<PAGE> 1
As filed with the Securities and Exchange Commission on April 24, 1996
Registration Nos. 33-59044
811-7552
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. -------- / /
Post-Effective Amendment No. 4 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 6 /X/
The Walnut Street Funds, Inc.
670 Mason Ridge Center Drive
Suite 300
St. Louis, Missouri 63141
(Exact Name of Registrant as Specified in Charter)
(314) 878-1010
(Registrant's Telephone Number, including Area Code)
Matthew P. McCauley, Esq.
700 Market Street
St. Louis, Missouri 63101
(Name and Address of Agent for Service of Process)
Copies to:
James V. Stepleton, Esq.
Husch & Eppenberger
100 N. Broadway, Suite 1300
St. Louis, Missouri 63102
Approximate date of proposed public offering: continuous
The Registrant has previously registered and hereby continues to
register an indefinite number of its shares of common stock (par value
$.001) pursuant to Rule 24f-2 under the Investment Company Act of 1940.
It is proposed that this filing will become effective (check appropriate
box):
------ immediately upon filing pursuant to paragraph (b) of Rule
485
X on April 26, 1996, pursuant to paragraph (b) of Rule 485
------
------ 60 days after filing pursuant to paragraph (a) of Rule
485
------ on (date) pursuant to paragraph (a) of Rule 485
<PAGE> 2
<TABLE>
THE WALNUT STREET FUNDS, INC.
CROSS REFERENCE SHEET
(as required by Rule 495(a))
<CAPTION>
N-1A Item No.
-------------
Part A Location in Prospectus
- ------ ----------------------
<S> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Not Applicable<F*>
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page; Investment Objectives, Policies, and
of Registrant Restrictions; Risk Factors; General Information;
Glossary
Item 5. Management of the Management of the Fund; Portfolio Transactions
Fund
Item 6. Capital Stock and Dividends, Distributions, and Taxes; General
Other Securities Information; Management of the Fund
Item 7. Purchase of Purchase of Shares; Net Asset Value; Management
Securities Being of the Fund
Offered
Item 8. Redemption or Redemption of Shares
Repurchase
Item 9. Pending Legal Not Applicable
Proceedings
<CAPTION>
Part B Location in Statement of
- ------ ------------------------
Additional Information
----------------------
<S> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information Not Applicable
and History
- 2 -
<PAGE> 3
Item 13. Investment Investment Objectives, Policies, and
Objectives and Restrictions; Portfolio Transactions
Policies
Item 14. Management of the Directors and Officers; Management Contracts;
Fund Distribution and Service Plan
Item 15. Control Persons and Directors and Officers; Description of the Fund
Principal Holders of and its Capital Stock
Securities
Item 16. Investment Advisory Management Contracts
and Other Services
Item 17. Brokerage Allocation Portfolio Transactions
and Other Practices
Item 18. Capital Stock and Description of the Fund and its Capital Stock
Other Securities
Item 19. Purchase, Redemption Additional Purchase and Redemption Information;
and Pricing of Distribution and Service Plan
Securities Being
Offered
Item 20. Tax Status Dividends, Distributions, and Taxes
Item 21. Underwriters Distribution and Service Plan
Item 22. Calculations of Performance
Performance Data
Item 23. Financial Statements Statement of Assets and Liabilities
</TABLE>
Part C
- ------
Information required to be included is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
- 3 -
<PAGE> 4
THE WALNUT STREET FUNDS, INC.
THE WALNUT STREET PRIME RESERVE FUND
670 MASON RIDGE CENTER DRIVE
SUITE 300
ST. LOUIS, MISSOURI 63141
800-645-1756
---------------------------
PROSPECTUS
April 26, 1996
The Walnut Street Prime Reserve Fund (the "Fund") is the first series
of The Walnut Street Funds, Inc., a Maryland corporation (the
"Company"), formed in January 1993. The Fund is an open-end,
diversified, management investment company, whose investment objective
is high current income consistent with the preservation of principal
and liquidity. The Fund seeks to achieve its investment objective by
investing primarily in money market obligations that have remaining
maturities of 397 days or less and repurchase agreements collateralized
by money market obligations. THE FUND SEEKS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE, BUT THERE ARE NO ASSURANCES THAT IT
WILL BE ABLE TO DO SO. INVESTMENTS IN THE FUND ARE NOT INSURED OR
GUARANTEED BY THE UNITED STATES GOVERNMENT.
The minimum initial investment in the Fund is $1,000. See "Purchase
of Shares."
This Prospectus sets forth concisely the information a prospective
investor should know before investing in the Fund. The Fund has filed a
Statement of Additional Information dated April 26, 1996, containing
additional information about the Fund with the Securities and Exchange
Commission (the "Commission") that is incorporated by reference into
this Prospectus. For a free copy of the Statement of Additional
Information, call or write the Fund at the telephone number or address
set forth above.
---------------------------
This Prospectus should be retained
for future reference.
- ------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------
<PAGE> 5
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
SUMMARY OF FEES AND EXPENSES OF THE FUND 1
FINANCIAL HIGHLIGHTS 3
INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS 4
PORTFOLIO TRANSACTIONS 6
RISK FACTORS 7
MANAGEMENT OF THE FUND 7
CALCULATION OF INVESTMENT PERFORMANCE 11
NET ASSET VALUE 11
DIVIDENDS, DISTRIBUTIONS, AND TAXES 11
PURCHASE OF SHARES 13
REDEMPTION OF SHARES 16
GENERAL INFORMATION 19
GLOSSARY 22
</TABLE>
- ------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MAY NOT BE RELIED UPON AS BEING AUTHORIZED BY THE FUND,
THE ADVISER, THE ADMINISTRATOR, THE DISTRIBUTOR OR ANY AFFILIATE
THEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
- ------------------------------------------------------------------------
<PAGE> 6
SUMMARY OF FEES AND EXPENSES OF THE FUND
The purpose of the table below is to assist investors in
understanding the various costs and expenses that an investor in the
Fund would bear directly or indirectly. Each investor should consider
this expense information along with other important information in the
Prospectus such as the Fund's investment objectives, restrictions, and
policies. There are no transaction expenses associated with purchases
or redemptions of the Fund's shares.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees <F1><F4><F5> .25%
12b-1 Fees (including Asset Based Sales Charges)<F2><F4> .35%
Other Expenses <F3><F4> .25%
Total Fund Operating Expenses <F4><F5> .85%
<TABLE>
EXAMPLE:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
a) You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) full redemption at the
end of each time period...................................... $9.00 $27.00 $47.00 $105.00
- ---------------------------
The amounts listed in the example should not be considered a
representation of future expenses. Actual expenses may be greater or
less than those indicated.
- ---------------------------
The purpose of the foregoing table is to assist investors in
understanding the various costs and expenses that an investor in the
Fund would bear directly and indirectly. The amounts set forth in the
example are based on amounts incurred between January 1, 1995, and
December 31, 1995.
<F1> Management fees are paid by the Fund to General American Investment
Management Company, the Fund's investment adviser (the "Adviser"),
for managing its investments and business affairs. See "Management
of the Fund-The Adviser."
<F2> The Fund has adopted a Distribution and Service Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"). Under this Plan, the Fund will pay 12b-1 fees to
Walnut Street Securities, Inc. (the "Distributor"), an affiliate of
the Adviser, at an annual rate of .35% of the Fund's average net
assets for services and expenses in connection with the
distribution of the Fund's
1
<PAGE> 7
shares. The Distributor may pay between 65% and 90% of this fee
annually to its registered representatives as an asset based sales
charge. See "Management of the Fund-The Distributor." Long-term
shareholders may, over time, pay more in 12b-1 fees than the
economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers.
<F3> The Fund incurs Other Expenses payable to unaffiliated third
parties for administrative, custodial, stock transfer, and other
services. See "Management of the Fund-The Administrator,"
"Management of the Fund-Custodian," and "Management of the Fund-
Transfer and Dividend Disbursing Agent."
<F4> Management fees, 12b-1 fees, and Other Expenses are reflected in
the Fund's share price or dividends and are not charged directly to
individual shareholder accounts.
<F5> The Adviser will waive its Management Fee and, if necessary,
reimburse the Fund's expenses to the extent that the Fund's Total
Operating Expenses exceed .85% of the Fund's average net assets.
The Adviser may modify this policy by giving the Fund's
shareholders at least 90 days' prior written notice. See
"Management of the Fund-The Adviser."
</TABLE>
2
<PAGE> 8
FINANCIAL HIGHLIGHTS
The following table includes selected data (i) for a share
outstanding on January 1, 1995, through the end of the Fund's fiscal
year on December 31, 1995, (ii) for a share outstanding on January 1,
1994, through the end of the Fund's fiscal year on December 31, 1994,
and (iii) presented on an annualized basis, for a share outstanding
from July 21, 1993, the date the Fund commenced investment operations,
through December 31, 1993, the end of the Fund's initial fiscal year,
in each case together with other information derived from the Fund's
audited financial statements. More detailed information about the
Fund's performance, a complete portfolio listing, and audited financial
statements are available in the Fund's Statement of Additional
Information dated April 26, 1996, and the Fund's Annual Report dated
December 31, 1995, copies of which may be obtained without charge by
calling the Fund at 1-800-645-1756.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 21, 1993<F*>
ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ -----------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value at beginning of period.................. $ 1.000 $ 1.000 $ 1.000
-------- ------- -------
Income from investment operations
Net investment income................................... 0.053 0.036 0.011
-------- ------- -------
Dividends to shareholders
Dividends from net investment income.................... (0.053) (0.036) (0.011)
-------- ------- -------
Net asset value at end of period........................ $ 1.000 $ 1.000 $ 1.000
======== ======= =======
TOTAL RETURN............................................ 5.40% 3.62% 2.46%<F**>
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's omitted)............. $156,916 $89,533 $54,585
Ratio to average net assets of:
Expenses, net of waiver from General American
Investment Management Company......................... 0.85% 0.85% 0.85%<F**>
Expenses, prior to waiver from General American
Investment Management Company......................... 0.93% 1.05% 1.07%<F**>
Net investment income, net of waiver from General
American Investment Management Company................ 5.25% 3.64% 2.46%<F**>
<FN>
- -----
<F*> Commencement of investment operations.
<F**>Annualized.
</TABLE>
3
<PAGE> 9
INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS
The investment objective of the Fund, and certain investment
restrictions that are discussed below or in the Statement of Additional
Information, may be changed only with the approval of the holders of a
majority of the shares of the Fund. The investment policies of the Fund
used to achieve the Fund's objectives may be changed by the Company's
Directors without a vote of shareholders.
For definitions of certain terms used in this section and elsewhere
in this Prospectus, see the Glossary at the end of this Prospectus.
INVESTMENT OBJECTIVE
The investment objective of the Fund is the realization of high
current income consistent with preservation of principal and liquidity.
The Fund attempts to achieve this objective by investing in high
quality money market obligations (whose issuers are rated in one of the
two highest rating categories for short term debt securities of
nationally recognized securities ratings organizations such as Standard
and Poor's or Moody's), maintaining a dollar-weighted average portfolio
of no more than 90 days, and investing in dollar denominated securities
described in this Prospectus and the Statement of Additional
Information that meet certain rating criteria, present minimum credit
risks, and have remaining maturities of 397 days or less. No more than
5% of the Fund's total assets may be invested in securities of issuers
receiving the second highest rating for short term debt securities from
such nationally recognized securities rating organizations. The
securities in which the Fund may invest may not earn the higher levels
of current income that may be realized by long term or lower quality
securities generally having less liquidity, greater market risk, and
larger fluctuations in value.
Because investment in the Fund involves both opportunities for gain
and risk of loss, no assurance can be given that the Fund will achieve
its objectives. Prospective purchasers of the Fund's shares should
carefully review the investment objectives, restrictions, and policies
of the Fund and consider their ability to assume the risks involved
before investing. An investor should invest in the Fund only as a part
of an overall investment program rather than as such investor's sole
program.
INVESTMENT POLICIES
The Fund invests only in: (1) obligations of the U.S. Government; (2)
obligations issued by agencies or instrumentalities of the United
States Government; (3) instruments that are secured or collateralized
by obligations of the United States Government, its agencies, or its
instrumentalities; (4) short-term obligations of United States banks
and savings and loan associations and companies having assets of more
than $1,000,000,000; (5) instruments fully secured or collateralized by
such bank and savings and loan obligations; (6) dollar denominated
short-term obligations of foreign banks, foreign branches
4
<PAGE> 10
of foreign or U.S. banks (referred to as "Eurodollars"), and short-term
obligations of U.S. branches and agencies of foreign banks (referred to
as "Yankee dollars"); (7) commercial paper and short-term corporate
debt securities rated in one of the two highest categories for short
term debt securities by at least two nationally recognized securities
rating services or one such service if only one has rated the security
(see the Statement of Additional Information for a description of
commercial paper ratings); (8) corporate or other notes guaranteed by
letters of credit from banks in the United States (satisfying the
criteria described in (4), above) or collateralized by United States
Government obligations; and (9) obligations of (i) consumer and
commercial finance companies, (ii) securities brokerage companies,
(iii) leasing companies, and (iv) insurance companies. Certain of these
obligations may be variable or floating rate instruments.
The Fund will enter into repurchase agreements under which it
purchases securities, subject to agreement by the seller to repurchase
the securities at a higher price on a specified date, with the gain
establishing the yield during the Fund's holding period. The Adviser,
under general policies established by the Company's Directors, reviews
the creditworthiness of the other party to any repurchase agreement,
and will only enter into repurchase agreements with parties whose
credit is deemed satisfactory. If the seller becomes bankrupt, the Fund
may experience delays in recovering its money, fail to recover part or
all of its investment, and incur costs in disposing of the securities
used as collateral for the seller's repurchase obligation.
The Fund may also enter into reverse repurchase agreements when the
Adviser considers them to be advantageous to the Fund and only for
temporary liquidity purposes not to exceed 60 days, without renewal or
extension. Reverse repurchase agreements permit the Fund to leverage
its investment portfolio by selling securities while agreeing to
repurchase them at an agreed time and price. The bankruptcy of the
other party to a reverse repurchase agreement could cause the Fund to
experience delays in recovering its securities. If, in the meantime,
the value of the securities fluctuated, the Fund could experience a
loss.
The Fund will not invest in "firm commitments" or "when issued"
securities.
See "Investment Policies" in the Statement of Additional Information
for information about the quality of the securities in which the Fund
may invest and more complete descriptions of repurchase agreements and
other obligations that the Fund may hold.
INVESTMENT RESTRICTIONS
The Fund is subject to certain restrictions on the investments that
it may make. These restrictions, which were adopted by the Company can
be changed with respect to the Fund only by the vote of the holders of
a majority of the Fund's shares. (See "General Information-Shareholder
Approval" for the definition of a "majority of the Fund's shares.")
Under some of these restrictions the Fund will not:
5
<PAGE> 11
1. Invest more than 10% of the value of the total assets of the Fund
in securities that are not readily marketable, such as repurchase
agreements having a maturity of more than seven days, time deposits,
and securities that are secured by interests in real estate.
2. Make loans, other than by purchasing debt obligations customarily
distributed privately to institutional investors and lending through
repurchase agreements.
3. Invest more than 5% of the value of its assets in securities of
any one issuer, except that this restriction shall not apply to
securities issued or guaranteed by the United States Government, its
agencies, or instrumentalities.
4. Borrow money, except that (i) the Fund may enter into reverse
repurchase agreements for liquidity purposes, and (ii) as a temporary
measure for extraordinary or emergency purposes (such as to permit the
Fund to honor redemption requests without being required to dispose of
investments in an inopportune or untimely manner) and not for
investment purposes, the Fund may borrow from banks, provided that the
total of reverse repurchase agreements and bank borrowings may not
exceed 5% of the Fund's assets taken at cost.
5. Purchase the securities or other obligations of issuers in the
same industry if, immediately after such purchase, the value of its
investment in such industry would exceed 25% of the value of the Fund's
total assets, except that the Fund may invest more than 25% of its
assets in securities and other obligations of companies in the
financial services industry. (See "Financial Services Industry" in the
Glossary.) This restriction does not apply to securities issued or
guaranteed by the United States Government or its agencies or
instrumentalities.
6. Own more than 10% of the voting securities of any one issuer.
The Fund is subject to additional investment restrictions that are
included in the complete list of investment restrictions in the
Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Money market obligations generally are traded in the over-the-counter
market through broker-dealers. A broker-dealer is a securities firm or
bank that makes a market for securities by offering to buy at one price
and to sell at a slightly higher price. The difference between the
prices is known as the spread or markup. Since the Adviser trades a
large amount of securities, broker-dealers are willing to work with the
Fund for a more favorable spread than most individual investors could
obtain. Since the Fund's portfolio securities have short terms to
maturity, the Fund's turnover of such securities will be substantial.
The Fund has authorized the Adviser to allocate transactions in
portfolio securities among independent dealers and on an agency basis
to an affiliate, Walnut Street Securi-
6
<PAGE> 12
ties, Inc., which also acts as the Fund's Distributor. See "Management
of the Fund-The Distributor." The Adviser may allocate such
transactions to Walnut Street Securities if its spread or markups are
comparable to those charged by non-affiliated qualified broker-dealers
for similar services. The Fund expects, however, that most of its
securities transactions will be placed with non-affiliated broker-
dealers. Higher markups may be paid to firms that provide research
services, to the extent permitted by law. See "Portfolio Transactions"
in the Statement of Additional Information.
RISK FACTORS
The Fund is subject to certain kinds of risk, including varying
degrees of market risk, financial risk, and current income volatility.
Market risk refers to the possibility the price of a security will
decline in response to changes in conditions in the securities markets
in general and, in the case of debt securities, changes in the overall
level of interest rates and the rates for the kinds of obligations in
which the Fund invests. Financial risk refers to the ability of an
issuer of a debt security to pay principal and interest when due and to
the earnings stability and overall financial soundness of an issuer of
an equity security. Current income volatility refers to the degree and
rapidity with which changes in dividend payments and the overall level
of interest rates are reflected in the level of current income of the
Fund.
Because the Fund may concentrate more than 25% of its total assets in
the financial services industry, its performance may be affected by
conditions affecting banks and other financial services companies. See
the Glossary to this Prospectus for additional information.
Eurodollar and Yankee dollar investments involve risks that are
different from investments in securities of U.S. domestic banks. These
risks may include future unfavorable political and economic
developments and possible withholding taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental
restrictions that might affect the payment of principal and interest on
securities owned by the Fund. There may also be less public information
available about foreign banks and their branches and agencies. Although
the Adviser will carefully consider these factors when making
investments, the Fund's investment policies and restrictions do not
limit the amount of the Fund's assets that can be invested in any
single kind of Eurodollar or Yankee dollar investment or in any foreign
country.
MANAGEMENT OF THE FUND
The Directors of the Company (who, with its officers, are discussed
in the Statement of Additional Information) have overall responsibility
for the management of the Company and the Fund. The Directors decide
matters of general policy and review the actions of the Adviser,
Administrator, Custodian, Transfer and Dividend Disbursing Agent, and
Distributor.
7
<PAGE> 13
THE ADVISER
Subject to the Directors' oversight, the Adviser, General American
Investment Management Company, pursuant to an investment management
agreement with the Company (the "Management Agreement"), conducts and
supervises the daily operations of the Company and Fund, manages the
investment operations of the Fund, and administers the Company's
business affairs. The Adviser is located at 700 Market Street, St.
Louis, Missouri 63101. The Adviser's telephone number is 314-444-0754.
As compensation for its services and the related expenses borne by
the Adviser, the Company pays the Adviser a Management Fee, computed
daily and payable monthly, that is equal, on an annual basis, to .25%
of the Fund's average daily net assets on the first $250,000,000 of the
Fund's net assets, .24% of the Fund's average daily net assets in
excess of $250,000,000 up to $500,000,000, .23% of the Fund's average
daily net assets in excess of $500,000,000 up to $750,000,000, .22% of
the Fund's average daily net assets in excess of $750,000,000 up to
$1,000,000,000, and .21% of the Fund's average daily net assets in
excess of $1,000,000,000.
The Adviser has agreed to waive all or a portion of its Management
Fee and to reimburse certain expenses of the Fund to the extent
necessary to maintain the total expense ratio of the Fund at not more
than .85% of average daily net assets (excluding interest, taxes,
brokerage and other portfolio transaction fees, and extraordinary
expenses). This arrangement has the effect of lowering the overall
expense ratio of the Fund and of increasing yield to investors in the
Fund. The Adviser may terminate its fee waiver and reimbursement
obligation on ninety (90) days' prior notice to the Fund's
shareholders.
