<PAGE>
MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
(FORMERLY KIDDER, PEABODY INVESTMENT TRUST III)
AND THE SERIES THEREOF
MITCHELL HUTCHINS/KIDDER, PEABODY SMALL CAP GROWTH FUND
(FORMERLY KIDDER, PEABODY SMALL CAP EQUITY FUND)
SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 28, 1994
The following information revises and supplements the information contained
in the Fund's Prospectus dated November 28, 1994:
1. a. NAME. The name of Kidder, Peabody Small Cap Equity Fund ("Fund"), a
series of Kidder, Peabody Investment Trust III, was changed to "Mitchell
Hutchins/Kidder, Peabody Small Cap Growth Fund." The name of Kidder,
Peabody Investment Trust III was changed to "Mitchell Hutchins/Kidder,
Peabody Investment Trust III."
b. INVESTMENT ADVISER AND SUB-ADVISER. At a special meeting of
shareholders that took place on April 13, 1995, shareholders approved a new
investment advisory and administration agreement with Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins") and a new sub-advisory
agreement with the Fund's existing investment adviser (now referred to as
the "Sub-Adviser"). The Fund pays the same fee for investment advisory and
administration services to Mitchell Hutchins as previously paid to Kidder
Peabody Asset Management, Inc. ("KPAM"), and Mitchell Hutchins (not the
Fund) pays the same fee for sub-advisory services to the Sub-Adviser as
previously paid by KPAM, as described in the Fund's Prospectus. The Sub-
Adviser continues to manage the Fund in accordance with the Fund's
investment objective, policies and restrictions as stated in the
Prospectus.
Mitchell Hutchins is a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"), which is in turn wholly owned by Paine Webber
Group Inc., a publicly owned financial services holding company. Mitchell
Hutchins is located at 1285 Avenue of the Americas, New York, New York
10019. As of June 30, 1995, Mitchell Hutchins served as adviser or sub-
adviser to 41 investment companies with an aggregate of 86 separate
portfolios and aggregate assets of over $28 billion.
c. OTHER SERVICES. Mitchell Hutchins serves as the Fund's distributor.
All references in the Fund's Prospectus to Kidder, Peabody & Co.
Incorporated as the Fund's distributor are replaced with references to
Mitchell Hutchins.
PFPC Inc. ("PFPC"), a subsidiary of PNC Bank, National Association, whose
principal address is 400 Bellevue Parkway, Wilmington, Delaware 19809 is
the Fund's transfer agent. All references in the Prospectus to IFTC as the
Fund's transfer agent are replaced with PFPC.
The address for purchase, exchange and redemption transactions has been
changed to:
PFPC Inc.
P.O. Box 8950
Wilmington, DE 19899
Attn: Mitchell Hutchins/Kidder, Peabody Small Cap Growth Fund
800-647-1568
d. VOLUME DISCOUNTS AND RIGHTS OF ACCUMULATION. The terms of Letters of
Intent executed prior to February 14, 1995 will be observed, but new
Letters of Intent are no longer available.
Reduced sales charges are available through volume discounts and a right
of accumulation. If an investor or eligible group of related Fund
investors, as defined below, purchases Class A shares of a Fund
concurrently with Class A shares of other PaineWebber mutual funds or
Mitchell Hutchins/Kidder, Peabody mutual funds, the purchases may be
combined to take advantage of the reduced sales charges applicable to
larger purchases. The right of accumulation permits a Fund investor or
eligible group of related Fund investors, as defined below, to pay the
lower sales charge applicable to larger purchases by
1
<PAGE>
basing the sales charge on (1) the dollar amount of Class A shares then
being purchased plus (2) an amount equal to the then-current net asset
value of the investor's or group's combined holdings of Class A Fund shares
and Class A shares of any other PaineWebber mutual fund or Mitchell
Hutchins/Kidder, Peabody mutual fund. The purchaser must provide sufficient
information to permit confirmation of his or her holdings, and the
acceptance of the purchase order is subject to that confirmation. This
right of accumulation may be amended or terminated at any time.
An "eligible group of related Fund investors" can consist of any
combination of the following:
(a) an individual, that individual's spouse, parents and children;
(b) an individual and his or her Individual Retirement Account
("IRA");
(c) an individual (or eligible group of individuals) and any company
controlled by the individual(s) (a person, entity or group that holds
25% or more of the outstanding voting securities of a corporation will
be deemed to control the corporation, and a partnership will be deemed
to be controlled by each of its general partners);
(d) an individual (or eligible group of individuals) and one or more
employee benefit plans of a company controlled by individual(s);
(e) an individual (or eligible group of individuals) and a trust
created by the individual(s), the beneficiaries of which are the
individual and/or the individual's spouse, parents or children;
(f) an individual and a Uniform Gifts to Minors Act/Uniform Transfers
to Minors Act account created by the individual or the individual's
spouse; or
(g) an employer (or group of related employers) and one or more
qualified retirement plans of such employer or employers (an employer
controlling, controlled by or under common control with another
employer is deemed related to that other employer).
e. STOCK CERTIFICATES. Stock certificates are no longer issued for shares
of the Fund.
f. REINSTATEMENT PRIVILEGE. Shareholders who have redeemed Class A shares
may reinstate their Fund account without a sales charge up to the dollar
amount redeemed by purchasing Class A shares within 365 days after the
redemption. To take advantage of this reinstatement privilege, shareholders
must notify their investment executive at the time the privilege is
exercised.
g. REDEMPTION BY MAIL. Redemption requests received by PFPC by mail will
be processed by PFPC. PFPC will mail a check in the appropriate redemption
amount to the shareholder the next business day after receipt of a
redemption request in "good order" as specified in the Prospectus.
h. AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan no longer
accepts twice monthly orders, but will accept monthly, quarterly and semi-
annual orders.
i. INSTANCES OF A REDUCED OR WAIVED SALES CHARGE. The three paragraphs of
the section titled "PURCHASE OF SHARES--Instances of a Reduced or Waived
Sales Charge" are replaced with the following:
SALES CHARGE WAIVERS--CLASS A SHARES. Class A shares may be purchased
without a sales charge by employees, directors and officers of
PaineWebber or its affiliates, directors or trustees and officers of
any PaineWebber mutual funds, their spouses, parents and children and
advisory clients of Mitchell Hutchins.
Class A shares also may be purchased without a sales charge if the
purchase is made through a PaineWebber investment executive who
formerly was employed as a broker with another firm registered as a
broker-dealer with the Securities and Exchange Commission, provided (1)
the purchaser was the investment executive's client at the competing
brokerage firm, (2) within 90 days of the purchase of Class A shares
the purchaser redeemed shares of one or more mutual funds for which
that competing firm or its affiliates was principal underwriter,
provided the purchaser either
2
<PAGE>
paid a sales charge to invest in those funds, paid a contingent
deferred sales charge upon redemption or held shares of those funds for
the period required not to pay the otherwise applicable contingent
deferred sales charge and (3) the total amount of shares of all
PaineWebber mutual funds or Mitchell Hutchins/Kidder, Peabody mutual
funds purchased under this sales charge waiver does not exceed the
amount of the purchaser's redemption proceeds from the competing firm's
funds. To take advantage of this waiver, an investor must provide
satisfactory evidence that all the above-noted conditions are met.
Qualifying investors should contact their PaineWebber investment
executives for more information.
j. OTHER REDEMPTION POLICIES. With respect to shareholder holdings that
are reduced by redemptions, and not by reason of market fluctuations, to a
value of $500 or less, for which involuntary redemptions by the Trust may
be made, the shareholder notice provision is modified to increase the time
period to 60 days in which shareholders will be given the opportunity to
increase the account balance to more than $500.
k. SYSTEMATIC WITHDRAWAL PLAN. The paragraph under the section entitled
"Systematic Withdrawal Plan" is replaced with the following:
Shareholders who own shares of the Fund with a value of $5,000 or
more may have Mitchell Hutchins redeem a portion of their shares
monthly, quarterly or semi-annually under the systematic withdrawal
plan. The minimum amount for all withdrawals of shares is $100.
Quarterly withdrawals are made in March, June, September and December,
and semi-annual withdrawals are made in June and December. Shareholders
who receive dividends or other distributions in cash may not
participate in the systematic withdrawal plan. Purchases of additional
shares of the Fund concurrently with withdrawals are ordinarily
disadvantageous to shareholders because of tax liabilities and any
sales charges.
2. EXCHANGE PRIVILEGES AND CHARGES. Shares of the Fund may be exchanged for
shares of the corresponding class of PaineWebber Funds offered under the
PaineWebber Flexible PricingSM System. Exchanges are no longer subject to the
payment of an amount equal to the difference between the sales charge
previously paid and the sales charge payable on the shares acquired in the
exchange. In addition, the exchange privilege of the Fund with former Kidder,
Peabody money market funds is eliminated. The first paragraph of the section
titled "Exchange Privilege" is replaced with the following:
Fund shares will continue to be exchangeable with the corresponding class
of Mitchell Hutchins/Kidder, Peabody Funds and additionally can be
exchanged with the corresponding class of shares of the PaineWebber Funds
offered under the PaineWebber Flexible PricingSM System (Class A shares for
Class A shares of PaineWebber Funds and Class B shares for Class D shares
of the PaineWebber Funds).
3. PURCHASES AND REDEMPTIONS THROUGH PAINEWEBBER. The following information
revises and supplements the information appearing under the caption "Purchase
of Shares" and "Redemption of Shares" in the prospectus:
PURCHASE OF SHARES--PURCHASE OF SHARES THROUGH PAINEWEBBER OR
CORRESPONDENT FIRMS. The time by which payment for shares purchased is due
at PaineWebber has changed due to the implementation of "T+3" settlement
procedures. Payment is due on the third Business Day after the order is
received in PaineWebber's New York City offices. A "Business Day" is any
day on which the New York Stock Exchange, Inc. ("NYSE") is open for
business.
REDEMPTION OF SHARES--REDEMPTION OF SHARES THROUGH PAINEWEBBER OR
CORRESPONDENT FIRMS. The time by which redemption proceeds will be paid to
the redeeming shareholder has also changed due to the implementation of
"T+3." Repurchase proceeds will be paid within three Business Days after
receipt of the request in PaineWebber's New York City office. "Business
Day" is defined above.
3
<PAGE>
4. The sales load appearing in the prospectus for Class A shares is replaced
with the schedule shown below which became effective on July 3, 1995:
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF DISCOUNT TO
---------------------------------- SELECTED
NET AMOUNT DEALERS AS A
INVESTED PERCENTAGE
AMOUNT OF PURCHASE OFFERING (NET ASSET OF OFFERING
AT OFFERING PRICE PRICE VALUE) PRICE
---------------------- -------- ---------- ------------
<S> <C> <C> <C>
Less than $ 50,000 4.50% 4.71% 4.25%
$ 50,000 to $ 99,999 4.00 4.17 3.75
$ 100,000 to $249,999 3.50 3.63 3.25
$ 250,000 to $499,999 2.50 2.56 2.25
$ 500,000 to $999,999 1.75 1.78 1.50
$1,000,000 and over None None 1.00
</TABLE>
Dated: August 18, 1995
This Supplement supersedes and replaces all previous Supplements.
