<PAGE> 1
As Filed with the Securities and Exchange Commission on July 14, 1997
Registration Nos. 33-46488
811-6603
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
----
Post-Effective Amendment No. 7
-----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 11
(Check appropriate box or boxes)
-------------------
Performance Funds Trust
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: [(888) 266-8787]
George O. Martinez, Esq.
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
Copy to:
Steven R. Howard, Esq.
Baker & McKenzie
805 Third Avenue
New York, New York 10022
-------------------
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)
---
75 days after filing pursuant to paragraph (a)
---
X on September 27, 1997 pursuant to paragraph (a) of Rule 485
---
-------------------
The Registrant has registered an indefinite number of shares of
beneficial interest, par value $0.001 per share, by filing a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940. A Rule 24f-2
Notice for the fiscal year ended May 31, 1996 was filed with the Commission on
July 25, 1996. The Registrant intends to file its Rule 24f-2 Notice for fiscal
year ended May 31, 1997 on or before July 30, 1997.
================================================================================
Total Pages: ___
Exhibit Index: ___
<PAGE> 2
PERFORMANCE FUNDS TRUST
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND
Institutional Class Prospectus
<TABLE>
<CAPTION>
Part A Prospectus Caption
- ------ ------------------
<S> <C> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Fund Expenses
Item 3. Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . Financial Highlights
Item 4. General Description of Registrant . . . . . . . . . . . . . . . . . Prospectus Summary; The Investment Policies
and Practices of the Funds; Description of
Securities and Investment Practices
Item 5. Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . Management of the Funds; Purchase of Shares
Item 5(a). Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . . . . . . . . . . . Index Comparison
Item 6. Capital Stock and Other Securities . . . . . . . . . . . . . . . . . Dividends, Distributions and Federal Income
Tax; Other Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . . . . . . . . Fund Share Valuation; Purchase of Fund
Shares; Individual Retirement Accounts;
Exchange Privileges; Determination of Net
Asset Value (Part B)
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . . . . . . . . Redemption of Fund Shares; Redemptions (Part
B)
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Item 9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 4
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND
Consumer Service Class Prospectus
<TABLE>
<CAPTION>
Part A Prospectus Caption
- ------ ------------------
<S> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Fund Expenses
Item 3. Financial Highlights . . . . . . . . . . . . . . . Financial Highlights
Item 4. General Description of Registrant . . . . . . . . . Prospectus Summary; The Investment Policies and Practices of the
Funds; Description of Securities and Investment Practices;
Item 5. Management of the Fund . . . . . . . . . . . . . . Management of the Fund; Purchase of Shares
Item 5(a). Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . . Index Comparison
Item 6. Capital Stock and Other Securities . . . . . . . . Dividends, Distributions and Federal Income Tax; Other
Information
Item 7. Purchase of Securities Being Offered . . . . . . . Fund Share Valuation; Purchase of Fund Shares; Individual
Retirement Accounts; Exchange Privileges; Determination of Net
Asset Value (Part B)
Item 8. Redemption or Repurchase . . . . . . . . . . . . . Redemption of Fund Shares; Redemptions (Part B)
Item 9. Legal Proceedings . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 5
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND
<TABLE>
<CAPTION>
Part B Statement of Additional
- ------ Information Caption
-------------------
<S> <C> <C>
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . Not Applicable
Item 13. Investment Objective and Policies . . . . . . . . . The Investment Policies and Practices of the Funds (Part A);
Investment Restrictions
Item 14. Management of the Registrant . . . . . . . . . . . Management of the Funds
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . . . Management of the Funds; Shares of Beneficial Interest
Item 16. Investment Advisory and
Other Services . . . . . . . . . . . . . . . . . Management of the Funds; Custodian; Experts
Item 17. Brokerage Allocation . . . . . . . . . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . . . . . Shares of Beneficial Interest
Item 19. Purchase, Redemption and
Pricing of Securities Being Offered . . . . . . . Purchase of Shares (Part A); Redemptions; Redemption of Shares
(Part A); Exchange Privilege (Part A); Determination of Net
Asset Value
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . Dividends, Distributions and Federal IncomeTax (Part A); Federal
Income Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . Management of the Funds
Item 22. Calculation of Performance Data . . . . . . . . . . Calculation of Yield and Total Return; Other
Information-Performance Information
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
Item 23. Financial Statements . . . . . . . . . . . . . . . To be filed by Post-Effective Amendment
</TABLE>
<PAGE> 7
PERFORMANCE FUNDS TRUST
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
THE SMALLCAP INVESTOR FUND
Institutional Class Prospectus
<TABLE>
<CAPTION>
Part A Prospectus Caption
- ------ ------------------
<S> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Fund Expenses
Item 3. Financial Highlights . . . . . . . . . . . . . . . . . . . Not Applicable
Item 4. General Description of Registrant . . . . . . . . . . . . . Prospectus Summary; Investment Objective, Policies and
Practices; Investment Restrictions
Item 5. Management of the Fund . . . . . . . . . . . . . . . . . . Management of the Fund; Purchase of Fund Shares
Item 5(a). Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . . . . Dividends, Distributions and Federal Income Tax; Other
Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . . . Fund Share Valuation; Purchase of Fund Shares;
Individual Retirement Accounts; Exchange Privileges;
Determination of Net Asset Value (Part B)
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . . . Redemption of Fund Shares
Item 9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 8
SMALLCAP INVESTOR FUND
Consumer Service Class Prospectus
<TABLE>
<CAPTION>
Part A Prospectus Caption
- ------ ------------------
<S> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Fund Expenses
Item 3. Financial Highlights . . . . . . . . . . . . . . . . . . . Not Applicable
Item 4. General Description of Registrant . . . . . . . . . . . . . Prospectus Summary; Investment Objective, Policies and
Practices; Investment Restrictions
Item 5. Management of the Fund . . . . . . . . . . . . . . . . . . Management of the Fund; Purchase of Fund Shares
Item 5(a). Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . . . . Dividends, Distributions and Federal Income Tax; Other
Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . . . Fund Share Valuation; Purchase of Fund Shares;
Individual Retirement Accounts; Exchange Privileges;
Determination of Net Asset Value (Part B)
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . . . Redemption of Fund Shares
Item 9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 9
THE SMALLCAP INVESTOR FUND
<TABLE>
<CAPTION>
Part B Statement of Additional
- ------ Information Caption
-------------------
<S> <C> <C>
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . . . . . Not Applicable
Item 13. Investment Objective and Policies . . . . . . . . . . . . . Investment Objective, Policies and Practices (Part A);
Investment Restrictions
Item 14. Management of the Registrant . . . . . . . . . . . . . . . Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . . . . . . . Management of the Fund; Shares of Beneficial Interest
Item 16. Investment Advisory and
Other Services . . . . . . . . . . . . . . . . . . . . . Management of the Fund; Custodian; Experts
Item 17. Brokerage Allocation . . . . . . . . . . . . . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . . . . . . . . . Shares of Beneficial Interest
Item 19. Purchase, Redemption and
Pricing of Securities Being Offered . . . . . . . . . . . Purchase of Shares (Part A); Redemptions; Redemption
of Shares (Part A); Exchange Privilege; Determination
of Net Asset Value (Part B)
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . Dividends, Distributions and Federal Income Tax (Part
A); Federal Income Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
Item 22. Calculation of Performance Data . . . . . . . . . . . . . . Calculation of Yields and Total Return
Item 23. Financial Statements . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 10
PERFORMANCE FUNDS TRUST
3435 STELZER ROAD, COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION:
800-PERFORM (737-3676)
TRUSTMARK NATIONAL BANK -- INVESTMENT ADVISER
BISYS FUND SERVICES -- ADMINISTRATOR
PERFORMANCE FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
This Prospectus describes three investment funds (the "Funds") managed by
Trustmark National Bank. The Funds are:
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND (FORMERLY, THE EQUITY FUND)
The Funds are separate investment funds of Performance Funds Trust (the
"Trust"), a Delaware business trust and registered management investment company
with distinct investment objectives and policies. This Prospectus relates only
to the "Institutional Class" of each Fund's shares which only certain investors
are qualified to purchase. Each Fund also has a "Consumer Service Class" of
shares. See, "Other Information -- Capitalization." This Prospectus sets forth
concisely the information a prospective investor should know before investing in
any of the Funds and should be read and retained for information about each
Fund.
INVESTMENTS IN THE FUNDS ARE NOT GUARANTEED OR INSURED BY THE UNITED STATES
GOVERNMENT. SHARES OF THE FUNDS ARE NOT AN OBLIGATION OF OR GUARANTEED BY
TRUSTMARK NATIONAL BANK OR ITS AFFILIATES AND SUCH SHARES ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
A Statement of Additional Information, dated September , 1997 (the "SAI")
containing additional and more detailed information about the Funds, has been
filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information number printed above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
September , 1997
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fund Expenses........................................................................... 3
Fee Table............................................................................... 3
Financial Highlights.................................................................... 5
Prospectus Summary...................................................................... 10
The Investment Policies and Practices of the Funds...................................... 12
Description of Securities and Investment Practices...................................... 13
Investment Restrictions................................................................. 20
Management of the Funds................................................................. 21
Fund Share Valuation.................................................................... 23
Purchase of Fund Shares................................................................. 24
Individual Retirement Accounts.......................................................... 25
Exchange Privileges..................................................................... 25
Redemption of Fund Shares............................................................... 25
Dividends, Distributions and Federal Income Tax......................................... 27
Other Information....................................................................... 29
Appendix................................................................................ A-1
</TABLE>
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
2
<PAGE> 12
FUND EXPENSES
The following expense table lists estimated costs and expenses that an
investor in the Institutional Class may incur either directly or indirectly as a
shareholder of a Fund. The information is based on expenses incurred during the
fiscal year ended May 31, 1996; actual expenses in the future may be greater or
less than those shown. Shareholders in the Consumer Service Class of a Fund may
be subject to Rule 12b-1 Plan distribution fees (annually up to 0.35% of the
average net assets of a Fund) to which the Institutional Class is not subject.
The Institutional Class of shares is only available to certain qualified
shareholders.
FEE TABLE
<TABLE>
<CAPTION>
THE THE THE
SHORT TERM INTERMEDIATE LARGE CAP
FUND FUND EQUITY FUND*
----------------- ---------------- -------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on
Purchases........................ none none none
Maximum Sales Load Imposed on Re-
invested Dividends............... none none none
Deferred Sales Load................ none none none
Redemption Fees.................... none none none
Exchange Fees...................... none none none
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets annualized)
Investment Advisory Fees (after
waiver)(3)....................... 0.40% 0.45% 0.50%
12b-1 Fees......................... none none none
Other Expenses(4).................. 0.31% 0.37% 0.31%
------ ------ ------
Total Fund Operating Expenses
(after waiver)(3)................ 0.71% 0.82% 0.81%
============== ============ ====================
</TABLE>
- ---------------
* Formerly, the Equity Fund.
(1) The Consumer Service Class of shares may be subject to Rule 12b-1 Plan
distribution fees (annually up to 0.35% of average net assets of each Fund)
to which the Institutional Class is not subject.
(2) Shares of the Institutional Class of each Fund may be available through
trust, investment management or other fiduciary accounts managed or
administered by the Adviser or its correspondents or affiliates. Such
institutions may provide a variety of services at varying fees to customers
and, although such fees are not fund-related, the fees must be paid by
customers in order to purchase Fund shares.
(3) Reflects a voluntary reduction for the Intermediate Fund and the Large Cap
Equity Fund (which will remain in effect until further notice) in
contractual fee. Had this reduction not been in effect, investment advisory
fees would have been: 0.50% for the Intermediate Fund and 0.60% for the
Large Cap Equity Fund and Total Fund Operating Expenses would have been
0.87% and 0.91%, respectively.
(4) Certain Service Organizations may receive additional fees from a Fund in
amounts up to an annual rate of 0.35% of the daily net asset value of the
Fund's shares owned by shareholders with whom the Service Organization has a
servicing relationship. See "Management of the Fund -- Service
Organizations" on Page 21.
3
<PAGE> 13
The purpose of this table is to assist the shareholder in understanding the
various costs and expenses that an investor in the Funds will bear.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming 5%
gross annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
THE THE THE
SHORT TERM INTERMEDIATE LARGE CAP
PORTFOLIO FUND TERM FUND EQUITY FUND
- ---------------------------------------------- -------------- ---------------- -------------
<S> <C> <C> <C>
1 year........................................ $ 7 $ 8 $ 8
3 years....................................... $ 23 $ 26 $ 26
5 years....................................... $ 40 $ 45 $ 45
10 years...................................... $ 88 $102 $ 102
</TABLE>
* THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS
HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
ANNUAL RETURNS. ACTUAL RETURN MAY BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
4
<PAGE> 14
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Funds since commencement of operations through May 31, 1996.
The financial highlights have been audited by ,
independent accountants, whose report on the financial statements, including
this data, appears in the Funds' 1996 Annual Report to Shareholders. This
financial data should be read in conjunction with the related financial
statements and notes thereto.
SELECTED PER SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
SHORT TERM GOVERNMENT INCOME FUND INTERMEDIATE TERM GOVERNMENT INCOME FUND
-------------------------------------------- -------------------------------------------
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
-------------------------------------------- -------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
1996 1995 1994 1993** 1996 1995 1994 1993**
-------- -------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period..................... $ 4 $ $ $ $ $ $ $
-------- -------- -------- -------- ------- -------- -------- --------
Income from Investment
Operations:
Net investment income......
Net gain (loss) on
securities (both realized
and unrealized)..........
-------- -------- -------- -------- ------- -------- -------- --------
Total from Investment
Operations...............
-------- -------- -------- -------- ------- -------- -------- --------
Less Distributions:
Dividends from net
investment income........
Distributions from capital
gains....................
Distributions in excess of
net realized gains.......
-------- -------- -------- -------- ------- -------- -------- --------
Total Distributions........
-------- -------- -------- -------- ------- -------- -------- --------
Net Asset Value, End of
Period..................... $ $ $ $ $ $ $ $
========= ========= ========= ========= ======== ========= ========= =========
Total Return (not reflecting
sales load)................ % % % % % % % %
Ratios/Supplemental Data:
Net Assets, End of Period
(in thousands)........... $ $ $ $ $ $ $ $
Ratio of Expenses to
Average Net Assets....... % % % % % % % %
Effect of
waivers/reimburse-
ments on expense ratio... % % % % % % % %
Ratio of Net Investment
Income to Average Net
Assets................... % % % % % % % %
Portfolio Turnover Rate.... % % % % % % % %
</TABLE>
- ---------------
* Annualized
** Fund commenced operations on June 1, 1992.
5
<PAGE> 15
<TABLE>
<CAPTION>
LARGE CAP EQUITY FUND
------------------------------------------
INSTITUTIONAL CLASS
------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31,
1996 1995 1994 1993**
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $ $ $ $
-------- -------- ------- -------
Income from Investment Operations:
Net Investment Income...............................
Net gain on securities (both realized and
unrealized)......................................
-------- -------- ------- -------
Total from Investment Operations....................
-------- -------- ------- -------
Less Distributions:
Dividends from net investment income................
Distributions from capital gains....................
-------- -------- ------- -------
Total Distributions.................................
-------- -------- ------- -------
Net Asset Value, End of Period........................ $ $ $ $
======== ======== ======= =======
Total Return (not reflecting sales load).............. % % % %
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)............ $ $ $ $
Ratio of Expenses to Average Net Assets............. % % % %
Effect of waivers/reimbursements on expense ratio... % % % %
Ratio of Net Investment Income to Average Net
Assets........................................... % % % %
Portfolio Turnover Rate............................. % % % %
Average Commission Rate(a).......................... $
</TABLE>
- ---------------
** Fund commenced operations on June 1, 1992.
(a) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
6
<PAGE> 16
INDEX COMPARISON
The information set forth below compares the investment performance of a
hypothetical investment of $10,000 in each Fund's Institutional Class of shares
to an industry index since the commencement of each Fund's operations.
SHORT TERM FUND
The investment performance of the Institutional Class of the Short Term
Fund is compared to the performance of the Shearson Lehman 1-3 Year Government
Index in the following chart from June 1, 1992 (commencement of operations)
through May 31, 1993 and for the fiscal years ended May 31, 1994, May 31, 1995
and May 31, 1996.
[Graph]
<TABLE>
<CAPTION>
Redemption Shearson
Measurement Period Value Lehman 1-3 Yr
(Fiscal Year Covered) ($10,000 Investment) Govt
Since Inception
<S> <C> <C>
Aug. 31, 1992 10322 10300
Nov. 30, 10326 10322
Feb. 28, 1993 10605 10508
May 31, 10674 10682
Aug. 31, 10847 10874
Nov. 30, 10898 10835
Feb. 28, 1994 10921 10980
May 31, 10832 10896
Aug. 31, 10971 10059
Nov. 30, 10923 11014
Feb. 28, 1995 11186 11338
May 31, 11522 11513
Aug. 31, 11690 11708
Nov. 30, 11912 12198
Feb. 28, 1996 12046 12191
May 10, 12057 11965
- --------------------------------------------------------------------------------
Aug. 31, Feb. 28, Feb. 28, Feb. 28,
1992 Nov. 30, 1993 May 31, Aug. 31, Nov. 30, 1994 May 31, Aug. 31, Nov. 30, 1995
- -----------------------------------------------------------------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 10,322 10,326 10,605 10,674 10,847 10,898 10,921 10,832 10,971 10,923 11,186
- -----------------------------------------------------------------------------------------------------------------------------
Shearson Lehman
1-3 Yr Govt 10,300 10,322 10,508 10,682 10,874 10,835 10,980 10,896 10,059 11,014 11,338
<CAPTION>
Feb. 29,
May 31, Aug. 31, Nov. 30, 1996 May 31,
- ------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 11,522 11,690 11,912 12,046 12,057
- ------------------------------------------------------------------
Shearson Lehman
1-3 Yr Govt 11,513 11,708 12,198 12,191 11,965
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE> 17
INTERMEDIATE FUND
The investment performance of the Institutional Class of the Intermediate
Fund is compared to the performance of the Shearson Lehman Government/Corporate
Index in the following chart from June 1, 1992 (commencement of operations)
through May 31, 1993 and the fiscal years ended May 31, 1994, May 31, 1995 and
May 31, 1996.
[Graph]
<TABLE>
<CAPTION>
Redemption Shearson
Measurement Period Value Lehman
(Fiscal Year Covered) ($10,000 Investment) Gov't/Corp
Since Inception
<S> <C> <C>
Aug. 31, 1992 10543 10489
Nov. 30, 10466 10470
Feb. 28, 1993 11146 11109
May 31, 11258 11226
Aug. 31, 11794 11821
Nov. 30, 11736 11776
Feb. 28, 1994 11676 11744
May 31, 11268 11340
Aug. 31, 11422 11544
Nov. 30, 11147 11336
Feb. 28, 1995 11637 11900
May 31, 12286 12655
Aug. 31, 12419 12663
Nov. 30, 12906 12449
Feb. 29, 1996 12868 12659
May 31, 12582 13189
- --------------------------------------------------------------------------------
Aug. 31, Feb. 28, Feb. 28, Feb. 28,
1992 Nov. 30, 1993 May 31, Aug. 31, Nov. 30, 1994 May 31, Aug. 31, Nov. 30, 1995
- -----------------------------------------------------------------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 10,543 10,466 11,146 11,258 11,794 11,736 11,676 11,268 11,422 11,147 11,637
- ----------------------------------------------------------------------------------------------------------------------------
Shearson Lehman
Gov't/Corp 10,489 10,470 11,109 11,226 11,821 11,776 11,744 11,340 11,544 11,336 11,900
<CAPTION>
Feb. 29,
May 31, Aug. 31, Nov. 30, 1996 May 31,
- ------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 12,286 12,419 12,906 12,868 12,582
- ------------------------------------------------------------------
Shearson Lehman
Gov't/Corp 12,655 12,663 12,449 12,659 13,189
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 18
LARGE CAP EQUITY FUND
The investment performance of the Institutional Class of the Large Cap
Equity Fund is compared to the performance of the Standard & Poor's 500 Index in
the following chart from June 1, 1992 (commencement of operations) through May
31, 1993 and the fiscal years ended May 31, 1994, May 31, 1995 and May 31, 1996.
[Graph]
<TABLE>
<CAPTION>
Redemption
Measurement Period Value
(Fiscal Year Covered) ($10,000 Investment) S&P 500
Since Inception
<S> <C> <C>
Aug. 31, 1992 9979 10046
Nov. 30, 10695 10546
Feb. 28, 1993 10997 10910
May 31, 11448 11154
Aug. 31, 12014 11564
Nov. 30, 12061 11601
Feb. 28, 1994 12156 11811
May 31, 11803 11629
Aug. 31, 12293 12196
Nov. 30, 11635 11722
Feb. 28, 1995 12535 12679
May 31, 13615 13973
Aug. 31, 14329 14817
Nov. 30, 15665 16059
Feb. 29, 1996 16793 17082
May 31, 17521 17942
- --------------------------------------------------------------------------------
Aug. 31, Feb. 28, Feb. 28, Feb. 28,
1992 Nov. 30, 1993 May 31, Aug. 31, Nov. 30, 1994 May 31, Aug. 31, Nov. 30, 1995
- ----------------------------------------------------------------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 9,979 10,695 10,997 11,448 12,014 12,061 12,156 11,803 12,293 11,635 12,535
- ----------------------------------------------------------------------------------------------------------------------------
S&P 500 10,046 10,546 10,910 11,154 11,564 11,601 11,811 11,629 12,196 11,722 12,679
<CAPTION>
Feb. 29,
May 31, Aug. 31, Nov. 30, 1996 May 31,
- ------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 13,615 14,329 15,665 16,793 17,521
- ------------------------------------------------------------------
S&P 500 13,973 14,817 16,059 17,082 17,942
</TABLE>
- --------------------------------------------------------------------------------
Without fee waiver, performance would have been lower. Past performance
does not predict future results.
9
<PAGE> 19
PROSPECTUS SUMMARY
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Short Term Government Income Fund (the "Short Term Fund"), The
Intermediate Term Government Income Fund (the "Intermediate Fund") and The Large
Cap Equity Fund (the "Large Cap Equity Fund") are three separate investment
funds (the "Funds") managed by Trustmark National Bank.
THE GOVERNMENT INCOME FUNDS:
THE SHORT TERM FUND. The investment objective of the Short Term Fund is to
provide investors with as high a level of current income as is consistent with
limiting the risk of potential loss. Under normal conditions, the Short Term
Fund pursues this objective by investing primarily (at least 65% of total
assets) in short term government income securities which results in a dollar
weighted average portfolio maturity of less than three years. The maximum
maturity for any individual security held by the Short Term Fund is
approximately five years. Securities purchased by the Short Term Fund will
consist of U.S. Government securities, certificates of deposit, bankers'
acceptances, commercial paper rated in the two highest rating categories,
investment grade corporate debt securities, investment grade mortgage- and
asset-backed securities and other instruments which the Adviser believes are of
comparable quality to those above. The Short Term Fund is intended for investors
who seek higher returns than are generally available from money market
instruments, with low risk of significant per share price volatility. Money
market funds, however, generally enjoy more stability of principal and invest in
portfolio securities which are of higher quality.
THE INTERMEDIATE FUND. The investment objective of the Intermediate Fund
is to provide investors with a high level of current income. Total return,
within given quality parameters, is a secondary consideration of the
Intermediate Fund. Under normal conditions, the Intermediate Fund pursues these
objectives by investing primarily (at least 65% of total assets) in intermediate
term government income securities. The Intermediate Fund may also invest in the
same types of securities as the Short Term Fund, except that there are no
restrictions on the maturity of any individual assets of the Intermediate Fund.
The Intermediate Fund will normally have a dollar weighted average portfolio
maturity of 3-10 years.
By investing in longer-term maturities than the Short Term Fund, the
Intermediate Fund attempts to achieve higher returns but with greater risk of
volatility in principal value.
THE LARGE CAP EQUITY FUND
The investment objective of the Large Cap Equity Fund is to provide
investors with long-term capital appreciation. The Large Cap Equity Fund pursues
this objective by investing primarily (at least 65% of total assets) in common
stocks of large, well established U.S. companies with market capitalization
exceeding $1 billion at the time of purchase. The Fund may also invest in
smaller capitalization companies. It is anticipated that the Fund will invest
primarily in companies found in the S&P 500 Index. Income generation is a
secondary consideration for the Large Cap Equity Fund. However, the Large Cap
Equity Fund may purchase dividend paying stocks of particular issuers when the
issuer's dividend record may, in the Adviser's opinion, have a favorable
influence on the market value of the securities. The price of an issuer's common
stock can be significantly affected by market fluctuations and other short term
factors, including the stability of the dividend level. Dividend paying stocks
are generally less volatile than securities which pay a low level of dividend
income and will generally not appreciate as much during rising markets or
decline as much during adverse market periods as non-dividend paying stocks.
10
<PAGE> 20
RISK FACTORS
There is no assurance that a Fund will achieve its investment objective.
Each Fund's net asset value fluctuates, reflecting fluctuations in the market
value of its portfolio securities. Investors in the Short Term Fund and the
Intermediate Fund are exposed to three types of risk from fixed income
securities. (1) Interest rate risk is the potential for fluctuations in bond
prices due to changing interest rates. (2) Credit risk is the possibility that a
bond issuer will fail to make timely payments of either interest or principal to
a Fund. (3) Prepayment risk (for mortgage-backed securities) or call risk (for
corporate bonds) is the likelihood that, during periods of falling interest
rates, securities with high stated interest rates will be prepaid (or "called")
prior to maturity, requiring a Fund to invest the proceeds at generally lower
interest rates.
Because the Large Cap Equity Fund invests primarily in common stocks, it is
subject to market risk -- i.e., the possibility that stock prices in general
will decline over short or even extended periods. The stock market tends to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline.
Small company stocks in which the Large Cap Equity Fund may invest have
historically been more volatile in price than the stock market as a whole. Among
the likely reasons for the greater price volatility of small company stocks are
the less certain growth prospects of smaller firms, a low degree of liquidity in
the markets for small company stocks, and the small to negligible dividends
generally paid by small companies. Besides exhibiting greater volatility, small
company stocks have at times fluctuated in value independently of the broad
stock market.
For additional information concerning the investment policies, practices
and risk considerations of the Funds, see "The Investment Policies and Practices
of the Funds" in this Prospectus. See also the SAI.
MANAGEMENT OF THE FUNDS
Trustmark National Bank ("Trustmark" or the "Adviser") acts as investment
adviser to the Funds. Trustmark's Trust Department, has assets in excess of $1
billion under management. It was founded in 1890 and is the second largest
commercial bank headquartered in Mississippi. Trustmark has been managing trust
monies for over 40 years. See "Fee Table" and "Management of the Funds" in this
Prospectus.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
acts as Administrator to the Funds and provides certain management and
administrative services to the Funds, for which each Fund pays a fee at an
annual rate based upon each Fund's average daily net assets. Performance Funds
Distributor, Inc. ("PFD") is the Distributor for the Trust and may be reimbursed
for certain of its distribution related expenses.
PURCHASES
Shares of the Institutional Class of the Funds are offered at net asset
value without a sales load. Shares of the Consumer Service Class of the Funds
are also offered at net asset value but may be subject to Rule 12b-1 fees to
which the Institutional class shares are not subject. See "Fund Share
Valuation," "Pricing of Fund Shares" and "Purchase of Fund Shares." Purchases of
Institutional Class shares may only be made by one of the following types of
"Institutional Investors": (i) trusts, or investment management and other
fiduciary accounts managed or administered by Trustmark or its affiliates or
correspondents pursuant to a written agreement (except asset allocation or
"wrap" accounts), (ii) employees of Trustmark (and family members), the
Distributor, Administrator, and affiliates and correspondents,(iii) or Trustees
of the Trust (and family members) or Directors of Trustmark (and family
members), (iv) any persons purchasing shares with the proceeds of a distribution
from a trust, investment management and other fiduciary account managed or
11
<PAGE> 21
administered by Trustmark or its affiliates or correspondents, pursuant to a
written agreement and (v) persons who make an initial investment of one million
dollars or more or who, at the time of purchase have a balance of one million
dollars or more in the Funds. Purchases may be made through an authorized broker
or financial institution, including the Fund, by mail or by wire.
SERVICE ORGANIZATIONS
Each Fund may pay fees to various banks, including Trustmark, trust
companies, broker-dealers and other financial organizations ("Service
Organizations") for providing administrative services for the Funds, such as
maintaining shareholder accounts and records. Institutional investors are not
required to purchase Fund shares through a Service Organization.
REDEMPTIONS
Shares may be redeemed at their next determined net asset value. See
"Redemption of Fund Shares" and "Fund Share Valuation." Redemptions may be made
by letter or, if previously authorized, by telephone. The Funds reserve the
right to redeem upon not less than 30 days' written notice all shares in a Fund
account which, as a result of shareholder redemption, has a value below $500
($250 for Individual Retirement Accounts ("IRAs")).
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays its net investment income to shareholders of
record in accordance with the schedule set forth under "Dividends, Distributions
and Federal Income Tax." Any net realized long-term capital gains will be
distributed annually. All dividends and distributions will be automatically
reinvested at net asset value in additional Fund shares unless cash payment is
requested.
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund has its own investment objectives and follows its own investment
policies and practices, including certain investment restrictions. The SAI
contains specific investment restrictions which govern the Funds' investments.
Those restrictions and the Funds' investment objectives are fundamental
policies, which means that they may not be changed without a majority vote of
shareholders of the applicable Fund. Except for the objectives and those
restrictions specifically identified as fundamental, all other investment
policies and practices described in this Prospectus and in the SAI are not
fundamental and may be changed by the Board of Trustees without shareholder
approval.
The Adviser selects investments and makes investment decisions based on the
investment objectives and policies of each Fund.
The Government Income Funds. When selecting debt securities for the Short
Term Fund and the Intermediate Fund (collectively, the "Government Income
Funds"), the Adviser seeks to select those instruments that appear best
calculated to achieve each Fund's investment objective within the credit and
risk tolerances established for the Fund. In accordance with those policies, the
Government Income Funds may purchase commercial paper rated A-2 or better by
Standard & Poor Corporation ("S&P") or Prime-2 or better by Moody's Investors
Service ("Moody's"), investment grade corporate debt securities rated BBB or
better by S&P or Baa or better by Moody's, investment grade mortgage and
asset-backed securities and other debt instruments which are of comparable
quality in the Adviser's opinion pursuant to guidelines adopted by the Board of
Trustees. See the Appendix for a description of bond ratings. The remaining net
assets may be invested in bank obligations, commercial paper, corporate debt
securities, mortgage-related securities and
12
<PAGE> 22
other asset-backed securities. The Government Income Funds will generally not
pay brokerage commissions when purchasing portfolio securities but will incur
certain transaction costs. The portfolio turnover rate is not expected to exceed
250% for the Short Term Fund and 150% for the Intermediate Fund.
The Large Cap Equity Fund. In selecting equity investments (which include
common stocks of U.S. companies and American Depository Receipts ("ADRs") of
foreign companies) for the Large Cap Equity Fund, the Adviser selects companies
for investment using both quantitative and qualitative analysis to identify
those issuers that, in the Adviser's opinion, exhibit above average earnings
growth and are attractively valued utilizing a multi-factor model. The
quantitative multi-factor approach analyzes companies in six broad categories of
relative valuation. These categories are measures of (1) value, (2) yield, (3)
price and earnings momentum, (4) historical and projected earnings growth, (5)
price and earning risk, and (6) liquidity. ADRs are dollar-denominated receipts
generally issued by domestic banks, which represent the deposit with the bank of
a security of a foreign issuer, and which are publicly traded on exchanges or
over-the-counter in the United States.
The Adviser may also select other equity securities in addition to common
stocks for investment by the Large Cap Equity Fund such as preferred stocks,
high grade securities convertible into common stocks, and warrants. The Large
Cap Equity Fund will not invest more than 5% of its net assets in warrants, no
more than 2% of which will be invested in warrants which are not listed on the
New York or American Stock Exchanges. Normally, the Large Cap Equity Fund will
invest at least 65% of its total assets in common stocks or securities
convertible into common stocks of large, well established companies with market
capitalization in excess of $1 billion at the time of purchase. For temporary
defensive purposes, however, the Large Cap Equity Fund may invest up to 100% of
its total assets in U.S. Government securities or, subject to a 25%
concentration limitation, certificates of deposit, bankers' acceptances,
commercial paper, repurchase agreements (maturing in seven days or less) and
debt obligations of corporations (corporate bonds, debentures, notes and other
similar corporate debt instruments) which are rated A or better by at least two
rating organizations. The Large Cap Equity Fund intends to manage its portfolio
actively; however, the annual portfolio turnover rate is not expected to exceed
100%.
The following describes in greater detail different types of securities and
investment practices used by certain of the Funds.
DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES
U.S. Government Securities (all Funds). U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Treasury bills, which have a maturity of up to one year,
are direct obligations of the United States and are the most frequently issued
marketable U.S. Government security. The U.S. Treasury also issues securities
with longer maturities in the form of notes and bonds.
U.S. Government agency and instrumentality obligations are debt securities
issued by U.S. Government-sponsored enterprises and Federal agencies. Some
obligations of agencies are supported by the full faith and credit of the United
States or by U.S. Treasury guarantees, such as mortgage-backed certificates,
which may be guaranteed by the Government National Mortgage Association; others,
such as obligations of the Federal Home Loan Banks, Federal Farm Credit Bank,
Bank for Cooperatives, Federal Intermediate Credit Banks and the Federal Land
Bank, are guaranteed by the right of the issuer to borrow from the U.S.
Treasury; others, such as obligations of the Federal National Mortgage
Association, are supported by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others, such
as obligations of the Student Loan Marketing Association and the Tennessee
Valley Authority, are backed only by the credit of the agency or instrumentality
issuing the obligation. In the case of obligations not backed by
13
<PAGE> 23
the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment.
Bank Obligations (all Funds). These obligations include negotiable
certificates of deposit and bankers' acceptances. The Funds limit their bank
investments to dollar-denominated obligations of U.S. banks which have more than
$1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency, or
whose deposits are insured by the FDIC.
Commercial Paper (all Funds). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by U.S. banks and bank holding companies, U.S. corporations
and financial institutions, as well as similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. Each Fund
establishes its own standards of creditworthiness for issuers of such
investments.
Corporate Debt Securities (all Funds). Each Fund's investments in U.S.
corporate debt securities are limited to corporate bonds, debentures, notes and
other similar corporate debt instruments which meet the previously disclosed
minimum ratings and maturity criteria established for the Funds under the
direction of the Board of Trustees and the Fund's Adviser or, if unrated, are in
the Adviser's opinion comparable in quality to corporate debt securities in
which the Funds may invest. See "The Investment Policies and Practices of the
Funds."
Investment grade corporate debt securities (securities rated BBB by S&P or
Baa by Moody's) have speculative characteristics and are more sensitive to
economic change than higher rated bonds and may be subject to greater market
fluctuations and greater risk of loss of income or principal, including a
greater possibility of default or bankruptcy of the issuer of such securities,
than are more highly rated debt securities. The Adviser seeks to avoid these
risks by investing in securities rated above investment grade as well, through
diversification, by conducting credit analyses and by monitoring current
developments in interest rates and market conditions.
Repurchase Agreements (all Funds). Securities held by the Funds may be
subject to repurchase agreements. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed upon time and
price. These agreements may be considered to be loans by the purchaser
collateralized by the underlying securities. These agreements will be fully
collateralized and the collateral will be marked-to-market daily. The Funds will
enter into repurchase agreements only with dealers, domestic banks or recognized
financial institutions which, in the opinion of the Adviser and in accordance
with guidelines adopted by the Board of Trustees present minimal credit risks.
While the maturity of the underlying securities in a repurchase agreement
transaction may be more than one year. Repurchase agreements with a maturity of
greater than seven days will be considered illiquid. See "Investment
Restrictions." In the event of default by the seller under the repurchase
agreement, a Fund may have problems in exercising its rights to the underlying
securities and may experience time delays in connection with the disposition of
such securities.
Loans of Portfolio Securities (all Funds). To increase current income,
each Fund may lend its portfolio securities in an amount up to 5% of each such
Fund's total assets to brokers, dealers and financial institutions, provided
certain conditions are met, including the condition that each loan is secured
continuously by collateral maintained on a daily mark-to-market basis in an
amount at least equal to the current market value of the securities loaned. For
further information, see the Statement of Additional Information.
Variable and Floating Rate Demand and Master Demand Notes (the Government
Income Funds only). The Government Income Funds may, from time to time,
purchase variable or floating rate demand notes issued by corporations, bank
holding companies and financial institutions and similar taxable and tax
14
<PAGE> 24
exempt instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity over one year but carry with them the
right of the holder to put the securities to a remarketing agent or other entity
at designated time intervals and on specified notice. The obligation of the
issuer of the put to repurchase the securities may be backed up by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Generally, the remarketing
agent will adjust the interest rate every seven days (or at other specified
intervals) in order to maintain the interest rate at the prevailing rate for
securities with a seven-day or other designated maturity. The Government Income
Fund's investment in demand instruments which provide that such Fund will not
receive the principal note amount within seven days' notice, in combination with
Government Income Fund's other investments in illiquid instruments, will be
limited to an aggregate total of 15% of Government Income Fund's net assets.
The Government Income Fund may also buy variable rate master demand notes.
The terms of these obligations permit a Fund to invest fluctuating amounts at
varying rates of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. These instruments permit weekly and, in some
instances, daily changes in the amounts borrowed. Each Fund has the right to
increase the amount under the note at any time up to the full amount provided by
the note agreement, or to decrease the amount, and the borrower may repay up to
the full amount of the note without penalty. The notes may or may not be backed
by bank letters of credit. Because the notes are direct lending arrangements
between a Fund and a borrower, it is not generally contemplated that they will
be traded, and there is no secondary market for them, although they are
redeemable (and, thus, immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. In connection with any such purchase
and on an ongoing basis, the Adviser will consider the earning power, cash flow
and other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
make demand simultaneously. While master demand notes, as such, are not
typically rated by credit rating agencies, a Fund may, under its minimum rating
standards, invest in them only if at the time of an investment, the issuer meets
the criteria set forth in this Prospectus for commercial paper obligations.
American Depository Receipts (the Large Cap Equity Fund only). American
Depository Receipts are U.S. dollar-denominated receipts generally issued by
domestic banks, which evidence the deposit with the bank of a foreign issuer and
which are publicly traded on exchanges or over-the-counter in the United States.
The Large Cap Equity Fund may invest in both sponsored and unsponsored ADR
programs. There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depository and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports. In addition, with respect to all ADRs
there is always the risk of loss due to currency fluctuations.
Investments in ADRs involve certain risks not typically involved in purely
domestic investments, including future foreign political and economic
developments, and the possible imposition of foreign governmental laws or
restrictions applicable to such investments. Securities of foreign issuers
through ADRs are subject to different economic, financial, political and social
factors. Individual foreign economies may
15
<PAGE> 25
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. With respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability or diplomatic developments which could
adversely affect the value of a particular ADR. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those of U.S. companies. The
Large Cap Equity Fund will seek to minimize the risks associated with investment
in foreign issuers by investing no more than 15% of its total assets in ADRs.
Forward Commitments and When-Issued Securities (the Government Income Funds
only). The Government Income Funds may purchase when-issued securities and make
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time if the Funds hold, and maintain until the settlement
date in a segregated account, cash, U.S. Government securities or high-grade
debt obligations in an amount sufficient to meet the purchase price, or if a
Government Income Fund enters into offsetting contracts for the forward sale of
other securities it owns. Purchasing securities on a when-issued basis and
forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of a Fund's other assets. No income accrues on
securities purchased on a when-issued basis prior to the time delivery of the
securities is made, although a Fund may earn interest on securities it has
deposited in the segregated account because it does not pay for the when-issued
securities until they are delivered. Although the Government Income Funds would
generally purchase securities on a when-issued basis or enter into forward
commitments with the intention of actually acquiring securities, the Funds may
dispose of a when-issued security or forward commitment prior to settlement if
the Adviser deems it appropriate to do so. A Fund may realize short term profits
or losses upon such sales.
Mortgage-Related Securities (the Government Income Funds only). Mortgage
pass-through securities are securities representing interests in pools of
mortgages in which payments of both interest and principal on the securities are
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a
Government Income Fund to a lower rate of return upon reinvestment of principal.
Also, if a security subject to prepayment has been purchased at a premium, in
the event of prepayment the value of the premium would be lost. Like other
government securities, when interest rates rise, the value of a mortgage-related
security generally will decline; however, when interest rates decline, the value
of mortgage-related securities with prepayment features may not increase as much
as other government securities. In recognition of this prepayment risk to
investors, the Public Securities Association (the "PSA") has standardized the
method of measuring the rate of mortgage loan principal prepayments. The PSA
formula, the Constant Prepayment Rate or other similar models that are standard
in the industry will be used by the Government Income Funds in calculating
maturity for purposes of its investment in mortgage-related securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA") or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
nongovernmental issuers (such as commercial
16
<PAGE> 26
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers) may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance, and letters of credit, which may be issued by governmental
entities, private insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Monthly payments
of principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. To the extent a
particular CMO is issued by an investment company, the Funds' ability to invest
in such CMOs' will be limited. See "Investment Restrictions" in the Statement of
Additional Information.
The Government Income Funds may also invest in mortgage-related securities
with respect to which all interest payments go to one class of holders
("Interest Only Securities" or "IOs") and all principal payments go to a second
class of holders ("Principal Only Securities" or "POs"). These securities are
commonly referred to as mortgage-backed security strips or MBS strips. The
yields to maturity on IOs and POs are sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
principal payments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially adversely
affected. IOs and POs which are not issued or guaranteed by the U.S. government
will be considered illiquid and will be subject to each Fund's 15% limitation
regarding investment in illiquid securities. U.S. Government issued or
guaranteed IOs and POs backed by fixed rate mortgages may be determined to be
liquid pursuant to guidelines established by the Board of Trustees.
The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. As new types of mortgage-related securities
are developed and offered to investors, the Adviser will, consistent with the
Funds' investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
Other Asset-Backed Securities (the Government Income Funds only). The
Government Income Funds may also invest in other asset-backed securities
(unrelated to mortgage loans) such as Certificates for Automobile
Receivables(sm) ("CARS(sm)"). CARS(sm) represent undivided fractional interests
in a trust ("trust") whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interest in the vehicles securing the
contracts. Payments of principal and interest on CARS(sm) are "passed through"
monthly to certificate holders and are guaranteed up to certain amounts and for
a certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. Underlying sales
contracts are subject to prepayment, which may reduce the overall return to
certificate holders. If the letter of credit is exhausted, certificate holders
may also experience delays in payment or losses on CARS(sm) if the full amounts
due on underlying sales contracts are not realized by the trust because of
unanticipated legal or administrative costs of enforcing the contracts, or
because of depreciation, damage or loss of the vehicles securing the contracts,
or other factors. For asset-backed securities, the industry standard uses a
principal prepayment model, the ABS model, which is similar to the PSA described
previously under "Mortgage-Related Securities." Either the PSA model, the ABS
model or other similar models that are standard in the
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industry will be used by a Government Income Fund in calculating maturity for
purposes of its investment in asset-backed securities.
Interest Rate Futures (the Government Income Funds only). The Government
Income Funds may purchase and sell interest rate futures contracts ("futures
contracts") as a hedge against changes in interest rates, provided that not more
than 25% of each Fund's net assets are at risk due to such transactions. A
futures contract is an agreement between two parties to buy and sell a security
for a set price on a future date. Future contracts are traded on designated
"contracts markets" which, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures contracts based on
securities such as long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA
Certificates and three-month U.S. Treasury bills.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a Government Income Fund holds long-term U.S.
Government securities and the Adviser anticipates a rise in long-term interest
rates, it could, in lieu of selling its portfolio securities, enter into futures
contracts for the sale of similar long-term securities. If rates increased and
the value of a Fund's portfolio securities declined, the value of the Fund's
futures contracts would increase, thereby protecting the Fund by preventing net
asset value from declining as much as it otherwise would have declined.
Similarly, entering into futures contracts for the purchase of securities has an
effect similar to actual purchase of the underlying securities, but permits the
continued investment of securities other than the underlying securities. For
example, if the Adviser expects long-term interest rates to decline, the Fund
might enter into futures contracts for the purchase of long-term securities, so
that it could gain rapid market exposure that may offset anticipated increases
in the cost of securities it intends to purchase, while continuing to hold
higher-yielding short-term securities or waiting for the long-term market to
stabilize. The Government Income Funds will maintain a segregated account when
engaged in transactions regarding interest rate futures contracts in an amount
sufficient to cover the obligations of the Government Income Funds pursuant to
such contracts.
Options on Common Stocks and Stock Indices (the Large Cap Equity Fund
only). The Large Cap Equity Fund may write (i.e., sell) call options ("calls")
if the calls are "covered" throughout the life of the option. A call is
"covered" if the Large Cap Equity Fund owns or has the right to acquire the
optioned securities and the Fund maintains, in a segregated account with its
custodian, cash or cash equivalents or U.S. Government securities with a value
sufficient to meet its obligations under the call, or if the Fund owns an
offsetting call option. When the Large Cap Equity Fund writes a call, it
receives a premium and gives the purchaser the right to buy the underlying
security at any time during the call period (usually not more than nine months
in the case of common stock) at a fixed exercise price, regardless of market
price changes during the call period. If the call is exercised, the Large Cap
Equity Fund forgoes any gain from an increase in the market price of the
underlying security over the exercise price.
The Large Cap Equity Fund also may purchase put options ("puts"). When the
Fund purchases a put, it pays a premium in return for the right to sell the
underlying security at the exercise price at any time during the option period.
If any put is not exercised or sold, it will become worthless on its expiration
date. If a put is purchased and becomes worthless on its expiration date, the
Large Cap Equity Fund will have lost the premium and this will have the effect
of reducing the Fund's return.
The Large Cap Equity Fund will realize a gain (or loss) on a closing
purchase transaction with respect to a call previously written by the Fund if
the premium, plus commission costs, paid to purchase the call is less (or
greater) than the premium, less commission costs, received on the sale of the
call. A gain also will be realized if a call which the Large Cap Equity Fund has
written lapses unexercised, because the Fund would retain the premium.
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<PAGE> 28
There can be no assurance that a liquid secondary market will exist at any
given time for a particular option.
