As filed with the Securities and Exchange Commission on August 31, 2000
Registration No. 33-66396
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 9 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 11 [ X ]
(Check appropriate box or boxes)
The Hough Group of Funds
(Exact Name of Registrant as Specified in Charter)
100 Second Avenue South, St. Petersburg, Florida 33701
(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number: (813) 895-8880
Bonnie G. Bertolino, Esq.
100 Second Avenue South
St. Petersburg, Florida 33701
(Name and Address of Agent for Service)
Copies to:
Patrick W.D. Turley, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Suite 500
Washington, D.C. 20005
[ X ] It is proposed that this filing will become effective on August 31, 2000
pursuant to paragraph (b) of Rule 485.
THE FLORIDA TAXFREE FUNDS
Series of The Hough Group of Funds
________________________________________________________________________
Prospectus dated August 31, 2000
The Florida TaxFree Money Market Fund
The Florida TaxFree ShortTerm Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
Please read this prospectus before investing and keep it for future reference.
It contains important information, including how the Funds invest and the
services available to shareholders.
Contents:
About the Funds
Risk/Return Summary & Fund Expenses Page
Investment Objectives & Strategies Page
Investment Risks Page
Management Page
Distributions & Taxes Page
Buying & Selling Shares Page
Shareholder Services Page
Account Policies Page
Financial Highlights Page
Contact Us Page
To receive additional information about the Funds, see Back Cover
RISK/RETURN SUMMARY AND FUND EXPENSES
Risk/Return Summary of The Florida TaxFree Money Market Fund
Investment Objective
The Florida TaxFree Money Market Fund seeks a high level of current interest
income, exempt from federal income tax, consistent with the preservation of
capital and liquidity. The Fund is operated in a manner intended to qualify
its shares for an exemption from the Florida Intangibles Tax.
Principal Investment Strategies
The Fund invests primarily in high quality, short-term Florida municipal
obligations that have been determined to present minimal credit risks. The
Fund limits its investments to securities with remaining maturities of 397
days or less at the time of purchase and maintains a dollar-weighted average
maturity of 90 days or less. The Fund seeks to maintain a constant net asset
value of $1.00 per share.
Principal Investment Risks
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. In addition,
because the Fund invests primarily in Florida obligations, the Fund is more
sensitive to political and economic developments in the State of Florida.
Who may want to invest?
Consider investing in the Fund if you:
are seeking current income and the preservation of capital
have a low risk tolerance
are investing for a short-term purpose and are willing to accept lower
potential returns in exchange for a high degree of safety
This Fund will not be appropriate for someone:
investing for a long-term goal or for retirement
seeking a high total return
Risk/Return Summary and Fund Expenses
The chart and table on this page show how the Money Market Fund has performed
and how its performance has varied from year to year. The bar chart shows
changes in the Fund's yearly performance for each calendar year since its
inception on November 22, 1993 to demonstrate that the Fund's performance varied
at differing times.
Performance Bar Chart and Table1
Year-by-Year Total Returns as of 12/31
[BAR CHART APPEARS HERE]
2.98% 3.25% 3.51% 3.43% 3.86% 3.12%
(1999) (1998) (1997) (1996) (1995) (1994)
The bar chart above does not reflect the impact of any applicable sales charges
or account fees, which would reduce returns. Of course, past performance
does not indicate how the Fund will perform in the future.
Best quarter: Q 2 1995 +4.00%
Worst quarter: Q 1 1994 -2.36%
Average Annual Total Returns (for the periods ending December 31, 1999)
Money Market Fund
Fund Inception Past Year Past 5 Years Since Inception
11/22/93 2.98% 3.40% 3.34%
As of December 31, 1999, the 7-day yield for the Money Market Fund was 3.81%
1 Both charts assume reinvestment of dividends and distributions.
Risk/Return Summary and Fund Expenses
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Money Market Fund.
Shareholder
Fees (fees paid directly from your investment)
Maximum Sales
Charge (load) Imposed on Purchase None
Maximum Deferred
Sales Charge (load)
None
Annual Fund
Operating
Expenses
(expenses that are deducted from Fund assets)
Management Fees .50%
Distribution and
Service (12b-1) Fees .25%
Other Expenses .15%
Total Fund
Operating Expenses .90%
Waiver and/or Expense Reimbursement1 .50%
Net Expenses1 .40%
________________________
1 The Adviser has entered into an expense limitation agreement with the
Fund to limit its total Fund Operating Expenses to 0.40% of its average daily
net assets for the current fiscal year. The Fund has agreed to repay the
Adviser for amounts waived or reimbursed by the Adviser pursuant to the
expense limitation agreement provided that such repayment does not cause the
Fund's Total Fund Operating Expenses to exceed 0.40% of its average daily net
assets and the repayment is made within three years after the year in which
the Adviser incurred the expense.
Risk/Return Summary and Fund Expenses
Expense Example
Use this table to compare fees and expenses with those of other Funds.
It illustrates the amount of fees and expenses you would pay, assuming the
following:
$10,000 investment
5% annual return
redemption at the end of each period
no changes in the Fund's operating expenses
reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
Money Market Fund
1 Year 3 Years 5 Years 10 Years
$41 $237 $449 $1,062
Risk/Return Summary of the Florida TaxFree ShortTerm Fund
Investment Objective
The Florida TaxFree ShortTerm Fund seeks the highest level of current interest
income, exempt from federal income tax, consistent with the preservation of
capital and liquidity. The Fund is operated in a manner intended to qualify
its shares for an exemption from the Florida Intangibles Tax.
Principal Investment Strategies
The Fund invests primarily in investment grade Florida municipal bonds with
maturities not greater than six years at the time of purchase. The Fund
attempts to maintain a dollar-weighted average portfolio maturity of three years
or less.
Principal Investment Risks
The Fund is subject to interest rate risk. Therefore, the value of the Fund's
investments will fluctuate with interest rates and so will the value of your
investment in the Fund. You could lose money on your investment in the Fund,
or the Fund could underperform other investments. Because the Fund invests
primarily in Florida obligations, the Fund is more sensitive to political and
economic developments in the State of Florida.
Who may want to invest?
Consider investing in the Fund if you are:
looking to add a monthly income component to your portfolio
seeking higher potential returns than provided by money market funds
willing to accept the risks of price and dividend fluctuations
This Fund will not be appropriate for someone:
investing emergency reserves
seeking safety of principal
Risk/Return Summary and Fund Expenses
The chart and table on this page show how the ShortTerm Fund has performed
and how its performance has varied from year to year. The bar chart shows
changes in the Fund's yearly performance for each calendar year since its
inception on November 22, 1993 to demonstrate that the Fund has gained and
lost value at differing times. The table below compares the Fund's performance
over time to that of the Lehman 3 Year Bond Index.2
Performance Bar Chart and Table1
Year-by-Year Total Returns as of 12/31
[BAR CHART APPEARS HERE]
1.78% 4.83% 4.91% 3.98% 7.33% 1.24%
(1999) (1998) (1997) (1996) (1995) (1994)
The bar chart above does not reflect the impact of any applicable sales charges
or account fees, which would reduce returns. Of course, past performance
does not indicate how the Fund will perform in the future.
Best quarter: Q 1 1995 +8.55%
Worst quarter: Q 1 1994 -3.23%
Average Annual Total Returns
(for the periods ending December 31, 1999)3
Florida TaxFree ShortTerm Fund
Fund Inception Past Year Past 5 Years Since Inception
11/22/93 1.78% 4.55% 4.07%
Lehman 3 Year Bond Index2
Fund Inception Past Year Past 5 Years Since Inception
11/22/93 1.96% 5.73% 5.08%
___________________
1 Both charts assume reinvest of dividends and distributions.
2 An unmanaged index generally representative of the performance of
short-term bonds (those maturing within two to four years).
Risk/Return Summary and Fund Expenses
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and
hold shares of the ShortTerm Fund.
Shareholder
Fees (fees
paid directly from your investment)
Maximum Sales
Charge (load) Imposed on Purchases None
Maximum Deferred
Sales Charge (load) None
Annual Fund
Operating
Expenses
(expenses that are deducted from Fund assets)
Management Fees .60%
Distribution and
Service (12b-1) Fees1 .25%
Other Expenses .23%
Total Fund
Operating Expenses 1.08%
Fee Waiver and/or Expense
Reimbursement2 .68%
Net Expenses2 0.40%
___________________
1 The Fund may incur 12b-1 fees in a maximum amount up to .25% of its
average net assets. It is possible that long-term shareholders of
the Fund may indirectly pay more than the equivalent of the maximum
front-end sales charge permitted by the National Association of
Securities Dealers.
2 The Adviser has entered into an expense limitation agreement with the
Fund to limit its Total Fund Operating Expenses to 0.40% of its average
daily net assets for the current fiscal year. The Fund has agreed to
repay the Adviser for amounts waived or reimbursed by the Adviser
pursuant to the expense limitation agreement provided that such
repayment does not cause the Fund's Total Fund Operating Expenses to
exceed 0.40% of its average daily net assets and the repayment is made
within three years after the year in which the Adviser incurred the
expense.
Risk/Return Summary and Fund Expenses
Expense Example
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
$10,000 investment
5% annual return
redemption at the end of each period
no changes in the Fund's operating expenses
reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
ShortTerm Fund
1 Year 3 Years 5 Years 10 Years
$41 $276 $529 $1,256
INVESTMENT OBJECTIVES AND STRATEGIES
THE FLORIDA TAXFREE MONEY MARKET FUND
Investment Objectives, Policies and Strategy
Investment Objective
The investment objective of the Money Market Fund is to seek a high level of
current interest income, exempt from federal income tax, consistent with the
preservation of capital and liquidity. The Fund seeks to maintain a constant
net asset value of $1.00 per share, although there can be no assurance that
it will be able to do so.
Policies and Strategies
Under normal market conditions, the Fund invests in high quality, short-term
municipal obligations that have been determined to present minimal credit
risks and which have remaining maturities of 397 calendar days (thirteen
months) or less. The dollar-weighted average maturity of the obligations
held by the Fund will not exceed 90 days. The Fund also intends to invest
in a manner believed to qualify its shares for an exemption from the Florida
Intangible Tax.
Consistent with the Money Market Fund's investment objective, the Fund:
invests in municipal money market instruments that have been rated in
accordance with applicable rules in one of the two highest categories for
short-term securities by at least two nationally recognized rating services
(or by one, if only one rating service has rated the security) or, if unrated,
has been judged by the Adviser to be of equivalent quality
invests in various types of municipal securities which are debt obligations
issued to obtain funds for various public purposes consisting of: (1)
General Obligation Bonds which are backed by the issuer's pledge of its full
faith, credit and taxing power, and (2) Revenue Bonds, which are payable only
from revenues derived from a particular municipal facility
may invest in other types of municipal instruments including tax-exempt
notes, tax and revenue anticipation notes, bond anticipation notes and tax-
exempt commercial paper, each of which are generally issued by municipalities
to help finance short-term capital or operating needs
may invest in municipal lease obligations, resource recovery bonds and tender
option bonds
may invest up to 10% of its total assets in illiquid securities which are
securities that may lack an active trading market
In the event that the Adviser determines that current market conditions are
not suitable for the Fund's typical investments, the Adviser may instead, for
temporary defensive purposes during such unusual market conditions, invest
all or any portion of the Fund's assets in money market instruments and
repurchase agreements. To the extent that these securities may pay interest
that may be subject to state or federal tax, the Fund would not be able to
pursue its stated investment objective during such a period.
THE FLORIDA TAXFREE SHORTTERM
Investment Objective, Policies and Strategy
Investment Objective
The investment objective of The Florida TaxFree ShortTerm Fund is to seek
the highest level of current interest income, exempt from federal income tax,
consistent with the preservation of capital and liquidity.
Policies and Strategies
Under normal market conditions the Fund will invest primarily (not less than
65% of its total assets) in Florida municipal bonds with maturities not
greater than six years at the time of purchase and will maintain a
dollar-weighted average portfolio maturity of three years or less. In addition,
the Fund, under normal market conditions, will invest at least 80% of its total
assets in obligations,the interest of which is exempt from federal income tax.
The Fund also intends to invest in a manner believed to qualify its shares for
an exemption from the Florida Intangible Tax. Consistent with the ShortTerm
Fund's investment objective, the Fund:invests at least 85% of its total assets
in municipal bonds rated investment grade (Baa/BBB or better) and in unrated
municipal bonds that have been determined by the Adviser to be of investment
grade quality may invest up to 15% of its total assets in municipal bonds
determined by the Adviser to be lower than investment grade but with such
improving prospects of quality as to make the risk/reward ratio attractive
invests in various types of municipal securities which are debt obligations
issued to obtain funds for various public purposes consisting of: (1)
General Obligation Bonds which are backed by the issuer's pledge of its
full faith, credit and taxing power, and (2) Revenue Bonds, which are
payable only from revenues derived from a particular municipal facility
may invest in other types of municipal instruments including tax-exempt
notes, tax and revenue anticipation notes, bond anticipation notes and
tax-exempt commercial paper, each of which are generally issued by
municipalities to help finance short-term capital or operating needs
may invest in municipal lease obligations, resource recovery bonds and
tender option bonds
may also invest in instruments commonly referred to as inverse floaters,
which are instruments whose interest rates bear an inverse relationship to
the interest rate of another security or the value of a given index
may buy and sell options and futures contracts on any type of security or
index in an effort to manage its exposure to changing interest rates and
security prices may engage in reverse repurchase transactions with parties
whose creditworthiness has been found satisfactory by the Adviser
may invest up to 15% of its total assets in illiquid securities which are
securities that may lack an active trading market
In the event that the Adviser determines that current market conditions are
not suitable for the Fund's typical investments, the Adviser may instead,
for temporary defensive purposes during such unusual market conditions,
invest all or any portion of the Fund's assets in money market instruments
and repurchase agreements. To the extent that these securities may pay
interest that may be subject to state or federal tax, the Fund would not be
able to pursue its stated investment objective during such a period.
INVESTMENT RISKS
An investment in the Funds is subject to investment risks, including the
possible loss of the principal amount invested.
Generally, the Funds will be subject to the following risks:
Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Funds' performance is impacted by many market factors, including
fluctuation in interest rates, the quality of the instruments in each Fund's
investment portfolio, national and international economic conditions and
general market conditions.
Interest Rate Risk: Interest rate risk refers to the risk that the value of
the Funds' fixed income securities can change in response to changes in
prevailing interest rates causing volatility and possible loss of value as
rates increase.
Credit Risk: Credit risk refers to the risk related to the credit quality
of the issuer of a security held in a Fund's portfolio. The Funds could
lose money if the issuer of a security is unable to meet its financial
obligations.
Single State Investment Risk: Because each Fund invests primarily in the
securities of Florida municipal issuers, they are specifically subject to
local, state and regional factors affecting the State of Florida, including
economic and political developments.
MANAGEMENT
William R. Hough & Co., 100 Second Avenue South, St. Petersburg, Florida,
33701, is the Funds' Adviser and is the largest municipal bond underwriter
in Florida. William R. Hough & Co. has extensive experience
representing Florida issuers and in trading municipal bonds.
