PROSPECTUS
November 6, 1998
Alleghany/Chicago Trust SmallCap Value Fund
Alleghany/Veredus Aggressive Growth Fund
ALLEGHANY FUNDS
The Chicago Trust Company, Investment Advisor
Veredus Asset Management LLC, Investment Advisor
(800) 992-8151
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ALLEGHANY FUNDS
171 North Clark Street
Chicago, IL 60601
(800) 992-8151
Website: http://www.alleghanyfunds.chicago-trust.com
PROSPECTUS
November 6, 1998
Alleghany Funds (the "Company") is a no-load, open-end management
investment company which consists of ten separate diversified investment series
designed to offer investors a variety of investment opportunities. This
Prospectus pertains only to Alleghany/Chicago Trust SmallCap Value Fund and
Alleghany/Veredus Aggressive Growth Fund (each a "Fund" and collectively, the
"Funds"). Each Fund has distinct investment objectives and policies.
Alleghany/Chicago Trust SmallCap Value Fund is advised by The Chicago
Trust Company ("Chicago Trust") and Alleghany/Veredus Aggressive Growth Fund is
advised by Veredus Asset Management LLC ("Veredus").
Alleghany/Chicago Trust SmallCap Value Fund seeks long-term total
return through investment primarily in common stocks of small companies, based
on revenues and/or market capitalization, domiciled in the United States which
Chicago Trust believes offer exceptional relative value at attractive prices.
Alleghany/Veredus Aggressive Growth Fund seeks capital appreciation
through investment primarily in equity securities of companies whose earnings
are growing at an accelerating rate.
Shares of each Fund are purchased and redeemed without any purchase or
redemption charge imposed by the Company, although institutions may charge their
customers for services provided in connection with their investments.
Shares of the Funds are not deposits, obligations of, or endorsed by
any bank, and are not insured or guaranteed by any bank, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency. An
investment in a Fund involves investment risks, including the possible loss of
principal.
This Prospectus sets forth concisely the information a prospective
investor should know before investing in either of the above Funds. Investors
should read and retain this Prospectus for future reference. Additional
information about the Funds is contained in the Statement of Additional
Information dated November 6, 1998, as supplemented from time to time, which has
been filed with the Securities and Exchange Commission ("SEC") and is available
along with other related materials in the SEC's Internet Website
(http://www.sec.gov). The Statement of Additional Information is incorporated by
reference into this Prospectus and is available upon request and without charge
from the Company, at the addresses and telephone numbers below.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Alleghany Funds Investment Advisors:
171 North Clark Street The Chicago Trust Company
Chicago, IL 60601-3294 171 North Clark Street
(800) 992-8151 Chicago, IL 60601-3294
Veredus Asset Management LLC
6900 Bowling Blvd., Suite 250
Louisville, KY 40207
(800) 992-8151
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY..................................................... 4
EXPENSE INFORMATION.................................................... 5
INVESTMENT OBJECTIVES AND POLICIES..................................... 7
Alleghany/Chicago Trust SmallCap Value Fund................... 7
Alleghany/Veredus Aggressive Growth Fund...................... 7
INVESTMENT STRATEGIES AND RISK CONSIDERATIONS.......................... 8
MANAGEMENT OF THE FUNDS................................................ 13
PORTFOLIO MANAGEMENT METHODS........................................... 14
ADMINISTRATION OF THE FUNDS............................................ 17
PURCHASE OF SHARES..................................................... 18
EXCHANGE OF SHARES...................................................... 19
REDEMPTION OF SHARES.................................................... 20
ACCOUNT OPTIONS......................................................... 21
DISTRIBUTION PLAN....................................................... 22
NET ASSET VALUE......................................................... 22
DIVIDENDS AND TAXES..................................................... 23
PERFORMANCE OF THE FUNDS................................................ 24
GENERAL INFORMATION..................................................... 24
APPENDIX
DEBT RATINGS........................................................... 26
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE SUCH
AN OFFER OR SOLICITATION. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS.