The Adviser is a registered investment adviser under the 1940 Act.
The Adviser was formed in 1982 and acts as investment adviser to
General American Capital Company ("GACC"), a registered open end
diversified management investment company that is comprised of seven
investment funds that at December 31, 1995, held net assets in excess
of $481,212,000. GACC's shares are offered to separate accounts
established by General American Life Insurance Company ("General
American") of St. Louis, Missouri, which owns all of the Adviser's
capital stock. General American may thus be deemed a controlling person
of the Adviser. (General American is also the sole owner and
controlling person of the Distributor.) The Adviser also manages
General American's separate accounts. General American will not assume
or bear any responsibility or liability of the Fund, Company, or
Adviser, and the resources of General American will not be available to
support the Adviser, the Company, or the Fund and its shareholders.
As of December 31, 1995, the Adviser provided investment advice to
eleven clients that were not affiliated with General American, GACC, or
the separate accounts of General American.
8
<PAGE> 14
THE ADMINISTRATOR
The Company has entered into an Administration Agreement with The
Bank of New York (the "Administrator"), pursuant to which the
Administrator provides certain administrative services (which do not
include the investment advisory and portfolio management services
performed by the Adviser) necessary for the Fund's operations. The
Administrator has its principal offices at 110 Washington Street, New
York, New York 10286.
Under the Administration Agreement, the Administrator maintains the
Company's corporate records; monitors the Fund's compliance with its
investment policies and restrictions; coordinates the printing, filing,
and distribution of the Company's registration statement and amendments
thereto and other filings with the Commission; prepares tax returns;
prepares statistical and other reports for the Company's Directors; and
provides certain other routine administrative services. Under a Cash
Management and Related Services Agreement, the Administrator also
receives and disburses funds in connection with purchases and
redemptions of the Fund's shares. The Administrator also serves as the
fund accounting agent for the Fund with responsibility for calculating
the net asset value of the Fund and maintaining the Fund's accounting
books and records. National Financial Services Corporation ("NFSC"), 82
Devonshire Street, Boston, Massachusetts 02109, will provide sub-
accounting services for those existing brokerage customers of the
Distributor who invest in the Fund through their brokerage accounts
that are administered by NFSC.
THE DISTRIBUTOR
The exclusive distributor of the Fund's shares is Walnut Street
Securities, Inc. (the "Distributor"), a registered broker dealer that
is a wholly-owned subsidiary of General American. The Distributor's
address is 670 Mason Ridge Center Drive, Suite 300, St. Louis, Missouri
63141. The Distributor may also provide broker-dealer services in
connection with the Fund's portfolio transactions. See "Portfolio
Transactions."
The Distributor conducts a continuous offering of the Fund's shares.
The Directors have adopted a Distribution and Service Plan (the Plan)
on behalf of the Fund pursuant to Rule 12b-1 under of the 1940 Act
("12b-1"). To implement the Plan, the Company has entered into a
General Distribution Agreement with the Distributor (the "Distribution
Agreement"). 12b-1 provides in substance that an investment company may
not engage directly or indirectly in financing any activity that is
intended primarily to result in the sale of shares of the Fund except
pursuant to a plan adopted by the Fund in compliance with rules
contained in 12b-1. The Directors adopted the Plan to allow the Fund
and the Adviser to incur certain expenses that might otherwise be
considered to constitute direct or indirect payment by the Fund of
distribution expenses.
Under the Plan, the Company is authorized to pay the Distributor, an
affiliate of the Adviser, a monthly distribution fee as compensation
for its services and expenses in
9
<PAGE> 15
connection with the distribution of the Fund's shares. The distribution
fee is set at an annual rate of .35% of the Fund's average net assets.
The distribution fee is an expense of the Fund in addition to the
Management Fee and the other expenses borne by the Fund. The
distribution fee and other fees and expenses paid by the Fund reduce
the Fund's net investment income and total return.
Under the Plan and Distribution Agreement, the Distributor may
formulate and implement marketing and promotional activities for the
sale of shares, prepare and distribute sales literature and
prospectuses to persons other than existing shareholders, and provide
support, training, and compensation to its registered representatives
involved in the distribution of the Fund's shares. Such compensation,
which is an annual asset based sales charge, may range between 65% and
90% of the fees paid under the Plan and Distribution Agreement each
year. The Plan and Distribution Agreement have a one year term, but it
may be continued annually by the vote of a majority of the Company's
Directors including a majority of the Directors who have no interest in
the Plan, Distribution Agreement, the Adviser, or the Distributor. Any
increase in the fees payable to the Distributor under the Plan and
Distribution Agreement must be approved by the vote of a majority of
the Fund's outstanding voting securities. Any other material amendment
to the Plan and Distribution Agreement requires the approval of a
majority of the Company's Directors including a majority of the
Directors who have no interest in the Plan, Distribution Agreement,
Adviser, or Distributor. See "Distribution and Service Plan" in the
Statement of Additional Information.
CUSTODIAN
Pursuant to a Custody Agreement, The Bank of New York, 110 Washington
Street, New York, New York 10286, serves as the Fund's custodian (the
"Custodian") and holds the Fund's portfolio securities.
TRANSFER AND DIVIDEND DISBURSING AGENT
Until May 18, 1996, DST Systems, Inc., 811 Main, Kansas City,
Missouri 64105-2005, will serve as the Fund's transfer agent and
dividend disbursing agent, when it will be succeeded by BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219. The Fund's
transfer agent and dividend disbursing agent maintains the records of
each shareholder's account, answers shareholder inquiries about
accounts, processes purchases and redemptions of the Fund's shares,
acts as dividend and distribution disbursing agent, and performs other
shareholder services.
EXPENSES
Subject to the Adviser's agreement to waive its fee and reimburse
expenses of the Fund described earlier in this Prospectus, the Company
pays the expenses incurred in the operation of the Company and the
Fund, which include, among other things, the Adviser's fee, the 12b-1
fee, charges of the Custodian, Administrator, Transfer and Divi-
10
<PAGE> 16
dend Disbursing Agent, and Sub-Transfer Agent, expenses for the
services of legal counsel and independent auditors, costs of printing
proxies, stock certificates (if any), and shareholder reports,
Commission fees, fees and expenses of unaffiliated Directors, the
Company's membership fees in trade organizations, fidelity bond
coverage for the Company's and Fund's officers and employees, interest,
brokerage costs, taxes, expenses of qualifying Fund shares for sale in
various states, litigation, and other extraordinary or non-recurring
expenses and other expenses properly payable by the Company.
CALCULATION OF INVESTMENT PERFORMANCE
The Fund may advertise or quote its yield and effective yield in
advertisements or in reports or other communications with the Fund's
shareholders. The Fund's yield refers to the income generated by an
investment in the Fund's portfolio over a seven-day period expressed as
an annual percentage rate. The effective yield is calculated similarly,
but assumes that the income earned from the investment is reinvested.
The effective yield will be slightly higher than the yield because of
the compounding effect of this assumed reinvestment. The Fund may quote
yields in advertising that are based on historical seven-day periods.
NET ASSET VALUE
The net asset value of the shares of the Fund is determined at 2:00
p.m. and 4:00 p.m. (New York City time) on each day during which both
the New York Stock Exchange and the Federal Reserve Bank of New York
are open for business. The net asset value per share of the Fund is
computed by dividing the sum of the value of the securities held by the
Fund, plus any cash or other assets and minus all liabilities,
including expenses, by the total number of outstanding shares of the
Fund at such time. Any expenses borne by the Fund are accrued daily,
except for extraordinary or non-recurring expenses. The Fund will value
portfolio securities by the amortized cost method. This method attempts
to maintain a constant net asset value of $1.00 per share. No assur-
ances can be given that this goal can be attained. See "Valuation of
Portfolio Securities" in the Statement of Additional Information for
further information about the computation of the Fund's net asset
value.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS
The Fund ordinarily declares dividends from net investment income
daily and pays such dividends monthly on the last day of the month. The
net income is declared payable pro rata to shareholders of record as of
2:00 p.m. (New York City time). Purchases of shares by Federal Funds
Wire that are effected before and at 2:00 p.m. are paid the full
dividend for the day of purchase, and such purchases by wire effected
after 2:00 p.m. up to and including 4:00 p.m. do not begin to receive
daily dividends until the next
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<PAGE> 17
business day. Initial purchases of shares by check do not begin to
receive dividends until the Business Day after the Transfer Agent
receives the check, which normally will be the second Business Day
after the Fund receives the check. Additional shares purchased by check
begin to earn dividends on the first Business Day after the Fund
receives the check. Redemption requests effected at 2:00 p.m. (New York
City time) of any Business Day do not earn that day's dividend but the
redemption proceeds are available that day. Redemption requests
effected at 4:00 p.m. (New York City time) earn that day's dividend but
the redemption proceeds are not available until the next Business Day.
The Fund intends to distribute substantially all of its net investment
income and capital gains (if any) to shareholders within each calendar
year as well as on a fiscal year basis.
Dividends paid by the Fund will be taxable as ordinary income whether
paid in cash or reinvested in additional Fund shares. In addition to
federal taxes, shareholders also may be subject to state and local
taxes, depending on the laws of the respective shareholder's home state
and locality.
Fund dividends will not normally qualify for the dividends-received
deduction available to corporations, since the Fund's income is
primarily derived from interest income and short-term capital gains.
The Fund's interest income derived from U.S. Government securities may
be exempt from state and local taxation. The Administrator will provide
the Fund's transfer agent with such information as may be necessary to
permit the transfer agent to provide shareholders with information on
the portion of the Fund's dividends, if any, that qualify for
these exemptions.
CAPITAL GAIN DISTRIBUTIONS
The Fund may distribute short-term capital gains, if any, once a year
or more often as necessary to maintain its net asset value at $1.00 per
share or to comply with distribution requirements under federal tax
law. The Fund does not anticipate earning long term capital gains on
securities it holds.
FEDERAL TAXES
If the Fund earns taxable income or capital gains from its
investments, these amounts will be designated as taxable distributions.
Dividends derived from taxable investment income and short-term capital
gains are taxable as ordinary income. Distributions are taxable when
paid, except that distributions declared in December and paid in
January are taxable as if paid on December 31st, whether the
shareholder receives distributions in cash or reinvests them in
additional shares. The Administrator will provide the Fund's transfer
agent with such information as may be required to permit the transfer
agent to send investors a tax statement showing the amount of taxable
or tax-exempt distributions and tax preference items includable in
alternate minimum taxable income, if any, for the past calendar year,
and to send an IRS Form 1099-DIV by January 31st if the Fund makes any
taxable distributions.
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<PAGE> 18
TAX STATUS OF THE FUND
The Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"), so that the
Fund will not be liable for federal income or excise taxes on net
investment income or capital gains to the extent that these are
distributed to shareholders in accordance with applicable provisions of
the Code. The Administrator will monitor the Fund's compliance with the
applicable Code provisions.
OTHER TAX INFORMATION
The information above is only a summary of some of the federal tax
consequences generally affecting the Fund and its shareholders, and no
attempt has been made to discuss individual tax consequences, including
state and local tax consequences. Investors should consult their tax
advisers to determine whether the Fund is suitable to their particular
tax situation.
When an investor signs a new account application, the investor will
be asked to certify that his or her social security or taxpayer
identification number is correct and that the investor is not subject
to backup withholding for failing to report income to the IRS. If an
investor does not comply with IRS regulations, the IRS can require the
Fund to withhold 31% of distributions from the investor's account. See
"Dividends, Distributions, and Taxes" in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Fund are offered continuously and may be purchased at
the net asset value per share next determined after an order is
received and accepted. The Fund may discontinue offering its shares
generally or in any particular state or states without notice to
shareholders.
INITIAL INVESTMENT AMOUNT AND MINIMUM ACCOUNT BALANCE
The minimum initial investment to establish a new account in the Fund
is $1,000. Subsequent investments must be at least $250. (The minimum
initial investment for employees of General American and its affiliated
companies is $500, and the minimum subsequent investment for such
employees is $25.) If an account balance falls below $250 due to
redemption, the Fund may close the account and mail the investor the
proceeds at the investor's address shown on the Fund's records. The
Fund will give an investor 45 days' notice that his or her account will
be closed unless the investor makes an additional investment to
increase the account balance to the $250 minimum.
Shares purchased with federal funds received by 2:00 p.m. (New York
City time) will begin to earn income on that day. Shares purchased with
federal funds received after 2:00 p.m. until and including 4:00 p.m.
(New York City time) will begin to earn income on the following
Business Day. (For the purposes of this Prospectus, "Business
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<PAGE> 19
Day" means any day that both the New York Stock Exchange and the
Federal Reserve Bank of New York are open for business.)
INITIAL INVESTMENTS
Prospective investors may purchase Fund shares by check or wire or
through an automatic sweep of their brokerage accounts with Walnut
Street Securities.
1. By Check
An investor can open an account by completing and signing a New
Account Application and mailing it, together with a check payable to
Walnut Street Prime Reserve Fund, to The Walnut Street Funds, Inc.,
Mutual Funds Processing Center, 670 Mason Ridge Center Drive, Suite
300, St. Louis, Missouri 63141. "Walnut Street Prime Reserve Fund"
should be designated on the New Account Application. Purchases made by
check are not permitted to be redeemed until the check has cleared,
which may take up to 15 Business Days after purchase. The Fund will not
accept third-party checks. Purchases by check must be payable in United
States dollars and drawn on United States banks.
2. By Federal Funds Wire
Purchases may be made by having your bank wire federal funds to the
Fund's bank account. Your bank may charge a fee for a wire transfer.
Federal funds purchase orders will only be accepted on Business Days as
defined herein. To ensure prompt receipt by the Fund of a federal funds
wire, an investor should take the following steps:
A. Instruct your bank to wire the specified amount to the Fund's
account as follows (be sure to have your bank include the name
of the Walnut Street Prime Reserve Fund):
The Bank of New York
New York, NY 10286
ABA #021000018
DDA #8900117532
Attn: Walnut Street Prime Reserve Fund
Ref: (Your account number (if issued), complete account name,
address, and social security or taxpayer identification
number)
B. Complete the New Account Application and mail it to The Walnut
Street Funds, P.O. Box 419944, Kansas City, Missouri 64141,
until May 18, 1996, and from and after May 18, 1996, to The
Walnut Street Funds, P.O. Box 182711, Columbus, Ohio 43218-2711.
3. Automatic Sweep Investment
Investors who maintain brokerage accounts with Walnut Street
Securities, Inc., at NFSC may elect to have any free credit balances in
such accounts in excess of $1.00 au-
14
<PAGE> 20
tomatically applied to purchase shares of the Fund. Such credit
balances can arise from the settlement of securities transactions
through the account, receipt of payments of principal, interest, or
dividends on securities held in the account, or deposits by the account
holder. Walnut Street Securities will invest the free credit balances
of electing account holders in the Fund's shares on a daily basis by
noon (New York City time), the next Business Day after the balances are
deposited in the account, and the purchased shares will begin to earn
income on that day. Walnut Street Securities will provide additional
information about this automatic investment feature (including wire
transfer instructions for account holders who wish to deposit
additional amounts in their accounts for investment in the Fund), which
should be read in conjunction with this Prospectus. To use the
automatic investment option, investors must complete the appropriate
part of their new account applications.
EMPLOYEE INVESTMENTS
Employees of General American and its affiliated companies who have
made an initial investment in the Fund may elect to make additional
investments through automatic payroll deductions by completing a new
account application plus a payroll deduction election that General
American and its affiliated companies will provide to employees. The
minimum amount of any purchase per payroll period that such employees
can make is $25, and the amount of each purchase will be deducted from
an employee's paycheck after deduction of all federal, state, and local
income and payroll taxes. Employees can change or terminate the amount
of their deduction by completing a form of notice that General American
and its affiliated companies will make available to employees.
Employees who elect the automatic payroll deduction option may redeem
their shares in the ways set forth in this Prospectus.
ADDITIONAL INVESTMENTS
Investors may add to their accounts at any time by purchasing shares
at net asset value by mailing a check to the Fund (payable to Walnut
Street Prime Reserve Fund) at The Walnut Street Funds, P.O. Box 149,
Newark, New Jersey 07101-0149, or by wiring monies to the Fund's
account at The Bank of New York in the manner described above. It is
very important that the investor's account name and number be specified
in the letter or wire to assure proper crediting to the investor's
account. Mail orders should include, when possible, the tear-off
payment stub that accompanies any Fund confirmation statement.
OTHER PURCHASE INFORMATION
An order for the purchase of shares will become effective on the
Business Day that the order is received, and the purchase will be
effected at the net asset value next com-
15
<PAGE> 21
puted after receipt. (See "Dividends, Distributions, and Taxes-
Dividends" for information about when newly purchased shares begin
earning dividend income.)
In the interest of economy and convenience, the Fund will not issue
certificates representing ownership of the Fund's shares. All shares
purchased will be confirmed and credited to the investor's account on
the Fund's books maintained by the Adviser or its agents. Investors
will have the same rights and ownership with respect to such shares as
if certificates had been issued.
Federal regulations require that investors provide a social security
or taxpayer identification number upon opening or re-opening an
account. Investors should refer to the New Account Application for
further information about this requirement.
REDEMPTION OF SHARES
Shareholders of record may withdraw all or any portion of the shares
in their account at any time by redeeming such shares. The Fund will
redeem shares at the net asset value next calculated after the Fund
receives and accepts a redemption request. The Fund may hold a
redemption payment until it is reasonably satisfied that investments
made by check have been collected (which can take up to 15 Business
Days). Shares redeemed after 2:00 p.m. (New York City time) and up to
and including 4:00 p.m. (New York City time) receive the dividend
declared on the day of redemption. Shares redeemed at 2:00 p.m. (New
York City time) and earlier in the day do not receive the dividend
declared on the day of redemption.
Although the Fund will attempt to maintain a stable net asset value,
the value of shares redeemed may be more or less than their original
cost, depending on the Fund's then current net asset value. Shares may
be redeemed by check, mail, or telephone, and there is no charge by the
Fund for redemption.
1. By Mail
To redeem shares by mail, until May 18, 1996 investors should send a
letter of instruction to The Walnut Street Funds, P.O. Box 419944, Kansas
City, Missouri 64141, and from and after May 18, 1996, to The Walnut
Street Funds, P.O. Box 182711, Columbus, Ohio 43218-2711. The letter of
instructions should (i) contain the account number and taxpayer
identification number(s) of the shareholder(s), (ii) specify the number
of shares or dollar amount to be redeemed and be signed by all registered
owners of the shares in the exact names in which they are registered (as
discussed below); (iii) bear any required signature guarantees, as
provided below; and (iv) be accompanied by supporting legal documents, if
required and as provided below, in the case of estates, trusts,
guardianships, custodianships, corporations, pension and profit sharing
plans and other organizations. The Fund may adopt certain procedures to
verify information provided with a redemption request. Shareholders who
are uncertain of the requirements for redemption should consult with a
Fund representative by calling 1-800-645-1756.
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<PAGE> 22
For shares registered in any of the categories shown below, the
letter of instruction should be accompanied by the following documents
and signed by the following persons:
<TABLE>
<CAPTION>
Type of Registration Requirements
<C> <S>
Individuals, Joint Tenants, Sole Proprietorship, Custodial The letter of instruction must be signed by all persons
(including Uniform Gifts to Minors Act), General Partners required to sign for the account exactly as it is
registered.
Corporations, Associations The letter of instruction must be signed by person(s)
authorized to sign for the account and must be accompanied
by a certified resolution of the corporation or association.
Trusts The letter of instruction must be signed by the Trustee(s).
(If the Trustee's name is not registered on the account, the
letter must be accompanied by a copy of the trust document,
certified within the last 60 days.)
</TABLE>
Executors, administrators, conservators, personal representatives, or
guardians should call the Fund at 1-800-645-1756 for further
instructions about the documentation that must accompany a letter of
instruction.
Signatures on the letter of instruction must be guaranteed. A
signature guarantee is a widely accepted way to protect the investor
and the Fund by verifying the signature on the investor's redemption
request. A notary public cannot guarantee signatures. The following
institutions should be able to provide signature guarantees: a national
or state chartered bank, a trust company, a federal savings and loan
association, or a member firm of the New York, American, Boston,
Midwest, or Pacific Stock Exchange.
