Class B Shares Albert S. Bendelac 9.96%
370 S. Stanworth Dr.
Princeton, NJ 08540
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Name and Address Percent of
Beneficial Ownership
<S> <C> <C>
Yuet K. Chan-Li & 15.41%
Bun Kai Chan JTTN
11 Elsworth Drive
Robbinsville, NJ 08691
Young I. Chung 6.75%
8 Lenape Ln.
Princeton Junction, NJ 08550
Val L. Fitch 5.71%
292 Hartley Ave.
Princeton, NJ 08540
Fixed Income:
Class A Shares United Jersey Bank 86.04%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
New Jersey Municipal
Securities:
Class A Shares United Jersey Bank 43.53%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Intermediate Term Government
Securities:
Class A Shares United Jersey Bank 71.67%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Equity Value:
Class A Shares United Jersey Bank 95.49%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Class B Shares Marta L. Branca
595 Ridgewood Avenue 6.15%
Glen Ridge, NJ 07028
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Name and Address Percent of
Beneficial Ownership
<S> <C> <C>
Equity Income:
Class A Shares United Jersey Bank 88.42%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Mid Cap Value Fund:
Class A Shares United Jersey Bank 94.51%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Balanced Growth:
Class A Shares United Jersey Bank 95.15%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Pennsylvania Municipal
Securities:
Class A Shares United Jersey Bank 95.42%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Class B Shares Margaret A. Wernett 35.17%
16 1/2 3rd Ave.
Lehighton, PA 18235
George A. Warner & 9.22%
D. Lorraine Warner JTTN
14 Shagbark Ct. W
Harleysville,PA 19438
Rose M. Lutinsky 7.89%
916 South Street
Freeland, PA 18224
James Dalsasso & 8.23%
Barbara N. Dalsasso JTTN
1934 Windsor Road
Bethlehem, PA 18017-3357
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fund Name and Address Percent of
Beneficial Ownership
<S> <C> <C>
Peter W. Petrocko 20.59%
508 12th Avenue
Bethlehem, PA 18018
GNMA:
Class A Shares United Jersey Bank 22.36%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
International Growth Fund:
Class A Shares United Jersey Bank 88.51%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602
Class B Shares P.K. Sharma 20.96%
28 Laurie r.
Englewood Cliffs, NJ 07632-2222
Shan Tao Tang 5.70%
3031 Edwin Ave. Apt. 2-A
Fort Lee, NJ 07024
U.S. Treasury Plus
Money Market:
Class A Shares Integrity Insurance Co. 5.44%
Dorinco Reinsurance
Attn: John J. Sullivan
49 E. Midland Ave.
Paramus, NJ 07652-2916
</TABLE>
Beneficial owners of 25% or more of a Fund may be deemed a "controlling
person" of such Fund within the meaning of the 1940 Act.
The Trust believes that most of the shares referred to above held by United
Jersey Bank were held in accounts for its fiduciary, agency or custodial
customers.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the
<PAGE>
shareholders' incurring financial loss for that reason appears remote because
the Trust's Declaration of Trust contains an express disclaimer of shareholder
liability for obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisors, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' prospectuses. No attempt has been made to present a detailed
explanation of the tax treatment of the Funds or their shareholders and the
discussion here and in the Funds' prospectuses is not intended as a substitute
for careful tax planning.
FEDERAL INCOME TAX
All Funds. In order to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute annually to its shareholders
at least the sum of 90% of its net interest income excludable from gross income
plus 90% of its investment company taxable income (generally, net investment
income plus the excess, if any, of net short-term capital gain over net
long-term capital loss)(the "Distribution Requirement") and also must meet
several additional requirements. Among these requirements are the following:
(i) 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 stock or securities or foreign currencies,
or certain other income; (ii) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of stock, securities
or certain other assets held for less than three months; (iii) at the close of
each quarter of the Portfolio's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iv) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades of businesses.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Fund will be subject to
<PAGE>
a nondeductible 4% excise tax to the extent it fails to distribute by the end
of any calendar year 98% of its ordinary income for that year and 98% of its
capital gain net income for the one-year period ending on October 31 of that
year, plus certain other amounts. Each Fund intends to make sufficient
distributions prior to the end of each calendar year to avoid liability for
federal excise tax.
Any gain or loss recognized on a sale or redemption of Shares of a fund by a
shareholder who is not a dealer in securities generally will be treated as a
long-term capital gain or loss if the shares have been held for more than twelve
months and otherwise will be treated as a short-term capital gain or loss.
If shares on which a capital gain distribution has been received are
subsequently sold or redeemed and such shares have been held for six months or
less, any loss recognized will be treated as a long-term capital loss to the
extent of the capital gain distribution.
Distributions from the Funds generally will not be eligible for the dividends
received deduction available to corporate shareholders.
If for any taxable year a Fund does not qualify for the special tax treatment
afforded RICs, all of the taxable income of that Fund will be subject to federal
income tax at regular corporate rates (without any deduction for distributions
to Fund shareholders). In such event, all distributions made by the Fund
(whether or not derived from tax-exempt interest) would be taxable to
shareholders as dividends to the extent of the Fund's earnings and profits, and
such dividend distributions would be eligible for the dividends received
deduction available to corporate shareholders.
Additional Consideration for the International Growth, Short-Term Investment and
Fixed Income Funds. Dividends and interest received by a Fund may be subject to
income, withholding or other taxes imposed by foreign countries and United
States possessions that would reduce the yield on a Fund's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains to investments by foreign investors. If more than 50% of the value
of a Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, a Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
United States possessions income taxes paid by a Fund. Pursuant to an election,
a Fund will treat those taxes as dividends paid to its shareholders. Each
shareholder will be required to include a proportionate share of those taxes in
gross income as income received from a foreign source and must treat the amount
so included as if the shareholder had paid the foreign tax directly. The
shareholder may then either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculation the foreign tax credit (subject to significant
limitations) against the shareholder's federal income tax. If a Fund makes the
election, it will report annually to its shareholders the respective amounts per
share of the Fund's income from sources within, and taxes paid to, foreign
countries and United States possessions.
Additional Considerations for the Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds (the "Tax Exempt Funds").
As noted in the Prospectuses for the Tax-Exempt Money Market, New Jersey
Municipal Securities and Pennsylvania Municipal Securities Funds,
exempt-interest dividends are excludable from a shareholder's gross income for
regular federal income tax purposes. Exempt-interest dividends may nevertheless
be subject to the alternative minimum tax (the "Alternative Minimum Tax")
imposed by Section 55 of the Code or the environmental tax (the "Environmental
Tax") imposed by Section 59A of the Code. The Alternative Minimum Tax is imposed
at rates of 26% and 28% in the case of non-corporate taxpayers and at the rate
of 20% in the case of corporate taxpayers, to the extent it exceeds the
taxpayer's regular tax liability. The Environmental Tax is imposed at the rate
of 0.12% and applies only to corporate taxpayers.
<PAGE>
The Alternative Minimum Tax and the Environmental Tax may be imposed in two
circumstances. First, exempt-interest dividends derived from certain "private
activity bonds" issued after August 7, 1986, will generally be an item of tax
preference (and therefore potentially subject to the Alternative Minimum Tax and
the Environmental Tax) for both corporate and non-corporate taxpayers. Second,
in the case of exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum
taxable income for purposes of determining the Alternative Minimum Tax and the
Environmental Tax.
Any loss recognized by a shareholder upon the sale or redemption of shares of a
Tax Exempt Fund held for six months or less will be disallowed to the extent of
any exempt-interest dividends the shareholder has received with respect to such
shares. Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Tax Exempt Fund will not be deductible for federal income tax
purposes. The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter S
corporations may also be subject to taxes on their "passive investment income,"
which could include exempt-interest dividends. Up to 85% of the Social Security
benefits or railroad retirement benefits received by an individual during any
taxable year will be included in the gross income of such individual if the
individual's "modified adjusted gross income" (which includes exempt-interest
dividends) plus one-half of the Social Security benefits or railroad retirement
benefits received by such individual during that taxable year exceeds the base
amount described in Section 86 of the Code.
A Tax Exempt Fund may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or
persons related to such users) of facilities financed by industrial development
or private activity bonds. A "substantial user" is defined generally to include
certain persons who regularly use a facility in their trade or business. Such
entities or persons should consult their tax advisors before purchasing shares
of a Tax Exempt Fund.
Issuers of bonds purchased by a Tax Exempt Fund (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Investors should be aware
that exempt-interest dividends derived from such bonds may become subject to
federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
STATE TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Funds
to shareholders and the ownership of shares may be subject to state and local
taxes.
EXPERTS
The financial statements included in this Statement of Additional Information
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
<PAGE>
FINANCIAL STATEMENTS
Following are the Trust's audited financial statements and the notes thereto and
the Report of the Independent Public Accountants dated February 22, 1996 for the
fiscal year ended December 31, 1995, relating to the financial statements and
financial highlights of the Trust.
REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
To the Shareholders and Trustees of The Pillar Funds:
We have audited the accompanying statements of net assets of the U.S. Treasury
Securities Money Market, Prime Obligation Money Market, Tax-Exempt Money Market,
U. S. Treasury Securities Plus Money Market, Short-Term Investment, Fixed
Income, New Jersey Municipal Securities, Intermediate-Term Government
Securities, Pennsylvania Municipal Securities, GNMA, Equity Value, Equity
Income, Mid Cap Value, Balanced Growth, and International Growth Funds of the
Pillar Funds as of December 31, 1995, and the related statements of operations,
statements of changes in net assets, and financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
U.S. Treasury Securities Money Market, Prime Obligation Money Market, Tax-Exempt
Money Market, U. S. Treasury Securities Plus Money Market, Short-Term
Investment, Fixed Income, New Jersey Municipal Securities, Intermediate-Term
Government Securities, Pennsylvania Municipal Securities, GNMA, Equity Value,
Equity Income, Mid Cap Value, Balanced Growth, and International Growth Funds of
the Pillar Funds as of December 31, 1995, the results of their operations,
changes in their net assets and financial highlights for the periods presented,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
February 22, 1996
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
U.S. TREASURY SECURITIES
MONEY MARKET FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--95.7%
U.S. Treasury Bills
5.430%, 01/04/96 $ 5,000 $ 4,998
5.480%, 01/11/96 40,000 39,942
5.430%, 01/18/96 30,000 29,925
5.360%, 01/25/96 55,000 54,806
5.420%, 02/01/96 60,000 59,727
5.350%, 02/08/96 50,000 49,716
5.300%, 02/15/96 45,000 44,696
5.300%, 02/22/96 35,000 34,730
5.490%, 02/29/96 25,000 24,783
5.510%, 03/07/96 50,000 49,534
4.940%, 03/14/96 25,000 24,755
4.980%, 03/28/96 30,000 29,649
--------
Total U.S. Treasury Obligations
(Cost $447,261,060) 447,261
--------
CASH EQUIVALENT--4.7%
SEI Liquid Asset Trust-
Treasury Portfolio 21,853 21,853
--------
Total Cash Equivalent
(Cost $21,852,943) 21,853
--------
Total Investments--100.4%
(Cost $469,114,003) 469,114
--------
OTHER ASSETS AND LIABILITIES--(0.4%)
Other Assets and Liabilities, Net (2,051)
--------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
463,400,425 outstanding shares of
beneficial interest 463,400
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 3,531,344
outstanding shares of beneficial
interest 3,531
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C>
Accumulated net realized gain
on investments $ 132
--------
Total Net Assets--100.0% $467,063
========
Net Asset Value, Offering Price
and Redemption Price Per
Share--Class A $ 1.00
========
Net Asset Value, Offering Price
and Redemption Price Per
Share--Class B $ 1.00
========
PRIME OBLIGATION
MONEY MARKET FUND
U.S. GOVERNMENT AGENCY
OBLIGATIONS--34.7%
Federal Farm Credit Bank
5.660%, 02/01/96 $ 3,000 $ 3,000
5.630%, 03/01/96 4,000 4,000
5.320%, 04/01/96 3,000 3,000
5.700%, 04/01/96 5,000 5,000
5.400%, 05/14/96 1,500 1,470
Federal Home Loan Bank
5.550%, 01/22/96 5,000 4,984
5.710%, 01/24/96 5,000 5,000
5.480%, 02/08/96 4,000 3,977
5.450%, 02/20/96 3,000 2,977
5.530%, 03/15/96 6,400 6,329
5.810%, 05/16/96 10,000 10,000
5.840%, 10/03/96 5,000 5,000
5.880%, 10/24/96 5,000 5,000
5.900%, 10/30/96 5,000 5,000
5.770%, 11/20/96 5,000 5,000
5.560%, 12/27/96 5,000 5,000
5.530%, 01/03/97 5,000 5,000
Federal National Mortgage
Association
5.450%, 02/02/96 3,000 2,985
5.660%, 03/15/96 5,000 5,000
</TABLE>
11
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
PRIME OBLIGATION MONEY
MARKET FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS--CONTINUED
Tennessee Valley Authority
4.190%, 09/09/96 $ 5,000 $ 4,949
-------
Total U.S. Government Agency
Obligations
(Cost $92,670,851) 92,671
-------
COMMERCIAL PAPER--26.6%
American General Finance
5.830%, 01/12/96 10,000 9,982
Dun and Bradstreet
5.820%, 01/16/96 11,000 10,974
Ford Motor Credit
5.710%, 01/05/96 5,000 4,997
5.690%, 02/20/96 5,000 4,960
General Electric Capital
4.830%, 01/11/96 5,000 4,992
5.630%, 01/22/96 5,000 4,984
Merrill Lynch
5.740%, 01/19/96 5,000 4,986
Norwest Financial
5.790%, 01/16/96 5,000 4,988
Safeco Credit
5.700%, 01/17/96 5,000 4,987
5.700%, 01/23/96 5,000 4,983
Southern California Edison
5.830%, 01/12/96 5,000 4,991
Transamerica Finance
5.720%, 01/08/96 5,000 4,994
-------
Total Commercial Paper
(Cost $70,818,168) 70,818
-------
CERTIFICATES OF DEPOSIT--7.1%
ABN-Amro
5.810%, 01/16/96 5,000 5,000
Bank of Nova Scotia
5.750%, 03/15/96 4,000 4,001
Rabo London
5.620%, 01/16/96 5,000 5,000
Societe Generale
5.750%, 02/15/96 5,000 5,000
-------
Total Certificates of Deposit
(Cost $19,000,582) 19,001
-------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
TIME DEPOSITS--1.9%
Deutsche Bank
5.800%, 01/03/96 $ 5,000 $ 5,000
-------
Total Time Deposits
(Cost $5,000,000) 5,000
-------
REPURCHASE AGREEMENTS--32.8%
JP Morgan Securities Incorporated,
5.84%, dated 12/29/95, matures
01/02/96, repurchase price
$36,364,374 (collateralized by
U.S. Treasury Notes, par value
$35,145,000, rates 6.25%,
maturity dates ranging from
08/31/00 to 02/15/03,
market value $37,072,851) 36,341 36,341
Nomura Securities Incorporated,
5.84% dated 12/29/95, matures
01/02/96, repurchase price
$51,032,841 (collateralized by
U.S. Treasury Bond, par value
$6,639,000, 11.125%, 08/15/03,
market value $9,164,096 and by
U.S. Treasury Notes, par value
$40,784,000, rates ranging from
5.75% to 8.875%, maturity dates
ranging from 08/31/96 to
11/15/05, market value
$42,856,071) 50,999 50,999
--------
Total Repurchase Agreements
(Cost $87,340,541) 87,340
--------
Total Investments--103.1%
(Cost $274,830,142) 274,830
--------
OTHER ASSETS AND LIABILITIES--(3.1%)