<PAGE>
PROSPECTUS SUMMARY
The Funds
The Company is an open-end, management investment company commonly
known as a mutual fund. The Company was established as a Delaware business trust
on September 10, 1993. The Company currently offers ten separate series of
shares. This Prospectus offers only shares of Alleghany/Chicago Trust SmallCap
Value Fund and Alleghany/Veredus Aggressive Growth Fund.
Investment Definitions
Equity Securities--The term "equity securities" as used herein
typically refers to common stock or preferred stock, which represent a
stockholder's equity or ownership of shares in a company.
Debt Securities--Examples of "debt securities" are bills, notes and
bonds, each representing a promise by the issuer to re-pay a debt which is
generally secured by the assets of such issuer. Also in this investment category
are debentures, which are bonds or promissory notes that are backed by the
general credit of the issuer, but not secured by specific assets of such issuer.
Convertible Features--Equity or debt securities purchased by the Funds
may have "convertible" features, whereby they can be exchanged for another class
of securities, according to the terms of their respective issuers.
Short-term Instruments--"Short-term (or money market) instruments" are
generally private or Government obligations with maturities of one year or less
and may include (but are not limited to) certificates of deposit, bankers'
acceptances, corporate commercial paper, and Government obligations.
Derivative Investments--The term "derivatives" has been used to
identify a range and variety of financial categories. In general, a derivative
is commonly defined as a financial instrument whose performance is derived, at
least in part, from the performance of an underlying asset, such as a specific
security or an index of securities. Derivatives, which may be used from time to
time by the Funds and the investment risks associated with such instruments, are
discussed in detail under "INVESTMENT STRATEGIES AND RISK CONSIDERATIONS."
Investment Objectives of the Funds
Alleghany/Chicago Trust SmallCap Value Fund seeks to provide long-term
total return. In seeking to achieve its investment objective, the Fund invests
primarily in common stocks of small companies, based on revenues and/or market
capitalization, domiciled in the United States which Chicago Trust believes
offer exceptional relative value at attractive prices.
Alleghany/Veredus Aggressive Growth Fund seeks capital appreciation. In
seeking to achieve its investment objective, the Fund invests primarily in
equity securities of companies whose earnings are growing at an accelerating
rate.
How to Purchase Shares
The minimum initial investment for regular accounts (other than
Individual Retirement Accounts ("IRAs") and Uniform Gift to Minor Accounts
("UGMAs")) is $2,500 for each Fund, and the minimum subsequent investment is
$50, except for accounts opened through a fund network. In such case, the
minimums of the fund network will apply. The minimum initial investment for IRAs
and UGMAs is $500, and the minimum subsequent investment for IRAs and UGMAs is
$50. The minimum initial and subsequent investment for those enrolled in the
Automatic Investment Plan is $50. The Funds do not impose any sales load,
redemption or exchange fees. Each Fund has a Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"). See
"DISTRIBUTION PLAN." The public offering price for shares of each of the Funds
is the net asset value per share next determined after receipt of a purchase
order in proper form. See "PURCHASE OF SHARES," "ACCOUNT OPTIONS" and "GENERAL
INFORMATION."
How to Redeem Shares
Shares of each Fund may be redeemed at the net asset value per share of the
Fund next determined after receipt of a redemption request in proper form.
Signature guarantees may be required. See "REDEMPTION OF SHARES."
Dividends
Each Fund intends to distribute substantially all of its net investment
income and net realized capital gains, if any, to shareowners. Distributions of
net capital gains, if any, will be made annually. All distributions are
reinvested at net asset value, in additional full and fractional shares of the
respective Fund unless and until the shareowner notifies the Transfer Agent in
writing requesting payments in cash.
Each Fund declares and pays dividends, if any, quarterly.
See "DIVIDENDS AND TAXES."
Management of the Funds
Chicago Trust, 171 North Clark Street, Chicago, Illinois 60601, an
Illinois corporation, provides investment advisory services to the
Alleghany/Chicago Trust SmallCap Value Fund. As of June 30, 1998, Chicago Trust
managed approximately $8.5 billion in assets primarily for pension and profit
sharing accounts, individuals, families, and insurance companies.
