As filed with the Securities and Exchange Commission on April 30, 1997.
File No. 33-44712
File No. 811-6509
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 | |
POST-EFFECTIVE AMENDMENT NO. 11 |X|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 | |
AMENDMENT NO. 13 |X|
The Pillar Funds
(Exact Name of Registrant as Specified in Charter)
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (800) 932-7781
David G. Lee
c/o SEI Investments Company
Oaks, Pennsylvania 19456
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
|X| immediately upon filing pursuant to Paragraph (b)
| | on (date) pursuant to Paragraph (b)
| | 60 days after filing pursuant to Paragraph (a)
| | 75 days after filing pursuant to Paragraph (a)
| | on (date) pursuant to Paragraph (a) of Rule 485
Registrant has elected to register an indefinite number of shares pursuant to
Regulation 24f-2 under the Investment Company Act of 1940. Registrant filed its
Rule 24f-2 notice on February 18, 1997.
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<PAGE>
THE PILLAR FUNDS
CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
PART A--U.S. Treasury Securities Plus Money Market Fund
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Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Summary
Item 3. Condensed Financial Information............................... Financial Highlights
Item 4. General Description of Registrant............................. The Trust; Investment Objectives and
Policies; Investment Limitations;
Description of Permitted Investments
Item 5. Management of the Trust....................................... The Advisor; The Administrator; The
Shareholder Servicing Agent; The
Distributor; General Information--The
Trust; General Information--Trustees of
the Trust
</TABLE>
i
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N-1A ITEM NO. LOCATION
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Item 5A. Management's Discussion of Fund Performance.................... *
Item 6. Capital Stock and Other Securities............................. Taxes; General Information--Dividends
Item 7. Purchase of Securities Being Offered........................... Cover Page; The Distributor; Purchase and
Redemption of Shares
Item 8. Redemption or Repurchase....................................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
PART A-- Short-Term Investment Fund, Intermediate-Term
Government Securities Fund and GNMA Fund--Class A
Mid Cap Fund--Class A
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Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Summary
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ii
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N-1A ITEM NO. LOCATION
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Item 3. Condensed Financial Information............................... Financial Highlights
Item 4. General Description of Registrant............................. The Trust; Investment Objectives and
Policies; Investment Limitations;
Description of Permitted Investments
Item 5. Management of the Trust....................................... The Advisor; The Administrator; The
Shareholder Servicing Agent; The
Distributor; General Information--The
Trust; General Information--Trustees of
the Trust
Item 5A Management's Discussion of Fund Performance................... *
Item 6 Capital Stock and Other Securities............................ Taxes; General Information--Dividends
Item 7. Purchase of Securities Being Offered.......................... Cover Page; The Distributor; Purchase of
Shares; Redemption of Shares
Item 8 Redemption or Repurchase...................................... Purchase of Shares; Redemption of Shares
Item 9. Pending Legal Proceedings..................................... Not Applicable
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iii
<PAGE>
PART A-Prime Obligation Money Market Fund--Class A and Class B
Fixed Income Fund--Class A and B
U.S. Treasury Securities Money Market
Fund, Tax-Exempt Money Market Fund,
New Jersey Municipal Securities Fund and
Pennsylvania Municipal Securities Fund--Class A
Equity Growth Fund, Equity Value Fund, Equity Income Fund,
Balanced Fund and International Growth Fund--Class A and B
<TABLE>
<S> <C> <C>
Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Summary
Item 3. Condensed Financial Information............................... Financial Highlights
Item 4. General Description of Registrant The Trust; Investment Objectives and
Policies; Investment Limitations;
Description of Permitted Investments
Item 5. Management of the Trust....................................... The Advisor; The Sub-Advisor; The
Administrator; The Shareholder Servicing
Agent; The Distributor; General
Information--The Trust; General
Information--Trustees of the Trust
Item 5A. Management's Discussion of Fund Performance................... *
Item 6. Capital Stock and Other Securities............................ Taxes; General Information--Dividends
Item 7. Purchase of Securities Being Offered.......................... Cover Page; The Distributor; Purchase of
Shares; Alternative Sales Charge Options;
Redemption of Shares
Item 8. Redemption or Repurchase...................................... Purchase of Shares; Redemption of Shares
Item 9. Pending Legal Proceedings..................................... Not Applicable
</TABLE>
PART A
Short-Term Investment Fund and GNMA Fund--Class I
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<S> <C> <C>
Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Summary
Item 3. Condensed Financial Information............................... Financial Highlights
Item 4. General Description of Registrant............................. The Trust; Investment Objectives and
Policies; Investment Limitations;
Description of Permitted Investments
Item 5. Management of the Trust....................................... The Advisor; The Administrator; The
Shareholder Servicing Agent; The
Distributor; General Information--The
Trust; General Information--Trustees of
the Trust
Item 5A. Management's Discussion of Fund Performance.................. *
Item 6 Capital Stock and Other Securities............................ Taxes; General Information--Dividends
Item 7. Purchase of Securities Being Offered.......................... Cover Page; The Distributor; Purchase and
Redemption of Shares
Item 8. Redemption or Repurchase...................................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings..................................... Not Applicable
</TABLE>
PART A--U.S. Treasury Securities Money Market Fund,
Prime Obligation Money Market Fund and
Tax-Exempt Money Market Fund--Class I
Fixed Income Fund, New Jersey Municipal Securities Fund,
Pennsylvania Municipal Securities Fund and
Intermediate-Term Government Securities Fund--Class I
Equity Growth Fund, Equity Value Fund, Equity Income Fund,
Mid Cap Fund, Balanced Fund and International Growth Fund--Class I
<TABLE>
<S> <C> <C>
Item 1. Cover Page.................................................... Cover Page
Item 2. Synopsis...................................................... Summary
Item 3. Condensed Financial Information............................... Financial Highlights
Item 4. General Description of Registrant............................. The Trust; Investment Objectives and
Policies; Investment Limitations;
Description of Permitted Investments
Item 5. Management of the Trust....................................... The Advisor; The Sub-Advisor; The
Administrator; The Shareholder Servicing
Agent; The Distributor; General
Information--The Trust; General
Information--Trustees of the Trust
Item 5A. Management's Discussion of Fund Performance................... *
Item 6. Capital Stock and Other Securities............................ Taxes; General Information--Dividends
</TABLE>
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
<S> <C> <C>
Item 7. Purchase of Securities Being Offered.......................... Cover Page; The Distributor; Purchase and
Redemption of Shares
Item 8. Redemption or Repurchase...................................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings..................................... Not Applicable
PART B--All Funds
Item 10. Cover Page.................................................... Cover Page
Item 11. Table of Contents............................................. Table of Contents
Item 12 General Information and History............................... General Information and History--The Trust
Item 13. Investment Objectives and Policies............................ Investment Objectives and Policies--
Description of Permitted Investments;
Investment Objectives and Policies--
Investment Limitations
Item 14. Management of the Registrant.................................. General Information--Trustees of the Trust
(Prospectus); Management of the Trust--
Trustees and Officers of the Trust;
Management of the Trust--The
Administrator
Item 15. Control Persons and Principal Holders of
Securities.................................................. Management of the Trust--Trustees and
Officers of the Trust
Item 16. Investment Advisory and Other Services........................ Management of the Trust--The Advisor;
Management of the Trust--The Sub-
Advisor: Management of the Trust--The
Administrator; The Distributor and
Distribution Plans; Shareholder Services;
Experts
Item 17. Brokerage Allocation and Other Practices...................... Fund Transactions--General; Fund
Transactions--Trading Practices and
Brokerage
Item 18. Capital Stock and Other Securities............................ General Information and History--
Description of Shares
Item 19. Purchase, Redemption, and Pricing of
Securities Being Offered.................................... Purchase and Redemption of Shares
(Prospectus and Statement of Additional
Information); Determination of Net Asset
Value
Item 20. Tax Status.................................................... Taxes (Prospectus and Statement of
Additional Information)
</TABLE>
iv
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N-1A ITEM NO. LOCATION
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Item 21. Underwriters.................................................. The Distributor and Distribution Plans
Item 22. Calculation of Performance Data............................... Performance--Computation of Yield;
Performance--Calculation of Total Return
Item 23. Financial Statements.......................................... Financial Information
</TABLE>
PART C Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
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* Information required by Item 5A is contained in the 1996 Annual Report to
Shareholders.
v
<PAGE>
The Pillar Funds
Investment Advisor:
Summit Bank Investment Management Division,
a division of Summit Bank
The Pillar Funds (the "Trust") consists 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 Summit 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 SUMMIT 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 Fund 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 May 1, 1997 has been filed with the Securities and Exchange
Commission and is available without charge through the Money Desk at Summit
Bank, Money Desk, 214 Main Street, Third Floor, Hackensack, New Jersey 07601 or
by calling 1-800-243-8550. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
May 1, 1997
<PAGE>
2
SUMMARY
The Pillar Funds (the "Trust") consists 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
Objective and Policies" and "Description of Permitted Investments."
Who is the Advisor? Summit Bank Investment Management Division, a division
of Summit Bank, serves as the advisor (the "Advisor") to the Trust. See "The
Advisor."
Who is the Administrator? SEI Fund Resources serves as the administrator
(the "Administrator") of the Trust. See "The Administrator."
Who is the Transfer Agent? State Street Bank and Trust Company acts as
transfer agent (the "Transfer Agent") for the Trust. See "The Transfer Agent."
Who is the Shareholder Servicing Agent? Boston Financial Data Services is
the Trust's dividend disbursing agent and shareholder servicing agent. See "The
Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
(the "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, as amended (the "1940 Act"). See "The Distributor."
How do I Purchase and Redeem Shares? Purchases and redemptions may be made
through the Money Desk on any day on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business (a "Business Day"). A
purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives an order and 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."
<PAGE>
3
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>
4
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
U.S. Treasury
Securities Plus
Money Market
Fund
Advisory Fees (after fee waivers) (1),(2) .08%
12b-1 Fees .03%
Other Expenses .44%
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Total Operating Expenses (after fee waivers) (2) .55%
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(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. Advisory fees have been
restated to reflect current expenses.
(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."
Example
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
An investor in the Fund would pay the following
expenses on a $1,000 investment assuming (1) a
5% annual return and (2) redemption at the end
of each time period ................... $6 $18 $31 $69
================================================================================
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>
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 14,
1997 on the Trust's financial statements as of December 31, 1996, which is
incorporated by reference into the Trust's Statement of Additional Information
under "Financial Information." Additional performance information is contained
in the Trust's 1996 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
U.S. TREASURY SECURITIES PLUS MONEY MARKET FUND
<TABLE>
<CAPTION>
Ratio of
Ratio of Net Ratio of Ratio of Net
Net Asset Net Expenses Income Expenses to Income to
Value Distribution Net Asset Assets to to Average Average Net
Begin- Net from Net Value End of Average Average Net Assets Assets
ning of Investment Investment End of Total Period Net Net (Excluding (Excluding
Period Income Income Period Return (000) Assets Assets Waivers) Waivers)
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $1.00 $0.05 $(0.05) $1.00 4.82% $65,173 0.55% 4.72% 0.65% 4.62%
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(1) 1.00 0.02 (0.02) 1.00 2.66* 89,278 0.55 2.62 0.68 2.49
</TABLE>
*Annualized
(1) The U.S. Treasury Securities Plus Money Market Fund commenced operations on
May 3, 1993. Ratios for this period have been annualized.
<PAGE>
6
THE TRUST
The Pillar Funds (the "Trust") is an open-end management investment company that
has diversified and non-diversified portfolios. The Trust currently offers units
of beneficial interest ("shares") in sixteen separate investment portfolios.
Shareholders may purchase shares in each portfolio (except for the U.S. Treasury
Securities Plus Money Market Fund) through up to three separate classes (Class
I, 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 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 portfolios is contained in separate
prospectuses that may be obtained by writing the Trust's Distributor, SEI
Financial Services Company, Oaks, Pennsylvania 19456 or by calling
1-800-932-7782.
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 portfolio 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 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.
<PAGE>
7
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 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 net
assets in illiquid securities (as defined under "Description of Permitted
Investments").
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISOR
Summit Bank Investment Management Division, a division of Summit Bank (the
"Advisor") serves as the investment advisor to 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.
Summit 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, 1996, total assets under management
were approximately $6.7 billion.
<PAGE>
8
Summit Bank is a wholly-owned subsidiary of Summit Bancorp., an interstate bank
holding company with over $22 billion in assets and over 340 banking offices,
predominantly in New Jersey and eastern Pennsylvania, as of December 31, 1996.
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, 1996, the Fund paid
the Advisor an advisory fee of .05% of its average daily net assets.
Judy Wolk, an Assistant Vice President of the Advisor, has managed the Pillar
taxable money market funds, including the Fund, since June, 1996. Prior to
joining Summit Bank in September, 1995, Ms. Wolk had substantial experience with
a large regional bank.
Summit 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 1940 Act. The Trust pays Summit Bank (referred to herein in its
custodial capacity as the "Custodian") a fee, which is calculated daily and paid
monthly, at an annual rate of .025% of the average daily net assets of the Fund.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") 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 TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent"), 225 Franklin Street,
Boston, Massachusetts 02110 is the Trust's transfer agent.
THE SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, 2 Heritage Drive North Quincy, Massachusetts
02171 is the Trust's dividend disbursing agent and shareholder servicing agent.
<PAGE>
9
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, acts as the distributor of the Trust's shares.
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 Summit Bank),
savings and loan associations, insurance companies, 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 Money
Desk if the Money Desk 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
Money Desk 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.
<PAGE>
10
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 the 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 or
the Money Desk determines that it is not in the best interest of the Trust, the
Fund 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 are 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 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.
<PAGE>
11
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
advisors 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 portfolios. 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-
<PAGE>
12
term capital gains, regardless of how long 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.
<PAGE>
13
GENERAL INFORMATION
The Trust
The Fund 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 currently consists of the following portfolios:
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 Growth Fund,
Equity Value Fund, Equity Income Fund, Mid Cap Fund, Balanced Fund and
International Growth Fund. All consideration received by the Trust for shares of
any portfolio and all assets of such portfolio belong to that portfolio and
would be subject to liabilities related thereto.
The Fund 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.
<PAGE>
14
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 Summit Bank, 214 Main Street, Third
Floor, Hackensack, New Jersey 07601, Attn: Bank Investments or to the Money Desk
at 1-800-243- 8550.
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. Redeemed shares are not entitled to dividends
declared the day the redemption order is effective.
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 the Fund's books. Not more than 10% of the net assets of the 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.
<PAGE>
15
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which the 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. The 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. The 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
that they are (i) rated, at the time of investment, by at least two nationally
recognized statistical 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 maturity 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 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>
16
Table of Contents
Summary................................................................... 2
Expense Summary........................................................... 4
Financial Highlights...................................................... 5
The Trust................................................................. 6
Investment Objective and Policies......................................... 6
Investment Limitations.................................................... 7
The Advisor............................................................... 7
The Administrator......................................................... 8
The Transfer Agent........................................................ 8
The Shareholder Servicing Agent........................................... 8
The Distributor........................................................... 9
Purchase and Redemption of Shares......................................... 9
Computation of Yield...................................................... 10
Taxes..................................................................... 11
General Information....................................................... 13
Description of Permitted Investments...................................... 14
The Pillar Funds is a registered service mark of Summit Bank. Your Investment
Foundation, Pillar and the stylized "P" logo are service marks of Summit Bank.
Summit is a registered service mark of Summit Bancorp. Summit Bank and Summit
Bancorp are service marks of Summit Bancorp.
<PAGE>
ADVISOR:
[ SUMMIT BANK LOGO ]
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
1-800-932-7782
[ LOGO ]THE PILLAR
FUNDS
U.S. TREASURY
SECURITIES PLUS
MONEY MARKET
FUND
Prospectus
May 1, 1997
<PAGE>
The Pillar Funds
Class A Shares
Investment Advisor:
Summit Bank Investment Management Division,
a division of Summit Bank
The Pillar Funds (the "Trust") consists 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
Class A Shares of the following funds (each, a "Fund," and collectively, the
"Funds"):
Fixed Income Funds
------------------
o Short-Term Investment Fund
o Intermediate-Term Government Securities Fund
o GNMA Fund
Equity Fund
-----------
o Mid Cap Fund
The Trust's Class A Shares are offered to all persons. Persons who own Class A
Shares of a Fund are referred to herein as "Shareholders." Class A Shares of the
Funds are sold with a front-end sales load of up to 4.00% that will be reduced
or waived in certain circumstances.
CLASS A SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING SUMMIT 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 May 1, 1997 has been filed with the Securities and Exchange
Commission and is available without charge through the Distributor, SEI
Financial Services Company, Oaks, Pennsylvania 19456 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 NOR HAS THE SECURITIES AND
<PAGE>
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 1, 1997
Class A
2
<PAGE>
SUMMARY
The Pillar Funds (the "Trust") consists 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 (which, until May 1, 1997, were designated as Class B Shares) of
the Trust's: Short-Term Investment, Intermediate-Term Government Securities and
GNMA Funds (the "Fixed Income Funds"); and Mid Cap Fund (formerly, the Mid Cap
Value Fund) (the "Equity Fund") (together with the Fixed Income Funds, the
"Funds").
What are the Investment Objectives?
The Fixed Income Funds: The Short-Term Investment Fund seeks a high
level of total return, primarily through current income, consistent with
preservation of capital; the Intermediate-Term Government Securities Fund seeks
preservation of principal value and a high degree of liquidity while providing
current income; and the GNMA Fund seeks the highest level of current income
consistent with preservation of principal and a high degree of liquidity.
The Equity Fund: The Mid Cap Fund seeks growth of both capital and
income.
There is no assurance that a Fund will meet its investment objective. See
"Investment Objectives and Policies."
What are the Permitted Investments?
The Fixed Income Funds: The Short-Term Investment Fund invests at least 65%
of its assets in U.S. and Canadian Government obligations, corporate debt
securities, short-term bank obligations and repurchase agreements.
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 Fixed Income Funds are subject to market and
interest rate fluctuations which may affect the value of a Fund's shares. 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."
3
<PAGE>
The Equity Fund: The Mid Cap Fund may 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"). Because securities fluctuate in value, the shares of the Fund will
also fluctuate in value. The Mid Cap Fund may experience greater fluctuation
than portfolios that invest in larger capitalization companies because it will
invest primarily in small to medium capitalization companies. The Fund's
investments in securities of foreign issuers will subject the Fund to risks
associated with foreign investments. See "Investment Objectives and Policies,"
"General Investment Policies," "Risk Factors," and "Description of Permitted
Investments."
Who is the Advisor? Summit Bank Investment Management Division, a division
of Summit Bank, serves as the advisor (the "Advisor") to the Trust. See "The
Advisor."
Who is the Administrator? SEI Fund Resources serves as the administrator
(the "Administrator") of the Trust. See "The Administrator."
Who is the Transfer Agent? State Street Bank and Trust Company acts as
transfer agent (the "Transfer Agent") for the Trust.
Who is the Shareholder Servicing and Dividend Disbursing Agent? Boston
Financial Data Services is the Trust's dividend disbursing agent and shareholder
servicing agent. See "The Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
(the "Distributor") of the Trust's shares. The Trust has adopted a distribution
plan (the "Class A Plan") on behalf of the Class A Shares pursuant to Rule 12b-1
of the Investment Company Act of 1940, as amended (the "1940 Act"). See "The
Distributor."
How do I Purchase and Redeem Shares? Shares may be purchased and redeemed
directly from the Trust's Distributor or through an investment professional of a
securities broker or other financial institution, such as Summit Bank, that has
entered into a selling agreement with the Trust or the Distributor.
Purchases and redemptions of Fund shares may be made through the
Distributor on any "Business Day." A "Business Day" for a Fund is any day that
the New York Stock Exchange is open for trading. 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. The purchase
price of Class A Shares of a Fund is the net asset value next determined after
the purchase order is effective plus any applicable sales load. 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. All redemption orders are effected at the
net asset value per share next determined after receipt of a valid request for
redemption. See "Purchase and Redemption of Shares."
4
<PAGE>
Class A Shares of the: (i) Intermediate-Term Government Securities and Mid
Cap Funds are offered at net asset value per share plus a maximum initial sales
charge of 4.00%; (ii) GNMA Fund are offered at net asset value per share plus a
maximum initial sales charge of 3.00%; and (iii) Short-Term Investment Fund are
offered at net asset value per share plus a maximum initial sales charge of
1.00%. Certain purchases of Class A Shares qualify for waived or reduced initial
sales charges. Class A Shares of the Funds are not subject to sales charges at
the time of redemption.
How are Dividends Paid?
The Fixed Income Funds: Each Fixed Income 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.
The Equity Fund: Substantially all of the net investment income (exclusive
of capital gains) of the Mid Cap Fund is declared and distributed quarterly in
the form of dividends to Shareholders on the next to last Business Day of each
quarter.
All Funds: Any capital gains will be distributed at least annually.
Dividends are paid in additional shares unless the Shareholder elects to take
the payment in cash. See "Dividends."
5
<PAGE>
EXPENSE SUMMARY
Fixed Income Funds
Class A Shares
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
SHAREHOLDER Intermediate-Term
TRANSACTION EXPENSES Short-Term Investment Government
Fund Securities Fund GNMA Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on 1.00% 4.00% 3.00%
Purchases
(as a percentage of offering price)
- -----------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on None None None
Reinvested Dividends
(as a percentage of offering price)
- -----------------------------------------------------------------------------------------------
Maximum Contingent Deferred None None None
Sales Charge (as a percentage of
original purchase price or redemption
proceeds, as applicable)
- -----------------------------------------------------------------------------------------------
Wire Redemption Fee $10 $10 $10
- -----------------------------------------------------------------------------------------------
Exchange Fee None None None
- -----------------------------------------------------------------------------------------------
</TABLE>
ANNUAL OPERATING EXPENSES -- Class A Shares
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Intermediate-Term
Short-Term Investment Government Securities
Fund Fund GNMA Fund
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee
waivers)(1), (2)......... .43% .53% .25%
12b-1 Fees .25% .25% .25%
Other Expenses.............. .37% .27% .55%
- -------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers)(2).......... 1.05% 1.05% 1.05%
- -------------------------------------------------------------------------------------
</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 Fixed Income Fund to not more than 1.05% 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 for each Fixed Income Fund would be .60%,
and Total Operating Expenses would be as follows: Short-Term Investment
Fund 1.22%, Intermediate-Term Government Securities Fund 1.12%
6
<PAGE>
and GNMA Fund 1.40%. Additional Information may be found under "The
Advisor," "The Administrator" and "The Distributor."
Example -- Class A Shares
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming: (1) imposition of the maximum sales load; (2) a 5% annual return; and
(3) redemption at the end of each time period:
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
Short-Term Investment Fund $21 $43 $67 $137
- --------------------------------------------------------------------------------
Intermediate-Term Government Securities Fund 50 72 96 163
- --------------------------------------------------------------------------------
GNMA Fund 40 62 86 154
- --------------------------------------------------------------------------------
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 Class A Shares of the Fixed Income Funds. Financial
institutions may impose fees on their customers in addition to those described
above. Additional information may be found under "The Advisor," "The
Administrator" 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 a waiver or reduction of 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 Conduct Rules (the "Conduct Rules") of
the National Association of Securities Dealers, Inc. (the "NASD"). The Trust
intends to operate the Class A Plan in accordance with its terms and with the
Conduct Rules of the NASD concerning sales charges.
7
<PAGE>
EXPENSE SUMMARY
Mid Cap Fund
Class A Shares
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION
EXPENSES Mid Cap Fund
- --------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases 4.00%
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Sales Load Imposed on Reinvested None
Dividends
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (as a None
percentage of original purchase price or redemption
proceeds, as applicable)
- --------------------------------------------------------------------------------
Wire Redemption Fee $10
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Mid Cap
Fund
- --------------------------------------------------------------------------------
Advisory Fees (after fee waivers)(1), (2) .45%
12b-1 Fees .25%
Other Expenses .35%
- --------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2) 1.05%
================================================================================
(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 Fund to not more than 1.05% 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 .75% and Total Operating
Expenses would be 1.35% of the Fund's average daily net assets. Additional
information may be found under "The Advisor," "The Administrator" and "The
Distributor."
8
<PAGE>
Example--Class A Shares
An investor in the Fund would pay the following expenses on a $1,000 investment
assuming: (1) imposition of the maximum sales load; (2) a 5% annual return; and
(3) redemption at the end of each time period:
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
Mid Cap Fund $ 50 $ 72 $ 96 $163
- --------------------------------------------------------------------------------
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 Mid Cap Fund. Financial institutions may impose fees
on their customers in addition to those described above. Additional information
may be found under "The Advisor," "The Administrator" and "The Distributor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above tables. However, certain investors may
qualify for a waiver or reduction of sales charges. See "Purchase and Redemption
of Shares."
Long-term Shareholders may pay more than the equivalent of the maximum sales
charges otherwise permitted by the Conduct Rules of the NASD. The Trust intends
to operate the Class A Plan in accordance with its terms and the Conduct Rules
of the NASD concerning sales charges.
9
<PAGE>
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 14,
1997 on the Trust's financial statements as of December 31, 1996, which is
incorporated by reference into the Trust's Statement of Additional Information
under "Financial Information." Additional performance information is contained
in the Trust's 1996 Annual Report to Shareholders and is available upon request
and without charge by calling 1-800-932-7782. These tables should be read in
conjunction with the Trust's financial statements and notes thereto.
10
<PAGE>
<TABLE>
<CAPTION>
Net Realized Distri- Distri- Net Asset Total Net Ratio of Ratio of Ratio of
Asset and butions butions Value Return Assets Expenses Income to Expenses to
Value Net Unrealized from Net from End of (+) End of to Average Average Average Net
Begin- Invest- Gains or Invest- Capital Period Period Net Assets Net Assets
ning of ment Losses on ment Gains (000) Assets (Excluding
Period Income Securities Income Waivers)
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENT FUND
CLASS A
1996 $10.05 $0.45 $(0.02) $(0.46) --- $10.02 4.39% $1,076 1.05% 4.60% 1.21%
1995 9.98 0.53 0.07 (0.53) --- 10.05 6.13 2,043 1.05 5.27 1.22
1994 10.03 0.33 (0.05) (0.33) --- 9.98 2.85 769 1.05 3.50 1.20
1993 10.01 0.28 0.01 (0.27) --- 10.03 2.90 205 1.05 2.09 1.13
1992(1) 10.00 0.25 0.03 (0.25) $(0.02) 10.01 3.23* 193 1.05 3.14 1.26
INTERMEDIATE-TERM GOVERNMENT FUND
CLASS A
1996 $10.37 $0.52 $(0.22) $(0.51) --- $10.16 3.01% $2,578 1.05% 5.01% 1.12%
1995 9.51 0.51 0.86 (0.51) --- 10.37 14.71 3,665 1.05 5.08 1.30
1994 10.53 0.49 (1.01) (0.49) $(0.01) 9.51 (5.09) 2,372 1.05 4.83 1.20
1993 10.24 0.49 0.31 (0.49) (0.02) 10.53 7.94 4,903 1.05 4.59 1.23
1992(1) 10.00 0.39 0.25 (0.39) (0.01) 10.24 7.86* 2,190 1.05 5.00 1.36
GNMA FUND
CLASS A
1996 $9.93 $0.57 $(0.32) $(0.57) --- $9.61 2.73% $1.426 1.05% 5.98% 1.41%
1995 8.84 0.58 1.08 (0.57) --- 9.93 19.24 1,761 1.05 6.05 1.37
1994 9.85 0.50 (1.00) (0.50) $(0.01) 8.84 (5.05) 1,853 1.05 5.47 1.22
1993(2) 10.01 0.31 (0.16) (0.31) --- 9.85 2.31* 2,.633 1.05 4.70 1.29
</TABLE>
Ratio of Net Portfolio Average
Income to Turnover Commission
Average Net Rate Rate++
Assets
(Excluding
Waivers)
SHORT-TERM INVESTMENT FUND
CLASS A
1996 4.44% 33.83% ---
1995 5.10 64.85 ---
1994 3.35 68.39 ---
1993 2.01 81.92 ---
1992(1) 2.93 68.15 ---
INTERMEDIATE-TERM GOVERNMENT FUND
CLASS A
1996 4.94% 40.60% ---
1995 4.83 68.29 ---
1994 4.68 40.27 ---
1993 4.41 31.69 ---
1992(1) 4.69 12.38 ---
GNMA FUND
CLASS A
1996 5.62% 5.77% --
1995 5.73 9.69 --
1994 5.30 102.77 --
1993(2) 4.46 252.73 --
11
<PAGE>
<TABLE>
<CAPTION>
MID CAP FUND
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1996 $12.53 $0.05 $1.59 $(0.05) $(0.81) $13.31 13.32% $5,846 1.05% 0.41% 1.35%
1995 10.82 0.12 1.94 (0.12) (0.23) 12.53 19.13 5,653 1.05 1.03 1.35
1994 12.31 0.10 (1.27) (0.10) (0.22) 10.82 (9.54) 4,567 1.05 0.85 1.33
1993 10.99 0.09 1.32 (0.09) --- 12.31 12.88 2,720 1.05 0.83 1.35
1992(1) 10.00 0.05 1.00 (0.06) --- 10.99 14.08* 637 1.05 0.88 1.40
</TABLE>
MID CAP FUND
CLASS B
1996 0.11% 41.41% $.1010
1995 0.73 32.96 ---
1994 0.57 13.82 ---
1993 0.53 24.49 ---
1992(1) 0.53 9.29 ---
* Annualized.
(+) Total Return does not reflect sales loads on Class A shares.
(++) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for the fiscal
years beginning after September 1, 1995.
(1) The Short-Term Investment Fund, Mid Cap and Intermediate-Term Government
Securities Funds commenced operations on April 1, 1992. Ratios for this
period have been annualized.
(2) The GNMA Fund (Class A Shares) commenced operations on May 3, 1993. Ratios
for this period have been annualized.
12
<PAGE>
THE TRUST
The Pillar Funds (the "Trust") is an open-end management investment company that
consists of diversified and non-diversified portfolios. The Trust currently
offers units of beneficial interest ("shares") in sixteen separate investment
portfolios. Shareholders may purchase shares in each portfolio described herein
through two separate classes of shares (Class A (formerly, Class B) and Class I
(formerly, Class A)). Additionally, other portfolios of the Trust also offer
Class B Shares. The different classes provide for variations in distribution
costs, voting rights, sales loads, minimum investments, 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 Fund, Intermediate-Term Government Securities
Fund, GNMA Fund and Mid Cap Fund (collectively, the "Funds"). Each of the Funds
is a diversified mutual fund. Information regarding the Trust's other portfolios
and the Class I Shares of the Funds is contained in separate prospectuses that
may be obtained from the Trust's Distributor, SEI Financial Services Company,
Oaks, Pennsylvania 19456 or by calling 1-800-932-7782.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Funds are discussed below. For
additional information regarding risks and permitted investments of the Funds,
see "Risk Factors," "General Investment Policies" and "Description of Permitted
Investments" in this Prospectus and "Description of Permitted Investments" and
"Description of Ratings" in the Statement of Additional Information. There is no
assurance that the investment objective of any Fund will be met.
The Fixed Income Funds
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. 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 ("U.S. Government Agencies"); (iii) corporate
13
<PAGE>
debt obligations rated in one of the three highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO") or as
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 by an NRSRO or determined by the Advisor to
be of comparable quality at the time of investment. Securities rated A are
considered to be investment grade, but 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 portfolio maturity of three
years or less.
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.
The Fund will be fully invested in U.S. Treasury Obligations and U.S. Government
Agencies.
The Fund will maintain a dollar-weighted average portfolio 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.
14
<PAGE>
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.
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)
U.S. Government Agencies; (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 -- Fixed Income Funds
For temporary defensive purposes when the Advisor determines that market
conditions warrant, each Fixed Income Fund (except the GNMA Fund) may invest up
to 100% of its assets in the money market instruments described in the
"Description of Permitted Investments" 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 Fixed Income Funds may purchase mortgage-backed securities issued or
guaranteed as to payment of principal and interest by the U.S. Government, its
agencies or instrumentalities. The Short-Term Investment Fund may also invest in
mortgage-backed securities issued by private issuers rated in one of the two
highest rating categories by an NRSRO 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 U.S. 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 Fixed Income 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.
15
<PAGE>
If, after purchase, the rating of a security held by a Fixed Income Fund drops
below the prescribed 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.
Risk Factors--Fixed Income Funds
The market value of each Fixed Income 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 Fixed Income Fund are prepaid, the Fund
must reinvest the proceeds in securities, the yield on 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 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, 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.
The Equity Fund
The Mid Cap Fund
The investment objective of this Fund is growth of both capital and income.
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 American Depositary
Receipts ("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
16
<PAGE>
assets in equity securities of mid cap issuers (i.e., companies with market
capitalizations ranging between $700 million and $7 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 $700
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 companies
which may be subject to greater volatility than investments in companies with
larger capitalizations.
General Investment Policies--Mid Cap Fund
For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, the Fund may invest up to 100% of its assets in the
money market instruments described in the "Description of Permitted Investments"
and may hold cash for liquidity purposes. To the extent the Fund is engaged in
temporary defensive investing, the Fund will not be pursuing its investment
objective.
The Mid Cap Fund seeks 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 Fund may involve floating or variable interest rates
and may be acquired through a forward commitment or on a when-issued basis.
In addition, the Fund reserves the right to engage in securities lending. The
Fund will purchase equity securities, including ADRs, that are traded in the
United States on registered exchanges or the over-the-counter market. However,
the Fund 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--Mid Cap Fund
Because the Mid Cap Fund invests in equity securities, its shares will fluctuate
in value. The market value of the convertible securities purchased by the 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 Fund 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.
17
<PAGE>
The Fund's investments 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 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 the 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.
Portfolio Turnover
Under normal circumstances, it is anticipated that the annual portfolio turnover
rate for each Fund will not exceed 100%. The historical portfolio turnover rates
for each Fund are set forth in the Financial Highlights above.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of the Funds. 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.
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, with respect to the Fixed Income Funds
only, 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
transmissions, electric and telephone will each
18
<PAGE>
be considered a separate industry; (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; (iii) with respect to the Mid Cap Fund only, supranational agencies
will be deemed to be issuers conducting their principal business activities in
the same industry; and (iv) with respect to the Mid Cap Fund only, 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 apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities (as defined below under "Description of
Permitted Investments").
THE ADVISOR
Summit Bank Investment Management Division, a division of Summit Bank (the
"Advisor"), serves as the investment advisor to the Trust. The Advisor makes the
investment decisions for the assets of the Funds 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.
Summit Bank, 210 Main Street, Hackensack, New Jersey 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 professionals have, on average, over 20
years of experience in investment management. As of December 31, 1996, total
assets under management were approximately $6.7 billion.
Summit Bank is a wholly-owned subsidiary of Summit Bancorp., an interstate bank
holding company with over $22 billion in assets and over 340 banking offices,
predominantly in New Jersey and eastern Pennsylvania, as of December 31, 1996.
Short-Term Investment and GNMA Funds--Robert B. Lowe is a Vice President of the
Advisor and currently manages the Short-Term Investment and GNMA Funds. Mr. Lowe
has managed the Short-Term Investment Fund since its inception in April, 1992.
He has managed the GNMA Fund since its inception in May, 1993. Mr. Lowe joined
Summit Bank in 1989.
19
<PAGE>
Intermediate-Term Government Securities Fund--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 Summit Bank in 1982 and is currently responsible for managing
both equity and fixed income portfolios.
Mid Cap Fund--Randolph E. Lestyk is Vice President and Regional Manager
(Pennsylvania) of the Advisor and has managed the Mid Cap Fund since January,
1996. Prior to joining Summit 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.
The Advisor is entitled to a fee from each Fund, which is calculated daily and
paid monthly at the annual rate of each respective Fund's average daily net
assets as set forth in the following table. The Advisor has voluntarily agreed
to waive all or a portion of its fees to limit the total operating expenses of
each Fund to the respective levels set forth below. The Advisor reserves the
right to terminate any and all fee waivers at any time in its sole discretion.
Also set forth below are the advisory fees each Fund paid to the Advisor (shown
as a percentage of average daily net assets) for the fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Maximum Total Fees Received
Operating Expense In Fiscal Year
Contractual Fee After Fee Waiver 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Investment Fund .60% 1.05% .43%
- ---------------------------------------------------------------------------------------------
Intermediate-Term Government Securities .60% 1.05% .53%
Fund
- ---------------------------------------------------------------------------------------------
GNMA Fund .60% 1.05% .25%
- ---------------------------------------------------------------------------------------------
Mid Cap Fund .75% 1.05% .45%
- ---------------------------------------------------------------------------------------------
</TABLE>
Summit 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 Summit 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.
20
<PAGE>
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") 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 TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent"), 225 Franklin Street,
Boston, Massachusetts 02110 is the Trust's transfer agent.
THE SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, 2 Heritage Drive, North Quincy, Massachusetts
02171 is the Trust's dividend disbursing agent and shareholder servicing agent.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, acts as the Distributor of the Trust's shares.
The Class A Shares of each Fund are subject to a distribution plan dated
February 28, 1992 ("Class A Plan"). As provided in the Distribution Agreement
and the Class A Plan, the Trust will pay the Distributor a fee of .25% of the
average daily net assets of each Fund's Class A 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 Summit Bank),
savings and loan associations, insurance companies, 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 A
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.
Class A Shares of each Fund are offered to all persons. Because the Trust offers
different classes of its investment portfolios, it is possible that individuals
and institutions may offer different classes of shares of a Fund to their
customers and thus receive different compensation with respect to different
classes of shares. In addition, individuals and institutions that are the
21
<PAGE>
record owner of shares for the account of their customers may impose separate
fees for account services to their customers. Each Fund 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
The public offering price of Class A Shares equals the net asset value of the
shares plus any applicable initial sales charge. The sales charge as a
percentage of an investment decreases as the amount invested reaches the
succeeding levels set forth in the following tables. The tables show the initial
sales charge on Class A Shares of the Funds to a "single purchaser" (defined
below), the reallowance paid to dealers and the agency commission paid to
brokers (collectively, the "commission"):
Intermediate-Term Government Securities and Mid Cap Funds:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and
Percentage of Offering Percentage of Net Brokerage Commission
Price Amount Invested as Percentage of Offering
Price
- ---------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
$0-99,999 4.00% 4.17% 3.50%
- ---------------------------------------------------------------------------------------------------
$100,000-249,999 3.00% 3.09% 2.70%
- ---------------------------------------------------------------------------------------------------
$250,000-499,999 2.00% 2.04% 1.80%
- ---------------------------------------------------------------------------------------------------
$500,000-999,999 1.00% 1.01% 0.90%
- ---------------------------------------------------------------------------------------------------
$1,000,000 and above 0.00% 0.00% 0.00%
- ---------------------------------------------------------------------------------------------------
</TABLE>
GNMA Fund:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and
Percentage of Offering Percentage of Net Brokerage Commission
Price Amount Invested as Percentage of Offering
Price
- ---------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
$0-249,999 3.00% 3.09% 2.70%
- ---------------------------------------------------------------------------------------------------
$250,000-499,999 2.00% 2.04% 1.80%
- ---------------------------------------------------------------------------------------------------
$500,000-999,999 1.00% 1.01% 0.90%
- ---------------------------------------------------------------------------------------------------
$1,000,000 and above 0.00% 0.00% 0.00%
- ---------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
Short-Term Investment Fund:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and
Percentage of Offering Percentage of Net Brokerage Commission
Price Amount Invested as Percentage of Offering
Price
- ---------------------------------------------------------------------------------------------------
<C> <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 above apply to sales through financial
institutions. Under certain circumstances, some financial institutions,
including Summit Bank and its affiliates, will be reallowed the entire sales
charge imposed on purchases of Class A Shares and may, therefore, be deemed to
be "underwriters" under the Securities Act of 1933, as amended.
Commission rates may vary among the Funds.
Sales Charge Reductions For Purchases of Class A Shares
Right of Accumulation
A "single purchaser" (defined below) may benefit from the reduced sales charges
set forth in the foregoing tables for current purchases by adding the amount of
any current purchase with the market value of the Fund that the purchaser
already owns. The calculation of the sales charge for the current purchase will
be based on the combined amount. A single purchaser can also combine purchases
of Class A Shares of different Funds if those Funds are subject to a sales
charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Funds 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 identify eligible accounts at the time of
purchase and provide the account number(s) of the investor and, if applicable,
the investor and spouse, their minor children, as well as the ages of such
children. The Trust may amend or terminate this right of accumulation at any
time prior to subsequent purchases.
Letter of Intent
A single purchaser may obtain a reduced sales charge by means of a written
Letter of Intent (a "Letter") that expresses the investor's intention to invest
a specified amount within a 13-month period, which if invested at one time,
would qualify for a reduced sales charge.
23
<PAGE>
A Letter is not a binding obligation upon the investor to purchase the full
amount indicated. An investor must invest, or have already invested, at least
$1,000 in Class A Shares of each applicable Fund when the Letter is submitted.
Only those Funds which are subject to a sales charge are eligible to be counted
towards the amount indicated in the Letter. Five percent of the shares purchased
under a Letter will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge that would have been
applicable to the shares actually purchased if the investor fails to purchase
the amount indicated in the Letter. In such a case, escrowed shares will be
involuntarily redeemed to pay any additional sales charge. When the full amount
indicated in the Letter has been purchased, the escrowed shares will be
released. A Letter may include purchases of shares made within 90 days prior to
the date the investor signs the Letter; however, the 13-month period during
which the Letter is in effect will begin on the date of the earliest purchase.
Waiver of Class A Sales Charges
No sales charge is imposed on Class A Shares of a 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
arrangement with the Distributor, for their own account or for retirement plans
for their employees; (iii) 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; (iv) sold to present or retired employees of Summit Bancorp.,
or one of its affiliates; (v) sold to present employees of any entity that is a
current service provider to the Trust; (vi) sold to any qualified customer who
has entered into an agreement with Summit Bank, its affiliates or correspondent
banks; (vii) sold to present or retired Trustees of the Trust and their
immediate families; (viii) sold to present or retired Directors of Summit
Bancorp. or its affiliates, and their immediate families; or (ix) sold to
beneficial owners of Class I Shares whose interests are converted into Class A
Shares.