Each Fund pays the Adviser a monthly service fee for research, advice and
supervision. The fees are .50% and .60%, respectively, for the Money Market
Fund and the ShortTerm Fund, based on the Fund's average net
assets per month.
The Funds' lead portfolio manager is:
Robyn Fiel, Vice President of Hough Group of Funds. Ms. Fiel has been a
manager of the Funds since 1993.
The following individual has secondary portfolio management responsibilities:
Christopher R. Coviello, Financial Analyst for the Funds since 1999.
Mr. Coviello was previously with Franklin Templeton Group from 1996 to 1999.
Distribution and Service (12b-1) Fees
Each Fund has adopted a Distribution and Service Plan under Rule 12b-1 of the
Investment Company Act of 1940 pursuant to which each Fund may pay William R.
Hough & Co. 12b-1 fees in connection with William R. Hough & Co.'s service as
the distributor of each Fund's shares. 12b-1 fees compensate William R. Hough
& Co. and other dealers and investment representatives for services and expenses
relating to the sale and distribution of each Fund's shares and/or for providing
shareholder services. 12b-1 fees are paid directly from Fund assets on an
ongoing basis and over time these fees will increase the cost of your investment
in the Fund. The maximum amount that each Fund may pay in 12b-1 fees under the
Distribution and Service Plans is 0.25% of its average daily net assets.
DISTRIBUTIONS AND TAXES
Dividends and Capital Gains: Income dividends are declared daily and paid
on the last business day of the month for both Funds. The amount of this
distribution may vary and there is no guarantee of the amount. Each Fund
intends to distribute each year substantially all of its net investment income
and any net realized capital gains.
Tax Considerations: The Funds intend that all dividends will
qualify as "exempt-interest dividends". Exempt-interest dividends are
generally excluded from your gross income for federal tax purposes.
Part of each Fund's exempt-interest dividends will be attributable to private
activity securities; income from, which is exempt from federal income tax, but
is, considered an item for Alternative Minimum Tax purposes. A distribution of
short-term capital gain will be taxable to you as an ordinary income dividend.
Shareholders of the ShortTerm Fund should be aware that redeeming shares of
this Fund could create a taxable gain or loss.
Dividends and distributions paid by the Funds to individuals who are Florida
residents will not be subject to personal income taxation by Florida because
Florida does not have personal income tax. Shareholders subject to tax in other
states may be taxed on all dividends and distributions.
Every January you will be sent a statement with information relating to the
amounts and nature of the distribution made in the previous year
Back up Withholding: By law, the Funds must withhold 31% of your
taxable distributions and proceeds if you do not provide your correct
taxpayer identification number or certify that your taxpayer identification
number is correct, or if the IRS instructed the Funds to do so.
SHAREHOLDER SERVICES
Account Application: If you are opening a new account, please
complete and sign an account application. Additional paperwork may be
required for corporations, trusts, associations and certain fiduciaries.
The Funds do not issue share certificates.
BUYING SHARES
Minimum investments for both Funds: Initial Additional
By Mail $1,000 $50
By Wire $1,000 $500
By Exchange $1,000 $500
How to buy shares
Opening an account Adding to an account
By Mail Make check payable to the Make check payable to the
name of the Fund. name of the Fund.
Mail check with signed Fill out deposit slip from your
application. account statement or from your
checkbook.
Mail the check and deposit slip.
Checks received by 1pm Eastern Time will start to earn dividends the
following business day.
By Wire
1-800/557-7555
Mail your signed application an Call to receive wire instructions.
indicate wire purchase.
Call to receive wire instructions.
Money Market Fund wires received by 12:00 noon. Eastern Time will begin
earning dividends on the day of receipt.
ShortTerm Fund wires and Money Market Fund wires received after 12:00 noon
Eastern Time will begin earning dividends the next business day after receipt.
Your bank may charge a fee for each wire you send to the Fund.
By Exchange
1-800/557-7555
Mail your signed application, new Call Shareholder Services.
account must have same name (s),
address and taxpayer identification number
Call Shareholder Services.
The Hough Group of Funds, Shareholder Services 100 Second Avenue South,
Suite 301 St. Petersburg, FL 33701
Call toll-free 1-800/557-7555 8:30 a.m. to 5:00 p.m. Eastern Time
(Monday - Friday)
SELLING SHARES
You may sell your shares on any business day that is not a NYSE holiday.
Selling Shares in Writing: Requests to sell less then $10,000
can generally be made over the phone or with a letter of instruction. To
protect you and the Fund we will sometimes need written instructions signed
by all registered owners, with a signature guarantee for each owner, if:
You are selling $10,000 or more worth of shares.
You want your proceeds sent to an address other than what is on record.
A signature guarantee helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers. A notary
public cannot provide a signature guarantee.
Selling Recently Purchased Shares: If you request to sell shares that
have been recently purchased with a check or draft, we may delay sending you
the proceeds until your check or draft has cleared, which may take seven
business days or more.
Redemption Proceeds: Your redemption check will be sent
within seven days after we receive your request in proper form. We are not
able to receive or pay out cash in the form of currency. Redemption proceeds
may be delayed if we have not yet received your signed account application.
A $5.00 fee will be charged for redemption checks. If you request that we
wire the proceeds to another financial institution the charge is $10.00. You
must send us the receiving institution's instructions in writing prior to
the transaction.
How to Sell Shares
By Mail Send written instructions to Shareholder Services.
Corporate, partnership or trust
accounts may need to send additional documents.
Specify the Fund, the account number and the dollar
value or number of shares you wish to sell. Be sure
to include all necessary signatures and any additional
documents, as well as signature guarantees if required.
A check will be mailed to the names (s) and address on
the account, or otherwise according to your written
instructions.
By Phone As long as the transaction is less than $10,000 and
1/800-557-7555 you have signed for the
privilege of telephone redemptions on the account
application, you can sell your shares by phone.
A check will be mailed to the name (s) and address on
the account. Written instructions, with a signature
guarantee, are required to send a check to another
address or to make the check payable to another
person.
By Checkwriting To receive a checkbook on your account, sign the
checkwriting card on the application. You checkbook
should arrive within 15 business days.
A draft may be written in an amount up to $500,000.
By Wire Send written wiring instructions to Shareholder
Services. The minimum amount that can be wired is
$1,000. We will charge a $10.00 service charge
for this transaction. Your bank may also charge an
additional fee for this service.
We will make every effort to have the proceeds at
your financial institution by the following business
day.
By Exchange You must meet the minimum investment requirement of
the other Fund you are exchanging into.
You can only exchange with identical names, address,
and taxpayer identification number. You must also
have telephone privileges on the account.
Exchanges are considered redemptions, which may
produce a gain or loss tax purposes.
The Hough Group of Funds, Shareholder Services 100 Second Avenue South,
Suite 301 St. Petersburg, FL 33701
Call toll-free 1-800/557-7555 8:30 a.m. to 5:00 p.m. Eastern Time
(Monday - Friday)
SHAREHOLDER SERVICES
Electronic Funds Transactions: This plan offers a convenient way
for you to invest in the Fund and withdraw funds from your account. We can
automatically transfer money to and from your checking or savings accounts.
To sign up for the following, complete the appropriate section on your
account application.
ACH Transactions: You may authorize electronic transfers
of money to purchase shares of the Fund or to redeem shares of the Fund.
The transfer must be a minimum amount of $1,000. Allow two to three
business days after the phone call to Shareholder Services for the transfer
to be completed.
Systematic Investment Plan: This plan offers you a simple way to maintain
a regular investment program. You may set up automatic transfers from your
checking or savings account to one of the Funds. The minimum investment is
$250.00 per transaction done on a monthly basis on the 1st, 5th, 15th, or 25th
day of the month. To stop this transaction call Shareholder Services at
least 10 business days prior to next scheduled investment date.
Systematic Withdrawal Plan: This plan may be established for accounts
with a minimum balance of $10,000. You may arrange to receive a specific
amount not less than $250.00 on a monthly basis on the 1st, 5th, 15th, or 25th
day of the month.
You have the option of receiving a check, designating another person to
receive a check or having the funds transferred to your bank account.
If you choose to designate another person to receive a check and the person is
not on the account, submit a letter of instruction containing all signers to
shareholder services.
Distribution Options: When you establish your account, you can
choose from one of the following options.
Reinvestment: You may automatically reinvest your income
dividends and any capital gains in your
existing account on the payment date.
If you do not make a choice on your
application we will assume this option.
Cash: You may receive both income dividends and any
capital gains distributions in the form of a
check, if the amount is over $25.00.
Distribution amounts under $25.00 will
automatically be reinvested in your account.
Automatic Investment: This option allows you to reinvest
distributions automatically from one Fund to
another. Distributions may only be directed
to an existing account with the identical
registration. Call Shareholder Services to
receive more details on this option
1-800/557-7555.
Telephone Privileges: You will automatically receive telephone
privileges when you open your account, allowing you to sell or exchange your
shares and make certain other changes to your account by phone. You can
decline telephone exchange service by checking "no" on the account
application.
As long as we take certain measures to verify telephone requests, we will
not be responsible for any losses that may occur from unauthorized requests.
The Hough Group of Funds records all telephone conversations.
Exchange Privilege: You may exchange shares of your
account between the Money Market Fund and the ShortTerm Fund as your needs
or investment objectives change. Generally, exchanges may only be made
between identical registration, unless you send written instructions with a
signature guarantee. The minimum exchange amount is $1,000. Exchanges are
not permitted for 15 days after a new purchase or a previous exchange.
Telephone exchanges must be received by 4:00 p.m. Eastern time and no
exchanges by a single investor will be accepted for amounts in excess of
$500,000 on any given business day. Fund performance and shareholders
may be adversely affected by excessive trading. To protect the interests
of the shareholders, the Funds reserve the right to terminate the exchange
privileges to any person (s) who make more than four exchanges per calendar
year. Each Fund reserves the right to terminate or modify the exchange
privilege at any time.
The Funds offer an automatic exchange option. In this case, we exchange
between the Money Market Fund and the ShortTerm Fund on a monthly basis.
The minimum amount is $500.00. Accounts must have identical registration.
Call Shareholder Services for more information on this privilege.
ACCOUNT POLICIES
Calculating Share Price: Each Fund's shares are sold without a
sales charge. The Funds calculate the net assets value per share (NAV) each
business day at the close of trading on the New York Stock Exchange, NYSE
(4:00 p.m. Eastern time). Each NAV is calculated by dividing a Fund's net
assets by the number of its shares outstanding. Shares in the Funds cannot
be purchased on days the NYSE is closed. Requests to buy or sell shares are
processed at the NAV next calculated after we receive your request in proper
form.
Purchases: All purchases must be made in U.S. dollars
and checks must be drawn on U.S. banks. No cash, third-party checks or
traveler's check will be accepted.
If your check does not clear, your purchase will be
canceled and your account will be charged a $10.00 service charge for the
return check. You could also be liable for any losses on your account.
The Funds reserve the right to limit accounts maintained by any one person
to a maximum balance of $2 million. We may refuse any initial or additional
investment that would cause an account balance to exceed $2 million.
Accounts with low balances: To keep the account open, your minimum
account balance is $500.00. If your account balance falls below $500.00,
your account may be closed and the proceeds mailed to you at the address of
record on the account. You will be given a 30 day notice that your account
may be closed unless you make additional investments.
Statements and Reports: You will receive confirmations and account
statements that show your account transactions. If you have a brokerage
account linked to one of the Funds you will receive a monthly statement
showing the brokerage activity and your fund account balance. The cost
of historical account documents in excess of 24 months is $15 for each year
requested.
You will also receive the Funds' financial reports every six months.
To reduce fund expenses, we try to identify related shareholders in a
household and send only one copy of the financial reports. If you need
additional copies, please call 1-800/557-7555.
Checkwriting: You may receive a checkbook on both Funds.
Drafts may be written in any amount up to $500,000. You are able to write
three drafts a calendar month with no fee.
Any drafts written in excess of three in one calendar month will be charged
$.80 per draft. The fee will be deducted from your account at the end of the
month. To keep the Funds' expenses down, we do not send back your cleared
drafts. You may call Shareholder Services to receive a copy of the draft.
Drafts written in amounts exceeding your current account balance will be
returned to the payee marked "insufficient funds" and your account will be
charge a $10.00 service fee. Drafts written in an amount greater than
$500,000 on either fund may also be returned.
You may request a stop payment on a draft by calling Shareholder Services.
There is a $20.00 service charge for this request. We reserve the right to
charge a fee for checkbooks.
Drafts drawn upon the Fund cannot be certified or cashed by the Transfer
Agent. First Union National Bank of Florida is under no obligation to cash
the drafts. The Bank may elect to cash drafts for shareholders who maintain
a banking relationship with them.
Additional Policies
The Funds may refuse any order to buy shares, including any purchases under
the exchange privilege.
You may only buy shares of the Funds eligible for sale in your state or
jurisdiction.
In unusual circumstances, we may temporarily suspend redemptions or
postpone the payment proceeds, as allowed by federal securities laws.
FINANCIAL HIGHLIGHTS
The financial higlights tables are intended to help you understand each
Fund's financial performance for the past 5 years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate an investor would have earned on an investment
in a Fund assuming the reinvestment of all dividends and distributions. The
information for the year ended April 30, 2000 has been audited by
PricewaterhouseCoopers LLP, whose report, along with each Fund's financial
statements are included in the annual report of the Funds, which is available
upon request. The information for the years prior to 2000 was audited by other
independent auditors.
The Florida Tax Free Money Market Fund Year ended April 30
2000 1999 1998 1997 1996
Per share data
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income 0.032 0.030 0.034 0.034 0.036
Less distributions:
Dividends from net
investment income (0.031) (0.030)(0.034)(0.034)(0.036)
Return of capital (0.001) - - - -
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
Ratios / Supplemental Data
Total return 3.26% 3.02% 3.50% 3.42% 3.69%
Net assets at end of period (000's)
$137,051 $160,410 149,361 136,453 113,943
Ratios to average net assets
Expenses .40% .39% .26% .20% .20%
Expenses (before reimbursement)** .70% .73% .73% .78% .80%
Net Investment Income 3.11% 2.96% 3.43% 3.36% 3.62%
The Florida TaxFree ShortTerm Fund Year ended April 30
2000 1999 1998 1997 1996
Per share data
Net asset value,
beginning of year $10.11 $10.05 $9.95 $9.94 $9.89
Net investment income 0.41 0.40 0.42 0.43 0.42
Net realized and unrealized gain
on investment (0.27) 0.06 0.10 0.01 0.05
Total from investment
operations 0.14 0.46 0.52 0.44 0.47
Less distributions:
Dividends from net
investment income (0.40) (0.40) (0.42) (0.43) (0.42)
Return of capital (0.01) -- -- -- --
Net asset value, end of year
$9.84 $10.11 $10.05 $9.95 $9.94
Total return
1.39% 4.71% 5.23% 4.59% 4.85%
Ratios / Supplemental Data
Net assets at end
of period (000's) $32,779 $29,356 $22,953 $28,853 $12,344
Ratios to average net assets
Expenses
.40 .39% .26% .20% .20%
Expenses (before reimbursement)**
.91 .93% .93% 1.18% 1.42%
Net Investment Income
3.97 4.00% 4.20% 4.27% 4.25%
Portfolio turnover rate
32.2% 25.6% 40.2% 40.9% 83.4%
CONTACT US
If you have any questions about the Funds or your account, you can write to
us at P.O. Box 11688, St. Petersburg, FL 33733-1688. You can also call us
at 1-/800-557-7555, Monday - Friday 8:30a.m-5:00p.m (Eastern Time). For your
protection and to help ensure we provide you with quality service, all calls
may be recorded.