4
<PAGE>
PROSPECTUS NOVEMBER 28, 1994
--------------------------------------------------------------------------------
Kidder, Peabody Small Cap Equity Fund
60 BROAD STREET NEW YORK, NEW YORK 10004-2350 (212) 656-1737
Kidder, Peabody Small Cap Equity Fund (the 'Fund'), a series of Kidder, Peabody
Investment Trust III (the 'Trust'), seeks long-term capital appreciation through
investment primarily in equity securities of small capitalization companies.
This Prospectus briefly sets forth certain information about the Fund and the
Trust, including applicable operating expenses, that prospective investors
should know before investing. Investors are advised to read this Prospectus and
retain it for future reference.
Additional information about the Fund and the Trust, contained in a Statement of
Additional Information dated the same date as this Prospectus, has been filed
with the Securities and Exchange Commission (the 'SEC') and is available to
investors upon request and without charge by calling or writing the Trust at the
telephone number or address listed above. The Statement of Additional
Information is incorporated in its entirety by reference into this Prospectus.
--------------------------------------------------------------------------------
MANAGER
Kidder Peabody Asset Management, Inc.
INVESTMENT ADVISER
George D. Bjurman & Associates
DISTRIBUTOR
Kidder, Peabody & Co. Incorporated
--------------------------------------------------------------------------------
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>
--------------------------------------------------------------------------------
FEE TABLE
The table appearing below shows the costs and expenses that an investor would
incur, either directly or indirectly, as a shareholder of the Fund, based upon
an estimate of the Fund's annual operating expenses.
<TABLE>
<CAPTION>
Class Class Class
A B C
----- ----- -----
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases of Shares (as a percentage of offering
price)........................................................................ 5.75 % 0 % 0 %
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)............................................................... 0 % 0 % 0 %
Maximum Contingent Deferred Sales Charge (as a percentage of redemption
proceeds)..................................................................... 0 % 0 % 0 %
Redemption Fees (as a percentage of amount redeemed)............................ 0 % 0 % 0 %
Maximum Exchange Fee............................................................ 0 % 0 % 0 %
Maximum Annual Investment Advisory Fee Payable by Shareholders
Holding Class C Shares through the Insight Investment Advisory
Program (as a percentage of average daily value of shares held)............... 0 % 0 % 1.50 %
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................................. 1.00 % 1.00 % 1.00 %
Rule 12b-1 Fees................................................................. .25 1.00 0
Other Expenses.................................................................. .43 .43 .43
----- ----- -----
Total Fund Operating Expenses............................................... 1.68 2.43 % 1.43 %
----- ----- -----
----- ----- -----
</TABLE>
The nature of the services provided to, and the aggregate management fees
paid by, the Fund are described below under 'Management of the Fund.' The Fund
bears an annual Rule 12b-1 service fee of .25% of the value of the average daily
net assets of Class A shares and an annual Rule 12b-1 fee of 1.00% of the value
of the average daily net assets of Class B shares, consisting of a .25% service
fee and a .75% distribution fee. Long-term shareholders of Class B Shares may
pay more than the economic equivalent of the maximum front-end sales charge
currently permitted by the rules of the National Association of Securities
Dealers, Inc. governing investment company sales charges. See 'Distributor.'
The percentage of 'Other Expenses' in the table above is based on amounts
incurred during the Fund's most recent fiscal year; these expenses include fees
for shareholder services, custodial fees, legal and accounting fees, printing
costs and registration fees, the costs of regulatory compliance, a portion of
the costs associated with maintaining the Trust's legal existence and the costs
involved in communicating with the Fund's shareholders.
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming (1) a 5% annual return,
(2) payment of the shareholder transaction expenses and annual Fund operating
expenses set forth in the table above and (3) complete redemption at the end of
the period.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------- ------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Class A................................ $ 74 $ 107 $ 144 $ 245
Class B................................ $ 25 $ 76 $ 130 $ 277
Class C................................ $ 15 $ 45 $ 78 $ 171
</TABLE>
The above example is intended to assist an investor in understanding
various costs and expenses that the investor would bear upon becoming a
shareholder of the Fund. The example should not be considered to be a
representation of past or future expenses. Actual expenses of the Fund may be
greater or less than those shown above. The assumed 5% annual return shown in
the example is hypothetical and should not be considered to be a representation
of past or future annual return; the actual return of the Fund may be greater or
less than the assumed return.
2
<PAGE>
--------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------------------
The Trust The Trust is an open-end management investment company. See 'General Information.'
------------------------------------------------------------------------------------------------------------------
The Fund The Fund, which is a series of the Trust, is a diversified fund that seeks long-term capital
appreciation by investing principally in equity securities of small capitalization companies.
See 'Investment Objective and Policies' and 'General Information.'
------------------------------------------------------------------------------------------------------------------
Benefits of Mutual funds, such as the Fund, are flexible investment tools that are increasingly
Investing popular -- one of four American households now owns shares of at least one mutual fund -- for
in the very sound reasons. The Fund offers investors the following important benefits:
Fund Capital Appreciation Opportunity
The Fund offers investors the opportunity to participate in a professionally managed,
diversified portfolio of equity securities of small capitalization companies. See 'Investment
Objective and Policies.'
Professional Management
By pooling the monies of many investors, the Fund enables shareholders to obtain the benefits
of full-time professional management and an array of investments that is typically beyond the
means of most investors. George D. Bjurman & Associates ('Bjurman'), which serves as the
Fund's investment adviser, reviews the fundamental characteristics of far more securities than
can a typical individual investor and may employ portfolio management techniques that
frequently are not used by individual or many institutional investors. See 'Management of the
Fund.'
Transaction Savings
By investing in the Fund, an investor is able to acquire ownership in a portfolio of equity
securities without paying the higher transaction costs generally associated with a series of
small securities purchases.
Convenience
Fund shareholders are relieved of the administrative and recordkeeping burdens normally
associated with direct ownership of securities.
Liquidity
The Fund's convenient purchase and redemption procedures provide shareholders with ready
access to their money and reduce the delays frequently involved in the direct purchase and
sale of securities. See 'Purchase of Shares' and 'Redemption of Shares.'
Choice Pricing System
Under the Choice Pricing System'sm', the Trust presently offers three classes of shares of the
Fund ('Classes') that provide different methods of purchasing shares and allow investment
flexibility and a wider range of investment choices. See 'Purchase of Shares.'
</TABLE>
3
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Exchange Privilege
Shareholders of the Fund may exchange all or a portion of their shares for shares of the same
Class or the sole outstanding Class of specified funds in the Kidder Family of Funds. See
'Exchange Privilege.'
Total Portfolio Approach
The funds in the Kidder Family of Funds are designed to be strategically combined as part of
a total portfolio approach. This investment philosophy acknowledges the interplay of a
shareholder's many different investing needs and preferences and recognizes that every
investment move a shareholder makes alters the balance of his or her overall financial
profile. The Fund may be used in conjunction with other funds in the Kidder Family of Funds to
build a portfolio that maximizes the potential of available assets while meeting many
different -- and changing -- financial needs.
------------------------------------------------------------------------------------------------------------------
Purchase of Kidder, Peabody & Co. Incorporated ('Kidder, Peabody'), a major full-line investment services
Shares firm serving the U.S. and foreign securities markets, acts as distributor of the Fund's shares.
The Trust presently offers three Classes that differ principally in terms of the sales charges
and rate of expenses to which they are subject and are designed to provide an investor with the
flexibility of selecting an investment best suited to the investor's needs. See 'Purchase of
Shares' and 'Distributor.'
Class A Shares
The public offering price of Class A shares is the current net asset value per share next
determined after a purchase order is received, plus a maximum sales charge of 5.75% (6.08% of
the net amount invested). Investors purchasing $50,000 or more, certain employee benefit plans
and employees of Kidder, Peabody's affiliates are eligible for reduced sales charges. The Fund
pays Kidder, Peabody a service fee with respect to Class A shares at the annual rate of .25%
of the average daily net assets attributable to this Class.
Class B Shares
The public offering price of Class B Shares is the net asset value per share next determined
after a purchase order is received, without imposition of a sales charge. The Fund pays
Kidder, Peabody a service fee at the annual rate of .25%, and a distribution fee at the annual
rate of .75%, of the average daily net assets attributable to this Class.
Class C Shares
The public offering price of Class C shares is the net asset value per share next determined
after a purchase order is received, without imposition of a sales charge. Class C shares are
available exclusively to: (1) employees of Kidder, Peabody and their associated accounts; (2)
directors or trustees of any fund in the Kidder Family of Funds; (3) employee benefit plans of
Kidder, Peabody; (4) participants in the INSIGHT Investment Advisory Program'sm' ('INSIGHT');
and (5) employees of Bjurman, employee benefit plans, individual retirement accounts ('IRAs')
and employer-sponsored individual retirement
</TABLE>
4
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
plans for those employees, and the spouses and minor children of those employees when orders
on their behalf are placed by those employees (collectively, 'Bjurman Employees'). This Class
bears no service or distribution fees. Participation in Insight is subject to payment of an
advisory fee at the maximum annual rate of 1.50% of assets held through INSIGHT, generally
charged quarterly in advance.
Investment Minimums
The minimum initial investment in the Fund is $1,000 and the minimum subsequent investment is
$50, except that for IRAs, other tax qualified retirement plans and accounts established
pursuant to the Uniform Gifts to Minors Act, the minimum initial investment is $250 and the
minimum subsequent investment is $1.00. See 'Purchase of Shares.'
------------------------------------------------------------------------------------------------------------------
Redemption of Shares of the Fund may be redeemed at the Fund's next determined net asset value per share.
Shares Redemptions are not subject to any contingent deferred sales charges or other charges. See
'Redemption of Shares.'
------------------------------------------------------------------------------------------------------------------
Management
Kidder Peabody Asset Management, Inc. ('KPAM'), a wholly-owned subsidiary of Kidder, Peabody,
serves as the Fund's manager and receives a fee, accrued daily and paid monthly, at the annual
rate of 1.00% of the Fund's average daily net assets on assets up to but not including $25
million and .90% thereafter. KPAM in turn employs Bjurman as the Fund's investment adviser, in
which capacity Bjurman receives from KPAM a fee, accrued daily and paid monthly, at the annual
rate of .50% of the Fund's average daily net assets on assets up to but not including $25
million and .40% thereafter. The rate of fee paid by the Fund for investment management
services, although higher than the rate of management fees paid by most other registered
investment companies, reflects the need to devote additional time and incur added expense in
developing the specialized resources contemplated by investing in securities of small
capitalization companies, and is believed by KPAM to be within the range charged to other
investment companies that invest in these securities. General Electric Capital Services, Inc.,
a wholly-owned subsidiary of General Electric Company ('GE'), owns all the outstanding stock of
Kidder, Peabody Group Inc. ('Kidder Group'), the parent company of Kidder, Peabody. Bjurman is
a corporation organized under the laws of the State of California that is controlled by Messrs.