Veredus, 6900 Bowling Blvd., Suite 250, Louisville, Kentucky 40207,
provides investment advisory services to Alleghany/Veredus Aggressive Growth
Fund. As of June 30, 1998, Veredus managed approximately $65.7 million in assets
primarily for institutional clients.
First Data Distributors, Inc., 4400 Computer Drive, Westborough,
Massachusetts 01581, serves as the Funds' Distributor. Bankers Trust Company, 16
Wall Street, New York, New York 10005, serves as the Custodian of the Funds'
assets. Chicago Trust serves as the Funds' Administrator. First Data Investor
Services Group, Inc., 53 State Street, Boston, Massachusetts 02109, serves as
the Funds' Sub-Administrator. First Data Investor Services Group, Inc., 4400
Computer Drive, Westborough, Massachusetts 01581, serves as the Funds' Transfer
Agent.
EXPENSE INFORMATION
Shareowner Transaction Expenses for the Fund:
Maximum Sales Load Imposed on Purchases.................................. None
Maximum Sales Load Imposed on Reinvested Dividends....................... None
Maximum Deferred Sales Load.............................................. None
Redemption Fees.......................................................... None
Exchange Fees............................................................ None
If you want to redeem shares by wire transfer, the Funds' Transfer
Agent charges a fee, currently $20.00, for each wire redemption. Institutions
may independently charge fees for shareowner transactions or for advisory
services; please see their materials for details.
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Estimated Annual Fund Operating Expenses as a Percentage of Average Net Assets:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net Expense Ratio
Investment Other After Advisors'
Advisory Fees Expenses Voluntary Fee Waivers
After Voluntary 12b-1 After Voluntary and Reimbursement (1)
FUND (1) Fee Waivers Fees Reimbursements (2)
--------- ----------- ---- ------------------
Alleghany/Chicago Trust 0.60% 0.25% 0.55% 1.40%
SmallCap Value Fund
Alleghany/Veredus 0.60% 0.25% 0.55% 1.40%
Aggressive Growth Fund
</TABLE>
(1) The above table reflects the investment advisors' voluntary undertakings to
waive investment advisory fees and/or reimburse each Fund expenses exceeding the
limits shown. Absent such fee waivers and reimbursement of expenses, the
estimated investment advisory fees, other expenses, and total operating
expenses, respectively, would be as follows: 1.00%, 0.25%, and 0.55% for the
Alleghany/Chicago Trust SmallCap Value Fund and 1.00%, 0.25%, and 0.55% for
Alleghany/Veredus Aggressive Growth Fund.
(2) Other expenses for each Fund are based on estimated amounts for the current
fiscal year.
Long-term shareowners may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
EXAMPLE:
Based on the level of estimated expenses listed above after waivers and
reimbursements, the total expenses relating to an investment of $1,000 would be
as follows, assuming a 5% annual return and redemption at the end of each time
period.
Name of Fund 1 Year 3 Years
- ------------ ------ -------
Alleghany/Chicago Trust SmallCap Value Fund $14 $44
Alleghany/Veredus Aggressive Growth Fund $14 $44
The foregoing tables are designed to assist the investor in
understanding the various costs and expenses that a shareowner will bear
directly or indirectly. While the example assumes a 5% annual return, each
Funds' actual performance will vary and may result in actual returns greater or
less than 5%. The example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
Performance Measures
From time to time, the Funds may advertise performance measures as set
forth under "PERFORMANCE OF THE FUNDS." Performance measures are based on
historical earnings and are not intended to indicate future performance.
Portfolio Turnover
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of purchases or sales of portfolio investments for the
reporting period by the monthly average value of the portfolio investments owned
during the reporting period. The calculation excludes all securities, including
options, whose maturities or expiration dates at the time of acquisition are one
year or less. Portfolio turnover may vary greatly from year to year as well as
within a particular year, and may be affected by cash requirements for
redemption of units and by requirements which enable the Funds to receive
favorable tax treatment. The Alleghany/Chicago Trust SmallCap Value Fund is
expected to have portfolio turnover below 150%. In any event, portfolio turnover
is not expected to exceed 200% in the Alleghany/Chicago Trust SmallCap Value
Fund and 300% in the Alleghany/Veredus Aggressive Growth Fund. A high rate of
portfolio turnover (i.e., over 100%) may result in the realization of
substantial capital gains and involves correspondingly greater transaction
costs.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is fundamental and may not be
changed without a vote of the holders of the majority of the voting securities
of the Fund. Unless otherwise stated in this Prospectus or the Statement of
Additional Information, each Fund's investment policies are not fundamental and
may be changed without shareowner approval. While a non-fundamental policy or
restriction may be changed by the Trustees of the Company without shareowner
approval, the Funds intend to notify shareowners before making any change in any
such policy or restriction. Fundamental policies may not be changed without
shareowner approval.