Other Assets and Liabilities, Net (8,238)
--------
</TABLE>
12
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of Class A
(unlimited authorization--no
par value) based on 259,654,025
outstanding shares of
beneficial interest $259,654
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 6,924,558
outstanding shares of beneficial
interest 6,925
Accumulated net realized gain on
investments 13
--------
Total Net Assets--100.0% $266,592
========
Net Asset Value, Offering and
Redemption Price Per Share--
Class A $ 1.00
========
Net Asset Value, Offering and
Redemption Price Per Share--
Class B $ 1.00
========
TAX-EXEMPT MONEY
MARKET FUND
MUNICIPAL BONDS--97.2%
ARIZONA--1.5%
State, Salt River Project,
Series C, Prerefunded @ 102
7.130%, 01/01/96 $ 1,000 $ 1,020
--------
ARKANSAS--0.7%
Clark County, Reynolds Metals
Company Project, AMT
(A) (B) (C)
5.200%, 01/02/96 500 500
--------
CALIFORNIA--9.0%
State, School Cash Reserve
4.500%, 12/20/96 2,000 2,013
Long Beach (TRAN)
4.500%, 09/19/96 1,870 1,877
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Los Angeles, Regional Airport
Improvement Corporation,
Series F (A) (B) (C)
6.000%, 01/02/96 $ 1,300 $ 1,300
Orange County, Water District
(COP) (A) (B) (C)
5.800%, 01/02/96 1,000 1,000
--------
6,190
--------
DELAWARE--8.0%
State, Economic Development
Authority (A) (B) (C)
5.200%, 01/03/96 2,500 2,500
Wilmington, Hospital Revenue,
Franciscan Health System
Project, Series A (A) (B) (C)
6.000%, 01/02/96 3,000 3,000
--------
5,500
--------
FLORIDA--4.4%
Alachua County, Refunding
Bonds (A) (B) (C)
4.050%, 01/02/96 700 700
Orange County, Housing
Finance Authority,
Windscape Project (A) (B) (C)
5.800%, 01/03/96 400 400
State, Housing Finance
Authority (A) (B) (C)
5.200%, 01/03/96 1,900 1,900
--------
3,000
--------
GEORGIA--1.3%
Gwinnett County, School
District, Prerefunded @ 102
7.500%, 02/01/96 875 895
--------
ILLINOIS--5.7%
Chicago, O'Hare International
Airport (A) (B) (C)
5.100%, 01/03/96 2,900 2,900
State, Revenue Anticipation
Certificates
4.500%, 04/12/96 1,000 1,002
--------
3,902
--------
</TABLE>
13
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
TAX-EXEMPT MONEY
MARKET FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
IOWA--0.7%
Polk County, Hospital
Equipment Improvement
Authority (MBIA) (A) (B)
5.150%, 01/03/96 $ 450 $ 450
--------
LOUSIANA--4.2%
New Orleans, Aviation Board,
Series A (MBIA) (A) (B)
4.950%, 01/03/96 900 900
New Orleans, Aviation Board,
Series B (MBIA) (A) (B)
4.950%, 01/03/96 1,000 1,000
State, Public Facilities
Authority (AMBAC) (A) (B)
5.000%, 01/03/96 1,000 1,000
--------
2,900
--------
MAINE--0.7%
State (TANS)
4.500%, 06/28/96 500 502
--------
MARYLAND--6.5%
Baltimore, Industrial
Development Authority
(A) (B) (C)
5.350%, 01/03/96 1,000 1,000
Howard County, Multi-Family
Housing Authority, Sherwood
Crossing Project (B) (C)
4.250%, 06/01/96 1,000 1,000
Montgomery County, Housing
Revenue Authority, Falklands
Project (A) (B) (C)
5.150%, 01/03/96 2,500 2,500
--------
4,500
--------
MICHIGAN--3.2%
State, Hospital Financing
Authority (A) (B) (C)
5.200%, 01/03/96 2,200 2,200
--------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
MINNESOTA--2.0%
New Brighton, Industrial
Development Authority,
Unicare Nursing Homes
Project (A) (B) (C)
5.200%, 01/03/96 $ 1,400 $ 1,400
--------
MISSOURI--3.7%
Osage Beach, Industrial
Development Authority
(A) (B) (C)
4.050%, 01/02/96 275 275
Saint Charles County, Industrial
Development Authority, Cedar
Ridge Apartments (A) (B) (C)
5.150%, 01/03/96 685 685
Saint Louis County, Industrial
Development Authority,
Riverport Associates
(A) (B) (C)
5.300%, 01/03/96 400 400
Springfield, Industrial
Development Authority,
Pebblecreek Apartments
(A) (B) (C)
5.100%, 01/03/96 1,200 1,200
--------
2,560
--------
NEW JERSEY--2.9%
State, (GO)
5.800%, 08/01/96 1,000 1,011
Ocean County, Utilities
Authority, Wastewater Project,
Prerefunded @ 102
8.700%, 01/01/96 1,000 1,020
--------
2,031
--------
NEW YORK--4.2%
Babylon, Industrial Development
Agency, Babylon Project
AMT (A) (B) (C)
6.000%, 01/02/96 1,900 1,900
Nassau County, Series E (BANS)
4.250%, 03/15/96 1,000 1,001
--------
2,901
--------
</TABLE>
14
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NORTH CAROLINA--2.2%
Wake County, Carolina Power &
Light Company (A) (B) (C)
5.000%, 01/03/96 $ 1,100 $ 1,100
Winston Salem, Risk
Acceptance Management
Corporation (A) (B) (C)
5.200%, 01/03/96 400 400
--------
1,500
--------
NORTH DAKOTA--1.5%
State, Housing Finance
Program (RB) (B)
3.950%, 05/01/96 1,000 1,000
--------
OREGON--4.4%
Port of Portland, Pollution
Control Authority, Dates-
Reynolds Metals Project
(A) (B) (C)
6.000%, 01/02/96 3,000 3,000
--------
TENNESSEE--6.8%
Nashville, Airport Authority,
American Airlines Project,
Series B (A) (B) (C)
6.000%, 01/02/96 2,000 2,000
Morristown, Industrial
Development Board,
Williamhouse Regency
Project (A) (B) (C)
5.250%, 01/02/96 2,200 2,200
Sumner County, (GO)
6.500%, 04/01/96 510 513
--------
4,713
--------
TEXAS--17.0%
Corsicana, Industrial
Development Authority, Kent
Paper Company Project AMT
(A) (B) (C)
5.250%, 01/03/96 400 400
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Harris County, Housing
Finance Authority, Idlewood
Park Project, Series A
(A) (B) (C)
5.200%, 01/03/96 $ 1,200 $ 1,200
Hunt County, Industrial
Development Authority,
Trico Industries Incorporated
(A) (B) (C)
5.100%, 01/02/96 2,700 2,700
Lone Star, Airport Authority,
Series A (A) (B) (C)
6.000%, 01/02/96 1,000 1,000
Lone Star, Airport Authority,
Series B (A) (B) (C)
6.000%, 01/02/96 1,000 1,000
State, Association of School
Boards, Series A (TANS)
4.750%, 08/30/96 1,000 1,004
State, Health Facilities
Development, North Texas
Pooled Health (A) (B) (C)
5.050%, 01/03/96 2,500 2,500
State, Veterans Housing
Assistance Fund, Series II-E
(RB) (B)
3.900%, 11/06/96 1,500 1,500
Travis County, Housing Finance
Authority, Channings Mark
Apartments Project
(A) (B) (C)
5.200%, 01/03/96 400 400
--------
11,704
--------
VIRGINIA--2.9%
Richmond, Capital Region
Authority, International
Airport, Series B (AMBAC)
(A) (B) (C)
4.900%, 01/03/96 1,000 1,000
</TABLE>
15
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
TAX-EXEMPT MONEY
MARKET FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
VIRGINIA--CONTINUED
Harrisonburg, Redevelopment
and Housing Authority,
Rolling Brook Apartments
(B) (C)
5.100%, 02/01/96 $ 1,000 $ 1,000
--------
2,000
--------
WASHINGTON--2.1%
State, Series 86-D, Prerefunded
@ 100
8.000%, 09/01/96 1,400 1,438
--------
WASHINGTON, D.C.--1.6%
Abraham & Laura Lisner
Project (A) (B) (C)
5.100%, 01/03/96 1,100 1,100
--------
Total Municipal Bonds
(Cost $66,906,271) 66,906
--------
CASH EQUIVALENT--3.9%
Goldman Sachs Tax-Free
Money Market 1,639 1,639
SEI Institutional Tax Free
Portfolio 1,062 1,062
--------
Total Cash Equivalent
(Cost $2,701,070) 2,701
--------
Total Investments--101.1%
(Cost $69,607,341) 69,607
--------
OTHER ASSETS AND LIABILITIES--(1.1%)
Other Assets and Liabilities, Net (741)
--------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
63,634,243 outstanding shares of
beneficial interest 63,634
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Description Value (000)
- ----------------------------------------------------------
<S> <C>
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 5,238,358
outstanding shares of beneficial
interest $ 5,238
Accumulated net realized loss
on investments (6)
--------
Total Net Assets--100.0% $ 68,866
========
Net Asset Value, Offering and
Redemption Price Per
Share--Class A $ 1.00
========
Net Asset Value, Offering and
Redemption Price Per
Share--Class B $ 1.00
========
<FN>
(A) The rate reported on the Statement of Net Assets is the rate in effect on
December 31, 1995.
(B) Put and Demand features exist requiring the issuer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand date.
(C) Securities are held in connection with a letter of credit or other credit
support.
AMT -- Alternative Minimum Tax
BANS -- Bond Anticipation Notes
COP -- Certificate of Participation
GO -- General Obligation
RB -- Revenue Bond
TANS -- Tax Anticipation Notes
TRANS -- Tax and Revenue Anticipation Notes
The following organizations have provided underlying credit support for certain
securities as defined in the Statement of Net Assets:
(AMBAC) -- American Municipal Bond Assurance Company
(MBIA) -- Municipal Bond Insurance Association
</FN>
</TABLE>
16
<PAGE>
================================================================================
U.S. TREASURY SECURITIES
PLUS MONEY MARKET FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--58.1%
U.S. Treasury Bills
5.620%, 01/11/96 $ 5,000 $ 4,992
5.350%, 02/08/96 3,000 2,983
5.300%, 02/15/96 3,000 2,980
5.680%, 03/07/96 8,000 7,921
5.490%, 03/14/96 3,000 2,968
5.550%, 03/21/96 5,000 4,941
5.240%, 04/04/96 5,000 4,931
5.560%, 04/11/96 3,000 2,955
5.240%, 05/09/96 3,000 2,946
--------
Total U.S. Treasury Obligations
(Cost $37,617,360) 37,617
--------
REPURCHASE AGREEMENTS--42.3%
Lehman Securities Incorporated,
5.90%, dated 12/29/95,
matures 01/02/96, repurchase
price $13,344,909 (collateralized
by U.S. Treasury STRIP, par
value $70,435,000, 7.625%,
11/15/22, market value
$13,603,111) 13,336 13,336
Nomura Securities Incorporated,
5.90%, dated 12/29/95, matures
01/02/96, repurchase price
$14,044,052 (collateralized by
U.S. Treasury Notes, par value
$13,346,000, rates ranging from
5.50% to 8.50%, maturity dates
ranging from 04/30/96 to
02/15/00, market value
$14,316,150) 14,035 14,035
--------
Total Repurchase Agreements
(Cost $27,371,017) 27,371
--------
Total Investments--100.4%
(Cost $64,988,377) 64,988
--------
OTHER ASSETS AND LIABILITIES--(0.4)%
Other Assets and Liabilities, Net (291)
--------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares (unlimited
authorization--no par value)
based on 64,717,085 outstanding
shares of beneficial interest $ 64,717
Accumulated net realized loss
on investments (20)
--------
Total Net Assets--100.0% $ 64,697
========
Net Asset Value, Offering and
Redemption Price Per Share $ 1.00
========
SHORT-TERM
INVESTMENT FUND
CORPORATE BOND--78.2%
AT&T
4.500%, 02/15/96 $ 1,229 $ 1,229
Allied
01/15/96 (A) 880 879
Aluminum Company of
America
4.630%, 02/15/96 900 899
American Express Credit
6.800%, 02/28/96 1,000 1,002
American General Finance
5.000%, 06/15/96 1,000 997
Atlantic City Electric
5.130%, 02/01/96 100 100
BP America
10.150%, 03/15/96 1,150 1,160
Baxter International
9.250%, 09/15/96 390 400
Bell Atlantic
6.030%, 05/28/96 225 225
Boeing
8.380%, 03/01/96 450 452
California Petroleum
Transportation
6.710%, 04/01/96 1,000 1,003
Commercial Credit
6.380%, 01/01/96 500 500
</TABLE>
17
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
SHORT-TERM INVESTMENT
FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
CORPORATE BOND--CONTINUED
Dow Capital
8.250%, 02/15/96 $ 1,000 $ 1,003
E.I. DuPont de Nemours
8.450%, 10/15/96 400 410
Exxon Capital
7.880%, 04/15/96 250 252
Ford Motor Credit
8.880%, 03/15/96 1,000 1,006
General Electric
7.880%, 05/01/96 1,000 1,008
General Electric Capital
8.750%, 11/26/96 100 103
John Deere
8.250%, 06/01/96 190 192
9.130%, 07/01/96 500 509
Martin Marietta
8.500%, 03/01/96 1,000 1,004
Merck
7.750%, 05/01/96 549 553
Morgan Guaranty Trust
8.130%, 03/15/96 250 252
New York Telephone
3.380%, 04/01/96 164 163
Northwestern Bell Telephone
3.250%, 02/01/96 130 130
Paccar Financial
6.050%, 09/12/96 389 390
Pepsico
6.850%, 02/23/96 1,000 1,001
7.000%, 11/15/96 185 188
Pfizer
7.130%, 10/01/96 1,000 1,012
Sears Robuck
8.550%, 08/01/96 1,000 1,016
Shell Oil
7.700%, 02/01/96 250 250
Smithkline Beecham
5.250%, 01/26/96 1,000 1,000
Southern New England
Telecommunications
7.610%, 09/20/96 1,000 1,016
Southwestern Bell
8.300%, 06/01/96 672 680
Texaco Capital
9.000%, 11/15/96 448 461
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Virginia Electric & Power
8.350%, 06/15/96 $ 1,000 $ 1,011
WMX Techmologies
4.880%, 06/15/96 400 398
Wal-Mart Stores
8.000%, 05/01/96 570 575
Waste Management
4.630%, 04/14/96 547 545
Whirlpool
8.570%, 03/11/96 250 251
Xerox Credit
6.250%, 01/15/96 330 330
--------
Total Corporate Bond
(Cost $25,509,567) 25,555
--------
U.S. TREASURY OBLIGATIONS--13.6%
U.S. Treasury Bills
5.320%, 05/30/96 $1,100 $ 1,077
5.370%, 06/06/96 750 733
5.330%, 08/22/96 1,500 1,451
5.420%, 11/14/96 1,250 1,195
--------
Total U.S. Treasury Obligations
(Cost $4,452,747) 4,456
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--6.2%
Federal Farm Credit Bank
6.500%, 04/01/96 1,000 1,003
6.380%, 05/01/96 1,000 1,003
--------
Total U.S. Government Agency
Obligations
(Cost $2,000,000) 2,006
--------
CASH EQUIVALENT--0.7%
SEI Liquid Asset Trust -
Government Portfolio 240 240
--------
Total Cash Equivalent
(Cost $240,172) 240
--------
Total Investments--98.7%
(Cost $32,202,486) 32,257
--------
</TABLE>
18
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES--1.3%
Other Assets and Liabilities, Net $ 428
--------
NET ASSETS:
Portfolio shares of Class A
(unlimited authorization--no
par value) based on
3,056,683 outstanding shares
of beneficial interest 30,625
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 203,375
outstanding shares of beneficial
interest 2,038
Undistributed net investment
income 1
Accumulated net realized loss
on investments (33)
Net unrealized appreciation
on investments 54
--------
Total Net Assets--100.0% $ 32,685
========
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 10.02
========
Net Asset Value and Redemption
Price Per Share--Class B $ 10.05
========
Maximum Public Offering Price Per
Share--Class B ($10.05 / 99%) $ 10.15
========
<FN>
(A) Zero-Coupon Bond
</FN>
</TABLE>
FIXED INCOME FUND
<TABLE>
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--49.0%
U.S. Treasury Notes
6.880%, 02/28/97 $14,250 $ 14,515
7.250%, 02/15/98 5,000 5,201
6.380%, 01/15/00 4,000 4,147
6.380%, 08/15/02 30,000 31,486
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. Treasury STRIP
5.570%, 08/15/03 $ 4,800 $ 3,163
--------
Total U.S. Treasury Obligations
(Cost $57,299,941) 58,512
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--23.6%
Federal Farm Credit Bank
8.650%, 10/01/99 1,000 1,108
Federal Home Loan Bank
7.780%, 10/19/01 2,000 2,204
5.670%, 09/02/03 1,680 1,661
6.500%, 11/29/05 500 501
Federal National Mortgage
Association
7.600%, 01/10/97 1,000 1,023
7.050%, 12/10/98 1,000 1,042
7.200%, 01/10/02 2,000 2,025
7.900%, 04/10/02 1,000 1,024
7.800%, 06/10/02 1,000 1,027
7.000%, 08/12/02 4,000 4,044
6.950%, 09/10/02 1,000 1,010
6.450%, 06/10/03 2,000 2,016
6.200%, 07/10/03 2,000 1,992
6.240%, 08/19/03 2,000 2,002
5.750%, 10/24/03 1,000 973
6.200%, 11/12/03 1,000 1,003
6.400%, 01/13/04 2,500 2,489
6.850%, 09/12/05 1,000 1,021
--------
Total U.S. Government Agency
Obligations
(Cost $27,513,161) 28,165
--------
CORPORATE BOND--24.7%
AT&T
6.750%, 04/01/04 2,000 2,095
7.500%, 06/01/06 1,000 1,107
Anheuser Busch
6.750%, 06/01/05 1,000 1,048
BP America
8.500%, 04/15/01 2,000 2,237
</TABLE>
19
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
FIXED INCOME FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
CORPORATE BOND--CONTINUED
Boeing
6.350%, 06/15/03 $ 2,000 $ 2,050
E.I. DuPont de Nemours
6.000%, 12/01/01 2,000 2,018
6.750%, 10/15/02 1,000 1,048
Emerson Electric
6.300%, 11/01/05 500 510
Ford Capital BV
9.130%, 05/01/98 1,000 1,074
Ford Motor Credit
6.380%, 10/06/00 1,000 1,015
Gannett
5.850%, 05/01/00 1,000 996
General Electric Capital
8.750%, 11/26/96 2,500 2,569
5.500%, 11/01/01 1,000 977
H.J. Heinz
6.880%, 01/15/03 1,000 1,052
Eli Lilly
6.250%, 03/15/03 2,000 2,047
New York Telephone
6.250%, 02/15/04 1,000 1,007
Philip Morris
7.500%, 01/15/02 2,000 2,120
Union Pacific
6.130%, 01/15/04 1,000 993
US West Communications
6.130%, 11/15/05 2,000 2,005
Wal-Mart Stores
6.500%, 06/01/03 500 514
5.880%, 10/15/05 1,000 984
--------
Total Corporate Bond
(Cost $28,370,351) 29,466
--------
CASH EQUIVALENT--1.3%
SEI Liquid Asset Trust
Government Portfolio 1,527 1,527
--------
Total Cash Equivalent
(Cost $1,526,565) 1,527
--------
Total Investments--98.6%
(Cost $114,710,018) 117,670
--------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES--1.4%
Other Assets and Liabilities, Net $ 1,683
--------
NET ASSETS:
Portfolio shares of Class A
(unlimited authorization--no
par value) based on
10,820,274 outstanding shares
of beneficial interest 110,507
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 557,415
outstanding shares of
beneficial interest 6,179
Accumulated net realized loss
on investments (293)
Net unrealized appreciation
on investments 2,960
--------
Total Net Assets--100.0% $119,353
========
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 10.49
========
Net Asset Value and Redemption
Price Per Share--Class B $ 10.48
========
Maximum Public Offering Price Per
Share--Class B ($10.48 / 96%) $ 10.92
========
NEW JERSEY MUNICIPAL
SECURITIES FUND
MUNICIPAL BONDS--94.8%
NEW JERSEY--93.7%
Atlantic County, (GO) (MBIA)
5.400%, 12/01/05 $ 300 $ 312
Bergen County, General
Improvement Bonds, (GO)
5.250%, 08/15/00 300 314
4.700%, 07/15/02 400 409
</TABLE>
20