2. By Telephone
The ability to initiate share redemptions by telephone is available
to all shareholders, who may do so by by calling the Fund at
1-800-645-1756 and requesting that the redemption proceeds be mailed to
the address listed in the Fund's account records. In times of volatile
market conditions, the telephone redemption option may be difficult to
implement. If you experience difficulty in making a telephone
redemption, you may make your request by regular mail or express mail
and it will be implemented at the net asset value per share next
determined after the request is received and accepted.
3. By Wire
Requests for redemption by wire transfer may be made by calling the
Fund at 1-800-645-1756 and requesting that the redemption proceeds be
wired to the investor's
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<PAGE> 23
bank listed in the Fund's account records. Although the Fund and its
bank will not charge a wire service fee for a redemption by wire, the
redeeming shareholder's bank may impose such a fee.
4. By Check
If an investor applies for the checkwriting feature in the new
account application, the investor may redeem shares by check. There is
no limit on the number of checks written, but the minimum amount of any
check is $250. Checks written for an amount greater than the value of
the investor's account will be returned to the investor, and the
investor may be subject to extra charges.
5. Systematic Withdrawal
An investor who owns shares of the Fund with a value of at least
$10,000 or more may establish a Systematic Withdrawal Plan. The record
owner of shares may request a fixed dollar or fixed percentage
withdrawal on a monthly, quarterly, semi-annual, or annual basis.
Further information about establishing a Systematic Withdrawal Plan may
be obtained by calling the Fund at 1-800-645-1756.
FURTHER REDEMPTION INFORMATION
The Fund normally will make payment for all shares redeemed on the
same Business Day, if the redemption request is received by 2:00 p.m.
(New York City time), and on the next Business Day if the redemption
request is received after such time, but in no event will payment be
made more than 7 days after receipt of a redemption request in good
order. Notwithstanding the foregoing, the Fund will not make payments
to investors redeeming shares that were purchased by check until the
check has cleared, which may take up to 15 Business Days after the date
of purchase. The Fund reserves the right to suspend redemption or
postpone the date of redemption at times when either the New York Stock
Exchange or the Federal Reserve Bank of New York is closed or when
trading on the New York Stock Exchange is restricted, under certain
emergency circumstances and during periods when such suspension is
permitted by the Commission. (See the Statement of Additional
Information: Additional Purchase and Redemption Information-
Redemptions.)
To change the address listed in the Fund's account records or the
name of the commercial bank or account designated to receive redemption
proceeds, an investor must send a written request until May 18, 1996,
to The Walnut Street Funds, P.O. Box 419944, Kansas City, Missouri
64141, and from and after May 18, 1996, to The Walnut Street Funds,
P.O. Box 182711, Columbus, Ohio 43218-2711. Such requests must be
signed by each shareholder and for requests to change the bank or
account designated to receive redemption proceeds, each signature must
be guaranteed.
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<PAGE> 24
GENERAL INFORMATION
CHOOSING A DISTRIBUTION OPTION
When filling out a new account application, an investor can choose
from two distribution options:
A. The Reinvestment Option, which reinvests dividends and
distributions in additional shares. This option is assigned to an
investor automatically if the investor makes no choice on the
application. This option also provides for the purchase of new shares
on the day dividends are distributed.
B. The Income-Earned Option, which means an investor receives all
income dividends and distributions in cash. If an investor selects this
option and the U.S. Postal Service returns dividend checks it cannot
deliver, or if the checks remain uncashed for six months, the amounts
evidenced by the checks will remain deposited in a Fund bank account
until they are claimed by the investors or become the property of the
states of the investors' residence under their respective laws of
escheat.
MONTHLY STATEMENTS AND REPORTS
Each investor will receive a monthly statement that details every
transaction that affects the share balance of his or her account for
such month, including the exercise of checkwriting privileges. The
Administrator will also provide the Fund's transfer agent with such
information as may be required to permit the transfer agent to mail a
statement with tax information to investors by January 31 of each year
and to file the statement with the IRS.
ADDITIONAL INFORMATION
The Fund reserves the right to reject any specific purchase order if,
in the Adviser's opinion, the order is of a size or has other
characteristics that could disrupt management of the Fund.
All account transactions by telephone through the Fund's telephone
number (1-800-645-7156) will be recorded, but the recordings and any
transcripts generally will not be available for shareholder review.
Investors should therefore verify the accuracy of telephone
transactions immediately upon receipt of their confirmation statements.
The Fund intends to employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, but if it fails to
implement such procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions. Among the procedures that the
Fund intends to employ, in addition to recordings and confirmations,
are requirements that in each call shareholders respond correctly to
requests for specific personal identifying information.
19
<PAGE> 25
HOLIDAY SCHEDULE
The Fund is open for business and its net asset value is calculated
every day that both the Federal Reserve Bank of New York (the "NY Fed")
and the New York Stock Exchange (the "NYSE") are open. The Fund will be
closed and no net asset value will be determined on: New Year's Day,
Dr. Martin Luther King, Jr., Day (observed), Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day (observed), Veterans' Day (observed), Thanksgiving Day, Christmas
Day, and any other day on which either the NYSE or NY Fed is closed.
This schedule may be modified by actions of the NYSE or NY Fed. On any
day when either the NY Fed or the NYSE close early, the Fund reserves
the right to advance the time on that day by which purchase and
redemption requests must be received. To the extent that the Fund's
portfolio securities are traded in other markets on days the NY Fed or
the NYSE is closed, the Fund's net asset value may be affected during
times when investors may not purchase or redeem shares.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Company was incorporated on January 22, 1993, as a corporation
under the laws of the State of Maryland. The Fund is the initial series
of shares interest (par value $.001) of the Company. The Directors are
authorized to designate one or more additional series of shares of the
Company, each series representing a separate investment portfolio.
Shares of all series will have identical voting rights, except where by
law, certain matters must be approved by a majority of the shares of
the affected series. Each share of any series of shares when issued has
equal dividend, liquidation (see "Redemption of Shares"), and voting
rights within the series for which it was issued and each fractional
share has those rights in proportion to the percentage that the
fractional share represents of a whole share. Shares will vote in the
aggregate in all matters affecting all series equivalently and
separately in any matters affecting any series that is distinct from
the effect on other series.
There are no conversion or preemptive rights in connection with any
shares of the Fund. All Fund shares, when issued in accordance with the
terms of the offering will be fully paid and nonassessable. The
redemption price for shares of a series will be the net asset value of
such shares.
The Fund will send semi-annual and annual reports to all of its
shareholders, that will include a list of the Fund's portfolio
securities and the Fund's financial statements, which will be audited
annually. Unless it is clear that a shareholder holds as nominee for
the account of an unrelated person or a shareholder otherwise
specifically requests in writing, the Fund may send a single copy of
semi-annual, annual and other reports to shareholders to all accounts
at the same address and all accounts of any person at that address.
20
<PAGE> 26
It is the intention of the Company not to hold annual meetings of
shareholders. The Directors may call a special meeting of shareholders
for action by shareholder vote as may be required by the 1940 Act, the
Company's Articles of Incorporation, or the Company's By-Laws. If
requested by the holders of at least 10% of the shares of all series
aggregated as a class, the Fund will call a special meeting of the
shareholders for the purpose of voting upon the removal of a director
or directors, and the Company will assist shareholders in
communications with other shareholders as required by Section 16(c) of
the 1940 Act.
The shares of the Company have noncumulative voting rights which
means that the holders of more than 50% of the shares can elect 100% of
the Directors if the holders choose to do so, and in that event, the
holders of the remaining shares will not be able to elect any person or
persons as Directors.
SHAREHOLDER APPROVAL
Under the Company's By-Laws, unless otherwise required by law, the
vote of the majority of a quorum of the Company's outstanding voting
securities is required to approve actions requiring shareholder
approval. (A quorum is a majority of the Company's outstanding shares.)
Under the 1940 Act, however, certain shareholder actions require the
vote of a majority of the Company's voting securities, which is defined
as the lesser of (i) 67% of the voting securities represented at a
meeting at which more than 50% of the outstanding voting securities of
the Fund are present in person or by proxy or (ii) more than 50% of the
Fund's outstanding voting securities.
COUNSEL AND INDEPENDENT AUDITORS
The firm of Husch & Eppenberger, 100 N. Broadway, Suite 1300, St.
Louis, Missouri 63102, is counsel for the Company. KPMG Peat Marwick LLP,
345 Park Avenue, New York, New York 10154, are the appointed
independent auditors for the Company.
INFORMATION FOR SHAREHOLDERS
All shareholder inquiries regarding administrative procedures
including the purchase and redemption of shares should be directed
until May 18, 1996, to The Walnut Street Funds, P.O. Box 419944, Kansas
City, Missouri 64141, and from and after May 18, 1996, to The Walnut
Street Funds, P.O. Box 182711, Columbus, Ohio 43218-2711. For
assistance, call 1-800-645-1756.
This Prospectus omits certain information contained in the
Registration Statement filed with the Commission. Copies of the
Registration Statement, including items omitted herein, may be obtained
from the Commission by paying the charges prescribed under its rules
and regulations. The Statement of Additional Information included in
such Registration Statement may be obtained without charge from the
Fund or its Distributor at the addresses and telephone number provided
in this Prospectus.
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<PAGE> 27
GLOSSARY
Banker's Acceptances: Negotiable obligations of a bank to pay a draft
which has been drawn on it by a customer. These obligations are backed
by large banks and usually backed by goods in international trade.
Certificates of Deposit: Negotiable certificates representing a
commercial bank's obligations to repay funds deposited with it, earning
specified rates of interest over given periods.
Commercial Paper: Short-term obligations with maturities ranging from
two to 270 days issued by banks, corporations, and other entities. The
ratings A-1 and A-2 and Prime-1 and Prime-2 are high quality commercial
paper ratings assigned by Standard & Poor's Corporation and Moody's
Investors Service, Inc., respectively. Commercial paper that is not
rated is not necessarily of lower quality than that that is rated, but
may be less marketable and therefore provide a higher yield. See
"Investment Objectives, Policies, and Restrictions" in the Statement of
Additional Information for further information about commercial paper
ratings.
Commission: The United States Securities and Exchange Commission.
Financial Services Industry: Investments in the financial services
industry may include dollar denominated obligations of foreign and
domestic banks, savings and loan associations and companies, consumer
and commercial finance companies, securities brokerage companies,
leasing companies, and insurance companies. These obligations include
certificates of deposit, time deposits, bankers' acceptances, and
commercial paper. Since the Fund may concentrate more than 25% of its
total assets in the financial services industry, its performance may be
affected by conditions affecting banks and other financial services
companies. Companies in the financial services industry are subject to
various risks related to that industry, such as governmental
regulations, changes in interest rate, and exposure on loans, including
loans to foreign borrowers.
Money Market: The marketplace in which short-term, high grade debt
securities are traded. These securities include U.S. Government
obligations, commercial paper, certificates of deposit and bankers'
acceptances, time deposits, and short-term corporate obligations. These
securities normally carry specific rates of return.
Repurchase Agreements: Transactions in which the Fund purchases a
security and simultaneously commits to resell that security to the
seller at an agreed upon price on an agreed upon date within a number
of days from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount. In all cases,
the creditworthiness of the other party to a transaction is reviewed
and found satisfactory by the Fund. See "Investment Objectives,
Policies, and Restrictions" in the Statement of Additional Information.
22
<PAGE> 28
Reverse Repurchase Agreements: Transactions in which the Fund sells a
portfolio instrument to another party, such as a bank or broker-dealer,
in return for cash. At the same time, the Fund agrees to repurchase the
instrument at a particular price and time. See "Investment Objectives,
Policies, and Restrictions" in the Statement of Additional Information.
Time Deposits: Time deposits are non-negotiable deposits in a banking
institution earning a specified interest rate over a given period of
time. Time deposits are illiquid and not readily marketable
investments. (See "Investment Objectives, Policies, and Restrictions-
Investment Restrictions.")
U.S. Government Obligations: Debt securities issued or guaranteed by
the U.S. Treasury or by an agency or instrumentality of the U.S.
Government. Not all U.S. Government obligations are backed by the full
faith and credit of the United States. For example, securities issued
by the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the agency's right to borrow money from
the U.S. Treasury under certain circumstances. Securities issued by the
Federal Home Loan Bank are supported only by the credit of the agency.
There is no guarantee that the Government will support these types of
securities, and therefore they involve more risk than other Government
obligations. See "Investment Objectives, Policies, and Restrictions" in
the Statement of Additional Information.
Variable or Floating Rate Instruments: Variable or floating rate
instruments have interest rate adjustment formulae that help stabilize
their market values. Many variable and floating rate instruments also
carry demand features that permit the Fund to sell them at par value
plus accrued interest on short notice.
23
<PAGE> 29
THE WALNUT STREET FUNDS
PRIME RESERVE
MONEY MARKET FUND
WALNUT STREET FUNDS
PRIME RESERVE
LOGO
Prospectus
April 26, 1996
Adviser
General American Investment
Management Company
Distributor
Walnut Street Securities
<PAGE> 30
THE WALNUT STREET FUNDS, INC.:
THE WALNUT STREET PRIME RESERVE FUND
STATEMENT OF ADDITIONAL INFORMATION
THIS STATEMENT IS NOT A PROSPECTUS BUT SHOULD BE READ IN CONJUNCTION
WITH THE CURRENT PROSPECTUS OF THE WALNUT STREET FUNDS, INC., (DATED
APRIL 26, 1996), AS SUPPLEMENTED FROM TIME TO TIME. PLEASE RETAIN THIS
STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE. TO OBTAIN
ADDITIONAL COPIES OF THIS STATEMENT OF ADDITIONAL INFORMATION OR THE
FUND'S PROSPECTUS OR ANNUAL REPORT, PLEASE CALL 800-645-1756, OR UNTIL
MAY 18, 1996, WRITE THE FUND AT WALNUT STREET PRIME RESERVE FUND, P.O.
BOX 149944, KANSAS CITY, MISSOURI 64141, AND THEREAFTER AT P.O. BOX
- ---------, COLUMBUS, OHIO -----.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS. . . . . . . . . 1
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 12
VALUATION OF PORTFOLIO SECURITIES. . . . . . . . . . . . . . . . . 15
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . 18
DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . 19
DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 26
DISTRIBUTION AND SERVICE PLAN. . . . . . . . . . . . . . . . . . . 31
DESCRIPTIONS OF THE FUND AND ITS CAPITAL STOCK . . . . . . . . . . 34
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 37
FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT AUDITORS . . . . . 39
</TABLE>
INVESTMENT ADVISER
General American Investment Management Company
DISTRIBUTOR
Walnut Street Securities, Inc.
- 1 -
<PAGE> 31
TRANSFER AND DIVIDEND DISBURSING AGENT
Until May 18, 1996: DST Systems, Inc.
Thereafter: BISYS Fund Services, Inc.
ADMINISTRATOR AND CUSTODIAN
The Bank of New York
April 26, 1996
- 2 -
<PAGE> 32
GENERAL
The Walnut Street Funds, Inc., is an open-end investment company
(the "Company") that currently has one series: The Walnut Street Prime
Reserve Fund (the "Fund"). General American Investment Management
Company (the "Adviser") will serve as the Fund's investment adviser.
The Fund's offices are located at 670 Mason Ridge Center Drive, Suite
300, St. Louis, Missouri 63141. The Adviser's offices are located at
700 Market Street, St. Louis, Missouri 63101.
This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction
and retained with the Fund's current Prospectus.
INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS
General
- -------
The Fund's investment objectives and policies and certain of its
investment restrictions are set forth in the Prospectus. Unless
otherwise noted, whenever an investment policy or restriction states a
maximum percentage of a Fund's assets that may be invested in any
security or other assets, or sets forth a policy about quality
standards, that standard or percentage limitation will be determined
immediately after and as a result of the Fund's acquisition of such
security or other asset. Any subsequent change in values, net assets,
or other circumstances will not be considered when determining whether
the investment complies with the Fund's investment policies and
restrictions.
The Fund's investment objectives and restrictions are fundamental
and cannot be changed without approval of a "majority of the outstanding
<PAGE> 33
voting shares" of the Fund. (As used in the Prospectus and this
Statement of Additional Information, the term "majority of the
outstanding voting shares" means the lesser of (i) 67% of the shares of
the Fund represented at a meeting at which more than 50% of the
outstanding shares are represented, or (ii) more than 50% of the Fund's
outstanding shares.) Other than such objectives and the fundamental
investment restrictions set forth below, however, the investment
policies and limitations described in the Prospectus and this Statement
of Additional information are not fundamental, and the Company may
change them without shareholder approval.
Investment Restrictions of the Fund
- -----------------------------------
The following are the Fund's fundamental investment restrictions set
forth in their entirety. The Fund may not:
1. Invest more than 10% of the value of the total assets of the
Fund in securities that are not readily marketable, such as repurchase
agreements having a maturity of more than 7 days, time deposits, and
securities that are secured by interests in real estate.
2. Invest in real estate, although the Fund may purchase
securities of companies that deal in real estate and securities that are
secured by interests in real estate.
3. Invest in commodities or commodity contracts.
4. Purchase or retain any securities of other open end investment
companies, or purchase securities of other investment companies if, as
a result, the Fund would own more than 3% of the total outstanding
voting
- 2 -
<PAGE> 34
stock of any one investment company, or more than 5% of the Fund's assets
would be invested in any one investment company, or more than 10% of the
Fund's assets would be invested in investment company securities. These
limitations do not apply to securities acquired in connection with a
merger, consolidation, acquisition, or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary
broker's commission, is involved, and so long as immediately thereafter
not more than 10% of such Fund's total assets, taken at market value,
would be invested in such securities.
5. Make loans, other than by purchasing debt obligations
customarily distributed privately to institutional investors and lending
through repurchase agreements.
6. Invest more than 5% of the value of such assets in securities
of any one issuer. This restriction does not apply to securities issued
or guaranteed by the United States Government or its agencies or
instrumentalities.
7. Invest in more than 10% of the outstanding voting securities
of any one issuer.
8. Purchase the securities or other obligations of issuers in the
same industry if, immediately after such purchase, the value of the
Fund's investment in that industry would exceed 25% of the value of the
Fund's total assets, except that the Fund may invest more than 25% of
its assets in securities and other obligations of companies in the
financial services industry. (See "Financial Services Industry" in the
Glossary to the
- 3 -
<PAGE> 35
Prospectus.) This restriction does not apply to securities issued by the
United States Government or its agencies or instrumentalities.
9. Act as an underwriter of securities of other issuers, except
to the extent that it may be deemed to be an underwriter, within the
meaning of the Securities Act of 1933, in the disposition of restricted
securities.
10. Borrow money, except that (i) the Fund may enter into reverse
repurchase agreements for liquidity purposes, and (ii) as a temporary
measure for extraordinary or emergency purposes (such as to permit the
Fund to honor redemption requests without being required to dispose of
investments in an inopportune or untimely manner) and not for investment
purposes, the Fund may borrow from banks, provided that the total of
reverse repurchase agreements and bank borrowings may not exceed 5% of
the Fund's assets taken at cost.
11. Issue securities senior to its common stock except to the
extent set out in paragraph 10 immediately above or otherwise permitted
under the 1940 Act.
12. Sell securities short, or maintain a short position.
13. Buy securities on margin, except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities.
14. Invest in or write puts, calls, straddles, or spreads.
- 4 -
<PAGE> 36
15. Invest in companies for the purpose of exercising control of
management.
16. Invest in real estate limited partnerships.
Investment Policies
- -------------------
Most of the Fund's current investment policies are set forth in the
Prospectus under "INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS".
In addition, the Fund does not currently intend to purchase the
securities of any issuer or the securities of issuers primarily engaged
in oil, gas, or other mineral exploration or development programs or
leases.
To limit the credit risk of its investments, the Fund will not
purchase any security (other than a U. S. Government Obligation) unless
it is rated in one of the two highest rating categories assigned to
short-term debt securities by at least two nationally recognized
statistical rating organizations such as Moody's and Standard & Poor's
or, if not so rated, it is determined to be of comparable quality. The
Adviser makes determinations of comparable quality in accordance with
procedures established by the Directors. Securities meeting the
foregoing criteria constitute either "first tier" and "second tier"
securities. First tier securities have received the highest rating
(e.g., A-1 from Standard & Poor's or Prime-1 from Moody's) from at least
----
two recognized rating services. Second tier securities have received
ratings within the two highest categories (e.g., A-1 and A-2 from
----
Standard and Poor's) from at least two recognized rating agencies.