The Funds strive to attain their investment objectives, but there can,
of course, be no assurance that they will do so. Please refer to the policies
and risk disclosures more fully described under "INVESTMENT STRATEGIES AND RISK
CONSIDERATIONS." Additional investment policies and restrictions are described
in the Statement of Additional Information.
ALLEGHANY/CHICAGO TRUST SMALLCAP VALUE FUND
Alleghany/Chicago Trust SmallCap Value Fund seeks long-term total
return through investment primarily in common stocks of small companies, based
on revenues and/or market capitalization, domiciled in the United States which
Chicago Trust believes offer exceptional relative value and attractive prices.
The Fund's total return will likely be primarily composed of capital
appreciation. The Fund will be invested primarily in equities listed on stock
exchanges or traded in over-the-counter markets in the U.S.
Except for defensive or liquidity purposes, the Fund will invest
substantially all (at least 65%) of its assets in small companies or real estate
investment trusts ("REIT's") domiciled in the U.S. which have market
capitalization (based on aggregate market value of outstanding shares) between
$50 million and $1 billion at the time of investment. Chicago Trust will seek
companies with strong cash flow, good credit, low price to earnings ratio and
good or improving balance sheets. The remainder of its assets (no more than 35%)
may be invested in securities of companies with market capitalizations below $50
million or above $1 billion at the time of investment; and/or in cash and
equivalent securities. The Fund does not currently intend to invest in
securities which, at the time of purchase, are not readily marketable or in
futures or options contracts. The Fund will not engage in short-selling
activities, leverage or portfolio hedging techniques. At any time Chicago Trust
deems it advisable for temporary defensive or liquidity purposes, the Fund may
hold all or a portion of its assets in cash or cash equivalents and invest in,
or hold unlimited amounts of, debt obligations of the United States Government
or its political subdivisions, and money market instruments including repurchase
agreements with maturities of seven days or less and certificates of deposit.
Special Considerations
An investor should be aware that investment in small capitalization
issuers carries more risk than issuers with market capitalization greater than
$1 billion. Generally, small companies rely on limited product lines, financial
resources, and business activities that may make them more susceptible to
setbacks or downturns. In addition, the stock of such companies may be more
thinly traded. As a result, in order to sell this type of security the Fund may
need to dispose of such securities over a long period and accordingly, the
performance of small capitalization issuers may be more volatile.
Please refer to the policies and risk disclosures, as well as the other
specified practices below with respect to the Fund in "INVESTMENT STRATEGIES AND
RISK CONSIDERATIONS."
<PAGE>
ALLEGHANY/VEREDUS AGGRESSIVE GROWTH FUND
Alleghany/Veredus Aggressive Growth Fund seeks to provide capital
appreciation through investment primarily in equity securities of companies
whose earnings are growing at an accelerating rate. Typically, the companies
that the Fund invests in will exhibit expanding unit volume growth, new product
development and expanding profit margins. Such companies often experience
increased earnings expectations from the investment community. Veredus will
focus primarily on small capitalization (market capitalization of $1 billion or
less) and mid-size capitalization ($1 to $4 billion market capitalization)
companies.
Veredus generally plans to stay fully invested (subject to liquidity
requirements) in equity securities. The Fund may also invest in U.S. Government
securities of any duration, and may engage in certain option transactions and
investment techniques described below. For temporary defensive purposes under
abnormal market or economic conditions, the Fund may hold all or a portion of
its assets in money market instruments, securities of no-load money market funds
or U.S. Government repurchase agreements. The Fund may also invest in such
instruments at any time to maintain liquidity or pending selection of
investments in accordance with its policies. If the Fund acquires securities of
another investment company, the shareholders of the Fund will be subject to
additional management fees.