Stock Index Futures Contracts (the Large Cap Equity Fund only). The Large
Cap Equity Fund may enter into stock index futures contracts in order to protect
the value of common stock investments, provided that not more than 25% of the
Fund's assets are at risk due to such transactions. A stock index futures
contract is an agreement in which one party agrees to deliver to the other an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. As the aggregate market
value of the stocks in the index changes, the value of the index also will
change. In the event that the index level rises above the level at which the
stock index futures contract was sold, the seller of the stock index futures
contract will realize a loss determined by the difference between the two index
levels at the time of expiration of the stock index futures contract, and the
purchaser will realize a gain in that amount. In the event the index level falls
below the level at which the stock index futures contract was sold, the seller
of the stock index futures contract will realize a loss determined by the
difference between the two index levels at the time of expiration of the stock
index futures contract, and the purchaser will realize a gain in that amount. In
the event the index level falls below the level at which the stock index futures
contract was sold, the seller will recognize a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser will realize a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.
The Large Cap Equity Fund intends to buy stock index futures contracts for
the purpose of maintaining a fully invested position during periods of
relatively large cash inflows and therefore would normally be a buyer of stock
index futures contracts. If the Large Cap Equity Fund is unable to invest its
cash (or cash equivalents) in stocks in an orderly fashion, the Fund could
purchase a stock index futures contract which may be used to offset any increase
in the price of the stock. However, it is possible that the market may decline
instead, resulting in a loss on the stock index futures contract. If the Large
Cap Equity Fund then concludes not to invest in stock at that time, or if the
price of the securities to be purchased remains constant or increases, the Fund
will realize a loss on the stock index futures contract that is not offset by a
reduction in the price of securities purchased. The Large Cap Equity Fund may
buy or sell stock index futures contracts to close out existing futures
positions.
Put Options on Stock Index Futures Contracts (the Large Cap Equity Fund
only). The Large Cap Equity Fund may purchase put options on stock index
futures as another method of protecting the Fund's assets against market
declines. See the SAI for further information about these options contracts.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single day. Once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent the Large Cap Equity Fund from
liquidating an unfavorable position and the Fund would remain obligated to meet
margin requirements until the position is closed. The Large Cap Equity Fund will
maintain a segregated account when engaged in transactions regarding put options
on stock index futures contracts in an amount sufficient to cover the obligation
of the Large Cap Equity Fund pursuant to such contracts.
The use of stock index futures contracts and put options on stock index
futures contracts may impair the liquidity of the Large Cap Equity Fund's assets
and the ability to operate as an open-end investment company. The Adviser will
monitor the Large Cap Equity Fund's use of such techniques and report to the
Board of
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Trustees concerning their impact, if any, on liquidity and the Large Cap Equity
Fund's ability to meet redemptions. For additional information regarding options
and futures contracts see, "Additional Permitted Investment Activities," in the
SAI.
Illiquid Investments (all Funds). It is the policy of each Fund that
restricted securities and other illiquid securities (including repurchase
agreements of more than seven days' duration, and variable and floating rate
demand and master demand notes not requiring receipt of the principal note
amount within seven days' notice) may not constitute, at the time of purchase or
at any time, more than 15% of the value of the total net assets of each such
Fund.
Notwithstanding the above, the Funds may purchase securities which are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
pursuant to procedures adopted and regularly reviewed by the Board of Trustees.
Rule 144A permits certain qualified institutional buyers, such as the Funds, to
trade in privately placed securities even though such securities are not
registered under the 1933 Act. The Adviser, under the supervision of the Board
of Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to each Fund's restriction of investing no more than
15% of its assets in illiquid securities. A determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this determination
the Adviser will consider the trading markets for the specific security taking
into account the unregistered nature of a Rule 144A security. In addition, the
Adviser could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make a market,
and(4) the nature of the security and of marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). The liquidity of Rule 144A securities would be monitored
and, if as a result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, a Fund's holdings of illiquid securities would be
reviewed to determine what, if any, steps are required to assure that the Fund
does not invest more than 15% of its assets in illiquid securities. Investing in
144A securities could have the effect of increasing the amount of a Fund's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
INVESTMENT RESTRICTIONS
(All Funds, except as indicated)
(1) No Fund may borrow money or pledge or mortgage its assets, except that
each Fund may borrow from banks up to 10% of the current value of its total net
assets for temporary or emergency purposes and those borrowings may be secured
by the pledge of not more than 15% of the current value of the Fund's total net
assets (but investments may not be purchased by a Fund while any such borrowings
exist).
(2) No Fund may make loans, except loans of portfolio securities and except
that a Fund may enter into repurchase agreements with respect to its portfolio
securities.
(3) In addition, each Fund is a diversified fund. As such, it will not,
with respect to 75% of its total assets, invest more than 5% of such Fund's
total assets in the securities of any single issuer (except for U.S. Government
securities) or purchase more than 10% of the outstanding voting securities of
any such issuer. Also, each Fund will invest less than 25% of its total assets
in the securities of any one industry. For this purpose, U.S. Government
securities (and repurchase agreements related thereto) are not considered
securities of a single industry.
The foregoing investment restrictions and those described in the SAI are
fundamental policies of each Fund which may be changed only when permitted by
law and approved by the holders of a majority of the applicable Fund's
outstanding voting securities as described under "Other Information -- Voting."
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If a percentage restriction on investment policies or the investment or use
of assets set forth in this Prospectus is adhered to at the time a transaction
is effected, later changes in percentage resulting from changing values will not
be considered a violation.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction of
the Board of Trustees. Additional information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management -- Trustees and Officers."
The Investment Adviser. Trustmark National Bank, 248 East Capitol Street,
Jackson, Mississippi 39201, serves as investment adviser to the Funds. Trustmark
manages the investment and reinvestment of the assets of each Fund and
continuously reviews, supervises and administers the Funds' investments.
Trustmark is responsible for placing orders for the purchase and sale of the
Funds' investments directly with brokers and dealers selected by it in its
discretion.
Trustmark's Trust Department, has assets in excess of $1 billion under
management. It was founded in 1890 and is the second largest commercial bank
headquartered in Mississippi. Trustmark has been managing trust monies for over
40 years. Shares of the Funds are not guaranteed by Trustmark, its parent or
affiliates, nor are they insured by the FDIC.
Trustmark has an investment management staff of highly trained
professionals who manage the assets of each Fund. Robert H. Spaulding is
responsible for the day-to-day management of the Intermediate Fund's portfolio.
Mr. Spaulding, a Vice President, has 20 years of trust experience with
Trustmark. Charles H. Windham, Jr., a Vice President of Trustmark since 1970, is
responsible for the day-to-day management of the Large Cap Equity Fund's
portfolio. Mr. Jonathan Rogers, a Portfolio Manager at Trustmark Bank since
1990, is responsible for day-to-day management of the Short Term Fund's
portfolio.
For the advisory services it provides to the Funds, Trustmark may receive
fees based on average daily net assets up to the following annualized rates:
Short Term Fund, 0.40%; the Intermediate Fund, 0.50%; the Large Cap Equity Fund,
0.60%.
Based upon the advice of its counsel, Trustmark believes that the
performance of investment advisory services for the Funds will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Trustmark from continuing to perform such services
for the Funds. If Trustmark were prohibited from acting as investment adviser to
the Funds, it is expected that the Board of Trustees would recommend to
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action.
The Distributor and Administrator. BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services, acts as Administrator of the Funds. Performance Funds
Distributor, Inc., an affiliate of BISYS, acts as the Distributor of the Funds'
shares.
Administrative Services. The Funds have entered into an Administration
Agreement with BISYS pursuant to which BISYS provides certain management and
administrative services necessary for the Funds' operations including: (i)
general supervision of the operation of the Funds including coordination of the
service performed by the Funds' Investment Adviser, transfer agent, custodian,
independent accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions, and preparation of proxy statements
and
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shareholder reports for the Funds, (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Fund's officers and Board of Trustees, and (iii) furnishing office space
and certain facilities required for conducting the business of the Funds. For
these services, BISYS receives from each Fund a monthly fee at the annual rate
of 0.15% of the average daily net assets of each Fund. Pursuant to a Transfer
Agency Agreement between the Trust and BISYS Fund Services, Inc., BISYS Fund
Services, Inc. receives a fee of $15.00 per account per year plus out-of-pocket
expenses. Pursuant to a Fund Accounting Agreement between the Trust and the
Administrator, the Administrator assists the Trust in calculating net asset
values and provides certain other accounting services for each Fund described
therein, for an annual fee of $30,000 per Fund plus out-of-pocket expenses.
Service Organizations. Various banks (including Trustmark), trust
companies, broker-dealers (other than the Sponsor) or other financial
organizations (collectively, "Service Organizations") also may provide
administrative services for the Funds, such as maintaining shareholder accounts
and records. The Funds may pay fees to Service Organizations (which vary
depending upon the services provided) in amounts up to an annual rate of 0.35%
of the daily net asset value of the Funds' shares owned by shareholders with
whom the Service Organization has a servicing relationship. Institutional Class
shareholders are not required to purchase shares through a Service Organization.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the Fund's
minimum initial or subsequent investments or charging a direct fee for
servicing. A Service Organization or broker or other sales-person within such
Service Organization may be compensated at varying rates for the sale of one
class of Fund shares as opposed to another. If imposed, these fees would be in
addition to any amounts which might be paid to the Service Organization by the
Funds. Each Service Organization has agreed to transmit to its clients a
schedule of any such fees. Shareholders using Service Organizations are urged to
consult with them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among other
things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank Service Organization from continuing to perform all or a
part of its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Funds and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. In addition, state
securities law on this issue may differ from interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
OTHER EXPENSES.
Each Fund bears all costs of its operations other than expenses
specifically assumed by BISYS, BISYS Fund Services, Inc., PFD or the Adviser.
The costs borne by the Funds include legal and accounting expenses; Trustees'
fees and expenses; insurance premiums; custodian and transfer agent fees and
expenses; expenses incurred in acquiring or disposing of the Funds' portfolio
securities; expenses of registering and qualifying the Funds' shares for sale
with the SEC and with various state securities commissions; expenses of
obtaining quotations on the Funds' portfolio securities and pricing of the
Funds' shares; expenses of maintaining the Funds' legal existence and of
shareholders' meetings; and expenses of preparation and distribution to existing
shareholders of reports, proxies and prospectuses. Each Fund bears its own
expenses associated with its
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establishment as a series of Performance Funds Trust; these expenses are
amortized over a five-year period from the commencement of a Fund's operations.
See "Management" in the SAI. Trust expenses directly attributable to a Fund are
charged to that Fund; other expenses are allocated proportionately among all of
the Funds in the Trust in relation to the net assets of each Fund and are
allocated to each share class based on the net assets of such share class. Class
specific expenses are charged directly to the share class which bears such
expense.
Portfolio Transactions. Pursuant to the Investment Advisory Contract, the
Adviser places orders for the purchase and sale of portfolio investments for the
Funds' accounts with brokers or dealers selected by it in its discretion.
In effecting purchases and sales of portfolio securities for the account of
the Funds, the Adviser will seek the best execution of each Fund's orders.
Purchases and sales of portfolio debt securities for the Funds are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Funds. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter. Purchases and sales of common stocks are generally placed by
the Adviser with broker-dealers which, in the Adviser's judgment, provide prompt
and reliable execution at favorable security prices and reasonable commission
rates. Broker-dealers are selected on the basis of a variety of factors such as
reputation, capital strength, size and difficulty of order, sale of Fund shares
and research provided to the Adviser on behalf of the Funds. The Adviser may
cause a Fund to pay commissions higher than another broker-dealer would have
charged if the Adviser believes the commission paid is reasonable in relation to
the value of the brokerage and research services received on behalf of the
Funds.
FUND SHARE VALUATION
The net asset value per share is calculated at 4:00 p.m. (eastern time) for
the Funds, Monday through Friday, on each day the New York Stock Exchange is
open for trading (a "Business Day"), which excludes the following business
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of each Fund is computed by
dividing the value of a Fund's net assets (i.e., the value of the assets less
the liabilities) by the total number of such Fund's outstanding shares. All
expenses, including fees paid to the Adviser, BISYS and BISYS Fund Services,
Inc. are accrued daily and taken into account for the purpose of determining the
net asset value.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken for the exchange where the security is primarily traded.
Over-the-counter securities are valued on the basis of the bid price at the
close of business on each business day. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Trustees.
With respect to options contracts, the premium received is recorded as an
asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by a Fund is recorded as an
asset and subsequently adjusted to market value.
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PURCHASE OF FUND SHARES
Orders for purchases of Institutional Class shares will be executed at the
net asset value per share next determined after an order has been received. All
monies received by the Funds for purchases of Institutional Class shares are
invested in full and fractional shares of the appropriate Fund. Certificates for
shares are not issued. The Trust maintains records of each shareholder's
holdings of Fund shares, and each shareholder receives a statement confirming
transactions and dividends. The Trust reserves the right to reject any purchase
order. All initial investments should be accompanied by a completed Purchase
Application, a form of which accompanies this Prospectus. A separate application
is required for Individual Retirement Account investments. The Trust and the
Fund reserve the right to waive or reduce the minimum initial investment amount
with respect to certain accounts.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisers and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and contact
your broker, investment adviser or Service Organization with instructions as to
the amount you wish to invest. Your broker will then contact the Fund to place
the order on your behalf on that day.
Orders received by your broker or Service Organization for the Funds in
proper order prior to the determination of net asset value and transmitted to
the Fund prior to the close of its business day (which is currently 4:00 p.m.,
eastern time), will become effective that day. Brokers who receive orders are
obligated to transmit them promptly. You should receive written confirmation of
your order within a few days of receipt of instructions from your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank will normally charge you a fee for handling the transaction.
Please call 1-800-737-3676 for wiring instructions. A completed application
must be overnighted to the Fund in advance of the wire to Performance Funds
Trust c/o BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, OH 43219-8021.
Notification must be given to the Fund at 1-800-737-3676 prior to 4:00 p.m.
Eastern Standard Time, of the wire date.
Payments to open new accounts should be sent to Performance Funds Trust,
P.O. Box 182484, Columbus, OH 43218-2484, together with a completed application.
Purchases made by check in any Fund are not permitted to be redeemed until
payment of the purchase has been collected, which may take up to fifteen days.
No third party or foreign checks are accepted.
By Automatic Investment. Investors may participate in the Automatic
Investment Program, which is an investment plan that automatically debits money
from the shareholder's designated bank account and invests it in one or more of
the Funds through the use of electronic fund transfers or automatic bank drafts.
Shareholders may elect to make investments by transfers of a minimum of $50.00
on either the fifth or twentieth day of each month into their established Fund
Account. No minimum initial investment applies when an account is established
through the Automatic Investment Program. Contact the Fund for more information
about the Automatic Investment Program.
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By Payroll Direct Deposit. Investors may set up a payroll direct deposit
arrangement for amounts to be automatically invested in any of the Funds.
Participants in the Payroll Direct Deposit Program may make periodic investments
of at least $20.00 per pay period. Contact the Fund for more information about
Payroll Direct Deposits.
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds may be used as an investment for new or existing IRAs. Shares may
also be purchased for IRAs established with Trustmark or other authorized
custodians. For more information on IRAs, call the Fund toll free at
1-800-737-3676.
EXCHANGE PRIVILEGES
The Funds offer two convenient ways to exchange shares in one of the
Performance Funds for shares in another Performance Fund. Before engaging in an
exchange transaction, a shareholder should read carefully the portions of the
applicable Trust Prospectus which describes the Fund into which the exchange
will be made. A shareholder may not exchange shares of one Fund for shares of
another Fund if both or either are not qualified for sale in the state of the
shareholder's residence. The minimum amount for an initial exchange is $1,000
and the minimum amount for subsequent exchanges is $100. The Trust may terminate
or amend the terms of the exchange privilege at any time upon 60 days' written
notice to shareholders.
A new account opened by exchange must be established with the same name(s),
address and social security number or TIN as the existing account. All exchanges
will be made based on the net asset value next determined following receipt of
the request by a Fund in good order.
An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders should receive written confirmation of the exchange
within a few days of the completion of the transaction.
Exchange by Mail. To exchange Fund shares by mail, simply send a letter of
instruction to Furman Selz. The letter of instruction must include: (i) your
account number; (ii) the Fund from and the Fund into which you wish to exchange
your investment; (iii) the dollar or share amount you wish to exchange; and (iv)
the signatures of all registered owners or authorized parties. All signatures
must be guaranteed by a member of a national securities exchange or by a
commercial bank or trust company. No signature guarantee is required.
Exchange by Telephone. To exchange Fund shares by telephone or if you have
any questions, simply call the Funds toll free at 1-800-737-3676. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security number or TIN and account registration;
(ii) the name of the Fund from and the Fund into which you wish to transfer your
investment; and (iii) the dollar or share amount you wish to exchange. The
conversation may be recorded to protect you and the Funds. Telephone exchanges
are available to the shareholder unless otherwise indicated by the shareholder
by checking the box on the Purchase Application. See "Redemption of Fund
Shares -- By Telephone" below for a discussion of telephone transactions
generally. Telephone redemption and telephone exchanges will be suspended for a
period of 10 days following a telephonic address change.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any Business
Day. Shares will be redeemed at the net asset value next determined after a
redemption request in good order has been received and accepted by the
applicable Fund. If shares are redeemed through a broker-dealer or investment
adviser, such
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<PAGE> 35
redemption is complete upon receipt by the broker-dealer or investment adviser
of the shareholder's redemption request. See "Fund Share Valuation." A
redemption may be a taxable transaction on which gain or loss may be recognized.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time the
shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day,
although each Fund may take up to seven days to make payment. Also, if the New
York Stock Exchange is closed (or when trading is restricted) for any reason
other than the customary weekend or holiday closing or if an emergency condition
as determined by the SEC merits such action, the Funds may suspend redemptions
or postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request, it is
important to follow the procedures described below. Although the Funds have no
present intention to do so, the Funds reserve the right to refuse or to limit
the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communication, such as couriers. The Funds' services and their provisions may be
modified or terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. You may redeem your shares by contacting your broker or
investment adviser and instructing him to redeem your shares. He will then
contact PFD and place a redemption trade on your behalf. You will receive the
next determined net asset value per share after receipt of such request by your
broker or investment adviser. It will be the responsibility of such broker or
investment adviser to transmit your redemption request to the Fund in a timely
manner. Such broker or investment adviser may charge you a fee for this service.
By Mail. You may redeem your shares by sending a letter directly to the
Fund. To be accepted, a letter requesting redemption must include: (i) the Fund
name and account registration from which you are redeeming shares, (ii) your
account number, (iii) the amount to be redeemed, and (iv) the signatures of all
registered owners. A signature guarantee will be required when redemptions
proceeds are to be sent to an address other than the registered address.
If you elect to receive distributions in cash and checks that (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
your cash election will be changed automatically and your future dividend and
capital gains distributions will be reinvested in the Fund at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be canceled and will be reinvested in the Fund at the per share net asset
value determined as of the date of cancellation.
By Telephone. You may redeem your shares by calling the Funds toll free at
1-800-737-3676. You should be prepared to give the telephone representative the
following information: (i) your account number, social security number or TIN
and account registration, (ii) the Fund name from which you are redeeming
shares, and (iii) the amount to be redeemed. The Funds employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If the Funds fail to employ such reasonable procedures,
26
<PAGE> 36
they may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Funds require some form of
personal identification prior to acting upon instructions received by telephone,
records telephone instructions and provides written confirmation to investors of
such transactions. Telephone redemptions are available to the shareholder unless
otherwise indicated by the shareholder by checking the box on the Purchase
Application.
Telephone redemptions and telephone exchanges will be suspended for a
period of 10 days following a telephone address change.
By Wire. You may redeem your shares by contacting the Funds by mail or
telephone and instructing them to send a wire transmission to your personal
bank. Your instructions should include: (i) your account number, social security
number or TIN and account registration, (ii) the Fund name from which you are
redeeming shares, and (iii) the amount to be redeemed. Wire redemptions are
available to the shareholder unless otherwise indicated by checking the box on
the Purchase Application. Please attach a copy of a void check of account where
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
The above mentioned services "Telephone" and "Wire" are not available for
IRAs and trust clients of Trustmark.
Redemption of Small Accounts. Due to the disproportionately higher cost of
servicing small accounts, each Fund reserves the right to redeem, on not less
than 30 days' notice, an account in a Fund that has been reduced as a result of
shareholder redemption of the account to $500 ($250 for IRAs) or less. However,
if during the 30-day notice period the shareholder purchases sufficient shares
to bring the value of the account above $500 ($250 for an IRA), this restriction
will not apply.
Redemption in Kind. All redemptions of shares of the Funds shall be made
in cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of a Fund during any 90-day period
of up to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of such period. Any such redemption in kind will be made in readily
marketable securities. This commitment is irrevocable without the prior approval
of the SEC and is a fundamental policy that may not be changed without
shareholder approval. In the case of redemption requests by shareholders in
excess of such amounts, the Board of Trustees reserves the right to have the
Funds make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of a
Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of that Fund are
valued. If the recipient were to sell such securities, he or she would incur
brokerage charges.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
Each Fund has qualified and intends to continue to qualify annually to be
treated as a regulated investment company pursuant to the provisions of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
so qualifying and electing, each Fund generally will not be subject to Federal
income tax to the extent that it distributes investment company taxable income
and net capital gains in the manner required under the Code.
Each Fund intends to distribute to its shareholders substantially all of
its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). Investment company taxable income will be distributed by the Large Cap
Equity Fund monthly. The
27
<PAGE> 37
Government Income Funds will declare distributions of such income daily and pay
those dividends monthly. Each Fund intends to distribute, at least annually,
substantially all net capital gain (the excess of net long-term capital gains
over net short-term capital losses). In determining amounts of capital gains to
be distributed, any capital loss carryovers from prior years will be applied
against capital gains.
In the case of the Government Income Funds, the amount declared each day as
a dividend may be based on projections of estimated monthly net investment
income and may differ from the actual investment income determined in accordance
with generally accepted accounting principles. An adjustment will be made to the
dividend each month to account for any difference between the projected and
actual monthly investment income.
Shareholders may elect to receive distributions in additional Fund shares
based on the net asset value at the close of business on the payment date of the
distribution or receive such distributions in cash. If no election is made,
distributions will be automatically reinvested in additional shares of the
applicable Fund. Dividends declared in, and attributable to, the preceding month
will be paid within five business days after the end of each month.
In the case of the Government Income Funds, shares purchased will begin
earning dividends on the day after the purchase order is executed, and shares
redeemed will earn dividends through the day the redemption is executed.
Investors who redeem all or a portion of Fund shares prior to a dividend
payment date will be entitled on the next dividend payment date to all dividends
declared but unpaid on those shares at the time of their redemption.
Distributions of investment income (regardless of whether derived from
dividends, interest or short-term capital gains) will be taxable to shareholders
as ordinary income. Distributions of net long-term capital gains designated by a
Fund as capital gain dividends will be taxable as long-term capital gains,
regardless of how long a shareholder has held his Fund shares. Distributions are
taxable in the same manner whether received in additional shares or in cash.
A distribution will be treated as paid on December 31 of the calendar year
if it is declared by a Fund during October, November, or December of that year
to shareholders of record in such a month and paid by a Fund during January of
the following calendar year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Special tax rules may apply to a Fund's acquisition of financial futures
contracts and options on futures contracts. Such rules may, among other things,
affect whether gains and losses from such transactions are considered to be
short-term or long-term, may have the effect of deferring losses and/or
accelerating the recognition of gains or losses, and, for purposes of qualifying
as a regulated investment company, may limit the extent to which a Fund may be
able to engage in such transactions.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares.
It is anticipated that a portion of the dividends paid by the Large Cap
Equity Fund will qualify for the dividends-received deduction available to
corporations. The dividends paid by the other Funds are not expected to so
qualify.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer
28
<PAGE> 38
identification number or to make required certifications, or where a Fund or
shareholder has been notified by the Internal Revenue Service that the
shareholder is subject to backup withholding. Corporate shareholders and certain
other shareholders specified in the Code are exempt from backup withholding.
Backup withholding is not an additional tax. Any amount withheld may be credited
against the shareholder's U.S. Federal income tax liability.
Shareholders will be notified annually by the Trust as to the Federal tax
status of distributions made by the Fund(s) in which they invest. Depending on
the residence of the shareholder for tax purposes, distributions also may be
subject to state and local taxes, including withholding taxes. Foreign
shareholders may, for example, be subject to special withholding requirements.
Special tax treatment, including a penalty on certain pre-retirement
distributions, is accorded to accounts maintained as IRAs. Shareholders should
consult their own tax advisers as to the Federal, state and local tax
consequences of ownership of shares of the Funds in their particular
circumstances.
OTHER INFORMATION
CAPITALIZATION
Performance Funds Trust was organized as a Delaware business trust on March
11, 1992, and consists of multiple separate portfolios or series, three of which
are offered in this Prospectus. The Board of Trustees may establish additional
series in the future. The capitalization of the Trust consists solely of an
unlimited number of shares of beneficial interest with a par value of $0.001
each. When issued, shares of the Funds are fully paid and non-assessable.
This Prospectus relates to the Institutional Class of each Fund's shares.
Each Fund also offers Consumer Service Class shares which are offered to public
investors at the public offering price. Institutional Class shares and Service
Class shares are identical in all respects with the exception that the Consumer
Service Class shares may be subject to Rule 12b-1 fees to which the
Institutional Class shares are not subject. Purchases may be made through an
authorized broker or financial institution, including the Fund, by mail or by
wire. Call 1-800-737-3676, or contact your sales respective, broker-dealer or
bank to obtain more information about the Funds' classes of shares.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a series of the Trust but only to
the extent of the shareholder's investment in such series. However, the Trust
Instrument disclaims liability of the shareholders, Trustees or officers of the
Trust for acts or obligations of the Trust, which are binding only on the assets
and property of each series of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations and should be considered remote
and is limited to the amount of the shareholder's investment in each particular
Fund.
VOTING
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which, by law or under the provisions of the Trust
Instrument, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do so.
Each Fund may vote separately on items which affect only that particular Fund
and each class within a Fund may vote separately on matters which affect only
that class. For example, only Consumer Service Class shareholders will vote on
matters related to each Fund's Distribution Plan under Rule 12b-1. See "Other
Information -- Voting Rights" in the SAI.
29
<PAGE> 39
The Trust Instrument provides that the holders of not less than two-thirds
of the outstanding shares of the Trust may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required to call a meeting of shareholders for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust or Fund.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of a Fund.
PERFORMANCE INFORMATION
Each Fund may, from time to time, include its yield and/or total return in
advertisements or reports to shareholders or prospective investors. Shareholders
of the Consumer Service Class of shares may experience a lower net return on
their investment than shareholders of the Institutional Class of shares because
of Rule 12b-1 distribution fees paid by such shareholders. The methods used to
calculate the yield and total return of the Funds are mandated by the SEC.
Quotations of "yield" for the Funds will be based on the investment income
per share during a particular 30-day (or one month) period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and will be computed by dividing net investment income by the net
asset value offering price per share on the last day of the period.
Quotations of average annual total return for a Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (up to the life of the
Fund), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid.
Performance information for each Fund may be compared to various
appropriate unmanaged indices, such as the Standard & Poor's 500 Stock Index and
the Dow Jones Industrial Average for the Large Cap Equity Fund, and indices
prepared by Lipper Analytical Services and other entities or organizations which
track the performance of investment companies. Any performance information
should be considered in light of the Fund's investment objectives and policies,
characteristics and quality of the each Fund and the market conditions during
the time period indicated, and should not be considered to be representative of
what may be achieved in the future. For a description of the methods used to
determine yield and total return for each Fund, see the SAI.
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a statement
for each shareholder. In those cases where a Service Organization or its nominee
is shareholder of record of shares purchased for its customer, the Funds have
been advised that the statement may be transmitted to the customer at the
discretion of the Service Organization.
The Funds retain BISYS Fund Services, Inc. as transfer agent. BISYS Fund
Services, Inc. provides personnel necessary to perform shareholder servicing
functions. Pursuant to a Transfer Agency Agreement between the Trust and BYSIS
Fund Services, Inc., BISYS Fund Services, Inc. receives a fee of $15.00 per
account, per year, and reimbursement for certain expenses.
30
<PAGE> 40
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to Performance Funds Trust c/o
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219.
General and Account Information: (800) PERFORM (737-3676)
31
<PAGE> 41
APPENDIX
DESCRIPTION OF BOND RATINGS
Excerpts from Moody's description of its four highest bond ratings are
listed as follows:
- Aaa -- judged to be the best quality and they carry the smallest
degree of investment risk;
- Aa -- judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high grade bonds;
- A -- possess many favorable investment attributes and are to be
considered as "upper medium grade obligations";
- Baa -- considered to be 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;
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
Excerpts from S&P's description of its four highest bond ratings are listed
as follows:
- AAA -- highest grade obligations, in which capacity to pay interest
and repay principal is extremely strong;
- AA -- also qualify as high grade obligations, having a very strong
capacity to pay interest and repay principal, and differs from issues
only in a small degree;
- A -- regarded as upper medium grade, having a strong capacity to pay
interest and repay principal, although they are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories;
- BBB -- 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.
This group is the lowest which qualifies for commercial bank
investment.
S&P applies indicators "+," no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
A-1
<PAGE> 42
(This Page Intentionally Left Blank)
<PAGE> 43
(This Page Intentionally Left Blank)
<PAGE> 44
[LOGO]
INVESTMENT ADVISER
Trustmark National Bank
248 East Capitol Street
Jackson, Mississippi 39201
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Rd.
Columbus, Ohio 43219
DISTRIBUTOR
Performance Funds Distributor, Inc.
3435 Stelzer Rd.
Columbus, Ohio 43219
CUSTODIAN
Trustmark National Bank
248 East Capitol Street
Jackson, Mississippi 39201
COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
PFFDIC0995
[LOGO]
PERFORMANCE FUNDS TRUST
A FAMILY OF MUTUAL FUNDS
THE SHORT TERM
GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM
GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND
INSTITUTIONAL CLASS
PROSPECTUS
SEPTEMBER , 1997
Performance Funds'
Investment Adviser
<PAGE> 45
PERFORMANCE FUNDS TRUST
3435 STELZER ROAD, COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION:
(800) PERFORM (737-3676)
TRUSTMARK NATIONAL BANK -- INVESTMENT ADVISER
BISYS FUND SERVICES -- ADMINISTRATOR
PERFORMANCE FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
This Prospectus describes three investment funds (the "Funds") managed by
Trustmark National Bank. The Funds are:
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND (FORMERLY, THE EQUITY FUND)
This Prospectus relates only to the "Consumer Service Class" of each Fund's
shares; certain investors may qualify to invest in a Fund's "Institutional
Class," which is not offered hereby. See, "Other Information -- Capitalization."
The Funds are separate investment funds of Performance Funds Trust (the
"Trust"), a Delaware business trust and registered management investment
company, with distinct investment objectives and policies. Each Fund pays
certain expenses related to the distribution of its shares, calculated at an
annual rate and based on a percentage of the average daily net assets. This
Prospectus sets forth concisely the information a prospective investor should
know before investing in any of the Funds and should be read and retained for
information about each Fund.
INVESTMENTS IN THE FUNDS ARE NOT GUARANTEED OR INSURED BY THE UNITED STATES
GOVERNMENT. SHARES OF THE FUNDS ARE NOT AN OBLIGATION OF OR GUARANTEED BY
TRUSTMARK NATIONAL BANK OR ITS AFFILIATES AND SUCH SHARES ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
A Statement of Additional Information, dated September , 1997 (the "SAI")
containing additional and more detailed information about the Funds, has been
filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information number printed above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
September , 1997
<PAGE> 46
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Fund Expenses......................................................................... 3
Fee Table............................................................................. 3
Financial Highlights.................................................................. 4
Prospectus Summary.................................................................... 9
The Investment Policies and Practices of the Funds.................................... 11
Description of Securities and Investment Practices.................................... 12
Investment Restrictions............................................................... 19
Management of the Funds............................................................... 19
Fund Share Valuation.................................................................. 22
Purchase of Fund Shares............................................................... 23
Individual Retirement Accounts........................................................ 24
Exchange Privileges................................................................... 24
Redemption of Fund Shares............................................................. 25
Dividends, Distributions and Federal Income Tax....................................... 27
Other Information..................................................................... 28
Appendix.............................................................................. A-1
</TABLE>
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
2
<PAGE> 47
FUND EXPENSES
The following expense table lists the estimated costs and expenses that an
investor in the Consumer Service Class may incur either directly or indirectly
as a shareholder of a Fund. The information is based on expenses incurred during
the fiscal year ended May 31, 1996. Actual expenses in the future may be greater
or less than those shown. Shareholders in the Consumer Service Class of the
Funds may be subject to Rule 12b-1 Plan distribution fees (annually up to 0.35%
of the average net assets of a Fund), to which the Institutional Class is not
subject. The Institutional Class of shares is only available to certain
qualified investors.
FEE TABLE
<TABLE>
<CAPTION>
THE THE THE
SHORT TERM INTERMEDIATE LARGE CAP
FUND TERM FUND EQUITY FUND*
---------- ------------ ------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a percentage
price)..................................................... none none none
Maximum Sales Load Imposed on Reinvested Dividends........... none none none
Deferred Sales Load.......................................... none none none
Redemption Fees.............................................. none none none
Exchange Fees................................................ none none none
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets annualized)
Investment Advisory Fees (after waiver)(3)................... 0.40% 0.45% 0.50%
12b-1 Fees(1)................................................ 0.25% 0.25% 0.25%
Other Expenses(4)............................................ 0.31% 0.37% 0.31%
----- ----- -----
Total Fund Operating Expenses (after waiver)(3).............. 0.96% 1.07% 1.06%
========== ========== ===========
</TABLE>
- ---------------
* Formerly, the Equity Fund.
- ---------------
(1) The Consumer Service Class of shares may be subject to Rule 12b-1 Plan
distribution fees (annually up to 0.35% of the average net assets of each
Fund) to which the Institutional Class is not subject.
(2) Shares of the Consumer Service Class of each Fund may be available through
banks or other financial institutions which have entered into a dealer
agreement with Performance Funds Distributor, Inc. Such institutions may
provide a variety of services at varying fees to customers and, although
such fees are not fund-related, the fees must be paid by customers in order
to purchase Fund shares.
(3) Reflects a voluntary reduction for the Short Term Fund, Intermediate Fund
and Large Cap Equity Fund (which will remain in effect until further notice)
in contractual fee. Had this reduction not been in effect, investment
advisory fees would have been: 0.40% for Short Term Government Fund; 0.50%
for the Intermediate Fund and 0.60% for the Large Cap Equity Fund and Total
Fund Operating Expenses would have been 1.06%, 1.22% and 1.26%,
respectively.
(4) Certain Service Organizations may receive additional fees from a Fund in
amounts up to an annual rate of 0.35% of the daily net asset value of the
Fund's shares owned by shareholders with whom the Service Organization has a
servicing relationship. See "Management of the Funds -- Service
Organizations" herein.
The purpose of this table is to assist the shareholder in understanding the
various costs and expenses that an investor in the Funds will bear.
EXAMPLE:**
You would pay the following expenses on a $1,000 investment, assuming 5%
gross annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
THE THE THE
SHORT INTERMEDIATE LARGE CAP
PORTFOLIO TERM FUND TERM FUND EQUITY FUND
- ----------------------------------------------------- --------- ------------ -----------
<S> <C> <C> <C>
1 year............................................... $ 10 $ 11 $ 11
3 years.............................................. $ 30 $ 34 $ 34
5 years.............................................. $ 53 $ 58 $ 58
10 years............................................. $ 117 $129 $ 129
</TABLE>
- ---------------
** This example should not be considered a representation of actual expenses
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of future annual
returns. Actual return may be greater or less than the assumed amount.
3
<PAGE> 48
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Funds since their commencement of operations through May 31,
1996. The following financial highlights have been audited by
, independent accountants, whose report on the financial
statements, including this data appears in the Funds' 1996 Annual Report to
Shareholders included in the Statement of Additional Information. This financial
data should be read in conjunction with the related financial statements and
notes thereto.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SHORT TERM INTERMEDIATE TERM
CONSUMER CLASS CONSUMER CLASS
------------------------------------- -------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
1996 1995 1994 1993** 1996 1995 1994 1993**
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ $ $ $ $ $ $ $
Income from Investment
Operations:
Net investment
income..............
Net gain (loss) on
securities (both
realized and
unrealized).........
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations..........
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income...
Distributions from
capital gains.......
Distributions in excess
of net realized
gains...............
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions....
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ $ $ $ $ $ $ $
======= ======= ======= ======= ======= ======= ======= =======
Total Return (not
reflecting sales
load).................. % % % % % % % %
Ratios/Supplemental Data:
Net Assets, End of
Period (in
thousands).......... $ $ $ $ $ $ $ $
Ratio of Expenses to
Average Net
Assets.............. % % % % % % % %
Effect of waivers/
reimbursements on
expense ratio....... % % % % % % % %
Ratio of Net Investment
Income to Average
Net Assets.......... % % % % % % % %
Portfolio Turnover
Rate................ % % % % % % % %
</TABLE>
- ---------------
* Annualized
** Fund commenced operations on June 1, 1992.
4
<PAGE> 49
<TABLE>
<CAPTION>
LARGE CAP EQUITY FUND
-------------------------------------
CONSUMER SERVICE CLASS
-------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31,
1996 1995 1994 1993**
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...................... $ $ $ $
------- ------- ------- -------
Income from Investment Operations:
Net investment income...................................
Net gain on securities (both realized and unrealized)...
------- ------- ------- -------
Total from Investment Operations........................
------- ------- ------- -------
Less Distributions:
Dividends from net investment income....................
Distributions from capital gains........................
------- ------- ------- -------
Total Distributions.....................................
------- ------- ------- -------
Net Asset Value, End of Period............................ $ $ $ $
======= ======= ======= =======
Total Return (not reflecting sales load).................. % % % %
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands)................ $ $ $ $
Ratios of Expenses to Average Net Assets................ % % % %
Effect of waivers/reimbursements on expense ratio....... % % % %
Ratio of Net Investment Income to Average Net Assets.... % % % %
Portfolio Turnover Rate................................. % % % %
Average Commission Rate(a) $
</TABLE>
- ---------------
** Fund commenced operations on June 1, 1992.
(a) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
5
<PAGE> 50
INDEX COMPARISON
The information set forth below compares the investment performance of a
hypothetical investment of $10,000 in each Fund's Consumer Service Class of
shares to an industry index since the commencement of each Fund's operations.
SHORT TERM FUND
The investment performance of the Consumer Service Class of the Short Term
Fund is compared to the performance of the Shearson Lehman 1-3 Year Government
Index in the following chart from June 1, 1992 (commencement of operations)
through May 31, 1993 and for the fiscal years ended May 31, 1994, May 31, 1995
and May 31, 1996.
<TABLE>
<CAPTION>
Redemption
Measurement Period Value Shearson
(Fiscal Year Covered) ($10,000 Investment) Lehman 1-3 Yr
Since Inception Govt
<S> <C> <C>
Aug. 31, 10322 10300
Nov. 30, 10326 10322
Feb. 28, 10605 10608
May 31, 10667 10682
Aug. 31, 10833 10874
Nov. 30, 10868 10935
Feb. 28, 10893 10980
May 31, 10798 10898
Aug. 31, 10929 10059
Nov. 30, 10875 11014
Feb. 28, 11131 11338
May 31, 11457 11513
Aug. 31, 11617 11708
Nov. 30, 11830 12198
Feb. 29, 11956 12191
May 31, 11959 11985
- --------------------------------------------------------------------------------
Aug. 31, Feb. 28, Feb. 28,
1992 Nov. 30, 1993 May 31, Aug. 31, Nov. 30, 1994 May 31, Aug. 31, Nov. 30,
- -------------------------------------------------------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 10,322 10,326 10,605 10,667 10,833 10,868 10,893 10,798 10,929 10,875
- ------------------------------------------------------------------------------------------------------------------
Shearson
Lehman
1-3 Yr Govt 10,300 10,322 10,608 10,682 10,874 10,935 10,980 10,898 10,059 11,014
<CAPTION>
Feb. 28, Feb. 29,
1995 May 31, Aug. 31, Nov. 30, 1996 May 31,
- ----------------
Redemption
Value ($10,000
Investment)
Since Inception 11,131 11,457 11,617 11,830 11,956 11,959
- ----------------
Shearson
Lehman
1-3 Yr Govt 11,338 11,513 11,708 12,198 12,191 11,985
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE> 51
INTERMEDIATE FUND
The investment performance of the Consumer Service Class of the
Intermediate Fund is compared to the performance of the Shearson Lehman
Government/Corporate Index in the following chart from June 1, 1992
(commencement of operations) through May 31, 1993 and for the fiscal years ended
May 31, 1994, May 31, 1995 and May 31, 1996.
<TABLE>
<CAPTION>
Redemption Shearson
Measurement Period Value Lehman
(Fiscal Year Covered) ($10,000 Investment) Gov't/Corp
Since Inception
<S> <C> <C>
Aug. 31, 10543 10489
Nov. 30, 10466 10470
Feb. 28, 11146 11109
May 31, 11258 11226
Aug. 31, 11794 11821
Nov. 30, 11736 11776
Feb. 28, 11676 11744
May 31, 11268 11340
Aug. 31, 11422 11544
Nov. 30, 11147 11336
Feb. 28, 11637 11900
May 31, 12286 12655
Aug. 31, 12419 12663
Nov. 30, 12906 12449
Feb. 29, 12868 12659
May 31, 12582 13189
- --------------------------------------------------------------------------------
Aug. 31, Feb. 28, Feb. 28,
1992 Nov. 30, 1993 May 31, Aug. 31, Nov. 30, 1994 May 31, Aug. 31, Nov. 30,
- -------------------------------------------------------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 10,543 10,466 11,146 11,258 11,794 11,736 11,676 11,268 11,422 11,147
- ------------------------------------------------------------------------------------------------------------------
Shearson
Lehman
Gov't/Corp 10,489 10,470 11,109 11,226 11,821 11,776 11,744 11,340 11,544 11,336
<CAPTION>
Feb. 28 Feb. 29,
1995 May 31, Aug. 31, Nov. 30, 1996 May 31,
- ----------------
Redemption
Value ($10,000
Investment)
Since Inception 11,637 12,286 12,419 12,906 12,868 12,582
- ----------------
Shearson
Lehman
Gov't/Corp 11,900 12,655 12,663 12,449 12,659 13,189
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE> 52
LARGE CAP EQUITY FUND
The investment performance of the Consumer Service Class of the Large Cap
Equity Fund is compared to the performance of the Standard & Poor's 500 Index in
the following chart from June 1, 1992 (commencement of operations) through May
31, 1993 and for the fiscal years ended May 31, 1994, May 31, 1995 and May 31,
1996.
<TABLE>
<CAPTION>
Redemption
Value
Measurement Period ($10,000 Investment)
(Fiscal Year Covered) Since Inception S&P
<S> <C> <C>
Aug. 31, 9979 10046
Nov. 30, 10695 10546
Feb. 28, 10997 10910
May 31, 11437 11154
Aug. 31, 11996 11564
Nov. 30, 12036 11601
Feb. 28, 12123 11811
May 31, 11763 11629
Aug. 31, 12244 12196
Nov. 30, 11582 11722
Feb. 28, 12468 12679
May 31, 13535 13973
Aug. 30, 14236 14817
Nov. 30, 15534 16059
Feb. 29, 16664 17082
May 31, 17382 17942
- --------------------------------------------------------------------------------
Aug. 31, Feb. 28, Feb. 28,
1992 Nov. 30, 1993 May 31, Aug. 31, Nov. 30, 1994 May 31, Aug. 31, Nov. 30,
- -------------------------------------------------------------------------------------------------------------------
Redemption
Value ($10,000
Investment)
Since Inception 9,979 10,695 10,997 11,437 11,996 12,036 12,123 11,763 12,244 11,582
- ------------------------------------------------------------------------------------------------------------------
S&P 500 10,046 10,546 10,910 11,154 11,564 11,601 11,811 11,629 12,196 11,722
<CAPTION>
Feb. 29, Feb. 29,
1995 May 31, Aug. 31, Nov. 30, 1996 May 31,
- ----------------
Redemption
Value ($10,000
Investment)
Since Inception 12,468 13,535 14,236 15,534 16,664 17,382
- ----------------
S&P 500 12,679 13,973 14,817 16,059 17,082 17,942
</TABLE>
- --------------------------------------------------------------------------------
Without fee waiver, performance would have been lower. Past performance
does not predict future results.
8
<PAGE> 53
PROSPECTUS SUMMARY
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The Short Term Government Income Fund (the "Short Term Fund"), the
Intermediate Term Government Income Fund (the "Intermediate Fund") and the Large
Cap Equity Fund (the "Large Cap Equity Fund") are three separate investment
funds (the "Funds") managed by Trustmark National Bank.
THE GOVERNMENT INCOME FUNDS:
THE SHORT TERM FUND. The investment objective of the Short Term Fund is to
provide investors with as high a level of current income as is consistent with
limiting the risk of potential loss. Under normal conditions, the Short Term
Fund pursues this objective by investing primarily (at least 65% of total
assets) in short term government income securities which results in a dollar
weighted average portfolio maturity of less than three years. The maximum
maturity for any individual security held by the Short Term Fund is
approximately five years. Securities purchased by the Short Term Fund will
consist of U.S. Government securities, certificates of deposit, bankers'
acceptances, commercial paper rated in the two highest rating categories,
investment grade corporate debt securities, investment grade mortgage- and
asset-backed securities and other instruments which the Adviser believes are of
comparable quality to those above. The Short Term Fund is intended for investors
who seek higher returns than are generally available from money market
instruments, with low risk of significant per share price volatility. Money
market funds, however, generally enjoy more stability of principal and invest in
portfolio securities which are of higher quality.
THE INTERMEDIATE TERM FUND. The investment objective of the Intermediate
Fund is to provide investors with a high level of current income. Total return,
within given quality parameters, is a secondary consideration of the
Intermediate Fund. Under normal conditions, the Intermediate Fund pursues these
objectives by investing primarily (at least 65% of total assets) in intermediate
term government income securities. The Intermediate Fund may also invest in the
same types of securities as the Short Term Fund, except that there are no
restrictions on the maturity of any individual assets of the Intermediate Fund.
The Intermediate Fund will normally have a dollar weighted average portfolio
maturity of 3-10 years.
By investing in longer-term maturities than the Short Term Fund, the
Intermediate Fund attempts to achieve higher returns but with greater risk of
volatility in principal value.
THE LARGE CAP EQUITY FUND
The investment objective of the Large Cap Equity Fund is to provide
investors with long-term capital appreciation. The Large Cap Equity Fund pursues
this objective by investing primarily (at least 65% of total assets) in common
stocks of large, well established U.S. companies with market capitalization
exceeding $1 billion at the time of purchase. The Fund may also invest in
smaller capitalization companies. It is anticipated that the Fund shall invest
primarily in companies found in the S&P 500 Index. Income generation is a
secondary consideration for the Large Cap Equity Fund. However, the Large Cap
Equity Fund may purchase dividend paying stocks of particular issuers when the
issuer's dividend record may, in the Adviser's opinion, have a favorable
influence on the market value of the securities. The price of an issuer's common
stock can be significantly affected by market fluctuations and other short term
factors, including the stability of the dividend level. Dividend paying stocks
are generally less volatile than securities which pay a low level of dividend
income and will generally not appreciate as much during rising markets or
decline as much during adverse market periods as non-dividend paying stocks.