Under the current rules of the Securities and Exchange Commission (the
"Commission") applicable to money market funds, the Fund may not invest
more than 5% of the its total assets in second tier securities and not
more than 1% of the Fund's assets may
- 5 -
<PAGE> 37
be invested in second tier securities of any one issuer. These standards
must be satisfied at the time an investment is made. If the quality of
the investment later declines, the Fund may continue to hold the
investment, subject in certain circumstances to a finding by the
Company's Directors that disposing of the investment would not be in the
Fund's best interest.
The securities in which the Fund may invest are set forth in the
Prospectus' discussion of the Fund's investment policies, and the
Glossary to the Fund's Prospectus also describes certain aspects of some
of these securities. These securities include but are not limited to
the following:
United States Government Obligations
- ------------------------------------
The Fund may invest in U. S. Government Obligations. These
securities consist of both United States Government securities and
United States Government agency securities.
United States Government securities include bills, notes, and bonds
issued by the United States treasury, which are direct obligations of
the United States Government and differ mainly in the length of their
maturity. Treasury bills, the most frequently issued marketable
Government security, have a maturity of up to one year and are issued on
a discounted basis. Treasury notes have maturities of more than one and
up to ten years. Treasury bonds have maturities of ten to 30 years.
Government agency securities are the kinds of instruments currently
outstanding or offered in the future that are issued by agencies and
instrumentalities of the United States Government. Agencies include,
- 6 -
<PAGE> 38
among others, the Federal Housing Administration, Government National
Mortgage Association, Farmers Home Administration, Export-Import Bank of
the United States, Maritime Administration, General Services
Administration, and Tennessee Valley Authority. Instrumentalities
include, for example, the Central Bank for Cooperatives, Federal Home
Loan Banks, Federal Home Loan Mortgage Corporation, Farm Credit Banks,
and the United States Postal Service. The Fund will purchase government
agency securities only so long as they are either guaranteed by the
United States Treasury (e.g., Government National Mortgage Association
----
mortgage-backed securities) or supported by the issuing agency's or
instrumentality's credit or right to borrow from the United States
Treasury (e.g., Federal National Mortgage Association Discount Notes).
----
Not all securities issued by agencies or instrumentalities of the United
States Government have a guarantee representing the full faith and
credit of the U.S. Government.
Bank Obligations
- ----------------
The Fund may acquire obligations of certain depository
institutions, including certificates of deposit, time deposits, and
bankers' acceptances issued by commercial banks, savings and loan
associations, and savings banks.
Certificates of deposit are generally short-term, interest-bearing,
negotiable certificates issued by banks, savings and loan associations,
or savings banks against funds deposited in the issuing institution by
the depositor.
Time deposits are funds deposited in a bank, savings and loan
association, or savings bank for a specified period of time at a fixed
interest rate for which a negotiable certificate is not received.
- 7 -
<PAGE> 39
A banker's acceptance is a time draft drawn on a bank that
unconditionally guarantees to pay the draft at its face amount on the
maturity date. A bank customer, who is also liable for the draft,
typically uses the funds represented by the draft to finance the import,
export, or storage of goods.
The Fund will not invest in any security issued by a commercial
bank, savings and loan association, or savings bank organized and
operating in the United States, unless the institution has total assets
of at least $1,000,000,000 and a net worth of at least $500,000,000, and
is a member of the Federal Deposit Insurance Corporation.
The Fund may also invest in short term dollar denominated
obligations of foreign banks, foreign branches of foreign or U.S. banks,
and short-term obligations of U.S. branches and agencies of foreign
banks.
Repurchase Agreements
- ---------------------
A repurchase agreement customarily obligates the seller, at the
time it sells securities to the Fund, to repurchase the securities at a
mutually agreed-upon time and price. The total amount received on
repurchase should exceed the price paid by the Fund, reflecting an
agreed interest rate to the settlement date that would not necessarily
be related to the interest rate on the underlying securities. The
differences between the total amount to be received upon repurchase of
the securities and the price that was paid by the Fund upon the
securities' acquisition are accrued as interest and included in the
Fund's net income as dividends. The term of the Fund's repurchase
agreements will usually be short, from overnight to one week, and at no
time will the Fund acquire repurchase agreements having a term of more
than one year.
- 8 -
<PAGE> 40
During the holding period of a repurchase agreement, the seller
must provide additional collateral if the market value of the obligation
falls below the repurchase price. If the Fund acquires a repurchase
agreement and the seller later defaults at a time when the value of the
underlying securities is less than the obligation of the seller, the
Fund could incur a loss. If the seller defaults or becomes insolvent,
the Fund may experience delays in recovering its money, fail to recover
part or all of its investment, and incur costs in disposing of
securities used as collateral. The Fund will enter into repurchase
agreements only with sellers that the Adviser, applying criteria
established by the Fund's Board of Directors, believes to present
minimal credit risks.
Reverse Repurchase Agreements
- -----------------------------
Reverse repurchase agreements involve the sale of money market
securities held by the Fund pursuant to an agreement to repurchase the
securities at an agreed-upon price, date, and interest payment. The
Fund may use the proceeds of reverse repurchase agreements to cover net
redemptions and other needs for liquidity. When effecting reverse
repurchase transactions, the Fund will hold securities of a dollar
amount equal in value to the securities subject to the reverse
repurchase agreement in a segregated account with the Custodian. If
interest rates rise during the term of a reverse repurchase agreement,
the Fund's ability to maintain a net asset value of $1.00 per share may
be impaired.
Commercial Paper
- ----------------
Commercial paper involves an unsecured promissory note issued by a
corporation. It is usually sold on a discount basis and has a maturity
at the time of issuance of one year or less. On the date of investment
- 9 -
<PAGE> 41
by the Fund, such paper must be rated in one of the two highest
categories for short term debt securities by at least two nationally
recognized securities rating services such as Standard and Poor's or
Moody's Investor's Services (or by one such rating service, if only one
such rating service has rated the security). The Fund can invest in
unrated commercial paper if Board of Directors determines, in accordance
with the procedures of Rule 2a-7, that the unrated security is of
comparable quality to rated securities.
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics. The issuer's liquidity ratios are adequate to meet
cash requirements, and its long-term senior debt is rated "A" or better,
although in some cases "BBB" credits may be allowed. The issuer has
access to at least two additional channels of borrowing. Basic earnings
and cash flow of the issuer have an upward trend, with allowances made
for unusual circumstances. Typically, the issuer's industry is well
established and the issuer has a strong position within the industry.
The reliability and quality of management are unquestioned. Relative
strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2, or A-3.
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's Investor's Service, Inc. Among the factors
considered by Moody's in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type
risks that may be inherent in certain areas; (3) evaluation of the
issuer's products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trends of
earnings over a period of ten years; (7) financial strength of any
parent company and the relationships that exist with the issuer; and (8)
recognition by the management of
- 10 -
<PAGE> 42
obligations that may be presented or may arise as a result of public
interest questions and preparations to meet such obligations.
Variable or Floating Rate Instruments
- -------------------------------------
The Fund may invest in variable or floating rate instruments that
ultimately mature in more than 397 days, if the Fund acquires a right to
sell the securities that meet certain requirements set forth in Rule 2a-7.
Variable rate instruments (including investments subject to a demand
feature) that mature in 397 days or less may be deemed to have
maturities equal to the period remaining until the next readjustment of
the rate. Other variable rate instruments with demand features may be
deemed to have a maturity equal to the period remaining until the next
adjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand. A floating rate
instrument subject to a demand feature may be deemed to have a maturity
equal to the period remaining until the principal amount can be
recovered through demand.
PORTFOLIO TRANSACTIONS
The Adviser will place all orders for the purchase or sale of
portfolio securities for the Fund pursuant to authority contained in the
Fund's Management Agreement with the Adviser. The Adviser is also
responsible for the placement of transaction orders for other investment
companies and clients for which it acts as investment adviser.
Debt securities are generally traded with dealers acting as a
principal for their own accounts without a commission. The price of the
security usually includes a profit (a "spread" or "markup") for the
dealers. In underwritten offerings, securities are purchased at a fixed
- 11 -
<PAGE> 43
price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On
occasion, securities may be purchased directly from an issuer, in which
case no commissions or discounts are paid. In selecting brokers or
dealers, subject to applicable limitations of the federal securities
laws, the Adviser will consider various relevant factors, including, but
not limited to, the size and kind of the transaction; the nature and
character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability, and financial condition of
the broker-dealer firm; the broker-dealer's execution services rendered
on a continuing basis; and the reasonableness of spreads or commissions.
The Fund will execute portfolio transactions with broker-dealers
who provide research or execution services to the Fund. Such services
may include advice concerning the value of securities; the advisability
of investing in, purchasing, or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing
analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). Since, however,
many transactions on behalf of the Fund may be placed with dealers
without regard to the receipt or availability of such services, the Fund
and its Adviser cannot estimate the proportion of such transactions
directed to such dealers solely because such services were provided or
are available.
The receipt of research from broker-dealers that execute
transactions on behalf of the Fund may be useful to the Adviser in
rendering investment management services to the Fund or its other
clients, and conversely such information provided by broker-dealers who
have executed transaction
- 12 -
<PAGE> 44
orders on behalf of other clients of the Adviser may be useful to the
Adviser in carrying out its obligations to the Fund.
Subject to applicable limitations of the federal securities laws,
in recognition of their research or execution services, certain broker-
dealers may receive commissions or markups for transactions that are in
excess of the amount of markups or commissions charged by other broker-
dealers. To cause the Fund to pay such higher amounts, the Adviser must
determine in good faith that such charges are reasonable in relation to
the value of the brokerage or research services provided by such
executing broker-dealers viewed in terms of a particular transaction or
the Adviser's overall responsibilities to the Fund and its other
clients. In reaching this determination, the Fund will not attempt to
place a specific dollar value on the brokerage or research services
provided or to determine what portion of the compensation should be
related to those services.
The Adviser may use the services of the Distributor, Walnut Street
Securities, Inc. (a registered broker-dealer and an affiliate of the
Adviser), for the execution of the Fund's purchase and sale orders, if
(i) the commissions and markups charged by the Distributor are fair,
reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services, and (ii) the payment of
such amounts complies with the 1940 Act and the rules and regulations
thereunder. The Directors, including a majority of the Directors who
are not "interested persons" have adopted procedures that are reasonably
designed to provide that any commissions, fees, or other remuneration
paid to Walnut Street Securities are consistent with the foregoing
requirements. The Adviser anticipates, however, that most of the Fund's
portfolio transactions will be executed by non-affiliated broker-
dealers.
- 13 -
<PAGE> 45
The Fund will not purchase or sell portfolio securities from,
through, or to the Adviser or Distributor or any "affiliated person" (as
defined in the 1940 Act) of the Adviser or Distributor when such
entities are acting as principals, except to the extent permitted by
law. The Fund also will not purchase securities during the existence of
an underwriting group relating thereto of which the Adviser or
Distributor or an affiliate of either is a member, except to the extent
permitted by law.
The Company's Board of Directors will periodically review the
Adviser's performance of its responsibilities in connection with the
placement of portfolio transactions and review commissions and markups
paid by the Fund over representative periods of time to determine if
they are reasonable in relation to the benefits to the Fund.
Although the officers and Directors of the Fund are substantially
the same as those of other funds managed by the Adviser, investment
decisions for the Fund will be made independently from those of other
funds or accounts managed by the Adviser. It may sometime happen that
the same security is held in the portfolio of more than one of these
funds or accounts. Simultaneous transactions are inevitable when
several funds are managed by the same investment adviser, particularly
when the same security is suitable for the investment objective of more
than one fund or advisory client.
When two or more funds or accounts advised by the Adviser are
simultaneously engaged in the purchase or sale of the same security, the
prices and amounts will be allocated in a manner considered by the
officers of the funds or accounts involved to be equitable to each. In
some cases this system could have a detrimental effect on the price or
value of the security as far as the Fund is concerned. In other cases,
- 14 -
<PAGE> 46
however, the ability of the Fund to participate in volume transactions
will produce better executions and prices for the Fund. It is the
current opinion of the Directors that the desirability of retaining the
Adviser as investment adviser to the Fund outweighs any disadvantages
that may exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
The Fund values its investments on the basis of amortized cost.
This method involves valuing an instrument at its cost as adjusted for
amortization of premium or accretion of discount rather than its value
based on current market quotations or appropriate substitutes that
reflect current market conditions. The amortized cost value of an
instrument may be higher or lower than the price the Fund would receive
if it sold the instrument.
Valuing the Fund's instruments on the basis of amortized cost and
use of the term "money market fund" are permitted by Rule 2a-7 of the
Commission under the 1940 Act. The Fund must adhere to certain
conditions under Rule 2a-7, some of which are summarized in the
Prospectus.
The Company's Board of Directors oversees the Adviser's adherence
to the Commission's rules, and has established procedures designed to
stabilize the Fund's net asset value at $1.00. At such intervals as
they deem appropriate, the Directors consider the extent to which net
asset value as calculated by using market valuations would deviate from
$1.00 per share. If the Directors believe that a deviation from the
Fund's amortized cost per share may result in material dilution or other
unfair results to shareholders, the Directors have agreed to take such
corrective action, if any, as they deem appropriate to eliminate or
reduce, to the
- 15 -
<PAGE> 47
extent reasonably practicable, the dilution or unfair results. Such
corrective action could include selling portfolio instruments before
maturity to realize capital gains or losses or to shorten average
portfolio maturity; withholding dividends; redeeming shares in kind;
establishing net asset value by using available market quotations; and
such other measures as the Directors may deem appropriate.
During periods of declining interest rates, the Fund's yield based
on amortized cost may be higher than the yield based on market
valuations. Under these circumstances, a shareholder in the Fund would
be able to obtain a somewhat higher yield than would result if the Fund
used market valuations to determine its net asset value. The converse
would apply in a period of rising interest rates.
See "NET ASSET VALUE" AND "REDEMPTION OF SHARES - HOLIDAY SCHEDULE"
in the Prospectus for the times and dates upon which the Fund's net
asset value will be calculated.
PERFORMANCE
The Fund may compare its performance or the performance of
securities in which it may invest to Donoghue's Money Fund Averages,
which are average yields of various kinds of money market funds that
include the effect of compounding distributions. The Fund may also
compare its performance to other mutual funds, especially to those with
similar investment objectives. These comparisons may be based on data
published by Donoghue's Money Fund Report or by Lipper Analytical
Services, Inc., an independent service that monitors the performance of
mutual funds.
- 16 -
<PAGE> 48
As required by regulations of the Commission, current yield for the
Fund will be computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day calendar period,
dividing the net change in account by the value of the account at the
beginning of the period, and multiplying the return over the seven-day
period by 365/7. For purposes of the calculation, net change in account
value reflects the value of additional shares purchased with dividends
from the original share and dividends declared on both the original
share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective
yield for the Fund will be computed by annualizing the seven-day return
with all dividends reinvested in additional Fund shares. As of December
31, 1995, the current and effective seven-day yields for the Fund were
5.22% and 5.35%, respectively.
The Fund's performance will vary from time to time depending upon
market conditions, the composition of its portfolio, and its operating
expenses. Consequently, any given performance quotation should not be
considered representative of the Fund's performance for any specified
period in the future. In addition, because performance will fluctuate,
it may not provide a basis for comparing an investment in the Fund with
certain bank deposits or other investments that pay a fixed yield or
return for a stated period of time.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchase of Shares
- ------------------
- 17 -
<PAGE> 49
Investors may open Fund accounts and purchase shares as described
in the Prospectus under "PURCHASE OF SHARES."
Redemptions
- -----------
Investors may redeem shares as described in the Prospectus under
"REDEMPTION OF SHARES." Shareholders redeeming shares of the Fund
should be aware that while the Fund attempts to maintain a stable net
asset value of $1.00 per share, there can be no assurance that it will
be able to continue to do so and in that case the net asset value of the
Fund's shares might deviate from $1.00 per share. Accordingly, a
redemption request might result in payment of a dollar amount that
differs from the number of shares redeemed. See "NET ASSET VALUE" in
the Prospectus and "Valuation" in this Statement of Additional
Information.
If the Fund determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price, in lieu
of cash, in whole or in part by a distribution in kind of securities
from the portfolio of the Fund in conformity with the applicable rules
of the Commission. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into
cash and might also recognize a gain or loss for tax purposes.
The Fund reserves the right to suspend the right of redemption and
to postpone the date of payment upon redemption as follows: (i) during
periods when either the Federal Reserve Bank of New York or the New York
Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted, (ii) during periods in which an
emergency exists that causes disposal of, or evaluation of the net asset
- 18 -
<PAGE> 50
value of, the portfolio securities to be not reasonably practicable, or
(iii) for such other periods as the Commission may permit.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Fund declares and pays dividends and distributions as described
under "DIVIDENDS, DISTRIBUTIONS, AND TAXES" in the Prospectus. Net
investment income of the Fund consists of accrued interest or discount
and amortized premium, less the accrued expenses of the Fund applicable
to that dividend period. Determination of the net investment income for
the Fund will be made immediately prior to the determination of net
asset value at 2:00 p.m. (New York City time), on each day the Fund is
open for business. Net income for all other days is determined at 4:00
p.m. (New York City time) on the last immediately preceding day on which
the Fund is open for business.
The Fund may distribute short-term capital gains once a year or
more often as necessary to maintain its net asset value at $1.00 per
share or to comply with distribution requirements under federal tax law.
The Fund does not anticipate earning long-term capital gains on its
portfolio securities.
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, the Fund must, among other things, (a) derive at
least 90% of its gross income from dividends, interest, payments with
respect to loans of stock and securities, gains from the sale or other
disposition of stock, securities or foreign currency and other income
(including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such
- 19 -
<PAGE> 51
stock, securities or foreign currency; (b) derive less than 30% of its
gross income from the sale or other disposition of stock, securities,
options, futures or forward contracts (other than options, futures or
forward contracts on foreign currencies) held less than three months;
and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of the Fund's assets is
represented by cash, United States Government securities, and other
securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% 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 Obligations). (The securities
described in clauses (a) and (b) of the preceding sentence would be
limited by the Fund's investment objectives, restrictions, and policies
described in the Prospectus and this Statement of Additional
Information.) As a regulated investment company, the Fund (as opposed
to its shareholders) will not be subject to federal income taxes on the
net investment income and capital gains that it distributes to its
shareholders, provided that at least 90% of its net investment income
and realized net short-term capital gains in excess of net long-term
capital losses for the taxable year is distributed.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed income if it fails to meet certain
distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does
not expect to be subject to the excise tax.
Distributions of net investment income and realized net short-term
capital gains (if any) in excess of net long-term capital losses are
generally taxable to shareholders of the Fund as ordinary income whether
- 20 -
<PAGE> 52
such distributions are taken in cash or reinvested in additional shares.
Distributions from the Fund will not normally be eligible for the
dividends-received deduction.
A gain or loss realized by a shareholder on the redemption, sale,
or exchange of shares held as a capital asset will be capital gain or
loss, and such gain or loss will be long-term if the holding period for
the shares exceeds one year, and otherwise will be short-term. Any loss
realized by a shareholder on the disposition of shares held six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net long-term capital gains received by the shareholder
with respect to such shares. Additionally, any loss realized on a
redemption or exchange of shares of the Fund will be disallowed to the
extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend in shares of the Fund.
The Fund may be subject to foreign withholding taxes with respect
to income received from sources within foreign countries.
The Fund may be subject to state or local taxes in jurisdictions in
which the Fund is deemed to be doing business. In addition, the
treatment of the Fund and its shareholders in those states that have
income tax laws might differ from treatment under the federal income tax
laws. Depending upon state law, a portion of the Fund's dividends
attributable to interest income derived from United States Government
securities may be exempt from state and local taxation. Shareholders
should consult their own tax advisers with respect to any state or local
taxes.
- 21 -
<PAGE> 53
DIRECTORS AND OFFICERS
The Company's Directors and executive officers are listed below.
Except as indicated, each individual has held the office shown or other
office in the same company for the last five years. All persons other
than Mr. Lorio named as Directors and officers also serve in similar
capacities for other funds advised by the Adviser. Unless otherwise
noted, the business address of each Director and officer is 700 Market
Street, St. Louis, Missouri 63101, which is also the address of the
Adviser. Those Directors who are "interested persons" (as defined in
the Investment Company Act of 1940) by virtue of their affiliation with
either the Fund or the Adviser are indicated by an asterisk <F*>.
- 22 -
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS DURING
THE LAST FIVE
NAME POSITION YEARS
- ---- -------- ------------------
<C> <C> <S>
<F*>Rene C. Lorio President and President of the
670 Mason Ridge Center Director Fund since April
Drive 1994, and director
Suite 300 since April 26,
St. Louis, Mo. 63141 1995. Also,
President of
Walnut Street
Securities, Inc.,
a registered
broker-dealer and
the Fund's
distributor, and
Walnut Street
Advisers, Inc., a
registered
investment
adviser. From
1991 to 1993, he
served as the
Senior Vice
President of
Walnut Street
Securities, Inc.