George A. Bjurman and Owen T. Barry III. See 'Management of the Fund' and 'Distributor.'
------------------------------------------------------------------------------------------------------------------
Risk Factors No assurance can be given that the Fund will achieve its investment objective. The value of the
and Special Fund's investments, and as a result the net asset values of the Fund's shares, will fluctuate
Considerations in response to changes in market and economic conditions, as well as the financial condition
and prospects of issuers in which the Fund invests. Small capitalization companies typically
are subject to a greater degree of change in earnings and business prospects than are larger,
more established companies. In addition, securities of small capitalization
</TABLE>
5
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
companies are traded in lower volume than those issued by larger companies and are more
volatile than those of larger companies. In light of these characteristics of small
capitalization companies and their securities, the Fund may be subject to greater investment
risk than that assumed by other investment companies. Certain investments made by the Fund, and
certain investment techniques and strategies that the Fund may use, could expose the Fund to
risks and special considerations. The investments presenting the Fund with risks and special
considerations are warrants, securities of foreign issuers, non-publicly traded securities and
illiquid securities. Investment practices that may involve risks and special considerations to
the Fund are purchasing and selling stock options and stock index options, lending portfolio
securities, purchasing securities of other registered investment companies, entering into
repurchase agreements and entering into securities transactions on a when-issued or
delayed-delivery basis. See 'Investment Objective and Policies -- Risk Factors and Special
Considerations' at page 13 of this Prospectus.
</TABLE>
6
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial information presented in the table below has been audited in
conjunction with the annual audit of the financial statements of the Trust with
respect to the Fund by Deloitte & Touche LLP. Financial statements for the
fiscal period ended July 31, 1994 and the report of independent auditors'
thereon are included in the Statement of Additional Information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
PERIOD ENDED JULY 31, 1994`D'
-----------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period................................... $ 12.00 $12.00 $12.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net operating loss..................................................... (0.10) (0.13) (0.06)
Net realized and unrealized loss from investment transactions.......... (2.11) (2.13) (2.13)
------- ------- -------
Total decrease from investment operations.............................. (2.21) (2.26) (2.19)
------- ------- -------
Net asset value, end of period......................................... $ 9.79 $9.74 $9.81
------- ------- -------
------- ------- -------
Total return #......................................................... (18.42)% (18.83)% (18.25)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............................... $29,528 $15,159 $5,827
------- ------- -------
------- ------- -------
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Expenses, excluding distribution fees.................................. 1.43% 1.43% 1.43%
Expenses, including distribution fees.................................. 1.68% 2.43% 1.43%
Net operating loss..................................................... (1.06)% (1.80)% (0.81)%
Portfolio turnover rate................................................ 56.45% 56.45% 56.45%
</TABLE>
`D' From November 4, 1993 (Commencement of Operations).
# Total return does not reflect the effect of a sales charge and has not been
annualized.
7
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities of small
capitalization companies. Although the Fund, in seeking its objective, may
receive current income from dividends and interest, income is only an incidental
consideration in the selection of the Fund's investments. No assurance can be
given that the Fund will be able to achieve its investment objective, which may
be changed only with the approval of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
'1940 Act'), as the lesser of (1) 67% or more of the shares present at a Fund
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented by proxy or (2) more than 50% of the outstanding
shares of the Fund.
The Fund's annual report for the fiscal year ended July 31, 1994 contains
information regarding relevant market conditions and investment strategies and
techniques pursued by Bjurman during such fiscal year and is available to
shareholders without charge upon request made to the Fund at the address listed
on the front cover page of this Prospectus.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing primarily in
equity securities of small capitalization companies, which are U.S. companies
with stock market capitalizations of up to $1 billion. A company's stock market
capitalization is calculated by multiplying the total number of shares of its
common stock outstanding by the market price per share of its common stock.
The Fund has been designed to provide investors with potentially greater
long-term rewards than provided by an investment in a fund that seeks capital
appreciation from common stocks of larger, better-known companies. Several
statistical studies have been published recently indicating that the historical
long-term returns on investments in common stocks of small capitalization
companies have been higher than returns on those of large capitalization
companies. In addition, small capitalization companies generally are not as well
known to the investing public and have less of an investor following than larger
companies and, therefore, may provide opportunities for investment gains as a
result of relative inefficiencies in the marketplace.
In seeking its objective, the Fund invests in equity securities of
companies Bjurman believes to be undervalued and to have the potential for high
earnings growth. Companies in which the Fund invests generally meet one or more
of the following criteria: high historical earnings-per-share ('EPS') growth;
high projected future EPS growth; an increase in research analyst earnings
estimates; attractive relative price earnings ratios; and high relative
discounted cost flows. In selecting the Fund's investments, Bjurman also focuses
on companies with capable management teams, strong industry positions, sound
capital structures, high returns on equity,
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high reinvestment rates and conservative financial accounting policies. The Fund
emphasizes those industries and economic sectors Bjurman believes to have the
best growth prospects.
In pursuing its objective, the Fund invests substantially all, and under
normal conditions not less than 65%, of its assets in common stocks, preferred
stocks, convertible bonds, convertible debentures, convertible notes,
convertible preferred stocks and warrants or rights. To the extent that the Fund
invests in convertible debt securities, those securities will be purchased on
the basis of their equity characteristics and ratings of those securities will
not be an important factor in their selection. The equity securities in which
the Fund invests typically are traded in the over-the-counter market or are
non-publicly traded.
The Fund's investments in non-publicly traded securities (also commonly
referred to as 'restricted securities'), which are securities that are subject
to contractual or legal restrictions on transfer, may not exceed 10% of the
Fund's assets. Restricted securities include securities that are not registered
under the Securities Act of 1933, as amended (the '1933 Act'), but that can be
sold to 'qualified institutional buyers' in accordance with Rule 144A under the
1933 Act ('Rule 144A Securities'). The Fund is authorized to invest up to 15% of
its assets in illiquid securities, which are securities that cannot be disposed
of by the Fund within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities that are held by the Fund take the form of repurchase agreements
maturing in more than seven days and other securities subject to restrictions on
resale that Bjurman has determined are not liquid under guidelines established
by the Trust's Board of Trustees.
Up to 10% of the Fund's assets may be invested in foreign securities. The
Fund may also invest in securities of foreign issuers in the form of American
Depositary Receipts ('ADRs'), which are U.S. dollar-denominated receipts
typically issued by domestic banks or trust companies that represent the deposit
with those entities of securities of a foreign issuer, and European Depositary
Receipts ('EDRs'), sometimes referred to as Continental Depositary Receipts
(CDRs'), which generally are issued by foreign banks and evidence ownership of
either foreign or domestic securities. ADRs are publicly traded on exchanges or
over-the-counter in the United States and are issued through 'sponsored' or
'unsponsored' arrangements. In a sponsored ADR arrangement, the foreign issuer
assumes the obligation to pay some or all of the depositary's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer assumes no
obligations and the depositary's transaction fees are paid directly by the ADR
holders. In addition, less information is available in the United States about
an unsponsored ADR than about a sponsored ADR. The Fund may invest in ADRs
through both sponsored and unsponsored arrangements.
During normal market conditions, less than 10% of the Fund's total assets
may be held in cash and/or invested in money market instruments for cash
management purposes, pending investment in accordance with the Fund's investment
objective and policies, and to meet anticipated redemptions and operating
expenses. During periods in which Bjurman believes that investment opportunities
in the equity markets are diminished (due to either fundamental changes in those
markets or an anticipated general decline in the value of equity securities) and
Bjurman determines that adoption of a temporary defensive investment posture is
therefore warranted, the Fund may hold cash and/or invest in money market
instruments without
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limitation. To the extent that it holds cash or invests in money market
instruments, the Fund may not achieve its investment objective of long-term
capital appreciation.
The Fund may invest only in the following types of money market
instruments: securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ('Government Securities'); obligations issued or
guaranteed by foreign governments or by any of their political subdivisions,
authorities, agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of foreign or
domestic banks, domestic savings and loan associations and other banking
institutions having total assets in excess of $500 million); commercial paper;
and repurchase agreements. Government Securities held by the Fund will take the
form of: direct obligations of the U.S. Treasury, and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. Certain
of the Government Securities that may be held by the Fund are instruments that
are supported by the full faith and credit of the United States, whereas other
Government Securities that may be held by the Fund are supported by the right of
the issuer to borrow from the U.S. Treasury or are supported solely by the
credit of the instrumentality.
The Fund may invest in money market instruments issued or guaranteed by
foreign governments or by any of their political subdivisions, authorities,
agencies or instrumentalities, only if those instruments are rated AAA or AA by
Standard & Poor's Corporation ('S&P') or Aaa or Aa by Moody's Investors Service,
Inc. ('Moody's') or have received an equivalent rating from another nationally
recognized statistical rating organization ('NRSRO'), or if unrated, are deemed
by Bjurman to be of equivalent quality. Commercial paper held by the Fund may be
rated no lower than A-1 by S&P or Prime-1 by Moody's or the equivalent from
another NRSRO, or if unrated, must be issued by an issuer having an outstanding
unsecured debt issue then rated within the three highest categories. At no time
will the investments of the Fund in bank obligations, including time deposits,
exceed 25% of the value of the Fund's assets.
Although the Fund has no current intention of doing so in the foreseeable
future, the Fund may engage in transactions involving futures contracts and
options on futures contracts, which are described in the Statement of Additional
Information.
INVESTMENT TECHNIQUES AND STRATEGIES
The Fund may engage in a number of investment techniques and strategies,
including those described below. The Fund is under no obligation to use any of
the techniques or strategies at any given time or under any particular economic
condition. In addition, no assurance can be given that the use of any practice
will have its intended result or that the use of any practice is, or will be,
available to the Fund.
STOCK OPTIONS. To hedge against adverse market shifts, the Fund may
purchase put and call options on securities held in its portfolio. In addition,
the Fund may seek to increase its income in an amount designed to meet operating
expenses or may hedge a portion of its portfolio investments through writing
(that is, selling) 'covered' call options. A put option provides its purchaser
with the right to compel the writer of the option to purchase from the option
holder an underlying security at a specified price at any time during or at the
end of the option period. In contrast, a call option gives the purchaser the
right to buy the underlying security covered by the
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option from the writer of the option at the stated exercise price. A covered
call option contemplates that, for so long as the Fund is obligated as the
writer of the option, it will own (1) the underlying securities subject to the
option or (2) securities convertible into, or exchangeable without the payment
of any consideration for, the securities subject to the option. The value of the
underlying securities on which covered call options will be written at any one
time by the Fund will not exceed 5% of the Fund's total assets.
The Fund may purchase options on securities that are listed on securities
exchanges or that are traded over-the-counter. As the holder of a put option,
the Fund has the right to sell the securities underlying the option and as the
holder of a call option, the Fund has the right to purchase the securities
underlying the option, in each case at the option's exercise price at any time
prior to, or on, the option's expiration date. The Fund may choose to exercise
the options it holds, permit them to expire or terminate them prior to their
expiration by entering into closing sale transactions. In entering into a
closing sale transaction, the Fund would sell an option of the same series as
the one it has purchased.