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NEW JERSEY--CONTINUED
Bergen County, Municipal
Utilities Authority, Water
Pollution Control, Series B,
(RB) (FGIC)
5.000%, 12/15/99 $ 300 $ 308
Bergen County, Utilities
Authority, Series A, (RB)
(FGIC)
6.100%, 06/15/04 250 272
Bridgeton, (GO) (AMBAC)
5.000%, 01/01/05 300 303
Bridgewater & Raritan, (GO)
6.130%, 05/01/05 200 215
6.130%, 05/01/06 100 107
Burlington County, (GO)
4.400%, 03/15/01 500 500
Camden County, (GO) (FGIC)
5.000%, 02/01/04 200 205
5.000%, 02/01/08 500 500
Camden County, (GO) (MBIA)
5.000%, 06/01/99 100 103
5.600%, 06/01/03 200 212
Camden, School District,
(RB) (FSA)
4.000%, 10/01/98 500 498
Cape May County, (GO)
(AMBAC)
5.850%, 04/15/01 150 160
Cape May County, Municipal
Utilities Authority, (RB)
(AMBAC)
5.000%, 08/01/03 500 514
Cape May County, Municipal
Utilities Authority, Series B,
(RB) (FGIC)
3.800%, 01/01/98 500 498
4.500%, 01/01/03 500 499
Cumberland County, (GO) (FGIC)
4.300%, 12/01/99 500 503
Dover Township, (GO) (AMBAC)
6.000%, 10/15/03 200 221
Dover, Municipal Utilities
Authority, Series F, (RB) (MBIA)
4.200%, 02/15/99 300 300
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Edgewater Borough, (GO) (MBIA)
5.100%, 09/15/00 $ 300 $ 311
Edison Township, (AMBAC)
4.800%, 01/01/05 300 303
Edison Township, (GO)
4.700%, 06/01/98 250 253
5.400%, 06/01/02 250 263
Edison Township, (GO) (AMBAC)
4.500%, 01/01/02 500 503
Essex County, Improvement
Authority, (RB) (AMBAC)
4.880%, 12/01/02 300 305
Fort Lee, (GO)
4.850%, 02/01/02 500 513
Franklin Township, (GO)
5.600%, 11/01/05 300 320
Gloucester County, (GO)
5.000%, 09/01/03 500 507
Gloucester County, General
Improvement, Series A, (GO)
(AMBAC)
4.500%, 01/01/03 200 201
Gloucester County, Improvement
Authority, Landfill Project,
Series A, (RB) (B)
6.000%, 09/01/06 300 320
Gloucester Township, Municipal
Utilities Authority, (RB)
(AMBAC)
4.800%, 03/01/02 300 305
Hackensack, (GO)
6.100%, 06/01/05 250 269
Hackettstown, Municipal Utilities
Authority, Series F, (RB) (FGIC)
5.050%, 10/01/04 500 514
Hamilton Township, (GO)
(AMBAC)
4.100%, 02/01/98 400 400
Hillsborough Township, Board of
Education (COP) (FSA)
5.500%, 12/15/99 250 263
Long Branch, Sewer Authority,
(RB) (FGIC)
5.200%, 06/01/05 500 518
</TABLE>
21
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
NEW JERSEY MUNICIPAL
SECURITIES FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NEW JERSEY--CONTINUED
Maplewood Township, (GO)
4.000%, 12/01/99 $ 200 $ 199
Mercer County, Improvement
Authority, Ewing Board of
Education Project, (RB) (MBIA)
6.300%, 05/15/07 250 272
Mercer County, Improvement
Authority, Hamilton Board of
Education Project, (RB) (MBIA)
5.500%, 06/01/01 200 210
4.900%, 12/15/05 300 304
Middlesex County, (GO)
3.900%, 07/15/97 300 300
4.500%, 07/15/01 500 506
4.600%, 07/15/02 500 509
Middlesex County, Improvement
Authority, (RB) (B)
3.800%, 03/01/97 250 250
4.000%, 03/01/98 250 250
4.150%, 03/01/99 250 251
4.350%, 03/01/01 250 252
Middletown Township, Sewer
Authority, Series A, (RB) (FGIC)
4.900%, 01/01/05 300 304
Monmouth County, (RB)
3.900%, 07/15/97 500 500
4.500%, 10/01/98 500 507
4.200%, 07/15/99 250 250
4.750%, 07/15/03 200 200
Moorestown Township, (GO)
(AMBAC)
6.000%, 09/01/07 300 320
Morris Plains, (GO)
5.000%, 07/01/04 200 203
Mount Laurel Township, (GO)
4.650%, 08/01/05 500 495
New Brunswick, (GO) (FGIC)
4.000%, 10/01/97 500 502
New Brunswick, Parking
Authority, (RB) (FGIC)
4.300%, 09/01/99 300 302
North Bergen Township (MBIA)
4.400%, 08/01/01 500 494
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
North Bergen Township,
Municipal Utilities Authority,
(RB) (FGIC)
4.800%, 12/15/03 $ 300 $ 303
North Haledon (AN)
4.220%, 05/17/96 350 351
North Jersey, District Water
Supply, Wanaque South
Project (MBIA)
5.400%, 07/01/02 300 316
Ocean County, (GO)
4.600%, 11/01/03 500 494
Parsippany Troy Hills
Township, (GO)
4.500%, 02/01/01 500 502
4.700%, 12/01/03 500 504
4.700%, 12/01/04 600 601
Passaic County, (GO)
4.700%, 09/01/03 250 252
Passaic County, (GO) (FGIC)
4.750%, 09/01/04 500 501
Passaic County, (GO) (MBIA)
4.350%, 05/01/03 200 198
4.450%, 05/01/04 200 196
Pequannock-Lincoln Park, Sewer
Authority, (RB) (MBIA)
4.400%, 12/01/02 500 500
Piscataway Township, (GO)
(STAID)
4.050%, 03/01/02 300 291
Pleasantville, (GO) (MBIA)
4.350%, 10/01/00 400 400
Port Authority of New York &
New Jersey, (RB) (B)
4.300%, 10/01/02 500 494
5.300%, 08/01/03 300 318
Princeton, (GO)
4.400%, 09/01/01 300 301
Roselle, (GO) (MBIA)
4.750%, 10/15/04 500 503
Rutgers State University, Series A,
(RB) (B)
4.380%, 05/01/01 500 499
</TABLE>
22
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NEW JERSEY--CONTINUED
Rutgers State University, Series S,
(RB) (B)
5.000%, 05/01/04 $ 500 $ 513
Somerset County, (GO)
5.000%, 10/01/02 200 208
4.450%, 12/01/02 500 505
4.350%, 12/01/04 300 297
Somerset Raritan Valley, Sewer
Improvement Authority,
Series H, (RB)
5.150%, 07/01/01 300 312
South Brunswick Township, (GO)
6.300%, 04/01/04 250 273
South Jersey Transportation
Authority, Transportation
Systems, Series B, (RB) (MBIA)
5.500%, 11/01/02 250 265
State, (GO)
4.750%, 02/15/98 300 304
5.100%, 02/15/00 500 516
5.300%, 02/15/02 600 627
5.400%, 02/15/03 300 315
State, Building Authority, (RB)
4.400%, 06/15/03 500 492
4.500%, 06/15/04 500 492
4.700%, 06/15/06 500 492
State, Economic Development
Authority, Series A, (RB) (MBIA)
5.130%, 07/01/00 300 309
5.400%, 07/01/02 300 315
State, Educational Facilities
Authority, Ramapo College,
Series E, (RB) (MBIA)
4.700%, 07/01/00 500 508
State, Educational Facilities
Authority, Rowan College,
Series C, (RB) (MBIA)
4.300%, 07/01/98 300 302
5.250%, 07/01/05 300 312
State, Educational Facilities
Authority, Stockton State
College, Series B, (RB)
(AMBAC)
6.200%, 07/01/04 300 332
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
State, Health Care Facilities
Authority, Atlantic City Medical
Center, (RB) (AMBAC)
6.550%, 07/01/03 $ 300 $ 325
State, Health Care Facilities
Authority, Chilton Memorial
Hospital, (RB)
3.750%, 07/01/96 500 500
State, Health Care Facilities
Authority, Hackensack Medical
Center, (RB) (MBIA)
6.000%, 07/01/00 300 322
State, Health Care Facilities
Authority, JFK Health Systems,
(RB) (FGIC)
4.800%, 07/01/03 200 203
State, Health Care Facilities
Authority, Mountain Side
Hospital, (RB) (FGIC)
5.100%, 07/01/03 500 517
State, Health Care Facilities
Authority, Shore Memorial
Healthcare Systems, (RB) (FGIC)
4.500%, 07/01/03 500 497
State, Health Care Facilities
Authority, Somerset Medical
Center, (RB) (MBIA)
4.600%, 07/01/05 250 247
State, Health Care Facilities
Authority, St.Peters Medical
Center, (RB) (AMBAC)
4.500%, 07/01/04 500 491
State, Health Care Facilities
Authority, Underwood
Memorial Hospital, (RB) (MBIA)
4.200%, 07/01/97 300 301
5.000%, 07/01/02 300 309
State, Highway Authority,
Garden State Parkway, (RB)
5.300%, 01/01/99 250 259
State, Housing & Mortgage
Finance Agency, (RB) (AMBAC)
5.300%, 05/01/06 200 207
</TABLE>
23
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
NEW JERSEY MUNICIPAL
SECURITIES FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NEW JERSEY--CONTINUED
State, Housing & Mortgage
Finance Agency, Home Buyer,
Series N, (RB) (AMBAC)
4.000%, 10/01/98 $ 200 $ 202
4.200%, 04/01/99 200 203
4.200%, 10/01/99 300 305
State, Sports & Exposition
Authority, Series A, (RB)
4.900%, 09/01/05 315 319
5.000%, 09/01/06 315 318
State, Transportation Trust
Authority, Transportation
System, Series A, (RB)
3.800%, 06/15/96 500 500
5.600%, 06/15/98 200 207
4.600%, 06/15/01 500 509
4.630%, 06/15/02 500 506
State, Turnpike Authority,
Series A, (RB) (AMBAC)
5.700%, 01/01/01 300 315
5.900%, 01/01/04 200 212
6.400%, 01/01/07 300 326
State, Wastewater Treatment
Authority, (RB) (AMBAC)
4.200%, 03/01/97 500 502
4.250%, 03/01/99 500 501
4.250%, 03/01/00 500 499
4.400%, 03/01/04 500 492
Stony Brook, Sewer Authority,
(RB) (B)
4.500%, 12/01/00 500 508
Union County, (GO)
4.400%, 10/01/04 500 487
Union County, Environmental
Improvement Authority,
(RB) (B)
4.900%, 04/01/02 500 514
5.150%, 04/01/05 500 521
Wanaque Valley, Sewer Authority,
Series B, (RB) (AMBAC)
5.100%, 09/01/03 300 310
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Warren County, Pollution Control
Finance Authority, Series B,
(RB) (MBIA)
5.700%, 12/01/03 $ 300 $ 326
Wayne Township, (GO)
5.450%, 10/01/04 250 261
West New York, Municipal
Utilities Authority, (RB) (FGIC)
4.000%, 12/15/99 500 497
West Windsor Township, (GO)
6.000%, 10/15/05 200 209
Western Monmouth, Utilities
Authority, Series A , (RB)
(AMBAC)
4.400%, 02/01/01 250 251
4.400%, 02/01/03 250 248
Woodbridge Township, Sewer
Utility Authority, Series B, (GO)
4.250%, 09/15/01 500 492
4.450%, 09/15/03 300 295
--------
50,627
--------
PUERTO RICO--1.1%
Puerto Rico, Public Buildings
Authority, Series A, (RB)
(AMBAC)
4.400%, 07/01/00 300 302
Puerto Rico, Telephone Authority,
Series M, (RB) (MBIA)
4.400%, 01/01/99 300 302
--------
604
--------
Total Municipal Bonds
(Cost $50,157,088) 51,231
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--1.8%
Federal Farm Credit Bank
5.720%, 02/12/96 500 497
</TABLE>
24
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS--CONTINUED
Federal Home Loan Bank
5.620%, 01/12/96 $ 500 $ 499
-------
Total U.S. Government Agency
Obligations
(Cost $995,943) 996
-------
CASH EQUIVALENT--2.1%
Federated New Jersey Municipal
Cash Trust 355 355
Nuveen, Investment Quality 750 750
-------
Total Cash Equivalent
(Cost $1,104,552) 1,105
-------
Total Investments--98.7%
(Cost $52,257,583) $53,332
-------
OTHER ASSETS AND LIABILITIES--1.3%
Other Assets and Liabilities, Net 702
-------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
2,601,629 outstanding shares of
beneficial interest 27,570
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 2,405,430
outstanding shares of beneficial
interest 25,698
Distributions in excess of net
investment income (1)
Accumulated net realized loss
on investments (308)
Net unrealized appreciation
on investments 1,075
-------
Total Net Assets--100.0% $54,034
=======
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 10.79
=======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Net Asset Value and Redemption
Price Per Share--Class B $ 10.79
=======
Maximum Public Offering Price Per
Share--Class B ($10.79 / 99%) $ 10.90
=======
<FN>
(A) The rate reported on the Statement of Net Assets is the rate in effect on
December 31, 1995.
(B) Put and Demand features exist requiring the issurer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand date.
AN -- Anticipation Notes
COP -- Certificate of Participation
GO -- General Obligation
RB -- Revenue Bond
The following organizations have underlying credit support for certain
securities as defined in the Statement of Net Assets:
(AMBAC) -- American Municipal Bond Insurance Company
(FGIC) -- Financial Guaranty Insurance Company
(FSA) -- Financial Security Assurance
(MBIA) -- Municipal Bond Insurance Association
(STAID) -- State Aid Withholding
</FN>
</TABLE>
INTERMEDIATE-TERM
GOVERNMENT SECURITIES
FUND
<TABLE>
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--47.8%
U.S. Treasury Notes
7.500%, 12/31/96 $ 200 $ 204
6.500%, 05/15/97 1,200 1,220
5.750%, 09/30/97 2,000 2,018
4.750%, 09/30/98 100 99
4.750%, 10/31/98 1,000 987
5.130%, 11/30/98 1,500 1,495
5.000%, 01/31/99 1,000 992
6.750%, 06/30/99 1,000 1,045
6.000%, 10/15/99 1,000 1,024
7.750%, 12/31/99 500 543
6.880%, 03/31/00 1,300 1,374
5.500%, 04/15/00 2,000 2,016
</TABLE>
25
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY
OBLIGATIONS--CONTINUED
5.880%, 06/30/00 $ 500 $ 510
5.750%, 10/31/00 2,000 2,030
--------
Total U.S. Treasury Obligations
(Cost $15,269,066) 15,557
--------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--49.0%
Federal Farm Credit Bank
5.250%, 05/26/98 1,000 998
Federal Home Loan Bank
6.320%, 12/04/97 500 509
6.100%, 02/17/00 1,000 1,017
5.920%, 06/29/00 1,000 1,012
7.000%, 07/05/00 500 500
5.800%, 07/26/00 1,000 1,002
5.250%, 09/01/00 500 493
5.040%, 10/26/00 500 488
Federal Home Loan Mortgage
Corporation
5.570%, 08/20/97 1,000 1,003
6.550%, 04/19/99 1,000 1,032
6.130%, 08/19/99 500 510
5.880%, 03/15/00 1,000 1,005
5.400%, 11/01/00 1,000 985
Federal National Mortgage
Association
6.050%, 11/10/97 500 506
6.350%, 08/10/99 750 770
7.240%, 09/02/99 500 512
6.110%, 09/20/00 1,250 1,276
7.140%, 08/15/02 800 811
7.200%, 08/19/02 500 507
6.720%, 02/25/03 1,000 1,026
-------
Total U.S. Government Agency
Obligations
(Cost $15,811,849) 15,962
-------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT--1.4%
SEI Liquid Asset Trust -
Government Portfolio $ 442 $ 442
SEI Liquid Asset Trust -
Treasury Portfolio 1 1
--------
Total Cash Equivalent
(Cost $442,581) 443
--------
Total Investments--98.2%
(Cost $31,523,496) 31,962
--------
OTHER ASSETS AND LIABILITIES--1.8%
Other Assets and Liabilities, Net 580
--------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
2,783,478 outstanding shares of
beneficial interest 29,456
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 353,423
outstanding shares of beneficial
interest 3,839
Accumulated net realized loss
on investments (1,191)
Net unrealized appreciation
on investments 438
--------
Total Net Assets--100.0% $ 32,542
========
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 10.37
========
Net Asset Value and Redemption
Price Per Share--Class B $ 10.37
========
Maximum Public Offering Price Per
Share--Class B ($10.37 / 96%) $ 10.80
========
</TABLE>
26
<PAGE>
================================================================================
PENNSYLVANIA MUNICIPAL
SECURITIES FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS--95.6%
PENNSYLVANIA--91.1%
Allegheny County, Series C-44,
(GO) (FGIC)
5.200%, 06/01/08 $150 $ 152
Allentown, Water Improvement
Authority, (RB) (AMBAC)
4.850%, 07/15/01 150 153
Beaver County, Series A,
(GO) (FGIC)
4.750%, 10/01/03 100 101
Bethel Park, School District,
(GO) (FGIC)
5.000%, 08/01/04 150 153
Bethlehem, School District,
(GO) (FGIC)
4.600%, 09/01/00 150 151
Chester County, (GO)
5.500%, 11/15/10 25 26
Dauphin County, General Purpose
Authority, (RB) (MBIA)
4.450%, 10/01/99 150 149
East Stroudsburg, School District,
Series AA, (GO) (AMBAC)
4.700%, 11/15/00 125 126
Geisinger, Health System
Authority, (RB)
7.380%, 07/01/02 75 82
Governor-Mifflin, School District,
(GO) (AMBAC)
4.400%, 11/15/99 150 151
Lancaster, Higher Education
Authority, Franklin & Marshall
College, (RB) (MBIA)
5.650%, 04/15/10 110 112
Langhorne Manor Borough,
Higher Education and Health
Authority, Wood Services, (RB)
6.400%, 11/15/06 150 165
Lehigh County, General Purpose
Authority, St. Luke's Hospital,
(RB) (AMBAC)
4.750%, 11/15/00 100 102
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Lycoming County, Pennsylvania
College of Technology,
(RB) (AMBAC)
5.000%, 11/01/02 $150 $ 153
North Allegheny, School District,
Series A, (GO) (AMBAC)
5.850%, 11/01/02 150 161
Oley Valley, School District,
(GO) (AMBAC)
3.950%, 05/15/97 100 100
State, Second Series, (GO)
5.500%, 07/01/01 150 158
State, Higher Education Authority,
Thomas Jefferson University,
Series A, (RB)
6.630%, 08/15/09 50 55
State, Higher Education Authority,
Series I, (RB) (AMBAC)
5.000%, 06/15/03 150 154
Pittsburgh, Series B, (GO)
(AMBAC)
4.500%, 09/01/96 100 100
Pittsburgh, Urban Redevelopment
Authority, (RB) (A)
5.750%, 10/01/14 100 102
State, School Building Authority,
Delaware County Community
College,(RB) (MBIA)
5.200%, 04/01/08 250 251
State, Brookville Area School
District Project, Series G,
(RB) (MBIA)
4.850%, 11/15/02 150 150
Swarthmore College, (RB)
7.380%, 09/15/18 50 55
Wattsburg, School District,
(GO) (AMBAC)
5.700%, 04/01/04 75 78
Westmoreland County, Series C,
(GO) (MBIA)
4.400%, 10/01/00 150 152
------
3,292
------
</TABLE>
27
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
PENNSYLVANIA MUNICIPAL
SECURITIES FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
GUAM--4.5%
Guam, Power Authority, (RB)
(AMBAC)
6.000%, 10/01/09 $ 150 $ 161
-------
Total Municipal Bonds
(Cost $3,363,622) 3,453
-------
CASH EQUIVALENT--3.6%
PNC Pennsylvania Tax-Free
Money Market Fund 131 131
-------
Total Cash Equivalent
(Cost $131,567) 131
-------
Total Investments--99.2%
(Cost $3,495,189) 3,584
-------
OTHER ASSETS AND LIABILITIES--0.8%
Other Assets and Liabilities, Net 30
-------
NET ASSETS:
Portfolio shares of Class A
(unlimited authorization--no
par value) based on 327,077
outstanding shares of beneficial
interest 3,264
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 26,366
outstanding shares of beneficial
interest 270
Accumulated net realized loss
on investments (9)
Net unrealized appreciation
on investments 89
------
Total Net Assets--100.0% $3,614
======
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $10.23
======
Net Asset Value and Redemption Price
Per Share--Class B $10.22
======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C>
Maximum Public Offering Price Per
Share--Class B ($10.22 / 99%) $10.32
======
<FN>
(A) Put and Demand features exist requiring the issurer to repurchase the
instrument prior to maturity. The maturity date shown is the next demand date.