Effective for year ended April 30, 1996 and thereafter, expenses
ratios (before reimbursements) no longer reflect reduction from custodian
fee offset arrangements.
Back Cover Page
FOR MORE INFORMATION
You can learn more about the Funds in the following documents:
Annual / Semiannual Report to Shareholders
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
Statement of Additional Information (SAI)
Contains more information about the Funds, their investments and policies. It
is incorporated by reference in this Prospectus.
For a free copy of the current annual/semiannual report or the SAI, please
contact us at: The Hough Group of Funds 1/800-557-7555.
You can also obtain information about the Funds by visiting the SEC's Public
Reference Room in Washington DC or by sending your
requests and a duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009 or by submitting an electronic request by e-mailing
the SEC at the following address: [email protected]. You can also visit the
SEC's Internet site at http://www.sec.gov and obtain information for free from
the SEC's EDGAR database.
Investment Company Act
File No. 811-07902
The Florida TaxFree Funds
100 Second Avenue South
St. Petersburg, Florida 33701
The Florida TaxFree Money Market Fund
The Florida TaxFree ShortTerm Fund
STATEMENT OF ADDITIONAL INFORMATION
August 31, 2000
The Florida TaxFree Money Market Fund and The Florida TaxFree ShortTerm Fund
(the "Funds") are two separate series of the Hough Group of Funds (the "Trust"),
an open-end management investment company organized as a Massachusetts business
trust.
This Statement is not a prospectus, but should be read in conjunction with the
Funds' current Prospectus dated August 31, 2000. Please retain this document
for future reference. To obtain an additional copy of the Prospectus, please
call the Distributor at 1-800-557-7555.
TABLE OF CONTENTS PAGE
Investment Policies and Practices of the Funds 1
Investment Restrictions 9
Special Considerations Concerning Florida 10
Portfolio Transactions 17
Valuation of Portfolio Securities 18
Performance 18
Distributions and Taxes 22
The Investment Adviser 26
Trustees and Officers 26
Advisory Contracts 28
Distribution and Service Plan 29
Distributor 30
Description of the Trust 31
Financial Statements 32
Appendix A - 1
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
William R. Hough & Co.
INVESTMENT POLICIES AND PRACTICES OF THE FUNDS
The following discussion elaborates on the description of each Fund's
investment policies and practices contained in the Prospectus. Each Fund
has adopted certain fundamental investment restrictions which may not be
changed with respect to a Fund without the approval of the holders of a
majority of that Fund's outstanding voting shares.
As used in this Statement of Additional Information, with respect to matters
required by the provisions of the 1940 Act to be submitted to shareholders,
the term "majority of the outstanding shares" of a Fund means the vote of
the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
Under normal circumstances, each Fund intends to invest at least 80% of its
total assets in obligations the interest on which is exempt from federal
income tax. This policy, like each investment objective, is a fundamental
policy of each Fund and may only be changed with shareholder approval. In
addition, each Fund will ordinarily invest at least 65% of its total assets
in obligations issued by or on behalf of the State of Florida, its political
subdivisions, agencies and instrumentalities, the interest on which is exempt
from federal income taxes. Shares of each Fund are also intended to be
exempt from the Florida Intangible Tax.
In carrying out their investment objectives, the Funds may utilize the
following investment practices, which are non-fundamental:
Delayed-Delivery Transactions. Each Fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a Fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security (and more than
seven days in the future). Typically, no interest accrues to the purchaser
until the security is delivered. The ShortTerm Fund may receive fees for
entering into delayed delivery transactions.
When purchasing securities on a delayed-delivery basis, each Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations and the credit risks associated with the ownership of the
securities. Because a Fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with the
Fund's other investments. If a Fund remains substantially fully invested at
a time when delayed-delivery purchases are outstanding, the delayed-delivery
purchases may result in a form of leverage. When delayed-delivery purchases
are outstanding, the Funds will set aside appropriate liquid assets in a
segregated custodial account to cover their purchase obligations. When a
Fund has sold a security on a delayed-delivery basis, the Fund does not
participate in further gains or losses with respect to the security. If the
other party to a delayed-delivery transaction fails to deliver or pay for
the securities, a Fund could miss a favorable price or yield opportunity, or
could suffer a loss. Each Fund may renegotiate delayed-delivery transactions
after they are entered into, and may sell underlying securities before they
are delivered, which may result in capital gains or losses.
Variable or Floating Rate Demand Obligations (VRDOs/FRDOs) are tax-exempt
obligations that bear variable or floating interest rates and carry rights
that permit holders to demand payment of the unpaid principal balance plus
accrued interest from the issuers or certain financial intermediaries.
Floating rate securities have interest rates that change whenever there is a
change in a designated base rate while variable rate instruments provide for
a specified periodic adjustment in the interest rate. These formulas are
designed to result in a market value for the VRDO or FRDO that approximates
its par value.
With respect to the Money Fund, a demand instrument with a conditional demand
feature must have received both a short-term and a long-term high-quality
rating or, if unrated, have been determined to be of comparable quality
pursuant to procedures adopted by the Board of Trustees. A demand
instrument with an unconditional demand feature may be acquired solely in
reliance upon a short-term high-quality rating or, if unrated, upon a finding
of comparable short-term quality pursuant to procedures adopted by the Board
of Trustees.
Each Fund may invest in fixed rate bonds that are subject to third party puts
and in participation interests in such bonds held by a bank in trust or
otherwise. These bonds and participation interests have tender options or
demand features that permit the Funds to tender (or put) its bonds to an
institution at periodic intervals and to receive the principal amount thereof.
The Funds consider variable rate instruments structured in this way
(Participating VRDOs) to be essentially equivalent to other VRDOs they
purchase. The IRS has not ruled whether the interest on Participating VRDOs
is tax-exempt, and, accordingly the Funds intend to purchase these
instruments based on opinions of bond counsel.
With respect to the Money Fund, a variable rate instrument that matures in
397 days or less may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate. A variable rate
instrument that matures in greater than 397 days but that is subject to a
demand feature that is 397 days or less may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of
the interest rate or the period remaining until the principal amount can be
recovered through demand. A floating rate instrument that is subject to a
demand feature may be deemed to have a maturity equal to the period remaining
until the principal amount may be recovered through demand. The Money Fund
may purchase a demand instrument with a remaining final maturity in excess
of 397 days only if the demand feature can be exercised on no more than 30
days' notice (a) at any time or (b) at specific intervals not exceeding 397
days.
Tender Option Bonds are created by combining an intermediate or long-term
fixed rate tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the tender
option, the sponsor (usually a bank, broker-dealer, or other financial
institution) receives periodic fees equal to the difference between the
bond's fixed coupon rate and the rate (determined by a remarketing or similar
agent) that would cause the bond, coupled with the tender option to trade at
par on the date of such determination. After payment of the tender option
fee, a fund effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. Subject to applicable regulatory
requirements, the Money Fund may buy tender option bonds if the agreement
gives the Fund the right to tender the bond to its sponsor no less frequently
than once every 397 days. In selecting tender optionbonds for the Funds, the
Adviser will consider the creditworthiness of the issuer of the underlying
bond, the custodian, and the third party provider of the tender option. In
certain instances, a sponsor may terminate a tender option if, for example,
the issuer of the underlying bond defaults on interest payments.
Standby Commitments are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each Fund may
acquire standby commitments to enhance the liquidity of portfolio securities,
but the Money Fund may do so only when the issuers of the commitments present
minimal risk of default.
Ordinarily a Fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party at
any time. A Fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the Fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity. Standby commitments will
not affect the dollar-weighted average maturity of the Money Fund, or the
valuation of the securities underlying the commitments.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the Funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
Municipal Lease Obligations. Each Fund may invest a portion of its assets
in municipal leases and participation interests therein. These obligations,
which may take the form of a lease, an installment purchase, or a conditional
sale contract, are issued by state and local governments and authorities to
acquire land and a wide variety of equipment and facilities. Generally, the
Funds will not hold such obligations directly as a lessor of the property,
but will purchase a participation interest in a municipal obligation from a
bank or other third party. A participation interest gives a Fund a specified,
undivided interest in the obligation in proportion to its purchased interest
in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. In Florida, leases and
contracts generally include "non-appropriation clauses" providing that the
governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or shorter periodic basis.
Non-appropriation clauses free the issuer from certain debt issuance
limitations. To the extent that municipal lease obligations are insured or
backed by other credit facilities, an event of non-appropriation on the
lease or termination of the lease can result in interest payments made by
the credit facility provider being declared subject to federal income tax.
In other instances, an event of non-appropriation or termination of the
lease can result in a loss of principal and interest payments to the holder
of the municipal lease obligation and a determination of taxability for any
interest payments which are or have been made.
The liquidity of municipal lease obligations purchased by the Funds will be
determined pursuant to guidelines approved by the Board of Trustees. Prior
to purchasing a municipal lease obligation, and on an ongoing basis
thereafter, the Funds' Adviser will evaluate the credit quality and
liquidity of the subject security in accordance with these guidelines.
Factors considered in making such determinations will generally include (i)
the frequency of trades and quotes for the obligation; (ii) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (iii) the willingness of dealers to undertake to make a
market in the security, and (iv) the nature and timing of marketplace trades.
Federally Taxable Obligations. The Funds do not intend to invest in
securities whose interest is federally taxable; however, from time to time,
each Fund may invest a portion of its assets on a temporary basis in
fixed-income obligations whose interest is subject to federal income tax.
For example, each Fund may invest in obligations whose interest is federally
taxable pending the investment or reinvestment in municipal securities of
proceeds from the sale of its shares or sales of portfolio securities.
Each Fund anticipates being as fully invested as practicable in municipal
securities; however, there may be occasions when, as a result of maturities
of portfolio securities, sales of Fund shares, or in order to meet
redemption requests, a Fund may hold cash that is not earning income. In
addition, there may be occasions when, in order to raise cash to meet
redemptions, a Fund may be required to sell securities at a loss.
Illiquid Investments are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, the Adviser
determines the liquidity of each Fund's investments and, through reports
from the Adviser, the Board monitors investments in illiquid instruments.
In determining the liquidity of each Fund's investments, the Adviser may
consider various factors, including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features), and (5) the nature of
the marketplace for trades (including the ability to assign or offset a
Fund's rights and obligations relating to the investment). Investments
currently considered by the Funds to be illiquid include over-the-counter
options, restricted securities, private placement securities and municipal
lease obligations determined by the Adviser to be illiquid. However,
with respect to over-the-counter options the ShortTerm Fund writes, all or a
portion of the value of the underlying instruments may be illiquid depending
on the assets held to cover the option and the nature and terms of any
agreement the Fund may have to close out the option before expiration. In
the absence of market quotations, illiquid investments for the Money Fund
are valued for purposes of monitoring amortized cost valuation and for the
ShortTerm Fund at fair value as determined in good faith by the Adviser and
reviewed quarterly by the Board of Trustees. The impact of changing investor
perceptions may be especially pronounced in markets where municipal
securities are thinly traded. The Adviser is an active market maker in
Florida municipal securities and to the extent that it is precluded by
applicable regulations from acting as principal in transactions with the
Funds, the liquidity of some securities in the Funds' portfolios could be
adversely affected.
Restricted Securities generally can be sold in privately negotiated
transactions pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time a fund may be permitted to sell a security
under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
Repurchase Agreements. In a repurchase agreement, a Fund purchases a
security and simultaneously commits to resell that security to the seller at
an agreed upon price on an agreed upon date within a number of days from the
date of purchase. The resale price reflects the purchase price plus an
agreed upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement is a taxable
obligation which involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value (at least
equal to the amount of the agreed upon resale price and marked to market
daily) of the underlying security. Each Fund may engage in a repurchase
agreement with respect to any security in which it is authorized to invest,
even if the underlying security matures in more than 397 days. While it
does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the marketvalue of
the underlying securities, as well as delays and costs to the fund
in connection with bankruptcy proceedings), it is each Fund's current policy
to limit repurchase agreement transactions to those parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.
The ShortTerm Fund only may utilize the following practices:
Lower-Rated Municipal Securities. The ShortTerm Fund may invest a portion
of its assets in lower-rated municipal securities as described in the
Prospectus. While the market for Florida municipal securities is considered
to be adequate, adverse publicity and changing investor perceptions may
affect the ability of the independent pricing service used by the Fund to
value its portfolio securities, and the Fund's ability to dispose of
lower-rated bonds. The independent pricing service is consistently
monitored to assure that securities are valued by a method that the Board
believes accurately reflects fair value.
Refunding Contracts. The ShortTerm Fund generally will not be obligated to
pay the full purchase price if it fails to perform under a refunding contract.
Instead, refunding contracts generally provide for payment of liquidated
damages to the issuer. The Fund may secure its obligations under a
refunding contract by depositing collateral or a letter of credit equal to
the liquidated damages provisions of the refunding contract. When required
by SEC guidelines, the Fund will place liquid assets in a segregated
custodial account equal in amount to its obligations under refunding
contracts. The value of the obligations purchased pursuant to the refunding
contracts can change significantly between the date on which the purchase
commitment is made and the date on which the Fund is obligated to purchase
the obligations. This change in value could result from changes in interest
rates, changes in the financial or operational condition of the issuer of
the obligation, as well as other factors.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund
sells a portfolio instrument to another party, such as a bank or broker-dealer,
in return for cash and agrees to repurchase the instrument at a particular
price and time. While a reverse repurchase agreement is outstanding, the
Fund will maintain appropriate liquid assets (consisting of cash, U.S.
Government securities, or other similar high grade debt obligations maturing
not later than the expiration of the reverse repurchase agreement) in a
segregated custodial account to cover its obligation under the agreement.
The Fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by the Adviser. Such
transactions may increase fluctuations in the market value of the Fund's
assets and may be viewed as a form of leverage. The Fund may invest up to
33-1/3% of its total assets in reverse repurchase agreements.
Inverse Floaters. In an effort to curtail interest expense, a municipality
may issue two variable rate instruments in lieu of a single long-term, fixed
rate bond. While the interest rate on one instrument (the floater) is
designed to reflect changes in short-term interest rates, the interest rate
on the other instrument (the inverse floater) reflects the approximate rate
the issuer would have paid on the fixed rate bond, multiplied by two, minus
the interest rate paid on the short-term instrument. Depending on market
availability and the structure utilized, the two variable rate instruments
may be combined in the secondary market to form a single fixed rate bond.