STOCK INDEX OPTIONS. In seeking to hedge all or a portion of its
investments, the Fund may purchase and write put and call options on stock
indexes listed on securities exchanges, which indexes include securities held in
the Fund's portfolio.
A stock index measures the movement of a certain group of stocks by
assigning relative values to the common stocks included in the index. Options on
stock indexes are generally similar to options on specific securities. Unlike
those on securities, however, options on stock indexes do not involve the
delivery of an underlying security; the option in the case of an option on a
stock index represents the holder's right to obtain from the writer in cash a
fixed multiple of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value of the
underlying stock index on the exercise date.
When the Fund writes an option on a stock index, it will establish a
segregated account with its custodian, or a designated sub-custodian, in which
the Fund will deposit cash, money market instruments or a combination of both in
an amount equal to the market value of the option, and will maintain the account
while the option is open. If the Fund has written a stock index option, it may
terminate its obligation by effecting a closing purchase transaction, which is
accomplished by purchasing an option of the same series as the option previously
written.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. As a means of regulating the
Fund's exposure to the equity markets, the Fund may invest in securities issued
by other registered investment companies, including those traded on securities
exchanges, that invest principally in securities in which the Fund is authorized
to invest. Under the 1940 Act, the Fund may invest a maximum of 10% of its total
assets in the securities of other investment companies. In addition, under the
1940 Act, not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company, and the Fund may not own more than 3%
of the securities of any investment company.
LENDING PORTFOLIO SECURITIES. To generate income for the purpose of helping
to meet its operating expenses, the Fund may lend securities to well-known and
recognized U.S. and foreign brokers, dealers and banks. These loans, if and when
made, may not exceed 30% of the Fund's assets taken at market value. The Fund's
loans of securities will be collateralized by cash, letters
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of credit or Government Securities. The cash or instruments collateralizing the
Fund's loans of securities are maintained at all times in a segregated account
with the Fund's custodian, or with a designated sub-custodian, in an amount at
least equal to the current market value of the loaned securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund's assets that may be invested in
repurchase agreements terminable in less than seven days is not limited,
repurchase agreements maturing in more than seven days, together with other
illiquid securities, may not exceed 15% of the Fund's net assets. The Fund may
engage in repurchase agreement transactions, which are in the nature of secured
loans by the Fund to certain member banks of the Federal Reserve System and with
certain dealers listed on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, the Fund
would acquire an underlying debt obligation for a relatively short period
(usually not more than seven days) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the securities
underlying a repurchase agreement of the Fund is monitored on an ongoing basis
by Bjurman to ensure that the value is at least equal at all times to the total
amount of the repurchase obligation, including interest. Bjurman also monitors,
on an ongoing basis to evaluate potential risks, the creditworthiness of those
banks and dealers with which the Fund enters into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund may enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a 'when, as and if issued' basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring. The
Fund will establish with its custodian, or with a designated sub-custodian, a
segregated account consisting of cash, Government Securities or other liquid
high-grade debt obligations in an amount equal to the amount of its when-issued
or delayed-delivery purchase commitments.
SHORT SALES AGAINST THE BOX. The Fund may sell securities 'short against
the box.' Whereas a short sale is the sale of a security the Fund does not own,
a short sale is 'against the box' if at all times during which the short
position is open, the Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.
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INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions with respect
to the Fund that may not be changed without approval of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). Included among those
fundamental restrictions are the following:
1. The Fund will not purchase securities (other than Government
Securities) of any issuer if, as a result of the purchase, more than 5% of
the value of the Fund's total assets would be invested in the securities of
the issuer, except that up to 25% of the value of the Fund's total assets
may be invested without regard to this 5% limitation.
2. The Fund will not purchase more than 10% of the voting securities
of any one issuer, except that this limitation is not applicable to the
Fund's investments in Government Securities, and up to 25% of the Fund's
assets may be invested without regard to this limitation.
3. The Fund will not borrow money, except that the Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including
the meeting of redemption requests and cash payments of dividends and
distributions that might otherwise require the untimely disposition of
securities, in an amount not to exceed 20% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of the Fund,
the Fund will not make any additional investments.
4. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities in an amount not
to exceed 30% of the Fund's assets taken at value and entering into
repurchase agreements.
5. The Fund will invest no more than 25% of the value of its total
assets in securities of issuers in any one industry. For purposes of this
restriction, the term industry will be deemed to include the government of
any country other than the United States, but not the U.S. Government.
Certain other investment restrictions adopted by the Trust with respect to
the Fund are described in the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in the Fund involves risks and special considerations, such as those
described below:
GENERAL. An investment in shares of the Fund should not be considered to be
a complete investment program. The value of the Fund's investments, and as a
result the net asset values of the Fund's shares, fluctuates in response to
changes in the market and economic conditions as well as the financial condition
and prospects of issuers in which the Fund invests. Small capitalization
companies typically are subject to a greater degree of change in earnings and
business prospects than are larger, more established companies. In addition,
securities of small capitalization companies are traded in lower volume than
those issued by larger companies and are more volatile than those of larger
companies. In light of these characteristics of small
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capitalization companies and their securities, the Fund may be subject to
greater investment risk than that assumed by other investment companies. Because
of the risks associated with the Fund's investments, the Fund is intended to be
a long term investment vehicle and is not designed to provide investors with a
means of speculating on short-term stock market movements.
WARRANTS. Because a warrant, which is a security permitting, but not
obligating, its holder to subscribe for another security, does not carry with it
the right to dividends or voting rights with respect to the securities that the
warrant holder is entitled to purchase, and because a warrant does not represent
any rights to the assets of the issuer, a warrant may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying security
and a warrant ceases to have value if it is not exercised prior to its
expiration date. The investment by the Fund in warrants, valued at the lower of
cost or market, may not exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
('NYSE') or the American Stock Exchange. Warrants acquired by the Fund in units
or attached to securities may be deemed to be without value.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Non-publicly traded securities
may be less liquid than publicly traded securities. Although these securities
may be resold in privately negotiated transactions, the prices realized from
these sales could be less than those originally paid by the Fund. In addition,
companies whose securities are not publicly traded are not subject to the
disclosure and other investor protection requirements that may be applicable if
their securities were publicly traded. The Fund's investments in illiquid
securities are subject to the risk that should the Fund desire to sell any of
these securities when a ready buyer is not available at a price that Bjurman
deems representative of their value, the value of the Fund's net assets could be
adversely affected.
RULE 144A SECURITIES. Certain Rule 144A Securities may be considered
illiquid and, therefore, subject to the Fund's limitation on the purchase of
illiquid securities, unless the Board of Trustees determines on an ongoing basis
that an adequate trading market exists for the Rule 144A Securities. The Fund's
purchase of Rule 144A Securities could have the effect of increasing the level
of illiquidity in the Fund to the extent that qualified institutional buyers
become uninterested for a time in purchasing Rule 144A Securities held by the
Fund. The Board of Trustees has established standards and procedures for
determining the liquidity of a Rule 144A Security and monitors Bjurman's
implementation of the standards and procedures. The ability to sell to qualified
institutional buyers under Rule 144A is a recent development and Bjurman can not
predict how this market will develop.
STOCK OPTIONS. The Fund receives a premium when it writes call options,
which increases the Fund's return on the underlying security in the event the
option expires unexercised or is closed out at a profit. By writing a call, the
Fund limits its opportunity to profit from an increase in the market value of
the underlying security above the exercise price of the option for as long as
the Fund's obligation as writer of the option continues. Thus, in some periods,
the Fund will receive less total return and in other periods greater total
return from its hedged positions than it would have received from its underlying
securities if unhedged.
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In purchasing a put option, the Fund seeks to benefit from a decline in the
market price of the underlying security, whereas in purchasing a call option,
the Fund seeks to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining
value, or if the market price of the underlying security remains equal to or
greater than the exercise price, in the case of a put, or remains equal to or
below the exercise price, in the case of a call, during the life of the option,
the Fund will lose its investment in the option. For the purchase of an option
to be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the investments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by
trading in options could cause the Fund's net asset value to be subject to more
frequent and wider fluctuations than would be the case if the Fund did not
invest in options.
STOCK INDEX OPTIONS. Stock index options are subject to position and
exercise limits and other regulations imposed by the exchange on which they are
traded. If the Fund writes a stock index option, it may terminate its obligation
by effecting a closing purchase transaction, which is accomplished by purchasing
an option of the same series as the option previously written. The ability of
the Fund to engage in closing purchase transactions with respect to stock index
options depends on the existence of a liquid secondary market. Although the Fund
generally purchases or writes stock index options only if a liquid secondary
market for the options purchased or sold appears to exist, no such secondary
market may exist, or the market may cease to exist at some future date, for some
options. No assurance can be given that a closing purchase transaction can be
effected when the Fund desires to engage in such a transaction.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. To the extent the Fund invests
in other investment companies, the Fund's shareholders will incur certain
duplicative fees and expenses, including investment advisory fees. Exchange
traded investment company securities typically trade at prices that differ from
the company's net asset value per share and often trade at a discount to net
asset value. The Fund will purchase exchange traded investment company
securities only in the secondary market and not in an initial offering.
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by foreign
companies and governments involves considerations and potential risks not
typically associated with investing in obligations issued by the U.S. Government
and U.S. corporations. Less information may be available about foreign companies
than about U.S. companies, and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than those charged in the United States, and foreign securities
markets may be less liquid, more volatile and
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subject to less governmental supervision than in the United States. Investments
in foreign countries could be affected by other factors not present in the
United States, including expropriation, confiscatory taxation, lack of uniform
accounting and auditing standards and potential difficulties in enforcing
contractual obligations, and could be subject to extended clearance and
settlement periods.
CURRENCY EXCHANGE RATES. The Fund's share value may change significantly
when the currencies, other than the U.S. dollar, in which the Fund's portfolio
investments are denominated strengthen or weaken against the U.S. dollar.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries as seen from an international perspective. Currency exchange
rates can also be affected unpredictably by: the intervention of the U.S.
Government, foreign governments or central banks, the imposition of currency
controls or other political developments in the United States or abroad.
LENDING PORTFOLIO SECURITIES. In lending securities to U.S. and foreign
brokers, dealers and banks, the Fund is subject to risks, which, like those
associated with other extensions of credit, include possible loss of rights in
the collateral should the borrower fail financially.
REPURCHASE AGREEMENTS. In entering into a repurchase agreement, the Fund
bears a risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented from exercising
its rights to dispose of the underlying securities, including the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of losing all or a
part of the income from the agreement.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their actual delivery.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the return available in the market when the delivery takes
place may be higher than that applicable at the time of the purchase. This
characteristic of when-issued and delayed-delivery securities could result in
exaggerated movements in the Fund's net asset value.