By investing primarily in small and mid-size capitalization companies,
the Fund will be subject to the risks associated with such companies. Smaller
capitalization companies may experience higher growth rates and higher failure
rates than do larger capitalization companies. Companies in which the Fund is
likely to invest may have limited product lines, markets or financial resources
and may lack management depth. The trading volume of securities of smaller
capitalization companies is normally less than that of larger capitalization
companies, and, therefore, may disproportionately affect their market price,
tending to make them rise more in response to buying demand and fall more in
response to selling pressure than is the case with larger capitalization
companies.
The Fund may invest in equity securities which consist of common stock,
warrants, rights, preferred stock and common stock equivalents (such as
convertible preferred stock and convertible debentures). Common stocks, the most
familiar type, represent an equity (ownership) interest in a corporation.
Warrants are options to purchase equity securities at a specified price for a
specific time period. Rights are similar to warrants, but normally have a short
duration and are distributed by the issuer to its shareholders. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and on overall market and
economic conditions. The Fund will not invest more than 5% of its net assets in
preferred stock or common stock equivalents.
The Fund may invest up to 20% of its net assets in foreign equity
securities by purchasing American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). ADRs and EDRs are dollar-denominated receipts that
are generally issued in registered form by domestic banks, and represent the
deposit with the bank of a security of a foreign issuer. To the extent that the
Fund does invest in foreign securities, such investments may be subject to
special risks, such as changes in restrictions on foreign currency transactions
and rates of exchange, and changes in the administrations or economic and
monetary policies of foreign governments.
Please refer to the policies and risk disclosures, as well as the other
specified practices below with respect to the Fund in "INVESTMENT STRATEGIES AND
RISK CONSIDERATIONS."
INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
In General
Shareowners should understand that all investments involve risk and
there can be no guarantee against loss resulting from an investment in the
Funds, nor can there be any assurance that the Funds' investment objectives will
be attained. Unless otherwise indicated, all percentage limitations governing
the investments of the Funds apply only at the time of transaction. Accordingly,
if a percentage restriction is adhered to at the time of investment, a later
increase or decrease in the percentage represented by such investment which
results from a relative change in values or from a change in a Fund's total
assets will not be considered a violation.
Government Obligations
Each Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities to the extent described above.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as Ginnie Mae (formerly known as the Government National Mortgage
Association) ("GNMA"), are supported by the full faith and credit of the U.S.
Treasury; others, such as those of Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law. Some Government obligations may be issued as variable or floating-rate
instruments.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period of time the shareowner owns shares of
the Funds.
Money Market Securities
Each Fund may invest in money market securities, including bank
obligations and commercial paper. Bank obligations may include bankers'
acceptances, negotiable certificates of deposit, and non-negotiable time
deposits earning a specified return, issued for a definite period of time by a
U.S. bank that is a member of the Federal Reserve System or is insured by the
Federal Deposit Insurance Corporation, or by a savings and loan association or
savings bank that is insured by the Federal Deposit Insurance Corporation. Bank
obligations also include U.S. dollar-denominated obligations of foreign branches
of U.S. banks or of U.S. branches of foreign banks, all of the same type as
domestic bank obligations. Investments in bank obligations are limited to the
obligations of financial institutions having more than $1 billion in total
assets at the time of purchase.
Domestic and foreign banks are subject to extensive but different
government regulations which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of
U.S. branches of foreign banks may subject a Fund to additional investment
risks, including future political and economic developments, the possible
imposition of withholding taxes on interest income, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic branches of U.S. banks. Investments in the obligations of U.S. branches
of foreign banks or foreign branches of U.S. banks will be made only when the
investment advisor believes that the credit risk with respect to the investment
is minimal.