Additionally, the short-term floater rate in many inverse floater structures
is established by the use of a "Dutch auction" process whereby potential
purchasers of the floaters bid an interest rate for the ensuing variable
rate period. The purchasers of the floaters generally have no tender
facility entitling them to tender their floaters at the end of each variable
rate period. Thus, the success of the Dutch auction is heavily dependent
upon the belief of investors that ensuing Dutch auctions will produce
potential purchasers of the floaters. If a Dutch auction produces
insufficient bidders to purchase all of the floaters, the result would be an
artificial increase in the short-term rate, thereby reducing the rate paid
on the inverse floater. The market for inverse floaters, a type of
derivative security, is relatively new, and there is no guarantee that the
Adviser will find a ready buyer for inverse floaters, or that it will have
the means to combine a floater with its companion inverse floater when it
determines that this is desirable as a matter of investment strategy.
Other inverse floaters are structured by issuing a variable rate bond with a
complex formula which generally arrives at a rate similar to that described
in the preceding paragraph. These formulas generally involve the use of
interest rate indices in calculating the amount of the interest payment to
be made. These structures generally involve an interest rate swap between
the issuer and a third party which results in a fixed interest rate for the
issuer. In certain instances, the swap can terminate, which can have the
effect of transforming the inverse floater into a fixed rate obligation.
Depending upon the surrounding circumstances, these events could increase or
decrease the value of the securities in the Fund's portfolio.
Limitations on Futures and Options Transactions. The Fund has filed a notice
of eligibility for exclusion from the definition of the term "commodity pool
operator" with the Commodity Futures Trading Commission (CFTC) and the
National Futures Association, which regulate trading in the futures markets.
The Fund intends to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which the Fund can commit
assets to initial margin deposits and option premiums.
In addition to the above limitations, the Fund will not: (a) sell futures
contracts, purchase put options, or write call options if, as a result, more
than 25% of the Fund's total assets would be hedged with futures and options
under normal conditions; (b) purchase futures contracts or write put options
if, as a result, the Fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the Fund would exceed
5% of the Fund's total assets. These limitations do not apply to options
attached to, or acquired or traded together with, their underlying
securities and do not apply to securities that incorporate features similar
to options.
The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information may be
changed as regulatory agencies permit.
Futures Contracts. When the Fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
the Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the Fund enters into the contract. Some
currently available futures contracts are based on specific securities, such
as U.S. Treasury bonds or notes, and some are based on indices of securities
prices, such as the Bond Buyer Municipal Bond Index. Futures can be held
until their delivery dates, or can be closed out before then if a liquid
secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if the Fund had
purchased the underlying instrument directly. When the Fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts, therefore,
will tend to offset both positive and negative market price changes, much as
if the underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker known
as a futures commission merchant (FCM), when the contract is entered into.
Initial margin deposits are equal to a percentage of the contract's value.
If the value of either party's position declines, that party will be required
to make additional "variation margin" payments to settle the change in value
on a daily basis. The party that has a gain may be entitled to receive all
or a portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Fund's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Fund, the Fund may be entitled to return of margin
owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Fund.
Purchasing Put and Call Options. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right the Fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The Fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the Fund will lose the entire premium it paid. If the Fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. The Fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs). The features of call options are
essentially the same as those of put options, except that the purchaser of a
call option obtains the right to purchase, rather than sell, the underlying
instrument at the option's strike price. A call buyer typically attempts to
participate in potential price increases of the underlying instrument with
risk limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not rise
sufficiently to offset the cost of the option.
Writing Put and Call Options. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return
for receipt of the premium, the Fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures
contract the Fund will be required to make margin payments to an FCM as
described above for futures contracts. The Fund may seek to terminate its
position in a put option it writes before exercise by closing out the option
in the secondary market at its current price. If the secondary market is
not liquid for a put option the Fund has written, however, the Fund must
continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although the gain would be limited to the amount of the premium received.
If security prices remain the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer
a loss. This loss should be less than the loss from purchasing the
underlying instrument directly, however, because the premium received for
writing the option should mitigate the effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures contracts, to adjust the
risk and return characteristics of the overall position. For example, the
Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price
and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which it typically invests
-- for example, by hedging intermediate-term securities with a futures
contract based on an index of long-term bond prices -- which involves a risk
that the options or futures position will not track the performance of the
Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of the
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the Fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day.
On volatile trading days when the price fluctuation limit is reached or a
trading halt is imposed, it may be impossible for the Fund to enter into new
positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially
could require the Fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, the Fund's
access to other assets held to cover its options or futures positions could
also be impaired.
OTC Options. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the
Fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
Asset Coverage for Futures and Options Positions. The Fund will comply with
guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of the
Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, neither Fund may:
(1) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be loaned to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements;
(2) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by
a U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, 25%
or more of the Fund's total assets would be invested in securities
of issuers whose principal business activities are in the same
industry;
(3) borrow money, except that each Fund may borrow money from a bank for
temporary or emergency purposes (not for leveraging or investment)
in an amount not exceeding 33 1/3% of its total assets (including
the amount borrowed) less liabilities (other than borrowings). Any
borrowings that exceed this amount will be reduced within three
business days to the extent necessary to comply with this limitation.
Neither Fund will purchase any security while borrowings (including
reverse repurchase agreements) representing more than 5% of its total
assets are outstanding;
(4) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(5) underwrite the securities of other issuers, except to the extent
that the Fund may be considered an underwriter within the meaning of
the Securities Act of 1933 in the disposition of portfolio securities;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Funds from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) make investments for the purpose of exercising control over the
issuer;
(8) purchase or sell commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the ShortTerm Fund from purchasing or selling options and
futures contracts or from investing in securities or other
instruments backed by physical commodities);
With respect to each Fund, the following investment limitations are not
fundamental and may be changed by the Board of Trustees without prior
shareholder approval.
(1) The Funds do not currently intend to purchase any security if, as a
result, more than 15% (10% in the case of the Money Fund) of its net
assets would be invested in securities that are illiquid because
they are subject to legal or contractual restrictions on resale or
because they cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued.
(2) The Funds do not currently intend during the coming year to sell
securities short, unless they own or have the right to obtain
without payment of additional compensation securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(3) The Funds do not currently intend during the coming year to make
loans, but this limitation does not apply to purchases of debt
securities or entry into repurchase agreements.
(4) The Funds do not currently intend during the coming year to purchase
securities on margin, except that the Funds may obtain such
short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
In identifying the issuer of a security, the Adviser will consider the
entity or entities responsible for payment of interest and repayment of
principal and the source of such payments; the way in which assets and
revenues of an issuing political subdivision are separated from those of
other political entities; and whether a governmental body is guaranteeing
the security.
SPECIAL CONSIDERATIONS CONCERNING FLORIDA
The Florida Economy
Florida's business-friendly regulations and congenial natural environment
have been the catalysts for its diverse economic success. Florida's appeal
as both a retirement and growth state has allowed the expansion of its
population to consistently outpace the national average. The State's
population has grown dramatically since 1980, ranking it fourth among the
50 states with an April 1, 1999 estimate of $15.32 million. In the 1980's,
Florida had an average annual population rate increase of approximately 3%,
compared to approximately 1% for the United States as a whole. However,
this rate has somewhat tapered the past eight years with growth averaging
1.8%, compared to a national average growth rate of 1%. Since 1991,
non-farm employment in the State has increased 27.5%, while the nation
increased 15.6%.
Florida's job creation rate has continued to outperform the growth in its
labor force. The State's trade related businesses account for 26% of
nonagricultural employment with international trade contributing significantly
to Florida's employment growth. Imports to and exports from the State have
increased steadily in recent years, so much that the State's international
trade sector accounts for a larger share of Florida's economy than does
tourism. Manufacturing jobs in Florida are concentrated in the area of
high-tech and value-added sectors, such as electrical and electronic
equipment as well as printing and publishing. Florida's proportion of
manufacturing jobs at 7.5% remain about half of the Nation's at 15%. The
service area has become Florida's largest and fastest growing employment
sector, accounting for 35% of total non-farm employment - up from 23% in 1980.
Due to the large concentration of jobs within this sector, however, the
personal income rate could slow throughout the State and expose Florida's
economy to broad-based economic contractions. A greater diversification of
Florida's employment base could possibly de-emphasize the adverse effects
that a severe economic contraction might have on the State.
The State's 1999 unemployment rate was 3.9%, down from 8.2% in 1992. Through
the 1980's and since 1995, Florida's unemployment rate has been lower than
the national average. The State's non-farm job creation rate is approximately
twice that of the Nation's, having increased 21.2% since 1991 compared to
12.9% for the Nation. The current unemployment rate is below the average
rate of unemployment for Florida for the period 1980-1994. Accordingly,
Florida's personal income has risen above the United States' average. The
State's income basis is different from the norm in that it derives much of
its revenue through property income and transfer payments. The increasingly
diverse nature of the State's economy is further reflected in its unique
tourism industry. Tourist arrivals rose throughout 1999 to 50.1 million
people. However, tourism is vulnerable to negative events which may have an
unfavorable impact on the State's economy. As always, weather-related
incidents, such as hurricanes or freezes, continue to represent a potential
risk to the State and its economic well-being every year.
Given its geographical location and involvement in foreign trade, Florida is
fast becoming the commerce, communications, and transportation link to Latin
America. As more of these nations open their economies to free trade, the
State's economy as a whole may increasingly become exposed to international
events. Florida has also attained recognition as a business and financial
hub to South America as numerous international banks and corporations have
established offices within its borders.
The ability of the State and its local units of government to repay
indebtedness may be affected by numerous factors which have an impact on the
economic vitality of the State in general and the particular region of the
State in which the issuer of the debt is located. The State economy has
been dependent in part on the phosphate industry (Florida provides over 80%
of the nation's phosphate), the tourism and construction industries, and is
sensitive to trends in those sectors. South Florida may be affected by
international trade and currency imbalances and by economic dislocations in
Central and South America due to its geographical location and its
involvement with foreign trade, tourism, and investment capital. The central
portion of the State is impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term
adverse economic conditions may be created in these areas, and in the State
as a whole, due to crop failures, severe weather conditions, or other
agriculture-related problems. The State's fresh water aquifers in the
coastal areas of the southern and central portions of Florida are at extremely
low levels; it has yet to be determined what impact this may have on the
State economy. National defense cutbacks may also negatively affect
Florida's economy, as much of the State's manufacturing base is in
defense-related industries. Although the State of Florida does not have a
defense-dependent economy, there are geographical regions in the State that
are economically linked to defense spending. Any reduction in such spending
may cause military bases to close. Such closures could have an adverse
effect on the local economies, as there could be a reduction in both
military and civilian jobs.
State Finances
General. The State prepares an annual budget each year which is presented
to the Governor and Legislature for approval. The State Constitution and
Statutes mandate that the State budget as a whole, and each separate fund
within the State budget, be kept in balance from currently available
revenues during each State fiscal year (July 1 through June 30). The
Governor and the Comptroller are responsible for ensuring that sufficient
revenues are collected to meet appropriations and that no deficit occurs in
any State fund.
The financial operations of the State covering all receipts and expenditures
are maintained through the use of three types of funds: the General Revenue
Fund, Trust Funds, and Working Capital Fund. The General Revenue Fund
receives the majority of the State's tax revenues, and moneys in the General
Revenue Fund are expended pursuant to appropriations acts. Revenues in the
General Revenue Fund exceeding the amount needed to meet appropriations may
be transferred to the Working Capital Fund. The Trust Funds consist of
moneys received by the State which, under law or trust agreement, are
segregated for a purpose authorized by law.
State Revenue Breakdown. Revenues for governmental funds increased 3.43%
over the previous year to $37 billion, while expenditures for governmental
fund types totaled $35.1 billion in fiscal year 1999, a 5.16% increase from
the previous year. As of June 30, 1999, the General Revenue Fund totaled
$17.9 billion.
For fiscal year ended June 30, 1999, the State derived approximately 62% of
its total revenues for all governmental fund types from State taxes.
Federal grants and other special revenues accounted for the remaining
revenues. The greatest single source of tax receipts in the State is
the sales and use tax. For the fiscal year ended June 30, 1999, receipts
from the sales and use tax totaled $13.98 billion, an increase of
approximately 4.72% over fiscal year 1997. The second largest source of
State tax receipts is the tax on motor fuels. Receipts from the taxes on
motor fuels are almost entirely dedicated to Trust Funds for specific
purposes and are not included in the General Revenue Fund. For the fiscal
year ended June 30, 1999, collections of this tax totaled $1.52 billion, an
increase of approximately 5.76% over the previous year.
The State does not impose a personal income tax or ad valorem taxes on real
property or tangible personal property. Any such tax by the State would
require an amendment to the State Constitution. The State does impose a
corporate income tax on the net income of corporations, organizations,
associations, and other artificial entities for the privilege of conducting
business, deriving income or existing within the State. For the fiscal year
ended June 30, 1999, receipts from the corporate income tax totaled $1.47
billion, an increase of over 5.76% from fiscal year 1998. The Alcoholic
Beverage Tax, an excise tax on beer, wine, and liquor, totaled $576 million
in fiscal year 1999 representing a increase of approximately 1.82% from the
preceding year. The Documentary Stamp Tax collections totaled $1.2 billion
during fiscal year 1999.
State Debt. The State, by Constitution, may not issue debt obligations to
fund governmental operations. In general, the State Constitution authorizes
the State to issue bonds pledging the full faith and credit of the State to
finance or refinance State capital projects upon the approval of the electors
provided that the total outstanding principal amount shall not exceed 50% of
the total tax revenues of the State for the two preceding fiscal years.
Revenue bonds issued by the State must be payable solely from funds derived
from sources other than State tax revenues.
The State Constitution has exceptions to the general provisions regarding
the full faith and credit pledge of the State which authorize the pledge of
the full faith and credit of the State. Such exemptions, which do not
require electorate approval, are subject to specific coverage requirements
in regards to certain road projects, county education projects, State higher
education projects, the State system of public education, construction of
air and water pollution control and abatement facilities, solid waste
disposal facilities, and certain other water facilities.
Local Government Finances
General. Local governments in Florida receive their revenues from a
combination of ad valorem taxes on real estate and tangible personal
property, locally imposed excise taxes, shared revenue from State-imposed
excise taxes, and local user fees. Under the State Constitution, ad valorem
taxes may not be levied by counties, municipalities, school districts, and
water management districts in excess of the following respective millages
upon the assessed value of real estate and tangible personal property: 10
mills for all county purposes; 10 mills for all municipal purposes; 10 mills
for all school purposes; and either 0.05 mills or 1.0 mills, depending upon
geographic location, for water management purposes. (Note: one mill equals
one-tenth of one cent.) These millage limitations do not apply to taxes
levied for payment of bonds and taxes levied for periods not longer than two
years when authorized by a vote of the electors. Under State law, counties
may create Municipal Service Taxing Units ("MSTUs") which have authority to
levy up to 10 mills of ad valorem taxes for municipal purposes in
incorporated areas of the county. Counties and municipalities may levy
special assessments against real property provided the property receives a
benefit equal to or greater than the amount of the assessment. Assessments,
when utilized properly, are not subject to the millage limitations set forth
above.