PORTFOLIO TRANSACTIONS AND TURNOVER
Decisions to buy and sell securities for the Fund are made by Bjurman, subject
to review by the Board of Trustees. Substantially all portfolio transactions for
the Fund are placed with brokers or dealers selected by KPAM, although a small
portion of these transactions may be placed with brokers or dealers selected by
Bjurman. The Trustees have determined that, to the extent consistent with
applicable provisions of the 1940 Act and rules and exemptions adopted
thereunder, transactions for the Fund may be executed through Kidder, Peabody
if, in the judgment of KPAM or Bjurman, as the case may be, the use of Kidder,
Peabody is likely to result in price and execution at least as favorable to the
Fund as those obtainable through other qualified broker-dealers, and if, in the
transaction, Kidder, Peabody charges the Fund a fair and reasonable rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. Kidder, Peabody may not execute transactions for the Fund on the
floor of any
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national securities exchange, but may effect transactions by transmitting orders
for execution, providing for clearance and settlement, and arranging for the
performance of those functions by members of the exchange not associated with
Kidder, Peabody. Kidder, Peabody is required to pay fees charged by those
persons performing the floor brokerage elements out of the brokerage
compensation that it receives from the Fund.
For the period November 4, 1993 (commencement of operations) through the
fiscal year ended July 31, 1994, the Fund's portfolio turnover rate was 56.45%.
An annual turnover rate of 100% would occur if all of the securities held by the
Fund are replaced once during a period of one year.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Trust's Board of Trustees, and the day-to-day operations of the Fund are
conducted through or under the direction of officers of the Trust. The Statement
of Additional Information contains general background information regarding each
Trustee and officer of the Trust.
MANAGER
KPAM, located at 60 Broad Street, New York, New York 10004-2350, serves as the
Fund's manager. A wholly-owned subsidiary of Kidder, Peabody, and a registered
investment adviser under the Investment Advisers Act of 1940, as amended (the
'Advisers Act'), KPAM currently provides investment management, investment
advisory and administrative services to a wide variety of individual and
institutional clients. The Kidder, Peabody Asset Management Group of Companies
(of which KPAM is the primary entity) provides advisory and consulting services
to more than $18 billion in assets as of September 30, 1994. General Electric
Capital Services, Inc., a wholly-owned subsidiary of GE, owns all of the
outstanding stock of Kidder Group, the parent company of Kidder, Peabody.
Under an agreement dated as of October 17, 1994, GE and Kidder Group agreed
to sell to PaineWebber Group Inc. certain assets of Kidder Group and its
subsidiaries, including Kidder, Peabody and KPAM. The consummation of this
transaction, which is subject to a number of conditions and cannot be assured,
will result in the deemed assignment and automatic termination of the agreements
pursuant to which Kidder, Peabody serves as the principal underwriter of the
Fund's shares and KPAM serves as the Fund's manager. Institution of new
arrangements with Kidder, Peabody's and KPAM's successors following the
consummation of the transaction will require approval of the Board of Trustees
and the separate approval of the majority of the Trustees who are not
'interested persons' of the Fund within the meaning of the 1940 Act. In
addition, the Fund's new management arrangements will require approval of a
'majority of the outstanding voting securities' of the Fund, as defined in the
1940 Act. No assurance can be given that any of the foregoing required approvals
will be obtained and, if they are not, the Board will take such action as it
determines to be appropriate and in the best interests of the Fund and its
shareholders.
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As the Fund's manager, KPAM, subject to the supervision and direction of
the Trustees, is generally responsible for furnishing, or causing to be
furnished to the Fund, investment advisory and management services. Included
among the specific services provided by KPAM are: the selection and compensation
of an investment adviser to the Fund; the review of all purchases and sales of
portfolio instruments made by the Fund to assess compliance with its stated
investment objective and policies; the selection of brokers and dealers
effecting transactions on behalf of the Fund; the maintenance and furnishing of
all required records or reports pertaining to the Fund to the extent those
records or reports are not maintained or furnished by the Fund's transfer agent,
custodian or other agents employed by the Fund; the providing of general
administrative services to the Fund not otherwise provided by the Fund's
transfer agent, custodian or other agents employed by the Fund; and the payment
of reasonable salaries and expenses of those of the Fund's officers and
employees, and the fees and expenses of those Trustees, who are directors,
officers or employees of KPAM.
The Trust pays KPAM a fee for services provided to the Fund that is accrued
daily and paid monthly at the annual rate of 1.00% of the Fund's average daily
net assets on assets up to but not including $25 million and .90% thereafter.
For the period November 4, 1993 (commencement of operations) through the fiscal
year ended July 31, 1994, the Fund paid KPAM a fee of .94% (annualized) of the
Fund's average daily net assets. The rate of fee paid to KPAM, although higher
than the rate of management fees paid by most other investment companies
registered under the 1940 Act, is believed by KPAM to be within the range
charged to other investment companies that invest in securities of small
capitalization companies and reflects the need to devote additional time and
incur added expense in developing the specialized resources contemplated by
investing in these securities. For the period November 4, 1993 (commencement of
operations) through the fiscal year ended July 31, 1994, Class A shares', Class
B shares' and Class C shares' total expenses represented on an annualized basis
1.68%, 2.43% and 1.43%, respectively, of the Class' average daily net assets.
From time to time, KPAM in its sole discretion may waive all or a portion of its
fee and/or reimburse all or a portion of the Fund's operating expenses.
INVESTMENT ADVISER
Under the terms of an investment advisory agreement among KPAM, the Trust and
Bjurman, KPAM employs Bjurman as the Fund's investment adviser. Bjurman, located
at 10100 Santa Monica Boulevard, Suite 1200, Los Angeles, California 90067, is a
registered investment adviser under the Advisers Act and concentrates its
investment advisory activities in the area of equity securities with an emphasis
on securities of small capitalization companies. Bjurman provides investment
advisory services to a variety of clients having total assets under its
management exceeding $2 billion as of September 30, 1994. Bjurman was
incorporated on August 5, 1970 under the laws of the State of California.
Bjurman is controlled by Messrs. George A. Bjurman and Owen T. Barry III.
Bjurman has not previously served as an investment adviser to a registered
investment company.
As the Fund's investment adviser, Bjurman, subject to the supervision and
direction of the Trustees, and subject to review by KPAM, manages the Fund's
portfolio in accordance with the investment objective and stated policies of the
Fund and makes investment decisions for the Fund. Bjurman also provides the Fund
with investment officers who are authorized by the
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Trustees to determine purchases and sales of securities on behalf of the Fund
and employs a professional staff of portfolio managers who draw upon a variety
of sources for research information for the Fund.
Owen T. Barry III serves as the Fund's Chief Investment Officer and in that
capacity is the individual primarily responsible for the management of the
Fund's assets. Mr. Barry has been the Senior Executive Vice President of Bjurman
for more than the past five years.
KPAM pays Bjurman for its services as the Fund's investment adviser a fee
that is accrued daily and paid monthly at the annual rate of .50% of the Fund's
average daily net assets up to but not including $25 million and .40%
thereafter. For the period November 4, 1993 (commencement of operations) through
the fiscal year ended July 31, 1994, KPAM paid Bjurman a fee for services
provided by Bjurman to the Fund of .40% (annualized) of the value of the Fund's
average daily net assets. The Fund pays no direct fee to Bjurman. From time to
time, Bjurman in its sole discretion may waive all or a portion of its fee
and/or reimburse the Trust for all or a portion of the Fund's operating
expenses.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by Bjurman, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or more
other accounts managed by Bjurman are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
are allocated in a manner believed by Bjurman to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or disposed of by the Fund.
EXPENSES
Each Class bears its own expenses, which generally include all costs not
specifically borne by KPAM. Included among a Class' expenses are costs incurred
in connection with the Class' and the Fund's organization; management and
investment advisory fees; any distribution and/or service fees; fees for
necessary professional and brokerage services; fees for any pricing service used
in connection with the valuation of shares; the costs of regulatory compliance;
and a portion of the costs associated with maintaining the Trust's legal
existence and corresponding with shareholders of the Fund. The Trust's agreement
with KPAM provides that KPAM will reduce its fees to the Fund to the extent
required by applicable state laws for certain expenses that are described in the
Statement of Additional Information.
PURCHASE OF SHARES
GENERAL INFORMATION
Shares of the Fund must be purchased and maintained through a Kidder, Peabody
brokerage account (an 'Account'), so that an investor who wishes to purchase
shares but who has no existing Account must establish one. Kidder, Peabody
charges no maintenance fee in connection with an Account through which an
investor purchases or holds shares of the Fund.
Purchases of Fund shares are effected at the public offering price next
determined after a purchase order is received. Payment for shares is due at
Kidder, Peabody on the 'settlement date,' which is generally the fifth business
day after the order for purchase is placed, unless the investor has 'good funds'
available in an existing Account that can be applied to the purchase.
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'Good funds' as used in this Prospectus means cash, Federal funds or certified
checks drawn on a U.S. bank. The Trust reserves the right to reject any purchase
order for shares of the Fund and to suspend the offering of shares for any
period of time.
The minimum initial investment in the Fund is $1,000 and the minimum
subsequent investment is $50, except that for IRAs, other tax qualified
retirement plans and accounts established pursuant to the Uniform Gifts to
Minors Act, the minimum initial investment is $250 and the minimum subsequent
investment is $1.00. The Trust reserves the right to vary the minimum initial or
subsequent investment amounts.
Purchase orders for shares of the Fund that are received prior to the close
of regular trading on the NYSE on a particular day (currently 4:00 p.m., New
York time) are priced according to the net asset values determined on that day.
Purchase orders, received after the close of regular trading on the NYSE are
priced as of the time each Class' net asset value per share is next determined.
See 'Determination of Net Asset Value' below for a description of the time at
which each Class' net asset value per share is determined.
The Trust offers Fund shareholders an Automatic Investment Plan under which
a shareholder may authorize Kidder, Peabody to place monthly, twice monthly or
quarterly, as selected by the shareholder, a purchase order for Fund shares in
an amount not less than $100. The purchase price is paid automatically from a
designated bank account of the shareholder. The Trust reserves the right to
terminate or change the provisions of the Automatic Investment Plan.
Under the Choice Pricing System, the Fund presently offers three methods of
purchasing shares, enabling investors to choose the Class that best suits their
needs, given the amount of purchase and intended length of investment. Kidder,
Peabody Investment Executives and other persons remunerated on the basis of
sales of shares may receive different levels of compensation for selling one
Class of shares over another. When purchasing shares of the Fund, investors must
specify whether the purchase is for Class A shares, Class B shares or Class C
shares, as described below.
CLASS A SHARES
The public offering price of Class A shares is the net asset value per Class A
share next determined after a purchase order is received, plus a sales charge,
if applicable. Class A shares are subject to a service fee at the annual rate of
.25% of the value of the Fund's average daily net assets attributable to this
Class. See 'Distributor.'