RISK FACTORS
There is no assurance that a Fund will achieve its investment objective.
Each Fund's net asset value fluctuates, reflecting fluctuations in the market
value of its portfolio securities. Investors in the Short Term
9
<PAGE> 54
Fund and the Intermediate Fund are exposed to three types of risk from fixed
income securities. (1) Interest rate risk is the potential for fluctuations in
bond prices due to changing interest rates. (2) Credit risk is the possibility
that a bond issuer will fail to make timely payments of either interest or
principal to a Fund. (3) Prepayment risk (for mortgage-backed securities) or
call risk (for corporate bonds) is the likelihood that, during periods of
falling interest rates, securities with high stated interest rates will be
prepaid (or "called") prior to maturity, requiring a Fund to invest the proceeds
at generally lower interest rates.
Because the Large Cap Equity Fund invests primarily in common stocks, it is
subject to market risk -- i.e., the possibility that stock prices in general
will decline over short or even extended periods. The stock market tends to be
cyclical, with periods when stock prices generally rise and periods when stock
prices generally decline.
Small company stocks in which the Large Cap Equity Fund may invest have
historically been more volatile in price than the stock market as a whole. Among
the likely reasons for the greater price volatility of small company stocks are
the less certain growth prospects of smaller firms, a low degree of liquidity in
the markets for small company stocks, and the small to negligible dividends
generally paid by small companies. Besides exhibiting greater volatility, small
company stocks have at times fluctuated in value independently of the broad
stock market.
For additional information concerning the investment policies, practices
and risk considerations of the Funds, see "The Investment Policies and Practices
of the Funds" in this Prospectus. See also the SAI.
MANAGEMENT OF THE FUNDS
Trustmark National Bank ("Trustmark" or the "Adviser") acts as investment
adviser to the Funds. Trustmark's Trust Department, has assets in excess of $1
billion under management. It was founded in 1890 and is the second largest
commercial bank headquartered in Mississippi. Trustmark has been managing trust
monies for over 40 years and currently manages various common and collective
funds. See "Fee Table" and "Management of the Funds" in this Prospectus.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services acts as
Administrator to the Funds and provides certain management and administrative
services to the Funds, for which each Fund pays a fee at an annual rate based
upon each Fund's average daily net assets. Performance Funds Distributor, Inc.
("PFD") is the Distributor for the Trust and distributes the Funds' shares and
may be reimbursed for certain of its distribution related expenses.
PURCHASES
Shares of the Consumer Service Class of the Funds are offered at net asset
value and may be subject to Rule 12b-1 fees to which the Institutional Class
shares are not subject. Only certain investors are eligible to invest in the
"Institutional Class" of each Fund's shares. See "Purchase of Fund Shares" and
"Other Information -- Capitalization." Purchases may be made through an
authorized broker or financial institution, including the Fund, by mail or by
wire. Purchases may only be made in cash with a minimum initial investment for
any Fund of $1,000 which may be waived for certain accounts. Subsequent
investments must be at least $100.
SERVICE ORGANIZATIONS
Each Fund may pay fees to various banks, including Trustmark, trust
companies, broker-dealers and other financial organizations ("Service
Organizations") for providing administrative services for the Funds, such as
maintaining shareholder accounts and records. Investors are not required to
purchase Fund shares through or maintain an account with a Service Organization.
10
<PAGE> 55
REDEMPTIONS
Shares may be redeemed at their next determined net asset value. See
"Redemption of Fund Shares" and "Fund Share Valuation." Redemptions may be made
by letter or, if previously authorized, by telephone. The Funds reserve the
right to redeem upon not less than 30 days' written notice all shares in a Fund
account which, as a result of shareholder redemption, has a value below $500
($250 for Individual Retirement Accounts ("IRAs")).
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays its net investment income to shareholders of
record in accordance with the schedule set forth under "Dividends, Distributions
and Federal Income Tax." Any net realized long-term capital gains will be
distributed annually. All dividends and distributions will be automatically
reinvested at net asset value in additional Fund shares unless cash payment is
requested.
THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
Each Fund has its own investment objectives, and follows its own investment
policies and practices, including certain investment restrictions. The Statement
of Additional Information (the "SAI") contains specific investment restrictions
which govern the Funds' investments. Those restrictions and the Funds'
investment objectives are fundamental policies, which means that they may not be
changed without a majority vote of shareholders of the applicable Fund. Except
for the objectives and those restrictions specifically identified as
fundamental, all other investment policies and practices described in this
Prospectus and in the SAI are not fundamental and may be changed by the Board of
Trustees without shareholder approval.
The Adviser selects investments and makes investment decisions based on the
investment objectives and policies of each Fund.
The Government Income Funds. When selecting debt securities for the Short
Term Fund and the Intermediate Fund (collectively, the "Government Income
Funds"), the Adviser seeks to select those instruments that appear best
calculated to achieve each Fund's investment objective within the credit and
risk tolerances established for the Fund. In accordance with those policies, the
Government Income Funds may purchase commercial paper rated A-2 or better by
Standard & Poor's Corporation ("S&P") or Prime-2 or better by Moody's Investors
Service ("Moody's"), investment grade corporate debt securities rated BBB or
better by S&P or Baa or better by Moody's, investment grade mortgage and
asset-backed securities and other debt instruments which are of comparable
quality in the Adviser's opinion pursuant to guidelines adopted by the Board of
Trustees. See the Appendix for a description of bond ratings. The remaining net
assets may be invested in bank obligations, commercial paper, corporate debt
securities, mortgage-related securities and other asset-backed securities. The
Government Income Funds will generally not pay brokerage commissions when
purchasing portfolio securities but will incur certain transaction costs. The
portfolio turnover rate is not expected to exceed 250% for the Short Term Fund
and 150% for the Intermediate Fund.
The Large Cap Equity Fund. In selecting equity investments (which include
common stocks of U.S. companies and American Depository Receipts ("ADRs") of
foreign companies) for the Large Cap Equity Fund, the Adviser selects companies
for investment using both quantitative and qualitative analysis to identify
those issuers that, in the Adviser's opinion, exhibit above average earnings
growth and are attractively valued utilizing a multi-factor model. The
quantitative multi-factor approach analyzes companies in six broad categories of
relative valuation. These categories are measures of (1) value, (2) yield, (3)
price and earnings momentum, (4) historical and projected earnings growth, (5)
price and earnings risk, and (6) liquidity. ADRs are dollar-denominated receipts
generally issued by domestic banks, which represent the deposit with
11
<PAGE> 56
the bank of a security of a foreign issuer, and which are publicly traded on
exchanges or over-the-counter in the United States.
The Adviser may also select other equity securities in addition to common
stocks for investment by the Large Cap Equity Fund such as preferred stocks,
high grade securities convertible into common stocks, and warrants. The Large
Cap Equity Fund will not invest more than 5% of its net assets in warrants, no
more than 2% of which will be invested in warrants which are not listed on the
New York or American Stock Exchanges. Normally, the Large Cap Equity Fund will
invest at least 65% of its total assets in common stocks or securities
convertible into common stocks of large, well established companies with market
capitalization in excess of $1 billion at the time of purchase. For temporary
defensive purposes, however, the Large Cap Equity Fund may invest up to 100% of
its total assets in U.S. Government securities or, subject to a 25% industry
concentration limitation, certificates of deposit, bankers' acceptances,
commercial paper, repurchase agreements (maturing in seven days or less) and
debt obligations of corporations (corporate bonds, debentures, notes and other
similar corporate debt instruments) which are rated A or better by at least two
rating organizations. The Large Cap Equity Fund intends to manage its portfolio
actively; however, the annual portfolio turnover rate is not expected to exceed
100%.
The following describes in greater detail different types of securities and
investment practices used by certain of the Funds.
DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES
U.S. Government Securities (all Funds). U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Treasury bills, which have a maturity of up to one year,
are direct obligations of the United States and are the most frequently issued
marketable U.S. Government security. The U.S. Treasury also issues securities
with longer maturities in the form of notes and bonds.
U.S. Government agency and instrumentality obligations are debt securities
issued by U.S. Government-sponsored enterprises and Federal agencies. Some
obligations of agencies are supported by the full faith and credit of the United
States or by U.S. Treasury guarantees, such as mortgage-backed certificates,
which may be guaranteed by the Government National Mortgage Association; others,
such as obligations of the Federal Home Loan Banks, Federal Farm Credit Bank,
Bank for Cooperatives, Federal Intermediate Credit Banks and the Federal Land
Bank, are guaranteed by the right of the issuer to borrow from the U.S.
Treasury; others, such as obligations of the Federal National Mortgage
Association, are supported by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others, such
as obligations of the Student Loan Marketing Association and the Tennessee
Valley Authority, are backed only by the credit of the agency or instrumentality
issuing the obligation. In the case of obligations not backed by the full faith
and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.
Bank Obligations (all Funds). These obligations include negotiable
certificates of deposit and bankers' acceptances. The Funds limit their bank
investments to dollar-denominated obligations of U.S. banks which have more than
$1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency, or
whose deposits are insured by the FDIC.
Commercial Paper (all Funds). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by U.S. banks and bank holding companies, U.S. corporations
and financial institutions, as well as similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. Each Fund
establishes its own standards of creditworthiness for issuers of such
investments.
12
<PAGE> 57
Corporate Debt Securities (all Funds). Each Fund's investments in U.S.
corporate debt securities are limited to corporate bonds, debentures, notes and
other similar corporate debt instruments which meet the previously disclosed
minimum ratings and maturity criteria established for the Funds under the
direction of the Board of Trustees and the Funds' Adviser or, if unrated, are in
the Adviser's opinion comparable in quality to corporate debt securities in
which the Funds may invest. See "The Investment Policies and Practices of the
Funds."
Investment grade corporate debt securities (securities rated BBB by S&P or
Baa by Moody's) have speculative characteristics and are more sensitive to
economic change than higher rated bonds and may be subject to greater market
fluctuations and greater risk of loss of income or principal, including a
greater possibility of default or bankruptcy of the issuer of such securities,
than are more highly rated debt securities. The Adviser seeks to avoid these
risks by investing in securities rated above investment grade as well, through
diversification, by conducting credit analyses and by monitoring current
developments in interest rates and market conditions.
Repurchase Agreements (all Funds). Securities held by the Funds may be
subject to repurchase agreements. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed upon time and
price. These agreements may be considered to be loans by the purchaser
collateralized by the underlying securities. These agreements will be fully
collateralized and the collateral will be marked-to-market daily. The Funds will
enter into repurchase agreements only with dealers, domestic banks or recognized
financial institutions which, in the opinion of the Adviser and in accordance
with guidelines adopted by the Board of Trustees, present minimal credit risks.
While the maturity of the underlying securities in a repurchase agreement
transaction may be more than one year. Repurchase agreements with a maturity of
greater than seven days will be considered illiquid. See "Investment
Restrictions." In the event of default by the seller under the repurchase
agreement, a Fund may have problems in exercising its rights to the underlying
securities and may experience time delays in connection with the disposition of
such securities.
Loans of Portfolio Securities (all Funds). To increase current income,
each Fund may lend its portfolio securities in an amount up to 5% of each such
Fund's total assets to brokers, dealers and financial institutions, provided
certain conditions are met, including the condition that each loan is secured
continuously by collateral maintained on a daily mark-to-market basis in an
amount at least equal to the current market value of the securities loaned. For
further information, see the SAI.
Variable and Floating Rate Demand and Master Demand Notes (the Government
Income Funds only). The Government Income Funds may, from time to time,
purchase variable or floating rate demand notes issued by corporations, bank
holding companies and financial institutions and similar taxable and tax exempt
instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity over one year but carry with them the
right of the holder to put the securities to a remarketing agent or other entity
at designated time intervals and on specified notice. The obligation of the
issuer of the put to repurchase the securities may be backed up by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Generally, the remarketing
agent will adjust the interest rate every seven days (or at other specified
intervals) in order to maintain the interest rate at the prevailing rate for
securities with a seven-day or other designated maturity. A Fund's investment in
demand instruments which provide that such Fund will not receive the principal
note amount within seven days' notice, in combination with a Fund's other
investments in illiquid instruments, will be limited to an aggregate total of
15% of that Fund's net assets.
The Funds may also buy variable rate master demand notes. The terms of
these obligations permit a Fund to invest fluctuating amounts at varying rates
of interest pursuant to direct arrangements between a
13
<PAGE> 58
Fund, as lender, and the borrower. These instruments permit weekly and, in some
instances, daily changes in the amounts borrowed. Each Fund has the right to
increase the amount under the note at any time up to the full amount provided by
the note agreement, or to decrease the amount, and the borrower may repay up to
the full amount of the note without penalty. The notes may or may not be backed
by bank letters of credit. Because the notes are direct lending arrangements
between a Fund and a borrower, it is not generally contemplated that they will
be traded, and there is no secondary market for them, although they are
redeemable (and, thus, immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. In connection with any such purchase
and on an ongoing basis, the Adviser will consider the earning power, cash flow
and other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
make demand simultaneously. While master demand notes, as such, are not
typically rated by credit rating agencies, a Fund may, under its minimum rating
standards, invest in them only if at the time of an investment, the issuer meets
the criteria set forth in this Prospectus for commercial paper obligations.
American Depository Receipts (the Large Cap Equity Fund only). American
Depository Receipts are U.S. dollar-denominated receipts generally issued by
domestic banks, which evidence the deposit with the bank of a foreign issuer and
which are publicly traded on exchanges or over-the-counter in the United States.
The Large Cap Equity Fund may invest in both sponsored and unsponsored ADR
programs. There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depository and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports. In addition, with respect to all ADRs
there is always the risk of loss due to currency fluctuations.
Investments in ADRs involve certain risks not typically involved in purely
domestic investments, including future foreign political and economic
developments, and the possible imposition of foreign governmental laws or
restrictions applicable to such investments. Securities of foreign issuers
through ADRs are subject to different economic, financial, political and social
factors. Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. With respect to certain countries, there is the possibility
of expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect the value of
the particular ADR. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. companies. The Large Cap Equity Fund
will seek to minimize the risk associated with investment in foreign issuers by
investing no more than 15% of its total assets in ADRs.
Forward Commitments and When-Issued Securities (the Government Income Funds
only). The Government Income Funds may purchase when-issued securities and make
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time if the Funds hold, and maintain until the settlement
date in a segregated account, cash, U.S. Government securities or high-grade
debt obligations in an amount sufficient to meet the purchase price, or if a
Government Income Funds enters into offsetting contracts for the forward sale of
other securities it owns. Purchasing securities on a when-issued basis and
14
<PAGE> 59
forward commitments involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Government Income Fund's other assets. No
income accrues on securities purchased on a when-issued basis prior to the time
delivery of the securities is made, although the Government Income Funds may
earn interest on securities it has deposited in the segregated account because
it does not pay for the when-issued securities until they are delivered.
Although the Government Income Funds will generally purchase securities on a
when-issued basis or enter into forward commitments with the intention of
actually acquiring securities, the Government Income Funds may dispose of a
when-issued security or forward commitment prior to settlement, if the Adviser
deems it appropriate to do so. The Government Income Funds may realize
short-term profits or losses upon such sales.
Mortgage-Related Securities (the Government Income Funds only). Mortgage
pass-through securities are securities representing interests in pools of
mortgages in which payments of both interest and principal on the securities are
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose a
Government Income Fund to a lower rate of return upon reinvestment of principal.
Also, if a security subject to prepayment has been purchased at a premium, in
the event of prepayment the value of the premium would be lost. Like other
government securities, when interest rates rise, the value of a mortgage-related
security generally will decline; however, when interest rates decline, the value
of mortgage-related securities with prepayment features may not increase as much
as other government securities. In recognition of this prepayment risk to
investors, the Public Securities Association (the "PSA") has standardized the
method of measuring the rate of mortgage loan principal prepayments. The PSA
formula, the Constant Prepayment Rate or other similar models that are standard
in the industry will be used by the Government Income Funds in calculating
maturity for purposes of its investment in mortgage-related securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association, ("GNMA") or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, semi-annually. CMOs may be collateralized by whole mortgage loans
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Monthly payments
of principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. To the extent a
particular CMO is issued by an investment company, the Funds' ability to invest
in such CMOs will be limited. See "Investment Restrictions" in the SAI.
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The Government Income Funds may also invest in mortgage-related securities
with respect to which all interest payments go to one class of holders
("Interest Only Securities" or "IOs") and all principal payments go to a second
class of holders ("Principal Only Securities" or "POs"). These securities are
commonly referred to as mortgage-backed security strips or MBS strips. The
yields to maturity on IOs and POs are sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
principal payments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially adversely
affected. IOs and POs which are not issued or guaranteed by the U.S. Government
will be considered illiquid and will be subject to each Fund's 15% limitation
regarding investment in illiquid securities. U.S. Government issued or
guaranteed IOs and POs backed by fixed rate mortgages may be determined to be
liquid pursuant to guidelines established by the Board of Trustees.
The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. As new types of mortgage-related securities
are developed and offered to investors, the Adviser will, consistent with the
Funds' investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
Other Asset-Backed Securities (the Government Income Funds only). The
Government Income Funds may also invest in other asset-backed securities
(unrelated to mortgage loans) such as Certificates for Automobile Receivable(sm)
("CARS(sm)"). CARS(sm) represent undivided fractional interests in a trust
("trust") whose assets consist of a pool of motor vehicle retail installment
sales contracts and security interest in the vehicles securing the contracts.
Payments of principal and interest on CARS(sm) are "passed through" monthly to
certificate holders and are guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution unaffiliated
with the trustee or originator of the trust. Underlying sales contracts are
subject to prepayment, which may reduce the overall return to certificate
holders. If the letter of credit is exhausted, certificate holders may also
experience delays in payment or losses on CARS(sm) if the full amounts due on
underlying sales contracts are not realized by the trust because of
unanticipated legal or administrative costs of enforcing the contracts, or
because of depreciation, damage or loss of the vehicles securing the contracts,
or other factors. For asset-backed securities, the industry standard uses a
principal prepayment model, the ABS model, which is similar to the PSA described
previously under "Mortgage-Related Securities." Either the PSA model, the ABS
model or other similar models that are standard in the industry will be used by
a Government Income Fund in calculating maturity for purposes of its investment
in asset-backed securities.
Interest Rate Futures (the Government Income Funds only). The Government
Income Funds may purchase and sell interest rate futures contracts ("futures
contracts") as a hedge against changes in interest rates, provided that not more
than 25% of each Fund's net assets are at risk due to such transactions. A
futures contract is an agreement between two parties to buy and sell a security
for a set price on a future date. Future contracts are traded on designated
"contracts markets" which, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures contracts based on
securities such as long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA
Certificates and three-month U.S. Treasury bills.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a Government Income Fund holds long-term U.S.
Government securities and the Adviser anticipates a rise in long-term interest
rates, it could, in lieu of selling its portfolio securities, enter into futures
contracts for the
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sale of similar long-term securities. If rates increased and the value of a
Fund's portfolio securities declined, the value of the Fund's futures contracts
would increase, thereby protecting the Fund by preventing net asset value from
declining as much as it otherwise would have declined. Similarly, entering into
futures contracts for the purchase of securities has an effect similar to actual
purchase of the underlying securities, but permits the continued investment of
securities other than the underlying securities. For example, if the Adviser
expects long-term interest rates to decline, the Fund might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize. The Government
Income Funds will maintain a segregated account when engaged in transactions
regarding interest rate futures contracts in an amount sufficient to cover the
obligations of the Government Income Funds pursuant to such contracts.
Options on Common Stocks and Stock Indices (the Large Cap Equity Fund
only). The Large Cap Equity Fund may write (i.e., sell) call options ("calls")
if the calls are "covered" throughout the life of the option. A call is
"covered" if the Large Cap Equity Fund owns or has the right to acquire the
optioned securities and the Large Cap Equity Fund maintains, in a segregated
account with its custodian, cash or cash equivalents or U.S. Government
securities with a value sufficient to meet its obligations under the call, or if
the Large Cap Equity Fund owns an offsetting call option. When the Large Cap
Equity Fund writes a call, it receives a premium and gives the purchaser the
right to buy the underlying security at any time during the call period (usually
not more than nine months in the case of common stock) at a fixed exercise
price, regardless of market price changes during the call period. If the call is
exercised, the Large Cap Equity Fund forgoes any gain from an increase in the
market price of the underlying security over the exercise price.
The Large Cap Equity Fund also may purchase put options ("puts"). When the
Large Cap Equity Fund purchases a put, it pays a premium in return for the right
to sell the underlying security at the exercise price at any time during the
option period. If any put is not exercised or sold, it will become worthless on
its expiration date. If a put is purchased and becomes worthless on its
expiration date, the Large Cap Equity Fund will have lost the premium and this
will have the effect of reducing the Fund's return.
The Large Cap Equity Fund will realize a gain (or loss) on a closing
purchase transaction with respect to a call previously written by the Large Cap
Equity Fund if the premium, plus commission costs, paid to purchase the call is
less (or greater) than the premium, less commission costs, received on the sale
of the call. A gain also will be realized if a call which the Large Cap Equity
Fund has written lapses unexercised, because the Large Cap Equity Fund would
retain the premium.
There can be no assurance that a liquid secondary market will exist at any
given time for a particular option.
Stock Index Futures Contracts (the Large Cap Equity Fund only). The Large
Cap Equity Fund may enter into stock index futures contracts in order to protect
the value of common stock investments, provided that not more than 25% of the
Large Cap Equity Fund's assets are at risk due to such transactions. A stock
index futures contract is an agreement in which one party agrees to deliver to
the other an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. As the
aggregate market value of the stocks in the index changes, the value of the
index also will change. In the event that the index level rises above the level
at which the stock index futures contract was sold, the seller of the stock
index futures contract will realize a loss determined by the difference between
the two index levels at the time of expiration of the stock index futures
contract, and the purchaser will realize a gain in that amount. In the event the
index level falls below the level at which the stock index futures contract was
sold, the seller will recognize a gain determined by the difference between the
two index levels at the expiration of the stock index futures
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contract, and the purchaser will realize a loss. Stock index futures contracts
expire on a fixed date, currently one to seven months from the date of the
contract, and are settled upon expiration of the contract.
The Large Cap Equity Fund intends to buy stock index futures contracts for
the purpose of maintaining a fully invested position during periods of
relatively large cash inflows and therefore would normally be a buyer of stock
index futures contracts. If the Large Cap Equity Fund is unable to invest its
cash (or cash equivalents) in stock in an orderly fashion, the Large Cap Equity
Fund could purchase a stock index futures contract which may be used to offset
any increase in the price of the stock. However, it is possible that the market
may decline instead, resulting in a loss on the stock index futures contract. If
the Large Cap Equity Fund then concludes not to invest in stock at that time, or
if the price of the securities to be purchased remains constant or increases,
the Large Cap Equity Fund will realize a loss on the stock index futures
contract that is not offset by a reduction in the price of securities purchased.
The Large Cap Equity Fund may buy or sell stock index futures contracts to close
out existing futures positions.
Put Options on Stock Index Futures Contracts (the Large Cap Equity Fund
only). The Large Cap Equity Fund may purchase put options on stock index futures
as another method of protecting the Large Cap Equity Fund's assets against
market declines. See the SAI for further information about these options
contracts.
There can be no assurance that a liquid market will exist at a time when a
Large Cap Equity Fund seeks to close out a futures contract or a futures option
position. Most futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single day. Once the
daily limit has been reached on a particular contract, no trades may be made
that day at a price beyond that limit. In addition, certain of these instruments
are relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent the Large Cap Equity
Fund from liquidating an unfavorable position and the Large Cap Equity Fund
would remain obligated to meet margin requirements until the position is closed.
The Large Cap Equity Fund will maintain a segregated account when engaged in
transactions regarding put options on stock index futures contracts in an amount
sufficient to cover the obligation of the Large Cap Equity Fund pursuant to such
contracts.
The use of stock index futures contracts and put options on stock index
futures contracts may impair the liquidity of the Large Cap Equity Fund's assets
and the ability to operate as an open-end investment company. The Adviser will
monitor the Large Cap Equity Fund's use of such techniques and report to the
Board of Trustees concerning their impact, if any, on liquidity and the Large
Cap Equity Fund's ability to meet redemptions. For additional information
regarding options and futures contracts see, "Additional Permitted Investment
Activities" in the SAI.
Illiquid Investments (all Funds). It is the policy of each Fund that
restricted securities and other illiquid securities (including repurchase
agreements of more than seven days' duration and variable and floating rate
demand and master demand notes not requiring receipt of the principal note
amount within seven days' notice) may not constitute, at the time of purchase or
at any time, more than 15% of the value of the total net assets of each such
Fund.
Notwithstanding the above, the Funds may purchase securities which are
eligible for purchase and sale under Rule 144A under the Securities Act of 1933
pursuant to procedures adopted and regularly reviewed by the Board of Trustees.
Rule 144A permits certain qualified institutional buyers, such as the Funds, to
trade in privately placed securities even though such securities are not
registered under the 1933 Act. The Adviser, under the supervision of the Board
of Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to each Fund's restriction of investing no more than
15% of its assets in illiquid securities. A determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this determination
the Adviser will consider the trading markets for the specific security taking
into account
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the unregistered nature of a Rule 144A security. In addition, the Adviser could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, and (4) the
nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and, if as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, a Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities. Investing in 144A
securities could have the effect of increasing the amount of a Fund's assets
invested in illiquid securities if qualified institutional buyers are unwilling
to purchase such securities.
INVESTMENT RESTRICTIONS
(All Funds, except as indicated)
(1) No Fund may borrow money or pledge or mortgage its assets, except that
each Fund may borrow from banks up to 10% of the current value of its total net
assets for temporary or emergency purposes and those borrowings may be secured
by the pledge of not more than 15% of the current value of the Fund's total net
assets (but investments may not be purchased by a Fund while any such borrowings
exist).
(2) No Fund may make loans, except loans of portfolio securities and except
that a Fund may enter into repurchase agreements with respect to its portfolio
securities.
(3) In addition, each Fund is a diversified fund. As such, it will not,
with respect to 75% of its total assets, invest more than 5% of such Fund's
total assets in the securities of any one issuer (except for U.S. Government
securities) or purchase more than 10% of the outstanding voting securities of
any single issuer. Also, each Fund will invest less than 25% of its total assets
in the securities of any one industry. For this purpose, U.S. Government
securities (and repurchase agreements related thereto) are not considered
securities of a single industry.
The foregoing investment restrictions and those described in the SAI are
fundamental policies of each Fund which may be changed only when permitted by
law and approved by the holders of a majority of the applicable Fund's
outstanding voting securities as described under "Other Information -- Voting."
If a percentage restriction on investment policies or the investment or use
of assets set forth in this Prospectus is adhered to at the time a transaction
is effected, later changes in percentage resulting from changing values will not
be considered a violation.
MANAGEMENT OF THE FUNDS
The business and affairs of each Fund are managed under the direction of
the Board of Trustees. Additional information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management -- Trustees and Officers."
The Investment Adviser. Trustmark National Bank, 248 East Capitol Street,
Jackson, Mississippi 39201, serves as investment adviser to the Funds. Trustmark
manages the investment and reinvestment of the assets of each Fund and
continuously reviews, supervises and administers the Funds' investments.
Trustmark is responsible for placing orders for the purchase and sale of the
Funds' investments directly with brokers and dealers selected by it in its
discretion.
Trustmark's Trust Department, has assets in excess of $1 billion under
management. It was founded in 1890 and is the second largest commercial bank
headquartered in Mississippi. Trustmark has been managing
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trust monies for over 40 years. Shares of the Funds are not guaranteed by
Trustmark, its parent or affiliates, nor are they insured by the FDIC.
Trustmark has an investment management staff of highly trained
professionals who manage the assets of each Fund. Robert H. Spaulding is
responsible for the day-to-day management of the Intermediate Fund's portfolio.
Mr. Spaulding, a Vice President, has 20 years of trust experience with
Trustmark. Charles H. Windham, Jr., a Vice President of Trustmark since 1970, is
responsible for the day-to-day management of the Large Cap Equity Fund's
portfolio. Mr. Jonathan Rogers, a Portfolio Manager, at Trustmark National Bank
since 1990, is responsible for the day-to-day management of the Short Term
Fund's portfolio.
For the advisory services it provides to the Funds, Trustmark may receive
fees based on average daily net assets up to the following annualized rates:
Short Term Fund, 0.40%; the Intermediate Fund, 0.50%; the Large Cap Equity Fund,
0.60%.
Based upon the advice of its counsel, Trustmark believes that the
performance of investment advisory services for the Funds will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Trustmark from continuing to perform such services
for the Funds. If Trustmark were prohibited from acting as investment adviser to
the Funds, it is expected that the Board of Trustees would recommend to
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action.
The Administrator. BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Service ("BISYS") acts as the Administrator of the Funds. PFD acts as the
Distributor of the Funds' shares.
Under the Distribution Plan ("the Plan") adopted by the Trust, each Fund
may pay directly or reimburse PFD monthly for costs and expenses of PFD in
connection with the distribution of Fund shares. These costs and expenses
include (i) advertising by radio, television, newspapers, magazines, brochures,
sales literature, direct mail or any other form of advertising, (ii) expenses of
sales employees or agents of PFD, including salary, commissions, travel and
related expenses, (iii) payments to broker-dealers and financial institutions
for services in connection with the distribution of shares, including
promotional incentives and fees calculated with reference to the average daily
net asset value of shares held by shareholders who have a brokerage or other
service relationship with the broker-dealer or other institution receiving such
fees, (iv) costs of printing prospectuses and other materials to be given or
sent to prospective investors, and (v) such other similar services as the
Trustees determine to be reasonably calculated to result in the sale of shares
of the Funds. Each Fund will pay all costs and expenses in connection with the
preparation, printing and distribution of its Prospectus to current shareholders
and the operation of its Plan, including related legal and accounting fees. No
Fund will be liable for distribution expenditures made by PFD in any given year
in excess of the maximum amount payable under the Plan for that Fund in that
year.
Administrative Services. The Funds have entered into an Administration
Agreement with BISYS pursuant to which BISYS provides certain management and
administrative services necessary for the Funds' operations including: (i)
general supervision of the operation of the Funds including coordination of the
service performed by the Funds' Investment Adviser, transfer agent, custodian,
independent accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions, and preparation of proxy statements
and shareholder reports for the Funds, (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Fund's officers and Board of Trustees, and (iii) furnishing office space
and certain facilities required for conducting the business of the Funds. For
these services, BISYS
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receives from each Fund a monthly fee at the annual rate of 0.15% of the average
daily net assets of each Fund.
Pursuant to a Transfer Agency Agreement between the Trust and the
Administrator, BISYS Fund Services, Inc. receives a fee of $15.00 per account
per year plus out-of-pocket expenses. Pursuant to a Fund Accounting Agreement
between the Trust and BISYS Fund Services, Inc., BISYS Fund Services, Inc.
assists the Trust in calculating net asset values and provides certain other
accounting services for each Fund described therein, for an annual fee of
$30,000 per Fund plus out-of-pocket expenses.
Service Organizations. Various banks (including Trustmark), trust
companies, broker-dealers (other than the Sponsor) or other financial
organizations (collectively, "Service Organizations") also may provide
administrative services for the Funds, such as maintaining shareholder accounts
and records. The Funds may pay fees to Service Organizations (which vary
depending upon the services provided) in amounts up to an annual rate of 0.35%
of the daily net asset value of the Funds' shares owned by shareholders with
whom the Service Organization has a servicing relationship. Investors are not
required to purchase shares through or maintain an account with a Service
Organization.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the Funds'
minimum initial or subsequent investments or charging a direct fee for
servicing. A Service Organization or broker or other sales-person within such
Service Organization may be compensated at varying rates for the sale of one
class of Fund shares as opposed to another. If imposed, these fees would be in
addition to any amounts which might be paid to the Service Organization by the
Funds. Each Service Organization has agreed to transmit to its clients a
schedule of any such fees. Shareholders using Service Organizations are urged to
consult with them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among other
things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank Service Organization from continuing to perform all or a
part of its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Funds and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. In addition, state
securities law on this issue may differ from interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
OTHER EXPENSES
Each Fund bears all costs of its operations other than expenses
specifically assumed by BISYS, BISYS Fund Services, Inc. or the Adviser. The
costs borne by the Funds include legal and accounting expenses; Trustees' fees
and expenses; insurance premiums; custodian and transfer agent fees and
expenses; expenses incurred in acquiring or disposing of the Funds' portfolio
securities; expenses of registering and qualifying the Funds' shares for sale
with the SEC and with various state securities commissions; expenses of
obtaining quotations on the Funds' portfolio securities and pricing of the
Funds' shares; expenses of maintaining the Funds' legal existence and of
shareholders' meetings; and expenses of preparation and distribution to existing
shareholders of reports, proxies and prospectuses. Each Fund bears its own
expenses associated with its establishment as a series of Performance Funds
Trust; these expenses are amortized over a five-year period
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from the commencement of a Fund's operations. See "Management" in the SAI. Trust
expenses directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among all of the Funds in the Trust in
relation to the net assets of each Fund and are allocated to each share class
based on the net assets of such share class. Class specific expenses are charged
directly to the share class which bears such expense.
Portfolio Transactions. Pursuant to the Investment Advisory Contract, the
Adviser places orders for the purchase and sale of portfolio investments for the
Funds' accounts with brokers or dealers selected by it in its discretion.
In effecting purchases and sales of portfolio securities for the account of
the Funds, the Adviser will seek the best execution of each Fund's orders.
Purchases and sales of portfolio debt securities for the Funds are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Funds. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter. Purchases and sales of common stocks are generally placed by
the Adviser with broker-dealers which, in the Adviser's judgment, provide prompt
and reliable execution at favorable security prices and reasonable commission
rates. Broker-dealers are selected on the basis of a variety of factors such as
reputation, capital strength, size and difficulty of order, sale of Fund shares
and research provided to the Adviser on behalf of the Funds. The Adviser may
cause a Fund to pay commissions higher than another broker-dealer would have
charged if the Adviser believes the commission paid is reasonable in relation to
the value of the brokerage and research services received on behalf of the
Funds.
FUND SHARE VALUATION
The net asset value per share is calculated at 4:00 p.m. (eastern time) for
the Funds, Monday through Friday, on each day the New York Stock Exchange is
open for trading (a "Business Day"), which excludes the following business
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of each Fund is computed by
dividing the value of each share class of a Fund's net assets (i.e., the value
of the assets less the liabilities) by the total number of such share class of a
Fund's outstanding shares. All expenses, including fees paid to the Adviser,
BISYS and BISYS Fund Services, Inc. are accrued daily and taken into account for
the purpose of determining the net asset value.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken for the exchange where the security is primarily traded.
Over-the-counter securities are valued on the basis of the bid price at the
close of business on each business day. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Trustees.
With respect to options contracts, the premium received is recorded as an
asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by a Fund is recorded as an
asset and subsequently adjusted to market value.
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PURCHASE OF FUND SHARES
Orders for purchases of Consumer Service Class shares will be executed at
the net asset value next determined after an order has been received. All monies
received by the Funds are invested in full and fractional shares of the
appropriate Fund. Certificates for shares are not issued. The Trust maintains
records of each shareholder's holdings of Fund shares, and each shareholder
receives a statement of transactions, holdings and dividends. The Funds reserve
the right to reject any purchase. The Fund does not accept third party checks.
Minimum Purchase Requirements. The minimum initial investment in a Fund is
$1,000, except that the minimum is $250 for an IRA, other than an IRA for which
Trustmark serves as trustee. Subsequent investments must be at least $100, or
$50 for an IRA. All initial investments should be accompanied by a completed
Purchase Application. A Purchase Application accompanies this Prospectus.
Different minimums apply, and a separate application is required for IRA
investments. The Fund reserves the right to reject purchase orders.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisers and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and contact
your broker, investment adviser or Service Organization with instructions as to
the amount you wish to invest. Your broker will then contact the Fund to place
the order on your behalf on that day.
Orders received by your broker or Service Organization for the Funds in
proper order prior to the determination of net asset value and transmitted to
the Fund prior to the close of its business day (which is currently 4:00 p.m.,
eastern time), will become effective that day. Brokers who receive orders are
obligated to transmit them promptly. You should receive written confirmation of
your order within a few days of receipt of instructions from your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank will normally charge you a fee for handling the transaction.
Please call 1-800-737-3676 for wiring instructions. A completed application
must be overnighted to the Fund in advance of the wire to Performance Funds
Trust c/o BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, OH 43219-8021.
Notification must be given to the Fund at 1-800-737-3676 prior to 4:00 p.m.
Eastern Standard Time, of the wire date.
Payments to open new accounts should be sent to Performance Funds Trust,
P.O. Box 182484, Columbus, OH 43218-2484, together with a completed application.
Purchases made by check in any Fund are not permitted to be redeemed until
payment of the purchase has been collected, which may take up to fifteen days.
No third party or foreign checks are accepted.
By Automatic Investment. Investors may participate in the Automatic
Investment Program, which is an investment plan that automatically debits money
from the shareholder's designated bank account and invests it in one or more of
the Funds through the use of electronic fund transfers or automatic bank drafts.
Shareholders may elect to make investments by transfers of a minimum of $50.00
on either the fifth or twentieth day of each month into their established Fund
Account. No minimum initial investment applies
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when an account is established through the Automatic Investment Program. Contact
the Funds for more information about the Automatic Investment Program.
By Payroll Direct Deposits. Investors may set up a payroll direct deposit
arrangement for amounts to be automatically invested in any of the Funds.
Participants in the Payroll Direct Deposit program may make periodic investments
of at least $20.00 per pay period. Contact the Fund for more information about
Payroll Direct Deposits.
INDIVIDUAL RETIREMENT ACCOUNTS
The Funds may be used as an investment for new or existing IRAs. Shares may
also be purchased for IRAs established with Trustmark or other authorized
custodians. For more information on IRAs, call the Fund toll free at
1-800-737-3676.
EXCHANGE PRIVILEGES
The Funds offer two convenient ways to exchange shares in one of the
Performance Funds for shares in another Performance Fund. Before engaging in an
exchange transaction, a shareholder should read carefully the portions of the
applicable Trust Prospectus which describes the Fund into which the exchange
will be made. A shareholder may not exchange shares of one Fund for shares of
another Fund if both or either are not qualified for sale in the state of the
shareholder's residence. The minimum amount for an initial exchange is $1,000
and the minimum amount for subsequent exchanges is $100. The Trust may terminate
or amend the terms of the exchange privilege at any time upon 60 days' written
notice to shareholders.
A new account opened by exchange must be established with the same name(s),
address and social security number or TIN as the existing account. All exchanges
will be made based on the net asset value next determined following receipt of
the request by a Fund in good order. No service fee is imposed for exchanges.
An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders should receive written confirmation of the exchange
within a few days of the completion of the transaction.
Exchange by Mail. To exchange Fund shares by mail, simply send a letter of
instruction to Furman Selz. The letter of instruction must include: (i) your
account number; (ii) the Fund from and the Fund into which you wish to exchange
your investment; (iii) the dollar or share amount you wish to exchange; and (iv)
the signatures of all registered owners or authorized parties. All signatures
must be guaranteed by a member of a national securities exchange or by a
commercial bank or trust company. No signature guarantee is required.
Exchange by Telephone. To exchange Fund shares by telephone or if you have
any questions, simply call the Funds toll free at 1-800-737-3676. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security number or TIN and account registration;
(ii) the name of the Fund from and the Fund into which you wish to transfer your
investment; and (iii) the dollar or share amount you wish to exchange. Telephone
exchanges are available to the shareholder unless otherwise indicated by the
shareholder by checking the box on the Purchase Application. See "Redemption of
Fund Shares -- By Telephone" below for a discussion of telephone transactions
generally. Telephone redemption and telephone exchanges will be suspended for a
period of 10 days following a telephonic address change.
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<PAGE> 69
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any business
day. Shares will be redeemed at the net asset value next determined after a
redemption request in good order has been received and accepted by the
applicable Fund. If shares are redeemed through a broker-dealer or investment
adviser, such redemption is complete upon receipt by the broker-dealer or
investment adviser of the shareholder's redemption request. See "Fund Share
Valuation." A redemption may be a taxable transaction on which gain or loss may
be recognized.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time the
shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, a Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day,
although each Fund may take up to seven days to make payment. Also, if the New
York Stock Exchange is closed (or when trading is restricted) for any reason
other than the customary weekend or holiday closing or if an emergency condition
as determined by the SEC merits such action, the Funds may suspend redemptions
or postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request, it is
important to follow the procedures described below. Although the Funds have no
present intention to do so, the Funds reserve the right to refuse or to limit
the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communication, such as couriers. The Funds' services and their provisions may be
modified or terminated at any time by the Funds. If the Funds terminate any
particular service, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. You may redeem your shares by contacting your broker or
investment adviser and instructing him to redeem your shares. He will then
contact PFD and place a redemption trade on your behalf. You will receive the
next determined net asset value per share after receipt of such request by your
broker or investment adviser. It will be the responsibility of such broker or
investment adviser to transmit your redemption request to the Fund in a timely
manner. A broker or investment adviser which has received any portion of a sales
load or 12b-1 fee for the sale of such shares may not also receive a fee for
this service.
By Mail. You may redeem your shares by sending a letter directly to PFD.
To be accepted, a letter requesting redemption must include: (i) the Fund name
and account registration from which you are redeeming shares, (ii) your account
number, (iii) the amount to be redeemed, and (iv) the signatures of all
registered owners. A signature guarantee will be required when redemptions
proceeds are to be sent to an address other than the registered address.
If you elect to receive distributions in cash and checks that (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
your cash election will be changed automatically and your future dividend and
capital gains distributions will be reinvested in the Fund at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be cancelled and will be reinvested in the Fund at the per share net asset
value determined as of the date of cancellation.
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<PAGE> 70
By Telephone. You may redeem your shares by calling the Funds toll free at
1-800-737-3676. You should be prepared to give the telephone representative the
following information: (i) your account number, social security number or TIN
and account registration, (ii) the Fund name from which you are redeeming
shares, and (iii) the amount to be redeemed. The Funds employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
If the Funds fail to employ such reasonable procedures, they may be liable for
any loss, damage or expense arising out of any telephone transactions purporting
to be on a shareholder's behalf. In order to assure the accuracy of instructions
received by telephone, the Funds require some form of personal identification
prior to acting upon instructions received by telephone, records telephone
instructions and provides written confirmation to investors of such
transactions. Telephone redemptions are available to the shareholder unless
otherwise indicated by the shareholder by checking the box on the Purchase
Application. Telephone redemption and telephone exchanges will be suspended for
a period of 10 days following a telephonic address change.
By Wire. You may redeem your shares by contacting the Funds by mail or
telephone and instructing them to send a wire transmission to your personal
bank. Your instructions should include: (i) your account number, social security
number or TIN and account registration, (ii) the Fund name from which you are
redeeming shares, and (iii) the amount to be redeemed. Wire redemptions are
available to the shareholder unless otherwise indicated by checking the box on
the Purchase Application. Please attach a copy of a void check of account where
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
The above mentioned services "Telephone" and "Wire" are not available for
IRAs and trust clients of Trustmark.
Systematic Withdrawal Plan. An owner of $25,000 or more of shares of a
Fund may elect to have periodic redemptions from his account to be paid on a
monthly, quarterly, semi-annual or annual basis. The minimum periodic payment is
$100. A sufficient number of shares to make the scheduled redemption will
normally be redeemed on the date selected by the shareholder. Depending on the
size of the payment requested and fluctuation in the net asset value, if any, of
the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Capital
gains and dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
Reinstatement Privilege. A shareholder in any Fund who has redeemed shares
may reinvest, up to the full amount of such redemption at the net asset value
determined at the time of the reinvestment within 30 days of the original
redemption. This privilege must be effected within 30 days of the redemption.
The shareholder must reinvest in the same Fund and account from which the shares
were redeemed. A redemption is a taxable transaction and gain or loss may be
recognized for Federal income tax purposes even if the reinstatement privilege
is exercised. Any loss realized upon the redemption will not be recognized as to
the number of shares acquired by reinstatement, except through an adjustment in
the tax basis of the shares so acquired.
Redemption of Small Accounts. Due to the disproportionately higher cost of
servicing small accounts, each Fund reserves the right to redeem, on not less
than 30 days' notice, an account in a Fund that has been reduced by shareholder
redemption of the account to $500 ($250 for IRAs) or less. However, if during
the 30-day notice period the shareholder purchases sufficient shares to bring
the value of the account above $500 ($250 for IRAs), this restriction will not
apply.
Redemption in Kind. All redemptions of shares of the Funds shall be made
in cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of a Fund during any 90-day period
of up to the lesser of $250,000 or 1% of the net asset value of the Fund at the
26
<PAGE> 71
beginning of such period. Any such redemption in kind will be made in readily
marketable securities. This commitment is irrevocable without the prior approval
of the SEC and is a fundamental policy that may not be changed without
shareholder approval. In the case of redemption requests by shareholders in
excess of such amounts, the Board of Trustees reserves the right to have the
Funds make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of a
Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of that Fund are
valued. If the recipient were to sell such securities, he or she would incur
brokerage charges.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
Each Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company pursuant to the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). By so qualifying and
electing, each Fund generally will not be subject to Federal income tax to the
extent that it distributes investment company taxable income and net capital
gains in the manner required under the Code.
Each Fund intends to distribute to its shareholders substantially all of
its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). Investment company taxable income will be distributed by the Large Cap
Equity Fund monthly. The Government Income Funds will declare dividends of such
income daily and pay those dividends monthly. Each Fund intends to distribute,
at least annually, substantially all net capital gain (the excess of net long-
term capital gains over net short-term capital losses). In determining amounts
of capital gains to be distributed, any capital loss carryovers from prior years
will be applied against capital gains.
In the case of the Government Income Funds, the amount declared each day as
a dividend may be based on projections of estimated monthly net investment
income and may differ from the actual investment income determined in accordance
with generally accepted accounting principles. An adjustment will be made to the
dividend each month to account for any difference between the projected and
actual monthly investment income.
Shareholders may elect to receive distributions in additional Fund shares
based on the net asset value at the close of business on the payment date of the
distribution or may receive such distribution in cash. If no election is made,
distributions will be automatically reinvested in additional shares of the
applicable Fund. Dividends declared in, and attributable to, the preceding month
will be paid within five business days after the end of each month.
In the case of the Government Income Funds shares purchased will begin
earning dividends on the day after the purchase order is executed, and shares
redeemed will earn dividends through the day the redemption is executed.