GO -- General Obligation
RB -- Revenue Bond
The following organizations have provided underlying support for certain
securities as defined in the Statement of Net Assets:
(AMBAC) -- American Municipal Bond Assurance Company
(FGIC) -- Financial Guaranty Insurance Company
(MBIA) -- Municipal Bond Insurance Association
</FN>
</TABLE>
GNMA FUND
<TABLE>
<S> <C> <C>
MORTGAGE-BACKED POOLED NOTES--82.5%
Government National Mortgage
Association
6.000%, 10/15/23 $ 181 $ 175
6.000%, 11/15/23 965 938
6.000%, 12/15/23 1,430 1,390
6.000%, 01/15/24 192 186
6.000%, 01/20/24 937 903
6.500%, 11/15/23 826 820
6.500%, 12/15/23 116 115
6.500%, 12/15/23 352 349
7.000%, 06/15/23 164 166
7.000%, 11/15/23 85 86
7.000%, 12/15/23 946 957
7.500%, 08/15/25 305 314
8.000%, 04/15/23 51 53
8.000%, 05/15/23 366 382
8.000%, 08/15/24 228 237
8.000%, 08/15/24 239 249
8.000%, 09/15/24 211 220
8.000%, 09/15/24 352 367
8.000%, 09/15/24 248 258
8.000%, 09/15/24 486 507
-------
Total Mortgage-Backed Pooled
Notes
(Cost $8,522,264) 8,672
-------
</TABLE>
28
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--11.1%
U.S. Treasury Bond
13.130%, 05/15/01 $ 150 $ 203
U.S. Treasury Notes
7.250%, 11/30/96 450 458
6.000%, 08/31/97 500 506
-------
Total U.S. Treasury Obligations
(Cost $1,150,388) 1,167
-------
CASH EQUIVALENT--5.9%
SEI Liquid Asset Trust -
Government Portfolio 432 432
SEI Liquid Asset Trust -
Treasury Portfolio 191 191
-------
Total Cash Equivalent
(Cost $622,846) 623
-------
Total Investments--99.5%
(Cost $10,295,498) 10,462
-------
OTHER ASSETS AND LIABILITIES--0.5%
Other Assets and Liabilities, Net 49
-------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
879,855 outstanding shares of beneficial
interest 9,254
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 177,389
outstanding shares of beneficial
interest 1,897
Accumulated net realized loss
on investments (806)
Net unrealized appreciation
on investments 166
-------
Total Net Assets--100.0% $10,511
=======
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 9.94
=======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Net Asset Value and Redemption
Price Per Share--Class B $ 9.93
=======
Maximum Public Offering Price Per
Share--Class B ($9.93 / 97%) $ 10.24
=======
EQUITY VALUE FUND
COMMON STOCK--92.1%
AEROSPACE & DEFENSE--3.7%
Loral 40,000 $ 1,415
Raytheon 40,000 1,890
-------
3,305
-------
AIRCRAFT--2.6%
United Technologies 25,000 2,372
-------
AUTOMOTIVE--3.1%
Borg-Warner Automotive 20,000 640
Echlin 60,000 2,190
-------
2,830
-------
BANKS--5.8%
Bank of New York 25,000 1,219
Boatmen's Bancshares 45,000 1,839
Mellon Bank 40,000 2,150
-------
5,208
-------
CHEMICALS--1.2%
E.I. DuPont de Nemours 15,000 1,048
-------
COMMUNICATIONS EQUIPMENT--0.9%
ITT Industries 10,000 240
ITT * 10,000 530
-------
770
-------
COMPUTERS & SERVICES--5.7%
Compaq Computer* 45,000 2,160
Hewlett Packard 25,000 2,094
Microsoft * 10,000 877
-------
5,131
-------
</TABLE>
29
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
EQUITY VALUE
FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
DRUGS--5.2%
Bristol-Myers Squibb 10,000 $ 859
Merck 20,000 1,315
Pfizer 40,000 2,520
-------
4,694
-------
ELECTRICAL & ELECTRONIC PRODUCTS--5.8%
Emerson Electric 25,000 2,044
General Electric 45,000 3,240
-------
5,284
-------
FINANCIAL SERVICES--0.5%
ITT Hartford Group* 10,000 484
-------
FOOD, BEVERAGE & TOBACCO--6.5%
CPC International 5,000 343
Nestle S.A., ADR 20,000 1,111
PepsiCo 30,000 1,676
Sara Lee 20,000 638
Unilever NV, ADR 15,000 2,111
-------
5,879
-------
GAS/NATURAL GAS--7.0%
Consolidated Natural Gas 35,000 1,588
National Fuel & Gas 50,000 1,681
Sonat 50,000 1,781
Trans Canada Pipeline 90,000 1,238
-------
6,288
-------
GLASS PRODUCTS--1.0%
PPG Industries 20,000 915
-------
HOUSEHOLD PRODUCTS--3.7%
Colgate-Palmolive 15,000 1,054
Procter & Gamble 15,000 1,245
Whirlpool 20,000 1,065
-------
3,364
-------
INSURANCE--6.8%
Aetna Life & Casualty 25,000 1,731
American International Group 15,000 1,388
Chubb 25,000 2,419
Providian 15,000 611
-------
6,149
-------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
MEASURING DEVICES--1.6%
Honeywell 30,000 $ 1,459
-------
PAPER & PAPER PRODUCTS--1.6%
Weyerhaeuser 20,000 865
Willamette Industries 10,000 562
-------
1,427
-------
PETROLEUM REFINING--9.5%
Amoco 20,000 1,437
Exxon 20,000 1,602
Mobil 20,000 2,240
Royal Dutch Petroleum 15,000 2,117
Texaco 15,000 1,178
-------
8,574
-------
PHOTOGRAPHIC EQUIPMENT &
SUPPLIES--0.8%
Xerox 5,000 685
-------
RAILROADS--6.7%
Burlington Northern Santa Fe 30,000 2,340
Illinois Central 45,000 1,727
Union Pacific 30,000 1,980
-------
6,047
-------
RETAIL--2.6%
Dayton-Hudson 10,000 750
May Department Stores 20,000 845
Sears Roebuck 20,000 780
-------
2,375
-------
RUBBER & PLASTIC--1.5%
Goodyear Tire & Rubber 30,000 1,361
-------
SEMI-CONDUCTORS/
INSTRUMENTS--2.2%
Intel 35,000 1,986
-------
TELEPHONES &
TELECOMMUNICATION--6.1%
AT&T 35,000 2,266
Bell Atlantic 25,000 1,672
</TABLE>
30
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Amount Market
Description (000)/Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
TELEPHONES &
TELECOMMUNICATION--CONTINUED
SBC Communications 15,000 $ 863
US West 20,000 715
-------
5,516
-------
Total Common Stock
(Cost $66,043,466) 83,151
-------
CASH EQUIVALENT--7.7%
SEI Liquid Asset Trust -
Government Portfolio $3,928 3,928
SEI Liquid Asset Trust -
Treasury Portfolio 3,049 3,049
-------
Total Cash Equivalent
(Cost $6,977,125) 6,977
-------
Total Investments--99.8%
(Cost $73,020,591) 90,128
-------
OTHER ASSETS AND LIABILITIES--0.2%
Other Assets and Liabilities, Net 193
-------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
6,452,508 outstanding shares of
beneficial interest 66,520
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 596,012
outstanding shares of beneficial
interest 6,858
Accumulated net realized loss
on investments (164)
Net unrealized appreciation
on investments 17,107
-------
Total Net Assets--100.0% $90,321
=======
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 12.81
=======
Net Asset Value and Redemption
Price Per Share--Class B $ 12.83
=======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
Maximum Public Offering Price Per
Share--Class B ($12.83 / 96%) $ 13.36
=======
<FN>
* Non-income producing security
ADR -- American Depository Receipt
</FN>
</TABLE>
EQUITY INCOME FUND
COMMON STOCK--99.6%
<TABLE>
<S> <C> <C>
AEROSPACE & DEFENSE--4.2%
Raytheon 26,000 $ 1,228
Rockwell International 20,000 1,058
-------
2,286
-------
AIRCRAFT--4.7%
Textron 18,000 1,215
United Technologies 14,000 1,328
-------
2,543
-------
AUTOMOTIVE--2.6%
Echlin 30,000 1,095
Ford Motor 10,000 290
-------
1,385
-------
BANKS--6.4%
Bank of New York 24,000 1,170
Norwest 35,000 1,155
Wachovia 25,000 1,144
-------
3,469
-------
DRUGS--4.8%
Bristol-Myers Squibb 15,000 1,288
Merck 20,000 1,315
-------
2,603
-------
ELECTRICAL & ELECTRONIC
PRODUCTS--3.6%
Emerson Electric 12,000 981
General Electric 13,000 936
-------
1,917
-------
ELECTRICAL UTILITIES--5.7%
Houston Industries 30,000 727
Public Service Enterprise Group 25,000 766
Utilicorp United 30,000 881
WPS Resources 20,000 680
-------
3,054
-------
</TABLE>
31
<PAGE>
STATEMENT OF NET ASSETS
================================================================================
The Pillar Funds -- December 31, 1995
EQUITY INCOME
FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO--8.6%
Anheuser Busch 15,000 $ 1,003
CPC International 16,000 1,098
General Mills 15,000 866
Sara Lee 30,000 956
Unilever NV, ADR 5,000 704
-------
4,627
-------
GAS/NATURAL GAS--7.9%
Consolidated Natural Gas 25,000 1,134
National Fuel & Gas 30,000 1,009
Sonat 40,000 1,425
Trans Canada Pipeline 50,000 688
-------
4,256
-------
GLASS PRODUCTS--3.9%
Corning 30,000 960
PPG Industries 25,000 1,144
-------
2,104
-------
HOUSEHOLD PRODUCTS--5.8%
Colgate-Palmolive 16,000 1,124
Procter & Gamble 11,000 913
Whirlpool 20,000 1,065
-------
3,102
-------
INSURANCE--3.8%
Aetna Life & Casualty 15,000 1,039
Cigna 10,000 1,032
-------
2,071
-------
MEASURING DEVICES--1.8%
Honeywell 20,000 973
-------
PAPER & PAPER PRODUCTS--3.1%
Kimberly Clark 20,000 1,655
-------
PETROLEUM REFINING--10.1%
Amoco 10,000 719
Chevron 15,000 787
Mobil 12,000 1,344
Royal Dutch Petroleum 10,000 1,411
Texaco 15,000 1,178
-------
5,439
-------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
PRINTING & PUBLISHING--1.7%
Gannett 15,000 $ 921
-------
RAILROADS--3.2%
Burlington Northern Santa Fe 12,000 936
Illinois Central 20,000 768
-------
1,704
-------
RETAIL--5.9%
Dayton-Hudson 15,000 1,125
May Department Stores 25,000 1,056
Sears Roebuck 25,000 975
-------
3,156
-------
SEMI-CONDUCTORS/INSTRUMENTS--2.7%
Thomas & Betts 20,000 1,475
-------
TELEPHONES &
TELECOMMUNICATION--9.1%
Ameritech 20,000 1,180
Bell Atlantic 12,000 802
Bellsouth 24,000 1,044
GTE 26,000 1,144
US West 20,000 715
-------
4,885
-------
Total Common Stock
(Cost $43,886,661) 53,625
-------
CASH EQUIVALENT--0.4%
SEI Liquid Asset Trust -
Government Portfolio $202 202
-------
Total Cash Equivalent
(Cost $202,198) 202
-------
Total Investments--100.0%
(Cost $44,088,859) 53,827
-------
OTHER ASSETS AND LIABILITIES--0.0%
Other Assets and Liabilities, Net (13)
-------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
3,382,510 outstanding shares of
beneficial interest 34,788
</TABLE>
32
<PAGE>
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C>
NET ASSETS:--CONTINUED
Portfolio shares of Class B (unlimited
authorization--no par value) based on
735,130 outstanding shares of beneficial
interest $ 8,455
Accumulated net realized gain
on investments 833
Net unrealized appreciation
on investments 9,738
-------
Total Net Assets--100.0% $53,814
=======
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 13.07
=======
Net Asset Value and Redemption
Price Per Share--Class B $ 13.08
=======
Maximum Public Offering Price Per
Share--Class B ($13.08 / 96%) $ 13.63
=======
<FN>
ADR -- American Depository Receipt
</FN>
</TABLE>
MID CAP VALUE FUND
<TABLE>
<S> <C> <C>
COMMON STOCK--96.6%
APPAREL/TEXTILES--1.9%
Albany International 50,000 $ 906
-------
AUTOMOTIVE--10.5%
A.O.Smith 40,000 830
Echlin 36,000 1,314
Federal Signal 52,000 1,345
Regal Beloit 72,000 1,566
-------
5,055
-------
BANKS--8.1%
Associated Bancorp 15,000 614
Dauphin Deposit Bank & Trust 20,000 575
First Tennessee National 16,000 968
Merchantile Bancorp 12,000 552
Wilmington Trust 20,000 617
Zions Bancorp 7,000 562
-------
3,888
-------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
BUILDING & CONSTRUCTION--7.5%
Foster Wheeler 30,000 $ 1,275
Granite Construction 10,000 315
Pitt Des Moines 20,000 765
Jacobs Engineering Group * 50,000 1,250
-------
3,605
-------
CHEMICALS--9.0%
Cytec Industries * 20,000 1,247
Lawter International 100,000 1,162
Olin 10,000 742
Praxair 35,000 1,177
-------
4,328
-------
COMMUNICATIONS EQUIPMENT--2.0%
Vishay Intertechnology* 30,000 945
-------
DRUGS--1.5%
Loctite 15,000 713
-------
ELECTRICAL TECHNOLOGY--2.3%
Anixter International * 60,000 1,117
-------
FINANCIAL SERVICES--1.1%
Franklin Resources 10,000 504
-------
FOOD, BEVERAGE & TOBACCO--4.9%
McCormick 65,000 1,568
Universal Foods 20,000 802
-------
2,370
-------
HOUSEHOLD PRODUCTS--2.8%
Valspar 30,000 1,339
-------
INSURANCE--2.7%
Cincinnati Financial 20,000 1,305
-------
MACHINERY--11.2%
Astec Industries * 50,000 494
Baldor Electric 45,000 906
Case 20,000 915
Lindsay Manufacturing* 36,000 1,386
Nordson 20,000 1,125
Stewart & Stevenson Services 22,000 555
-------
5,381
-------
</TABLE>
33
<PAGE>
STATEMENT OF NET ASSETS
===============================================================================
The Pillar Funds -- December 31, 1995
MID CAP VALUE FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C>
MARINE TRANSPORTATION--2.4%
Kirby* 70,000 $ 1,138
-------
MEASURING DEVICES--3.2%
Andros Analyzers* 10,000 153
Oak Industries* 50,000 937
Trimble Navigation* 25,000 466
-------
1,556
-------
METALS & MINING--4.5%
Cleveland Cliffs 32,000 1,312
Vulcan Materials 15,000 864
-------
2,176
-------
PAPER & PAPER PRODUCTS--6.0%
Bemis 60,000 1,537
Wausau Paper Mills 50,000 1,363
-------
2,900
-------
PETROLEUM REFINING--2.1%
Saga Petroleum, Class B * 80,000 1,000
-------
PRINTING & PUBLISHING--2.2%
Belo, Class A 30,000 1,043
-------
RAILROADS--4.1%
Illinois Central 30,000 1,151
Kansas City Southern
Industries 18,000 824
-------
1,975
-------
RUBBER & PLASTIC--4.5%
Cooper Tire & Rubber 50,000 1,231
Sonoco Products 35,000 919
-------
2,150
-------
STEEL & STEEL WORKS--1.0%
Schnitzer Steel Industries, Cl A 15,000 458
-------
TRUCKING--1.1%
Kenan Transport 25,479 529
-------
Total Common Stock
(Cost $39,280,076) 46,381
-------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
CASH EQUIVALENT--1.8%
SEI Liquid Asset Trust -
Government Portfolio $866 $ 866
-------
Total Cash Equivalent
(Cost $866,338) 866
-------
Total Investments--98.4%
(Cost $40,146,414) 47,247
-------
OTHER ASSETS AND LIABILITIES--1.6%
Other Assets and Liabilities, Net 781
-------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
3,377,962 outstanding shares of
beneficial interest 35,436
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 451,242
outstanding shares of beneficial
interest 5,176
Accumulated net realized gain
on investments 315
Net unrealized appreciation
on investments 7,101
-------
Total Net Assets--100.0% $48,028
=======
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 12.55
=======
Net Asset Value and Redemption
Price Per Share--Class B $ 12.53
=======
Maximum Public Offering Price Per
Share--Class B ($12.53 / 96%) $ 13.05
=======
<FN>
* Non-income producing security
ADR -- American Depository Receipt
</FN>
</TABLE>
34
<PAGE>
===============================================================================
BALANCED GROWTH FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS--12.8%
U.S. Treasury Notes
6.880%, 02/28/97 $ 500 $ 509
6.630%, 03/31/97 500 509
5.880%, 08/15/98 500 508
5.000%, 01/31/99 500 496
7.000%, 04/15/99 500 525
7.750%, 11/30/99 500 542
5.880%, 06/30/00 500 510
5.750%, 10/31/00 500 507
7.500%, 11/15/01 500 551
6.380%, 08/15/02 500 525
------
Total U.S. Treasury Obligations
(Cost $5,008,381) 5,182
------
U.S. GOVERNMENT AGENCY
OBLIGATIONS--30.8%
Federal Farm Credit Bank
7.610%, 03/16/98 100 100
7.950%, 04/01/02 500 519
Federal Home Loan Bank
6.330%, 07/14/97 500 501
6.300%, 11/02/98 500 501
6.490%, 12/01/99 500 501
Federal Home Loan Mortgage
6.300%, 08/25/99 500 501
6.550%, 01/04/00 500 516
6.550%, 10/02/02 500 525
Federal National Mortgage
Association
6.750%, 04/22/97 500 509
7.680%, 12/01/97 300 312
6.350%, 08/10/99 500 513
8.350%, 11/10/99 500 548
8.500%, 01/13/00 500 530
6.100%, 02/10/00 500 509
7.900%, 04/10/02 500 512
6.950%, 09/10/02 500 505
6.720%, 02/25/03 500 513
6.380%, 06/25/03 500 504
6.200%, 11/12/03 500 502
5.800%, 12/10/03 500 500
8.630%, 11/10/04 500 544
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Face Amount Market
Description (000)/Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
8.550%, 12/10/04 $ 750 $ 784
8.000%, 04/13/05 500 522
Tennessee Valley Authority
7.450%, 10/15/01 500 525
6.380%, 06/15/05 500 519
-------
Total U.S. Government Agency
Obligations
(Cost $12,153,933) 12,515
-------
CORPORATE BOND--4.4%
American Express Credit
6.750%, 06/01/01 500 518
E.I. DuPont de Nemours
6.750%, 10/15/02 500 524
Philip Morris
8.750%, 12/01/96 100 103
9.250%, 02/15/00 100 111
Southern California Edison
6.750%, 01/15/00 500 513
------
Total Corporate Bond
(Cost $1,699,706) 1,769
------
COMMON STOCK--50.0%
AEROSPACE & DEFENSE--1.1%
Loral 13,000 460
------
AIRCRAFT--1.7%
Boeing 4,000 313
United Technologies 4,000 380
------
693
------
AUTOMOTIVE--1.5%
Borg-Warner Automotive 9,000 288
Echlin 9,000 329
------
617
------
BANKS--3.4%
Boatmen's Bancshares 12,000 490