The sales charges applicable to purchases of Class A shares vary with the
amount of the purchase as shown in the table set forth below:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
-------------------------------------------
AMOUNT OF PURCHASE AS PERCENTAGE AS PERCENTAGE
AT OFFERING PRICE OF OFFERING PRICE OF NET AMOUNT INVESTED
----------------------- ----------------- ----------------------
<S> <C> <C>
Less than $50,000........................................... 5.75% 6.08%
$50,000 but less than $100,000.............................. 4.50% 4.75%
$100,000 but less than $250,000............................. 3.50% 3.67%
$250,000 but less than $500,000............................. 2.50% 2.58%
$500,000 but less than $1,000,000........................... 2.00% 2.00%
$1,000,000 or more.......................................... 0% 0%
</TABLE>
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INSTANCES OF A REDUCED OR WAIVED SALES CHARGE. Class A shares are sold
subject to a reduction of 20% in the sales charges shown in the table above to:
(1) employees of GE and other affiliates of Kidder, Peabody, (2) IRAs for those
employees, (3) other employee benefit plans for those employees and (4) the
spouses and minor children of those employees when orders on their behalf are
placed by the employees.
Class A shares are sold without a sales charge to tax exempt organizations
enumerated in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the 'Code'), and retirement plans qualified under Section 403(b)(7) of the Code
having 1,000 or more participants ('Qualified Plans'). Employees eligible to
participate in Qualified Plans sponsored by the same organization or its
affiliates may be aggregated in determining the sales charge applicable to an
investment made by a Qualified Plan.
No sales charge is imposed on Class A shares purchased through reinvestment
of dividends or capital gains distributions. Clients of a newly-employed Kidder,
Peabody Investment Executive are eligible to purchase Class A shares subject to
no sales charge for a period of 90 days after the Investment Executive first
becomes employed by Kidder, Peabody, so long as the following conditions are
met: (1) the purchase is made within 30 days of, and with the proceeds from, a
redemption of shares of a mutual fund sponsored by the Investment Executive's
previous employer; (2) the Investment Executive served as the client's broker on
the purchase of the shares of the mutual fund; and (3) the shares of the mutual
fund sold were subject to a sales charge. Clients of a Kidder, Peabody
Investment Executive are also eligible to purchase Class A shares subject to no
sales charge so long as the following conditions are met: (1) the purchase is
made within 30 days of, and with the proceeds from, a redemption of shares of a
mutual fund that were purchased through Kidder, Peabody acting as a selected
dealer for the shares pursuant to an agreement between Kidder, Peabody and the
mutual fund's principal underwriter; (2) the fund invested primarily in equity
securities of small capitalization companies; (3) the Investment Executive
served as the client's broker on the purchase of the shares of the mutual fund
sold; and (4) the shares of the mutual fund sold were subject to a sales charge.
Class A shares may also be offered without a sales charge to any investment
company, other than a company for which Kidder, Peabody serves as distributor,
in connection with the combination of the company with the Fund by merger,
acquisition of assets or otherwise.
VOLUME DISCOUNTS. Any investor meeting certain requirements, including the
signing of a Letter of Intent (a 'Letter'), is eligible to obtain a reduced
sales charge for purchasing Fund shares by combining purchases made over a
13-month period of Class A shares and shares of other mutual funds in the Kidder
Family of Funds with respect to which the investor previously paid, or is
subject to the payment of, a sales charge (collectively referred to as 'Eligible
Shares'). Purchases of Fund shares by eligible investors must aggregate at least
$50,000 and must include a minimum initial investment of at least $1,000 and
minimum subsequent investments of at least $50. For purposes of the procedure
contemplated by a Letter, Eligible Shares owned by an investor will be valued at
their original cost in determining the size of a purchase and the applicable
sales charge.
An investor's purchase of Eligible Shares not originally made pursuant to a
Letter may be included under a Letter subsequently executed within 90 days of
the purchase, so long as the investor informs Kidder, Peabody in writing within
the 90-day period of the investor's desired
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use of a Letter. The original cost of an investor's Eligible Shares not
purchased pursuant to a Letter may be included under a Letter subsequently
executed within 90 days of the purchase, so long as the investor informs Kidder,
Peabody in writing within the 90-day period of the investor's desire for that
treatment to be applicable. The original cost of Eligible Shares not purchased
pursuant to a Letter may be included as a credit toward the fulfillment of the
terms of the Letter; the reduced sales charge contemplated by the Letter,
however, will apply only to the purchases of Eligible Shares made after the
execution of the Letter, which purchases, as noted above, must aggregate at
least $50,000.
A Letter must provide for 5% of the dollar amount of the intended
investment to be held in escrow by Investors Fiduciary Trust Company ('IFTC') in
the form of Eligible Shares in an account registered in the name of the
shareholder. If the total amount of any Eligible Shares owned at the time a
Letter is signed plus all purchases made under the terms of the Letter less
redemptions (the 'investment') are at least equal to the intended investment,
the amount in escrow will be released to the shareholder. If the investment is
more than $50,000 but less than the intended investment a remittance of the
difference in the dollar amount of sales charge paid and the sales charge that
would have been paid if the investment had been made at a single time will be
made upon request. If the remittance is not sent within 20 days after such a
request, IFTC will redeem an appropriate number of Eligible Shares held in
escrow in order to realize the difference. Amounts remaining in the escrow
account will be released to the shareholder's account. If the total investment
is more than the intended investment and the total is sufficient to qualify for
an additional sales charge reduction, a retroactive price adjustment will be
made for all purchases made under a Letter to reflect the sales charge
applicable to the aggregate amount of the purchases during the 13-month period.
A Letter is not a binding obligation to purchase the indicated amount, and
Kidder, Peabody is not obligated to sell the indicated amount. Reinvested
dividends and capital gains are not applied toward the completion of the
purchases contemplated by a Letter.
RIGHT OF ACCUMULATION. Reduced sales charges on Class A shares are
available under a combined right of accumulation permitting an investor to
combine the value of Eligible Shares and the value of Fund shares being
purchased, to qualify for a reduced sales charge. Before a shareholder may take
advantage of the right of accumulation, the shareholder must provide Kidder,
Peabody at the time of purchase with sufficient information to permit Kidder,
Peabody to confirm that the shareholder is qualified for the right; acceptance
of the shareholder's purchase order is subject to that confirmation. The right
of accumulation may be amended or terminated at any time by the Trust.
DEFINITION OF PURCHASE. For purposes of the volume discounts and right of
accumulation described above, a 'purchase' refers to: a single purchase of
Eligible Shares by an individual; concurrent purchases by an individual, his or
her spouse and their children under the age of 21 years purchasing Eligible
Shares for his, her or their own account; and single purchases by a trustee or
other fiduciary purchasing Eligible Shares for a single trust estate or single
fiduciary account, including a pension, profit-sharing or other employee benefit
trust created pursuant to a plan qualified under Section 401 of the Code, even
though more than one beneficiary is involved. The term 'purchase' also includes
purchases by any 'company,' as that term is defined in the 1940 Act, but does
not include: purchases by any such company that has not been in existence for at
least six months or that has no purpose other than the purchase of Eligible
Shares or shares of
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other investment companies registered under the 1940 Act at a discount; or
purchases by any group of individuals whose participants are related by virtue
of being credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
The term 'purchase' also includes purchases by employee benefit plans not
qualified under Section 401 of the Code, including purchases by employees or by
employers on behalf of employees by means of a payroll deduction plan, or
otherwise, of Eligible Shares. Purchases by such a company or non-qualified
employee benefit plan will qualify for the volume discounts offered with respect
to the Fund's shares only if the Trust and Kidder, Peabody are able to realize
economies of scale in sales efforts and sales-related expenses by means of the
company's, the employer's or the plan's making the Prospectus available to
individual investors or employees and forwarding investments by those persons to
the Trust, and by any such employer's or plan's bearing the expense of any
payroll deduction plan. The term 'purchase' also includes any purchase of
Eligible Shares by or on behalf of certain members of the same family, including
spouses, children (adult and minor), parents, grandparents and siblings,
provided, however, that the following conditions are met: (1) following
consummation of the purchase, the family has, in the aggregate, (a) at least $5
million invested in Eligible Shares of one or more funds within the Kidder
Family of Funds or (b) at least $10 million in cash and/or securities in Kidder,
Peabody Accounts; and (2) the Trust and Kidder, Peabody are able to realize
economies of scale in sales effort and sales-related expenses by means of
dealing with a common decision-maker or otherwise being able to treat the
accounts as a single relationship.
REINSTATEMENT PRIVILEGE. The Trust offers a reinstatement privilege under
which a shareholder of the Fund who has redeemed Class A shares may reinvest the
proceeds from the redemption without imposition of a sales charge, provided the
reinvestment is made within 60 days of the redemption. The tax status of a gain
realized on a redemption will not be affected by exercise of the reinstatement
privilege but a loss will be nullified if the reinvestment is made within 30
days of the redemption. See the Statement of Additional Information for the tax
consequences when, within 90 days of a purchase of Class A shares, the shares
are redeemed and reinvested in the Fund or another mutual fund.
CLASS B SHARES
The public offering price of Class B shares is the net asset value per share
next determined after a purchase order is received, without imposition of any
sales charge. Class B shares are subject to a service fee at the annual rate of
.25%, and a distribution fee at the annual rate of .75%, of the value of the
Fund's average daily net assets attributable to this Class. See 'Distributor.'
Kidder, Peabody has adopted guidelines, in view of the relative sales charges,
service fees and distribution fees, directing Investment Executives that all
purchases of shares should be for Class A shares when the purchase is for
$1,000,000 or more by an investor not eligible to purchase Class C shares.
Kidder, Peabody reserves the right to vary these guidelines at any time.
CLASS C SHARES
The public offering price of Class C shares is the net asset value per share
next determined after a purchase order is received, without imposition of any
sales charge. Class C shares, which are not subject to any service fee or
distribution fee, are available exclusively to: (1) employees of Kidder,
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Peabody and their associated accounts; (2) directors or trustees of any fund in
the Kidder Family of Funds; (3) employee benefit plans of Kidder, Peabody; (4)
participants in INSIGHT when shares are purchased through that program; and (5)
Bjurman Employees. Investors eligible to purchase Class C shares may not
purchase any other Class of shares.
INSIGHT. An investor purchasing $50,000 or more of shares of funds in the
Kidder Family of Funds may participate in INSIGHT, KPAM's total portfolio asset
allocation program, and receive Class C Shares. INSIGHT offers comprehensive
investment services, including a personalized asset allocation investment
strategy using an appropriate combination of funds in the Kidder Family of
Funds, professional investment advice regarding investment among the funds in
the Kidder Family of Funds by KPAM portfolio specialists, monitoring of
investment performance and comprehensive quarterly reports that cover market
trends, portfolio summaries and personalized account information. Participation
in INSIGHT is subject to payment of an advisory fee to KPAM at the maximum
annual rate of 1.5% of assets held through the program (generally charged
quarterly in advance), which covers all INSIGHT investment advisory services and
program administration fees. Employees of Kidder, Peabody are entitled to a 50%
reduction in the fee otherwise payable for participation in INSIGHT. INSIGHT
clients may elect to have their INSIGHT fees charged to their accounts (by the
automatic redemption of money market fund shares) or another of their Kidder,
Peabody accounts or, billed separately.
REDEMPTION OF SHARES
A shareholder may redeem Fund shares on any day that net asset value is
determined by following the procedures described below.