Before joining
Walnut Street
Securities Mr.
Lorio was a Sales
Vice President
with General
American Life
Insurance Company.
<F*>Richard A. Liddy Director President, Chief
Executive Officer,
and Chairman of
the Board of
General American
Life Insurance
Company, of St.
Louis, Missouri;
from May 1988 to
May 1992,
President and
Chief Operating
Officer, General
American Life
Insurance Company,
which controls the
Adviser and
Distributor.
- 23 -
<PAGE> 55
Theodore M. Armstrong Director Senior Vice-
424 South Woods Mill President-Finance
Road and Administration
St. Louis, Mo. 63017 and Chief
Financial Officer,
Angelica
Corporation, St.
Louis, Missouri.
(Uniform
manufacture and
sale, and laundry
business.)
Alan C. Henderson Director Executive Vice-
7733 Forsyth President and
Suite 1700 Chief Financial
St. Louis, Mo. 63105 Officer, RehabCare
Group, Inc., St.
Louis, Missouri
(Disability
rehabilitation
business.) Prior
to June 1991,
Executive Vice
President and
Chief Financial
Officer,
Comprehensive Care
Corporation.
Harry E. Rich Director Executive Vice
8300 Maryland Ave. President and
St. Louis, Mo. 63105 Chief Financial
Officer of Brown
Group, Inc., a
retailer and shoe
importer and
manufacturer.
E. Thomas Hughes, Jr. Treasurer Corporate Actuary
and Treasurer of
General American
Life Insurance
Company, St.
Louis, Missouri,
which controls the
Adviser and
Distributor.
Before October
1994 he served as
the Executive Vice
President-Group
- 24 -
<PAGE> 56
Pensions of
General American
Life Insurance
Company.
Matthew P. McCauley Secretary Associate General
Counsel, General
American Life
Insurance Co., St.
Louis, Missouri,
which controls the
Adviser and
Distributor.
Also, Director,
Vice President,
General Counsel,
or Secretary for
ten other General
American
subsidiaries.
</TABLE>
Mr. McCauley is a director of the Distributor and a director, Vice
President, Secretary, and General Counsel of the Adviser. Messrs.
Armstrong, Rich, and Henderson serve as the Audit Committee of the
Company's Board of Directors. They also serve as noninterested
directors of General American Capital Company, an open end management
investment company for which the Adviser serves as the investment
manager. Messrs. Liddy and Lorio serve as the Executive Committee of
the Board of Directors, which, in the absence of action by the full
Board, can exercise the powers of the Board of Directors other than
those requiring the approval of a majority of the directors who are not
interested persons.
Officers of the Company are compensated by the Adviser. The
Company pays the noninterested directors an annual retainer of $500.00
and a fee of $500.00 for each meeting of the Board of Directors or
committee thereof that they attend or in which they participate by
telephone. Interested directors receive no remuneration from the
Company.
- 25 -
<PAGE> 57
MANAGEMENT CONTRACTS
The Adviser.
- -----------
The Company has entered into an Investment Management Agreement
with the Adviser, General American Investment Management Company, with
respect to the Fund. The Adviser is wholly owned by General American
Holding Company which, in turn, is wholly owned by General American Life
Insurance Company. General American Life Insurance Company is also the
ultimate parent of the Distributor, Walnut Street Securities, Inc., and
is engaged in the business of underwriting life insurance.
The Investment Management Agreement provides that the Adviser,
subject to control and review by the Company's Directors, is responsible
for the overall management and supervision of the Fund and for managing
the Fund's investments and providing certain services to the Fund. The
Adviser is responsible for selecting and monitoring the performance of
the Fund's investments and for maintaining the Fund's compliance with
its investment objective, restrictions, and policies. The Adviser
selects the broker-dealers who execute the fund's portfolio
transactions. The Adviser compensates all officers of the Company, the
Directors who are "interested persons" of the Company and the Adviser,
and all personnel of the Company or Adviser who perform services
relating to research, statistical, and investment activities of the
Fund. In addition, the Adviser consults with and reports to the
Company's Board of Directors about the Fund's investments and investment
strategy. The Adviser also provides accounting and statistical
information required for the preparation of the Company's registration
statements and other governmental filings, and it performs such other
obligations as the Company's Directors may specify.
- 26 -
<PAGE> 58
The Adviser may provide investment advice to other clients,
including, but not limited to, investment companies, pension funds,
separate accounts of General American Life Insurance Company, and
institutional investors. Occasions may arise when combined sales or
purchases of securities are made for more than one client in order to
obtain favorable execution and low brokerage commissions.
For its services to the Fund, the Adviser charges a fee which is
accrued daily against the Fund. The fee, stated as an annual percentage
of the average daily value of the net assets, is .25% of the first
$250,000,000 of net assets, .24% of net assets in excess of $250,000,000
up to $500,000,000, .23% of net assets in excess of $500,000,000 up to
$750,000,000, .22% of net assets in excess of $750,000,000 up to
$1,000,000,000, and .21% of net assets in excess of 1,000,000,000.
The Investment Management Agreement was approved by the unanimous
vote of the Company's Board of Directors (including all of the Directors
who are not interested persons (as defined in the 1940 Act) of the
Company or the Adviser) at a meeting called for such purpose on May 5,
1993, and by the vote of a majority of the outstanding shares of the
Fund at a special meeting held on May 5, 1993. The Investment
Management Agreement will continue in effect from year to year if
approved annually: (1) by the Board of Directors of the Company or by
a majority of the outstanding shares of the Fund, as determined pursuant
to the 1940 Act; and (2) by a majority of the Board of Directors who are
not interested persons, within the meaning of the 1940 Act, of any party
to such Agreement. On April 24, 1996, the Company's Board of directors
(including all of the Directors who are not interested persons)
unanimously approved the continuation of the Investment Management
Agreement for an additional year. The agreement is not assignable and
may be terminated without penalty on 60 days' written
- 27 -
<PAGE> 59
notice at the option of any party or, with respect to the Fund, by the
requisite vote of the shareholders of the Fund. The Investment
Management Agreement automatically terminates on its assignment. See
"Description of the Fund and its Capital Stock" in this Statement of
---------------------------------------------
Additional Information.
The Administrator.
- -----------------
The Company has entered into an Administration Agreement, Company
Accounting Agreement, and Cash Management and Related Services Agreement
with The Bank of New York, 110 Washington Street, New York, New York
10286 (the "Administrator"), for the provision of certain administrative
services to the Company and the Fund, as described in the Prospectus.
For these services, the Fund pays the Administrator an annual fee,
accrued daily and paid monthly, of .10% of the Fund's average net assets
up to $100,000,000, .07% of the next $400,000,000 of average net assets,
and .03% of average net assets in excess of $500,000,000. The
Administrator has no role in the selection of the Fund's investment
securities or the implementation of its investment objectives,
restrictions, or policies.
Transfer and Dividend Disbursing Agent.
- --------------------------------------
Until May 18, 1996, DST Systems, Inc., 811 Main, Kansas City,
Missouri 64105-2005 will serve as the Fund's Transfer Agent; from and after
May 18, 1996, BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219,
will serve as the Fund's Transfer Agent. The Transfer Agent is responsible
for maintaining account records detailing the ownership of Fund shares and
for crediting income, capital gains, and other changes in share
ownership to investors' accounts. The Transfer Agent is also the
dividend disbursing agent for the Fund. The Transfer Agent has no role
in the selection of the Fund's
- 28 -
<PAGE> 60
investment securities or the implementation of its investment objective,
restrictions, or policies.
National Financial Services Corporation, 82 Devonshire Street,
Boston, Massachusetts 02109, under an agreement with the Distributor,
will provide sub-transfer agent services to customers of Walnut Street
Securities who invest in the Fund through their Walnut Street Securities
brokerage accounts at NFSC. As part of its services, NFSC will
administer the automatic investment feature described in the Prospectus.
NFSC' fee for these services is .09% of the first $100,000,000 of the
Fund's average daily assets, .08% on the next $100,000,000 of average
daily assets, and .06% of average daily assets in excess of
$200,000,000.
Custodian
- ---------
The Bank of New York, 110 Washington Street, New York, New York
10286 will serve as the custodian of the Fund's securities (the
"Custodian"). The Custodian has no role in the selection of the Fund's
investment securities or the implementation of its investment
objectives, restrictions, or policies. The Fund, however, may invest in
obligations of the Custodian and may purchase or sell securities from
the Custodian. The Adviser, its officers and directors, and its
affiliated companies and personnel from time to time have transactions
with various banks, including the Custodian. In the judgment of the
Adviser, the terms and conditions of those transactions that have
occurred to date were not influenced by existing or potential custodial
or other relationships.
Payment of Expenses
- -------------------
- 29 -
<PAGE> 61
The Adviser has paid the organization costs of the Company as well
as the cost of certain administrative expenses.
In addition to the management fees payable to the Adviser and
payments under the Fund's Distribution and Service Plan discussed below,
the Company pays all its expenses, including, without limitation, the
fees of the Administrator, Custodian, and Transfer and Dividend
Disbursing Agent, the costs of the preparing and mailing of proxy
material and prospectuses to existing shareholders, legal expenses, and
the fees of the Fund's auditor. Other expenses paid by the Company
include its insurance premiums, and costs of registering the Fund's
shares under various federal and state securities laws. The Company is
also liable for such nonrecurring expenses as may arise, including costs
of litigation to which the Company or the Fund is a party, and any
obligation the Company may have to indemnify the officers and Directors
with respect to such litigation.
The Adviser has agreed to waive its management fee and reimburse
the Fund if and to the extent that the Fund's operating expenses,
including management fees but excluding extraordinary expenses, are in
excess of an annual rate of .85% of the Fund's average net assets.
DISTRIBUTION AND SERVICE PLAN
To facilitate the distribution of the Fund's shares, the Directors
of the Company on behalf of the Fund have adopted a Distribution and
Service Plan (the "Plan") pursuant to Rule 12b-1 ("12b-1") under the
1940 Act, and entered into a General Distribution Agreement
("Distribution Agreement") with Walnut Street Securities, Inc. (the
"Distributor"), 670 Mason ridge Center Drive, Suite 300, St. Louis,
Missouri 63141, an affiliate of the
- 30 -
<PAGE> 62
Adviser. The distributor, a Missouri corporation organized in 1984, is a
broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of securities Dealers, Inc. The Plan
and Distribution Agreement have been approved by a majority of the
Directors of the Company (including a majority of the Directors who are
not interested persons of the Company or the Adviser and have no interest
in the Plan or Distribution Agreement) and the holder of a majority of
the Company's voting securities on May 5, 1993. As required by 12b-1,
the Directors carefully considered all pertinent factors relating to the
implementation of the Plan and Distribution Agreement prior to their
approval, and determined that there is a reasonable likelihood that the
Plan and Distribution Agreement will benefit the Company and its
shareholders. In particular, the Directors noted that payments under
the Plan may provide additional incentives to promote the sale of shares
of the Fund, which may result in additional sales of the Fund's shares
and an increase in the Fund's assets. The Company pays the Distributor
a distribution fee as compensation for its services and expenses in
connection with the distribution of shares of the Fund at the annual
rate of .35% of its average net assets determined as of the close of
business on each day throughout the month. This distribution fee is
paid by the Company, not by individual accounts.
If the payment by the Fund to the Adviser of management fees should
be deemed to be indirect financing of the distribution of the Fund's
shares, the Plan authorizes such payment.
The Plan may be deemed by the Staff of the Commission to be a
"compensation plan" because payments made are not tied directly to
actual expenses incurred, and the Distributor is given discretion
concerning what expenses are payable under the Plan. The fees received
by the Distributor
- 31 -
<PAGE> 63
pursuant to the Plan may exceed, or particularly in the early years of
the Fund, be less than the estimated direct and indirect costs incurred
by the Distributor in providing its services under the Plan and the
Distribution Agreement with the Company. If the fees received exceed
expenses incurred, the Distributor may be deemed to have received a
"profit" to the extent of such excess. For example, if the Distributor
pays $1 for distribution related expenses and receives $2 under the Plan,
the $1 difference could be characterized as a profit for the Distributor.
If the fees received are less than expenses incurred, the Plan does not
carry over any excess costs over fees to a subsequent annual period. Any
revenue from an increase in distribution fees may not be used against
excess costs incurred in a previous period.
The Plan and Distribution Agreement do not provide for specific
payment by the Company of any of the expenses of the Distributor, nor do
they obligate the Distributor or the Adviser to perform any specific
kind or level of distribution activities or incur any specific level of
expense in connection with distribution activities. After payments by
the Distributor for advertising, marketing, and distribution, the
amounts remaining, if any, may be used as the Distributor may elect.
The Distributor may pay between 65% and 90% of this fee annually to its
registered representatives as an asset based sales charge.
Under their terms, the Plan and Distribution Agreement shall remain
in effect from year to year as long as the continuance is approved at
least annually by a vote of a majority of all of the Directors and a
majority of the Directors who have no interest in the Plan, Distribution
Agreement, Adviser, or the Company. The Plan and Distribution Agreement
may not be amended to increase materially the amount to be spent for
distribution without the approval of a majority of outstanding shares of
- 32 -
<PAGE> 64
the Fund, and they may not be materially amended in any case without a
vote of a majority of the outstanding shares of the Fund and the vote of
a majority of the Directors and a majority of the Directors who have no
interest in the Plan, Distribution Agreement, Adviser, or the Company.
So long as the Plan and Distribution Agreement are in effect, the
selection and nomination of the Directors who are not interested persons
of the Adviser or the Company shall be committed to the discretion of
the Directors who are themselves not such interested persons. The Plan
and Distribution Agreement may be terminated at any time by vote of a
majority of the Directors who are not such interested persons, or by
vote of a majority of the outstanding shares of the Fund. The Plan and
Distribution Agreement terminate automatically in the event of their
assignment. On April 24, 1996, the Company's Board of Directors
unanimously approved the continuation of the Plan and Distribution
Agreement for an additional year.
For further information about the Plan, see "MANAGEMENT OF THE FUND
- - THE DISTRIBUTOR" in the Prospectus.
DESCRIPTIONS OF THE FUND AND ITS CAPITAL STOCK
ORGANIZATION. The Walnut Street Prime Reserve Fund is a series of
The Walnut Street Funds, Inc., an open-end management investment company
organized as a Maryland corporation on January 22, 1993. Currently, the
Fund is the only series of the Company. The Articles of Incorporation
of the Company permit the Company's Directors to create additional
series, each of which would be a separate fund.
On May 1, 1993, General American Life Insurance Company, 700 Market
Street, St. Louis, Missouri 63101 ("General American"), owned of record
- 33 -
<PAGE> 65
or beneficially 101,000 issued and outstanding shares of the Fund, which
were the only issued and outstanding shares of the Company and the Fund.
The Fund commenced the public distribution of its securities in late
July 1993, and as of December 31, 1995, and the date of this Statement
of Additional Information, the Fund was not aware of any holder of five
percent (5%) or more of its securities.
If the Adviser ceases to be the investment adviser to the Company
or the Fund, the right of the Company or Fund to use the identifying
name "Walnut Street" may be withdrawn.
The assets of the Company received for the issue or sale of shares
of the Fund and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to the
Fund, and constitute the underlying assets of the Fund. The underlying
assets of the Fund are segregated on the Company's books of account, and
are to be charged with the liabilities with respect to the Fund and with
a share of the general expenses of the Company. In the event of the
dissolution or liquidation of the Company, shareholders of the Fund as
a class are entitled to receive the underlying assets of the Fund
available for distribution.
CAPITAL STOCK. The Company's Articles of Incorporation currently
permit the Company to issue 5,000,000,000 shares of common stock, par
value $.001 per share, of which 1,000,000,000 shares have been
classified and allocated to the Fund. Shares of the Company (and thus
the Fund) do not have preemptive or conversion rights and when issued
are fully paid and nonassessable. The rights of redemption are
described in the Prospectus and elsewhere in this Statement of
Additional Information. If an investor's account balance falls below
$250 due to redemption, after
- 34 -
<PAGE> 66
giving the investor 45 days' notice, the Fund may close the account and
mail the proceeds to the investor at the investor's address shown on the
Fund's records.
The shareholders of the Company are entitled to a full vote for
each full share held and to a fractional vote for each fractional share.
Subject to the 1940 Act and Maryland law, the Directors themselves have
the power to alter the number and the terms of office of the Directors,
to lengthen their own terms, or to make their terms of unlimited
duration subject to certain removal procedures, and appoint their own
successors; provided, however, that immediately after such appointment
the requisite majority of the Directors have been elected by the
shareholders of the Fund. The voting rights of shareholders are not
cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Directors being selected while the holders of the
remaining shares would be unable to elect any Directors. It is the
intention of the Company not to hold annual shareholders' meetings. The
Directors may call shareholders' meetings for action by shareholder vote
as may be required by the 1940 Act, Maryland law, or the Company's
Articles of Incorporation. See "PURCHASE OF SHARES - INITIAL INVESTMENT
AMOUNT AND MINIMUM ACCOUNT BALANCE" in the Prospectus.
The Articles of Incorporation contain a provision permitted under
Maryland Corporation Law that under certain circumstances eliminates the
personal liability of the Directors to the Company or its shareholders.
The Articles of Incorporation and the Bylaws of the Company provide that
the Company will indemnify the Directors, officers, and employees of the
Fund to the full extent permitted by the Maryland General Corporation
Law, which permits indemnification of such persons against liabilities
and expenses incurred in connection with proceedings in which they may be
- 35 -
<PAGE> 67
involved because of their offices or employment with the Company.
However, nothing in the Articles of Incorporation or the Bylaws of the
Company protects or indemnifies a Director, officer or employee against
any liability to the Company or its shareholders to which he or she
would otherwise be subject by reason of willful malfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
ADDITIONAL INFORMATION
With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the
information included in the Company's Registration Statement filed with
the Commission under the Securities Act of 1933. Pursuant to the rules
and regulations of the Commission, certain portions have been omitted.
The Registration Statements including the exhibits filed therewith may
be examined at the office of the Commission in Washington, D.C.
Statements contained in this Statement of Additional Information
and the Prospectus concerning the contents of any contract or other
document 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 is qualified
in all respects by such reference.
No dealer, salesman or any other person has been authorized to give
any information or to make any representations, other than those
contained in the Prospectus and this Statement of Additional
Information, in connection with the offer contained in the Prospectus
and this Statement
- 36 -
<PAGE> 68
of Additional Information and, if given or made, such other information
or representations must not be relied upon as having been authorized by
the Company or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Company or by
the Distributor to sell or solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Company or the Distributor to make such offer in such
jurisdiction.
AUDITOR.
-------
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154,
serves as the Fund's independent accountants, providing audit services
including (1) audit of the annual financial statements, and (2) assistance
and consultation in connection with Commission filings.