J.P. Morgan 6,000 482
Norwest 12,000 396
------
1,368
------
</TABLE>
35
<PAGE>
STATEMENT OF NET ASSETS
===============================================================================
The Pillar Funds -- December 31, 1995
BALANCED GROWTH FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
CHEMICALS--1.2%
Monsanto 4,000 $ 490
------
COMMUNICATIONS EQUIPMENT--0.7%
ITT Industries 4,000 96
ITT * 4,000 212
------
308
------
COMPUTERS & SERVICES--3.0%
Compaq Computer* 7,500 360
Hewlett Packard 4,000 335
Safeguard Scientifics * 10,000 495
US Data * 2,500 36
------
1,226
------
CONCRETE & MINERAL PRODUCTS--2.4%
Armstrong World Industries 8,000 496
Minnesota Mining &
Manufacturing 7,000 464
------
960
------
CONTAINERS & PACKAGING--0.7%
Crown Cork & Seal* 6,500 271
------
DRUGS--2.6%
Bristol-Myers Squibb 6,000 515
Merck 8,000 526
------
1,041
------
ELECTRICAL & ELECTRONIC
PRODUCTS--2.4%
Emerson Electric 5,000 409
General Electric 8,000 576
------
985
------
ELECTRIC UTILITIES--0.9%
FPL Group 8,000 371
------
FINANCIAL SERVICES--1.7%
Federal National Mortgage
Association 4,000 496
ITT Hartford Group* 4,000 194
------
690
------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
FOOD, BEVERAGE & TOBACCO--6.4%
CPC International 7,000 $ 480
H.J. Heinz 14,250 472
Nestle S.A., ADR 10,000 555
Pepsico 9,000 503
Sara Lee 10,000 319
Unilever NV, ADR 2,000 282
------
2,611
------
FORESTRY--1.0%
Rayonier 12,000 400
------
HOUSEHOLD PRODUCTS--0.9%
Whirlpool 7,000 373
------
INSURANCE--2.5%
American International Group 6,000 555
Cigna 4,500 465
------
1,020
------
PETROLEUM & FUEL PRODUCTS--1.2%
Schlumberger 7,000 485
------
PETROLEUM REFINING--4.0%
Amoco 7,000 503
Mobil 5,000 560
Royal Dutch Petroleum 4,000 565
------
1,628
------
PRINTING & PUBLISHING--1.5%
Gannett 6,000 368
Time Warner 6,000 227
------
595
------
RAILROADS--2.3%
Burlington Northern Santa Fe 6,000 468
Illinois Central 12,000 461
------
929
------
RETAIL--1.1%
May Department Stores 11,000 465
------
</TABLE>
36
<PAGE>
===============================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
SEMI-CONDUCTORS/
INSTRUMENTS--0.8%
Intel 5,500 $ 312
-------
TELEPHONES &
TELECOMMUNICATION--5.0%
AT&T 8,000 518
Ameritech 7,600 448
Bell Atlantic 8,000 535
Bellsouth 12,000 522
-------
2,023
-------
Total Common Stock
(Cost $15,214,190) 20,321
-------
CASH EQUIVALENT--1.2%
SEI Liquid Asset Trust -
Government Portfolio $476 476
-------
Total Cash Equivalent
(Cost $475,751) 476
-------
Total Investments--99.2%
(Cost $34,551,961) 40,263
-------
OTHER ASSETS AND LIABILITIES--0.8%
Other Assets and Liabilities, Net 334
-------
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
2,667,147 outstanding shares of
beneficial interest 27,439
Portfolio shares of Class B
(unlimited authorization--no
par value) based on 700,302
outstanding shares of beneficial
interest 7,489
Accumulated net realized loss
on investments (42)
Net unrealized appreciation
on investments 5,711
-------
Total Net Assets--100.0% $40,597
=======
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C>
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 12.05
========
Net Asset Value and Redemption
Price Per Share--Class B $ 12.07
========
Maximum Public Offering Price Per
Share--Class B ($12.07 / 96%) $ 12.57
========
<FN>
* Non-income producing security
ADR -- American Depository Receipt
</FN>
</TABLE>
INTERNATIONAL GROWTH FUND
<TABLE>
<S> <C> <C>
FOREIGN STOCKS--97.5%
ARGENTINA--0.8%
Buenos Aires Embotelladora
ADR 2,250 $ 46
Telefonica Argentina ADR 1,600 44
--------
90
--------
AUSTRALIA--5.3%
Advance Bank Australia 9,590 77
Amcor 13,100 92
Australian & New Zealand
Bank 28,000 131
Broken Hill Proprietary 11,076 156
Qantas Air ADR 2,050 34
Westpac Banking 15,000 67
--------
557
--------
AUSTRIA--0.8%
EVN 650 89
--------
BELGIUM--0.6%
Delhaize-Le Lion 1,550 64
--------
BRAZIL--0.7%
Electrobras ADR 4,300 58
Usiminas ADR 2,000 16
--------
74
--------
</TABLE>
37
<PAGE>
STATEMENT OF NET ASSETS
===============================================================================
The Pillar Funds -- December 31, 1995
INTERNATIONAL GROWTH
FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
CANADA--1.6%
Canada Pacific ADR 9,500 $ 172
------
CHILE--0.3%
Compania de Telecom Chile ADR 400 33
------
DENMARK--2.0%
Tele Denmark ADS 5,750 159
Unidanmark series A 1,100 54
------
213
------
FINLAND--1.2%
Metsa Serla series B 1,700 52
Unitas Bank series A * 28,000 71
------
123
------
FRANCE--8.0%
Banque National Paris series A 1,450 66
Canal Plus 525 99
Cie de Saint Gobain 600 66
Danone 350 58
Peugeot 400 53
Renault 1,700 49
Rhone Poulenc 6,750 145
Societe Generale 650 80
Societe Nationale Elf Aquitaine 1,900 140
Total Compaigne series B 1,300 88
------
844
------
GERMANY--5.5%
Bayer 375 100
Biersdorf 20 14
Daimler Benz 150 76
Degussa 245 82
Deutsche Bank 1,700 81
Karstadt 160 66
Mannesmann 250 79
Veba 2,000 86
------
584
------
HONG KONG--4.1%
Hong Kong Telecommunications 29,600 53
Hutchison Whampoa 23,000 140
Sung Hung Kai Properties 16,000 131
Swire Pacific series A 14,000 108
------
432
------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
INDONESIA--0.4%
Jaya Real Property 15,000 $ 40
Semen Gresik 2,500 7
------
47
------
ITALY--2.3%
Banca Commerciale Italiana 40,000 85
Stet Societa Finanziaria
Telefonica 43,000 122
Telecom Italia 25,000 39
------
246
------
JAPAN--27.7%
Canon Sales 3,150 84
Chugai Pharmaceutical 14,000 134
Dai Nippon Printing 7,000 119
Eisai 4,000 70
Home Wide 3,000 35
Ito Yokado 2,000 123
Kajima 6,000 59
Kawasaki Heavy Industries 14,000 64
Kawasaki Steel 20,000 70
Keio Teito Electric Railway 8,000 47
Kyoritsu Air Tech 1,000 11
Matsushita Electric 6,000 98
Minebea 6,000 50
Mitsubishi 6,000 74
Mitsubishi Bank 4,000 94
Mitsui Petrochem 5,000 41
Nihon Jumbo 2,000 70
Nippon Express 8,000 77
Nippon Telegraph & Telephone 9 73
NKK 30,000 81
Nokia ADR series A 2,300 89
Nomura Securities 5,000 109
Orix 3,000 124
Riso Kagaku 500 42
Sakura Bank 8,000 102
Sankyo 4,000 90
Sanwa Bank 3,000 61
Secom 2,000 139
Sekisui Chemical 1,000 15
Seven Eleven 1,000 71
Shimamura 2,000 77
</TABLE>
38
<PAGE>
===============================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
JAPAN--CONTINUED
Showa 5,000 $ 38
Sony 1,000 60
Sumitomo Marine &
Fire Insurance 7,000 58
Sumitomo Realty &
Development 11,000 78
Sumitomo Trust & Banking 5,000 71
Toda Construction 5,000 43
Tohoku Electric Power 2,000 48
Tokio Marine & Fire Insurance 10,000 131
Tsutsumi Jewelry 200 10
------
2,930
------
MALAYSIA--1.8%
Resorts World Berhad 13,000 70
Sime Darby 36,000 96
Telekom Malaysia 3,000 23
------
189
------
MEXICO--1.0%
Cemex SA de CV series A 6,000 20
Femsa series B 10,500 24
Grupo Carso * 3,300 18
Telefonos de Mexico ADR
series L 850 27
Trans Maritima ADR 2,350 18
------
107
------
NETHERLANDS--4.1%
Elsevier 4,000 53
International Nederland 2,000 134
Unilever CVA 650 92
Vendex International 4,000 119
Verenigde Nederlandse
Uigevbedrijven 250 34
------
432
------
NEW ZEALAND--1.4%
Air New Zealand series B 17,500 59
Brierley Investment 115,000 91
------
150
------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
NORWAY--3.9%
Christiana Bank 24,100 $ 57
Hafslund Nycomed series A 2,800 73
Kvaerner 2,500 89
Orkla AS series A 1,750 87
Saga Petroleum AS series A 7,800 104
------
410
------
PHILIPPINES--1.0%
Philippine National Bank* 6,000 66
Phillipino Telephone 40,000 41
------
107
------
PORTUGAL--0.5%
Portugal Telecom S.A. ADR* 3,000 57
------
SINGAPORE--3.4%
Keppel 15,000 134
Overseas Chinese Banking 9,000 113
United Overseas Bank 12,000 115
------
362
------
SPAIN--4.8%
Acerinox S.A. 850 86
Banco Bilbao Vizcaya 3,750 135
Empresa Nacional de
Electricidad 1,600 91
Repsol 400 13
Telefonica de Espana 3,500 48
Repsol ADR 4,000 132
------
505
------
SWEDEN--2.0%
Astra AB series A 1,100 44
Avesta Sheffield 4,500 40
BT Industries* 5,300 58
Stora Kopparbergs series A 5,800 68
------
210
------
SWITZERLAND--2.9%
Ciba Geigy 90 79
Nestle SA 140 155
Sulzer Gerbruder 145 78
------
312
------
</TABLE>
39
<PAGE>
STATEMENT OF NET ASSETS
===============================================================================
The Pillar Funds -- December 31, 1995
INTERNATIONAL GROWTH
FUND--CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------
<S> <C> <C>
THAILAND--0.9%
Bangkok Bank 1,500 $ 18
Bangkok Metro Bank 38,000 35
Siam Commercial Bank 3,000 40
------
93
------
UNITED KINGDOM--8.5%
Associated British Foods 8,000 46
Bass 2,000 22
BET 82,000 162
Body Shop International 14,000 33
British Steel 30,000 76
British Telecommunications 8,750 48
Powergen 6,073 50
Rank Organization 17,500 127
Royal Insurance 21,000 125
Tomkins 15,000 66
Vodafone Group 42,000 150
------
905
------
Total Foreign Stocks
(Cost $9,864,107) 10,337
------
REPURCHASE AGREEMENTS--2.8%
Swiss Bank Securities 5.85%,
dated 12/29/95, matures
1/2/96, repurchase price
$294,191 (collateralized by
U.S. Treasury Note, par
value $180,000, 14%, due
11/15/11, market value
$301,171) 294 294
------
Total Repurchase Agreements
(Cost $294,000) 294
------
Total Investments--100.3%
(Cost $10,158,107) 10,631
------
OTHER ASSETS AND LIABILITIES-- (0.3%) (20)
------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Value (000)
- ----------------------------------------------------------
<S> <C>
NET ASSETS:
Portfolio shares of Class A (unlimited
authorization--no par value) based on
930,244 outstanding shares of beneficial
interest $ 9,491
Portfolio shares of Class B
unlimited authorization--no
par value) based on 57,822
outstanding shares of beneficial
interest 590
Undistributed net investment income 12
Accumulated net realized loss
on foreign currency transactions (16)
Accumulated net realized gain
on investments 61
Net unrealized appreciation
on investments 473
-------
Total Net Assets--100.0% $10,611
=======
Net Asset Value, Offering Price and
Redemption Price Per
Share--Class A $ 10.74
=======
Net Asset Value and Redemption
Price Per Share--Class B $ 10.73
=======
Maximum Public Offering Price Per
Share--Class B ($10.73 / 96%) $ 11.18
=======
<FN>
* Non-income producing security
ADR -- American Depository Receipts
ADS -- American Depository Shares
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
STATEMENT OF OPERATIONS (000)
================================================================================
The Pillar Funds -- For the year ended December 31, 1995
<TABLE>
<CAPTION>
------------- ---------- ---------- -------------
U.S. TREASURY PRIME U.S. TREASURY
SECURITIES OBLIGATION TAX-EXEMPT SECURITIES
MONEY MONEY MONEY PLUS MONEY
MARKET MARKET MARKET MARKET
FUND FUND FUND FUND
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME: $ 22,136 $ 13,294 $ 2,274 $ 3,308
-------- -------- -------- --------
EXPENSES:
Administration fee 795 450 112 199
Investment advisory fee 1,391 787 198 85
Less investment advisory fee waived (11) (11) (28) (41)
Custodian fee 99 56 15 14
Transfer agent fee 143 65 36 34
Professional fees 93 37 11 8
Registration fees 19 50 12 (8)
Distribution fees (1) 4 11 11 17
Printing expense 38 16 4 3
Amortization of deferred
organizational costs 4 4 3 2
Insurance and other expenses 11 8 4 --
-------- -------- -------- --------
Total expenses 2,586 1,473 378 313
-------- -------- -------- --------
NET INVESTMENT INCOME 19,550 11,821 1,896 2,995
-------- -------- -------- --------
Net realized gain (loss)
on investments 110 44 (5) 4
-------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 19,660 $ 11,865 $ 1,891 $ 2,999
======== ======== ======== ========
<FN>
(1) All distribution fees are incurred at the Class B level except for U.S. Treasury
Securities Plus Money Market Fund.
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
STATEMENT OF OPERATIONS (000)
================================================================================
The Pillar Funds -- For the year ended December 31, 1995
<TABLE>
<CAPTION>
---------- ---------- ----------- -------------
INTERMEDIATE-
NEW JERSEY TERM
SHORT-TERM FIXED MUNICIPAL GOVERNMENT
INVESTMENT INCOME SECURITIES SECURITIES
FUND FUND FUND FUND
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income -- -- -- --
Interest income $ 1,997 $ 7,357 $ 2,288 $ 1,944
Less: Foreign taxes withheld -- -- -- --
-------- -------- -------- --------
Total income 1,997 7,357 2,288 1,944
-------- -------- -------- --------
EXPENSES:
Administration fee 63 222 90 63
Less administration fee waived -- -- (34) --
Investment advisory fee 189 666 283 190
Less investment advisory fee waived (53) (117) (214) (78)
Custodian fee 8 28 11 9
Transfer agent fee 30 49 30 35
Professional fees 6 19 9 19
Registration fees 1 -- 3 --
Distribution fees (1) 3 14 58 7
Printing expense 2 7 5 5
Amortization of deferred
organizational costs 4 3 3 4
Insurance and other expenses 3 11 8 7
-------- -------- -------- --------
Total expenses 256 902 252 261
-------- -------- -------- --------
NET INVESTMENT INCOME 1,741 6,455 2,036 1,683
-------- -------- -------- --------
Net realized gain (loss)
on investments 43 (191) (59) (624)
-------- -------- -------- --------
Net realized loss on foreign currency
transactions and foreign currency
contracts -- -- -- --
Net change in unrealized depreciation
on foreign currency and translation
of other assets and liabilities
denominated in foreign currency -- -- -- --
Net unrealized appreciation
of investment securities 134 11,725 3,802 3,243
-------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 1,918 $ 17,989 $ 5,779 $ 4,302
======== ======== ======== ========
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
------------ ---------- -------- -------- -------- -------- -------------
PENNSYLVANIA
MUNICIPAL EQUITY EQUITY MID CAP BALANCED INTERNATIONAL
SECURITIES GNMA VALUE INCOME VALUE GROWTH GROWTH
FUND FUND FUND FUND FUND FUND FUND (2)
------------ ---------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income -- -- $ 1,947 $ 1,512 $ 770 $ 469 $ 55
Interest income $ 160 $ 660 265 50 120 1,296 44
Less: Foreign taxes withheld -- -- -- -- -- -- (6)
-------- -------- -------- -------- -------- -------- --------
Total income 160 660 2,212 1,562 890 1,765 93
-------- -------- -------- -------- -------- -------- --------
EXPENSES:
Administration fee 5 19 153 92 86 75 8
Less administration fee waived (5) -- -- -- -- -- --
Investment advisory fee 19 56 575 344 321 282 41
Less investment advisory fee waived (19) (31) (208) (136) (130) (115) (25)
Custodian fee 1 3 19 11 10 9 7
Transfer agent fee 24 26 40 34 34 32 13
Professional fees 1 1 13 9 8 7 2
Registration fees -- (1) 4 2 3 1 3
Distribution fees (1) 1 4 12 18 13 19 --
Printing expense -- -- 5 3 3 3 3
Amortization of deferred
organizational costs -- 1 4 4 3 3 2
Insurance and other expenses -- 1 9 3 4 3 7
-------- -------- -------- -------- -------- -------- --------
Total expenses 27 79 626 384 355 319 61
-------- -------- -------- -------- -------- -------- --------
NET INVESTMENT INCOME 133 581 1,586 1,178 535 1,446 32
-------- -------- -------- -------- -------- -------- --------
Net realized gain (loss)
on investments 16 1 6,540 2,837 764 1,009 81
-------- -------- -------- -------- -------- -------- --------
Net realized loss on foreign currency
transactions and foreign currency
contracts -- -- -- -- -- -- (16)
Net change in unrealized depreciation
on foreign currency and translation
of other assets and liabilities
denominated in foreign currency -- -- -- -- -- --
Net unrealized appreciation
of investment securities 205 1,054 15,433 9,914 6,078 6,664 473
-------- -------- -------- -------- -------- -------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 354 $ 1,636 $ 23,559 $ 13,929 $ 7,377 $ 9,119 $ 570
======== ======== ======== ======== ======== ======== ========
<FN>
(1) All distribution fees are incurred at the Class B level.
