As filed with the Securities and Exchange Commission on February 28, 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. 10 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 12 /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)
/ / immediately upon filing pursuant to Paragraph (b)
/ / on (date) pursuant to Paragraph (b)
/X/ 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-Prime Obligation Money Market Fund--Class A and Class B
Fixed Income Fund--Class A and B
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
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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 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--U.S. Treasury Securities Money Market Fund and
Tax-Exempt Money Market Fund--Class 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
</TABLE>
i
<PAGE>
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
</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
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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 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>
ii
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N-1A ITEM NO. LOCATION
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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 and GNMA Fund--Class I
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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
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 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
</TABLE>
iii
<PAGE>
N-1A ITEM NO. LOCATION
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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 B--All Funds
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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)
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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.
- ----------
* Information required by Item 5A is contained in the 1996 Annual Report to
Shareholders.
v
<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"):
Money Market Funds
o U.S. Treasury Securities Money Market Fund
o Tax-Exempt Money Market Fund
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.
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.
<PAGE>
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
- ----------------
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: U.S. Treasury Securities Money Market and Tax-Exempt Money Market
Funds (the "Money Market Funds"); 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
Money Market and Fixed Income 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 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 Money Market Funds: 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 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.
3
<PAGE>
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."
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 Funds 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 of the Trust. See "The Advisor."
Who is the Administrator? SEI Fund Resources serves as the Administrator
of the Trust. See "The Administrator."
Who is the Shareholder Servicing Agent? SEI Fund Resources acts as
dividend disbursing agent, shareholder servicing agent and transfer agent for
the Trust. See "The Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. 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. See "The Distributor."
How do I Purchase and Redeem Shares? Shares may be purchased through a
financial institution, such as Summit Bank, or a broker-dealer that has entered
into a dealer agreement with the Distributor ("Intermediaries"). Shares may also
be purchased directly through the Distributor. Shareholders may redeem shares
directly through the Distributor. In addition, Intermediaries
4
<PAGE>
through which Shareholders may purchase shares generally stand ready to assist
Shareholders in effecting redemptions of shares held in their Fund accounts.
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.
The Money Market Funds: A purchase order for Money Market Fund shares will
be effective as of the business day (a day on which both the New York Stock
Exchange and the Federal Reserve wire system are open for business (a "Business
Day")) received by the Distributor if the Distributor receives an order and
Summit Bank (the "Custodian") receives federal funds prior to 12:00 noon,
Eastern time, on such Business Day. 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 purchase
order will be effective as of the Business Day received by the Distributor if
the Distributor receives an order prior to 4:00 p.m., Eastern time. However, an
order may be canceled if the Custodian does not receive federal funds before
12:00 noon, Eastern time, on the next Business Day. Redemption orders must be
placed prior to 4:00 p.m., Eastern time, on any Business Day for the order to be
effective that day. 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 the applicable sales load, if any. 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."
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 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.
5
<PAGE>
All Funds: 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."
6
<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)
U.S. Treasury
Securities Tax-Exempt
Money Market Money Market
Fund Fund
- --------------------------------------------------------------------------------
Advisory Fees (after fee waivers)(1),(2) .35% .32%
- --------------------------------------------------------------------------------
12b-1 Fees .25% .25%
- --------------------------------------------------------------------------------
Other Expenses .30% .33%
- --------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2) .90% .90%
- --------------------------------------------------------------------------------
(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 Tax-Exempt Money Market Fund, the Advisory Fee
would be .35% and Total Operating Expenses would be .93% of the Fund's
average daily net assets.
7
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Example - Class A Shares
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
An investor in a Money Market Fund would pay
the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2)
redemption at the end of each time period:
- --------------------------------------------------------------------------------
U.S. Treasury Securities Money Market Fund
- --------------------------------------------------------------------------------
Class A Shares .................... $9 $29 $50 $111
- --------------------------------------------------------------------------------
Tax-Exempt Money Market Fund
- --------------------------------------------------------------------------------
Class A Shares .................... $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 the Money Market Funds. The information set forth in the
foregoing table and example relates to Class A Shares only. Financial
institutions may impose separate fees for account services on their Investment
Strategy Account Agreement customers ("ISA Customers") and on customers for
which they are the record owner of shares for the account. Additional
information may be found under "The Advisor," "The Administrator," "The
Shareholder Servicing Agent" and "The Distributor."
8
<PAGE>
EXPENSE SUMMARY
Fixed Income Funds
Class A Shares
- --------------------------------------------------------------------------------
SHAREHOLDER Short-Term Intermediate-Term
TRANSACTION EXPENSES Investment Government
Fund Securities Fund GNMA Fund
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES -- Class A Shares
(As a percentage of average net assets)
Short-Term Intermediate-Term
Investment Government Securities
Fund Fund GNMA Fund
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
(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
9
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.97%, Intermediate-Term Government Securities Fund 1.12% 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) 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. The information
set forth in the foregoing table and example relates only to Class A Shares.
Financial institutions may impose separate fees for account services on their
ISA customers and on customers for which they are the record owner of shares for
the account. Additional information may be found under "The Advisor," "The
Administrator" and "The Distributor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase and Redemption of Shares."
Long-term Shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the 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.
10
<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 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."
11
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Example
An investor in the Fund would pay the following expenses on a $1,000 investment
assuming (1) imposition of the maximum sales load; (2) 5% annual return and (3)
redemption at the end of each time period:
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
$ 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. The information set forth in the
foregoing table and example relates only to Class A Shares. Financial
institutions may impose separate fees for account services on their ISA
Customers and on customers for which they are the record owner of shares for the
account. Additional information may be found under "The Advisor," "The
Administrator" and "The Distributor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above tables. 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 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.
12
<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 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.
<PAGE>
<TABLE>
<CAPTION>
Ratio of
Net
Ratio of Income
Net Realized Distri- Net Ratio of Ratio of Expenses to
Asset and butions Distri- Net Assets Expenses Income to Average Average Port-
Value Net Unrealized from Net butions Asset End of to to Net Net folio
Begin- Invest- Gains or Invest- from Value Total of Average Average Assests Assets Turn- Average
ning of ment Losses on ment Capital End of Return Period Net Net (Excluding (Excluding over Commission
Period Income Securities Income Gains Period (+) (000) Assets Assets Waivers) Waivers) Rate Rate++
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
1996 $1.00 $0.04 -- $(0.04) -- $1.00 4.27% $3,503 0.90% 4.19% 0.90% 4.19% -- --
1995 1.00 0.05 -- (0.05) -- 1.00 4.80 3,532 0.90 4.66 0.90 4.66 -- --
1994 1.00 0.03 -- (0.03) -- 1.00 3.17 633 0.87 3.07 0.87 3.07 -- --
1993 1.00 0.02 -- (0.02) -- 1.00 2.21 834 0.89 2.17 0.89 2.17 -- --
1992(1) 1.00 0.02 -- (0.02) -- 1.00 2.56* 436 0.90 2.27 0.95 2.22 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $1.00 $0.03 -- $(0.03) -- $1.00 2.70% $3,852 0.90% 2.65% 0.93% 2.62% -- --
1995 1.00 0.03 -- (0.03) -- 1.00 3.17 5,238 0.90 3.14 0.96 3.08 -- --
1994 1.00 0.02 -- (0.02) -- 1.00 2.02 2,790 0.90 1.97 0.92 1.95 -- --
1993 1.00 0.02 -- (0.02) -- 1.00 1.74 3,866 0.90 1.72 0.94 1.68 -- --
1992(2) 1.00 0.02 -- (0.02) -- 1.00 2.17* 2,273 0.90 2.07 1.04 1.93 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
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% 4.44% --
1995 9.98 0.53 0.07 (0.53) -- 10.05 6.13 2,043 1.05 5.27 1.22 5.10 --
1994 10.03 0.33 (0.05) (0.33) -- 9.98 2.85 769 1.05 3.50 1.20 3.35 --
1993 10.01 0.28 0.01 (0.27) -- 10.03 2.90 205 1.05 2.09 1.13 2.01 --
1992(1) 10.00 0.25 0.03 (0.25) $(0.02) 10.01 3.23* 193 1.05 3.14 1.26 2.93 --
- ------------------------------------------------------------------------------------------------------------------------------------
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% 4.94% 40.60% --
1995 9.51 0.51 0.86 (0.51) -- 10.37 14.71 3,665 1.05 5.08 1.30 4.83 68.29 --
1994 10.53 0.49 (1.01) (0.49) $(0.01) 9.51 (5.09) 2,372 1.05 4.83 1.20 4.68 40.27 --
1993 10.24 0.49 0.31 (0.49) (0.02) 10.53 7.94 4,903 1.05 4.59 1.23 4.41 31.69 --
1992(1) 10.00 0.39 0.25 (0.39) (0.01) 10.24 7.86* 2,190 1.05 5.00 1.36 4.69 12.38 --
- ------------------------------------------------------------------------------------------------------------------------------------
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% 5.62% 5.77% --
1995 8.84 0.58 1.08 (0.57) -- 9.93 19.24 1,761 1.05 6.05 1.37 5.73 9.69 --
1994 9.85 0.50 (1.00) (0.50) $(0.01) 8.84 (5.05) 1,853 1.05 5.47 1.22 5.30 102.77 --
1993(3) 10.01 0.31 (0.16) (0.31) -- 9.85 2.31* 2,633 1.05 4.70 1.29 4.46 252.73 --
- ----------------------------------------------------------------------------------------------------------------------------------
MID CAP FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B
1996 $12.53 $0.05 $1.59 $(0.05) $(0.81) $13.31 13.32% $ 5,846 1.05% 0.41% 1.35% 0.11% 41.41% $.1010
1995 10.82 0.12 1.94 (0.12) (0.23) 12.53 19.13 5,653 1.05 1.03 1.35 0.73 32.96 --
1994 12.31 0.10 (1.27) (0.10) (0.22) 10.82 (9.54) 4,567 1.05 0.85 1.33 0.57 13.82 --
1993 10.99 0.09 1.32 (0.09) -- 12.31 12.88 2,720 1.05 0.83 1.35 0.53 24.49 --
1992(1) 10.00 0.05 1.00 (0.06) -- 10.99 14.08* 637 1.05 0.88 1.40 0.53 9.29 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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, Intermediate-Term Government
Securities and U.S. Treasury Securities Money Market Funds commenced
operations on April 1, 1992. Ratios for this period have been annualized.
(2) The Tax Exempt Money Market Fund commenced operations on April 6, 1992.
Ratios for this period have been annualized.
(3) The GNMA Fund -- Class A Fund commenced operations on May 3, 1993. Ratios
for this period have been annualized.
13
<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 U.S. Treasury Securities Money Market Fund, Tax-Exempt Money Market
Fund, 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 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.
14
<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 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 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 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) 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 an NRSRO or determined by the Advisor to be of
15
<PAGE>
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 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 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.
16
<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 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.
17
<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 of which reflects prevailing
interest rates. Thus, mortgage-backed securities may not be an effective means
of locking in long-term interest rates for a Fund.
Investments in securities of foreign issuers may subject the Short-Term
Investment 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
18
<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 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.
19
<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 Non-Money Market Fund will not exceed 100%. 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.
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
20
<PAGE>
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 total assets in illiquid securities (as defined under "Description of
Permitted Investments").
The Non-Money Market Funds: The investment objective and the following
investment limitations are fundamental policies of Non-Market 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 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,
21
<PAGE>
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 Non-Money Market Fund to invest no more
than 15% of its total 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 Advisor of 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 $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, Fixed Income 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 has investment responsibility for equity and fixed income portfolios in
the Princeton Investment Office and joined Summit Bank in 1989.
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-
22
<PAGE>
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 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 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
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
Operating Expense In Fiscal Year
Contractual Fee After Fee Waiver 1996
- --------------------------------------------------------------------------------
U.S. Treasury Securities
Money Market Fund .35% .90% .35%
- --------------------------------------------------------------------------------
Tax-Exempt Money Market Fund .35% .90% .32%
- --------------------------------------------------------------------------------
Short-Term Investment Fund .60% 1.05% .43%
- --------------------------------------------------------------------------------
Intermediate-Term Government
Securities Fund .60% 1.05% .53%
- --------------------------------------------------------------------------------
GNMA Fund .60% 1.05% .25%
- --------------------------------------------------------------------------------
Mid Cap Fund .75% 1.05% .45%
- --------------------------------------------------------------------------------
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
23
<PAGE>
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 SHAREHOLDER SERVICING AGENT
SEI Fund Resources acts as the dividend disbursing agent, shareholder servicing
agent and transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, acts as the Distributor of the Trust.
The Class 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 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.
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PURCHASE OF SHARES
Shares of each Fund may be purchased through a financial institution, such as
Summit Bank, or a broker-dealer that has entered into a dealer agreement with
the Distributor. Shares may also be purchased directly through the Distributor
by mail, by telephone or by wire.
Shares of each Fund are sold on a continuous basis and may be purchased on any
Business Day. The minimum initial investment in the Trust is $1,000; however,
the minimum investment may be waived at the Distributor's discretion. All
subsequent purchases must be at least $50.
Generally a purchase order for a Money Market Fund will be effective as of the
Business Day received by the Distributor if the Distributor receives the order,
and the Custodian receives federal funds, before 12:00 noon, Eastern time, on
such Business Day. Otherwise, the purchase order will be effective the next
Business Day. With respect to ISA Customers, purchase orders will be effective
as of the Business Day received by the Distributor if the Distributor receives
the order and payment prior to 4:00 p.m., Eastern time, on such Business Day.
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 an order
prior to 4:00 p.m., Eastern time. However, an order may be canceled if the
Custodian does not receive federal funds before 12:00 noon, Eastern time, on the
next Business Day.
Purchases Through Intermediaries
Customers should contact their Intermediary for information about the
institution's procedures for purchasing shares of a Fund and any charges for
services provided by the institution. Intermediaries may impose an earlier
cut-off time for receipt of purchase orders directed through them to allow 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.
Direct Purchases
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) payable to "The Pillar Funds (Fund Name)," P.O. Box
8523, Boston, MA 02266-8523. Investors must indicate which Class of shares they
intend to purchase on the Account
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Application form for a purchase order to be in good order. Third party checks,
credit cards, credit card checks and cash will not be accepted. When purchases
are made by check, redemption proceeds will not be forwarded until the
investment being redeemed has been in the account for 10 Business Days. Orders
by mail are considered received after payment by check is converted by the Fund
into federal funds. Subsequent purchases of shares may be made at any time by
mailing a check (or other negotiable bank draft or money order) to the
Distributor.
Account Application forms can be obtained by calling the Distributor at
1-800-932-7782.
By Telephone or by Wire
If your Account Application has been previously received, you may also purchase
shares by telephone or by wire. To buy shares by telephone or by wire, call the
Distributor toll-free at 1-800-932-7782. Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed and on
federal holidays upon which wire transfers are restricted.
Orders by telephone will not be executed until payment has been received. If a
check received does not clear, the purchase will be cancelled and the investor
could be liable for any losses or fees incurred.
Automatic Investment Plan (AIP)
A Shareholder may also arrange for periodic additional investments in the Funds
through automatic deductions by Automated Clearing House ("ACH") wire transfer
from a checking account by completing an Optional Services Form. The minimum
pre-authorized investment amount is $50 per month. An Optional Services Form may
be obtained by contacting the Distributor at 1-800-932-7782.
Other Information Regarding Purchases
A purchase order for shares of a Fund will be executed at a per share price
equal to the net asset value next determined after the receipt of the purchase
order by the Distributor plus any applicable sales charge (the "offering
price").
The net asset value per share of each class of each 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.
The Money Market Funds: 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 under "Determination of Net Asset Value" in the Statement of
Additional Information. Purchased shares are first entitled to dividends the day
the purchase order is effective.
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The Non-Money Market Funds: The net asset value per share is determined as of
4:00 p.m., Eastern time, on each Business Day. Purchases will be made in full
and fractional shares of 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. Although the methodology and
procedures are identical, the net asset value per share of classes within a Fund
may differ because of the distribution expenses charged to the Class A Shares.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
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"):
Intermediate-Term Government Securities and Mid Cap 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
- --------------------------------------------------------------------------------
$0-99,999 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 0.00% 0.00% 0.00%
above
- --------------------------------------------------------------------------------
GNMA Fund:
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- --------------------------------------------------------------------------------
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% 3.09% 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 0.00% 0.00% 0.00%
above
- --------------------------------------------------------------------------------
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 Internal Revenue Code of 1986, as
amended (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
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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; (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
investors who are present or retired Trustees of the Trust, Directors of Summit
Bancorp. and its affiliates, and any of their immediate families.
Exchanges
Class A Shares of a Fund may be exchanged for Class A Shares of the Trust's
other Funds. Some or all of the shares of a Fund for which payment has been
received (i.e., an established account) may be exchanged, and such exchanges are
generally made at net asset value. However, exchanges from Class A Shares with a
low (or no) initializes load to Class A Shares with a higher sales load are made
at net asset value plus and sales load equal to the difference between the two
sales loads. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by the
Distributor.
Shareholders may effect exchanges of shares directly through the Distributor.
Additionally, Intermediaries, through which Shareholders may purchase shares,
generally stand ready to assist Shareholders in effecting through the
Distributor exchanges of shares held in Fund accounts. Shareholders wishing to
effect an exchange with the assistance of an Intermediary should contact that
Intermediary for information about exchange procedures and cut-off times.
If an Exchange Request in good order is received by the Distributor by 12:00
noon, Eastern time, on any Business Day, the exchange usually will occur on that
day. Any Shareholder or customer who wishes to make an exchange must have
received a current prospectus of the Fund in which he or she wishes to invest
before the exchange will be effected.
REDEMPTION OF SHARES
Money Market Funds
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Shares of the Money Market Funds may be redeemed without charge on any Business
Day. Redemption requests received in good order by 12:00 noon, Eastern time,
will be effective on the Business Day received. Requests received after 12:00
noon will be effective on the next Business Day.
Non-Money Market Funds
Shares of each Non-Money Market Fund may be redeemed without charge on any
Business Day. Redemption requests received in good order by 4:00 p.m., Eastern
time, will be effective on the Business Day received. Requests received after
4:00 p.m. will be effective on the next Business Day.
Redemptions Through Intermediaries
Intermediaries, through which Shareholders may purchase shares, generally stand
ready to assist Shareholders in effecting through the Distributor redemptions of
shares held in Fund accounts. Shareholders wishing to effect a redemption with
the assistance of an Intermediary should contact that Intermediary for
information about redemption procedures and cut-off times.
Direct Redemptions
Shares may be redeemed directly through the Distributor by mail, by telephone or
by wire.
By Mail
A written request for redemption must be received by the Distributor in order to
constitute a valid request for redemption. The Distributor may require that the
signature on the written request be guaranteed by a commercial bank or by a
member firm of a domestic stock exchange. The signature guarantee requirement
will be waived if all of the following conditions apply: (1) the redemption is
for $5,000 worth of shares or less, (2) the redemption check is payable to the
Shareholder(s) of record, and (3) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application or by written instruction to the Distributor. There is no
charge for having redemption requests mailed to a designated bank account.
By Telephone
Shares may be redeemed by telephone if the Shareholder elects that option on the
Account Application. The Shareholder may have the proceeds mailed to his or her
address or mailed or wired to a commercial bank account previously designated on
the Account Application. Wire redemption requests may be made by the Shareholder
by calling the Distributor at 1-800-932-
30
<PAGE>
7782. A $10.00 wire redemption charge will be added to the amount of the
redemption. Shareholders may not close their accounts by telephone.
Neither the Trust nor 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 telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, Shareholders
who experience difficulties placing redemption orders by telephone may wish to
consider placing the redemption order by other means.
Systematic Withdrawal Plan
The Trust offers a Systematic Withdrawal Plan ("SWP") which may be utilized by
Shareholders who wish to receive regular distributions from their account. Upon
commencement of the SWP, the account must have a current value of $1,000 or
more. Shareholders may elect to receive automatic payments by check or ACH wire
transfer of $50 or more on a monthly or quarterly basis. An Optional Services
Form may be obtained by contacting the Distributor at 1-800-932-7782.
It is generally not in your best interest to participate in the SWP at the same
time that you purchase additional shares if you have to pay a sales load in
connection with such purchases.
Other Information Regarding Redemptions
All redemption orders are effected at the net asset value per share next
determined after receipt of a valid request for redemption, as described above.
Payment to Shareholders for shares redeemed will be made within seven days after
receipt by the Distributor of the request for redemption, provided, however, the
Trust has received payment for the shares being redeemed. Redeemed shares are
not entitled to dividends declared the day the redemption order is effective.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment in connection with a purchase. In such circumstances,
the forwarding of redemption proceeds may be delayed until such payment has been
collected. 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.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares
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<PAGE>
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.
Accordingly, an investor purchasing shares of that Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems any of these shares. Before any Fund exercises its right to
redeem such shares and to send the proceeds to the Shareholder, the Shareholder
will be given notice that the value of the shares in his or her account is less
than the minimum amount and will be allowed 60 days to make an additional
investment in such Fund in an amount which will increase the value of the
account to at least $1,000.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
CHECKWRITING
CheckWriting Service
A Shareholder in the Money Market Funds may redeem shares by writing checks on
his or her account for $500 or more. Once a Shareholder has signed and returned
a signature card, he or she will receive a supply of checks. The check may be
made payable to any person, and the Shareholder's account will continue to earn
dividends until the check clears.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. Checks
are free, but if payment on a check is stopped upon the Shareholder's request or
if the check cannot be honored because of insufficient funds or other valid
reasons, the Shareholder's account will be charged a fee.
PERFORMANCE
COMPUTATION OF YIELD
From time to time the Money Market Funds may advertise "current yield" and
"effective compound yield." Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "current yield" of a
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.
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<PAGE>
The Tax-Exempt Money Market Fund 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 Fund's yield, assuming certain tax brackets for a Shareholder.
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.
COMPUTATION OF TOTAL RETURN
Each of the Non-Money Market 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.
The advertised performance on Class A Shares will normally be lower than for
Class I Shares because Class I Shares are not subject to the distribution
expenses and sales loads charged to Class A Shares. The performance of Class A
Shares and Class I Shares of a Fund will differ because of the different sales
charge structures of the classes and because of the differing distribution fees
charged to Class A Shares. The actual return to Shareholders on Class A Shares
will be reduced by the amount of any sales load paid or payable and distribution
expenses on Class A Shares.
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.
33
<PAGE>
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
advisers regarding specific questions as to federal, state and local income
taxes.
Tax Status of the Funds
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other 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
34
<PAGE>
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 Fund will not be able to elect to treat
Shareholders as having paid their proportionate share of such foreign taxes.
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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.
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.
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, the
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 Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services, 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
36
<PAGE>
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.
Shareholder Inquiries
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
Dividends
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
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Funds in Class A Shares on or about the first business day of the following
month, unless the Shareholder has elected to take such payment in cash.
Shareholders may change their election by providing written notice to the
Administrator at least 15 days prior to the distribution. Currently, capital
gains of a Fund, if any, are distributed at least annually.
The amount of dividends payable on Class A Shares will be less than the
dividends payable on the 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
after payment is received by the Custodian. Normally, this will occur within two
Business Days after the order is effective. If any capital gain is realized,
substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class A Shares, unless a Shareholder has elected to
take such payment in cash. Shareholders may change their election by providing
written notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of each Fund are paid on a per-share basis. The
amount of dividends payable on Class A Shares will be less than the dividends
payable on the Class I Shares because of the distribution expenses charged to
Class A Shares.
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. 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 Class A Shares at the net asset value next determined following
the record date, unless the Shareholder has elected to take such payment in
cash. Shareholders may change their election by providing written notice to the
Administrator at least 15 days prior to the distribution.
Dividends and distributions of each Fund are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a Shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
The amount of dividends payable on Class A Shares will be less than the
dividends payable on Class I Shares because of the distribution expenses charged
to Class A Shares.
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Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountant 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 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
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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. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (e.g., Receipts and STRIPs), and
privately issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.
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 strategies. However, the Advisor and Sub-
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Advisor believe that it is important to have the flexibility to enter into
forward currency contracts when it determines that the best interest of the Fund
will be served.
The Fund will convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion. When the Advisor or
Sub-Advisor believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Fund may enter into a currency contract to sell, for a fixed amount of U.S.
dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, a Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
Generally, a Fund will enter into forward currency contracts only as a hedge
against foreign currency exposure affecting the Fund. If a Fund enters into
forward currency contracts to cover activities which are essentially
speculative, the Fund will segregate cash or readily marketable securities with
its Custodian, or a designated sub-custodian, in an amount at all times equal to
or exceeding the Fund's commitment with respect to such contracts.
To assure that a Fund's foreign currency contracts are not used for leverage,
the net amount the Fund may invest in forward currency contracts is limited to
the amount of the Fund's aggregate investments in foreign currencies.
By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can achieve at some future point in time.
Additionally, although such contracts tend to minimize the rise of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A Fund may enter into
contracts for the purchase or sale of securities, including index contracts or
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery to the Fund of the securities or foreign
currency called for by the contract at a specified price during a specified
future month. When a futures contract on securities or currency is sold, a Fund
incurs a contractual obligation to deliver the securities or foreign currency
underlying the contract at a specified price on a specified date during a
specified future month. A Fund may sell stock index futures contracts in
anticipation of, or during a market decline to attempt to offset the decrease in
market value of its common stocks that
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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 U.S., 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 total assets of a Money
Market Fund or 15% of the total 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
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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: (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
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purchased at a discount often results in capital gains. Because of these
unpredictable prepayment characteristics, it is often not possible to predict
accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations are not backed
by the full faith and credit of the U.S. Government as GNMA certificates are,
but FNMA and FHLMC securities are supported by the instrumentalities' right to
borrow from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCS)
which also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is likely
to vary inversely with fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
multi-class pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees
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the timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITs: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities and can experience
wide swings in value in response to changes in interest rates and associated
mortgage prepayment rates. During times when interest rates are experiencing
fluctuations, such securities can be difficult to price on a consistent basis.
The market for SMBs is not as fully developed as other markets; SMBs therefore
may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security. There
can be no assurance that estimated average life will be a security's actual
average life.
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
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to other public institutions and facilities, and (ii) certain private activity
and industrial development bonds issued by or on behalf of public authorities to
obtain funds to provide for the constructions, equipment, repair or improvement
of privately operated facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes and construction loan notes 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
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exercised, the Fund will be required to sell the underlying securities to the
option holder at the strike price, and will not participate in any increase in
the price of such securities above the strike price. When a put option of which
a Fund is the writer is exercised, the Fund will be required to purchase the
underlying securities at the strike price, which may be in excess of the market
value of such securities.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates.
Call options on securities or foreign currency written by a Fund will be
"covered," which means that the Fund will own an equal amount of the underlying
security or foreign currency. With respect to put options on securities or
foreign currency written by a Fund, the Fund will establish a segregated account
with its custodian bank consisting of 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.
48
<PAGE>
Risk Factors. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
RECEIPTS--Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying investments.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have 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 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
49
<PAGE>
market fund may hold more than 5% of its assets in the first tier securities of
a single issuer for three business days.
SECURITIES OF FOREIGN ISSUERS--There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments, the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities. Also it may be more difficult to
obtain a judgment in a court outside the United States.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss or rights in the collateral should the borrower of
the securities fail financially or become insolvent. A Fund pays lending and
other fees in connection with securities loans.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits maturing in more than seven days
are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal
50
<PAGE>
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 are subject to
market fluctuation due to changes in market interest rates and it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed. Although
a Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities, a Fund may dispose of
a when-issued security or forward commitment prior to settlement if it deems
appropriate.
51
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Summary
Expense Summary
The Trust
Investment Objectives and Policies
Investment Limitations
The Advisor
The Sub-Advisor
The Administrator
The Shareholder Servicing Agent
The Distributor
Purchase and Redemption of Shares
Purchase of Shares--Qualified Customers
Redemption of Shares--Qualified Customers
Performance
Taxes
General Information
Description of Permitted Investments
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.
52
<PAGE>
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
U.S. Treasury Securities Money Market Fund
Tax-Exempt Money Market Fund
Short-Term Investment Fund
Intermediate-Term Government Securities Fund
GNMA Fund
Mid Cap Fund
Prospectus May 1, 1997
53
<PAGE>
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 Short-Term Investment Fund and the GNMA Fund (each, a
"Fund," and together, the "Funds"):
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 of record Class I
Shares of the Fund 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 EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF
<PAGE>
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 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 their 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 of the Trust. See "The Advisor."
Who is the Administrator? SEI Fund Resources serves as the Administrator
of the Trust. See "The Administrator."
Who is the Shareholder Servicing Agent? SEI Fund Resources acts as
dividend disbursing agent, shareholder servicing agent and transfer agent for
the Trust. See "The Shareholder Servicing Agent."
3
<PAGE>
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. See "The Distributor."
How do I Purchase and Redeem Shares? Purchases and redemptions of shares
may be made through the Distributor on any Business Day. Except in the case of
Qualified Customers, a purchase order will be effective as of the Business Day
received by the Distributor if the Distributor receives an order prior to 4:00
p.m., Eastern time. However, an order may be canceled if the Custodian does not
receive federal funds before 12:00 noon, Eastern time, on the next Business Day.
Redemption orders must be placed prior to 4:00 p.m., Eastern time, on any
Business Day for the order to be effective that day. With respect to Qualified
Customers, purchase orders will be effective as of the Business Day received by
the Distributor if the Distributor receives the order and payment prior to 4:00
p.m., Eastern time, on such Business Day. The purchase and redemption price for
shares is the net asset value per share determined as of the end of the day the
order is effective. See "Purchase and Redemption of Shares."
How are Dividends Paid? 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 monthly
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)(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.
(2) Absent fee waivers, Advisory Fees for each Fund would be .60% and Total
Operating Expenses would be as follows: Short-Term Investment Fund .97%
and GNMA Fund 1.15%. Additional Information may be found under "The
Advisor," "The Administrator" and "The Distributor."
Example - Class I Shares
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
An investor would pay the
following expenses on a
$1,000 investment in a Fund
assuming (1) 5% annual return
and (2) redemption at the end
of each time period:
Both Funds.................... $ 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. The information set forth in the foregoing
table and example relates only to Class I Shares. Financial institutions may
impose separate fees for account services on their Qualified Customers and on
customers for which they are the record owner of shares for the account.
Additional information may be found under "The Advisor," "The Administrator" and
"The Distributor."
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 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.