How to Purchase Shares
Shares may be purchased directly from the Fund's Distributor or through an
investment professional of a securities broker or other financial institution,
such as Summit Bank, that has entered into a selling agreement with the Trust or
the Distributor. Shares of each Fund are sold on a continuous basis and may be
purchased on any business day that the New York Stock Exchange is open for
trading (a "Business Day").
A purchase order for shares of a Fund will be executed at a per share price
equal to the net asset value next determined after the purchase order is
effective plus any applicable sales charge (the "offering price").
The net asset value per share of each class of a Fund is determined by dividing
the total value of its investments and other assets that are allocated to that
class, less any liabilities that are allocated to that class, by the class's
total outstanding shares. Although the methodology and procedures are identical,
the net asset value per share of classes within a Fund may differ
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because of the classes' different distribution expenses. 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, the Fund or its Shareholders to accept such
order. Investment Strategy Account Agreement customers (Qualified Customers)
should call the Transfer Agent for information regarding requirements for
purchase and redemption orders.
A purchase order for a Fund 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. All other purchase orders accompanied by payment, except
those of certain types of investors as described below, will be effective the
next Business Day. Certain institutional investors and financial institutions,
such as Summit Bank, that have entered into a settlement agreement with the
Distributor, may make payment in federal funds for purchases of Funds to the
Distributor by 12:00 noon, Eastern time, the Business Day following the
effective date of the trade. A purchase order may be canceled if the Distributor
does not receive federal funds before 12:00 noon, Eastern time, the next
Business Day.
The net asset value per share of the Funds is determined as of 4:00 p.m.,
Eastern time, each Business Day. Purchases will be made in full and fractional
shares of a Fund calculated to three decimal places. 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.
Purchases Through Investment Professionals
A customer who purchases shares of a Fund through an Investment Professional
should contact that Investment Professional for information about purchasing
shares. Investment Professionals may charge fees for their services that are in
addition to, and unrelated to, the fees and expenses charged by the Funds.
Investment Professionals 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.
In addition, state securities laws may require banks and financial institutions
purchasing shares for their customers to register as dealers pursuant to state
laws.
Investment Requirements
The minimum initial investment is $1,000; however, the minimum initial
investment may be waived at the Distributor's discretion. All subsequent
investments must be at least $100, except for investments made through the
Automatic Investment Plan, which must be at least $50. All purchases made by
check must be in U. S. dollars and made payable to "The Pillar Funds," or in the
case of a retirement account, to either the Custodian or the retirement plan
trustee. Third party checks, credit cards, credit card checks and cash will not
be accepted. When purchases are made by check or ACH transfer, redemption
proceeds will not be forwarded until the investment being redeemed has been in
the account for 10 Business Days. If the check does not
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clear, the purchase will be canceled and the investor could be liable for any
losses or fees incurred.
No certificates representing shares will be issued.
Investing Directly
Investing by Mail
Investors may purchase shares of a Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) to:
The Pillar Funds
P. O. Box 8523
Boston, MA 02266-8523
The following address may be used for overnight delivery:
The Pillar Funds
c/o Boston Financial Data Services
2 Heritage Drive
North Quincy, MA 02171-2144
Investors may obtain Account Application forms by calling the Distributor at
1-800-932-7782.
Investing by Telephone
Purchases may be made to an existing account by calling the Distributor at
1-800-932-7782. While telephone transaction privileges are automatic,
Shareholders may specifically request that no telephone transactions be accepted
for their account(s). This election may be made on the Account Application form
at the time of purchase or at any time thereafter by completing and returning
appropriate documentation supplied by the Transfer Agent.
By Wire: Shareholders must call the Distributor before wiring funds. Federal
funds should be wired to:
State Street Bank and Trust Company
ABA # 011000028
For Credit To DDA Account # 9905-150-0
For Further Credit To Account # (insert Fund name,
account number, name, and registration number assigned
by the Distributor)
The Trust does not impose a fee for purchase wire transactions, although the
Shareholder's financial institution may charge a fee for this service.
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Shares cannot be purchased by Federal Reserve wire on days when either the New
York Stock Exchange or the Federal Reserve is closed.
Orders will not be executed until payment has been received by the Distributor.
By Automated Clearing House ("ACH"): This service allows the purchase of
additional shares through an electronic transfer of money from a checking or
savings account. When an additional purchase is made by telephone, the Transfer
Agent will automatically debit the predesignated bank account for the desired
amount. Shareholders may call 1-800-932-7782 to request an Optional Services
Form to establish this option.
By Automatic Investment Plan: A Shareholder may also arrange for periodic
additional investments in the Funds through automatic deductions by ACH transfer
by completing an Optional Services Form. The minimum pre-authorized investment
amount is $50. Shareholders may select monthly, quarterly, semi-annual or annual
investments. However, Shareholders selecting this service must first meet the
minimum initial investment requirement of $1,000 per Fund. Customers may call
1-800-932-7782 to request an Optional Services Form to establish an Automatic
Investment Plan.
Retirement Plans
The Funds may be used as part of a retirement portfolio. Investors can establish
their account under one of several tax-sheltered plans. Investors should contact
their Investment Professional or the Distributor at 1-800-932-7782 for details
regarding an IRA or other retirement plan.
How to Exchange Shares
Each portfolio of the Trust, other than the U.S. Treasury Securities Plus Money
Market Fund, (collectively, the "Eligible Funds") is eligible for exchange with
any other Eligible Fund.
Class A Shares of an Eligible Fund may be exchanged only for Class A Shares of
another Eligible Fund, usually without paying an additional sales charge.
However, exchanges from Class A Shares of an Eligible Money Market Fund, which
were purchased directly, to Class A Shares of an Eligible Non-Money Market Fund
are made at net asset value plus the appropriate sales load for that Eligible
Non-Money Market Fund.
If an exchange request is received in good order by the Transfer Agent by 4:00
p.m., Eastern time, on any Business Day, the exchange usually will occur on that
day. Exchanges are regarded as sales for federal and state income tax purposes
and could result in a gain or loss depending on the original cost of the shares
exchanged.
To exchange shares, several conditions must be met:
1. After the exchange is complete, the Shareholder must have at least $1,000
(the minimum account balance) in the new Eligible Fund.
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2. Shares of Eligible Funds can only be exchanged between accounts with
identical registrations and tax identification numbers.
3. Shares in the original Eligible Fund must be held at least 10 Business Days
before an exchange can be made. Shares can be exchanged on any Business
Day.
4. Shares of the new Eligible Fund selected for exchange must be available for
sale in the Shareholder's state of residence.
5. Shareholders must have received the prospectus for the new Eligible Fund
prior to initiating an exchange.
6. The prospectuses of both Eligible Funds involved in the exchange must offer
the exchange privilege.
By Mail: An exchange will be honored by a written letter of request to the
Transfer Agent if signed by all registered owners of the account.
By Telephone: Telephone exchange requests may be made either by calling the
Transfer Agent at 1-800-932-7782 or by contacting their Investment Professional.
See "Investing Directly -- Investing by Telephone" above for a description of
telephone transaction privileges.
Systematic Exchange Program
Shares of the Funds also may be exchanged through automatic monthly deductions
from an investor's account for the same class of shares of the Trust. Under the
Systematic Exchange Program, an investor initially purchases shares of the Prime
Obligation Money Market Fund, which is described in a separate prospectus, in an
amount equal to the total amount of the investment the investor desires to make
in the same class of shares of the Trust. On a monthly basis, a specified dollar
amount of the Prime Obligation Money Market Fund shares is exchanged for shares
of the same class of a specified Eligible Fund. Exchange of Class A Shares will
be subject to the applicable sales charge imposed by the Eligible Fund and,
accordingly, it may be beneficial for an investor to execute a Letter of Intent
in connection with a Class A Shares Systematic Exchange Program. The Systematic
Exchange Program of investing a fixed dollar amount at regular intervals over
time in an Eligible Fund may have the effect of reducing the average cost per
share of the shares of the Eligible Fund acquired. This effect may also be
achieved through the Trust's Automatic Investment Plan, which is described in
the applicable prospectuses. A Shareholder may apply for participation in the
Systematic Exchange Program through the Distributor or his or her Investment
Professional. Shares purchased through the Systematic Exchange Program are
subject to the conditions listed under "How to Exchange Shares," however, such
shares are not subject to the Trust's minimum investment limitations. Exchanges
are considered taxable events for Shareholders.
How to Redeem Shares
Shares may be redeemed on any Business Day directly from the Transfer Agent or
through an Investment Professional. Each Fund intends to pay cash for all shares
redeemed, but under abnormal conditions that make payment in cash unwise,
payment may be made wholly or partly
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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.
When purchases are made by check or by ACH transfer, redemption proceeds will
not be forwarded until the investment being redeemed has been in the account for
10 Business Days. Payment to Shareholders for shares redeemed will be made
within seven days after the Transfer Agent receives the redemption request in
good order. A Shareholder may request that the redemption proceeds are paid by
check, by federal funds wire or by ACH transfer.
A redemption order for shares of a Fund will be executed at a price per share
equal to the net asset value next determined after receipt of the redemption
order by the Transfer Agent.
A redemption order for a Fund will be effective as of the Business Day received
by the Transfer Agent if the Transfer Agent receives the order before 4:00 p.m.,
Eastern time. Requests received after 4:00 p.m., Eastern time, will be effective
on the next Business Day.
Redemptions Through Investment Professionals
Shareholders should contact their Investment Professional for information about
redeeming shares of a Fund and any charges for services provided by the
Investment Professional. Investment Professionals may impose an earlier cut-off
for receipt of redemption orders directed through them to allow time for
processing and transmittal of these orders to the Transfer Agent for
effectiveness the same Business Day.
By Mail: Shareholders may redeem shares of a Fund by mailing a letter of
instruction signed by all registered owners exactly as their names appear in the
registration to:
The Pillar Funds
P. O. Box 8523
Boston, MA 02266-8523
The following address may be used for overnight delivery:
The Pillar Funds
c/o Boston Financial Data Services
2 Heritage Drive
North Quincy, MA 02171-2144
A signature guarantee is required if any of the following conditions apply: (i)
the redemption is for more than $10,000 worth of shares, (ii) the redemption
check is payable to other than the Shareholder(s) of record, (iii) the
redemption check is mailed to other than the Shareholder(s) address of record,
or (iv) the redemption proceeds are to be forwarded by federal funds wire or ACH
transfer to a financial institution not pre-designated on the account. A
signature guarantee can be obtained from a commercial bank, a trust company, a
member firm of a domestic stock
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exchange or a member of a securities transfer association medallion program. A
signature guarantee may not be provided by a notary public. A signature
guarantee is designed to protect the Shareholders, the Trust and its agents from
fraud.
To determine if any additional documentation may be required to consider a
redemption request in good order, Shareholders should contact their Investment
Professional or the Transfer Agent.
By Telephone: To redeem shares by telephone, Shareholders should call the
Transfer Agent at 1-800-932-7782. See "Investing Directly -- Investing by
Telephone" above for a description of telephone transaction privileges. Neither
the Trust nor the Transfer Agent will be responsible for any loss, liability,
cost or expense for acting upon instructions that it reasonably believes to be
genuine. The Trust and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. 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.
By Check: Shares may be redeemed by check to the address of record for most
requests under $10,000. Requests received by the Transfer Agent by 4:00 p.m.,
Eastern time, will be processed that Business Day, and the check will be mailed
the following Business Day. For more information, call the Transfer Agent at
1-800-932-7782.
By Wire: Shares may be redeemed by federal funds wire and sent to a
pre-designated bank account. Shareholders may call 1-800-932-7782 to request an
Optional Services Form to establish this option.
A wire will be sent the Business Day after the redemption request is effective.
The Trust reserves the right to assess a wire redemption charge, currently
$10.00, for this transaction, which will be deducted from the redemption
proceeds. The Shareholder's receiving financial institution may also impose a
fee.
By ACH: Shares may be redeemed by ACH transfer and sent to a pre-designated
financial institution account. Shareholders may call 1-800-932-7782 to request
an Optional Services Form to establish this option. ACH transfers of redemption
proceeds may take up to two Business Days to credit to the Shareholder's
financial institution.
The Trust does not charge for ACH transfers, but the Shareholder's receiving
financial institution may charge for this service.
By Systematic Withdrawal Plan: Shareholders with an account value of at least
$2,000 may elect to receive automatic distributions of $50 or more by
establishing a Systematic Withdrawal Plan. Distributions can be received either
by check or ACH transfer on a monthly, quarterly,
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semi-annual or annual basis. To participate in a Systematic Withdrawal Plan,
Shareholders must elect to have all dividends reinvested in additional shares.
Shareholders who have attained the age of 70 1/2 may want to establish a
Systematic Withdrawal Plan as a convenient means to satisfy mandatory
distribution requirements from a retirement plan.
It is not generally in the best interest of a Shareholder to participate in a
Systematic Withdrawal Plan at the same time that he or she is purchasing
additional Class A Shares if those purchases are subject to a sales load.
Shareholders may obtain an Optional Services Form to establish a Systematic
Withdrawal Plan by calling the Transfer Agent at 1-800-932-7782.
Minimum Balance Requirements
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem (with the exception of a retirement account) the
shares of any Shareholder if, because of redemptions of shares by or on behalf
of the Shareholder, the account of such Shareholder in that Fund has a value of
less than $1,000, the minimum initial purchase amount. Before a Fund exercises
its right to redeem such shares and sends the proceeds to the Shareholder, the
Shareholder will be given 60 days' notice to reestablish the minimum balance. If
the balance does not increase within 60 days, the account may be closed and the
proceeds mailed to the address of record. Shares will be redeemed at the last
calculated net asset value on the day the account is closed.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
PERFORMANCE
Computation of Yield
The Fixed Income Funds may advertise yield and total return (described below).
The yield of a Fixed Income 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.
Computation of Total Return
Each of the Funds may also advertise total return. Total return figures are
based on historical earnings and are not intended to indicate future
performance.
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The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any initial sales charge, 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.
A 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. 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 a Fund or
its Shareholders. Accordingly, Shareholders are urged to consult their tax
advisors regarding specific questions as to federal, state and local income
taxes.
Tax Status of the Funds
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Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other investment portfolios. Each Fund intends to
continue 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 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 dividends from net capital gain (the excess of net long-term capital gain
over net short-term capital loss) will be distributed annually and will be
treated as long-term capital gains. Capital gains distributions also will not
qualify for the dividends-received deduction 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. 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. 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. Government
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.
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 generally 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.
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.
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Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
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.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Funds will not be able to elect to treat
Shareholders as having paid their proportionate share of such foreign taxes.
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 currently consists of the U.S. Treasury
Securities Plus Money Market Fund, the Prime Obligation Money Market Fund, U.S.
Treasury Securities Money Market Fund, Tax-Exempt Money Market Fund, Fixed
Income Fund, the New Jersey Municipal Securities Fund, the Pennsylvania
Municipal Securities Fund, the Equity Growth Fund, the Equity Value Fund, the
Equity Income Fund, the International Growth Fund and the Balanced Fund. All
consideration received by the Trust for shares of any portfolio and all assets
of such portfolio belong to that portfolio and would be subject to liabilities
related thereto.
Each Fund 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, registering the shares
under federal laws and filing with state
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securities commissions, pricing, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
The Advisor, in addition to providing investment advice to the Trust, provides
investment advice to other clients. Some of these clients' funds are maintained
in asset allocation accounts and may be invested in the Funds. 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 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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Shareholder Inquiries
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
Dividends
Shareholders automatically receive all income dividends and capital gain
distributions in 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. If any capital gain is
realized, substantially all of it will be distributed at least annually.
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 less than the
dividends payable on Class I Shares because of the distribution expenses charged
to Class A Shares.
The Fixed Income Funds: Each Fixed Income 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
following the date of purchase, and accrue dividends through and including the
effective date of redemption.
The Mid Cap Fund: Substantially all of the net investment income (not including
capital gain) of the Fund is distributed in the form of quarterly dividends to
Shareholders of record on the next to last Business Day of each quarter.
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")-- ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security
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or a pool of securities issued by a foreign issuer and deposited with the
depositary. ADRs include American Depositary Shares and New York Shares. ADRs
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 U. S. 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' ACCEPTANCES--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.
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COMMERCIAL PAPER-- Commercial paper is 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.
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.
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 affect cash income derived
from these securities but will affect a Fund's net asset value.
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 net 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.
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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 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.
MONEY MARKET SECURITIES--Money market securities include: (i) 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 an 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. The Mid Cap Fund will not consider the securities described
under clauses (iii) and (vi) above as Money market securities.
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
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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.
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.
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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.
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 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.
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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
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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 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
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separate account with liquid assets in an amount at least equal to these
commitments. The interest rate realized, if any, on these securities is fixed as
of the purchase date and no interest accrues to a Fund before settlement. These
securities may be 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 such action appropriate.
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Summary......................................................................3
Expense Summary..............................................................6
Financial Highlights........................................................10
The Trust...................................................................13
Investment Objectives and Policies..........................................13
Investment Limitations......................................................18
The Advisor.................................................................19
The Administrator...........................................................21
The Transfer Agent..........................................................21
The Shareholder Servicing Agent.............................................21
The Distributor ............................................................21
Purchase and Redemption of Shares...........................................22
Performance.................................................................31
Taxes.......................................................................32
General Information.........................................................34
Description of Permitted Investments........................................36
The Pillar Funds is a registered service mark of Summit Bank. Your Investment
Foundation, Pillar and the stylized "P" logo are service marks of Summit Bank.
Summit is a registered service mark of Summit Bancorp. Summit Bank and Summit
Bancorp are service marks of Summit Bancorp.
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ADVISOR:
[ SUMMIT BANK LOGO ]
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
----------------
Oaks, Pennsylvania 19456
1-800-932-7782
PIL-F-026-01
[ LOGO ]
THE PILLAR
FUNDS
Class A Shares
Short-Term Investment Fund
Intermediate-Term Government Securities Fund
GNMA Fund
Mid Cap Fund
Prospectus May 1, 1997
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The Pillar Funds
Class A and Class B Shares
Investment Advisor:
Summit Bank Investment Management Division,
a division of Summit Bank
The Pillar Funds (the "Trust") consists 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
shares of the following funds (each, a "Fund," and collectively, the "Funds"):
Money Market Funds
------------------
o Prime Obligation Money Market Fund
o U.S. Treasury Securities Money Market Fund
o Tax-Exempt Money Market Fund
Fixed Income Funds Equity and Balanced Funds
------------------ -------------------------
o Fixed Income Fund o Equity Growth Fund
o New Jersey Municipal Securities Fund o Equity Value Fund
o Pennsylvania Municipal Securities Fund o Equity Income Fund
o Balanced Fund
o International Growth Fund
The Trust's Class A Shares and Class B Shares are offered to all persons.
Persons who own Class A Shares or Class B Shares of a Fund are referred to
herein as "Shareholders." This Prospectus offers Class A Shares of the U.S.
Treasury Securities Money Market, Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds and Class A Shares and
Class B Shares of the other Funds. Class A Shares and Class B Shares differ with
respect to the method of paying distribution costs through sales charges, and
distribution and service fees.
CLASS A SHARES AND CLASS B SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR INSURED, ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING SUMMIT 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.
<PAGE>
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 Money Market 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 May 1, 1997 has been filed with the Securities and Exchange
Commission and is available without charge through the Distributor, SEI
Financial Services Company, Oaks, Pennsylvania 19456 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
May 1, 1997
Class A and Class B
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SUMMARY
The Pillar Funds (the "Trust") consists 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 Class A
Shares (which, until May 1, 1997, were designated as Class B Shares) and Class B
Shares of the Trust's: Prime Obligation Money Market Fund, U.S. Treasury
Securities Money Market Fund (Class A Shares only), Tax-Exempt Money Market Fund
(Class A Shares only) (the "Money Market Funds"); Fixed Income, New Jersey
Municipal Securities (Class A Shares only) and Pennsylvania Municipal Securities
(Class A Shares only) Funds (the "Fixed Income Funds"); Equity Growth (formerly,
the Growth Fund), Equity Value, Equity Income and International Growth Funds
(the "Equity Funds"); and the Balanced Fund (formerly, the Balanced Growth Fund)
(together with the Money Market, Fixed Income and Equity Funds, the "Funds").
What are the Investment Objectives?
The Money Market Funds: Each Money Market 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 Money
Market Fund will be able to maintain a net asset value of $1.00 per share on a
continuous basis.
The Fixed Income Funds: The Fixed Income Fund seeks a high level of
total return, primarily through current income and capital appreciation,
consistent with preservation of capital; the New Jersey Municipal Securities
Fund seeks current income exempt from both federal and New Jersey income taxes,
consistent with preservation of capital; and the Pennsylvania Municipal
Securities Fund seeks current income exempt from both federal and Pennsylvania
income taxes, consistent with preservation of capital.
The Equity and Balanced Funds: The Equity Growth Fund seeks long-term
growth of capital; the Equity Value Fund seeks growth of both capital and
income; the Equity Income Fund seeks growth of capital consistent with an
emphasis on current income; the Balanced Fund seeks growth of capital consistent
with current income; and the International Growth Fund seeks long-term capital
growth.
There is no assurance that a Fund will meet its investment objective. See
"Investment Objectives and Policies."
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What are the Permitted Investments?
The Money Market Funds: 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 U.S. Treasury
Securities Money Market Fund invests exclusively in short-term U.S. Treasury
obligations. 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.
See "Investment Objectives and Policies."
The Fixed Income Funds: The Fixed Income Fund invests at least 65% of its
assets in U.S. and Canadian Government obligations, corporate debt securities,
short-term bank obligations and repurchase agreements.
The New Jersey Municipal Securities 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 investments of the Fixed Income Funds are subject to market and
interest rate fluctuations which may affect the value of a Fund's shares. The
greater the Fund's dollar-weighted average portfolio maturity, the greater the
fluctuations are likely to be. 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 Municipal Securities
and Pennsylvania Municipal Securities Funds? The concentration of the New Jersey
Municipal Securities and Pennsylvania Municipal Securities Funds in municipal
securities issued 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 effects of changes in economic conditions and
governmental policies of the states or their underlying governmental units. See
"Additional Risk Factors For New Jersey Municipal Securities" and "Additional
Risk Factors For Pennsylvania Municipal Securities."
The Equity and Balanced Funds: Each of the Equity and Balanced Funds may
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"). In addition, the Balanced Fund
invests in certain fixed income and money market securities. The Equity Growth
Fund may also invest in European Depositary Receipts ("EDRs"), Continental
Depositary Receipts ("CDRs") and Global Depositary Receipts ("GDRs") and certain
fixed income securities. The International Growth Fund also invests in equity
securities of non-U.S. issuers;
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EDRs, CDRs and GDRs; and foreign government debt securities. Because securities
fluctuate in value, the shares of each Fund will also fluctuate in value. In
addition, the value of shares of the Equity Growth, Balanced 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 Equity Growth and
International Growth Funds 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? Summit Bank Investment Management
Division, a division of Summit Bank, serves as the advisor (the "Advisor") to
the Trust. Wellington Management Company, LLP serves as the sub-advisor (the
"Sub-Advisor") to the International Growth Fund. See "The Advisor" and "The
Sub-Advisor."
Who is the Administrator? SEI Fund Resources serves as the administrator
(the "Administrator") of the Trust. See "The Administrator."
Who is the Transfer Agent? State Street Bank and Trust Company acts as
transfer agent (the "Transfer Agent") for the Trust.
Who is the Shareholder Servicing and Dividend Disbursing Agent? Boston
Financial Data Services is the Trust's dividend disbursing agent and shareholder
servicing agent. See "The Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
(the "Distributor") of the Trust's shares. The Trust has adopted distribution
plans (the "Plans") on behalf of the Class A Shares and Class B Shares pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"). See "The Distributor."
How do I Purchase and Redeem Shares? Shares may be purchased and redeemed
directly from the Trust's Distributor or through an investment professional of a
securities broker or other financial institution, such as Summit Bank, that has
entered into a selling agreement with the Trust or the Distributor.
The Money Market Funds: A purchase order for a Money Market Fund will be
effective as of the "Business Day" received by the Distributor if the
Distributor receives the order and payment in federal funds before 12:00 noon,
Eastern time, on such Business Day. A "Business Day" for a Money Market Fund is
any day on which both the New York Stock Exchange is open for trading and the
Federal Reserve Bank is open. A redemption order for a Money Market Fund will be
effective as of the Business Day received by the Transfer Agent if the Transfer
Agent receives the order before
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12:00 noon, Eastern time, on such Business Day and the proceeds are to be sent
in federal funds. See "Purchase and Redemption of Shares."
The Non-Money Market Funds: Purchases and redemptions of Non-Money Market
Fund shares may be made through the Distributor on any "Business Day." A
"Business Day" for a Non-Money Market Fund is any day that the New York Stock
Exchange is open for trading. 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. The purchase price of Class A Shares
of a Non-Money Market Fund is the net asset value next determined after the
purchase order is effective plus any applicable sales load. The purchase price
of Class B Shares is the net asset value next determined after the purchase
order is effective. 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. All redemption
orders are effected at the net asset value per share next determined after
receipt of a valid request for redemption, reduced by any applicable contingent
deferred sales charge, for Class B Shares, and for certain Class A Shares that
were purchased without an initial sales load. See "Purchase and Redemption of
Shares."
All Funds: The U. S. Treasury Securities Money Market, Tax-Exempt Money
Market, New Jersey Municipal Securities and Pennsylvania Municipal Securities
Funds each offer only Class A Shares to the general public. Each of the other
Funds offers two classes of shares to the general public: Class A Shares and
Class B Shares.
Class A Shares of the Equity Funds are offered at net asset value per share
plus a maximum initial sales charge of 5.50%; Class A Shares of the Fixed Income
Fund are offered at net asset value per share plus a maximum initial sales
charge of 4.25%; and Class A Shares of the New Jersey Municipal Securities and
Pennsylvania Municipal Securities Funds are offered at net asset value per share
plus a maximum initial sales charge of 3.00%. Class A Shares of the Money Market
Funds are offered without a sales charge. Certain Class A Share purchases are
subject to reduced or waived sales charges and certain Class A Share redemptions
may be subject to a 1.00% contingent deferred sales charge.
Class B Shares of the Funds are offered at net asset value per share and
are subject to a maximum contingent deferred sales charge of 5.50% of redemption
proceeds during the first year, declining each year thereafter to 0% after the
sixth year. Class B Shares of the Funds pay annual distribution and service fees
of 1.00% of their average daily net assets. Only participants in the Systematic
Exchange Program may purchase Class B Shares of the Prime Obligation Money
Market Fund directly.
How are Dividends Paid?
6
<PAGE>
The Money Market Funds: The net investment income (exclusive of capital
gains) of each Money Market Fund is determined and declared on each Business Day
as a dividend for Shareholders as of the close of business on that day.
The Fixed Income Funds: Each Fixed Income 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.
The Equity and Balanced Funds: Substantially all of the net investment
income (exclusive of capital gains) of the Equity Growth, Equity Value, Equity
Income and Balanced Funds is declared and distributed quarterly in the form of
dividends to Shareholders on the next to last Business Day of each quarter. With
respect to the International Growth Fund, dividends are declared and distributed
annually.
All Funds: Any capital gains will be distributed at least annually.
Dividends are paid in additional shares unless the Shareholder elects to take
the payment in cash. See "Dividends."
7
<PAGE>
EXPENSE SUMMARY
Money Market Funds
Class A Shares
SHAREHOLDER TRANSACTION EXPENSES Class A
- -------------------------------- -------
Maximum Sales Load Imposed on Purchases None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends None
(as a percentage of offering price)
Maximum Contingent Deferred Sales Charge None
(as a percentage of original purchase price or
redemption proceeds, as applicable)
Wire Redemption Fee $10
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Prime U.S. Treasury
Obligation Securities Tax-Exempt
Money Market Money Market Money Market
Fund Fund Fund
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee waivers)(1), (2) .33% .35% .32%
- -----------------------------------------------------------------------------------------
12b-1 Fees .25% .25% .25%
- -----------------------------------------------------------------------------------------
Other Expenses .32% .30% .33%
- -----------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2) .90% .90% .90%
- -----------------------------------------------------------------------------------------
</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 Money Market 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 a fee waiver for the Prime Obligation Money Market Fund and
Tax-Exempt Money Market Fund, the Advisory Fee would be .35% and .35%,
respectively, and Total Operating Expenses would be .92% and .93%,
respectively, of such Fund's average daily net assets.
8
<PAGE>
Example - Class A Shares
An investor in a Money Market Fund would pay the following expenses on a $1,000
investment assuming: (1) a 5% annual return; and (2) redemption at the end of
each time period:
Class A Shares 1 yr. 3 yrs. 5 yrs. 10 yrs.
Each Money Market Fund $9 $29 $50 $111
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 Class A Shares of the Money Market Funds. Financial
institutions may impose fees on their customers in addition to those shown
above. Additional information may be found under "The Advisor," "The
Administrator," "The Shareholder Servicing Agent" and "The Distributor."
EXPENSE SUMMARY
Prime Obligation Money Market Fund
Class B Shares
SHAREHOLDER TRANSACTION EXPENSES Class B
- -------------------------------- -------
Maximum Sales Load Imposed on Purchases None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends None
(as a percentage of offering price)
Maximum Contingent Deferred Sales Charge 5.50%*
(as a percentage of original purchase price or
redemption proceeds, as applicable)
Wire Redemption Fee $10
Exchange Fee None
* Class B Shares of the Fund may only be obtained through exchange or through
purchases by participants in the Systematic Exchange Program.
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Prime
Obligation
Money Market
Fund
Class B
- -----------------------------------------------------------------------------
Advisory Fees (after fee waivers)(1), (2)...................... .33%
12b-1/Shareholder Servicing Fees............................... 1.00%
Other Expenses................................................. .32%
- -----------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2)................ 1.65%
(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 Prime Obligation Money Market Fund to not more than 1.65% of average
daily net assets of the Fund. The Advisor reserves the right to terminate
its fee waiver at any time in its sole discretion.
(2) Absent a fee waiver, the Advisory Fee would be .35% and Total Operating
Expenses for Class B Shares would be 1.67% of the Fund's average daily net
assets.
9
<PAGE>
Example - Class B Shares
An investor in the Prime Obligation Money Market Fund would pay the following
expenses on a $1,000 investment assuming: (1) imposition of the maximum sales
charge; (2) a 5% annual return; and (3) redemption at the end of each time
period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund 1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Shares
- --------------------------------------------------------------------------------------------------
Assuming a complete redemption at end of period......... $72 $92 $110 $157
- --------------------------------------------------------------------------------------------------
Assuming no redemption.................................. $17 $52 $ 90 $157
- --------------------------------------------------------------------------------------------------
</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 Class B Shares of the Prime Obligation Money Market Fund.
Financial institutions may impose fees on their customers in addition to those
described above. Additional information may be found under "The Advisor," "The
Administrator," "The Shareholder Servicing Agent" and "The Distributor."
10
<PAGE>
EXPENSE SUMMARY
Fixed Income Funds
Class A Shares
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION New Jersey Pennsylvania
EXPENSES Fixed Municipal Municipal
Income Fund Securities Fund Securities Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases* 4.25% 3.00% 3.00%
(as a percentage of offering price)
- -------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Reinvested None None None
Dividends
(as a percentage of offering price)
- -------------------------------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge None None None
(as a percentage of original purchase price or
redemption proceeds, as applicable)
- -------------------------------------------------------------------------------------------------------
Wire Redemption Fee $10 $10 $10
- -------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The percentage shown is the maximum initial sales load. Certain purchases
may be subject to a reduced sales load. Purchases of $1,000,000 or more are
at net asset value and are subject to a contingent deferred sales charge of
1.00% of the shares redeemed prior to 12 months from the date such shares
were purchased.
ANNUAL OPERATING EXPENSES -- Class A Shares
(As a percentage of average net assets)
<TABLE>
<CAPTION>
New Jersey Pennsylvania
Fixed Income Municipal Municipal
Fund Securities Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisory Fees (after fee
waivers)(1), (2), (3)........................ .48% .46% .11%
12b-1 Fees...................................... .25% .25% .25%
Other Expenses (2).............................. .32% .34% .69%
- ---------------------------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers) (2), (3)........................ 1.05% 1.05% 1.05%
- ---------------------------------------------------------------------------------------------------------
</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 Fixed Income Fund to not more than 1.05% of average daily net assets.
The Advisor reserves the right to terminate its fee waivers at any time in
its sole discretion.
(2) Advisory Fees, Other Expenses and Total Operating Expenses for the New
Jersey Municipal Securities and Pennsylvania Municipal Funds have been
restated to reflect current expenses.
(3) Absent fee waivers, Advisory Fees for each Fixed Income Fund would be .60%,
and Total Operating Expenses would be as follows: Fixed Income Fund 1.17%,
New Jersey Municipal Securities Fund 1.19%, and Pennsylvania
11
<PAGE>
Municipal Securities Fund 1.54%. Additional information may be found under
"The Advisor," "The Administrator" and "The Distributor."
Example -- Class A Shares
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming: (1) imposition of the maximum sales load; (2) a 5% annual return; and
(3) redemption at the end of each time period:
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
Fixed Income Fund $53 $74 $98 $165
- --------------------------------------------------------------------------------
New Jersey Municipal Securities Fund $40 $62 $86 $154
- --------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund $40 $62 $86 $154
- --------------------------------------------------------------------------------
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 Class A Shares of the Fixed Income Funds. Financial
institutions may impose fees on their customers in addition to those described
above. Additional information may be found under "The Advisor," "The
Administrator" 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 a waiver or reduction of 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 Conduct Rules (the "Conduct Rules") of
the National Association of Securities Dealers, Inc. (the "NASD"). The Trust
intends to operate the Class A distribution plan in accordance with its terms
and with the Conduct Rules of the NASD concerning sales charges.
12
<PAGE>
EXPENSE SUMMARY
Fixed Income Fund
Class B Shares
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES Fixed Income
Fund
- --------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases None
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Sales Load Imposed on Reinvested None
Dividends
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (as a 5.50%
percentage of original purchase price or redemption
proceeds, as applicable)
- --------------------------------------------------------------------------------
Wire Redemption Fee $10
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES -- Class B Shares
(As a percentage of average net assets)
Fixed Income
Fund
- --------------------------------------------------------------------------------
Advisory Fees (after fee
waivers)(1), (2)............................................ .48%
12b-1/Shareholder Servicing Fees............................... 1.00%
Other Expenses................................................. .32%
- --------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers)(2)............................................. 1.80%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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 Fixed Income Fund to not more than 1.80% of average daily net assets.
The Advisor reserves the right to terminate its fee waivers at any time in
its sole discretion.
(2) Absent fee waivers, Advisory Fees for the Fixed Income Fund would be .60%
and Total Operating Expenses would be 1.92%. Additional information may be
found under "The Advisor," "The Administrator" and "The Distributor."
13
<PAGE>
Example -- Class B Shares
An investor would pay the following expenses on a $1,000 investment in the Fund
assuming: (1) imposition of the maximum applicable sales load; (2) a 5% annual
return; and (3) redemption at the end of each time period as indicated:
<TABLE>
<CAPTION>
Fixed Income Fund 1 yr. 3 yrs. 5 yrs. 10 yrs.
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assuming a complete redemption at end of period $ 73 $ 97 $ 117 $ 174
- -------------------------------------------------------------------------------------
Assuming no redemptions $ 18 $ 57 $ 97 $ 174
- -------------------------------------------------------------------------------------
</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 Class B Shares of the Fixed Income Fund. Financial
institutions may impose fees on their customers in addition to those described
above. Additional information may be found under "The Advisor," "The
Administrator" and "The Distributor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, sales charges are reduced
for longer-term investors. See "Purchase and Redemption of Shares."
Long-term Shareholders may pay more than the equivalent of the maximum sales
charges otherwise permitted by the Conduct Rules of the NASD. The Trust intends
to operate the Class B distribution plan in accordance with its terms and the
Conduct Rules of the NASD concerning sales charges.
14
<PAGE>
EXPENSE SUMMARY
Equity and Balanced Funds
Class A Shares
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SHAREHOLDER Equity Equity Equity International
TRANSACTION EXPENSES Growth Value Income Balanced Growth
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on 5.50% 5.50% 5.50% 5.50% 5.50%
Purchases*
(as a percentage of offering price)
- ---------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on None None None None None
Reinvested Dividends
(as a percentage of offering price)
- ---------------------------------------------------------------------------------------------
Maximum Contingent Deferred None None None None None
Sales Charge (as a percentage of
original purchase price or redemption
proceeds, as applicable)
- ---------------------------------------------------------------------------------------------
Wire Redemption Fee $10 $10 $10 $10 $10
- ---------------------------------------------------------------------------------------------
Exchange Fee None None None None None
- ---------------------------------------------------------------------------------------------
</TABLE>
* The percentage shown is the maximum initial sales load. In certain
circumstances, shareholders may receive sales load waivers or reductions.
Purchases of $1,000,000 or more are at net asset value and are subject to a
contingent deferred sales charge of 1.00% of the shares redeemed prior to
12 months from the date such shares were purchased.
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Equity Equity Equity International
Growth Value Income Balanced Growth
Fund Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after fee waivers)(1), (3) .50% .47% .46% .44% .77%
12b-1 Fees .25% .25% .25% .25% .25%
Other Expenses(2) .30% .33% .34% .36% .73%
- -------------------------------------------------------------------------------------------------------
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 A Shares of
the Equity Growth, Equity Value, Equity Income and Balanced 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 A Shares of
the International Growth Fund to not more than 1.75% of average daily net
assets. The Advisor and Sub-Advisor each reserve the right to terminate
their fee waivers at any time in their sole discretion.
(2) Other Expenses for the Equity Growth Fund are based on estimated amounts
for the current fiscal year.
(3) Absent fee waivers for the Equity Growth, Equity Value, Equity Income,
Balanced and International Growth Funds, Advisory Fees would be .75% for
the Equity Growth, Equity Value, Equity Income and Balanced Funds and 1.00%
for the International Growth Fund, and Total
15
<PAGE>
Operating Expenses would be 1.30%, 1.33%, 1.34%, 1.36% and 1.98%,
respectively, of such Fund's average daily net assets. Additional
information may be found under "The Advisor," "The Sub-Advisor," "The
Administrator" and "The Distributor."
Example
- --------------------------------------------------------------------------------
1yr. 3yrs. 5yrs. 10yrs.
- --------------------------------------------------------------------------------
An investor in a Fund would pay the following
expenses on a $1,000 investment assuming: (1)
imposition of the maximum sales load; (2) a 5%
annual return; and (3) redemption at the end of
each time period:
Equity Growth Fund* $ 65 $ 87 N/A N/A
Equity Value, Equity Income and Balanced Funds $ 65 $ 87 $110 $176
International Growth Fund $ 72 $107 $145 $250
================================================================================
* Because the Equity Growth Fund has recently commenced operations, expenses
have not been estimated for periods beyond the three year period shown.
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 Equity and Balanced Funds. Financial institutions may
impose fees on their customers in addition to those described above. Additional
information may be found under "The Advisor," "The Sub-Advisor," "The
Administrator" 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 a waiver or reduction of 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 Conduct Rules of the NASD. The Trust
intends to operate the Class A distribution plan in accordance with its terms
and the Conduct Rules of the NASD concerning sales charges.
16
<PAGE>
EXPENSE SUMMARY
Equity and Balanced Funds
Class B Shares
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SHAREHOLDER Equity Equity Equity International
TRANSACTION EXPENSES Growth Value Income Balanced Growth
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on None None None None None
Purchases
(as a percentage of offering price)
- ---------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on None None None None None
Reinvested Dividends
(as a percentage of offering price)
- ---------------------------------------------------------------------------------------------
Maximum Contingent Deferred 5.50% 5.50% 5.50% 5.50% 5.50%
Sales Charge (as a percentage of
original purchase price or redemption
proceeds, as applicable)
- ---------------------------------------------------------------------------------------------
Wire Redemption Fee $10 $10 $10 $10 $10
- ---------------------------------------------------------------------------------------------
Exchange Fee None None None None None
- ---------------------------------------------------------------------------------------------
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Equity Equity Equity International
Growth Value Income Balanced Growth
Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees (after fee waivers)(1), (3) .50% .47% .46% .44% .77%
12b-1/Shareholder Servicing Fees 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses(2) .30% .33% .34% .36% .73%
- ------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(3) 1.80% 1.80% 1.80% 1.80% 2.50%
======================================================================================================
</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 B Shares of
the Equity Growth, Equity Value, Equity Income and Balanced Funds to not
more than 1.80% 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 B Shares of
the International Growth Fund to not more than 2.50% of average daily net
assets. The Advisor and Sub-Advisor each reserve the right to terminate
their fee waivers at any time in their sole discretion.
(2) Other Expenses for the Equity Growth Fund are based on estimated amounts
for the current fiscal year.
(3) Absent fee waivers for the Equity Growth, Equity Value, Equity Income,
Balanced and International Growth Funds, Advisory Fees would be .75% for
the Equity Growth, Equity Value, Equity Income and Balanced Funds
17
<PAGE>
and 1.00% for the International Growth Fund, and Total Operating Expenses
would be 2.05%, 2.08%, 2.09%, 2.11%, and 2.73%, respectively, of such
Fund's average daily net assets. Additional information may be found under
"The Advisor," "The Sub-Advisor," "The Administrator" and "The
Distributor."
Example -- Class B Shares
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming: (1) imposition of the maximum sales charge; (2) a 5% annual return;
and (3) redemption at the end of each time period:
<TABLE>
<CAPTION>
Equity Growth Fund 1 yr. 3 yrs. 5 yrs. 10 yrs.