Investors who redeem all or a portion of Fund shares prior to a dividend
payment date will be entitled on the next dividend payment date to all dividends
declared but unpaid on those shares at the time of their redemption.
Distributions of net investment income (regardless of whether derived from
dividends, interest or short-term capital gains), generally will be taxable to
shareholders as ordinary income. Distributions of net long-term capital gains
designated by a Fund as capital gain dividends will be taxable as long-term
capital gains, regardless of how long a shareholder has held his Fund shares.
Distributions are taxable in the same manner whether received in additional
shares or in cash.
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<PAGE> 72
A distribution, will be treated as paid on December 31 of the calendar year
if it is declared by a Fund during October, November, or December of that year
to shareholders of record in such a month and paid by a Fund during January of
the following calendar year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Special tax rules may apply to a Fund's acquisition of financial futures
contracts, and options on futures contracts. Such rules may, among other things,
affect whether gains and losses from such transactions are considered to be
short-term or long-term, may have the effect of deferring losses and/or
accelerating the recognition of gains or losses, and, for purposes of qualifying
as a regulated investment company, may limit the extent to which a Fund may be
able to engage in such transactions.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares.
It is anticipated that a portion of the dividends paid by the Large Cap
Equity Fund will qualify for the dividends-received deduction available to
corporations. Pending tax law proposals may affect the dividends-received
deduction. The dividends paid by the Government Income Funds are not expected to
so qualify.
The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code are exempt from backup withholding. Backup withholding is
not an additional tax. Any amount withheld may be credited against the
shareholder's U.S. Federal income tax liability.
Shareholders will be notified annually by the Trust as to the Federal tax
status of distributions made by the Fund(s) in which they invest. Depending on
the residence of the shareholder for tax purposes, distributions also may be
subject to state and local taxes, including withholding taxes. Foreign
shareholders may, for example, be subject to special withholding requirements.
Special tax treatment, including a penalty on certain pre-retirement
distributions, is accorded to accounts maintained as IRAs. Shareholders should
consult their own tax advisers as to the Federal, state and local tax
consequences of ownership of shares of the Funds in their particular
circumstances.
OTHER INFORMATION
CAPITALIZATION
Performance Funds Trust was organized as a Delaware business trust on March
11, 1992, and consists of multiple separate portfolios or series, three of which
are offered in this Prospectus. The Board of Trustees may establish additional
series in the future. The capitalization of the Trust consists solely of an
unlimited number of shares of beneficial interest with a par value of $0.001
each. When issued, shares of the Funds are fully paid and non-assessable.
This Prospectus relates to the Consumer Service Class of each Fund's
shares. Each Fund also offers Institutional Class shares which are offered only
to employees (and family members) of Trustmark, the Distributor, Administrator
and affiliates and correspondents, Trustees of the Trust (and family members),
Directors of Trustmark (and family members) and certain institutional investors
at net asset value, which make an initial investment of one million dollars or
more or who, at the time of purchase, have a balance of
28
<PAGE> 73
one million dollars or more in the Funds or which is a purchaser through (or
with proceeds of a distribution from) a trust, investment management or other
fiduciary account managed or administered by the Adviser or its affiliates or
correspondents pursuant to a written agreement (except for asset allocation or
"wrap" accounts). Institutional Class shares and Consumer Service Class shares
are identical in all respects with the exception that the Consumer Service Class
shares may be subject to Rule 12b-1 fees to which the Institutional Class shares
are not subject. Purchases may be made through an authorized broker or financial
institution, including the Fund, by mail or by wire. Call 1-800-737-3676, or
contact your sales representative, broker-dealer or bank to obtain more
information about the Fund's classes of shares.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a series of the Trust but only to
the extent of the shareholder's investment in such series. However, the Trust
Instrument disclaims liability of the shareholders, Trustees or officers of the
Trust for acts or obligations of the Trust, which are binding only on the assets
and property of each series of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations and should be considered remote
and is limited to the amount of the shareholder's investment in each particular
Fund.
VOTING
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which, by law or under the provisions of the Trust
Instrument, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Funds' shareholders and does not intend to do so.
Each Fund may vote separately on items which affect only that particular Fund
and each class within a Fund may vote separately on matters which affect only
that class. For example, only Consumer Service Class shareholders will vote on
matters related to each Fund's Distribution Plan under Rule 12b-1. See "Other
Information -- Voting Rights" in the SAI.
The Trust Instrument provides that the holders of not less than two-thirds
of the outstanding shares of the Trust may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required to call a meeting of shareholders for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust or Fund.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of a Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of a Fund.
PERFORMANCE INFORMATION
Each Fund may, from time to time, include its yield and/or total return in
advertisements or reports to shareholders or prospective investors. Shareholders
of the Consumer Service Class of shares may experience a lower net return on
their investment than shareholders of the Institutional Class of shares because
of Rule 12b-1 Plan distribution fees paid by such shareholders. The methods used
to calculate the yield and total return of the Funds are mandated by the SEC.
Quotations of "yield" for the Funds will be based on the investment income
per share during a particular 30-day (or one month) period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and will be computed by dividing net investment income by the net
asset value per share on the last day of the period.
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<PAGE> 74
Quotations of average annual total return for a Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (up to the life of the
Fund), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid.
Performance information for each Fund may be compared to various unmanaged
indices, such as the Standard & Poor's 500 Stock Index, the Dow Jones Industrial
Average for the Large Cap Equity Fund. Indices prepared by Lipper Analytical
Services, and other entities or organizations which track the performance of
investment companies. Any performance information should be considered in light
of the Fund's investment objectives and policies, characteristics and quality of
each Fund and the market conditions during the time period indicated, and should
not be considered to be representative of what may be achieved in the future.
For a description of the methods used to determine yield and total return for
each Fund, see the SAI.
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a statement
for each shareholder. In those cases where a Service Organization or its nominee
is shareholder of record of shares purchased for its customer, the Funds have
been advised that the statement may be transmitted to the customer at the
discretion of the Service Organization.
The Funds retain BISYS Fund Services, Inc. as transfer agent. BISYS Fund
Services, Inc. provides personnel necessary to perform shareholder servicing
functions. Pursuant to a Transfer Agency Agreement between the Trust and BISYS
Fund Services, Inc., BISYS Fund Services, Inc. receives a fee of $15.00 per
account, per year, and reimbursement for certain expenses.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to Performance Funds Trust c/o
BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219.
General and Account Information: (800) PERFORM (737-3676).
30
<PAGE> 75
APPENDIX
DESCRIPTION OF BOND RATINGS
Excerpts from Moody's description of its four highest bond ratings are
listed as follows:
- Aaa -- judged to be the best quality and they carry the smallest degree
of investment risk;
- Aa -- judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high grade bonds;
- A -- possess many favorable investment attributes and are to be
considered as "upper medium grade obligations";
- Baa -- considered to be 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;
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
Excerpts from S&P's description of its four highest bond ratings are listed
as follows:
- AAA -- highest grade obligations, in which capacity to pay interest and
repay principal is extremely strong;
- AA -- also qualify as high grade obligations, having a very strong
capacity to pay interest and repay principal, and differs from issues
only in a small degree;
- A -- regarded as upper medium grade, having a strong capacity to pay
interest and repay principal, although they are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories;
- BBB -- 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. This group is the
lowest which qualifies for commercial bank investment.
S&P applies indicators "+," no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
A-1
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[LOGO]
INVESTMENT ADVISER
Trustmark National Bank
248 East Capitol Street
Jackson, Mississippi 39201
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
Performance Funds Distributor, Inc.
3435 Stelzer Road
Columbus, OH 43219
CUSTODIAN
Trustmark National Bank
248 East Capitol Street
Jackson, Mississippi 39201
COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
PFFDCC0995
[LOGO]
PERFORMANCE FUNDS TRUST
A FAMILY OF MUTUAL FUNDS
THE SHORT TERM
GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM
GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND
CONSUMER SERVICE CLASS
PROSPECTUS
SEPTEMBER , 1997
Performance Funds'
Investment Adviser
<PAGE> 79
PERFORMANCE FUNDS TRUST
3435 STELZER ROAD, COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION:
(800) PERFORM (737-3676)
TRUSTMARK NATIONAL BANK -- INVESTMENT ADVISER
BISYS FUND SERVICES -- ADMINISTRATOR
PERFORMANCE FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
THE SMALLCAP INVESTOR FUND
This Prospectus describes The SmallCap Investor Fund (the "Fund") managed
by Trustmark National Bank. This Prospectus relates only to the "Institutional
Class" of the Fund's shares which only certain investors are qualified to
purchase. The Fund also has a "Consumer Service Class" of shares. See, "Other
Information -- Capitalization." The Fund is a separate investment fund of
Performance Funds Trust (the "Trust"), a Delaware business trust and registered
management investment company, with distinct investment objectives and policies.
The Fund pays certain expenses related to the distribution of its shares,
calculated at an annual rate and based on a percentage of the average daily net
assets.
AN INVESTMENT IN THE FUND IS NOT GUARANTEED OR INSURED BY THE UNITED STATES
GOVERNMENT. SHARES OF THE FUND ARE NOT AN OBLIGATION OF OR GUARANTEED BY
TRUSTMARK NATIONAL BANK OR ITS AFFILIATES AND SUCH SHARES ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY, AND MAY INVOLVE INVESTMENT RISK, INCLUDING LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund and should be read and retained for
information about the Fund.
A Statement of Additional Information ("SAI"), dated September , 1997
containing additional and more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Fund at the address and
information numbers printed above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
September , 1997
<PAGE> 80
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fund Expenses........................................................................... 2
Fee Table............................................................................... 3
Prospectus Summary...................................................................... 4
Investment Objective, Policies and Practices............................................ 5
Investment Restrictions................................................................. 16
Management of the Fund.................................................................. 17
Fund Share Valuation.................................................................... 19
Purchase of Fund Shares................................................................. 19
Individual Retirement Accounts.......................................................... 21
Exchange Privileges..................................................................... 21
Redemption of Fund Shares............................................................... 21
Dividends, Distributions and Federal Income Tax......................................... 24
Other Information....................................................................... 25
</TABLE>
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the registered securities to which it
relates. This prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
FUND EXPENSES
The following expense table lists the costs and expenses that an investor
in the Institutional Class will incur, either directly or indirectly as a
shareholder of the Fund, based upon the Fund's projected operating expenses for
the first year of operations. Shareholders in the Consumer Service Class of the
Fund may be subject to Rule 12b-1 Plan distribution fees (annually up to 0.35%
of the average net assets of the Fund), to which the Institutional Class is not
subject. The Institutional Class of shares is only available to certain
qualified investors. See "Purchases."
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FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)............................................... none
Maximum Sales Load Imposed on Purchases (as a percentage price)................... none
Maximum Sales Load Imposed on Reinvested Dividends................................ none
Deferred Sales Load............................................................... none
Redemption Fees................................................................... none
Exchange Fees..................................................................... none
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets annualized)
Investment Advisory Fees.......................................................... 1.00%
12b-1 Fees........................................................................ none
Other Expenses(3)................................................................. 0.50%
----
Total Fund Operating Expenses(3).................................................. 1.50%
====
</TABLE>
(1) The Consumer Service Class of shares may be subject to Rule 12b-1 Plan
distribution fees (annually up to 0.35% of the average net assets of the
Fund) to which the Institutional Class is not subject.
(2) Shares of the Institutional Class of the Fund may be available through a
trust, investment management or other fiduciary account managed or
administered by the Adviser or its affiliates or correspondents. Such
institutions may provide a variety of services at varying fees to customers
and, although such fees are not fund-related, the fees must be paid by
customers in order to purchase Fund shares.
(3) Certain Service Organizations may receive additional fees from the Fund in
amounts up to an annual rate of 0.35% of the daily net asset value of the
Fund's shares owned by shareholders with whom the Service Organization has a
servicing relationship. The Fund currently does not intend to pay such fees
to any Service Organizations. See "Management of the Fund -- Service
Organizations" herein.
The purpose of this table is to assist the shareholder in understanding the
various costs and expenses that an investor in the Fund will bear.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming 5%
gross annual return and redemption at the end of each time period:
<TABLE>
<S> <C>
1 year...................................................... $15
3 years..................................................... $47
</TABLE>
* This example should not be considered a representation of future expenses,
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual returns. Actual return may be greater or less than the assumed amount.
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PROSPECTUS SUMMARY
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
The investment objective of the Performance SmallCap Investor Fund is long
term capital appreciation. The Fund invests primarily in the universe of
companies comprising the Standard and Poor's SmallCap 600 Index (the "Index").
As a result, a principal goal of the Fund is to be a broadly diversified
portfolio of smaller-capitalized common stocks with holdings in each of the
major economic sectors comprising the Index. Not an index fund, the Fund seeks
to achieve its objective by investing in publicly traded companies the Fund's
investment advisor believes are likely to outperform the Index and other
companies that the adviser deems necessary to maintain the index's general
sector weighting. Although the Fund may also invest in the types of investment
grade fixed income instruments described under "Investment Objective, Policies
and Practices" herein, and may use various special investment techniques, under
normal market conditions, the Fund will invest at least 65 percent of its total
assets in common stock of companies that, at the time of purchase, are within
the Index. Under normal market conditions, up to 35 percent of the Fund's total
assets may be invested in smaller capitalized companies' preferred stock,
investment grade debt securities, securities convertible into common or
preferred stock, warrants, money market instruments and stock or index options
and futures contracts. See "Investment Objective, Policies and Practices" in
this Prospectus. There is no assurance the Fund will achieve its investment
objective. The investment objective of the Fund, and certain of its investment
restrictions described herein and in the SAI under "Investment Restrictions" are
fundamental and may not be changed without shareholder approval.
RISK FACTORS
There is no assurance the Fund will achieve its investment objective.
Investing in small capitalization issues generally involves greater risk than
investing in larger, more established companies. As a result, the Fund's net
asset value fluctuates, reflecting movements in the market value of its
investment holdings. In addition, companies in which the Fund may invest, though
part of an established index, may have limited product lines, markets or
financial resources and may lack management depth. The liquidity and
marketability of such companies may be limited and may be subject to more abrupt
or erratic price movements than securities of larger, more established companies
or the market averages in general. To possibly compensate for this risk
exposure, the investor will have an opportunity to participate, through a
residual ownership interest, in companies with potentially higher growth rates,
versus those found in larger-capitalization issues, and by locating value
perhaps overlooked by investment analysts and other investors. The Fund may
invest in options, warrants, futures contracts, investment grade convertible
securities, and may engage in short sales. Accordingly, an investment in the
Fund may not be suitable for all investors. For additional information
concerning the investment policies, practices and risk considerations of the
Fund, see "Investment Objective, Policies and Practices" in this Prospectus. See
also the SAI.
MANAGEMENT OF THE FUND
Trustmark National Bank ("Trustmark" or the "Adviser") is the investment
adviser to the Fund. Trustmark currently has assets in excess of $1 billion
under management. It was founded in 1890 and is the second largest commercial
bank headquartered in Mississippi. The Adviser receives fees based on average
daily net assets up to an annual average of 1.00% of the Fund's average daily
net assets. Trustmark has been managing trust monies for over 40 years. See "Fee
Table" and "Management of the Fund" in this Prospectus.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services acts as
Administrator to the Fund and provides certain management and administrative
services to the Fund, for which the Fund pays a fee
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<PAGE> 83
at an annual rate based upon the Fund's average daily net assets. Performance
Funds Distributor, Inc., ("PFD") is Distributor for the Trust and distributes
the Fund's shares. PFD may be reimbursed for certain distribution related
expenses.
PURCHASES
Shares of the Fund's Institutional Class and Consumer Service Class are
offered at net asset value without a sales load. Shares of the Consumer Services
Class of the Fund are also offered at net asset value without a sales load but
may be subject to 12b-1 fees to which the Institutional Class is not. See "Fund
Share Valuation" and "Purchase of Fund Shares." Purchases of Institutional Class
shares may only be made by one of the following types of Institutional
Investors: (i) trust, investment management and other fiduciary accounts managed
or administered by Trustmark or its affiliates or correspondents, pursuant to a
written agreement (except asset allocation or "wrap" accounts); (ii) Trustees of
the Trust (and family members), Directors of Trustmark (and family members),
employees (and family members) of Trustmark, the Distributor, Administrator and
affiliates and correspondents, and any persons purchasing shares with the
proceeds of a distribution from a trust, investment management and other
fiduciary account managed or administered by Trustmark, or its affiliates; or
(iii) correspondents pursuant to a written agreement; and (iv) persons who make
an initial investment of one million dollars or more or who, at the time of
purchase, have a balance of one million dollars or more in the Fund. Purchases
may be made through an authorized broker or financial institution, including the
Fund, by mail or by wire.
SERVICE ORGANIZATIONS
The Fund may pay fees to various banks (including Trustmark), trust
companies, broker-dealers and other financial organizations ("Service
Organizations") for providing administrative services for the Fund, such as
maintaining shareholder accounts and records. See "Management of the Fund" in
this Prospectus. Institutional Class shareholders are required to purchase
shares through a Service Organization.
REDEMPTIONS
Shares may be redeemed at their next determined net asset value. See
"Redemption of Fund Shares" and "Fund Share Valuation" in this Prospectus.
Redemptions may be made by letter or, if previously authorized, by telephone.
The Fund reserves the right to redeem, upon not less than 30 days' written
notice, all shares in the Fund account which, as a result of shareholder
redemption, has a value below $500 ($250 for Individual Retirement Accounts
("IRAs")).
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays its net investment income to shareholders of
record in accordance with the schedule set forth under "Dividends, Distributions
and Federal Income Tax" in this Prospectus. Any net realized long-term capital
gains will be distributed at least annually. All dividends and distributions
will be automatically reinvested at net asset value in additional shares of the
Fund unless cash payment is requested.
INVESTMENT OBJECTIVE, POLICIES AND PRACTICES
The investment objective of the Performance SmallCap Investor Fund is long
term capital appreciation. The Fund will attempt to achieve its objective by
investing primarily in the universe of companies comprising the Standard and
Poor's SmallCap 600 Index. Not an index fund by definition, the Fund seeks to
achieve its objective by investing in publicly traded companies the Fund's
investment advisor believes are likely to
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<PAGE> 84
outperform the Index and other companies the Adviser deems necessary to maintain
the index's general sector weighting. As a determination for investment, a
premium will be placed on those companies which display high growth rates and/or
reasonable valuations relative to the market or their respective sector peers.
There is no assurance the Fund will achieve its investment objective. The
investment objective of the Fund, and its investment restrictions which are
described herein and in the SAI under "Investment Restrictions," are fundamental
and may not be changed without shareholder approval. The Fund's other investment
policies indicated below may be changed by the Board of Trustees without
shareholder approval.
Under normal market conditions, the Fund will invest at least 65 per cent
of its assets in the common stock of issuers comprising the Standard & Poor's
SmallCap 600 Index. The Fund may invest up to 35 percent of its total assets in
investment grade fixed income securities of smaller capitalization companies,
such as preferred stock, debt securities and securities convertible into common
or preferred stock, and in obligations of the U.S. government, its agencies or
instrumentalities, (including such obligations subject to repurchase
agreements), or in short term (maturing in less than one year) money market
instruments, including commercial paper rated "A-1" or better by Standard &
Poor's Corporation ("S&P") or "P-1" or better by Moody's Investors Services
("Moody's"). (See "Other Investments," "U.S. Government Securities," "Corporate
Debt Securities," "Mortgage-Related Securities," "Asset Backed Securities,"
"Zero Coupon Securities," "Convertible Securities," "Repurchase Agreements,"
"Foreign Securities and American Depository Receipts.") For temporary defensive
purposes, e.g., during periods in which adverse market or economic conditions
warrant, the Fund may invest 100% of its assets in money market instruments.
On December 31, 1993, Standard and Poor's introduced the S&P SmallCap 600
Index covering smaller capitalized, publicly traded companies domiciled in the
United States. As of June 30, 1997 the Index contains 600 issues with market
capitalizations ranging from approximately $40 million to $3 billion. The median
market capitalization of the Index is approximately $425 million and complements
both the S&P 500 Index and the S&P 400 MidCap Index. The Index was developed in
response to a widespread interest in smaller capitalized issues, which, though
more volatile than larger capitalized indices, has historically provided for
periods of greater price appreciation.
The Adviser will rely extensively upon computer models developed by it for
stock selection. This disciplined approach, which is based on input of company
fundamentals, allows the model to rank the companies in the S&P SmallCap 600
Index in order of attractiveness. It is anticipated that in order to maintain
economic sector weightings comparable to that of the Index, the Fund, depending
on asset size, will contain anywhere from approximately 40 to 200 of the most
attractive companies ranked by the model. The Adviser may also rely upon other
factors, both qualitative and quantitative, in determining the composition of
the Fund.
Factors considered by the Adviser when selecting the most attractive stocks
include the following: (1) company profitability; (2) dividend yield; (3)
earnings volatility; (4) relative valuation and earnings momentum; (5) composite
rank; and (6) proprietary analysis of earnings momentum and valuation.
SMALL CAP COMMON STOCKS
Under normal market conditions, the Fund will invest at least 65 percent of
the value of its total assets in S&P SmallCap 600 Index common stocks. Common
stocks which generally have voting rights, represent the residual ownership
interest in the issuer and are entitled to the income and increase in value of
the assets and business of the entity after all of its obligations and preferred
stocks are satisfied. Common stocks fluctuate in price in response to many
factors including historical and prospective earnings of the issuer, the value
of its assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
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<PAGE> 85
The common shares of small capitalization companies often pay no dividends,
thus current income is not a significant factor in the selection of stocks. The
investment adviser for the Fund will select portfolio securities based on
characteristics such as the financial strength and profitability of the company,
the expertise of management and the growth potential of the company. A majority
of the companies in which the Fund invests are expected to be traded in the
over-the-counter market, although the common shares of many companies are traded
on the New York Stock Exchange or the American Stock Exchange.
The securities of small capitalization companies may offer greater
potential for capital appreciation than the securities of larger companies since
they may be overlooked by investors or undervalued in relation to their earnings
power. Small capitalization companies generally are not as well known to the
investing public and have less of an investor following than larger companies,
thus they may provide greater opportunities for long-term capital appreciation
as a result of relative inefficiencies in the marketplace.
The Fund should not be considered suitable for investors who are unable or
unwilling to assume the risk of loss inherent in a program of investment in
small capitalization companies. Small capitalization companies are more volatile
than larger capitalization companies. The Fund may invest in relatively new or
unseasoned firms, which are in their early stages of development, or small
companies positioned in new and emerging industries. Securities of small and
unseasoned companies present greater risks than securities of larger, more
established companies. The companies in which the Fund may invest may have
limited revenues and product lines, and may have a small share of the market for
their products or services. Small companies may lack depth of management. They
may be unable to internally generate funds necessary for growth or potential
development or to generate such funds through external financing on favorable
terms. They may be developing or marketing new products or services for which
markets are not yet established and may never become established. Due to these
and other factors, small companies may incur significant losses, therefore,
investments in such companies are speculative.
OTHER INVESTMENTS AND RELATED RISK FACTORS
Options and Futures Contracts
The Fund may invest in options or futures contracts listed on the S&P Small
Cap 600 Index as a means of achieving additional return or of hedging the value
of the Fund. A call option is a contract that gives the holder of the option the
right, in return for a premium paid, to buy from the seller the security
underlying the option at a specified exercise price at any time during the term
of the option or, in some cases, only at the end of the term of the option. The
seller of the call option has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise price. When the
Fund sells an option on a current Fund security which gives the holder of the
option the right to buy the underlying security from the Fund at a specified
time and a specified price, such an option is considered a "covered" option.
The purchaser of an option risks a total loss of the premium paid for the
option if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized but
foregoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions impose on the Fund the credit risk that the
counterpart will fail to honor its obligations. The assets of the Fund used to
cover its options positions are deemed illiquid securities, see "Investment
Restrictions" below. The Fund will not purchase options if, as a result, the
aggregate cost of all outstanding options exceeds 10% of the Fund's total
assets. To the extent that puts, calls, straddles and similar investment
strategies involve instruments regulated by the Commodity Futures Trading
Commission, the Fund is limited to an investment not in excess of 5% of its
total assets.
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<PAGE> 86
The Fund may purchase and sell stock index futures contracts ("futures
contracts") that are listed on the S&P Small Cap 600 Index for the purpose of
hedging its portfolio (or anticipated portfolio) securities against changes in
their prices. As a futures contract purchaser, the Fund incurs an obligation to
take delivery of a specified amount of the obligation underlying the contract at
a specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will establish a segregated account in which it will maintain cash and
marketable securities equal in value to the futures contracts it has purchased
or sold. Such segregated securities either will mature or, if necessary, be sold
on or before the settlement date.
If the Adviser anticipates that the prices of stock held by the Fund may
fall, the Fund may sell a stock index futures contract. Conversely, if the
Adviser wishes to hedge against anticipated price rises in those stocks which
the Fund intends to purchase, the Fund may purchase stock index futures
contracts. In addition, stock index futures contracts will be bought or sold in
order to close out a short or long position in a corresponding futures contract.
The Fund may close out its position as writer of an option, or as a buyer
of seller of a futures contract only if a liquid secondary market exists for
options or futures contracts of that series. There is no assurance that such a
market will exist.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Federal Income Tax."
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's securities are not speculative in
nature, there are risks inherent in the use of such instruments. One such risk
is that the Adviser could be incorrect in its expectations as to the direction
or extent of various interest rate or price movements or the time span within
which the movements take place. For example, if the Fund sold futures contracts
for the sale of securities in anticipation of an increase in interest rates, and
then interest rates went down instead, causing bond prices to rise, the Fund
would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of the Fund's securities. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowing funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
Warrants and Rights
The Fund will only invest in warrants or rights when the security is issued
and distributed by a company found within the Index universe and only then when
it is owned by the Fund prior to the security's distribution of record. For the
foreseeable future, it is not anticipated warrants and rights will be included
as a security comprising the S&P SmallCap 600 Index.
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Investment Company Securities
The Fund may invest up to 10% of its total assets in securities issued by
other investment companies. Such securities will be acquired by the Funds within
the limits prescribed by the Investment Company Act of 1940, as amended ("1940
Act"), which include a prohibition against a Fund investing more than 10% of the
value of its total assets in such securities. Investors should recognize that
the purchase of securities of other investment companies results in duplication
of expenses such that investors indirectly bear a proportionate share of the
expenses of such companies including operating costs, and investment advisory
and administrative fees.
U.S. Government Securities
The Fund may invest in all types of securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities, including U.S. Treasury obligations with varying interest
rates, maturities and dates of issuance, such as U.S. Treasury bills (maturities
of one year or less) U.S. Treasury notes (generally maturities of one to ten
years) and U.S. Treasury bonds (generally maturities of greater than ten years)
and obligations issued or guaranteed by U.S. Government agencies or which are
supported by the full faith and credit pledge of the U.S. Government. In the
case of U.S. Government obligations which are not backed by the full faith and
credit pledge of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States in the event the agency or
instrumentality is unable to meet its commitments. Such securities may also
include securities for which the payment of principal and interest is backed by
an irrevocable letter of credit issued by the U.S. Government, its agencies,
authorities or instrumentalities and participations in loans made to foreign
governments or their agencies that are substantially guaranteed by the U.S.
Government (such as Government Trust Certificates). See "Mortgage-Related
Securities" and "Asset-Backed Securities" below.
Corporate Debt Obligations and Bank Obligations
The Fund may invest in U.S. dollar-denominated obligations issued or
guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar
denominated obligations of foreign issuers, including those described below
under "Foreign Securities and American Depository Receipts." Such debt
obligations include, among others, bonds, notes, debentures, commercial paper
and variable rate demand notes. Bank obligations include, but are not limited to
certificates of deposit, bankers' acceptances, and fixed time deposits. The
Investment Adviser, in choosing corporate debt securities on behalf of the Fund
will evaluate each issuer based on (i) general economic and financial
conditions; (ii) the specific issuer's (a) business and management, (b) cash
flow, (c) earnings coverage of interest and dividends, (d) ability to operate
under adverse economic conditions, (e) fair market value of assets; and (f) in
the case of foreign issuers, unique political, economic or social conditions to
such issuer's country; and, (iii) other considerations the Investment Adviser
deems appropriate. Investment in obligations of foreign issuers may present a
greater degree of risk than investment in domestic securities (see "Foreign
Securities and American Depository Receipts" below for more details).
Mortgage-Related Securities
The Fund may invest in various mortgage-related securities. Mortgage loans
made by banks, savings and loan institutions and other lenders are often
assembled into pools, the interests in which may be issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Interests in such pools are
called "mortgage-related securities" or "mortgage-backed securities."
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Most mortgage securities are pass-through securities, which means they
provide investors with payments consisting of both principal and interest from
mortgages in the underlying mortgage pool. Investors receive a pro rata share of
both regular interest and principal payments (less issuer fees and applicable
loan servicing fees), as well as unscheduled early prepayments on the underlying
mortgage pool. The dominant issuers or guarantors of mortgage securities today
are the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). GNMA guarantees mortgage-backed securities composed of
Government-guaranteed or insured (Federal Housing Authority, Veterans
Administration or Farmers Home Administration) mortgages originated by mortgage
bankers, commercial banks and savings and loan associations. GNMA and FHLMC
guarantee mortgage securities composed of pools of conventional and Federally
insured or guaranteed residential mortgages obtained from various entities,
including savings and loan associations, savings banks, commercial banks, credit
unions and mortgage bankers.
The principal and interest on GNMA pass-through securities are guaranteed
by GNMA and backed by the full faith and credit of the U.S. Government. FNMA
guarantees full and timely payment of all interest and principal, while FHLMC
currently guarantees timely payment and ultimate payment of interest and either
timely payment of principal or eventual payment or principal depending upon the
date of issue. Securities issued by FNMA and FHLMC are not backed by the full
faith and credit of the United States; however, their close relationship with
the U.S. Government makes them high quality securities with minimal credit
risks. The yields provided by these mortgage securities have historically
exceeded the yields on other types of U.S. Government securities. However, like
most mortgage-backed securities, the experienced yield is sensitive to the rate
of principal payments (including prepayments).
In addition to GNMA, FNMA or FHLMC Certificates, through which the holder
receives a share of all interest and principal payments from the mortgages
underlying the Certificate, the Fund also may invest in mortgage pass-through
securities, where all interest payments go to one class of holders ("Interest
Only Securities" or "IOs") and all principal payments go to a second class of
holders ("Principal Only Securities" or "POs"). These securities are commonly
referred to as mortgage-backed security strips or MBS strips. The yields to
maturity on IOs and POs are particularly sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
principal payments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the return on POs could be adversely affected. The
Fund will treat IOs and POs as illiquid securities except for IOs and POs issued
by U.S. Government agencies and instrumentalities backed by fixed-rate
mortgages, whose liquidity is monitored by the Investment Adviser subject to the
supervision of the Board of Trustees.
The Fund may also invest in certain Collateralized Mortgage Obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs") which are
hybrid instruments with characteristics of both mortgage-backed bonds and
mortgage pass-through securities. Interest and prepaid principal on a CMO or
REMIC are paid monthly or semi-annually. CMOs and REMICs may be collateralized
by whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs and
REMICs are structured into multiple classes, with each class bearing a different
expected maturity. Payments of principal, including repayments, are first
returned to investors holding the shortest maturity class; investors holding the
longer maturity classes generally receive principal only after the earlier
classes have been retired. To the extent a particular CMO or REMIC is issued by
an investment company, the Fund's ability to invest in such CMOs or REMICs will
be limited. The Fund will not invest in the residual interests of REMICs.
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The Adviser expects that new types of mortgage-related securities may be
developed and offered to investors. The Investment Adviser will, consistent with
the Fund's investment objectives, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
The yield characteristics of mortgage-related securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a Fund purchases a
security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Alternatively, if
a Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity. In recognition of this prepayment risk to investors, the
Public Securities Association (the "PSA") has standardized the method of
measuring the rate of mortgage loan principal prepayments. The PSA formula, the
Constant Prepayment Rate or other similar models that are standard in the
industry will be used by the Fund in calculating maturity for purposes of its
investment in mortgage-related securities.
Like other bond investments, the value of mortgage-backed securities will
tend to rise when interest rates fall and to fall when interest rates rise.
Their value may also be affected by changes in the market's perception of the
creditworthiness of the entity issuing or guaranteeing them or by changes in
government regulations and tax policies. Because of these factors, the Fund's
share value and yield are not guaranteed and will fluctuate, and there can be no
assurance that the Fund's investment objective will be achieved. The magnitude
of these fluctuations generally will be greater when the average maturity of the
Fund's portfolio securities is longer.
Asset-Backed Securities
Through the use of trusts and special purpose subsidiaries, various types
of assets, primarily home equity loans and automobile and credit card
receivables, are being securitized in pass-through structures similar to the
mortgage pass-through structures described above or in a pay-through structure
similar to the collateralized mortgage structure. Consistent with the Fund's
investment objective, policies and quality standards, the Fund may invest these
and other types of asset-backed securities which may be developed in the future.
Asset-backed securities involve credit risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
as a letter of credit from a bank, excess collateral or a third-party guarantee.
For asset-backed securities, the industry standard uses a principal prepayment
model, the ABS model, which is similar to the PSA described previously under
"Mortgage-Related Securities." Either the PSA model, the ABS model or other
similar models that are standard in the industry will be used by the Fund in
calculating maturity for purposes of its investment in asset-backed securities.
Zero Coupon Securities
The Fund may invest in zero coupon securities. A zero coupon security pays
no interest to its holder during its life and is sold at a discount to its face
value at maturity. The market prices of zero coupon securities generally are
more volatile than the market prices of securities that pay interest
periodically and are more sensitive to changes in interest rates than non-zero
coupon securities having similar maturities and credit qualities.
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The Fund may invest in separately traded principal and interest components
of securities guaranteed or issued by the U.S. Treasury if such components are
traded independently. Under the STRIPS (Separate Trading of Registered Interest
and Principal of Securities) program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently.
Currently Federal income tax law requires that a holder of a zero coupon
security report as income each year the portion of the original issue discount
on such security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Variable and Floating Rate Demand and Master Demand Notes
The Fund may, from time to time, buy variable or floating rate demand notes
issued by corporations, bank holding companies and financial institutions and
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity over one year
but carry with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals and on specified
notice. The obligation of the issuer of the put to repurchase the securities may
be backed by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the interest rate every
seven days (or at other specified intervals) in order to maintain the interest
rate of the prevailing rate for securities with a seven-day or other designated
maturity. The Fund's investment in demand instruments which provide that the
Fund will not receive the principal note amount within seven days' notice, in
combination with the Fund's other investments which are not readily marketable,
will be limited to an aggregate total of 10% of the Fund's net assets.
The Fund may also buy variable rate master demand notes. The terms of the
obligations permit the Fund to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount and the borrower may repay up to the full amount of the note
without penalty. The notes may or may not be backed by bank letters of credit.
Because the notes are direct lending arrangements between the Fund and borrower,
it is not generally contemplated that they will be traded, and there is no
secondary market for them, although they are redeemable (and, thus, immediately
repayable by the borrower) at principal amount, plus accrued interest, at any
time. In connection with any such purchase and on an ongoing basis, the Adviser
will consider the earning power, cash flow and other liquidity ratios of the
issuer, and its ability to pay principal and interest on demand, including a
situation in which all holders of such notes make demand simultaneously.
While master demand notes, as such, are not typically rated by credit
rating agencies, the Fund may, under its minimum rating standards, invest in
them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for investment by the Fund in cash equivalents, as
described above.
Convertible Securities
Convertible securities may include corporate notes or preferred stock but
are ordinarily a long-term debt obligation of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. Convertible
securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent
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as the underlying common stock. Convertible securities rank senior to common
stocks on a issuer's capital structure and are consequently of higher quality
and entail less risk than the issuer's common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
The Fund may invest in convertible securities when it appears to the
Adviser that it may not be prudent to be fully invested in S&P SmallCap 600
Index stocks. In evaluating a convertible security, the Adviser places primary
emphasis on the attractiveness of the underlying common stock and the potential
for capital appreciation through conversion. See "Convertible Securities" in the
SAI.
The Fund will purchase only investment grade convertible securities having
a rating of, or equivalent to, at least an S&P rating of BBB (which rating may
have speculative characteristics) or, if unrated, judged by the Adviser to be of
comparable quality. Securities in the lowest investment grade debt category
generally have higher yields, may have speculative characteristics and, as a
result, changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher investment grade securities. See "Description of Corporate Debt
Ratings" in the SAI.
Corporate Reorganizations
Subject to the Fund's policy of investing at least 80 percent of its total
assets in companies found in the S&P SmallCap 600 Index, the Fund may invest,
without limit, in securities listed on the S&P SmallCap 600 Index for which a
tender or exchange offer has been made or announced and in securities for which
a merger, consolidation, liquidation or similar reorganization proposal has been
announced if, in the judgment of the Adviser, there is a reasonable prospect of
capital appreciation significantly greater than the added portfolio turnover
expenses inherent in the short term nature of such transactions. The principal
risk is that such offers or proposals may not be consummated within the time and
under the terms contemplated at the time of the investment, in which case,
unless such offers or proposals are replaced by equivalent or increased offers
or proposals which are consummated, the Fund may sustain a loss. For further
information on such investments, see "Additional Permitted Investment
Activities" in the SAI.
Investments in Small, Unseasoned Companies
Given the limited capitalization of many companies comprising the S&P
SmallCap 600 Index, the Fund may invest in small, less well known companies.
Some of these companies may have a limited operating history and limited
liquidity. To lessen the liquidity concerns, the Fund will not invest in
illiquid, nonmarketable securities or in firms trading on the over-the-counter
market with fewer than three market makers.
When Issued, Delayed Delivery Securities and Forward Commitments
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring. When such transactions are negotiated, the
price is fixed at the time of the commitment, with payment and delivery taking
place in the future, generally a month or more after the date of the commitment.
While the Fund will only enter into a forward commitment with the intention of
actually acquiring the security, the Fund may sell the security before the
settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate cash or liquid assets with the Fund's
custodian in an aggregate amount at least equal to the amount of its outstanding
forward commitments.
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Repurchase Agreements
The Fund may invest in repurchase agreements, which are agreements pursuant
to which securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed price on an
agreed date. These agreements may be made with respect to any of the portfolio
securities in which the Fund is authorized to invest. Repurchase agreements may
be characterized as loans secured by the underlying securities. The Fund may
enter into repurchase agreements with (i) member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii) securities
dealers, provided that such banks or dealers meet the creditworthiness standards
established by the Fund's Board of Trustees ("Qualified Institutions"). The
Adviser will monitor the continued creditworthiness of Qualified Institutions,
subject to the supervision of the Fund's Board of Trustees. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or date of maturity of the purchased security. The
collateral is marked to market daily. Such agreements permit the Fund to keep
all its assets earning interest while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature.
The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its obligation
to repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the Fund's Custodian at all
times in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price. The Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with all
other illiquid securities in the Fund, more than 15% of its net assets would be
so invested.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, the Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed upon date and
price. The Fund intends to enter into reverse repurchase agreements only to
avoid selling securities during market conditions deemed unfavorable by the
Investment Adviser to meet redemptions. At the time the Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as consistent with the Fund's investment objective having a
value not less than 100% of the repurchase price (including accrued interest),
and will subsequently monitor the account to ensure that such required value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by an investment company under the 1940 Act.
Loans of Portfolio Securities
To increase income, the Fund may lend its securities to securities
broker-dealers or financial institutions if (1) the loan is collateralized in
accordance with applicable regulatory requirements including collateralization
continuously at no less than 100% by marking to market daily, (2) the loan is
subject to termination by the Fund at any time, (3) the Fund receives reasonable
interest or fee payments on the loan, (4) the Fund is able to exercise all
voting rights with respect to the loaned securities and (5) the loan will not
cause the value of all loaned securities to exceed one-third of the value of the
Fund's assets.
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If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over the value of the collateral. As with any extension of credit, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially.
Foreign Securities and American Depository Receipts ("ADRs"). The Fund may
invest in foreign securities through the purchase of ADRs and may also invest
directly in certain debt securities of foreign issuers. The foreign debt
securities in which the Fund may invest include securities issued by foreign
branches of U.S. banks and foreign banks, Canadian commercial paper and
Europaper (U.S. dollar denominated commercial paper of a foreign issuer). The
Fund's investment in foreign debt securities is limited to 5% of the total Fund
assets of the Fund.
Investment in foreign securities is subject to special risks, such as
future adverse political and economic developments, possible seizure,
nationalization, or expropriation of foreign investments, less stringent
disclosure requirements, the possible establishment of exchange controls or
taxation at the source, or the adoption of other foreign governmental
restrictions. Investors should note that there is no uniformity among foreign
accounting standards.
As noted above, the Fund may also invest in securities represented by ADRs.
ADRs are dollar-denominated receipts generally issued by domestic banks, which
represent the deposit with the bank of a security of a foreign issuer, and which
are publicly traded on exchanges or over-the-counter in the United States. The
Fund may invest in both sponsored and unsponsored ADR programs. There are
certain risks associated with investments in unsponsored ADR programs. Because
the non-U.S. company does not actively participate in the creation of the ADR
program, the underlying agreement for service and payment will be between the
depository and the shareholder. The company issuing the stock underlying the
ADRs pays nothing to establish the unsponsored facility, as fees for ADR
issuance and cancellation are paid by brokers. Investors directly bear the
expenses associated with certificate transfer, custody and dividend payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports. In addition, with respect to all ADRs
there is always the risk of loss due to currency fluctuations. The Fund will not
invest more than 20% of its total assets in ADRs.
Illiquid Securities. The Fund will not invest in illiquid securities if
immediately after such investment more than 15% of the Fund's net assets (taken
at market value) would be invested in such securities. The Fund will not invest
in Companies where, if traded over-the-counter there are fewer than six market
makers. For this purpose, illiquid securities include (a) securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market, (b) participation interests in loans that are not
subject to puts and (c) repurchase agreements not terminable within seven days.
See "Repurchase Agreements" above. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. Consequently, investments in
restricted securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 which have been determined to be liquid by the Fund's
Board of Trustees based upon the trading markets for the securities will not be
included for purposes of this limitation.
Portfolio Turnover
Purchases and sales are made for the Fund whenever necessary, in the
Adviser's opinion, to meet the Fund's objectives. Portfolio turnover may involve
the payment by the Fund of dealer spreads or underwriting commissions, and other
transaction costs, on the sale of securities, as well as on the reinvestment of
the
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proceeds in other securities. The greater the portfolio turnover the greater the
transaction costs to the Fund which will increase the Fund's total operating
expenses. In order to qualify as a regulated investment company, less than 30%
of the Fund's gross income must be derived from the sale or other disposition of
stock, securities or certain other investments held for less than three months.
Although increased portfolio turnover may increase the likelihood of additional
capital gains for the Fund, the Fund expects to satisfy the 30% income test. The
Fund does not anticipate that the portfolio turnover rate will exceed 200%.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Fund are
subject to the following limitations: (a) the Fund may not invest more than 5%
of its total assets in the securities of any one issuer, except obligations of
the United States Government and its agencies and instrumentalities, and (b) the
Fund may not own more than 10% of the outstanding voting securities of any one
issuer. The classification of the Fund as a diversified investment company is a
fundamental policy of the Fund and may be changed only with the approval of the
holders of a majority of the Fund's outstanding shares. As used in this
Prospectus, the term "majority of the outstanding shares" of the Fund means,
respectively, the vote of the lesser of (i) 67% or more of the shares of the
Fund present at the meeting, if more than 50% of the outstanding shares of the
Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund.
The Fund also operates under certain investment restrictions. Investment
restriction (i) and (vi) are fundamental policies of the Fund, and may be
changed only with the approval of the holders of a majority of the Fund's
outstanding shares. The non-fundamental investment restrictions can be changed
by approval of a majority of the Board of Trustees. In addition to other
restrictions listed in the SAI, the Fund may not (except where specified):
(i) invest more than 15% of the market value of the Fund's net assets
in illiquid investments including repurchase agreements maturing in more
than seven days;
(ii) purchase securities on margin or borrow money, except (a) from
banks for extraordinary or emergency purposes (not for leveraging or
investment) or (b) by engaging in reverse repurchase agreements, provided
that (a) and (b) in the aggregate do not exceed an amount equal to
one-third of the value of the total assets of the Fund less its liabilities
(not including the amount borrowed) at the time of the borrowing, and
further provided that 300% asset coverage is maintained at all times;
(iii) purchase securities while borrowings exceed 5% of its total
assets;
(iv) mortgage, pledge or hypothecate any assets except that the Fund
may pledge not more than one-third of its total assets to secure borrowings
made in accordance with paragraph (ii) above. However, although not a
fundamental policy of the Fund, as a matter of operating policy in order to
comply with certain state statutes, the Fund will not pledge its assets in
excess of an amount equal to 10% of net assets;
(v) lend portfolio securities (including repurchase agreements) of
value exceeding in the aggregate one-third of the market value of the
Fund's total assets less liabilities other than obligations created by
these transactions; or
(vi) invest more than 25% of the value of its total assets in any
particular industry.
If a percentage restriction is adhered to at the time an investment is
made, a later change in percentage resulting from changes in the value of the
Fund's investment securities will not be considered a violation of the Fund's
restrictions.
For a more detailed discussion of these investment restrictions, see
"Investment Restrictions" in the SAI.
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MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Board of Trustees. Additional information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management of the Fund -- Trustees and Officers."
The Investment Adviser. Trustmark National Bank, 248 East Capitol Street,
Jackson, Mississippi, 39201, serves as investment adviser to the Fund. Trustmark
manages the investment and reinvestment of the assets of the Fund and
continuously reviews, supervises and administers the Fund's investments.
Trustmark is responsible for placing orders for the purchase and sale of the
Fund's investments directly with brokers and dealers selected by it in its
discretion.
Trustmark currently has assets in excess of $1 billion under management. It
was founded in 1890 and is the second largest commercial bank headquartered in
Mississippi. Trustmark has been managing trust monies for over 40 years and
currently manages the Performance Funds as well as various common and collective
Funds. Shares of the Fund are not guaranteed by Trustmark, its parent or
affiliates, nor are they insured by the FDIC.
Trustmark has an investment management staff of highly trained
professionals who manage the assets of the Performance Funds. Douglas P.
Muenzenmay, who joined Trustmark in 1997 will be responsible for the day-to-day
management of the Fund with Douglas H. Ralston, CFA acting as Associate Manager.
Mr. Muenzenmay was previously employed by Brenton Bank, Inc. as an equity fund
portfolio manager. Mr. Ralston, Vice President and Trust Officer with over 11
years investment experience joined Trustmark 1991 and has managed the Mid-Cap
Growth Fund since its inception. Prior to joining Trustmark, Mr. Ralston was
employed by Suntrust Bank of Nashville.