(2) The International Growth Fund commenced operations on May 1, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
================================================================================
The Pillar Funds -- For the year ended December 31, 1995
<TABLE>
<CAPTION>
--------------------- -------------------
U.S. TREASURY PRIME OBLIGATION
SECURITIES MONEY MONEY MARKET
MARKET FUND FUND
--------------------- -------------------
1995 1994 1995 1994
---------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income $ 19,550 $ 14,428 $ 11,821 $ 5,065
Net realized gain (loss) on
securities sold 110 17 44 (18)
---------- -------- -------- --------
Net increase in net assets resulting
from operations 19,660 14,445 11,865 5,047
---------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (19,473) (14,405) (11,601) (5,007)
Class B (77) (23) (220) (58)
Realized capital gains:
Class A -- -- -- --
Class B -- -- -- --
---------- -------- -------- --------
Total distributions (19,550) (14,428) (11,821) (5,065)
---------- -------- -------- --------
SHARE TRANSACTIONS (ALL AT $1.00
PER SHARE):
Class A:
Shares issued 1,066,121 1,026,987 610,748 427,745
Shares issued in lieu of cash
distributions 1 1 -- --
Shares redeemed (1,067,826) (982,827) (508,503) (400,130)
---------- -------- -------- --------
Net Class A share transactions (1,704) 44,161 102,245 27,615
---------- -------- -------- --------
Class B:
Shares issued 6,412 1,996 9,612 5,071
Shares issued in lieu of cash
distributions 65 22 199 44
Shares redeemed (3,578) (2,219) (6,167) (2,210)
---------- -------- -------- --------
Net Class B share transactions 2,899 (201) 3,644 2,905
---------- -------- -------- --------
Increase/decrease in net assets from
share transactions 1,195 43,960 105,889 30,520
---------- -------- -------- --------
Total increase/decrease in net assets 1,305 43,977 105,933 30,502
---------- -------- -------- --------
NET ASSETS:
Beginning of period 465,758 421,781 160,659 130,157
---------- -------- -------- --------
NET ASSETS:
End of period $ 467,063 $465,758 $266,592 $160,659
========== ======== ======== ========
</TABLE>
44
<TABLE>
<CAPTION>
------------------- -----------------
TAX-EXEMPT U.S.TREASURY
MONEY MARKET SECURITIES PLUS
FUND MONEY MARKET FUND
------------------- -----------------
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income $ 1,896 $ 911 $ 2,995 $ 2,175
Net realized gain (loss) on
securities sold (5) 2 4 (19)
-------- -------- ------- -------
Net increase in net assets resulting
from operations 1,891 913 2,999 2,156
-------- -------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (1,764) (848) (2,995) (2,175)
Class B (132) (62) -- --
Realized capital gains:
Class A -- -- -- --
Class B -- -- -- --
-------- -------- ------- -------
Total distributions (1,896) (910) (2,995) (2,175)
-------- -------- ------- -------
SHARE TRANSACTIONS (ALL AT $1.00
PER SHARE):
Class A:
Shares issued 140,400 97,150 418,839 458,343
Shares issued in lieu of cash
distributions -- -- 2,350 1,592
Shares redeemed (114,513) (92,401) (402,797) (502,893)
-------- -------- ------- -------
Net Class A share transactions 25,887 4,749 18,392 (42,958)
-------- -------- ------- -------
Class B:
Shares issued 7,924 4,033 -- --
Shares issued in lieu of cash
distributions 112 53 -- --
Shares redeemed (5,587) (5,163) -- --
-------- -------- ------- -------
Net Class B share transactions 2,449 (1,077) -- --
-------- -------- ------- -------
Increase/decrease in net assets from
share transactions 28,336 3,672 18,392 (42,958)
-------- -------- ------- -------
Total increase/decrease in net assets 28,331 3,675 18,396 (42,977)
-------- -------- ------- -------
NET ASSETS:
Beginning of period 40,535 36,860 46,301 89,278
-------- -------- ------- -------
NET ASSETS:
End of period $ 68,866 $ 40,535 $64,697 $46,301
======== ======== ======= =======
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
===============================================================================
The Pillar Funds -- For the year ended December 31, 1995
<TABLE>
<CAPTION>
---------------------- ----------------------
SHORT-TERM FIXED
INVESTMENT INCOME
FUND FUND
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income $ 1,741 $ 1,073 $ 6,455 $ 6,534
Net realized gain (loss) on
securities sold 43 (75) (191) 29
Net unrealized appreciation (depreciation)
of investment securities 134 (53) 11,725 (13,385)
--------- --------- --------- ---------
Net increase in net assets resulting
from operations 1,918 945 17,989 (6,822)
--------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (1,676) (1,057) (6,151) (6,173)
Class B (64) (17) (305) (360)
Realized capital gains:
Class A -- (13) -- (597)
Class B -- -- -- (36)
--------- --------- --------- ---------
Total distributions (1,740) (1,087) (6,456) (7,166)
--------- --------- --------- ---------
SHARE TRANSACTIONS:
Class A:
Shares issued 10,526 6,290 14,073 8,529
Shares issued in lieu of cash
distributions 1,642 1,054 5,297 6,469
Shares redeemed (10,885) (9,352) (13,377) (19,157)
--------- --------- --------- ---------
Net Class A share transactions 1,283 (2,008) 5,993 (4,159)
--------- --------- --------- ---------
Class B:
Shares issued 1,553 672 1,524 1,823
Shares issued in lieu of cash
distributions 58 17 197 294
Shares redeemed (343) (125) (1,977) (2,298)
--------- --------- --------- ---------
Net Class B share transactions 1,268 564 (256) (181)
--------- --------- --------- ---------
Increase (decrease) in net assets
from share transactions 2,551 (1,444) 5,737 (4,340)
--------- --------- --------- ---------
Total increase (decrease) in net
assets 2,729 (1,586) 17,270 (18,328)
--------- --------- --------- ---------
NET ASSETS:
Beginning of period 29,956 31,542 102,083 120,411
--------- --------- --------- ---------
NET ASSETS:
End of period $ 32,685 $ 29,956 $ 119,353 $ 102,083
========= ========= ========= =========
SHARES ISSUED AND REDEEMED:
Class A shares:
Issued 1,050 631 1,399 848
Issued in lieu of cash distributions 164 105 526 656
Redeemed (1,086) (938) (1,336) (1,935)
--------- --------- --------- ---------
Net Class A share transactions 128 (202) 589 (431)
--------- --------- --------- ---------
Class B shares:
Issued 154 67 149 178
Issued in lieu of cash distributions 6 2 20 30
Redeemed (34) (12) (197) (233)
--------- --------- --------- ---------
Net Class B shares 126 57 (28) (25)
--------- --------- --------- ---------
Net increase (decrease) in shares 254 (145) 561 (456)
========= ========= ========= =========
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
--------------------- ---------------------- ---------------------- --------------------
NEW JERSEY INTERMEDIATE- PENNSYLVANIA
MUNICIPAL TERM GOVERNMENT MUNICIPAL GNMA
SECURITIES FUND SECURITIES FUND SECURITIES FUND FUND
--------------------- ---------------------- ---------------------- --------------------
1995 1994 1995 1994 1995 1994 1995 1994
--------- --------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income $ 2,036 $ 2,248 $ 1,683 $ 1,791 $ 133 $ 112 $ 581 $ 708
Net realized gain (loss) on
securities sold (59) (245) (624) (571) 16 (26) 1 (654)
Net unrealized appreciation
(depreciation) of investment
securities 3,802 (4,315) 3,243 (3,187) 205 (169) 1,054 (812)
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase in net assets
resulting from operations 5,779 (2,312) 4,302 (1,967) 354 (83) 1,636 (758)
--------- --------- --------- --------- --------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (1,069) (1,174) (1,545) (1,618) (123) (100) (472) (575)
Class B (965) (1,077) (139) (172) (10) (12) (105) (137)
Realized capital gains:
Class A -- -- -- (17) -- -- -- (12)
Class B -- -- -- (2) -- -- -- (3)
--------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (2,034) (2,251) (1,684) (1,809) (133) (112) (577) (727)
--------- --------- --------- --------- --------- --------- --------- ---------
SHARE TRANSACTIONS:
Class A:
Shares issued 10,887 9,207 11,820 9,375 651 299 2,519 3,392
Shares issued in lieu of cash
distributions 881 950 1,271 1,467 -- -- 325 401
Shares redeemed (5,551) (14,894) (12,889) (15,297) (242) (314) (1,935) (6,518)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Class A share transactions 6,217 (4,737) 202 (4,455) 409 (15) 909 (2,725)
--------- --------- --------- --------- --------- --------- --------- ---------
Class B:
Shares issued 7,955 9,781 1,667 1,162 59 140 193 737
Shares issued in lieu of cash
distributions 783 871 112 137 8 11 68 81
Shares redeemed (5,838) (9,845) (706) (3,397) (153) (82) (554) (1,305)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Class B share transactions 2,900 807 1,073 (2,098) (86) 69 (293) (487)
--------- --------- --------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets
from share transactions 9,117 (3,930) 1,275 (6,553) 323 54 616 (3,212)
--------- --------- --------- --------- --------- --------- --------- ---------
Total increase (decrease) in net
assets 12,862 (8,493) 3,893 (10,329) 544 (141) 1,675 (4,697)
--------- --------- --------- --------- --------- --------- --------- ---------
NET ASSETS:
Beginning of period 41,172 49,665 28,649 38,978 3,070 3,211 8,836 13,533
--------- --------- --------- --------- --------- --------- --------- ---------
NET ASSETS:
End of period $ 54,034 $ 41,172 $ 32,542 $ 28,649 $ 3,614 $ 3,070 $ 10,511 $ 8,836
========= ========= ========= ========= ========= ========= ========= =========
SHARES ISSUED AND REDEEMED:
Class A shares:
Issued 1,033 879 1,176 924 65 30 262 352
Issued in lieu of cash
distributions 84 92 126 148 -- -- 34 43
Redeemed (528) (1,453) (1,280) (1,547) (24) (31) (205) (712)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Class A share
transactions 589 (482) 22 (475) 41 (1) 91 (317)
--------- --------- --------- --------- --------- --------- --------- ---------
Class B shares:
Issued 754 934 164 117 6 14 19 77
Issued in lieu of cash
distributions 75 85 11 14 1 1 7 9
Redeemed (559) (967) (71) (347) (16) (8) (59) (144)
--------- --------- --------- --------- --------- --------- --------- ---------
Net Class B shares 270 52 104 (216) (9) 7 (33) (58)
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase (decrease)
in shares 859 (430) 126 (691) 32 6 58 (375)
========= ========= ========= ========= ========= ========= ========= =========
<FN>
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
================================================================================
The Pillar Funds -- For the year ended December 31, 1995
<TABLE>
<CAPTION>
------------------- --------------------
EQUITY EQUITY
VALUE INCOME
FUND FUND
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income $ 1,586 $ 1,346 $ 1,178 $ 1,243
Net realized gain (loss) on
securities sold 6,540 (483) 2,837 499
Net realized loss on foreign
currency transactions -- -- -- --
Net unrealized depreciation on
foreign currency and translation
of other assets and liabilities
in foreign currency -- -- -- --
Net unrealized depreciation of
investment securities 15,433 (5,037) 9,914 (3,625)
-------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations 23,559 (4,174) 13,929 (1,883)
-------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (1,491) (1,293) (1,011) (1,081)
Class B (95) (53) (174) (154)
Realized capital gains:
Class A (5,108) (491) (1,576) (346)
Class B (471) (24) (336) (56)
-------- -------- -------- --------
Total distributions (7,165) (1,861) (3,097) (1,637)
-------- -------- -------- --------
SHARE TRANSACTIONS:
Class A:
Shares issued 11,043 11,046 4,217 3,972
Shares issued in lieu of cash
distributions 6,427 1,758 2,481 1,372
Shares redeemed (11,758) (13,006) (6,188) (6,021)
-------- -------- -------- --------
Net Class A share transactions 5,712 (202) 510 (677)
-------- -------- -------- --------
Class B:
Shares issued 3,923 1,040 3,547 2,601
Shares issued in lieu of cash
distributions 489 58 497 204
Shares redeemed (635) (547) (1,743) (1,095)
-------- -------- -------- --------
Net Class B share transactions 3,777 551 2,301 1,710
-------- -------- -------- --------
Increase (decrease) in net assets
from share transactions 9,489 349 2,811 1,033
-------- -------- -------- --------
Total increase (decrease) in
net assets 25,883 (5,686) 13,643 (2,487)
-------- -------- -------- --------
NET ASSETS:
Beginning of period 64,438 70,124 40,171 42,658
-------- -------- -------- --------
NET ASSETS:
End of period $ 90,321 $ 64,438 $ 53,814 $ 40,171
======== ======== ======== ========
SHARES ISSUED AND REDEEMED:
Class A shares:
Issued 912 1,019 355 367
Issued in lieu of cash distributions 508 171 197 131
Redeemed (993) (1,235) (533) (559)
-------- -------- -------- --------
Net Class A share transactions 427 (45) 19 (61)
-------- -------- -------- --------
Class B shares:
Issued 313 96 289 238
Issued in lieu of cash distributions 38 6 39 19
Redeemed (52) (52) (144) (102)
-------- -------- -------- --------
Net Class B shares 299 50 184 155
-------- -------- -------- --------
Net increase (decrease) in shares 726 5 203 94
======== ======== ======== ========
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
-------------------- ------------------- --------------
MID CAP BALANCED INTERNATIONAL
VALUE GROWTH GROWTH
FUND FUND FUND (1)
-------------------- -------------------- -------------
1995 1994 1995 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net investment income $ 535 $ 415 $ 1,446 $ 1,265 $ 32
Net realized gain (loss) on
securities sold 764 1,116 1,009 (334) 81
Net realized loss on foreign
currency transactions -- -- -- -- (16)
Net unrealized depreciation on
foreign currency and translation
of other assets and liabilities
in foreign currency -- -- -- -- --
Net unrealized depreciation of
investment securities 6,078 (5,588) 6,664 (2,694) 473
-------- -------- -------- -------- --------
Net increase (decrease) in net assets
resulting from operations 7,377 (4,057) 9,119 (1,763) 570
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A (484) (375) (1,174) (1,004) (19)
Class B (55) (36) (275) (259) (1)
Realized capital gains:
Class A (740) (670) (358) -- (19)
Class B (101) (90) (92) -- (1)
-------- -------- -------- -------- --------
Total distributions (1,380) (1,171) (1,899) (1,263) (40)
-------- -------- -------- -------- --------
SHARE TRANSACTIONS:
Class A:
Shares issued 5,976 6,073 3,566 6,221 9,881
Shares issued in lieu of cash
distributions 1,187 1,028 1,457 964 21
Shares redeemed (3,497) (4,646) (5,599) (3,625) (411)
-------- -------- -------- -------- --------
Net Class A share transactions 3,666 2,455 (576) 3,560 9,491
-------- -------- -------- -------- --------
Class B:
Shares issued 1,272 3,278 1,472 1,511 604
Shares issued in lieu of cash
distributions 154 125 357 252 2
Shares redeemed (1,076) (983) (1,534) (2,473) (16)
-------- -------- -------- -------- --------
Net Class B share transactions 350 2,420 295 (710) 590
-------- -------- -------- -------- --------
Increase (decrease) in net assets
from share transactions 4,016 4,875 (281) 2,850 10,081
-------- -------- -------- -------- --------
Total increase (decrease) in
net assets 10,013 (353) 6,939 (176) 10,611
-------- -------- -------- -------- --------
NET ASSETS:
Beginning of period 38,015 38,368 33,658 33,834 --
-------- -------- -------- -------- --------
NET ASSETS:
End of period $ 48,028 $ 38,015 $ 40,597 $ 33,658 $ 10,611
======== ======== ======== ======== ========
SHARES ISSUED AND REDEEMED:
Class A shares:
Issued 491 505 315 591 969
Issued in lieu of cash distributions 96 95 126 95 2
Redeemed (296) (406) (491) (354) (41)
-------- -------- -------- -------- --------
Net Class A share transactions 291 194 (50) 332 930
-------- -------- -------- -------- --------
Class B shares:
Issued 106 275 132 143 59
Issued in lieu of cash distributions 12 12 31 25 --
Redeemed (89) (86) (141) (242) (1)
-------- -------- -------- -------- --------
Net Class B shares 29 201 22 (74) 58
-------- -------- -------- -------- --------
Net increase (decrease) in shares 320 395 (28) 258 988
======== ======== ======== ======== ========
<FN>
(1) The International Growth Fund commenced operations on May 1, 1995. The
information presented is for the period ended December 31, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
FINANCIAL HIGHLIGHTS
===============================================================================
The Pillar Funds
For a Share Outstanding Throughout the Year
<TABLE>
<CAPTION>
Ratio of Ratio of
Expenses Net Income
Net Asset Distributions Ratio of Ratio of to Average to Average
Value Net from Net Net Asset Net Assets Expenses Net Income Net Assets Net Assets
Beginning Investment Investment Value End Total End of to Average to Average (Excluding (Excluding
of Period Income Income of Period Return Period (000) Net Assets Net Assets Waivers) Waivers)
- ---------------------------------------------------------------------------------------------------------------------------
- ------------------------
U.S. TREASURY SECURITIES
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1995 $1.00 $0.05 $(0.05) $1.00 5.05% $463,531 0.65% 4.92% 0.65% 4.92%
1994 1.00 0.03 (0.03) 1.00 3.44 465,125 0.62 3.39 0.62 3.39
1993 1.00 0.02 (0.02) 1.00 2.46 420,947 0.64 2.42 0.64 2.42
1992(1) 1.00 0.02 (0.02) 1.00 2.81* 387,960 0.65 2.67 0.70 2.62
CLASS B
1995 $1.00 $0.05 $(0.05) $1.00 4.80% $ 3,532 0.90% 4.66% 0.90% 4.66%
1994 1.00 0.03 (0.03) 1.00 3.17 633 0.87 3.07 0.87 3.07
1993 1.00 0.02 (0.02) 1.00 2.21 834 0.89 2.17 0.89 2.17
1992(1) 1.00 0.02 (0.02) 1.00 2.56* 436 0.90 2.27 0.95 2.22
- ----------------
PRIME OBLIGATION
- ----------------
CLASS A
1995 $1.00 $0.05 $(0.05) $1.00 5.40% $259,667 0.65% 5.26% 0.66% 5.25%
1994 1.00 0.04 (0.04) 1.00 3.67 157,378 0.62 3.68 0.62 3.68
1993 1.00 0.03 (0.03) 1.00 2.65 129,780 0.64 2.63 0.64 2.63
1992(1) 1.00 0.02 (0.02) 1.00 2.85* 124,811 0.65 2.63 0.77 2.51
CLASS B
1995 $1.00 $0.05 $(0.05) $1.00 5.14% $ 6,925 0.90% 5.01% 0.91% 5.00%
1994 1.00 0.03 (0.03) 1.00 3.40 3,281 0.87 3.89 0.87 3.89
1993 1.00 0.02 (0.02) 1.00 2.40 377 0.89 2.38 0.89 2.38
1992(1) 1.00 0.02 (0.02) 1.00 2.60* 243 0.89 2.43 1.01 2.31
- ----------
TAX-EXEMPT
- ----------
CLASS A
1995 $1.00 $0.03 $(0.03) $1.00 3.42% $ 63,628 0.65% 3.37% 0.72% 3.30%
1994 1.00 0.02 (0.02) 1.00 2.27 37,745 0.65 2.27 0.68 2.24
1993 1.00 0.02 (0.02) 1.00 1.99 32,994 0.65 1.97 0.69 1.93
1992(2) 1.00 0.02 (0.02) 1.00 2.42* 22,963 0.65 2.39 0.79 2.25
CLASS B
1995 $1.00 $0.03 $(0.03) $1.00 3.17% $ 5,238 0.90% 3.14% 0.96% 3.08%
1994 1.00 0.02 (0.02) 1.00 2.02 2,790 0.90 1.97 0.92 1.95
1993 1.00 0.02 (0.02) 1.00 1.74 3,866 0.90 1.72 0.94 1.68
1992(2) 1.00 0.02 (0.02) 1.00 2.17* 2,273 0.90 2.07 1.04 1.93
- -----------------------------
U.S. TREASURY SECURITIES PLUS
- -----------------------------
CLASS A
1995 $1.00 $0.05 $(0.05) $1.00 5.40% $ 64,697 0.55% 5.26% 0.62% 5.19%
1994 1.00 0.04 (0.04) 1.00 3.60 46,301 0.55 3.42 0.63 3.34
1993(3) 1.00 0.02 (0.02) 1.00 2.66* 89,278 0.55 2.62 0.68 2.49
<FN>
* Annualized
(1) The U.S. Treasury Securities Money Market and the Prime Obligations Money Market Funds commenced operations on April 1, 1992.