- 37 -
<PAGE> 69
FINANCIAL STATEMENTS AND
REPORTS OF INDEPENDENT AUDITORS
- 38 -
<PAGE> 70
<TABLE>
- --------------------------------------------------------------------------------
============ WALNUT STREET PRIME RESERVE FUND
Schedule of Investments
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2A)
--------- --------------
<C> <S> <C>
COMMERCIAL PAPER--89.99%
AUTOMOBILES--2.30%
$ 1,640,000 Cooperative Assoc. of Tractor Dealers, 5.75%,
1/17/96......................................... $ 1,635,809
1,000,000 Cooperative Assoc. of Tractor Dealers, 5.88%,
2/01/96......................................... 994,937
1,000,000 Cooperative Assoc. of Tractor Dealers, 5.70%,
3/25/96......................................... 986,700
--------------
3,617,446
--------------
BANKING & FINANCE--85.24%
355,000 Alloman Funding Corp., 5.85%, 1/26/96........... 353,558
3,435,000 Alloman Funding Corp., 5.75%, 2/09/96........... 3,413,603
335,000 Alloman Funding Corp., 5.77%, 2/09/96........... 332,906
1,000,000 Alloman Funding Corp., 5.85%, 2/09/96........... 993,663
2,000,000 Anchor Funding, 5.83%, 1/12/96.................. 1,996,437
2,000,000 Anchor Funding, 6.00%, 1/29/96.................. 1,990,667
1,000,000 Anchor Funding, 5.90%, 2/01/96.................. 994,919
2,000,000 Anchor Funding, 5.95%, 2/08/96.................. 1,987,439
1,000,000 Banca CRT Financial, 5.55%, 3/27/96............. 986,741
2,000,000 BOT Financial, 5.90%, 1/16/96................... 1,995,083
1,000,000 BOT Financial, 6.00%, 1/16/96................... 997,500
1,000,000 Broadway Capital, 5.98%, 1/22/96................ 996,512
3,500,000 Broadway Capital, 5.90%, 2/13/96................ 3,475,335
415,000 Broadway Capital, 5.70%, 2/20/96................ 411,714
2,500,000 Cargill Financial Service, 6.45%, 1/02/96....... 2,499,552
2,000,000 Creative Capital, 5.85%, 1/10/96................ 1,997,075
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2A)
--------- -------------
<C> <S> <C>
$ 550,000 Creative Capital, 5.85%, 1/10/96.................. $ 549,196
3,000,000 Creative Capital, 6.00%, 2/07/96.................. 2,981,500
2,000,000 Creative Capital, 5.95%, 2/15/96.................. 1,985,125
1,410,000 Delaware Group Div., Inc., 5.75%, 2/08/96......... 1,401,442
4,000,000 D.I.C. Americas, Inc., 6.02%, 1/16/96 (LOC:
Mitsubishi Bank).................................. 3,989,967
3,700,000 D.I.C. Americas, Inc., 6.05%, 1/26/96 (LOC: Fuji
Bank)............................................. 3,684,455
2,000,000 D.I.C. Americas, Inc., 6.00%, 2/01/96 (LOC:
Mitsubishi Bank).................................. 1,989,667
3,000,000 Diamond Asset Funding, 6.05%, 1/31/96............. 2,984,875
1,000,000 Diamond Asset Funding, 5.85%, 4/15/96............. 982,938
3,000,000 Diamond Asset Funding, 5.95%, 5/15/96............. 2,933,063
2,500,000 Dynamic Funding, 6.01%, 1/25/96................... 2,489,983
1,500,000 Dynamic Funding, 6.05%, 1/25/96................... 1,493,950
1,000,000 Dynamic Funding, 6.00%, 1/26/96................... 995,833
500,000 Dynamic Funding, 6.00%, 2/23/96................... 495,583
2,300,000 Dynamic Funding, 6.10%, 3/15/96................... 2,271,160
900,000 Finova Capital Corp, 5.85%, 1/12/96............... 898,391
2,000,000 Finova Capital Corp, 5.96%, 1/25/96............... 1,992,053
1,000,000 Finova Capital Corp, 5.95%, 1/31/96............... 995,042
225,000 Finova Capital Corp, 5.90%, 2/05/96............... 223,709
1,500,000 Industrial Funding, 5.83%, 1/10/96................ 1,497,814
3,000,000 Industrial Funding, 5.95%, 2/13/96................ 2,978,679
881,000 Iris Partners, 6.00%, 2/09/96 (LOC: Sumitomo
Bank)............................................. 875,274
See notes to financial statements.
- --------------------------------------------------------------------------------
1
<PAGE> 71
- --------------------------------------------------------------------------------
============ WALNUT STREET PRIME RESERVE FUND
Schedule of Investments (Continued)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2A)
--------- -------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
BANKING & FINANCE (CONTINUED)
$ 5,000,000 Jet Funding, 6.00%, 1/31/96....................... $ 4,975,000
1,500,000 Jet Funding, 6.05%, 1/31/96....................... 1,492,438
1,000,000 Jet Funding, 6.07%, 1/31/96....................... 994,942
4,000,000 JV Receivables, 5.75%, 2/05/96.................... 3,977,639
2,500,000 Mitsubishi Motors, 6.03%, 1/19/96 (LOC:
Norinchukin Bank)................................. 2,492,463
5,000,000 Oak Funding, 5.98%, 2/20/96....................... 4,958,472
500,000 Orix America, 5.95%, 1/03/96 (LOC: Industrial Bank
of Japan)......................................... 499,835
1,900,000 Orix America, 6.05%, 1/17/96 (LOC: Norinchukin
Bank)............................................. 1,894,891
2,000,000 Orix America, 6.00%, 3/27/96 (LOC: Norinchukin
Bank)............................................. 1,971,333
2,000,000 Orix America, 5.95%, 4/29/96 (LOC: Sanwa Bank).... 1,960,664
550,000 Progress Funding, 5.92%, 1/03/96.................. 549,819
350,000 Progress Funding, 5.92%, 1/08/96.................. 349,597
1,950,000 Progress Funding, 6.00%, 1/18/96.................. 1,944,475
2,000,000 Progress Funding, 6.02%, 2/01/96.................. 1,989,632
1,000,000 Progress Funding, 5.70%, 3/15/96.................. 988,283
3,800,000 Sanwa Business Credit Corp, 5.95%, 2/01/96........ 3,780,530
3,840,000 Sanwa Business Credit Corp, 5.90%, 2/29/96........ 3,802,869
1,275,000 Shinhan Bank, 5.82%, 2/09/96...................... 1,266,961
3,050,000 Shinhan Bank, 5.82%, 2/23/96...................... 3,023,867
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2A)
--------- -------------
<C> <S> <C>
$ 365,000 Sierra Funding, 5,90%, 1/16/96.................... $ 364,103
450,000 Sierra Funding, 6.00%, 1/31/96.................... 447,750
3,000,000 Sierra Funding, 6.00%, 2/29/96.................... 2,970,500
2,000,000 Sierra Funding, 5.50%, 6/17/96.................... 1,948,667
3,000,000 Stellar Corp., 6.02%, 1/16/96..................... 2,992,475
1,000,000 Strait Capital Corp, 6.02%, 1/31/96............... 994,983
1,850,000 Strategic Asset Funding, 6.00%, 1/04/96........... 1,849,075
850,000 Strategic Asset Funding, 6.20%, 1/16/96........... 847,804
1,650,000 Strategic Asset Funding, 5.95%, 2/29/96........... 1,633,910
1,000,000 Strategic Asset Funding, 5.95%, 2/29/96........... 990,249
2,450,000 Strategic Asset Funding, 5.52%, 4/30/96........... 2,404,920
3,000,000 Tri-Lateral Capital, 5.93%, 1/11/96............... 2,995,058
2,000,000 Tri-Lateral Capital, 6.05%, 1/19/96............... 1,993,950
2,300,000 Tri-Lateral Capital, 6.00%, 1/25/96............... 2,290,800
-------------
133,750,357
-------------
CONGLOMERATES--1.49%
1,250,000 Mitsui & Company USA, 5.75%, 1/26/96.............. 1,245,009
1,100,000 Mitsui & Company USA, 5.67%, 3/11/96.............. 1,087,872
-------------
2,332,881
-------------
INDUSTRIAL GOODS & EQUIPMENT--0.96%
1,500,000 AGA Capital, 6.00%, 1/02/96....................... 1,499,750
-------------
TOTAL COMMERCIAL PAPER (Cost $141,200,434)........ 141,200,434
-------------
See notes to financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 72
- --------------------------------------------------------------------------------
============ WALNUT STREET PRIME RESERVE FUND
Schedule of Investments (Continued)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2A)
--------- -------------
<C> <S> <C>
FLOATING RATE NOTES--6.37%
$ 5,000,000 Federal Home Loan Mortgage Corporation, 5.90%,
payable quarterly, resets daily, next coupon
3/30/96 <Fa>.................................. $ 4,997,563
1,000,000 Student Loan Marketing Association Floating
Rate Note, 5.27%, payable quarterly, resets
Tuesdays, next coupon 2/02/96 <Fa>............ 999,104
2,000,000 Student Loan Marketing Association Floating
Rate Note, 5.25%, payable quarterly, resets
Tuesdays, next coupon 2/22/96 <Fa>............ 2,000,000
2,000,000 Student Loan Marketing Association Floating
Rate Note, 5.26%, payable quarterly, resets
Tuesdays, next coupon 3/20/96 <Fa>............ 2,000,000
-------------
TOTAL FLOATING RATE NOTES (Cost $9,996,667)... 9,996,667
-------------
<CAPTION>
PRINCIPAL VALUE
AMOUNT (NOTE 2A)
--------- ------------
<C> <S> <C>
TIME DEPOSITS--3.50%
$ 1,000,000 Banco Espirito Santo, 5.875%, 2/05/96.......... $ 1,000,000
1,000,000 Banco Espirito Santo, 5.75%, 3/11/96........... 1,000,000
1,000,000 Banco Espirito Santo, 5.9375%, 5/10/96......... 1,000,000
1,500,000 Banco Espirito Santo, 5.875%, 10/04/96......... 1,500,000
1,000,000 Banco Espirito Santo, 5.875%, 10/26/96......... 1,000,000
------------
TOTAL TIME DEPOSITS
(Cost $5,500,000).............................. 5,500,000
------------
TOTAL INVESTMENTS--(Cost $156,697,101) <Fb>--
99.86%......................................... 156,697,101
Cash, receivables, and other assets less
liabilities--.14%.............................. 219,223
------------
NET ASSETS--100% $156,916,324
============
<FN>
LOC Letter of credit.
<Fa> The rate stated is the rate in effect on December 31, 1995.
<Fb> The cost stated also represents the aggregate cost for Federal income tax
purposes.
See notes to financial statements.
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 73
<TABLE>
- --------------------------------------------------------------------------------
=========
<CAPTION> Statement of Assets
and
Liabilities
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value (Note 2A) (Identified cost $156,697,101).... $156,697,101
Cash............................................................. 23,924
Interest receivable.............................................. 187,353
Deferred organization costs and other assets (Note 2E)........... 173,612
------------
TOTAL ASSETS.................................................... 157,081,990
------------
LIABILITIES:
Payables:
Advisory Fee (Note 3)........................................... 68,794
Distribution Fees (Note 3)...................................... 45,403
Accrued expenses................................................. 51,469
------------
TOTAL LIABILITIES............................................... 165,666
------------
NET ASSETS:
(applicable to 156,926,891 shares issued and outstanding; 1
billion shares of $.001 par value authorized)................... $156,916,324
============
Net asset value, offering price and repurchase price per share
($156,916,324/156,926,891 shares)............................... $ 1.00
============
SOURCES OF NET ASSETS:
Capital stock at par............................................. $ 156,927
Capital surplus.................................................. 156,769,964
Accumulated net realized loss on investments..................... (10,567)
------------
NET ASSETS........................................................ $156,916,324
============
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Operations
FOR THE YEAR ENDED
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $7,164,615
----------
EXPENSES:
Advisory (Note 3).................................................. 293,625
Administration and accounting (Note 3)............................. 113,145
Custodian (Note 3)................................................. 24,677
Transfer agent..................................................... 31,113
Audit.............................................................. 18,286
Cash management.................................................... 15,438
Distribution (Note 3).............................................. 411,007
Directors (Note 4)................................................. 12,001
Reports to shareholders............................................ 30,584
Registration and filing............................................ 89,079
Organization....................................................... 36,463
Legal.............................................................. 15,466
Other.............................................................. 5,267
----------
TOTAL EXPENSES.................................................... 1,096,151
Fees waived by adviser............................................. (97,991)
----------
NET EXPENSES...................................................... 998,160
----------
NET INVESTMENT INCOME............................................. 6,166,455
Net realized gain on investments................................... 202
----------
Net increase in net assets resulting from operations............... $6,166,657
==========
See notes to financial statements.
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 74
<TABLE>
- --------------------------------------------------------------------------------
========= Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<CAPTION>
FOR THE FOR THE
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 6,166,455 $ 2,561,432
Net realized gain (loss) on investments........... 202 (10,769)
------------ -----------
Net increase in net assets resulting from
operations...................................... 6,166,657 2,550,663
------------ -----------
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income.............. (6,166,455) (2,561,432)
------------ -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold.................. 193,059,843 130,476,828
Proceeds from shares issued on reinvestment of
dividends........................................ 6,166,058 2,561,221
Cost of capital stock repurchased................. (131,842,597) (98,079,910)
------------ -----------
Increase in net assets resulting from capital
stock transactions.............................. 67,383,304 34,958,139
------------ -----------
INCREASE IN NET ASSETS.......................... 67,383,506 34,947,370
NET ASSETS:
Beginning of year................................. 89,532,818 54,585,448
------------ -----------
End of year....................................... $156,916,324 $89,532,818
============ ===========
CHANGE IN CAPITAL STOCK OUTSTANDING:
Shares sold....................................... 193,059,843 130,476,828
Shares issued on reinvestment of dividends........ 6,166,058 2,561,221
Shares repurchased................................ (131,842,597) (98,079,910)
------------ -----------
Net increase..................................... 67,383,304 34,958,139
Shares outstanding, beginning of year............. 89,543,587 54,585,448
------------ -----------
Shares outstanding, end of year................... 156,926,891 89,543,587
============ ===========
See notes to financial statements.
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 75
<TABLE>
- --------------------------------------------------------------------------------
========== Financial Highlights
- --------------------------------------------------------------------------------
<CAPTION>
FOR THE
PERIOD
FOR THE FOR THE JULY 21,
YEAR YEAR 1993<F*>
ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value at beginning of period... $ 1.000 $ 1.000 $ 1.000
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................... 0.053 0.036 0.011
-------- ------- -------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income..... (0.053) (0.036) (0.011)
-------- ------- -------
Net asset value at end of period......... $ 1.000 $ 1.000 $ 1.000
======== ======= =======
TOTAL RETURN:............................ 5.40% 3.62% 2.46%<F**>
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's
omitted) ............................... $156,916 $89,533 $54,585
Ratio to average net assets of:
Expenses, net of waiver from General
American Investment Management Company. 0.85% 0.85% 0.85%<F**>
Expenses, prior to waiver from General
American Investment Management Company. 0.93% 1.05% 1.07%<F**>
Net investment income, net of waiver
from General American Investment
Management Company..................... 5.25% 3.64% 2.46%<F**>
<FN>
<F*> Commencement of investment operations.
<F**> Annualized.
See notes to financial statements.
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 76
- --------------------------------------------------------------------------------
========== Notes to Financial Statements
1. ORGANIZATION AND BUSINESS
The Walnut Street Funds, Inc. (the "Company") was organized as a Maryland Cor-
poration on January 22, 1993 and is registered under the Investment Company Act
of 1940 as an open-end management investment company. The Company currently
consists of one series. The Walnut Street Prime Reserve Fund (the "Fund") com-
menced investment operations on July 21, 1993.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses for the
period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
(A) SECURITY VALUATIONS
Securities are valued at amortized cost which approximates market value. This
method values a security at its cost at the time of purchase and thereafter as-
sumes a constant rate of accretion or amortization to maturity of any discount
or premium.
(B) FEDERAL INCOME TAXES
The Fund is treated as a separate entity for federal income tax purposes. The
Fund's policy is to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and distribute income to share-
holders within the allowable time limits. Therefore, no federal income tax pro-
vision is required.
At December 31, 1995, the Portfolio had a capital loss carryover of approxi-
mately $10,600 which is available to offset future net realized gains on secu-
rities transactions. Such capital loss carryover will expire in fiscal year
2002.
(C) DIVIDENDS TO SHAREHOLDERS
Net investment income is declared daily and paid monthly.
Income and capital gains distributions, if any, are determined in accordance
with income tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally ac-
cepted accounting principles.
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date and interest income is ac-
crued daily. Discounts and premiums on securities purchased are accreted and
amortized over the life of the respective securities.
(E) ORGANIZATION COSTS
Costs incurred in connection with the organization and initial registration of
the Fund are being amortized over the period of benefit not to exceed 60 months
from the date upon which the Fund commenced investment operations.
If any or all of the shares representing initial capital of the Fund are re-
deemed by any holder thereof prior to the end of the amortization period, the
proceeds will be reduced by the unamortized organizational expense balance in
the
- --------------------------------------------------------------------------------
7
<PAGE> 77
- --------------------------------------------------------------------------------
========== Notes to Financial Statements (continued)
same proportion as the number of such shares redeemed bears to the number of
initial shares outstanding immediately before the redemption.
3. ADVISORY, ADMINISTRATION AND OTHER TRANSACTIONS WITH AFFILIATES
General American Investment Management Company acts as the Fund's investment
adviser (the "Adviser"). The Adviser manages the investments of the Fund and is
responsible for all purchases and sales of the Fund's portfolio securities.
As compensation for its services and the related expenses borne by the Adviser,
the Fund pays the Adviser a Management Fee, accrued daily and payable monthly,
that is equal, on an annual basis, to .25% of the Fund's average daily net as-
sets on the first $250,000,000 of the Fund's net assets, .24% of the Fund's av-
erage daily net assets in excess of $250,000,000 up to $500,000,000, .23% of
the Fund's average daily net assets in excess of $500,000,000 up to
$750,000,000, .22% of the Fund's average daily net assets in excess of
$750,000,000 up to $1,000,000,000, and .21% of the Fund's average daily net as-
sets in excess of $1,000,000,000.
The Adviser has voluntarily agreed to assume/waive expenses for the Fund to the
extent that expenses exceed .85% of the average daily net assets of the Fund.
For the year ended December 31, 1995, the Adviser waived $97,991.
The Bank of New York acts as the Fund's administrator (the "Administrator") and
will assist in supervising the operations of the Fund. The Bank of New York
also serves as the Fund's custodian and fund accounting agent.
The Administrator has agreed to provide facilities, equipment and personnel to
carry out administrative services for the Fund, including, among other things,
monitoring the custodian, fund accounting, and administrative services.
The Administrator's fee is accrued daily and is payable monthly at the rate of
.10% of the Fund's average net assets up to $100,000,000, .07% of the next
$400,000,000 of average net assets, and .03% of average net assets in excess of
$500,000,000, with a minimum fee of $6,000 per month.
The exclusive distributor of the Fund's shares is Walnut Street Securities,
Inc. (the "Distributor"), a registered broker dealer that is a wholly-owned
subsidiary of the Adviser.
The Fund has adopted a distribution plan ("12b-1 Plan") pursuant to which the
Distributor may be reimbursed for expenses incurred during the year in connec-
tion with the distribution of Fund shares. The aggregate annual amount payable
by the Fund as provided in the 12b-1 Plan may not exceed .35% of the Fund's av-
erage daily net assets.
4. DIRECTORS' FEES
Unaffiliated directors are paid $500 for each board meeting attended, plus re-
imbursement for travel and out-of-pocket expenses.
- --------------------------------------------------------------------------------
8
<PAGE> 78
- --------------------------------------------------------------------------------
=========== Independent Auditors' Report
To the Shareholders and Board of Directors of
Walnut Street Prime Reserve Fund:
We have audited the accompanying statement of assets and liabilities, includ-
ing the schedule of investments, of the Walnut Street Prime Reserve Fund as of
December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the two-year period then ended and for the period from July 21, 1993 (com-
mencement of investment operations) through December 31, 1993. These financial
statements and financial highlights are the responsibility of the Fund's man-
agement. Our responsibility is to express an opinion on these financial state-
ments and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of De-
cember 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above presents fairly, in all material respects, the financial position of the
Walnut Street Prime Reserve Fund as of December 31, 1995, the results of its
operations, the changes in its net assets and its financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
February 9, 1996
- --------------------------------------------------------------------------------
9
<PAGE> 79
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
(1) Financial Statements Included in Part A, the Prospectus:
Financial Highlights as of December 31, 1995.
(2) Financial Statements Included in Part B, the Statement of
Additional Information:
Schedule of Investments as of December 31, 1995
(audited).
Statement of Assets and Liabilities as of December 31,
1995 (audited).
Statement of Operations for the period January 1, 1995,
through December 31, 1995 (audited).
Statement of Changes in Net Assets for the period January
1, 1995, through December 31, 1995 (audited).
Financial Highlights for the period January 1, 1995,
through December 31, 1995 (audited).
Notes to audited Financial Statements as at December 31,
1995.
C-1
<PAGE> 80
Report of KPMG Peat Marwick LLP
(3) Financial Statements included in Part C:
None.
(b) Exhibits
(1)(a) Articles of Incorporation of Registrant.<F*>
(2) Bylaws of Registrant.<F*>
(3) Not applicable.
(4) Not applicable.
(5)(a) Investment Management Agreement between the Registrant
and General American Investment Management Company.<F*>
(5)(b) Administration Agreement between the Registrant and The
Bank of New York.<F**>
(5)(c) Company Accounting Agreement between the Registrant and
The Bank of New York.<F**>
(5)(d) Terms of Sub-Accounting Arrangements with National
Financial Services Corporation.<F**>
(5)(e) Cash Management and Related Services Agreement between
the Registrant and The Bank of New York.<F**>
(6) General Distribution Agreement between the Registrant
and Walnut Street Securities, Inc.<F**>
(7) Not applicable.