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assuming a complete redemption at end of period $73 $ 97 * *
- ---------------------------------------------------------------------------------------
Assuming no redemptions $18 $ 57 * *
- ---------------------------------------------------------------------------------------
Equity Value Fund
- ---------------------------------------------------------------------------------------
Assuming a complete redemption at end of period $73 $ 97 $117 $174
- ---------------------------------------------------------------------------------------
Assuming no redemptions $18 $ 57 $ 97 $174
- ---------------------------------------------------------------------------------------
Equity Income Fund
- ---------------------------------------------------------------------------------------
Assuming a complete redemption at end of period $73 $ 97 $117 $174
- ---------------------------------------------------------------------------------------
Assuming no redemptions $18 $ 57 $ 97 $174
- ---------------------------------------------------------------------------------------
Balanced Fund
- ---------------------------------------------------------------------------------------
Assuming a complete redemption at end of period $73 $ 97 $117 $174
- ---------------------------------------------------------------------------------------
Assuming no redemptions $18 $ 57 $ 97 $174
- ---------------------------------------------------------------------------------------
International Growth Fund
- ---------------------------------------------------------------------------------------
Assuming a complete redemption at end of period $80 $118 $153 $251
- ---------------------------------------------------------------------------------------
Assuming no redemptions $25 $ 78 $133 $251
- ---------------------------------------------------------------------------------------
</TABLE>
* Because the Equity Growth Fund has recently commenced operations, the
expenses have not been estimated for periods beyond the three year period
shown.
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 Class B Shares of the Equity and Balanced Funds. Financial
institutions may impose fees on their customers in addition to those described
above. Additional information may be found under "The Advisor," "The
Sub-Advisor," "The Administrator" and "The Distributor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, sales charges are reduced
for longer-term investors. See "Purchase and Redemption of Shares."
18
<PAGE>
Long-term Shareholders may pay more than the equivalent of the maximum sales
charges otherwise permitted by the Conduct Rules of the NASD. The Trust intends
to operate the Class B distribution plan in accordance with its terms and the
Conduct Rules of the NASD concerning sales charges.
19
<PAGE>
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 14,
1997 on the Trust's financial statements as of December 31, 1996, which is
incorporated by reference into the Trust's Statement of Additional Information
under "Financial Information." Additional performance information is contained
in the Trust's 1996 Annual Report to Shareholders and is available upon request
and without charge by calling 1-800-932-7782. Because the Trust's Class B Shares
had not been introduced as of December 31, 1996, no financial highlights are
presented for the Class B Shares of the Funds. Also, because the Equity Growth
Fund had not commenced operations as of December 31, 1996, no financial
highlights are presented for this Fund. These tables should be read in
conjunction with the Trust's financial statements and notes thereto.
20
<PAGE>
<TABLE>
<CAPTION>
Distri-
Net Realized butions Ratio of
Asset and from Distri- Net Net Expenses Ratio of
Value Net Unrealized Net butions Asset Assets to Income to
Begin- Invest- Gains or Invest- from Value Total End of Average Average
ning of ment Losses on ment Capital End of Return Period Net Net
Period Income Securities Income Gains Period (+) (000) Assets Assets
- -----------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATION MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1996 $1.00 $0.04 -- $ (0.04) -- $ 1.00 4.58% $11,347 0.90% 4.48%
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
- -----------------------------------------------------------------------------------------------------------------------------------
U. S. TREASURY SECURITIES MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $1.00 $0.04 -- $ (0.04) -- $ 1.00 4.27% $ 3,503 0.90% 4.19
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
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $1.00 $0.03 -- $ (0.03) -- $ 1.00 2.70% $ 3,852 0.90% 2.65%
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
- -----------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $10.48 $0.55 $(0.28) $ (0.55) -- $ 10.20 2.68% $ 4,830 1.05% 5.35%
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 SECURITIES FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $10.79 $0.41 $(0.09) $ (0.41) -- $ 10.70 3.08% $20,247 0.92% 3.38%
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
- -----------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL SECURITIES FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $10.22 $0.42 $(0.05) $ (0.42) -- $10.17 3.74% $ 344 0.94% 4.19%
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(3) 9.98 0.20 0.19 (0.20) -- 10.17 6.28* 289 1.05 3.24
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Ratio of Ratio of
Expenses Net
to Income to
Average Average Port-
Net Net folio Average
Assets Assets Turn- Commis-
(Excluding (Excluding over sion
Waivers) Waivers) Rate Rate++
- ----------------------------------------------------------
PRIME OBLIGATION MONEY MARKET FUND
- ----------------------------------------------------------
CLASS A
1996 0.92% 4.46% -- --
1995 0.91 5.00 -- --
1994 0.87 3.89 -- --
1993 0.89 2.38 -- --
1992(1) 1.01 2.31 -- --
- ----------------------------------------------------------
U. S. TREASURY SECURITIES MONEY MARKET FUND
- ----------------------------------------------------------
CLASS A
1996 0.90% 4.19% -- --
1995 0.90 4.66 -- --
1994 0.87 3.07 -- --
1993 0.89 2.17 -- --
1992(1) 0.95 2.22 -- --
- ----------------------------------------------------------
TAX-EXEMPT MONEY MARKET FUND
- ----------------------------------------------------------
CLASS A
1996 0.93% 2.62% -- --
1995 0.96 3.08 -- --
1994 0.92 1.95 -- --
1993 0.94 1.68 -- --
1992(2) 1.04 1.93 -- --
- ----------------------------------------------------------
FIXED INCOME FUND
- ----------------------------------------------------------
CLASS A
1996 1.17% 5.23% 40.56% --
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 SECURITIES FUND
- ----------------------------------------------------------
CLASS A
1996 1.18% 3.62% 13.93% --
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 2.23 --
- ----------------------------------------------------------
PENNSYLVANIA MUNICIPAL SECURITIES FUND
- ----------------------------------------------------------
CLASS A
1996 1.74% 3.39% 25.88% n/a
1995 1.55 3.30 36.92 n/a
1994 1.92 2.55 38.20 n/a
1993(3) 1.48 2.81 16.51 n/a
- ----------------------------------------------------------
21
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $12.83 $0.19 $ 2.51 $ (0.18) $ (2.00) $ 13.35 21.15% $10,000 1.05% 1.42%
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(1) 10.00 0.09 0.67 (0.10) -- 10.66 10.35* 1,562 1.05 1.64
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $13.08 $0.31 $ 2.34 $ (0.29) $ (2.09) $ 13.35 20.70% $12,444 1.05% 2.30%
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(1) 10.00 0.15 0.77 (0.19) -- 10.73 12.43* 585 1.05 2.54
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $12.07 $0.43 $ 1.17 $ (0.44) $ (1.83) $ 11.40 13.39% $ 9,095 1.05% 3.43%
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 0.37 (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 FUND
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $10.73 $0.09 $ 1.06 $ (0.04) $ (0.62) $ 11.22 10.88% $ 788 1.75% 0.70%
1995(4) 10.00 0.01 0.75 (0.01) (0.02) 10.73 7.64 621 1.75 0.45*
</TABLE>
- -----------------------------------------------------------
EQUITY VALUE FUND
- -----------------------------------------------------------
CLASS A
1996 1.33% 1.14% 85.30% $.0950
1995 1.32 1.56 61.88 n/a
1994 1.31 1.41 44.98 n/a
1993 1.30 1.26 89.91 n/a
1992(1) 1.36 1.33 45.68 n/a
- -----------------------------------------------------------
EQUITY INCOME FUND
- -----------------------------------------------------------
CLASS A
1996 1.34% 2.01% 85.47% $.1095
1995 1.35 2.06 42.97 n/a
1994 1.33 2.43 37.76 n/a
1993 1.35 2.12 89.89 n/a
1992(1) 1.40 2.19 58.41 n/a
- -----------------------------------------------------------
BALANCED FUND
- -----------------------------------------------------------
CLASS A
1996 1.36% 3.12% 43.80% $.1165
1995 1.36 3.33 41.63 n/a
1994 1.34 3.10 27.15 n/a
1993 1.38 3.14 63.03 n/a
1992(1) 1.45 3.19 82.76 n/a
- -----------------------------------------------------------
INTERNATIONAL GROWTH FUND
- -----------------------------------------------------------
CLASS A
1996 1.98% 0.47% 67.03% $.0051
1995(4) 2.38* (0.18)* 14.32 n/a
* Annualized.
(+) Total Return does not reflect sales loads on Class A Shares.
(++) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for the fiscal
years beginning after September 1, 1995.
(1) The Prime Obligation Money Market, U.S. Treasury Securities Money Market,
Fixed Income, Equity Value, Equity Income and Balanced 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 New Jersey Municipal Securities Fund commenced operations on May 4,
1992. Ratios for this period have been annualized.
(4) The Pennsylvania Municipal Securities Fund (Class A Shares) commenced
operations on May 13, 1993. Ratios for this period have been annualized.
(5) The International Growth Fund (Class A Shares) commenced operations on May
4, 1995. Ratios for this period have been annualized.
22
<PAGE>
THE TRUST
The Pillar Funds (the "Trust") is an open-end management investment company that
consists of diversified and non-diversified portfolios. The Trust currently
offers units of beneficial interest ("shares") in sixteen separate investment
portfolios. The Trust offers shares of the portfolios in up to three separate
classes of shares (Class A (formerly, Class B), Class B, and Class I (formerly,
Class A)) which provide for variations in distribution costs, voting rights,
sales loads, minimum investments, 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 Prime Obligation Money
Market Fund, U.S. Treasury Securities Money Market Fund and Tax-Exempt Money
Market Fund (the "Money Market Funds"); the Fixed Income, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds (the "Fixed Income
Funds"); the Equity Growth, Equity Value, Equity Income and International Growth
Funds (the "Equity Funds"); and the Balanced Fund (each, a "Fund," and
collectively, the "Funds"); and Class B Shares of the Prime Obligation Money
Market Fund, Fixed Income Fund, Equity Funds and Balanced Fund. Each of the
Funds is a diversified mutual fund, except for the New Jersey Municipal
Securities, Pennsylvania Municipal Securities and International Growth Funds,
which are non-diversified mutual funds. Information regarding the Trust's other
portfolios and the Class I Shares of the Trust's portfolios is contained in
separate prospectuses that may be obtained from the Trust's Distributor, SEI
Financial Services Company, Oaks, Pennsylvania 19456 or by calling
1-800-932-7782.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described below. For
additional information regarding risks and permitted investments of the Funds,
see "Risk Factors," "General Investment Policies" and "Description of Permitted
Investments" in this Prospectus and "Description of Permitted Investments" and
"Description of Ratings" in the Statement of Additional Information. There is no
assurance that the investment objective of any Fund will be met.
The Money Market Funds
The investment objective of each Money Market 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.
Each Money Market 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 Money
Market Fund. Under these regulations, each Money Market
23
<PAGE>
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.
The Prime Obligation Money Market Fund
The Money Market 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 (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) 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 Bank Entry System ("U.S. Treasury
Obligations"); (iv) obligations issued or guaranteed as to principal and
interest by the agencies or instrumentalities of the U.S. Government ("U.S.
Government Agencies"); and (v) repurchase agreements involving any such
obligations. In addition, the Fund may also engage in securities lending.
The U.S. Treasury Securities Money Market Fund
The U.S. Treasury Securities Money Market 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.
The Tax-Exempt Money Market Fund
The Tax-Exempt Money Market Fund will invest at least 80% of its total 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"). 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 (an "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
24
<PAGE>
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.
The Fixed Income Funds
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. 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) U.S. Treasury
Obligations; (ii) U.S. Government Agencies; (iii) corporate debt obligations
rated in one of the three highest rating categories by a nationally recognized
statistical ratings organization (an "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;
(viii) obligations subject to federal income tax issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities
("Taxable Municipal Securities"), which are rated A or higher by an NRSRO or
determined by the Advisor to be of comparable quality; and (ix) 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 by an NRSRO or
determined by the Advisor to be of comparable quality at the time of investment.
Securities rated A are considered to be investment grade but 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 Government
National Mortgage Association ("GNMA") certificates or other mortgage
pass-throughs issued or guaranteed by the U.S. Government, its agencies or
25
<PAGE>
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 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"). Obligations of GNMA are backed by the
full faith and credit of the U.S. Government while obligations of FNMA and FHLMC
are supported by the respective agency only. The Fund may purchase
mortgage-backed securities that are backed or collateralized by fixed,
adjustable or floating rate mortgages.
The Fund expects to maintain a dollar-weighted average portfolio 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.
The New Jersey Municipal Securities Fund will invest at least 80% of its net
assets in municipal securities, which are 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 but 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
26
<PAGE>
generally intends to be as fully invested as possible in securities exempt from
federal income tax and not subject to the federal alternative minimum tax.
The New Jersey Municipal Securities Fund is a non-diversified investment
company. See "Risk Factors -- Non-Diversification" for a discussion of the
additional risks of non-diversification.
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.
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.
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.
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 Advisor to be of comparable quality. Bonds rated
BBB by S&P or Baa by Moody's have speculative characteristics.
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.
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. See "Risk Factors -- Non-Diversification" for a discussion of the
additional risks of non-diversification.
27
<PAGE>
General Investment Policies -- Fixed Income Funds
For temporary defensive purposes when the Advisor determines that market
conditions warrant, each Fixed Income Fund may invest up to 100% of its assets
in the money market instruments described in the "Description of Permitted
Investments" and may hold a portion of its assets in cash. To the extent a Fixed
Income Fund is engaged in temporary defensive investing, the Fund will not be
pursuing its investment objective.
Each of the Fixed Income 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 Fixed Income Fund drops
below the prescribed 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.
Risk Factors--Fixed Income Funds
The market value of each Fixed Income 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 Fixed Income Fund are prepaid, the Fund
must reinvest the proceeds in securities, the yield on 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.
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
28
<PAGE>
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 and Special Considerations Relating Thereto" in the
Statement of Additional Information.
Additional Risk Factors For Pennsylvania Municipal Securities
Under normal conditions the Pennsylvania Municipal Securities Fund will be fully
invested in obligations that 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 and Special
Considerations Relating Thereto" in the Statement of Additional Information.
The Equity and Balanced Funds
The Equity Growth Fund
The investment objective of the Fund is long-term growth of capital.
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 that are convertible into common stocks and ADRs, EDRs,
CDRs and GDRs. The Advisor will invest in companies that it expects will
demonstrate greater long-term earnings growth than the average company included
in the Standard & Poor's 500 Composite Index (the "S&P 500 Index"). This method
of investing is based upon the premise that growth in a company's earnings will
eventually translate into growth in the price of its stock.
To the extent that the Fund is not invested in equity securities, the Fund may
invest in the following fixed income securities for cash management purposes:
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 by an NRSRO or determined by the Advisor to be of comparable quality
at the time of purchase, except that as part of its investment strategy, the
Fund may invest up to 5% of its total assets in lower rated bonds, commonly
referred to as "junk bonds," rated B or higher by an NRSRO or determined to be
of comparable quality by the Advisor; mortgage-backed securities consisting of
CMOs and REMICs that are rated in one of the top two rating categories by an
NRSRO and which are backed solely by
29
<PAGE>
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 that are rated in one of the top two rating categories by an NRSRO.
The Fund may also employ certain hedging and risk management techniques,
including the purchase and sale of exchange-listed and over-the-counter ("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 invest in futures only on a covered basis.
The Equity Value Fund
The investment objective of this Fund is growth of both capital and income.
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.
The Equity Income Fund
The investment objective of this Fund is growth of capital consistent with an
emphasis on current income.
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 Balanced Fund
The investment objective of this Fund is growth of capital consistent with
current income.
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.
30
<PAGE>
The Fund may invest in the following fixed income securities: U.S. Government
Securities; corporate bonds and debentures rated in one of the three highest
rating categories by an NRSRO or determined by the Advisor to be of comparable
quality at the time of purchase; mortgage-backed securities consisting of CMOs
and 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 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 by an NRSRO. Securities rated A are considered to be
investment grade but could be more vulnerable to adverse developments than
obligations with higher ratings.
The Fund may invest in the money market securities described in "Description of
Permitted Investments."
The International Growth Fund
The investment objective of this Fund is long-term capital growth.
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 ("Depositary Receipts"). The Fund will
purchase equity securities, including Depositary Receipts, 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 in a foreign or domestic issuer's public offerings, including
an initial public offering (an "IPO"). 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 an
NRSRO 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 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. In addition, the Fund may invest in money market instruments as
defined in "General Investment Policies-Equity and Balanced Funds" 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
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<PAGE>
(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 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 invest
in 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.
General Investment Policies--Equity and Balanced Funds
For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, each Equity and Balanced Fund may invest up to 100%
of its assets in the money market securities described in the "Description of
Permitted Investments" 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 by an NRSRO 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 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
32
<PAGE>
currency units for liquidity purposes. To the extent an Equity or Balanced Fund
is engaged in temporary defensive investing, the Fund will not be pursuing its
investment objective.
Each of the Equity Value, Equity Income and Balanced Funds seeks 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 Equity and Balanced 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 Equity and Balanced Fund reserves the right to engage in
securities lending. The Equity Growth, Equity Value, Equity Income and Balanced
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--Equity and Balanced Funds
Because each Equity and Balanced Fund invests in equity securities, its shares
will fluctuate in value. The market value of the convertible securities
purchased by each Equity and Balanced 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 International Growth Fund 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 Equity Growth, Balanced and International Growth Funds'
fixed income securities will fluctuate in response to interest rate changes and
other factors. See "Risk Factors--Fixed Income Funds" above for a discussion of
the risks associated with fixed income investments.
Each Equity and Balanced Fund's investments in securities of foreign issuers may
subject that 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 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 an Equity or Balanced Fund's foreign
securities may be subject to foreign
33
<PAGE>
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
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 Equity Growth and International Growth Funds 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 debt securities purchased by the
Funds will be rated at least B by an NRSRO or determined to be of comparable
quality by the Advisor or 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.
The Equity Growth and International Growth Funds 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 accurately
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
34
<PAGE>
developed a management structure sufficient to cope with the pressures of
running a public company.
Risk Factors -- Non-Diversification
The New Jersey Municipal Securities, Pennsylvania Municipal Securities and
International Growth Funds are non-diversified funds under the Investment
Company Act of 1940, as amended (the "1940 Act"), and each 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. Each of the Funds 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.
Portfolio Turnover
Under normal circumstances, it is anticipated that the annual portfolio turnover
rate for each Fixed Income, Equity and Balanced Fund will not exceed 100%. With
respect to the Balanced Fund, this applies only to its investments in equity
securities and non-money market, fixed income securities, which are calculated
separately. The historical portfolio turnover rates for each Non-Money Market
Fund are set forth in the Financial Highlights above.
INVESTMENT LIMITATIONS
The Money Market Funds: The investment objective and the following investment
limitations are fundamental policies of each Money Market Fund. In addition, it
is a fundamental policy of each Money Market 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. It is also a fundamental policy of the
Tax-Exempt Money Market 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 Money Market Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. 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
35
<PAGE>
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.
The foregoing percentage limitations apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
It is a non-fundamental policy of each Money Market Fund to invest no more than
10% of its net assets in illiquid securities (as defined under "Description of
Permitted Investments").
Non-Money Market Funds: The investment objective and the following investment
limitations are fundamental policies of each Non-Money Market Fund. In addition,
it is a fundamental policy of the New Jersey Municipal Securities and
Pennsylvania Municipal Securities Funds to invest at least 80% of their
respective 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 Non-Money Market Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. 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 New Jersey Municipal Securities, Pennsylvania Municipal Securities and
International Growth 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 and repurchase
agreements involving such securities or, with respect to the Fixed Income Funds
only, to investments in tax-exempt securities issued by governments or political
subdivisions of governments. For purposes of
36
<PAGE>
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 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; (iii) with respect to the Equity and Balanced Funds only,
supranational agencies will be deemed to be issuers conducting their principal
business activities in the same industry; and (iv) with respect to the Equity
and Balanced Funds only, 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 apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
It is a non-fundamental policy of each Non-Money Market Fund to invest no more
than 15% of its net assets in illiquid securities (as defined below under
"Description of Permitted Investments").
THE ADVISOR
Summit Bank Investment Management Division, a division of Summit Bank (the
"Advisor"), serves as the investment advisor to the Trust. The Advisor makes the
investment decisions for the assets of the Funds 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.
Summit Bank, 210 Main Street, Hackensack, New Jersey 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 professionals have, on average, over 20
years of experience in investment management. As of December 31, 1996, total
assets under management were approximately $6.7 billion.
Summit Bank is a wholly-owned subsidiary of Summit Bancorp., an interstate bank
holding company with over $22 billion in assets and over 340 banking offices,
predominantly in New Jersey and eastern Pennsylvania, as of December 31, 1996.
Fixed Income Fund--Joseph Markovich is a Vice President of the Advisor and
currently manages the Fixed Income Fund. Mr. Markovich has managed the Fixed
Income Fund since January 1, 1997. Prior to January, 1997, Mr. Markovich managed
the Fixed Income Common Trust Funds for Summit Bank. Mr. Markovich has had
investment responsibility for equity and fixed income portfolios since joining
Summit Bank in 1985.
37
<PAGE>
Pennsylvania Municipal Securities Fund--Randolph E. Lestyk is Vice President and
Regional Manager (Pennsylvania) of the Advisor and has managed the Pennsylvania
Municipal Securities Fund since its inception in May, 1993. Prior to joining
Summit 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.
New Jersey Municipal Securities Fund--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 Summit Bank in 1981.
Equity Growth Fund--John Guarino is a Vice President and Regional Manager
(Summit) of the Advisor and has managed the Equity Growth Fund since its
inception in February, 1997. Mr. Guarino joined Summit Bank in April, 1985.
Equity Income Fund--Richard H. Caro is a Vice President of the Advisor and has
managed the Equity Income Fund since January, 1996. Prior to joining Summit 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.
Equity Value Fund--Fernando Garip is a Vice President and Regional Manager
(Hackensack) of the Advisor and has managed the Equity Value Fund since January,
1996. Mr. Garip joined Summit Bank in 1982.
Balanced Fund--Edward Kasperavich is a Vice President of the Advisor and has
managed the Balanced Fund since January, 1997. Mr. Kasperavich joined Summit
Bank in 1985.
Prime Obligation Money Market, U.S. Treasury Securities Money Market and
Tax-Exempt Money Market Funds--Judy Wolk is an Assistant Vice President of the
Advisor and has managed the Money Market Funds since June, 1996. Prior to
joining Summit Bank in September, 1995, Ms. Wolk had substantial experience in
money market instruments with a large regional bank.
The Advisor is entitled to a fee from each Fund, which is calculated daily and
paid monthly at the annual rate of each respective Fund's average daily net
assets as set forth in the following table. The Advisor has voluntarily agreed
to waive all or a portion of its fees to limit the total operating expenses of
each Fund to the respective levels set forth below. The Advisor reserves the
right to terminate any and all fee waivers at any time in its sole discretion.
Also set forth below are the advisory fees each Fund paid to the Advisor (shown
as a percentage of average daily net assets) for the fiscal year ended December
31, 1996.
38
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Maximum Total Fees
Operating Received In
Contractual Expense After Fiscal Year
Fee Fee Waiver 1996
- ---------------------------------------------------------------------------------------
Class Class
A B
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligation Money Market .35% .90% 1.65% .33%
Fund
- ---------------------------------------------------------------------------------------
U.S. Treasury Securities Money .35% .90% N/A .35%
Market Fund
- ---------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund .35% .90% N/A .32%
- ---------------------------------------------------------------------------------------
Fixed Income Fund .60% 1.05% 1.80% .48%
- ---------------------------------------------------------------------------------------
New Jersey Municipal Securities .60% 1.05% N/A .35%
Fund
- ---------------------------------------------------------------------------------------
Pennsylvania Municipal Securities .60% 1.05% N/A 0%
Fund
- ---------------------------------------------------------------------------------------
Equity Growth Fund .75% 1.05% 1.80% N/A
- ---------------------------------------------------------------------------------------
Equity Value Fund .75% 1.05% 1.80% .47%
- ---------------------------------------------------------------------------------------
Equity Income Fund .75% 1.05% 1.80% .46%
- ---------------------------------------------------------------------------------------
Balanced Fund .75% 1.05% 1.80% .44%
- ---------------------------------------------------------------------------------------
International Growth Fund 1.00% 1.75% 2.50% .77%
- ---------------------------------------------------------------------------------------
</TABLE>
Summit 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 Summit 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 except the International Growth Fund, and at an annual rate
of .17% of the average daily net assets of the International Growth Fund.
THE SUB-ADVISOR
Wellington Management Company, LLP ("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
39
<PAGE>
other institutions and individuals. As of December 31, 1996, WMC has
discretionary investment authority with respect to approximately $133.2 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 limited liability 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 in May, 1995
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 and 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, 1996, the Advisor
paid WMC a sub-advisory fee of .60% of the average daily net assets of the
International Growth Fund.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") 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 TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent"), 225 Franklin Street,
Boston, Massachusetts 02110 is the Trust's transfer agent.
THE SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, 2 Heritage Drive North Quincy, Massachusetts
02171 is the Trust's dividend disbursing agent and shareholder servicing agent.
40
<PAGE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, acts as the Distributor of the Trust's shares.
The Class A Shares of each Fund are subject to a distribution plan dated
February 28, 1992 ("Class A Plan"). As provided in the Distribution Agreement
and the Class A Plan, the Trust will pay the Distributor a fee of .25% of the
average daily net assets of each Fund's Class A 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 Summit Bank),
savings and loan associations, insurance companies, 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 A
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 Board of Trustees of the Trust has approved and adopted a distribution plan
dated February 20, 1997 for Class B Shares of the Funds (the "Class B Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Class B Plan, the
Distributor is entitled to receive from the Funds an annual distribution fee of
.75% 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 Summit Bank), savings and loan associations, insurance companies,
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.
Additionally, the Class B Plan provides that Class B Shares are subject to a
service fee at an annual rate of .25% of the average daily net assets of each
Fund's Class B Shares. 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.
Class A Shares and Class B Shares of each Fund are offered to all persons. (The
U.S. Treasury Securities Money Market, Tax-Exempt Money Market, New Jersey
Municipal Securities and Pennsylvania Municipal Securities Funds offer Class A
Shares only). Consequently, it is possible that individuals and institutions may
offer different classes of shares of a Fund 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. Each Fund may
41
<PAGE>
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
Alternative Sales Charge Options
You may purchase shares of a Fund at a price equal to its net asset value per
share plus a sales charge which, at your election, may be imposed either (i) at
the time of the purchase (the Class A "initial sales charge alternative"), or
(ii) on a contingent deferred basis (the Class B "deferred sales charge
alternative"). The U.S. Treasury Securities Money Market, Tax-Exempt Money
Market, New Jersey Municipal Securities and Pennsylvania Municipal Securities
Funds, however, offer Class A Shares only. Each class represents a portion of a
Fund's interest in a portfolio of investments. The classes have the same rights
and are identical in all respects except that (i) Class A Shares and Class B
Shares bear different distribution and service fees resulting from their
respective sales arrangements, (ii) each class has exclusive voting rights with
respect to approvals of any Rule 12b-1 distribution plan related to that
specific class (although Class B Shareholders may vote on any increase in
distribution fees imposed on Class A Shares so long as Class B Shares convert
into Class A Shares), (iii) only Class B Shares carry a conversion feature and
(iv) each class has different exchange privileges.
As a result of each class' differing sales arrangements, Class A Shares are not
subject to a shareholder service fee and are subject to a lower distribution fee
than Class B Shares, and accordingly, Class A Shares pay higher dividends per
share. The Trust adds front-end sales charges to the net asset value of Class A
Shares of the Non-Money Market Funds and, therefore, unless a sales charge
waiver is available, an initial investment in Class A Shares will cost more per
share than Class B Shares. Class A Shareholders therefore would own fewer shares
than they would have owned if they had invested an identical sum in Class B
Shares.
Sales personnel of broker-dealers distributing the Funds' shares, and other
persons entitled to receive compensation for selling such shares, may receive
differing compensation for selling Class A or Class B Shares.
How to Choose the Right Class of Shares
The decision as to which class of shares provides a more suitable investment for
an investor depends on a number of factors, including the amount and intended
length of investment. Investors making investments that qualify for reduced
sales charges might consider Class A Shares. Investors who prefer not to pay an
initial sales charge might consider Class B Shares. Orders for Class B Shares
for $250,000 or more will be treated as orders for Class A Shares or declined.
For more information about these sales arrangements, consult the Distributor or
your investment professional who is a salesperson, financial planner, investment
advisor or trust officer of an entity, other than the Distributor, that has
entered into a selling agreement with the Trust or the Distributor ("Investment
Professional"). Shares may only be exchanged for shares of the same class of
another Pillar Fund. See "Exchanges."
42
<PAGE>
Front-End Sales Charge--Class A
All of the Funds offer Class A Shares. The public offering price of Class A
Shares equals the net asset value of the shares plus any applicable initial
sales charge. The sales charge as a percentage of an investment decreases as the
amount invested reaches the succeeding levels set forth in the following tables.
The tables show the initial sales charge on Class A Shares of the Funds to a
"single purchaser" (defined below), the reallowance paid to dealers and the
agency commission paid to brokers (collectively, the "commission"):
Fixed Income Fund:
- --------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and
Percentage of Percentage of Net Brokerage
Offering Price Amount Invested Commission as
Percentage of
Offering Price
- --------------------------------------------------------------------------------
$0-99,999 4.25% 4.44% 4.00%
- --------------------------------------------------------------------------------
$100,000-249,999 3.75% 3.90% 3.50%
- --------------------------------------------------------------------------------
$250,000-499,999 2.75% 2.83% 2.50%
- --------------------------------------------------------------------------------
$500,000-999,999 2.00% 2.04% 1.75%
- --------------------------------------------------------------------------------
$1,000,000 and 0.00% 0.00% 0.00%**
above*
- --------------------------------------------------------------------------------
New Jersey Municipal Securities and Pennsylvania Municipal Securities Funds:
- --------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and
Percentage of Percentage of Net Brokerage
Offering Price Amount Invested Commission as
Percentage of
Offering Price
- --------------------------------------------------------------------------------
$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 0.00% 0.00% 0.00%**
above*
- --------------------------------------------------------------------------------
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Equity and Balanced Funds:
- --------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and
Percentage of Percentage of Net Brokerage
Offering Price Amount Invested Commission as
Percentage of
Offering Price
- --------------------------------------------------------------------------------
$0-49,999 5.50% 5.82% 5.00%
- --------------------------------------------------------------------------------
$50,000-99,999 4.75% 4.99% 4.25%
- --------------------------------------------------------------------------------
$100,000-249,999 3.75% 3.90% 3.25%
- --------------------------------------------------------------------------------
$250,000-499,999 2.75% 2.83% 2.50%
- --------------------------------------------------------------------------------
$500,000-999,999 2.00% 2.04% 1.75%
- --------------------------------------------------------------------------------
$1,000,000 and 0.00% 0.00% 0.00%**
above*
- --------------------------------------------------------------------------------
* Purchases of $1,000,000 or more are at net asset value. However, a
contingent deferred sales charge will be imposed on such investments in the
event such shares are redeemed within 12 months from the date they were
purchased. The contingent deferred sales charge will be imposed at the rate
of 1.00% of the lesser of the current market value of the shares redeemed
or the total cost of such shares and is payable to the Distributor. In
determining whether a contingent deferred sales charge is payable, and, if
so, the amount of the charge, it is assumed that shares not subject to such
charge are the first redeemed.
** There is no initial sales charge on purchases of $1,000,000 or more;
however, the Distributor may pay a dealer concession and/or advance a
service fee on such transactions.
The commissions shown in the tables above apply to sales through financial
institutions. Under certain circumstances, some financial institutions,
including Summit Bank and its affiliates, will be reallowed the entire sales
charge imposed on purchases of Class A Shares and may, therefore, be deemed to
be "underwriters" under the Securities Act of 1933, as amended. Commission rates
may vary among the Funds.
Sales Charge Reductions For Purchases of Class A Shares
Right of Accumulation
A "single purchaser" (defined below) may benefit from the reduced sales charges
set forth in the foregoing tables for current purchases by adding the amount of
any current purchase with the market value of the Fund that the purchaser
already owns. The calculation of the sales charge for the current purchase will
be based on the combined amount. A single purchaser can also
44
<PAGE>
combine purchases of Class A Shares of different Funds if those Funds are
subject to a sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Funds 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 identify eligible accounts at the time of
purchase and provide the account number(s) of the investor and, if applicable,
the investor and spouse, their minor children, as well as the ages of such
children. The Trust may amend or terminate this right of accumulation at any
time prior to subsequent purchases.
Letter of Intent
A single purchaser may obtain a reduced sales charge by means of a written
Letter of Intent (a "Letter") that expresses the investor's intention to invest
a specified amount within a 13-month period, which if invested at one time,
would qualify for a reduced sales charge.
A Letter is not a binding obligation upon the investor to purchase the full
amount indicated. An investor must invest, or have already invested, at least
$1,000 in Class A Shares of each applicable Fund when the Letter is submitted.
Only those Funds which are subject to a sales charge are eligible to be counted
towards the amount indicated in the Letter. Five percent of the shares purchased
under a Letter will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge that would have been
applicable to the shares actually purchased if the investor fails to purchase
the amount indicated in the Letter. In such a case, escrowed shares will be
involuntarily redeemed to pay any additional sales charge. When the full amount
indicated in the Letter has been purchased, the escrowed shares will be
released. A Letter may include purchases of shares made within 90 days prior to
the date the investor signs the Letter; however, the 13-month period during
which the Letter is in effect will begin on the date of the earliest purchase.
Waiver of Class A Sales Charges
No sales charge is imposed on Class A Shares of a 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
arrangement with the Distributor, for their own account or for retirement plans
for their employees; (iii) 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; (iv) sold to present or retired employees of Summit Bancorp.,
or one of its affiliates; (v) sold to present employees of any entity that is a
current service provider to the Trust; (vi) sold to any qualified customer who
has entered into an agreement with Summit Bank, its affiliates or correspondent
banks; (vii) sold to present or retired Trustees of the Trust and their
immediate families; (viii) sold to present or retired Directors of Summit
Bancorp. or its affiliates, and their
45
<PAGE>
immediate families; or (ix) sold to beneficial owners of Class I Shares whose
interests are converted into Class A Shares.
Deferred Sales Charges--Class B
Each of the Funds, except the U.S. Treasury Securities Money Market, Tax-Exempt
Money Market, New Jersey Municipal Securities and Pennsylvania Municipal
Securities Funds, offers Class B Shares. In addition, Class B Shares of the
Prime Obligation Money Market Fund may be purchased directly only by
participants in the Systematic Exchange Program, which is described below.
Class B Shares are offered at their net asset value per share. If you sell
shares within six years of purchase, a contingent deferred sales charge (a
"CDSC") is assessed at the rates set forth below. The CDSC is assessed on the
lesser of the current market value or the cost of the shares being redeemed. As
a result, no sales charge will be imposed on increases in the net asset value
above the initial purchase price or on shares derived from reinvestment of
dividends or capital gain distributions.
Contingent Deferred Sales Charge as a Percentage
of Dollar Amount Subject to Charge
- --------------------------------------------------------------------------------
Years Since Purchase CDSC
1 5.50%
2 5.00%
3 4.00%
4 3.00%
5 2.00%
6 1.00%
7 0.00%
8 0.00%
- --------------------------------------------------------------------------------
Aging Schedule
In determining whether a particular redemption is subject to a CDSC, it is
assumed that Class B Shares are redeemed in the following order: (i) shares held
for over six years or shares acquired through reinvested dividends or capital
gain distributions and (ii) shares held longest during the six year period. This
method should result in the lowest possible sales charge.
46
<PAGE>
Purchases will age based on the trade date of purchase. For example, a purchase
made on January 5 will be one year old on January 5 of the following year.
Waivers of Class B Sales Charges
The CDSC is waived on redemption of shares (i) following the death or disability
(as defined in the Code) of a Shareholder, or (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a Shareholder who has attained
the age of 70 1/2. A Shareholder, or his or her representative, must notify the
Transfer Agent prior to the time of redemption that the Shareholder is eligible
for this waiver.
The CDSC is also waived on redemptions of shares held by Trustees, employees and
sales representatives of the Trust, the Distributor, or affiliates of the Trust
or the Distributor, and their immediate family members; employees of any
financial institution that sells shares of the Trust pursuant to a sales
agreement with the Distributor; and spouses and children under the age of 21 of
the aforementioned persons. Also, no CDSC will be imposed on the redemption of
shares originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940, or retirement
plans where the third party administrator has entered into certain arrangements
with the Distributor or any other financial institution, to the extent that no
payments were advanced for purchases made through such entities.
Additionally, shareholders of any mutual fund not affiliated with the Trust who
have paid a sales charge in that mutual fund may purchase Class B Shares of the
Trust, in an amount equal to the proceeds of the redemption of such unaffiliated
shares, by submitting such proceeds to the Distributor together with evidence of
the payment of a sales charge and the source of such proceeds. Purchases must
take place within 30 days of the redemption of the unaffiliated shares. Class B
Shares issued pursuant to this offer will not be subject to a CDSC.
Automatic Conversion of Class B Shares
Class B Shares of a Fund will automatically convert into Class A Shares of that
Fund without a sales charge after eight years from the acquisition of the Class
B Shares. The conversion will take place at the respective net asset values of
each of the classes. At that time the Shares will no longer be subject to the
higher distribution and service fees. When Class B Shares of a Fund convert, any
other Class B Shares that were acquired by the reinvestment of dividends and
distributions attributable to such Shares will also convert into Class A Shares.
Conversions are not taxable events to Shareholders.
How to Purchase Shares
Shares may be purchased directly from the Fund's Distributor or through an
investment professional of a securities broker or other financial institution,
such as Summit Bank, that has entered into a selling agreement with the Trust or
the Distributor. Shares of each Fund are sold on a continuous basis and may be
purchased on any business day that the New York Stock
47
<PAGE>
Exchange is open for trading (a "Business Day"). However, with respect to a
Money Market Fund, a "Business Day" will exclude days when the Federal Reserve
Bank is closed.
A purchase order for shares of a Fund will be executed at a per share price
equal to the net asset value next determined after the purchase order is
effective (plus any applicable sales charge in the case of Class A Shares of the
Non-Money Market Funds) (the "offering price").
The net asset value per share of each class of a Fund is determined by dividing
the total value of its investments and other assets that are allocated to that
class, less any liabilities that are allocated to that class, by the class's
total outstanding shares. Although the methodology and procedures are identical,
the net asset value per share of classes within a Fund may differ because of the
classes' different distribution and shareholder service expenses. 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, the Fund or its Shareholders
to accept such order. Investment Strategy Account Agreement customers (Qualified
Customers) should call the Transfer Agent for information regarding requirements
for purchase and redemption orders.
The Money Market Funds: A purchase order for a Money Market Fund will be
effective as of the Business Day received by the Distributor if the Distributor
receives the order and payment in federal funds before 12:00 noon, Eastern time.
All other purchase orders will be effective on the next Business Day.
The net asset value per share for a Money Market Fund is calculated as of 12:00
noon, Eastern time, each Business Day based on the amortized cost method as
described under "Determination of Net Asset Value" in the Statement of
Additional Information.
Purchased shares of a Money Market Fund begin earning dividends on the Business
Day the purchase order for those shares is effective.
Non-Money Market Funds: A purchase order for a Non-Money Market Fund 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. All other
purchase orders accompanied by payment, except those of certain types of
investors as described below, will be effective the next Business Day. Certain
institutional investors and financial institutions, such as Summit Bank, that
have entered into a settlement agreement with the Distributor, may make payment
in federal funds for purchases of Non-Money Market Funds to the Distributor by
12:00 noon, Eastern time, the Business Day following the effective date of the
trade. A purchase order may be canceled if the Distributor does not receive
federal funds before 12:00 noon, Eastern time, the next Business Day.
The net asset value per share of the Non-Money Market Funds is determined as of
4:00 p.m., Eastern time, each Business Day. Purchases will be made in full and
fractional shares of a Fund
48
<PAGE>
calculated to three decimal places. 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.
Purchases Through Investment Professionals
A customer who purchases shares of a Fund through an Investment Professional
should contact that Investment Professional for information about purchasing
shares. Investment Professionals may charge fees for their services that are in
addition to, and unrelated to, the fees and expenses charged by the Funds.
Investment Professionals 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.
In addition, state securities laws may require banks and financial institutions
purchasing shares for their customers to register as dealers pursuant to state
laws.
Investment Requirements
The minimum initial investment is $1,000; however, the minimum initial
investment may be waived at the Distributor's discretion. All subsequent
investments must be at least $100, except for investments made through the
Automatic Investment Plan, which must be at least $50. All purchases made by
check must be in U. S. dollars and made payable to "The Pillar Funds," or in the
case of a retirement account, to either the Custodian or the retirement plan
trustee. Third party checks, credit cards, credit card checks and cash will not
be accepted. When purchases are made by check or ACH transfer, redemption
proceeds will not be forwarded until the investment being redeemed has been in
the account for 10 Business Days. If the check does not clear, the purchase will
be canceled and the investor could be liable for any losses or fees incurred.
No certificates representing shares will be issued. Customers must specify
whether they intend to purchase Class A or Class B Shares at the time of
investment. If a selection is not made, the investment will be made in Class A
Shares.
Investing Directly
Investing by Mail
Investors may purchase shares of a Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) to:
The Pillar Funds
P. O. Box 8523
Boston, MA 02266-8523
49
<PAGE>
The following address may be used for overnight delivery:
The Pillar Funds
c/o Boston Financial Data Services
2 Heritage Drive
North Quincy, MA 02171-2144
Investors may obtain Account Application forms by calling the Distributor at
1-800-932-7782.
Investing by Telephone
Purchases may be made to an existing account by calling the Distributor at
1-800-932-7782. While telephone transaction privileges are automatic,
Shareholders may specifically request that no telephone transactions be accepted
for their account(s). This election may be made on the Account Application form
at the time of purchase or at any time thereafter by completing and returning
appropriate documentation supplied by the Transfer Agent.
By Wire: Shareholders must call the Distributor before wiring funds. Federal
funds should be wired to:
State Street Bank and Trust Company
ABA #011000028
For Credit To DDA Account #9905-150-0
For Further Credit To Account # (insert Fund name,
account number, name, and registration number
assigned by the Distributor)
The Trust does not impose a fee for purchase wire transactions, although the
Shareholder's financial institution may charge a fee for this service.