<PAGE>
Financial Highlights
For a Share Outstanding throughout the Year
<TABLE>
<CAPTION>
Ratio Ratio
of of Net
Distri- Ratio Ratio Expenses Income
Net Realized butions Net of of to to
Asset and from Distri- Net Assets Expenses Income Average Average Port-
Value Net Unrealized Net butions Asset End of to to Net Net folio
Begin- Invest- Gains or Invest- from Value of Average Average Assets Assets Turn-
ning of ment Losses on ment Capital End of Total Period Net Net (Excluding (Excluding over
Period Income Securities Income Gains Period Return (000) Assets Assets Waivers) Waivers) Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Investment Fund
- ----------------------------------------------------------------------------------------------------------------------------
CLASS I
1996 $10.02 $0.48 $(0.01) $(0.48) -- $10.01 4.86% $31,630 0.80% 4.85% 0.96% 4.69% 33.83%
1995 9.97 0.55 0.05 (0.55) -- 10.02 6.19 30,642 0.80 5.52 0.97 5.35 64.85
1994 10.01 0.35 (0.04) (0.35) -- 9.97 3.21 29,187 0.80 3.51 0.94 3.37 68.39
1993 10.01 0.29 -- (0.29) -- 10.01 2.96 31,337 0.80 2.94 0.95 2.79 81.92
1992(1) 10.00 0.27 0.03 (0.27) $(0.02) 10.01 3.47* 30,998 0.80 3.50 1.01 3.29 68.15
- ----------------------------------------------------------------------------------------------------------------------------
GNMA Fund
- ----------------------------------------------------------------------------------------------------------------------------
CLASS I
1996 $ 9.94 $0.60 $(0.31) $(0.60) -- $ 9.63 3.09% $ 6,570 0.80% 6.23% 1.16% 5.87% 5.77%
1995 8.85 0.60 1.09 (0.60) -- 9.94 19.52 8,750 0.80 6.29 1.13 5.96 9.69
1994 9.85 0.54 (1.00) (0.53) $(0.01) 8.85 (4.71) 6,983 0.80 5.72 0.97 5.55 102.77
1993(2) 10.00 0.34 (0.15) (0.34) -- 9.85 2.80* 10,900 0.80 4.48 1.08 4.20 252.73
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(1) The Short-Term Investment Fund commenced operations on April 1, 1992.
Ratios for this period have been annualized.
(2) The GNMA -- Class I Fund commenced operations on May 3, 1993.
Ratios for this period have been annualized.
6
<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 Class A
Shares of the Funds and the Trust's other 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 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 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 Adviser
to be of comparable quality at the time of investment; (v) short-term bank
obligations (certificates of deposit, time deposits and bankers' acceptances) of
U.S. commercial banks with assets of at least $1 billion as of the end of their
most recent fiscal year; (vi) securities of the government of Canada and its
provincial and local governments; (vii) custodial receipts evidencing separately
traded interest and principal component parts of U.S. Treasury Obligations; and
(viii) repurchase agreements involving such securities. Of this amount, the Fund
may, for temporary defensive purposes, invest up to 35% of its assets in
commercial paper rated in one of the two highest short-
7
<PAGE>
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 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 the
Government National Mortgage Association ("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 obligations of FNMA and FHLMC are
supported by the respective agency only. The Funds may
8
<PAGE>
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 of which reflects prevailing interest
rates. Thus, mortgage-backed securities may not be an effective means of locking
in long-term interest rates for a Fund.
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) 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.
9
<PAGE>
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
total 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 Advisor of 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, Fixed Income and GNMA Funds. Mr. Lowe has managed the
Short-Term Investment and Fixed Income Funds since their inception in April,
1992. He has managed the GNMA Fund since its inception in May, 1993. Mr. Lowe
has investment responsibility for equity and fixed income portfolios in the
Princeton Investment Office and joined 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 expenses of
each Fund to the respective levels set forth below. The Advisor reserves the
right
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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
Operating Expense In Fiscal Year
Contractual 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 SHAREHOLDER SERVICING AGENT
SEI Fund Resources acts as the dividend disbursing agent, shareholder servicing
agent and transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, acts as the Distributor for the Trust. 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
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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
The following discussion relates to investors other than Qualified Customers.
For a discussion of purchase and redemption of shares, Qualified Customers
should see pages _ and _ of this Prospectus.
Purchases and redemptions of shares of each Fund may be made on any Business
Day.
A purchase order will be effective as of the Business Day received by the
Distributor if the Distributor receives the order before 4:00 p.m., Eastern
time, provided the Custodian receives federal funds before 12:00 noon, Eastern
time, on the next Business Day. However, an order may be canceled if the
Custodian does not receive federal funds before 12:00 noon, Eastern time, on the
next Business Day, and the investor could be liable for any fees or expenses
incurred by the Trust. Generally, an investor in the Class I Shares of the Funds
may not purchase shares by check, third party check, credit card or credit card
check. Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow time for processing and
transmittal of these orders to the Distributor for effectiveness the same day.
The purchase price of shares of each Fund is the net asset value next determined
after a purchase order is effective. The net asset value per Institutional Share
of each Fund is determined by dividing the total market value of the Fund's
investments and other assets that are allocated to Class I Shares, less any
liabilities that are allocated to Class I Shares, by the total outstanding Class
I Shares of the Fund. A Fund may use a pricing service to provide market
quotations. A pricing service may use a matrix system of valuation to value
fixed income securities which considers factors such as securities prices, yield
features, ratings and developments related to a specific security. Net asset
value per share is determined as of 4:00 p.m., Eastern time, on each Business
Day. Purchases will be made in full and fractional shares of the Trust
calculated to three decimal places. No certificates representing shares will be
issued.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances
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exist, Shareholders who experience difficulties placing redemption orders by
telephone may wish to consider placing the redemption order by other means.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
Shareholders who desire to redeem shares of 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 and, in any event,
within seven Business Days after the redemption order is effective.
Each 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 portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
PURCHASE OF SHARES -- QUALIFIED CUSTOMERS
Accounts for Qualified Customers may be opened through Summit Bank, its
affiliates or correspondent banks (the "Bank"). Subsequent purchases of shares
of a Fund may be made through the Bank or directly through the Distributor by
mail or by wire. Purchases may not be made by telephone. Qualified Customers
should contact their Investment Counselor ("IC") for information about opening
an account and purchasing shares of a Fund through the Bank. The Bank may impose
an earlier cut-off time for receipt of purchase orders directed through them to
allow for processing and transmittal of these orders to the Distributor for
effectiveness the same day.
The minimum initial investment in the Trust for Qualified Customers is $10,000.
All subsequent purchases must be at least $1,000.
A purchase order will be effective as of the Business Day received by the
Distributor, if the Distributor receives an order and the Custodian receives
payment before 4:00 p.m., Eastern time, on such Business Day.
Direct Purchases -- Qualified Customers
By Mail--Subsequent purchases of shares may be made at any time by mailing
a check (or other negotiable bank draft or money order) payable to "The Pillar
Funds (Fund Name)," P.O. Box 8523, Boston, MA 02266-8523. When purchases are
made by check, redemptions will not be allowed until the investment being
redeemed has been in the account for 10 Business Days. If a check received does
not clear, the purchase will be canceled and the investor could be liable for
any losses or fees incurred.
By Wire--Subsequent purchases of shares may be made by wire. To buy shares by
wire, call the Distributor toll-free at 1-800-932-7782.
Other Information Regarding Purchases--The purchase price is the net asset value
per share next computed after the order is effective. No certificates
representing shares will be issued.
REDEMPTION OF SHARES -- QUALIFIED CUSTOMERS
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The IC through which Qualified Customers may purchase shares is able to assist
Qualified Customers in effecting through the Distributor the redemption of
shares held in Fund accounts. Qualified Customers wishing to effect a redemption
with the assistance of an IC should contact the Bank or their IC for additional
information about redemption procedures and cut-off times. Shares may also be
redeemed directly through the Distributor by mail, by telephone, by wire, by
Automated Clearing House ("ACH") or through a systematic withdrawal plan.
Direct Redemptions -- Qualified Customers
By Mail--A written request for redemption must be received by the Distributor in
order to constitute a valid request for redemption. The Distributor may require
that the signature on the written request be guaranteed by a commercial bank or
by a member firm of a domestic stock exchange. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $5,000 worth of shares or less, (2) the redemption check is
payable to the Shareholder(s) of record, and (3) the redemption check is mailed
to the Shareholder(s) at the address of record. Qualified Customers may also
have the proceeds mailed to a commercial bank account previously designated on
the Account Application or by written instruction to the Distributor. There is
no charge for having redemption requests mailed to a designated bank account.
By Telephone, Wire or ACH--Shares may be redeemed by telephone if Qualified
Customers elect that option on the Account Application. A Qualified Customer may
have the proceeds mailed to his or her address or wired to a commercial bank
account previously designated on the Account Application. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. Wire and ACH redemption requests may
be made by Qualified Customers by calling the Distributor at 1-800-932-7782, who
will add a wire redemption charge (presently $10.00) to the amount of the
redemption. Accounts may not be closed by telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, Qualified
Customers who experience difficulties placing redemption orders by telephone may
wish to consider placing the redemption order by other means.
Systematic Withdrawal Plan--The Trust offers a Systematic Withdrawal Plan
("SWP") which may be utilized by Qualified Customers who wish to receive regular
distributions from their account. Upon commencement of the SWP, the account must
have a current value of $10,000 or more. Qualified Customers may elect to
receive automatic payment by check or ACH of $50 or more on a monthly or
quarterly basis.
Other Information Regarding Redemptions--All redemption orders are effected at
the net asset value per share next determined after receipt of a valid request
for redemption, as described above. Payment to Shareholders for shares redeemed
will be made within seven days after receipt
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<PAGE>
by the Distributor of the request for redemption. Redeemed shares are not
entitled to dividends declared the day the redemption order is effective.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment in connection with a purchase. In such circumstances,
the forwarding of redemption proceeds may be delayed until such payment has been
collected. 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.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
PERFORMANCE
From time to time the Funds may advertize yield and total return (described
below). Yield and total return figures are based on historical earnings and are
not intended to indicate future performance. The yield of a Fund refers to the
annualized income generated by an investment in the Fund over a specified 30-day
period. The yield is calculated by assuming that the income generated by the
investment during that period is generated over one year and is shown as a
percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital gain distributions.
The advertised performance on Class I Shares will normally be higher than for
Class A because Class I Shares are not subject to distribution expenses and
sales loads charged to Class A Shares. The actual return to a Shareholder on
Class I Shares may be reduced by any administrative or management charges that
may be imposed by individuals or institutions on their customers for account
services. The actual return to Shareholders on Class A Shares will be reduced by
the amount of any sales load paid or payable and distribution expenses on Class
A Shares.
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.
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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 advisers
regarding specific questions as to federal, state and local income taxes.
Tax Status of the Funds
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other 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 all of its net investment income (including, for this
purpose, net short-term capital gain) to Shareholders. Dividends from net
investment income will be taxable to Shareholders as ordinary income whether
received in cash or in additional shares and will not qualify for the
dividends-received deduction otherwise available to corporate shareholders.
Dividends from net capital gain (the excess of net long-term capital gain over
net short-term capital loss) also will not qualify for the dividends-received
deduction and will be treated as long-term capital gains, regardless of how long
the Shareholder has held shares. Each Fund will make annual reports to
Shareholders of the federal income tax status of all distributions.
Interest received on direct U.S. obligations that is exempt from tax at the
state level when received directly may be exempt, depending on the state, when
received by a Shareholder from a Fund, provided certain conditions are
satisfied. Interest received on repurchase agreements normally is not exempt
from state taxation. Each Fund annually will inform Shareholders of the
percentage of income and distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisors to determine whether any portion
of the income dividends received from a Fund is considered tax-exempt in their
particular states.
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
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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.
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 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 Fund
and all assets of such Fund belong to that Fund and would be subject to
liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services, 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
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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.
Shareholder Inquiries
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
Dividends
Each Fund declares dividends of substantially all of its net investment income
(exclusive of capital gains) daily and distributes such dividends on or about
the first Business Day of the following month. Shares purchased begin earning
dividends on the Business Day after payment is received by the Custodian.
Normally, this will occur within two Business Days after the order is effective.
If any capital gain is realized, substantially all of it will be distributed at
least annually.
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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 or Class B Shares because of the distribution expenses
charged to Class A and Class B Shares.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments and associated
risk factors for the Funds:
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
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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.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (e.g., Receipts and STRIPs), and
privately issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.
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 total assets of a Fund will
be invested in such instruments. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, if there is no
secondary market for such security. Restricted securities, including Rule 144A
securities, that meet the criteria established by the Trustees of the Trust will
be considered liquid.
INVESTMENT COMPANIES--A Fund may invest up to 10% of its total assets in shares
of other investment companies. Because of restrictions on direct investment by
U.S. entities in certain countries, investment in other investment companies may
be the most practical or only manner in which an international and global fund
can invest in the securities markets of those countries. Such investments may
involve the payment of substantial premiums above the net asset value of such
issuers' fund securities, and are subject to limitations under the 1940 Act.
A Fund does not intend to invest in other investment companies unless, in the
judgment of the Advisor or Sub-Advisor, the potential benefits of such
investment exceed the associated costs relative to the benefits and costs
associated with direct investments in the underlying securities.
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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.
Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
multi-class pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests.
21
<PAGE>
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITs: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities and can experience
wide swings in value in response to changes in interest rates and associated
mortgage prepayment rates. During times when interest rates are experiencing
fluctuations, such securities can be difficult to price on a consistent basis.
The market for SMBs is not as fully developed as other markets; SMBs therefore
may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment 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.
22
<PAGE>
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 or rights in the collateral should the borrower of
the securities fail financially or become insolvent. A Fund pays lending and
other fees in connection with securities loans.
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
23
<PAGE>
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 are subject to
market fluctuation due to changes in market interest rates and it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed. Although
a Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities, a Fund may dispose of
a when-issued security or forward commitment prior to settlement if it deems
appropriate.
24
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Summary
Expense Summary
The Trust
Investment Objectives and Policies
Investment Limitations
The Advisor
The Sub-Advisor
The Administrator
The Shareholder Servicing Agent
The Distributor
Purchase and Redemption of Shares
Purchase of Shares--Qualified Customers
Redemption of Shares--Qualified Customers
Performance
Taxes
General Information
Description of Permitted Investments
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.
25
<PAGE>
ADVISOR:
[ SUMMIT BANK LOGO ]
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
----------------
Oaks, Pennsylvania 19456
1-800-932-7782
PIL-F-023-01
[ LOGO ]
THE PILLAR
FUNDS
Short-Term Investment Fund
GNMA Fund
Prospectus May 1, 1997
26
<PAGE>
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 the
shares of the following funds (each, a "Fund," and, collectively, the "Funds"):
Money Market Fund
o Prime Obligation 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 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.
An investment in any of the Funds is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Prime Obligation Money Market
Fund will be able to maintain a stable net asset value of $1.00 per share.
<PAGE>
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
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 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 (the "Money Market
Fund"); 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,
Mid Cap (formerly, the Mid Cap Value Fund) 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 Fund: The Money Market Fund seeks to preserve
principal value and maintain a high degree of liquidity while providing current
income. There can be no assurance that the 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."
What are the Permitted Investments?
The Money Market Fund: 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. See "Investment
Objectives and Policies."
3
<PAGE>
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 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 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 and Pennsylvania
Municipal Securities Funds? The concentration of the New Jersey 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 affects 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; 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."
4
<PAGE>
Who are the Advisor and Sub-Advisor? Summit Bank Investment Management
Division, a division of Summit Bank, serves as the Advisor of the Trust.
Wellington Management Company, LLP serves as the Sub-Advisor for the
International Growth Fund. See "The Advisor" and the "Sub-Advisor."
Who is the Administrator? SEI Fund Resources serves as the Administrator
of the Trust. See "The Administrator."
Who is the Shareholder Servicing Agent? SEI Fund Resources acts as
dividend disbursing agent, shareholder servicing agent and transfer agent for
the Trust. See "The Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. 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. See "The Distributor."
How do I Purchase and Redeem Shares? Shares may be purchased through a
financial institution, such as Summit Bank, or a broker-dealer that has entered
into a dealer agreement with the Distributor ("Intermediaries"). Shares may also
be purchased and redeemed directly through the Distributor. In addition,
Intermediaries through which Shareholders may purchase shares generally stand
ready to assist Shareholders in effecting redemptions of shares held in their
Fund accounts.
The Funds offer 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 Fund are offered without a sales charge. Certain purchases of Class A
Shares qualify for waived or reduced initial sales charges. Class A Shares of
the Funds on which sales loads were paid or waived at the time of purchase are
not subject to sales charges at the time of redemption.
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.
5
<PAGE>
The Money Market Fund: A purchase order for Money Market Fund shares will
be effective as of the business day (a day on which both the New York Stock
Exchange and the Federal Reserve wire system are open for business (a "Business
Day")) received by the Distributor if the Distributor receives an order and
Summit Bank (the "Custodian") receives federal funds prior to 12:00 noon,
Eastern time, on such Business Day. 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 purchase
order will be effective as of the Business Day received by the Distributor if
the Distributor receives an order prior to 4:00 p.m., Eastern time. However, an
order may be canceled if the Custodian does not receive federal funds before
12:00 noon, Eastern time, on the next Business Day. Redemption orders must be
placed prior to 4:00 p.m., Eastern time, on any Business Day for the order to be
effective that day. 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 the applicable sales load, if any. The purchase price of Class B
Shares is the net asset value next determined after the purchase order is
effective. 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 certain Class A Shares on which
no initial sales load was charged and for Class B Shares. See "Purchase and
Redemption of Shares."
How are Dividends Paid?
The Money Market Fund: The net investment income (exclusive of capital
gains) of the 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."
6
<PAGE>
EXPENSE SUMMARY
Prime Obligation Money Market Fund
Class A Shares
and
Class B Shares
SHAREHOLDER TRANSACTION EXPENSES Class A Class B
- -------------------------------- ------- -------
Maximum Sales Load Imposed on Purchases None None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends None None
(as a percentage of offering price)
Maximum Contingent Deferred Sales Charge None 5.50%
(as a percentage of original purchase price or
redemption proceeds, as applicable)
Wire Redemption Fee $10 $10
Exchange Fee None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Prime
Obligation
Money Market
Fund
Class A Class B
- --------------------------------------------------------------------------------
Advisory Fees (after fee waivers)(1),(2)................ .33% .33%
12b-1/Shareholder Servicing Fees........................ .25% 1.00%
Other Expenses.......................................... .32% .32%
- --------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2)......... .90% 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 A Shares
and Class B Shares of the Money Market Fund to not more than .90% and
1.65%, respectively, 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% for each class of the
Fund and Total Operating Expenses for Class A Shares and Class B Shares
would be .92% and 1.67%, respectively, of the Fund's average daily net
assets.
7
<PAGE>
Example - Class A and Class B Shares
An investor in the Money Market Fund would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return and (2) redemption at the end of
each time period:
- --------------------------------------------------------------------------------
Prime Obligation Money Market Fund 1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
Class A Shares ..................... $ 9 $29 $50 $111
- --------------------------------------------------------------------------------
Class B Shares 17 52 90 195
- --------------------------------------------------------------------------------
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 Fund. The information set forth in the
foregoing table and example relates to Class A Shares and Class B Shares only.
Financial institutions may impose separate fees for account services on their
Investment Strategy Account Agreement customers ("ISA Customers") and on
customers for which they are the record owner of shares for the account.
Additional information may be found under "The Advisor," "The Administrator,"
"The Shareholder Servicing Agent" and "The Distributor."
8
<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),(3)................... .48% .46% .11%
12b-1 Fees........................... .25% .25% .25%
Other Expenses....................... .32% .34%(2) .69%(2)
- --------------------------------------------------------------------------------------
Total Operating Expenses (after
fee waivers)(3)................... 1.05% 1.05%(2) 1.05%(2)
- --------------------------------------------------------------------------------------
</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) Other Expenses and Total Operating Expenses have been restated to reflect
current expenses.
9
<PAGE>
(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
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) 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 21 43 67 137
- --------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund 21 43 67 137
- --------------------------------------------------------------------------------
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. The information
set forth in the foregoing table and example relates only to Class A Shares.
Financial institutions may impose separate fees for account services on their
ISA customers and on customers for which they are the record owner of shares for
the account. Additional information may be found under "The Advisor," "The
Administrator" and "The Distributor."
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.
10
<PAGE>
EXPENSE SUMMARY
Fixed Income Funds
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
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."
11
<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) 5% annual
return and (3) redemption at the end of each time period as indicated:
Fixed Income Fund 1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
Assuming a complete redemption at
end of period $73 $97 $117 $174
- --------------------------------------------------------------------------------
Assuming no redemptions $18 $57 $ 97 $174
- --------------------------------------------------------------------------------
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 Funds. The information
set forth in the foregoing table and example relates only to Class B Shares.
Financial institutions may impose separate fees for account services on their
ISA customers and on customers for which they are the record owner of shares for
the account. Additional information may be found under "The Advisor," "The
Administrator" and "The Distributor."
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 front-end
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.
12
<PAGE>
EXPENSE SUMMARY
Equity and Balanced Funds
Class A Shares
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER Equity Equity Equity
TRANSACTION EXPENSES Growth Value Income Balanced International
Fund Fund Fund Fund Growth 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
Growth Value Income Balanced International
Fund Fund Fund Fund Growth 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
13
<PAGE>
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 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
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
An investor in a Fund would pay the following
expenses on a $1,000 investment assuming (1)
imposition of the maximum sales load; (2) 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 as of the
date of this Prospectus, 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. The information set forth
in the foregoing table and example relates only to Class A Shares. Financial
institutions may impose separate fees for account services on their ISA
Customers and on customers for which they are the record owner of shares for the
account. Additional information may be found under "The Advisor," "The
Sub-Advisor," "The Administrator" and "The Distributor."
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.
14
<PAGE>
EXPENSE SUMMARY
Equity and Balanced Funds
Class B Shares
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SHAREHOLDER Equity Equity Equity Balanced International
TRANSACTION EXPENSES Growth Fund Value Fund Income Fund Fund Growth 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>
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 and
1.00% for the International Growth Fund, and Total Operating Expenses
would be 2.05%, 2.08%, 2.09%,
15
<PAGE>
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) 5% annual return and (2) 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 $117 $174
- -------------------------------------------------------------------------------------
Assuming no redemptions $18 $ 57 $ 97 $174
- -------------------------------------------------------------------------------------
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 as of the
date of this Prospectus, 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. The
information set forth in the foregoing table and example relates only to Class B
Shares. Financial institutions may impose separate fees for account services on
their ISA Customers and on customers for which they are the record owner of
shares for the account. Additional information may be found under "The Advisor,"
"The Sub-Advisor," "The Administrator" and "The Distributor."
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 B distribution plan in accordance with its terms
and the Conduct Rules of the NASD concerning sales charges.
16
<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 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.
<TABLE>
<CAPTION>
Ratio of
Net
Ratio of Income
Net Realized Distri- Net Ratio of Ratio of Expenses to
Asset and butions Distri- Net Assets Expenses Income to Average Average Port-
Value Net Unrealized from Net butions Asset End of to to Net Net folio
Begin- Invest- Gains or Invest- from Value Total of Average Average Assets Assets Turn- Average
ning of ment Losses on ment Capital End of Return Period Net Net (Excluding (Excluding over Commission
Period Income Securities Income Gains Period (+) (000) Assets Assets Waivers) Waivers) Rate Rate++
- ------------------------------------------------------------------------------------------------------------------------------------
PRIME OBLIGATION MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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% 0.92% 4.46% -- --
1995 1.00 0.05 -- (0.05) -- 1.00 5.14 6,925 0.90 5.01 0.91 5.00 -- --
1994 1.00 0.03 -- (0.03) -- 1.00 3.40 3,281 0.87 3.89 0.87 3.89 -- --
1993 1.00 0.02 -- (0.02) -- 1.00 2.40 377 0.89 2.38 0.89 2.38 -- --
1992(1) 1.00 0.02 -- (0.02) -- 1.00 2.60* 243 0.89 2.43 1.01 2.31 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $10.48 $0.55 $(0.28) $(0.55) -- $10.20 2.68% $ 4,830 1.05% 5.35% 1.17% 5.23% 40.56% --
1995 9.44 0.56 1.04 (0.56) -- 10.48 17.36 5,844 1.05 5.58 1.16 5.47 35.49 --
1994 10.68 0.56 (1.18) (0.56) $(0.06) 9.44 (5.90) 5,525 1.05 5.65 1.15 5.55 15.24 --
1993 10.38 0.58 0.52 (0.58) (0.22) 10.68 10.76 6,519 1.05 5.24 1.13 5.16 49.49 --
1992(1) 10.00 0.47 0.44 (0.47) (0.06) 10.38 11.39* 1,214 1.05 5.93 1.20 5.78 23.86 --
- ------------------------------------------------------------------------------------------------------------------------------------
NEW JERSEY MUNICIPAL SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $10.79 $0.41 $(0.09) $(0.41) -- $10.70 3.08% $20,247 0.92% 3.88% 1.18% 3.62% 13.93% --
1995 9.93 0.44 0.86 (0.44) -- 10.79 13.30 25,954 0.66 4.18 1.18 3.66 2.83 --
1994 10.85 0.45 (0.92) (0.45) -- 9.93 (4.35) 21,195 0.52 4.40 1.18 3.74 16.81 --
1993 10.29 0.46 0.56 (0.46) -- 10.85 10.09 22,061 0.45 4.34 1.23 3.54 23.83 --
1992(2) 10.00 0.29 0.29 (0.29) -- 10.29 8.29* 5,424 0.62 4.44 1.39 3.67 2.23 --
- ------------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $10.22 $0.42 $(0.05) $(0.42) -- $10.17 3.74% $ 344 0.94% 4.19% 1.74% 3.39% 25.88% n/a
1995 9.55 0.38 0.67 (0.38) -- 10.22 11.15 269 1.05 3.80 1.55 3.30 36.92 n/a
1994 10.17 0.33 (0.62) (0.33) -- 9.55 (2.83) 336 1.05 3.42 1.92 2.55 38.20 n/a
1993(3) 9.98 0.20 0.19 (0.20) -- 10.17 6.28* 289 1.05 3.24 1.48 2.81 16.51 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
1996 $12.83 $0.19 $ 2.51 $(0.18) $(2.00) $13.35 21.15% $10,000 1.05% 1.42% 1.33% 1.14% 85.30% $.0950
1995 10.21 0.21 3.47 (0.22) (0.84) 12.83 36.35 7,644 1.05 1.83 1.32 1.56 61.88 n/a
1994 11.12 0.18 (0.83) (0.18) (0.08) 10.21 (5.83) 3,031 1.05 1.67 1.31 1.41 44.98 n/a
1993 10.66 0.16 0.46 (0.16) -- 11.12 5.85 2,741 1.05 1.51 1.30 1.26 89.91 n/a
1992(1) 10.00 0.09 0.67 (0.10) -- 10.66 10.35* 1,562 1.05 1.64 1.36 1.33 45.68 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
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% 1.34% 2.01% 85.47% $.1095
1995 10.27 0.28 3.29 (0.28) (0.48) 13.08 35.21 9.612 1.05 2.36 1.35 2.06 42.97 n/a
1994 11.17 0.29 (0.80) (0.29) (0.10) 10.27 (4.56) 5,657 1.05 2.71 1.33 2.43 37.76 n/a
1993 10.73 0.28 0.78 (0.27) (0.35) 11.17 9.94 4,421 1.05 2.42 1.35 2.12 89.89 n/a
1992(1) 10.00 0.15 0.77 (0.19) -- 10.73 12.43* 585 1.05 2.54 1.40 2.19 58.41 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
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% 1.36% 3.12% 43.80% $.1165
1995 9.92 0.42 2.28 (0.42) (0.13) 12.07 27.53 8,452 1.05 3.64 1.36 3.33 41.63 n/a
1994 10.79 0.35 (0.87) (0.35) -- 9.92 (4.87) 6,737 1.05 3.39 1.34 3.10 27.15 n/a
1993 10.36 0.37 0.42 (0.36) -- 10.79 7.62 8,122 1.05 3.47 1.38 3.14 63.03 n/a
1992(1) 10.00 0.20 0.40 (0.24) -- 10.36 8.15* 2,990 1.05 3.59 1.45 3.19 82.76 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
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% 1.98% 0.47% 67.03% $.0051
1995(4) 10.00 0.01 0.75 (0.01) (0.02) 10.73 7.64 621 1.75* 0.45* 2.38* (0.18)* 14.32 n/a
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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, Fixed Income, Equity Value, Equity
Income and Balanced Funds commenced operations on April 1, 1992. Ratios for
this period have been annualized.
(2) The New Jersey Municipal Securities Fund commenced operations on May 4,
1992. Ratios for this period have been annualized.
(3) The Pennsylvania Municipal Securities Fund--Class A Fund commenced
operations on May 13, 1993. Ratios for this period have been annualized.
(4) The International Growth--Class A Fund commenced operations on May 4, 1995.
Ratios for this period have been annualized.
17
<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 16 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 (the "Money Market Fund"); 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 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 objectives 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 Fund
The Prime Obligation Money Market Fund
The investment objective of the Money Market Fund is to preserve principal value
and maintain a high degree of liquidity while providing current income.
The 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 the Money
Market Fund. Under these regulations, the 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.
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
18
<PAGE>
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 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 Adviser
to be of comparable quality at the time of investment; (v) short-term bank
obligations (certificates of deposit, time deposits and bankers' acceptances) of
U.S. commercial banks with assets of at least $1 billion as of the end of their
most recent fiscal year; (vi) securities of the government of Canada and its
provincial and local governments; (vii) custodial receipts evidencing separately
traded interest and principal component parts of U.S. Treasury obligations;
(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 15 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. 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
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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 15 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.
Municipal securities that the Fund may purchase include (i) municipal bonds
which are rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa
or better by Moody's Investor Service, Inc. ("Moody's") at the time of
investment or, if not rated, determined by the Advisor to be of comparable
quality; (ii) municipal notes which are rated at least SP-1 by S&P or MIG-1 or
V-MIG-1 by Moody's at the time of investment or, if not rated, determined by the
Advisor to be of comparable quality; and (iii) tax-exempt commercial paper rated
at least A-1 by S&P or Prime-1 by Moody's at the time of investment or, if not
rated, determined by the Adviser to be of comparable quality. Bonds rated BBB by
S&P or Baa by Moody's have speculative characteristics.
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 15 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.
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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.
The Fixed Income 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. It 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"). 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 it. For a further description of these
risks, see "New Jersey Municipal Securities and Special Considerations Relating
Thereto" in the Statement of Additional Information.
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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 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.
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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.
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 (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.
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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 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 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.