Commercial paper may include variable and floating-rate instruments,
which are unsecured instruments that permit the interest on indebtedness
thereunder to vary. Variable-rate instruments provide for periodic adjustments
in the interest rate. Floating-rate instruments provide for automatic adjustment
of the interest rate whenever some other specified interest rate changes. Some
variable and floating-rate obligations are direct lending arrangements between
the purchaser and the issuer and there may be no active secondary market.
However, in the case of variable and floating-rate obligations with the demand
feature, a Fund may demand payment of principal and accrued interest at a time
specified in the instrument or may resell the instrument to a third party. In
the event an issuer of a variable or floating-rate obligation defaulted on its
payment obligation, a Fund might be unable to dispose of the note because of the
absence of a secondary market and could, for this or other reasons, suffer a
loss to the extent of the default. Substantial holdings of variable and
floating-rate instruments could reduce portfolio liquidity.
<PAGE>
Borrowing
Each Fund may not borrow money or issue senior securities, except as
described in this paragraph. Each Fund may borrow from banks or enter into
reverse repurchase agreements for temporary purposes in amounts up to 10% of the
value of its total assets. The Funds may not mortgage, pledge, or hypothecate
assets, except that each Fund may mortgage, pledge, or hypothecate assets in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the total assets of the Fund.
A Fund will not purchase securities while its borrowings (including reverse
repurchase agreements) exceed 5% of its total assets. A Fund may borrow money as
a temporary measure for extraordinary purposes or to facilitate redemptions.
Neither Fund will borrow money in excess of 25% of the value of its total
assets. The Funds have no intention of increasing their net income through
borrowing. Any borrowing will be done from a bank with the required asset
coverage of at least 300%. In the event that such asset coverage shall at any
time fall below 300%, a Fund shall, within three days thereafter (not including
Sundays or holidays) or such longer period as the Securities and Exchange
Commission ("SEC") may prescribe by rules and regulations, reduce the amount of
its borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%.
Illiquid Securities
Each Fund may invest up to 15% of their respective net assets in
securities which are illiquid. Illiquid securities will generally include, but
are not limited to: repurchase agreements and time deposits with
notice/termination dates in excess of seven days; unlisted over-the-counter
options; interest rate, currency and mortgage swap agreements; interest rate
caps, floors and collars; and certain securities which are subject to trading
restrictions because they are not registered under the Securities Act of 1933
(the "1933 Act").
Repurchase Agreements
Each Fund may enter into repurchase agreements pursuant to which a Fund
purchases portfolio assets from a bank or broker-dealer concurrently with an
agreement by the seller to repurchase the same assets from the Fund at a later
date at a fixed price. Repurchase agreements are considered, under the 1940 Act,
to be collateralized loans by a Fund to the seller secured by the securities
transferred to the Fund. Repurchase agreements will be fully collateralized by
securities in which the Fund may invest directly. Such collateral will be
marked-to-market daily. If the seller of the underlying security under the
repurchase agreement should default on its obligation to repurchase the
underlying security, a Fund may experience delay or difficulty in exercising its
right to realize upon the security and, in addition, may incur a loss if the
value of the security should decline, as well as disposition costs in
liquidating the security. A Fund must treat each repurchase agreement as a
security for tax diversification purposes and not as cash, a cash equivalent or
receivable.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements with banks and
broker-dealers. Reverse repurchase agreements involve sales by a Fund of
portfolio assets concurrently with an agreement by that Fund to repurchase the
same assets at a later date at a fixed price. During the reverse repurchase
agreement period, a Fund continues to receive principal and interest payments on
these securities. During the time a reverse repurchase agreement is outstanding,
a Fund will maintain a segregated custodial account consisting of cash or liquid
securities having a value at least equal to the resale price. Reverse repurchase
agreements are considered to be borrowings by a Fund, and as such are subject to
the investment limitations discussed above under the sub-section titled
"Borrowing."
Rule 144A Securities
Each Fund may purchase securities which are not registered under the
1933 Act but which can be sold to "qualified institutional buyers" in accordance
with Rule 144A under the 1933 Act. Any such security will not be considered
illiquid so long as it is determined by the investment advisor under guidelines
approved by the Company's Board of Trustees, that an adequate trading market
exists for that security. This investment practice could have the effect of
increasing the level of illiquidity in a Fund during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities.