For the advisory services it provides to the Fund, Trustmark receives fees
based on average daily net assets up to an annual rate of 1.00% of the Fund's
average daily net assets.
Based upon the advice of its counsel, Trustmark believes that the
performance of investment advisory services for the Fund will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Trustmark from continuing to perform such services
for the Fund. If Trustmark were prohibited from acting as investment adviser to
the Fund, it is expected that the Board of Trustees would recommend to
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action.
The Distributor and Administrator. BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219,
acts as the Administrator of the Fund. Performance Funds Distributor, Inc., an
affiliate of BISYS, acts as the Distributor of the Fund's shares.
Administrative Services. The Fund has entered into an Administration
Agreement with BISYS pursuant to which BISYS provides certain management and
administrative services necessary for the Fund's operations including: (i)
general supervision of the operation of the Fund including coordination of the
services performed by the Fund's Adviser, transfer agent, custodian, independent
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions, and preparation of proxy statements and
shareholder reports for the Fund, (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Fund's officers and Board of Trustees, and (iii) furnishing office space
and certain facilities required for conducting the business of the Fund. For
these services, BISYS receives from the Fund a monthly fee at the annual rate of
0.15% of the average daily net assets of the Fund. Pursuant to a Transfer Agency
Agreement between the Trust and BISYS Fund Services, Inc., BISYS Fund
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<PAGE> 96
Services, Inc. receives a fee of $15.00 per account per year plus out-of-pocket
expenses. Pursuant to a Fund Accounting Agreement between the Trust and the
Administrator, the Administrator assists the Trust in calculating net asset
values and provides certain other accounting services for the Fund described
therein, for an annual fee of $30,000 per Fund plus out-of-pocket expenses.
Service Organizations. Various banks (including Trustmark), trust
companies, broker-dealers (other than the Sponsor) or other financial
organizations (collectively, "Service Organizations") also may provide
administrative services for the Fund, such as maintaining shareholder accounts
and records. The Fund may pay fees to Service Organizations (which vary
depending upon the services provided) in amounts up to an annual rate of 0.35%
of the daily net asset value of the Fund's shares owned by shareholders with
whom the Service Organization has a servicing relationship. Investors are not
required to purchase shares through or maintain an account with a Service
Organization.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the Fund's
minimum initial or subsequent investments or charging a direct fee for
servicing. A Service Organization or broker or other sales-person within such
Service Organization may be compensated at varying rates for the sale of one
class of Fund shares as opposed to another. If imposed, these fees would be in
addition to any amounts which might be paid to the Service Organization by the
Fund. Each Service Organization has agreed to transmit to its clients a schedule
of any such fees. Shareholders using Service Organizations are urged to consult
with them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among other
things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank Service Organization from continuing to perform all or a
part of its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Fund and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. In addition, state
securities law on this issue may differ from interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by BISYS, BISYS Fund Services Inc., the Distributor or the Adviser. The
costs borne by the Fund include legal and accounting expenses; Trustees' fees
and expenses; insurance premiums; custodian and transfer agent fees and
expenses; expenses incurred in acquiring or disposing of the Fund's portfolio
securities; expenses of registering and qualifying the Fund's shares for sale
with the SEC and with various state securities commissions; expenses of
obtaining quotations on the Fund's portfolio securities and pricing of the
Fund's shares; expenses of maintaining the Fund's legal existence and of
shareholders' meetings; and expenses of preparation and distribution to existing
shareholders of reports, proxies and prospectuses. The Fund bears its own
expenses associated with its establishment as a series of Performance Funds
Trust; these expenses are amortized over a five-year period from the
commencement of the Fund's operations. See "Management of the Fund" in the SAI.
Trust expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among all of the Funds in the Trust in
relation to the net assets of each Fund.
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Portfolio Transactions. Pursuant to the Investment Advisory Contract, the
Adviser places orders for the purchase and sale of portfolio investments for the
Fund's accounts with brokers or dealers selected by it in its discretion.
In effecting purchases and sales of portfolio securities for the account of
the Fund, the Adviser will seek the best execution of the Fund's orders.
Purchases and sales of portfolio debt securities for the Fund are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter. Purchases and sales of common stocks are generally placed by
the Adviser with broker-dealers which, in the Adviser's judgment, provide prompt
and reliable execution at favorable security prices and reasonable commission
rates. Broker-dealers are selected on the basis of a variety of factors such as
reputation, capital strength, size and difficulty of order, sale of Fund shares
and research provided to the Adviser on behalf of the Fund. The Adviser may
cause the Fund to pay commissions higher than another broker-dealer would have
charged if the Adviser believes the commission paid is reasonable in relation to
the value of the brokerage and research services received on behalf of the Fund.
FUND SHARE VALUATION
The net asset value per share is calculated at 4:00 p.m. (eastern time) for
the Fund, Monday through Friday, on each day the New York Stock Exchange is open
for trading (a "Business Day"), which excludes the following business holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is computed by dividing the value of
the Fund's net assets (i.e., the value of the assets less the liabilities) by
the total number of the Fund's outstanding shares. All expenses, including fees
paid to the Adviser, BISYS and BISYS Fund Services, Inc., are accrued daily and
taken into account for the purpose of determining the net asset value.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken for the exchange where the security is primarily traded.
Over-the-counter securities are valued on the basis of the bid price at the
close of business on each business day. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Trustees.
With respect to options contracts, the premium received is recorded as an
asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by the Fund is recorded as
an asset and subsequently adjusted to market value.
PURCHASE OF FUND SHARES
Orders for purchases of Institutional Class shares will be executed at the
net asset value per share next determined after an order has been received. All
monies received by the Fund for purchases of Institutional Class shares are
invested in full and fractional shares of the Fund. Certificates for shares are
not issued. The Trust maintains records of each shareholder's holdings of Fund
shares, and each shareholder receives a
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statement confirming transactions and dividends. The Trust reserves the right to
reject any purchase order. All initial investments should be accompanied by a
completed Purchase Application, a form of which accompanies this Prospectus. A
separate application is required for Individual Retirement Account investments.
The Trust and the Fund reserve the right to waive or reduce the minimum initial
investment amount with respect to certain accounts.
Payments to open new accounts should be sent to Performance Funds Trust,
P.O. Box 182484, Columbus, OH 43218-2484, together with a completed application.
Purchases made by check in the Fund are not permitted to be redeemed until
payment of the purchase has been collected, which may take up to fifteen days.
No third party or foreign checks are accepted.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisers and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and contact
your broker, investment adviser or Service Organization with instructions as to
the amount you wish to invest. Your broker will then contact the Fund to place
the order on your behalf on that day.
Orders received by your broker or Service Organization for the Fund in
proper order prior to the determination of net asset value and transmitted to
the Fund prior to the close of its business day (which is currently 4:00 p.m.,
eastern time), will become effective that day. Brokers who receive orders are
obligated to transmit them promptly. You should receive written confirmation of
your order within a few days of receipt of instructions from your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the Fund. In most cases, your bank will either be a member of the
Federal Reserve Banking System or have a relationship with a bank that is. Your
bank will normally charge you a fee for handling the transaction. Please call
1-800-737-3676 for wiring instructions. A completed application must be
overnighted to the Fund in advance of the wire to Performance Funds Trust c/o
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, OH 43219-8021.
Notification must be given to the Fund at 1-800-737-3676 prior to 4:00 p.m.
Eastern Standard Time.
By Automatic Investment. Investors may participate in the Automatic
Investment Program, which is an investment plan that automatically debits money
from the shareholder's designated bank account and invests it in the Fund
through the use of electronic fund transfers or automatic bank drafts.
Shareholders may elect to make investments by transfers of a minimum of $50.00
on either the fifth or twentieth day of each month into their established Fund
Account. No minimum initial investment applies when an account is established
through the Automatic Investment Program. Contact the Fund for more information
about the Automatic Investment Program.
By Payroll Direct Deposits. Investors may set up a payroll direct deposit
arrangement for amounts to be automatically invested in the Fund. Participants
in the Payroll Direct Deposit program may make periodic investments of at least
$20.00 per pay period. Contact the Fund for more information about Payroll
Direct Deposits.
20
<PAGE> 99
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be used as an investment for new or existing IRAs. Shares may
also be purchased for IRAs established with Trustmark or other authorized
custodians. For more information on IRAs, call the Fund toll free at
1-800-737-3676.
EXCHANGE PRIVILEGES
The Fund offers two convenient ways to exchange shares in one of the
Performance Funds for shares in another Performance Fund. Before engaging in an
exchange transaction, a shareholder should read carefully the portions of the
Prospectus describing the Fund into which the exchange will be made. A
shareholder may not exchange shares of one Fund for shares of another Fund if
both or either are not qualified for sale in the state of the shareholder's
residence. The minimum amount for an initial exchange is $1,000 and the minimum
amount for subsequent exchanges is $100. The Trust may terminate or amend the
terms of the exchange privilege at any time upon 60 days' written notice to
shareholders.
A new account opened by exchange must be established with the same name(s),
address and social security number or TIN as the existing account. All exchanges
will be made based on the net asset value next determined following receipt of
the request by a Fund in good order, plus any applicable sales charge.
An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders should receive written confirmation of the exchange
within a few days of the completion of the transaction.
In the case of transactions subject to a sales charge, the sales charge
will be assessed on an exchange of shares, equal to the excess of the sales load
applicable to the shares to be acquired, over the amount of any sales load
previously paid on the shares to be exchanged. No service fee is imposed.
Exchange by Mail. To exchange Fund shares by mail, simply send a letter of
instruction to the Fund. The letter of instruction must include: (i) your
account number; (ii) the Fund from and the Fund into which you wish to exchange
your investment; (iii) the dollar or share amount you wish to exchange; and (iv)
the signatures of all registered owners or authorized parties. No signature
guarantee is required.
Exchange by Telephone. To exchange Fund shares by telephone or if you have
any questions, simply call the Fund toll free at 1-800-737-3676. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security number or TIN and account registration;
(ii) the name of the Fund from and the Fund into which you wish to transfer your
investment; and (iii) the dollar or share amount you wish to exchange. The Fund
employs reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to employ such reasonable procedures,
it may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Fund requires some form of
personal identification prior to acting upon instructions received by telephone,
records telephone instructions and provides written confirmation to investors of
such transactions. Telephone exchanges are available only if the shareholder so
indicates by checking the box on the Purchase Application. Telephone redemption
and telephone exchanges will be suspended for a period of 10 days following a
telephonic address change.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any business
day. Shares will be redeemed at the net asset value next determined after a
redemption request in good order has been received and
21
<PAGE> 100
accepted by the Fund. See "Fund Share Valuation" in this Prospectus and
"Determination of Net Asset Value" in the SAI. A redemption is a taxable
transaction on which gain or loss may be recognized.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time the
shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, the Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day,
although the Fund may take up to seven days to make payment. Also, if the New
York Stock Exchange is closed (or when trading is restricted) for any reason
other than the customary weekend or holiday closing or if an emergency condition
as determined by the SEC merits such action, the Fund may suspend redemptions or
postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request, it is
important to follow the procedures described below. Although the Fund has no
present intention to do so, the Fund reserves the right to refuse or to limit
the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Fund's services and their provisions may
be modified or terminated at any time by the Fund. If the Fund terminates any
particular service, it will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. You may redeem your shares by contacting your broker or
investment adviser and instructing him to redeem your shares. He will then
contact the Fund and place a redemption trade on your behalf. You will receive
the next determined net asset value per share after receipt of such request by
your broker or investment adviser. It will be the responsibility of such broker
or investment adviser to transmit your redemption request to the Fund in a
timely manner. A broker or investment adviser which has received any portion of
a sales load or 12b-1 fee for the sale of such shares may not also receive a fee
for this service.
By Mail. You may redeem your shares by sending a letter directly to the
Fund. To be accepted, a letter requesting redemption must include: (i) the
Fund's name and account registration from which you are redeeming shares, (ii)
your account number, (iii) the amount to be redeemed, and (iv) the signatures of
all registered owners. A signature guarantee will be required when redemption
proceeds are to be sent to an address other than the registered address.
Corporations, partnerships, trusts or other legal entities will be required to
submit additional documentation. If you elect to receive distributions in cash
and checks that (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your cash election will be changed automatically and
your future dividend and capital gains distributions will be reinvested in the
Fund at the per share net asset value determined as of the date of payment of
the distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in the Fund at
the per share net asset value determined as of the date of cancellation.
By Telephone. You may redeem your shares by calling the Fund toll free at
1-800-737-3676. You should be prepared to give the telephone representative the
following information: (i) your account number, social security number or TIN
and account registration, (ii) the Fund's name from which you are redeeming
shares, and (iii) the amount to be redeemed. The conversation may be recorded to
protect you and the Fund. Telephone redemptions are available to the shareholder
unless otherwise indicated by the shareholder by
22
<PAGE> 101
checking the box on the Purchase Application. Telephone redemptions will be
suspended for a period of 10 days following a telephone address change.
By Wire. You may redeem your shares by contacting the Fund by mail or
telephone and instructing them to send a wire transmission to your personal
bank. Your instructions should include: (i) your account number, social security
number or TIN and account registration, (ii) the Fund's name from which you are
redeeming shares, and (iii) the amount to be redeemed. Wire redemptions are
available to the shareholder unless otherwise indicated by checking the box on
the Purchase Application. Please attach a copy of a void check of account where
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
The "Telephone" and "Wire" redemption methods are not available for IRAs
and trust clients of Trustmark.
Systematic Withdrawal Plan. An owner of $25,000 or more of shares of the
Fund may elect to have periodic redemptions from his account to be paid on a
monthly, quarterly, semi-annual or annual basis. The minimum periodic payment is
$100. A sufficient number of shares to make the scheduled redemption will
normally be redeemed on the date selected by the shareholder. Depending on the
size of the payment requested and fluctuation in the net asset value, if any, of
the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Capital
gains and dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
Reinstatement Privilege. A shareholder in the Fund who has redeemed shares
may reinvest, without a sales charge, up to the full amount of such redemption
at the net asset value determined at the time of the reinvestment within 30 days
of the original redemption. This privilege must be effected within 30 days of
the redemption. The shareholder must reinvest in the same Fund and account from
which the shares were redeemed. A redemption is a taxable transaction and gain
or loss may be recognized for Federal income tax purposes even if the
reinstatement privilege is exercised. For income tax purposes, any loss realized
upon the redemption will not be recognized as to the number of shares acquired
by reinstatement, except through an adjustment in the tax basis of the shares so
acquired.
Redemption of Small Accounts. Due to the disproportionately higher cost of
servicing small accounts, the Fund reserves the right to redeem, on not less
than 30 days' notice, an account in the Fund that has been reduced by
shareholder redemption of the account to $500 ($250 for IRAs) or less. However,
if during the 30-day notice period the shareholder purchases sufficient shares
to bring the value of the account above $500 ($250 for IRAs), this restriction
will not apply.
Redemption in Kind. All redemptions of shares of the Fund shall be made in
cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of the Fund during any 90-day
period of up to the lesser of $250,000 or 1% of the net asset value of the Fund
at the beginning of such period. Any such redemption in kind will be made in
readily marketable securities. This commitment is irrevocable without the prior
approval of the SEC and is a fundamental policy that may not be changed without
shareholder approval. In the case of redemption requests by shareholders in
excess of such amounts, the Board of Trustees reserves the right to have the
Fund make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of
the Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Fund are
valued. If the recipient were to sell such securities, he or she would incur
brokerage charges.
23
<PAGE> 102
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
The Fund intends to qualify to be treated as a regulated investment company
pursuant to the provisions of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). By so qualifying and electing, the Fund generally will
not be subject to Federal income tax to the extent that it distributes
investment company taxable income and net capital gains in the manner required
under the Code.
The Fund intends to distribute to its shareholders substantially all of its
investment company taxable income (which includes, among other items, dividends
and interest and the excess, if any, of net short-term capital gains (generally
including any net option premium income) over net long-term capital losses).
Investment company taxable income will be distributed by the Fund monthly. The
Fund intends to distribute, at least annually, substantially all net capital
gain (the excess of net long-term capital gains over net short-term capital
losses). In determining amounts of capital gains to be distributed, any capital
loss carryovers from prior years will be applied against capital gains.
Shareholders may elect to receive distributions in additional Fund shares
based on the net asset value at the close of business on the declaration date of
the distribution or may receive such distribution in cash. If no election is
made, distributions will be automatically reinvested in additional shares of the
Fund. Dividends declared in, and attributable to, the preceding month will be
paid within five business days after the end of each month.
Investors who redeem all or a portion of Fund shares prior to a dividend
payment date will be entitled on the next dividend payment date to all dividends
declared but unpaid on those shares at the time of their redemption.
Distributions of investment income (regardless of whether derived from
dividends, interest or short-term capital gains) will be taxable to shareholders
as ordinary income. Distributions of net long-term capital gains designated by
the Fund as capital gain dividends will be taxable as long-term capital gains,
regardless of how long a shareholder has held his Fund shares. Distributions are
taxable in the same manner whether received in additional shares or in cash.
A distribution, including an "exempt-interest" dividend, will be treated as
paid on December 31 of the calendar year if it is declared by the Fund during
October, November, or December of that year to shareholders of record in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Special tax rules may apply to the Fund's acquisition of financial futures
contracts, and options on futures contracts. Such rules may, among other things,
affect whether gains and losses from such transactions are considered to be
short-term or long-term, may have the effect of deferring losses and/or
accelerating the recognition of gains or losses, and, for purposes of qualifying
as a regulated investment company, may limit the extent to which the Fund may be
able to engage in such transactions.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares.
It is anticipated that a portion of the dividends paid by the Fund will
qualify for the dividends-received deduction available to corporations.
The Fund may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where the Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders
24
<PAGE> 103
and certain other shareholders specified in the Code are exempt from backup
withholding. Backup withholding is not an additional tax. Any amount, withheld
may be credited against the shareholder's U.S. Federal income tax liability.
Shareholders will be notified annually by the Trust as to the Federal tax
status of distributions made by the Fund in which they invest. Depending on the
residence of the shareholder for tax purposes, distributions also may be subject
to state and local taxes, including withholding taxes. Foreign shareholders may,
for example, be subject to special withholding requirements. Special tax
treatment, including a penalty on certain pre-retirement distributions, is
accorded to accounts maintained as IRAs. Shareholders should consult their own
tax advisers as to the Federal, state and local tax consequences of ownership of
shares of the Fund in its particular circumstances.
If you elect to receive distributions in cash and checks that (1) are
returned and marked as "undeliverable" or (2) remain uncashed for six months,
your cash election will be changed automatically and your future dividend and
capital gains distributions will be reinvested in the Fund at the per share net
asset value determined as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that remain uncashed for six months
will be canceled and will be reinvested in the Fund at the per share net asset
value determined as of the date of cancellation.
OTHER INFORMATION
CAPITALIZATION
Performance Funds Trust was organized as a Delaware business trust on March
11, 1992, and currently consists of multiple separate portfolios or series, one
of which is offered in this Prospectus. The Board of Trustees may establish
additional series in the future. The capitalization of the Trust consists solely
of an unlimited number of shares of beneficial interest with a par value of
$0.001 each. When issued, shares of the Fund are fully paid and non-assessable.
This Prospectus relates to the Institutional Class of the Fund's shares.
The Fund also offers Consumer Service Class shares which are offered to public
investors at the public offering price, including a sales load which declines
depending on the dollar amount invested. Purchases may be made through an
authorized broker or financial institution, including the Fund, by mail or by
wire.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a series of the Trust but only to
the extent of the shareholder's investment in such series. However, the Trust
Instrument disclaims liability of the shareholders, Trustees or officers of the
Trust for acts or obligations of the Trust, which are binding only on the assets
and property of each series of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations and should be considered remote
and is limited to the amount of the shareholder's investment in the Fund.
VOTING
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which, by law or under the provisions of the Trust
Instrument, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Fund's shareholders and does not intend to do so.
The Fund may vote separately on items which affect the Fund and each class
within the Fund may vote separately on matters which affect only that class. For
example, only Consumer Service Class shareholders will vote on matters related
to the Fund's Distribution Plan under Rule 12b-1. See "Shares of Beneficial
Interest" in the SAI.
The Trust Instrument provides that the holders of not less than two-thirds
of the outstanding shares of the Trust may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such
25
<PAGE> 104
purpose. The Trustees are required to call a meeting of shareholders for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust or Fund.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of the Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of the Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of the Fund.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its yield and/or total return in
advertisements or reports to shareholders or prospective investors. Shareholders
of the Consumer Service Class of shares may experience a lower net return on
their investment than shareholders of the Institutional Class of shares because
of Rule 12b-1 Plan distribution fees paid by such shareholders. The methods used
to calculate the yield and total return of the Fund are mandated by the SEC.
Quotations of "yield" for the Fund will be based on the investment income
per share during a particular 30-day (or one month) period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and will be computed by dividing net investment income by the net
asset value per share on the last day of the period.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (up to the life of the
Fund), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid.
Performance information for the Fund may be compared to various unmanaged
indices, such as the S&P SmallCap 600 Index and the Standard & Poor's 500 Index
or indices prepared by Lipper Analytical Services, and other entities or
organizations which track the performance of investment companies. Any
performance information should be considered in light of the Fund's investment
objectives and policies, characteristics and quality of the Fund and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. For a description of the
methods used to determine yield and total return for the Fund, see "Calculation
of Yield and Total Return" in the SAI.
ACCOUNT SERVICES
All transactions in shares of the Fund will be reflected in a statement for
each shareholder. In those cases where a Service Organization or its nominee is
shareholder of record of shares purchased for its customer, the Fund has been
advised that the statement may be transmitted to the customer at the discretion
of the Service Organization.
The Fund retains BISYS Fund Services, Inc. as transfer agent. BISYS Fund
Services, Inc. provides personnel necessary to perform shareholder servicing
functions. Pursuant to a Transfer Agency Agreement between the Trust and BISYS
Fund Services, Inc., BISYS Fund Services, Inc. receives a fee of $15.00 per
account, per year, and reimbursement for certain expenses.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to Performance Funds Trust,
c/o BISYS Fund Services, Inc. P.O. Box 182484, Columbus, Ohio, 43218-2484.
General and Account Information: (800) PERFORM (737-3676).
26
<PAGE> 105
[LOGO]
INVESTMENT ADVISER
Trustmark National Bank
Jackson, Mississippi 39201
248 East Capitol Street
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
DISTRIBUTOR
Performance Funds Distributor, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Trustmark National Bank
248 East Capitol Street
Jackson, Mississippi 39201
COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10022
PFMCIC0995
[LOGO]
PERFORMANCE FUNDS TRUST
A FAMILY OF MUTUAL FUNDS
THE SMALLCAP FUND
INSTITUTIONAL CLASS
PROSPECTUS
SEPTEMBER , 1997
Performance Funds'
Investment Adviser
<PAGE> 106
PERFORMANCE FUNDS TRUST
3435 STELZER ROAD, COLUMBUS, OHIO 43219
GENERAL AND ACCOUNT INFORMATION:
(800) PERFORM (737-3676)
TRUSTMARK NATIONAL BANK -- INVESTMENT ADVISER
BISYS FUND SERVICES -- ADMINISTRATOR
PERFORMANCE FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
THE SMALLCAP INVESTOR FUND
This Prospectus describes The SmallCap Investor Fund (the "Fund") managed
by Trustmark National Bank. This Prospectus relates only to the "Consumer
Service Class" of the Fund's shares; certain investors may qualify to invest in
the Fund's "Institutional Class," which is not offered hereby. See, "Other
Information -- Capitalization." The Fund is a separate investment fund of
Performance Funds Trust (the "Trust"), a Delaware business trust and registered
management investment company, with distinct investment objectives and policies.
The Fund pays certain expenses related to the distribution of its shares,
calculated at an annual rate and based on a percentage of the average daily net
assets.
AN INVESTMENT IN THE FUND IS NOT GUARANTEED OR INSURED BY THE UNITED STATES
GOVERNMENT. SHARES OF THE FUND ARE NOT AN OBLIGATION OF OR GUARANTEED BY
TRUSTMARK NATIONAL BANK OR ITS AFFILIATES AND SUCH SHARES ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund and should be read and retained for
information about the Fund.
A Statement of Additional Information ("SAI"), dated September , 1997
containing additional and more detailed information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Fund at the address and
information numbers printed above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
September , 1997
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Fund Expenses........................................................................... 2
Fee Table............................................................................... 3
Prospectus Summary...................................................................... 4
Investment Objective, Policies and Practices............................................ 5
Investment Restrictions................................................................. 16
Management of the Fund.................................................................. 17
Fund Share Valuation.................................................................... 19
Purchase of Fund Shares................................................................. 19
Individual Retirement Accounts.......................................................... 21
Exchange Privileges..................................................................... 21
Redemption of Fund Shares............................................................... 21
Dividends, Distributions and Federal Income Tax......................................... 24
Other Information....................................................................... 25
</TABLE>
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the registered securities to which it
relates. This prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
FUND EXPENSES
The following expense table lists the costs and expenses that an investor
in the Consumer Service Class will incur, either directly or indirectly as a
shareholder of the Fund, based upon the Fund's projected operating expenses for
the first year of operations. Shareholders in the Consumer Service Class of the
Fund may be subject to Rule 12b-1 Plan distribution fees (annually up to 0.35%
of the average net assets of the Fund), to which the Institutional Class is not
subject. The Institutional Class of shares is only available to certain
qualified investors. See "Purchases."
2
<PAGE> 108
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)............................................... none
Maximum Sales Load Imposed on Purchases (as a percentage price)................... none
Maximum Sales Load Imposed on Reinvested Dividends................................ none
Deferred Sales Load............................................................... none
Redemption Fees................................................................... none
Exchange Fees..................................................................... none
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets annualized)
Investment Advisory Fees.......................................................... 1.00%
12b-1 Fees(3)..................................................................... 0.25%
Other Expenses(4)................................................................. 0.50%
----
Total Fund Operating Expenses(3).................................................. 1.75%
====
</TABLE>
(1) The Consumer Service Class of shares may be subject to Rule 12b-1 Plan
distribution fees (annually up to 0.35% of the average net assets of the
Fund) to which the Institutional Class is not subject.
(2) Shares of the Institutional Class of the Fund may be available through banks
or other financial institutions which have entered into dealer agreements
with the Fund. Such institutions may provide a variety of services at
varying fees to customers and, although such fees are not fund-related, the
fees must be paid by customers in order to purchase Fund shares.
(3) 12b-1 fees may be increased to an annual rate of 0.35% of the Fund's daily
net assets and total fund operating expenses would be 1.85%.
(4) Certain Service Organizations may receive additional fees from the Fund in
amounts up to an annual rate of 0.35% of the daily net asset value of the
Fund's shares owned by shareholders with whom the Service Organization has a
servicing relationship. See "Management of the Fund -- Service
Organizations" herein.
The purpose of this table is to assist the shareholder in understanding the
various costs and expenses that an investor in the Fund will bear.
EXAMPLE:*
You would pay the following expenses on a $1,000 investment, assuming 5%
gross annual return and redemption at the end of each time period:
<TABLE>
<S> <C>
1 year...................................................... $18
3 years..................................................... $55
</TABLE>
* This example should not be considered a representation of future expenses,
which may be more or less than those shown. The assumed 5% annual return is
hypothetical and should not be considered a representation of past or future
annual returns. Actual return may be greater or less than the assumed amount.
3
<PAGE> 109
PROSPECTUS SUMMARY
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
The investment objective of the Performance SmallCap Investor Fund is long
term capital appreciation. The Fund invests primarily in the universe of
companies comprising the Standard and Poor's SmallCap 600 Index (the "Index").
As a result, a principal goal of the Fund is to be a broadly diversified
portfolio of smaller-capitalized common stocks with holdings in each of the
major economic sectors comprising the Index. Not an index fund, the Fund seeks
to achieve its objective by investing in publicly traded companies the Fund's
investment advisor believes are likely to outperform the Index and other
companies that the adviser deems necessary to maintain the index's general
sector weighting. Although the Fund may also invest in the types of investment
grade fixed income instruments described under "Investment Objective, Policies
and Practices" herein, and may use various special investment techniques, under
normal market conditions, the Fund will invest at least 65 percent of its total
assets in common stock of companies that, at the time of purchase, within the
Index. Under normal market conditions, up to 35 percent of the Fund's total
assets may be invested in smaller capitalized companies' preferred stock,
investment grade debt securities, securities convertible into common or
preferred stock, warrants, money market instruments and stock or index options
and futures contracts. See "Investment Objective, Policies and Practices" in
this Prospectus. There is no assurance the Fund will achieve its investment
objective. The investment objective of the Fund, and certain of its investment
restrictions described herein and in the SAI that, at the time of purchase, are
fundamental and may not be changed without shareholder approval.
RISK FACTORS
There is no assurance the Fund will achieve its investment objective.
Investing in small capitalization issues generally involves greater risk than
investing in larger, more established companies. As a result, the Fund's net
asset value fluctuates, reflecting movements in the market value of its
investment holdings. In addition, companies in which the Fund may invest, though
part of an established index, may have limited product lines, markets or
financial resources and may lack management depth. The liquidity and
marketability of such companies may be limited and may be subject to more abrupt
or erratic price movements than securities of larger, more established companies
or the market averages in general. To possibly compensate for this risk
exposure, the investor will have an opportunity to participate, through a
residual ownership interest, in companies with potentially higher growth rates,
versus those found in larger-capitalization issues, and by locating value
perhaps overlooked by investment analysts and other investors. The Fund may
invest in options, warrants, futures contracts, investment grade convertible
securities, and may engage in short sales. Accordingly, an investment in the
Fund may not be suitable for all investors. For additional information
concerning the investment policies, practices and risk considerations of the
Fund, see "Investment Objective, Policies and Practices" in this Prospectus. See
also the SAI.
MANAGEMENT OF THE FUND
Trustmark National Bank ("Trustmark" or the "Adviser") is the investment
adviser to the Fund. Trustmark currently has assets in excess of $1 billion
under management. It was founded in 1890 and is the second largest commercial
bank headquartered in Mississippi. The Adviser receives fees based on average
daily net assets up to an annual average of 1.00% of the Fund's average daily
net assets. Trustmark has been managing trust monies for over 40 years. See "Fee
Table" and "Management of the Fund" in this Prospectus.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services acts as
Administrator to the Fund and provides certain management and administrative
services to the Fund, for which the Fund pays a fee
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at an annual rate based upon the Fund's average daily net assets. Performance
Funds Distributor, Inc., ("PFD") is Distributor for the Trust and distributes
the Fund's shares. PFD may be reimbursed for certain distribution related
expenses.
PURCHASES
Shares of the Consumer Service Class of the Fund are offered at net asset
value without a sales load. Only certain investors are eligible to invest in the
"Institutional Class" of the Fund's shares. See "Purchase of Fund Shares" and
"Other Information -- Capitalization." Purchases may be made through an
authorized broker or financial institution, including the Fund, by mail or by
wire. Purchases may only be made in cash with a minimum initial investment in
the Fund of $1,000 which may be waived for certain accounts. Subsequent
investments must be at least $100.
SERVICE ORGANIZATIONS
The Fund may pay fees to various banks (including Trustmark), trust
companies, broker-dealers and other financial organizations ("Service
Organizations") for providing administrative services for the Fund, such as
maintaining shareholder accounts and records. See "Management of the Fund" in
this Prospectus. Shareholders are not required to purchase shares through or
maintain an account with a Service Organization.
REDEMPTIONS
Shares may be redeemed at their next determined net asset value. See
"Redemption of Fund Shares" and "Fund Share Valuation" in this Prospectus.
Redemptions may be made by letter or, if previously authorized, by telephone.
The Fund reserves the right to redeem, upon not less than 30 days' written
notice, all shares in the Fund account which, as a result of shareholder
redemption, has a value below $500 ($250 for Individual Retirement Accounts
("IRAs")).
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays its net investment income to shareholders of
record in accordance with the schedule set forth under "Dividends, Distributions
and Federal Income Tax" in this Prospectus. Any net realized long-term capital
gains will be distributed at least annually. All dividends and distributions
will be automatically reinvested at net asset value in additional shares of the
Fund unless cash payment is requested.
INVESTMENT OBJECTIVE, POLICIES AND PRACTICES
The investment objective of the Performance SmallCap Investor Fund is long
term capital appreciation. The Fund will attempt to achieve its objective by
investing primarily in the universe of companies comprising the Standard and
Poor's SmallCap 600 Index. Not an index fund by definition, the Fund seeks to
achieve its objective by investing in publicly traded companies the Fund's
investment advisor believes are likely to outperform the Index and other
companies the Adviser deems necessary to maintain the index's general sector
weighting. As a determination for investment, a premium will be placed on those
companies which display high growth rates and/or reasonable valuations relative
to the market or their respective sector peers.
There is no assurance the Fund will achieve its investment objective. The
investment objective of the Fund, and its investment restrictions which are
described herein and in the SAI, are fundamental and may not be changed without
shareholder approval. The Fund's other investment policies indicated below may
be changed by the Board of Trustees without shareholder approval.
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Under normal market conditions, the Fund will invest at least 65 per cent
of its assets in the common stock of issuers comprising the Standard & Poor's
SmallCap 600 Index. The Fund may invest up to 35 percent of its total assets in
investment grade fixed income securities of smaller capitalization companies,
such as preferred stock, debt securities and securities convertible into common
or preferred stock, and in obligations of the U.S. government, its agencies or
instrumentalities, (including such obligations subject to repurchase
agreements), or in short term (maturing in less than one year) money market
instruments, including commercial paper rated "A-1" or better by Standard &
Poor's Corporation ("S&P") or "P-1" or better by Moody's Investors Services
("Moody's"). (See "Other Investments," "U.S. Government Securities," "Corporate
Debt Securities," "Mortgage-Related Securities," "Asset Backed Securities,"
"Zero Coupon Securities," "Convertible Securities," "Repurchase Agreements,"
"Foreign Securities and American Depository Receipts.") For temporary defensive
purposes, e.g., during periods in which adverse market or economic conditions
warrant, the Fund may invest 100% of its assets in money market instruments.
On December 31, 1993, Standard and Poor's introduced the S&P SmallCap 600
Index covering smaller capitalized, publicly traded companies domiciled in the
United States. As of June 30, 1997 the Index contains 600 issues with market
capitalizations ranging from approximately $40 million to $3 billion. The median
market capitalization of the Index is approximately $425 million and complements
both the S&P 500 Index and the S&P 400 MidCap Index. The Index was developed in
response to a widespread interest in smaller capitalized issues, which, though
more volatile than larger capitalized indices, has historically provided for
periods of greater price appreciation.
The Adviser will rely extensively upon computer models developed by it for
stock selection. This disciplined approach, which is based on input of company
fundamentals, allows the model to rank the companies in the S&P SmallCap 600
Index in order of attractiveness. It is anticipated that in order to maintain
economic sector weightings comparable to that of the Index, the Fund, depending
on asset size, will contain anywhere from approximately 40 to 200 of the most
attractive companies ranked by the model. The Adviser may also rely upon other
factors, both qualitative and quantitative, in determining the composition of
the Fund.
Factors considered by the Adviser when selecting the most attractive stocks
include the following: (1) company profitability; (2) dividend yield; (3)
earnings volatility; (4) relative valuation and earnings momentum; (5) composite
rank; and (6) proprietary analysis of earnings momentum and valuation.
SMALL CAP COMMON STOCKS
Under normal market conditions, the Fund will invest at least 65 percent of
the value of its total assets in S&P SmallCap 600 Index common stocks. Common
stocks which generally have voting rights, represent the residual ownership
interest in the issuer and are entitled to the income and increase in value of
the assets and business of the entity after all of its obligations and preferred
stocks are satisfied. Common stocks fluctuate in price in response to many
factors including historical and prospective earnings of the issuer, the value
of its assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
The common shares of small capitalization companies often pay no dividends,
thus current income is not a significant factor in the selection of stocks. The
investment adviser for the Fund will select portfolio securities based on
characteristics such as the financial strength and profitability of the company,
the expertise of management and the growth potential of the company. A majority
of the companies in which the Fund invests are expected to be traded in the
over-the-counter market, although the common shares of many companies are traded
on the New York Stock Exchange or the American Stock Exchange.
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The securities of small capitalization companies may offer greater
potential for capital appreciation than the securities of larger companies since
they may be overlooked by investors or undervalued in relation to their earnings
power. Small capitalization companies generally are not as well known to the
investing public and have less of an investor following than larger companies,
thus they may provide greater opportunities for long-term capital appreciation
as a result of relative inefficiencies in the marketplace.
The Fund should not be considered suitable for investors who are unable or
unwilling to assume the risk of loss inherent in a program of investment in
small capitalization companies. Small capitalization companies are more volatile
than larger capitalization companies. The Fund may invest in relatively new or
unseasoned firms, which are in their early stages of development, or small
companies positioned in new and emerging industries. Securities of small and
unseasoned companies present greater risks than securities of larger, more
established companies. The companies in which the Fund may invest may have
limited revenues and product lines, and may have a small share of the market for
their products or services. Small companies may lack depth of management. They
may be unable to internally generate funds necessary for growth or potential
development or to generate such funds through external financing on favorable
terms. They may be developing or marketing new products or services for which
markets are not yet established and may never become established. Due to these
and other factors, small companies may incur significant losses, therefore,
investments in such companies are speculative.
OTHER INVESTMENTS AND RELATED RISK FACTORS
Options and Futures Contracts
The Fund may invest in options or futures contracts listed on the S&P Small
Cap 600 Index as a means of achieving additional return or of hedging the value
of the Fund. A call option is a contract that gives the holder of the option the
right, in return for a premium paid, to buy from the seller the security
underlying the option at a specified exercise price at any time during the term
of the option or, in some cases, only at the end of the term of the option. The
seller of the call option has the obligation upon exercise of the option to
deliver the underlying security upon payment of the exercise price. When the
Fund sells an option on a current Fund security which gives the holder of the
option the right to buy the underlying security from the Fund a specified time
and a specified price, such an option is considered a "covered" option.
The purchaser of an option risks a total loss of the premium paid for the
option if the price of the underlying security does not increase or decrease
sufficiently to justify exercise. The seller of an option, on the other hand,
will recognize the premium as income if the option expires unrecognized but
foregoes any capital appreciation in excess of the exercise price in the case of
a call option and may be required to pay a price in excess of current market
value in the case of a put option. Options purchased and sold other than on an
exchange in private transactions impose on the Fund the credit risk that the
counterpart will fail to honor its obligations. The assets of the Fund used to
cover its options positions are deemed illiquid securities, see "Investment
Restrictions" below. The Fund will not purchase options if, as a result, the
aggregate cost of all outstanding options exceeds 10% of the Fund's total
assets. To the extent that puts, calls, straddles and similar investment
strategies involve instruments regulated by the Commodity Futures Trading
Commission, the Fund is limited to an investment not in excess of 5% of its
total assets.
The Fund may purchase and sell stock index futures contracts ("futures
contracts") that are listed on the S&P Small Cap 600 Index for the purpose of
hedging its portfolio (or anticipated portfolio) securities against changes in
their prices. As a futures contract purchaser, the Fund incurs an obligation to
take delivery of a specified amount of the obligation underlying the contract at
a specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will establish a
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segregated account in which it will maintain cash and marketable securities
equal in value to the futures contracts it has purchased or sold. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date.
If the Adviser anticipates that the prices of stock held by the Fund may
fall, the Fund may sell a stock index futures contract. Conversely, if the
Adviser wishes to hedge against anticipated price rises in those stocks which
the Fund intends to purchase, the Fund may purchase stock index futures
contracts. In addition, stock index futures contracts will be bought or sold in
order to close out a short or long position in a corresponding futures contract.
The Fund may close out its position as writer of an option, or as a buyer
of seller of a futures contract only if a liquid secondary market exists for
options or futures contracts of that series. There is no assurance that such a
market will exist.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Federal Income Tax."
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's securities are not speculative in
nature, there are risks inherent in the use of such instruments. One such risk
is that the Adviser could be incorrect in its expectations as to the direction
or extent of various interest rate or price movements or the time span within
which the movements take place. For example, if the Fund sold futures contracts
for the sale of securities in anticipation of an increase in interest rates, and
then interest rates went down instead, causing bond prices to rise, the Fund
would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of the Fund's securities. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowing funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
Warrants and Rights
The Fund will only invest in warrants or rights when the security is issued
and distributed by a company found within the Index universe and only then when
it is owned by the Fund prior to the security's distribution of record. For the
foreseeable future, it is not anticipated warrants and rights will be included
as a security comprising the S&P SmallCap 600 Index.
Investment Company Securities
The Fund may invest up to 10% of its total assets in securities issued by
other investment companies. Such securities will be acquired by the Funds within
the limits prescribed by the Investment Company Act of 1940, as amended ("1940
Act"), which include a prohibition against a Fund investing more than 10% of the
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value of its total assets in such securities. Investors should recognize that
the purchase of securities of other investment companies results in duplication
of expenses such that investors indirectly bear a proportionate share of the
expenses of such companies including operating costs, and investment advisory
and administrative fees.
U.S. Government Securities
The Fund may invest in all types of securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities, including U.S. Treasury obligations with varying interest
rates, maturities and dates of issuance, such as U.S. Treasury bills (maturities
of one year or less) U.S. Treasury notes (generally maturities of one to ten
years) and U.S. Treasury bonds (generally maturities of greater than ten years)
and obligations issued or guaranteed by U.S. Government agencies or which are
supported by the full faith and credit pledge of the U.S. Government. In the
case of U.S. Government obligations which are not backed by the full faith and
credit pledge of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States in the event the agency or
instrumentality is unable to meet its commitments. Such securities may also
include securities for which the payment of principal and interest is backed by
an irrevocable letter of credit issued by the U.S. Government, its agencies,
authorities or instrumentalities and participations in loans made to foreign
governments or their agencies that are substantially guaranteed by the U.S.
Government (such as Government Trust Certificates). See "Mortgage-Related
Securities" and "Asset-Backed Securities" below.
Corporate Debt Obligations and Bank Obligations
The Fund may invest in U.S. dollar-denominated obligations issued or
guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar
denominated obligations of foreign issuers, including those described below
under "Foreign Securities and American Depository Receipts." Such debt
obligations include, among others, bonds, notes, debentures, commercial paper
and variable rate demand notes. Bank obligations include, but are not limited to
certificates of deposit, bankers' acceptances, and fixed time deposits. The
Investment Adviser, in choosing corporate debt securities on behalf of the Fund
will evaluate each issuer based on (i) general economic and financial
conditions; (ii) the specific issuer's (a) business and management, (b) cash
flow, (c) earnings coverage of interest and dividends, (d) ability to operate
under adverse economic conditions, (e) fair market value of assets; and (f) in
the case of foreign issuers, unique political, economic or social conditions to
such issuer's country; and, (iii) other considerations the Investment Adviser
deems appropriate. Investment in obligations of foreign issuers may present a
greater degree of risk than investment in domestic securities (see "Foreign
Securities and American Depository Receipts" below for more details).
Mortgage-Related Securities
The Fund may invest in various mortgage-related securities. Mortgage loans
made by banks, savings and loan institutions and other lenders are often
assembled into pools, the interests in which may be issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Interests in such pools are
called "mortgage-related securities" or "mortgage-backed securities."
Most mortgage securities are pass-through securities, which means they
provide investors with payments consisting of both principal and interest from
mortgages in the underlying mortgage pool. Investors receive a pro rata share of
both regular interest and principal payments (less issuer fees and applicable
loan servicing fees), as well as unscheduled early prepayments on the underlying
mortgage pool. The dominant issuers or guarantors of mortgage securities today
are the Government National Mortgage Association ("GNMA"), the
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Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA guarantees mortgage-backed securities
composed of Government-guaranteed or insured (Federal Housing Authority,
Veterans Administration or Farmers Home Administration) mortgages originated by
mortgage bankers, commercial banks and savings and loan associations. GNMA and
FHLMC guarantee mortgage securities composed of pools of conventional and
Federally insured or guaranteed residential mortgages obtained from various
entities, including savings and loan associations, savings banks, commercial
banks, credit unions and mortgage bankers.
The principal and interest on GNMA pass-through securities are guaranteed
by GNMA and backed by the full faith and credit of the U.S. Government. FNMA
guarantees full and timely payment of all interest and principal, while FHLMC
currently guarantees timely payment and ultimate payment of interest and either
timely payment of principal or eventual payment or principal depending upon the
date of issue. Securities issued by FNMA and FHLMC are not backed by the full
faith and credit of the United States; however, their close relationship with
the U.S. Government makes them high quality securities with minimal credit
risks. The yields provided by these mortgage securities have historically
exceeded the yields on other types of U.S. Government securities. However, like
most mortgage-backed securities, the experienced yield is sensitive to the rate
of principal payments (including prepayments).
In addition to GNMA, FNMA or FHLMC Certificates, through which the holder
receives a share of all interest and principal payments from the mortgages
underlying the Certificate, the Fund also may invest in mortgage pass-through
securities, where all interest payments go to one class of holders ("Interest
Only Securities" or "IOs") and all principal payments go to a second class of
holders ("Principal Only Securities" or "POs"). These securities are commonly
referred to as mortgage-backed security strips or MBS strips. The yields to
maturity on IOs and POs are particularly sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
principal payments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the return on POs could be adversely affected. The
Fund will treat IOs and POs as illiquid securities except for IOs and POs issued
by U.S. Government agencies and instrumentalities backed by fixed-rate
mortgages, whose liquidity is monitored by the Investment Adviser subject to the
supervision of the Board of Trustees.
The Fund may also invest in certain Collateralized Mortgage Obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs") which are
hybrid instruments with characteristics of both mortgage-backed bonds and
mortgage pass-through securities. Interest and prepaid principal on a CMO or
REMIC are paid monthly or semi-annually. CMOs and REMICs may be collateralized
by whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs and
REMICs are structured into multiple classes, with each class bearing a different
expected maturity. Payments of principal, including repayments, are first
returned to investors holding the shortest maturity class; investors holding the
longer maturity classes generally receive principal only after the earlier
classes have been retired. To the extent a particular CMO or REMIC is issued by
an investment company, the Fund's ability to invest in such CMOs or REMICs will
be limited. The Fund will not invest in the residual interests of REMICs.
The Adviser expects that new types of mortgage-related securities may be
developed and offered to investors. The Investment Adviser will, consistent with
the Fund's investment objectives, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
The yield characteristics of mortgage-related securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other assets
generally may
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be prepaid at any time. As a result, if a Fund purchases a security at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Alternatively, if a Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
In recognition of this prepayment risk to investors, the Public Securities
Association (the "PSA") has standardized the method of measuring the rate of
mortgage loan principal prepayments. The PSA formula, the Constant Prepayment
Rate or other similar models that are standard in the industry will be used by
the Fund in calculating maturity for purposes of its investment in
mortgage-related securities.