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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 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,
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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 predict
movements in security prices, interest rates or currency exchange rates; there
may be little correlation between the changes in a security's value and the
price of futures or options; a related future or option may not be liquid; an
exchange may impose trading restrictions or limitations; government regulations
may restrict trading in futures and options; and possible lack of full
participation in a rise in the market value of the underlying security.
In addition, the International Growth Fund may invest in equity securities by
participating in an issuer's IPO. Such investments have special risks associated
with them. There is often a high volume of trading in IPO securities, which can
result in greater price volatility. Companies offering such securities may not
have operated previously as a public company, and their share price may
experience significant volatility as the marketplace reacts to their financial
results. Furthermore, some IPO issuers have not conducted operations for a
significant period of time, and may not have developed a management structure
sufficient to cope with the pressures of running a public company.
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 Fund: The investment objective and the following investment
limitations are fundamental policies of the Money Market Fund. In addition, it
is a fundamental policy of the 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. The Fund's fundamental policies cannot
be changed without the consent of the holders of a majority of the Fund's
outstanding shares.
The 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
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assets of the Fund would be invested in the securities of such issuer. This
restriction applies to 75% of the 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 the 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 the 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 the Money Market Fund to invest no more than
10% of its total 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 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
transmission, 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.
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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 total 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 Advisor of 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.
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
predominently in New Jersey and eastern Pennsylvania, as of December 31, 1996.
Fixed Income Fund--Robert B. Lowe is a Vice President of the Advisor and
currently manages the Short-Term Investment, Fixed Income and GNMA Funds.
Mr. Lowe has managed the Fixed Income Fund since its inception in April, 1992.
Mr. Lowe has investment responsibility for equity and fixed income portfolios in
the Princeton Investment Office and joined Summit Bank in 1989.
Pennsylvania Municipal Securities Fund--Randolph E. Lestyk is Vice President and
Regional Manager 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 of the Advisor and has
managed the Equity Growth Fund since its inception in February, 1997. Prior
to joining Summit Bank in April, 1985, Mr. Guarino was a Portfolio Manager with
First National State Bank.
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. Mr. Caro currently has responsibility for managing both equity and
fixed income portfolios in the Investment Department.
Equity Value and Balanced Funds--Fernando Garip is a Vice President of the
Advisor and has managed the Balanced Fund since its inception in April, 1992 and
the Equity Value Fund since January, 1996. Mr. Garip also manages the U.S.
Treasury Securities Plus Money Market, U.S. Treasury Securities Money Market and
Prime
28
<PAGE>
Obligation Money Market Funds and has responsibility for both equity and fixed
income portfolios in the Investment Department. Mr. Garip joined Summit Bank in
1982.
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 A Shares and Class B 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Maximum Total Fees Received
Operating Expense In Fiscal Year
Contractual Fee After Fee Waiver 1996
- --------------------------------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligation Money Market Fund .35% .90% 1.65% .33%
- --------------------------------------------------------------------------------------------------------
Fixed Income Fund .60% 1.05% 1.80% .48%
- --------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund .60% 1.05% N/A .35%
- --------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund .60% 1.05% N/A 0%
- --------------------------------------------------------------------------------------------------------
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 the Custodian a 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.
29
<PAGE>
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 SHAREHOLDER SERVICING AGENT
SEI Fund Resources (referred to herein in its relevant capacity as the "Transfer
Agent") acts as the dividend disbursing agent, shareholder servicing agent and
transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, acts as the Distributor of the Trust.
The Class 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
0.75% 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
30
<PAGE>
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
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 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 OF SHARES
Shares of each Fund may be purchased through a financial institution, such as
Summit Bank, or a broker-dealer that has entered into a dealer agreement with
the Distributor. Shares may also be purchased directly through the Distributor
by mail, by telephone or by wire.
Shares of each Fund are sold on a continuous basis and may be purchased on any
Business Day. The minimum initial investment in the Trust is $1,000; however,
the minimum investment may be waived at the Distributor's discretion. All
subsequent purchases must be at least $50.
Generally a purchase order for the Money Market Fund will be effective as of the
Business Day received by the Distributor if the Distributor receives the order,
and the Custodian receives federal funds, before 12:00 noon, Eastern time, on
such Business Day. Otherwise, the purchase order will be effective the next
Business Day. With respect to ISA Customers, purchase orders will be effective
as of the Business Day received by the Distributor if the Distributor receives
the order and payment prior to 4:00 p.m., Eastern time, on such Business Day.
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 an order
prior to 4:00 p.m., Eastern time. However, an order may be canceled if the
Custodian does not receive federal funds before 12:00 noon, Eastern time, on the
next Business Day.
Purchases Through Intermediaries
Customers should contact their Intermediary for information about the
institution's procedures for purchasing shares of a Fund and any charges for
services provided by the institution. Intermediaries may impose an earlier
cut-off time for receipt of purchase orders directed through them to allow 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.
Direct Purchases
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) payable to "The Pillar Funds (Fund Name)," P.O. Box
8523, Boston, MA 02266-8523. Investors must indicate which Class of shares they
intend to
31
<PAGE>
purchase on the Account Application form for an order to be in good order. Third
party checks, credit cards, credit card checks and cash will not be accepted.
When purchases are made by check, redemption proceeds will not be forwarded
until the investment being redeemed has been in the account for 10 Business
Days. Orders by mail are considered received after payment by check is converted
by the Fund into federal funds. Subsequent purchases of shares may be made at
any time by mailing a check (or other negotiable bank draft or money order) to
the Distributor.
Account Application forms can be obtained by calling the Distributor at
1-800-932-7782.
By Telephone or by Wire
If your Account Application has been previously received, you may also purchase
shares by telephone or by wire. To buy shares by telephone or by wire, call the
Distributor toll-free at 1-800-932-7782. Shares cannot be purchased by Federal
Reserve wire on days on which the New York Stock Exchange is closed and on
federal holidays upon which wire transfers are restricted.
Orders by telephone will not be executed until payment has been received. If a
check received does not clear, the purchase will be cancelled and the investor
could be liable for any losses or fees incurred.
Automatic Investment Plan (AIP)
A Shareholder may also arrange for periodic additional investments in the Funds
through automatic deductions by Automated Clearing House ("ACH") wire transfer
from a checking account by completing an Optional Services Form. The minimum
pre-authorized investment amount is $50 per month. An Optional Services Form may
be obtained by contacting the Distributor at 1-800-932-7782.
Other Information Regarding Purchases
A purchase order for shares of a Fund will be executed at a per share price
equal to the net asset value next determined after the receipt of the purchase
order by the Distributor (plus any applicable sales charge in the case of Class
A Shares) (the "offering price").
The net asset value per share of each class of each 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.
The Money Market Fund: 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 under "Determination of Net Asset Value" in the Statement of
Additional Information. Purchased shares are first entitled to dividends the day
the purchase order is effective.
The Non-Money Market Funds: The net asset value per share is determined as of
4:00 p.m., Eastern time, on each Business Day. Purchases will be made in full
and fractional shares of 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. Although the methodology and
procedures are identical, the net asset value per share of classes within a Fund
may differ because of the differing distribution expenses charged to the Class A
and Class B Shares. The Trust reserves the right to reject a purchase order when
the Distributor determines that it is not in the best interest of the Trust or
its Shareholders to accept such order.
32
<PAGE>
ALTERNATIVE SALES CHARGE OPTIONS
The Two Alternatives: Overview
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 New Jersey Municipal Securities and Pennsylvania Municipal
Securities Funds, however, offer Class A Shares only. Each class represents a
Fund's interest in the portfolio of investments. The classes have the same
rights and are identical in all respects except that (i) Class A and B Shares
bear the distribution and service fees resulting from their respective sales
arrangements at different rates, (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. 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.
The alternative purchase arrangements permit you to choose the method of
purchasing shares that is most beneficial to you. The amount of your purchase,
the length of time you expect to hold the shares, and whether you wish to
receive dividends in cash or in additional shares will all be factors in
determining which sales charge option is best for you. You should consider
whether, over the time you expect to maintain your investment, the accumulated
distribution and service fees and contingent deferred sales charges on Class B
Shares prior to conversion would be less than the initial sales charge on Class
A Shares, and to what extent such differential would be offset by the expected
higher return on Class A Shares. Class A Shares will normally be more beneficial
to you if you qualify for reduced sales charges as described below.
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"):
Fixed Income 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>
$0-99,999 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>
33
<PAGE>
New Jersey Municipal Securities and Pennsylvania Municipal Securities 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
- ----------------------------------------------------------------------------------------------------------
<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>
Equity and Balanced 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>
$0-49,999 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>
* 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.
34
<PAGE>
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; (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 investors
who are present or retired Trustees of the Trust, Directors of Summit Bancorp.
and its affiliates, and any of their immediate families.
Class B Shares
Contingent Deferred Sales Charge
If you redeem your Class B Shares within seven years of purchase, you will pay 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 as a Percentage
of Dollar Amount Subject to Change
---------------------------------------------------
Years Since Purchase
---------------------------------------------------
1 5.50%
---------------------------------------------------
35
<PAGE>
---------------------------------------------------
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.
The contingent deferred sales charge 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
if such circumstances exist and the Shareholder is eligible for this waiver.
Conversion Feature
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 and will no longer be subject to the higher distribution and service
fees. Such conversion will be on the basis of the relative net asset values of
the two classes.
Exchanges
Class A Shares of a Fund may be exchanged for Class A Shares of the Trust's
other Funds and Class B Shares of a Fund may be exchanged for Class B Shares of
the Trust's other Funds that offer Class B Shares. Some or all of the shares of
a Fund for which payment has been received (i.e., an established account) may be
exchanged and such exchanges are generally made at net asset value. However,
exchanges from Class A Shares with a low (or no) initial sales load to Class A
Shares with a higher sales load are made at net asset value plus a sales load
equal to the difference between the two sales loads. Exchanges will be made only
after instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Distributor.
For purposes of calculating the Class B Shares' seven year conversion period or
contingent deferred sales charge payable upon redemption, 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.
Shareholders may effect exchanges of shares directly through the Distributor.
Additionally, Intermediaries, through which Shareholders may purchase shares,
generally stand ready to assist Shareholders in effecting through the
Distributor exchanges of shares held in Fund accounts. Shareholders wishing to
effect an exchange with the assistance of an Intermediary should contact that
Intermediary for information about exchange procedures and cut-off times.
36
<PAGE>
If an Exchange Request in good order is received by the Distributor by 12:00
noon, Eastern time, on any Business Day, the exchange usually will occur on that
day. Any Shareholder or customer who wishes to make an exchange must have
received a current prospectus of the Fund in which he or she wishes to invest
before the exchange will be effected.
REDEMPTION OF SHARES
Money Market Fund
Shares of the Money Market Fund may be redeemed without charge on any Business
Day. Redemption requests received in good order by 12:00 noon, Eastern time,
will be effective on the Business Day received. Requests received after 12:00
noon will be effective on the next Business Day.
Non-Money Market Funds
Shares of each Non-Money Market Fund may be redeemed on any Business Day.
Redemption requests received in good order by 4:00 p.m., Eastern time, will be
effective on the Business Day received. Requests received after 4:00 p.m. will
be effective on the next Business Day.
Redemptions Through Intermediaries
Intermediaries, through which Shareholders may purchase shares, generally stand
ready to assist Shareholders in effecting through the Distributor redemptions of
shares held in Fund accounts. Shareholders wishing to effect a redemption with
the assistance of an Intermediary should contact that Intermediary for
information about redemption procedures and cut-off times.
Direct Redemptions
Shares may be redeemed directly through the Distributor by mail, by telephone or
by wire.
By Mail
A written request for redemption must be received by the Distributor in order to
constitute a valid request for redemption. The Distributor may require that the
signature on the written request be guaranteed by a commercial bank or by a
member firm of a domestic stock exchange. The signature guarantee requirement
will be waived if all of the following conditions apply: (1) the redemption is
for $5,000 worth of shares or less, (2) the redemption check is payable to the
Shareholder(s) of record, and (3) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application or by written instruction to the Distributor. There is no
charge for having redemption requests mailed to a designated bank account.
By Telephone
Shares may be redeemed by telephone if the Shareholder elects that option on the
Account Application. The Shareholder may have the proceeds mailed to his or her
address or mailed or wired to a commercial bank account previously designated on
the Account Application. Wire redemption requests may be made by the Shareholder
by calling the Distributor at 1-800-932-7782. A $10.00 wire redemption charge
will be added to the amount of the redemption. Shareholders may not close their
accounts by telephone.
Neither the Trust nor 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
37
<PAGE>
agent will each employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, including requiring a form of personal
identification prior to acting upon instructions received by telephone and
recording telephone instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Shareholders who experience
difficulties placing redemption orders by telephone may wish to consider placing
the redemption order by other means.
Systematic Withdrawal Plan
The Trust offers a Systematic Withdrawal Plan ("SWP") which may be utilized by
Shareholders who wish to receive regular distributions from their account. Upon
commencement of the SWP, the account must have a current value of $1,000 or
more. Shareholders may elect to receive automatic payments by check or ACH wire
transfer of $50 or more on a monthly or quarterly basis. An Optional Services
Form may be obtained by contacting the Distributor at 1-800-932-7782.
It is generally not in your best interest to participate in the SWP at the same
time that you purchase additional shares if you have to pay a sales load in
connection with such purchases. Because automatic withdrawals of Class B Shares
will be subject to the contingent deferred sales charge, it may not be in the
best interest of Class B Shareholders to participate in the SWP.
Other Information Regarding Redemptions
All redemption orders are effected at the net asset value per share next
determined, less any applicable contingent deferred sales charge, after receipt
of a valid request for redemption, as described above. Payment to Shareholders
for shares redeemed will be made within seven days after receipt by the
Distributor of the request for redemption, provided, however, the Trust has
received payment for the shares being redeemed. Redeemed shares are not entitled
to dividends declared the day the redemption order is effective.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment in connection with a purchase. In such circumstances,
the forwarding of redemption proceeds may be delayed until such payment has been
collected. 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 contingent deferred sales load. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem, at net asset value, the shares of any Shareholder
if, because of redemptions of shares by or on behalf of the Shareholder, the
account of such Shareholder in that Fund has a value of less than $1,000, the
minimum initial purchase amount. Accordingly, an investor purchasing shares of a
Fund in only the minimum investment amount may be subject to such involuntary
redemption if he or she thereafter redeems any of these shares. Before any Fund
exercises its right to redeem such shares and to send the proceeds to the
Shareholder, the Shareholder will be given notice that the value of the shares
in his or her account is less than the minimum amount and will be allowed 60
days to make an additional investment in such Fund in an amount which will
increase the value of the account to at least $1,000.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
CHECKWRITING
CheckWriting Service
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A Shareholder in Class A Shares of the Money Market Fund may redeem shares by
writing checks on his or her account for $500 or more. Once a Shareholder has
signed and returned a signature card, he or she will receive a supply of checks.
The check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account. Checks
are free, but if payment on a check is stopped upon the Shareholder's request or
if the check cannot be honored because of insufficient funds or other valid
reasons, the Shareholder's account will be charged a fee.
PERFORMANCE
COMPUTATION OF YIELD
From time to time the Money Market Fund may advertize "current yield" and
"effective compound yield." Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "current yield" of the
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
the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "current yield" because of the compounding effect of this
assumed reinvestment.
The Fixed Income Funds may also advertize 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 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.
COMPUTATION OF TOTAL RETURN
Each of the Fixed Income, Equity and Balanced Funds may also advertize 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.
The advertised performance on Class A Shares and Class B Shares will normally be
lower than for Class I Shares because Class I Shares are not subject to the
distribution expenses and sales loads charged to Class A and Class B Shares. The
performance of Class A and Class B Shares of a Fund will differ because of the
different sales charge structures of the classes and because of the differing
distribution fees charged to Class A Shares and Class B Shares. The actual
return to Shareholders on Class A and Class B Shares will be reduced by the
amount of any sales load paid or payable and distribution expenses on Class A
and Class B Shares.
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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 advisers
regarding specific questions as to federal, state and local income taxes.
Tax Status of the Funds
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other investment portfolios. Each Fund intends to
continue to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the Code, so as to be relieved of federal income
tax on that part of its net investment income and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) which is
distributed to Shareholders.
Tax Status of Distributions
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares 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.
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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 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 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."
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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
advisers before purchasing shares. A "substantial user" is defined generally to
include "certain persons" who regularly use in their trade or business a part of
a facility financed from the proceeds of such bonds.
New Jersey Tax Considerations
Investors of the New Jersey Municipal Securities Fund will not be subject to the
New Jersey Gross Income Tax on distributions from the Fund attributable to
interest income from (and net gain, if any, from the disposition of) New Jersey
Municipal Securities or obligations of the United States, its territories and
possessions and certain of its agencies and instrumentalities ("Federal
Securities") held by the Fund, either when received by the Fund or when credited
or distributed to the investors, provided that the Fund meets the requirements
for a qualified investment fund by: 1) maintaining its registration as a
registered investment company with the 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
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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.
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 Money Market Fund, U.S. Treasury Securities Plus Money Market Fund,
Tax-Exempt 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 Fund and all assets of such Fund belong
to that Fund and would be subject to liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services, 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
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Each share held entitles a Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
Dividends
The Money Market Fund: The net investment income (exclusive of capital gains) of
the 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 Fund in Class A or Class B Shares, as appropriate, 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.
The amount of dividends payable on Class A Shares and Class B Shares will be
less than the dividends payable on the Class I Shares because of the
distribution expenses charged to Class A and Class B 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
after payment is received by the Custodian. Normally, this will occur within two
Business Days after the order is effective. If any capital gain is realized,
substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in Class A or Class B Shares, as appropriate, unless a Shareholder
has elected to take such payment in cash. Shareholders may change their election
by providing written notice to the Administrator at least 15 days prior to the
distribution.
Dividends and distributions of each Fund are paid on a per-share basis. The
amount of dividends payable on Class A Shares and Class B Shares will be less
than the dividends payable on the Class I Shares because of the distribution
expenses charged to Class A and Class B Shares.
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. If any capital gain is realized, substantially
all of it will be distributed at least annually.
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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.
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.
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 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
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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.
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. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (e.g., Receipts and STRIPs), and
privately issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.
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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
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.
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By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can achieve at some future point in time.
Additionally, although such contracts tend to minimize the rise of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A Fund may enter into
contracts for the purchase or sale of securities, including index contracts or
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery to the Fund of the securities or foreign
currency called for by the contract at a specified price during a specified
future month. When a futures contract on securities or currency is sold, a Fund
incurs a contractual obligation to deliver the securities or foreign currency
underlying the contract at a specified price on a specified date during a
specified future month. A Fund may sell stock index futures contracts in
anticipation of, or during a market decline to attempt to offset the decrease in
market value of its common stocks that might otherwise result; and it may
purchase such contracts in order to offset increases in the cost of common
stocks that it intends to purchase. A Fund may enter into futures contracts 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 total assets of a Money
Market Fund or 15% of the total 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
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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 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. 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
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structured with one or more types of credit enhancement, private pass-through
securities typically lack a guarantee by an entity having the credit status of a
governmental agency or instrumentality.
Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
multi-class pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates. FNMA REMIC Certificates are
issued and guaranteed as to timely distribution of principal and interest by
FNMA.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which must be retired by
its stated maturity date or final distribution date, but may be retired earlier.
Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
REITs: REITs are trusts that invest primarily in commercial real estate or real
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned or the quality of the mortgages held by the trust.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities and can experience
wide swings in value in response to changes in interest rates and associated
mortgage prepayment rates. During times when interest rates are experiencing
fluctuations, such securities can be difficult to price on a consistent basis.
The market for SMBs is not as fully developed as other markets; SMBs therefore
may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment 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
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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
constructions, equipment, repair or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely on the ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment.
Municipal securities include both municipal notes and municipal bonds. Municipal
notes include general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates of indebtedness,
demand notes, construction loan notes and participation interests in municipal
notes. Municipal bonds include general obligation bonds, revenue or special
obligation bonds, private activity, 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 a
wider range of expiration dates and exercise prices than are
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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 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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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.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss or rights in the collateral should the borrower of
the securities fail financially or become insolvent. A Fund pays lending and
other fees in connection with securities loans.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
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
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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 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 are subject to
market fluctuation due to changes in market interest rates and it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed. Although
a Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities, a Fund may dispose of
a when-issued security or forward commitment prior to settlement if it deems
appropriate.
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Summary
Expense Summary
The Trust
Investment Objectives and Policies
Investment Limitations
The Advisor
The Sub-Advisor
The Administrator
The Shareholder Servicing Agent
The Distributor
Purchase and Redemption of Shares
Purchase of Shares--Qualified Customers
Redemption of Shares--Qualified Customers
Performance
Taxes
General Information
Description of Permitted Investments
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-025-01
[ LOGO ]
THE PILLAR
FUNDS (R)
Class A Shares
and
Class B Shares
Prime Obligation 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
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 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
<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 of the Trust. See "The Advisor."
Who is the Administrator? SEI Fund Resources serves as the Administrator of
the Trust. See "The Administrator."
Who is the Shareholder Servicing Agent? SEI Fund Resources acts as dividend
disbursing agent and shareholder servicing agent for the Trust and as transfer
agent for the Trust under a separate agreement. See "The Shareholder Servicing
Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor of
the Trust's shares. The Trust has adopted a distribution plan on behalf of the
Fund pursuant to Rule 12b-1 of the Investment Company Act of 1940. See "The
Distributor."
How do I Purchase and Redeem Shares? Purchases and redemptions may be made
through the Distributor on a day on which both the New York Stock Exchange and
the Federal Reserve wire system are open for business (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 the Custodian receives
federal funds prior to 12:00 noon, Eastern time, on such Business Day.
Redemption orders must be placed prior to 12:00 noon, Eastern time, on any
Business Day for the order to be effective that day. See "Purchase of Shares"
and "Redemption of Shares."
How are Dividends Paid? The net investment income (exclusive of capital
gains) of the Fund is determined and declared on each Business Day as a dividend
for Shareholders of record as of the close of business on that day. Any capital
gains will be distributed at least annually. Dividends are paid monthly in
additional shares unless the Shareholder elects to take the payment in cash. See
"Dividends."
<PAGE>
3
EXPENSE SUMMARY
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
U.S. Treasury
Securities Plus
Money Market
Fund
Advisory Fees (after fee waivers)(1),(2) .08%
12b-1 Fees .03%
Other Expenses .44%
- --------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2) .55%
================================================================================
(1)The Advisor has agreed to voluntarily waive fees in an amount that operates
to limit total operating expenses of the Fund to not more than .55% of
average daily net assets. The Advisor reserves the right to terminate its fee
waiver at any time in its sole discretion.
(2)Absent fee waivers, Advisory Fees would be .15% and Total Operating Expenses
would be .62% of the Fund's average daily net assets. Additional information
may be found under "The Advisor," "The Administrator" and "The Distributor."
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) 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>
4
Financial Highlights The Pillar Funds
The following information has been audited by Arthur Andersen LLP, the Trust's
independent public accountants, as indicated in their report dated February 14,
1997 on the Trust's financial statements as of December 31, 1996, which
incorporated by reference into the Trust's Statement of Additional Information
under "Financial Information." This table should be read in conjunction with the
Trust's financial statements and notes thereto.
For a Share Outstanding Throughout the Year
<TABLE>
<CAPTION>
Ratio Ratio
of of Net
Distri- Ratio Ratio Expenses Income
Net butions of of Net to to
Asset from Net Net Expenses Income Average Average
Value Net Net Asset Assets to to Net Net
Begin- Invest- Invest- Value End of Average Average Assets Assets
ning of ment ment End of Total Period Net Net (Excluding (Excluding
Period Income Income Period Return (000) Assets Assets Waivers) Waivers)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES PLUS MONEY MARKET FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS I
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>
5
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 fund represents an undivided, proportionate interest in that fund. This
Prospectus relates to the Trust's U.S. Treasury Securities Plus Money Market
Fund (the "Fund"). The Fund is a diversified mutual fund. Information regarding
the Trust's other 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 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.
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.
<PAGE>
6
The Fund may not make loans, except that it may (a) purchase or hold debt
instruments in accordance with its investment objective and policies; (b) enter
into repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
It is a non-fundamental policy of the Fund to invest no more than 10% of its
total assets in illiquid securities (as defined under "Description of Permitted
Investments").
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 Advisor of the Trust. The Advisor makes the investment
decisions for the assets of the Fund and continuously reviews, supervises and
administers the Fund's investment program subject to the supervision of, and
policies established by, the Trustees of the Trust.
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.
Summit Bank is a wholly-owned subsidiary of Summit Bancorp., an interstate bank
holding company with over $20 billion in assets and over 340 banking offices 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.
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 Investment Company Act of 1940, as amended (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 SHAREHOLDER SERVICING AGENT
SEI Fund Resources acts as the dividend disbursing agent and shareholder
servicing agent for the Trust. SEI Fund Resources also acts as the transfer
agent for the Trust.
<PAGE>
7
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, acts as the Distributor for the Trust.
The Fund has a distribution plan dated April 30, 1993 (the "Plan"). As provided
in the Distribution Agreement and the Plan, the Trust will pay the Distributor a
fee of .03% of the Fund's average daily net assets. The Distributor may apply
this fee toward: a) compensation for its services in connection with
distribution assistance or provision of shareholder services; or b) payments to
financial institutions and intermediaries such as banks (including 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
Distributor if the Distributor receives an order and the Custodian receives
federal funds before 12:00 noon, Eastern time, on such Business Day. Otherwise,
the purchase order will be effective the next Business Day. Financial
institutions may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow time for processing and transmittal of these
orders to the Distributor for effectiveness the same day.
The purchase price is the net asset value per share next computed after the
order is effective. The net asset value per share of the Fund is determined by
dividing the total value of its investments and other assets, less any
liabilities, by its total outstanding shares. The net asset value per share is
calculated as of 12:00 noon, Eastern time, each Business Day based on the
amortized cost method as described in the Statement of Additional Information.
Purchased shares are first entitled to dividends the day the purchase order is
effective. No certificates representing shares will be issued.
The minimum initial investment in the Fund is $100,000; however, the minimum
investment may be waived at the Distributor's discretion.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording instructions. If market conditions are extraordinarily
active, or other extraordinary circumstances exist, Shareholders who experience
difficulties placing redemption orders by telephone may wish to consider placing
the redemption order by other means.
<PAGE>
8
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
For redemption orders received before 12:00 noon, Eastern time, payment will
normally be made the same day by transfer of federal funds. Otherwise, payment
will be made on the next Business Day and, in any event, within seven Business
Days after the redemption order is effective. The redemption price is the net
asset value per share of the Fund next determined after receipt by the
Distributor of the redemption order. Redeemed shares are not entitled to
dividends declared the day the redemption order is effective.
The purchase price and the redemption price 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 compound
yield." Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "current yield" of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "current
yield" because of the compounding effect of this assumed reinvestment.
The Fund may periodically compare its performance to that of: (i) other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii) broad groups of
comparable mutual funds; (iii) unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs; or (iv) other investment alternatives. The Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. The Fund may use long-term performance of the capital
markets to demonstrate general long-term risk versus reward scenarios and could
include the value of a hypothetical investment in any of the capital markets.
The Fund may also quote financial and business publications and periodicals as
they relate to fund management, investment philosophy and investment techniques.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Fund or
its Shareholders. Accordingly, Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.
Tax Status of the Fund
The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other 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
<PAGE>
9
tax on that part of its net investment income which is distributed to
Shareholders. The Fund also intends to make sufficient distributions each
calendar year to avoid liability for federal excise tax.
Tax Status of Distributions
Dividends declared by the Fund in December of any year and payable to
Shareholders of record on a date in that month will be deemed to have been paid
by the Fund and received by the Shareholders on the last day of that month if
paid by the Fund during the following January.
The Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to Shareholders. Dividends from net
investment income will be taxable to Shareholders as ordinary income whether
received in cash or in additional shares and will not qualify for the
dividends-received deduction otherwise available to corporate shareholders.
Dividends from net capital gain (the excess of net long-term capital gain over
net short-term capital loss) also will not qualify for the dividends-received
deduction and will be treated as long-term capital gains, regardless of how long
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>
10
GENERAL INFORMATION
The Trust
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each Fund. In
addition to the Fund, the Trust currently consists of the following funds: U.S.
Treasury Securities Money Market Fund, Prime Obligation Money Market Fund,
Tax-Exempt Money Market Fund, Short-Term Investment Fund, Fixed Income Fund, New
Jersey Municipal Securities Fund, Pennsylvania Municipal Securities Fund,
Intermediate-Term Government Securities Fund, GNMA Fund, Equity 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 fund and would be
subject to liabilities related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services and registering the
shares under federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
Trustees of the Trust
The management and affairs of the Trust are supervised by a Board of Trustees
(the "Trustees") under the laws governing business trusts in the Commonwealth of
Massachusetts. The Trustees have approved contracts under which, as described
above, certain companies provide essential management services to the Trust.
Voting Rights
Each share held entitles a Shareholder of record to one vote. The Shareholders
of each Fund or class will vote separately on matters relating solely to that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual meetings of Shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by Shareholders at a special meeting called upon written request of
Shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the Shareholders requesting the meeting.
Reporting
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to Shareholders of record.
Shareholder Inquiries
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
Dividends
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.
<PAGE>
11
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountant 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 total 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.
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>
Table of Contents
- --------------------------------------------------------------------------------
Summary.............................................................. 2
Expense Summary...................................................... 3
Financial Highlights................................................. 4
The Trust............................................................ 5
Investment Objective and Policies.................................... 5
Investment Limitations............................................... 5
The Advisor.......................................................... 6
The Administrator.................................................... 6
The Shareholder Servicing Agent...................................... 6
The Distributor...................................................... 7
Purchase and Redemption of Shares.................................... 7
Computation of Yield................................................. 8
Taxes................................................................ 8
General Information.................................................. 10
Description of Permitted Investments................................. 11
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
PIL-F-024-01
[ LOGO ]THE PILLAR
FUNDS
U.S. TREASURY
SECURITIES PLUS
MONEY MARKET
FUND
Prospectus
May 1, 1997
<PAGE>
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"):
Equity and Balanced Funds Fixed Income Funds
------------------------- ------------------
o Equity Growth Fund o Fixed Income Fund
o Equity Value Fund o New Jersey Municipal Securities Fund
o Equity Income Fund o Pennsylvania Municipal Securities Fund
o Mid Cap Fund o Intermediate-Term Government Securities Fund
o Balanced Fund o International Growth Fund
Money Market Funds
------------------
o U.S. Treasury Securities Money Market Fund
o Prime Obligation Money Market Fund
o Tax-Exempt Money Market 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 of
record Class I Shares of the Fund 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.