Shares cannot be purchased by Federal Reserve wire on days when either the New
York Stock Exchange or the Federal Reserve is closed.
Orders will not be executed until payment has been received by the Distributor.
By Automated Clearing House ("ACH"): This service allows the purchase of
additional shares through an electronic transfer of money from a checking or
savings account. When an additional purchase is made by telephone, the Transfer
Agent will automatically debit the pre-designated bank account for the desired
amount. Shareholders may call 1-800-932-7782 to request an Optional Services
Form to establish this option.
By Automatic Investment Plan: A Shareholder may also arrange for periodic
additional investments in the Funds through automatic deductions by ACH transfer
by completing an Optional Services Form. The minimum pre-authorized investment
amount is $50. Shareholders
50
<PAGE>
may select monthly, quarterly, semi-annual or annual investments. However,
Shareholders selecting this service must first meet the minimum initial
investment requirement of $1,000 per Fund. Customers may call 1-800-932-7782 to
request an Optional Services Form to establish an Automatic Investment Plan.
Retirement Plans
The Funds may be used as part of a retirement portfolio. Investors can establish
their account under one of several tax-sheltered plans. Investors should contact
their Investment Professional or the Distributor at 1-800-932-7782 for details
regarding an IRA or other retirement plan.
How to Exchange Shares
Each portfolio of the Trust, other than the U.S. Treasury Securities Plus Money
Market Fund, (collectively, the "Eligible Funds") is eligible for exchange with
any other Eligible Fund.
Class A Shares of an Eligible Fund may be exchanged only for Class A Shares of
another Eligible Fund, usually without paying an additional sales charge.
However, exchanges from Class A Shares of an Eligible Money Market Fund, which
were purchased directly, to Class A Shares of an Eligible Non-Money Market Fund
are made at net asset value plus the appropriate sales load for that Eligible
Non-Money Market Fund.
Class B Shares of one Eligible Fund may be exchanged only for Class B Shares of
another Eligible Fund. Exchanges are made at relative net asset value per share
without the imposition at that time of a CDSC. For purposes of determining the
"age" of exchanged shares, exchanges will be treated as a transaction involving
a redemption of the original Eligible Fund followed by a purchase of the new
Eligible Fund. Therefore, shares will be exchanged in the same order as
determined by the aging hierarchy above (See "Aging Schedule"). The aging of
Class B Shares will continue uninterrupted regardless of an exchange.
If an exchange request is received in good order by the Transfer Agent by 4:00
p.m., Eastern time, on any Business Day, the exchange usually will occur on that
day. Exchanges are regarded as sales for federal and state income tax purposes
and could result in a gain or loss depending on the original cost of the shares
exchanged.
To exchange shares, several conditions must be met:
1. After the exchange is complete, the Shareholder must have at least $1,000
(the minimum account balance) in the new Eligible Fund.
2. Shares of Eligible Funds can only be exchanged between accounts with
identical registrations and tax identification numbers.
3. Shares in the original Eligible Fund must be held at least 10 Business Days
before an exchange can be made. Shares can be exchanged on any Business
Day.
51
<PAGE>
4. Shares of the new Eligible Fund selected for exchange must be available for
sale in the Shareholder's state of residence.
5. Shareholders must have received the prospectus for the new Eligible Fund
prior to initiating an exchange.
6. The prospectuses of both Eligible Funds involved in the exchange must offer
the exchange privilege.
By Mail: An exchange will be honored by a written letter of request to the
Transfer Agent if signed by all registered owners of the account.
By Telephone: Telephone exchange requests may be made either by calling the
Transfer Agent at 1-800-932-7782 or by contacting their Investment Professional.
See "Investing Directly -- Investing by Telephone" above for a description of
telephone transaction privileges.
Systematic Exchange Program
Shares of the Funds also may be exchanged through automatic monthly deductions
from an investor's account for the same class of shares of the Trust. Under the
Systematic Exchange Program, an investor initially purchases Class A or Class B
Shares of the Prime Obligation Money Market Fund in an amount equal to the total
amount of the investment the investor desires to make in the same class of
shares of the Trust. On a monthly basis, a specified dollar amount of the Prime
Obligation Money Market Fund shares is exchanged for shares of the same class of
a specified Eligible Fund. Exchange of Class A Shares will be subject to the
applicable sales charge imposed by the Eligible Fund and, accordingly, it may be
beneficial for an investor to execute a Letter in connection with a Class A
Shares Systematic Exchange Program. Exchanges of Class B Shares are not subject
to a CDSC. The Systematic Exchange Program of investing a fixed dollar amount at
regular intervals over time in an Eligible Fund may have the effect of reducing
the average cost per share of the shares of the Eligible Fund acquired. This
effect may also be achieved through the Trust's Automatic Investment Plan, which
is described in the applicable prospectuses. A Shareholder may apply for
participation in the Systematic Exchange Program through the Distributor or his
or her Investment Professional. Shares purchased through the Systematic Exchange
Program are subject to the conditions listed under "How to Exchange Shares,"
however, such shares are not subject to the Trust's minimum investment
limitations. Exchanges are considered taxable events for Shareholders. If a
Shareholder redeems, rather than exchanges, Class B Shares of the Prime
Obligation Money Market Fund, such shares will be subject to the applicable
CDSC.
How to Redeem Shares
Shares may be redeemed on any Business Day directly from the Transfer Agent or
through an Investment Professional. Each Fund intends 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 less any applicable
52
<PAGE>
CDSC. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
When purchases are made by check or by ACH transfer, redemption proceeds will
not be forwarded until the investment being redeemed has been in the account for
10 Business Days. Payment to Shareholders for shares redeemed will be made
within seven days after the Transfer Agent receives the redemption request in
good order. A Shareholder may request that the redemption proceeds are paid by
check, by federal funds wire or by ACH transfer.
A redemption order for shares of a Fund will be executed at a price per share
equal to the net asset value next determined after receipt of the redemption
order by the Transfer Agent (minus any applicable CDSC).
Money Market Funds: A redemption order for a Money Market Fund will be effective
as of the Business Day received by the Transfer Agent if the Transfer Agent
receives the order before 12:00 noon, Eastern time, on such Business Day and the
proceeds are to be sent in federal funds. Redemption orders received after 12:00
noon, Eastern time, or that request proceeds to be delivered by check or ACH
transfer will be effective the following Business Day.
Non-Money Market Funds: A redemption order for a Non-Money Market Fund will be
effective as of the Business Day received by the Transfer Agent if the Transfer
Agent receives the order before 4:00 p.m., Eastern time. Requests received after
4:00 p.m., Eastern time, will be effective on the next Business Day.
Redemptions Through Investment Professionals
Shareholders should contact their Investment Professional for information about
redeeming shares of a Fund and any charges for services provided by the
Investment Professional. Investment Professionals may impose an earlier cut-off
for receipt of redemption orders directed through them to allow time for
processing and transmittal of these orders to the Transfer Agent for
effectiveness the same Business Day.
By Mail: Shareholders may redeem shares of a Fund by mailing a letter of
instruction signed by all registered owners exactly as their names appear in the
registration to:
The Pillar Funds
P. O. Box 8523
Boston, MA 02266-8523
The following address may be used for overnight delivery:
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<PAGE>
The Pillar Funds
c/o Boston Financial Data Services
2 Heritage Drive
North Quincy, MA 02171-2144
A signature guarantee is required if any of the following conditions apply: (i)
the redemption is for more than $10,000 worth of shares, (ii) the redemption
check is payable to other than the Shareholder(s) of record, (iii) the
redemption check is mailed to other than the Shareholder(s) address of record,
or (iv) the redemption proceeds are to be forwarded by federal funds wire or ACH
transfer to a financial institution not pre-designated on the account. A
signature guarantee can be obtained from a commercial bank, a trust company, a
member firm of a domestic stock exchange or a member of a securities transfer
association medallion program. A signature guarantee may not be provided by a
notary public. A signature guarantee is designed to protect the Shareholders,
the Trust and its agents from fraud.
To determine if any additional documentation may be required to consider a
redemption request in good order, Shareholders should contact their Investment
Professional or the Transfer Agent.
By Telephone: To redeem shares by telephone, Shareholders should call the
Transfer Agent at 1-800-932-7782. See "Investing Directly -- Investing by
Telephone" above for a description of telephone transaction privileges. Neither
the Trust nor the Transfer Agent will be responsible for any loss, liability,
cost or expense for acting upon instructions that it reasonably believes to be
genuine. The Trust and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. 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.
By Check: Shares may be redeemed by check to the address of record for most
requests under $10,000. Requests received by the Transfer Agent by 4:00 p.m.,
Eastern time, will be processed that Business Day, and the check will be mailed
the following Business Day. For more information, call the Transfer Agent at
1-800-932-7782.
By Wire: Shares may be redeemed by federal funds wire and sent to a
pre-designated bank account. Shareholders may call 1-800-932-7782 to request an
Optional Services Form to establish this option.
For the Money Market Fund, a wire will be sent the Business Day that the
redemption request is effective. For Non-Money Market Funds, a wire will be sent
the Business Day after the redemption request is effective.
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<PAGE>
The Trust reserves the right to assess a wire redemption charge, currently
$10.00, for this transaction, which will be deducted from the redemption
proceeds. The Shareholder's receiving financial institution may also impose a
fee.
By ACH: Shares may be redeemed by ACH transfer and sent to a pre-designated
financial institution account. Shareholders may call 1-800-932-7782 to request
an Optional Services Form to establish this option. ACH transfers of redemption
proceeds may take up to two Business Days to credit to the Shareholder's
financial institution.
The Trust does not charge for ACH transfers, but the Shareholder's receiving
financial institution may charge for this service.
By Systematic Withdrawal Plan: Shareholders with an account value of at least
$2,000 may elect to receive automatic distributions of $50 or more by
establishing a Systematic Withdrawal Plan. Distributions can be received either
by check or ACH transfer on a monthly, quarterly, semi-annual or annual basis.
To participate in a Systematic Withdrawal Plan, Shareholders must elect to have
all dividends reinvested in additional shares.
Shareholders who have attained the age of 70 1/2 may want to establish a
Systematic Withdrawal Plan as a convenient means to satisfy mandatory
distribution requirements from a retirement plan.
It is not generally in the best interest of a Shareholder to participate in a
Systematic Withdrawal Plan at the same time that he or she is purchasing
additional Class A Shares if those purchases are subject to a sales load. In
addition, it may not be in the best interest of a Class B Shareholder to
participate in a Systematic Withdrawal Plan when Class B Shares are subject to a
CDSC.
Shareholders may obtain an Optional Services Form to establish a Systematic
Withdrawal Plan by calling the Transfer Agent at 1-800-932- 7782.
Checkwriting Privilege
A Shareholder in the Class A Shares of the Money Market Fund may redeem shares
by writing checks for $500 or more on an existing account. Once a Shareholder
has signed and returned a signature card, a supply of checks will be issued. The
checks may be made payable to any person or entity 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. There is
no fee for the Checkwriting Privilege, 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 Trust
55
<PAGE>
reserves the right to assess a fee against the Shareholder's account for any
expenses incurred by the Trust.
Minimum Balance Requirements
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem (with the exception of a retirement account) the
shares of any Shareholder if, because of redemptions of shares by or on behalf
of the Shareholder, the account of such Shareholder in that Fund has a value of
less than $1,000, the minimum initial purchase amount. Before a Fund exercises
its right to redeem such shares and sends the proceeds to the Shareholder, the
Shareholder will be given 60 days' notice to reestablish the minimum balance. If
the balance does not increase within 60 days, the account may be closed and the
proceeds mailed to the address of record. Shares will be redeemed at the last
calculated net asset value on the day the account is closed.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
PERFORMANCE
Computation of Yield
From time to time, the Money Market Funds may advertise "current yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "current yield" of a Money
Market 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 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.
The Fixed Income Funds may also advertise yield and total return (described
below). The yield of a Fixed Income 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 Tax-Exempt Money Market, New Jersey Municipal Securities 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
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after-tax equivalent of the respective Fund's yield, assuming certain tax
brackets for a Shareholder.
Computation of Total Return
Each of the Fixed Income, Equity and Balanced Funds may also advertise total
return. Total return figures are based on historical earnings and are not
intended to indicate future performance.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment, net of any initial or contingent deferred sales charge,
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.
A 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. 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.
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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 a Fund or its
Shareholders. Accordingly, Shareholders are urged to consult their tax advisors
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 investment portfolios. Each Fund intends to
continue 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 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 dividends from net capital gain (the excess of net long-term capital gain
over net short-term capital loss) will be distributed annually and will be
treated as long-term capital gains. Capital gains distributions also will not
qualify for the dividends received deduction 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. 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. 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. Government
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.
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 generally 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
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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 or Sub-Advisor would not have chosen to sell
such securities and which may result in a taxable gain or loss.
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.
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.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Funds, other than the International Growth Fund,
will not be able to elect to treat Shareholders as having paid their
proportionate share of such foreign taxes.
The Tax-Exempt Money Market Fund--Additional Considerations
Any dividends attributable to the Tax-Exempt Money Market 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.
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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.
Additional Considerations for the New Jersey Municipal Securities and
Pennsylvania Municipal Securities Funds
The New Jersey Municipal Securities 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.
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 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
advisors 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
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investment fund by: 1) maintaining its registration as a registered investment
company with the SEC; 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.
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Shares purchased as an investment in the Pennsylvania Municipal Securities Fund
are exempt from Pennsylvania county personal property taxes 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 portfolio. In
addition to the Funds, the Trust currently consists of the U.S. Treasury
Securities Plus Money Market Fund, Short-Term Investment Fund, Intermediate-Term
Government Securities Fund, GNMA Fund and Mid Cap Fund. All consideration
received by the Trust for shares of any portfolio and all assets of such
portfolio belong to that portfolio and would be subject to liabilities related
thereto.
Each Fund 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, registering the shares
under federal laws and filing with state securities commissions, pricing,
insurance expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organization expenses.
The Advisor, in addition to providing investment advice to the Trust, provides
investment advice to other clients. Some of these clients' funds are maintained
in asset allocation accounts and may be invested in the Funds. 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.
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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.
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Dividends
Shareholders automatically receive all income dividends and capital gain
distributions in Class A Shares or Class B Shares, as appropriate, 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. If any capital gain is realized, substantially all of it will be
distributed at least annually.
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 and Class B Shares will be
less than the dividends payable on Class I Shares because of the distribution
expenses charged to Class A and Class B Shares.
The Money Market Funds: The net investment income (exclusive of capital gains)
of each Money Market 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 on or about the first Business Day of the
following month. Redeemed shares are not entitled to dividends declared the day
the redemption order is effective.
The Fixed Income Funds: Each Fixed Income 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
following the date of purchase, and accrue dividends through and including the
effective date of redemption.
The Equity and Balanced Funds: Substantially all of the net investment income
(not including capital gains) of the Equity Growth, Equity Value, Equity Income
and Balanced 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
declared and distributed annually as a dividend to Shareholders of record for
the International Growth Fund.
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.
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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 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 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 U.S. 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
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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' ACCEPTANCES--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 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 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.
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.
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DERIVATIVES--Derivatives are securities that derive their value from other
securities, financial instruments or indices. The following are considered
derivative securities: options on futures, futures, options (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., 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.
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 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
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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
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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 assets 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 10% of the net assets of a Money Market
Fund or 15% of the net assets of a Non-Money Market 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
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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.
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.
MONEY MARKET SECURITIES-- Money market securities include 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 by an NRSRO 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. 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.
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.
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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.
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
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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
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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, 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.
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 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
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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 SEC 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 liquid assets 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 liquid assets 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
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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 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 NRSROs (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 Advisor 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 Obligation Money Market 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) 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
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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 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.
TAXABLE MUNICIPAL SECURITIES--Taxable Municipal Securities are municipal
securities the interest on which is not exempt from federal income tax. Taxable
Municipal Securities include "private activity bonds" that are issued by or on
behalf of states or their political subdivisions 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 lots and low income
housing. The payment of 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 operator to meet its financial obligations, and may be secured by
a pledge of the financed real and/or personal property.
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
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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 assets in
an amount at least equal to these commitments. The interest rate realized, if
any, on these securities is fixed as of the purchase date and no interest
accrues to a Fund before settlement. These securities may be 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 such
action appropriate.
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TABLE OF CONTENTS
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Summary........................................................................3
Expense Summary................................................................8
Financial Highlights..........................................................20
The Trust.....................................................................23
Investment Objectives and Policies............................................35
Investment Limitations........................................................37
The Advisor...................................................................39
The Sub-Advisor...............................................................40
The Administrator.............................................................40
The Transfer Agent............................................................40
The Shareholder Servicing Agent...............................................41
The Distributor...............................................................41
Purchase and Redemption of Shares.............................................42
Performance...................................................................56
Taxes.........................................................................58
General Information...........................................................62
Description of Permitted Investments..........................................65
The Pillar Funds is a registered service mark of Summit Bank. Your
Investment Foundation, Pillar and the stylized "P" logo are service marks
of Summit Bank. Summit is a registered service mark of Summit Bancorp.
Summit Bank and Summit Bancorp are service marks of Summit Bancorp.
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ADVISOR:
[ SUMMIT BANK LOGO ]
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
----------------
Oaks, Pennsylvania 19456
1-800-932-7782
[ LOGO ]
THE PILLAR
FUNDS(R)
Class A Shares
and
Class B Shares
Prime Obligation Money Market Fund
U.S. Treasury Securities Money Market Fund
Tax-Exempt Money Market Fund
Fixed Income Fund
New Jersey Municipal Securities Fund
Pennsylvania Municipal Securities Fund
Equity Growth Fund
Equity Value Fund
Equity Income Fund
Balanced Fund
International Growth Fund
Prospectus May 1, 1997
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The Pillar Funds
Class I Shares
Investment Advisor:
Summit Bank Investment Management Division,
a division of Summit Bank
The Pillar Funds (the "Trust") consists 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
Class I Shares of the following funds (each, a "Fund," and together, the
"Funds"):
o Short-Term Investment Fund
o GNMA Fund
The Trust's Class I Shares are offered without distribution fees to: (i)
institutional investors (including Summit Bank, its affiliates and correspondent
banks) for the investment of their own funds; (ii) any individual or institution
(including Summit 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 Summit Bank, its affiliates or
correspondent banks ("Qualified Customers"). Persons who own Class I Shares of
the Funds are referred to herein as "Shareholders."
CLASS I SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING SUMMIT 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 May 1, 1997 has been filed with the Securities and Exchange
Commission and is available without charge through the Distributor, SEI
Financial Services Company, Oaks, Pennsylvania 19456 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 NOR HAS THE SECURITIES AND
<PAGE>
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
May 1, 1997
Class I
2
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SUMMARY
The Pillar Funds (the "Trust") consists 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 I Shares (which, until May 1, 1997, were designated as Class A Shares) of
the Trust's Short-Term Investment and GNMA Funds (the "Funds").
What are the Investment Objectives? The Short-Term Investment Fund seeks a
high level of total return, primarily through current income, consistent with
preservation of capital; and the GNMA Fund seeks 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 Fund invests
at least 65% of its assets in U.S. and Canadian Government obligations,
corporate debt securities, short-term bank obligations and repurchase
agreements.
The GNMA Fund invests primarily in mortgage pass-through securities, with
at least 65% of its total assets 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. 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."
Who is the Advisor? Summit Bank Investment Management Division, a division
of Summit Bank, serves as the advisor (the "Advisor") to the Trust. See "The
Advisor."
Who is the Administrator? SEI Fund Resources serves as the administrator
(the "Administrator") of the Trust. See "The Administrator."
Who is the Transfer Agent? State Street Bank and Trust Company acts as
transfer agent (the "Transfer Agent") for the Trust. See "The Transfer Agent."
3
<PAGE>
Who is the Shareholder Servicing and Dividend Disbursing Agent? Boston
Financial Data Services is the Trust's dividend disbursing agent and shareholder
servicing agent. See "The Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
(the "Distributor") of the Trust's shares. See "The Distributor."
How do I Purchase and Redeem Shares? Purchases and redemptions of Fund
shares may be made through the Distributor on any "Business Day." A "Business
Day" for a Fund is any day that the New York Stock Exchange is open for trading.
A purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives the order and payment in federal funds
before 4:00 p.m., Eastern time. 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 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 gains will be distributed at least annually. Dividends are paid in
additional shares unless the Shareholder elects to take the payment in cash. See
"Dividends."
4
<PAGE>
EXPENSE SUMMARY
Class I Shares
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Short-Term Investment
Fund GNMA Fund
- --------------------------------------------------------------------------------
Advisory Fees (after fee waivers)(1), (2) .43% .25%
Other Expenses.......................... .37% .55%
- --------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers)(1), (2) ................ .80% .80%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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 I Shares of
each Fund to not more than .80% of average daily net assets. The Advisor
reserves the right to terminate its fee waiver at any time in its sole
discretion. Additional Information may be found under "The Advisor," "The
Administrator" and "The Distributor."
(2) Absent a fee waiver for the Funds, the Advisory Fee would be .60% for each
Fund and Total Operating Expenses would be .97% and 1.15% for the
Short-Term Investment and GNMA Funds, respectively.
Example - Class I Shares
- -------------------------------------------------------------------------------
1yr. 3yrs. 5yrs. 10yrs.
- -------------------------------------------------------------------------------
An investor would pay the
following expenses on a $1,000
investment in a Fund assuming
(1) a 5% annual return and (2)
redemption at the end of each
time period:
Each Fund.................. $ 8 $26 $44 $99
===============================================================================
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. Financial institutions may impose fees on their
customers in addition to those described above. Additional information may be
found under "The Advisor," "The Administrator" and "The Distributor."
5
<PAGE>
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 14,
1997 on the Trust's financial statements as of December 31, 1996, which is
incorporated by reference into the Trust's Statement of Additional Information
under "Financial Information." Additional performance information is contained
in the Trust's 1996 Annual Report to Shareholders and is available upon request
and without charge by calling 1-800-932-7782. These tables should be read in
conjunction with the Trust's financial statements and notes thereto.
6
<PAGE>
<TABLE>
<CAPTION>
Distri-
Realized butions
Net Asset and from Distri- Ratio of
Value Net Unrealized Net butions Net Assets Expenses
Begin- Invest- Gains or Invest- from Net Asset End of to
ning of ment Losses on ment Capital Value End Total Period Average
Period Income Securities Income Gains of Period Return (000) Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Investment Fund
CLASS I
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $ 10.02 $ 0.48 $ (0.01) $(0.48) --- $10.01 4.86% $ 31,630 0.80%
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA Fund
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS I $ 9.94 $ 0.60 $ (0.31) $(0.60) --- $ 9.63 3.09% $ 6,570 0.80%
1996
- -----------------------------------------------------------------------------------------------------------------------------------
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(2) 10.00 0.34 (0.15) (0.34) --- 9.85 2.80* 10,900 0.80
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Ratio of Ratio of
Expenses Net Income Port-
Ratio of to Average to Average folio
Income to Net Assets Net Assets Turn-
Average (Excluding (Excluding over
Net Assets Waivers) Waivers) Rate
- -----------------------------------------------------------------------------
CLASS I
1996 4.85% 0.96% 4.69% 33.83%
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
GNMA Fund
- -----------------------------------------------------------------------------
CLASS I 6.23% 1.16% 5.87% 5.77%
1996
- -----------------------------------------------------------------------------
1995 6.29 1.13 5.96 9.69
- -----------------------------------------------------------------------------
1994 5.72 0.97 5.55 102.77
- -----------------------------------------------------------------------------
1993(2) 4.48 1.08 4.20 252.73
- -----------------------------------------------------------------------------
* Annualized.
(1) The Short-Term Investment Fund commenced operations on April 1, 1992.
Ratios for this period have been annualized.
(2) The GNMA Fund (Class I Shares) commenced operations on May 3, 1993. Ratios
for this period have been annualized.
7
<PAGE>
THE TRUST
The Pillar Funds (the "Trust") is an open-end management investment company that
consists of diversified and non-diversified portfolios. The Trust currently
offers units of beneficial interest ("shares") in sixteen separate investment
portfolios through up to three separate classes of shares (Class A (formerly,
Class B), Class B and Class I (formerly, Class A)) which provide for variations
in distribution costs, voting rights, sales loads, minimum investments,
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 I Shares of the Short-Term Investment and GNMA Funds. Both Funds
described herein are 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, Oaks, Pennsylvania 19456 or by calling 1-800-932-7782.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described below. For
additional information regarding risks and permitted investments of the Funds,
see "Risk Factors," "General Investment Policies" and "Description of Permitted
Investments" in this Prospectus and "Description of Permitted Investments" and
"Description of Ratings" in the Statement of Additional Information. There is no
assurance that the investment objective of either Fund will be met.
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. 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
Bank 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 ("U.S. Government Agencies"); (iii) corporate debt obligations
rated in one of the three highest rating categories by a nationally recognized
statistical ratings organization (an "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;
8
<PAGE>
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 by
an NRSRO or determined by the Advisor to be of comparable quality at the time of
investment. Securities rated A are considered to be investment grade, but 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 portfolio maturity of three
years or less.
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.
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)
U.S. Government Agencies; (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 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 Fund may purchase mortgage-backed securities issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities. The Short-Term Investment Fund may also invest in
mortgage-backed securities issued by private issuers rated in one of the two
highest rating categories by an NRSRO 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 U.S. Government while
9
<PAGE>
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 Fund 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 the
prescribed 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.
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 on 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.
Portfolio Turnover
Under normal circumstances, it is anticipated that the annual portfolio turnover
rate for each Fund will not exceed 100%. The historical portfolio turnover rates
for each Fund are set forth in the Financial Highlights above.
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 U.S. Government, its agencies or instrumentalities and repurchase agreements
involving such securities)
10
<PAGE>
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.
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 transmissions, 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 apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities (as defined under "Description of Permitted
Investments").
THE ADVISOR
Summit Bank Investment Management Division, a division of Summit Bank (the
"Advisor"), serves as the investment advisor to the Trust. The Advisor makes the
investment decisions for the assets of the Funds 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.
Summit Bank, 210 Main Street, Hackensack, New Jersey 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 professionals have, on average, over 20
years of experience in investment management. As of December 31, 1996, total
assets under management were approximately $6.7 billion.
Summit Bank is a wholly-owned subsidiary of Summit Bancorp., an interstate bank
holding company with over $22 billion in assets and over 340 banking offices,
predominantly in New Jersey and eastern Pennsylvania, as of December 31, 1996.
Robert B. Lowe is a Vice President of the Advisor and currently manages the
Short-Term Investment and GNMA Funds. Mr. Lowe has managed the Short-Term
Investment Fund since its inception in April, 1992. He has managed the GNMA Fund
since its inception in May, 1993. Mr. Lowe joined Summit Bank in 1989.
The Advisor is entitled to a fee from each Fund, which is calculated daily and
paid monthly at the annual rate of the respective Fund's average daily net
assets as set forth in the following table. The Advisor has voluntarily agreed
to waive all or a portion of its fees to limit the total operating
11
<PAGE>
expenses of Class I Shares of each Fund to the respective levels set forth
below. The Advisor reserves the right to terminate any and all fee waivers at
any time in its sole discretion. Also set forth below are the advisory fees each
Fund paid to the Advisor (shown as a percentage of average daily net assets) for
the fiscal year ended December 31, 1996.
- --------------------------------------------------------------------------------
Maximum Total Fees Received
Contractual Operating Expense In Fiscal Year
Fee After Fee Waiver 1996
- --------------------------------------------------------------------------------
Short-Term Investment Fund .60% .80% .43%
- --------------------------------------------------------------------------------
GNMA Fund .60% .80% .25%
- --------------------------------------------------------------------------------
Summit 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 Summit 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 ADMINISTRATOR
SEI Fund Resources (the "Administrator") 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 TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent"), 225 Franklin St.,
Boston, Massachusetts 02110 is the Trust's transfer agent.
THE SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, 2 Heritage Drive, North Quincy, Massachusetts
02171 is the Trust's dividend disbursing agent and shareholder servicing agent.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, acts as the Distributor of the Trust's shares. No compensation
is paid to the Distributor for distribution services for the Class I Shares of
the Fund. Class I Shares of the Fund are offered without distribution fees to:
(i) institutional investors (including Summit Bank, its affiliates and
correspondent banks) for the investment of their own funds; (ii) individuals and
institutions (including Summit Bank, its affiliates and correspondent banks) for
the investment of funds held by such individuals or institutions in a fiduciary,
agency, custodial or other
12
<PAGE>
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 Summit Bank, its affiliates or correspondent banks ("Qualified
Customers").
Class A Shares of the Funds are offered to all persons. Consequently, it is
possible that individuals and institutions may offer different classes of shares
of a Fund 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. Each
Fund 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
Shares of each Fund are sold on a continuous basis and may be purchased on any
day that the New York Stock Exchange is open for trading (a "Business Day").
Generally, (i) an investor in the Class I Shares of a Fund must pay for shares
by federal funds and (ii) checks (including third party and credit card checks),
credit cards and cash will not be accepted for payment of Class I Shares.
A purchase or redemption order for shares of a Fund will be executed at a per
share price equal to the net asset value next determined after the appropriate
order is effective.
The net asset value per Class I Share of a Fund is determined by dividing the
total value of the Fund's investments and other assets that are allocated to its
Class I Shares, less any liabilities that are allocated to its Class I Shares,
by the Fund's total outstanding Class I Shares. The net asset value per share of
the Funds is determined as of 4:00 p.m., Eastern time, each Business Day.
Purchases will be made in full and fractional shares of a Fund calculated to
three decimal places. 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.
No certificates representing shares will be issued.
Neither the Trust nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for acting upon instructions that it reasonably
believes to be genuine. The Trust and the Transfer Agent will each employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. 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, the Fund or its
Shareholders to accept such order. Qualified Customers should call the Transfer
Agent for information regarding requirements for purchase and redemption orders.
A purchase order for a Fund will be effective as of the Business Day received by
the Distributor if the Distributor receives the order and payment in federal
funds before 4:00 p.m., Eastern time.
13
<PAGE>
All other purchase orders accompanied by payment, except those of certain types
of investors as described below, will be effective the next Business Day.
Certain institutional investors and financial institutions, such as Summit Bank,
that have entered into a settlement agreement with the Distributor, may make
payment in federal funds for purchases of Funds to the Distributor by 12:00
noon, Eastern time, the Business Day following the effective date of the trade.
A purchase order may be canceled if the Distributor does not receive federal
funds before 12:00 noon, Eastern time, 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.
Shareholders who desire to redeem shares of a 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 a Fund next determined after the redemption order is effective.
Payment on redemption will be made as promptly as possible by the next Business
Day transfer of federal funds and, in any event, within seven days after the
redemption order is effective.
Each Fund intends 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.
PERFORMANCE
Computation of Yield
From time to time, the Funds may advertise their "yields," which are based on
historical earnings and are not intended to indicate future performance. The
"current 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.
Computation of Total Return
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.
14
<PAGE>
A 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. 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 a Fund or its
Shareholders. Accordingly, Shareholders are urged to consult their tax advisors
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 investment portfolios. Each Fund intends to
continue 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 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 dividends from net capital gain (the excess of net long-term capital gain
over net short-term capital loss) will be distributed annually and will be
treated as long-term capital gains. Capital gains distributions also will not
qualify for the dividends-received deduction 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. 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
15
<PAGE>
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. Government 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.
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 generally 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.
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.
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.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Funds will not be able to elect to treat
Shareholders as having paid their proportionate share of such foreign taxes.
GENERAL INFORMATION
The Trust
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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 currently consists of the U.S. Treasury
Securities Plus Money Market, U.S. Treasury Securities Money Market, Prime
Obligation Money Market, Tax-Exempt Money Market, Fixed Income, New Jersey
Municipal Securities, Pennsylvania Municipal Securities, Intermediate-Term
Government Securities, Equity Growth, Equity Value, Equity Income, Mid Cap,
International Growth and Balanced Funds. All consideration received by the Trust
for shares of any portfolio and all assets of such portfolio belong to that
portfolio and would be subject to liabilities related thereto.
Each Fund 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, registering the shares
under federal laws and filing with state securities commissions, pricing,
insurance expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organization expenses.
The Advisor, in addition to providing investment advice to the Trust, provides
investment advice to other clients. Some of these clients' funds are maintained
in asset allocation accounts and may be invested in the Funds. 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 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%
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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 following the date of purchase and accrue
dividends through and including the effective date of redemption. 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 I 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 I Shares will be more than the dividends
payable on the Class A Shares because of the distribution expenses charged to
Class A 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:
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 U.S. 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.
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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' ACCEPTANCES--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 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.
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 affect cash income derived
from these securities but will affect a Fund's net asset value.
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 net assets of a Fund will be
invested in such instruments. An illiquid
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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 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.
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.
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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.
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.
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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.
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 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.
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.
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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 assets or
cash in an amount at least equal to these commitments. The interest rate
realized, if any, on these securities is fixed as of the purchase date and no
interest accrues to a Fund before settlement. These securities may be 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
such action appropriate.
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TABLE OF CONTENTS
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Summary 3
Expense Summary 5
Financial Highlights 6
The Trust 8
Investment Objectives and Policies 8
Investment Limitations 10
The Advisor 11
The Administrator 12
The Transfer Agent 12
The Shareholder Servicing Agent 12
The Distributor 12
Purchase and Redemption of Shares 13
Performance 14
Taxes 15
General Information 17
Description of Permitted Investments 18
The Pillar Funds is a registered service mark of Summit Bank. Your Investment
Foundation, Pillar and the stylized "P" logo are service marks of Summit Bank.
Summit is a registered service mark of Summit Bancorp. Summit Bank and Summit
Bancorp are service marks of Summit Bancorp.
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ADVISOR:
[ SUMMIT BANK LOGO ]
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
----------------
Oaks, Pennsylvania 19456
1-800-932-7782
[ LOGO ]
THE PILLAR
FUNDS
Class I Shares
Short-Term Investment Fund
GNMA Fund
Prospectus May 1, 1997
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The Pillar Funds
Class I Shares
Investment Advisor:
Summit Bank Investment Management Division,
a division of Summit Bank
The Pillar Funds (the "Trust") consists 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
Class I Shares of the following funds (each a "Fund," and collectively, the
"Funds"):
Money Market Funds
------------------
o U.S. Treasury Securities Money Market Fund
o Prime Obligation Money Market Fund
o Tax-Exempt Money Market Fund
Fixed Income Funds Equity and Balanced Funds
------------------ -------------------------
o Fixed Income Fund o Equity Growth Fund
o New Jersey Municipal Securities Fund o Equity Value Fund
o Pennsylvania Municipal Securities Fund o Equity Income Fund
o Intermediate-Term Government o Mid Cap Fund
Securities Fund o International Growth Fund
o Balanced Fund
The Trust's Class I Shares are offered without distribution fees to: (i)
institutional investors (including Summit Bank, its affiliates and correspondent
banks) for the investment of their own funds; (ii) any individual or institution
(including Summit 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 Summit Bank, its affiliates or
correspondent banks ("Qualified Customers"). Persons who own Class I Shares of
the Funds are referred to herein as "Shareholders."
CLASS I SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED,
ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING SUMMIT BANK OR ITS AFFILIATES OR
CORRESPONDENTS), ANY STATE OR STATE
<PAGE>
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.
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 Money Market 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 May 1, 1997 has been filed with the Securities and Exchange
Commission and is available without charge through the Distributor, SEI
Financial Services Company, Oaks, Pennsylvania 19456 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
May 1, 1997
Class I
2
<PAGE>
SUMMARY
The Pillar Funds (the "Trust") consists 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 I Shares (which, until May 1, 1997, were designated as Class A Shares) of
the Trust's: U.S. Treasury Securities Money Market, Prime Obligation Money
Market and Tax-Exempt Money Market Funds (the "Money Market Funds"); Fixed
Income, New Jersey Municipal Securities, Pennsylvania Municipal Securities and
Intermediate-Term Government Securities Funds (the "Fixed Income Funds"); Equity
Growth (formerly, the Growth Fund), Equity Value, Equity Income, Mid Cap
(formerly, the Mid Cap Value Fund) and International Growth Funds (the "Equity
Funds"); and the Balanced Fund (formerly, the Balanced Growth Fund) (the
"Balanced Fund," and together with the Money Market, Fixed Income and Equity
Funds, the "Funds").
What are the Investment Objectives?
The Money Market Funds: Each Money Market 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 Money Market
Fund will be able to maintain a net asset value of $1.00 per share on a
continuous basis.
The Fixed Income Funds: The Fixed Income Fund seeks a high level of total
return, primarily through current income and capital appreciation, consistent
with preservation of capital; the New Jersey Municipal Securities Fund seeks
current income exempt from both federal and New Jersey income taxes, consistent
with preservation of capital; the Pennsylvania Municipal Securities Fund seeks
current income exempt from both federal and Pennsylvania income taxes,
consistent with preservation of capital; and the Intermediate-Term Government
Securities Fund seeks preservation of principal value and a high degree of
liquidity while providing current income.
The Equity and Balanced Funds: The Equity Growth Fund seeks long-term
growth of capital; the Equity Value and Mid Cap Funds seek growth of both
capital and income; the Equity Income Fund seeks growth of capital consistent
with an emphasis on current income; the Balanced Fund seeks growth of capital
consistent with current income; and the International Growth Fund seeks
long-term capital growth.
There is no assurance that a Fund will meet its investment objective. See
"Investment Objectives and Policies."
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What are the Permitted Investments?
The Money Market Funds: 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. See "Investment Objectives and Policies."
The Fixed Income Funds: The Fixed Income Fund invests at least 65% of its
assets in U.S. and Canadian Government obligations, corporate debt securities,
short-term bank obligations and repurchase agreements.
The New Jersey Municipal Securities 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 investments of the Fixed Income 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, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds which expect to maintain
dollar-weighted average maturities greater than the other Fixed Income Funds. 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 Municipal
Securities and Pennsylvania Municipal Securities Funds in municipal securities
issued 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 effects of changes in economic conditions and governmental
policies of the states or their underlying governmental units. See "Additional
Risk Factors For New Jersey Municipal Securities" and "Additional Risk Factors
For Pennsylvania Municipal Securities."
The Equity and Balanced Funds: Each of the Equity and Balanced Funds may
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"). In addition, the Balanced Fund
invests in certain fixed income and money market securities. The
4
<PAGE>
Equity Growth Fund may also invest in European Depositary Receipts ("EDRs"),
Continental Depositary Receipts ("CDRs") and Global Depositary Receipts ("GDRs")
and certain fixed income securities. The International Growth Fund also invests
in equity securities of non-U.S. issuers; EDRs, CDRs and GDRs; and foreign
government debt securities. Because securities fluctuate in value, the shares of
each Fund will also fluctuate in value. The Mid Cap Fund may experience greater
fluctuation because it will invest primarily in small to medium capitalization
companies. In addition, the value of shares of the Equity Growth, Balanced 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 Equity
Growth and International Growth Funds 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? Summit Bank Investment Management
Division, a division of Summit Bank, serves as the advisor (the "Advisor") to
the Trust. Wellington Management Company, LLP serves as the sub-advisor (the
"Sub-Advisor") to the International Growth Fund. See "The Advisor" and "The
Sub-Advisor."
Who is the Administrator? SEI Fund Resources serves as the administrator
(the "Administrator") of the Trust. See "The Administrator."
Who is the Transfer Agent? State Street Bank and Trust Company acts as
transfer agent (the "Transfer Agent") for the Trust. See "The Transfer Agent."
Who is the Shareholder Servicing and Dividend Disbursing Agent? Boston
Financial Data Services is the Trust's dividend disbursing agent and shareholder
servicing agent. See "The Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
(the "Distributor") of the Trust's shares. See "The Distributor."
How do I Purchase and Redeem Shares?
The Money Market Funds: A purchase order for a Money Market Fund will be
effective as of the "Business Day" received by the Distributor if the
Distributor receives the order and payment in federal funds before 12:00 noon,
Eastern time, on such Business Day. A "Business Day" for a Money Market Fund is
any day on which both the New York Stock Exchange is open for trading and the
Federal Reserve Bank is open. A redemption order for a Money Market Fund will be
effective as of the Business Day received by the Transfer Agent if the Transfer
Agent receives the order before
5
<PAGE>
12:00 noon, Eastern time, on such Business Day and the proceeds are to be sent
in federal funds. See "Purchase and Redemption of Shares."
The Non-Money Market Funds: Purchases and redemptions of Non-Money Market
Fund shares may be made through the Distributor on any "Business Day." A
"Business Day" for a Non-Money Market Fund is any day that the New York Stock
Exchange is open for trading. A purchase order will be effective as of the
Business Day received by the Distributor if the Distributor receives the order
and payment in federal funds before 4:00 p.m., Eastern time. 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 and Redemption of Shares."
How are Dividends Paid?
The Money Market Funds: The net investment income (exclusive of capital
gains) of each Money Market Fund is determined and declared on each Business Day
as a dividend for Shareholders as of the close of business on that day.
The Fixed Income Funds: Each Fixed Income 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.
The Equity and Balanced Funds: Substantially all of the net investment
income (exclusive of capital gains) of the Equity Growth, Equity Value, Equity
Income, Mid Cap and Balanced Funds is declared and distributed quarterly in the
form of dividends to Shareholders on the next to last Business Day of each
quarter. With respect to the International Growth Fund, dividends are declared
and distributed annually.
All Funds: Any capital gains will be distributed at least annually.
Dividends are paid in additional shares unless the Shareholder elects to take
the payment in cash. See "Dividends."
6
<PAGE>
EXPENSE SUMMARY
Money Market Funds
Class I Shares
ANNUAL OPERATING EXPENSES
(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),(2).............. .35% .33% .32%
Other Expenses......................................... .30% .32% .33%
- ---------------------------------------------------------------------------------------------------
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 I Shares of
each Money Market 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 .67% and .68% respectively, of each
Fund's average daily net assets. Additional information may be found under
"The Advisor," "The Administrator" and "The Distributor."