The State Constitution and Statutes provide for the exemption of homesteads
from all taxation, except for assessments for special benefits, up to a
specific amount of the assessed valuation of the homestead. This exemption
is available to every person who has the legal or equitable title to real
estate and maintains thereon his or her permanent home. All permanent
residents of the State are currently entitled to a $25,000 homestead
exemption from levies by all taxing authorities, however, such exemption is
subject to change upon voter approval.
In November 1992, the Florida Constitution was amended to limit increases in
the just assessed value of homestead property to 3% or the increase in the
Consumer Price Index during the relevant year, whichever is less. If the
property changes ownership or homestead status, it is to be re-valued at
full just value on the next tax roll. The amendment became effective
January 1, 1993 and began affecting homestead property valuations January 1,
1994. The amendment did not alter any of the millage rates described above.
Since municipalities, counties, school districts and other special purpose
units of local governments with power to issue general obligation bonds have
authority to increase the millage levy for voter approved general obligation
debt to the amount necessary to satisfy the related debt service requirements,
the amendment is not expected to adversely affect the ability of these
entities to pay the principal of or interest on such general obligation bonds.
However, those local government units whose operating millage levies are
approaching the Constitutional cap and whose tax base consists largely of
residential real estate, may, as a result of the above-described amendment,
need to place greater reliance on non-ad valorem revenue sources to meet
their operating budget needs, or reduce expenditures.
Intergovernmental Revenues. A significant portion of county and city
revenues in the State are derived from various excise taxes which are
collected by the State and then shared with local governments according to
specific formulas under several statutorily established revenue sharing
programs. The most significant of these programs are the half-cent sales
tax program, municipal and county revenue sharing programs, and local option
gas tax programs. The revenues from these three programs are collected by
the State and remitted to counties and cities throughout the State according
to the formulas for each program. As mentioned above, all of these programs
are dependent upon excise taxes, including sales taxes, gas taxes, cigarette
taxes and intangible taxes. Accordingly, the amount of revenues collected
under these programs is subject to economic cycles and changes in spending
patterns.
Local Debt. The State Constitution provides that counties, school districts,
municipalities, special districts, and local governmental bodies with taxing
powers may issue debt obligations payable from ad valorem taxation and
maturing more than 12 months after issuance, only (i) to finance or
refinance capital projects authorized by law, provided that electorate
approval is obtained; or (ii) to refund outstanding debt obligations and
interest and redemption premium thereon at a lower net average interest cost
rate.
Counties, municipalities, and special districts are authorized to issue
revenue bonds to finance a variety of self-liquidating projects pursuant to
the laws of the State. Such revenue bonds are to be secured by and payable
from the rates, fees, tolls, rentals, and other charges for the services and
facilities furnished by the financed projects. Under State law, counties
and municipalities are permitted to issue bonds payable from special tax
sources for a variety of purposes, and counties, municipalities, and special
districts may issue special assessment bonds. A more complete description
of the types of debt obligations incurred by governmental entities in
Florida is included below under "Types of Indebtedness".
TYPES OF INDEBTEDNESS
Set forth below is a brief summary of various types of securities which are
commonly issued in Florida and which the Funds expect to purchase in their
respective portfolios. Neither the list, nor the risks outlined, are
intended to be comprehensive or all inclusive, but rather are intended to
give a general description of the types of securities owned by the Funds and
the types of risks associated with such securities.
Ad Valorem Indebtedness
General Obligation Bonds. In Florida, general obligation bonds, which are
secured by a pledge of the full faith, credit and taxing power of the
governmental entity in question, can only be issued after a referendum is
held in which a majority of the voters in the jurisdictional limits of the
jurisdiction issuing such bonds approves the issuance of such bonds.
Revenue Bonds
Special Assessment Bonds. Special assessment bonds are revenue bonds secured
by taxes assessed and levied against real property. The taxes are legally
enforceable to the extent that the property receives a benefit of equal or
greater value than the amount of the assessment. In addition to these risks,
special assessment bonds depend upon timely payment of taxes by all property
holders whose properties have been assessed.
Water and Sewer Revenue Bonds. Water and sewer revenue bonds are generally
secured by water and sewer system revenues, including user fees, connection
fees, and in some instances impact fees. User fees generally represent the
monthly bills paid by consumers; connection fees represent the fees paid by
a new customer of the system at the time the customer is connected to the
system; and impact fees represent fees paid by developers in connection with
the development of real property to pay the actual cost incurred by the water
and sewer system in connection with constructing or maintaining capacity for
customers when they are actually connected as a result of the development of
the property in question. All water and sewer system revenue bonds are
subject to the risk of future regulation which could require expensive
additions or modifications to existing systems. Water and sewer system
revenue bonds generally contain legal covenants requiring the system to be
maintained and operated in compliance with all existing and future
regulations, and a covenant that the system will charge fees in an amount
sufficient to cover all operation, maintenance, and debt service costs.
Electric Utility Bonds. Electric utility bonds are generally secured by the
revenues of an electric utility system, and in some instances can be secured
by a mortgage against assets of an electric utility system. The revenue
bonds are generally subject to risks associated with declining revenues,
including a declining customer base or environmental regulations resulting
in increased capital or operational costs. Revenue bonds and mortgage bonds
are subject to risks associated with destruction of capital facilities
(through force majeure or otherwise), environmental regulations and
competitive developments rendering specific capital facilities obsolete.
Solid Waste Revenue Bonds. Sold waste revenue bonds are secured by revenues
associated with the operation of a solid waste disposal system. These
revenues generally take two forms: special assessments or tipping fees. To
the extent that solid waste revenue bonds are secured by tipping fees, they
are subject to the risks described below relating to flow control.
Generally, bonds which are secured by solid waste system revenues depend
upon local governmental requirements that all waste generated within the
jurisdictional boundaries of the local government be disposed of at
facilities owned by the local government. To the extent these requirements
known as "flow control" are not legally enforceable, the waste generated
within the local government's jurisdictional boundaries may be diverted to
other disposal sites, diluting the revenues available to the local government
to pay operating and debt service costs. Recent court cases in certain
jurisdictions in Florida and elsewhere have declared certain flow control
provisions unenforceable.
To the extent that solid waste revenue bonds are secured by special
assessments, the risks associated with the enforceability of flow control
ordinances are minimized, although an assessed property holder could argue
that an assessment is not supported by a benefit and is therefore
unenforceable. Otherwise, sold waste revenue bonds which are secured by
special assessments are generally subject to the same risks as other special
assessment bonds. In addition, the area of disposal of solid waste is
subject to extensive regulation at the Federal, state and local level. All
solid waste systems are subject to risks that future regulations will
require them to change their method of waste disposal, which changes could
prove prohibitively expensive. Solid waste system revenue bonds generally
contain legal covenants that the system will be operated in compliance with
all applicable regulations, and that assessments or tipping fees will be
charged at a level sufficient to pay debt service on outstanding bonds.
Excise Tax Revenue Bonds. Excise tax revenue bonds are generally secured by
one or more excise tax revenues. In Florida, local and State governments
have available to them a wide variety of excise taxes which can be pledged
to secure bonds. These include, but are not limited to, sales tax, tourist
development tax, gas tax, and guaranteed entitlement. The sales tax as a
revenue source is particularly sensitive to economic trends, and the tax
generated on an annual basis can decline in economic downturns. Additionally,
the sales tax is divided among local governments by the State according to a
formula that is subject to future legislative change. This formula can also
result in certain local governments (particularly counties) receiving a
smaller percentage of the tax as a result of the incorporation of
municipalities within the county. Such an event can result in a significant
portion of a county's share of the sales tax being diverted in the future to
a new municipality. Tourist development taxesare taxes assessed against the
occupancy of hotel or motel rooms. The
revenues generated from this tax are particularly sensitive to downturns in
tourist activity, business travel and business activity within the State.
The revenues generated from gas taxes are subject to decline in the event of
a decline in the use of gasoline for any reason, including declining economic
or tourist activity, development of new methods of transportation, development
of alternative fuel sources, or other similar factors. The guaranteed
entitlement revenue is a revenue sharing device by which the State of
Florida collects various excise taxes (primarily cigarette taxes and gas
taxes), which tax revenues are divided pursuant to a formula among various
local governments. Each local government is guaranteed a certain amount of
tax revenue by the State, provided the revenues collected from the tax
sources are sufficient to cover the guarantee. While this excise tax is
generally viewed as the strongest possible excise tax available to local
governments for a pledge, because of the guaranteed status, it is subject to
risk of future declines in the revenue sources themselves.
Housing Bonds. Housing bonds are generally issued for two distinct purposes:
single family housing and multifamily housing. Single family mortgage
revenue bonds are issued for the purpose of funding mortgage loans to assist
low to moderate income persons in the purchase of single family dwellings.
These bonds are dependent upon the timely payment of mortgages by all or the
vast majority of home owners, as well as the continued financial health of
primary mortgage insurance providers, casualty insurance providers, and
mortgage pool insurance providers, all of which may be utilized by the
issuer to create a more credit worthy investment. Additionally, single
family mortgage revenue bonds are subject to prepayment risk, since mortgage
prepayments by the home owners will result in prepayments of the bonds in
question. Multifamily housing revenue bonds are secured by one or more
multifamily housing projects, and/or the revenues generated by such projects.
These bonds are generally subject to the continued financial feasibility of
a multifamily project over a long period of time, and are therefore subject
to risks of economic downturns, and other similar factors which can
adversely effect the financial feasibility of a multifamily project.
Dormitory revenue bonds are very similar to multifamily housing revenue bonds
in that they finance the acquisition or construction of dormitories, and are
secured by the dormitories and revenues generated therefrom.
Annual Appropriation Bonds
Covenant to Budget and Appropriate. Covenant to Budget and Appropriate Bonds
involve no specific revenue pledge by the issuer, but rather an unsecured
promise to budget for and make debt service payments from any legally
available non-ad valorem revenues. Risks associated with these obligations
include future issuance of debt secured by available non-ad valorem revenues,
diluting the available pool of revenues for payments of debt service on the
covenant bonds and future increases in the issuer's operating costs which
would dilute the available revenues for payment of debt service on the
covenant bonds.
The foregoing information regarding the State and its local units of
government constitutes only a brief summary and does not purport to be a
complete description of the matters covered. This summary is based partly
upon information drawn from publicly available governmental reports and has
not been independently verified.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Funds by the Adviser. Securities purchased and sold by the
Funds may be subject to the payment of commissions. In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, the Adviser will consider various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character
of the markets for the security to be purchased or sold; the execution
efficiency, settlement capability, and financial condition of the
broker-dealer firm; the broker-dealer's execution services rendered on a
continuing basis; and the reasonableness of any commissions.
The Funds may execute portfolio transactions with broker-dealers who provide
research and execution services for other accounts over which the Adviser
exercises investment discretion. Such services may include advice
concerning the value of securities; the advisability of investing in,
purchasing, or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance
and settlement). The selection of such broker-dealers is generally made by
the Adviser (to the extent possible consistent with execution considerations)
based upon the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the Funds may be useful to the Adviser in rendering investment
management services to the Funds or its other clients, and, conversely, such
research provided by broker-dealers who have executed transaction orders on
behalf of other clients of the Adviser may also be useful to the Adviser in
carrying out the Adviser's obligations to the Funds.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Funds to pay such higher commissions, the Adviser must determine in good
faith that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or the Adviser's overall
responsibilities to the Funds and its other clients. In reaching this
determination, the Adviser will not attempt to place a specific dollar value
on the brokerage and research services provided, or to determine what
portion of the compensation should be related to those services.
The Adviser is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance in
the distribution of shares of the Funds to the extent permitted by law.
When two or more funds advised by the Adviser are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are
allocated in accordance with a formula considered by the officers of the
Funds involved to be equitable to each Fund. In some cases, this system
could have a detrimental effect on the price or value of the security as far
as a fund is concerned. In other cases, however, the ability of the Funds
to participate in volume transactions will produce better executions and
prices for the Funds. It is the current opinion of the Trustees that the
desirability of retaining the Adviser to the Funds outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions.
For the fiscal year ended April 30, 1998, the Money Market Fund and the
ShortTerm Fund paid $950 and $861, respectively in brokerage fees. For the
fiscal year ended April 30, 1999, the Money Market Fund and the ShortTerm
Fund paid $498 and $1,359, respectively in brokerage fees. For the Fiscal
year ended April 30, 2000, the Money Market Fund and the ShortTerm paid $129
and $921, respectively in brokerage fees. All of such fees were paid to the
Adviser who executed such transaction.
VALUATION OF PORTFOLIO SECURITIES
ShortTerm Fund. Valuations of portfolio securities furnished by the pricing
service employed by the ShortTerm Fund are based upon a computerized matrix
system or appraisals by the pricing service, in each case in reliance upon
information concerning market transactions and quotations from recognized
municipal securities dealers. The methods used by the pricing service and
the quality of valuations so established are reviewed by officers of the
Fund and the Adviser under the general supervision of the Board of Trustees.
There are several pricing services available, and the Trustees, or officers
acting on behalf of the Trustees, on the basis of on-going evaluation of
these services, may use other pricing services or discontinue the use of any
pricing service in whole or in part.
Money Fund. The Money Fund values its investments on the basis of amortized
cost. This technique involves valuing an instrument at its cost as adjusted
for amortization of premium or accretion of discount rather than its value
based on current market quotations or appropriate substitutes which reflect
current market conditions. The amortized cost value of an instrument may be
higher or lower than the price the Money Fund would receive if it sold the
instrument.
Valuing the Money Fund's instruments on the basis of amortized cost and use
of the term "money market fund" are permitted by Rule 2a-7 under the 1940 Act.
The Money Fund must adhere to certain conditions under Rule 2a-7.
The Board of Trustees of the Money Fund oversees the Adviser's adherence to
SEC rules concerning money market funds, and has established procedures
designed to stabilize the Money Fund's NAV at $1.00. At such intervals as
they deem appropriate, the Trustees consider the extent to which NAV
calculated by using market valuations would deviate from $1.00 per share.
If the Trustees believe that a deviation from the Money Fund's amortized
cost per share may result in material dilution or other unfair results to
shareholders, the Trustees have agreed to take such corrective action, if any,
as they deem appropriate to eliminate or reduce, to the extent reasonably
practicable, the dilution or unfair results. Such corrective action could
include selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding
dividends; redeeming shares in kind; establishing NAV by using available
market quotations; and such other measures as the Trustees may deem
appropriate.
During periods of declining interest rates, the Money Fund's yield based on
amortized cost may be higher than the yield based on market valuations.
Under these circumstances, a shareholder in the Money Fund would be able to
obtain a somewhat higher yield than would result if the Fund utilized market
valuations to determine its NAV. The converse would apply in a period of
rising interest rates.
PERFORMANCE
The Funds may quote performance in various ways. All performance
information supplied by the Funds in advertising is historical and is not
intended to indicate future results. The ShortTerm Fund's share price and
both Funds' yields and total returns fluctuate in response to market
conditions and other factors. The value of the ShortTerm Fund's shares when
redeemed may be worth more or less than their original cost.