(8) Custody Agreement between the Registrant and The Bank
of New York and Schedule of Remuneration.<F**>
(9)(a) Transfer Agency Agreement between the Registrant and
Supervised Service Company, Inc.<F**>
(9)(b) Consent of the Registrant to assignment of Transfer
Agency Agreement from Supervised Service Company, Inc., to DST Systems,
Inc.<F***>
(9)(c) Transfer Agency Agreement between the Registrant and
BISYS Funds Services, Inc.
(10) Opinion of Counsel.<F**>
(11) Consent of Independent Auditors.
(12) Not applicable.
(13) Purchase Agreement between the Registrant and General
American Life Insurance Company.<F*>
C-2
<PAGE> 81
(14) Not applicable.
(15) Registrant's Distribution and Service Plan Pursuant to
Rule 12b-1.<F**>
(16) Schedule for Computation of Current Yield and
Effective Yield.
(17) Financial Data Schedule.
(18) Not applicable.
[FN]
- --------------------------
<F*> Incorporated by reference from the Registrant's Registration
Statement on Form N-1A, as filed on March 3, 1993, Registration
Nos. 33-59044 and 811-7552.
<F**> Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A, as filed on May
19, 1993, Registration Nos. 33-59044 and 811-7552.
<F***> Incorporated by reference by Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A as filed on April 26, 1995,
Registration Nos. 33-59044 and 811-7552.
Item 25. Persons Controlled by or Under Common Control with Registrant.
-------------------------------------------------------------
The Board of Directors of Registrant has members who serve on the boards
of other investment companies and accounts advised by the Adviser. The
officers of these investment companies and accounts also are
substantially identical. The Registrant, however, believes that it is
not under common control with these other investment companies and
accounts since the power residing in the respective boards and officers
arises as the result of official positions held with the respective
funds.
Without limiting the foregoing, the Registrant attaches as Exhibit
17(b) an Organization Chart of General American Life Insurance Company
and its Affiliates.
<TABLE>
Item 26. Number of Holders of Securities
-------------------------------
<CAPTION>
January 31, 1996
Title of Class Number of Record Holders
- -------------- ------------------------
<S> <C>
The Walnut Street Prime Reserve Fund 17,678
</TABLE>
Item 27. Indemnification
---------------
The Company's Articles of Incorporation require that the Company
indemnify it officers, Directors, and agents as follows:
EIGHTH:
(a) The Corporation shall indemnify its
Directors, officers, and agents to the extent
required by law and may, in its discretion,
indemnify its Directors, officers, and agents
against liabilities and expenses reasonably
incurred in connection with any proceeding to which
such Director, officer, or agent is made a party by
reason of his or her actions in an official
capacity on the Corporation's behalf; provided,
C-3
<PAGE> 82
however, that the Corporation shall not indemnify
any Director, officer, or agent against liability
or expense arising by reason of willful
misfeasance, bad faith, gross negligence, or
reckless disregard of the duties of his or her
office; nor shall any indemnity or provision of
these Articles of Incorporation be interpreted
inconsistently with the requirements of the
Maryland General Corporation Law, or the Securities
Act of 1933, as amended, or the 1940 Act.
(b) No Director or officer of the
Corporation shall be liable to the Corporation or
its shareholders for monetary damages in any action
or proceeding at law or in equity for any act or
omission of such Director or officer acting in his
or her capacity as such, provided that the
exculpation set forth in this paragraph (b) shall
not apply (i) to the extent that it is proved that
such Director or officer actually received an
improper benefit or profit in money, property, or
services, or (ii) to the extent that a judgment or
other final adjudication adverse to such Director
or officer is entered in a proceeding that such
person's action, or failure to act, was the result
of active and deliberate dishonesty of such
Director or officer and was material to the cause
of action adjudicated in the proceeding. Nothing
in this paragraph (b) shall exculpate or protect or
be deemed or construed to exculpate or protect any
Director or officer of the Corporation against any
liability to the Corporation or its shareholders to
which such Director or officer would otherwise be
subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of
his or her duties, or by reason of such Director's
or officer's reckless disregard of his or her
obligations and duties as a Director or officer of
the Corporation.
The Company's Bylaws develop the Company's indemnification
obligation in the following manner:
11.01 Indemnification Rights. Every person who
----------------------
is or was a director, officer, or employee of the
Corporation or of any other corporation which he
served at the request of this Corporation and of
which this Corporation owns or owned shares of
capital stock or of which it is or was a creditor
shall have a right to be indemnified by this
Corporation to the full extent permitted by
applicable law, against all judgments, fines,
penalties, settlements (collectively referred to as
"liabilities") and reasonable expenses including
attorney's fees incurred by him in connection with
or resulting from any threatened, pending, or
completed claim, action, suit, or proceeding,
whether criminal, civil, administrative, or
investigative, in which he may become involved as a
C-4
<PAGE> 83
party or otherwise by reason of his being or having
been a director, officer or employee, except as
provided in Articles 11.02 and 11.03 of these
Bylaws, or if prohibited by the Maryland General
Corporation Law in effect at the time.
11.02 Disabling Conduct. No such director,
-----------------
officer or employee shall be indemnified for any
liabilities or expenses arising by reason of
"disabling conduct," whether or not there is an
adjudication of liability. "Disabling conduct"
means willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties
involved in the conduct of office.
Whether any such liability arose out of
disabling conduct shall be determined: (a) by a
final decision on the merits (including, but not
limited to, a dismissal for insufficient evidence)
by a court or other body, that the person to be
indemnified was not liable by reason of disabling
conduct; or (b) in the absence of such a decision,
by a reasonable determination, based upon a review
of the facts. Such a determination shall be
reached: (i) by the vote of a majority of a quorum
of directors who are neither "interested persons"
of the Corporation (as such term is defined in the
1940 Act) nor parties to the action, suit, or
proceeding in question ("disinterested, non-party
directors"), or (ii) by any other reasonable and
fair means not inconsistent with any of the above.
The termination of any action, suit, or
proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a
presumption that any liability or expense arose by
reason of disabling conduct.
11.03 Other Disqualifying Conduct. No such
---------------------------
person shall be indemnified under this Article 11
for any liabilities or expenses incurred by reason
of service in that capacity (although such person
shall be indemnified for reasonable expenses if
such person is successful on the merits or
otherwise in the defense of any proceeding
described in Article 11.01, provided that such
person did not engage in "disabling conduct" as
determined pursuant to Article 11.02), if it is
established that: (a) the act or omission of such
person was material to the matter giving rise to
the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate
dishonesty; or (b) such person actually received an
improper personal benefit in money, property, or
services; or (c) in the case of any criminal
proceeding, the director had reasonable cause to
believe that the act or omission was unlawful (such
conduct as described in (a), (b), and/or (c) being
C-5
<PAGE> 84
hereinafter referred to as "disqualifying
conduct"); provided that a court of appropriate
jurisdiction may, upon application of the person
seeking indemnification, order indemnification in
accordance with the terms of the Maryland General
Corporation Law, whether or not it is established
that such person has engaged in disqualifying
conduct under this Article 11.03.
Whether a director has engaged in
disqualifying conduct shall be determined in the
manner specified in the Maryland General
Corporation Law, as it may be amended from time to
time.
11.04 Expenses Prior to Determination. Any
-------------------------------
reasonable expense (including attorney's fees) may
be paid by the Corporation in advance of the final
disposition of the claim, action, suit or
proceeding, as authorized by the Board of Directors
in the specific case, (a) upon receipt of a written
undertaking by or on behalf of the indemnitee to
repay the advance if it shall be ultimately
determined that disabling conduct (as defined in
Article 11.02), or disqualifying conduct (as
defined in Article 11.03), has occurred; and (b)
receipt of a written affirmation by the indemnitee
of the indemnitee's good faith belief that he has
not engaged in disqualifying conduct; and (c)
provided that (i) the indemnitee shall provide
security for that undertaking, or (ii) the
Corporation shall be insured against losses arising
by reason of any lawful advances, or (iii) a
majority of a quorum of disinterested, non-party
directors, or independent legal counsel in a
written opinion, shall determine, based on a review
of readily available facts (as opposed to a full
trial-type inquiry), that there is a reason to
believe that the indemnitee ultimately will be
found entitled to indemnification.
A determination pursuant to subparagraph (c)
(iii) of this Article 11.04 shall not prevent the
recovery from any indemnitee of any amount advanced
to such person as indemnification if such person is
subsequently determined not to be entitled to
indemnification; nor shall a determination pursuant
to said subparagraph prevent the payment of
indemnification if such person is subsequently
found to be entitled to indemnification. Any
determination pursuant to this Article 11.04 shall
be made in conformity with the requirements of the
Maryland General Corporation Law, as then in
effect.
C-6
<PAGE> 85
11.05 Provision Not Exclusive. The
-----------------------
indemnification provided by this Article 11 shall
not be deemed exclusive of any rights to which
those seeking indemnification may be entitled under
any law, agreement, vote of shareholders, or
otherwise.
11.06 Notice to Shareholders. Any
----------------------
indemnification of, or advances to, a director,
officer, or employee in accordance with this
Article 11, if arising out of a proceeding by or in
the right of the Corporation, shall be reported in
writing to the shareholders with the notice of the
next shareholders' meeting or prior to such notice.
11.07 General. No indemnification
-------
provided by this Article shall be inconsistent with
the 1940 Act, the Securities Act of 1933, or the
Maryland General Corporation Law.
11.08 Duration. Any indemnification
--------
provided by this Article shall continue as to a
person who has ceased to be a director, officer, or
employee, and shall inure to the benefit of the
heirs, executors and administrators of such person.
Insofar as indemnification for liability arising under
the Securities Act of 1933, as amended (the "Securities Act"),
may be permitted to Directors, officers, and agents of the
C-7
<PAGE> 86
Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised 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
Director, officer, or agent of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such Director, officer, or agent, 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.
The Registrant insures its Directors, officers, and
employees against certain liabilities, and certain costs of
defending claims against such Directors and officers. The
policy provides coverage for breaches of duty, neglect,
errors, misstatements, misleading statements, omissions, and
other acts, but the policy excludes from such coverage claims
alleging fraud, dishonesty, and criminal or malicious acts or
omissions.
As permitted by section 17(i) of the 1940 Act, it is
anticipated that pursuant to the Investment Management
Agreement, Administration Agreement, Company Accounting
Agreement, Custody Agreement, Cash Management and Related
C-8
<PAGE> 87
Services Agreement, Transfer Agency Agreement, and
Distribution Agreement, the Manager, the Distributor, the
Administrator, and the Transfer Agent may be indemnified
against certain liabilities which they may incur provided,
however, that nothing contained in such agreements shall
protect such parties for the willful misfeasance, bad faith or
gross negligence in the performance of their respective
duties.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its Articles of Incorporation,
its By-Laws, the Management Agreement, the Administration
Agreement, the Company Accounting Agreement, the Custody
Agreement, the Cash Management Related Services Agreement, the
Transfer Agency Agreement, and the Distribution Agreement in
a manner consistent with Release No. 11330 of the Securities
and Exchange Commission under the 1940 Act.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
General American Investment Management Company
("Investment Adviser") was incorporated in Missouri on September
13, 1982. It is registered as an investment adviser with the
Commission and the State of Missouri and is a wholly-owned
subsidiary of General American Holding Company which, in turn, is
wholly-owned by General American Life Insurance Company. For
further information see the Investment Adviser's Form ADV, as
amended and filed with the Commission.
The Adviser serves as investment adviser to other investment
companies. The Adviser also has clients that are not affiliated
C-9
<PAGE> 88
with General American or its subsidiaries. All of the individuals
who work for the Adviser are employees of General American or its
subsidiaries, who keep time records establishing a cost basis for
their work which is computed by General American's cost accounting
staff. The directors and officers of the Adviser have held, during
the past two fiscal years, the following positions of a substantial
nature:
<TABLE>
<CAPTION>
Name of Director or Other Business
Officer of General Position at General Profession, Vocation
American Investment American Investment or Employment during
Management Co. Management Co. Past Two Years
- --------------------- ------------------- --------------------
<C> <C> <S>
Leonard M. Director and Executive Vice
Rubenstein President President-
Investments, General
American Life
Insurance Company.
Also serves as
Director for the
following companies:
Paragon Life
Insurance Company,
100 South Brentwood,
St. Louis, MO 63105;
General American
Holding Company,
General American
Acquisition Company,
General Life
Insurance Company of
America, all located
at 13045 Tesson
Ferry Road, St.
Louis, MO 63128;
Security Equity Life
Insurance Co., 84
Business Park Drive,
Armonk, New York
10504; Red Oak
Realty Company, 700
Market Street, St.
Louis, MO 63101;
Walnut Street
Securities, Ind.,
Walnut Street
Advisers, Inc., 670
Mason Ridge Center
Drive, Suite 300,
St. Louis, MO 63141.
C-10
<PAGE> 89
He is also the
Senior Vice
President and
Treasurer of
Reinsurance Group of
America,
Incorporated, 660
Mason Ridge Center
Drive, St. Louis, MO
63141, and Treasurer
of General American
Capital Company, 700
Market Street, St.
Louis, MO 63101.
Prior to October,
1994, he was also
the Treasurer of
General American
Life Insurance
Company.
Ronald O. Drury Vice President- Prior to October,
Pension Sales and 1994, employed by
Marketing General American
Life Insurance
Company in qualified
pension sales
David L. Herzog Director and Vice From June, 1991 to
President October, 1994,
employed by General
American Life
Insurance Company.
Prior to that, he
was with Citicorp
Life Insurance Co.
Douglas R. Koester Director and Vice Prior to October,
President 1994, Senior
Portfolio Manager,
General American
Life Insurance
Company
C-11
<PAGE> 90
Matthew P. McCauley Vice President, Associate General
General Counsel, and Counsel, General
Secretary American Life
Insurance Company.
Also Vice President,
General Counsel,
Secretary or
Director of ten
General American
subsidiary companies
listed as follows:
General American
Holding Company;
General American
Acquisition Company;
General American
Investment
Management Company;
Red Oak Realty
Company; Walnut
Street Securities,
Inc.; Walnut Street
Advisers, Inc.;
Reinsurance Group of
America,
Incorporated;
Paragon Life
Insurance Company
(see information
about Mr. Rubenstein
for addresses of
above-listed
companies); White
Oak Royalty Company,
700 Market Street,
St. Louis, Missouri
63101; and Saint
Louis Reinsurance
Company, 660 Mason
Ridge Center Drive,
St. Louis, MO 63141.
He is also Secretary
and Director of
General American
Capital Company (see
information about
Mr. Rubenstein for
address).
Joann T. Tanaka Vice President Prior to October,
1994, Investment
Division of General
American Life
Insurance Company.
C-12
<PAGE> 91
Michael D. McLellan Vice President- Prior to October,
Mortgage Loan and 1994, commercial
Real Estate mortgage loans and
equity investments,
General American
Life Insurance
Company
E. Thomas Hughes, Treasurer Corporate Actuary
Jr. and Treasurer,
General American
Life Insurance
Company. Prior to
October, 1994,
Executive Vice
President-Group
Pensions.
</TABLE>
Item 29. Principal underwriters
----------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books, and other documents required to be
maintained by Section 31a of the 1940 Act and the rules promulgated
thereunder are maintained at General American Investment Management
Company, 700 Market Street, St. Louis, MO 63102, Walnut Street
Securities, Inc., 670 Mason Ridge Center Drive, Suite 300, St.
Louis, Missouri 63141, The Bank of New York, 110 Washington Street,
New York, New York 10286, National Financial Services Company, 82
Devonshire Street, L4, Boston, Massachusetts 02109, DST Systems,
Inc., 811 Main, Kansas City, Missouri 64105-2005; and BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219.
C-13
<PAGE> 92
Item 31. Management Services
-------------------
Not applicable
Item 32. Undertakings
------------
Not applicable
C-14
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that
it meets all of the requirements for the effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Post-Effective Amendment No.
3 to Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of St.
Louis, and State of Missouri, on the 24th day of April, 1996.
The Walnut Street Funds, Inc.
By: /S/Rene C. Lorio
-----------------------------------
Rene C. Lorio, President
Attest:
/S/Matthew P. McCauley
- ------------------------------
Matthew P. McCauley, Secretary
Pursuant to the requirements of the Securities of 1933, this
Registration Statement has been signed below by the following
Persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
(Signature) (Title) (Date)
--------- ----- ----
<C> <S> <C>
/S/Rene C. Lorio President and April 24, 1996
- ----------------------------- Director
(Principal
executive
officer)
/S/Richard A. Liddy Director April 24, 1996
- -----------------------------
Richard A. Liddy
/S/Theodore M. Armstrong Director April 24, 1996
- -----------------------------
Theodore M. Armstrong
/S/Harry E. Rich Director April 24, 1996
- -----------------------------
Harry E. Rich
C-15
<PAGE> 94
/S/Alan C. Henderson Director April 24, 1996
- -----------------------------
Alan C. Henderson
/S/E. Thomas Hughes, Jr. Treasurer April 24, 1996
- ----------------------------- (Principal
E. Thomas Hughes, Jr. financial
officer)
</TABLE>
<PAGE> 95
EXHIBITS
<PAGE> 1
Exhibit 9(c)
------------
TRANSFER AGENCY AGREEMENT
-------------------------
AGREEMENT (the "Agreement") made as of this ---- day of --------, 1996,
between THE WALNUT STREET FUNDS, INC. (the "Company"), a Maryland corporation
having its principal place of business at 670 Mason Ridge Center Drive,
Suite 300, St. Louis, Missouri 63141, and BISYS FUND SERVICES, INC. ("BISYS"),
a Delaware corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Company desires that BISYS perform certain services for those
series of the Company set forth in Schedule A attached hereto, as such
Schedule may be amended from time to time (individually referred to herein
as a "Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
---------
BISYS shall perform for the Company the transfer agent services set
forth in Schedule B hereto.
BISYS also agrees to perform for the Company such special services
incidental to the performance of the services enumerated herein as agreed to by
the parties from time to time. BISYS shall also perform such additional services
as are provided on an amendment to Schedule B hereof, in consideration of such
fees as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the
Company (individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of
the Company or such Fund, and that BISYS shall be fully responsible for, and
indemnify and hold the Company harmless against, the acts of such Sub-transfer
Agent, and BISYS shall not be relieved of any of its responsibilities hereunder
by the appointment of such Sub-transfer Agent.
2. Fees.
-----
The Company shall pay BISYS for the services to be provided by
BISYS under this Agreement in accordance with, and in the manner set forth
in, Schedule C hereto. BISYS may increase the fees it charges pursuant
to the fee schedule; provided, however, that BISYS may not
<PAGE> 2
increase such fees until the expiration of the Initial Term of this Agreement
(as defined below), unless the Company otherwise agrees to such change in
writing. Fees for any additional services to be provided by BISYS pursuant
to an amendment to Schedule B hereto shall be subject to mutual agreement at
the time such amendment to Schedule B is proposed. BISYS agrees that when the
Company adds other Funds to its series of offered funds, it will negotiate in
good faith with the Company to adjust the annual per fund fee set forth on
Schedule C.
3. Reimbursement of Expenses.
--------------------------
In addition to paying BISYS the fees described in Section 2 hereof,
the Company agrees to reimburse BISYS for BISYS' reasonable out-of-pocket
expenses in providing services hereunder, with BISYS providing on a monthly
basis documentation substantiating such expenses, including without limitation,
the following:
(a) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Company and in
delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communication with the Company, the Company's investment
adviser or custodian, dealers, shareholders or others as
required for BISYS to perform the services to be provided
hereunder;
(c) Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms,
proxies, notices or other form of printed material which shall
be required by BISYS for the performance of the services to be
provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any reasonable expenses BISYS shall incur at the written
direction of an officer of the Company thereunto duly
authorized.
4. Effective Date.
---------------
This Agreement shall become effective as of the date first written
above (the "Effective Date").
2
<PAGE> 3
5. Term.
-----
This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, until
March --, 1997 (the "Initial Term"). Thereafter, this Agreement shall
automatically renew for successive one-year terms unless written notice not to
renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. Either party to this
Agreement may also terminate this Agreement on not less than 60 days' prior
written notice to the other party specifying the date of termination. After
any termination of this Agreement, for so long as BISYS, with the written
consent of the Company, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto,
the provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees
and out-of-pocket expenses incurred by BISYS but unpaid by the Company upon
such termination shall be immediately due and payable upon and notwithstanding
such termination. BISYS shall be entitled to collect from the Company, in
addition to the fees and disbursements provided by Sections 2 and 3 hereof,
the amount of all of BISYS' cash disbursements and a reasonable fee (which
fee shall be not more than one hundred and two percent (102%) of the sum of the
actual costs incurred by BISYS in performing such service) for services in
connection with BISYS' activities in effecting such termination, including
without limitation, the delivery to the Company, or its designee all of the
Company's property, records, instruments and documents, or any copies thereof.