<TABLE>
<CAPTION>
Example - Class I Shares
- ------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor in a Fund would pay the following expenses
on a $1,000 investment assuming (1) a 5% annual return
and (2) redemption at the end of each time period:
U.S. Treasury Securities Money Market Fund................. $ 7 $21 $36 $81
Prime Obligation Money Market Fund......................... $ 7 $21 $36 $81
Tax-Exempt Money Market Fund............................... $ 7 $21 $36 $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 Money Market Funds. Financial institutions may impose
fees on their customers in addition to those described above. Additional
information may be found under "The Advisor," "The Administrator" and "The
Distributor."
7
<PAGE>
EXPENSE SUMMARY
Fixed Income Funds
Class I Shares
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fixed New Jersey Pennsylvania Intermediate-Term
Income Municipal Municipal Securities Government
Fund Securities Fund Fund Securities Fund
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advisory Fees (after fee
waivers) (1),(2),(3)............ .48% .46% .11% .53%
Other Expenses (2)................ .32% .34% .69% .27%
- -------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers) (2),(3)........... .80% .80% .80% .80%
=============================================================================================================
</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 I Shares of
each Fixed Income Fund to not more than .80% of average daily net assets.
The Advisor reserves the right to terminate its fee waiver at any time in
its sole discretion.
(2) Advisory Fees, Other Expenses and Total Operating Expenses for the New
Jersey Municipal Securities and Pennsylvania Municipal Securities Funds
have been restated to reflect current expenses.
(3) Absent fee waivers, Advisory Fees for each Fixed Income Fund would be .60%
and Total Operating Expenses would be as follows: Fixed Income Fund .92%,
New Jersey Municipal Securities Fund .94%, Pennsylvania Municipal
Securities Fund 1.29% and Intermediate-Term Government Securities Fund
.87%. Additional information may be found under "The Advisor," "The
Administrator" and "The Distributor."
Example - Class I Shares
- --------------------------------------------------------------------------------
1yr. 3yrs. 5yrs. 10yrs.
- --------------------------------------------------------------------------------
An investor would pay the following expenses
on a $1,000 investment in a Fund assuming
(1) a 5% annual return and (2) redemption at the
end of each time period:
Each Fixed Income Fund.......................... $ 8 $26 $44 $99
================================================================================
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 Fixed Income Funds. Financial institutions may impose
fees on their customers in addition to those described above. Additional
information may be found under "The Advisor," "The Administrator" and "The
Distributor."
8
<PAGE>
EXPENSE SUMMARY
Equity and Balanced Funds
Class I Shares
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Equity Equity Equity Mid International
Growth Value Income Cap Balanced Growth
Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees (after fee waivers) (1),(3) .50% .47% .46% .45% .44% .77%
Other Expenses (2) .30% .33% .34% .35% .36% .73%
- --------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers) (3) .80% .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 I Shares of
the Equity Growth, Equity Value, Equity Income, Mid Cap and Balanced 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 I 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) Other Expenses for the Equity Growth Fund are based on estimates for the
current fiscal year.
(3) Absent fee waivers for the Equity Growth, Equity Value, Equity Income, Mid
Cap, Balanced and International Growth Funds, Advisory Fees would be .75%
for the Equity Growth, Equity Value, Equity Income, Mid Cap and Balanced
Funds and 1.00% for the International Growth Fund, and Total Operating
Expenses would be 1.05%, 1.08%, 1.09%, 1.10%, 1.11% and 1.73%,
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 - Class I Shares
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1yr. 3yrs. 5yrs. 10yrs.
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor in a Fund would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Equity Growth Fund* $ 8 $ 26 N/A N/A
Equity Value, Equity Income, Mid Cap and Balanced Funds $ 8 $ 26 $ 44 $ 99
International Growth Fund $ 15 $ 47 $ 82 $179
================================================================================================================
</TABLE>
* Because the Equity Growth Fund has recently commenced operations, the
expenses have not been estimated for periods beyond the 3 year period
shown.
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 Equity and Balanced Funds. Financial institutions may
impose fees on their customers in addition to those described above. Additional
information may be found under "The Advisor," "The Sub-Advisor," "The
Administrator" and "The Distributor."
9
<PAGE>
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 14,
1997 on the Trust's financial statements as of December 31, 1996, which is
incorporated by reference into the Trust's Statement of Additional Information
under "Financial Information." Additional performance information is contained
in the Trust's 1996 Annual Report to Shareholders and is available upon request
and without charge by calling 1-800-932-7782. Because the Equity Growth Fund had
not commenced operations as of December 31, 1996, no financial highlights are
presented for this Fund. These tables should be read in conjunction with the
Trust's financial statements and notes thereto.
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Distri-
Net Realized butions
Asset and from Distri- Net
Value Net Unrealized Net butions Asset
Begin- Invest- Gains or Invest- from Value
ning of ment Losses on ment Capital End of Total
Period Income Securities Income Gains Period Return
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $12.81 $0.22 $2.54 $(0.22) $(2.00) $13.35 21.69%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 10.19 0.25 3.46 (0.25) (0.84) 12.81 36.71
- ------------------------------------------------------------------------------------------------------------------------------------
1994 11.10 0.21 (0.83) (0.21) (0.08) 10.19 (5.61)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.64 0.18 0.46 (0.18) -- 11.10 6.12
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 10.00 0.14 0.64 (0.14) -- 10.64 10.51*
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $13.07 $0.33 $2.35 $(0.34) $(2.09) $13.32 21.01%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 10.26 0.31 3.29 (0.31) (0.48) 13.07 35.55
- ------------------------------------------------------------------------------------------------------------------------------------
1994 11.17 0.32 (0.81) (0.32) (0.10) 10.26 (4.42)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.72 0.29 0.80 (0.29) (0.35) 11.17 10.27
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 10.00 0.22 0.72 (0.22) -- 10.72 12.72*
- ------------------------------------------------------------------------------------------------------------------------------------
MID CAP FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $12.55 $0.09 $1.59 $(0.09) $(0.81) $13.33 13.56%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 10.83 0.15 1.95 (0.15) (0.23) 12.55 19.49
- ------------------------------------------------------------------------------------------------------------------------------------
1994 12.32 0.12 (1.27) (0.12) (0.22) 10.83 (9.34)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.99 0.11 1.33 (0.11) -- 12.32 13.22
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 10.00 0.07 0.99 (0.07) -- 10.99 14.30*
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio of
of Ratio of Ratio of Net
Net Expenses Income Expenses to Income to
Assets to to Average Net Average
End of Average Average Assets Net Assets Portfolio Average
Period Net Net (Excluding (Excluding Turnover Commission
(000) Assets Assets Waivers) Waivers) Rate Rate+
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $116,715 0.80% 1.67% 1.08% 1.39% 85.30% $0.950
- ------------------------------------------------------------------------------------------------------------------------------------
1995 82,677 0.80 2.08 1.07 1.81 61.88 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 61,407 0.80 1.92 1.06 1.66 44.98 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993 67,383 0.80 1.74 1.07 1.47 89.91 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1992 62,116 0.80 1.82 1.10 1.52 45.68 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $58,035 0.80% 2.55% 1.09% 2.26% 85.47% $.1095
- ------------------------------------------------------------------------------------------------------------------------------------
1995 44,202 0.80 2.61 1.10 2.31 42.97 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 34,514 0.80 2.96 1.08 2.68 37.76 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993 38,237 0.80 2.65 1.10 2.35 89.89 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 32,538 0.80 2.88 1.14 2.54 58.41 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
MID CAP FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $45,556 0.80% 0.66% 1.10% 0.36% 41.41% $.1010
- ------------------------------------------------------------------------------------------------------------------------------------
1995 42,375 0.80 1.28 1.10 0.98 32.96 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 33,448 0.80 1.06 1.08 0.78 13.82 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993 35,648 0.80 1.03 1.10 0.73 24.49 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 29,507 0.80 0.98 1.15 0.63 9.29 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Distri-
Net Realized butions
Asset and from Distri- Net
Value Net Unrealized Net butions Asset
Begin- Invest- Gains or Invest- from Value
ning of ment Losses on ment Capital End of Total
Period Income Securities Income Gains Period Return
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $12.05 $0.48 $1.16 $(0.47) $(1.83) $11.39 13.77%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 9.91 0.44 2.27 (0.44) (0.13) 12.05 27.76
- ------------------------------------------------------------------------------------------------------------------------------------
1994 10.78 0.37 (0.86) (0.38) -- 9.91 (4.61)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.35 0.38 0.43 (0.38) -- 10.78 7.89
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 10.00 0.29 0.34 (0.28) -- 10.35 8.53*
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $10.74 $0.08 $1.11 $(0.08) $(0.62) $11.23 11.17%
- ------------------------------------------------------------------------------------------------------------------------------------
1995(2) 10.00 0.03 0.75 (0.02) (0.02) 10.74 7.81
- ------------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $10.49 $0.57 $(0.28) $(0.57) -- $10.21 2.94%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 9.44 0.59 1.05 (0.59) -- 10.49 17.76
- ------------------------------------------------------------------------------------------------------------------------------------
1994 10.68 0.59 (1.18) (0.59) $(0.06) 9.44 (5.66)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.38 0.61 0.52 (0.61) (0.22) 10.68 11.05
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 10.00 0.49 0.44 (0.49) (0.06) 10.38 11.60*
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio of
of Ratio of Ratio of Net
Net Expenses Income Expenses to Income to
Assets to to Average Net Average
End of Average Average Assets Net Assets Portfolio Average
Period Net Net (Excluding (Excluding Turnover Commission
(000) Assets Assets Waivers) Waivers) Rate Rate+
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $19,243 0.80% 3.68% 1.11% 3.37% 43.80% $.1165
- ------------------------------------------------------------------------------------------------------------------------------------
1995 32,145 0.80 3.89 1.11 3.58 41.63 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 26,921 0.80 3.64 1.09 3.35 27.15 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993 25,712 0.80 3.75 1.14 3.41 63.03 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 16,899 0.80 3.88 1.20 3.48 82.76 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $14,822 1.50% 0.85% 1.73% 0.62% 67.03% $.0051
- ------------------------------------------------------------------------------------------------------------------------------------
1995(2) 9,990 1.50* 0.79* 2.11* 0.18* 14.32 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $100,129 0.80% 5.60% 0.92% 5.48% 40.56% n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1995 113,509 0.80 5.83 0.91 5.72 35.49 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 96,558 0.80 5.91 0.90 5.81 15.24 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993 113,892 0.80 5.59 0.91 5.48 49.49 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 89,701 0.80 6.24 0.94 6.10 23.86 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Distri-
Net Realized butions
Asset and from Distri- Net
Value Net Unrealized Net butions Asset
Begin- Invest- Gains or Invest- from Value
ning of ment Losses on ment Capital End of Total
Period Income Securities Income Gains Period Return
- ------------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY MUNICIPAL SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $10.79 $0.44 $(0.08) $(0.44) -- $10.71 3.42%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 9.93 0.47 0.86 (0.47) -- 10.79 13.57
- ------------------------------------------------------------------------------------------------------------------------------------
1994 10.85 0.48 (0.92) (0.48) -- 9.93 (4.12)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.29 0.50 0.56 (0.50) -- 10.85 10.48
- ------------------------------------------------------------------------------------------------------------------------------------
1992(3) 10.00 0.30 0.29 (0.30) -- 10.29 9.01*
- ------------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $10.23 $0.44 $(0.06) $(0.44) -- $10.17 3.89%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 9.55 0.40 0.68 (0.40) -- 10.23 11.53
- ------------------------------------------------------------------------------------------------------------------------------------
1994 10.17 0.36 (0.62) (0.36) -- 9.55 (2.58)
- ------------------------------------------------------------------------------------------------------------------------------------
1993(4) 10.00 0.23 0.17 (0.23) -- 10.17 6.01
- ------------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $10.37 $0.53 $(0.21) $(0.53) -- $10.16 3.26%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 9.51 0.54 0.86 (0.54) -- 10.37 15.00
- ------------------------------------------------------------------------------------------------------------------------------------
1994 10.53 0.51 (1.01) (0.51) $(0.01) 9.51 (4.85)
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.23 0.52 0.32 (0.52) (0.02) 10.53 8.32
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 10.00 0.41 0.24 (0.41) (0.01) 10.23 7.95*
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio of
of Ratio of Ratio of Net
Net Expenses Income Expenses to Income to
Assets to to Average Net Average
End of Average Average Assets Net Assets Portfolio Average
Period Net Net (Excluding (Excluding Turnover Commission
(000) Assets Assets Waivers) Waivers) Rate Rate+
- ------------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY MUNICIPAL SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $20,689 0.67% 4.13% 0.93% 3.87% 13.93% n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1995 28,080 0.41 4.43 0.93 3.91 2.83 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 19,977 0.27 4.65 0.93 3.99 16.81 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993 27,064 0.20 4.57 1.00 3.77 23.83 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1992(3) 9,395 0.46 4.56 1.22 3.80 2.23 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $3,665 0.69% 4.42% $1.49 3.62% 25.88% n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1995 3,345 0.80 4.05 1.27 3.58 36.92 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 2,734 0.80 3.67 1.61 2.86 38.20 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993(4) 2,922 0.80 3.35 1.48 2.67 16.51 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $24,679 0.80% 5.26% 0.87% 5.19% 40.60% n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1995 28,877 0.80 5.33 1.05 5.08 68.29 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1994 26,277 0.80 5.13 0.95 4.98 40.27 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1993 34,075 0.80 4.87 1.00 4.67 31.69 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 16,327 0.80 5.30 1.11 4.99 12.38 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Distri-
Net Realized butions
Asset and from Distri- Net
Value Net Unrealized Net butions Asset
Begin- Invest- Gains or Invest- from Value
ning of ment Losses on ment Capital End of Total
Period Income Securities Income Gains Period Return
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $1.00 $0.04 -- $(0.04) -- $1.00 4.53%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1.00 0.05 -- (0.05) -- 1.00 5.05
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1.00 0.03 -- (0.03) -- 1.00 3.44
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1.00 0.02 -- (0.02) -- 1.00 2.46
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 1.00 0.02 -- (0.02) -- 1.00 2.81*
- ------------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATION MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $1.00 $0.05 -- $(0.05) -- $1.00 4.83%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1.00 0.05 -- (0.05) -- 1.00 5.40
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1.00 0.04 -- (0.04) -- 1.00 3.67
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1.00 0.03 -- (0.03) -- 1.00 2.65
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 1.00 0.02 -- (0.02) -- 1.00 2.85*
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $1.00 $0.03 -- $(0.03) -- $1.00 2.94%
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1.00 0.03 -- (0.03) -- 1.00 3.42
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1.00 0.02 -- (0.02) -- 1.00 2.27
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1.00 0.02 -- (0.02) -- 1.00 1.99
- ------------------------------------------------------------------------------------------------------------------------------------
1992(5) 1.00 0.02 -- (0.02) -- 1.00 2.42*
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio of
of Ratio of Ratio of Net
Net Expenses Income Expenses to Income to
Assets to to Average Net Average
End of Average Average Assets Net Assets Portfolio Average
Period Net Net (Excluding (Excluding Turnover Commission
(000) Assets Assets Waivers) Waivers) Rate Rate+
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 $504,729 0.65% 4.44% 0.65% 4.44% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1995 463,531 0.65 4.92 0.65 4.92 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1994 465,125 0.62 3.39 0.62 3.39 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1993 420,947 0.64 2.42 0.64 2.42 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 387,960 0.65 2.67 0.70 2.62 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATION MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $401,423 0.65% 4.73% 0.67% 4.71% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1995 259,667 0.65 5.26 0.66 5.25 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1994 157,378 0.62 3.68 0.62 3.68 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1993 129,780 0.64 2.63 0.64 2.63 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1992(1) 124,811 0.65 2.63 0.77 2.51 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------------------------------------
1996 $67,082 0.65% 2.90% 0.68% 2.87% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1995 63,628 0.65 3.37 0.72 3.30 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1994 37,745 0.65 2.27 0.68 2.24 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1993 32,994 0.65 1.97 0.69 1.93 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1992(5) 22,963 0.65 2.39 0.79 2.25 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
* Annualized.
(+) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for the fiscal
years beginning after September 1, 1995.
(1) The Equity Value, Equity Income, Mid Cap, Balanced, Fixed Income,
Intermediate-Term Government Securities, U.S. Treasury Securities Money
Market and Prime Obligation Money Market Funds commenced operations on
Market and Prime Obligation Money Market Fund commenced operations on April
1, 1992. Ratios for this period have been annualized.
(2) The International Growth Fund (Class I Shares) commenced operations on May
1, 1995. Ratios for this period have been annualized.
(3) The New Jersey Municipal Securities Fund commenced operations on May 4,
1992. Ratios for this period have been annualized.
(4) The Pennsylvania Municipal Fund (Class I Shares) commenced operations on
May 3, 1993. Ratios for this period have been annualized.
(5) The Tax-Exempt Money Market Fund commenced operations on April 6, 1992.
Ratios for this period have been annualized.
15
<PAGE>
THE TRUST
The Pillar Funds (the "Trust") is an open-end management investment company that
consists of diversified and non-diversified portfolios. The Trust currently
offers units of beneficial interest ("shares") in sixteen separate investment
portfolios. The Trust offers shares of each portfolio through up to three
separate classes of shares (Class A (formerly, Class B), Class B and Class I
(formerly, Class A)) which provide for variations in distribution costs, voting
rights, sales loads, minimum investments, 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 I Shares of each of the Trust's portfolios other
than the U.S. Treasury Securities Plus Money Market Fund, Short-Term Investment
Fund and GNMA Fund. Each of the Funds described herein is a diversified mutual
fund, except for the New Jersey Municipal Securities, Pennsylvania Municipal
Securities and International Growth Funds, which are non-diversified mutual
funds. Information regarding the Trust's other portfolios and the Class A Shares
and Class B Shares, if any, of the Funds is contained in separate prospectuses
that may be obtained from the Trust's Distributor, SEI Financial Services
Company, Oaks, Pennsylvania 19456 or by calling 1-800-932-7782.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described below. For
additional information regarding risks and permitted investments of the Funds,
see "Risk Factors," "General Investment Policies" and "Description of Permitted
Investments" in this Prospectus and "Description of Permitted Investments" and
"Description of Ratings" in the Statement of Additional Information. There is no
assurance that the investment objective of any Fund will be met.
The Money Market Funds
The investment objective of each Money Market 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.
Each Money Market 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 Money
Market Fund. Under these regulations, each Money Market 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.
16
<PAGE>
The U.S. Treasury Securities Money Market Fund
The U.S. Treasury Securities Money Market 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.
The Prime Obligation Money Market Fund
The Prime Obligation Money Market 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 (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 ("U.S. Government Agencies"); and (v)
repurchase agreements involving any of such obligations. In addition, the Fund
may also engage in securities lending.
The Tax-Exempt Money Market Fund
The Tax-Exempt Money Market Fund will invest at least 80% of its total 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"). The 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 (an
"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 Money Market 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.
17
<PAGE>
The Fixed Income Funds
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. 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) U.S. Treasury
Obligations; (ii) U.S. Government Agencies; (iii) corporate debt obligations
rated in one of the three highest rating categories by an 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; (viii) obligations subject to federal income tax
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities ("Taxable Municipal Securities"), which are rated A or
higher by an NRSRO or determined by the Advisor to be of comparable quality; and
(ix) 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 by
an NRSRO or determined by the Advisor to be of comparable quality at the time of
investment. Securities rated A are considered to be investment grade, but 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 Government
National Mortgage Association ("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 expects to maintain a dollar-weighted average portfolio maturity that
will not exceed fifteen years. The Advisor may vary this maturity substantially
in anticipation of a change in the interest rate environment.
18
<PAGE>
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.
The New Jersey Municipal Securities Fund will invest at least 80% of its net
assets 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 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
but 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 as fully invested as possible in securities exempt from
federal income tax.
The New Jersey Municipal Securities Fund is a non-diversified investment
company. See "Risk Factors - Non-Diversification" for a discussion of the
additional risks of non-diversification.
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.
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.
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.
19
<PAGE>
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 Advisor to be of comparable quality. Bonds rated
BBB by S&P or Baa by Moody's have speculative characteristics.
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.
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. See "Risk Factors - Non-Diversification" for a discussion of the
additional risks of non-diversification.
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.
The Fund will be fully invested in U.S. Treasury Obligations and U.S. Government
Agencies.
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.
General Investment Policies -- Fixed Income Funds
For temporary defensive purposes when the Advisor determines that market
conditions warrant, each Fixed Income Fund may invest up to 100% of its assets
in the money market instruments described as permissible investments for the
Fixed Income Fund and may hold a portion of its assets in cash. To the extent a
Fixed Income Fund is engaged in temporary defensive investing, the Fund will not
be pursuing its investment objective.
Both of the Fixed Income and Intermediate-Term Government Securities Funds may
purchase mortgage-backed securities issued or guaranteed as to payment of
principal and interest by the U.S. Government, its agencies or
instrumentalities. These Funds may also invest in mortgage-backed securities
issued by private issuers rated in one of the two highest rating categories by
an NRSRO
20
<PAGE>
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"). Obligations of GNMA are backed by the full faith and
credit of the U.S. 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 Fixed Income 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 Fixed Income Fund drops
below the prescribed 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.
Risk Factors--Fixed Income Funds
The market value of each Fixed Income 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 Fixed Income Fund are prepaid, the Fund
must reinvest the proceeds in securities, the yield on 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.
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
21
<PAGE>
it. For a further description of these risks, see "New Jersey Municipal
Securities and Special Considerations Relating Thereto" in the Statement of
Additional Information.
Additional Risk Factors For Pennsylvania Municipal Securities
Under normal conditions the Pennsylvania Municipal Securities Fund will be fully
invested in obligations that 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 and Special
Considerations Relating Thereto" in the Statement of Additional Information.
The Equity and Balanced Funds
The Equity Growth Fund
The investment objective of the Fund is long-term growth of capital.
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 that are convertible into common stocks and ADRs, EDRs,
CDRs and GDRs. The Advisor will invest in companies that it expects will
demonstrate greater long-term earnings growth than the average company included
in the Standard & Poor's 500 Composite Index (the "S&P 500 Index"). This method
of investing is based upon the premise that growth in a company's earnings will
eventually translate into growth in the price of its stock.
To the extent that the Fund is not invested in equity securities, the Fund may
invest in the following fixed income securities for cash management purposes:
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 by an NRSRO or determined by the Advisor to be of comparable quality
at the time of purchase, except that as part of its investment strategy, the
Fund may invest up to 5% of its total assets in lower rated bonds, commonly
referred to as "junk bonds," rated B or higher by an NRSRO or determined to be
of comparable quality by the Advisor; mortgage-backed securities consisting of
CMOs and 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 asset-backed securities secured by company receivables,
truck
22
<PAGE>
and auto loans, leases and credit card receivables that are rated in one of the
top two rating categories by an NRSRO. The Fund may also employ certain hedging
and risk management techniques, including the purchase and sale of
exchange-listed and over-the-counter ("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 invest in
futures only on a covered basis.
The Equity Value Fund
The investment objective of this Fund is growth of both capital and income.
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.
The Equity Income Fund
The investment objective of this Fund is growth of capital consistent with an
emphasis on current income.
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 Mid Cap Fund
The investment objective of this Fund is growth of both capital and income.
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 $700 million and $7
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 $700 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 companies
which may be subject to greater volatility than investments in companies with
larger capitalizations.
The Balanced Fund
23
<PAGE>
The investment objective of this Fund is growth of capital consistent with
current income.
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: U.S. Government
Securities; corporate bonds and debentures rated in one of the three highest
rating categories by an NRSRO or determined by the Advisor to be of comparable
quality at the time of purchase; mortgage-backed securities consisting of CMOs
and 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 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 by an NRSRO. Securities rated A are considered to be
investment grade but could be more vulnerable to adverse developments than
obligations with higher ratings.
The Fund may invest in the money market securities described in the "Description
of Permitted Investments."
The International Growth Fund
The investment objective of this Fund is long-term capital growth.
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 ("Depositary Receipts"). The Fund will
purchase equity securities, including Depositary Receipts, 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 in a foreign or domestic issuer's public offerings, including
an initial public offering (an "IPO"). 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 an
NRSRO 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 foreign
government debt securities that are rated BB
24
<PAGE>
(or Ba) or B by an NRSRO, or, if not rated, determined to be of comparable
quality as determined by the Sub-Advisor. In addition, the Fund may invest in
money market instruments as defined in "General Investment Policies - Equity and
Balanced Funds" 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 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 invest
in 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.
General Investment Policies--Equity and Balanced Funds
For temporary defensive purposes during periods when the Advisor determines that
market conditions warrant, each Equity and Balanced Fund may invest up to 100%
of its assets in the money market securities described in the "Description of
Permitted Investments" and may hold cash for liquidity purposes. The money
market securities the International Growth Fund may invest in may
25
<PAGE>
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 by an NRSRO
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 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 an Equity or Balanced Fund is engaged in temporary
defensive investing, the Fund will not be pursuing its investment objective.
Each of the Equity Value, Equity Income, Mid Cap and Balanced Funds seeks 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 Equity and Balanced 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 Equity and Balanced Fund reserves the right to engage in
securities lending. The Equity Growth, Equity Value, Equity Income, Mid Cap and
Balanced 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 five 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--Equity and Balanced Funds
Because each Equity and Balanced Fund invests in equity securities, its shares
will fluctuate in value. The market value of the convertible securities
purchased by each Equity and Balanced 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 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 Equity Growth, Balanced and International Growth Funds'
fixed income securities will fluctuate in response to interest rate changes and
other factors. See "Risk Factors -- Fixed Income Funds" above for a discussion
of the risks associated with fixed income investments.
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<PAGE>
Each Equity and Balanced Fund's investments in securities of foreign issuers may
subject that 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 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 an Equity or Balanced 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
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 Equity Growth and International Growth Funds 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 debt securities purchased by the
Funds will be rated at least B by an NRSRO or determined to be of comparable
quality by the Advisor or 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.
The Equity Growth and International Growth Funds 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 accurately
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.
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<PAGE>
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.
Risk Factors--Non-Diversification
The New Jersey Municipal Securities, Pennsylvania Municipal Securities and
International Growth Funds are non-diversified funds under the Investment
Company Act of 1940, as amended (the "1940 Act"), and each 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. Each of the Funds 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.
Portfolio Turnover
Under normal circumstances, it is anticipated that the annual portfolio turnover
rate for each Fixed Income, Equity and Balanced Fund will not exceed 100%. With
respect to the Balanced Fund, this applies only to its investments in equity
securities and non-money market, fixed income securities, which are calculated
separately. The historical portfolio turnover rates for each Non-Money Market
Fund are set forth in the Financial Highlights above.
INVESTMENT LIMITATIONS
Money Market Funds: The investment objective and the following investment
limitations are fundamental policies of each Money Market Fund. In addition, it
is a fundamental policy of each Money Market 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 Money Market 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.
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Each Money Market Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. 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.
The foregoing percentage limitations apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
It is a non-fundamental policy of each Money Market Fund to invest no more than
10% of its net assets in illiquid securities (as defined under "Description of
Permitted Investments").
Non-Money Market Funds: The investment objective and the following investment
limitations are fundamental policies of each Non-Money Market Fund. In addition,
it is a fundamental policy of the New Jersey and Pennsylvania Municipal
Securities Funds to invest at least 80% of their respective 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 Non-Money Market Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. 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 New Jersey Municipal Securities, Pennsylvania Municipal Securities and
International Growth 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
29
<PAGE>
or guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements involving such securities or, with respect to the Fixed
Income Funds only, 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 transmissions, electric and telephone will each be considered a
separate industry; (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; (iii) with respect to the Equity and Balanced Funds only,
supranational agencies will be deemed to be issuers conducting their principal
business activities in the same industry; and (iv) with respect to the Equity
and Balanced Funds only, 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 apply at the time of the purchase of a
security. Additional investment limitations are set forth in the Statement of
Additional Information.
It is a non-fundamental policy of each Non-Money Market Fund to invest no more
than 15% of its net assets in illiquid securities (as defined below under
"Description of Permitted Investments").
THE ADVISOR
Summit Bank Investment Management Division, a division of Summit Bank (the
"Advisor"), serves as the investment advisor to the Trust. The Advisor makes the
investment decisions for the assets of the Funds 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.
Summit Bank, 210 Main Street, Hackensack, New Jersey 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 professionals have, on average, over 20
years of experience in investment management. As of December 31, 1996, total
assets under management were approximately $6.7 billion.
Summit Bank is a wholly-owned subsidiary of Summit Bancorp., an interstate bank
holding company with over $22 billion in assets and over 340 banking offices,
predominantly in New Jersey and eastern Pennsylvania, as of December 31, 1996.
Fixed Income Fund--Joseph Markovich is a Vice President of the Advisor and
currently manages the Fixed Income Fund. Mr. Markovich has managed the Fixed
Income Fund since January 1, 1997. Prior to January, 1997, Mr. Markovich managed
the Fixed Income Common Trust Funds for Summit
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Bank. Mr. Markovich has had investment responsibility for equity and fixed
income portfolios since joining Summit Bank in 1985.
Pennsylvania Municipal Securities and Mid Cap Funds--Randolph E. Lestyk is Vice
President and Regional Manager (Pennsylvania) of the Advisor and has managed the
Pennsylvania Municipal Securities Fund since its inception in May, 1993 and the
Mid Cap Fund since January, 1996. Prior to joining Summit 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.
New Jersey Municipal Securities and Tax-Exempt Money Market Funds--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 and manages the
Tax-Exempt Money Market Fund. Mrs. Palmer's experience has emphasized tax-exempt
bonds. She joined Summit Bank in 1981.
Intermediate-Term Government Securities Fund--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 Summit Bank in 1982.
Equity Growth and Mid Cap Funds--John Guarino is a Vice President and Regional
Manager (Summit) of the Advisor and has managed the Equity Growth Fund since its
inception in February, 1997. Since February, 1997 he has also been a co-manager
of the Mid Cap Fund. Mr. Guarino joined Summit Bank in 1985.
Equity Income and Mid Cap Funds--Richard H. Caro is a Vice President of the
Advisor and has managed the Equity Income Fund since January, 1996. Since
February, 1997, he has also been a co-manager of the Mid Cap Fund. Prior to
joining Summit 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.
Equity Value Fund--Fernando Garip is a Vice President and Regional Manager
(Hackensack) of the Advisor and has managed the Equity Value Fund since January,
1996. Mr. Garip joined Summit Bank in 1982.
Balance Fund--Edward Kasperavich is a Vice President of the Advisor and has
managed the Balanced Fund since January, 1997. Mr. Kasperavich joined Summit
Bank in 1985.
U.S. Treasury Securities Money Market and Prime Obligation Money Market
Funds--Judy Wolk is a Vice President at the Advisor and has managed the Pillar
taxable money market funds
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since June, 1996. Prior to joining Summit Bank in September, 1995, Ms. Wolk had
substantial experience in money market instruments with a large regional bank.
The Advisor is entitled to a fee from each Fund, which is calculated daily and
paid monthly at the annual rate of the respective Fund's average daily net
assets as set forth in the following table. The Advisor has voluntarily agreed
to waive all or a portion of its fees to limit the total operating expenses of
Class I Shares of each Fund to the respective levels set forth below. The
Advisor reserves the right to terminate any and all fee waivers at any time in
its sole discretion. Also set forth below are the advisory fees each Fund paid
to the Advisor (shown as a percentage of average daily net assets) for the
fiscal year ended December 31, 1996.
- --------------------------------------------------------------------------------
Maximum Total Fees
Operating Received In
Contractual Expense After Fiscal Year
Fee Fee Waiver 1996
- --------------------------------------------------------------------------------
U.S. Treasury Securities Money .35% .65% .35%
Market Fund
- --------------------------------------------------------------------------------
Prime Obligation Money Market .35% .65% .33%
Fund
- --------------------------------------------------------------------------------
Tax-Exempt Money Market Fund .35% .65% .32%
- --------------------------------------------------------------------------------
Fixed Income Fund .60% .80% .48%
- --------------------------------------------------------------------------------
New Jersey Municipal Securities .60% .80% .35%
Fund
- --------------------------------------------------------------------------------
Pennsylvania Municipal Securities .60% .80% .00%
Fund
- --------------------------------------------------------------------------------
Intermediate-Term Government .60% .80% .53%
Securities Fund
- --------------------------------------------------------------------------------
Equity Growth Fund .75% .80% N/A%
- --------------------------------------------------------------------------------
Equity Value Fund .75% .80% .47%
- --------------------------------------------------------------------------------
Equity Income Fund .75% .80% .46%
- --------------------------------------------------------------------------------
Mid Cap Fund .75% .80% .45%
- --------------------------------------------------------------------------------
Balanced Fund .75% .80% .44%
- --------------------------------------------------------------------------------
International Growth Fund 1.00% 1.50% .77%
- --------------------------------------------------------------------------------
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Summit 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 Summit 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 except the International Growth Fund, and at an annual rate
of .17% of the average daily net assets of the International Growth Fund.
THE SUB-ADVISOR
Wellington Management Company, LLP ("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, 1996, WMC has discretionary investment authority with respect
to approximately $133.2 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 limited liability
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 in May, 1995
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 I 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, 1996, the Advisor paid WMC a
sub-advisory fee of .60% of the average daily net assets of the International
Growth Fund.
THE ADMINISTRATOR
SEI Fund Resources (the "Administrator") 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.
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<PAGE>
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 TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent"), 225 Franklin St.,
Boston, Massachusetts 02110 is the Trust's transfer agent.
THE SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, 2 Heritage Drive, North Quincy, Massachusetts,
02171 is the Trust's dividend disbursing agent and shareholder servicing agent.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, acts as the Distributor of the Trust's shares. No compensation
is paid to the Distributor for distribution services for the Class I Shares of
the Fund. Class I Shares of the Fund are offered without distribution fees to:
(i) institutional investors (including Summit Bank, its affiliates and
correspondent banks) for the investment of their own funds; (ii) individuals and
institutions (including Summit 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 Summit Bank, its
affiliates or correspondent banks ("Qualified Customers").
PURCHASE AND REDEMPTION OF SHARES
Shares of each Fund are sold on a continuous basis and may be purchased on any
day that the New York Stock Exchange is open for trading (a "Business Day").
However, with respect to the Money Market Funds, a "Business Day" does not
include days when the Federal Reserve Bank is closed. Generally, (i) an investor
in the Class I Shares of a Fund must pay for shares by federal funds and (ii)
checks (including third party and credit card checks), credit cards and cash
will not be accepted for payment of Class I Shares.
A purchase or redemption order for shares of a Fund will be executed at a per
share price equal to the net asset value next determined after the appropriate
order is effective.
The net asset value per Class I Share of a Fund is determined by dividing the
total value of the Fund's investments and other assets that are allocated to its
Class I Shares, less any liabilities that are allocated to its Class I Shares,
by the Fund's total outstanding Class I Shares. The net asset value per share
for a Money Market Fund is calculated as of 12:00 noon, Eastern time, each
Business Day
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<PAGE>
based on the amortized cost method as described under "Determination of Net
Asset Value" in the Statement of Additional Information. The purchase and
redemption prices for each Money Market Fund is expected to remain constant at
$1.00 per share. The net asset value per share of the Non-Money Market Funds is
determined as of 4:00 p.m., Eastern time, each Business Day. Purchases will be
made in full and fractional shares of a Fund calculated to three decimal places.
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.
No certificates representing shares will be issued.
Neither the Trust nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for acting upon instructions that it reasonably
believes to be genuine. The Trust and the Transfer Agent will each employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. 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, the Fund or its
Shareholders to accept such order. Qualified Customers should call the Transfer
Agent for information regarding requirements for purchase and redemption orders.
Money Market Funds: A purchase order for a Money Market Fund will be effective
as of the Business Day received by the Distributor if the Distributor receives
the order and payment in federal funds before 12:00 noon, Eastern time. All
other purchase orders will be effective on the next Business Day. Purchased
shares begin earning dividends on the Business Day the purchase order for those
shares is effective. 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.
For redemption orders received before 12:00 noon, Eastern time, payment will
normally be made the same day by the 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. Redeemed shares are not
entitled to dividends declared the day the redemption order is effective.
Non-Money Market Funds: A purchase order for a Non-Money Market Fund will be
effective as of the Business Day received by the Distributor if the Distributor
receives the order and payment in federal funds before 4:00 p.m., Eastern time.
All other purchase orders accompanied by payment, except those of certain types
of investors as described below, will be effective the next Business Day.
Certain institutional investors and financial institutions, such as Summit Bank,
that have entered into a settlement agreement with the Distributor, may make
payment in federal funds for purchases of Non-Money Market Funds to the
Distributor by 12:00 noon, Eastern time, the Business
35
<PAGE>
Day following the effective date of the trade. A purchase order may be canceled
if the Distributor does not receive federal funds before 12:00 noon, Eastern
time, 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.
Shareholders who desire to redeem shares of a Non-Money Market 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 a Fund next determined after the redemption
order is effective. Payment on redemption will be made as promptly as possible
by the next Business Day transfer of federal funds and, in any event, within
seven days after the redemption order is effective.
Each Fund intends 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.
PERFORMANCE
Computation of Yield
From time to time the Money Market Funds may advertise "current yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "current yield" of a Money
Market 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.
The Fixed Income Funds may also advertise yield and total return (described
below). The yield of a Fixed Income 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 Tax-Exempt Money Market, New Jersey Municipal Securities 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.
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<PAGE>
Computation of Total Return
Each of the Fixed Income, Equity and Balanced Funds may also advertise total
return. Total return figures are based on historical earnings and are not
intended to indicate future performance.
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.
A 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. 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 a
37
<PAGE>
Fund or its Shareholders. Accordingly, Shareholders are urged to consult their
tax advisors 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 investment portfolios. Each Fund intends to
continue 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 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 dividends from net capital gain (the excess of net long-term capital gain
over net short-term capital loss) will be distributed annually and will be
treated as long-term capital gains. Capital gains distributions also will not
qualify for the dividends-received deduction 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. 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. 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. Government
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.
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 generally 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 or Sub-Advisor would not have chosen to sell such securities
and which may result in a taxable gain or loss.
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
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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.
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.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Funds, other than the International Growth Fund,
will not be able to elect to treat Shareholders as having paid their
proportionate share of such foreign taxes.
Additional Considerations for the Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds
The Tax-Exempt Money Market, New Jersey Municipal Securities 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.
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."
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Interest on indebtedness incurred or continued by a Shareholder in order to
purchase or carry shares of the Tax-Exempt Money Market, New Jersey Municipal
Securities 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 advisors 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.
The Tax-Exempt Money Market Fund--Additional Considerations
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 Tax-Exempt Money Market 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.
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 SEC; 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.
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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 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.
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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 currently consists of the U.S. Treasury
Securities Plus Money Market Fund, the Short-Term Investment Fund and the GNMA
Fund. All consideration received by the Trust for shares of any portfolio and
all assets of such portfolio belong to that portfolio and would be subject to
liabilities related thereto.
Each Fund 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, registering the shares
under federal laws and filing with state securities commissions, pricing,
insurance expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organization expenses.
The Advisor, in addition to providing investment advice to the Trust, provides
investment advice to other clients. Some of these clients' funds are maintained
in asset allocation accounts and may be invested in the Funds. 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 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
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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
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class I 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.
If any capital gain is realized, substantially all of it will be distributed at
least annually.
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.
Money Market Funds: The net investment income (exclusive of capital gains) of
each Money Market 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 Money Market Funds on or about the first Business Day
of the following month. Redeemed shares are not entitled to dividends declared
the day the redemption order is effective.
Fixed Income Funds: Each Fixed Income 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 following
the date of purchase, and accrue dividends through and including the effective
date of redemption.
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Equity and Balanced Funds: Substantially all of the net investment income (not
including capital gain) of the Equity Growth, Equity Value, Equity Income, Mid
Cap and Balanced 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
declared and distributed annually as a dividend to Shareholders of record for
the International Growth Fund.
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 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 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
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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 U.S. 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' ACCEPTANCES--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 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.
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COMMERCIAL PAPER -- Commercial paper is 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.
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, financial instruments or indices. The following are considered
derivative securities: options on futures, futures, options (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., 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.
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 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
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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 risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
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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 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 assets 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 10% of the net assets of a Money Market
Fund or 15% of the net assets of a Non-Money Market 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
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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.
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.
MONEY MARKET SECURITIES--Money market securities include 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 by an NRSRO 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. 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.
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.
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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.
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
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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
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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 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.
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 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
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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 SEC 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 liquid assets 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 liquid assets 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
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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 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 NRSROs (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 Advisor 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 Obligation
Money Market 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) 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.
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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 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.
TAXABLE MUNICIPAL SECURITIES--Taxable Municipal Securities are municipal
securities the interest on which is not exempt from federal income tax. Taxable
Municipal Securities include "private activity bonds" that are issued by or on
behalf of states or their political subdivisions 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 lots and low income
housing. The payment of 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 operator to meet its financial obligations, and may be secured by
a pledge of the financed real and/or personal property.
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
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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 assets or
cash in an amount at least equal to these commitments. The interest rate
realized, if any, on these securities is fixed as of the purchase date and no
interest accrues to a Fund before settlement. These securities may be 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
such action appropriate.
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TABLE OF CONTENTS Page No.
- --------------------------------------------------------------------
Summary ................................................................... 3
Expense Summary ........................................................... 7
Financial Highlights ...................................................... 10
The Trust ................................................................. 16
Investment Objectives and Policies ........................................ 16
Investment Limitations .................................................... 28
The Advisor ............................................................... 30
The Sub-Advisor ........................................................... 33
The Administrator ......................................................... 33
The Transfer Agent ........................................................ 34
The Shareholder Servicing Agent ........................................... 34
The Distributor ........................................................... 34
Purchase and Redemption of Shares ......................................... 34
Performance ............................................................... 36
Taxes ..................................................................... 37
General Information ....................................................... 42
Description of Permitted Investments ...................................... 44
The Pillar Funds is a registered service mark of Summit Bank. Your Investment
Foundation, Pillar and the stylized "P" logo are service marks of Summit Bank.