Like other bond investments, the value of mortgage-backed securities will
tend to rise when interest rates fall and to fall when interest rates rise.
Their value may also be affected by changes in the market's perception of the
creditworthiness of the entity issuing or guaranteeing them or by changes in
government regulations and tax policies. Because of these factors, the Fund's
share value and yield are not guaranteed and will fluctuate, and there can be no
assurance that the Fund's investment objective will be achieved. The magnitude
of these fluctuations generally will be greater when the average maturity of the
Fund's portfolio securities is longer.
Asset-Backed Securities
Through the use of trusts and special purpose subsidiaries, various types
of assets, primarily home equity loans and automobile and credit card
receivables, are being securitized in pass-through structures similar to the
mortgage pass-through structures described above or in a pay-through structure
similar to the collateralized mortgage structure. Consistent with the Fund's
investment objective, policies and quality standards, the Fund may invest these
and other types of asset-backed securities which may be developed in the future.
Asset-backed securities involve credit risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
as a letter of credit from a bank, excess collateral or a third-party guarantee.
For asset-backed securities, the industry standard uses a principal prepayment
model, the ABS model, which is similar to the PSA described previously under
"Mortgage-Related Securities." Either the PSA model, the ABS model or other
similar models that are standard in the industry will be used by the Fund in
calculating maturity for purposes of its investment in asset-backed securities.
Zero Coupon Securities
The Fund may invest in zero coupon securities. A zero coupon security pays
no interest to its holder during its life and is sold at a discount to its face
value at maturity. The market prices of zero coupon securities generally are
more volatile than the market prices of securities that pay interest
periodically and are more sensitive to changes in interest rates than non-zero
coupon securities having similar maturities and credit qualities.
The Fund may invest in separately traded principal and interest components
of securities guaranteed or issued by the U.S. Treasury if such components are
traded independently. Under the STRIPS (Separate Trading of Registered Interest
and Principal of Securities) program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently.
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Currently Federal income tax law requires that a holder of a zero coupon
security report as income each year the portion of the original issue discount
on such security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Variable and Floating Rate Demand and Master Demand Notes
The Fund may, from time to time, buy variable or floating rate demand notes
issued by corporations, bank holding companies and financial institutions and
similar taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity over one year
but carry with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals and on specified
notice. The obligation of the issuer of the put to repurchase the securities may
be backed by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the interest rate every
seven days (or at other specified intervals) in order to maintain the interest
rate of the prevailing rate for securities with a seven-day or other designated
maturity. The Fund's investment in demand instruments which provide that the
Fund will not receive the principal note amount within seven days' notice, in
combination with the Fund's other investments which are not readily marketable,
will be limited to an aggregate total of 10% of the Fund's net assets.
The Fund may also buy variable rate master demand notes. The terms of the
obligations permit the Fund to invest fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount and the borrower may repay up to the full amount of the note
without penalty. The notes may or may not be backed by bank letters of credit.
Because the notes are direct lending arrangements between the Fund and borrower,
it is not generally contemplated that they will be traded, and there is no
secondary market for them, although they are redeemable (and, thus, immediately
repayable by the borrower) at principal amount, plus accrued interest, at any
time. In connection with any such purchase and on an ongoing basis, the Adviser
will consider the earning power, cash flow and other liquidity ratios of the
issuer, and its ability to pay principal and interest on demand, including a
situation in which all holders of such notes make demand simultaneously.
While master demand notes, as such, are not typically rated by credit
rating agencies, the Fund may, under its minimum rating standards, invest in
them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for investment by the Fund in cash equivalents, as
described above.
Convertible Securities
Convertible securities may include corporate notes or preferred stock but
are ordinarily a long-term debt obligation of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. Convertible
securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks on a issuer's capital
structure and are consequently of higher quality and entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.
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The Fund may invest in convertible securities when it appears to the
Adviser that it may not be prudent to be fully invested in S&P SmallCap 600
Index stocks. In evaluating a convertible security, the Adviser places primary
emphasis on the attractiveness of the underlying common stock and the potential
for capital appreciation through conversion. See "Convertible Securities" in the
SAI.
The Fund will purchase only investment grade convertible securities having
a rating of, or equivalent to, at least an S&P rating of BBB (which rating may
have speculative characteristics) or, if unrated, judged by the Adviser to be of
comparable quality. Securities in the lowest investment grade debt category
generally have higher yields, may have speculative characteristics and, as a
result, changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher investment grade securities. See "Description of Corporate Debt
Ratings" in the SAI.
Corporate Reorganizations
Subject to the Fund's policy of investing at least 80 percent of its total
assets in companies found in the S&P SmallCap 600 Index, the Fund may invest,
without limit, in securities listed on the S&P SmallCap 600 Index for which a
tender or exchange offer has been made or announced and in securities for which
a merger, consolidation, liquidation or similar reorganization proposal has been
announced if, in the judgment of the Adviser, there is a reasonable prospect of
capital appreciation significantly greater than the added portfolio turnover
expenses inherent in the short term nature of such transactions. The principal
risk is that such offers or proposals may not be consummated within the time and
under the terms contemplated at the time of the investment, in which case,
unless such offers or proposals are replaced by equivalent or increased offers
or proposals which are consummated, the Fund may sustain a loss. For further
information on such investments, see "Additional Permitted Investment
Activities" in the SAI.
Investments in Small, Unseasoned Companies
Given the limited capitalization of many companies comprising the S&P
SmallCap 600 Index, the Fund may invest in small, less well known companies.
Some of these companies may have a limited operating history and limited
liquidity. To lessen the liquidity concerns, the Fund will not invest in
illiquid, nonmarketable securities or in firms trading on the over-the-counter
market with fewer than three market makers.
When Issued, Delayed Delivery Securities and Forward Commitments
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring. When such transactions are negotiated, the
price is fixed at the time of the commitment, with payment and delivery taking
place in the future, generally a month or more after the date of the commitment.
While the Fund will only enter into a forward commitment with the intention of
actually acquiring the security, the Fund may sell the security before the
settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate cash or liquid assets with the Fund's
custodian in an aggregate amount at least equal to the amount of its outstanding
forward commitments.
Repurchase Agreements
The Fund may invest in repurchase agreements, which are agreements pursuant
to which securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a
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fixed price on an agreed date. These agreements may be made with respect to any
of the portfolio securities in which the Fund is authorized to invest.
Repurchase agreements may be characterized as loans secured by the underlying
securities. The Fund may enter into repurchase agreements with (i) member banks
of the Federal Reserve System having total assets in excess of $500 million and
(ii) securities dealers, provided that such banks or dealers meet the
creditworthiness standards established by the Fund's Board of Trustees
("Qualified Institutions"). The Adviser will monitor the continued
creditworthiness of Qualified Institutions, subject to the supervision of the
Fund's Board of Trustees. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
date of maturity of the purchased security. The collateral is marked to market
daily. Such agreements permit the Fund to keep all its assets earning interest
while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature.
The use of repurchase agreements involves certain risks. For example, if
the seller of securities under a repurchase agreement defaults on its obligation
to repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the Fund's Custodian at all
times in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price. The Fund will not enter into repurchase
agreements of a duration of more than seven days if, taken together with all
other illiquid securities in the Fund, more than 15% of its net assets would be
so invested.
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, the Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed upon date and
price. The Fund intends to enter into reverse repurchase agreements only to
avoid selling securities during market conditions deemed unfavorable by the
Investment Adviser to meet redemptions. At the time the Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
liquid assets such as consistent with the Fund's investment objective having a
value not less than 100% of the repurchase price (including accrued interest),
and will subsequently monitor the account to ensure that such required value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by an investment company under the 1940 Act.
Loans of Portfolio Securities
To increase income, the Fund may lend its securities to securities
broker-dealers or financial institutions if (1) the loan is collateralized in
accordance with applicable regulatory requirements including collateralization
continuously at no less than 100% by marking to market daily, (2) the loan is
subject to termination by the Fund at any time, (3) the Fund receives reasonable
interest or fee payments on the loan, (4) the Fund is able to exercise all
voting rights with respect to the loaned securities and (5) the loan will not
cause the value of all loaned securities to exceed one-third of the value of the
Fund's assets.
If the borrower fails to maintain the requisite amount of collateral, the
loan automatically terminates and the Fund could use the collateral to replace
the securities while holding the borrower liable for any excess of replacement
cost over the value of the collateral. As with any extension of credit, there
are risks of delay in recovery and in some cases even loss of rights in
collateral should the borrower of the securities fail financially.
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Foreign Securities and American Depository Receipts ("ADRs"). The Fund may
invest in foreign securities through the purchase of ADRs and may also invest
directly in certain debt securities of foreign issuers. The foreign debt
securities in which the Fund may invest include securities issued by foreign
branches of U.S. banks and foreign banks, Canadian commercial paper and
Europaper (U.S. dollar denominated commercial paper of a foreign issuer). The
Fund's investment in foreign debt securities is limited to 5% of the total Fund
assets of the Fund.
Investment in foreign securities is subject to special risks, such as
future adverse political and economic developments, possible seizure,
nationalization, or expropriation of foreign investments, less stringent
disclosure requirements, the possible establishment of exchange controls or
taxation at the source, or the adoption of other foreign governmental
restrictions. Investors should note that there is no uniformity among foreign
accounting standards.
As noted above, the Fund may also invest in securities represented by ADRs.
ADRs are dollar-denominated receipts generally issued by domestic banks, which
represent the deposit with the bank of a security of a foreign issuer, and which
are publicly traded on exchanges or over-the-counter in the United States. The
Fund may invest in both sponsored and unsponsored ADR programs. There are
certain risks associated with investments in unsponsored ADR programs. Because
the non-U.S. company does not actively participate in the creation of the ADR
program, the underlying agreement for service and payment will be between the
depository and the shareholder. The company issuing the stock underlying the
ADRs pays nothing to establish the unsponsored facility, as fees for ADR
issuance and cancellation are paid by brokers. Investors directly bear the
expenses associated with certificate transfer, custody and dividend payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports. In addition, with respect to all ADRs
there is always the risk of loss due to currency fluctuations. The Fund will not
invest more than 20% of its total assets in ADRs.
Illiquid Securities. The Fund will not invest in illiquid securities if
immediately after such investment more than 15% of the Fund's net assets (taken
at market value) would be invested in such securities. The Fund will not invest
in Companies where, if traded over-the-counter there are fewer than six market
makers. For this purpose, illiquid securities include (a) securities that are
illiquid by virtue of legal or contractual restrictions on resale or the absence
of a readily available market, (b) participation interests in loans that are not
subject to puts and (c) repurchase agreements not terminable within seven days.
See "Repurchase Agreements" above. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. Consequently, investments in
restricted securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 which have been determined to be liquid by the Fund's
Board of Trustees based upon the trading markets for the securities will not be
included for purposes of this limitation.
Portfolio Turnover
Purchases and sales are made for the Fund whenever necessary, in the
Adviser's opinion, to meet the Fund's objectives. Portfolio turnover may involve
the payment by the Fund of dealer spreads or underwriting commissions, and other
transaction costs, on the sale of securities, as well as on the reinvestment of
the proceeds in other securities. The greater the portfolio turnover the greater
the transaction costs to the Fund which will increase the Fund's total operating
expenses. In order to qualify as a regulated investment company, less than 30%
of the Fund's gross income must be derived from the sale or other disposition of
stock, securities or certain other investments held for less than three months.
Although increased portfolio turnover
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may increase the likelihood of additional capital gains for the Fund, the Fund
expects to satisfy the 30% income test. The Fund does not anticipate that the
portfolio turnover rate will exceed 200%.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Fund are
subject to the following limitations: (a) the Fund may not invest more than 5%
of its total assets in the securities of any one issuer, except obligations of
the United States Government and its agencies and instrumentalities, and (b) the
Fund may not own more than 10% of the outstanding voting securities of any one
issuer. The classification of the Fund as a diversified investment company is a
fundamental policy of the Fund and may be changed only with the approval of the
holders of a majority of the Fund's outstanding shares. As used in this
Prospectus, the term "majority of the outstanding shares" of the Fund means,
respectively, the vote of the lesser of (i) 67% or more of the shares of the
Fund present at the meeting, if more than 50% of the outstanding shares of the
Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund.
The Fund also operates under certain investment restrictions. Investment
restriction (i) and (vi) are fundamental policies of the Fund, and may be
changed only with the approval of the holders of a majority of the Fund's
outstanding shares. The non-fundamental investment restrictions can be changed
by approval of a majority of the Board of Trustees. In addition to other
restrictions listed in the SAI, the Fund may not (except where specified):
(i) invest more than 15% of the market value of the Fund's net assets
in illiquid investments including repurchase agreements maturing in more
than seven days;
(ii) purchase securities on margin or borrow money, except (a) from
banks for extraordinary or emergency purposes (not for leveraging or
investment) or (b) by engaging in reverse repurchase agreements, provided
that (a) and (b) in the aggregate do not exceed an amount equal to
one-third of the value of the total assets of the Fund less its liabilities
(not including the amount borrowed) at the time of the borrowing, and
further provided that 300% asset coverage is maintained at all times;
(iii) purchase securities while borrowings exceed 5% of its total
assets;
(iv) mortgage, pledge or hypothecate any assets except that the Fund
may pledge not more than one-third of its total assets to secure borrowings
made in accordance with paragraph (ii) above. However, although not a
fundamental policy of the Fund, as a matter of operating policy in order to
comply with certain state statutes, the Fund will not pledge its assets in
excess of an amount equal to 10% of net assets;
(v) lend portfolio securities (including repurchase agreements) of
value exceeding in the aggregate one-third of the market value of the
Fund's total assets less liabilities other than obligations created by
these transactions; or
(vi) invest more than 25% of the value of its total assets in any
particular industry.
If a percentage restriction is adhered to at the time an investment is
made, a later change in percentage resulting from changes in the value of the
Fund's investment securities will not be considered a violation of the Fund's
restrictions.
For a more detailed discussion of these investment restrictions, see
"Investment Restrictions" in the SAI.
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MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of the
Board of Trustees. Additional information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management of the Fund -- Trustees and Officers."
The Investment Adviser. Trustmark National Bank, 248 East Capitol Street,
Jackson, Mississippi, 39201, serves as investment adviser to the Fund. Trustmark
manages the investment and reinvestment of the assets of the Fund and
continuously reviews, supervises and administers the Fund's investments.
Trustmark is responsible for placing orders for the purchase and sale of the
Fund's investments directly with brokers and dealers selected by it in its
discretion.
Trustmark currently has assets in excess of $1 billion under management. It
was founded in 1890 and is the second largest commercial bank headquartered in
Mississippi. Trustmark has been managing trust monies for over 40 years and
currently manages the Performance Funds as well as various common and collective
Funds. Shares of the Fund are not guaranteed by Trustmark, its parent or
affiliates, nor are they insured by the FDIC.
Trustmark has an investment management staff of highly trained
professionals who manage the assets of the Performance Funds. Douglas P.
Muenzenmay, who joined Trustmark in 1997 will be responsible for day-to-day
management of the Fund with Douglas H. Ralston, CFA acting as Associate Manager.
Mr. Muenzenmay was previously employed by Brenton Bank, Inc. as an equity fund
portfolio manager. Mr. Ralston, Vice President and Trust Officer with over 11
years investment experience joined Trustmark 1991 and has managed the Mid-Cap
Growth Fund since its inception. Prior to joining Trustmark, Mr. Ralston was
employed by Suntrust Bank of Nashville.
For the advisory services it provides to the Fund, Trustmark receives fees
based on average daily net assets up to an annual rate of 1.00% of the Fund's
average daily net assets.
Based upon the advice of its counsel, Trustmark believes that the
performance of investment advisory services for the Fund will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Trustmark from continuing to perform such services
for the Fund. If Trustmark were prohibited from acting as investment adviser to
the Fund, it is expected that the Board of Trustees would recommend to
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action.
The Distributor and Administrator. BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services ("BISYS"), 3435 Stelzer Road, Columbus 43219, acts as
the Administrator of the Fund. Performance Funds Distributor, Inc., an affiliate
of BISYS, acts as the Distributor of the Fund's shares.
Administrative Services. The Fund has entered into an Administration
Agreement with BISYS pursuant to which BISYS provides certain management and
administrative services necessary for the Fund's operations including: (i)
general supervision of the operation of the Fund including coordination of the
services performed by the Fund's Adviser, transfer agent, custodian, independent
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions, and preparation of proxy statements and
shareholder reports for the Fund, (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Fund's officers and Board of Trustees, and (iii) furnishing office space
and certain facilities required for conducting the business of the Fund. For
these services, BISYS receives from the Fund a monthly fee at the annual rate of
0.15% of the average daily net assets of the Fund. Pursuant to a Transfer Agency
Agreement between the Trust and BISYS Fund Services, Inc., BISYS Fund
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Services, Inc. receives a fee of $15.00 per account per year plus out-of-pocket
expenses. Pursuant to a Fund Accounting Agreement between the Trust and the
Administrator, the Administrator assists the Trust in calculating net asset
values and provides certain other accounting services for the Fund described
therein, for an annual fee of $30,000 per Fund plus out-of-pocket expenses.
Service Organizations. Various banks (including Trustmark), trust
companies, broker-dealers (other than the Sponsor) or other financial
organizations (collectively, "Service Organizations") also may provide
administrative services for the Fund, such as maintaining shareholder accounts
and records. The Fund may pay fees to Service Organizations (which vary
depending upon the services provided) in amounts up to an annual rate of 0.35%
of the daily net asset value of the Fund's shares owned by shareholders with
whom the Service Organization has a servicing relationship. Investors are not
required to purchase shares through or maintain an account with a Service
Organization.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the Fund's
minimum initial or subsequent investments or charging a direct fee for
servicing. A Service Organization or broker or other sales-person within such
Service Organization may be compensated at varying rates for the sale of one
class of Fund shares as opposed to another. If imposed, these fees would be in
addition to any amounts which might be paid to the Service Organization by the
Fund. Each Service Organization has agreed to transmit to its clients a schedule
of any such fees. Shareholders using Service Organizations are urged to consult
with them regarding any such fees or conditions.
The Glass-Steagall Act and other applicable laws provide that, among other
things, banks may not engage in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank Service Organization from continuing to perform all or a
part of its servicing activities. If a bank were prohibited from so acting, its
shareholder clients would be permitted to remain shareholders of the Fund and
alternative means for continuing the servicing of such shareholders would be
sought. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. In addition, state
securities law on this issue may differ from interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by BISYS, BISYS Fund Services Inc., the Distributor or the Adviser. The
costs borne by the Fund include legal and accounting expenses; Trustees' fees
and expenses; insurance premiums; custodian and transfer agent fees and
expenses; expenses incurred in acquiring or disposing of the Fund's portfolio
securities; expenses of registering and qualifying the Fund's shares for sale
with the SEC and with various state securities commissions; expenses of
obtaining quotations on the Fund's portfolio securities and pricing of the
Fund's shares; expenses of maintaining the Fund's legal existence and of
shareholders' meetings; and expenses of preparation and distribution to existing
shareholders of reports, proxies and prospectuses. The Fund bears its own
expenses associated with its establishment as a series of Performance Funds
Trust; these expenses are amortized over a five-year period from the
commencement of the Fund's operations. See "Management of the Fund" in the SAI.
Trust expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among all of the Funds in the Trust in
relation to the net assets of each Fund.
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Portfolio Transactions. Pursuant to the Investment Advisory Contract, the
Adviser places orders for the purchase and sale of portfolio investments for the
Fund's accounts with brokers or dealers selected by it in its discretion.
In effecting purchases and sales of portfolio securities for the account of
the Fund, the Adviser will seek the best execution of the Fund's orders.
Purchases and sales of portfolio debt securities for the Fund are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter. Purchases and sales of common stocks are generally placed by
the Adviser with broker-dealers which, in the Adviser's judgment, provide prompt
and reliable execution at favorable security prices and reasonable commission
rates. Broker-dealers are selected on the basis of a variety of factors such as
reputation, capital strength, size and difficulty of order, sale of Fund shares
and research provided to the Adviser on behalf of the Fund. The Adviser may
cause the Fund to pay commissions higher than another broker-dealer would have
charged if the Adviser believes the commission paid is reasonable in relation to
the value of the brokerage and research services received on behalf of the Fund.
FUND SHARE VALUATION
The net asset value per share is calculated at 4:00 p.m. (eastern time) for
the Fund, Monday through Friday, on each day the New York Stock Exchange is open
for trading (a "Business Day"), which excludes the following business holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is computed by dividing the value of
the Fund's net assets (i.e., the value of the assets less the liabilities) by
the total number of the Fund's outstanding shares. All expenses, including fees
paid to the Adviser, BISYS and BISYS Fund Services, Inc., are accrued daily and
taken into account for the purpose of determining the net asset value.
Securities listed on an exchange are valued on the basis of the last sale
prior to the time the valuation is made. If there has been no sale since the
immediately previous valuation, then the current bid price is used. Quotations
are taken for the exchange where the security is primarily traded.
Over-the-counter securities are valued on the basis of the bid price at the
close of business on each business day. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or at the direction of the Board of Trustees. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Trustees.
With respect to options contracts, the premium received is recorded as an
asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by the Fund is recorded as
an asset and subsequently adjusted to market value.
PURCHASE OF FUND SHARES
Orders for purchases of Consumer Service Class shares will be executed at
the net asset value per share next determined after an order has been received.
All monies received by the Fund for purchases of Consumer Service Class shares
are invested in full and fractional shares of the Fund. Certificates for shares
are not issued. The Trust maintains records of each shareholder's holdings of
Fund shares, and each
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shareholder receives a statement confirming transactions and dividends. The
Trust reserves the right to reject any purchase order.
Minimum Purchase Requirements. The minimum initial investment in the Fund
is $1,000, except that the minimum is $250 for an IRA, other than an IRA for
which Trustmark serves as trustee. Subsequent investments must be at least $100,
or $50 for an IRA. All initial investments should be accompanied by a completed
Purchase Application. A Purchase Application accompanies this Prospectus.
Different minimums apply, and a separate application is required for IRA
investments. PFD reserves the right to reject purchase orders.
Payments to open new accounts should be sent to Performance Funds Trust,
P.O. Box 182484, Columbus, OH 43218-2484, together with a completed application.
Purchases made by check in any Fund are not permitted to be redeemed until
payment of the purchase has been collected, which may take up to fifteen days.
No third party or foreign checks are accepted.
An investment may be made using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. Shares are available to new and existing shareholders through
authorized brokers, investment advisers and Service Organizations. To make an
investment using this method, simply complete a Purchase Application and contact
your broker, investment adviser or Service Organization with instructions as to
the amount you wish to invest. Your broker will then contact the Fund to place
the order on your behalf on that day.
Orders received by your broker or Service Organization for the Fund in
proper order prior to the determination of net asset value and transmitted to
the Fund prior to the close of its business day (which is currently 4:00 p.m.,
eastern time), will become effective that day. Brokers who receive orders are
obligated to transmit them promptly. You should receive written confirmation of
your order within a few days of receipt of instructions from your broker.
By Wire. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the Fund. In most cases, your bank will either be a member of the
Federal Reserve Banking System or have a relationship with a bank that is. Your
bank will normally charge you a fee for handling the transaction. Please call
1-800-737-3676 for wiring instructions. A completed application must be
overnighted to the Fund in advance of the wire to Performance Funds Trust c/o
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, OH 43219-8021.
Notification must be given to the Fund at 1-800-737-3676 prior to 4:00 p.m.
Eastern Standard Time.
By Automatic Investment. Investors may participate in the Automatic
Investment Program, which is an investment plan that automatically debits money
from the shareholder's designated bank account and invests it in the Fund
through the use of electronic fund transfers or automatic bank drafts.
Shareholders may elect to make investments by transfers of a minimum of $50.00
on either the fifth or twentieth day of each month into their established Fund
Account. No minimum initial investment applies when an account is established
through the Automatic Investment Program. Contact the Fund for more information
about the Automatic Investment Program.
By Payroll Direct Deposits. Investors may set up a payroll direct deposit
arrangement for amounts to be automatically invested in the Fund. Participants
in the Payroll Direct Deposit program may make periodic investments of at least
$20.00 per pay period. Contact the Fund for more information about Payroll
Direct Deposits.
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INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be used as an investment for new or existing IRAs. Shares may
also be purchased for IRAs established with Trustmark or other authorized
custodians. For more information on IRAs, call the Fund toll free at
1-800-737-3676.
EXCHANGE PRIVILEGES
The Fund offers two convenient ways to exchange shares in one of the
Performance Funds for shares in another Performance Fund. Before engaging in an
exchange transaction, a shareholder should read carefully the portions of the
Prospectus describing the Fund into which the exchange will be made. A
shareholder may not exchange shares of one Fund for shares of another Fund if
both or either are not qualified for sale in the state of the shareholder's
residence. The minimum amount for an initial exchange is $1,000 and the minimum
amount for subsequent exchanges is $100. The Trust may terminate or amend the
terms of the exchange privilege at any time upon 60 days' written notice to
shareholders.
A new account opened by exchange must be established with the same name(s),
address and social security number or TIN as the existing account. All exchanges
will be made based on the net asset value next determined following receipt of
the request by a Fund in good order, plus any applicable sales charge.
An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders should receive written confirmation of the exchange
within a few days of the completion of the transaction.
In the case of transactions subject to a sales charge, the sales charge
will be assessed on an exchange of shares, equal to the excess of the sales load
applicable to the shares to be acquired, over the amount of any sales load
previously paid on the shares to be exchanged. No service fee is imposed.
Exchange by Mail. To exchange Fund shares by mail, simply send a letter of
instruction to the Fund. The letter of instruction must include: (i) your
account number; (ii) the Fund from and the Fund into which you wish to exchange
your investment; (iii) the dollar or share amount you wish to exchange; and (iv)
the signatures of all registered owners or authorized parties. No signature
guarantee is required.
Exchange by Telephone. To exchange Fund shares by telephone or if you have
any questions, simply call the Fund toll free at 1-800-737-3676. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security number or TIN and account registration;
(ii) the name of the Fund from and the Fund into which you wish to transfer your
investment; and (iii) the dollar or share amount you wish to exchange. The Fund
employs reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to employ such reasonable procedures,
it may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Fund requires some form of
personal identification prior to acting upon instructions received by telephone,
records telephone instructions and provides written confirmation to investors of
such transactions. Telephone exchanges are available only if the shareholder so
indicates by checking the box on the Purchase Application. Telephone redemption
and telephone exchanges will be suspended for a period of 10 days following a
telephonic address change.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any business
day. Shares will be redeemed at the net asset value next determined after a
redemption request in good order has been received and
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accepted by the Fund. See "Fund Share Valuation" in this Prospectus and
"Determination of Net Asset Value" in the SAI. A redemption is a taxable
transaction on which gain or loss may be recognized.
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 days. Shareholders may avoid this delay by investing
through wire transfers of Federal funds. During the period prior to the time the
shares are redeemed, dividends on the shares will continue to accrue and be
payable and the shareholder will be entitled to exercise all other beneficial
rights of ownership.
Once the shares are redeemed, the Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day,
although the Fund may take up to seven days to make payment. Also, if the New
York Stock Exchange is closed (or when trading is restricted) for any reason
other than the customary weekend or holiday closing or if an emergency condition
as determined by the SEC merits such action, the Fund may suspend redemptions or
postpone payment dates.
Redemption Methods. To ensure acceptance of your redemption request, it is
important to follow the procedures described below. Although the Fund has no
present intention to do so, the Fund reserves the right to refuse or to limit
the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Fund's services and their provisions may
be modified or terminated at any time by the Fund. If the Fund terminates any
particular service, it will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
You may redeem your shares using any of the following methods:
Through an Authorized Broker, Investment Adviser or Service
Organization. You may redeem your shares by contacting your broker or
investment adviser and instructing him to redeem your shares. He will then
contact the Fund and place a redemption trade on your behalf. You will receive
the next determined net asset value per share after receipt of such request by
your broker or investment adviser. It will be the responsibility of such broker
or investment adviser to transmit your redemption request to the Fund in a
timely manner. A broker or investment adviser which has received any portion of
a sales load or 12b-1 fee for the sale of such shares may not also receive a fee
for this service.
By Mail. You may redeem your shares by sending a letter directly to the
Fund. To be accepted, a letter requesting redemption must include: (i) the
Fund's name and account registration from which you are redeeming shares, (ii)
your account number, (iii) the amount to be redeemed, and (iv) the signatures of
all registered owners. A signature guarantee will be required when redemption
proceeds are to be sent to an address other than registered. Corporations,
partnerships, trusts or other legal entities will be required to submit
additional documentation. If you elect to receive distributions in cash and
checks that (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your cash election will be changed automatically and
your future dividend and capital gains distributions will be reinvested in the
Fund at the per share net asset value determined as of the date of payment of
the distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in the Fund at
the per share net asset value determined as of the date of cancellation.
By Telephone. You may redeem your shares by calling the Fund toll free at
1-800-737-3676. You should be prepared to give the telephone representative the
following information: (i) your account number, social security number or TIN
and account registration, (ii) the Fund's name from which you are redeeming
shares, and (iii) the amount to be redeemed. The conversation may be recorded to
protect you and the Fund. Telephone redemptions are available to the shareholder
unless otherwise indicated by the shareholder by
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<PAGE> 128
checking the box on the Purchase Application. Telephone redemptions will be
suspended for a period of 10 days following a telephone address change.
By Wire. You may redeem your shares by contacting the Fund by mail or
telephone and instructing them to send a wire transmission to your personal
bank. Your instructions should include: (i) your account number, social security
number or TIN and account registration, (ii) the Fund's name from which you are
redeeming shares, and (iii) the amount to be redeemed. Wire redemptions are
available to the shareholder unless otherwise indicated by checking the box on
the Purchase Application. Please attach a copy of a void check of account where
proceeds are to be wired. Your bank may charge you a fee for receiving a wire
payment on your behalf.
The "Telephone" and "Wire" redemption methods are not available for IRAs
and trust clients of Trustmark.
Systematic Withdrawal Plan. An owner of $25,000 or more of shares of the
Fund may elect to have periodic redemptions from his account to be paid on a
monthly, quarterly, semi-annual or annual basis. The minimum periodic payment is
$100. A sufficient number of shares to make the scheduled redemption will
normally be redeemed on the date selected by the shareholder. Depending on the
size of the payment requested and fluctuation in the net asset value, if any, of
the shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Capital
gains and dividend distributions paid to the account will automatically be
reinvested at net asset value on the distribution payment date.
Reinstatement Privilege. A shareholder in the Fund who has redeemed shares
may reinvest, without a sales charge, up to the full amount of such redemption
at the net asset value determined at the time of the reinvestment within 30 days
of the original redemption. This privilege must be effected within 30 days of
the redemption. The shareholder must reinvest in the same Fund and account from
which the shares were redeemed. A redemption is a taxable transaction and gain
or loss may be recognized for Federal income tax purposes even if the
reinstatement privilege is exercised. For income tax purposes, any loss realized
upon the redemption will not be recognized as to the number of shares acquired
by reinstatement, except through an adjustment in the tax basis of the shares so
acquired.
Redemption of Small Accounts. Due to the disproportionately higher cost of
servicing small accounts, the Fund reserves the right to redeem, on not less
than 30 days' notice, an account in the Fund that has been reduced by
shareholder redemption of the account to $500 ($250 for IRAs) or less. However,
if during the 30-day notice period the shareholder purchases sufficient shares
to bring the value of the account above $500 ($250 for IRAs), this restriction
will not apply.
Redemption in Kind. All redemptions of shares of the Fund shall be made in
cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of the Fund during any 90-day
period of up to the lesser of $250,000 or 1% of the net asset value of the Fund
at the beginning of such period. Any such redemption in kind will be made in
readily marketable securities. This commitment is irrevocable without the prior
approval of the SEC and is a fundamental policy that may not be changed without
shareholder approval. In the case of redemption requests by shareholders in
excess of such amounts, the Board of Trustees reserves the right to have the
Fund make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of
the Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Fund are
valued. If the recipient were to sell such securities, he or she would incur
brokerage charges.
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<PAGE> 129
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
The Fund intends to qualify to be treated as a regulated investment company
pursuant to the provisions of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). By so qualifying and electing, the Fund generally will
not be subject to Federal income tax to the extent that it distributes
investment company taxable income and net capital gains in the manner required
under the Code.
The Fund intends to distribute to its shareholders substantially all of its
investment company taxable income (which includes, among other items, dividends
and interest and the excess, if any, of net short-term capital gains (generally
including any net option premium income) over net long-term capital losses).
Investment company taxable income will be distributed by the Fund monthly. The
Fund intends to distribute, at least annually, substantially all net capital
gain (the excess of net long-term capital gains over net short-term capital
losses). In determining amounts of capital gains to be distributed, any capital
loss carryovers from prior years will be applied against capital gains.
Shareholders may elect to receive distributions in additional Fund shares
based on the net asset value at the close of business on the declaration date of
the distribution or may receive such distribution in cash. If no election is
made, distributions will be automatically reinvested in additional shares of the
Fund. Dividends declared in, and attributable to, the preceding month will be
paid within five business days after the end of each month.
Investors who redeem all or a portion of Fund shares prior to a dividend
payment date will be entitled on the next dividend payment date to all dividends
declared but unpaid on those shares at the time of their redemption.
Distributions of investment income (regardless of whether derived from
dividends, interest or short-term capital gains) will be taxable to shareholders
as ordinary income. Distributions of net long-term capital gains designated by
the Fund as capital gain dividends will be taxable as long-term capital gains,
regardless of how long a shareholder has held his Fund shares. Distributions are
taxable in the same manner whether received in additional shares or in cash.
A distribution, including an "exempt-interest" dividend, will be treated as
paid on December 31 of the calendar year if it is declared by the Fund during
October, November, or December of that year to shareholders of record in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Special tax rules may apply to the Fund's acquisition of financial futures
contracts, and options on futures contracts. Such rules may, among other things,
affect whether gains and losses from such transactions are considered to be
short-term or long-term, may have the effect of deferring losses and/or
accelerating the recognition of gains or losses, and, for purposes of qualifying
as a regulated investment company, may limit the extent to which the Fund may be
able to engage in such transactions.
Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of the Fund, or upon receipt of a distribution in complete
liquidation of the Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares.
It is anticipated that a portion of the dividends paid by the Fund will
qualify for the dividends-received deduction available to corporations.
The Fund may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where the Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders
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<PAGE> 130
and certain other shareholders specified in the Code are exempt from backup
withholding. Backup withholding is not an additional tax. Any amount, withheld
may be credited against the shareholder's U.S. Federal income tax liability.
Shareholders will be notified annually by the Trust as to the Federal tax
status of distributions made by the Fund in which they invest. Depending on the
residence of the shareholder for tax purposes, distributions also may be subject
to state and local taxes, including withholding taxes. Foreign shareholders may,
for example, be subject to special withholding requirements. Special tax
treatment, including a penalty on certain pre-retirement distributions, is
accorded to accounts maintained as IRAs. Shareholders should consult their own
tax advisers as to the Federal, state and local tax consequences of ownership of
shares of the Fund in its particular circumstances.
If you elect to receive distributions in cash and checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.
OTHER INFORMATION
CAPITALIZATION
Performance Funds Trust was organized as a Delaware business trust on March
11, 1992, and currently consists of multiple separate portfolios or series, one
of which is offered in this Prospectus. The Board of Trustees may establish
additional series in the future. The capitalization of the Trust consists solely
of an unlimited number of shares of beneficial interest with a par value of
$0.001 each. When issued, shares of the Fund are fully paid and non-assessable.
This Prospectus relates to the Consumer Service Class of the Fund's shares.
The Fund also offers Institutional Class shares which are offered only to
employees (and family members) of Trustmark, the Distributor, Administrator and
affiliates and correspondents, Trustees of the Trust (and family members),
Directors of Trustmark (and family members) and certain institutional investors,
which make an initial investment of one million dollars or more or who, at the
time of purchase, have a balance of one million dollars or more in the Fund or
which is a purchaser through (or with proceeds of a distribution from) a trust,
investment management or other fiduciary account managed or administered by the
Adviser, its affiliates or correspondents pursuant to a written contract (except
for asset allocation or "wrap" accounts). Institutional Class shares and
Consumer Service Class shares are identical in all respects with the exception
that the Consumer Service Class shares may be subject to Rule 12b-1 fees to
which the Institutional Class shares are not subject. Purchases may be made
through an authorized broker or financial institution, including the Fund, by
mail or by wire. Call 1-800-737-3676, or contact your sales representative,
broker-dealer or bank to obtain more information about the Fund's classes of
shares.
Under Delaware law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a series of the Trust but only to
the extent of the shareholder's investment in such series. However, the Trust
Instrument disclaims liability of the shareholders, Trustees or officers of the
Trust for acts or obligations of the Trust, which are binding only on the assets
and property of each series of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations and should be considered remote
and is limited to the amount of the shareholder's investment in the Fund.
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<PAGE> 131
VOTING
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which, by law or under the provisions of the Trust
Instrument, they may be entitled to vote. The Trust is not required to hold
regular annual meetings of the Fund's shareholders and does not intend to do so.
The Fund may vote separately on items which affect the Fund and each class
within the Fund may vote separately on matters which affect only that class. For
example, only Consumer Service Class shareholders will vote on matters related
to the Fund's Distribution Plan under Rule 12b-1. See "Shares of Beneficial
Interest" in the SAI.
The Trust Instrument provides that the holders of not less than two-thirds
of the outstanding shares of the Trust may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required to call a meeting of shareholders for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust or Fund.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of the Fund (or the Trust) means the vote of
the lesser of: (1) 67% of the shares of the Fund (or the Trust) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of the Fund.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its yield and/or total return in
advertisements or reports to shareholders or prospective investors. Shareholders
of the Consumer Service Class of shares may experience a lower net return on
their investment than shareholders of the Institutional Class of shares because
of Rule 12b-1 Plan distribution fees paid by such shareholders. The methods used
to calculate the yield and total return of the Fund are mandated by the SEC.
Quotations of "yield" for the Fund will be based on the investment income
per share during a particular 30-day (or one month) period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and will be computed by dividing net investment income by the net
asset value per share on the last day of the period.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (up to the life of the
Fund), reflect the deduction of a proportional share of Fund expenses (on an
annual basis), and assume that all dividends and distributions are reinvested
when paid.
Performance information for the Fund may be compared to various unmanaged
indices, such as the S&P SmallCap 600 Index and the Standard & Poor's 500 Index
or indices prepared by Lipper Analytical Services, and other entities or
organizations which track the performance of investment companies. Any
performance information should be considered in light of the Fund's investment
objectives and policies, characteristics and quality of the Fund and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. For a description of the
methods used to determine yield and total return for the Fund, see "Calculation
of Yield and Total Return" in the SAI.
ACCOUNT SERVICES
All transactions in shares of the Fund will be reflected in a statement for
each shareholder. In those cases where a Service Organization or its nominee is
shareholder of record of shares purchased for its customer, the Fund has been
advised that the statement may be transmitted to the customer at the discretion
of the Service Organization.
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<PAGE> 132
The Fund retains BISYS Fund Services, Inc. as transfer agent. BISYS Fund
Services, Inc. provides personnel necessary to perform shareholder servicing
functions. Pursuant to a Transfer Agency Agreement between the Trust and BISYS
Fund Services, Inc., BISYS Fund Services, Inc. receives a fee of $15.00 per
account, per year, and reimbursement for certain expenses.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to Performance Funds Trust,
c/o BISYS Fund Services, Inc. P.O. Box 182484, Columbus, Ohio, 43218-2484.
General and Account Information: (800) PERFORM (737-3676).
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<PAGE> 133
[LOGO]
INVESTMENT ADVISER
Trustmark National Bank
Jackson, Mississippi 39201
248 East Capitol Street
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
DISTRIBUTOR
Performance Funds Distributor, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Trustmark National Bank
248 East Capitol Street
Jackson, Mississippi 39201
COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10022
PFMCIC0995
[LOGO]
PERFORMANCE FUNDS TRUST
A FAMILY OF MUTUAL FUNDS
THE SMALLCAP FUND
CONSUMER SERVICE CLASS
PROSPECTUS
SEPTEMBER , 1997
Performance Funds'
Investment Adviser
<PAGE> 134
PERFORMANCE FUNDS TRUST
Telephone: 1-800 PERFORM (737-3676)
STATEMENT OF ADDITIONAL INFORMATION - September ___ , 1997
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE LARGE CAP EQUITY FUND (FORMERLY, THE EQUITY FUND)
Performance Funds Trust (the "Trust") is an open-end, management
investment company of the series type. This Statement of Additional
Information ("SAI") contains information about both the "Consumer Service
Class" and the "Institutional Class" of three of the Trust's investment
portfolios--THE SHORT TERM GOVERNMENT INCOME FUND (THE "SHORT TERM FUND"), THE
INTERMEDIATE TERM GOVERNMENT INCOME FUND (THE "INTERMEDIATE FUND") (THE SHORT
TERM FUND AND THE INTERMEDIATE FUND ARE TOGETHER REFERRED TO HEREIN AS THE
"GOVERNMENT INCOME FUNDS") AND THE LARGE CAP EQUITY FUND (THE "LARGE CAP EQUITY
FUND") (each, a "Fund" and collectively, the "Funds"). The investment
objectives of each Fund are described in the Prospectus. See "The Investment
Policies of the Funds."
This SAI is not a prospectus and should be read in conjunction with
the Funds' Prospectus, dated September __, 1997. All terms used in this SAI
that are defined in the Prospectus will have the meanings assigned in the
Prospectus. Copies of the Prospectus may be obtained without charge by writing
to the Trust's distributor, at 3435 Stelzer Road, Columbus, Ohio 43219; or
by calling the Funds at the telephone number indicated above.
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<PAGE> 135
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management Of The Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Rule 12b-1 Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Calculation Of Yield And Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Determination Of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Shares Of Beneficial Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
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INVESTMENT RESTRICTIONS
The Funds are subject to the following investment restrictions, all of
which are fundamental policies:
None of the Funds may:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of any Fund's investments in that industry would
exceed 25% of the current value of such Fund's total assets, provided that
there is no limitation with respect to investments in obligations of the United
States Government, its agencies or instrumentalities;
(2) purchase or sell real estate (other than securities secured by
real estate or interests therein or securities issued by companies that invest
in real estate or interests therein), commodities or commodity contracts;
except that the Funds may enter into financial futures contracts and may write
call options and purchase call and put options on financial futures contracts
as generally described in the Prospectus and this SAI;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and except for "margin" payments in
connection with financial futures contracts and options on futures contracts)
or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent
that the purchase of otherwise permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Funds' investment program may be deemed to be
an underwriting;
(5) invest more than 15% of the current value of its net assets in
repurchase agreements maturing in more than seven days, in fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, or in securities or other assets which the Board of Trustees
determines to be illiquid securities or assets. For purposes of this
restriction, securities issued pursuant to Rule 144A may be considered to be
liquid pursuant to guidelines adopted by the Board of Trustees;
(6) acquire securities for the purpose of exercising control or
management over the issuers thereof;
(7) issue senior securities or otherwise borrow, except that each
Fund may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 15% of the current value of its net assets
(but new investments may not be purchased while any such borrowing exists); and
provided further that a Fund may acquire when-issued securities, enter into
other forward contracts to acquire securities, and enter into or acquire
financial futures contracts and options thereon when the Fund's obligation
thereunder, if any, is "covered" (i.e.,
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<PAGE> 137
the Fund establishes a segregated account in which it maintains liquid assets
in an amount at least equal in value to the Fund's obligations and
marks-to-market daily such collateral);
(8) purchase interests, leases, or limited partnership interests
in oil, gas, or other mineral exploration or development programs;
(9) invest in shares of other open-end, management investment
companies, beyond the limitations of the Investment Company Act of 1940 (the
"1940 Act") and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment, provided that any
such purchases will be limited to short-term investments in shares of
unaffiliated investment companies and the Adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition; or
(10) lend its portfolio securities if, as a result, the aggregate
of such loans exceeds 5% of the value of a Fund's total assets.
No Fund may, with respect to 75% of its total assets, purchase
securities of any issuer (except securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities) if, as a result, more than 5%
of the value of its total assets would be invested in the securities of any
issuer or the Fund's ownership would be more than 10% of the outstanding voting
securities of such issuer.
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ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. Each Fund may purchase instruments that are not
rated if such obligations are of investment quality comparable to other rated
investments that are permitted to be purchased by such Fund in accordance with
procedures adopted by the Board of Trustees.
After purchase by a Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event will require a sale of such security by such Fund. The ratings
of S&P and Moody's are more fully described in the Appendix to this SAI.
Lending of Securities. Each Fund may lend its portfolio securities to
qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities or completing arbitrage operations. By lending its
portfolio securities, each Fund attempts to increase its income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned might occur during the term of the loan would be for the
account of the Fund. Each Fund may lend its portfolio securities to qualified
brokers, dealers, domestic banks or other domestic financial institutions, so
long as the terms, and the structure of such loans are not inconsistent with
the 1940 Act or the Rules and Regulations or interpretations of the Securities
and Exchange Commission (the "SEC") thereunder, which currently require that
(a) the borrower pledge and maintain with the Fund collateral consisting of
cash, an irrevocable letter of credit or securities issued or guaranteed by a
domestic bank or the United States Government having a value at all times not
less than 100% of the value of the securities loaned, (b) the borrower add to
such collateral whenever the price of securities loaned rises (i.e., the
borrower "marks-to-market" on a daily basis), (c) the loan be made subject to
termination by the Fund at any time and (d) the Fund receives reasonable
interest on the loan (which may include the Fund's investing any cash
collateral in interest bearing short-term investments), any distributions on
the loaned securities and any increase in their market value. A Fund will not
lend portfolio securities if, as a result, the aggregate of such loans exceed
5% of the value of a Fund's total assets. Loan arrangements made will comply
with all other applicable regulatory requirements, including the rules of the
New York Stock Exchange, which rules presently require the borrower, after
notice, to redeliver the securities within the normal settlement time of five
business days. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review
by the Board of Trustees.
Letters of Credit. Each Fund may purchase debt obligations backed by
an irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of the Adviser are
of investment quality comparable to other permitted investments of such Fund
may be used for letter of credit-backed investments.
Interest Rate Futures Contracts and Options Thereon. The Government
Income Funds may use interest rate futures contracts ("futures contracts")
principally as a hedge against the effects of interest rate changes. A futures
contract is an agreement to purchase or sell a specified
3
<PAGE> 139
amount of designated debt securities for a set price at a specified future
time. At the time a Government Income Fund enters into a futures transaction,
it is required to make a performance deposit (initial margin) of cash or liquid
securities with its custodian in a segregated account in the name of the
futures broker. Subsequent payments of "variation margin" are then made on a
daily basis, depending on the value of the futures which is continually
"marked-to-market."