<PAGE>
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
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<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; 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."
What are the Permitted Investments?
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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 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 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 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 affects 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
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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 of the Trust.
Wellington Management Company, LLP serves as the Sub-Advisor for the
International Growth Fund. See "The Advisor" and the "Sub- Advisor."
Who is the Administrator? SEI Fund Resources serves as the Administrator
of the Trust. See "The Administrator."
Who is the Shareholder Servicing Agent? SEI Fund Resources acts as
dividend disbursing agent, shareholder servicing agent and transfer agent for
the Trust. See "The Shareholder Servicing Agent."
Who is the Distributor? SEI Financial Services Company acts as distributor
of the Trust's shares. See "The Distributor."
How do I Purchase and Redeem Shares?
The Money Market Funds: A purchase order for Money Market Fund
shares will be effective as of the business day (a day on which both the New
York Stock Exchange and the Federal Reserve wire system are open for business (a
"Business Day")) received by the Distributor if the Distributor receives an
order and Summit Bank (the "Custodian") receives federal funds prior to 12:00
noon, Eastern time, on such Business Day. With respect to Qualified Customers,
purchase orders will be effective as of the Business Day received by the
Distributor if the Distributor receives the order and the Custodian receives
payment 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 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.
Except in the case of
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Qualified Customers, a purchase order will be effective as of the Business Day
received by the Distributor if the Distributor receives an order prior to 4:00
p.m., Eastern time. However, an order may be canceled if the Custodian does not
receive federal funds before 12:00 noon, Eastern time, on the next Business Day.
Redemption orders must be placed prior to 4:00 p.m., Eastern time, on any
Business Day for the order to be effective that day. With respect to Qualified
Customers, purchase orders will be effective as of the Business Day received by
the Distributor if the Distributor receives the order and the Custodian receives
payment prior to 4:00 p.m., Eastern time, on such Business Day. The purchase and
redemption price for shares is the net asset value per share determined as of
the end of the day the order is effective. See "Purchase and Redemption of
Shares."
How are Dividends Paid?
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 monthly in additional shares unless the Shareholder elects to
take the payment in cash. See "Dividends."
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EXPENSE SUMMARY
Money Market Funds
Class I Shares
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
U.S. Treasury Prime
Securities Obligation Tax-Exempt
Money Market Money Market Money Market
Fund Fund Fund
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Advisory Fees (after fee waivers)(1),(2).. .35% .33% .32%
Other Expenses............................ .30% .32% .33%
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Total Operating Expenses (after
fee waivers)(2) ....................... .65% .65% .65%
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(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."
Example - Class I Shares
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1 yr. 3 yrs. 5 yrs. 10 yrs.
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An investor in a Fund would pay the
following expenses on a $1,000
investment assuming (1) 5% annual
return and (2) redemption at the
end of each time period:
U.S. Treasury Securities Money Market
Fund...................................... $ 7 $21 $36 $81
Prime Obligation Money Market Fund.......... $ 7 $21 $36 $81
Tax-Exempt Money Market Fund................ $ 7 $21 $36 $81
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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. The information set forth in the
foregoing table and example relates only to Class I Shares. Financial
institutions may impose separate fees for account services on their Qualified
Customers and on customers for which they are the record owner of shares for the
account. Additional information may be found under "The Advisor," "The
Administrator" and "The Distributor."
7
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EXPENSE SUMMARY
Fixed Income Funds
Class I Shares
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
New Jersey Pennsylvania Intermediate-Term
Fixed Municipal Municipal Government
Income Securities Securities Securities
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Advisory Fees (after fee
waivers)(1),(3)...... .48% .46% .11% .53%
Other Expenses......... .32% .34%(2) .69%(2) .27%
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Total Operating Expenses
(after fee waivers)(3)... .80% .80%(2) .80%(2) .80%
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(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) Other Expenses and Total Operating Expenses 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
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1 yr. 3 yrs. 5 yrs. 10 yrs.
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An investor would pay the following
expenses on a $1,000 investment in
a Fund assuming (1) 5% annual
return and (2) redemption at the
end of each time period:
All Funds.............................. $ 8 $26 $44 $99
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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. The information set forth in the
foregoing table and example relates only to Class I Shares. Additional
information may be found under "The Advisor," "The Administrator" and "The
Distributor."
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EXPENSE SUMMARY
Equity and Balanced Funds
Class I Shares
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Equity Equity Equity Mid International
Growth Value Income Cap Balanced Growth
Fund Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------
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%
================================================================================
(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
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1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
An investor in a Fund would pay the
following expenses on a $1,000
investment assuming (1) 5% annual
return and (2) redemption at the
end of each time period:
Equity 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
================================================================================
* Because the Equity Growth Fund has recently commenced operations as of the
date of this Prospectus, 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. The information set forth
in the foregoing table and example relates only to Class I Shares. Financial
institutions may impose separate fees for account services on their Qualified
Customers and on customers for which they are the record owner of shares for the
account. Additional information may be found under "The Advisor," "The
Sub-Advisor," "The Administrator" and "The Distributor."
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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 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. This table should be read in conjunction with the
Trust's financial statements and notes thereto.
THE PILLAR FUNDS CLASS I SHARES PROSPECTUS
<TABLE>
<CAPTION>
Ratio of
Net
Ratio of Income
Net Realized Distri- Net Ratio of Ratio of Expenses to
Asset and butions Distri- Net Assets Expenses Income to Average Average Port-
Value Net Unrealized from Net butions Asset End of to to Net Net folio
Begin- Invest- Gains or Invest- from Value of Average Average Assests Assets Turn- Average
ning of ment Losses on ment Capital End of Total Period Net Net (Excluding (Excluding over Commission
Period Income Securities Income Gains Period Return (000) Assets Assets Waivers) Waivers) Rate Rate
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EQUITY VALUE FUND
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS I
1996 $12.81 $0.22 $ 2.54 $(0.22) $(2.00) $13.35 21.69% $116,715 0.80% 1.67% 1.08% 1.39% 85.30% $.0950
1995 10.19 0.25 3.46 (0.25) (0.84) 12.81 36.71 82,677 0.80 2.08 1.07 1.81 61.88 n/a
1994 11.10 0.21 (0.83) (0.21) (0.08) 10.19 (5.61) 61,407 0.80 1.92 1.06 1.66 44.98 n/a
1993 10.64 0.18 0.46 (0.18) -- 11.10 6.12 67,383 0.80 1.74 1.07 1.47 89.91 n/a
1992(1) 10.00 0.14 0.64 (0.14) -- 10.64 10.51* 62,116 0.80 1.82 1.10 1.52 45.68 n/a
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EQUITY INCOME FUND
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CLASS I
1996 $13.07 $0.33 $2.35 $(0.34) $(2.09) $13.32 21.01% $58,035 0.80% 2.55% 1.09% 2.26% 85.47% $.1095
1995 10.26 0.31 3.29 (0.31) (0.48) 13.07 35.55 44,202 0.80 2.61 1.10 2.31 42.97 n/a
1994 11.17 0.32 (0.81) (0.32) (0.10) 10.26 (4.42) 34,514 0.80 2.96 1.08 2.68 37.76 n/a
1993 10.72 0.29 0.80 (0.29) (0.35) 11.17 10.27 38,237 0.80 2.65 1.10 2.35 89.89 n/a
1992(1) 10.00 0.22 0.72 (0.22) -- 10.72 12.72* 32,538 0.80 2.88 1.14 2.54 58.41 n/a
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MID CAP FUND
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CLASS I
1996 $12.55 $0.09 $1.59 $(0.09) $(0.81) $13.33 13.56% $45,556 0.80% 0.66% 1.10% 0.36% 41.41% $.1010
1995 10.83 0.15 1.95 (0.15) (0.23) 12.55 19.49 42,375 0.80 1.28 1.10 0.98 32.96 n/a
1994 12.32 0.12 (1.27) (0.12) (0.22) 10.83 (9.34) 33,448 0.80 1.06 1.08 0.78 13.82 n/a
1993 10.99 0.11 1.33 (0.11) -- 12.32 13.22 35,648 0.80 1.03 1.10 0.73 24.49 n/a
1992(1) 10.00 0.07 0.99 (0.07) -- 10.99 14.30* 29,507 0.80 0.98 1.15 0.63 9.29 n/a
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BALANCED FUND
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CLASS I
1996 $12.05 $0.48 $1.16 $(0.47) $(1.83) $11.39 13.77% $19,243 0.80% 3.68% 1.11% 3.37% 43.80% $.1165
1995 9.91 0.44 2.27 (0.44) (0.13) 12.05 27.76 32,145 0.80 3.89 1.11 3.58 41.63 n/a
1994 10.78 0.37 (0.86) (0.38) -- 9.91 (4.61) 26,921 0.80 3.64 1.09 3.35 27.15 n/a
1993 10.35 0.38 0.43 (0.38) -- 10.78 7.89 25,712 0.80 3.75 1.14 3.41 63.03 n/a
1992(1) 10.00 0.29 0.34 (0.28) -- 10.35 8.53* 16,899 0.80 3.88 1.20 3.48 82.76 n/a
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INTERNATIONAL GROWTH FUND
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CLASS I
1996 $10.74 $0.08 $1.11 $(0.08) $(0.62) $11.23 11.17% $14,822 1.50% 0.85% 1.73% 0.62% 67.03% $.0051
1995(2) 10.00 0.03 0.75 (0.02) (0.02) 10.74 7.81 9,990 1.50* 0.79* 2.11* 0.18* 14.32 n/a
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FIXED INCOME FUND
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CLASS I
1996 $10.49 $0.57 $(0.28) $(0.57) -- $10.21 2.94% $100,129 0.80% 5.60% 0.92% 5.48% 40.56% n/a
1995 9.44 0.59 1.05 (0.59) -- 10.49 17.76 113,509 0.80 5.83 0.91 5.72 35.49 n/a
1994 10.68 0.59 (1.18) (0.59) $(0.06) 9.44 (5.66) 96,558 0.80 5.91 0.90 5.81 15.24 n/a
1993 10.38 0.61 0.52 (0.61) (0.22) 10.68 11.05 113,892 0.80 5.59 0.91 5.48 49.49 n/a
1992(1) 10.00 0.49 0.44 (0.49) (0.06) 10.38 11.60* 89,701 0.80 6.24 0.94 6.10 23.86 n/a
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NEW JERSEY MUNICIPAL FUND
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CLASS I
1996 $10.79 $0.44 $(0.08) $(0.44) -- $10.71 3.42% $20,689 0.67% 4.13% 0.93% 3.87% 13.93% n/a
1995 9.93 0.47 0.86 (0.47) -- 10.79 13.57 28,080 0.41 4.43 0.93 3.91 2.83 n/a
1994 10.85 0.48 (0.92) (0.48) -- 9.93 (4.12) 19,977 0.27 4.65 0.93 3.99 16.81 n/a
1993 10.29 0.50 0.56 (0.50) -- 10.85 10.48 27,064 0.20 4.57 1.00 3.77 23.83 n/a
1992(3) 10.00 0.30 0.29 (0.30) -- 10.29 9.01* 9,395 0.46 4.56 1.22 3.80 2.23 n/a
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PENNSYLVANIA MUNICIPAL FUND
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CLASS I
1996 $10.23 $0.44 $(0.06) $(0.44) -- $10.17 3.89% $ 3,665 0.69% 4.42% 1.49% 3.62% 25.88% n/a
1995 9.55 0.40 0.68 (0.40) -- 10.23 11.53 3,345 0.80 4.05 1.27 3.58 36.92 n/a
1994 10.17 0.36 (0.62) (0.36) -- 9.55 (2.58) 2,734 0.80 3.67 1.61 2.86 38.20 n/a
1993(4) 10.00 0.23 0.17 (0.23) -- 10.17 6.01 2,922 0.80 3.35 1.48 2.67 16.51 n/a
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INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
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CLASS I
1996 $10.37 $0.53 $(0.21) $(0.53) -- $10.16 3.26% $24,679 0.80% 5.26% 0.87% 5.19% 40.60% n/a
1995 9.51 0.54 0.86 (0.54) -- 10.37 15.00 28,877 0.80 5.33 1.05 5.08 68.29 n/a
1994 10.53 0.51 (1.01) (0.51) $(0.01) 9.51 (4.85) 26,277 0.80 5.13 0.95 4.98 40.27 n/a
1993 10.23 0.52 0.32 (0.52) (0.02) 10.53 8.32 34,075 0.80 4.87 1.00 4.67 31.69 n/a
1992(1) 10.00 0.41 0.24 (0.41) (0.01) 10.23 7.95* 16,327 0.80 5.30 1.11 4.99 12.38 n/a
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U.S. TREASURY SECURITIES MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
1996 $1.00 $0.04 -- $(0.04) -- $1.00 4.53% $504,729 0.65% 4.44% 0.65% 4.44% -- --
1995 1.00 0.05 -- (0.05) -- 1.00 5.05 463,531 0.65 4.92 0.65 4.92 -- --
1994 1.00 0.03 -- (0.03) -- 1.00 3.44 465,125 0.62 3.39 0.62 3.39 -- --
1993 1.00 0.02 -- (0.02) -- 1.00 2.46 420,947 0.64 2.42 0.64 2.42 -- --
1992(1) 1.00 0.02 -- (0.02) -- 1.00 2.81* 387,960 0.65 2.67 0.70 2.62 -- --
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PRIME OBLIGATION MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
1996 $1.00 $0.05 -- $(0.05) -- $1.00 4.83% $401,423 0.65% 4.73% 0.67% 4.71% -- --
1995 1.00 0.05 -- (0.05) -- 1.00 5.40 259,667 0.65 5.26 0.66 5.25 -- --
1994 1.00 0.04 -- (0.04) -- 1.00 3.67 157,378 0.62 3.68 0.62 3.68 -- --
1993 1.00 0.03 -- (0.03) -- 1.00 2.65 129,780 0.64 2.63 0.64 2.63 -- --
1992(1) 1.00 0.02 -- (0.02) -- 1.00 2.85* 124,811 0.65 2.63 0.77 2.51 -- --
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TAX-EXEMPT MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS I
1996 $1.00 $0.03 -- $(0.03) -- $1.00 2.94% $67,082 0.65% 2.90% 0.68% 2.87% -- --
1995 1.00 0.03 -- (0.03) -- 1.00 3.42 63,628 0.65 3.37 0.72 3.30 -- --
1994 1.00 0.02 -- (0.02) -- 1.00 2.27 37,745 0.65 2.27 0.68 2.24 -- --
1993 1.00 0.02 -- (0.02) -- 1.00 1.99 32,994 0.65 1.97 0.69 1.93 -- --
1992(5) 1.00 0.02 -- (0.02) -- 1.00 2.42* 22,963 0.65 2.39 0.79 2.25 -- --
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</TABLE>
* 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
April 1, 1992. Ratios for this period have been annualized.
(2) The International Growth -- Class I Fund 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 -- Class I Fund 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.
10
<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 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 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.
11
<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.
12
<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; 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. In addition, the Fund may invest in 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. 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.
13
<PAGE>
The Fund expects to maintain a dollar-weighted average maturity that will not
exceed fifteen years. The Advisor may vary this maturity substantially in
anticipation of a change in the interest rate environment.
The New Jersey Municipal Securities Fund
The investment objective of this Fund is to provide current income exempt from
both federal and New Jersey income taxes, consistent with preservation of
capital.
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,
14
<PAGE>
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.
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
15
<PAGE>
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.
Each of the Fixed Income Funds except the New Jersey and Pennsylvania Municipal
Securities Funds may purchase mortgage-backed securities issued or guaranteed as
to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities. The Fixed Income 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"). 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 Fixed Income 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
16
<PAGE>
prepaid, the Fund must reinvest the proceeds in securities, the yield of which
reflects prevailing interest rates. Thus, mortgage-backed securities may not be
an effective means of locking in long-term interest rates for a Fund.
Investments in securities of foreign issuers may subject the Fixed Income 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.
Additional Risk Factors for New Jersey Municipal Securities
New Jersey Municipal Securities are primarily issued by or on behalf of the
State of New Jersey, its political subdivisions, agencies and instrumentalities.
The concentration in obligations of New Jersey issuers by the New Jersey
Municipal Securities Fund subjects the Fund to special investment risks. In
particular, changes in economic conditions and governmental policies of the
State of New Jersey and its municipalities could adversely affect the value of
the Fund and the securities held by it. For a further description of these
risks, see "New Jersey Municipal Securities 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
17
<PAGE>
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 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 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.
18
<PAGE>
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
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
19
<PAGE>
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 following money market securities: short-term U.S.
Government Securities; custodial receipts evidencing separately traded interest
and principal components of securities issued by the U.S. Treasury; commercial
paper rated in the highest short-term rating category by an NRSRO or determined
by the Advisor to be of comparable quality at the time of purchase; short-term
bank obligations (certificates of deposit, time deposits, and bankers'
acceptances) of U.S. commercial banks with assets of at least $1 billion as of
the end of their most recent fiscal year; and repurchase agreements involving
such securities.
The International Growth Fund
The investment objective of this Fund is long-term capital growth.
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, 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 of
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 also 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.,
20
<PAGE>
companies with market capitalizations below $500 million) which may offer
greater opportunities for capital appreciation than larger, better established
companies. The Fund is non-diversified and may, therefore, concentrate its
portfolio investments in a relatively small number of issuers.
The Fund may engage in currency transactions for hedging purposes. Currency
transactions include forward currency contracts, exchange-listed and
over-the-counter ("OTC") currency futures contracts and options on futures
contracts, exchange-listed and OTC options on currencies, and currency swaps.
The Fund may also employ certain hedging, income enhancement and risk management
techniques, including the purchase and sale of exchange-listed and OTC options,
futures and options on futures involving equity and debt securities, aggregates
of equity and debt securities, and other financial indices. The Fund may write
options and 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, U.S. Government Agencies 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.
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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 seek to
invest in equity securities that the Advisor believes are of high quality. In
evaluating the quality of such securities, the Advisor places particular
emphasis on the management history of the issuer and on ratio analyses which
focus on prospective earnings, book value and anticipated growth rates.
Securities purchased by the 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 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.
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
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<PAGE>
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 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,
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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.
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
24
<PAGE>
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 fundamental 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 total 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 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
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<PAGE>
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 total 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 Advisor of 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 $20 billion in assets and over 340 banking offices,
predominantly in New Jersey and Eastern Pennsylvania, as of December 31, 1996.
Fixed Income Fund--Robert B. Lowe is a Vice President of the Advisor and
currently manages the Short-Term Investment, Fixed Income, and GNMA Funds.
Mr. Lowe has managed the Short-Term Investment and Fixed Income Funds since
their inception in April, 1992. He has managed the GNMA Fund since its inception
in May, 1993. Mr. Lowe has investment
26
<PAGE>
responsibility for equity and fixed income portfolios in the Princeton
Investment Office and joined Summit Bank in 1989.
Pennsylvania Municipal Securities and Mid Cap Funds--Randolph E. Lestyk is Vice
President and Regional Manager 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 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.
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.
Equity Growth Fund--John Guarino is a Vice President of the Advisor and has
managed the Equity Growth Fund since its inception in February, 1997. Prior to
joining Summit Bank in April, 1985, Mr. Guarino was a Portfolio Manager with
First National State Bank.
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. Mr. Caro currently has responsibility for managing both equity and
fixed income portfolios in the Investment Department.
Equity Value and Balanced Funds--Fernando Garip is a Vice President of the
Advisor and has managed the Balanced Fund since its inception in April, 1992 and
the Equity Value Fund since January, 1996. Mr. Garip also manages the U.S.
Treasury Securities Plus Money Market, U.S. Treasury Securities Money Market and
Prime Obligation Money Market Funds and has responsibility for both equity and
fixed income portfolios in the Investment Department. Mr. Garip joined Summit
Bank in 1982.
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
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<PAGE>
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
Operating Expense In Fiscal Year
Contractual Fee After Fee Waiver 1996
- --------------------------------------------------------------------------------
U.S. Treasury Securities
Money Market Fund .35% .65% .35%
- --------------------------------------------------------------------------------
Prime Obligation Money
Market Fund .35% .65% .33%
- --------------------------------------------------------------------------------
Tax-Exempt Money Market Fund .35% .65% .32%
- --------------------------------------------------------------------------------
Fixed Income Fund .60% .80% .48%
- --------------------------------------------------------------------------------
New Jersey Municipal
Securities Fund .60% .80% .35%
- --------------------------------------------------------------------------------
Pennsylvania Municipal
Securities Fund .60% .80% .00%
- --------------------------------------------------------------------------------
Intermediate-Term Government
Securities Fund .60% .80% .53%
- --------------------------------------------------------------------------------
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% 1.75% .77%
- --------------------------------------------------------------------------------
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.
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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.
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.
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THE SHAREHOLDER SERVICING AGENT
SEI Fund Resources acts as the dividend disbursing agent, shareholder servicing
agent and transfer agent for the Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, acts as the Distributor for the Trust. 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").
Class A Shares and Class B Shares of the Funds are offered to all persons. Class
A Shares and/or Class B Shares may not be offered for certain Funds.
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
The following discussion relates to investors other than Qualified Customers.
For a discussion of purchase and redemption of shares, Qualified Customers
should see pages _ and _ of this Prospectus.
Purchases and redemptions of shares of each Fund may be made on any Business
Day.
Money Market Funds: A purchase order will be effective as of the Business Day
received by the Distributor if the Distributor receives an order and the
Custodian receives federal funds before 12:00 noon, Eastern time, on such
Business Day. Otherwise, the purchase order will be effective the next Business
Day. Generally, an investor in the Class I Shares of a Fund may not purchase
shares by check, third party check, credit card or credit card check. Financial
institutions may
30
<PAGE>
impose an earlier cut-off time for receipt of purchase orders directed through
them to allow time for processing and transmittal of these orders to the
Distributor for effectiveness the same day.
The purchase price is the net asset value per Class I Share next computed after
the order is effective. The net asset value per Class I Share of each Fund is
determined by dividing the total value of its investments and other assets that
are allocated to Class I Shares, less any liabilities that are allocated to
Class I Shares, by its total outstanding Class I 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.
For redemption orders received before 12:00 noon, Eastern time, payment will
normally be made the same day by transfer of federal funds. Otherwise, payment
will be made on the next Business Day and, in any event, within seven Business
Days after the redemption order is effective. The redemption price is the net
asset value per share of the Fund next determined after receipt by the
Distributor of the redemption order. Redeemed shares are not entitled to
dividends declared the day the redemption order is effective.
The purchase price and the redemption price is expected to remain constant at
$1.00 per share.
Non-Money Market Funds: A purchase order will be effective as of the Business
Day received by the Distributor if the Distributor receives the order before
4:00 p.m., Eastern time, provided the Custodian receives federal funds before
12:00 noon, Eastern time, on the next Business Day. However, an order may be
canceled if the Custodian does not receive federal funds before 12:00 noon,
Eastern time, on the next Business Day, and the investor could be liable for any
fees or expenses incurred by the Trust. Generally, an investor in the Class I
Shares of the Funds may not purchase shares by check, third party check, credit
card or credit card check. Financial institutions may impose an earlier cut-off
time for receipt of purchase orders directed through them to allow time for
processing and transmittal of these orders to the Distributor for effectiveness
the same day. The purchase price of shares of each Fund is the net asset value
next determined after a purchase order is effective. The net asset value per
Class I Share of each Fund is determined by dividing the total market value of
the Fund's investments and other assets that are allocated to Class I Shares,
less any liabilities that are allocated to Class I Shares, by the total
outstanding Class I Shares of the Fund. A Fund may use a pricing service to
provide market quotations. A pricing service may use a matrix system of
valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings and developments related to a
specific security. Net asset value per share is determined as of 4:00 p.m.,
Eastern time, on each Business Day. Purchases will be made in full and
fractional shares of the Trust calculated to three decimal places. No
certificates representing shares will be issued.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be
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<PAGE>
genuine. The Trust and its transfer agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If market conditions
are extraordinarily active, or other extraordinary circumstances exist,
Shareholders who experience difficulties placing redemption orders by telephone
may wish to consider placing the redemption order by other means.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust or its Shareholders
to accept such order.
Shareholders who desire to redeem shares of 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 and, in any event,
within seven Business Days after the redemption order is effective.
Each 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 portfolio securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs in converting such
securities to cash.
PURCHASE OF SHARES -- QUALIFIED CUSTOMERS
Accounts for Qualified Customers may be opened through Summit Bank, its
affiliates or correspondent banks (the "Bank"). Subsequent purchases of shares
of a Fund may be made through the Bank or directly through the Distributor by
mail or by wire. Purchases may not be made by telephone. Qualified Customers
should contact their Investment Counselor ("IC") for information about opening
an account and purchasing shares of a Fund through the Bank. The Bank may impose
an earlier cut-off time for receipt of purchase orders directed through them to
allow for processing and transmittal of these orders to the Distributor for
effectiveness the same day.
The minimum initial investment in the Trust for Qualified Customers is $10,000.
All subsequent purchases must be at least $1,000.
Money Market Funds: A purchase order will be effective as of the Business Day
received by the Distributor, if the Distributor receives an order and the
Custodian receives payment before 12:00 noon, Eastern time, on such Business
Day.
Non-Money Market Funds: A purchase order will be effective as of the Business
Day received by the Distributor, if the Distributor receives an order and the
Custodian receives payment before 4:00 p.m., Eastern time, on such Business Day.
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<PAGE>
Direct Purchases -- Qualified Customers
By Mail--Subsequent purchases of shares may be made at any time by mailing
a check (or other negotiable bank draft or money order) payable to "The Pillar
Funds (Fund Name)," P.O. Box 8523, Boston, MA 02266-8523. When purchases are
made by check, redemption proceeds will not be forwarded until the investment
being redeemed has been in the account for 10 Business Days. If a check received
does not clear, the purchase will be canceled and the investor could be liable
for any losses or fees incurred.
By Wire--Subsequent purchases of shares may be made by wire. To buy shares by
wire, call the Distributor toll-free at 1-800-932-7782.
Other Information Regarding Purchases--The purchase price is the net asset value
per share next computed after the order is effective. No certificates
representing shares will be issued.
REDEMPTION OF SHARES -- QUALIFIED CUSTOMERS
The IC through which Qualified Customers may purchase shares is able to assist
Qualified Customers in effecting through the Distributor the redemption of
shares held in Fund accounts. Qualified Customers wishing to effect a redemption
with the assistance of an IC should contact the Bank or their IC for additional
information about redemption procedures and cut-off times. Shares may also be
redeemed directly through the Distributor by mail, by telephone, by wire, by
Automated Clearing House ("ACH") or through a systematic withdrawal plan.
Direct Redemptions -- Qualified Customers
By Mail--A written request for redemption must be received by the Distributor in
order to constitute a valid request for redemption. The Distributor may require
that the signature on the written request be guaranteed by a commercial bank or
by a member firm of a domestic stock exchange. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $5,000 worth of shares or less, (2) the redemption check is
payable to the Shareholder(s) of record, and (3) the redemption check is mailed
to the Shareholder(s) at the address of record. Qualified Customers may also
have the proceeds mailed to a commercial bank account previously designated on
the Account Application or by written instruction to the Distributor. There is
no charge for having redemption requests mailed to a designated bank account.
By Telephone, Wire or ACH--Shares may be redeemed by telephone if Qualified
Customers elect that option on the Account Application. A Qualified Customer may
have the proceeds mailed to his or her address or wired to a commercial bank
account previously designated on the Account Application. Under most
circumstances, payments will be transmitted on the next Business Day following
receipt of a valid request for redemption. Wire and ACH redemption
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requests may be made by Qualified Customers by calling the Distributor at
1-800-932-7782, who will add a wire redemption charge (presently $10.00) to the
amount of the redemption. Accounts may not be closed by telephone.
Neither the Trust nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, Qualified
Customers who experience difficulties placing redemption orders by telephone may
wish to consider placing the redemption order by other means.
Systematic Withdrawal Plan--The Trust offers a Systematic Withdrawal Plan
("SWP") which may be utilized by Qualified Customers who wish to receive regular
distributions from their account. Upon commencement of the SWP, the account must
have a current value of $10,000 or more. Qualified Customers may elect to
receive automatic payment by check or ACH of $50 or more on a monthly or
quarterly basis.
Other Information Regarding Redemptions--All redemption orders are effected at
the net asset value per share next determined after receipt of a valid request
for redemption, as described above. Payment to Shareholders for shares redeemed
will be made within seven days after receipt by the Distributor of the request
for redemption. Redeemed shares are not entitled to dividends declared the day
the redemption order is effective.
At various times, a Fund may be requested to redeem shares for which it has not
yet received good payment in connection with a purchase. In such circumstances,
the forwarding of redemption proceeds may be delayed until such payment has been
collected. 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.
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 advertize "current yield" and
"effective compound yield." Both yield figures are based on historical earnings
and are not intended to indicate future performance. The "current yield" of a
Money Market Fund refers to the income
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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 advertize 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.
COMPUTATION OF TOTAL RETURN
Each of the Fixed Income, Equity and Balanced Funds may also advertize 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.
The advertised performance on Class I Shares will normally be higher than for
Class A and Class B Shares because Class I Shares are not subject to
distribution expenses and sales loads charged to Class A and Class B Shares. The
actual return to a Shareholder on Class I Shares may be reduced by any
administrative or management charges that may be imposed by individuals or
institutions on their customers for account services. The actual return to
Shareholders on Class A and Class B Shares will be reduced by the amount of any
sales load paid or payable and distribution expenses on Class A and Class B
Shares.
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
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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 advisers
regarding specific questions as to federal, state and local income taxes.
Tax Status of the Funds
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other 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.
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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 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.
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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."
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 advisers before purchasing shares. A
"substantial user" is defined generally to include "certain persons" who
regularly use in their trade or business a part of a facility financed from the
proceeds of such bonds.
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
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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.
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
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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.
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 Fund and all
assets of such Fund belong to that Fund and would be subject to liabilities
related thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services, 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
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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.
Shareholder Inquiries
Shareholder inquiries should be directed to The Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
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Dividends
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 in additional Class I Shares on or
about the first business day of the following month, unless the Shareholder has
elected to take such payment in cash. Shareholders may change their election by
providing written notice to the Administrator at least 15 days prior to the
distribution. Currently, capital gains of a Fund, if any, are distributed at
least annually.
The amount of dividends payable on Class I Shares will be more than the
dividends payable on the Class A or Class B Shares because of the distribution
expenses charged to Class A and Class B Shares.
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 after
payment is received by the Custodian. Normally, this will occur within two
Business Days after the order is effective. If any capital gain is realized,
substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class 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 or Class B Shares because of the distribution expenses
charged to Class A and Class B Shares.