Ratios for this period have been annualized.
(2) The Tax-Exempt Money Market Fund commenced operations on April 6, 1992. Ratios for this period have been annualized.
(3) The U.S. Treasury Securities Plus Money Market Fund commenced operations on May 3, 1993. Ratios for this period have been
annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
================================================================================
For a Share Outstanding Throughout the Year
<TABLE>
<CAPTION>
Realized and
Net Asset Unrealized Distributions Distributions Ratio of Ratio of Net
Value Net Gains or from Net from Net Asset Total Net Assets Expenses Income
Beginning Investment Losses on Investment Capital Value End Return End of to Average to Average
of Period Income Securities Income Gains of Period (DAGGER) Period (000) Net Assets Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
- ---------------------
SHORT-TERM INVESTMENT
- ---------------------
CLASS A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.97 $0.55 $0.05 $(0.55) -- $10.02 6.19% $ 30,642 0.80% 5.52%
1994 10.01 0.35 (0.04) (0.35) -- 9.97 3.21 29,187 0.80 3.51
1993 10.01 0.29 -- (0.29) -- 10.01 2.96 31,337 0.80 2.94
1992(1) 10.00 0.27 0.03 (0.27) $(0.02) 10.01 3.47* 30,998 0.80 3.50
CLASS B
1995 $ 9.98 $0.53 $0.07 $(0.53) -- $10.05 6.13% $ 2,043 1.05% 5.27%
1994 10.03 0.33 (0.05) (0.33) -- 9.98 2.85 769 1.05 3.50
1993 10.01 0.28 0.01 (0.27) -- 10.03 2.90 205 1.05 2.09
1992(1) 10.00 0.25 0.03 (0.25) $(0.02) 10.01 3.23* 193 1.05 3.14
- ------------
FIXED INCOME
- ------------
CLASS A
1995 $ 9.44 $0.59 $1.05 $(0.59) -- $10.49 17.76% $113,509 0.80% 5.83%
1994 10.68 0.59 (1.18) (0.59) $(0.06) 9.44 (5.66) 96,558 0.80 5.91
1993 10.38 0.61 0.52 (0.61) (0.22) 10.68 11.05 113,892 0.80 5.59
1992(1) 10.00 0.49 0.44 (0.49) (0.06) 10.38 11.60* 89,701 0.80 6.24
CLASS B
1995 $ 9.44 $0.56 $1.04 $(0.56) -- $10.48 17.36% $ 5,844 1.05% 5.58%
1994 10.68 0.56 (1.18) (0.56) $(0.06) 9.44 (5.90) 5,525 1.05 5.65
1993 10.38 0.58 0.52 (0.58) (0.22) 10.68 10.76 6,519 1.05 5.24
1992(1) 10.00 0.47 0.44 (0.47) (0.06) 10.38 11.39* 1,214 1.05 5.93
- --------------------
NEW JERSEY MUNICIPAL
- --------------------
CLASS A
1995 $ 9.93 $0.47 $0.86 $(0.47) -- $10.79 13.57% $ 28,080 0.41% 4.43%
1994 10.85 0.48 (0.92) (0.48) -- 9.93 (4.12) 19,977 0.27 4.65
1993 10.29 0.50 0.56 (0.50) -- 10.85 10.48 27,064 0.20 4.57
1992(2) 10.00 0.30 0.29 (0.30) -- 10.29 9.01* 9,395 0.46 4.56
CLASS B
1995 $ 9.93 $0.44 $0.86 $(0.44) -- $10.79 13.30% $ 25,954 0.66% 4.18%
1994 10.85 0.45 (0.92) (0.45) -- 9.93 (4.35) 21,195 0.52 4.40
1993 10.29 0.46 0.56 (0.46) -- 10.85 10.09 22,061 0.45 4.34
1992(2) 10.00 0.29 0.29 (0.29) -- 10.29 8.29* 5,424 0.62 4.44
- ----------------------------
INTERMEDIATE-TERM GOVERNMENT
- ----------------------------
CLASS A
1995 $ 9.51 $0.54 $0.86 $(0.54) -- $10.37 15.00% $ 28,877 0.80% 5.33%
1994 10.53 0.51 (1.01) (0.51) $(0.01) 9.51 (4.85) 26,277 0.80 5.13
1993 10.23 0.52 0.32 (0.52) (0.02) 10.53 8.32 34,075 0.80 4.87
1992(1) 10.00 0.41 0.24 (0.41) (0.01) 10.23 7.95* 16,327 0.80 5.30
CLASS B
1995 $ 9.51 $0.51 $0.86 $(0.51) -- $10.37 14.71% $ 3,665 1.05% 5.08%
1994 10.53 0.49 (1.01) (0.49) $(0.01) 9.51 (5.09) 2,372 1.05 4.83
1993 10.24 0.49 0.31 (0.49) (0.02) 10.53 7.94 4,903 1.05 4.59
1992(1) 10.00 0.39 0.25 (0.39) (0.01) 10.24 7.86* 2,190 1.05 5.00
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Expenses Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
- -------------------------------------------
- ---------------------
SHORT-TERM INVESTMENT
- ---------------------
CLASS A
<S> <C> <C> <C>
1995 0.97% 5.35% 64.85%
1994 0.94 3.37 68.39
1993 0.95 2.79 81.92
1992(1) 1.01 3.29 68.15
CLASS B
1995 1.22% 5.10% 64.85%
1994 1.20 3.35 68.39
1993 1.13 2.01 81.92
1992(1) 1.26 2.93 68.15
- ------------
FIXED INCOME
- ------------
CLASS A
1995 0.91% 5.72% 35.49%
1994 0.90 5.81 15.24
1993 0.91 5.48 49.49
1992(1) 0.94 6.10 23.86
CLASS B
1995 1.16% 5.47% 35.49%
1994 1.15 5.55 15.24
1993 1.13 5.16 49.49
1992(1) 1.20 5.78 23.86
- --------------------
NEW JERSEY MUNICIPAL
- --------------------
CLASS A
1995 0.93% 3.91% 2.83%
1994 0.93 3.99 16.81
1993 1.00 3.77 23.83
1992(2) 1.22 3.80 02.23
CLASS B
1995 1.18% 3.66% 2.83%
1994 1.18 3.74 16.81
1993 1.23 3.54 23.83
1992(2) 1.39 3.67 02.23
- ----------------------------
INTERMEDIATE-TERM GOVERNMENT
- ----------------------------
CLASS A
1995 1.05% 5.08% 68.29%
1994 0.95 4.98 40.27
1993 1.00 4.67 31.69
1992(1) 1.11 4.99 12.38
CLASS B
1995 1.30% 4.83% 68.29%
1994 1.20 4.68 40.27
1993 1.23 4.41 31.69
1992(1) 1.36 4.69 12.38
<FN>
* Annualized
(DAGGER) Total Return does not reflect sales loads on Class B shares.
(1) The Short-Term Investment, Fixed Income and the Intermediate-Term Government
Securities Fund`s commenced operations on April 1, 1992. Ratios for this
period have been annualized.
(2) The New Jersey Municipal Securities Fund commenced operations on May 4, 1992.
Ratios for this period have been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
FINANCIAL HIGHLIGHTS
================================================================================
The Pillar Funds
For a Share Outstanding Throughout the Year
<TABLE>
<CAPTION>
Realized and
Net Asset Unrealized Distributions Distributions Ratio of Ratio of Net
Value Net Gains or from Net from Net Asset Total Net Assets Expenses Income
Beginning Investment Losses on Investment Capital Value End Return End of to Average to Average
of Period Income Securities Income Gains of Period (DAGGER) Period (000) Net Assets Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
- ----------------------
PENNSYLVANIA MUNICIPAL
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1995 $ 9.55 $0.40 $0.68 $(0.40) -- $10.23 11.53% $ 3,345 0.80% 4.05%
1994 10.17 0.36 (0.62) (0.36) -- 9.55 (2.58) 2,734 0.80 3.67
1993(1) 10.00 0.23 0.17 (0.23) -- 10.17 6.01 2,922 0.80 3.35
CLASS B
1995 $ 9.55 $0.38 $0.67 $(0.38) -- $10.22 11.15% $ 269 1.05% 3.80%
1994 10.17 0.33 (0.62) (0.33) -- 9.55 (2.83) 336 1.05 3.42
1993(2) 9.98 0.20 0.19 (0.20) -- 10.17 6.28* 289 1.05 3.24
- ----
GNMA
- ----
CLASS A
1995 $ 8.85 $0.60 $1.09 $(0.60) -- $ 9.94 19.52% $ 8,750 0.80% 6.29%
1994 9.85 0.54 (1.00) (0.53) $(0.01) 8.85 (4.71) 6,983 0.80 5.72
1993(3) 10.00 0.34 (0.15) (0.34) -- 9.85 2.80* 10,900 0.80 4.48
CLASS B
1995 $ 8.84 $0.58 $1.08 $(0.57) -- $ 9.93 19.24% $ 1,761 1.05% 6.05%
1994 9.85 0.50 (1.00) (0.50) (0.01) 8.84 (5.05) 1,853 1.05 5.47
1993(1) 10.01 0.31 (0.16) (0.31) -- 9.85 2.31* 2,633 1.05 4.70
- ------------
EQUITY VALUE
- ------------
CLASS A
1995 $10.19 $0.25 $3.46 $(0.25) $(0.84) $12.81 36.71% $82,677 0.80% 2.08%
1994 11.10 0.21 (0.83) (0.21) (0.08) 10.19 (5.61) 61,407 0.80 1.92
1993 10.64 0.18 0.46 (0.18) -- 11.10 6.12 67,383 0.80 1.74
1992(4) 10.00 0.14 0.64 (0.14) -- 10.64 10.51* 62,116 0.80 1.82
CLASS B
1995 $10.21 $0.21 $3.47 $(0.22) $(0.84) $12.83 36.35% $ 7,644 1.05% 1.83%
1994 11.12 0.18 (0.83) (0.18) (0.08) 10.21 (5.83) 3,031 1.05 1.67
1993 10.66 0.16 0.46 (0.16) -- 11.12 5.85 2,741 1.05 1.51
1992(4) 10.00 0.09 0.67 (0.10) -- 10.66 10.35* 1,562 1.05 1.64
- -------------
EQUITY INCOME
- -------------
CLASS A
1995 $10.26 $0.31 $3.29 $(0.31) $(0.48) $13.07 35.55% $44,202 0.80% 2.61%
1994 11.17 0.32 (0.81) (0.32) (0.10) 10.26 (4.42) 34,514 0.80 2.96
1993 10.72 0.29 0.80 (0.29) (0.35) 11.17 10.27 38,237 0.80 2.65
1992(4) 10.00 0.22 0.72 (0.22) -- 10.72 12.72* 32,538 0.80 2.88
CLASS B
1995 $10.27 $0.28 $3.29 $(0.28) $(0.48) $13.08 35.21% $ 9,612 1.05% 2.36%
1994 11.17 0.29 (0.80) (0.29) (0.10) 10.27 (4.56) 5,657 1.05 2.71
1993 10.73 0.28 0.78 (0.27) (0.35) 11.17 9.94 4,421 1.05 2.42
1992(4) 10.00 0.15 0.77 (0.19) -- 10.73 12.43* 585 1.05 2.54
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Expenses Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
- ---------------------------------------------
- ----------------------
PENNSYLVANIA MUNICIPAL
- ----------------------
<S> <C> <C> <C>
CLASS A
1995 1.27% 3.58% 36.92%
1994 1.61 2.86 38.20
1993(1) 1.48 2.67 16.51
CLASS B
1995 1.55% 3.30% 36.92%
1994 1.92 2.55 38.20
1993(2) 1.48 2.81 16.51
- ----
GNMA
- ----
CLASS A
1995 1.13% 5.96% 9.69%
1994 0.97 5.55 102.77
1993(3) 1.08 4.20 252.73
CLASS B
1995 1.37% 5.73% 9.69%
1994 1.22 5.30 102.77
1993(1) 1.29 4.46 252.73
- ------------
EQUITY VALUE
- ------------
CLASS A
1995 1.07% 1.81% 61.88%
1994 1.06 1.66 44.98
1993 1.07 1.47 89.91
1992(4) 1.10 1.52 45.68
CLASS B
1995 1.32% 1.56% 61.88%
1994 1.31 1.41 44.98
1993 1.30 1.26 89.91
1992(4) 1.36 1.33 45.68
- -------------
EQUITY INCOME
- -------------
CLASS A
1995 1.10% 2.31% 42.97%
1994 1.08 2.68 37.76
1993 1.10 2.35 89.89
1992(4) 1.14 2.54 58.41
CLASS B
1995 1.35% 2.06% 42.97%
1994 1.33 2.43 37.76
1993 1.35 2.12 89.89
1992(4) 1.40 2.19 58.41
<FN>
* Annualized
(DAGGER) Total Return does not reflect sales loads on Class B shares.
(1) The Pennsylvania Municipal--Class A Fund and the GNMA--Class A Fund
commenced operations on May 3, 1993. Ratios for this period have been
annualized.
(2 The Pennsylvania Municipal--Class B Fund commenced operations on May 13,
1993. Ratios for this period have been annualized.
(3) The GNMA--Class B Fund commenced operations on May 5, 1993. Ratios for this
period have been annualized.