Securities of Other Investment Companies
Each Fund may invest in securities issued by other investment companies
which invest in securities in which the particular Fund is permitted to invest
and which determine their net asset value per share based on the amortized cost
or penny-rounding method. In addition, each Fund may invest in securities of
other investment companies within the limits prescribed by the 1940 Act, which
include limits to its investments in securities issued by other investment
companies so that, as determined immediately after a purchase of such securities
is made: (i) not more than 5% of the value of the Fund's total assets will be
invested in the securities of any one investment company; (ii) not more than 10%
of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund or Funds as
a whole. Each Fund is subject to additional limitations in these purchases as
described under "INVESTMENT RESTRICTIONS" in the Statement of Additional
Information. As a shareowner of another investment company, a Fund would bear,
along with other shareowners, its pro rata portion of such investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations.
Short-Term Trading
Each Fund may engage in short-term trading. Securities may be sold in
anticipation of a market decline or purchased in anticipation of a market rise
and later sold. In addition, a security may be sold and another purchased at
approximately the same time to take advantage of what a Fund believes to be a
temporary disparity in the normal yield relationship between the two securities.
Such trading may be expected to increase a Fund's portfolio turnover rate and
the expenses incurred in connection with such trading.
Foreign Securities
Alleghany/Veredus Aggressive Growth Fund may invest in foreign equity
securities by purchasing ADRs and EDRs. U.S. dollar-denominated ADRs, which are
traded in the United States on exchanges or over-the-counter, are issued by
domestic banks. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank. ADRs do not
eliminate the risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRs rather than directly in stock of foreign issuers,
a Fund can avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for many ADRs. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject. EDRs are
receipts evidencing an arrangement with a European bank similar to that for ADRs
and are designed for use in the European securities markets.
Certain ADRs and EDRs, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareowner communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depositary of a sponsored facility
typically distributes shareowner communications and passes through the voting
rights.
Derivative Investments
The term "derivatives" has been used to identify a range and variety of
financial instruments. In general, a derivative is commonly defined as a
financial instrument whose performance and value are derived, at least in part,
from another source, such as the performance of an underlying asset, or a
specific security, or an index of securities. As is the case with other types of
investments, a Fund's derivative instruments may entail various types and
degrees of risk, depending upon the characteristics of a derivative instrument
and the Fund's overall portfolio.
A Fund permitted the use of derivatives may engage in such practices
for hedging purposes, or to maintain liquidity, or in anticipation of changes in
the composition of its portfolio holdings. No Fund will engage in derivative
investments purely for speculative purposes. A Fund will invest in one or more
derivatives only to the extent that the instrument under consideration is judged
by the investment advisor to be consistent with the Fund's overall investment
objective and policies. In making such judgment, the potential benefits and
risks will be considered in relation to the Fund's other portfolio investments.
Where not specified, investment limitations with respect to a Fund's
derivative instruments will be consistent with such Fund's existing percentage
limitations with respect to its overall investment policies and restrictions.
While not a fundamental policy, the total of all instruments deemed derivative
in nature by the investment advisor will generally not exceed 20% of total
assets for a Fund; however, as this policy is not fundamental, it may be changed
from time to time when deemed appropriate by the Board of Trustees. Listed
below, including risks and policies with respect thereto, are the types of
securities in which certain Funds are permitted to invest which are considered
by the Investment Advisor to be derivative in nature.
1. Options:
Alleghany/Veredus Aggressive Growth Fund, may engage in options,
including those described below.
A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed price up to an
agreed date. The advantage is that the purchaser may hedge against an increase
in the price of securities it ultimately wishes to buy or may take advantage of
a rise in a particular index. A Fund will only purchase call options to the
extent premiums paid on all outstanding call options do not exceed 20% of such
Funds' total assets. A Fund will only sell or write call options on a covered
basis (e.g. on securities it holds in its portfolio).