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. 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 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.
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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 I Shares will be more than the
dividends payable on Class A or Class B Shares because of the distribution
expenses charged to Class A and Class B Shares.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments and associated
risk factors for the Funds:
AMERICAN DEPOSITARY RECEIPTS ("ADRs"), EUROPEAN DEPOSITARY RECEIPTS ("EDRs"),
CONTINENTAL DEPOSITARY RECEIPTS ("CDRs") and GLOBAL DEPOSITARY RECEIPTS
("GDRs")-- ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts, are securities,
typically issued by a non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. GDRs are issued globally and evidence a similar ownership
arrangement. Generally, ADRs are designed for trading in the U.S. securities
markets, EDRs are designed for trading in European securities market and GDRs
are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and
GDRs may be available for investment through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
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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.
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.
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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.
DERIVATIVES--Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (e.g., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (e.g., Receipts and STRIPs), and
privately issued stripped securities (e.g., TGRs, TRS and CATS). See elsewhere
in this "Description of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about any investment policies and limitations applicable to their use.
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
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principal also affect the value of these investments. Changes in the value of
these securities will not necessarily affect cash income derived from these
securities but will affect a Fund's net asset value.
FORWARD CURRENCY CONTRACTS--A Fund may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar or between foreign
currencies in which the Fund's securities are or may be denominated. A forward
contract involves an obligation to purchase or sell a specific currency amount
at a future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts, along with futures contracts and option
transactions, are considered to be derivative securities and may present special
risks. Under normal circumstances, consideration of the prospect for changes in
currency exchange rates will be incorporated into a Fund's long-term investment
strategies. However, the Advisor and Sub-Advisor believe that it is important to
have the flexibility to enter into forward currency contracts when it determines
that the best interest of the Fund will be served.
The Fund will convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion. When the Advisor or
Sub-Advisor believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Fund may enter into a currency contract to sell, for a fixed amount of U.S.
dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, a Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. A Fund may realize a gain or loss from currency transactions.
Generally, a Fund will enter into forward currency contracts only as a hedge
against foreign currency exposure affecting the Fund. If a Fund enters into
forward currency contracts to cover activities which are essentially
speculative, the Fund will segregate cash or readily marketable securities with
its Custodian, or a designated sub-custodian, in an amount at all times equal to
or exceeding the Fund's commitment with respect to such contracts.
To assure that a Fund's foreign currency contracts are not used for leverage,
the net amount the Fund may invest in forward currency contracts is limited to
the amount of the Fund's aggregate investments in foreign currencies.
By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward
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foreign currency contracts will not eliminate fluctuations in the underlying
prices of the securities. Rather, they simply establish a rate of exchange which
one can achieve at some future point in time. Additionally, although such
contracts tend to minimize the rise of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A Fund may enter into
contracts for the purchase or sale of securities, including index contracts or
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery to the Fund of the securities or foreign
currency called for by the contract at a specified price during a specified
future month. When a futures contract on securities or currency is sold, a Fund
incurs a contractual obligation to deliver the securities or foreign currency
underlying the contract at a specified price on a specified date during a
specified future month. A Fund may sell stock index futures contracts in
anticipation of, or during a market decline to attempt to offset the decrease in
market value of its common stocks that might otherwise result; and it may
purchase such contracts in order to offset increases in the cost of common
stocks that it intends to purchase. A Fund may enter into futures contracts 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.
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ILLIQUID SECURITIES--Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. Not more than 10% of the total assets of a Money
Market Fund or 15% of the total 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 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.
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
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issuers or guarantors of these mortgage-backed securities are GNMA, FNMA and
FHLMC. FNMA and FHLMC obligations are not backed by the full faith and credit of
the U.S. Government as GNMA certificates are, but FNMA and FHLMC securities are
supported by the instrumentalities' right to borrow from the U.S. Treasury.
GNMA, FNMA and FHLMC each guarantees timely distributions of interest to
certificate holders. GNMA and FNMA also each guarantees timely distributions of
scheduled principal. FHLMC has in the past guaranteed only the ultimate
collection of principal of the underlying mortgage loan; however, FHLMC now
issues mortgage-backed securities (FHLMC Gold PCS) which also guarantee timely
payment of monthly principal reductions. Government and private guarantees do
not extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
multi-class pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans. In
a CMO, series of bonds or certificates are usually issued in multiple classes.
Principal and interest paid on the underlying mortgage assets may be allocated
among the several classes of a series of a CMO in a variety of ways. Each class
of a CMO, often referred to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the Code
and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by FNMA or FHLMC represent beneficial
ownership interests in a REMIC trust consisting principally of mortgage loans or
FNMA, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage 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
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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
constructions, equipment, repair or improvement of privately operated
facilities.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a toll bridge, for example). Certificates of participation represent
an interest in an underlying obligation or commitment, such as an obligation
issued in connection with a leasing arrangement. The payment of principal and
interest on private activity and industrial development bonds generally is
dependent solely
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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, 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 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
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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.
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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 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
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may be less marketable than comparable U.S. securities. Also it may be more
difficult to obtain a judgment in a court outside the United States.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss or rights in the collateral should the borrower of
the securities fail financially or become insolvent. A Fund pays lending and
other fees in connection with securities loans.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
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
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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 are subject to
market fluctuation due to changes in market interest rates and it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed. Although
a Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities, a Fund may dispose of
a when-issued security or forward commitment prior to settlement if it deems
appropriate.
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TABLE OF CONTENTS
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Summary
Expense Summary
The Trust
Investment Objectives and Policies
Investment Limitations
The Advisor
The Sub-Advisor
The Administrator
The Shareholder Servicing Agent
The Distributor
Purchase and Redemption of Shares
Purchase of Shares--Qualified Customers
Redemption of Shares--Qualified Customers
Performance
Taxes
General Information
Description of Permitted Investments
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
57
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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.........................................
Description of Permitted Investments.................................
Investment Limitations...............................................
Management of the Trust ...................................................
Trustees and Officers of the Trust...................................
The Advisor..........................................................
The Sub-Advisor......................................................
The Administrator....................................................
Fund Transactions..........................................................
General..............................................................
Trading Practices and Brokerage......................................
The Distributor and the Distribution Plans.................................
Performance................................................................
Computation of Yield.................................................
Calculation of Total Return..........................................
Purchase and Redemption of Shares..........................................
Shareholder Services.......................................................
Determination of Net Asset Value...........................................
General Information and History............................................
The Trust............................................................
Description of Shares................................................
Shareholder Liability................................................
Limitation of Trustees' Liability....................................
Taxes .....................................................................
Experts....................................................................
Financial Statements.......................................................
Appendix...................................................................A-1
Description of Ratings...............................................A-1
May 1, 1997
Class I
PIL-F-027-01
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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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 owed 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 instrumentalities. The Advisor
intends to limit purchases of non-mortgage asset-backed securities to securities
that are readily marketable at the time of 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 reserves the right to invest up to
25% of their assets in foreign equity securities denominated in foreign
currencies, except for the International Growth Fund which will invest at least
65% of its assets in foreign equity securities. 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.
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
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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 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 affect adversely 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.
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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-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 properties). Many CMOs are issued with
a number of classes or series which have different maturities and are retired in
sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed by U.S.
Government agencies or instrumentalities.
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REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Advisor believes that the estimated average life is the most appropriate measure
of the maturity of a mortgage-backed security. Accordingly, in order to
determine the average maturity of a Fund, the Advisor will use an estimate of
the average life of a mortgage-backed security. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns. The
assumption is based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants could produce somewhat
different average life estimates with regard to the same security. There can be
no assurance that the average life as estimated by the Advisor will be the
actual average life.
Municipal Securities. The Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds may invest in the
following:
Municipal notes consist of general obligation notes, tax anticipation notes
(notes sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior to receipt of expected non-tax revenues from a
specific source), bond anticipation notes, certificates of indebtedness, demand
notes and construction loan notes.
Municipal bonds consist of general obligation bonds, revenue or special
obligation bonds and private activity bonds, the interest paid on which is
excludable from federal income tax. Private activity bonds are issued by or on
behalf of states or political subdivisions thereof to finance privately-owned or
operated facilities for business and manufacturing, housing, sports, and
pollution control and to finance activities of and facilities for charitable
institutions. Private activity bonds are also used to finance public facilities
such as airports, mass transit systems, ports, parking and low-income housing.
The payment of the principal and interest on private activity bonds is not
backed by a pledge of tax revenues and is dependent solely on the ability of the
facility's 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
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as long as they are of a quality equivalent to the bond or commercial paper
ratings applicable to each Fund and satisfy other applicable requirements.
New Jersey Municipal Securities and Special Considerations Relating Thereto. The
concentration of investments in New Jersey Municipal Securities by the New
Jersey Municipal Securities Fund raises special investment considerations. In
particular, changes in the economic condition and governmental policies of the
State of New Jersey or its municipalities could adversely affect the value of
this Fund and the securities held by it.
The following information is based on official statements relating to
securities offerings of the State of New Jersey (the "State") and various local
agencies that have come to the Fund's attention and available as of the date of
this Statement of Additional Information. The New Jersey Municipal Securities
Fund has not independently verified any of the information contained in the
official statement but is not aware of any fact which would render such
information inaccurate.
General. New Jersey is located at the center of the Middle Atlantic region
which extends from Boston to Washington, and which includes 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 seashore 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.
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
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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.
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
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Tax collections of $4,580 million, a 9.0% increase over receipts estimated in
the revised estimates for fiscal year 1995; and Corporation Business Tax
collections of $1,145 million, a 8.6% increase over receipts estimated in the
revised estimates for fiscal year 1995. Changes in economic activity in the
State and the nation, consumption of durable goods, corporate financial
performance and other factors that are difficult to predict may result in actual
collections being more or less than forecasted.
Appropriations. The State appropriated approximately $14,737 million for
fiscal year 1993 and $15,492 million for fiscal year 1994. Estimated
appropriations for fiscal years 1995 and 1996 total $15,528 million and $15,995
million, respectively. Of the estimated $15,995 million appropriated in fiscal
year 1995 from the General Fund, the Property Tax Relief Fund, the Casino
Control Fund, the Casino Revenue Fund, and the Gubernatorial Elections Fund,
$6,423.5 million (40.2%) is appropriated for State aid to local governments,
$3,708 million (23.2%) is appropriated for grants-in-aid (payments to
individuals or public or private agencies for benefits to which a recipient is
entitled to by law, or for the provision of services on behalf of the State),
$5,179.6 million (32.4%) for direct State services, $466.3 million (2.9%) for
debt service on State general obligation bonds and $443.9 million (2.9%) for
capital construction.
Fund Balances. The undesignated Fund balances are available for
appropriations in succeeding fiscal years. There have been positive Fund
balances in the General Fund at the end of each year since the State
Constitution was adopted in 1947. Total ending Fund balances for fiscal years
1992, 1993 and 1994 were $836.2 million, $1,149.6 million and $1,264.6 million,
respectively. General Fund balances accounted for $1.4 million, and $760.8
million and $937.4 million of the total ending Fund balances in fiscal years
1992, 1993 and 1994, respectively. Total ending Fund balances are estimated to
be $965.7 million for the fiscal year 1995, of which the General Fund balance is
expected to account for $926.0 million. The estimates for fiscal year 1995 are
preliminary and are subject to change upon completion of the State's year end
audit. The estimates for Total and General Fund balances for the fiscal year
ended 1995 are $549.3 million and $563 million, respectively. The estimates for
fiscal 1996 reflect amounts contained in the Fiscal Year 1996 Appropriations Act
and Supplemental Appropriations enacted through September 1, 1993. It should be
noted that an adverse determination in certain litigation in which the State is
a party would have a significant impact on fiscal 1995 and subsequent fiscal
year fund balances (see "Litigation" section).
Indebtedness of the State.
General Obligation Bonds. The primary method for State financing of
capital projects is through the sale of the general obligation bonds of the
State. These bonds are backed by the full faith and credit of the State. State
tax revenues and certain other fees are pledged to meet the principal payments,
interest payments and if provided, redemption premium payments, if any, required
to fully pay the bonds. As of June 30, 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 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.
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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.
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.
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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 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.
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State law authorizes State officials to supervise fiscal administration in
any municipality which is in default on its obligations or upon the occurrence
of certain other events. State officials are authorized to continue such
supervision for as long as any of the conditions exist and until the
municipality operates for a fiscal year without incurring a cash deficit.
School Districts. New Jersey's school districts operate under the same
comprehensive review and regulation as do its counties and municipalities.
Certain exceptions and differences are provided, but the State supervision of
school finance closely parallels that of local governments.
Litigation. Certain litigation is pending or threatened in which the State
has the potential for either a significant loss of revenue or a significant
unanticipated expenditure, including suits relating to the following matters:
(a) Several cases are pending in the State courts challenging the methods
by which the State Department of Human Services shares with county
governments the maintenance recoveries and costs for residents in State
psychiatric hospitals and residential facilities for the developmentally
disabled.
(b) Suits have been initiated by various counties in the State seeking the
return of moneys paid by the counties since 1980 for the maintenance of
Medicaid or Medicare eligible residents of institutions for the
developmentally disabled. In March 1994, the State Superior Court ruled
that the counties were entitled to credits for payments made since 1989.
In February 1995, all but one county had resolved its cost-sharing
disputes with the State. One county has filed for administrative review to
contest the State's calculation of the credits.
(c) A class action on behalf of all New Jersey long-term care facilities
avers that the State has implemented unreasonably low Medicaid payment
rates. A final decision in favor of the plaintiffs could require the State
to make substantial expenditures. A plaintiffs' motion for a preliminary
injunction was denied on May 25, 1995, and that denial is being appealed
to the Third Circuit.
(d) Litigation is pending challenging various portions of the State's Fair
Automobile Insurance Reform Act of 1990, which substantially altered the
State's statutory scheme governing private passenger automobile insurance.
(e) At any given time, there are various numbers of claims and cases
pending against the State, its agencies and employees seeking recovery of
damages paid out of a fund created pursuant to the State's Tort Claims
Act. The State is unable to estimate its exposure for these claims and
cases. An independent study estimated an aggregate potential exposure of
$50 million for tort claims pending as of January 1, 1982. It is estimated
that were a similar study made of claims currently pending, the amount of
such estimated exposure would be somewhat higher.
(f) At any given time, there are various claims of contract and other
claims against the State, and State agencies including environmental
claims arising from the alleged disposal of hazardous waste. The State is
unable to estimate its exposure for these claims.
(g) At any given time, there are various numbers of claims and cases
pending against the University of Medicine and Dentistry ("University")
and its employees seeking recovery of damages that are paid out of the
Self Insurance Reserve Fund created pursuant to the State's Tort Claims
Act. An 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).
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(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 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 States fiduciary duty to two of the pension
systems. Plaintiffs seek to permanently enjoin the State from
administering the changes. An adverse determination in this matter would
have a significant impact on the State's fiscal 1996 budget. The State has
filed motions to dismiss and for summary judgment. 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.
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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.
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.
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
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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% average annual rate
while total expenditures and other uses grew by 7.4% 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%, 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%, well below the 5.2% 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
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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
matched for federal governmental grants-in-aid. Debt service expenditures
escalated as the amount of tax anticipation note borrowing increased in response
to the fiscal pressures brought about by slow economic growth and the recession.
Fiscal 1992 Financial Results (GAAP Basis). During fiscal 1992, the
General Fund recorded a $1.1 billion operating surplus. This operating surplus
was achieved through legislated tax rate increases and tax base broadening
measures enacted in August 1991, and by controlling expenditures through
numerous cost reduction measures implemented during the fiscal year. As a result
of the operating surplus, the General Fund balance increased to $87.5 million at
June 30, 1992.
Fiscal 1993 Financial Results (GAAP Basis). The fund balance of the
General Fund increased by $611.4 million during the fiscal year, led by an
increase in the unreserved balance of $576.8 million over the prior fiscal year
balance. At June 30, 1993, the fund balance totaled $698.9 million and the
unreserved-undesignated balance totaled $64.4 million.
Fiscal 1994 Budget (GAAP Basis). The fund balance of the General Fund
increased by $194.0 million due largely to an increased reserve for encumbrances
and an increase in other designated funds. 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
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estimated to increase by approximately 2.9 percent. 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 thousand 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 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
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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 draw-down 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 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 10-year 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 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 5 years (on
April 12, 1993, the court dismissed all claims except for the constitutional
claims of some of the plaintiffs and two Americans with Disabilities Act
claims). The district court has since denied the ACLU's motion for class
certification. The parties have stipulated to a judgment against the plaintiffs
in order for plaintiffs to appeal
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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
$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 States 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.
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Philadelphia. (For the fiscal year ending June 30, 1991, Philadelphia
experienced a cumulative General Fund balance deficit of $153.5 million. The
audit findings for the fiscal year ending June 30, 1992 place the cumulative
General Fund balance deficit at $224.9 million.)
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist Philadelphia in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt and to make factual findings and recommendations to the
assisted city concerning its budgetary and fiscal affairs. 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 member bank of
the Federal Reserve System or a primary securities dealer, as recognized by the
Federal Reserve Bank of New York) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Funds will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Advisor monitors
compliance with this requirement). Under all repurchase agreements entered into
by the Funds, the Custodian or its agent must take possession of the underlying
collateral. However, if the seller defaults, 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 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 of
the cash collateral in U.S. Government securities. However, a Fund will normally
pay lending fees to such broker-dealers and related expenses from the interest
earned on invested collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by the Advisor or
the Sub-Advisor to be of good standing and when, in the judgment of the Advisor
or the Sub-Advisor, the consideration which can be earned currently from such
securities loans justifies the attendant risk. Any loan may be terminated by
either party upon reasonable notice to the other party. The Funds may use the
Distributor or a broker/dealer affiliate of the Advisor as a broker in these
transactions.
In order to generate additional income, a Fund may lend securities that 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 100% of the market value of the loaned securities. A Fund
continues to receive interest on the loaned securities 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.
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
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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 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 are 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 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 cash and liquid assets in an amount at least equal in value to the
Funds' commitments to purchase when-issued securities. If the value of
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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.
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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 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.
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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:
1. Invest in illiquid securities in an amount exceeding, in the aggregate,
15% (10% for money market funds) of a Fund's total assets.
2. 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.
3. 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
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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, except with respect to non-fundamental limitation
number 1 regarding illiquid investments, 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.
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.
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DAVID G. LEE - President, Chief Executive Officer - Date of Birth: 4/16/52 -
Senior Vice President of the Distributor since 1993. Vice President of the
Distributor since 1991. President, GW Sierra Trust Funds prior to 1991.
KEVIN P. ROBINS - Vice President, Assistant Secretary - Date of Birth: 4/15/61-
Senior Vice President, General Counsel 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 to 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.
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
S - 26
<PAGE>
<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*
=====================================================================================================================
</TABLE>
(1) Amounts do not include travel expenses.
(2) Messrs. Berman, Konrad and Nesher and Ms. Yackmah are not on the Board of
Trustees for any other investment company in the "Fund Complex" (as that
term is defined in the Securities and Exchange Act of 1934, as amended).
* A Director who is an "interested person" as defined in the 1940 Act.
S - 27
<PAGE>
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 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 a Fund 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.
As compensation for its services to the Trust for the fiscal year December 31,
1994, the Advisor received fees of $3,972,000 after fee waivers of $1,098,000.
For the fiscal years ended December 31, 1995 and 1996, the Funds paid the
following advisory fees:
<TABLE>
<CAPTION>
=================================================================================================
Fund Fees Paid Fee Waivers
------------------------------------------------------------
1995 1996 1995 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities Money $1,379,851.47 $1,483,256.10 $ 11,366.64 $ 13,685.26
Market Fund
- -------------------------------------------------------------------------------------------------
Prime Obligation Money Market $ 775,370.30 $1,249,323.32 $ 11,245.37 $ 59,284.51
Fund
- -------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $ 169,810.03 $ 235,720.61 $ 28,361.70 $ 19,962.38
- -------------------------------------------------------------------------------------------------
Short-Term Investment Fund $ 136,320.55 $ 147,156.44 $ 53,136.74 $ 55,944.91
- -------------------------------------------------------------------------------------------------
Fixed Income Fund $ 549,171.71 $ 548,756.59 $ 116,571.88 $ 132,719.45
- -------------------------------------------------------------------------------------------------
New Jersey Municipal Securities $ 68,649.20 $ 169,521.01 $ 214,460.18 $ 117,210.10
Fund
- -------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities $ 0 $ 0 $ 18,779.15 $ 23,653.20
Fund
- -------------------------------------------------------------------------------------------------
</TABLE>
S - 28
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================
Fund Fees Paid Fee Waivers
--------------------------------------------------------
1995 1996 1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate-Term Government $112,419.25 $164,061.56 $ 77,884.28 $ 20,823.17
Securities Fund
- -----------------------------------------------------------------------------------------
GNMA Fund $ 25,325.25 $ 22,157.84 $ 30,565.16 $ 31,029.71
- -----------------------------------------------------------------------------------------
Equity Growth Fund * * * *
- -----------------------------------------------------------------------------------------
Equity Value Fund $367,084.20 $503,317.20 $208,115.23 $300,123.91
- -----------------------------------------------------------------------------------------
Equity Income Fund $208,394.28 $282,807.29 $135,831.09 $181,060.82
- -----------------------------------------------------------------------------------------
Mid Cap Fund $191,284.62 $228,181.58 $129,855.76 $149,082.26
- -----------------------------------------------------------------------------------------
Balanced Fund $166,656.67 $161,262.26 $115,293.71 $110,920.24
- -----------------------------------------------------------------------------------------
International Growth Fund $ 15,494.38 $103,626.34 $ 25,007.40 $ 30,671.00
- -----------------------------------------------------------------------------------------
U.S. Treasury Securities Plus $ 43,958.44 $ 35,738.90 $ 41,490.09 $ 65,612.30
Money Market Fund
=========================================================================================
</TABLE>
* The Equity Growth Fund had not commenced operations as of the periods
indicated.
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 years ended December 31, 1995 and 1996, the Sub-Advisor received
the following fees from the Advisor:
<TABLE>
<CAPTION>
================================================================================
Fund Fees Paid Fee Waivers
-----------------------------------------------
1995 1996 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Growth Fund $12,151 $81,600 $12,151 0
================================================================================
</TABLE>
S - 29
<PAGE>
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 and subject to review at
least annually by the Trustees of the Trust or termination by either party on
not less than 90 days written notice to the other party shall continue in
effect for a period of three years and then for successive periods of two years.
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.
As compensation for its services to the Trust during the periods ended December
31, 1994, the Administrator received fees of $2,229,000.
For the fiscal years ended December 31, 1995 and 1996, the Funds paid the
following administrative fees:
<TABLE>
<CAPTION>
===========================================================================================
Fund Fees Paid Fee Waivers
--------------------------------------------------------
1995 1996 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities Money $794,951.46 $855,185.04 $ 0 $ 0
Market Fund
- -------------------------------------------------------------------------------------------
Prime Obligation Money Market $449,500.26 $747,383.43 $ 0 $ 0
Fund
- -------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $112,391.00 $146,102.50 $ 0 $ 0
- -------------------------------------------------------------------------------------------
Short-Term Investment Fund $ 63,152.82 $ 67,700.94 $ 0 $ 0
- -------------------------------------------------------------------------------------------
Fixed Income Fund $221,916.00 $227,160.08 $ 0 $ 0
- -------------------------------------------------------------------------------------------
New Jersey Municipal Securities $ 56,645.11 $ 86,862.78 $ 33,586.56 $ 8,714.14
Fund
- -------------------------------------------------------------------------------------------
</TABLE>
S - 30
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
Fund Fees Paid Fee Waivers
--------------------------------------------------------
1995 1996 1995 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania Municipal Securities $ 0 $ 0 $ 5,076.44 $ 7,884.10
Fund
- ---------------------------------------------------------------------------------------------
Intermediate-Term Government $ 63,435.01 $ 61,628.70 $ 0 $ 0
Securities Fund
- ---------------------------------------------------------------------------------------------
GNMA Fund $ 18,630.29 $ 17,729.31 $ 0 $ 0
- ---------------------------------------------------------------------------------------------
Equity Growth Fund * * * *
- ---------------------------------------------------------------------------------------------
Equity Value Fund $153,388.07 $214,252.75 $ 0 $ 0
- ---------------------------------------------------------------------------------------------
Equity Income Fund $ 91,794.46 $123,704.93 $ 0 $ 0
- ---------------------------------------------------------------------------------------------
Mid Cap Fund $ 85,638.43 $100,599.40 $ 0 $ 0
- ---------------------------------------------------------------------------------------------
Balanced Fund $ 75,187.52 $ 72,586.31 $ 0 $ 0
- ---------------------------------------------------------------------------------------------
International Growth Fund $ 8,100.35 $ 26,859.65 $ 0 $ 0
- ---------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus $199,380.52 $235,806.26 $ 0 $ 0
Money Market Fund
=============================================================================================
</TABLE>
* The Equity Growth Fund had not commenced operations as of the periods
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.
S - 31
<PAGE>
TRADING PRACTICES AND BROKERAGE
The Advisor and/or Sub-Advisor selects brokers or dealers to execute
transactions for the purchase or sale of portfolio securities on the basis of
its judgment of their professional capability to provide the service. The
primary consideration is to have brokers or dealers execute transactions at best
price and execution. Best price and execution refers to many factors, including
the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. The Advisor's and/or Sub-Advisor's determination
of what are reasonably competitive rates is based upon the professional
knowledge of the Advisor's and/or Sub-Advisor's trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty.
As described above, bonds, debentures and money market securities are bought and
sold directly with a dealer without payment of a brokerage commission. In these
instances, while there is no direct commission charged, there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission.
The Advisor and/or Sub-Advisor may allocate, out of all commission business
generated by all of the funds and accounts under management by the Advisor
and/or Sub-Advisor, brokerage business to brokers or dealers who provide
brokerage and research services. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends, assisting in determining portfolio
strategy, providing computer software used in security analyses, and providing
portfolio performance evaluation and technical market analyses. Such services
are used by the Advisor and/or Sub-Advisor in connection with its investment
decision-making process with respect to one or more funds and accounts managed
by it, and may not be used exclusively with respect to the fund or account
generating the brokerage.
As provided in the Securities Exchange Act of 1934, higher commissions may be
paid to broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, the Trust believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker/dealers who
provide daily portfolio pricing services to the Trust or who have agreed to
defray other Trust expenses such as custodian fees. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
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 - 32
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
Fund Total Dollar Amount of Total Dollar Amount of % of Directed
Brokerage Commissions Transactions Involving Brokerage to Total
for Research Services Directed Brokerage Brokerage
Commissions for
Research Services
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities N/A N/A N/A
Money Market Fund
- ------------------------------------------------------------------------------------------------------
Prime Obligation Money N/A N/A N/A
Market Fund
- ------------------------------------------------------------------------------------------------------
Tax-Exempt Money N/A N/A N/A
Market Fund
- ------------------------------------------------------------------------------------------------------
Short-Term Investment N/A N/A N/A
Fund
- ------------------------------------------------------------------------------------------------------
Fixed Income Fund N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
New Jersey Municipal N/A N/A N/A
Securities Fund
- ------------------------------------------------------------------------------------------------------
Pennsylvania Municipal N/A N/A N/A
Securities Fund
- ------------------------------------------------------------------------------------------------------
Intermediate-Term N/A N/A N/A
Government Securities
Fund
- ------------------------------------------------------------------------------------------------------
GNMA Fund N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Equity Growth Fund * * *
- ------------------------------------------------------------------------------------------------------
Equity Value Fund $114,021 $0 N/A
- ------------------------------------------------------------------------------------------------------
Equity Income Fund $37,450 $0 N/A
- ------------------------------------------------------------------------------------------------------
Mid Cap Fund $32,012 $0 N/A
- ------------------------------------------------------------------------------------------------------
Balanced Fund $32,959 $0 N/A
- ------------------------------------------------------------------------------------------------------
International Growth
Fund
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Securities N/A N/A N/A
Plus Money Market Fund
======================================================================================================
</TABLE>
* The Equity Growth 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
S - 33
<PAGE>
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 SEI Financial Services Company
("SFS" or the "Distributor" ), give consideration to sales of shares of the
Trust as a factor in the selection of brokers and dealers to execute Trust
portfolio transactions.
It is expected that the Trust may execute brokerage or other agency transactions
through the Distributor or Summit Discount Brokerage Co., an affiliate of the
Advisor, both of which are registered broker/dealers, for a commission in
conformity with the 1940 Act, the Securities Exchange Act of 1934, as amended,
and rules promulgated by the Securities and Exchange Commission (the "SEC").
Under these provisions, the Distributor or Summit Discount Brokerage Co. is
permitted to receive and retain compensation for effecting portfolio
transactions for the Trust on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor or
Summit Discount Brokerage Co. to receive and retain such compensation. These
rules further require that commissions paid to the Distributor by the Trust for
exchange transactions not exceed "usual and customary" brokerage commissions.
The rules define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other 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 year ended December 31, 1994, the Funds paid the following
brokerage commissions:
<TABLE>
<CAPTION>
====================================================================================================
Fund Total Brokerage Commissions Amount Paid to the Distributor
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Securities Money N/A N/A
Market Fund
- ----------------------------------------------------------------------------------------------------
Prime Obligation Money Market N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------
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 N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------
Intermediate-Term Government N/A N/A
Securities Fund
- ----------------------------------------------------------------------------------------------------
GNMA Fund N/A N/A
- ----------------------------------------------------------------------------------------------------
Equity Growth Fund * *
- ----------------------------------------------------------------------------------------------------
Equity Value Fund $120,600.00 $46,550.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
S - 34
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================
Fund Total Brokerage Commissions Amount Paid to the Distributor
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity Income Fund $87,892.00 $10,080.00
- ----------------------------------------------------------------------------------------------------
Mid Cap Fund $46,214.00 $7,050.00
- ----------------------------------------------------------------------------------------------------
Balanced Fund $32,932.00 $13,000.00
- ----------------------------------------------------------------------------------------------------
International Growth * *
- ----------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus N/A N/A
Money Market Fund
====================================================================================================
</TABLE>
* The International Growth and the Equity Growth Funds had not commenced
operations as of December 31, 1994.