The Government Income Funds may engage only in interest rate futures
contract transactions involving (i) the sale of the designated debt securities
underlying the futures contract (i.e., short positions) to hedge the value of
securities held by such Funds; (ii) the purchase of the designated debt
securities underlying the futures contract when such Funds hold a short
position having the same delivery month (i.e., a long position offsetting a
short position); or (iii) activities that are incidental to a Government Income
Fund's activities in the cash market in which such a Fund has determined to
invest. If the market moves favorably after a Government Income Fund enters
into an interest rate futures contract as a hedge against anticipated adverse
market movements, the benefits from such favorable market movements on the
value of the securities so hedged will be offset in whole or in part, by a loss
on the futures contract.
The Government Income Funds may engage in futures contract sales to
maintain the income advantage from continued holding of a long-term security
while endeavoring to avoid part or all of the loss in market value that would
otherwise accompany a decline in long-term security prices. If, however,
securities prices rise, a Government Income Fund would realize a loss in
closing out its futures contract sales that would offset any increases in
prices of the long-term securities it holds.
An option on a futures contract gives the purchaser the right, but not
the obligation, in return for the premium paid, to assume (in the case of a
call) or sell (in the case of a put) a position in a specified underlying
futures contract (which position may be a long or short position) at a
specified exercise price at any time during the option exercise period.
Sellers of options on futures contracts, like buyers and sellers of futures
contracts, make an initial performance deposit and are subject to calls for
variation margin.
Investment in Bond Options by the Government Income Funds. The
Government Income Funds may purchase put and call options and write covered put
and call options on securities in which each such Fund may invest directly and
that are traded on registered domestic securities exchanges or that result from
separate, privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Board of Governors of the Federal Reserve
System (i.e., over-the-counter (OTC) options). The writer of a call option,
who receives a premium, has the obligation, upon exercise, to deliver the
underlying security against payment of the exercise price during the option
period. The writer of a put, who receives a premium, has the obligation to buy
the underlying security, upon exercise, at the exercise price during the option
period.
The Government Income Funds may write put and call options on bonds
only if they are covered, and such options must remain covered as long as the
Fund is obligated as a writer. A call option is covered if a Government Income
Fund owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash
4
<PAGE> 140
consideration (or for additional cash consideration if the underlying security
is held in a segregated account by its custodian) upon conversion or exchange
of other securities held in its portfolio. A put option is covered if a
Government Income Fund maintains cash, U.S. Treasury bills or other high grade
short-term obligations with a value equal to the exercise price in a segregated
account with its custodian.
The principal reason for writing put and call options is to attempt to
realize, through the receipt of premiums, a greater current return than would
be realized on the underlying securities alone. In return for the premium
received for a call option, the Government Income Funds forego the opportunity
for profit from a price increase in the underlying security above the exercise
price so long as the option remains open, but retains the risk of loss should
the price of the security decline. In return for the premium received for a
put option, the Government Income Funds assume the risk that the price of the
underlying security will decline below the exercise price, in which case the
put would be exercised and the Fund would suffer a loss. The Government Income
Funds may purchase put options in an effort to protect the value of a security
it owns against a possible decline in market value.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series. OTC options are not generally terminable at the option of the
writer and may be closed out only by negotiation with the holder. There is
also no assurance that a liquid secondary market on an exchange will exist. In
addition, because OTC options are issued in privately negotiated transactions
exempt from registration under the Securities Act of 1933, there is no
assurance that the Government Income Funds will succeed in negotiating a
closing out of a particular OTC option at any particular time. If a Government
Income Fund, as covered call option writer, is unable to effect a closing
purchase transaction in the secondary market or otherwise, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise.
The staff of the SEC has taken the position that purchased options not
traded on registered domestic securities exchanges and the assets used as cover
for written options not traded on such exchanges are generally illiquid
securities. However, the staff has also opined that, to the extent a mutual
fund sells an OTC option to a primary dealer that it considers creditworthy and
contracts with such primary dealer to establish a formula price at which the
fund would have the absolute right to repurchase the option, the fund would
only be required to treat as illiquid the portion of the assets used to cover
such option equal to the formula price minus the amount by which the option is
in-the-money. Pending resolution of the issue, the Government Income Funds
will treat such options and, except to the extent permitted through the
procedure described in the preceding sentence, assets as subject to each such
Fund's limitation on investments in securities that are not readily marketable.
Index Futures Contracts. An index futures contract is a contract to
buy or sell units of an index at a specified future date at a price agreed upon
when the contract is made. Entering into a contract to buy units of an index
is commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current
5
<PAGE> 141
value of the index. The Large Cap Equity Fund may enter into stock
index futures contracts and may purchase and sell options thereon.
There are several risks in connection with the use by the Large Cap
Equity Fund of index futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the index futures
and movements in the prices of securities which are the subject of the hedge.
The Large Cap Equity Fund will attempt to reduce this risk by selling, to the
extent possible, futures on indices the movements of which will, in the
Adviser's judgment, have a significant correlation with movements in the prices
of the Large Cap Equity Fund's portfolio securities sought to be hedged.
Successful use of the index futures by the Large Cap Equity Fund for
hedging purposes is also subject to the Large Cap Equity Fund's ability to
predict correctly movements in the direction of the market. It is possible
that, where the Large Cap Equity Fund has sold futures to hedge its portfolio
against a decline in the market, the index on which the futures are written may
advance and the value of securities held in the Large Cap Equity Fund's
portfolio may decline. If this occurs, the Large Cap Equity Fund would lose
money on the futures and also experience a decline in the value in its
portfolio securities. However, while this could occur to a certain degree, the
Adviser believes that over time the value of the Large Cap Equity Fund's
portfolio will tend to move in the same direction as the market indices which
are intended to correlate to the price movements of the portfolio securities
sought to be hedged. It is also possible that, if the Large Cap Equity Fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, the Large Cap Equity Fund will lose part or all of the benefit of the
increased value of those securities that it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Large Cap Equity Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the index futures
and the securities of the portfolio being hedged, the prices of index futures
may not correlate perfectly with movements in the underlying index due to
certain market distortions. First, all participants in the futures markets are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which would distort the normal relationship
between the index and futures markets. Second, margin requirements in the
futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than
the securities market. Increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the possibility of
price distortions in the futures market and also because of the imperfect
correlation between movements in the index and movements in the prices of index
futures, even a correct forecast of general market trends by the Adviser may
still not result in a successful hedging transaction.
Options on Index Futures. Options on index futures are similar to
options on securities except that options on index futures give the purchaser
the right, in return for the premium paid, to assume a position in an index
futures contract (a long position if the option is a call and a short position
if the option is a put), at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of
6
<PAGE> 142
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the index future. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise
price of the option and the closing level of the index on which the future is
based on the expiration date. Purchasers of options who fail to exercise their
options prior to the exercise date suffer a loss of the premium paid.
Additional Limitations on Futures Contracts and Related Options. In
order to comply with undertakings made by the Trust pursuant to Commodity
Futures Trading Commission ("CFTC") Regulation 4.5, the Government Income Funds
and the Large Cap Equity Fund will each use interest rate and stock index
futures contracts and options thereon, respectively, solely for bona fide
hedging purposes within the meaning and intent of CFTC Reg. 1.3(z)(1); provided,
however, that with respect to each long position in an interest rate futures
contract or option thereon that will be used as part of a portfolio management
strategy and that is incidental to such Fund's activities in the underlying
cash market but would not come within the meaning and intent of Reg. 1.3(z)(1),
the "underlying commodity value" (the size of the contract or option multiplied
by its current settlement price) of each such long position will not at any
time exceed the sum of:
(1) The value of short-term United States debt obligations or
other United States dollar-denominated high quality short term
money market instruments and cash set aside in an identifiable
manner, plus any funds deposited as margin on such contract or
option;
(2) Unrealized appreciation on such contract or option held at the
broker; and
(3) Cash proceeds from existing investments due in not more than
30 days.
No Fund will enter into interest rate futures contracts and options
thereon for which the aggregate initial margin and premiums exceed 5% of the
fair market value of its assets, after taking into account unrealized profits
and unrealized losses on any such contracts and options it has entered into;
provided, however, that the "in-the-money" amount of an option that was
"in-the-money" at the time of purchase will be excluded in computing such 5%.
Risks Involving Futures Transactions. Transactions by the Funds in
futures contracts and options thereon involve certain risks. One risk in
employing futures contracts and options thereon to protect against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in a Fund's
portfolio (the portfolio securities will not be identical to the securities
underlying the futures contracts). In addition, commodity exchanges generally
limit the amount of fluctuation permitted in futures contract and option prices
during a single trading day, and the existence of such limits may prevent the
prompt liquidation of futures and option positions in certain cases. Inability
to liquidate positions in a timely manner could result in the Fund's incurring
larger losses than would otherwise be the case.
7
<PAGE> 143
MANAGEMENT OF THE FUNDS
Trustees and Officers. The trustees and executive officers of the
Trust, and their principal occupations during the past five years, are listed
below. The trustees who are deemed to be an "interested person" of the Trust
for purposes of the 1940 Act are marked with an asterisk "*".
John J. Pileggi, Age 38, Trustee - 237 Park Avenue, New York, New York
10017. Senior Managing Director, Furman Selz LLC.
Charles M. Carr, age 66, Trustee - 1451 Highland Park Drive, Jackson, MS
39211. Petroleum Consultant since 1992. From 1991 to April, 1992 Managing
Director at Amoco (U.K.) Exploration Co., West Gate, London, U.K.
John William Head*, age 71, Trustee, - 46 Avery Circle, Jackson, MS 39211.
Retired. From 1975-1990 Executive Vice President - CEO of Southern Farm Bureau
Casualty Insurance Co.
James H. Johnston, III, M.D., Age 50, Trustee - 1421 North State Street, Suite
203, Jackson, Mississippi 39202. Physician (Gastroenterologist) with
Gastrointestinal Associates, P.A., Jackson, Mississippi since 1984.
James T. Mallette, Age 38, Trustee*, 111 East Capitol Street, Jackson,
Mississippi 39215. Attorney, Stubblefield, Mallette & Harvey, P.A., 3900
Lakeland Drive, Jackson, Mississippi 39208 since ________, 1997. Prior thereto
Mr Mallette was an attorney with the firm of Daniel Coker Horton and Bell,
P.A., P.O. Box 1084, Jackson, Mississippi since July 1987. President and
Director of Rollingwood Beautiful Association, Inc., Director of Easter Seal
Society of Jackson, Mississippi, Inc.
Walter P. Neely, Age 52, Trustee, Ph.D., CFA, 1701 North State Street, Jackson,
Mississippi 39210. Professor and Consultant, Millsaps College, Jackson,
Mississippi, since 1980. Director, KLLM Transport Systems, Jackson,
Mississippi.
Walter B. Grimm, age 52, President and Chief Executive Officer, 3435
Stelzer Road, Columbus, Ohio 43219. Employee of BISYS Fund Services.
Michael Sakala, age 31, Treasurer and Principal Financial Officer, 3435
Stelzer Road, Columbus, Ohio 43219. Employee of BISYS Fund Services.
Frank M. Deutchki, age 43, Vice President, 3435 Stelzer Road, Columbus,
Ohio 43219. Employee of BISYS Fund Services.
Richard Ille, age 32, Vice President and Assistant Secretary, 3435 Stelzer
Road, Columbus, Ohio 43219. Employee of BISYS Fund Services.
Ellen Stoutamire, age 48, Secretary, 3435 Stelzer Road, Columbus, Ohio
43219. Employee of BISYS Fund Services.
Jeanette Peplowski, age 39, Assistant Secretary, 3435 Stelzer Road,
Columbus, Ohio 43219. Employee of BISYS Fund Services.
8
<PAGE> 144
As required by law, for as long as the Trust has a Distribution Plan,
the selection and nomination of trustees who are not "interested persons" of
the Trust will be made by such disinterested trustees. See "Rule 12b-1
Distribution Plan" in this SAI.
Trustees of the Trust who are not affiliated with the Distributor or
the Adviser receive from the Trust an annual fee of $5000 and a fee for each
Board of Trustees and Board committee meeting attended of $1,000. Trustees who
are affiliated with the Distributor or the Adviser do not receive compensation
from the Trust but all trustees are reimbursed for all out-of-pocket expenses
relating to attendance at meetings.
The following table sets forth total compensation paid to Trustees for
the fiscal year ended May 31, 1996. Except as disclosed below, no executive
officer or person affiliated with the Fund received compensation from the Fund
for the fiscal year ended May 31, 1996 in excess of $60,000.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation from Retirement Benefits Benefits Upon From Registrant and
the Registrant Accrued as Part of Retirement Fund Complex
Fund Expenses
<S> <C> <C> <C> <C>
John J. Pileggi None 0 N/A None
Trustee
James H. Johnston, III, $7,833 0 N/A $7,833
M.D.
Trustee
James T. Mallette $7,833 0 N/A $7,833
Trustee
Walter P. Neely, Ph.D., $7,833 0 N/A $7,833
CFA, Trustee
Charles M. Carr, $7,833 0 N/A $7,833
Trustee*
John William Head, $7,833 0 N/A $7,833
Trustee*
</TABLE>
- --------------------
9
<PAGE> 145
* Messrs. Carr and Head were elected as Trustees on September 6, 1996.
Amount shown represents the total compensation estimated to be paid to
such person during a complete fiscal year.
As of the date of this SAI, trustees and officers of the Trust as a
group beneficially owned less than 1% of the outstanding shares of the Trust.
The Adviser. Trustmark National Bank, 248 East Capitol Street,
Jackson, Mississippi 39201 (the "Adviser") serves as the investment adviser to
each of the Funds pursuant to a Master Investment Advisory Contract (the
"Advisory Contract"). The Advisory Contract provides that the Adviser shall
furnish to the Funds investment guidance and policy direction in connection
with the daily portfolio management of each Fund. Pursuant to the Advisory
Contract, the Adviser furnishes to the Board of Trustees periodic reports on
the investment strategy and performance of each Fund.
The Adviser has agreed to provide to the Funds, among other things,
money market security and fixed income research, and analysis and statistical
and economic data and information concerning interest rate and security market
trends, portfolio composition and credit conditions.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually, (i) by the holders of a majority
of the respective Fund's outstanding voting securities (as defined in the 1940
Act) or by the Trust's Board of Trustees and (ii) by a majority of the trustees
of the Trust who are not parties to the Advisory Contract or "interested
persons" (as defined in the 1940 Act) of any such party. The Advisory Contract
may be terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
For the advisory services it provides to the Funds Trustmark may
receive fees based on average daily net assets up to the following annualized
rates: Short Term Fund, 0.40%; the Intermediate Fund, 0.50%; the Large Cap
Equity Fund, 0.60%.
For the fiscal years ended May 31, 1994, May 31, 1995 and May 31, 1996,
Trustmark was entitled to and waived advisory fees as listed below:
<TABLE>
<CAPTION>
TRUSTMARK TRUSTMARK
ENTITLED WAIVED
-------- ------
1994 1995 1996 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Short Term $536,429 $423,452 $449,285 $ 67,055 $31,838 $6,868
Government Income
Fund
The Intermediate Term 868,024 701,678 396,037 260,408 157,708 38,724
Government
Income Fund
</TABLE>
10
<PAGE> 146
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
The Large Cap Equity Fund 671,658 570,256 750,188 167,919 123,672 125,235
</TABLE>
Trustmark National Bank also serves as custodian for each of the Funds.
See "Custodian." BISYS Fund Services, Inc. serves as the Funds' transfer agent
and provides certain administrative, shareholder servicing and fund accounting
services for each Fund.
Counsel has advised the Trust that the Adviser should be able to
perform the services contemplated by the Advisory Contract with the Trust, the
Prospectus and this SAI, without violation of the Glass-Steagall Act. Such
counsel have pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as future changes in federal or
state statutes and regulations and judicial or administrative decisions or
interpretations thereof, could prevent the Adviser or its Affiliates from
continuing to perform, in whole or in part, such services. If the Adviser was
prohibited from performing the services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
Administrator. The Trust has retained BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS") as administrator on behalf of
each of its Funds. Under the Administration Agreements with the Trust, the
Administrator, in connection therewith, furnishes the Trust with office
facilities, together with those ordinary clerical and bookkeeping services
that are not being furnished by the Adviser.
For the fiscal year ended May 31, 1994, the Administrator earned fees
totalling $201,161, $260,407, and $167,917 from the Short Term Fund, the
Intermediate Fund, and the Large Cap Equity Fund, respectively, pursuant to each
Fund's Administration Agreement with Furman Selz.
For the fiscal year ended May 31, 1995, the Administrator earned fees
totalling $158,805, $210,503, and $142,564 from the Short Term Fund, the
Intermediate Term Fund, and the Large Cap Equity Fund, respectively, pursuant to
each Fund's Administration Agreement with Furman Selz.
For the fiscal year ended May 31, 1996, the Administrator earned fees
totalling $168,550, $119,104, and $187,486 from the Short Term Fund, the
Intermediate Term Fund, and the Large Cap Equity Fund, respectively, pursuant
to each Fund's Administration Agreement with BISYS.
11
<PAGE> 147
RULE 12b-1 DISTRIBUTION PLAN
As described in the Prospectus, the Trust has adopted, for the Consumer
Service Class of each of the Funds, a Distribution Plan under Section 12(b) of
the 1940 Act and Rule 12b-1 thereunder (the "Rule"). The Distribution Plan was
adopted by the Board of Trustees, including a majority of the trustees who were
not "interested persons" (as defined in the 1940 Act) of the Trust and who had
no direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Qualified Trustees").
Under the Distribution Plan, each Fund may, with respect to its
Consumer Service Class, reimburse the Distributor monthly (subject to a limit
of 0.35% per annum of the average daily net assets of each Fund's Consumer
Service Class) for costs and expenses of the Distributor in connection with the
distribution of Fund shares of the Consumer Service Class. These costs and
expenses include: (i) advertising by radio, television, newspapers, magazines,
brochures, sales literature, direct mail or any other form of advertising, (ii)
expenses of sales employees or agents of the Distributor, including salary,
commissions, travel and related expenses, (iii) payments to broker-dealers and
financial institutions for services in connection with the distribution of
shares, including promotional incentives and fees calculated with reference to
the average daily net asset value of shares held by shareholders who have a
brokerage or other service relationship with the broker-dealer or other
institution receiving such fees, (iv) costs of printing prospectuses and other
materials to be given or sent to prospective investors, and (v) such other
similar services as the Board of Trustees determines to be reasonably
calculated to result in the sale of shares of the Funds. The actual fee
payable to the Distributor shall, within such limit, be determined from time to
time by mutual agreement between the Trust and the Distributor. The
Distributor may enter into selling agreements with one or more selling agents
under which such agents may receive compensation for distribution-related
services from the Distributor, including, but not limited to, commissions or
other payments to such agents based on the average daily net assets of Fund
shares attributable to them. The Distributor may retain any portion of the
total distribution fee payable under the Plan to compensate it for the
distribution-related services provided by it or to reimburse it for other
distribution-related expenses. The SEC has proposed certain amendments to the
Rule. If the proposed amendments are adopted, the distribution arrangement
described above may have to be modified to ensure that all payments of
distribution expenses are attributable to specific sales or promotional
services or activities. Any other amendments to the Rule also could require
amendments or revisions to the distribution arrangements described above.
The Distribution Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the trustees of the Trust
and the Qualified Trustees. Such agreements will terminate automatically if
assigned, and may be terminated at any time, without payment of any penalty, by
a vote of a majority of the outstanding voting securities of the proper Fund.
The Distribution Plan may not be amended to increase materially the amounts
payable thereunder by any Fund without the approval of a majority of the
outstanding voting securities of the Fund, and no material amendment to the
Distribution Plan may be made except by a majority of both the trustees of the
Trust and the Qualified Trustees.
12
<PAGE> 148
For the fiscal year ended May 31, 1994, the Consumer Service Class of
the Short Term Fund, the Intermediate Fund, and the Large Cap Equity Fund paid
$1,884, $8,726 and $11,664, respectively, pursuant to each Fund's Distribution
Plan.
For the fiscal year ended May 31, 1995, the Consumer Service Class of
the Short Term Fund, the Intermediate Term Fund, and the Large Cap Equity Fund
paid $1,853, $8,108 and $12,349, respectively, pursuant to each Fund's
Distribution Plan.
For the fiscal year ended May 31, 1996, the Consumer Service Class of
the Short Term Fund, the Intermediate Term Fund, and the Large Cap Equity Fund
paid $2,396, $8,087 and $15,946, respectively, pursuant to each Fund's
Distribution Plan.
CALCULATION OF YIELD AND TOTAL RETURN
Quotations of average annual total return will be expressed in terms of
the average annual compounded rate of return of a hypothetical investment in a
Fund over periods of 1, 5 and 10 years and since inception (up to the life of
the Fund), calculated pursuant to the following formula:
P (1+T) = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of the maximum sales charge and a
proportional share of Fund expenses (net of certain reimbursed expenses) on an
annual basis, and will assume that all dividends and distributions are
reinvested when paid.
As indicated in the Prospectus, the Funds may advertise certain yield
information.
Yield for the Government Income Funds will be calculated based on a
30-day (or one month) period, computed by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
6
YIELD = 2[((a-b)/cd+1) -1]
where a = hypothetical dividends and interest earned during the 30-day period;
b = expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the net asset value per share on the last day of the
period. The net investment income of each of such Funds includes actual
interest income, plus or minus amortized purchase discount (which may include
original issue discount) or premium, less accrued expenses. Realized and
unrealized gains and losses on portfolio securities are not included in such
Funds' net investment income for this purpose. For purposes of sales
literature, such Funds' yield also may be calculated on the basis of the net
asset value per share rather than the public offering price, provided that the
yield data derived pursuant to the calculation described above also are
presented.
13
<PAGE> 149
Based on the thirty day period ended May 31, 1996 ("30-day base
period") the 30 day yield for the Consumer Service Class and the Institutional
Class of the Short Term Fund was 5.22% and 5.47%, respectively, and the 30 day
yield for the Consumer Service Class and the Institutional Class of the
Intermediate Fund was 5.76% and 6.03%, respectively.
The average annual total return information for Consumer Service Class
for the periods indicated below is as follows:
<TABLE>
<CAPTION>
Short Term Government Income Fund Total Return
- --------------------------------- ------------
<S> <C>
One year ended May 31, 1996 4.38%
3-year 3.88%
Inception (6/1/92) to May 31, 1996 4.57%
Intermediate Term Government Income Fund
- ----------------------------------------
One year ended May 31, 1996 2.40%
3-year 3.77%
Inception (6/1/92) to May 31, 1996 5.91%
Large Cap Equity Fund
- ---------------------
One year ended May 31, 1996 28.42%
3-year 14.96%
Inception (6/1/92) to May 31, 1996 14.82%
</TABLE>
The average annual total return information for the Institutional Class
for the periods indicated below is as follows:
<TABLE>
<CAPTION>
Short Term Government Income Fund Total Return
- --------------------------------- ------------
<S> <C>
One year ended May 31, 1996 4.65%
3-year 4.14%
Inception (6/1/92) to May 31, 1996 4.79%
Intermediate Term Government Income Fund
- ----------------------------------------
One year ended May 31, 1996 2.66%
3-year 4.03%
Inception (6/1/92) to May 31, 1996 6.13%
Large Cap Equity Fund
- ---------------------
One year ended May 31, 1996 28.73%
3-year 15.24%
Inception (6/1/92) to May 31, 1996 15.06%
</TABLE>
14
<PAGE> 150
The yield or total return for each Fund will fluctuate from time to
time, unlike bank deposits or other investments that pay a fixed yield for a
stated period of time, and does not provide a basis for determining future
yield or total return since it is based on historical data. Yield and total
return are functions of portfolio quality, composition, maturity and market
conditions as well as the expenses allocated to a Fund.
In addition, investors should recognize that changes in the net asset
values of shares of a Fund will affect the yield of such Fund for any specified
period, and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. Yield and
total return information for the Funds may be useful in reviewing the
performance of a Fund and for providing a basis for comparison with investment
alternatives. The yield or total return of a Fund, however, may not be
comparable to the yields from investment alternatives because of differences in
the foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield or total return.
From time to time, the Trust may quote the Funds' performance in
advertising and other types of literature as compared to the performance of the
S&P Index, the Dow Jones Industrial Average or any other commonly quoted index
of common stock prices. The S&P Index and the Dow Jones Industrial Average are
unmanaged indices of selected common stock prices. The Funds' performance also
may be compared to those of other mutual funds having similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., an independent service which monitors the
performance of mutual funds.
The Funds' comparative performance for such purposes may be calculated
by relating net asset value per share at the beginning of a stated period to
the net asset value of the investment, assuming reinvestment of all gains,
distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare a Fund's past
performance with that of its competitors. Of course, past performance cannot
be a guarantee of future results.
The Trust also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would
assess the creditworthiness of the investments held by a Fund. The assigned
rating would not be a recommendation to purchase, sell or hold the Fund's
shares since the rating would not comment on the market price of the Fund's
shares or the suitability of a Fund for a particular investor. In addition,
the assigned rating would be subject to change, suspension or withdrawal as a
result of changes in, or unavailability of, information relating to a Fund or
its investments. The Trust may compare a Fund's performance with other
investments which are assigned ratings by NRSROs. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with other
rated investments.
15
<PAGE> 151
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Fund is determined by the
Administrator of the Funds on each day the New York Stock Exchange is open for
trading.
Securities of the Funds for which market quotations are available are
valued at latest prices. In the absence of any sale of such securities on the
valuation date and in the case of other securities, including U.S. Government
securities but excluding debt securities maturing in 60 days or less, the
valuations are based on latest quoted bid prices. Futures contracts and
options listed on a national exchange are valued at the last sale price on the
exchange on which they are traded at the close of the Exchange, or, in the
absence of any sale on the valuation date, at latest quoted bid prices.
Options not listed on a national exchange are valued at latest quoted bid
prices. Debt securities maturing in 60 days or less are valued at amortized
cost. In all cases, bid prices will be furnished by a reputable independent
pricing service approved by the Board of Trustees and are based on yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to value from dealers; and general market conditions. Prices
provided by an independent pricing service may be determined without exclusive
reliance on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by the Trust's Board of Trustees and in accordance
with procedures adopted by the Board of Trustees.
With respect to options contracts, the premium received is recorded as
an asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by a Fund is recorded as
an asset and subsequently adjusted to market value.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any broker or group of brokers
in the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, the Adviser is responsible for
each Fund's portfolio decisions and the placing of portfolio transactions. In
placing orders, it is the policy of the Trust to obtain the best execution
taking into account the broker's general execution and operational facilities,
the type of transaction involved and other factors. While the Adviser
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
The Adviser may, in circumstances in which two or more brokers are in a
position to offer comparable results for a Fund portfolio transaction, give
preference to a broker that has provided statistical or other research services
to the Adviser. By allocating transactions in this manner, the Adviser is able
to supplement its research and analysis with the views and information of
securities firms. Information so received may be in addition to, and not in
lieu of, the services required to be performed by the Adviser under the
Advisory Contracts, and the
16
<PAGE> 152
expenses of the Adviser will not necessarily be reduced as a result of the
receipt of this supplemental research information. Furthermore, research
services furnished by brokers through which the Adviser places securities
transactions for a Fund may be used by the Adviser in servicing its other
accounts, and not all of these services may be used by the Adviser in
connection with advising the Funds. In so allocating portfolio transactions,
the Adviser may, in compliance with Section 28(e) of the Securities Exchange
Act of 1934, cause the Trust to pay an amount of commission that exceeds the
amount of commission that another broker would have charged for effecting the
same transaction.
Except in the case of equity securities purchased by the Large Cap
Equity Fund, purchases and sales of portfolio securities usually will be
principal transactions. Portfolio securities normally will be purchased or
sold from or to dealers serving as market makers for the securities at a net
price. Each of the Funds also may purchase portfolio securities in
underwritten offerings and may purchase securities directly from the issuer.
Generally, money market securities and other debt obligations are traded on a
net basis and do not involve brokerage commissions. The costs associated with
executing a Fund's portfolio securities transactions will consist primarily of
dealer spreads and underwriting commissions. Under the 1940 Act, persons
affiliated with the Trust are prohibited from dealing with the Trust as a
principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC or an exemption is
otherwise available. Any of the Funds may purchase obligations from
underwriting syndicates of which the Distributor (or its affiliate) is a member
under certain conditions in accordance with the provisions of a rule adopted
under the 1940 Act and in compliance with procedures adopted by the Board of
Trustees.
Purchases and sales of equity securities for the Large Cap Equity Fund
typically are effected through brokers who charge a negotiated commission for
their services. Orders may be directed to any broker including, to the extent
and in the manner permitted by applicable law, the Distributor or its
affiliates. In the over-the-counter market, securities are generally traded on
a "net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount.
In placing orders for portfolio securities ofthe Large Cap Equity Fund,
the Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that the Adviser will seek
to execute each transaction at a price and commission, if any, that provide the
most favorable total cost or proceeds reasonably attainable in the
circumstances. While the Adviser will generally seek reasonably competitive
spreads or commissions, the Large Cap Equity Fund will not necessarily be paying
the lowest spread or commission available. Commission rates are established
pursuant to negotiations with the broker based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. The allocation of orders among brokers and the commission rates paid
are reviewed periodically by the Board of Trustees.
For the fiscal years ended May 31, 1994, May 31, 1995 and May 31, 1996
the Short Term Fund and the Intermediate Fund did not pay any brokerage
commissions. During the same
17
<PAGE> 153
periods the Large Cap Equity Fund paid $235,377, $354,214 and $50,303
respectively, in brokerage commissions.
Portfolio Turnover. The portfolio turnover rate for the Government
Income Funds generally is not expected to exceed 250%. The portfolio turnover
rate forthe Large Cap Equity Fund is not expected to exceed 100%. The portfolio
turnover rate will not be a limiting factor when the Adviser deems portfolio
changes appropriate. For the fiscal year ended May 31, 1996, the portfolio
turnover rates for the Short-Term Government Income Fund, the Intermediate Term
Government Income Fund and the Large Cap Equity Fund were 120%, 183% and 6%,
respectively.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of dividends and
distributions made by the Trust. This section of the SAI includes additional
information concerning federal income taxes.
Qualification by a Fund as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code") requires, among other
things, that (a) at least 90% of a Fund's annual gross income be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of stock or securities, options, futures, forward
contracts, foreign currencies, and other income derived with respect to its
business of investing in stock or securities; (b) a Fund derives less than 30%
of its gross income from gains from the sale or other disposition of securities
or options, futures or forward contracts (other than options, futures or
forward contracts on foreign currencies) and foreign currencies (including
options, futures or forwards thereon) not directly related to the Fund's
business of investing in stock or securities, thereon held for less than three
months; and (c) a Fund diversifies its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
government securities, securities of other regulated investment companies and
other securities (except that such other securities must be limited in respect
of any one issuer to an amount not greater than 5% of the value of the Fund's
assets and 10% of the outstanding voting securities of such issuer), and (ii)
not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies), or of two or more issuers
which the taxpayer controls and which are determined to be engaged in the same
or similar trades or businesses or related trades or businesses. A Fund will
not be subject to federal income tax on its net investment income and net
capital gains which are distributed to its shareholders, provided that it
distributes to its stockholders at least 90% of its net investment income and
tax-exempt income earned in each year. If the Fund does not meet all of these
Code requirements, it will be taxed as an ordinary corporation and its
distributions will be taxed to shareholders as ordinary income.
Under the Code, a nondeductible excise tax of 4%, is imposed on the
excess of a regulated investment company's "required distribution" for the
calendar year ending within the regulated investment company's taxable year
over the "distributed amount" for such calendar year. The term "required
distribution" means the sum of (i) 98% of ordinary income for the calendar
year, (ii) 98% of capital gain net income for the one year period ending on
October 31
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<PAGE> 154
and (iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually
distributed by the regulated investment company from its current year's
ordinary income and capital gain net income and (ii) any amount on which the
regulated investment company pays income tax for the year.
For this purpose, any income or gain retained by a Fund that is subject
to tax will be considered to have been distributed by year-end. In addition,
dividends and distributions declared payable as of a date in October, November
or December of any calendar year are deemed under the Code to have been
received by the shareholders on December 31 of that calendar year if the
dividend is actually paid in the following January. Such dividends will,
accordingly, be subject to income tax for the year in which the record date
falls. Each Fund intends to distribute substantially all of its net investment
income and net capital gains and, thus, expects not to be subject to the excise
tax.
A capital gains distribution will be a return of invested capital to
the extent the net asset value of an investor's shares is thereby reduced below
his or her cost, even though the distribution will be taxable to the
shareholder. A redemption of shares by a shareholder under these circumstances
could result in a capital loss for federal tax purposes.
It is anticipated that a portion of the dividends paid by the Large Cap
Equity Fund will qualify for the dividends-received deduction available to
corporations. The Large Cap Equity Fund is required to notify shareholders of
the amount of dividends which will qualify for the deduction within 60 days of
the close of the Fund's taxable year. The dividends paid by the other Funds
are not expected to qualify. Pending tax law proposals may affect the
dividends received deduction.
If a shareholder exchanges or otherwise disposes of shares of a Fund
within 90 days of having acquired such shares, and if, as a result of having
acquired those shares the shareholder subsequently pays a reduced sales load
for shares of a Fund, the sales load previously incurred acquiring the Fund's
shares shall not be taken into account (to the Extent such previous sales loads
so not exceed the reduction in sales loads) for the purpose of determining the
amount of gain or loss on the exchange, but will be treated as having been
incurred in the acquisition of such other shares.
Any loss realized on a redemption or exchange of shares of a Fund will
be disallowed to the extent shares are reacquired within the 60-day period
beginning 30 days before and ending 30 days after the day the shares are
disposed.
If an option written by a Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction. If securities are sold by a Fund pursuant to the
exercise of a call option written by it, such Fund will add the premium
received to the sale price of the securities delivered in determining the
amount of gain or loss on the sale. If securities are purchased by a Fund
pursuant to the exercise of a put option written by it, such Fund will subtract
the premium received from its cost basis in the securities purchased. The
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<PAGE> 155
requirement that each Fund derive less than 30% of its gross income from gains
from the sale of securities held for less than three months may limit the
Fund's ability to write options.
The amount of any realized gain or loss on closing out a forward
contract will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by a Fund
at the end of a fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Any gain or loss recognized with respect to forward currency contracts is
considered to be 60% long term capital gain or loss and 40% short term capital
gain or loss, without regard to the holding period of the contract. Code
Section 988 may also apply to forward contracts. Under Section 988, each
foreign currency gain or loss is generally computed separately and treated as
ordinary income or loss. In the case of overlap between Section 1256 and 988,
special provisions determine the character and timing of any income, gain or
loss. The Funds will attempt to monitor Section 988 transactions to avoid an
adverse tax impact.
Shareholders will be notified annually by the Trust as to the Federal
tax status of distributions made by the Fund(s) in which they invest.
Depending on the residence of the shareholder for tax purposes, distributions
also may be subject to state and local taxes. Special tax treatment, including
a penalty on certain pre-retirement distributions, is accorded to accounts
maintained as IRAs. Shareholders should consult their own tax advisers as to
the Federal, state and local tax consequences of ownership of shares of the
Funds in their particular circumstances.
Foreign Shareholders Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of
30% or a lower treaty rate). Withholding will not apply if a dividend paid by
the Fund to a foreign shareholder is "effectively connected" with a U.S. trade
or business, in which case the reporting and withholding requirements
applicable to U.S. citizens or domestic corporations will apply. Distributions
of net long-term capital gains are not subject to tax withholding, but in the
case of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. income tax at a rate of 30% if
the individual is physically present in the U.S. for more than 182 days during
the taxable year.
Investors should be aware that the investments to be made by the Funds
may involve sophisticated tax rules (such as the original issue discount,
marked to market and real estate mortgage investment conduit ("REMIC") rules)
that would result in income or gain recognition by the Funds without
corresponding current cash receipts. Although the Funds will seek to avoid
significant noncash income, such noncash income could be recognized by the
Funds, in which case a Fund may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above. Investors
should consult their tax advisers with respect to such rules.
20
<PAGE> 156
SHARES OF BENEFICIAL INTEREST
The Trust consists of multiple separate portfolios or funds, including
the Funds. Each Fund is comprised of two classes of shares -- the
"Institutional Class" and the "Consumer Service Class." When certain matters
affect one class but not another, the shareholders would vote as a class
regarding such matters. Subject to the foregoing, on any matter submitted to a
vote of shareholders, all shares then entitled to vote will be voted separately
by Fund or portfolio unless otherwise required by the 1940 Act, in which case
all shares will be voted in the aggregate. For example, a change in a Fund's
fundamental investment policies would be voted upon only by shareholders of the
Fund involved. Additionally, approval of the Advisory Contract is a matter to
be determined separately by each Fund. Approval by the shareholders of one
Fund is effective as to that Fund whether or not sufficient votes are received
from the shareholders of the other Funds to approve the proposal as to those
Funds. As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Fund or class
means the vote of the lesser of (i) 67% of the shares of the Fund or class
represented at a meeting if the holder of more than 50% of the outstanding
shares of the Fund or class are present in person or by proxy, or (II) more
than 50% of the outstanding shares of the Fund or class. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Trust
as a whole means the vote of the lesser of (i) 67% of the Trust's shares
represented at a meeting if the holders of more than 50% of the Trust's
outstanding shares are present in person or proxy, or (ii) more than 50% of the
Trust's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
The Trust may dispense with annual meetings of shareholders in any year
in which it is not required to elect trustees under the 1940 Act. However, the
Trust undertakes to hold a special meeting of its shareholders if the purpose
of voting on the question of removal of a director or trustees is requested in
writing by the holders of at least 10% of the Trust's outstanding voting
securities, and to assist in communicating with other shareholders as required
by Section 16(c) of the 1940 Act.
Each share of a Fund represents an equal proportional interest in that
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to that Fund as are declared
in the discretion of the Trustees. In the event of the liquidation or
dissolution of the Trust, shareholders of a Fund are entitled to receive the
assets attributable to that Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular Fund that
are available for distribution in such manner and on such basis as the Trustees
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Trust.
As of July 8, 1997, the following were five percent or greater
shareholders of the Funds:
21
<PAGE> 157
<TABLE>
<CAPTION>
Short Term Fund
Institutional Class
<S> <C>
Harman & Co. 99.03%
c/o Trustmark National Bank
Trust Department
P.O. Box 291
Jackson, MS 39205-0291
Consumer Service Class
Donaldson Lufkin Jenrette 57.09%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</TABLE>
<TABLE>
<CAPTION>
Intermediate Fund
Institutional Class
<S> <C>
Harman & Co. 99.25%
c/o Trustmark National Bank
Trust Department
P.O. Box 291
Jackson, MS 39205-0291
Consumer Service Class
Donaldson, Lufkin Jenrette 24.74%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
Cheryl E. Sizemore 8.35%
130 Highway 217
Tijeras, NM 87059-7803
</TABLE>
22
<PAGE> 158
<TABLE>
<CAPTION>
Large Cap Equity Fund
Institutional Class
<S> <C>
Harman & Co. 84.16%
c/o Trustmark National Bank
Trust Department
P.O. Box 291
Jackson, MS 39205-0291
First American Trust Co. 14.01%
421 North Main Street
Santa Ana, CA 92701
</TABLE>
OTHER INFORMATION
The Trust's Registration Statement, including the Prospectus, the SAI
and the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C. Statements contained in the Prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
CUSTODIAN
Trustmark also acts as Custodian for the Funds. The Custodian, among
other things, maintains a custody account or accounts in the name of each Fund;
receives and delivers all assets for each Fund upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of each Fund and pays all expenses of each Fund. For
its services as Custodian, Trustmark receives an asset-based fee and
transaction charges.
For the fiscal year ended May 31, 1994, the Short Term Fund, the
Intermediate Fund and the Large Cap Equity Fund paid $60,238, $51,723 and
$26,520, respectively, to the Custodian.
For the fiscal year ended May 31, 1995, the Short Term Fund, the
Intermediate Term Fund and the Large Cap Equity Fund paid $42,348, $56,134, and
$37,704, respectively, to the Custodian.
For the fiscal year ended May 31, 1996, the Short Term Fund, the
Intermediate Term Fund and the Large Cap Equity Fund paid $44,947, $31,761, and
$49,996, respectively, to the Custodian.
23
<PAGE> 159
EXPERTS
Price Waterhouse LLP serves as the independent accountants for the
Trust. Price Waterhouse LLP provides audit services, tax return preparation
and assistance and consultation in connection with certain SEC filings. Price
Waterhouse LLP's address is 1177 Avenue of the Americas, New York, New York
10036.
FINANCIAL STATEMENTS
Financial Statements for the Funds as of May 31, 1996 and for
the period then ended including the Report of Price Waterhouse LLP, independent
accountants, are incorporated by reference.
24
<PAGE> 160
APPENDIX
The following is a description of the ratings by Moody's and S&P to
corporate and municipal bonds, corporate and municipal commercial paper and
municipal notes.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds
are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa"
are of "high quality by all standards," but margins of protection or other
elements make long-term risks appear somewhat greater than "Aaa" rated bonds.
Bonds rated "A" possess many favorable investment attributes and are considered
to be upper medium grade obligations. Bonds rated "Baa" are considered to be
medium grade obligations; 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
have speculative characteristics as well. Moody's applies numerical modifiers:
1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of
a plus or minus sign to show relative standing within the category.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations,"
but earnings trends, while sound, will be subject to more variation. S&P: The
"A-1" rating for corporate and municipal commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
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<PAGE> 161
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding group." Notes rated "MIG 3" or "VMIG
3" are of "favorable quality," with all security elements accounted for, but
lacking the strength of the preceding grades. S&P: The "SP-1" rating reflects
a "very strong or strong capacity to pay principal and interest." Notes issued
with "overwhelming safety characteristics" will be rated "SP-1+." The "SP-2"
rating reflects a "satisfactory capacity" to pay principal and interest.
26
<PAGE> 162
PERFORMANCE FUNDS TRUST
TELEPHONE: 1-800 PERFORM (737-3676)
STATEMENT OF ADDITIONAL INFORMATION -- SEPTEMBER , 1997
THE SMALLCAP INVESTOR FUND
Performance Funds Trust (the "Trust") is an open-end management investment
company of the series type. This Statement of Additional Information ("SAI")
contains information about both the "Consumer Service Class" and the
"Institutional Class" of one of the Trust's investment portfolios -- The
SmallCap Fund (the "Fund"). The investment objective of the Fund is described in
the Prospectus. See "Investment Objective, Policies and Practices" in the
Prospectus.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus, dated September , 1997. All terms used in this SAI, that
are defined in the Prospectus, will have the meanings assigned in the
Prospectus. Copies of the Prospectus may be obtained without charge by writing
to Performance Funds Distributor, Inc. ("PFD"), the Trust's distributor, at 3435
Stelzer Road, Columbus, Ohio 43219; or by calling the Fund at the telephone
number indicated above.
<PAGE> 163
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Investment Restrictions................................................................. 3
Additional Permitted Investment Activities.............................................. 4
Management of the Fund.................................................................. 9
Rule 12b-1 Distribution Plan............................................................ 12
Calculation of Yield and Total Return................................................... 13
Determination of Net Asset Value........................................................ 14
Portfolio Transactions.................................................................. 15
Federal Income Taxes.................................................................... 15
Shares of Beneficial Interest........................................................... 18
Other Information....................................................................... 18
Custodian............................................................................... 19
Experts................................................................................. 19
Appendix................................................................................ 20
</TABLE>
2
<PAGE> 164
INVESTMENT RESTRICTIONS
Investment Restrictions Nos. 1, 2, 4, 7, 8, 10 and 11 are fundamental and
can be changed only when permitted by law and approved by a majority of the
Fund's outstanding voting securities. The non-fundamental investment
restrictions can be changed by approval of a majority of the Board of Trustees.
A "majority of the Fund's outstanding voting securities" means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented in person or by proxies or (ii) more than 50%
of the outstanding shares.
The Fund may not:
(1) Invest more than 15% of the market value of its total net assets in
illiquid investments including repurchase agreements maturing in more than
seven days;
(2) Invest more than 25% of the value of its total assets in any particular
industry;
(3) Purchase securities on margin or borrow money, except (a) from banks for
extraordinary or emergency purposes (not for leveraging or investment) or
(b) by engaging in reverse repurchase agreements, provided that (a) and (b)
in the aggregate do not exceed an amount equal to one-third of the value of
the total assets of the Fund less its liabilities (not including the amount
borrowed) at the time of the borrowing, and further provided that 300%
asset coverage is maintained at all times;
(4) Make loans or lend fund securities of value exceeding in the aggregate
one-third of the market value of the Fund's total assets less liabilities
other than obligations created by these transactions;
(5) Mortgage, pledge or hypothecate any assets except that the Fund may pledge
not more than one-third of its total assets to secure borrowings made in
accordance with paragraph 3 above. However, although not a fundamental
policy of the Fund, as a matter of operating policy in order to comply with
certain state statutes, the Fund will not pledge its assets in excess of an
amount equal to 10% of total net assets;
(6) Invest in shares of other open-end, management investment companies, beyond
the limitations of the Investment Company Act of 1940 (the "1940 Act") and
subject to such investments being consistent with the overall objective and
policies of the Fund, provided that any such purchases will be limited to
short-term investments in shares of investment companies and the Adviser
will waive its advisory fees for that portion of the Fund's assets so
invested, except when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition;
(7) Act as an underwriter of securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security;
(8) Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
(9) Purchase securities while borrowings exceed 5% of its total assets;
(10) Purchase or acquire commodities or commodity contracts;
(11) Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing;
(12) Participate on a joint, or a joint and several, basis in any securities
trading account; or
(13) Invest in companies for the purpose of exercising control.
If a percentage restriction is adhered to at the time an investment is
made, a later change in percentage resulting from changes in the value of the
Fund's investment securities will not be considered a violation of the Fund's
restrictions.
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ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The material relating to the risk factors pertaining to the securities
invested in by the Fund set forth in the Prospectus is herein incorporated by
reference. The following discussion is additional disclosure that supplements
the Prospectus.
SMALLCAP COMMON STOCKS
Investing in the common shares of "smaller" companies generally entails
greater risk and volatility than investing in large, well-established companies.
The securities of small capitalization companies may offer greater potential for
capital appreciation than the securities of larger companies since they may be
overlooked by investors or undervalued in relation to their earnings power.
Small capitalization companies generally are not as well known to the investing
public and have less of an investor following than larger companies, thus they
may provide greater opportunities for long-term capital appreciation as a result
of relative inefficiencies in the marketplace.