Yield Calculations. To compute the Money Fund's yield for a period, the net
change in value of a hypothetical account containing one share reflects the
value of additional shares purchased with dividends from the one original
share and dividends declared on both the original share and any additional
shares. The net change is then divided by the value of the account at the
beginning of the period to obtain a base period return. This base period
return is annualized to obtain a current annualized yield. The Money Fund
may also calculate a compound effective yield by compounding the base period
return over a one-year period. In addition to the current yield, the Money
Fund may quote yields in advertising based on any historical seven-day period.
Yields for the Money Fund are calculated on the same basis as other money
market funds, as required by regulation. For the seven day period ended
April 30, 2000, the yield for the Money Fund was 4.03% and its effective
yield was 4.11%.
The ShortTerm Fund's yields used in advertising are computed by dividing the
Fund's interest income for a given 30-day or one-month period (net of
expenses), calculated on each day's market value, by the average number of
shares entitled to receive dividends during the period, and expressing the
result of the Fund's share price at the end of the period, and annualizing
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of the Fund's yield
quotations in accordance with standardized methods applicable to all stock
and bond funds. In general, interest income is reduced with respect to
bonds trading at a premium over their par value by subtracting a portion of
the premium from income on a daily basis. Capital gains and losses
generally are excluded from the calculation. For the 30-day period ended
April 30, 2000, the yield for the ShortTerm Fund was 4.50%.
Income calculated for purposes of determining the ShortTerm Fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, the Fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the Fund's financial statements.
The following table illustrates the approximate yield an investment which
produces income subject to federal income tax would need to generate in
order to equal the yield of an investment that is exempt from the federal
income tax based on current 1999 Tax Rates.
Tax Equivalent Yields
Taxable Income Federal Tax Rate(1) A Tax-Exempt Yield of:(2)
3% 4% 5% 6% 7%
Single Return Joint Return Is Equivalent to a Taxable Yield of:(3)
$25,750-$62,450 $43,050-$104,050 28% 4.17% 5.56% 6.94% 8.33% 9.72%
$62,450-$130,250 $104,050-$158,550 31% 4.35% 5.80% 7.25% 8.70% 10.14%
$130,250-$283,150 $158,550-$283,150 36% 4.69% 6.25% 7.81% 9.38% 10.94%
$283,150 & Above $283,150 & Above 39.6% 4.97% 6.62% 8.28% 9.93% 11.59%
(1) Tax rates are based on current 1999 federal tax tables and this
table is based upon marginal tax rates. Depending upon individual
circumstances, a shareholder's effective tax rate generally will differ from
his or her marginal rate.
(2) The table does not give effect to the federal alternative minimum
tax, if applicable, and assumes no net capital gains were realized in the
tax year.
(3) The tax equivalent yield is computed by dividing the tax-exempt
yield by 1 minus the tax rate, and does not take into account the Florida
Intangible Tax. Florida's Intangible Tax rates for 2000 are as follows:
Intangible Assets as of January 1, 2000
Intangible Tax Rate
Single Return Joint Return
$20,000 or less $40,000 or less N/A
$20,001 - $100,000 $40,001 - $200,000 .10%
over $100,000 over $200,000 .15%
This table is for illustrative purposes only and is not indicative of any
Fund's actual yield. While it is expected that the Funds will invest
principally in obligations the interest on which will be exempt from federal
income tax, the Funds may make investments that generate taxable income and
gains. This illustration is based upon certain assumptions and calculations
are based upon investments that are 100% federally tax free. Investors
should consult their own tax advisers with respect to the tax implications
of an investment in the Fund(s).
For the 30-day period ended April 30, 2000, the tax equivalent yields for
the Money Fund and the ShortTerm Fund (assuming an applicable Federal tax
rate of 36%) were 6.45% and 7.18%, respectively. This yield may be higher
for shareholders subject to Florida's Intangible Tax.
Yield information may be useful in reviewing the Funds' performance and in
providing a basis for comparison with other investment alternatives.
However, the Funds' yields fluctuate, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of the respective investment companies they have chosen
to consider.
Investors should recognize that, in periods of declining interest rates, the
Funds' yields will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates, the Funds' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Funds from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the Funds'
holdings, thereby reducing the Funds' current yields. In periods of rising
interest rates, the opposite can be expected to occur.
Total Return Calculations. Total returns quoted in advertising reflect all
aspects of a Fund's returns, including the effect of reinvesting dividends
and capital gain distributions (if any), and any change in the ShortTerm
Fund's NAV over the period. Average annual total returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the
rate of growth or decline in value had been constant over the entire period.
For example, a cumulative return of 100% over 10 years would produce an
average annual return of 7.18%, which is the steady annual rate that would
equal 100% growth on a compounded basis in 10 years. While average annual
total returns are a convenient means of comparing investment alternatives,
investors should realize that a Fund's performance is not constant over
time, but changes from year to year, and that average annual total returns
represent averaged figures as opposed to actual year-to-year performance
of a Fund.
The annual total return for the ShortTerm Fund for the period from
May 1, 1999 through April 30, 2000 was 1.39%.
In addition to average annual total returns, a Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns, yields, and other
performance information may be quoted numerically or in a table, graph, or
similar illustration and may omit or include the effect of each Fund's
charges for special transactions or services. Omitting fees and charges
will cause the Funds' total return figures to be higher.
The cumulative total return for the ShortTerm Fund from November 22, 1993
(commencement of operations) through April 30, 2000 was 28.50%. The average
annual total return for the Fund for the same period was 3.97%.
The Funds may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike tax
free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different securities.
The initial investment requirements and sales charges of many tax free
mutual funds are lower than the purchase cost of individual municipal bonds,
which are generally issued in $5,000 denominations and may be subject to
direct brokerage costs.
The Funds' performance may be compared in advertising to the performance of
other mutual funds in general or to the performance of particular types of
mutual funds, especially those with similar objectives. Such comparisons
may be expressed as mutual fund rankings prepared by Lipper Analytical
Services, Inc. ("Lipper," sometimes referred to as Lipper Analytical Services),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. The Lipper performance analysis ranks funds on
the basis of total return, assuming reinvestment of distributions, but does
not take sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences.
The Money Fund may also compare its performance or the performance of
securities in which it may invest to The Money Fund Report, which monitors
the performance of over 200 tax free money market funds. This index, which
also assumes reinvestment of distributions, is published by iMoneyNet, Inc.
of Ashland, Massachusetts 01721. Investors should consider the
relevant differences in the investment objectives and policies between the
Funds and money market funds in evaluating such comparisons. Specifically,
money market funds invest in short-term, high-quality instruments and seek
to maintain a stable $1.00 share price, while the ShortTerm Fund invests in
instruments with maturities of not more than six years and its share price
changes daily in response to a variety of factors.
In addition, the ShortTerm Fund's performance may be compared in advertising
to the performance of unmanaged indices of municipal bond prices and yields
and to representative individual municipal securities and unit investment
trusts comprised of municipal securities.
From time to time, in reports and promotional literature, each Fund's
performance also may be compared to other mutual funds tracked by financial
or business publications and periodicals. For example, a Fund may quote
Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a
mutual fund rating service that rates mutual funds on the basis of
risk-adjusted performance. In addition, a Fund may quote financial or
business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques. Rankings that compare the
performance of the Funds to one another in appropriate categories over
specific periods of time may also be quoted in advertising.
Each Fund is open for business and its NAV is calculated each day the
New York Stock Exchange (NYSE) is open for trading. The NYSE has designated
the following holiday closings for 1999: New Year's Day, Martin Luther King,
Jr.'s Birthday (observed), President's Day (observed), Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Thanksgiving Day and
Christmas Day. Although it is expected that the same holiday schedule will
be observed in the future, the NYSE may modify its holiday schedule at
anytime. Shares in the Funds cannot be purchased on Federal (bank) holidays
or days the NYSE is closed.
The Adviser normally determines each Fund's NAV as of the close of the NYSE.
However, NAV may be calculated earlier if trading on the NYSE is restricted
or as permitted by the SEC.
If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing each Fund's NAV. Shareholders receiving securities or other
property on redemption may realize either a gain or loss for tax purposes
and will incur any costs of sale as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, each Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying its
exchange privilege. Under the Rule, the 60-day notification requirement may
be waived if (i) the only material effect of a modification would be to
reduce or eliminate an administrative fee, redemption fee, or deferred sales
charge ordinarily payable at the time of exchange, or (ii) a Fund suspends
the redemption of shares to be exchanged as permitted under the 1940 Act or
by the SEC, or the Fund to be acquired suspends the sale of its shares or
because it is unable to invest amounts effectively in accordance with its
investment objectives, policies and restrictions.
In the Prospectus, each Fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by any
person or group if, in the Adviser's judgment, the Fund would be unable to
invest effectively in accordance with its investment objective and policies,
or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
Each Fund intends to qualify annually and elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). If so qualified, a Fund will not be subject to
federal income tax to the extent it distributes its investment company
taxable income and net capital gains to its shareholders in a timely manner.
To qualify as a regulated investment company, each Fund generally must,
among other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income derived with respect to
its business of investing in such stock, securities or currencies and (b)
diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities limited, in
respect of any one issuer, to an amount not greater than 5% of the value of
the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
Additionally, a Fund must, for each taxable year, distribute to shareholders
at least 90% of its investment company taxable income and at least 90% of
its net tax-exempt interest income. If a Fund does not meet all of these
requirements, it will be taxed as an ordinary corporation, and its
distributions will be taxable to its shareholders as ordinary dividends.
Amounts, other than tax-exempt interest, not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent application of the tax, each Fund
must distribute or be deemed to have distributed, with respect to each
calendar year, an amount equal to the sum of: (1) at least 98% of its
ordinary taxable income (not taking into account any capital gains or
losses or tax-exempt interest) for the calendar year; (2) at least 98% of
its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for a 12-month period usually ending on October 31 of the
calendar year; and (3) all taxable ordinary income and capital gains for
previous years that were not distributed during such years. A distribution,
including an "exempt-interest dividend," will be treated as paid on
December 31 of the calendar year if it is declared by a Fund in October,
November, or December of that year to shareholders of record on a date in
such a month and paid by that Fund during January of the following
calendar year. Such distributions will be treated as received by
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
The Funds intend to manage their portfolios so that they will be eligible to
pay "exempt-interest dividends" to shareholders. A Fund will so qualify if,
at the close of each quarter of its taxable year, at least 50% of the value
of its total assets consists of state, municipal, and certain other
securities, the interest on which is exempt from the regular federal income
tax. To the extent that a Fund's dividends distributed to shareholders are
derived from such interest income and are designated as "exempt-interest
dividends" by a Fund, they will be excludable from a shareholder's gross
income for regular federal income tax purposes. "Exempt-interest dividends,"
however, must be taken into account by shareholders in determining whether
their total incomes are large enough to result in taxation of a portion of
their social security benefits and certain railroad retirement benefits.
Each Fund will determine periodically which distributions will be designated
as exempt-interest dividends and will inform shareholders annually as to the
portion of the distributions from that Fund which constitute "exempt-interest
dividends." In addition, for corporate shareholders of the Funds,
"exempt-interest dividends" may comprise part or all of an adjustment to
alternative minimum taxable income and constitute part of the tax base for
purposes of the federal corporate environmental tax. Exempt-interest
dividends that are attributable to certain private activity bonds, while not
subject to the regular federal income tax, will constitute an item of tax
preference for purposes of the Alternative Minimum Tax.
To the extent that a Fund's dividends are derived from its investment
company taxable income (which includes interest on its taxable investments
and the excess of net short-term capital gain over net long-term capital
loss), they are considered ordinary (taxable) income for federal income
tax purposes. Such dividends will not qualify for the dividends-received
deduction for corporations. Distributions, if any, of net capital gains
(the excess of net long-term capital gain over net short-term capital loss)
designated by a Fund as capital gain dividends are taxable to shareholders
as long-term capital gain regardless of the length of time the shareholder
has owned shares of that Fund.
The tax treatment of distributions from a Fund is the same whether the
dividends are received in cash or in additional shares. Shareholders
receiving distributions in the form of additional shares will have a cost
basis for federal income tax purposes in each share received equal to the
fair market value of a share of that Fund on the reinvestment date.
Upon redemption, sale or exchange of shares of the ShortTerm Fund, a
shareholder may realize a taxable gain or loss, depending on whether the
gross proceeds are more or less than the shareholder's tax basis for the
shares. Dispositions of Money Fund shares will not give rise to a gain or
loss if that Fund maintains a net asset value per share of one dollar. Any
gain or loss generally will be a capital gain or loss if the shares of a
Fund were capital assets in the hands of the shareholder, and generally will
be long- or short-term, depending on the length of time the shares of the
Fund were held. A loss realized by a shareholder on the redemption, sale or
exchange of shares of a Fund with respect to which capital gains dividends
have been paid will, to the extent of such capital gains dividends, be
treated as long-term capital loss if such shares have been held by the
shareholder for six months or less at the time of their disposition.
Furthermore, a loss realized by a shareholder on the redemption, sale or
exchange of shares of a Fund with respect to which exempt-interest dividends
have been paid will, to the extent of such exempt-interest dividends, be
disallowed if such shares have been held by the shareholder for six months
or less at the time of their disposition. A loss realized on a redemption,
sale or exchange also will be disallowed to the extent the shares disposed
of are replaced (whether through reinvestment of distributions, or otherwise)
within a period of 61 days beginning 30 days before and ending 30 days after
the shares are disposed of. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.
Deductions for interest expense incurred to acquire or carry shares of either
Fund may be subject to limitations that reduce, defer or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of
either Fund). In addition, a shareholder may not deduct a portion of
interest on indebtedness incurred or continued to purchase or carry shares
of an investment company (such as either Fund) paying exempt-interest
dividends. Such disallowance would be in an amount which bears the same
ratio to the total of such interest as the exempt-interest dividends bear to
the total dividends, excluding net capital gain dividends received by the
shareholder. Under rules issued by the Internal Revenue Service for
determining when borrowed funds are considered used for the purposes of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of shares.
Certain of the debt securities acquired by the Funds may be treated as debt
securities that were originally issued at a discount. Original issue
discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Funds, original issue
discount on a taxable debt security earned in a given year generally is
treated for federal income tax purposes as interest and, therefore, such
income would be subject to the distribution requirements of the Code.
Original issue discount on an obligation the interest from which is exempt
from federal income tax is not taxable.
Some of the debt securities may be purchased by the Funds at a discount
which exceeds the original issue discount on such debt securities, if any.
This additional discount represents market discount for federal income tax
purposes. The gain realized on the disposition of any debt security (with a
fixed maturity date exceeding one year from the date of issue) having market
discount will be treated as ordinary income to the extent it does not exceed
the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by
a Fund at a constant rate over the time remaining to the debt security's
maturity or, at the election of a Fund, at a constant yield to maturity
which takes into account the semiannual compounding of interest.
Certain options and futures contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses ("60/40"). Also, section 1256 contracts held by the Funds at the end
of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized.
The requirements relating to the Funds' qualification as a regulated
investment company and the Funds' investment policies may limit the extent
to which each Fund will be able to engage in transactions in options and
futures contracts.