REDEMPTION THROUGH KIDDER, PEABODY
Shares may be redeemed through Kidder, Peabody, which provides the terms of any
redemption request properly received prior to 4:00 p.m., New York time, on a
given day, to the Fund's transfer agent. The trade date of a redemption so
received is considered to be that day, and the trade date of any redemption
request received at or after 4:00 p.m., New York time, is considered to be the
next business day. If shares to be redeemed were issued in certificate form, the
certificates for the shares to be redeemed must be submitted to the transfer
agent in accordance with the procedures described in items (1) through (4) under
'Redemption by Mail' below.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request in 'good order' to the
Fund's transfer agent at the following address:
Kidder, Peabody Small Cap Equity Fund
Class A, B or C (please specify)
c/o Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
The transfer agent transmits any redemption request that it receives to
Kidder, Peabody, and the request is then treated as if it had been made through
Kidder, Peabody. A redemption request is considered to have been received in
'good order' if the following conditions are satisfied:
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(1) the request is in writing, states the Class and number of shares
to be redeemed and identifies the shareholder's Fund account number;
(2) the request is signed by each registered owner exactly as the
shares are registered;
(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed by the shareholder for transfer (or are
themselves accompanied by an endorsed stock power) and accompany the
redemption request, which should be sent by registered mail for the
protection of the shareholder; and
(4) the signatures on either the written redemption request or the
certificates (or the accompanying stock power) have been guaranteed by a
bank, broker-dealer, municipal securities broker, government securities
dealer or broker, credit union, a member firm of a national securities
exchange, registered securities association or clearing agency, and savings
association (the purpose of a signature guarantee being to protect Fund
shareholders against the possibility of fraud). The transfer agent may
reject redemption instructions if the guarantor is neither a member of nor
a participant in a signature guarantee program (currently known as
'STAMP''sm').
Additional supporting documents may be required for redemptions of Fund
shares by corporations, executors, administrators, trustees and guardians.
OTHER REDEMPTION POLICIES
Signature guarantees are required in connection with (1) any redemption of Fund
shares made by mail and (2) share ownership transfer requests. These
requirements may be waived by the Trust in certain instances.
Any redemption request made by a shareholder of the Fund will be effected
at the net asset value per share next determined after proper redemption
instructions are received. See 'Determination of Net Asset Value' below. The
proceeds of the redemption generally are credited to the shareholder's Account,
or sent to the shareholder, as applicable, on the fifth business day following
the date after the redemption request was received in good order, but in no
event later than seven days following that date. A shareholder who pays for Fund
shares by personal check will be credited with the proceeds of a redemption of
those shares only after the check used for the purchase has cleared, which may
take up to 15 days or more. If shares are purchased with good funds, no delay in
redemption will occur. The amount of redemption proceeds received by a Fund
shareholder will in no way be affected by any delay in the crediting of those
proceeds.
A Fund account with respect to a Class of shares that is reduced by
redemptions, and not by reason of market fluctuations, to a value of $500 or
less may be redeemed by the Trust, but only after the shareholder has been given
at least 30 days in which to increase the balance in the account to more than
$500. Proceeds of such a redemption will be mailed to the shareholder.
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DISTRIBUTIONS IN KIND
If the Trustees determine that it would be detrimental to the best interests of
the Fund's shareholders to make a redemption payment wholly in cash, the Fund
may pay, in accordance with rules adopted by the SEC, any portion of a
redemption in excess of the lesser of $250,000 or 1% of the Fund's net assets by
a distribution in kind of readily marketable portfolio securities in lieu of
cash. Redemptions failing to meet this threshold must be made in cash.
Shareholders receiving distributions in kind of portfolio securities may incur
brokerage commissions when subsequently disposing of those securities.
SYSTEMATIC WITHDRAWAL PLAN
The Trust offers a Systematic Withdrawal Plan (the 'Withdrawal Plan') under
which a shareholder of the Fund with $20,000 or more invested in a Class may
elect periodic redemption payments to the shareholder, or a designated payee on
a monthly basis. Payments pursuant to the Withdrawal Plan normally are made
within the last ten days of the month. The minimum rate of withdrawal is $200
per month and the maximum annual withdrawal is 12% of current account value in
the Class as of the commencement of participation in the Withdrawal Plan (less
the amount of any subsequent redemption outside the Withdrawal Plan). A
shareholder participating in the Withdrawal Plan must reinvest all income and
capital gains distributions, and may not continue to participate if the
shareholder redeems outside the Withdrawal Plan or exchanges to another fund an
amount that would cause the account value in the Class to fall below $20,000.
The Trust may amend or terminate the Withdrawal Plan, and a shareholder may
terminate participation in the Withdrawal Plan at any time.
DETERMINATION OF NET ASSET VALUE
Each Class' net asset value per share is calculated by Investors Fiduciary Trust
Company ('IFTC'), the Fund's custodian, on each day, Monday through Friday,
except that net asset value is not computed on a day in which no order to
purchase, sell, exchange or redeem Fund shares have been received, any day on
which there is not sufficient trading in the Fund's portfolio securities that
the Fund's net asset values per share might be materially affected by changes in
the value of such portfolio securities or on days on which the NYSE is closed.
The NYSE is currently scheduled to be closed on New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday when one of those holidays falls on a
Saturday or on the subsequent Monday when one of those holidays falls on a
Sunday.
Net asset value per share of a Class is determined as of the close of
regular trading on the NYSE, and is computed by dividing the value of the Fund's
net assets attributable to that Class by the total number of shares outstanding
of that Class. Generally, the Fund's investments are valued at market value or,
in the absence of a market value, at fair value as determined by or under the
direction of the Trustees.
A security that is primarily traded on a stock exchange is valued at the
last sale price on that exchange or, if no sales occurred during the day, at the
current quoted bid price, except that, when an occurrence subsequent to the time
a value was so established is likely to have changed
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that value, the fair market value of those securities will be determined by
consideration of other factors by or under the direction of the Trustees.
Short-term investments that mature in 60 days or less are valued on the basis of
amortized cost (which involves valuing an investment at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest rates on the market
value of the investment) when the Trustees have determined that amortized cost
represents fair value.
For purposes of calculating a Class' net asset value per share, assets and
liabilities initially expressed in foreign currency values are converted into
U.S. dollar values based on a formula prescribed by the Trust or, if the
information required by the formula is unavailable, as determined in good faith
by the Board of Trustees. In carrying out the Board's valuation policies, IFTC
may consult with an independent pricing service retained by the Trust. Further
information regarding the Fund's valuation policies is contained in the
Statement of Additional Information.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class (or the sole
class offered) in certain funds in the Kidder Family of Funds, to the extent
shares are offered for sale in the shareholder's state of residence. For a list
and a description of the funds in the Kidder Family of Funds for which shares
may be exchanged, see 'Exchange Privilege' in the Statement of Additional
Information. Under the Choice Pricing System, an exchange of shares of the Fund
with other funds' shares will be limited to shares of the same class or the sole
class (money market funds only) of shares of a fund from or to which the
exchange is to be effected. For example, if a holder of Class A shares of
Kidder, Peabody Global Equity Fund ('Global Equity Fund') exchanges his shares
for shares of Kidder, Peabody Cash Reserve Fund, Inc. ('Cash Reserve Fund') (a
money market fund) and thereafter wishes to exchange those shares for shares of
Kidder, Peabody Government Income Fund, Inc., he may receive only Class A shares
in the latter transaction. As another example, if a holder of shares of Cash
Reserve Fund acquired as a result of an initial investment and not from an
exchange with shares of another fund wishes to exchange his shares for shares of
Global Equity Fund, he may receive Class A shares, Class B shares or Class C
shares (depending on his eligibility for Class C shares) in the exchange
transaction. Thereafter, any further exchanges would be subject to the principal
described above limiting subsequent exchanges to the same class or the sole
class of shares of other funds. If shares acquired in an exchange are subject to
payment of a sales charge higher than the sales charge paid on the shares
relinquished in the exchange (or any predecessor of those shares), the exchange
will be subject to payment of an amount equal to the difference, if any, between
the sales charge previously paid and the sales charge payable on the shares
acquired in the exchange.
Although the Fund currently imposes no limit on the number of times the
Exchange Privilege may be exercised by any shareholder, the Fund may impose such
limits in the future, in accordance with applicable provisions of the 1940 Act
and rules thereunder. In addition, the Exchange Privilege may be terminated or
revised at any time upon 60 days' prior written notice to Fund shareholders, and
is available only to residents of states in which exchanges are permitted under
state law. The exchange of shares of one fund for shares of another is treated
for federal income tax purposes as a sale of the shares given in exchange by the
shareholder, so that a shareholder may recognize a taxable gain or loss on an
exchange.
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Upon receipt of proper instructions and all necessary supporting documents,
Fund shares submitted for exchange will be redeemed at their net asset value
next determined and simultaneously invested in shares of the fund being
acquired. Settlement of an exchange would occur one business day after the date
on which the request for exchange was received in proper form, unless the dollar
amount of the transaction exceeds 5% of the Fund's total net assets on any given
day, in which case settlement would occur within five business days after the
date on which the request for exchange was received in proper form. The proceeds
of a redemption of Fund shares made to facilitate the exchange of those shares
for shares of another fund must be equal to at least (1) the minimum initial
investment requirement imposed by the fund into which the exchange is being
sought if the shareholder seeking the exchange has not previously invested in
that fund or (2) the minimum subsequent investment requirement imposed by the
fund into which the exchange is being sought if the shareholder has previously
made an investment in that fund.
A shareholder of the Fund wishing to exercise the Exchange Privilege should
obtain from Kidder, Peabody a copy of the current prospectus of the fund into
which an exchange is being sought and review that prospectus carefully before
making the exchange. Kidder, Peabody reserves the right to reject any exchange
request at any time.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Fund and distributions of net
realized capital gains of the Fund, if any, are distributed annually after the
close of the fiscal year in which they are earned. Unless a shareholder
instructs the Fund that dividends and capital gains distributions on shares of
any Class should be paid in cash and credited to the shareholder's Account,
dividends and capital gains distributions are reinvested automatically at net
asset value in additional shares of the same Class. The Fund is subject to a 4%
nondeductible excise tax measured with respect to certain undistributed amounts
of net investment income and capital gains. If necessary to avoid the imposition
of this tax, and if in the best interests of its shareholders, the Fund will
declare and pay dividends of its net investment income and distributions of its
net capital gains more frequently than stated above. The per share dividends and
distributions on Class C shares are higher than those on Class A shares, which
in turn are higher than those on Class B shares, as a result of the different
service, distribution and transfer agency fees applicable to the Classes. See
'Fee Table,' 'Purchase of Shares,' 'Distributor' and 'General Information.'