(4) The Equity Value and the Equity Income Funds commenced operations on
April 1, 1992. Ratios for this period have been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
================================================================================
For a Share Outstanding Throughout the Year
<TABLE>
<CAPTION>
Realized and
Net Asset Unrealized Distributions Distributions Ratio of Ratio of Net
Value Net Gains or from Net from Net Asset Total Net Assets Expenses Income
Beginning Investment Losses on Investment Capital Value End Return End of to Average to Average
of Period Income Securities Income Gains of Period (DAGGER) Period (000) Net Assets Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
- ------------------
MID CAP VALUE FUND
- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1995 $10.83 $0.15 $1.95 $(0.15) $(0.23) $12.55 19.49% $42,375 0.80% 1.28%
1994 12.32 0.12 (1.27) (0.12) (0.22) 10.83 (9.34) 33,448 0.80 1.06
1993 10.99 0.11 1.33 (0.11) -- 12.32 13.22 35,648 0.80 1.03
1992(1) 10.00 0.07 0.99 (0.07) -- 10.99 14.30* 29,507 0.80 0.98
CLASS B
1995 $10.82 $0.12 $1.94 $(0.12) $(0.23) $12.53 19.13% $ 5,653 1.05% 1.03%
1994 12.31 0.10 (1.27) (0.10) (0.22) 10.82 (9.54) 4,567 1.05 0.85
1993 10.99 0.09 1.32 (0.09) -- 12.31 12.88 2,720 1.05 0.83
1992(1) 10.00 0.05 1.00 (0.06) -- 10.99 14.08* 637 1.05 0.88
- ---------------
BALANCED GROWTH
- ---------------
CLASS A
1995 $ 9.91 $0.44 $2.27 $(0.44) $(0.13) $12.05 27.76% $32,145 0.80% 3.89%
1994 10.78 0.37 (0.86) (0.38) -- 9.91 (4.61) 26,921 0.80 3.64
1993 10.35 0.38 0.43 (0.38) -- 10.78 7.89 25,712 0.80 3.75
1992(1) 10.00 0.29 0.34 (0.28) -- 10.35 8.53* 16,899 0.80 3.88
CLASS B
1995 $ 9.92 $0.42 $2.28 $(0.42) $(0.13) $12.07 27.53% $ 8,452 1.05% 3.64%
1994 10.79 0.35 (0.87) (0.35) -- 9.92 (4.87) 6,737 1.05 3.39
1993 10.36 0.37 0.42 (0.36) -- 10.79 7.62 8,122 1.05 3.47
1992(1) 10.00 0.20 0.40 (0.24) -- 10.36 8.15* 2,990 1.05 3.59
- --------------------
INTERNATIONAL GROWTH
- --------------------
CLASS A
1995(2) $10.00 $0.03 $0.75 $(0.02) $(0.02) $10.74 7.81% $ 9,990 1.50%* 0.79%*
CLASS B
1995(3) $10.00 $0.01 $0.75 $(0.01) $(0.02) $10.73 7.64% $ 621 1.75%* 0.45%*
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of Net
Expenses Income
Neto Average to Average
Net Assets Net Assets Portfolio
Be(Excluding (Excluding Turnover
of Waivers) Waivers) Rate
- ---------------------------------------------
- ------------------
MID CAP VALUE FUND
- ------------------
<S> <C> <C> <C>
CLASS A
1995 1.10% 0.98% 32.96%
1994 1.08 0.78 13.82
1993 1.10 0.73 24.49
1992(1) 1.15 0.63 09.29
CLASS B
1995 1.35% 0.73% 32.96%
1994 1.33 0.57 13.82
1993 1.35 0.53 24.49
1992(1) 1.40 0.53 09.29
- ---------------
BALANCED GROWTH
- ---------------
CLASS A
1995 1.11% 3.58% 41.63%
1994 1.09 3.35 27.15
1993 1.14 3.41 63.03
1992(1) 1.20 3.48 82.76
CLASS B
1995 1.36% 3.33% 41.63%
1994 1.34 3.10 27.15
1993 1.38 3.14 63.03
1992(1) 1.45 3.19 82.76
- ------------------
INTERNATION GROWTH
- ------------------
CLASS A
1995(2) 2.11%* 0.18%* 14.32%
CLASS B
1995(3) 2.38%* (0.18)%* 14.32%
<FN>
* Annualized
(DAGGER) Total Return does not reflect sales loads on Class B shares.
(1) The Mid Cap Value and the Balanced Growth Funds commenced operations on
April 1, 1992. Ratios for this period have been annualized.
(2) The International Growth Fund--Class A commenced operations on May 1, 1995.
Ratios for this period have been annualized.
(3) The International Growth Fund--Class B commenced operations on May 4, 1995.
Ratios for this period have been annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Pillar Funds -- December 31, 1995
1. ORGANIZATION
The Pillar Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end investment company with
fifteen funds: the U.S. Treasury Securities Money Market Fund, the Prime
Obligation Money Market Fund, the Tax-Exempt Money Market Fund, the U.S.
Treasury Securities Plus Money Market Fund, the Short-Term Investment Fund, the
Fixed Income Fund, the New Jersey Municipal Securities Fund, the
Intermediate-Term Government Securities Fund, the Pennsyl- vania Municipal
Securities Fund, the GNMA Fund, the Equity Value Fund (formerly known as the
Equity Growth Fund), the Equity Income Fund, the Mid Cap Value Fund (formerly
known as the Equity Agressive Growth Fund), the Balanced Growth Fund and the
International Growth Fund ("the Funds"). Each of the Funds is "diversified" for
purposes of the 1940 Act except for the New Jersey Municipal Securities Fund,
the Pennsylvania Municipal Securities Fund and the International Growth Fund,
each of which is a non-diversified Fund. Shares of the U.S. Treasury Securities
Plus Money Market Fund are offered exclusively to customers of the Money Desk of
the Bank Investment Division of United Jersey Bank. The minimum investment for
this Fund is $100,000. The financial statements included herein present
information relating to all of the Funds. The assets of each Fund are segregated
and a shareholder's interest is limited to the Fund in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Trust.
SECURITY VALUATION--The value of investment securities held by the U.S.
Treasury Securities Money Market Fund, the Prime Obligation Money Market Fund,
the Tax-Exempt Money Market Fund and the U.S. Treasury Securities Plus Money
Market Fund ("the Money Market Funds") are stated at amortized cost, which
approximates market value. Under this valuation method, purchase discounts and
premiums are accreted and amortized ratably to maturity and are included in
interest income.
Investment in equity securities which are traded on a national securities
exchange (or reported on the NASDAQ national market system) are stated at the
last quoted sales price if readily available for such equity securities on each
business day; other equity securities traded in the over-the-counter market and
listed equity securities for which no sale was reported on that date are stated
at the last quoted bid price. Debt obligations exceeding sixty days to maturity
for which market quotations are readily available are valued at the most
recently quoted bid price. Debt obligations with sixty days or less remaining
until maturity may be valued at their amortized cost. Restricted securities for
which quotations are not readily available are valued at fair value using
methods determined in good faith under general trustee supervision.
FEDERAL INCOME TAXES--It is each Fund's intention to qualify as a regulated
investment company for Federal Income Tax purposes and to distribute all of its
taxable income and net capital gains. Accordingly, no provisions for Federal
income taxes are required.
The International Growth Fund may be subject to taxes imposed by countries
in which it invests with respect to its investments in issuers existing or
operating in such countries. Such taxes are generally based on either income
earned or repatriated. The International Growth Fund accrues such taxes when the
related income is earned.
FOREIGN CURRENCY TRANSLATION--The books and records of the International
Growth Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars on the following basis: (I) market value of
investment securities, other assets and liabilities at the current rate of
exchange; and (II) purchases and sales of investment securities, income and
expenses at the rele-
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vant rates of exchange prevailing on the respective dates of such transactions.
The International Growth Fund does not isolate that portion of gains and
losses on investment securities which is due to changes in foreign exchange
rates from that which is due to changes in market prices of such securities.
The International Growth Fund reports gains and losses on foreign currency
related transactions as realized and unrealized gains and losses for financial
reporting purposes, whereas such gains and losses are treated as ordinary income
or loss for Federal income tax purposes.
REPURCHASE AGREEMENTS--Securities pledged as collateral for Repurchase
Agreements are held by the custodian bank until the respective agreements
mature. Provisions of the Repurchase Agreements and procedures adopted by the
Adviser ensure that the market value of the collateral including accrued
interest thereon, is sufficient in the event of default by the counterparty. If
the counterparty defaults and the value of the collateral declines or if the
counterparty enters into an insolvency proceeding, realization of the collateral
by the Fund may be delayed or limited.
SECURITY TRANSACTIONS AND INVESTMENT INCOME--Security transactions are
accounted for on the date the security is purchased or sold (trade date). Costs
used in determining realized gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of purchase discounts and premiums during the respective
holding periods. Interest income is recorded on the accrual basis; dividend
income is recorded on the ex-dividend date. Purchase discounts and premiums on
securities held by the Fixed Income Funds and the Balanced Growth Fund are
accreted and amortized to maturity using the scientific interest method, which
approximates the effective interest method.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income for
the Money Market Funds and the Fixed Income Funds are declared daily and paid
monthly. The Equity Funds and the Balanced Growth Fund declare and pay
distributions from net investment income quarterly, except for the International
Growth Fund which declares and pays distributions periodically. Any net realized
capital gains will be distributed at least annually for all Funds.
RECLASSIFICATION--Certain reclassifications have been made to prior year
amounts to conform with current year presentation.
EXPENSES--Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses of the Trust are
prorated to the Funds on the basis of relative net asset value. Class specific
expenses, such as the 12b-1 fees, are borne by that class. Income, other
expenses and realized and unrealized gains and losses of a Fund are allocated to
the respective classes on the basis of the relative net asset value each day.
Subsequent to year-end, the Trust was notified of possible claims, which
are associated with inappropriate deposits made by certain shareholders in the
U.S. Treasury, Prime Obligation and Tax-Exempt Money Market Funds. While each
Fund's exposure varies, as of February 22, 1996, the Funds' aggregate exposure
from these possible claims is less than .1% of aggregate net assets of these
Funds. The Trust and its service providers maintain insurance coverage which may
insure these claims. In management's opinion, the resolution of this matter will
not have a material effect on the financial condition and results of operations
of these Funds.
USE OF ESTIMATES--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from these estimates.
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NOTES TO FINANCIAL STATEMENTS
================================================================================
The Pillar Funds -- December 31, 1995
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES
The Trust incurred organization costs of approximately $211,000. Organizational
costs have been capitalized by the fund and are being amortized over sixty
months commencing with operations. In the event of the initial shares of the
fund redeemed by any holder thereof during the period that the fund is
amortizing its organizational costs the redemption proceeds payable to the
holder thereof by the fund will be reduced by the unamoritzed organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption. These costs
include legal fees of approximately $47,000 for organizational work performed by
a law firm of which an officer of the fund is a partner.
Certain officers and /or Trustees of the Trust are also officers and/or
Directors of SEI Financial Management Company (the "Administrator"). The Trust
pays each unaffiliated Trustee an annual fee for attendance at quarterly,
interim and committee meetings. Compensation of officers and affiliated Trustees
is paid by the Administrator.
4. ADMINISTRATION AND DISTRIBUTION AGREEMENTS
The Trust and the Administrator are parties to an Administration Agreement (the
"Agreement"), under which the Administrator provides the Trust with
administrative services for an annual fee which is calculated daily and paid
monthly at an annual rate of .20% of the average daily net assets of each Fund
with the exception of the U.S. Treasury Securities Plus Money Market Fund with
an annual fee which is calculated daily and paid monthly at an annual rate of
.35% of average daily net assets. The Administrator has voluntarily agreed to
waive all or a portion of its fee in order to limit the operating expenses of
certain Funds.
SEI Financial Services Company (the "Distributor") acts as the distributor
of the Trust's shares. The Trust has adopted a Distribution Plan (the "Plan") on
behalf of the Class B shares pursuant to Rule 12b-1. The Plan provides for
payment to the Distributor at an annual rate of .25% of the Funds Class B
average daily net assets. The Distributor receives no fees for its distribution
services under this Plan for Class A shares of any fund with the exception of
the U.S. Treasury Securities Plus Money Market Fund which pays a distribution
fee of .03% of net assets.
5. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENTS
The Trust and United Jersey Bank Investment Management Division, a division of
United Jersey Bank, (the "Adviser") are parties to an advisory agreement. Under
the terms of the agreement, the Adviser will receive a fee, which is calculated
daily and paid monthly, at an annual rate of .35% of the average daily net
assets of the U.S. Treasury Securities Money Market, Prime Obligation and
Tax-Exempt Money Market Funds, .15% of the average daily net assets of the U.S.
Treasury Securities Plus Money Market Fund, .60% of the average daily net assets
of the Fixed Income Funds and .75% of the average daily net assets of the Equity
Funds and the Balanced Growth Fund. The Trust and the Adviser are also parties
to a second advisory agreement relating only to the International Growth Fund.
Under the terms of the agreement the Adviser will receive a fee, which is
calculated daily and paid monthly, at an annual rate of 1.00% of the average
daily net assets of the International Growth Fund. The Adviser has voluntarily
agreed to waive all or a portion of its fee in order to limit the operating
expenses of the Funds.
Wellington Management Company serves as the investment sub-advisor to the
International Growth Fund.
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United Jersey Bank also acts as Custodian of securities for the Trust. The
Custodian plays no role in determining the investment policies of the Trust or
which securities are to be purchased or sold in the Funds. For its services, the
Custodian receives a fee, which is calculated daily and paid monthly, at an
annual rate of .025% of the average daily net assets of each domestic Fund and
an annual rate of .17% of the average daily net assets of the International
Growth Fund.
The Trust has a line of credit agreement with the Custodian to provide for the
advance of funds as required to meet redemption requests.
6. INVESTMENT TRANSACTIONS
The cost of security purchases and the proceeds from the sale of securities,
other than short term investments, during the period ended December 31, 1995
were as follows:
New
Short-Term Fixed Jersey Int.-Term PA
Inv. Income Muni. Govt. Muni. GNMA
---------- ------ ------- ---------- ------ --------
(000) (000) (000) (000) (000) (000)
Purchases
U.S. Gov't -- $37,400 -- $21,853 -- $1,158
Other $2,844 4,927 $6,837 -- $1,447 --
Sales
U.S. Gov't -- 36,365 -- 20,989 -- 872
Other 4,000 1,970 1,238 -- 1,183 --
Mid
Equity Equity Cap Balanced International
Value Income Value Growth Growth
-------- -------- -------- --------- -------------
(000) (000) (000) (000) (000)
Purchases
U.S. Gov't -- -- -- $8,389 --
Other $44,327 $20,144 $15,901 6,708 $10,755
Sales
U.S. Gov't -- -- -- 7,031 --
Other 44,232 19,284 13,427 8,627 969
At December 31, 1995, the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized gain or loss on securities at December 31, 1995, for each Fund
is as follows:
New
Short-Term Fixed Jersey Int.-Term PA
Inv. Income Muni. Govt. Muni. GNMA
---------- ------ ------- ---------- ------ --------
(000) (000) (000) (000) (000) (000)
Aggregate gross
unrealized gain $55 $3,114 $1,132 $520 $90 $185
Aggregate gross
unrealized loss (1) (154) (57) (82) (1) (19)
--- ------ ------ ---- --- ----
Net unrealized
gain (loss) $54 $2,960 $1,075 $438 $89 $166
Mid
Equity Equity Cap Balanced International
Value Income Value Growth Growth
-------- -------- -------- --------- -------------
(000) (000) (000) (000) (000)
Aggregate gross
unrealized gain $17,567 $10,205 $8,448 $5,730 $616
Aggregate gross
unrealized loss (460) (467) (1,347) (19) (143)
------- ------- ------ ------ ----
Net unrealized
gain (loss) $17,107 $ 9,738 $7,101 $5,711 $473
7. CONCENTRATION OF CREDIT RISK
The money market funds invest primarily in a portfolio of money market
instruments maturing in one year or less whose ratings are within one of the two
highest ratings category assigned by a nationally recognized statistical rating
agency ("NRSRO") or, if not rated, are believed to be of comparable quality. The
ability of the issuers of the securities held by a Fund to meet their
obligations may be affected by economic developments in a specific industry,
state or region. The Fixed Income Funds invest in debt instruments and the
Balanced Growth Fund invests in a combination of equity, fixed income and money
market securities.
The taxable funds may invest in bank obligations. As a result of this
policy, these investments may be subject to greater risk than a fund that does
not invest in the banking industry. In particular, bank obligations may be
subject to the risks associated with interest rate volatility, changes in
federal and state laws and regulations governing banking and the inability of
borrowers to pay principal and interest when due. In addition, foreign banks
present the risk of investing in foreign securities and are not subject to the
same reserve
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NOTES TO FINANCIAL STATEMENTS
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December 31, 1995
requirements and other regulations as those of U.S. banks.
The New Jersey Municipal and the Pennsylvania Municipal Securities Funds
invest primarily in a diversified portfolio of municipal securities, including
municipal bonds and debentures, rated Baa or better by a NRSRO, or, if not
rated, determined by the Adviser to be of comparable quality. Although the Funds
maintain a diversified portfolio, the issuers' abilities to meet their
obligations may be affected by economic developments in a specific state or
region.
The following tables present a summary of holdings in each of these portfolios:
Tax-
U.S. Exempt U.S.
Treasury Prime Money Treasury
Securities Obligation Market Securities Plus
---------- ---------- ------ ---------------
U.S. Gov't. Securities 95.3% 33.7% -- 57.9%
Repurchase Agreements -- 31.8 -- 42.1
Municipal Securities -- -- 96.1% --
Commercial Paper -- 25.8 -- --
Other Short Term
Securities 4.7 8.7 3.9 --
Short-Term Fixed New Jersey Int.-Term
Inv. Income Muni. Govt.
---------- ------ ---------- ---------
U.S. Gov't. Securities 20.0% 73.6% 1.9% 98.6%
Repurchase Agreements -- -- -- --
AAA 9.9 3.0 62.2 --
AA 24.5 15.9 29.3 --
A 44.9 6.2 4.5 --
BBB -- -- -- --
BB -- -- -- --
NR .7 1.3 2.1 1.4
All Other -- -- -- --
Balanced PA
Growth Muni. GNMA
-------- ----- -----
U.S. Gov't. Securities 44.0% -- 94.2%
Repurchase Agreements -- -- --
AAA -- 83.0% --
AA 2.6 10.5 --
A 1.8 2.8 --
BBB -- -- --
BB -- -- --
NR 1.1 3.7 5.8
Common Stock 50.5 -- --
All Other -- -- --
8. CAPITAL LOSS CARRYFORWARDS
The capital loss carryforwards at December 31, 1995, for Federal Income Tax
purposes are as follows:
Tax-Exempt Money Market $1,752
expiring in 2000.
Tax-Exempt Money Market $4,471
expiring in 2003.
U.S. Treasury Securities plus $1,438
expiring in 2001.
U.S. Treasury Securities plus $18,663
expiring in 2002.
Short-Term Investment $29,455
expiring in 2002.
Fixed Income $291,922 expiring in 2003.
New Jersey Municipal Securities $318
expiring in 2001.
New Jersey Municipal Securities $127,146
expiring in 2002.
New Jersey Municipal Securities $180,569
expiring in 2003.
Intermediate-Term Government Securities $402,817 expiring in 2002.
Intermediate-Term Government Securities $792,812 expiring in 2003.
Pennsylvania Municipal Securities $1,763 expiring in 2002.
Pennsylvania Municipal Securities $7,946 expiring in 2003.
GNMA $291,101 expiring in 2003.
The capital loss carryforwards will be used to offset future net realized gains,
if any, and such gains so offset will not be distributed.
9. SECURITIES LENDING
The U.S. Treasury Securities Money Market Fund loaned securities to certain
brokers who paid the Fund negotiated lenders' fees. These fees are included in
interest income. The Fund receives U.S. Treasury obligations and/or cash as
collateral against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities. At year end the U.S. Treasury
Securities Money Market Fund had no loaned securities.
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