Summit is a registered service mark of Summit Bancorp. Summit Bank and Summit
Bancorp are service marks of Summit Bancorp.
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ADVISOR:
[ SUMMIT BANK LOGO ]
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
----------------
Oaks, Pennsylvania 19456
1-800-932-7782
PIL-F-022-01
[ LOGO ]
THE PILLAR
FUNDS
Class I Shares
U.S. Treasury Securities Money Market Fund
Prime Obligation Money Market Fund
Tax-Exempt Money Market Fund
Fixed Income Fund
New Jersey Municipal Securities Fund
Pennsylvania Municipal Securities Fund
Intermediate-Term Government Securities Fund
Equity Growth Fund
Equity Value Fund
Equity Income Fund
Mid Cap Fund
Balanced Fund
International Growth Fund
Prospectus May 1, 1997
58
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THE PILLAR FUNDS
Investment Advisor:
Summit Bank Investment Management Division,
a division of Summit 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 May 1, 1997. Prospectuses may be obtained through the
Distributor, SEI Financial Services Company, Oaks, PA 19456, or by calling
1-800-932-7782.
TABLE OF CONTENTS
Investment Objectives and Policies..........................................S-3
Description of Permitted Investments...............................S-3
Investment Limitations.............................................S-32
Management of the Trust............................................S-33
Trustees and Officers of the Trust.................................S-35
The Advisor........................................................S-35
The Sub-Advisor....................................................S-38
The Administrator..................................................S-40
Fund Transactions...........................................................S-42
General............................................................S-42
Trading Practices and Brokerage....................................S-42
The Distributor and the Distribution Plans..................................S-47
Performance.................................................................S-50
Computation of Yield...............................................S-50
Calculation of Total Return........................................S-52
Purchase and Redemption of Shares...........................................S-55
Shareholder Services........................................................S-55
Determination of Net Asset Value............................................S-56
General Information and History.............................................S-58
The Trust..........................................................S-58
Description of Shares..............................................S-58
Shareholder Liability..............................................S-63
Limitation of Trustees' Liability..................................S-63
Taxes.......................................................................S-63
Federal Taxes......................................................S-63
State Taxes........................................................S-67
Experts.....................................................................S-67
Financial Statements........................................................S-67
Appendix....................................................................A-1
Description of Ratings ............................................A-1
May 1, 1997
PIL-F-027-01
<PAGE>
The Pillar Funds is a registered service mark of Summit Bank. Your Investment
Foundation, Pillar and the stylized "P" logo are service marks of Summit Bank.
Summit is a registered service mark of Summit Bancorp. Summit Bank and Summit
Bancorp are service marks of Summit Bancorp.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
DESCRIPTION OF PERMITTED INVESTMENTS
Asset Backed Securities. The Short-Term Investment, Fixed Income, Equity Growth
and Balanced Funds may invest in asset-backed securities including company
receivables, truck and auto loans, leases, and credit card receivables. These
securities, like mortgage-backed securities, represent ownership of a pool of
obligations. The payment of principal and interest on non-mortgage asset-backed
securities may be guaranteed up to certain amounts and for a certain time 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. In
addition, these issues typically have a short to intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets that
are passed through to the security holder. The purchase of non-mortgage
asset-backed securities raises risk considerations peculiar to the financing of
the instruments underlying such securities. For example, due to the manner in
which the issuing organizations may perfect their interests in their respective
obligations, 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.
Also, in most states the security interest in a motor vehicle must be noted on
the certificate of title to perfect a security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, the possibility exists that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owned on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder. 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.
The development of non-mortgage asset-backed securities is at an earlier stage
than that of mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for non-mortgage
asset-backed securities is not as well developed as that for mortgage-backed
securities guaranteed by government agencies or
S - 3
<PAGE>
instrumentalities. The Advisor intends to limit purchases of non-mortgage
asset-backed securities to a securities that are readily marketable at the time
or purchase.
Foreign Securities. The Short-Term Investment, Fixed Income, Equity Growth and
International Growth Funds may invest in the securities of foreign issuers. In
addition, the Equity Growth (formerly, Growth), Equity Value, Equity Income, Mid
Cap (formerly, Mid Cap Value), Balanced (formerly, Balanced Growth) and
International Growth Funds may invest in American Depositary Receipts, American
Depositary Shares and New York Shares, and each reserves the right to invest up
to 25% of its 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. The Equity Growth and
International Growth Funds may also invest in European Depositary Receipts,
Continental Depositary Receipts and Global Depositary Receipts. These
instruments may subject the Funds 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.
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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 Equity Growth and International Growth Funds 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 Investors Service, Inc. ("Moody's") or "BB" or lower by Standard &
Poor's Ratings Group ("S&P"), Fitch Investors Services, Inc. ("Fitch"), Duff &
Phelps, Inc. ("Duff"), IBCA Limited ("IBCA") and Thomson BankWatch ("Thomson").
These ratings indicate that the obligations are speculative and may be in
default. See the Appendix for a description of the foregoing agencies' ratings.
In addition, the Funds 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 downturn 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, a 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
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in increased volatility of market prices of high-yield, high-risk bonds and a
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, a Fund would likely 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 a 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 adversely affect a 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 a 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 Funds 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 Internal Revenue
Code of 1986, as amended (the "Code"). Because the original issue discount
earned by a Fund in a taxable year may not be represented by cash income, the
Funds may have to dispose of other securities and use the proceeds to make
distributions to Shareholders.
Illiquid Securities. 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 books, 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.
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-
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backed securities issued or guaranteed 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
U.S. Government. Obligations of FNMA, FHLMC and Federal Home Loan Banks are not
backed by the full faith and credit of the U.S. 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 predict accurately 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 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")
that 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
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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.
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.
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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 operator 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
limitations restricting its purchases of illiquid securities to not more than
15% (10% with respect to the Tax-Exempt Money Market Fund) 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.
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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, D.C., and which includes over one-fifth
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 has the Atlantic sea-shore on
the east and lakes and mountains in the north and northwest, which provide
recreation for residents as well as for out-of-state visitors. In 1976, voters
approved casino gambling for Atlantic City, which has become an important State
tourist attraction.
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.
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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. Since then, the unemployment rate fell to an average of 6.4%
during the first ten months of 1995. The average annualized unemployment rate
remained at 6.4% for the fourth quarter of 1995.
Financial Accounting. The State prepares its financial statements on a
"modified accrual" basis utilizing 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,
Component Units-Authorities Funds, College and University Funds, General Fixed
Asset Account Group and its General Long-Term Debt Account Group and its
component units.
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. The appropriations act provides the basic framework for the
operation of 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.
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Component Unit-Authorities 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 the same fiscal year. No general appropriations law or other law
appropriating money for any State purpose can 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.
During the course of the fiscal year, the Governor may take steps to reduce
State expenditures if it appears that revenues have fallen below those
originally anticipated. There are additional means by which the Governor may
ensure that the State 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.
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
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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, $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, 1995, the outstanding general obligation bonded
indebtedness of the State was approximately $3.7 billion. The amount provided by
the General Fund to the Debt Service Fund for interest and principal payments
for the fiscal year ended June 30, 1995 was $103.5 million. This is reflected in
the Statement of Revenues, Expenditures and Changes in Fund Balances as a
Transfer to other funds in the General Fund and a Transfer from other funds in
the Debt Service Fund.
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 balances which occur in the
collection and disbursement of the General
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Fund and Property Tax Relief Fund revenues. There are presently no tax and
revenue anticipation notes outstanding. It is anticipated that this program will
be continued in fiscal year 1997. Such tax and revenue 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 the
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 totaled $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, 1995, 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 $240.6 million have
been retired and $33.4 million are still outstanding. As of June 30, 1995, $32.8
million of county college bonds or notes are outstanding. In addition to these
acts, there is legislation which establishes a school bond reserve within the
constitutionally dedicated fund for the Support of Free Public Schools.
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 has periodically provided the South Jersey Port Corporation with funds to
cover all debt service and property tax requirements when 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, 1995, outstanding moral
obligation indebtedness totalled $735.9 million, with an approximate maximum
annual debt service Subject to Moral Obligation of $67.9 million.
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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 certain amounts prescribed 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. On May 30, 1995, the State
Legislature amended the New Jersey Transportation Trust Fund Act of 1984 to
provide, among other things, for (i) the funding of transportation projects
through June 30, 2000, (ii) the issuance of debt in an aggregate principal
amount in excess of the statutory debt limitation in effect prior to the
enactment of the 1995 Amendments, (iii) an increase in the amount of revenues
available to the Authority and (iv) broadening the scope of transportation
projects.
Pursuant to the Act, the principal amount of the Authority's bonds, notes
or other obligations which may be issued in any fiscal year generally may not
exceed $7.0 million plus amounts carried over from prior fiscal years. These
bonds are special obligations of the Authority payable from the payments made by
the State pursuant to the Contract.
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. Amounts outstanding as of June 30, 1995
totaled $615.1 million for this organization.
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
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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. Negotiations have commenced with
three units of State Police employees, representing approximately 2,400
Troopers, Sergeants and Lieutenants whose three-year contract expired 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 ensures 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. The Director also
oversees changes to local budgets after adoption as permitted by law, and
enforces regulations pertaining to execution of adopted budgets and financial
administration. In addition to the exercise of regulatory and oversight
functions, the Division 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.
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
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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
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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 (the "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
independent study estimated an aggregate potential exposure of $82.5
million for claims pending as of December 31, 1995. 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) An individual plaintiff 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 filed an appeal and the State has responded. On
June 12, 1996, the Appellate Division affirmed the dismissal. The time to
appeal the matter on certification to the Supreme Court has passed.
(i) Fifteen 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 court heard oral argument on
May 30, 1996. On July 15, 1996, in a unanimous decision of the Appellate
Division, the court affirmed the Commissioner's decision not to share the
federal funds with the counties. Additionally, the court held that it could
not provide equitable relief to the counties because the Legislature chose
not to direct the Commissioner to share the funds and therefore separation
of powers precluded the relief.
(j) 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
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consolidated and referred to mediation. The State intends to vigorously
defend these suits.
(k) 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 State's 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. Discovery is proceeding in this matter.
(l) 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.
(m) A complaint was filed in Tax Court on March 23, 1994 against the State
and certain of its officials challenging the constitutionality of waste
licensure renewal fees collected by the Department of 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-third of the Commonwealth's total land area devoted to cropland, pasture and
farm woodlands.
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In 1995, the population of Pennsylvania was 12.07 million people. According
to the U.S. Bureau of the Census, Pennsylvania experienced a slight increase
from the 1986 estimate of 11.78 million. Pennsylvania has a high proportion of
persons 65 or older. The Commonwealth is highly urbanized, with 79% 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 44% 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 7.0% in 1993.
Seasonally adjusted data for March 1996, the most recent month for which data is
available, shows an unemployment rate of 5.6%, the same rate as that for the
United States.
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.
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.
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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 to 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 (34.1% of General Fund revenues in
fiscal 1995), the 2.8% personal income tax (31.3% of General Fund revenues in
fiscal 1995) and the 9.99% corporate net income tax (11.7% of General Fund
revenues in fiscal 1995). 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 ($6.7
billion of fiscal 1995 expenditures, the projected $6.9 billion of the fiscal
1996 budget and the proposed almost $7.0 billion of the fiscal 1997 budget) and
public health and human services ($12.4 billion of fiscal 1995 expenditures, the
projected $13.1 billion of the fiscal 1996 budget and the proposed decreases of
the fiscal 1997 $12.9 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. The fund balance for the Governmental
Fund Types, as restated, has increased during the 1993, 1994 and 1995 fiscal
years. At June 30, 1995, the fund balance totaled $1,927.6 million including an
unreserved-undesignated fund balance of $104.8 million.
General Fund: Financial Condition/Results of Operations.
Five-Year Overview (GAAP Basis). For the five-year period fiscal 1991
through fiscal 1995, total revenues and other sources rose at a 9.1 percent
average annual rate while total
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expenditures and other uses grew by 7.4 percent annually. Over two-thirds of the
increase in total revenues and other sources during this period occurred during
fiscal 1992 when a $2.7 billion tax increase was enacted to address a fiscal
1991 budget deficit and to fund increased expenditures for fiscal 1992. For the
four-year period fiscal 1992 through fiscal 1995, total revenues and other
sources increased at an annual average of 3.3 percent, less than one-half the
rate of increase for the five-year period beginning with fiscal 1991. This
slower rate of growth was due, in part, to tax rate reductions and other tax law
revisions that restrained the growth of tax receipts for fiscal years 1993, 1994
and 1995.
Expenditures and other uses followed a pattern similar to that for
revenues, although with smaller growth rates, during the fiscal 1991 through
fiscal 1995 period. Program areas having the largest increase in costs for the
fiscal 1991 to fiscal 1995 period were for protection of persons and property,
due to an expansion of state prisons, and for public health and welfare, due to
rising caseloads, program utilization and increased prices. Recently, efforts to
restrain the rapid expansion of public health and welfare program costs have
resulted in expenditure increases at or below the total rate of increase for
total expenditures in each fiscal year. For the period fiscal 1992 through
fiscal 1995, public health and welfare costs increased by an average annual rate
of 3.5 percent, well below the 5.2 percent average for total expenditures and
other uses during the same period.
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.
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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. The fund balance for June 30, 1994,
was restated for the fiscal 1995 financial statements. That restatement totaled
$116.7 million to recognize previously unreported revenues and expenditures for
fiscal 1994. The fund balance for June 30, 1994, as restated, was $776.3 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.
Fiscal 1995 Budget (GAAP Basis). Revenues and other sources totaled
$23,771.6 million, an increase of $1,135.0 million (0.5 percent) over the prior
fiscal year. The largest increase was $817.9 million in taxes which represents a
5.6 percent increase over taxes in the prior fiscal year. Expenditures and other
uses rose by $1,364.1 million to $23,821.4 million, an increase over the prior
fiscal year of 6.1 percent. Consequently, an operating deficit of $49.8 million
was recorded for the fiscal year and led to a decline in fund balance to $688.3
million at June 30, 1995. Two items predominately contributed to the fund
balance decline. First, a more comprehensive procedure was used for fiscal 1995
to compute the liabilities for certain public welfare programs leading to an
increase for the year-end accruals. Second, a change to the methodology to
calculate the year-end accrual for corporate tax payables increased the tax
refund liability by $72 million for the 1995 fiscal year when compared to the
previous fiscal year.
Proposed Fiscal 1996 Budget (Budgetary Basis). The approved fiscal 1996
budget provides for $16,165.7 million in appropriations from Commonwealth funds,
an increase of 2.7 percent over appropriations, including supplemental
appropriations, for fiscal 1995. 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.
The fiscal 1996 budget is based on anticipated Commonwealth revenues, net
of enacted tax changes, of $16,268.7 million, an increase over actual fiscal
1995 Commonwealth revenues of 0.3 percent. Excluding the estimated effects of
the tax changes enacted in 1994 and 1995, Commonwealth revenues for fiscal 1996
are estimated to increase by approximately 2.9 percent.
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The fiscal 1996 revenue estimate is based on a forecast of the national economy
for gross domestic product growth to slow from 4.1 percent in 1994 to an average
annual rate for 1995 of 2.4 percent and then to 1.3 percent in 1996.
Tax changes enacted with the fiscal 1996 budget totaled a net reduction of
$282.9 million, representing an approximate 1.7 percent of base revenues. The
largest dollar value changes were in the corporate net income tax where the
scheduled 1997 reduction of the tax rate to 9.99 percent was accelerated to the
1995 tax year; a double-weighting was provided for the sales factor of the
corporate net income apportionment calculation; and the maximum annual allowance
for the net operating loss deduction was increased from $500,000 to $1 million.
The fiscal 1996 cost of these corporate income tax changes is estimated to be
$210.8 million representing approximately 75 percent of the fiscal year's tax
reduction. Other major components of the tax reduction include a $12.1 million
decrease for the capital stock and franchise tax from an increase in the basic
exemption; $24.7 million from the repeal of the tax on annuities; and $27.9
million from an acceleration of the scheduled phase-out of the inheritance tax
on transfers of certain property to a surviving spouse. A 90-day amnesty program
was also authorized in the tax bill. The amnesty program was available to
taxpayers from October 1995 through January 1996. Tax and interest revenues
received from the tax amnesty program after payment of administration costs were
credited to the appropriate fund. Receipts credited to the General Fund in
excess of $67 million, plus any shortfall in delinquent tax collections below
those in fiscal 1995, are to be deposited into a restricted account in the
General Fund for later distribution.
Increases in authorized spending for fiscal 1996 emphasize education.
Appropriations for the basic subsidy for public schools were increased $143
million representing a 4.4 percent increase. This increase reversed a four-year
trend of a declining budget share for education. A limited program to permit
certain residents to choose the school district or private school to provide
their children's education was funded in the budget, but enabling legislation
for the program has yet to be enacted. The budget also contemplates several
changes to certain public welfare programs. The enacted budget also included
most of the Governor's proposed consolidation and elimination of several
organizations and/or appropriations. The consolidated programs were absorbed
within existing organizations. Savings of $5.2 million are anticipated to result
from these consolidations and eliminations.
Revised estimates for the fiscal 1996 budget were included in the
Governor's February 1996 submission of his fiscal 1997 budget proposal.
Supplemental appropriations funding needs were recommended totaling $54.2
million, representing 0.3 percent of approved appropriations for fiscal 1996.
The majority of the supplemental appropriations are for the Department of
Corrections to meet the additional operational costs arising from a larger
inmate population than budgeted, and for the Department of Education to meet
local school subsidy costs which were underestimated in the adopted budget. All
anticipated supplemental appropriation needs for the
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Department of Public Welfare are expected to be met from a re-allocation of
appropriation authority within the Department. Funding for the requested
supplemental appropriations will be provided by appropriation lapses anticipated
during the fiscal year. Appropriation lapses totaling $50 million from prior
fiscal years' appropriations and $90 million from current fiscal year
appropriations are expected. The $140 million total appropriation lapses
estimated for fiscal 1996 compares to actual appropriation lapses totaling $205
million and $194 million during fiscal 1995 and fiscal 1994 respectively. The
General Assembly has not yet approved the requested supplemental appropriations.
Commonwealth revenues for fiscal 1996 are anticipated to be $2.5 million
(less than 0.1 percent) over the official estimate of revenues for the fiscal
year. Within the revised estimate, receipts from the corporate net income tax
and interest earnings are anticipated to exceed the official estimate while
receipts from the sales and use tax, the personal income tax and the gross
receipts tax are anticipated to fall below their official estimate levels.
Fiscal 1997 Proposed Budget. In February 1996, the Governor presented his
proposed fiscal 1997 budget to the General Assembly. Proposed appropriations
from General Fund Commonwealth revenues totals $16,189.9 million, a reduction
from the estimated $16,219.9 million (including proposed supplemental
appropriations) for fiscal 1996. The proposed reductions represent a decline of
approximately 0.2 percent in appropriations from the prior fiscal year. Revenue
receipts are estimated to increase by $403.9 million, or 2.5 percent, over
anticipated receipts for fiscal 1996. The anticipated increased revenues,
together with the projected $140 million of appropriation lapses during fiscal
1996 and the proposed drawdown of approximately $95 million of surplus provide
the funding sources for the proposed budget. The proposed drawdown of the fiscal
1996 unappropriated surplus produces a projected 1997 fiscal year-end surplus of
under $5 million, without any consideration of possible appropriation lapses for
fiscal 1997.
The decline in appropriation authority over the prior fiscal year in the
proposed budget relies on several program changes. The largest changes proposed
are $329 million of cost containment efforts in public health and welfare
programs. The largest savings are generated by proposed changes in eligibility
criteria. Savings of $249 million are projected from the elimination of medical
assistance benefits for able-bodied adults without children and $40 million from
tightened standards of employability for those collecting benefits. Other
proposed changes, including changes contained in proposed federal welfare reform
measures, provide an additional $39 million of budgetary savings. Program
reductions are also planned for the residential portion of the mental
health/mental retardation program that could involve a limited number of staff
cuts at state institutions. The budget also relies on certain provisions of
proposed federal welfare reforms. In particular, an increase in the proportion
of federal funding for medical assistance is assumed which is anticipated to
provide $261.8 million of additional federal funds and a commensurate reduction
in required state funds. Other significant cost
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restraints include reductions to appropriations for the state-aided colleges and
universities and no increases for the state-related colleges and universities.
Funds for basic education programs to local school districts are proposed to
increase slightly. The largest increase, $33.3 million, is proposed for an
initiative to improve the use of technology in learning. A restructuring of the
economic development programs and incentives of the Commonwealth are also
proposed to combine and improve the delivery of such programs. A proposed
securitization of current loans held by the Sunny Day Fund is budgeted to
provide a portion of the initial capitalization for the realigned programs. The
current trend of escalating costs of the corrections program continues in this
budget. An amount of $80.3 million is included to meet the increased costs of
the rising prison population.
The proposed fiscal 1997 budget includes tax reductions totaling $60.2
million. Included in the proposed reductions are a 0.25 mill reduction to the
tax rate for the capital stock and franchise taxes, an exemption of certain
computer services from the sales and use tax, and a $1,000 per job tax credit
for newly created jobs. All require legislative enactment.
The General Assembly is considering the Governor's proposed budget in
committee deliberations and floor action on implementing legislation. The
various legislative bills required to implement the proposed budget have begun
to move through the legislative process. However, legislation enacting medical
assistance program changes estimated in the proposed budget to produce
approximately $249 million in savings was approved by the Senate but rejected by
the House of Representatives. Delay in the enactment of the proposed changes
beyond March 1996 will impede timely implementation of the proposed changes and,
in the absence of other budgetary measures, result in higher spending than
anticipated in the proposed fiscal 1997 budget. Appropriations committees of the
General Assembly are considering 1997 fiscal year budget appropriations, and
upon committee approval of appropriation bills, will be considered by each
house. The General Assembly may change, eliminate or add amounts and items to
the proposed budget submitted by the Governor and there can be no assurance that
the budget, as proposed by the Governor, will be enacted into law.
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.
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General obligation debt totaled $5,045.4 million at June 30, 1995, a
decrease of $30.4 million from June 30, 1994. Over the ten-period ended June 30,
1995, total outstanding general obligation debt increased at an annual rate of
1.1% and for the five years ended June 30, 1994, at an annual rate of 1.7%. 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 $500.0 million of tax anticipation notes
for the account of the General Fund in fiscal 1996, all of which matured on June
30, 1996, and will be paid from fiscal 1996 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. In addition, Pennsylvania may choose to take action
to financially assist these organizations. The following agencies had debt
currently outstanding as of December 31, 1995: Delaware River Joint Toll Bridge
Commission ($55.1 million), Delaware River Port Authority ($185.5 million),
Pennsylvania Economic Development Financing Authority ($1,050.8 million),
Pennsylvania Energy Development Authority ($121.0 million), Pennsylvania Higher
Education Assistance Agency ($1,408.8 million), Pennsylvania Higher Educational
Facilities Authority ($2,115.1 million), Pennsylvania Industrial Development
Authority ($344.8 million), Pennsylvania Infrastructure Investment Authority
($213.1 million), Pennsylvania Turnpike Commission ($1,228.7 million),
Philadelphia Regional Port Authority ($62.6 million) and the State Public School
Building Authority ($316.2 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 ($2,164.8 million of
revenue bonds outstanding as of December 31, 1995), and an amount of funds
sufficient to alleviate any deficiency that may arise in the debt
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service reserve fund for bonds issued by The Hospitals and Higher Education
Facilities Authority of Philadelphia ($1.49 million of the loan principal was
outstanding as of December 31, 1995). The budget as finally adopted by the
legislation may or may not include the amounts requested by the Governor.
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 five 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
assess 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
S - 28
<PAGE>
$100,000 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 May 30, 1996, to consider,
inter alia, the report of the Governor's Commission on Public School Finance and
the course of future proceedings including trial; (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 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 December 15, 1995, Envirotest Systems Corporation, Envirotest Partners
(successor to Envirotest/Synterra Partners) and the Commonwealth of Pennsylvania
entered into a Settlement Agreement pursuant to which the parties settled all
claims which Envirotest might have had against the Commonwealth arising from the
suspension of the emissions testing program. Under the Agreement, Envirotest is
to receive $145 million, with interest at 6% per annum, payable $25 million in
1995, $40 million each in 1996, 1997, and 1998. An additional $15 million may be
required to be paid in 1998, depending upon the results of property liquidations
by Envirotest.
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.)
S - 29
<PAGE>
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. At this time,
Philadelphia is operating under a five-year fiscal plan approved by PICA on
April 17, 1995.
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, 1995, showed a
surplus of approximately $80.5 million, up from approximately $1.54 million as
of June 30, 1994.
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 financial
institution deemed to present minimal risk of bankruptcy during the term of the
agreement based on guidelines established by the Trustees of the Trust) 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.
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 or
Sub-Advisor monitors compliance with this requirement). Under all repurchase
agreements entered into by the Funds, a Fund takes actual or constructive
possession of the underlying collateral. However, if the seller defaults, a Fund
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, a Fund may incur delay and costs in selling the underlying security
or may suffer
S - 30
<PAGE>
a loss of principal and interest if a Fund is treated as an unsecured creditor
and required to return the underlying security to the seller's estate.
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 100% 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 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
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 SEI Financial Services Company ("SFS" or the "Distributor") or a
broker/dealer affiliate of the Advisor as a broker in these transactions.
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
will limit their put transactions to institutions which the Advisor believes
present minimum credit risks, and the Advisor will 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
S - 31
<PAGE>
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 a 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, Equity Growth,
Equity Income, Balanced 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 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 and equity 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 may be subject to market
fluctuation, and no interest accrues on a fixed income security to the purchaser
during this period. The payment obligation and the interest rate that will be
received on the fixed income 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
S - 32
<PAGE>
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 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.
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:
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; provided, that
this limitation does not apply to the Equity Growth Fund.
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
S - 33
<PAGE>
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 Equity Growth Fund and 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, a Fund is prohibited from acquiring the securities of
other investment companies if, as a result of such acquisition, the Fund
owns more than 3% of the total voting stock of the company; securities
issued by any one investment company represent more than 5% of the Fund's
total assets; or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the Fund's total assets.
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 more than 1/2 of 1% of such shares or
securities together own more than 5% of such shares or securities; provided
that limitation does not apply to the Equity Growth Fund.
Non-Fundamental Policies. The following investment policies are non-fundamental
policies that may be changed by the Board of Trustees without shareholder
approval.
No Fund may:
S - 34
<PAGE>
1. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases; provided that this limitation does
not apply to the Equity Growth Fund.
2. Except for the Equity Growth Fund and 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 and Balanced Funds
may purchase warrants. However, the Equity Value, Equity Income, Mid Cap
and Balanced Funds each may not invest more than 5% of its net assets in
warrants; provided that of this 5%, no more than 2% may be in warrants not
listed on the New York Stock Exchange or the American Stock Exchange.
The following non-fundamental policies are additional policies with respect to
the Equity Growth Fund only.
The Equity Growth Fund may not:
1. 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 more than 1/2 of 1% of such shares or
securities together own more than 5% of such shares or securities.
2. Invest in companies for the purpose of exercising control.
The foregoing percentages apply at the time of the purchase of a security.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company ("SEI"), Oaks, Pennsylvania 19456.
S - 35
<PAGE>
Certain officers of the Trust also serve as officers of some or all of the
following: The Achievement Funds Trust, The Advisors' Inner Circle Fund, The
Arbor Fund, ARK Funds, Bishop Street Funds, CoreFunds, Inc., CrestFunds, Inc.,
CUFUND, FMB Funds, Inc., First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc, Marquis Funds(R), Monitor
Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., Profit Funds
Investment Trust, Rembrandt Funds(R), Santa Barbara Group of Mutual Funds, Inc.,
1784. Funds(R), SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Stepstone
Funds, STI Classic Funds, STI Classic Variable Trust and Turner Funds, each of
which is an open-end management investment company managed by SEI Fund Resources
or its affiliates and, except for Profit Funds Investment Trust, Rembrandt
Funds(R), and Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI
Financial Services Company.
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 Affiliated Companies (1991 -
present); Officer Manager, Herbert Sand Co., Inc. (1981 - 1986).
ARTHUR L. BERMAN - Trustee - Date of Birth: 07/27/27 - President of Bertek, Inc.
(1972- 1994).
RAY KONRAD - Trustee - Date of Birth: 9/17/36 - Chairman and Chief Executive
Officer of American Compressed Gases, Inc. (1961 - present).
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
(1986-1994). Director and Executive Vice President of the Administrator and
Distributor (1981-1994). Trustee of The Arbor Fund, Marquis Funds(R), Advisors'
Inner Circle Fund, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, SEI
Institutional Investments Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
1784 Funds(R), The Pillar Funds, Rembrandt Funds and Stepstone Funds.
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.
S - 36
<PAGE>
KEVIN P. ROBINS - Vice President, Assistant Secretary - Date of Birth: 4/15/61-
Senior Vice President, General Counsel and Assistant Secretary of SEI, Senior
Vice President, General Counsel and Secretary of the Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Administrator and Distributor (1992-1994). Associate, Morgan, Lewis & Bockius
LLP (law firm), (1988-1992).
KATHRYN L. STANTON - Vice President, Assistant Secretary - Date of Birth:
11/19/58 - Vice President and Assistant Secretary, Deputy General Counsel, Vice
President and Assistant Secretary of SEI, Vice President and Assistant Secretary
of the Administrator and Distributor since 1994. Associate, Morgan, Lewis &
Bockius LLP (law firm), (1989-1994).
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: 10/18/53
- - Vice President and Assistant Secretary of the Administrator and Distributor
since 1988.
STEPHEN G. MEYER - CPA, Controller and Chief Financial Officer* - Date of Birth:
7/12/65 - Vice President and Controller of SEI Fund Resources since 1995.
Director, Internal Audit and Risk Management, SEI Corporation, (1992-1995).
Senior Associate, Coopers & Lybrand L.L.P., (1990- 1992).
JOSEPH M. LYDON - Vice President, Assistant Secretary - Date of Birth: 9/27/59 -
Director, Business Administration of SEI Fund Resources, April 1995. Vice
President of Fund Group, Dreman Value Management, LP and President of Dreman
Financial Services, Inc. prior to 1995.
TODD B. CIPPERMAN - Vice President, Assistant Secretary - Date of Birth: 2/14/66
- - Vice President and Assistant Secretary of SEI, the Administrator and the
Distributor since 1995. Associate, Dewey Ballantine (law firm) (1994-1995).
Associate, Winston & Strawn (law firm) (1991-1994).
BARBARA A. NUGENT - Vice President, Assistant Secretary - Date of Birth: 6/18/56
- - Vice President and Assistant Secretary of SEI, the Administrator and
Distributor since 1996. Associate, Drinker Biddle & Reath (law firm), 1994-1996.
Assistant Vice President/Administration, Delaware Service Company, Inc.,
1992-1993; Assistant Vice President, Operations of Delaware Service Company,
Inc., 1988-1992.
MARC H. CAHN - Vice President, Assistant Secretary - Date of Birth: 6/19/57 -
Vice President and Assistant Secretary of SEI, the Distributor and Administrator
since 1996. Associate General Counsel, Barclays Bank PLC, 1995-1996. ERISA
Counsel for First Fidelity Bancorporation, 1994- 1995. Associate, Morgan, Lewis
& Bockius LLP (law firm), 1989-1994.
- ----------
* "Interested person" within the meaning of the 1940 Act.
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<PAGE>
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 fiscal year ended December 31, 1996, the
Trust paid approximately $28,000.00 in fees to the unaffiliated Trustees.
Compensation of officers and Trustees of the Trust affiliated with the
Administrator is paid by the Administrator.
Compensation Table
<TABLE>
<CAPTION>
====================================================================================================================
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation
Position Compensation From Benefits Accrued As Benefits Upon From Registrant and
Registrant (1) Part of Fund Expenses Retirement Fund Complex Paid to
Trustees for the Fiscal
Year Ended December
31, 1996 (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arthur L. Berman, $7,000 N/A N/A $7,000 for services on
Trustee 1 board
- --------------------------------------------------------------------------------------------------------------------
Ray Konrad, Trustee $7,000 N/A N/A $7,000 for services on
1 board
- --------------------------------------------------------------------------------------------------------------------
James B. Grecco, $7,000 N/A N/A $7,000 for services on
Trustee 1 board
- --------------------------------------------------------------------------------------------------------------------
Christine H. Yackman, $7,000 N/A N/A $7,000 for services on
Trustee 1 board
- --------------------------------------------------------------------------------------------------------------------
Robert A. Nesher, $0 N/A N/A $0
Trustee (3)
====================================================================================================================
</TABLE>
(1) Amounts do not include travel expenses.
(2) There are no other investment companies in the "Fund Complex" (as that term
is defined in the Securities and Exchange Act of 1934, as amended).
(3) Mr. Nesher is an "interested person" as defined in the 1940 Act.
THE ADVISOR
The Trust and Summit Bank Investment Management Division, a division of Summit
Bank (the "Advisor"), have entered into an advisory agreement (the "Advisory
Agreement"). 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 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
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<PAGE>
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 that Fund,
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.
The Glass-Steagall Act restricts the securities activities of banks such as
Summit 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.
For the fiscal years ended December 31, 1994, 1995 and 1996, the Funds paid the
following advisory fees:
<TABLE>
<CAPTION>
====================================================================================================================================
Fund Fees Paid Fee Waivers
---------------------------------------------------------------------------------
1994 (000) 1995 1996 1994 (000) 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market $1,489 $1,379,851 $1,483,256 $0 $11,367 $13,685
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund $481 $775,370 $1,249,323 $0 $11,245 $59,285
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $142 $169,810 $2,357,211 $11 $28,362 $19,962
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Investment Fund $184 $136,321 $147,156 $44 $53,137 $55,941
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $665 $549,172 $548,757 $112 $116,572 $132,719
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund $298 $68,649 $169,521 $270 $214,460 $117,210
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund $19 $0 $0 $19 $18,779 $23,653
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government $211 $112,419 $164,062 $51 $77,884 $20,823
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA Fund $75 $25,325 $22,158 $21 $30,565 $31,030
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $527 $367,084 $503,319 $184 $208,115 $300,124
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $318 $208,394 $282,807 $119 $135,831 $181,061
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $302 $191,285 $228,182 $113 $129,856 $149,082
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $71 $166,657 $161,262 $264 $115,294 $110,920
- ------------------------------------------------------------------------------------------------------------------------------------
International Growth Fund * $15,494 $103,626 * $25,007 $30,671
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money $95 $43,958 $35,739 $52 $41,490 $65,612
Market Fund
====================================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
S - 39
<PAGE>
THE SUB-ADVISOR
The Advisor and Wellington Management Company, LLP, 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.
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 Fund 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 periods ended December 31, 1994, 1995 and 1996, the Sub-Advisor
received the following fees from the Advisor:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Fees Paid Fee Waivers
Fund ------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Growth Fund N/A* $12,151 $81,600 N/A* $12,151 $0
=======================================================================================
</TABLE>
* The International Growth Fund commenced operations on May 1, 1995.
THE ADMINISTRATOR
The Trust and SEI Fund Resources (the "Administrator") are parties to an
Administration Agreement. Formerly, SEI Financial Management Corporation ("SFM")
served as administrator to the Trust. 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; thereafter shall
continue in effect for a period of three years; and thereafter for successive
periods of two years subject to review at least annually by the Trustees of the
Trust. The Administration Agreement is also subject to termination by either
party on not less than 90 days' written notice to the other party.
S - 40
<PAGE>
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, PA 19456. SEI Financial Management Corporation ("SFM"), a wholly-owned
subsidiary of SEI, is the owner of all beneficial interest in the Administrator.
SEI and its subsidiaries and affiliates, including the Administrator, 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 and its affiliates also serve 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,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc., Marquis Funds(R), Monitor Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., The Profit Funds Investment Trust, Rembrandt Funds(R),
Santa Barbara Group of Mutual Funds, Inc., 1784 Funds(R), SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI
Classic Variable Trust and Turner Funds.
For the fiscal years ended December 31, 1994, 1995 and 1996, the Funds paid the
following administrative fees:
<TABLE>
<CAPTION>
====================================================================================================================================
Fund Fees Paid Fee Waivers
----------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund $852,000 $794,951 $855,185 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund $276,000 $449,500 $747,383 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $81,000 $112,391 $146,103 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Investment Fund $61,000 $63,153 $67,701 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $222,000 $221,916 $227,160 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund $99,000 $56,645 $86,863 $57,000 $33,587 $8,714
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund $6,000 $0 $0 $6,000 $5,076 $7,884
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government Securities $70,000 $63,435 $61,629 $0 $0 $0
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA Fund $25,000 $18,630 $17,729 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $141,000 $153,388 $214,253 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $85,000 $91,794 $123,705 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $80,000 $85,638 $100,599 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $71,000 $75,188 $72,586 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
International Growth Fund * $8,100 $26,860 * $0 $0
====================================================================================================================================
</TABLE>
S - 41
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Fees Paid Fee Waivers
---------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Plus Money Market $223,000 $199,381 $235,806 $0 $0 $0
Fund
====================================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
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 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
S - 42
<PAGE>
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 brokers or dealers who provide brokerage and research services than to
brokers or 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 brokers or dealers who
provide such brokerage and research services, the Trust believes that the
commissions paid to such brokers or dealers are not, in general, higher than
commissions that would be paid to brokers or 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 brokers or
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.
For the fiscal year ended December 31, 1996, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
S - 43
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Fund Total Dollar Amount of Brokerage Total Dollar Amount of
Commissions for Research Services Transactions Involving Directed
Brokerage Commissions for
Research Services
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Securities Money Market Fund N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
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 Securities Fund N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
GNMA Fund N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * *
- ------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $0 $114,021
- ------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $0 $37,450
- ------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $0 $32,012
- ------------------------------------------------------------------------------------------------------------------------
Balanced Fund $0 $32,959
- ------------------------------------------------------------------------------------------------------------------------
International Growth Fund $582.00 $359,648
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market Fund N/A N/A
========================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
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 Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Conduct Rules 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 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., an affiliate of the
Advisor, both of which are registered brokers or dealers, for a commission in
conformity with the 1940 Act, the Securities
S - 44
<PAGE>
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 remuneration 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 years ended December 31, 1994, 1995 and 1996, the Funds paid the
following brokerage commissions:
<TABLE>
<CAPTION>
====================================================================================================================================
Total Brokerage Commissions Amount Paid to SFS
Fund -------------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund N/A N/A N/A N/A N/A $0
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund N/A N/A N/A N/A N/A $53,399
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund N/A N/A N/A N/A N/A $0
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Investment Fund N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government Securities Fund N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA Fund N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $120,600 $210,169 $289,752 $46,550 $13,000 $6,360
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $87,892 $96,146 $194,728 $10,080 $750 $1,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $46,214 $83,236 $129,497 $7,050 $660 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $32,932 $35,560 $50,970 $13,000 $180 $1,008
- ------------------------------------------------------------------------------------------------------------------------------------
International Growth Fund * $44,707 $60,818 * N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market Fund N/A N/A N/A N/A N/A $16,774
====================================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations for
the period indicated.
S - 45
<PAGE>
For the fiscal years indicated the Funds paid the following brokerage
commissions:
<TABLE>
<CAPTION>
====================================================================================================================================
Total $ Amount of % of Total % of Total Total $
Brokerage Commission Brokerage Brokerage Amount of
Fund Total $ Amount of Brokerage Paid to Affiliated Commissions Transactions Brokerage
Commissions Paid Brokers Paid to the Effected Commissions
Affiliated Through Paid for
Brokers Affiliated Research
Brokers
--------------------------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money N/A N/A N/A N/A N/A N/A N/A N/A N/A
Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market N/A N/A N/A N/A N/A N/A N/A N/A N/A
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Investment Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities N/A N/A N/A N/A N/A N/A N/A N/A N/A
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities N/A N/A N/A N/A N/A N/A N/A N/A N/A
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government N/A N/A N/A N/A N/A N/A N/A N/A N/A
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * * * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $120,600 $210,169 $289,752 $46,550 $13,100 $6,360 6.23% 0.27% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $87,892 $96,146 $194,728 $10,080 $750 $1,000 0.78% 0.26% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $46,214 $83,236 $129,497 $7,050 $660 N/A 0.79% 0.40% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $32,932 $35,560 $50,970 $13,000 $180 $1,008 0.51% 0.26% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
International Growth Fund * $44,707 $60,818 * N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money N/A N/A N/A N/A N/A $16,774 N/A N/A N/A
Market Fund
====================================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
"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 amounts of the Trust's shares. At December 31,
1996, the following Funds held securities of the Trust's "regular brokers or
dealers" as follows: The Prime Obligation Money Market Fund held $14,956,000 in
commercial paper with Merrill Lynch, $27,549,000 in repurchase agreements with
J. P. Morgan and $8,986,000 in repurchase agreements with Nomura Securities; The
Short-Term Investment Fund held $250,000 in corporate bonds with Morgan Stanley;
The Equity Value Fund held $2,441,000 in stock with J.P. Morgan; The Equity
Income Fund held $1,269,000 in stock with J.P. Morgan; The Balanced Fund
S - 46
<PAGE>
held $342,000 in stock with J.P. Morgan; The International Growth Fund held
$774,000 in repurchase agreements with J.P. Morgan; and The U.S. Treasury
Securities Plus Money Market Fund held $13,189,000 in repurchase agreements with
J.P. Morgan and $13,296,000 in repurchase agreements with Nomura Securities.
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 (the "Distribution Agreement") dated
February 28, 1992 which applies to Class A Shares and Class I Shares of the
Funds and a distribution and service agreement (the "Class B Distribution
Agreement") dated February 20, 1997, which applies to the Class B Shares of the
Funds. The Distributor has an obligation to use its best efforts to distribute
shares of the Fund on a continuous basis. The Distributor receives no
compensation for distribution of Class I shares, although it does receive
compensation pursuant to a distribution plan with respect to the U.S. Treasury
Securities Plus Money Market Fund as described below.
The Distribution Agreement and the Class B Distribution Agreement are 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
Distribution Agreement, Class B Distribution 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 brokers or dealers and service
providers, including Summit Bank and its affiliates, which provide distribution
related services to shareholders or their customers who beneficially own shares
of the Fund.