For the fiscal years ended December 31, 1995 and 1996, the Funds paid the
following brokerage commissions:
<TABLE>
<CAPTION>
===============================================================================================================
% of Total % of Total
Total $ Amount of Brokerage Brokerage
Total $ Amount of Brokerage Commissions Transactions
Brokerage Commissions Paid Paid to the Effected Through
Commissions Paid to the Affiliates Affiliated Brokers Affiliated Brokers
- ---------------------------------------------------------------------------------------------------------------
Fund 1995 1996 1995 1996 1995 1996 1995 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities N/A N/A N/A N/A N/A N/A N/A N/A
Money Market Fund
- ---------------------------------------------------------------------------------------------------------------
Prime Obligation Money N/A N/A N/A N/A N/A N/A N/A N/A
Market Fund
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Money N/A N/A N/A N/A N/A N/A N/A N/A
Market Fund
- ---------------------------------------------------------------------------------------------------------------
Short-Term Investment N/A N/A N/A N/A N/A N/A N/A N/A
Fund
- ---------------------------------------------------------------------------------------------------------------
Fixed Income Fund N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
New Jersey Municipal N/A N/A N/A N/A N/A N/A N/A N/A
Securities Fund
- ---------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal N/A N/A N/A N/A N/A N/A N/A N/A
Securities Fund
- ---------------------------------------------------------------------------------------------------------------
Intermediate-Term N/A N/A N/A N/A N/A N/A N/A N/A
Government Securities
Fund
- ---------------------------------------------------------------------------------------------------------------
GNMA Fund N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * * * * * * *
- ---------------------------------------------------------------------------------------------------------------
Equity Value Fund $210,169 289,752 $13,100 6.23% 0.27%
- ---------------------------------------------------------------------------------------------------------------
Equity Income Fund $96,146 194,728 $750 0.78% 0.26%
- ---------------------------------------------------------------------------------------------------------------
Mid Cap Fund $83,236 129,497 $660 0.79% 0.40%
- ---------------------------------------------------------------------------------------------------------------
Balanced Fund $35,560 50,970 $180 0.51% 0.26%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================
Total Brokerage Total $ Amount
Commissions Paid of Brokerage
to SFS in Commissions
Connection with Paid for
Repurchase Research
Agreement
Transactions
- ----------------------------------------------------------------
Fund 1995 1996 1995 1996
- ----------------------------------------------------------------
U.S. Treasury Securities N/A N/A N/A N/A
Money Market Fund
- ----------------------------------------------------------------
Prime Obligation Money N/A N/A N/A N/A
Market Fund
- ----------------------------------------------------------------
Tax-Exempt Money N/A N/A N/A N/A
Market Fund
- ----------------------------------------------------------------
Short-Term Investment N/A N/A N/A N/A
Fund
- ----------------------------------------------------------------
Fixed Income Fund N/A N/A N/A N/A
- ----------------------------------------------------------------
New Jersey Municipal N/A N/A N/A N/A
Securities Fund
- ----------------------------------------------------------------
Pennsylvania Municipal N/A N/A N/A N/A
Securities Fund
- ----------------------------------------------------------------
Intermediate-Term N/A N/A N/A N/A
Government Securities
Fund
- ----------------------------------------------------------------
GNMA Fund N/A N/A N/A N/A
- ----------------------------------------------------------------
Equity Growth Fund * * * *
- ----------------------------------------------------------------
Equity Value Fund N/A N/A N/A N/A
- ----------------------------------------------------------------
Equity Income Fund N/A N/A N/A N/A
- ----------------------------------------------------------------
Mid Cap Fund N/A N/A N/A N/A
- ----------------------------------------------------------------
Balanced Fund N/A N/A N/A N/A
- ----------------------------------------------------------------
S - 35
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
% of Total % of Total
Total $ Amount of Brokerage Brokerage
Total $ Amount of Brokerage Commissions Transactions
Brokerage Commissions Paid Paid to the Effected Through
Commissions Paid to the Affiliates Affiliated Brokers Affiliated Brokers
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
International Growth $44,707 $60,818 N/A N/A N/A N/A N/A N/A
Fund
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities N/A N/A N/A N/A N/A N/A N/A N/A
Plus Money Market Fund
===================================================================================================================
</TABLE>
===================================================================
Total Brokerage Total $ Amount
Commissions Paid of Brokerage
to SFS in Commissions
Connection with Paid for
Repurchase Research
Agreement
Transactions
- -------------------------------------------------------------------
International Growth N/A N/A N/A N/A
Fund
- -------------------------------------------------------------------
U.S. Treasury Securities N/A N/A N/A N/A
Plus Money Market Fund
===================================================================
* The Equity Growth 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
(formerly Balanced Growth Fund) 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 ("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 _________, 1997, which applies to the Class B Shares of the
Funds. The Distributor receives no compensation for distribution of Class I
shares.
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 broker/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 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 broker/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 Class B Distribution and Service 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 broker/dealers and
service providers, including Summit Bank and its affiliates, which provide
distribution-related services to Class B Shareholders or their customers who
beneficially own Class B Shares. In addition, the Class B Distribution and
Service 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.
Services under each of the Distribution Plan, the Class A Distribution Plan and
the Class B Distribution and Service 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
S - 36
<PAGE>
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:
<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>
U.S. Treasury Securities N/A N/A N/A N/A N/A N/A
Money Market Fund
- ---------------------------------------------------------------------------------------------------
Prime Obligation Money N/A N/A N/A N/A N/A N/A
Market Fund
- ---------------------------------------------------------------------------------------------------
Tax-Exempt Money Market N/A N/A N/A N/A N/A N/A
Fund
- ---------------------------------------------------------------------------------------------------
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 $ 91,704 $ 75,388 $ 26,191 $ 0 $ 3,083 $ 3,531
Securities Fund
- ---------------------------------------------------------------------------------------------------
Pennsylvania Municipal $ 1,415 $ 560 $ 648 $ 1 $ 36 $ 72
Securities Fund
- ---------------------------------------------------------------------------------------------------
Intermediate-Term $ 35,942 $ 54,745 $ 19,783 $ 10 $ 1,768 $ 2,774
Government 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
- ---------------------------------------------------------------------------------------------------
</TABLE>
S - 37
<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>
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities N/A N/A N/A N/A N/A N/A
Plus Money Market Fund
===================================================================================================================================
</TABLE>
* The Equity Growth Fund had not commenced operations as of the periods
indicated.
Class B Shares were not operational as of December 31, 1996 and therefore no
information regarding Class B Shares sales loads is presented.
For the fiscal year ended December 31, 1996, the Funds incurred the following
distribution expenses:
<TABLE>
<CAPTION>
==========================================================================================================
Total Total
Distribution Distribution Sales Printing Other
Fund Class Expenses Expenses as Expenses Costs Costs
a % of net
assets
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury A $ 8,756.71 .25% $ 8,756.71 N/A N/A
Securities Money
Market Fund
- ----------------------------------------------------------------------------------------------------------
Prime Obligation A $21,448.37 .25% $21,448.37 N/A N/A
Money Market Fund
- ----------------------------------------------------------------------------------------------------------
Tax-Exempt Money A $ 9,627.53 .25% $ 9,627.53 N/A N/A
Market Fund
- ----------------------------------------------------------------------------------------------------------
Short-Term Investment A $ 3,719.17 .25% $ 3,719.17 N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------------
Fixed Income Fund A $15,048.03 .25% $15,048.03 N/A N/A
- ----------------------------------------------------------------------------------------------------------
New Jersey Municipal A $58,110.61 .25% $58,110.61 N/A N/A
Securities Fund
- ----------------------------------------------------------------------------------------------------------
Pennsylvania A $ 764.20 .25% $ 764.20 N/A N/A
Municipal Securities
Fund
- ----------------------------------------------------------------------------------------------------------
Intermediate-Term A $ 8,101.97 .25% $ 8,101.97 N/A N/A
Government Securities
Fund
- ----------------------------------------------------------------------------------------------------------
GNMA Fund A $ 3,925.47 .25% $ 3,925.47 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Equity Growth Fund A * * * * *
- ----------------------------------------------------------------------------------------------------------
</TABLE>
S - 38
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Total Total
Distribution Distribution Sales Printing Other
Fund Class Expenses Expenses as Expenses Costs Costs
a % of net
assets
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Value Fund A $22,472.12 .25% $22,472.12 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Equity Income Fund A $29,215.56 .25% $29,215.56 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Mid Cap Fund A $14,622.78 .25% $14,622.78 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Balanced Fund A $22,295.79 .25% $22,295.79 N/A N/A
- ----------------------------------------------------------------------------------------------------------
International Growth A $ 2,260.00 .25% $ 2,260.00 N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury I $18,153.43 .03% $18,153.43 N/A N/A
Securities Plus Money
Market Fund
==========================================================================================================
</TABLE>
* The Equity Growth Fund had not commenced operations as of the period
indicated.
For the fiscal year ended December 31, 1995, the Funds incurred the following
distribution expenses:
<TABLE>
<CAPTION>
==========================================================================================================
Total Total
Distribution Distribution Sales Printing Other
Fund Class Expenses Expenses as Expenses Costs Costs
a % of net
assets
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury A $ 4,143.84 .25% $ 4,143.84 N/A N/A
Securities Money
Market Fund
- ----------------------------------------------------------------------------------------------------------
Prime Obligation A $11,007.81 .25% $11,007.81 N/A N/A
Money Market Fund
- ----------------------------------------------------------------------------------------------------------
Tax-Exempt Money A $10,524.47 .25% $10,524.47 N/A N/A
Market Fund
- ----------------------------------------------------------------------------------------------------------
Short-Term Investment A $ 3,044.66 .25% $ 3,044.66 N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------------
Fixed Income Fund A $13,626.60 .25% $13,626.60 N/A N/A
- ----------------------------------------------------------------------------------------------------------
New Jersey Municipal A $57,652.67 .25% $57,652.67 N/A N/A
Securities Fund
- ----------------------------------------------------------------------------------------------------------
Pennsylvania Municipal A $ 677.54 .25% $ 677.54 N/A N/A
Securities Fund
- ----------------------------------------------------------------------------------------------------------
Intermediate-Term A $ 6,852.88 .25% $ 6,852.88 N/A N/A
Government Securities
Fund
- ----------------------------------------------------------------------------------------------------------
GNMA Fund A $ 4,378.57 .25% $ 4,378.57 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Equity Growth Fund A * * * * *
- ----------------------------------------------------------------------------------------------------------
</TABLE>
S - 39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Equity Value Fund A $11,921.50 .25% $11,921.50 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Equity Income Fund A $17,865.66 .25% $17,865.66 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Mid Cap Value Fund A $13,001.27 .25% $13,001.27 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Balanced Growth Fund A $18,641.39 .25% $18,641.39 N/A N/A
- ----------------------------------------------------------------------------------------------------------
International Growth A $ 409.96 .25% $ 409.96 N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury I $17,089.31 .03% $17,089.31 N/A N/A
Securities Plus Money
Market Fund
==========================================================================================================
</TABLE>
* The Equity Growth Fund had not commenced operations as of the period
indicated.
During the period ended December 31, 1994, the Distributor received the
following amounts pursuant to the Class A Distribution Plan:
================================================================================
Amount Received
- --------------------------------------------------------------------------------
Funds Distribution Fees Front-end Sales Load
- --------------------------------------------------------------------------------
U.S. Treasury Securities Money $ 1,866.00 N/A
Market Fund
- --------------------------------------------------------------------------------
Prime Obligation Money Market $ 3,771.00 N/A
Fund
- --------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $ 7,919.00 N/A
- --------------------------------------------------------------------------------
Short-Term Investment Fund $ 1,238.00 N/A
- --------------------------------------------------------------------------------
Fixed Income Fund $16,039.00 N/A
- --------------------------------------------------------------------------------
New Jersey Municipal Securities $61,126.00 N/A
Fund
- --------------------------------------------------------------------------------
Pennsylvania Municipal Securities $ 876.00 N/A
Fund
- --------------------------------------------------------------------------------
Intermediate-Term Government $ 8,878.00 N/A
Securities Fund
- --------------------------------------------------------------------------------
GNMA Fund $ 6,358.00 N/A
- --------------------------------------------------------------------------------
Equity Value Fund $ 7,636.00 N/A
- --------------------------------------------------------------------------------
Equity Income Fund $13,781.00 N/A
- --------------------------------------------------------------------------------
Mid Cap Fund $10,076.00 N/A
- --------------------------------------------------------------------------------
Balanced Fund $19,710.00 N/A
- --------------------------------------------------------------------------------
International Growth Fund N/A N/A
- --------------------------------------------------------------------------------
U.S. Treasury Securities Plus $20,930.00 N/A
Money Market Fund
================================================================================
S-40
<PAGE>
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
compound yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of the Funds refers to the
income generated by an investment in a Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The current yield of the Funds will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective compound
yield of the Funds is determined by computing the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula: Effective Yield = [(Base
Period Return + 1)^365/7)]-1. The current and the effective yields reflect the
reinvestment of net income earned daily on portfolio assets.
The Tax-Exempt Money Market Fund may also calculate its tax equivalent yield as
described under "Other Yields" below.
For the 7-day period ended December 31, 1996, the Money Market Funds' current,
effective and tax-equivalent yields were as follows:
<TABLE>
<CAPTION>
===================================================================================================
Fund Class Current Yield Effective Tax-
Yield Equivalent
Yield
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities Money Market I 4.38 4.48 N/A
------------------------------------------------------
A 4.13 4.22 N/A
- ---------------------------------------------------------------------------------------------------
Prime Obligation Money Market I 4.76 4.88 N/A
------------------------------------------------------
A 4.52 4.63 N/A
- ---------------------------------------------------------------------------------------------------
Tax-Exempt Money Market I 3.21 3.26 4.65
------------------------------------------------------
A 2.96 3.00 4.29
- ---------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market I 4.76 4.87 N/A
===================================================================================================
</TABLE>
S - 41
<PAGE>
Other Yields. The Short-Term Investment, Fixed Income, New Jersey Municipal
Securities, Pennsylvania Municipal Securities, Intermediate-Term Government
Securities, GNMA, Equity Value, Equity Income, Mid Cap, 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. The yield is
calculated by assuming that the income generated by the investment during that
period generated each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
Yield = 2[{(a-b)/cd + 1}^6-1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
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 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 I 4.71 N/A
----------------------------------------------------
A 4.43 N/A
- --------------------------------------------------------------------------------
Fixed Income I 5.62 N/A
----------------------------------------------------
A 5.15 N/A
- --------------------------------------------------------------------------------
New Jersey Municipal I 3.90 4.17
Securities
----------------------------------------------------
A 3.63 3.88
- --------------------------------------------------------------------------------
Pennsylvania Municipal I 4.21 4.33
Securities
----------------------------------------------------
A 3.92 4.03
- --------------------------------------------------------------------------------
Intermediate-Term I 5.57 N/A
Government Securities
----------------------------------------------------
A 5.10 N/A
- --------------------------------------------------------------------------------
GNMA I 6.00 N/A
----------------------------------------------------
A 5.58 N/A
================================================================================
S - 42
<PAGE>
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
change in the value of an investment in a Fund over the particular measuring
period. Aggregate total return reflects the cumulative percentage change in
value over the measuring period. Aggregate total return is computed according to
a formula prescribed by the SEC. The formula can be expressed as follows: P (1 +
T)^n = ERV, where P = a hypothetical initial payment of $1,000; T = average
annual total return; n = number of years; and ERV = ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the designated time period
as of the end of such period or the life of the fund. The formula for
calculating aggregate total return can be expressed as (ERV/P)-1.
The calculation of total return assumes reinvestment of all dividends and
capital gain distribution on the reinvestment dates during the period and that
the entire investment is redeemed at the end of the period. In addition the
maximum sales charge for each Fund is deducted from the initial $1000 payment.
Total return may also be shown without giving effect to any sales charges.
Based on the foregoing, the average total returns for the Funds from inception
through December 31, 1996 were as follows:
<TABLE>
<CAPTION>
============================================================================================================
Fund Class Average Annual Total Return
=================================================
One Year Five Ten Since
Year Year Inception*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money I 4.53% ** ** 3.70%
Market
---------------------------------------------------------------------
A (no load) 4.27% ** ** 3.44
---------------------------------------------------------------------
A (load) N/A ** ** N/A
- ------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market I 4.83% ** ** 3.93
---------------------------------------------------------------------
A (no load) 4.58% ** ** 3.67
---------------------------------------------------------------------
A (load) N/A ** ** N/A
- ------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market I 2.94% ** ** 2.62
---------------------------------------------------------------------
A (no load) 2.70% ** ** 2.37
---------------------------------------------------------------------
A (load) N/A ** ** N/A
- ------------------------------------------------------------------------------------------------------------
Short-Term Investment I 4.86% ** ** 4.16%
---------------------------------------------------------------------
A (no load) 4.39% ** ** 3.93%
---------------------------------------------------------------------
A (load) 3.36% ** ** 3.71%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
S - 43
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Fund Class Average Annual Total Return
=================================================
One Year Five Ten Since
Year Year Inception*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Income I 2.94% ** ** 7.02%
---------------------------------------------------------------------
A (no load) 2.68% ** ** 6.74%
---------------------------------------------------------------------
A (load) (1.45%) ** ** 5.82%
- ------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities I 3.42% ** ** 6.10%
---------------------------------------------------------------------
A (no load) 3.08% ** ** 5.73%
---------------------------------------------------------------------
A (load) 2.04% ** ** 5.50%
- ------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities I 3.89% ** ** 4.46%
---------------------------------------------------------------------
A (no load) 3.74% ** ** 4.28%
---------------------------------------------------------------------
A (load) 2.73% ** ** 4.00%
- ------------------------------------------------------------------------------------------------------------
Intermediate-Term Government I 3.26% ** ** 5.62%
Securities
---------------------------------------------------------------------
A (no load) 3.01% ** ** 5.36%
---------------------------------------------------------------------
A (load) (1.10%) ** ** 4.45%
- ------------------------------------------------------------------------------------------------------------
GNMA I 3.09% ** ** 5.00%
---------------------------------------------------------------------
A (no load) 2.73% ** ** 4.64%
---------------------------------------------------------------------
A (load) (.38%) ** ** 3.77%
- ------------------------------------------------------------------------------------------------------------
Equity Growth I ** ** ** **
---------------------------------------------------------------------
A (no load) ** ** ** **
---------------------------------------------------------------------
A (load) ** ** ** **
- ------------------------------------------------------------------------------------------------------------
Equity Value I 21.69% ** ** 13.14%
---------------------------------------------------------------------
A (no load) 21.15% ** ** 12.82%
---------------------------------------------------------------------
A (load) 16.34% ** ** 11.85%
- ------------------------------------------------------------------------------------------------------------
Equity Income I 21.01% ** ** 14.38%
---------------------------------------------------------------------
A (no load) 20.70% ** ** 14.10%
---------------------------------------------------------------------
A (load) 15.83% ** ** 13.12%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
S - 44
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Fund Class Average Annual Total Return
=================================================
One Year Five Ten Since
Year Year Inception*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mid Cap I 13.56% ** ** 9.54%
---------------------------------------------------------------------
A (no load) 13.32% ** ** 9.27%
---------------------------------------------------------------------
A (load) 8.80% ** ** 8.33%
- ------------------------------------------------------------------------------------------------------------
Balanced I 13.77% ** ** 10.27%
---------------------------------------------------------------------
A (no load) 13.39% ** ** 9.97%
---------------------------------------------------------------------
A (load) 8.88% ** ** 9.02%
- ------------------------------------------------------------------------------------------------------------
International Growth I 11.17% ** ** 11.46%
---------------------------------------------------------------------
A (no load) 10.88% ** ** 11.18%
---------------------------------------------------------------------
A (load) 6.42% ** ** 8.48%
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus I 4.82% ** ** 4.25%
Money Market
---------------------------------------------------------------------
A (no load) N/A N/A N/A N/A
---------------------------------------------------------------------
A (load) N/A N/A N/A N/A
============================================================================================================
</TABLE>
* April 1, 1992 except for the New Jersey Municipal Securities Fund, which
commenced operations on May 4, 1992. The Pennsylvania Municipal Securities-Class
A and GNMA-Class A Funds commenced operations on May 3, 1993. The Pennsylvania
Municipal Securities-Class B and GNMA-Class B Funds commenced operations on May
13, 1993 and May 5, 1993, respectively. The International Growth-Class A and
International Growth-Class B Funds commenced operation as of May 1, 1995 and May
4, 1995, respectively. The Equity Growth Fund had not commenced operations as of
December 31, 1996.
** Not in operation during period.
The Funds' performance may from time to time be compared to other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services) or
financial and business publications and periodicals, broad groups of comparable
mutual funds, unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs or
to other investment alternatives. The Funds may quote Morningstar, Inc., a
service that ranks mutual funds on the basis of risk-adjusted performance. The
Funds may quote Ibbotson Associates of Chicago, Illinois, which provides
historical returns of the capitals markets in the U.S. The Funds may use long
term performance of these capital markets to demonstrate general long-term risk
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
S - 45
<PAGE>
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
The following is a description of plans and privileges by which the sales
charges imposed on the Class A shares of 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 be reduced.
Right of Accumulation: A shareholder qualifies for cumulative quantity discounts
when his or her new investment, together with the previous net purchases of that
shareholder in the Funds reaches a discount level. See "Purchase and Redemption
of Shares" or "Purchases" and "Redemptions," as applicable, in the Prospectuses
for the sales charge on quantity purchases.
Letter of Intent: The reduced sales charges are also applicable to the aggregate
amount of purchases made by any such purchaser previously enumerated within a
13-month period pursuant to a written Letter of Intent provided by the
Distributor, and not legally binding on the signer or a Fund which provides for
the holding in escrow by the Administrator of 5% of the total amount intended to
be purchased until such purchase is completed within the 13-month period. A
Letter of Intent may be dated to include shares purchased up to 90 days prior to
the date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, the
Administrator will surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference.
Distribution Investment Option: Distributions of dividends and capital gains
made by the Funds may be automatically invested in shares of one of the Funds if
shares of the Funds are available for sale. Such investments will be subject to
initial investment minimums, as well as additional purchase minimums. A
shareholder considering the Distribution Investment Option should obtain and
read the prospectus of the other Funds and consider the differences in
objectives and policies before making any investment.
Reinstatement Privilege: A shareholder who has redeemed his or her shares of any
of the Funds has a one-time right to reinvest the redemption proceeds in shares
of any of the Funds at their net asset value as of the time of reinvestment.
Such a reinvestment must be made within 30 days of the redemption and is limited
to the amount of the redemption proceeds. Although redemptions and repurchases
of shares are taxable events, a reinvestment within
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such 30-day period in the same Fund is considered a "wash sale" and results in
the inability to recognize currently all or a portion of a loss realized on the
original redemption for federal income tax purposes. The investor must notify
the Transfer Agent at the time the trade is placed that the transaction is a
reinvestment.
Exchange Privilege: Subject to the restrictions set forth below, some or all of
the Class A Shares of 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 for which good payment has been
received (i.e., an established account) may be exchanged for Class A Shares of
other Funds of the Trust with similar or lower sales loads or for shares of the
Trust's Funds which do not have a sales load, at their net asset value. In
addition, subject to the restrictions set forth below, some or all of the shares
of the U.S. Treasury Securities Money Market, Prime Obligation Money Market and
Tax Exempt Money Market Funds for which good payment has been received may be
exchanged for shares, at their net asset value, plus any applicable sales
charge, of other Funds within the Trust with sales loads or at their net asset
value for shares of other Funds within the Trust which do not have sales loads.
Class B Shares of a Fund may be exchanged for Class B Shares of another Fund at
net asset value without the imposition of a sales charge at the time of the
exchange. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by the
Distributor.
A shareholder may exchange the shares of these Funds, for which good payment has
been received, in his or her account at any time, regardless of how long he or
she has held his or her shares.
Each Exchange Request must be in proper form (i.e., if in writing, signed by the
record owner(s) exactly as the shares are registered; if by telephone, proper
account identification is given by the dealer or shareholder of record), and
each exchange must involve either shares having an aggregate value of at least
$1,000 or all the shares in the account. Each exchange involves the redemption
of the shares of a Fund to be exchanged and the purchase either at net asset
value (i.e., without a sales charge) or with the appropriate sales charge, of
the shares of the other Funds. Any gain or loss on the redemption of the shares
exchanged is reportable on the shareholder's federal income tax return, unless
such shares were held in a tax-deferred retirement plan or other tax-exempt
account. If the Exchange Request is received by the Distributor in writing or by
telephone on any business day prior to the close of the New York Stock Exchange,
the exchange usually will occur on that day if all the restrictions set forth
above have been complied with at that time. However, payment of the redemption
proceeds by the Funds, and thus the purchase of shares of the other Funds, may
be delayed for up to seven days if the Funds determine that such delay would be
in the best interest of all of its shareholders. Investment dealers which have
satisfied criteria established by the Funds may also communicate a shareholder's
Exchange Request to the Funds subject to the restrictions set forth above. No
more than five Exchange Requests may be made in any one telephone Exchange
Request.
The Exchange Privilege may be exercised only in those states where the class of
shares of such other Funds of the Trust may legally be sold.
The Trust reserves the right to change the terms and conditions of the exchange
privileges discussed herein, or to terminate the exchange privilege, upon 60
days' notice.
Stop-Payment Requests: Investors may request a stop payment on checks by
providing the Trust with a written authorization to do so. Oral requests will be
accepted provided that the Trust promptly receives a written authorization. Such
requests will remain in effect for six months unless renewed or canceled. The
Trust will use its best efforts to effect stop-payment instructions, but does
not promise or guarantee that such instructions will be effective. Shareholders
requesting stop payment will be charged a $20 service fee per check which will
be deducted from their accounts.
DETERMINATION OF NET ASSET VALUE
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The net asset value per share of the Money Market Funds is calculated by adding
the value of securities and other assets, subtracting liabilities and dividing
by the number of outstanding shares. Securities will be valued by the amortized
cost method which involves valuing a security at its cost on the date of
purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price a Fund would receive if it sold the instrument. During
periods of declining interest rates, the daily yield of a Fund may tend to be
higher than a like computation made by a company with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio securities. Thus, if the use of amortized cost
by a Fund resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in that Fund would be able to obtain a somewhat higher
yield than would result from investment in a company utilizing solely market
values, and existing investors in the Fund would experience a lower yield. The
converse would apply in a period of rising interest rates.
The Funds' use of amortized cost and the maintenance of each Fund's net asset
value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the
1940 Act, provided that certain conditions are met. The regulations also require
the Trustees to establish procedures which are reasonably designed to stabilize
the net asset value per share at $1.00 for the Funds. Such procedures include
the determination of the extent of deviation, if any, of the Funds current net
asset value per share calculated using available market quotations from the
Funds amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews of
the amount of the deviation and the methods used to calculate such deviation. In
the event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the Trustees
believe that the extent of any deviation may 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 shareholder servicing fees charged to
Class A and/or Class B shares.
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A pricing service values portfolio securities, which are primarily traded on a
domestic exchange, at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. A Fund security that is
primarily traded on a foreign securities exchange is generally valued at its
preceding closing value on the exchange, provided that if an event occurs after
the security is so valued that is likely to have changed its value, then the
fair value of those securities will be determined through consideration of other
factors by or under the direction of the Board of Trustees. A security that is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
Certain of the securities acquired by a Fund may be traded on foreign exchanges
or over-the-counter markets on days on which the Fund's net asset value is
calculated. In such cases, the net asset value of the Fund's shares may be
significantly affected on days when investors can neither purchase nor redeem
shares of the Fund.
GENERAL INFORMATION AND HISTORY
THE TRUST
The Trust is an open-end management investment company established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated September 9, 1991. The Declaration of Trust permits the Trust to offer
separate series of units of beneficial interest ("shares") and different classes
of shares of each series. This Statement of Additional Information relates to
the shares of the Trust's: (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 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. Except for differences between Class A and Class B shares pertaining
to distribution and transfer agent costs, each share of each Fund represents an
equal proportionate interest in that Fund. See "Description of Shares."
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds each of which represents an equal proportionate interest in
that Fund with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the Funds; shareholders have no preemptive
rights. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares or classes of a series. All consideration
received by the Trust for shares of any additional series and all assets in
which such consideration is invested would belong to that series and would be
subject to the liabilities related thereto. Share certificates representing
shares will not be issued.
The names and addresses of the holders of 5% or more of the outstanding shares
of any Fund as of February 5, 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:
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Percent of
Fund Name and Address Beneficial Ownership
- ---- ---------------- --------------------
U.S. Treasury Securities United Jersey Bank 97.80%
Money Market: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Prime Obligation United Jersey Bank 79.90%
Money Market: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Lehigh Securities Corp. 17.14%
Attn: Richard Jennings
1457 MacArthur Road
Whitehall, PA 18052-5287
Tax-Exempt Money Market: United Jersey Bank 70.70%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Lehigh Securities Corp. 23.30%
Attn: Richard Jennings
1457 MacArthur Road
Whitehall, PA 18052-5287
Short-Term Investment: United Jersey Bank 85.72%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Growth: United Jersey Bank 100.00%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Fixed Income: United Jersey Bank 64.22%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
United Jersey Bank 31.12%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
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Percent of
Fund Name and Address Beneficial Ownership
- ---- ---------------- --------------------
New Jersey Municipal United Jersey Bank 73.94%
Securities: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
United Jersey Bank 6.66%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Intermediate Term Government United Jersey Bank 47.72%
Securities: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
United Jersey Bank 36.83%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Equity Value: United Jersey Bank 54.26%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
United Jersey Bank 39.75%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Equity Income: United Jersey Bank 49.29%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
United Jersey Bank 36.48%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Mid Cap: United Jersey Bank 83.80%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Balanced: United Jersey Bank 61.60%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
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Percent of
Fund Name and Address Beneficial Ownership
- ---- ---------------- --------------------
Pennsylvania Municipal United Jersey Bank 98.56%
Securities: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
GNMA: United Jersey Bank 28.67%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
United Jersey Bank 8.94%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
International Growth: United Jersey Bank 51.00%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
United Jersey Bank 36.36%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
U.S. Treasury Plus Money Integrity Packaging Corp. 5.90%
Market: c/o Dannie Warren
122 Quentin Road
New Brunswick, NJ 08901-3263
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.
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.
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LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisors, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' prospectuses. No attempt has been made to present a detailed
explanation of the tax treatment of the Funds or their shareholders and the
discussion here and in the Funds' prospectuses is not intended as a substitute
for careful tax planning.
FEDERAL INCOME TAX
All Funds. In order to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute annually to its shareholders
at least the sum of 90% of its net interest income excludable from gross income
plus 90% of its investment company taxable income (generally, net investment
income plus the excess, if any, of net short-term capital gain over net
long-term capital loss) (the "Distribution Requirement") and also must meet
several additional requirements. Among these requirements are the following: (i)
at least 90% of the Fund's gross income each taxable year must be derived from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities or foreign currencies, or
certain other income; (ii) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of stock, securities
or certain other assets held for less than three months; (iii) at the close of
each quarter of the 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.