INVESTMENTS IN WARRANTS AND RIGHTS
Warrants in general are options to purchase equity securities at a
specified price valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights are
similar to warrants, but normally have a short duration and are distributed
directly by the issuer to its shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
CONVERTIBLE SECURITIES
The Fund may, as an interim alternative to investment in common stocks,
purchase investment grade convertible debt securities having a rating of, or
equivalent to, at least "BBB" by Standard & Poor's Corporation ("S&P") or, if
unrated, judged by the Adviser to be of comparable quality. Securities rated
less than "A" by S&P may have speculative characteristics. Although lower rated
bonds generally have higher yields, they are more speculative and subject to a
greater risk of default with respect to the issuer's capacity to pay interest
and repay principal than are higher rated debt securities. See the Appendix for
an explanation of different rating categories.
In selecting convertible securities for the Fund, the Adviser relies
primarily on its own evaluation of the issuer and the potential for capital
appreciation through conversion. It does not rely on the rating of the security
or sell because of a change in rating absent a change in its own evaluation of
the underlying common stock and the ability of the issuer to pay principal and
interest or dividends when due without disrupting its business goals. Interest
or dividend yield is a factor only to the extent it is reasonably consistent
with prevailing rates for securities of similar quality and thereby provides a
support level for the market price of the security. The Fund may purchase the
convertible securities of highly leveraged issuers only when, in the judgment of
the Adviser, the risk of default is outweighed by the potential for capital
appreciation.
The issuers of debt obligations having speculative characteristics may
experience difficulty in paying principal and interest when due in the event of
a downturn in the economy or unanticipated corporate developments. The market
prices of such securities may become increasingly volatile in periods of
economic uncertainty. Moreover, adverse publicity or the perceptions of
investors over which the Adviser has no control, whether or not based on
fundamental analysis, may decrease the market price and liquidity of such
investments. Although the Adviser will attempt to avoid exposing the Fund to
such risks, there is no assurance
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<PAGE> 166
that it will be successful or that a liquid secondary market will continue to be
available for the disposition of such securities.
INVESTMENTS IN SMALL, UNSEASONED COMPANIES
The securities of small, unseasoned companies may have a limited trading
market, which may adversely affect their disposition and can result in their
being priced lower than might otherwise be the case. If other investment
companies and investors who invest in such issuers trade the same securities
when the Fund attempts to dispose of its holdings, the Fund may receive lower
prices than might otherwise be obtained.
CORPORATE REORGANIZATIONS
The Fund may invest in securities for which a tender or exchange offer has
been made or announced and in securities of companies for which a merger,
consolidation, liquidation or reorganization proposal has been announced if, in
the judgment of the Adviser, there is reasonable prospect of capital
appreciation significantly greater than the brokerage and other transaction
expenses involved. The primary risk of such investments is that if the
contemplated transaction is abandoned, revised, delayed or becomes subject to
unanticipated uncertainties, the market price of the securities may decline
below the purchase price paid by the Fund.
In general, securities which are the subject of such an offer or proposal
sell at a premium to their historic market price immediately after the
announcement of the offer or proposal. However, the increased market price of
such securities may still discount what the stated or appraised value of the
security would be if the contemplated transaction were approved or consummated.
Such investments may be advantageous when the discount significantly overstates
the risk of the contingencies involved; significantly undervalues the
securities, assets or cash to be received by shareholders of the prospective
portfolio company as a result of the contemplated transaction; or fails
adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offerer as well as the dynamics of the business
climate when the offer or proposal is in process.
In making such investments, the Fund will not violate any of its
diversification requirements or investment restrictions, including the
requirement that, except for the investment of up to 25% of its total assets in
any one company or industry, not more than 5% of its total assets may be
invested in the securities of any one issuer. Since such investments are
ordinarily short term in nature, they will tend to increase the turnover ratio
of the Fund, thereby increasing its brokerage and other transaction expenses as
well as make it more difficult for the Fund to meet the tests for favorable tax
treatment as a "Regulated Investment Company" specified by the Internal Revenue
Code (see the Prospectus, "Dividends, Distributions and Federal Income Taxes").
The Adviser intends to select investments of the type described, which, in its
view, have a reasonable prospect of capital appreciation which is significant in
relation to both the risk involved and the potential of available alternate
investments as well as monitor the effect of such investments on the tax
qualification tests of the Internal Revenue Code.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreements as set forth in the
Prospectus. A repurchase agreement is an instrument under which the purchaser
(i.e., the Fund) acquires a debt security and the seller agrees, at
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<PAGE> 167
the time of the sale, to repurchase the obligation at a mutually agreed upon
time and price, thereby determining the yield during the purchaser's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. The underlying securities are ordinarily U.S.
Treasury or other government obligations or high quality money market
instruments. The Fund will require that the value of such underlying securities,
together with any other collateral held by the Fund, always equals or exceeds
the amount of the repurchase obligations of the vendor. While the maturities of
the underlying securities in repurchase agreement transactions may be more than
one year, the term of such repurchase agreements will always be less than one
year. The Fund's risk is primarily that, if the seller defaults, the proceeds
from the disposition of underlying securities and other collateral for the
seller's obligation are less than the repurchase price. If the seller becomes
bankrupt, the Fund might be delayed in selling the collateral. Under the
Investment Company Act of 1940, repurchase agreements are considered loans.
Repurchase agreements usually are for short periods, such as one week or less,
but could be longer. The Fund will not enter into repurchase agreements of a
duration of more than seven days if, taken together with illiquid securities and
other securities for which there are no readily available quotations, more than
15% of the total net assets of the Fund would be so invested.
SHORT-TERM TRADING
It is the Fund's desire to not make a practice of short-term trading;
however, purchases and sales of securities will be made whenever necessary in
the management's view to achieve the investment objectives of the Fund. The
management does not expect that in pursuing the Fund's investment objective
unusual portfolio turnover will be required and intends to keep turnover to a
minimum consistent with such investment objective. The management believes
unsettled market economic conditions during certain periods require greater
portfolio turnover in pursuing the Fund's investment objective than would
otherwise be the case. During periods of relatively stable market and economic
conditions, the management expects the portfolio turnover of the Fund will not
exceed 200% annually, so that normally no more than 200% of the securities held
by the Fund would be replaced in any one year.
LOANS OF PORTFOLIO SECURITIES
The Fund may make loans of portfolio securities to brokers, dealers and
financial institutions if cash or cash equivalent collateral, including letters
of credit, equal to at least 100% of the current market value of the securities
loaned (including accrued dividends and interest thereon) plus the interest
payable with respect to the loan is maintained by the borrower with the Fund in
a segregated account. In determining whether to lend a security to a particular
broker, dealer or financial institution, the adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer or
financial institution. The Fund will not enter into any portfolio security
lending arrangement having a duration of longer than one year. Any securities
which the Fund may receive as collateral will not become part of the Fund's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof which is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the Fund
an amount equal to any accrued income on those securities, and the Fund may
invest the cash collateral and earn additional income or receive an agreed upon
fee from a borrower which has delivered cash equivalent collateral.
The Fund will not loan securities having a value which exceeds 10% of the
current value of the Fund's total assets. Loans of securities will be subject to
termination at the lender's or the borrower's option. The Fund may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a
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<PAGE> 168
negotiated portion of the interest or fee earned with respect to the collateral
to the borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Fund, its investment adviser or
subadviser.
AMERICAN DEPOSITORY RECEIPTS
The Fund may invest in American Depository Receipts ("ADRs"), found in the
S&P 600 SmallCap Universe. Generally these are receipts issued by a bank or
trust company that evidence ownership of underlying securities issued by a
foreign corporation and that are designed for use in the domestic securities
market. The Fund intends to invest less than 20% of the Fund's total assets in
ADRs.
There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depository and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports.
In addition, with respect to all ADRs, there is always the risk of loss due
to currency fluctuations.
MORTGAGE-RELATED SECURITIES
The Fund, may, consistent with its respective investment objective and
policies, invest in mortgage-related securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
Mortgage-related securities, for purposes of the Fund's Prospectus and this
SAI, represent pools of mortgage loans assembled for sale to investors by
various governmental agencies such as the Government National Mortgage
Association and government-related organizations such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as
by nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If the Fund purchases a mortgage-related security
at a premium, that portion may be lost if there is a decline in the market value
of the security whether resulting from changes in interest rates or prepayments
in the underlying mortgage collateral. As with other interest-bearing
securities, the prices of such securities are inversely affected by changes in
interest rates. However, though the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true since in
periods of declining interest rates the mortgages underlying the securities are
prone to prepayment. For this and other reasons, a mortgage-related securities
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
securities return to the Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.
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<PAGE> 169
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities created by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest and such guarantee is backed by
the full faith and credit of the United States. [GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.]
GNMA certificates also are supported by the authority of GNMA to borrow funds
from the U.S. Government to make payments under its guarantee. Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA [and are not backed by or entitled
to the full faith and credit of the United States. The FNMA] is a
government-sponsored organization owned entirely by private stock-holders.
Fannie Maes are guaranteed as to timely payment of the principal and interest by
FNMA. Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as ("Freddie Macs " or PCs"). The FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constituted a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC currently guarantees timely payment of interest and either
timely payment of principal or eventual payment of principal, depending upon the
date of issue. When the FHLMC does not guarantee timely payment of principal.
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
ILLIQUID SECURITIES
The Fund has adopted a fundamental policy with respect to investments in
illiquid securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended ("Securities Act"),
securities that are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities that have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
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<PAGE> 170
The Fund may also invest in restricted securities issued under Section 4(2)
of the Securities Act, which exempts from registration "transactions by an
issuer not involving any public offering." Section 4(2) instruments are
restricted in the sense that they can only be resold through the issuing dealer
and only to institutional investors; they cannot be resold to the general public
without registration. Restricted securities issued under Section 4(2) of the
Securities Act will be treated as illiquid and subject to the Fund's investment
restriction on illiquid securities.
The Commission has recently adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act applicable to resales of certain
securities to qualified institutional buyers. The Investment Adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this new regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (the
"NASD"). Consequently, it is the intent of the Fund to invest, pursuant to
procedures established by the Board of Trustees and subject to applicable
investment restrictions, in securities eligible for resale under Rule 144A which
are determined to be liquid based upon the trading markets for the securities.
The Investment Adviser will monitor the liquidity of restricted securities
in the Fund's portfolio under the supervision of the Trustees. In reaching
liquidity decisions, the Investment Adviser will consider, inter alia, the
following factors: (1) the frequency of trades and quotes for the security over
the course of six months or as determined in the discretion of the Investment
Adviser; (2) the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers over the course of six months or as
determined in the discretion of the Investment Adviser; (3) dealer undertakings
to make a market in the security; (4) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer); and (5) other
factors, if any, which the Investment Adviser deems relevant. The Investment
Adviser will also monitor the purchase of Rule 144A securities to assure that
the total of all Rule 144A securities held by a Fund does not exceed 10% of the
Fund's average daily net assets. Rule 144A securities which are determined to be
liquid based upon their trading markets will not, however, be required to be
included among the securities considered to be illiquid for purposes of
Investment Restriction No. 1.
MANAGEMENT OF THE FUND
Trustees and Officers. The trustees and executive officers of the Trust,
and their principal occupations during the past five years, are listed below.
The trustees who are deemed to be an "interested person" of the Trust for
purposes of the Act are marked with an asterisk "*".
John J. Pileggi, age 38, Trustee -- 230 Park Avenue, New York, New York
10169. Senior Managing Director, Furman Selz LLC.
James H. Johnston, III, M.D., age 50, Trustee -- 1421 North State Street,
Suite 203, Jackson, Mississippi 39202. Physician (Gastroenterologist) with
Gastrointestinal Associates, P.A., Jackson, Mississippi since 1984.
James T. Mallette, age 38, Trustee*, 3900 Lakeland Drive, Suite 401,
Lakeland Oaks, Jackson, Mississippi 39208, Attorney, Stubblefield, Mallette &
Harvey since . Prior thereto
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<PAGE> 171
Mr. Mallette was an attorney with the firm of Daniel Coker Horton and Bell,
P.A., P.O. Box 1084, Jackson, Mississippi from July 1987. President and Director
of Rollingwood Beautiful Association, Inc., Director of Easter Seal Society of
Jackson, Mississippi, Inc.
Walter P. Neely, age 52, Trustee, Ph.D., CFA, 1701 North State Street,
Jackson, Mississippi 39210. Professor and Consultant, Millsaps College, Jackson,
Mississippi, since 1980. Director, KLLM Transport Systems, Jackson, Mississippi.
Charles M. Carr, age 66, Trustee, 1451 Highland Park Drive, Jackson,
Mississippi 39211. Petroleum Consultant in Jackson, Mississippi since 1992.
Prior thereto, Mr. Carr was employed as Managing Director of Amoco (U.K.)
Exploration Company.
John William Head, age 71, Trustee, 46 Avery Circle, Jackson, Mississippi
39211. Mr. Head retired in September 1990 from his position of Executive Vice
President, Chief Executive Officer of Southern Farm Bureau Casualty Insurance
Company, a position he held for 15 years.
Walter B. Grimm, age 52, President and Chief Executive Officer, 3435
Stelzer Road, Columbus, Ohio 43219. Employee of BISYS Fund Services.
Michael Sakala, age 31, Treasurer and Principal Financial Officer, 3435
Stelzer Road, Columbus, Ohio 43219. Employee of BISYS Fund Services.
Frank M. Deutchki, age 43, Vice President, 3435 Stelzer Road, Columbus,
Ohio 43219. Employee of BISYS Fund Services.
Richard Ille, age 32, Vice President and Assistant Secretary, 3435 Stelzer
Road, Columbus, Ohio 43219. Employee of BISYS Fund Services.
Ellen Stoutamire, age 48, Secretary, 3435 Stelzer Road, Columbus, Ohio
43219. Employee of BISYS Fund Services.
Jeanette Peplowski, age 39, Assistant Secretary, 3435 Stelzer Road,
Columbus, Ohio 43219. Employee of BISYS Fund Services.
As required by law, for as long as the Trust has a Distribution Plan, the
selection and nomination of trustees who are not "interested persons" of the
Trust will be made by such disinterested trustees. See "Rule 12b-1 Distribution
Plan" in this SAI.
Trustees of the Trust who are not affiliated with the Distributor or the
Adviser receive from the Trust an annual fee of $5000 and a fee for each Board
of Trustees and Board committee meeting attended of $1,000. Trustees who are
affiliated with the Distributor or the Adviser do not receive compensation from
the Trust but all trustees are reimbursed for all out-of-pocket expenses
relating to attendance at meetings.
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COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
AGGREGATE ACCRUED AS ANNUAL TOTAL
COMPENSATION PART OF TRUST BENEFITS UPON COMPENSATION
NAME OF PERSON, POSITION FROM THE TRUST EXPENSES RETIREMENT FROM THE TRUST
- ------------------------------------ -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
James H. Johnston, III, M.D.
Trustee........................... $ 0 N/A $
James T. Mallette
Trustee and Principal
Executive Officer................. $ 0 N/A $
Walter P. Neeley, Ph.D., CFA,
Trustee........................... $ 0 N/A $
Charles M. Carr
Trustee........................... $ 0 N/A $
John William Head
Trustee........................... $ 0 N/A $
</TABLE>
- ---------------
* Represents the total compensation paid to such persons during the calendar
year ending December 31, 1996 (and with respect to the Trust, estimated to be
paid during a full calendar year).
As of the date of this SAI, trustees and officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust.
The Adviser. Trustmark National Bank, 248 East Capitol Street, Jackson,
Mississippi, 39201 (the "Adviser") serves as the investment adviser to the Fund
pursuant to a Master Investment Advisory Contract (the "Advisory Contract"). The
Advisory Contract provides that the Adviser shall furnish to the Fund investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. Pursuant to the Advisory Contract, the Adviser furnishes to the
Board of Trustees periodic reports on the investment strategy and performance of
the Fund.
The Adviser has agreed to provide to the Fund, among other things, money
market security and fixed-income research, and analysis and statistical and
economic data and information concerning interest rate and security market
trends, portfolio composition and credit conditions.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually, (i) by the holders of a majority
of the Fund's outstanding voting securities (as defined in the Act) or by the
Trust's Board of Trustees and (ii) by a majority of the trustees of the Trust
who are not parties to the Advisory Contract or "interested persons" (as defined
in the Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
For the advisory services it provides to the Fund, Trustmark may receive
fees based on average daily net assets up to an annualized rate of 0.75%.
Trustmark National Bank also serves as custodian for the Fund. See
"Custodian." BISYS Fund Services, Inc. serves as the Fund's transfer agent and
provides fund accounting services for the Fund.
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<PAGE> 173
Baker & McKenzie has advised the Trust that the Adviser should be able to
perform the services contemplated by the Advisory Contract with the Trust, the
Prospectus and this SAI, without violation of the Glass-Steagall Act. Such
counsel have pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as future changes in federal or
state statutes and regulations and judicial or administrative decisions or
interpretations thereof, could prevent the Adviser or its Affiliates from
continuing to perform, in whole or in part, such services. If the Adviser was
prohibited from performing the services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
Administrator. The Trust has retained BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services as administrator on behalf of the Fund.
Under the Administration Agreement with the Trust, the Administrator, in
connection therewith, furnishes the Trust with office facilities, together with
those ordinary clerical and bookkeeping services that are not being furnished by
the Adviser.
RULE 12B-1 DISTRIBUTION PLAN
As described in the Prospectus, the Trust has adopted, for the Consumer
Service Class of the Fund, a Distribution Plan under Section 12(b) of the Act
and Rule 12b-1 thereunder (the "Rule"). The Distribution Plan was adopted by the
Board of Trustees, including a majority of the trustees who were not "interested
persons" (as defined in the Act) of the Trust and who had no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (the "Qualified Trustees").
Under the Distribution Plan, the Fund may, with respect to its Consumer
Service Class, reimburse the Distributor monthly (subject to a limit of 0.35%
per annum of the average daily net assets of the Fund's Consumer Service Class)
for costs and expenses of the Distributor in connection with the distribution of
Fund shares of the Consumer Service Class. These costs and expenses include: (i)
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising, (ii) expenses of sales
employees or agents of the Distributor, including salary, commissions, travel
and related expenses, (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares,
including promotional incentives and fees calculated with reference to the
average daily net asset value of shares held by shareholders who have a
brokerage or other service relationship with the broker-dealer or other
institution receiving such fees, (iv) costs of printing prospectuses and other
materials to be given or sent to prospective investors, and (v) such other
similar services as the Board of Trustees determines to be reasonably calculated
to result in the sale of shares of the Fund. The actual fee payable to the
Distributor shall, within such limit, be determined from time to time by mutual
agreement between the Trust and the Distributor. The Distributor may enter into
selling agreements with one or more selling agents under which such agents may
receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to them. The
Distributor may retain any portion of the total distribution fee payable under
the Plan to compensate it for the distribution-related services provided by it
or to reimburse it for other distribution-related expenses. The SEC has proposed
certain amendments to the Rule. If the proposed amendments are adopted, the
distribution arrangement described above may have to be modified to ensure that
all payments of distribution expenses are attributable to specific sales or
promotional services or activities. Any other amendments to the Rule also could
require amendments or revisions to the distribution arrangements described
above.
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The Distribution Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the trustees of the Trust and
the Qualified Trustees. Such agreement will terminate automatically if assigned,
and may be terminated at any time, without payment of any penalty, by a vote of
a majority of the outstanding voting securities of the Fund. The Distribution
Plan may not be amended to increase materially the amounts payable thereunder by
the Fund without the approval of a majority of the outstanding voting securities
of the Fund, and no material amendment to the Distribution Plan may be made
except by a majority of both the trustees of the Trust and the Qualified
Trustees.
CALCULATION OF YIELD AND TOTAL RETURN
As noted in the Prospectus, the Fund may advertise certain total return
information computed in the manner described in the Prospectus. To the extent
required by the SEC, an average annual compound rate of return ("T") will be
computed by using the value at the end of a specified period ("EV") of a
hypothetical initial investment ("P") over a period of years ("n") according to
the following formula:
P(1+T)(n) = = EV
As indicated in the Prospectus, the Fund may advertise certain yield
information.
Yield for the Fund will be calculated based on a 30-day (or one month)
period, computed by dividing the net investment income per share earned during
the period by the net asset value per share on the last day of the period,
according to the following formula:
YIELD = 2[(((a-b)/cd)+1)(6) - 1]
where a = hypothetical dividends and interest earned during the 30-day period; b
= expenses accrued for the period (net of reimbursements); c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends; and d = the net asset value per share on the last day of the period.
The net investment income of such Fund includes actual interest income, plus or
minus amortized purchase discount (which may include original issue discount) or
premium, less accrued expenses. Realized and unrealized gains and losses on
portfolio securities are not included in such Fund's net investment income for
this purpose.
The total return for the Fund will be calculated by subtracting (i) the net
asset value of one share at the beginning of the period, from (ii) the net asset
value of all shares an investor would own at the end of the period for the share
held at the beginning of the period (assuming reinvestment of all dividends and
capital gain distributions), and dividing by (iii) the net asset per share at
the beginning of the period. The resulting percentage indicates the positive or
negative rate of return that an investor would have earned from reinvested
dividends and capital gain distributions and changes in share price during the
period.
The yield or total return for the Fund will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and does not provide a basis for determining future yield or
total return since it is based on historical data. Yield and total return are
functions of portfolio quality, composition, maturity and market conditions as
well as the expenses allocated to the Fund.
In addition, investors should recognize that changes in the net asset value
of shares of the Fund will affect the yield of the Fund for any specified
period, and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. Yield and
total return information for the Fund may be useful in reviewing the performance
of the Fund and for providing a basis for comparison with investment
alternatives. The yield or total return of the Fund, however, may not be
comparable to the
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<PAGE> 175
yields from investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate yield or total return.
From time to time, the Trust may quote the Fund's performance in
advertising and other types of literature as compared to the performance of the
S&P 600 Small Cap Index, the Dow Jones Industrial Average or any other commonly
quoted index of common stock prices. The S&P 600 SmallCap Index and the Dow
Jones Industrial Average are unmanaged indices of selected common stock prices.
The Fund's performance also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., an independent service
which monitors the performance of mutual funds.
The Fund's comparative performance for such purposes may be calculated by
relating net asset value per share at the beginning of a stated period to the
net asset value of the investment, assuming reinvestment of all gains,
distributions and dividends paid, at the end of the period. Any such comparisons
may be useful to investors who wish to compare the Fund's past performance with
that of its competitors. Of course, past performance cannot be a guarantee of
future results.
The Trust also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held by the Fund. The assigned rating
would not be a recommendation to purchase, sell or hold the Fund's shares since
the rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to the Fund or its
investments. The Trust may compare the Fund's performance with other investments
which are assigned ratings by NRSROs. Any such comparisons may be useful to
investors who wish to compare the Fund's past performance with other rated
investments.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Fund is determined by the Administrator
of the Fund's assets on each day the New York Stock Exchange is open for
trading.
Securities for which market quotations are available are valued at latest
prices. In the absence of any sale of such securities on the valuation date and
in the case of other securities, including U.S. Government securities but
excluding debt securities maturing in 60 days or less, the valuations are based
on latest quoted bid prices. [Futures contracts and options listed on a national
exchange are valued at the last sale price on the exchange on which they are
traded at the close of the Exchange, or, in the absence of any sale on the
valuation date, at latest quoted bid prices. Options not listed on a national
exchange are valued at latest quoted bid prices.] Debt securities maturing in 60
days or less are valued at amortized cost. In all cases, bid prices will be
furnished by a reputable independent pricing service approved by the Board of
Trustees and are based on yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to value from dealers; and general
market conditions. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
the Fund for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Trust's Board of
Trustees and in accordance with procedures adopted by the Board of Trustees.
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<PAGE> 176
With respect to options contracts, the premium received is recorded as an
asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by the Fund is recorded as
an asset and subsequently adjusted to market value.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any broker or group of brokers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, the Adviser is responsible for the
Fund's portfolio decisions and the placing of portfolio transactions. In placing
orders, it is the policy of the Trust to obtain the best execution, taking into
account the broker's general execution and operational facilities, the type of
transaction involved and other factors. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
The Adviser may, in circumstances in which two or more brokers are in a
position to offer comparable results for the Fund's portfolio transactions, give
preference to a broker that has provided statistical or other research services
to the Adviser. By allocating transactions in this manner, the Adviser is able
to supplement its research and analysis with the views and information of
securities firms. Information so received may be in addition to, and not in lieu
of, the services required to be performed by the Adviser under the Advisory
Contract, and the expenses of the Adviser will not necessarily be reduced as a
result of the receipt of this supplemental research information. Furthermore,
research services furnished by brokers through which the Adviser places
securities transactions for the Fund may be used by the Adviser in servicing its
other accounts, and not all of these services may be used by the Adviser in
connection with advising the Fund. In so allocating portfolio transactions, the
Adviser may, in compliance with Section 28(e) of the Securities Exchange Act of
1934, cause the Trust to pay an amount of commission that exceeds the amount of
commission that another broker would have charged for effecting the same
transaction.
Purchases and sales of equity securities for the Fund typically are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker including, to the extent and in the manner
permitted by applicable law, the Distributor or its affiliates. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.
Portfolio Turnover. The portfolio turnover rate for the Fund is not
expected to exceed 200%.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of dividends and
distributions made by the Trust. This section of the SAI includes additional
information concerning federal income taxes.
Qualification by the Fund as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code") requires, among other
things, that (a) at least 90% of the Fund's annual gross income be derived from
interest payments with respect to securities loans, dividends and gains from the
sale or other disposition of stock or securities, options, futures, forward
contracts, foreign currencies, and other income derived with respect to its
business of investing in stock or securities; (b) the Fund derives less than
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<PAGE> 177
30% of its gross income from gains from the sale or other disposition of
securities or options, futures or forward contracts (other than options, futures
or forward contracts on foreign currencies) and foreign currencies (including
options, futures or forwards thereon) not directly related to the Fund's
business of investing in stock or securities, held for less than three months;
and (c) the Fund diversifies its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, government securities, securities of other regulated
investment companies and other securities (except that such other securities
must be limited in respect of any one issuer to an amount not greater than 5% of
the value of the Fund's assets and 10% of the outstanding voting securities of
such issuer), and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government securities and
the securities of other regulated investment companies), or of two or more
issuers which the taxpayer controls and which are determined to be engaged in
the same or similar trades or businesses or related trades or businesses. As a
regulated investment company, the Fund will not be subject to federal income tax
on its net investment income and net capital gains distributed to its
shareholders, provided that it distributes to its stockholders at least 90% of
its net investment income and tax-exempt income earned in each year.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess
of a regulated investment company's "required distribution" for the calendar
year ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain net income (both long term and
short term) for the one year period ending on October 31 (as though the one year
period ending on October 31 were the regulated investment company's taxable
year), and (iii) the sum of any untaxed, undistributed net investment income and
net capital gains of the regulated investment company for prior periods. The
term "distributed amount" generally means the sum of (i) amounts actually
distributed by the regulated investment company from its current year's ordinary
income and capital gain net income and (ii) any amount on which the regulated
investment company pays income tax for the year.
For this purpose, any income or gain retained by the Fund that is subject
to tax will be considered to have been distributed by year-end. In addition,
dividends and distributions declared payable as of a date in October, November
or December of any calendar year are deemed under the Code to have been received
by the shareholders on December 31 of that calendar year if the dividend is
actually paid in the following January. Such dividends will, accordingly, be
subject to income tax for the year in which the record date falls. The Fund
intends to distribute substantially all of its net investment income and net
capital gains and, thus, expects not to be subject to the excise tax.
A capital gains distribution will be a return of invested capital to the
extent the net asset value of an investor's shares is thereby reduced below his
or her cost, even though the distribution will be taxable to the shareholder. A
redemption of shares by a shareholder under these circumstances could result in
a capital loss for federal tax purposes.
It is anticipated that a portion of the dividends paid by the Fund will
qualify for the dividends-received deduction available to corporations. The Fund
is required to notify shareholders of the amount of dividends which will qualify
for the deduction within 60 days of the close of the Fund's taxable year.
If a shareholder exchanges or otherwise disposes of shares of the Fund
within 90 days of having acquired such shares, and if, as a result of having
acquired those shares the shareholder subsequently pays a reduced sales load for
shares of the Fund, the sales load previously incurred acquiring the Fund's
shares shall not be taken into account (to the extent such previous sales loads
do not exceed the reduction in sales loads) for the
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<PAGE> 178
purpose of determining the amount of gain or loss on the exchange, but will be
treated as having been incurred in the acquisition of such other shares.
Any loss realized on a redemption or exchange of shares of the Fund will be
disallowed to the extent shares are reacquired within the 60-day period
beginning 30 days before and ending 30 days after the day the shares are
disposed.
If an option written by the Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. If securities are sold by the Fund pursuant to the exercise
of a call option written by it, the Fund will add the premium received to the
sale price of the securities delivered in determining the amount of gain or loss
on the sale. If securities are purchased by the Fund pursuant to the exercise of
a put option written by it, the Fund will subtract the premium received from its
cost basis in the securities purchased. The requirement that the Fund derive
less than 30% of its gross income from gains from the sale of securities held
for less than three months may limit the Fund's ability to write options.
The amount of any realized gain or loss on closing out a forward contract
will generally result in a realized capital gain or loss for tax purposes. Under
Code Section 1256, forward currency contracts held by the Fund at the end of a
fiscal year will be required to be "marked to market" for federal income tax
purposes, that is, deemed to have been sold at market value. Any gain or loss
recognized with respect to forward currency contracts is considered to be 60%
long term capital gain or loss and 40% short term capital gain or loss, without
regard to the holding period of the contract. Code Section 988 may also apply to
forward contracts. Under Section 988, each foreign currency gain or loss is
generally computed separately and treated as ordinary income or loss. In the
case of overlap between Section 1256 and 988, special provisions determine the
character and timing of any income, gain or loss. The Fund will attempt to
monitor Section 988 transactions to avoid an adverse tax impact.
Shareholders will be notified annually by the Trust as to the Federal tax
status of distributions made by the Fund. Depending on the residence of the
shareholder for tax purposes, distributions also may be subject to state and
local taxes. Special tax treatment, including a penalty on certain
pre-retirement distributions, is accorded to accounts maintained as IRAs.
Shareholders should consult their own tax advisers as to the Federal, state and
local tax consequences of ownership of shares of the Fund in their particular
circumstances.
Foreign Shareholders. Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate). Withholding will not apply if a dividend paid by the
Fund to a foreign shareholder is "effectively connected" with a U.S. trade or
business, in which case the reporting and withholding requirements applicable to
U.S. citizens or domestic corporations will apply. Distributions of net
long-term capital gains are not subject to tax withholding, but in the case of a
foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the individual
is physically present in the U.S. for more than 182 days during the taxable
year.
Investors should be aware that the investments to be made by the Fund may
involve sophisticated tax rules (such as the original issue discount, marked to
market and real estate mortgage investment conduit ("REMIC") rules) that would
result in income or gain recognition by the Fund without corresponding current
cash receipts. Although the Fund will seek to avoid significant noncash income,
such noncash income could be recognized by the Fund, in which case the Fund may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
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SHARES OF BENEFICIAL INTEREST
The Trust consists of multiple separate portfolios or funds, including the
Fund. The Fund is comprised of two classes of shares -- the "Institutional
Class" and the "Consumer Service Class." When certain matters affect one class
but not another, the shareholders would vote as a class regarding such matters.
Subject to the foregoing, on any matter submitted to a vote of shareholders, all
shares then entitled to vote will be voted separately by the Fund unless
otherwise required by the 1940 Act, in which case all shares will be voted in
the aggregate. For example, a change in the Fund's fundamental investment
policies would be voted upon only by shareholders of the Fund. Additionally,
approval of the Advisory Contract is a matter to be determined separately by the
Fund. Approval by the shareholders of one Performance Fund is effective as to
that Fund whether or not sufficient votes are received from the shareholders of
the other Performance Funds to approve the proposal as to those Funds. As used
in the Prospectus and in this SAI, the term "majority," when referring to
approvals to be obtained from shareholders of the Fund or class means the vote
of the lesser of (i) 67% of the shares of the Fund or class represented at a
meeting if the holder of more than 50% of the outstanding shares of the Fund or
class are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of the Fund or class. The term "majority," when referring to
the approvals to be obtained from shareholders of the Trust as a whole means the
vote of the lesser of (i) 67% of the Trust's shares represented at a meeting if
the holders of more than 50% of the Trust's outstanding shares are present in
person or proxy, or (ii) more than 50% of the Trust's outstanding shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held.
The Trust may dispense with annual meetings of shareholders in any year in
which it is not required to elect trustees under the 1940 Act. However, the
Trust undertakes to hold a special meeting of its shareholders if the purpose of
voting on the question of removal of a director or trustees is requested in
writing by the holders of at least 10% of the Trust's outstanding voting
securities, and to assist in communicating with other shareholders as required
by Section 16(c) of the 1940 Act.
Each share of the Fund represents an equal proportional interest in the
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund as are declared in
the discretion of the Trustees. In the event of the liquidation or dissolution
of the Trust, shareholders of the Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a distribution
of any general assets of the Trust not attributable to a particular Fund that
are available for distribution in such manner and on such basis as the Trustees
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Trust.
As of the date of this SAI no person owned of record or, to the knowledge
of management, beneficially owned five percent or more of any class of shares of
the Fund.
OTHER INFORMATION
The Trust's Registration Statement, including the Prospectus, the Statement
of Additional Information and the exhibits filed therewith, may be examined at
the office of the SEC in Washington, D.C. Statements contained in the Prospectus
or the Statement of Additional Information as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
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<PAGE> 180
CUSTODIAN
Trustmark also acts as Custodian for the Fund. The Custodian, among other
things, maintains a custody account or accounts in the name of the Fund;
receives and delivers all assets for the Fund upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of the Fund and pays all expenses of the Fund. For its
services as Custodian, Trustmark receives an asset-based fee and transaction
charges.
EXPERTS
Price Waterhouse LLP has been selected as the independent accountants for
the Trust. Price Waterhouse LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. Price Waterhouse LLP's address is 1177 Avenue of the Americas, New
York, New York 10036.
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APPENDIX
The following is a description of the ratings by Moody's and Standard &
Poor's.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by 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.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: 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.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a 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.
Caa: 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.
Ca: 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.
C: 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.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
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<PAGE> 182
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1 and B-1.
STANDARD & POOR'S CORPORATION
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
Corporation ("S&P"). Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in the highest rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
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PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (1) Financial Statement included in Part A of this
Registration Statement:
U.S. TREASURY MONEY MARKET FUND
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE EQUITY FUND
THE MONEY MARKET FUND*
THE MID CAP GROWTH FUND*
Financial Highlights
(2) Financial Statements included in Part B of this
Registration Statement:*
U.S. TREASURY MONEY MARKET FUND
THE SHORT TERM GOVERNMENT INCOME FUND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND
THE EQUITY FUND
THE MONEY MARKET FUND
THE MID CAP GROWTH FUND
Audited Financial Statements for the fiscal year
ended May 31, 1997 including Statement of Assets
and Liabilities at May 31, 1997, Statement of
Operations for the year ended May 31, 1997 and
the Statement of Net Assets and Liabilities and
Financial Highlights for the periods as
indicated.
Notes to Statement of Assets and Liabilities
Independent Accountant's Report
Procedures for Calculating Net Asset Value
* to be filed by post-effective amendment
(b) Exhibits
(1) Trust Instrument.(1)
(2) Bylaws of Registrant.(1)
- xvi -
<PAGE> 184
(3) None.
(4) None.
(5) (a) Revised Form of Master Investment Advisory
Contract between Registrant and Trustmark
National Bank.(4)
(5) (b) Form of Master Administration Agreement
between Registrant and BISYS Fund Services*
(6) Revised Form of Distribution Agreement
between Registrant and Performance Funds
Distributor, Inc.*
(7) None.
(8) Custodian Agreement between Registrant and
Trustmark National Bank.(2)
(9) (a) Form of Transfer Agency Agreement between
Registrant and BISYS Fund Services, Inc.*
(9) (b) Form of Fund Accounting Agreement between
Registrant and BISYS Fund Services, Inc.*
(10) None.
(11) None.
(12) None.
(13) Subscription Agreement.(3)
(14) None.
(15) (a) Revised Form of Rule 12b-1 Distribution
Plan and Agreement between Registrant and
Performance Funds Distributor, Inc.*
(16) (b) Schedule of Computation of Performance
Calculation.(5)
(17) Financial Data Schedule*
(18) Rule 18f-3 Plan
(a) Power of Attorney.(2)
(b) Powers of Attorney filed herein.
- --------------------
(1) - Filed with original Registration Statement on March 12, 1992.
(2) - Filed with Pre-Effective Amendment No. 3 on May 22, 1992.
(3) - Filed with Pre-Effective Amendment No. 1 on April 29, 1992.
(4) - Filed with Post-Effective Amendment No. 1 on November 23, 1992.
(5) - Filed with Post-Effective Amendment No. 4 on September 30, 1994.
* - To be filed by Post-Effective Amendment.
- xvii -
<PAGE> 185
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities at July 8, 1997.
<TABLE>
<S> <C>
Short-Term Government Fixed Income Fund (Institutional) . . . . . . . . . . . . . . . . 65
Short-Term Government Fixed Income Fund (Consumer) . . . . . . . . . . . . . . . . . . . 46
Intermediate Term Government Fixed Income Fund (Institutional) . . . . . . . . . . . . . 117
Intermediate Term Government Fixed Income Fund (Consumer) . . . . . . . . . . . . . . . 94
The Equity Fund (Institutional) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
The Equity Fund (Consumer) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141
Money Market Fund (Institutional) . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Money Market Fund (Consumer) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
Mid Cap Growth Fund (Institutional) . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Mid Cap Growth Fund (Consumer) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
</TABLE>
Item 27. Indemnification.
As permitted by Section 17(h) and (i) of the Investment
Company Act of 1940 (the "1940 Act") and pursuant to Article X of the
Registrant's Trust Instrument (Exhibit 1 to the Registration Statement),
Section 4 of the Master Investment Advisory Contract (Exhibit 5(a) to this
Registration Statement) and Section 9 of the Master Distribution Contract
(Exhibit 6 to this Registration Statement), officers, trustees, employees and
agents of the Registration will not be liable to the Registrant, any
shareholder, officer, trustee, employee, agent or other person for any action
or failure to act, except for bad faith, willful misfeasance, gross negligence
or reckless disregard of duties, and those individuals may be indemnified
against liabilities in connection with the Registrant, subject to the same
exceptions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
- xviii -
<PAGE> 186
The Registrant will purchase an insurance policy insuring its
officers and trustees against liabilities, and certain costs of defining claims
against such officers and trustees, to the extent such officers and trustees
are not found to have committed conduct constituting willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of their
duties. The insurance policy also insures the Registrant against the cost of
indemnification payments to officers under certain circumstances.
Section 4 of the Master Investment Advisory Contract (Exhibit
5(a) to this Registration Statement) and Section 9 of the Master Distribution
Contract (Exhibit 6 to this Registration Statement) limit the liability of
Trustmark National Bank to liabilities arising from willful misfeasance, bad
faith or gross negligence in the performance of their respective duties or from
reckless disregard by them of their respective obligations and duties under the
agreements.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its Declaration of Trust, By-Laws, Investment
Advisory Contract and Distribution Contract in a manner consistent with Release
No. 11330 of the Securities and Exchange Commission under the 1940 Act so long
as the interpretations of Section 17(h) and 17(i) of such Act remain in effect
and are consistently applied.
Item 28. Business and Other Connections of Investment Adviser.
Trustmark National Bank is a subsidiary of Trustmark
Corporation, a one bank holding company located in Jackson, Mississippi.
Trustmark National Bank was founded in 1889 and offers a variety a deposit,
credit and investment products to its customers through its 170 locations and
58 off premise automated teller machines in 46 Mississippi communities. As of
December 31, 1996, Trustmark had assets of approximately $5.2 billion and
capital of approximately $525 million.
The executive offices of Trustmark Corporation and Trustmark
National Bank and such executive officers positions during the past two years
are as follows:
Frank R. Day, Chairman of the Board, Trustmark Corporation;
Chairman of the Board, Trustmark National Bank; Director of Mississippi Power
& Light Company and South Central Bell Telephone Company.
Richard Hickson, Chief Executive Officer of Trustmark
Corporation, joined Trustmark in 1997. Prior thereto, Mr. Hickson was employed
as the President of SouthTrust Bank of Georgia, N.A. since 1995.
Harry Walker, President of Trustmark National Bank.
Gerard Host, Executive Vice President and Chief Financial
Officer.
- xix -
<PAGE> 187
Item 29. Principal Underwriter.
(a) Performance Funds Distributor, Inc. acts as
Distributor/Underwriter for no other
registered investment company.
(b) Officers and Directors
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address* Registrant with Underwriter
----------------- ----------- -----------------
<S> <C> <C>
Lynn J. Mangum None Chairman/CEO
Robert J. McMullan None Executive Vice President/Treasurer
J. David Huber None President
Kevin J. Del None Vice President/General Counsel/Secretary
Mark J. Rybarczyk None Senior Vice President
Dennis Sheehan None Senior Vice President
George O. Martinez None Senior Vice President
Sean Kelly None Vice President
Dale Smith None Vice President
Michael Burns None Vice President
Bruce Treff None Assistant Secretary
Annamaria Porcaro None Assistant Secretary
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are maintained at the offices of the Registrant's Investment
Adviser:
- xx -
<PAGE> 188
Item 31. Management Services
Not applicable.
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting of
shareholders for the purpose of voting upon the
removal of a trustee if requested to do so by the
holders of at least 10% of the Registrant's
outstanding shares.
(b) Registrant undertakes to provide the support to
shareholders specified in Section 16(c) of the 1940
Act as though that section applied to the
Registrant.
(c) The Registrant hereby undertakes to file on behalf
of its series, The SmallCap Investor Fund, financial
statements within four to six months from the
commencement of the Fund's offering of shares to the
public.
- -----------------------
* All addresses are 3435 Stelzer Road Columbus, Ohio 43219.
Trustmark National Bank
248 East Capital Street
Jackson, Mississippi 39201
and the Registrant's Distributor:
Performance Funds Distributor, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
- xxi -
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 7 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Columbus, and State of Ohio, on
PERFORMANCE FUNDS TRUST (REGISTRANT)
By: /s/ Walter B. Grimm
----------------------------------------
Walter B. Grimm, President
<PAGE> 190
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John J. Pileggi Trustee July 14, 1997
- -----------------------------
John J. Pileggi
James H. Johnston, III* Trustee July , 1997
- -----------------------------
James H. Johnston, III
James T. Mallette* Trustee July , 1997
- -----------------------------
James T. Mallette
Walter P. Neely* Trustee July , 1997
- -----------------------------
Walter P. Neely
Charles M. Carr** Trustee July , 1997
- -----------------------------
Charles M. Carr
John William Head** Trustee July , 1997
- -----------------------------
John William Head
/s/ Walter B. Grimm President July 14, 1997
- -----------------------------
Walter B. Grimm
/s/ Michael Sakala Treasurer July 14, 1997
- -----------------------------
Michael Sakala
*By: /s/ John J. Pileggi
-----------------------
John J. Pileggi, Attorney-in-Fact pursuant to Power of
Attorney previously filed.
** /s/ Walter B. Grimm
-----------------------
Walter B. Grimm, Attorney-in-Fact pursuant to Power of
Attorney filed herein.
<PAGE> 191
POWER OF ATTORNEY
I, the undersigned Trustee of Performance Funds Trust (the "Fund"), an
open-ended management investment company, organized as a Delaware business
trust, do hereby constitute and appoint Steven R. Howard, Esq., Scott R.
MacLeod, Esq., Walter B. Grimm, Ellen Stoutamire, Esq., Frank M. Deutchki and
Richard Ille and each of them individually, our true and lawful attorneys and
agents to take any and all action and execute any and all instruments which
said attorneys and agents may deem necessary or advisable to enable the Fund to
comply with:
(i) The Securities Act of 1933, as amended, and any rules, regulations,
orders or other requirements of the Securities and Exchange Commission
thereunder, in connection with the registration under such Securites Act of
1933, as amended, of shares of beneficial interest of the Fund to be offered by
the Fund;
(ii) the Investment Company Act of 1940, as amended, and any rules,
regulations, orders or other requirements of the Securities and Exchange
Commission thereunder, in connection with the registration of the Fund under
the Investment Company Act of 1940, as amended; and
(iii) state securities and tax laws and any rules, regulations, orders
or other requirements of state securities and tax commissions, in connection
with the registration under state securities laws of the Fund and with the
registration under state securities laws of shares of beneficial interest of
the Fund to be offered by Fund;
including specifically but without limitation of the foregoing, power and
authority to sign the name of the Fund in its behalf and to affix its seal, and
to sign the name of such Trustee or officer in his or her behalf as such
Trustee or officer to any amendment or supplement (including post-effective
amendments) to the registration statement or statements, and to execute any
instruments or documents filed or to be filed as a part of or in connection
with compliance with state securities or tax laws; and the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned placed his hand as of the 11th day
of July, 1997.
/s/ Charles M. Carr
---------------------------------
Charles M. Carr, Trustee
<PAGE> 192
POWER OF ATTORNEY
I, the undersigned Trustee of Performance Funds Trust (the "Fund"), an
open-ended management investment company, organized as a Delaware business
trust, do hereby constitute and appoint Steven R. Howard, Esq., Scott R.
MacLeod, Esq., Walter B. Grimm, Ellen Stoutamire, Esq., Frank M. Deutchki and
Richard Ille and each of them individually, our true and lawful attorneys and
agents to take any and all action and execute any and all instruments which
said attorneys and agents may deem necessary or advisable to enable the Fund to
comply with:
(i) The Securities Act of 1933, as amended, and any rules,
regulations, orders or other requirements of the Securities and Exchange
Commission thereunder, in connection with the registration under such Securities
Act of 1933, as amended, of shares of beneficial interest of the Fund to be
offered by the Fund;
(ii) the Investment Company Act of 1940, as amended, and any rules,
regulations, orders or other requirements of the Securities and Exchange
Commission thereunder, in connection with the registration of the Fund under
the Investment Company Act of 1940, as amended; and
(iii) state securities and tax laws and any rules, regulations, orders
or other requirements of state securities and tax commissions, in connection
with the registration under state securities laws of the Fund and with the
registration under state securities laws of shares of beneficial interest of
the Fund to be offered by Fund;
including specifically but without limitation of the foregoing, power and
authority to sign the name of the Fund in its behalf and to affix its seal, and
to sign the name of such Trustee or officer in his or her behalf as such
Trustee or officer to any amendment or supplement (including post-effective
amendments) to the registration statement or statements, and to execute any
instruments or documents filed or to be filed as a part of or in connection
with compliance with state securities or tax laws; and the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned placed his hand as of the 11th day
of July, 1997.
/s/ John W. Head
------------------------------------
John W. Head, Trustee