TAXES
The Fund has qualified for the fiscal year ended July 31, 1994 as a regulated
investment company within the meaning of the Code and intends to qualify for
this treatment in each year. To qualify as a regulated investment company for
federal income tax purposes, the Fund limits its income and investments so that
(1) at least 90% of its gross income is derived from dividends, interest
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from
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options, futures or forward contracts) derived with respect to its business of
investing in stock, securities or currencies, (2) less than 30% of its gross
income is derived from the sale or disposition of stocks or securities and
certain financial instruments (including certain options, futures and forward
contracts) that were held for less than three months and (3) at the close of
each quarter of the taxable year (a) not more than 25% of the market value of
the Fund's total assets is invested in the securities (other than Government
Securities or the securities of other regulated investment companies) of a
single issuer or of two or more issuers controlled by the Fund that are engaged
in the same or similar trades or businesses or in related trades or businesses
and (b) at least 50% of the market value of the Fund's total assets is
represented by (i) cash and cash items, (ii) Government Securities and
securities of other regulated investment companies and (iii) other securities
limited in respect of any one issuer to an amount not greater in value than 5%
of the market value of the Fund's total assets and to not more than 10% of the
outstanding voting securities of the issuer. The requirements for qualification
may cause the Fund to restrict the degree to which it sells or otherwise
disposes of stocks, other securities and certain financial instruments held for
less than three months. If the Fund qualifies as a regulated investment company
and meets certain distribution requirements, the Fund will not be subject to
federal income tax on its net investment income and net realized capital gains
that it distributes to its shareholders.
Dividends paid by the Fund out of net investment income and distributions
of net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of how long shareholders have
held their shares and whether the distributions are received in cash or
reinvested in additional shares. Generally, a shareholder's gain or loss on a
sale or redemption of Fund shares will be a long-term capital gain or loss if
the shares have been held for more than one year and a short-term gain or loss
if the shares are held for one year or less. Dividends and distributions paid by
the Fund generally do not qualify for the federal dividends received deduction
for corporate shareholders.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other foreign taxes. The payment of these taxes
reduces the amount of dividends and distributions paid to the Fund's
shareholders. It is not expected that the Fund will be able to elect, for
federal income tax purposes, to treat certain foreign income taxes it pays as
having been paid by its shareholders.
Statements as to the tax status of each Fund shareholder's dividends and
distributions are mailed annually. Shareholders also receive, as appropriate,
various written notices after the close of the Fund's taxable year regarding the
tax status of certain dividends and distributions that were paid (or that are
treated as having been paid) by the Fund to its shareholders during the
preceding taxable year, including the amount of dividends that represent
interest derived from Government Securities.
Shareholders are urged to consult their tax advisors regarding the
application of federal, state, local and foreign tax laws to their specific
situations before investing in the Fund.
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DISTRIBUTOR
Kidder, Peabody, a major full-line investment services firm serving foreign and
domestic securities markets, located at 10 Hanover Square, New York, New York
10005-3592, serves as the distributor of the Fund's shares and is paid monthly
fees by the Trust in respect of the Fund in connection with (1) the servicing of
shareholder accounts in Class A shares and Class B shares and (2) providing
distribution-related services in respect of Class B shares. A monthly service
fee, authorized pursuant to a Shareholder Servicing and Distribution Plan (the
'Plan') adopted by the Trust with respect to the Fund pursuant to Rule 12b-1
under the 1940 Act, is calculated at the annual rate of .25% of the value of the
average daily net assets of the Fund attributable to each of Class A shares and
Class B shares and is used by Kidder, Peabody to provide compensation for
ongoing servicing and/or maintenance of shareholder accounts and an allocation
of overhead and other Kidder, Peabody branch office expenses related to
servicing shareholder accounts. Compensation is paid by Kidder, Peabody to
persons, including Kidder, Peabody employees, who respond to inquiries of
shareholders of the Fund regarding their ownership of shares or their accounts
with the Fund or who provide other similar services not otherwise required to be
provided by the Fund's manager, investment adviser or transfer agent.
In addition, pursuant to the Plan, the Fund pays to Kidder, Peabody a
monthly distribution fee at the annual rate of .75% of the Fund's average daily
net assets attributable to Class B shares. The distribution fee is used by
Kidder, Peabody to provide initial and ongoing sales compensation to its
Investment Executives in respect of sales of Class B shares; costs of printing
and distributing the Fund's Prospectus, Statement of Additional Information and
sales literature to prospective investors in Class B shares; costs associated
with any advertising relating to Class B shares; an allocation of overhead and
other Kidder, Peabody branch office expenses related to distribution of Class B
shares; and payments to, and expenses of, persons who provide support services
in connection with the distribution of Class B shares.
Payments under the Plan are not tied exclusively to the service and/or
distribution expenses actually incurred by Kidder, Peabody, and the payments may
exceed expenses actually incurred by Kidder, Peabody. The Trustees evaluate the
appropriateness of the Plan and its payment terms on a continuing basis and in
doing so will consider all relevant factors, including expenses borne by Kidder,
Peabody and amounts it receives under the Plan.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise the Fund's 'average annual total
return' over various periods of time for each Class. Total return figures, which
are based on historical earnings and are not intended to indicate future
performance, show the average percentage change in value of an investment in the
Class from the beginning date of a measuring period to the end of that period.
These figures reflect changes in the price of shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the same Class. Total return figures will be given
for the most recent one-and five-year periods, or for the life of the Class to
the extent that it has not been in existence for the full length of those
periods, and may be given for other periods as well, such as on a year-by-
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year basis. The average annual total return for any one year in a period longer
than one year might be greater or less than the average for the entire period.
The Trust may quote 'aggregate total return' figures with respect to the
Fund for various periods, representing the cumulative change in value of an
investment for the specific period and reflecting changes in share prices and
assuming reinvestment of dividends and distributions. Aggregate total return may
be calculated either with or without the effect of the sales charge to which
Class A shares are subject and may be shown by means of schedules, charts or
graphs, and may indicate subtotals of the various components of total return
(that is, changes in value of initial investment, income dividends and capital
gains distributions). Reflecting compounding over a longer period of time,
aggregate total return data generally will be higher than average annual total
return data.
The Trust may, in addition to quoting the Classes' average annual and
aggregate total returns, advertise the actual annual and annualized total return
performance data for various periods of time. Actual annual and annualized total
returns may be calculated either with or without the effect of the sales charge
to which Class A shares are subject and may be shown by means of schedules,
charts or graphs. Actual annual or annualized total return data generally will
be lower than average annual total return data, which reflects compounding of
return.
In reports or other communications to Fund shareholders and in advertising
material, the Trust may compare the Classes' performance with (1) the
performance of other mutual funds (or classes thereof) as listed in rankings
prepared by Lipper Analytical Services Inc., CDA Investment Technologies, Inc.
or similar investment services that monitor the performance of mutual funds or
as set out in the nationally recognized publications listed below, (2) the Dow
Jones Industrial Average, the Standard & Poor's 500 Composite Stock Price Index,
the Russell 2000 and the Russell 5000, each of which is an unmanaged index of
common stocks or (3) other appropriate indexes of investment securities or with
data developed by KPAM derived from those indexes. The Trust may also include in
communications to Fund shareholders evaluations of the Fund published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Barron's, Business Week, Forbes, Institutional
Investor, Investor's Daily, Money, Kiplinger's Personal Finance Magazine,
Morningstar Mutual Fund Values, The New York Times, USA Today and The Wall
Street Journal. Any given performance comparison should not be considered as
representative of the Fund's performance for any future period.
GENERAL INFORMATION
ORGANIZATION OF THE TRUST
The Trust was formed as a business trust pursuant to a Declaration of Trust, as
amended from time to time (the 'Declaration'), under the laws of The
Commonwealth of Massachusetts on April 8, 1993. The Fund commenced operations on
November 4, 1993. The Declaration authorizes the Fund's Board of Trustees to
create separate series, and within each series separate Classes, of an unlimited
number of shares of beneficial interest, par value $.001 per share.
When issued, Fund shares are fully paid and non-assessable. Shares are
freely transferable and have no pre-emptive, subscription or conversion rights.
Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights,
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privileges and preferences, except with respect to: (1) the designation of each
Class; (2) the effect of the respective sales charges, if any, for each Class;
(3) the distribution and/or service fees, if any, borne by each Class; (4) the
expenses allocable exclusively to each Class; (5) voting rights on matters
exclusively affecting a single Class; and (6) the exchange privilege of each
Class. The Board of Trustees does not anticipate that there will be any
conflicts among the interests of the holders of the different Classes. The
Trustees, on an ongoing basis, will consider whether any conflict exists and, if
so, take appropriate action. Certain aspects of the shares may be changed, upon
notice to Fund shareholders, to satisfy certain tax regulatory requirements, if
the change is deemed necessary by the Trustees.
Shareholders of the Fund are entitled to one vote for each full share held
and fractional votes for fractional shares held. Voting rights are not
cumulative and, as a result, the holders of more than 50% of the aggregate
shares of the Fund may elect all of the Trustees. Generally shares of the Trust
will be voted on a Trust-wide basis on all matters except those affecting only
the interests of one series, such as the Fund's investment advisory agreement.
In turn, shares of the Fund will be voted on a Fund-wide basis on all matters
except those affecting only the interests of one Class, such as the terms of the
Plan as it relates to a Class.
The Trust intends to hold no annual meetings of shareholders for the
purpose of electing Trustees unless and until less than a majority of the
Trustees holding office have been elected by shareholders. Shareholders of
record of no less than two-thirds of the outstanding shares of the Trust may
remove a Trustee through a declaration in writing or by vote cast in person or
by proxy at a meeting called for that purpose. A meeting will be called for the
purpose of voting on the removal of a Trustee at the written request of holders
of 10% of the Trust's outstanding shares. Shareholders of the Fund who satisfy
certain criteria will be assisted by the Trust in communicating with other
shareholders in seeking the holding of the meeting.
REPORTS TO SHAREHOLDERS
The Trust sends Fund shareholders semi-annual and annual reports, each of which
includes a list of the investment securities held by the Fund as of the end of
the period covered by the report.
CUSTODIAN AND TRANSFER, DIVIDEND AND RECORDKEEPING AGENT
IFTC, located at 127 West 10th Street, Kansas City, Missouri 64105, serves as
the Fund's custodian and transfer, dividend and recordkeeping agent.
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No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Statement
of Additional Information incorporated into this Prospectus by
reference, in connection with the offering made by this Prospectus
and, if given or made, any such information or representations must
not be relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the
Fund or by its distributor in any jurisdiction in which the offering
may not lawfully be made.
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Contents
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Fee Table 2
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Highlights 3
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Financial Highlights 7
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Investment Objective and Policies 8
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Management of the Fund 17
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Purchase of Shares 19
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Redemption of Shares 24
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Determination of Net Asset Value 26
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Exchange Privilege 27
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Dividends, Distributions and Taxes 28
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Distributor 30
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Performance Information 30
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General Information 31
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Custodian and Transfer, Dividend
and Recordkeeping Agent 32
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</TABLE>
Kidder,
Peabody
Small Cap
Equity
Fund
Prospectus
November 28, 1994
[LOGO]
STATEMENT OF DIFFERENCES
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The service mark symbol shall be expressed as ................. 'sm'
The dagger symbol shall be expressed as ....................... 'D'
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