The distribution plan for Class A Shares (the "Class A Distribution Plan")
provides that the Trust will pay the Distributor a fee of up to .25% of the
Class A Shares average daily net assets which the Distributor can use to
compensate brokers or dealers and service providers, including Summit Bank and
its affiliates, which provide distribution related services to Class A
shareholders or their customers who beneficially own Class A Shares.
The distribution and service plan for Class B Shares (the "Class B Distribution
Plan") provides that the Trust will pay the Distributor a Rule 12b-1 fee of up
to .75% of the Class B Shares, average daily net assets, which the Distributor
can use to compensate brokers or dealers and service providers, including Summit
Bank and its affiliates, that provide distribution-related services to Class B
Shareholders or their customers who beneficially own Class B Shares. In
addition, the Class B Distribution Plan provides that the Trust will pay the
Distributor a shareholder servicing fee of up to .25% of the Class B Shares,
average daily net assets, which the Distributor can use to compensate service
providers, including Summit Bank and its affiliates.
S - 47
<PAGE>
Services under the Distribution Plan, the Class A Distribution Plan and the
Class B Distribution Plan (collectively, 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.
No 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 a Plan will require approval by a majority of
the Trustees of the Trust and of the Qualified Trustees.
The following Funds imposed a front-end sales charge upon their Class A shares
in the amounts shown for the fiscal years ended December 31, 1994, 1995 and
1996:
<TABLE>
<CAPTION>
===========================================================================================================================
Fund Dollar Amount of Loads Dollar Amount of Loads
Retained by SFS
----------------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term Investment Fund $5,749 $15,342 $4,187 $0 $161 $407
- ---------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $62,111 $54,106 $45,951 $83 $2,113 $6,252
- ---------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities $91,704 $75,388 $26,191 $0 $3,083 $3,531
Fund
===========================================================================================================================
</TABLE>
S - 48
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
Fund Dollar Amount of Loads Dollar Amount of Loads
Retained by SFS
----------------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania Municipal Securities $1,415 $560 $648 $1 $36 $72
Fund
- ---------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government $35,942 $54,745 $19,783 $10 $1,768 $2,774
Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
GNMA Fund $20,344 $5,637 $4,405 $0 $286 $514
- ---------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * * * * *
- ---------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $33,476 $133,599 $57,084 $0 $4,978 $8,140
- ---------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $92,897 $111,481 $99,330 $0 $4,040 $13,726
- ---------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $120,627 $46,673 $18,446 $103 $1,351 $2,605
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Fund $54,010 $54,484 $38,379 $0 $1,315 $5,421
- ---------------------------------------------------------------------------------------------------------------------------
International Growth Fund N/A $17,356 $13,212 N/A $673 $1,868
===========================================================================================================================
</TABLE>
* The Equity Growth Fund had not commenced operations as of the periods
indicated.
The U.S. Treasury Securities Money Market Fund, Prime Obligation Money Market
Fund and Tax-Exempt Money Market Fund offer Class A Shares without a sales
charge, and therefore, no information is provided with respect to such Funds.
Class B Shares were not operational as of December 31, 1996 and, therefore, no
information regarding Class B Shares sales charges is presented. Class I Shares
of the Funds and the U.S. Treasury Securities Plus Money Market Fund do not
impose sales charges.
For the fiscal year ended December 31, 1996, the Class A Shares of the Funds
incurred the following distribution expenses:
<TABLE>
<CAPTION>
====================================================================================================================================
Total Distribution Total Distribution
Expenses Expenses (as a % Sales Expenses Printing Other
Fund of net assets) Costs Costs
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund $8,757 .25% $8,757 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund $21,448 .25% $21,448 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $9,628 .25% $9,628 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Investment Fund $3,719 .25% $3,719 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $15,048 .25% $15,048 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund $58,111 .25% $58,111 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund $764 .25% $764 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government Securities Fund $8,102 .25% $8,102 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA Fund $3,925 .25% $3,925 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $22,472 .25% $22,472 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $29,216 .25% $29,216 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $14,623 .25% $14,623 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $22,296 .25% $22,296 N/A N/A
====================================================================================================================================
</TABLE>
S - 49
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Total Distribution Total Distribution
Expenses Expenses (as a % Sales Expenses Printing Other
Fund of net assets) Costs Costs
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Growth Fund $2,260 .25% $2,260 N/A N/A
====================================================================================================================================
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
Class B Shares were not operational as of December 31, 1996 and, therefore, no
information regarding Class B Shares distribution expenses is presented. Class I
Shares do not have distribution expenses.
For the fiscal year ended December 31, 1996 the U.S. Treasury Securities Plus
Money Market Fund incurred the following distribution expenses:
<TABLE>
<CAPTION>
========================================================================================================================
Total Total Distribution
Distribution Expenses (as a % Sales Expenses Printing Costs Other Costs
U.S. Treasury Securities Plus Expenses of net assets)
Money Market Fund
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 $18,153 .03% $18,153 N/A N/A
========================================================================================================================
</TABLE>
PERFORMANCE
COMPUTATION OF YIELD
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
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,
S - 50
<PAGE>
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, 1996, 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 Fund I 4.38% 4.48% N/A
------------------------------------------------------------------
A 4.13% 4.22% N/A
- --------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund I 4.76% 4.88% N/A
------------------------------------------------------------------
A 4.52% 4.63% N/A
- --------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund I 3.21% 3.26% 4.65%
------------------------------------------------------------------
A 2.96% 3.00% 4.29%
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market Fund N/A 4.76% 4.87% N/A
====================================================================================================================
</TABLE>
* Prime Obligation Money Market Class B Shares were not operational as of
December 31, 1996 and, therefore, no yield information is provided for its
Class B Shares.
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, Balanced 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 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
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
The 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
S - 51
<PAGE>
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, 1996, the yields on the Fixed Income
Funds were as follows:
================================================================================
Fund Class* Current Yield Tax Equivalent Yield
- --------------------------------------------------------------------------------
Short-Term Investment Fund I 4.71% N/A
----------------------------------------------------
A 4.43% N/A
- --------------------------------------------------------------------------------
Fixed Income Fund I 5.62% N/A
----------------------------------------------------
A 5.15% N/A
- --------------------------------------------------------------------------------
New Jersey Municipal I 3.90% 4.17%
Securities Fund ----------------------------------------------------
A 3.63% 3.88%
- --------------------------------------------------------------------------------
Pennsylvania Municipal I 4.21% 4.33%
Securities Fund ----------------------------------------------------
A 3.92% 4.03%
- --------------------------------------------------------------------------------
Intermediate-Term I 5.57% N/A
Government Securities Fund ----------------------------------------------------
A 5.10% N/A
- --------------------------------------------------------------------------------
GNMA Fund I 6.00% N/A
----------------------------------------------------
A 5.58% N/A
================================================================================
* Class B Shares were not operational as of December 31, 1996 and, therefore,
no yields are provided for Class B Shares.
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 Growth, Equity Value, Equity Income, Mid Cap, Balanced
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
S - 52
<PAGE>
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 $1,000 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, 1996 were as follows:
<TABLE>
<CAPTION>
==========================================================================================================
Fund Class(1) Average Annual Total Return
==================================================
One Year Five Ten Since
Year Year Inception*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Investment Fund I 4.86% ** ** 4.16%
-----------------------------------------------------------------
A (no load) 4.39% ** ** 3.93%
-----------------------------------------------------------------
A (load) 3.36% ** ** 3.71%
- ----------------------------------------------------------------------------------------------------------
Fixed Income Fund I 2.94% ** ** 7.02%
-----------------------------------------------------------------
A (no load) 2.68% ** ** 6.74%
-----------------------------------------------------------------
A (load) (1.45%) ** ** 5.82%
- ----------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund I 3.42% ** ** 6.10%
-----------------------------------------------------------------
A (no load) 3.08% ** ** 5.73%
-----------------------------------------------------------------
A (load) 2.04% ** ** 5.50%
- ----------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund I 3.89% ** ** 4.46%
-----------------------------------------------------------------
A (no load) 3.74% ** ** 4.28%
-----------------------------------------------------------------
A (load) 2.73% ** ** 4.00%
- ----------------------------------------------------------------------------------------------------------
Intermediate-Term Government Securities I 3.26% ** ** 5.62%
Fund -----------------------------------------------------------------
A (no load) 3.01% ** ** 5.36%
-----------------------------------------------------------------
A (load) (1.10%) ** ** 4.45%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
S - 53
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Fund Class(1) Average Annual Total Return
==================================================
One Year Five Ten Since
Year Year Inception*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GNMA Fund I 3.09% ** ** 5.00%
-----------------------------------------------------------------
A (no load) 2.73% ** ** 4.64%
-----------------------------------------------------------------
A (load) (.38%) ** ** 3.77%
- ----------------------------------------------------------------------------------------------------------
Equity Growth Fund I ** ** ** **
-----------------------------------------------------------------
A (no load) ** ** ** **
-----------------------------------------------------------------
A (load) ** ** ** **
- ----------------------------------------------------------------------------------------------------------
Equity Value Fund I 21.69% ** ** 13.14%
-----------------------------------------------------------------
A (no load) 21.15% ** ** 12.82%
-----------------------------------------------------------------
A (load) 16.34% ** ** 11.85%
- ----------------------------------------------------------------------------------------------------------
Equity Income Fund I 21.01% ** ** 14.38%
-----------------------------------------------------------------
A (no load) 20.70% ** ** 14.10%
-----------------------------------------------------------------
A (load) 15.83% ** ** 13.12%
- ----------------------------------------------------------------------------------------------------------
Mid Cap Fund I 13.56% ** ** 9.54%
-----------------------------------------------------------------
A (no load) 13.32% ** ** 9.27%
-----------------------------------------------------------------
A (load) 8.80% ** ** 8.33%
- ----------------------------------------------------------------------------------------------------------
Balanced Fund I 13.77% ** ** 10.27%
-----------------------------------------------------------------
A (no load) 13.39% ** ** 9.97%
-----------------------------------------------------------------
A (load) 8.88% ** ** 9.02%
- ----------------------------------------------------------------------------------------------------------
International Growth Fund I 11.17% ** ** 11.46%
-----------------------------------------------------------------
A (no load) 10.88% ** ** 11.18%
-----------------------------------------------------------------
A (load) 6.42% ** ** 8.48%
==========================================================================================================
</TABLE>
* April 1, 1992 except for the New Jersey Municipal Securities Fund, which
commenced operations on May 4, 1992. The Pennsylvania Municipal
Securities-Class I, GNMA-Class I Funds commenced operations on May 3,
1993. The Pennsylvania Municipal Securities-Class A and GNMA-Class A Funds
commenced operations on May 13, 1993 and May 5, 1993, respectively. The
International Growth-Class I and International Growth-Class A Funds
commenced operation as of May 1, 1995 and May 4, 1995, respectively. The
Equity Growth Fund had not commenced operations as of December 31, 1996.
** Not in operation during period.
(1) Class B Shares were not operational as of December 31, 1996 and, therefore,
no total return information is provided for Class B Shares.
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
S - 54
<PAGE>
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 capital markets in
the U.S. The Funds may use long term performance of these 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 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.
SHAREHOLDER SERVICES
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
S - 55
<PAGE>
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.
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 Money Market 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
S - 56
<PAGE>
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 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.
Shares will normally be issued for cash only. Transactions involving the
issuance of shares for securities or assets other than cash will be limited to a
bona fide reorganization, statutory merger or will be limited to other
acquisitions of portfolio securities (except for municipal debt securities
issued by state political subdivisions or their agencies or instrumentalities)
which: meet the investment objectives and policies of the investment company;
are acquired for investment and not for resale; are liquid securities which are
not restricted as to transfer either by law or liquidity of market; and have a
value which is readily ascertainable (and not established only by evaluation
procedures) as evidenced by a listing on the American Stock Exchange, the New
York Stock Exchange or NASDAQ.
The securities of the Equity and Balanced 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 I, Class A and Class B shares of these Funds may differ
because of the distribution expenses and shareholders servicing fees charged to
Class A and/or 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
S - 57
<PAGE>
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: (i) U.S. Treasury Securities Plus Money Market Fund;
(ii) Class I Shares and Class A Shares of the Trust's U.S. Treasury Securities
Money Market, Tax-Exempt Money Market, Short-Term Investment, New Jersey
Municipal Securities, Pennsylvania Municipal Securities, Intermediate-Term
Government Securities, GNMA and Mid Cap Funds; and (iii) to the Class I, Class A
and Class B shares of the Trust's Prime Obligation Money Market, Fixed Income,
Equity Growth, Equity Value, Equity Income, International Growth and Balanced
Funds. Shareholders may purchase shares of each Fund through the different
classes as indicated above. The different classes 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 A and Class B Shares of certain of
the Funds. 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
S - 58
<PAGE>
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.
The names and addresses of the holders of 5% or more of the outstanding shares
of any Fund as of April 22, 1997 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:
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ---------
U.S. Treasury Securities United Jersey Bank 99.30%
Money Market Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
Prime Obligation United Jersey Bank 76.88%
Money Market Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
Lehigh Securities Corp. 16.47%
Attn: Richard Jennings
1457 MacArthur Road
Whitehall, PA 18052-5287
Acct # 2016795
Tax-Exempt Money Market United Jersey Bank 72.88%
Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
Lehigh Securities Corp. 23.99%
Attn: Richard Jennings
1457 MacArthur Road
Whitehall, PA 18052-5287
Acct # 2016795
Short-Term Investment United Jersey Bank 97.96%
Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
S - 59
<PAGE>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ---------
Growth Fund: United Jersey Bank 79.38%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
United Jersey Bank 20.61%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
Fixed Income Fund: United Jersey Bank 52.38%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
United Jersey Bank 47.15%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
New Jersey Municipal United Jersey Bank 90.68%
Securities Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
United Jersey Bank 7.86%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
Intermediate Term United Jersey Bank 56.47%
Government Attn: Patricia Kyritz
Securities Fund: P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
United Jersey Bank 42.30%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
S - 60
<PAGE>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ---------
Equity Value Fund: United Jersey Bank 57.33%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
United Jersey Bank 41.80%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
Equity Income Fund: United Jersey Bank 54.33%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
United Jersey Bank 43.54%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
Mid Cap Fund: United Jersey Bank 99.33%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
Balanced Fund: United Jersey Bank 84.80%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
United Jersey Bank 11.84%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
Pennsylvania Municipal United Jersey Bank 99.12%
Securities Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
S - 61
<PAGE>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ---------
GNMA Fund: United Jersey Bank 75.99%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
United Jersey Bank 21.79%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
International Growth Fund: United Jersey Bank 58.35%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 118
United Jersey Bank 41.11%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct # 1181
U.S. Treasury Plus Money Pharmacopria 38.41%
Market Fund: 101 College Road East
Princeton, NJ 08540-6601
Acct # 2698
Logic Works Inc. 33.67%
Attn: Ken Zena
111 Campus Drive
Princeton, NJ 08540-6400
Acct # 464
Integrity Packaging Corp. 27.92%
c/o Dannie Warren
122 Quentin Road
New Brunswick, NJ 08901-
3263
Acct # 6135
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 Summit Bank
were held in accounts for its fiduciary, agency or custodial customers.
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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 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
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<PAGE>
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 Fund's taxable
year, at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. Government securities, securities of other RICs and other
securities, with 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 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
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<PAGE>
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, Equity 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 on 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 calculating 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. 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
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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.
S - 66
<PAGE>
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, incorporated by reference into 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
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
FINANCIAL STATEMENTS
The Trust's audited financial statements and the notes thereto and the Report of
the Independent Public Accountants dated February 14, 1997 for the fiscal year
ended December 31, 1996, relating to the financial statements and financial
highlights of the Trust are incorporated by reference herein. A copy of the
Trust's 1996 Annual Report to Shareholders must accompany delivery of this
Statement of Additional Information.
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<PAGE>
APPENDIX
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. Those
rated A-2 have satisfactory capacity to meet its financial commitments.
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 indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest 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 indicates a very high likelihood that principal and
interest will be paid on a timely basis.
Description of Corporate Bond Ratings
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-edged." 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
A-1
<PAGE>
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.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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
A-2
<PAGE>
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.
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, B, CCC, CC and C is regarded as having significant 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 is less vulnerable to nonpayment
than other speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions that could
lead to the obligor's inadequate capacity to meet its financial commitment on
the obligation. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating. Debt rated 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 the obligor's capacity or willingness to meet its
financial commitment on the obligation. The B rating category also is used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
Debt rated CCC has a currently identifiable vulnerability to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial
A-3
<PAGE>
commitment on the obligation. In the event of adverse business, financial or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation. An obligation rated CC is currently
highly vulnerable to nonpayment. The C rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
An obligation rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing of
a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+.
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 an 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 CCC have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment. Bonds rated CC are minimally protected.
Default in payment of interest and/or principal seems probable over time. Bonds
rated C are in imminent default in payment of interest or principal.
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<PAGE>
Bonds rated DDD, DD and D are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Bonds rated AAA by Duff are considered of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA+ , AA and AA- are considered to be of high credit
quality. Protection factors are strong. Risk is modest but may vary slightly
from time to time because of economic conditions. Bonds rated A+, A and A- have
protection factors that are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
Bonds rated BBB+, BBB and BBB- are considered to have below average protection
factors but are still considered sufficient for prudent investment. There is
considerable variability in risk during economic cycles. Bonds rated BB+, BB and
BB- are 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 and B- are below investment
grade and possess 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 CCC are well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
Bonds rated DD are defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Bonds rated AAA by IBCA are obligations for which there is 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 substantially.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. 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 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.
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<PAGE>
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 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 CCC are obligations for which there is a current perceived
possibility of default. Timely repayment of principal and interest is dependent
on favorable business, economic or financial conditions. Bonds rated CC are
obligations which are highly speculative or which have a high risk of default.
Bonds rated C are obligations which are currently in default.
Bonds rated AAA by Thomson 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, more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings. Bonds rated BBB are
the lowest investment grade category.
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.
Issues rated CCC clearly have a high likelihood of default, with little capacity
to address further adverse changes in financial circumstances. CC is applied to
issues that are subordinate to other obligations rated CCC and are afforded less
protection in the event of bankruptcy or reorganization. Issues rated D are in
default.
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<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Financial statements and exhibits filed as part of the Registration
Statement:
(a) Part A - Financial Highlights
(b) Part B
(i) The following audited financial statements for the U.S. Treasury
Securities Plus Money Market, U.S. Treasury Securities Money Market,
Prime Obligation Money Market, Tax-Exempt Money Market, Short-Term
Investment, Fixed Income, New Jersey Municipal Securities,
Pennsylvania Municipal Securities, Intermediate-Term Government
Securities, GNMA, Equity Value, Equity Income, Mid Cap, Balanced
and International Growth Funds for the fiscal year ended December 31,
1996, including the report of Arthur Andersen LLP dated February 14,
1997, are incorporated by reference to the Statement of Additional
Information from Form N-30D filed on February 27, 1997 with Accession
Number 0000935069-97-000018.
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(c) Additional Exhibits
(1) Registrant's Declaration of Trust dated September 9, 1991 originally
filed with Registrant's Registration Statement on Form N-1A (File No.
33-44712), filed with the Securities and Exchange Commission on
December 23, 1991, is incorporated by reference to Post-Effective
Amendment No. 9, as filed on November 13, 1996.
(2) Registrant's By-laws originally filed with Registrant's Registration
Statement on Form N-1A (File No. 33-44712), with the Securities and
Exchange Commission on December 23, 1991, are incorporated by
reference to Post-Effective Amendment No. 9, as filed on November 13,
1996.
(3) Not Applicable.
(4) Not Applicable.
(5)(a) Administration Agreement between Registrant and SEI Financial
Management Corporation dated February 28, 1992 as amended May 25,
1996 and December 1, 1996 is incorporated by reference to
Post-Effective Amendment No. 10, as filed on February 28, 1997.
(5)(b) Registrant's Consent to Assignment and Assumption dated June 1, 1996
of the Administration Contract dated February 28, 1992, as amended
May 25, 1993 is incorporated by reference to Post-Effective Amendment
No. 10, as filed on February 28, 1997.
(5)(c) Investment Advisory Agreement between Registrant and United Jersey
Bank Investment Management Division dated April 28, 1996 is
incorporated by reference to Post-Effective Amendment No. 10, as
filed on February 28, 1997.
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<PAGE>
(5)(d) Investment Advisory Agreement dated April 28, 1996 between Registrant
and United Jersey Bank Investment Management Division (the "Advisor")
with respect to the International Growth Portfolio is incorporated by
reference to Post-Effective Amendment No. 10, as filed on February
28, 1997.
(5)(e) Investment Sub-Advisory Agreement dated April 28, 1996 between the
Advisor and Wellington Management Company, LLP is incorporated by
reference to Post-Effective Amendment No. 10, as filed on February
28, 1997.
(5)(f) Transfer Agent Agreement originally filed with Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 33-44712) with the Securities and Exchange Commission on
September 24, 1992, is incorporated by reference to Exhibit 99.B5(g)
to Post-Effective Amendment No. 9, as filed on November 13, 1996.
(5)(g) Form of Transfer Agent Agreement between Registrant and State Street
Bank and Trust Company is filed herewith.
(6)(a) Distribution Agreement between Registrant and SEI Financial Services
Company dated February 28, 1992, as amended May 25, 1993 originally
filed with Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-44712), with the
Securities and Exchange Commission on September 24, 1992, is
incorporated by reference to Exhibit 99.B6 to Post-Effective
Amendment No.9, as filed on November 13, 1996.
(6)(b) Distribution and Agreement-Class B Shares between Registrant and SEI
Financial Services Company dated February 20, 1997 is filed herewith.
(7) Not Applicable.
(8)(a) Custodian Agreement dated February 28, 1992 between Registrant and
United Jersey Bank originally filed with Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A (File No. 33-
44712), with the Securities and Exchange Commission on September
24, 1992, is incorporated by reference to Post-Effective Amendment
No. 9, as filed on November 13, 1996.
(8)(b) Custodian Agreement dated April 22, 1992 between United Jersey Bank
and The Bank of California, National Association originally filed
with Post-Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (File No. 33-44712), with the Securities and
Exchange Commission on February 10, 1995, is incorporated by
reference to Post-Effective Amendment No. 9, as filed on November 13,
1996.
(9) Not Applicable.
(10) Opinion and Consent of Counsel originally filed with Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-1A
(File No. 33-44712), with the Securities and Exchange Commission on
March 27, 1992, is incorporated by reference to Post-Effective
Amendment No. 9, as filed on November 13, 1996.
(11) Consent of Independent Public Accountants is filed herewith.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15)(a) Distribution Plan-Class A (formerly Class B) is incorporated by
reference to Post-Effective Amendment No. 10, as filed on February
28, 1997.
(15)(b) Distribution Plan-U.S. Treasury Securities Plus Money Market Fund
originally filed with Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (File No. 33-44712), filed with
the Securities and Exchange Commission on March 1, 1993, is
incorporated by reference to Post-Effective Amendment No. 9, as filed
on November 13, 1996.
(15)(c) Amended and Restated Rule 18F-3 Multiple Class Plan dated February
20, 1997 is filed herewith.
(15)(d) Distribution Plan-Class B Shares dated February 20, 1997 is filed
herewith.
(16) Performance Quotation Computation originally filed with
Post-Effective Amendment No. 2 to Registrant's Registration Statement
on Form N-1A (File No. 33-44712), with the Securities and Exchange
Commission on March 1, 1993, is incorporated by reference.
C-2
<PAGE>
(24)(a) Powers of Attorney for Robert A. Nesher, Ray Konrad, Arthur L.
Berman, Christine H. Yackman, James B. Grecco, Stephen G. Meyer and
David G. Lee are incorporated by reference to Post-Effective
Amendment No. 10, as filed on February 28, 1997.
(27) Financial Data Schedules are filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
See the Prospectuses and the Statement of Additional Information
regarding the Trust's control relationships. The Administrator is a subsidiary
of SEI Corporation which also controls the distributor of the Registrant, SEI
Financial Services Company, and other corporations engaged in providing various
financial and record keeping services, primarily to bank trust departments,
pension plan sponsors, and investment managers.
Item 26. Number of Holders of Securities:
As of January 30, 1997,
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
(Class names do not reflect new class designations)
Units of beneficial interest, without par value--
U.S. Treasury Securities Money Market Fund--Class A......................... 14
U.S. Treasury Securities Money Market Fund--Class B......................... 84
U.S. Treasury Securities Plus Money Market Fund............................. 232
Prime Obligation Money Market Fund--Class A................................. 838
Prime Obligation Money Market Fund--Class B................................. 302
Tax-Exempt Money Market Fund--Class A....................................... 286
Tax-Exempt Money Market Fund--Class B....................................... 94
Short-Term Investment Fund--Class A......................................... 353
Short-Term Investment Fund--Class B......................................... 58
Fixed Income Fund--Class A.................................................. 645
Fixed Income Fund--Class B.................................................. 384
New Jersey Municipal Securities Fund--Class A............................... 290
New Jersey Municipal Securities Fund--Class B............................... 867
Pennsylvania Municipal Securities Fund--Class A............................. 8
Pennsylvania Municipal Securities Fund--Class B............................. 19
Intermediate-Term Government Securities Fund--Class A....................... 181
Intermediate-Term Government Securities Fund--Class B....................... 144
GNMA Fund--Class A.......................................................... 164
GNMA Fund--Class B.......................................................... 134
Equity Value Fund--Class A.................................................. 335
Equity Value Fund--Class B.................................................. 880
Equity Income Fund--Class A................................................. 376
Equity Income Fund--Class B................................................. 1,102
Mid Cap Fund--Class A....................................................... 136
Mid Cap Fund--Class B....................................................... 848
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C>
Balanced Fund--Class A...................................................... 10
Balanced Fund--Class B...................................................... 857
International Growth Fund--Class A.......................................... 331
International Growth Fund--Class B.......................................... 189
Equity Growth Fund--Class A................................................. 0
Equity Growth Fund--Class B................................................. 0
</TABLE>
Item 27. Indemnification:
Article VIII of the Declaration of Trust filed as Exhibit 1 to the
Registration Statement is incorporated by reference. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
trustees, directors, officers and controlling persons of the Registrant by the
Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and, therefore,
is unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by trustees, directors, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, directors, officers or controlling persons in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act will be
governed by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Advisor:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of the Advisor is or has
been, at any time during the last two fiscal years, engaged for his own account
or in the capacity of a director, officer, employee, partner or trustee are as
follows:
<TABLE>
<CAPTION>
Name and Position Name of Connection with
with Investment Advisor Other Company Other Company
----------------------- ------------- ---------------
<S> <C> <C>
Directors:
T. Joseph Semrod, Chairman, Chief
Executive Officer & Director.............. Summit Bancorp. Chairman & CEO
Robert G. Cox, President & Director......... Summit Bancorp. President
John G. Collins, Vice Chairman & Director... Summit Bancorp. Vice Chairman
Bjorn Ahlstrom, Director.................... Volvo North America --
Corporation, Retired
Robert L. Boyle, Director................... William H. Hintelmann Firm Representative
James C. Brady, Jr., Director............... Mill House Associates, L.P. Partner
Barry D. Brown, Director.................... Princeton Insurance Co. Chairman
T.J. Dermot Dunphy, Director................ Sealed Air Corporation President & CEO
Anne Evans Estabrook, Director.............. Elberon Development Co. Owner
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Position Name of Connection with
with Investment Advisor Other Company Other Company
------------------------ ------------- ---------------
<S> <C> <C>
Directors:
Elinor J. Ferdon, Director.................. Girl Scouts of the USA President
Samuel Gerstein, Esq., Director............. Gerstein, Cohen & Grayson Partner
Richard H. Goldberger, Director............. Linda's Flame Roasted Chicken Chairman
Robert S. Hekemian, Director................ Hekemian & Co., Inc. Chairman & CEO
Thomas C. Jamieson, Jr., Esq., Director..... Jamieson, Moore, Peskin & Chairman & President
Spicer, PA
Vincent P. Langone, Director................ L&S Incorporated --
Francis J. Mertz, Director.................. Farleigh Dickinson University President
George L. Miles, Jr., Director.............. WQED Pittsburgh President & CEO
Bertram B. Miller, Director................. B.B. Miller & Company President
Henry S. Patterson II, Director............. E'town Corporation President
Raymond Silverstein, Director............... Alloy, Silverstein, Shapiro, Consultant
Adams, Mulford & Co.
Orin R. Smith, Director..................... Engelhard Corp. Chairman & CEO
Sylvester L. Sullivan, Director............. Car Rentals, Inc. President
Joseph M. Tabak, Director................... JPC Enterprises, Inc. President & CEO
Alexander von Summer, Director.............. Alexander Summer Co. Chairman
Robert A. Woodruff, Director................ Woodruff Oil Company President
</TABLE>
Wellington Management Company, LLP ("WMC") is the investment
sub-advisor for the International Growth Fund. The principal address of WMC is
75 State Street, Boston, MA 02109.
The list required by this Item 28 of officers and directors of WMC,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by WMC pursuant to the Advisers Act (SEC File No. 801-15908).
Item 29. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adviser.
C-5
<PAGE>
Registrant's distributor, SEI Financial Services Company ("SFS"), acts
as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds(R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Marquis Funds(R) August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 30, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
SFS provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
(b) Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is Oaks, PA 19456.
C-6
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Henry H. Greer Director, President & Chief Operating Officer --
Carmen V. Romeo Director, Executive Vice President & Treasurer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President-Investment Services Division --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
Larry Hutchison Senior Vice President --
Steven Kramer Senior Vice President --
David G. Lee Senior Vice President --
William Madden Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel & --
Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Robert Aller Vice President --
Marc H. Cahn Vice President & Assistant Secretary --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Ed Daly Vice President --
Jeff Drennen Vice President --
Mick Duncan Vice President and Team Leader --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
Donald H. Korytowski Vice President --
John Krzeminski Vice President & Managing Director --
Robert S. Ludwig Vice President and Team Leader --
Vicki Malloy Vice President and Team Leader --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Secretary --
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Sandra K. Orlow Vice President & Assistant Secretary --
Donald Pepin Vice President & Managing Director --
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
William Zawaski Vice President --
James Dougherty Director of Brokerage Services --
</TABLE>
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b);
(3); (6); (8); (12); and 31a-1(d), the required books and records are
maintained at the offices of Registrant's Custodian:
Summit Bank
210 Main Street
Hackensack, NJ 07601
Union Bank of California Global Custody
475 Sansome Street
11th Floor
San Francisco, CA 94111
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C)
and (D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required
books and records are maintained at the offices of Registrant's
Administrator:
SEI Fund Resources
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and
31a-1(f), the required books and records are maintained at the principal
offices of the Registrant's Advisor or Sub-Advisor:
C-8
<PAGE>
Summit Bank Investment Management Division,
a division of Summit Bank
210 Main Street
Hackensack, NJ 07601
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
Item 31. Management Services: None.
Item 32. Undertakings:
Registrant hereby undertakes to file a post-effective amendment, using
financial statements with respect to the Equity Growth Fund, which need not be
certified, within four to six months from the effective date of its
Post-Effective Amendment No. 9.
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), inform the Board of Trustees of their desire to communicate
with shareholders of the Trust, the Trustees will inform such shareholders as to
the approximate number of shareholders of record and the approximate costs of
mailing or afford said shareholders access to a list of shareholders.
Registrant undertakes to call a meeting of shareholders for the purpose
of voting upon the question of removal of a Trustee(s) when requested in writing
to do so by the holders of at least 10% of Registrant's outstanding shares and
in connection with such meetings to comply with the provisions of Section 16(c)
of the 1940 Act relating to shareholder communications.
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest Annual Report to
Shareholders, upon request and without charge.
C-9
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust for The Pillar Funds is
on file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this Registration Statement has been executed on
behalf of the Trust by an officer of the Trust as an officer and by its Trustees
as trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
shareholders individually but are binding only upon the assets and property of
the Trust.
C-10
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for the effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 11 to the Registration Statement No.
33-44712 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wayne, Commonwealth of Pennsylvania on the 30th day
of April, 1997.
THE PILLAR FUNDS
By: /s/ David G. Lee
--------------------------------
David G. Lee
President & Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacity and on the dates indicated.
* Trustee April 30, 1997
- -----------------------------------
Arthur L. Berman
* Trustee April 30, 1997
- -----------------------------------
Ray Konrad
* Trustee April 30, 1997
- -----------------------------------
Robert A. Nesher
* Trustee April 30, 1997
- -----------------------------------
Christine H. Yackman
* Trustee April 30, 1997
- -----------------------------------
James B. Grecco
/s/ Stephen G. Meyer Controller April 30, 1997
---------------------------------- & Chief Financial
Stephen G. Meyer Officer
*By: /s/ David G. Lee
---------------------------
David G. Lee
Attorney-in-Fact
C-11
<PAGE>
EXHIBIT INDEX
Exhibit Name
- ------- ----
EX-99.B1 Registrant's Declaration of Trust dated September 9, 1991
originally filed with Registrant's Registration Statement
on Form N-1A (File No. 33-44712), filed with the Securities
and Exchange Commission on December 23, 1991, is
incorporated by reference to Post-Effective Amendment No.
9, as filed on November 13, 1996.
EX-99.B2 Registrant's By-laws originally filed with Registrant's
Registration Statement on Form N-1A (File No. 33-44712),
with the Securities and Exchange Commission on December 23,
1991, are incorporated by reference to Post-Effective
Amendment No. 9, as filed on November 13, 1996.
EX-99.B5(a) Administration Agreement between Registrant and SEI
Financial Management Corporation dated February 28, 1992,
as amended May 25, 1996 and December 1, 1996, is
incorporated by reference to Post-Effective Amendment No.
10, as filed on February 28, 1997.
EX-99.B5(b) Registrant's Consent to Assignment and Assumption dated
June 1, 1996 of the Administration Contract dated February
28, 1992, as amended May 25, 1993 is incorporated by
reference to Post-Effective Amendment No. 10, as filed on
February 28, 1997.
EX-99.B5(c) Investment Advisory Agreement between Registrant and United
Jersey Bank Investment Management Division dated April 28,
1996 is incorporated by reference to Post-Effective
Amendment No. 10, as filed on February 28, 1997.
EX-99.B5(d) Investment Advisory Agreement dated April 28, 1996 between
Registrant and United Jersey Bank Investment Management
Division (the "Advisor") with respect to the International
Growth Portfolio is incorporated by reference to
Post-Effective Amendment No. 10, as filed on February 28,
1997.
EX-99.B5(e) Investment Sub-Advisory Agreement between the Advisor and
Wellington Management Company, LLP is incorporated by
reference to Post-Effective Amendment No. 10, as filed on
February 28, 1997.
EX-99.B5(f) Transfer Agent Agreement originally filed with
Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File No. 33-44712) with the
Securities and Exchange Commission on September 24, 1992,
is incorporated by reference to Exhibit 99.B5(g) to
Post-Efffective Amendment No. 9, as filed on November 13,
1996.
EX-99.B5(g) Form of Transfer Agent Agreement between Registrant and
State Street Bank and Trust Company is filed herewith.
<PAGE>
Exhibit Name
- ------- ----
EX-99.B6(a) Distribution Agreement between Registrant and SEI Financial
Services Company dated February 28, 1992, as amended May
25, 1993, originally filed with Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 33-44712) with the Securities and Exchange
Commission on September 24, 1992, is incorporated by
reference to Exhibit 99.B6 to Post-Effective Amendment
No.9, as filed on November 13, 1996.
EX-99.B6(b) Distribution Agreement-Class B Shares between Registrant
and SEI Financial Services Company dated February 20, 1997
is filed herewith.
EX-99.B8(a) Custodian Agreement dated February 28, 1992 between
Registrant and United Jersey Bank originally filed with
Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File No. 33-44712), with the
Securities and Exchange Commission on September 24, 1992,
is incorporated by reference to Post-Effective Amendment
No. 9, as filed on November 13, 1996.
EX-99.B8(b) Custodian Agreement dated April 22, 1992 between United
Jersey Bank and The Bank of California, National
Association originally filed with Post-Effective Amendment
No. 5 to Registrant's Registration Statement on Form N-1A
(File No. 33-44712), with the Securities and Exchange
Commission on February 10, 1995, is incorporated by
reference to Post-Effective Amendment No. 9, as filed on
November 13, 1996.
EX-99.B10 Opinion and Consent of Counsel originally filed with
Pre-Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A (File No. 33-44712) with the
Securities and Exchange Commission on March 27, 1992, is
incorporated by reference to Post-Effective Amendment No.
9, as filed on November 13, 1996.
EX-99.B11 Consent of Independent Public Accountants is filed
herewith.
EX-99.B15(a) Distribution Plan-Class A (formerly Class B) is
incorporated by reference to Post-Effective Amendment
No. 10, as filed on February 28, 1997.
EX-99.B15(b) Distribution Plan-U.S. Treasury Securities Plus Money
Market Fund originally filed with Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A
(File No. 33-44712), filed with the Securities and Exchange
Commission on March 1, 1993, is incorporated by reference
to Post-Effective Amendment No. 9, as filed on November 13,
1996.
EX-99.B15(c) Amended and Restated Rule 18F-3 Multiple Class Plan dated
February 20, 1997 is filed herewith.
EX-99.B15(d) Distribution Plan-Class B Shares dated February 20, 1997 is
filed herewith.
<PAGE>
Exhibit Name
- ------- ----
EX-99.B16 Performance Quotation Computation originally filed with
Post-Effective Amendment No. 2 to Registrant Registration
Statement on Form N-1A (File No. 33-44712), with the
Securities and Exchange Commission on March 1, 1993, is
incorporated by reference.
EX-99.B24(a) Powers of Attorney for Robert A. Nesher, Ray Konrad, Arthur
L. Berman, Christine H. Yackman, James B. Grecco, Stephen
G. Meyer and David G. Lee are incorporated by reference to
Post-Effective Amendment No. 10, as filed on February 28,
1997.
EX-27 Financial Data Schedules are filed herewith.
TRANSFER AGENCY AND SERVICE AGREEMENT FORM
between
THE PILLAR FUNDS
and
STATE STREET BANK AND TRUST COMPANY
TA- Domestic Corporation
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Terms of Appointment: Duties of the Bank..........................1
2. Fees and Expenses.................................................3
3. Representations and Warranties of the Bank........................4
4. Representations and Warranties....................................4
5. Wire Transfer Operating Guidelines................................5
6. Data Access and Proprietary Information...........................6
7. Indemnification...................................................8
8. Standard of Care..................................................9
9. Covenants of the Fund and the Bank................................9
10. Termination of Agreement.........................................10
11. Assignment.......................................................10
12. Amendment........................................................11
13. Massachusetts Law to Apply.......................................11
14. Force Majeure....................................................11
15. Consequential Damages............................................11
16. Merger of Agreement..............................................11
17. Counterparts.....................................................11
18. Reproduction of Documents........................................11
i
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1ST day of March, 1997, by and between each of the
funds listed on Schedule A each an open-end diversified investment company
registered under the Investment Company Act of 1940, as amended. THE PILLAR
FUNDS, having its principal office and place of business at 210 Main Street,
Hackensack, New Jersey 07062 (collectively the "Fund") and STATE STREET BANK AND
TRUST COMPANY, a Massachusetts trust company having its principal office and
place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the
"Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent, dividend
disbursing agent, custodian of certain retirement plans and agent in connection
with certain other activities, and the Bank desires to accept such appointment:
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment: Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and
issued shares of its common stock. $ par value. ("Shares"), dividend
disbursing agent, custodian of certain retirement plans and agent in
connection Fund ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of
the Fund, including without limitation any periodic investment plan or
periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Articles of Incorporation
of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue to appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
<PAGE>
(iv) In respect to the transactions in items (i), (ii) and
(iii) above, the Bank shall execute transactions
directly and broker-dealers authorized by the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over in
the appropriate manner such monies as instructed by
the redeeming Shareholders;
(vi) Effect transfer of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by the Fund:
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen and destroyed upon
receipt by the Bank of indemnification satisfactory
to the Bank and protesting the Bank and the Fund, and
the Bank at its option, may issue replacement
certificates in place of mutilated stock certificates
upon presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and
maintain pursuant to SEC Rule 17Ad-10(e) a record of
the total number of shares of the Fund which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Bank shall also
provide the Fund on a regular basis with the total
number of shares which are authorized and issued and
outstanding and shall have no obligation, when
recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such shares,
which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent,
dividend disbursing agent, custodian of certain retirement
plans and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without limitation
any periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder
reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and
distribution by federal authorities for all Shareholders,
preparing and mailing
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confirmation forms and statements of accounts to Shareholders
for all purchases and redemptions of Shares and other
confirmable transactions in Shareholders accounts, preparing
and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a
system which will enable the Fund to monitor the total number
of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt
from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system
prior to activation and thereafter monitor the daily activity
for each State. The responsibility of the Bank for the Fund's
blue sky State registration status is solely limited to the
initial establishment of transactions subject to blue sky
compliance by the Fund and the reporting of such transactions
to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by agreement
between the Fund and the Bank per the attached service
responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may
perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon in
writing between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee for each Shareholder
account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section
2.2 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees to
reimburse the Bank for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone,
microfilm, microfiche, tabulating proxies, records storage, or advances
incurred by the Bank for the items set out in the fee schedule attached
hereto. In addition, any other expenses incurred by the Bank at the
request or with the consent of the Fund, will be reimbursed by the
Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage
for mailing of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to the Bank by the Fund at
least seven (7) days prior to the mailing date of such materials.
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<PAGE>
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations and Warranties
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing
under the laws of the State of New Jersey.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of Incorporation
and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended
is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale.
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<PAGE>
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
Commercial Code
5.1 The Bank is authorized to promptly debit the appropriate Fund
accounts(s) upon the receipt of a payment order in compliance with the
selected security procedure (the "Security Procedure") chosen for funds
transfer and in the amount of money that the Bank has been instructed
to transfer. The Bank shall execute payment orders in compliance with
the Security Procedure and with the Fund instructions on the execution
date provided that such payment order is received by the customary
deadline for processing such request, unless the payment order
specifies a later time. All payment order and communications received
after this the customary deadline will be deemed to have been received
the next business day.