The Funds will be required to report to the Internal Revenue Service all
distributions of investment company taxable income and net capital gains,
and, for shares of the ShortTerm Fund, the gross proceeds from the
redemption or exchange of the Fund's shares, except in the case of certain
exempt shareholders. All such distributions and proceeds from a redemption
or exchange may be subject to withholding of federal income tax at the rate
of 31% in the case of non-exempt shareholders who fail to furnish a Fund
with their taxpayer identification number, or to make required certifications
regarding their status under federal income tax laws, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken
in cash, will be reduced by the amounts required to be withheld. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's federal income tax liability. Investors may wish
to consult their tax adviser about the applicability of the backup
withholding provisions.
A deductible "environmental tax" of 0.12% is imposed on a corporation's
modified alternative minimum taxable income in excess of $2 million. The
environmental tax will be imposed even if the corporation is not required to
pay an alternative minimum tax because the corporation's regular income tax
liability exceeds its minimum tax liability. To the extent that
exempt-interest dividends paid by a Fund are included in alternative minimum
taxable income, corporate shareholders may be subject to the environmental
tax.
Persons who may be "substantial users" (or "related persons" of substantial
users) of facilities financed by industrial development or private activity
bonds should consult their tax advisers before purchasing shares of the Funds.
The term "substantial user" generally includes any person who regularly uses
in his or her trade or business a part of a facility financed by industrial
development or private activity bonds. Generally, an individual will not be
a "related person" of a substantial user under the Code unless the person or
his or her immediate family owns, directly or indirectly, in the aggregate
more than a 50% equity interest in the substantial user, or if the person or
a member of his or her immediate family is a partner in a partnership or is
a shareholder in a so-called "S corporation" which is a substantial user.
General Information
The foregoing is only a summary of certain tax considerations generally
affecting each Fund and its shareholders, and is not intended as a
substitute for careful tax planning. Amounts distributed by the Funds may
be subject to state and local personal income and other taxes in states
other than Florida, as well as federal income taxes. Investors who are
not U.S. persons may be subject to special rules that differ significantly
from those described herein. Shareholders are urged to consult their tax
advisers with specific reference to their own federal, state and local tax
situations.
THE INVESTMENT ADVISER
William R. Hough & Co. ("WRH") has been engaged in the municipal bond
industry for over 30 years. At present, its principal operating activities
include underwriting of municipal securities, providing financial advisory
services to government issuers in the State of Florida, extensive trading of
municipal securities, and serving as the transfer and shareholder servicing
agent and Adviser to The Hough Group of Funds.
The affiliates of WRH are involved in the following: WRH Mortgage, Inc.
purchases, originates, sells, securitizes, restructures and refinances
mortgage loans and engages in various asset purchases; WRH Properties, Inc.
was formed to hold interests in real property; and Republic Bank of Clearwater,
a state chartered commercial bank.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust are listed below. All
persons named as Trustees and officers may also serve in similar capacities
for other funds managed by the Adviser. Unless otherwise noted, the
business address of each Trustee and officer is 100 Second Avenue South,
Suite 800, St. Petersburg, Florida 33701, which is also the address of the
Adviser. Those Trustees who are "interested persons" (as defined in the
1940 Act) by virtue of their affiliation with the Adviser, are indicated by
an asterisk (*).
W. Robb Hough, Jr.*, Trustee since 1993, President since 1995 and Chairman
since 1993, age 47, is President and a shareholder of William R. Hough & Co.,
which is engaged in the general securities industry including municipal bond
business and which provides underwriting and financial advisory services to
issuers in the state of Florida and which acts as adviser, distributor and
transfer agent on behalf of The Hough Group of Funds. He previously
practiced law in Texas and is a member of the National Association of Bond
Lawyers.
Daniel Calabria, Trustee, age 65, was President of the Fund and an officer
and a shareholder of William R. Hough & Co. from June 1993 to February 1995.
From June 1986 to November 1992, he was President and Chief Executive
Officer and Director of Templeton Funds Management Corporation, Templeton
Funds Distributor, Inc. and Templeton Funds Trust Company, which are the
business manager, distributor and transfer agent, respectively, for the
Templeton Funds. He was Vice President of all of the U.S. Templeton Mutual
Funds. Since 1969, he has served in an executive capacity for several
mutual fund organizations. He currently serves as Trustee for IDEX Series
of Funds.
James T. Lang, Trustee, age 78, is Chief Financial Officer and Treasurer of
the World Trade Center Tampa Bay. He is a past president of the Florida
Institute of Certified Public Accountants, a former partner in Alexander
Grant and Company, an international accounting firm, and served as Vice
President of the former Florida National Bank.
William C. James, Trustee, age 73, private investor, previously served as
President of The Florida National Bank at St. Petersburg from 1972 to 1984
and was a member of the Board of Directors of Florida National Banks of
Florida, Inc. from 1975 to 1982. Previously, he was the Senior Vice
President and a Director of The Florida National Bank and Trust Co. in Miami.
Mr. James formerly served as Chairman, Group 4 of the Florida Bankers
Association.
Peter B. Wells, Trustee, age 46, is a Certified Public Accountant. He has
been a Partner at Peel, Schatzel & Wells since 1986. He has many years of
public accounting experience in such areas as banking, real estate,
investments and manufacturing. He has affiliations in the American Institute
of Certified Public Accountants and the Florida Institute of Certified
Public Accountants. He is a past Board Chairman and Treasurer of the
St. Petersburg Family YMCA.
William R. Hough, Vice President of the Funds, age 73, is Chairman of the
Board and a shareholder of William R. Hough & Co. and Chairman of its
Portfolio Management Committee. Mr. Hough is the father of W. Robb Hough, Jr.
Robyn I. Fiel, Vice President, age 39, is a Vice President and a member of
the Portfolio Management Committee of William R. Hough & Co. Ms. Fiel holds
an M.B.A. degree and was formerly an associate director at Standard & Poor's
Corp. in New York.
John W. Waechter, Treasurer and Vice President, age 48, is Executive Vice
President, Director, Chief Financial Officer and a shareholder of William R.
Hough & Co. and is a Certified Public Accountant. He has served on a number
of municipal operations advisory committees for industry associations,
including the National Securities Clearing Corporation and the Depository
Trust Company. He also participated on the Professional Qualifications
Advisory Committee for the Municipal Securities Rulemaking Board.
Peter C. Jordan, Controller and Assistant Treasurer, age 39, is a Vice
President of William R. Hough & Co. and is a Certified Public Accountant.
He was previously in health care financial management and a CPA with Ernst &
Whinney.
Bonnie M. Germain, Secretary and Counsel, age 39, is Vice President and
General Counsel of William R. Hough & Co. She was previously associated w
ith the law firm of Chadbourne & Parke in Washington, D.C. She is a member
of the Florida and District of Columbia bar associations and serves on the
Continuing Education Committee of the New York Stock Exchange.
Caryn M. Kirley, Assistant Vice President, age 36, is the supervisor of
Mutual Fund Operations. She has a B.S. from the University of South Florida
and was formerly with Raymond James and Associates, Inc.
Christopher R. Coviello, Assistant Vice President, age 28, is a Financial
Analyst with William R. Hough & Co. and member of the Portfolio Management
Committee. He holds a B.A. degree from Eckerd College.
He was formerly with Franklin Templeton.
William R. Palmer, Assistant Vice President, age 26, is a Financial Analyst
with William R. Hough & Co. and an alternate member of the Portfolio
Management Committee. He holds a B.S. degree from the University of South
Florida.
Susan C. Parks, Assistant Vice President, age 46, is a certified Legal
Assistant with William R. Hough & Co. She holds an A.S. degree from Saint
Petersburg Junior College and is licensed as a General Securities
Representative. She was formerly with Franklin Templeton.
As of the date of this Statement of Additional Information, the executive
officers and Trustees, as a group, own less than 1% of the outstanding
shares of the Money Market Fund and own less than 1% of the outstanding
shares of the ShortTerm Fund.
The officers of the Trust receive no compensation directly from the Trust
for performing the duties of their offices. The officers of the Trust are
all officers of the Adviser and they are compensated for their services
directly by the Adviser.
Trustees not affiliated with the Adviser receive from the Trust an annual
retainer of $1,200 and a fee of $250 for each Board of Trustees and Audit
Committee meeting attended and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Trustees who are officers,
directors or employees of the Adviser do not receive such fees from the Trust.
For the fiscal year ended April 30, 2000, the Trustees received the following
compensation from the Trust*:
Name of Trustee Aggregate Compensation from the Trust
W.Robb Hough Jr. $0
Daniel Calabria $2,200
James T. Lang $2,200
William C. James $2,200
C.W. McKee** $2,200
Name of Trustee Pension or Retirement Benefits Accrued as Part
of Fund Expenses
W.Robb Hough Jr. $0
Daniel Calabria $0
James T. Lang $0
William C. James $0
C.W. McKee** $0
Name of Trustee Estimated Annual Benefits Upon Retirement
W.Robb Hough Jr. $0
Daniel Calabria $0
James T. Lang $0
William C. James $0
C.W. McKee** $0
Name of Trustee Total Compensation From Registrant and Fund
Complex paid to Trustee
W.Robb Hough Jr. $0
Daniel Calabria $2,200
James T. Lang $2,200
William C. James $2,200
C.W. McKee** $2,200
* Mr. Wells was elected as a Trustee on May 25, 2000 and therefore received no
compensation from the Trust during the fiscal year ended April 30, 2000.
**Mr. McKee no longer serves as a Trustee.
ADVISORY CONTRACTS
Each Fund employs WRH to furnish investment advisory and other services.
Under the contract with each Fund, WRH acts as investment adviser and,
subject to the supervision of the Board of Trustees, directs the investments
of each Fund in accordance with its investment objective, policies, and
limitations. WRH also provides the Funds with all necessary office
facilities and personnel for servicing the Funds' investments, and
compensates all officers of the Trust, all Trustees who are "interested
persons" of the Trust or of WRH, and all personnel of the Trust or WRH
performing services relating to investment activities.
In addition, the Adviser, subject to the supervision of the Board of Trustees,
provides the management and administrative services necessary for the
operation of the Funds. These services include providing facilities for
maintaining the Fund's organization; supervising relations with custodians,
pricing agents, accountants, underwriters, and other persons dealing with
the Funds; preparing all general shareholder communications and conducting
shareholder relations; maintaining the Funds' records and the registration
of the Funds' shares under federal and state law; developing management and
shareholder services for the Funds; and furnishing reports, evaluations, and
analyses on a variety of subjects to the Board of Trustees.
The Funds bear all fees and expenses not assumed by the Adviser, including:
taxes; interest; brokerage fees and commissions, if any; fees of Trustees of
the Trust who are not officers, directors, or employees of the Adviser;
Securities and Exchange Commission fees and state blue sky qualification
fees; charges of custodians and transfer and dividend disbursing agents;
each Fund's proportionate share of insurance premiums; outside auditing and
legal expenses; costs of maintenance of each Fund's existence; costs
attributable to investor services, including, without limitation, telephone
and personnel expenses; charges of an independent pricing service; costs of
preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders; costs
of shareholders' reports and meetings of the shareholders of the Fund and of
the officers or Board of Trustees of the Trust; and any extraordinary
expenses.
WRH has been the manager and adviser of both the Money Fund and the ShortTerm
Fund since inception pursuant to contracts dated November 11, 1993 which
were approved by WRH, then sole shareholder of the Funds on November 11, 1993.
The Board of Trustees, including a majority of the Trustees who are not
interested persons of the Funds or the Adviser, and who have no direct or
indirect interest in the operation of the contracts, last approved the
contracts on May 25, 2000, and the contracts shall continue in effect for
one year from that date, and annually thereafter, provided such continuance
is approved annually by the requisite vote of the Trustees.
Terms of the management contracts call for the Money Market Fund and the
ShortTerm Fund to pay the Adviser .50% and .60% of the average net assets
throughout the month. For the last three years, the Adviser has received
the following compensation from the funds:
Fees per contract Fees paid
MMF STF MMF STF
Yearended 4/30/98 $773,605 $165,581 $181,601 $2,884
Yearended 4/30/99 826,651 160,888 326,090 57,855
Yearended 4/30/00 784,022 188,376 326,947 72,655
The Adviser may, from time to time, reduce management fees and reimburse all
or a portion of each Fund's operating expenses (exclusive of interest,
taxes, brokerage commissions, and extraordinary expenses).
CODE OF ETHICS
The Hough Group of Funds and William R. Hough & Co. have adopted a code of
ethics, which is on public file with, and is available from, the Securities
and Exchange Commission. The code of ethics does not prohibit investment
personnel for the Funds from investing in securities for their own account
in which the Funds may invest. However, investments purchased by investment
personnel are reviewed on a monthly, quarterly and annual basis by the
compliance officer to ensure against any trading which could disadvantage
the funds. Annually, the board of trustees for the Funds reviews the code
of ethics to ensure that it properly addresses any potential conflicts of
interest, which may arise from personal trading activities of investment
personnel.
DISTRIBUTION AND SERVICE PLAN
Each Fund has adopted a Distribution and Service Plan (the Plans) under Rule
12b-1 of the 1940 Act (the Rule). The Rule provides in substance that a
mutual fund may not engage directly or indirectly in financing any activity
that is primarily intended to result in the sale of shares of the fund
except pursuant to a plan adopted by the fund under the Rule. The Board of
Trustees including a majority of the Trustees who are not interested persons
of the Funds and who have no direct or indirect financial interest in the
operation of the Plans, adopted the Plans on November 5, 1993 to allow the
Funds to incur certain distribution expenses. Each plan was approved by WRH,
then sole shareholder of the Funds, on November 11, 1993, and shall continue
in effect thereafter, provided such continuance is approved annually by a
vote of the Trustees. On May 22, 2000, the Board of Trustees approved the
continuance of the Plans.
The Plans specifically recognize that the Funds may make payments to third
parties that provide a variety of account maintenance and personal services
to shareholders after the sale of the Funds' shares, or to third parties,
including banks, that render shareholder support services. The Trustees
have not authorized such payments to date.
As required by the Rule, the Trustees carefully considered all pertinent
factors relating to implementation of the Plan prior to its approval, and
have determined that there is a reasonable likelihood that the Plan will
benefit the Funds and their shareholders. To the extent that the Plans give
the Distributor greater flexibility in connection with the distribution of
shares of the Funds, additional sales of each Fund's shares may result.
Additionally, shareholder support services may be provided more effectively
under the Plans by local entities with whom shareholders have other
relationships.
Neither Plan may be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of
the affected Fund, and all material amendments of each Plan must also be
approved by the Trustees in the manner described above. Each Plan may be
terminated at any time, without payment of any penalty, by vote of a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operations of the Plan,
or by a vote of a majority of the outstanding voting securities of the
affected Fund (as defined in the 1940 Act) on not more than 30 days' written
notice to any other party to the Plan. So long as any Plan is in effect,
the election and nomination of Trustees who are not such interested persons
has been committed to those Trustees who are not such interested persons.