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<PAGE>
If shares on which a capital gain distribution has been received are
subsequently sold or redeemed and such shares have been held for six months or
less, any loss recognized will be treated as a long-term capital loss to the
extent of the capital gain distribution.
Distributions from the Funds generally will not be eligible for the dividends
received deduction available to corporate shareholders.
If for any taxable year a Fund does not qualify for the special tax treatment
afforded RICs, all of the taxable income of that Fund will be subject to federal
income tax at regular corporate rates (without any deduction for distributions
to Fund shareholders). In such event, all distributions made by the Fund
(whether or not derived from tax-exempt interest) would be taxable to
shareholders as dividends to the extent of the Fund's earnings and profits, and
such dividend distributions would be eligible for the dividends received
deduction available to corporate shareholders.
Additional Consideration for the International Growth, Short-Term Investment and
Fixed Income Funds. Dividends and interest received by a Fund may be subject to
income, withholding or other taxes imposed by foreign countries and United
States possessions that would reduce the yield on a Fund's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains 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 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
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<PAGE>
not be deductible for federal income tax purposes. The deduction otherwise
allowable to property and casualty insurance companies for "losses incurred"
will be reduced by an amount equal to a portion of exempt-interest dividends
received or accrued during any taxable year. Foreign corporations engaged in a
trade or business in the United States will be subject to a "branch profits tax"
on their "dividend equivalent amount" for the taxable year, which will include
exempt-interest dividends. Certain Subchapter S corporations may also be subject
to taxes on their "passive investment income," which could include
exempt-interest dividends. Up to 85% of the Social Security benefits or railroad
retirement benefits received by an individual during any taxable year will be
included in the gross income of such individual if the individual's "modified
adjusted gross income" (which includes exempt-interest dividends) plus one-half
of the Social Security benefits or railroad retirement benefits received by such
individual during that taxable year exceeds the base amount described in Section
86 of the Code.
A Tax Exempt Fund may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or
persons related to such users) of facilities financed by industrial development
or private activity bonds. A "substantial user" is defined generally to include
certain persons who regularly use a facility in their trade or business. Such
entities or persons should consult their tax advisors before purchasing shares
of a Tax Exempt Fund.
Issuers of bonds purchased by a Tax Exempt Fund (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Investors should be aware
that exempt-interest dividends derived from such bonds may become subject to
federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
STATE TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Funds
to shareholders and the ownership of shares may be subject to state and local
taxes.
EXPERTS
The financial statements, 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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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 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
A-1
<PAGE>
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 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
A - 2
<PAGE>
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 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.
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
A - 3
<PAGE>
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.
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.
A - 4
<PAGE>
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.
A - 5
<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 Fund, 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, 1996 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 filed herewith.
(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 filed herewith.
(5)(c) Investment Advisory Agreement between Registrant and United Jersey
Bank Investment Management Division dated April 28, 1996 is filed
herewith.
(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 filed herewith.
C-1
<PAGE>
(5)(e) Investment Sub-Advisory Agreement dated April 28, 1996 between the
Advisor and Wellington Management Company is filed herewith.
(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.
(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) Form of Distribution and Service Agreement Class B Shares 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 filed herewith.
(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) Form of Amended and Restated Rule 18F-3 Multiple Class Plan is filed
herewith.
(15)(d) Form of Distribution and Service Plan Class B Shares 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 herein by reference.
(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 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
C-2
<PAGE>
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
-------------- --------------
(Class names do not
reflect new class designations)
<S> <C> <C>
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
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
C-3
<PAGE>
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
----------------------- ------------- ---------------
Directors:
<S> <C> <C>
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
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 --
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Position Name of Connection with
with Investment Advisor Other Company Other Company
----------------------- ------------- ---------------
Directors:
<S> <C> <C>
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.
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
C-5
<PAGE>
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
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.
<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 President & Chief
Executive Officer
William Madden Senior Vice President --
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
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 & Vice President & Assistant
Assistant Secretary 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 Vice President & Assistant
Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President & Assistant
Secretary
Robert Crudup Vice President & Managing Director --
Ed Daly Vice President --
Jeff Drennen Vice President --
Mick Duncan Vice President & 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 & Team Leader --
Vicki Malloy Vice President & Team Leader --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Secretary Vice President & Assistant
Secretary
Sandra K. Orlow Vice President & Assistant Secretary 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 --
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C> <C>
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary 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:
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.
C-8
<PAGE>
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 Investment Company Act of 1940, the
Registrant has duly caused this 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 28th day of February, 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.
<TABLE>
<S> <C> <C>
* Trustee February 28, 1997
- -------------------------------
Arthur L. Berman
* Trustee February 28, 1997
- -------------------------------
Ray Konrad
* Trustee February 28, 1997
- -------------------------------
Robert A. Nesher
* Trustee February 28, 1997
- -------------------------------
Christine H. Yackman
* Trustee February 28, 1997
- -------------------------------
James B. Grecco
/s/ Stephen G. Meyer Controller & Chief Financial Officer February 28, 1997
- -------------------------------
Stephen G. Meyer
*By: /s/ David G. Lee
-------------------------
David G. Lee
Attorney-in-Fact
</TABLE>
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 filed
herewith.
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 filed herewith.
EX-99.B5(c) Investment Advisory Agreement between Registrant and United
Jersey Bank Investment Management Division dated April 28,
1996 is filed herewith.
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 filed herewith.
EX-99.B5(e) Investment Sub-Advisory Agreement between the Advisor and
Wellington Management Company is filed herewith.
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.
<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) Form of Distribution and Service Agreement Class B Shares
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 filed
herewith.
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) Form of Amended and Restated Rule 18F-3 Multiple Class Plan
is filed herewith.
EX-99.B15(d) Form of Distribution and Service Plan Class B Shares is
filed herewith.
EX-99.B16 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 herein by reference.
<PAGE>
Exhibit Name
------- ----
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 filed herewith.
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 28th day of February, 1992, as amended
this 25th day of May, 1993, by and between The Pillar Funds (the "Trust"), a
Massachusetts business trust, and SEI Financial Management Corporation (the
"Administrator"), a Delaware corporation.
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires the Administrator to provide, and the
Administrator is willing to provide management, administrative, transfer agent
and shareholder servicing services to the Trust's U.S. Treasury Securities Money
Market, Prime Obligation Money Market, Tax- Exempt Money Market, Short-Term
Investment, Fixed Income, New Jersey Municipal Securities, Intermediate-Term
Government Securities, Equity Growth, Equity Income, Equity Aggressive Growth,
Balanced Growth, U.S. Treasury Securities Plus Money Market, Pennsylvania
Municipal Securities, and GNMA Portfolios and such other portfolios as the Trust
and the Administrator may agree on (the "Portfolios"), on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator. The Trust hereby retains the
Administrator to act as the Administrator and Shareholder Servicing Agent of the
Portfolios and to furnish the Portfolios with the management, administrative,
transfer agent and shareholder servicing services as set forth below. The
Administrator hereby accepts such employment to perform the duties set forth
below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trust in any way and shall
not be deemed an agent of the Trust.
ARTICLE 2. Transfer Agent Services. The Administrator will act as Transfer
Agent for the Portfolios' institutional accounts and, as such, will record in an
account (the "Account") the total number of units of beneficial interest
("Shares") of each Portfolio issued and outstanding from time to time and will
maintain Share transfer records in which it will note the names and registered
addresses of Shareholders, and the number of Shares from time to time owned by
each of them. Each Shareholder will be assigned one or more account numbers.
1
<PAGE>
The Administrator hereby represents and warrants that it is, and shall
continue to be, duly registered as a transfer agent pursuant to Section 17A of
the Securities Exchange Act of 1934 and such other provisions of law as required
and shall continue to be so for the term of this Agreement.
The Administrator is authorized to set up accounts and record transactions
in the accounts on the basis of instructions received from Shareholders when
accompanied by remittance in appropriate amount as provided in the Trust's then
current prospectus. The Trust will not issue certificates representing its
Shares. Whenever Shares are purchased or issued, the Administrator shall credit
the Account with the Shares issued, and credit the proper number of Shares to
the appropriate Shareholder.
Likewise, whenever the Administrator has occasion to redeem Shares owned by
a Shareholder, the Trust authorizes the Administrator to process the transaction
by making appropriate entries in its Share transfer records and debiting the
Account.
Upon notification by the Trust's Custodian of the receipt of funds through
the Federal Reserve wire system or conversion into Federal funds of funds
transmitted by other means for the purchase of Shares in accordance with the
Trust's current prospectus, the Administrator shall notify the Trust of such
deposits on a daily basis.
The Administrator shall credit each Shareholder's account with the number
of shares purchased according to the price of the Shares in effect for such
purchases determined in the manner set forth in the Trust's then current
prospectus. The Administrator shall process each order for the redemption of
Shares from or on behalf of a Shareholder, and shall cause cash proceeds to be
wired in Federal funds.
The requirements as to instruments of transfer and other documentation, the
applicable redemption price and the time of payment shall be as provided in the
then current prospectus, subject to such supplemental requirements consistent
with such prospectus as may be established by mutual agreement between the Trust
and Administrator.
If the Administrator or the Trust determines that a request for redemption
does not comply with the requirements for redemption, the Administrator shall
promptly so notify the Shareholder, together with the reason therefor, and shall
effect such redemption at the price next determined after receipt of documents
complying with said standards.
On each day that the Trust's Custodian and the New York Stock Exchange are
open for business ("Business Day"), the Administrator shall notify the Custodian
of the amount of cash or other assets required to meet payments made pursuant to
the provisions of this Article 2, and the Trust shall instruct the Custodian to
make available from time to time sufficient funds or other assets therefor.
2
<PAGE>
The authority of the Administrator to perform its responsibilities as to
purchases and redemptions under this Article 2 shall be suspended upon receipt
by it of notification from the Securities and Exchange Commission or the
Trustees of the suspension of the determination of the Trust's net asset value.
In registering transfers, the Administrator may rely upon an opinion of
counsel in not requiring complete documentation, in registering transfers
without inquiry into adverse claims, in delaying registration for purposes of
such inquiry, or in refusing registration where in its judgment an adverse claim
requires such refusal.
The Trust warrants that it has or shall deliver to the Administrator, as
transfer agent:
(a) a copy of the Declaration of Trust of the Trust, incorporating all
amendments thereto, certified by the Secretary or Assistant Secretary
of the Trust;
(b) an opinion of counsel to the Trust with respect to (i) the legality
and continuing existence of the Trust, (ii) the legality of its
outstanding Shares of beneficial interest, and (iii) the number of
Shares authorized for issuance and stating that upon issuance they
will be validly issued and non-assessable; and
(c) the Trust's Secretary's or Assistant Secretary's certificate as to the
authorized outstanding Shares of the Trust, its address to which
notices may be sent, the names and specimen signatures of its officers
who are authorized to sign instructions or requests to the
Administrator on behalf of the Trust, and the name and address of
legal counsel to the Trust. In the event of any future amendment or
change in respect of any of the foregoing, prompt written notification
of such change shall be given by the Trust to the Administrator,
together with copies of all relevant resolutions, instruments or other
documents, specimen signatures, certificates, opinions or the like as
the Administrator may deem necessary or appropriate.
ARTICLE 3. Dividend Disbursing Agent. The Administrator shall act as
Dividend Disbursing Agent for the Trust's institutional accounts and, as such,
in accordance with the provisions of the Trust's Declaration of Trust and then
current prospectus, shall prepare and wire or credit income and capital gains
distributions to Shareholders (or instruct the Custodian to do so) after
deducting any amount required to be withheld by any applicable tax laws, rules
and regulations or other applicable rules or regulations.
The Trust agrees that it shall promptly inform the Administrator of the
declaration of any dividend or distribution on its Shares, and that on or before
the payment date of a distribution, it shall instruct the Custodian to make
available, at the instruction of the Dividend Disbursing Agent, sufficient funds
for the cash amount to be paid out. If a Shareholder is entitled to receive
additional Shares by virtue of any such distribution or dividend, appropriate
credits will be made
3
<PAGE>
to the Shareholder's account.
ARTICLE 4. Other Administrative Services. In addition to the services
described above, the Administrator shall perform or supervise the performance by
others of other administrative services in connection with the operations of the
Portfolios, and, on behalf of the Trust, will investigate, assist in the
selection of and conduct relations with custodians, depositories, accountants,
underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and
persons in any other capacity deemed to be necessary or desirable for the
Portfolios' operation. The Administrator shall provide the Trustees of the Trust
with such reports regarding investment performance as they may reasonably
request but shall have no responsibility for supervising the performance by any
investment adviser or sub-adviser of its responsibilities.
The Administrator shall provide the Trust with regulatory reporting
(including blue sky filings), in-house legal services, fund accounting and
related portfolio accounting services, all necessary office space, equipment
(including back-up facilities in the event of equipment or systems failure),
personnel compensation and facilities (including facilities for Shareholders'
and Trustees' meetings) for handling the affairs of the Portfolios and such
other services as the Administrator shall, from time to time, determine to be
necessary to perform its obligations under this Agreement.
The Administrator shall make reports to the Trust's Trustees concerning the
performance of its obligations hereunder; furnish advice and recommendations
with respect to other aspects of the business and affairs of the Portfolios as
the Trust and the Administrator shall determine desirable; and shall provide the
Portfolios' Shareholders with the reports described in the Trust's current
prospectus.
The Administrator shall calculate the daily net asset value and per share
offering price of the Portfolios in accordance with the procedures prescribed in
the Trust's Registration Statement and such other procedures as may be
established by the Trustees of the Trust.
Also, the Administrator will perform other services for the Trust,
including, but not limited to, preparation and mailing of appropriate federal
and state tax forms and returns to the Internal Revenue Service, state agencies,
and Shareholders; mailing the annual reports of the Trust; preparing an annual
list of institutional Shareholders; furnishing the Trust with such reports
regarding the sale and redemption of Shares as may be required in order to
comply with federal and state securities law; and mailing notices of
Shareholders' meetings, proxies and proxy statements to institutional
Shareholders, for all of which the Trust will pay the Administrator's
out-of-pocket expenses.
ARTICLE 5. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own expense
the executive, supervisory and clerical personnel necessary to perform
its obligations
4
<PAGE>
under this Agreement. The Administrator shall also provide the items
which it is obligated to provide under this Agreement, and shall pay
all compensation, if any, of officers of the Trust as well as all
Trustees of the Trust who are affiliated persons of the Administrator
or any affiliated corporation; provided, however, that unless
otherwise specifically provided, the Administrator shall not be
obligated to pay the compensation of any employee of the Trust
retained by the Trustees of the Trust to perform services on behalf of
the Trust.
(B) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not otherwise allocated herein, including,
without limitation, organizational costs, taxes, expenses for outside
legal and auditing services, the expenses of preparing (including
typesetting), printing and mailing reports, prospectuses, statements
of additional information, proxy solicitation material and notices to
existing Shareholders, all expenses incurred in connection with
issuing and redeeming Trust Shares, the costs of custodial services,
the cost of initial and ongoing registration of the Trust's Shares
under federal and state securities laws, pricing services, fees and
out-of-pocket expenses of Trustees who are not affiliated persons of
the Administrator or any affiliated corporation, insurance, interest,
brokerage costs, litigation and other extraordinary or nonrecurring
expenses, all fees and charges of investment advisers to the Trust. In
addition, the Trust will bear distribution expenses in accordance with
the Trust's Class B Distribution Plan.
ARTICLE 6. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to
this Agreement, the Trust shall pay to the Administrator compensation
at an annual rate specified in the schedules which are attached hereto
and made a part of this Agreement ("Schedules"). Such compensation
shall be calculated and accrued daily, and paid to the Administrator
monthly.
If this Agreement becomes effective subsequent to the first day of a
month or terminates before the last day of a month, the
Administrator's compensation for that part of the month in which this
Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above. Payment of the
Administrator's compensation for the preceding month shall be made
promptly.
(B) Compensation from Transactions. The Trust hereby authorizes any entity
or person associated with the Administrator which is a member of a
national securities exchange to effect any transaction on the exchange
for the account of the Trust which is permitted by Section 11(a) of
the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and
the Trust hereby consents to the retention of compensation for such
transactions in accordance with Rule 11a2-2(T)(a)(2(iv).
5
<PAGE>
(C) Survival of Compensation Rights. All rights of compensation under this
Agreement for services performed as of the termination date shall
survive the termination of this Agreement.
ARTICLE 7. Limitation of Liability of the Administrator. The duties of the
Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties
hereunder, except as may otherwise be provided under provisions of applicable
state law which cannot be waived or modified hereby. (As used in this Article 7,
the term "Administrator" shall include directors, officers, employees and other
corporate agents of the Administrator as well as that corporation itself).
So long as the Administrator acts in good faith and with due diligence and
without gross negligence, the Trust assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of said
administration, transfer agency, and dividend disbursing relationships to the
Trust or any other service rendered to the Trust hereunder. The indemnity and
defense provisions set forth herein shall indefinitely survive the termination
of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Trust may be asked to indemnify or hold the
Administrator harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not affect the rights
hereunder.
The Administrator may apply to the Trust at any time for instructions and
may consult counsel for the Trust or its own counsel and with accountants and
other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it
6
<PAGE>
reasonably believes to be genuine and to have been signed or presented by the
proper person or persons. Nor shall the Administrator be held to have notice of
any change of authority of any officers, employees or agents of the Trust until
receipt of written notice thereof from the Trust.
ARTICLE 8. Activities of the Administrator. The services of the
Administrator rendered to the Trust are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests so long as its services hereunder are not hindered
thereby. It is understood that Trustees, officers, employees and Shareholders
of the Trust are or may be or become interested in the Administrator, as
directors, officers, employees and shareholders or otherwise and that directors,
officers, employees and shareholders of the Administrator and its counsel are or
may be or become similarly interested in the Trust, and that the Administrator
may be or become interested in the Trust as a Shareholder or otherwise.
ARTICLE 9. Duration of This Agreement. This Agreement shall remain in
effect for five years after the date of the Agreement and shall continue in
effect for successive periods of two years subject to review at least annually
by the Trustees.
In the event of a material breach of this Agreement by either party, the
non-breaching party shall notify the breaching party in writing of such breach
and upon receipt of such notice, the breaching party shall have 45 days to
remedy the breach or the non-breaching party may terminate this Agreement
immediately.
This Agreement shall not be assignable by either party without the written
consent of the other party, and neither party will delegate its responsibilities
to any other person without the written approval of the other party.
ARTICLE 10. Amendments. This Agreement may be amended by the parties hereto
only if such amendment is specifically approved (i) by the vote of a majority of
the Trustees of the Trust, and (ii) by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a Board of Trustees meeting called for the purpose
of voting on such approval.
For special cases, the parties hereto may amend such procedures set forth
herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Trust does not conflict with or violate any requirements of its
Declaration of Trust, By-Laws or prospectus, or any rule, regulation or
requirement of any regulatory body.
ARTICLE 11. Trustees' Liability. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or Shareholders of the Trust individually, but binding only upon the
assets and property of the Trust.
ARTICLE 12. Certain Records and Confidentiality. The Administrator shall
maintain
7
<PAGE>
customary records in connection with its duties as specified in this Agreement.
Any records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Trust shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Trust and will be made available
to or surrendered promptly to the Trust on request.
The Administrator agrees on behalf of itself and its directors, officers,
employees, and agents to treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust and prior,
present or potential Shareholders of the Trust (and clients of said
Shareholders), and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval shall
not be unreasonably withheld and may not be withheld where the Administrator may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust.
ARTICLE 13. Definitions of Certain Terms. The terms "interested person",
"affiliated person", and "assignment" when used in this Agreement, 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 Securities and
Exchange Commission.
ARTICLE 14. Notice. 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 680 East Swedesford Road, Wayne, PA, with a copy to United
Jersey Bank, 210 Main Street, Hackensack, NJ, attention: William F. Flyge, and
if to the Administrator at 680 East Swedesford Road, Wayne, PA.
ARTICLE 15. 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.
8
<PAGE>
ARTICLE 16. 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 WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE PILLAR FUNDS
By: /s/ Sandra K. Orlow
-----------------------------
Sandra K. Orlow
Vice President
SEI FINANCIAL MANAGEMENT CORPORATION
By: /s/ Kevin P. Robins
-----------------------------
Kevin P. Robins
Vice President
9
<PAGE>
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED FEBRUARY 28, 1992 AS AMENDED MAY 25, 1993
BETWEEN
THE PILLAR FUNDS
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Pursuant to Article 6, Section A, the Trust shall pay the Administrator
compensation which is calculated daily and paid monthly at an annual rate as
follows:
.20% of average daily net assets of each Portfolio.
10
<PAGE>
SCHEDULE C
DATED MARCH 14, 1995
TO THE ADMINISTRATION AGREEMENT
DATED FEBRUARY 28, 1992
BETWEEN
THE PILLAR FUNDS
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Pursuant to Article 10, the Administrator shall provide services to the
following additional Portfolio (the "Portfolio"):
International Growth
Pursuant to Article 5, Section A, the Trust shall pay the Administrator
compensation for the Portfolio which is calculated daily and paid monthly at an
annual rate as follows:
.20% of average daily net assets of the Portfolio
<PAGE>
AMENDMENT TO THE ADMINISTRATION AGREEMENT
DATED AS OF FEBRUARY 28, 1992,
AS AMENDED MAY 25, 1993,
BY AND BETWEEN
THE PILLAR FUNDS
AND
SEI FUND RESOURCES
THIS AMENDMENT to the Administration Agreement, dated as of February 28,
1992, as amended May 25, 1993, (the "Agreement") by and between The Pillar Funds
(the "Trust") and SEI Financial Management Corporation, as assigned to SEI Fund
Resources ("SFR"), is entered into as of December 1, 1996.
WHEREAS the Agreement, pursuant to its terms, provides that is shall be
automatically renewed for successive two-year periods unless otherwise
terminated;
WHEREAS, in accordance with the unanimous vote of the Board of Trustees at
a meeting held on November 14, 1996, the Trust and SFR desire to amend the
Agreement to provide for a three (3) year initial extension of the term of the
Agreement;
NOW, THEREFORE, in consideration of $1.00 and other good and valuable
consideration, the parties hereby amend the Agreement as follows:
The first sentence of Article 9 of the Agreement shall be
replaced in its entirety by the following:
This Agreement shall remain in effect for five years after the
date of the Agreement; thereafter for a renewal term of three
years; and thereafter shall continue in effect for successive
periods of two years subject to review at least annually by
the Trustees of the Trust.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first above written.
THE PILLAR FUNDS
By /s/ Kathryn L. Stanton
-------------------------------------
Name: Kathryn L. Stanton
Title: Vice President and
Asssistant Secretary
SEI FUND RESOURCES
By /s/ Marc H. Cahn
- ----------------------------
Name: Marc H. Cahn
Title: Vice President
and Assistant Secretary
CONSENT TO ASSIGNMENT AND ASSUMPTION
1. SEI Financial Management Corporation ("Assignor") hereby notifies The
Pillar Funds ("Trust") that it intends to assign all of its rights and
delegate its obligations under the Administration Agreement between the
Trust and SEI Financial Management Corporation, dated February 28, 1992, as
amended May 25, 1993 to SEI Fund Resources ("Assignee"), no later than June
1, 1996, in connection with the transition of Assignor's fund
administration and distribution business to Assignee;
2. Trust releases Assignor from its rights and obligations under the Agreement
on or after the date the Assignment and Assumption Agreement is executed
and any liability or responsibility for (i) breach of the Agreement of
Assignee of (ii) demands and claims made against the Trust or damages,
losses or expenses incurred by the Trust on or after the date of the
Assignment and Assumption Agreement, unless such demands, claims, losses,
damages or expenses arose out of or resulted from an act or omission of
Assignor prior to the date of the Assignment and Assumption Agreement.
3. This consent is not a waiver or estoppel with respect to any rights the
Trust may have by reason of the past performance or failure to perform by
Assignor.
4. This consent is conditioned upon the execution of an Assignment and
Assumption Agreement between Assignor and Assignee that require(s) Assignee
(i) to assume all rights and obligations of Assignor under the Agreement
and (ii) to be liable to the Trust for any default or breach of the
Agreement to the extent the default or breach occurs on or after the date
of execution of the Assignment and Assumption Agreement.
5. Except as provided herein, neither this consent nor the Assignment and
Assumption Agreement shall alter or modify the terms or conditions of the
Agreement.
Trust: Assignor:
The Pillar Funds SEI Financial Management Corporation
By: /s/ Kathryn L. Stanton By: /s/ Kevin R. Robins
-------------------------- ----------------------------
Title: Vice President Title: Senior Vice President
Date: June 1, 1996 Date: June 1, 1996
THE PILLAR FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of April, 1996, by and between The Pillar
Funds, a Massachusetts business trust (the "Trust"), and the United Jersey Bank
Investment Management Division, a division of United Jersey Bank, a wholly-owned
subsidiary of Summit Bancorp (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its 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 Value and
Balanced Growth Portfolios and such other portfolios as the Trust and the
Adviser may agree upon (the "Portfolios"), and the Adviser is willing to render
such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of Adviser. The Trust employs the Adviser to manage the
investment and reinvestment of the assets, and to continuously review,
supervise, and administer the investment program of the Portfolios, to
determine in its discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records concerning the
Adviser's activities which the Trust is required to maintain, and to
render regular reports to the Administrator and to the Trust's
Officers and Trustees concerning the Adviser's discharge of the
foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance
with such policies as the Trustees may from time to time establish,
and in compliance with the objectives,
<PAGE>
policies, and limitations for each such Portfolio set forth in the
Trust's prospectuses and statement of additional information as
amended from time to time, and applicable laws and regulations.
The Adviser accepts such employment and agrees, at its own expense, to
render the services and to provide the office space, furnishings and
equipment and the personnel required by it to perform the services on
the terms and for the compensation provided herein.
2. Portfolio Transactions. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of
portfolio securities for the Portfolios and is directed to use its
best efforts to obtain the best net results as described in the
Trust's prospectus and statement of additional information from time
to time. The Adviser will promptly communicate to the Administrator
and to the officers and the Trustees of the Trust such information
relating to portfolio transactions as they may reasonably request.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Trust or be in
breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having directed a securities
transaction on behalf of the Trust to a broker-dealer in compliance
with the provisions of Section 28(e) of the Securities Exchange Act
of 1934.
3. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Trust
shall pay to the Adviser compensation at the rate specified in the
Schedule(s) which are attached hereto and made a part of this
Agreement. Such compensation shall be paid to the Adviser at the end
of each month, and calculated by applying a daily rate, based on the
annual percentage rates as specified in the attached Schedule(s), to
the assets. The fee shall be based on the average daily net assets for
the month involved.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of
this Agreement.
4. Other Expenses. The Adviser shall pay all expenses of preparing
(including typesetting), printing and mailing reports, prospectuses,
statements of additional information, and sales literature to
prospective clients to the extent these expenses are not borne by
<PAGE>
the Trust under a distribution plan adopted pursuant to Rule 12b-1.
5. Excess Expenses. If the expenses for any Portfolio for any fiscal year
(including fees and other amounts payable to the Adviser, but
excluding interest, taxes, brokerage costs, litigation, and other
extraordinary costs) as calculated every business day would exceed the
expense limitations imposed on investment companies by any applicable
statute or regulatory authority of any jurisdiction in which Shares
are qualified for offer and sale, the Adviser shall bear such
excess cost.
However, the Adviser will not bear expenses of the Trust or any
Portfolio which would result in the Trust's inability to qualify as a
regulated investment company under provisions of the Internal Revenue
Code. Payment of expenses by the Adviser pursuant to this Section 5
shall be settled on a monthly basis (subject to fiscal year end
reconciliation) by a reduction in the fee payable to the Adviser for
such month pursuant to Section 3 and, if such reduction shall be
insufficient to offset such expenses, by reimbursing the Trust.
6. Reports. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. Status of Adviser. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Trust are not
impaired thereby. The Adviser shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
8. Certain Records. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated
under the Investment Company Act of 1940 which are prepared or
maintained by the Adviser on behalf of the Trust are the property of
the Trust and will be surrendered promptly to the Trust on request.
9. Limitation of Liability of Adviser. The duties of the
<PAGE>
Adviser shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Adviser
hereunder. The Adviser shall not be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for
any act or omission in carrying out its duties hereunder, except a
loss resulting from willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable state law which cannot be
waived or modified hereby. (As used in this Paragraph 9, the term
"Adviser" shall include directors, officers, employees and other
corporate agents of the Adviser as well as that corporation itself).
10. Permissible Interests. Trustees, agents, and shareholders of the Trust
are or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise;
directors, partners, officers, agents, and shareholders of the Adviser
are or may be interested in the Trust as Trustees, shareholders or
otherwise; and the Adviser (or any successor) is or may be interested
in the Trust as a shareholder or otherwise. In addition, brokerage
transactions for the Trust may be effected through affiliates of the
Adviser if approved by the Board of Trustees, subject to the rules and
regulations of the Securities and Exchange Commission.
11. Duration and Termination. This Agreement, unless sooner terminated as
provided herein, shall remain in effect until two years from date of
execution, and thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least annually (a)
by the vote of a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of each Portfolio;
provided, however, that if the shareholders of any Portfolio fail to
approve the Agreement as provided herein, the Adviser may continue to
serve hereunder in the manner and to the extent permitted by the
Investment Company Act of 1940 and rules and regulations thereunder.
The foregoing requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940 and the
rules and regulations
<PAGE>
thereunder.
This Agreement may be terminated as to any Portfolio at any time,
without the payment of any penalty by vote of a majority of the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Portfolio on not less than 30 days nor more
than 60 days written notice to the Adviser, or by the Adviser at any
time without the payment of any penalty, on 90 days written notice to
the Trust. This Agreement will automatically and immediately terminate
in the event of its assignment. Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postpaid, to
the other party at any office of such party.
As used in this Section 11, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in the
Investment Company Act of 1940 and the rules and regulations
thereunder; subject to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
12. Amendment. The terms or provisions of this Agreement may be amended,
modified or waived in writing if such amendment, modification or
waiver is approved by the affirmative vote or action by written
consent of the Board of Trustees of the Trust and by the Adviser in
accordance with the Investment Company Act of 1940; provided, that an
amendment, modification or waiver shall also be approved by the
shareholders of the Trust if shareholder approval is required by the
Investment Company Act of 1940 and the rules and regulations
thereunder.
13. Notice. 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 680 East Swedesford Road,
Wayne, PA and if to the Adviser at 210 Main Street, Hackensack,
NJ 07601.
14. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
15. Governing Law. This Agreement shall be construed in accordance with
laws of the Commonwealth of
<PAGE>
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.
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees, and
are not binding upon any of the Trustees, officers, or shareholders of the Trust
individually but binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
The Pillar Funds United Jersey Bank Investment
Management Division, a division
of United Jersey Bank Bank
By: /s/ Kevin P. Robins By: /s/ Fernando Garip
- -------------------------------- ---------------------------------
Title: Vice President Title: Vice President, Regional
Manager
<PAGE>
Schedule A
to the
Investment Advisory Agreement
between
The Pillar Funds
and
United Jersey Bank Investment Management Division,
a division of United Jersey Bank
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
Portfolio Fee (in basis points)
--------- ---------------------
U.S. Treasury Securities Money Market .35%
U.S. Treasury Securities Plus Money Market .35%
Prime Obligation Money Market .35%
Tax-Exempt Money Market .35%
Short-Term Investment .60%
Fixed Income .60%
New Jersey Municipal Securities .60%
Pennsylvania Municipal Securities .60%
Intermediate-Term Government Securities .60%
GNMA .60%
Equity Value .75%
Equity Income .75%
Mid Cap Value .75%
Balanced Growth .75%
<PAGE>
PILLAR GROWTH FUND
SCHEDULE DATED NOVEMBER 14, 1996
TO THE INVESTMENT ADVISORY AGREEMENT
DATED APRIL 28, 1996
BETWEEN
THE PILLAR FUNDS
AND
UNITED JERSEY BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF UNITED JERSEY BANK
Fees: Pursuant to Section 3, the Trust shall pay the Adviser compensation for
services rendered to the Growth Fund (the "Portfolio") at an annual rate
of .75% of the Portfolio's average daily net assets.
THE PILLAR FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of April, 1996, by and between The Pillar
Funds, a Massachusetts business trust (the "Trust"), and United Jersey Bank
Investment Management Division, a division of United Jersey Bank, a wholly-owned
subsidiary of Summit Bancorp (the "Adviser").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"),
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services with respect to its International Growth Portfolio and such
other portfolios as the Trust and the Adviser may hereafter agree upon from time
to time (the "Portfolios"), and the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, and
intending to be legally bound, the parties hereto agree as follows:
1. Appointment and Duties of Adviser. The Trust hereby appoints the
Adviser to provide investment advisory services to the Portfolio for
the period and on the terms set forth in this Agreement.
A. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
In the event that the Trust establishes one or more additional
portfolios in the future with respect to which it desires that
the Adviser furnish investment advisory services hereunder, the
Trust so shall notify the Adviser in writing. If the Adviser is
willing to render such services under this Agreement, it shall
notify the Trust in writing whereupon such portfolio shall become
a Portfolio hereunder and shall be subject to the provisions of
this Agreement to the same extent as the Portfolio named above in
the recitals except to the extent that said provisions (including
those relating to the compensation payable by the Trust to the
Adviser) are modified with respect to such Portfolio in writing
by Trust and the Adviser.
B. Subject to supervision by the Trust's Board of Trustees, the
Adviser shall manage the investment operations of the Portfolio
and the composition of the Portfolio, including the purchase,
retention and disposition thereof, in accordance with the
Portfolio's investment objectives, policies and restrictions as
stated in the Portfolio's Prospectus (such Prospectus and the
Statement of Additional Information, as currently in effect and
as amended or supplemented from time to time, being herein called
the "Prospectus"), and subject to the following:
(1) The Adviser shall determine from time to time what
investments and securities will be purchased, retained or
sold by the
<PAGE>
Portfolio, and what portion of the assets will be invested
or held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Adviser shall act in conformity with the
Trust's Declaration of Trust and By-Laws and the Prospectus
and with the instructions and directions of the Board of
Trustees of the Trust and will conform to and comply with
the requirements of the 1940 Act, the Internal Revenue Code
of 1986, and all other applicable federal and state laws and
regulations, as each is amended from time to time.
The Adviser agrees, at its own expense, to render the
services and to provide the office space, furnishings and
equipment and the personnel required by it to perform the
services on the terms and for the compensation provided
herein.
C. It is understood that the Adviser may from time to time employ or
associate with itself such person or persons as the Adviser may
believe to be particularly fitted to assist in the performance of
this Agreement; provided, however, that the compensation of such
person or persons shall be paid by the Adviser and that any
person providing investment advisory services to the Portfolio
shall be approved in accordance with the provisions of the 1940
Act. Each such sub-adviser is hereinafter referred to as a
"Sub-Adviser".
Notwithstanding the approval of any such Sub-Adviser(s), however, in
carrying out its obligations hereunder the Adviser shall in all
events:
(a) determine, either in its sole discretion or jointly with the
Sub-Adviser(s), country and regional investment allocation
guidelines for the Portfolio, as well as investment hedging
guidelines, if any;
(b) establish and monitor general investment criteria and policies
for the Portfolio;
(c) review investments in the Portfolio on a periodic basis for
compliance with the Portfolio's investment objective, policies
and restrictions as stated in the Prospectus;
(d) review on a periodic basis the policies established by the
Sub-Adviser(s) for the Portfolio with respect to the placement of
orders for the purchase and sale of portfolio securities;
(e) review, monitor, analyze and report to the Board of Trustees on
the performance of the Sub-Adviser(s);
(f) furnish to the Board of Trustees or the Sub-Adviser(s), reports,
statistics and economic information as may be requested; and
(g) recommend, either in its sole discretion or in conjunction with
the Sub-Adviser(s), potential changes in investment policy.
<PAGE>
2. Portfolio Transactions. The Adviser shall place orders with or through
such persons, brokers or dealers to carry out the policy with respect
to brokerage set forth in the Portfolio's Registration Statement and
Prospectus or as the Board of Trustees may direct from time to time,
in conformity with federal securities laws. In providing the Portfolio
with investment advisory services, the Adviser shall give primary
consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Adviser may
consider the financial responsibility, research and investment
information and other services provided by brokers or dealers who may
effect or be a party to any such transaction or other transactions to
which the Adviser's other clients may be a party. It is understood
that it is desirable for the Portfolio that the Adviser have access to
supplemental investment and market research and security and economic
analysis provided by brokers who may execute brokerage transactions at
higher cost to the Portfolio than may result when allocating brokerage
to other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, the Adviser is authorized to place
orders for the purchase and sale of securities for the Portfolio with
such brokers, subject to review by the Trust's Board of Trustees from
time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers
may be useful to the Adviser (or a Sub-Adviser) in connection with the
Adviser's (or Sub-Adviser's) services to other clients.
On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients of the Adviser, the Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation
to, aggregate the securities to be so purchased or sold in order to
obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, shall be made by the Adviser in the manner it considers
to be the most equitable and consistent with its fiduciary obligation
to the Portfolio and to such other clients.
3. Compensation of the Adviser. For the services rendered by the Adviser
as provided in Sections 1 and 2 of this Agreement, the Trust shall pay
to the Adviser, and the Adviser agrees to accept as full compensation
therefor, an advisory fee at an annual rate of 1.00% of the
Portfolio's average daily net assets. The fee shall be computed daily
and paid to the Adviser monthly.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the termination of
this Agreement.
4. Other Expenses. The Adviser shall pay all expenses of preparing
(including typesetting), printing and mailing reports, prospectuses,
statements of additional information, and sales literature to
prospective clients to the extent these expenses are not borne by the
Trust under a distribution plan adopted pursuant to Rule 12b-1.
5. Excess Expenses. If the expenses for the Portfolio for any fiscal year
(including fees and other amounts payable to the Adviser, but
excluding interest,
<PAGE>
taxes, brokerage costs, litigation, and other extraordinary costs) as
calculated every business day would exceed the expense limitations
imposed on investment companies by any applicable statute or
regulatory authority of any jurisdiction in which Shares of the
Portfolio are qualified for offer and sale, the Adviser shall bear
such excess cost.
However, the Adviser shall not bear expenses of the Portfolio which
would result in the Portfolio's inability to qualify as a regulated
investment company under provisions of the Internal Revenue Code.
Payment of expenses by the Adviser pursuant to this Section 5 shall be
settled on a monthly basis (subject to fiscal year end reconciliation)
by a reduction in the fee payable to the Adviser for such month
pursuant to Section 3 and, if such reduction shall be insufficient to
offset such expenses, by reimbursing the Trust.
6. Reports. The Trust and the Adviser agree to furnish to each other, if
applicable, current prospectuses, proxy statements, reports to
shareholders, certified copies of their financial statements, and such
other information with regard to their affairs as each may reasonably
request.
7. Status of Adviser. The services of the Adviser to the Trust are not to
be deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services to the Trust are not
impaired thereby. The Adviser shall be deemed to be an independent
contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
8. Certain Records. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated
under the Investment Company Act of 1940 which are prepared or
maintained by the Adviser on behalf of the Trust are the property of
the Trust and shall be surrendered promptly to the Trust on request.
9. Limitation of Liability of Adviser. The duties of the Adviser shall be
confined to those expressly set forth herein, and no implied duties
are assumed by or may be asserted against the Adviser hereunder. The
Adviser shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or
omission by the Adviser or by any Sub-Adviser in carrying out its
duties hereunder or under any sub-investment advisory agreement,
except a loss resulting from the Adviser's own willful misfeasance,
bad faith or gross negligence in the performance of its duties, or by
reason of reckless disregard by the Adviser of its obligations and
duties hereunder, except as may otherwise be provided under provisions
of applicable state law which cannot be waived or modified hereby. (As
used in this Paragraph 9, the term "Adviser" shall include directors,
officers, employees and other corporate agents (but not the
Sub-Adviser) of the Adviser as well as that corporation itself).
10. Permissible Interests. Trustees, agents, and shareholders of the Trust
are or may be interested in the Adviser (or any successor thereof) as
directors, partners, officers, or shareholders, or otherwise;
directors, partners, officers, agents, and shareholders of the Adviser
are or may be interested in the Trust as
<PAGE>
Trustees, shareholders or otherwise; and the Adviser (or any
successor) is or may be interested in the Trust as a shareholder or
otherwise. In addition, brokerage transactions for the Trust may be
effected through affiliates of the Adviser if approved by the Board of
Trustees, subject to the rules and regulations of the Securities and
Exchange Commission.
11. Duration and Termination. This Agreement shall become effective as of
the date hereof with respect to the Portfolio listed in the recitals,
and with respect to any additional Portfolio added pursuant to Section
1 hereof, on the date of receipt by the Trust of notice from the
Adviser in accordance with said Section that the Adviser is willing to
serve as investment adviser with respect to such Portfolio, provided
that this Agreement (as supplemented by the terms specified in any
notice and agreement pursuant to Section 1 hereof) has been approved
by the shareholders of the Portfolio in accordance with the
requirements of the 1940 Act, and, unless sooner terminated as
provided herein, shall continue in effect with respect to each
Portfolio until April 28, 1998. Thereafter, if not terminated, this
Agreement shall automatically continue in effect as to a particular
Portfolio for successive annual periods, provided such continuance is
specifically approved at least annually (a) by the vote of a majority
of those members of the Trust's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by
the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of such Portfolio; provided, however,
that if the shareholders of the Portfolio fail to approve the
continuation of its Agreement as provided herein, the Adviser may
continue to serve hereunder in the manner and to the extent permitted
by the 1940 Act and rules and regulations thereunder. The foregoing
requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent
with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time,
without the payment of any penalty, by vote of a majority of the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Portfolio on 60 days written notice to the
Adviser, or by the Adviser at any time, without the payment of any
penalty, on 60 days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its
assignment.
As used in this Section 11, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting
securities" shall have the respective meanings set forth in the 1940
Act and the rules and regulations thereunder, subject to such
exemptions as may be granted by the Securities and Exchange Commission
under said Act.
12. Amendment. The terms or provisions of this Agreement may be amended,
modified or waived in writing if such amendment, modification or
waiver is approved by the affirmative vote or action by written
consent of the Board of Trustees of the Trust and by the Adviser in
accordance with the 1940 Act; provided, that an amendment,
modification or waiver shall also be approved by the shareholders of
the Trust if shareholder approval is required by the 1940 Act and the
rules and regulations thereunder.
<PAGE>
13. Notice. Any notice required or permitted to be given by either party
to the other shall be delivered or mailed: if to the Trust, at 680
East Swedesford Road, Wayne, PA 19087, and if to the Adviser at 210
Main Street, Hackensack, NJ 07601. Either party may change its address
for notices hereunder by giving notice of such change to the other
party in accordance with this Section 13.
14. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
15. Governing Law. This Agreement shall be construed in accordance with
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.
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees, and
is not binding upon any of the Trustees, officers, or shareholders of the Trust
individually but binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
The Pillar Funds United Jersey Bank Investment Management
Division, a division of United Jersey Bank
By: /s/ Kevin P. Robins By: /s/ Fernando Garip
------------------------------ --------------------------------------
THE PILLAR FUNDS
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 28th day of April, 1996, by and among United Jersey
Bank Investment Management Division, a division of United Jersey Bank, a
wholly-owned subsidiary of Summit Bancorp (the "Adviser"), Wellington Management
Company, a Massachusetts general partnership (the "Sub-Adviser") and The Pillar
Funds, a Massachusetts business trust (the "Trust").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement of
even date herewith (the "Advisory Agreement") with the Trust, pursuant to which
the Adviser will act as investment adviser to the International Growth Portfolio
(the "Portfolio") ; and
WHEREAS, the Adviser and the Trust each desire to retain the Sub-Adviser to
provide investment sub-advisory services to the Trust in connection with the
management of the Portfolio and such other portfolios as the Trust, the Adviser
and the Sub-Adviser may agree upon by written addenda to this Agreement, and the
Sub-Adviser is willing to render such investment advisory services.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and intending to be legally bound, the parties hereto agree as follows:
1.(a) Subject to supervision by the Adviser and the Trust's Board of
Trustees, the Sub-Adviser shall manage the investment operations of
the Portfolio and the composition of the Portfolio, including the
purchase, retention and disposition thereof, in accordance with the
Portfolio's investment objectives, policies and restrictions as
stated in the Portfolio's Prospectus (such Prospectus and the
Statement of Additional Information, as currently in effect and as
amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following:
(1) The Sub-Adviser shall determine from time to time what
investments and securities will be purchased, retained or sold
by the Portfolio, and what portion of the assets will be
invested or held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Trust's Declaration of Trust and By-Laws (as defined herein) and
the Prospectus and with the instructions and directions of the
Adviser and of the Board of Trustees of the Trust and will
conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal
and state laws and regulations, as each is amended from time to
time.
(3) The Sub-Adviser shall place orders with or through such persons,
brokers or dealers to carry out the policy with respect to
brokerage set forth in the Portfolio's Registration Statement
(as defined herein) and Prospectus or as
<PAGE>
the Board of Trustees or the Adviser may direct from time to
time, in conformity with federal securities laws. In providing
the Portfolio with investment sub-advisory services, the
Sub-Adviser will give primary consideration to securing the most
favorable price and efficient execution. Within the framework of
this policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which the
Sub-Adviser's other clients may be a party. It is understood
that it is desirable for the Portfolio that the Sub-Adviser have
access to supplemental investment and market research and
security and economic analysis provided by brokers who may
execute brokerage transactions at higher cost to the Portfolio
than may result when allocating brokerage to other brokers on
the basis of seeking the most favorable price and efficient
execution. Therefore, the Sub-Adviser is authorized to place
orders for the purchase and sale of securities for the Portfolio
with such brokers, subject to review by the Trust's Board of
Trustees from time to time with respect to the extent and
continuation of this practice. It is understood that the
services provided by such brokers may be useful to the
Sub-Adviser in connection with the Sub-Adviser's services to
other clients.
On occasions when the Sub-Adviser deems the purchase or
sale of a security to be in the best interest of the Portfolio
as well as other clients of the Sub-Adviser, the Sub-Adviser, to
the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to
be so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In
such event, allocation of the securities so purchased or sold,
as well as the expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be the
most equitable and consistent with its fiduciary obligation to
the Portfolio and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph
(f) of Rule 31a-1 under the 1940 Act and shall render to the
Board of Trustees such periodic and special reports as the Board
of Trustees may reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on each
business day with information relating to all transactions
concerning the Portfolio's assets and shall provide the Adviser
with such information upon request of the Adviser.
(6) The investment sub-advisory services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to others,
as long as such services do not impair the services rendered to
the Adviser or the Trust.
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<PAGE>
(7) The Sub-Adviser shall provide such reports and data in hard copy
and machine readable form as are requested by the Adviser and
which are consistent with the Sub-Adviser's normal data
production capabilities.
(8) The Sub-Adviser shall prepare a quarterly broker security
transaction summary and monthly security transaction listing for
the Portfolio.
(9) Unless the Board of Trustees of the Trust or the Adviser directs
otherwise in a particular instance or generally, the Sub-Adviser
shall take reasonable measures to vote, give and withhold
consents with respect to, and take all other similar actions
relating to, the securities and other investments owned by the
Portfolio.
(10) The Sub-Adviser shall report regularly to the Adviser and shall
make appropriate persons available for the purpose of reviewing
at reasonable times with representatives of the Adviser and the
Board of Trustees of the Trust the management of the Portfolio,
including, without limitation, review of the general investment
strategy of the Portfolio, the performance of the Portfolio in
relation to standard industry indices, interest rate
considerations and general conditions affecting the marketplace
and shall provide various other reports from time to time as
reasonably requested by the Adviser.
(11) The Sub-Adviser shall treat confidentially and as proprietary
information of the Trust all such records and other information
relative to the Trust maintained by the Sub-Adviser, and shall
not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except
after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may
not be withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceeding for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
(b) Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's
partners, officers or employees.
(c) The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to paragraph
1(a) of this Agreement and shall timely furnish to the Adviser all
information relating to the Sub-Adviser's services under this
Agreement needed by the Adviser to keep the other books and records
of the Portfolio required by Rule 31a-1 under the 1940 Act. The
Sub-Adviser agrees that all records that it maintains on behalf of
the Portfolio are property of the Portfolio and the Sub-Adviser
shall surrender promptly to the Portfolio any of such records upon
the Portfolio's request; provided, however, that the Sub-Adviser may
retain a copy of such records. The Sub-Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
any such records as are required to be maintained by it pursuant to
paragraph 1(a) of this Agreement.
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<PAGE>
2. For all purposes of this Agreement the Sub-Adviser shall be deemed to be
an independent contractor, and shall have no authority to act as agent
for the Adviser or the Trust in any manner or in any respect.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and shall deliver to it all future amendments and
supplements, if any:
(a) The Trust's Declaration of Trust, as filed with the Secretary of
State of the Commonwealth of Massachusetts (such Agreement and
Declaration of Trust, as in effect on the date of this Agreement and
as amended from time to time, herein called the "Declaration of
Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Certified resolutions of the Board of Trustees of the Trust
authorizing the appointment of the Adviser and the Sub-Adviser with
respect to the Portfolio, and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-1A (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Portfolio and shares of the Portfolio, and all
amendments thereto;
(e) Notification of Registration of the Trust under the 1940 Act on Form
N-8A as filed with the Commission, and all amendments thereto; and
(f) Prospectus(es) of the Portfolio.
4. During the term of this Agreement, the Sub-Adviser shall pay all
expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Portfolio. For the services
provided and the expense assumed by the Sub-Adviser pursuant to this
Agreement, the Adviser shall pay the Sub-Adviser, and the Sub-Adviser
agrees to accept as full compensation therefor, a sub-advisory fee at an
annual rate of .60% on the first $50 million, .45% on the next $100
million and .30% over $150 million of the Portfolio's average daily net
assets. This fee shall be computed daily and paid to the Sub-Adviser
monthly. The Sub-Adviser may, in its discretion and from time to time,
waive a portion of its fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for any
loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act), or a loss resulting from willful misfeasance, bad faith
or gross negligence on the Sub-Adviser's part in the performance of its
duties or from reckless disregard of its obligations and duties under
this Agreement, except as
4
<PAGE>
may otherwise be provided under provisions of applicable state law which
cannot be waived or modified hereby.
6. This Agreement shall become effective as of the date hereof with respect
to the Portfolio and, unless sooner terminated as provided herein, shall
continue in effect with respect to the Portfolio until April 28, 1998.
Thereafter, if not terminated, this Agreement shall automatically
continue in effect as to the Portfolio for successive annual periods,
provided such continuance is specifically approved at least annually (a)
by the vote of a majority of those members of the Trust's Board of
Trustees who are not interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio;
provided, however, that if the shareholders of the Portfolio fail to
approve the continuance of this Agreement as provided herein, the
Sub-Adviser may continue to serve hereunder in the manner and to the
extent permitted under the 1940 Act and the rules and regulations
thereunder. The foregoing requirement that continuance of this Agreement
be "specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations
thereunder.
Notwithstanding the foregoing, this Agreement may be terminated as to
the Portfolio at any time, without the payment of any penalty, by the
Trust (by vote of the Trust's Board of Trustees or by vote of a majority
of the outstanding securities of the Portfolio), by the Adviser, or by
the Sub-Adviser on sixty days' written notice to each of the other
parities hereto. This Agreement shall terminate automatically and
immediately in the event of its assignment, and shall also terminate
automatically and immediately upon the termination of the Advisory
Agreement.
As used in this Section 6, the terms "assignment," "interested persons"
and "vote of a majority of the outstanding voting securities" shall have
the respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. As long as the services to the Adviser and the Trust under this
Agreement are not impaired, nothing in this Agreement shall limit or
restrict the right of any of the Sub-Adviser's partners, officers, or
employees to engage in any other business or to devote his or her time
and attention in part to the management or other aspects of any
business, whether of a similar or dissimilar nature, nor limit or
restrict the Sub-Adviser's right to engage in any other business or to
render services of any kind to any other corporation, firm, individual
or association.
8. During the term of this Agreement, the Trust agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature or other materials prepared
for distribution to stockholders of the Portfolio or the public that
refer to the Sub-Adviser or its clients in any way prior to use thereof
and not to use material if the Sub-Adviser reasonably objects in writing
within five business days (or such other period as may be mutually
agreed) after receipt thereof. The Sub-Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Sub-Adviser, its services and
5
<PAGE>
its clients. The Trust agrees to use its reasonable best efforts to
ensure that materials prepared by its employees or agents or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser
as referenced in the first sentence of this paragraph. Sales literature
may be furnished to the Sub-Adviser by first class or overnight mail,
facsimile transmission equipment or hand delivery.
9. The terms or provisions of this Agreement may be amended, modified or
waived in writing if such amendment, modification or waiver is approved
by the affirmative vote or action by written consent of the Board of
Trustees of the Trust and by the Adviser and Sub-Adviser in accordance
with the 1940 Act; provided, that an amendment, modification or waiver
shall also be approved by the shareholders of the Trust if shareholder
approval is required by the 1940 Act and the rules and regulations
thereunder.
10. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts; provided, however, that nothing herein shall be construed
as being inconsistent with the 1940 Act.
<PAGE>
11. This Agreement embodies the entire agreement and understanding among
the parties hereto with respect to the services to be provided by the
Sub-Adviser, and supersedes all prior agreements and understandings
relating to this Agreement's subject matter. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to
be an original, but such counterparts shall, together, constitute only
one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To the Adviser at:
United Jersey Bank
210 Main Street
Hackensack, NJ 07601
Attention: President
To the Sub-Adviser at:
Wellington Management Company
75 State Street
Boston, MA 02109
Attention: Legal Department
To the Trust or the Portfolio at:
The Pillar Funds
c/o SEI Corporation
680 East Swedesford Road
Wayne, PA 19087
Attention: Legal Department
6
<PAGE>
Any party may change its address for notices, advices or reports
hereunder by giving notice of such change to the other parties in
accordance with this Section 13.
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of State of the Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees, and is not binding upon any of the Trustees, officers, or
shareholders of the Trust individually but binding only upon the assets and
property of the Portfolio of the Trust. No portfolio of the Trust shall be
liable for any other portfolio of the Trust. Without limiting the generality of
the foregoing, the Sub-Adviser shall look only to the assets of the Portfolio
for payment of fees for services rendered to the Portfolio.
In the event that there is a change in the partners of the Sub-Adviser, the
Sub-Adviser shall notify the Adviser and the Trust within a reasonable period of
time.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
United Jersey Bank Investment Wellington Management Company
Management Division,
a division of United Jersey Bank
By: /s/ Fernando Garip By: /s/ Duncan M. McFarland
------------------------------ -------------------------------
Title: V.P. Reg. Mgr. Title: President
--------------------------- ----------------------------
The Pillar Funds
By: /s/ Kevin P. Robins
------------------------------
Title: V.P.
---------------------------
7
<PAGE>
THE PILLAR FUNDS
DISTRIBUTION AND SERVICE AGREEMENT
Class B Shares
THIS AGREEMENT is made as of the __th day of ____________, 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
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<PAGE>
now registered nor obligate the Distributor to sell any particular number of
Shares.
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.
2
<PAGE>
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 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
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<PAGE>
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 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 the 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
4
<PAGE>
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 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
5
<PAGE>
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, 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
6
<PAGE>
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
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:
---------------------------
Attest:
-----------------------
SEI FINANCIAL SERVICES COMPANY
By:
---------------------------
Attest:
-----------------------
8
<PAGE>
EXHIBIT 99B(11)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 14, 1997, on the December 31, 1996
financial statements of The Pillar Funds, Incorporated by reference in the
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A of
The Pillar Funds (File No. 33-44712), and to all references to our firm included
in or made part of Post-Effective Amendment No. 28 to the Registration Statement
File No. 33-44712.
/s/ Arthur Andersen LLP
------------------------------
Arthur Andersen LLP
Philadelphia, Pa.
February 28, 1997
DISTRIBUTION PLAN
Class A (formerly Class B)
The Pillar Funds
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 Plan will benefit the
Trust and the owners of Class A units of beneficial interest ("Shareholders") in
the Trust;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act.
Section 1. The Trust has adopted this Class A Distribution Plan
("Plan") to enable the Trust to directly or indirectly bear expenses relating to
the distribution of Class A shares of the portfolios (the "Portfolios") of the
Trust.
Section 2. The Trust will pay the Distributor a fee, accrued daily and
paid monthly, of up to .25% of the Class A Portfolios' average daily net assets.
The Distributor may apply this fee toward: a) compensation for its services in
connection with distribution assistance with respect to the Class A shares of
the Portfolios of the Trust or for its services in connection with the rendering
of shareholder services to the holders of Class A shares of the Portfolios of
the Trust; or b) payments to financial institutions and intermediaries (such as
banks, savings and loan associations, insurance companies, and investment
counselors), broker-dealers, and the Distributor's affiliates and subsidiaries
as compensation for services or reimbursement of expenses incurred in connection
with distribution assistance or provision of shareholder services to Class A
shares of the Portfolio of the Trust.
Section 3. This Plan shall not take effect until it has been approved
(a) by a vote of at least a majority of the outstanding voting securities of the
Class A shares of the Trust; and (b) together with any related agreements, by
votes of the majority of both (i) the Trustees of the Trust and (ii) the
Qualified Trustees, cast in person at a Board of Trustees meeting called for the
purpose of voting on this Plan or such agreement.
Section 4. 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 3 herein for the approval of this Plan.
<PAGE>
Section 5. 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 6. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the Trust's
outstanding Class A voting securities.
Section 7. 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, 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 Trust's outstanding Class A
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 8. This Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 2 hereof without
the approval of Class A Shareholders holding a majority of the outstanding
voting securities of the Trust, and all material amendments to this Plan shall
be approved in the manner provided in Part (b) of Section 3 herein for the
approval of this Plan.
Section 9. 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 Securities and Exchange Commission.
Section 10. 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 11. This Plan shall not obligate the Trust or any other party
to enter into an agreement with any particular person.
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 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
- ----------------------------------------------------------------------------------------------------------------------------
<C> <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>
A-1
<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
- -------------------------------------------------------------------------------------------------------------------------------
<C> <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
- -------------------------------------------------------------------------------------------------------------------------------
<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>
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
- -------------------------------------------------------------------------------------------------------------------------------
<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>
* 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 familes.
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.
B-1
<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.
C-1
<PAGE>
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.
1
<PAGE>
(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
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
2
<PAGE>
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 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
THE PILLAR FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, hereby constitutes and
appoints David G. Lee, Kevin P. Robins and Stephen G. Meyer, and each of them
singly, his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Trust's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Christine H. Yackman Date: January 24, 1997
- ----------------------------- ----------------
Christine H. Yackman
Trustee
<PAGE>
THE PILLAR FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, hereby constitutes and
appoints David G. Lee, Kevin P. Robins and Stephen G. Meyer, and each of them
singly, his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Trust's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ James B. Grecco Date: January 24, 1997
- --------------------------------- ----------------
James B. Grecco
Trustee
<PAGE>
THE PILLAR FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, hereby constitutes and
appoints David G. Lee, Kevin P. Robins and Stephen G. Meyer, and each of them
singly, his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Trust's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Robert A. Nesher Date: January 24, 1997
- --------------------------- ----------------
Robert A. Nesher
Trustee
<PAGE>
THE PILLAR FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, hereby constitutes and
appoints David G. Lee, Kevin P. Robins and Stephen G. Meyer, and each of them
singly, his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Trust's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Ray Konrad Date: January 24, 1997
- ------------------------------- ----------------
Ray Konrad
Trustee
<PAGE>
THE PILLAR FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, hereby constitutes and
appoints David G. Lee, Kevin P. Robins and Stephen G. Meyer, and each of them
singly, his or her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him or her and in his or her name,
place and stead, and in the capacity indicated below, to sign any or all
amendments (including post-effective amendments) to the Trust's Registration
Statement on Form N-1A under the provisions of the Investment Company Act of
1940 and the Securities Act of 1933, each such Act as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the date set forth below.
/s/ Arthur L. Berman Date: January 24, 1997
- -------------------------- ----------------
Arthur L. Berman
Trustee
<PAGE>
THE PILLAR FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, hereby constitutes and
appoints David G. Lee and Kevin P. Robins, and each of them singly, his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trust's Registration Statement on Form N-1A
under the provisions of the Investment Company Act of 1940 and the Securities
Act of 1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Stephen G. Meyer Date: February 3, 1997
- -------------------------- ----------------
Stephen G. Meyer
Controller and Chief Financial Officer
<PAGE>
THE PILLAR FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust organized
under the laws of The Commonwealth of Massachusetts, hereby constitutes and
appoints Stephen G. Meyer and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him and in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trust's Registration Statement on Form N-1A
under the provisions of the Investment Company Act of 1940 and the Securities
Act of 1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ David G. Lee Date: February 3, 1997
- -------------------------- ----------------
David G. Lee
President and Chief Executive Officer