6. Uncontrollable Events.
----------------------
BISYS assumes no responsibility hereunder, and shall not be liable
for any damage, loss of data, delay or any other loss whatsoever caused by
events beyond its reasonable control.
7. Legal Advice.
-------------
BISYS shall notify the Company at any time BISYS believes that it is
in need of the advice of counsel (other than counsel in the regular employ of
BISYS or any affiliated companies) with regard to BISYS' responsibilities and
duties pursuant to this Agreement. Upon receipt of BISYS' notice, the Company,
at its sole expense, shall make available to BISYS the Company's counsel to
respond to BISYS' questions and requests. If BISYS continues to have unresolved
questions or issues after consulting with the Company's counsel, BISYS, at
its discretion, shall be entitled to seek, receive and act upon advice of legal
counsel of its choosing, with such advice to be at the expense of the Company
unless the advice relates to a matter involving BISYS' willful misfeasance,
bad faith, gross negligence or reckless disregard with respect to BISYS'
responsibilities and duties hereunder and BISYS shall in no event be liable
to the Company or any Fund or any shareholder or beneficial owner of the
Company for any action reasonably taken pursuant to such advice.
3
<PAGE> 4
8. Instructions.
-------------
Whenever BISYS is requested or authorized to take action hereunder
pursuant to instructions from the Company or a shareholder, or a properly
authorized agent of a shareholder ("shareholder's agent"), concerning an account
in a Fund, BISYS shall be entitled to rely upon any certificate, letter or other
instrument or communication, reasonably believed by BISYS to be genuine and to
have been properly made, signed or authorized by an officer or other
authorized agent of the Company or by the shareholder or shareholder's agent,
as the case may be, and shall be entitled to receive as conclusive proof of
any fact or matter required to be ascertained by it hereunder a certificate
signed by an officer of the Company or any other person authorized by the
Company's Board of Directors or by the shareholder or shareholder's agent,
as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Company relating to the Funds to the extent that such
services are described therein unless BISYS receives written instructions to
the contrary in a timely manner from the Company.
9. Standard of Care; Reliance on Records and Instructions;
-------------------------------------------------------
Indemnification.
----------------
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Company
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, gross negligence or from reckless disregard by it of its
obligations and duties. The Company agrees to indemnify and hold harmless BISYS,
its employees, agents, directors, officers and nominees from and against any
and all claims, demands, actions and suits, whether groundless or otherwise,
and from and against any and all judgments, liabilities, losses, damages,
costs, charges, counsel fees and other expenses of every nature and character
arising out of or in any way relating to BISYS' actions or nonactions with
respect to the performance of services under this Agreement or based, if
applicable, upon reasonable reliance on information, records, instructions or
requests given or made to BISYS by the Company or the Company's investment
adviser and on any records provided by any Fund accountant or custodian
thereof; provided that this indemnification shall not apply to actions or
omissions of BISYS in cases of its own bad faith, willful misfeasance, or
negligence or its reckless disregard of its obligations and duties hereunder
and under the 1940 Act or the Securities Exchange Act of 1934 (the "1934
Act"); and further provided that prior to settling, admitting, or confessing
any claim against it which may be the subject of this indemnification, BISYS
shall give the Company written notice of and reasonable opportunity to defend
against said claim in its own name or in the name of BISYS.
10. Record Retention and Confidentiality.
-------------------------------------
BISYS shall keep and maintain on behalf of the Company all books and
records which the Company or BISYS is, or may be, required to keep and
maintain pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the Investment Company Act of
1940, as amended (the "1940 Act"), relating to the maintenance of
4
<PAGE> 5
books and records in connection with the services to be provided hereunder.
BISYS further agrees that all such books and records shall be the property of
the Company and to make such books and records available for inspection by
the Company or by the Securities and Exchange Commission (the "Commission")
at reasonable times and otherwise to keep confidential all books and records
and other information relative to the Company and its shareholders, except when
requested to divulge such information by duly-constituted authorities or
court process, or requested by a shareholder or shareholder's agent with respect
to information concerning an account as to which such shareholder has either a
legal or beneficial interest or when requested by the Company, the
shareholder, or shareholder's agent, or the dealer of record as to such
account. Upon the termination of this Agreement, BISYS shall return all such
books and records to the Company or its designee.
11. Reports.
--------
BISYS will furnish to the Company and to its properly-authorized
auditors, investment advisers, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Company in writing,
such reports at such times as are prescribed in Schedule D attached hereto,
or as subsequently agreed upon by the parties pursuant to an amendment to
Schedule D. The Company agrees to examine each such report or copy promptly
and will report or cause to be reported any errors or discrepancies therein
not later than three business days from the receipt thereof. In the event that
errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within three days
after conducting a diligent examination, are not so reported within the
aforesaid period of time, a report will for all purposes be accepted by and
be binding upon the Company and any other recipient, and BISYS shall have
no liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Company.
12. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform services
required to be provided by BISYS under this Agreement are the property of
BISYS. All records and other data except such computer programs and procedures
are the exclusive property of the Company and all such other records and data
will be furnished to the Company or its designee in appropriate form as soon
as practicable after termination of this Agreement for any reason.
13. Return of Records.
------------------
BISYS may at its option at any time, and shall promptly upon the
Company's demand, turn over to the Company or its designee and cease to retain
BISYS' files, records and documents created and maintained by BISYS pursuant
to this Agreement which are no longer needed by BISYS in the performance of its
services or for its legal protection. In all other instances, BISYS shall
retain each such document and record for six years from the year of its
creation. At the end of such six-year period, BISYS will turn such records
and documents over to the Company or
5
<PAGE> 6
its designee unless the Company authorizes in writing the destruction of such
records and documents.
14. Bank Accounts.
--------------
The Company and the Funds shall establish and maintain such bank
accounts with such bank or banks as are selected by the Company as are necessary
for BISYS to perform the services required to be performed hereunder. To the
extent that the performance of such services shall require BISYS directly to
disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Company and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
15. Representations of the Company.
-------------------------------
The Company certifies to BISYS that: (a) as of the close of business
on the Effective Date, each Fund which is in existence as of the Effective
Date has authorized not less than one billion shares of its common stock, and
(b) by virtue of its Certificate of Incorporation, shares of each Fund which
are redeemed by the Company may be sold by the Company from its treasury on
behalf of such Funds, and (c) this Agreement has been duly authorized by the
Company and, when executed and delivered by the Company, will constitute a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to (i) bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties; and (ii) general
principles of equity, whether enforcement of this Agreement is sought in an
action at law or in equity.
16. Representations of BISYS.
-------------------------
BISYS represents, warrants, and agrees that: (a) BISYS has been in,
and shall continue to be in, substantial compliance with all provisions of
law, including Section 17A(c) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), required in connection with the performance of
its duties under this Agreement; (b) the various procedures and systems which
BISYS has implemented with regard to safekeeping from loss or damage
attributable to fire, theft or any other cause of the blank checks, books,
records, and other data of the Company and BISYS' records, data, equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time
to time as are required for the secure performance of its obligations
hereunder; and (c) this Agreement has been duly authorized by BISYS and, when
executed and delivered by BISYS, will constitute a legal, valid, and binding
obligation of BISYS, enforceable against BISYS in accordance with its terms,
subject to (i) bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting the rights and remedies of creditors
and secured parties, and (ii) general principles of equity, whether
enforcement of this Agreement is sought in an action at law or in equity.
6
<PAGE> 7
17. Insurance.
----------
On or before the time this Agreement is executed, BISYS shall provide
the Company with evidence of its professional liability and errors and omissions
insurance coverage. BISYS shall notify the Company should any such insurance
coverage be canceled or reduced. Such notification shall include the date of
change and the reasons therefor. BISYS shall notify the Company of any material
claims against it with respect to services performed under this Agreement,
whether or not they may be covered by insurance, and shall notify the Company
from time to time as may be appropriate of the total outstanding claims made
by BISYS under its insurance coverage.
18. Information to be Furnished by the Company and Funds.
-----------------------------------------------------
The Company has furnished to BISYS the following:
(a) Copies of the Certificate of Incorporation of the Company and
of any amendments thereto, certified by the proper official of
the state in which such Certificate has been filed.
(b) Copies of the following documents:
1. The Company's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of Directors
covering the following matters:
A. Approval of this Agreement and authorization of a
specified officer of the Company to execute and
deliver this Agreement and authorization for
specified officers of the Company to instruct BISYS
hereunder; and
B. Authorization of BISYS to act as Transfer Agent for
the Company on behalf of the Funds.
(c) A list of all officers of the Company, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the following (if such documents are employed by
the Company):
1. Prospectuses and Statement of Additional Information;
2. Distribution Agreement; and
7
<PAGE> 8
3. All other forms commonly used by the Company or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the
Company authorized, issued, and outstanding as of the
Effective Date of BISYS' appointment as Transfer Agent (or as
of the date on which BISYS' services are commenced, whichever
is the later date) and as to receipt of full consideration by
the Company for all shares outstanding, such statement to be
certified by the Treasurer of the Company.
19. Information Furnished by BISYS.
-------------------------------
BISYS has furnished to the Company the following:
(a) BISYS' Articles of Incorporation and any amendments thereto.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement;
2. Authorization of BISYS to act as Transfer Agent for the
Company.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with
the Commission pursuant to Rule 17Ad-13 under the Exchange Act.
20. Amendments to Documents.
------------------------
The Company shall furnish BISYS written copies of any amendments to,
or changes in, any of the items referred to in Section 18 hereof forthwith
upon such amendments or changes becoming effective. In addition, the Company
agrees that no amendments will be made to the Prospectuses or Statement of
Additional Information of the Company which might have the effect of changing
the procedures employed by BISYS in providing the services agreed to
hereunder or which amendment might affect the duties of BISYS hereunder unless
the Company first obtains BISYS' approval of such amendments or changes,
which consent shall not be unreasonably withheld or delayed.
8
<PAGE> 9
21. Reliance on Amendments.
-----------------------
BISYS may rely on any amendments to or changes in any of the
documents and other items to be provided by the Company pursuant to Sections
18 and 20 of this Agreement and the Company hereby indemnifies and holds
harmless BISYS from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, counsel fees and
other expenses of every nature and character which may result from actions or
omissions on the part of BISYS in reasonable reliance upon such amendments
and/or changes, provided that this indemnification shall not apply to actions
or omissions of BISYS in cases of its bad faith, willful misfeasance, or
negligence or its reckless disregard of its obligations and duties
hereunder and under the 1940 Act or 1934 Act. Although BISYS is authorized to
rely on the above-mentioned amendments to and changes in the documents and
other items to be provided pursuant to Sections 18 and 20 hereof, BISYS shall
be under no duty to comply with or take any action as a result of any of such
amendments or changes unless the Company first obtains BISYS' written consent
to and approval of such amendments or changes, which consent shall not be
unreasonably withheld or delayed.
22. Compliance with Law.
--------------------
Except for the obligations of BISYS set forth in Section 10 hereof,
the Company assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Company as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Company's shares. The Company
represents and warrants that no shares of the Company will be offered to the
public unless the Company's registration statement under the 1933 Act and the
1940 Act has been declared and continues to be effective.
23. Notices.
--------
Any notice provided hereunder shall be sufficiently given when sent
by registered or certified mail to the party required to be served with such
notice, in the case of BISYS, to it, at the following address: 3435 Stelzer
Road, Columbus, Ohio, 43219, and in the case of the Company, to it at 670 Mason
Ridge Center Drive, Suite 300, St. Louis, Missouri 63141, Attention: President
or at such other address as such party may from time to time specify in
writing to the other party pursuant to this Section.
24. Headings.
---------
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
9
<PAGE> 10
25. Assignment.
-----------
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 25 shall not limit or in any way
affect BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1
hereof.
26. Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
27. Amendment.
----------
This Agreement may be modified or amended only by a written
instrument executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE WALNUT STREET FUNDS, INC.
By:---------------------------------
BISYS FUND SERVICES, INC.
By:---------------------------------
10
<PAGE> 11
Dated: -----------------
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE WALNUT STREET FUNDS, INC.
AND
BISYS FUND SERVICES, INC.
NAME OF FUND
- ------------------------------------
The Walnut Street Prime Reserve Fund
THE WALNUT STREET FUNDS, INC.
By:---------------------------------
BISYS FUND SERVICES, INC.
By:---------------------------------
A-1
<PAGE> 12
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE WALNUT STREET FUNDS, INC.
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
------------------------
1. Shareholder Transactions
------------------------
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers, wire instructions, account type
code and establishment date.
c. Issue confirmations in compliance with Rule 10 under the Securities
Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders. This will include the
preparation and mailing of confirmation statements and account
statements to dealers.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares,
through dividend reimbursement.
g. Verify signatures on amounts exceeding $2,500 at no additional cost
and reject drafts that do not contain a signature.
2. Shareholder Information Services
--------------------------------
a. Make information available to shareholder servicing unit and other
remote access units to enable such units to respond to investor
and dealer inquiries regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or special
order statements upon request.
B-1
<PAGE> 13
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
d. Enclose various marketing material as designated by the Company in
statement mailings, i.e., monthly and quarterly statements (material
must be adaptable to mechanical equipment as reasonably specified by
BISYS).
3. Compliance Reporting
--------------------
a. Provide such reports to the Securities and Exchange Commission
regarding BISYS' operations as are required to be filed under
the 1934 Act or rules promulgated thereunder.
b. Provide information to appropriate regulatory agencies that such
agencies may from time to time reasonably request.
c. Prepare and distribute appropriate Internal Revenue Service forms for
corresponding Fund and shareholder income and capital gains.
d. Solicit missing taxpayer identification numbers and issue tax
withholding reports to the Internal Revenue Service.
e. If applicable, perform necessary withholding for employee benefit
plan accounts. Prepare and mail Form 5498 and Form 1099R when
necessary.
4. Dealer/Load Processing (if applicable)
--------------------------------------
a. Provide reports for tracking rights of accumulation and purchases
made under a Letter of Intent.
b. Account for separation of shareholder investments from transaction
sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
B-2
<PAGE> 14
5. Shareholder Account Maintenance
-------------------------------
a. Maintain all shareholder records for each account in the Company.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third party copies if required.
c. Process and confirm shareholder account information changes.
d. Maintain account documentation files on microfiche for the duration
of this Agreement.
B-3
<PAGE> 15
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE WALNUT STREET FUNDS, INC.
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENT FEES
-------------------
Annual Per Fund Fee:
- --------------------
The Walnut Street Prime Reserve Fund $20,000.00<F*>
Annual Per Account Fee:
- -----------------------
The Walnut Street Prime Reserve Fund $ 21.00 (open accounts)
$ 5.00 (closed accounts)
Additional Services:
- --------------------
Payroll Deduction: $500 set-up fee; $0.50 per transaction
IRAs: $20 per taxpayer identification number per year
Asset Allocation: $3,000 annually per portfolio (quarterly balancing)
$4,000 annually per portfolio (monthly balancing)
$0.50 transaction charge
Out-of-pocket Expenses:
- -----------------------
BISYS shall be entitled to be reimbursed for all reasonable out-of-pocket
expenses including, but not limited to, the expenses set forth in Section 3
of the Transfer Agency Agreement to which this Schedule C is attached.
Programming costs or data base management fees for specified reports or
specialized processing will be quoted upon request.
[FN]
<F*> The annual fee contemplates one class of shares being offered by
The Walnut Street Prime Reserve Fund. Additional classes would be
subject to an additional annual fee of $20,000 per class.
C-1
<PAGE> 16
SCHEDULE D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE WALNUT STREET FUNDS, INC.
AND
BISYS FUND SERVICES, INC.
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be
filed with the Securities and Exchange Commission pursuant to
Rule 17Ad-13 of the Securities Exchange Act of 1934, as amended.
D-1
<PAGE> 17
8. Record the issuance of fund shares and disseminate to Accounting
Agent.
9. Record the redemption of fund shares and disseminate to Accounting
Agent.
10. Maintain controls of the receipt of funds for purchase transaction and
report to Accounting Agent.
11. Maintain controls of the disbursement of funds for redemption of fund
shares and report to Accounting Agent.
12. Process dividend rates and dividend distributions to shareholders and
report to Accounting Agent.
13. Maintain and provide the number of shareholder accounts to the
Accounting Agent.
14. Maintain and disseminate the necessary books and records required by the
Investment Company Act of 1940.
D-2
<PAGE> 1
Exhibit 11
----------
Consent of Independent Certified Public Accountants
To The Shareholders and Board of Directors of
The Walnut Street Funds, Inc.:
We consent to the use of our report, dated February 9, 1996 with
respect to the Walnut Street Prime Reserve Fund, included herein in the Post
Effective Amendment No. 4 to this Registration Statement on Form N-1A of The
Walnut Street Funds, Inc. and to the reference to our firm under the heading
"Counsel and Independent Auditors" in the Prospectus and under the heading
"Auditor" in the Statement of Additional Information.
KPMG Peat Marwick LLP
New York, New York
April 24, 1996
<PAGE> 1
Exhibit 16
----------
Schedule for Computation of Current Yield and Effective Yield
<PAGE> 2
<TABLE>
WALNUT STREET PRIME RESERVE FUND
YIELD CALCULATIONS
<CAPTION>
7 DAY 7 DAY
DAILY CURRENT EFFECTIVE
DATE FACTOR YIELD YIELD
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
12/01/95 0.000142115 5.19% 5.32%
12/02/95 0.000142115 5.19% 5.32%
12/03/95 0.000142115 5.19% 5.32%
12/04/95 0.000142109 5.19% 5.32%
12/05/95 0.000142083 5.19% 5.32%
12/06/95 0.000142099 5.19% 5.32%
12/07/95 0.000142201 5.19% 5.32%
12/08/95 0.000142267 5.19% 5.32%
12/09/95 0.000142266 5.19% 5.32%
12/10/95 0.000142266 5.19% 5.32%
12/11/95 0.000142239 5.19% 5.32%
12/12/95 0.000142326 5.19% 5.32%
12/13/95 0.000142317 5.19% 5.32%
12/14/95 0.000142270 5.19% 5.32%
12/15/95 0.000142399 5.19% 5.32%
12/16/95 0.000142398 5.19% 5.32%
12/17/95 0.000142398 5.20% 5.33%
12/18/95 0.000142434 5.20% 5.33%
12/19/95 0.000142356 5.20% 5.33%
12/20/95 0.000141992 5.19% 5.32%
12/21/95 0.000141733 5.19% 5.32%
12/22/95 0.000142041 5.19% 5.32%
12/23/95 0.000142041 5.19% 5.32%
12/24/95 0.000142041 5.19% 5.32%
12/25/95 0.000142040 5.18% 5.31%
12/26/95 0.000142372 5.18% 5.31%
12/27/95 0.000142077 5.18% 5.31%
12/28/95 0.000141371 5.18% 5.31%
12/29/95 0.000144288 5.19% 5.32%
12/30/95 0.000144288 5.21% 5.34%
12/31/95 0.000144288 5.22% 5.35%
</TABLE>
<PAGE> 1
Exhibit 17
----------
Financial Data Schedule
<PAGE> 2
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 156697101
[INVESTMENTS-AT-VALUE] 156697101
[RECEIVABLES] 187353
[ASSETS-OTHER] 197536
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 157081990
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 165666
[TOTAL-LIABILITIES] 165666
[SENIOR-EQUITY] 156927
[PAID-IN-CAPITAL-COMMON] 156769964
[SHARES-COMMON-STOCK] 156926891
[SHARES-COMMON-PRIOR] 89543587
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (10567)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 156916324
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 7164615
[OTHER-INCOME] 0
[EXPENSES-NET] 998160
[NET-INVESTMENT-INCOME] 6166455
[REALIZED-GAINS-CURRENT] 202
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 6166657
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 6166455
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 193059843
[NUMBER-OF-SHARES-REDEEMED] 131842597
[SHARES-REINVESTED] 6166058
[NET-CHANGE-IN-ASSETS] 67383506
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (10769)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 293625
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1096151
[AVERAGE-NET-ASSETS] 117438000
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .053
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .053
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