The Trustees have determined that, in their judgment, there is a reasonable
likelihood that each Plan will benefit the respective Fund and its
shareholders. The Distributor shall provide the Trust for review by the
Trustees, and the Trustees shall review at least quarterly, a written report
of the amounts expended under each Plan and the purpose for which such
expenditures were made. In the Trustees' quarterly review of each Plan,
they will consider its continued appropriateness and the level of
compensation provided therein. For the fiscal year ended April 30, 2000,
neither Fund made any payments pursuant to the Plans.
DISTRIBUTOR
Each Fund has a distribution agreement with WRH, a Florida corporation
initially organized as a partnership in 1962. WRH is a broker-dealer
registered under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. The Distribution Agreement
calls for WRH to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of the Funds, which are
continuously offered at NAV. Promotional and administrative expenses in
connection with the offer and sale of shares of the Funds are paid by the
Distributor.
DESCRIPTION OF THE TRUST
Trust Organization. The Hough Group of Funds (the "Trust") is an open-end
management investment company organized as a Massachusetts business trust on
July 22, 1993. Currently, the Trust consists of two funds, The Florida
TaxFree Money Market Fund and The Florida TaxFree ShortTerm Fund. The
Trust's Declaration of Trust permits the Trustees to create additional funds.
There is a remote possibility that one Fund might become liable for any
misstatement in its prospectus or statement of additional information about
the other Fund.
The assets of the Trust received for the issue or sale of shares of each of
its Funds and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, are allocated to such Fund, and constitute
the underlying assets of such Fund. The underlying assets of each Fund are
segregated on the books of account, and are to be charged with the
liabilities with respect to such Fund. Expenses with respect to the Trust
are to be allocated in proportion to the asset value of the respective Fund,
except where allocations of direct expense can otherwise be fairly made.
The officers of the Trust, subject to the general supervision of the Boards
of Trustees, have the power to determine which expenses are allocable to a
given Fund, or which are general or allocable to all of the Funds. In the
event of the dissolution or liquidation of the Trust, shareholders of each
Fund are entitled to receive as a class the underlying assets of such Fund
available for distribution.
Shareholder and Trustee Liability - Massachusetts Trust. The Trust is an
entity of the type commonly known as "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the trust.
The Declaration of Trust provides that the Trust shall not have any claim
against shareholders except for the payment of the purchase price of shares
and requires that each agreement, obligation, or instrument entered into or
executed by the Trust or its Trustees shall include a provision limiting the
obligations created thereby to the Trust and its assets. The Declaration of
Trust provides for indemnification out of each Fund's property of any
shareholders held personally liable for the obligations of a Fund. The
Declaration of Trust also provides that each Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Fund itself would be unable to meet
its obligations. The Adviser believes that, in view of the above, the risk
of personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing,
but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
Voting Rights. Each Fund's capital consists of shares of beneficial interest.
The shares have no preemptive or conversion rights; voting and dividend
rights, the right of redemption, and the privilege of exchange are described
in the Prospectus. Shares are fully paid and non-assessable, except as set
forth under the respective "Shareholder and Trustee Liability" headings above.
Shareholders representing 10% or more of the Trust or one of its Funds may,
pursuant to a written request presented to the Trust or a Fund, call
meetings of the Trust or Fund for any purpose related to the Trust or Fund,
as the case may be, including, in the case of a meeting of the entire Trust,
the purpose on voting on removal of one or more Trustees.
The Trust or any Fund may be terminated upon the sale of its assets to another
open-end management investment company or series thereof, or upon liquidation
and distribution of its assets. Generally such terminations must be
approved by vote of the holders of a majority of the outstanding shares of
the Trust or the Fund. Unless terminated or reorganized, the Trust and the
Funds will continue indefinitely.
Custodian. Deutsche Bank of New York, 16 Wall Street, New York,
New York 10005, is custodian of the assets of the Funds. The custodian is
responsible for the safekeeping of the Funds' assets and the appointment of
subcustodian banks and clearing agencies. The custodian takes no part in
determining the investment policies of the Funds or in deciding which
securities are purchased or sold by the Funds. The Funds may, however,
invest in obligations of the custodian and may purchase securities from or
sell securities to the custodian.
Auditor. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas,
New York, New York 10036, serves as the Trust's independent accountant.
The auditor examines financial statements for the Funds and provides other
audit, tax and related services.
Legal Counsel. Dechert Price & Rhoads, 775 Eye Street,
Washington, D.C. 20005, is special counsel to the Trust.
Principal Shareholders As of April 30, 2000, to the knowledge of management,
no person owned beneficially or of record 5% or more of either Funds'
outstanding shares, except Martin & Edith Strom, 16637 Boca Delray Drive,
Delray Beach, FL 33484-6920 who owned 574,565.912 shares of the Shortterm
Fund (representing 17.26% of the Fund's outstanding shares), and Virginia K.
Siskovic Trust, 752 Glenevon Drive, Naples, FL 34105 who owned 163,221.417
shares of the Shortterm Fund (representing 5.02% of the Funds' outstanding
shares.
FINANCIAL STATEMENTS
The Trust's Financial Statements including notes thereto, dated as of
April 30, 2000 and are incorporated by reference into this Statement of
Additional Information.
APPENDIX
The descriptions that follow are examples of eligible ratings for the Funds.
A Fund may, however, consider the ratings for other types of investments and
the ratings assigned by other rating organizations when determining the
eligibility of a particular investment.
Description of Moody's Investors Service, Inc.'s ratings of State and
Municipal Notes:
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade (MIG, or VMIG for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short
run. Symbols used will be as follows:
MIG-I/VMIG-I - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG-3/VMIG-3 - This designation denotes favorable quality, with all security
elements accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
MIG-4/VMIG-4 - This designation denotes adequate quality protection commonly
regarded as required of an investment security is present and, although not
distinctly or predominantly speculative, there is specific risk.
Description of Standard & Poor's Corporation's ratings of State and
Municipal Notes:
SP-1- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
SP-3 - Speculative capacity to pay principal and interest.
Description of Moody's Investors Service, Inc.'s Municipal Bond Ratings:
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms
of the contract over any long period of time may be small.
Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
Description of Standard & Poor's Corporation's Municipal Bond Ratings:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB-rating.
The ratings from AA to B may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
Description of Fitch Investor Service, Inc. ("Fitch"):
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in
the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally
rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs however, are not used in the "AAA" category.
NR--Indicates that Fitch does not rate the specific issue.
Conditional--A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended--A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn--A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to furnish
proper and timely information.
Fitch Alert--Ratings are placed on Fitch Alert to notify investors of an
occurrence that is likely to result in a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for potential downgrade, or "Evolving," where
ratings may be raised or lowered. Fitch Alert is relatively short-term, and
should be resolved within 12 months.
Credit Trend--Credit Trend indicators show whether credit fundamentals are
improving, stable, declining or uncertain, as follows:
Improving
Stable ---
Declining
Uncertain
Credit Trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on Fitch Alert.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The
ratings ("BB" to "C") represent Fitch's assessment of the likelihood of
timely payment of principal and interest in accordance with the terms of
obligation for bond issues not in default. For defaulted bonds, the rating
("DDD" to "D") is an assessment of the ultimate recovery value through
reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment, that might affect the
issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences
in degrees of credit risk.
BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD and D--Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
Plus and minus signs however, are not used in the "DDD," "DD," or "D"
categories.
Description of Duff & Phelps Credit Rating Co. ("D&P"):
Triple A
Highest credit quality. The risk factors are only slightly more than for
risk-free U.S. Treasury debt.
Double A
High
Middle
Low
High credit quality. Protection factors are strong. Risk is modest but
varies slightly from time to time because of economic conditions.
Single A
High
Middle
Low
Good quality investment grade securities. Protection factors are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
Triple B
High
Middle
Low
Below average protection factors but still considered sufficient for
institutional investment. Considerable variability in risk during economic
cycles.
Double B
High
Middle
Low
Below investment grade but deemed likely to meet obligations when due.
Protection factors fluctuate according to economic conditions. Overall
quality may move up or down frequently within the category.
Single B
High
Middle
Low
Below investment grade and possessing risk that obligations will not be met
when due. Protection factors will fluctuate widely according to economic
cycles. Potential exists for frequent changes in rating within this
category or into a higher or lower quality rating grade.
Substantial Risk
Well below investment grade with considerable uncertainty as to timely
payment of interest. Protection factors are narrow. Risk can be
substantial with unfavorable economic conditions.
PART C
-----------
OTHER INFORMATION
-----------------
ITEM 23. EXHIBITS
(a)(1) Declaration of Trust1
(a)(2) Establishment and Designation of Series of Shares (The Florida TaxFree
Money Market Fund and The Florida TaxFree ShortTerm Fund)1
(b) By-Laws1
(c) Certificates for Shares are not issued
(d)(1) Investment Advisory and Administrative Agreement for the Florida TaxFree
Money Market Fund2
(d)(2) Investment Advisory and Administrative Agreement for the Florida TaxFree
ShortTerm Fund2
(e) Distribution Agreement2
(f) Not Applicable
(g) Custodian Account Agreement2
(h)(1) Transfer Agency and Fund Accounting Agreement2
(h)(2) Expense Limitation Agreement4
(i) Not Applicable
(j) Consent of Independent Accountants4
(k) Not Applicable
(l) Initial Capital Agreement3
(m) Distribution and Service Plan2
(n) Not Applicable
(o) Not Applicable
(p) Code of Ethics
__________________
1. Filed in Registrant's initial Registration Statement on July 22, 1993
and incorporated by reference herein.
2. Filed in Registrant's Pre-Effective Amendment No. 1 on October 4, 1993
and incorporated by reference herein.
3. Filed in Registrant's Pre-Effective Amendment No. 2 on November 12, 1993
and incorporated by reference herein.
4. To be filed by Amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Reference is made to Article 4.3 in the Registrant's Declaration of Trust which
is incorporated by reference herein.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act, and therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers or controlling
persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND THEIR
OFFICERS AND DIRECTORS
William R. Hough & Co.
Name Position
with Adviser Other Affiliations
William R. Hough Director/Chairman
Director, WRH Properties, Inc., 100 Second Avenue South, Suite 904, St.
Petersburg, FL 33701; President and Director, WRH Mortgage, Inc., 100 Second
Avenue South, Suite 904, St. Petersburg, FL 33701; Director/President, WRH
Income Properties Inc, 100 Second Avenue South, Suite 904, St. Petersburg, FL
33701; Director, Republic Bank, 111 Second Avenue N.E., Suite 300,
St. Petersburg, FL 33701; Director/President, Royal Palm Retirement Centre,
2500 Aaron Street, Port Charlotte, FL 33952.
W. Robb Hough, Jr.
Director/
President
Director/Vice President, WRH Properties, Inc., 100 Second Avenue South,
Suite 904, St. Petersburg, FL 33701; Director/Vice President, WRH Mortgage,
Inc., 100 Second Avenue South, Suite 904, St. Petersburg, FL 33701; Director/VP,
WRH Income Properties Inc, 100 Second Avenue South, Suite 904, St. Petersburg,
FL 33701; Vice President, Spring Haven Retirement Centre, 1225 Havendale
Boulevard, Winter Haven, FL 33881; Vice President, Royal Palm Retirement Centre,
2500 Aaron Street, Port Charlotte, FL 33952.
John W. Waechter
Director/
Executive Vice President/ Treasurer
Director/Treasurer, WRH Properties, Inc., 100 Second Avenue South, Suite 904,
St. Petersburg, FL 33701; Director/Treasurer, WRH Mortgage, Inc., 100 Second
Avenue South, Suite 904, St. Petersburg, FL 33701; Director/Treasurer, WRH
Income Properties Inc, 100 Second Avenue South, Suite 904, St. Petersburg, FL
33701.
Helen Hough Feinberg
Director/First Vice President
Assistant Secretary, WRH Properties, Inc., 100 Second Avenue South, Suite 904,
St. Petersburg, FL 33701; Secretary, WRH Mortgage, Inc., 100 Second Avenue
South, Suite 904, St. Petersburg, FL 33701; Director/VP WRH Income Properties
Inc, 100 Second Avenue South, Suite 904, St. Petersburg, FL 33701; Secretary,
Spring Haven Retirement Centre, 1225 Havendale Boulevard, Winter Haven, FL
33881; Secretary, Royal Palm Retirement Centre, 2500 Aaron Street, Port
Charlotte, FL 33952; Trustee, Canterbury Schools, 901 58th Avenue N.E., St.
Petersburg, FL 33703.
ITEM 27. PRINCIPAL UNDERWRITER
(a) William R. Hough & Co. (WRH) serves as Distributor of the Registrant's
shares.
(b) The directors and principal officers of WRH are set forth below. Unless
otherwise indicated, their address is 100 Second Avenue South, St. Petersburg,
Florida 33701.
Name Positions and Offices with WRH Positions and
Offices with Registrant
William R. Hough Director/Chairman Vice President and Chairman of the
Portfolio Management Committee
W. Robb Hough, Jr. Director/President President and Chairman of the Board
of Trustees
John W. Waechter Director/Executive Vice Vice President and Treasurer
President/Treasurer
Helen Hough Feinberg Director/First Vice President None
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Each account, book and other documents required to be maintained by Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of William R. Hough & Co., 100 Second
Avenue South, Suite 800, St. Petersburg, Florida 33701.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS.
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 9 to its Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of St. Petersburg, Florida, on
the 31st day of August, 2000.
THE HOUGH GROUP OF FUNDS
By:
W. Robb Hough, Jr.*
Chief Executive Officer
*By:
Bonnie G. Bertolino
As Attorney-in-fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 4 to the Registration Statement on Form N-1A has been signed below
by the following persons on behalf of The Hough Group of Funds in the capacity
and on the date indicated:
Signatures Title Date
/s/ W. Robb Hough, Jr. Chief Executive August 31, 2000
W. Robb Hough, Jr.* Officer and Chairman
of the Board
/s/ Daniel Calabria Trustee August 31, 2000
Daniel Calabria*
/s/ Peter B. Wells Trustee August 31, 2000
Peter B. Wells**
/s/ William C. James Trustee August 31, 2000
William C. James*
/s/ James T. Lang Trustee August 31, 2000
James T. Lang*
/s/ John Waechter Vice President, August 31, 2000
John Waechter* Treasurer and
Chief Financial Officer
*By: /s/ Bonnie G. Bertolino
Bonnie G. Bertolino
As Attorney-in-fact
* Pursuant to Powers of Attorney filed with Pre-Effective Amendment No. 2
on November 12, 1993.
** Pursuant to Power of Attorney included herein.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Bonnie Germain, John Waechter, Caryn Kirley and Patrick Turley,
and each of them, his true and lawful attorney-in-fact and agent with
full power of substitution and re-substitution, to do any and all acts
and things and to execute any and all instruments which said attorneys
and agents, each individually, may deem necessary or advisable or which
may be required to enable The Hough Group of Funds (the "Group"), to
comply with the Investment Company Act of 1940, as amended and the
Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the filing and effectiveness of
any and all amendments to the Group's Registration Statement on Form
N-1A pursuant to said Acts, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned, as Trustee of the Group, any and
all such amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto,
and the undersigned does hereby ratify and confirm all that said
attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
on this 29th day of August 2000.
__/s/ Peter B. Wells__
Peter B. Wells