5.2 The Fund acknowledges that the Security Procedure it has designated on
the Fund Selection Form was selected by the Fund from security
procedures offered by the Bank. The Fund shall restrict access to
confidential information relating to the Security Procedure to
authorized persons as communicated to the Bank in writing. The Fund
must notify the Bank immediately if it has reason to believe
unauthorized persons may have obtained access to such information or of
any change in the Fund's authorized personnel. The Bank shall verify
the authenticity of all Fund instructions according to the Security
Procedure.
5.3 The Bank shall process all payment orders on the basis of the account
number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number,
the account number shall take procedure and govern.
5.4 The Bank reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected
balance in the account to be charged at the time of the Bank's receipt
of such payment order: (b) if initiating such payment order would cause
the Bank, in the Bank's sole judgement, to exceed any volume, aggregate
dollar, network, time, credit or similar limits which are applicable to
the Bank: or (c) if the Bank, in good faith, is unable to satisfy
itself that the transaction has been properly authorized.
5.5 The Bank shall use reasonable efforts to act on all authorized requests
to cancel or amend payment orders received in compliance with the
Security Procedure provided that such requests are received in a timely
manner affording the bank reasonable opportunity to act. However, the
Bank assumes no liability if the request for amendment or cancellation
cannot be satisfied.
5.6 The Bank shall assume no responsibility for failure to detect any
erroneous payment order provided that the Bank complies with the
payment order instructions as received and the Bank complies with the
Security Procedure. The Security Procedure is established for the
5
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purpose of authenticating payment orders only and not for the detection
of errors in payment orders.
5.7 The Bank shall assume no responsibility for lost interest with respect
to the refundable amount of any unauthorized payment order, unless the
Bank is notified of the unauthorized payment order with thirty (30)
days of notification by the Bank of the acceptance of such payment
order. In no event (including failure to execute a payment order) shall
the Bank be liable for special, indirect or consequential damages, even
if advised of the possibility of such damages.
5.8 When the Fund initiates or received Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the
National Automated Clearing House Association and the New England
Clearing House Association, the Bank will act as an Originating
Depository Financial Institution and/or receiving depository Financial
Institution, as the case may be, with respect to such entries. Credits
given by the Bank with respect to an ACH credit entry are provisional
until the Bank receives final settlement for such entry from the
Federal Reserve Bank. If the Bank does not receive such final
settlement, the Fund agrees that the Bank shall receive a refund of the
amount credited to the Fund in connection with such entry, and the
party making payment to the Fund via such entry shall not be deemed to
have paid the amount of the entry.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily be
provided within twenty four (24) hours notice of which may be delivered
through the Bank's proprietary information systems, or by facsimile or
call-bank. Fund must report any objections to the execution of an order
within thirty (30) days.
6. Data Access and Proprietary Information
6.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of the
Fund's ability to access certain Fund-related data ("Customer Data")
maintained by the Bank on data bases under the control and ownership of
the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the
Bank or other third party. In no event shall Proprietary Information be
deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall
not divulge any Proprietary Information to any person or organization
except as may be provided hereunder. Without limiting the foregoing,
the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
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<PAGE>
(b) to refrain from copying or duplication in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
6.2 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data include in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against the Bank arising out of the contents of such
third-party data, including, but not limited to, the accuracy thereof.
DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT
THOSE EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction
without undertaking any further inquiry as long as such instruction is
undertaken in conformity with security procedures established by the
Bank from time to time.
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7. Indemnification
7.1 The Bank shall not be responsible for and the Fund shall indemnify and
hold the Bank harmless from and against, any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that
such actions are taken in good faith and without negligence or
willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation
of warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services
which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of
the Fund including but not limited to any previous transfer
agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the
Funds.
(e) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other
determination or ruling by any federal or any state agency
with respect to the offer or sale of such Shares.
(f) The negotiations and processing of checks made payable to
prospective or existing Shareholders tendered to the Bank for
the purchase of Shares, such checks are commonly known as
"third party checks."
7.2 Any time the Bank may apply to any officer of the Fund for instruction
and may consult with legal counsel with respect to any matter arising
in connection with the services in to be performed by the Bank under
this Agreement, and the Bank and its agents or subcontractors shall be
liable and shall be indemnified by the Fund for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of
such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document,
reasonable believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records
or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means
authorized by the Fund, and shall not be held to have notice of any
change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall
also be protected
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<PAGE>
and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or
co-registrar.
7.3 In order that the indemnification provisions contained in this Section
6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund
of such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case
in which the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
8. Standard of Care
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility
and shall not be liable for loss or damage due to errors unless said
errors are caused by its negligence, bad faith, or willful misconduct
or that of its employees.
9. Covenants of the Fund and the Bank
9.1 The Fund shall promptly furnish to the Bank the following:
(a) A certified cop of the resolution of the Board of Directors of
the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the
Fund and all amendments thereto.
9.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devised,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
9.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Fund Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services to
the performed by the Bank hereunder are the property of the Fund and
will be preserved,
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<PAGE>
maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
9.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged
or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential and shall not be voluntarily
disclosed to any other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the Fund
as to such inspection. The Bank reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person.
10. Termination of Agreement
10.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
10.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund. Additionally, the Bank reserves the right to charge
for any other reasonable expenses associated with such termination and
or a charge equivalent to the average of three (3) months' fees.
11. Assignment
11.1 Except as provided in Section 11.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"), (ii)
a BFDS affiliate: provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor
as its is for its own acts and omissions.
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12. Amendment
This Agreement may be amended or modified by a written agreement
executive by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
14. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment
or transmission failure or damage reasonably beyond its control, or
other causes reasonable beyond its control, such party shall not be
liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act
hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
18. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilms,
micro-card, miniature photographic or other similar process. The
parties hereto each agree that any such reproduction shall be
admissible in evidence as the original is in existence and whether or
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<PAGE>
not such reproduction was made by a party in the regular course of
business, and that any enlargement, facsimile or further reproduction
shall likewise be admissible in evidence.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
THE PILLAR FUNDS
BY:______________________________
ATTEST:
- ----------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:_____________________________
Executive Vice President
ATTEST:
- ---------------------------
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<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase of Shares X X
2. Issue Shares and hold Shares in X X
Shareholders accounts.
3. Receive redemption requests. X X
4. Effect transactions 1-3 above directly with X X
broker-dealers.
5. Pay over monies to redeeming X X
Shareholders.
6. Effect transfers of Shares. X X
7. Prepare and transmit dividends and X X
distributions.
8. Issue Replacement Certificates. X X
9. Reporting of abandoned property. X
10. Maintain records of accounts. X X
11. Maintain and keep a current and accurate X
control book for each issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current X
Shareholders.
15. Withhold taxes on U.S. resident and non- X X
resident alien accounts
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16. Prepare and file U.S. Treasury X
Department forms.
17. Prepare and mail account and X X
confirmation statements for Shareholders.
18. Provide Shareholder account information. X X
19. Blue sky reporting. X
* Such services are more fully described in Section 1.2(a), (b) and (c)
of the Agreement.
THE PILLAR FUNDS
BY:______________________________
ATTEST:
- ----------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:_____________________________
Executive Vice President
ATTEST:
- ---------------------------
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<PAGE>
SCHEDULE A
----------
FUND CLASS
- ---- -----
THE PILLAR U.S. TREASURY SECURITIES PLUS MONEY A
MARKET FUND
THE PILLAR U.S. TREASURY SECURITIES MONEY MARKET A.I
FUND
THE PILLAR PRIME OBLIGATION MONEY MARKET FUND A.B.I.
THE PILLAR TAX-EXEMPT MONEY MARKET FUND A.I
THE PILLAR SHORT-TERM INVESTMENT FUND A.I
THE PILLAR FIXED INCOME FUND A.B.I
THE PILLAR NEW JERSEY MUNICIPAL SECURITIES FUND A.I
THE PILLAR PENNSYLVANIA MUNICIPAL SECURITIES FUND A.I
THE PILLAR INTERMEDIATE-TERM GOVERNMENT A.I
SECURITIES FUND
THE PILLAR GNMA FUND A.I
THE PILLAR EQUITY VALUE FUND A.B.I
THE PILLAR EQUITY INCOME FUND A.B.I
THE PILLAR MID CAP FUND A.I
THE PILLAR BALANCED FUND A.B.I
THE PILLAR EQUITY GROWTH FUND A.B.I
THE PILLAR INTERNATIONAL GROWTH FUND A.B.I
CLASSES = A=RETAIL
B=CDSC
I=INSTITUTIONAL
15
THE PILLAR FUNDS
DISTRIBUTION AND SERVICE AGREEMENT
Class B Shares
THIS AGREEMENT is made as of the 20th day of February, 1997, between
The Pillar Funds, a Massachusetts business trust (the "Trust"), and SEI
FINANCIAL SERVICES COMPANY, a Pennsylvania corporation (the "Distributor").
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended ("1940 Act"), and its shares are registered with the SEC under
the Securities Act of 1933, as amended ("1933 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended;
WHEREAS, the Trust desires to appoint the Distributor to act as
distributor and shareholder servicing agent for the Class B Shares of the
Trust's portfolios, as now in existence or hereinafter created from time to time
(collectively, the "Shares"), in accordance with the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Trust and Distributor hereby agree as follows:
ARTICLE 1. Distribution Activities.
A. Sale of Shares. The Trust grants to the Distributor the
exclusive right to sell Shares of each portfolio of the Trust (each a
"Portfolio"), at net asset value in accordance with the current prospectus for
the Shares, as agent and on behalf of the Trust, during the term of this
Agreement and subject to the registration requirements of the 1933 Act, the
rules and regulations of the SEC and the laws governing the sale of securities
in the various states.
B. Solicitation of Sales. In consideration of these rights
granted to the Distributor, the Distributor agrees to use all reasonable
efforts, consistent with its other business, in connection with the distribution
of Shares; provided, however, that the Distributor shall not be prevented from
entering into like arrangements with other issuers. The provisions of this
paragraph do not obligate the Distributor to register as a broker or dealer
under the Blue Sky Laws of any jurisdiction when it determines it would be
uneconomical for it to do so or to maintain its registration in any jurisdiction
in which it is now registered nor obligate the Distributor to sell any
particular number of Shares.
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C. Authorized Representations. The Distributor is not
authorized by the Trust to give any information or to make any representations
other than those contained in the current registration statements and
prospectuses of the Trust with respect to the Shares filed with the SEC or
contained in Shareholder reports or other material that may be prepared by or on
behalf of the Trust for the Distributor's use. The Distributor may prepare and
distribute sales literature and other material as it may deem appropriate,
provided that such literature and materials have been approved by the Trust
prior to their use.
D. Registration of Shares. The Trust agrees that it will take
all action necessary to register Shares under the federal and state securities
laws so that there will be available for sale the number of Shares the
Distributor may reasonably be expected to sell and to pay all fees associated
with said registration. The Trust shall make available to the Distributor such
number of copies of its currently effective prospectus and statement of
additional information as the Distributor may reasonably request. The Trust
shall furnish to the Distributor copies of all information, financial statements
and other papers which the Distributor may reasonably request for use in
connection with the distribution of Shares of the Trust.
ARTICLE 2. Shareholder Servicing Activities.
A. Appointment. The Trust hereby appoints the Distributor as
servicing agent for the Shares of each Portfolio, as agent and on behalf of the
Trust in accordance with and during the term of this Agreement, and the
Distributor hereby accepts such appointment.
B. Shareholder Servicing Activities. As servicing agent for
the Shares of each Portfolio, and in consideration of the compensation payable
pursuant to Article 4 hereof, the Distributor shall provide personal, continuing
services to investors in the Shares of each Portfolio, including but not limited
to providing ongoing servicing and/or maintenance of shareholder accounts with
respect to the Shares of the Portfolios, responding to inquiries of the holders
of Shares regarding their ownership of Shares or their accounts with the Trust,
and providing administrative or accounting services with respect to the Shares
of the Portfolios not otherwise provided by other agents of the Trust.
Notwithstanding the foregoing, if the National Association of Securities
Dealers, Inc. ("NASD") adopts a definition of "service fee" for purposes of
Section 2830(d) of the Conduct Rules that differs from the definition of
shareholder servicing activities in this paragraph, or if the NASD adopts a
related definition intended to define the same concept, the definition of
shareholder servicing activities in this paragraph shall be automatically
amended, without further action of the parties, to conform to such NASD
definition.
ARTICLE 3. Compensation for Distribution Activities.
A. As compensation for providing distribution services
pursuant to Article 1 hereof, the Distributor shall receive:
(1) In respect of the Shares of each Portfolio,
pursuant to the Trust's
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Distribution and Service Plan with respect to the Class B Shares adopted by such
class in accordance with Rule 12b-1 under the 1940 Act (the "Distribution
Plan"), a fee in connection with distribution-related services provided in
respect of such class, calculated and payable monthly as soon as practicable
after the end of the calendar month within which such fee accrues, but in any
event prior to the tenth day following the end of such calendar month, at the
annual rate of .75% of the value of the average daily net assets of such Shares.
(2) All contingent deferred sales charges applied on
redemptions of Shares of such class, payable at such time as the redemption
proceeds in respect of the redemption giving rise to the contingent deferred
sales charge is paid to the redeeming shareholder; provided that whether and at
what rate a contingent deferred sales charge will be imposed with respect to a
redemption shall be determined in accordance with, and in the manner set forth
in, the Registration Statement registering the Shares then in effect with the
SEC.
B. Amounts payable to the Distributor under the Distribution
and Service Plan may exceed or be less than the Distributor's actual costs
incurred in connection with the distribution of the Shares of such class, as
described in Article 5 below. In the event such Distribution Expenses (as
defined in Article 5) exceed amounts payable to the Distributor under the
Distribution and Service Plan, the Distributor shall not be entitled to
reimbursement by the Trust.
C. The Distributor may reallow any or all of the distribution
fees and contingent deferred sales charges which it is paid under this Agreement
to such dealers as the Distributor may from time to time determine.
D. The Distributor may transfer its right to the payments
described in this Article 3 to third persons who provide funding to the
Distributor, provided that any such transfer shall not be deemed a transfer of
the Distributor's obligations under this Agreement. Upon receipt of direction
from the Distributor to pay such fees to a transferee, the Trust shall make
payment in accordance with such direction.
ARTICLE 4. Compensation for Shareholder Service Activities.
A. As compensation for providing shareholder services pursuant
to Article 2 hereof, the Distributor shall receive in respect of the Shares of
each Portfolio, pursuant to the Trust's Distribution and Service Plan with
respect to the Shares adopted by such class in accordance with Rule 18f-3 under
the 1940 Act (the "Service Plan"), a fee in connection with shareholder services
provided in respect of such class, calculated and payable monthly, at the annual
rate of .25% of the value of the average daily net assets of such Shares.
B. Amounts payable to the Distributor under the Distribution
and Service Plan may exceed or be less than the Distributor's actual costs
incurred in connection with the provision of shareholder services for the
Shares, as described in Article 5 below. In the event such
3
<PAGE>
Shareholder Servicing Expenses (as defined in Article 5) exceed amounts payable
to the Distributor under the Distribution and Service Plan, the Distributor
shall not be entitled to reimbursement by the Trust.
C. The Distributor may reallow all or any part of, or pay
compensation from, the amounts payable to the Distributor under the Distribution
and Service Plan to such persons, including employees of the Distributor, and
institutions who respond to inquiries of holders of the Shares of the Portfolios
or provide other administrative or accounting services for the Shares, as the
Distributor may from time to time determine.
ARTICLE 5. Expenses. During the period of this Agreement, the Trust
shall pay or cause to be paid all expenses, costs and fees incurred by the Trust
which are not assumed by the Distributor. The Distributor shall pay all of its
own costs incurred in connection with the distribution of the Shares of each
Portfolio pursuant to Article 1 hereof ("Distribution Expenses"). The
Distributor shall also pay all of its own costs incurred in connection with
providing the personal, continuing services to shareholders of the Shares of
each Portfolio pursuant to Article 3 hereof ("Shareholder Servicing Expenses").
Distribution Expenses include, but are not limited to, the following expenses
incurred by the Distributor: initial and ongoing sales compensation (in addition
to sales loads) paid to investment executives of the Distributor and to other
broker-dealers and participating financial institutions which the Distributor
has agreed to pay; expenses incurred in the printing of prospectuses, statements
of additional information and reports used for sales purposes; expenses of
preparation and distribution of sales literature; expenses of advertising of any
type; an allocation of the Distributor's overhead; payments to and expenses of
persons who provide support services in connection with the distribution of
Trust shares; and other distribution-related expenses. Shareholder Servicing
Expenses include all expenses of the Distributor incurred in connection with
providing administrative or accounting services to shareholders of the Shares of
each Portfolio, including, but not limited to, an allocation of the
Distributor's overhead and payments made to persons, including employees of the
Distributor, who respond to inquiries of shareholders regarding their ownership
of Shares, or who provide other administrative or accounting services for the
Shares class not otherwise required to be provided by the applicable Portfolio's
investment adviser, transfer agent or other agent.
In each year during which this Agreement remains in effect, the
Distributor will prepare and furnish to the Board of Trustees of the Trust, on a
quarterly basis, written reports complying with the requirements of Rule 12b-1
under the 1940 Act that set forth (i) the amounts expended under this Agreement
and the Distribution Agreement as Distribution Expenses for the Shares of each
Portfolio and the purposes for which those expenditures were made, and (ii) the
amounts expended under this Agreement and the Distribution and Service Plan as
Shareholder Servicing Expenses for the Shares of each Portfolio and the purposes
for which those expenditures were made.
ARTICLE 6. Indemnification of Distributor. The Trust agrees to
indemnify and hold harmless the Distributor and each of its directors and
officers and each person, if any, who
4
<PAGE>
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damages or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim, damages,
or expense and reasonable counsel fees and disbursements incurred in connection
therewith), arising by reason of any person acquiring any Shares, based upon the
ground that the registration statement, prospectus, Shareholder reports or other
information filed or made public by the Trust (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements made not
misleading. However, the Trust does not agree to indemnify the Distributor or
hold it harmless to the extent that the statements or omission was made in
reliance upon, and in conformity with, information furnished to the Trust by or
on behalf of the Distributor or for which the Distributor had responsibility to
verify.
In no case (i) is the indemnity of the Trust to be deemed to protect
the Distributor against any liability to the Trust or its Shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the
Distributor or such other person (or after the Distributor or the person shall
have received notice of service on any designated agent). However, failure to
notify the Trust of any claim shall not relieve the Trust from any liability
which it may have to the Distributor or any person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph.
The Trust shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Trust agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or Trustees
in connection with the issuance or sale of any of its Shares.
ARTICLE 7. Indemnification of Trust. The Distributor covenants and
agrees that it will indemnify and hold harmless the Trust and each of its
Trustees and officers and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act, against any loss,
5
<PAGE>
liability, damages, claim or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, damages, claim or
expense and reasonable counsel fees incurred in connection therewith) based upon
the 1933 Act or any other statute or common law and arising by reason of any
person acquiring any Shares, and alleging a wrongful act of the Distributor or
any of its employees or alleging that the registration statement, prospectus,
Shareholder reports or other information filed or made public by the Trust (as
from time to time amended) included an untrue statement of a material fact or
omitted to state a material fact required to be stated or necessary in order to
make the statements not misleading, insofar as the statement or omission was
made in reliance upon and in conformity with information furnished to the Trust
by or on behalf of the Distributor or for which the Distributor had
responsibility to verify.
In no case (i) is the indemnity of the Distributor in favor of the
Trust or any other person indemnified to be deemed to protect the Trust or any
other person against any liability to which the Trust or such other person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Trust or upon any person (or after the
Trust or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Trust or any
person against whom the action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants whose approval shall not be unreasonably withheld.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the defendants in the suit shall bear the fees and expenses of
any additional counsel retained by them. If the Distributor does not elect to
assume the defense of any suit, it will reimburse the indemnified defendants in
the suit for the reasonable fees and expenses of any counsel retained by them.
The Distributor agrees to notify the Trust promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Trust's Shares.
ARTICLE 8. Effective Date. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force for one
year from the effective date and thereafter from year to year, provided that
such annual continuance is approved by (i) either the vote of a majority of the
Trustees of the Trust, or the vote of a majority of the outstanding voting
6
<PAGE>
securities of the Shares of each Portfolio, and (ii) the vote of a majority of
those Trustees of the Trust who are not parties to this Agreement or the Trust's
Distribution Plan or Service Plan or interested persons of any such party
("Qualified Trustees"), cast in person at a meeting called for the purpose of
voting on the approval. This Agreement shall automatically terminate in the
event of its assignment. As used in this paragraph the terms "vote of a majority
of the outstanding voting securities", "assignment" and "interested person"
shall have the respective meanings specified in the 1940 Act. In addition, this
Agreement may at any time be terminated without penalty by the Distributor, by a
vote of a majority of Qualified Trustees or by vote of a majority of the
outstanding voting securities of the Shares class of any Portfolio upon not less
than sixty days prior written notice to the other party.
ARTICLE 9. Notices. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Trust, at One Freedom Valley Road, Oaks, Pennsylvania, 19456;
and if to the Distributor, One Freedom Valley Road, Oaks, Pennsylvania, 19456.
ARTICLE 10. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
7
<PAGE>
ARTICLE 11. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
THE PILLAR FUNDS
By: /s/ Sandra Orlow
-----------------------------
Attest: /s/ Cassandra Arnold
-------------------------
SEI FINANCIAL SERVICES COMPANY
By: /s/ Marc Cahn
-----------------------------
Attest: /s/ Michael Bellopede
-------------------------
8
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 14,
1997, on the December 31, 1996 financial statements of The Pillar Funds,
included in the previously filed Form N-30D dated February 27, 1997, and to all
references to our firm included in or made part of this Post-Effective
Amendment No. 11 to the Registration Statement File No. 33-44712.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 28, 1997
THE PILLAR FUNDS
Amended and Restated
Rule 18f-3
Multiple Class Plan
February 20, 1997
The Pillar Funds (the "Trust"), a registered investment company that
currently consists of a number of separately managed funds, has elected to rely
on Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"), in offering multiple classes of shares in each fund listed on Schedule A
hereto (each a "Fund" and together the "Funds").
A. Attributes of Share Classes
1. The rights of each class of shares of the Funds shall be as set
forth in the respective Certificate of Class Designation for each class (each a
"Certificate") as each such Certificate is approved by the Trust's Board of
Trustees and as attached hereto as Exhibits.
2. With respect to each class of shares created hereunder, each share
of a Fund will represent an equal pro rata interest in the Fund and will have
identical terms and conditions, except that: (i) each new class will have a
different class name (or other designation) that identifies the class as
separate from any other class; (ii) each class will be offered and sold only to
investors meeting the qualifications set forth in the Certificate and disclosed
in the Trust's Prospectuses; (iii) each class will separately bear any
distribution fees and any shareholder service fees that are payable in
connection with a distribution plan or a distribution and shareholder service
plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Distribution Plan"),
and separately bear any other service fees ("service fees") that are payable
under any service agreement entered into with respect to that class which are
not contemplated by or within the scope of the Distribution Plan; (iv) each
class may bear, consistent with rulings and other published statements of
position by the Internal Revenue Service, the expenses of the Fund's operations
which are directly attributable to such class ("Class Expenses"); and
(v) shareholders of each class will have exclusive voting rights regarding any
matter submitted to shareholders that relates solely to such class (such as a
Distribution Plan or service agreement relating to such class), and will have
separate voting rights on any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class.
B. Expense Allocations
With respect to each Fund, the expenses of each class shall be
allocated as follows: (i) any Rule 12b-1 fees or shareholder service fees
relating to a particular class of shares associated with a Distribution Plan or
other service fees relating to a particular class of shares are (or will be)
borne exclusively by that class; (ii) any incremental transfer agency fees
relating to a particular class are (or
1
<PAGE>
will be) borne exclusively by that class; and (iii) Class Expenses relating to a
particular class are (or will be) borne exclusively by that class.
Non-class specific expenses shall be allocated in accordance with Rule
18f-3(c).
C. Amendment of Plan; Periodic Review
This Plan must be amended to properly describe (through additional
exhibits hereto) each new class of shares upon its approval by the Board.
The Board of Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust as defined in the 1940
Act, must review this Plan at least quarterly for its continued appropriateness,
and must approve any material amendment of the Plan as it relates to any class
of any Fund covered by the Plan. In approving any material amendment to the
Plan, the Trustees, including a majority of the Trustees who are not interested
persons of the Trust, must find that the amendment is in the best interests of
each class individually and the Trust as a whole.
2
<PAGE>
Schedule A
The Pillar Funds
Schedule A
to
Amended and Restated
Rule 18f-3
Multiple Class Plan
Money Market Funds
U.S. Treasury Securities Plus Money Market Fund
U.S. Treasury Securities Money Market Fund
Prime Obligation Money Market Fund
Tax-Exempt Money Market Fund
Non-Money Market Funds
Short-Term Investment Fund
Fixed Income Fund
New Jersey Municipal Securities Fund
Pennsylvania Municipal Securities Fund
Intermediate-Term Government Securities Fund
GNMA Fund
Equity Growth Fund
Equity Value Fund
Equity Income Fund
Mid Cap Fund
Balanced Fund
International Growth Fund
3
<PAGE>
Exhibit A
THE PILLAR FUNDS
CERTIFICATE OF CLASS DESIGNATION
Class A Shares
(Formerly, Class B Shares)
1. Class-Specific Distribution Arrangements; Other Expenses.
Class A Shares of the Money Market Funds (as identified on Schedule A) are sold
without a sales charge and Class A Shares of the Non-Money Market Funds (as
identified on Schedule A) are sold with a front end sales charge as indicated in
the following tables. Additionally, Class A Shares of the Funds are subject to a
.25% Rule 12b-1 fee.
The following tables show the regular sales charge on Class A 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"):
The Fixed Income Fund:
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and Brokerage
Percentage of Offering Percentage of Net Amount Commission as Percentage of
Price Invested Offering Price
<S> <C> <C> <C>
$0-99,999 4.25% 4.44% 4.00%
$100,000-249,999 3.75% 3.90% 3.50%
$250,000-499,999 2.75% 2.83% 2.50%
$500,000-999,999 2.00% 2.04% 1.75%
$1,000,000 and above* 0.00% 0.00% 0.00%**
</TABLE>
The New Jersey Municipal Securities and Pennsylvania Municipal Securities Funds:
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as a Percentage Sales Charge as a Percentage Reallowance and Brokerage
of Offering Price of Net Amount Invested Commission as Percentage of
Offering 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>
<PAGE>
The Equity Growth, Equity Value, Equity Income, International Growth and
Balanced Funds:
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as a Percentage Sales Charge as a Percentage Reallowance and Brokerage
of Offering Price of Net Amount Invested Commission as Percentage of
Offering Price
<S> <C> <C> <C>
$0-49,999 5.50% 5.82% 5.00%
$50,000-99,999 4.75% 4.99% 4.25%
$100,000-249,999 3.75% 3.90% 3.25%
$250,000-499,999 2.75% 2.83% 2.50%
$500,000-999,999 2.00% 2.04% 1.75%
$1,000,000 and above* 0.00% 0.00% 0.00%**
</TABLE>
The Intermediate-Term Government Securities and Mid Cap Funds:
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as a Percentage Sales Charge as a Percentage Reallowance and Brokerage
of Offering Price of Net Amount Invested Commission as Percentage of
Offering Price
<S> <C> <C> <C>
$0-99,999 4.00% 4.17% 3.50%
$100,000-249,999 3.00% 3.09% 2.70%
$250,000-499,999 2.00% 2.04% 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 GNMA Fund:
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as a Percentage Sales Charge as a Percentage Reallowance and Brokerage
of Offering Price of Net Amount Invested Commission as Percentage of
Offering Price
<S> <C> <C> <C>
$0-249,999 3.00% 3.09% 2.70%
$250,000-499,999 2.00% 2.04% 1.80%
$500,000-999,999 1.00% 1.01% 0.90%
$1,000,000 and above 0.00% 0.00% 0.00%
</TABLE>
- ------------------
* Purchases of $1,000,000 or more are at net asset value. However, a contingent
deferred sales charge will be imposed on such investments in the event such
shares are redeemed within 12 months from the date they were purchased. The
contingent deferred sales charge will be imposed at the rate of 1.00% of the
lesser of the current market value of the shares redeemed or the total cost of
such shares and is payable to the Distributor. In determining whether a
contingent deferred
A-2
<PAGE>
sales charge is payable, and, if so, the amount of the charge, it is assumed
that shares not subject to such charge are the first redeemed.
** There is no initial sales charge on purchases of $1,000,000 or more; however,
the Distributor may pay a dealer concession and/or advance a service fee on such
transactions.
The commissions shown in the tables above apply to sales through financial
institutions. Under certain circumstances, some financial institutions,
including Summit Bank and its affiliates, will be reallowed the entire sales
charge imposed on purchases of Class A 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 Class A 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 an Eligible 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 Class A 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 Class A Shares of a 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 Summit Bancorp. or one of its affiliates;
A-3
<PAGE>
(iv) sold to investors who are present employees of any entity which is a
current service provider to the Trust; (v) sold to any qualified customer who
has entered into an agreement with Summit Bank, its affiliates or correspondent
banks; or (vi) sold to any present or retired Trustee of the Trust or Director
of Summit Bancorp. or one of its affiliates or their respective families.
2. Eligibility of Purchasers
The minimum initial investment in Class A Shares of 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.
3. Exchange Privileges
Class A Shares of each Fund may be exchanged for Class A Shares of each other
Fund of the Trust in accordance with the procedures disclosed in the Fund's
Prospectus and subject to any applicable limitations resulting from the closing
of Funds to new investors.
4. Voting Rights
Each Class A shareholder will have one vote for each full Class A Share held and
a fractional vote for each fractional Class A Share held. Class A shareholders
will have exclusive voting rights regarding any matter submitted to shareholders
that relates solely to Class A (such as a distribution plan or service agreement
relating to Class A), and will have separate voting rights on any other matter
submitted to shareholders in which the interests of the Class A Shareholders
differ from the interests of holders of any other class.
5. Conversion Rights
Class A Shares do not have a conversion feature.
A-4
<PAGE>
Exhibit B
THE PILLAR FUNDS
CERTIFICATE OF CLASS DESIGNATION
Class B Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
Class B Shares of the Funds are sold without a front-end sales charge,
but are subject to a contingent deferred sales charge. Additionally, Class B
Shares of the Funds are subject to a .75% Rule 12b-1 fee and a .25% shareholder
service fee.
If Class B Shares are redeemed within seven years of purchase, a
Shareholder will be subject to a contingent deferred sales charge at the rates
set forth below. This charge is assessed on an amount equal to the lesser of the
then-current market value or the cost of the shares being redeemed. Accordingly,
no sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gain distributions.
Contingent Deferred Sales Charge ("CDSC") as a Percentage
of Dollar Amount Subject to Change
Years Since Purchase
1 5.50%
2 5.00%
3 4.00%
4 3.00%
5 2.00%
6 1.00%
7 0.00%
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that shares are redeemed in the following
order: (i) any Class A Shares in the Shareholder's Fund account; (ii) shares
held for over six years or shares acquired pursuant to reinvestment of dividends
or other distributions; and (iii) shares held longest during the six-year
period. This method should result in the lowest possible sales charge.
<PAGE>
For purposes of calculating the Class B Shares' contingent deferred sales charge
payable upon redemption, if the shares being redeemed were obtained through an
exchange, the holding period of Class B Shares of the "old" Fund and the holding
period for Class B Shares of the "new" Fund are aggregated.
The contingent deferred sales charge is waived on redemption of shares
(i) following the death or disability (as defined in the Internal Revenue Code
of 1986, as amended) of a Shareholder, or (ii) to the extent that the redemption
represents a minimum required distribution from an individual retirement account
or other retirement plan to a Shareholder who has attained the age of 70 1/2. A
Shareholder, or his or her representative, must notify the Transfer Agent prior
to the time of redemption if such circumstances exist and the Shareholder is
eligible for this waiver.
2. Eligibility of Purchasers
The minimum initial investment in Class B Shares of 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.
3. Exchange Privileges
Class B Shares of each Fund may be exchanged for Class B Shares of each other
Fund of the Trust which offers Class B Shares in accordance with the procedures
disclosed in the Fund's Prospectus and subject to any applicable limitations
resulting from the closing of Funds to new investors.
4. Voting Rights
Each Class B shareholder will have one vote for each full Class B Share held and
a fractional vote for each fractional Class B Share held. Class B shareholders
will have exclusive voting rights regarding any matter submitted to shareholders
that relates solely to Class B (such as a distribution plan or service agreement
relating to Class B), and will have separate voting rights on any other matter
submitted to shareholders in which the interests of the Class B Shareholders
differ from the interests of holders of any other class.
5. Conversion Rights
At the end of the period ending seven years after the beginning of the month in
which the shares were issued, Class B Shares will automatically convert to Class
A Shares. Such conversion will be on the basis of the relative net asset values
of the two classes. For purposes of calculating the Class B Shares' seven year
conversion period, if the shares being redeemed were obtained through an
exchange, the holding period of Class B Shares of the "old" Fund and the holding
period for Class B Shares of the "new" Fund are aggregated.
B-2
<PAGE>
Exhibit C
THE PILLAR FUNDS
CERTIFICATE OF CLASS DESIGNATION
Class I Shares
(Formerly, Class A Shares)
1. Class-Specific Distribution Arrangements; Other Expenses.
Class I Shares of the Funds are sold without a sales charge. Additionally, Class
I Shares of the U.S. Treasury Plus Money Market Fund are subject to a .03% Rule
12b-1 fee.
2. Eligibility of Purchasers
The Trust's Class I Shares are offered without distribution fees to: (i)
institutional investors (including Summit Bank, its affiliates and correspondent
banks) for the investment of their own funds; (ii) any individual or institution
(including Summit 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 Summit Bank, its affiliates or
correspondent banks ("Qualified Customers"). The minimum initial investment in
the Trust for Qualified Customers is $10,000. All subsequent purchases must be
at least $1,000.
3. Exchange Privileges
Class I Shares of each Fund may be exchanged for Class I Shares of each other
Fund of the Trust in accordance with the procedures disclosed in the Fund's
Prospectus and subject to any applicable limitations resulting from the closing
of Funds to new investors.
4. Voting Rights
Each Class I shareholder will have one vote for each full Class I Share held and
a fractional vote for each fractional Class I Share held. Class I shareholders
will have exclusive voting rights regarding any matter submitted to shareholders
that relates solely to Class I (such as a distribution plan or service agreement
relating to Class I), and will have separate voting rights on any other matter
submitted to shareholders in which the interests of the Class I Shareholders
differ from the interests of holders of any other class.
5. Conversion Rights
Class I Shares do not have a conversion feature.
THE PILLAR FUNDS
DISTRIBUTION AND SERVICE PLAN
Class B Shares
WHEREAS, The Pillar Funds (the "Trust") is engaged in business as an
open-end investment company registered under the Investment Company Act of 1940,
as amended ("1940 Act"); and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Distribution and Service Plan (the
"Plan") will benefit the Trust and the owners of the Class B Shares of certain
portfolios (the "Shareholders") of the Trust.
NOW, THEREFORE, the Trustees of the Trust hereby adopt this
Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act and in
accordance with Rule 18f-3 under the 1940 Act.
Section 1. The Trust has adopted this Plan to enable the Trust to
directly or indirectly bear expenses relating to (a) the distribution and sale
of Class B Shares (collectively, the "Shares") of the portfolios of the Trust,
as now in existence or hereinafter created from time to time, (each, a
"Portfolio"), and (b) the shareholder servicing of such Shares.
Section 2. Distribution Activities.
(a) The Shares of each Portfolio are authorized to pay the principal
underwriter of the Shares (the "Distributor") a total fee in connection
with distribution-related services provided in respect of such class,
calculated and payable monthly, at the annual rate rate of .75% of the
value of the average daily net assets of such class.
(b) The fee paid pursuant to this Section 2 may be used by the Distributor
to provide initial and ongoing sales compensation to its investment
executives and to other broker-dealers in respect of sales of Shares of
the applicable Portfolios and to pay for other advertising and
promotional expenses in connection with the distribution of the Shares.
These advertising and promotional expenses include, by way of example
but not by way of limitation, costs of printing and mailing
prospectuses, statements of additional information and shareholder
reports to prospective investors; preparation and distribution of sales
literature; advertising of any type; an allocation of overhead and
other expenses of the Distributor related to the distribution of the
Shares; and payments to, and expenses of, officers, employees or
representatives of the Distributor, of other broker-dealers, banks or
other financial institutions, and of any other persons who provide
support services in connection with the distribution of the Shares,
including travel, entertainment, and telephone expenses.
(c) Payments under this Section of the Plan are not tied exclusively to the
expenses for distribution-related activities actually incurred by the
Distributor, so that such payments may exceed expenses actually
incurred by the Distributor. The Trust's Board of Trustees will
1
<PAGE>
evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so will consider all relevant factors,
including expenses borne by the Distributor and amounts it receives
under the Plan.
(d) The Trust's investment adviser and the Distributor may, at their option
and in their sole discretion, make payments from their own resources to
cover costs of additional distribution.
Section 3. Shareholder Servicing Activities.
(a) In addition to the amounts set forth in Section 2 above, the Shares of
each Portfolio are authorized to pay the Distributor a fee in
connection with the personal, ongoing servicing of shareholder accounts
of such Shares, calculated and payable monthly, at the annual rate of
.25% of the value of the average daily net assets of such class.
(b) The service fee payable to the Distributor pursuant to this Section 3
hereof may be used by the Distributor to provide compensation for
personal, ongoing servicing and/or maintenance of shareholder accounts
with respect to the Shares of the applicable Portfolios. Compensation
may be paid by the Distributor, or any portion of the fee may be
reallowed, to persons, including employees of the Distributor, and
institutions who respond to inquiries of holders of the Shares
regarding their ownership of Shares or their accounts with the Trust or
who provide other administrative or accounting services not otherwise
required to be provided by the Trust's investment adviser, transfer
agent or other agent of the Trust. Notwithstanding the foregoing, if
the National Association of Securities Dealers, Inc. (the "NASD")
adopts a definition of "service fee" for purposes of Section 2830(d) of
its Conduct Rules that differs from the definition of shareholder
servicing activities in this paragraph, or if the NASD adopts a related
definition intended to define the same concept, the definition of
shareholder servicing activities in this paragraph shall be
automatically amended, without further action of the parties, to
conform to such NASD definition.
(c) Payments under this Section of the Plan are not tied exclusively to the
expenses for shareholder servicing activities actually incurred by the
Distributor, so that such payments may exceed expenses actually
incurred by the Distributor. The Trust's Board of Trustees will
evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in doing so will consider all relevant factors,
including expenses borne by the Distributor and amounts it receives
under the Plan.
(d) The Trust's investment adviser and the Distributor may, at their option
and in their sole discretion, make payments from their own resources to
cover costs of additional shareholder servicing activities.
Section 4. This Plan shall not take effect with respect to a Portfolio
until it has been approved by shareholders if and to the extent required by Rule
12b-1 under the 1940 Act and, together with any related agreements, by votes of
the majority of both (i) the Trustees of the Trust and (ii) the
2
<PAGE>
Qualified Trustees, cast in person at a Board of Trustees meeting called for the
purpose of voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 4 herein for the approval of this Plan.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made.
Section 7. This Plan may be terminated at any time with respect to any
Portfolio by the vote of a majority of the Qualified Trustees or by vote of a
majority of the Portfolio's outstanding Shares.
Section 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time with respect to
any Portfolio, without payment of any penalty, by the vote of a majority of the
Qualified Trustees or by the vote of shareholders holding a majority of the
Portfolio's outstanding Shares, on not more than 60 days written notice to any
other party to the agreement; and (b) that such agreement shall terminate
automatically in the event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 2 hereof without
the approval of shareholders holding a majority of the outstanding Shares of the
applicable Portfolio, and all material amendments to this Plan shall be approved
in the manner provided in Section 4(b) herein for the approval of this Plan.
Section 10. As used in this Plan, (a) the term "Qualified Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the 1940 Act
and the rules and regulations thereunder, subject to such exemptions as may be
granted by the SEC.
3
<PAGE>
Section 11. While this Plan is in effect, the selection and nomination
of those Trustees who are not interested persons of the Trust within the meaning
of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
Section 12. This Plan shall not obligate the Trust or any other party
to enter into an agreement with any particular person.
February 20, 1997
4
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<CIK> 0000882303
<NAME> THE PILLAR FUNDS
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<NAME> SHORT-TERM INVESTMENT FUND
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<TABLE> <S> <C>
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<CIK> 0000882303
<NAME> THE PILLAR FUNDS
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<NAME> FIXED INCOME FUND
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 052
<NAME> FIXED INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 061
<NAME> NEW JERSEY MUNICIPAL SECURITIES FUND
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 062
<NAME> NEW JERSEY MUNICIPAL SECURITIES FUND
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 071
<NAME> INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
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<NUMBER> 072
<NAME> INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
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<NAME> EQUITY VALUE FUND
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<S> <C>
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<TABLE> <S> <C>
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<CIK> 0000882303
<NAME> THE PILLAR FUNDS
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<NAME> EQUITY VALUE FUND
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000882303
<NAME> THE PILLAR FUNDS
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<NUMBER> 091
<NAME> EQUITY INCOME FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 092
<NAME> EQUITY INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
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<NUMBER> 101
<NAME> MID-CAP VALUE FUND
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 102
<NAME> MID-CAP VALUE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 111
<NAME> BALANCED GROWTH FUND
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 112
<NAME> BALANCED GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 231
<NAME> PENNSYLVANIA MUNICIPAL SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 232
<NAME> PENNSYLVANIA MUNICIPAL SECURITIES FUND
<MULTIPLIER> 1,000
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000882303
<NAME> THE PILLAR FUNDS
<SERIES>
<NUMBER> 241
<NAME> GNMA FUND
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<S> <C>
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