A put option enables the purchaser of the option, in return for the
premium paid, to sell the security underlying the option to the writer at the
exercise price during the option period, and the writer of the option has the
obligation to purchase the security from the purchaser of the option. The
advantage is that the purchaser can be protected should the market value of the
security decline or should a particular index decline. A Fund will only purchase
put options to the extent that the premiums on all outstanding put options do
not exceed 20% of a Funds' total assets. A Fund will only purchase put options
on a covered basis and write put options on a secured basis. Cash or other
collateral will be held in a segregated account for such options. A Fund will
receive premium income from writing put options, although it may be required,
when the put is exercised, to purchase securities at higher prices than the
current market price. At the time of purchase, a Fund will receive premium
income from writing call options, which may offset the cost of purchasing put
options and may also contribute to a Fund's total return. A Fund may lose
potential market appreciation if the judgment of its investment advisor is
incorrect with respect to interest rates, security prices or the movement of
indices.
An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive cash from the seller equal to
the difference between the closing price of the index and the exercise price of
the option.
Closing transactions essentially let a Fund offset put options or call
options prior to exercise or expiration. If a Fund cannot effect a closing
transaction, it may have to hold a security it would otherwise sell or deliver a
security it might want to hold.
A Fund may use options traded on U.S. exchanges, and to the extent
permitted by law, options traded over-the-counter. It is the position of the SEC
that over-the-counter options are illiquid. Accordingly, a Fund will invest in
such options only to the extent consistent with its 15% limit on investments in
illiquid securities. Please see "General Risk Factors" below and refer to the
Statement of Additional Information for a more detailed discussion of the
applicable risk considerations.
2. Forward Commitments, When-Issued Securities, and Delayed-Delivery
Transactions:
Alleghany/Veredus Aggressive Growth Fund, may purchase or sell
securities on a when-issued or delayed-delivery basis and make contracts to
purchase or sell securities for a fixed price at a future date beyond customary
settlement time. Securities purchased or sold on a when-issued,
delayed-delivery, or forward commitment basis involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Although a Fund would generally purchase securities on a when-issued,
delayed-delivery, or forward commitment basis with the intention of acquiring
the securities, a Fund may dispose of such securities prior to settlement if its
investment advisor deems it appropriate to do so. Please see "General Risk
Factors" below and refer to the Statement of Additional Information for a more
detailed discussion of the applicable risk considerations.
General Risk Factors
Options and Forward Contracts:
The primary risks associated with the use of options are: (i) imperfect
correlation between the change in market value of the securities held by a Fund
and the price of options; (ii) losses, which are potentially unlimited, due to
unanticipated market movements; and (iii) the investment advisor's inability to
predict correctly the direction of security prices, interest rates and other
economic factors. For a further discussion, see "INVESTMENT POLICIES AND RISK
CONSIDERATIONS" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
The Board of Trustees
Under Delaware law, the business and affairs of the Company are managed
under the direction of the Board of Trustees. The Statement of Additional
Information contains the name of each Trustee and background information
regarding the Trustees.
The Chicago Trust Company
Chicago Trust provides investment advisory services to
Alleghany/Chicago Trust SmallCap Value Fund. Pursuant to an Investment Advisory
Agreement with the Company, Chicago Trust provides an investment program for the
Fund in accordance with its investment policies, limitations and restrictions,
and furnishes executive, administrative and clerical services required for the
transaction of the Fund's business.
Chicago Trust managed approximately $8.5 billion in assets at June 30,
1998 consisting primarily of pension and profit sharing accounts, and accounts
of high net worth individuals, families and insurance companies. Chicago Trust,
an Illinois corporation, is an indirect and wholly-owned subsidiary of Alleghany
Corporation. Alleghany Corporation, located at Park Avenue Plaza, New York City,
New York 10055, is engaged through its subsidiaries in the business of title
insurance, reinsurance, other financial services and industrial minerals.
For providing investment advisory services, the Fund has agreed to pay
Chicago Trust a monthly fee at an annual rate, exclusive of voluntary fee
waivers, based on its average daily net assets of 1.00%.
Chicago Trust has voluntarily undertaken to reduce its advisory fee and
to reimburse the Fund for operating expenses in excess of 1.40%. Such fee
reimbursement may be terminated or reduced at the discretion of Chicago Trust.
Operating expenses for fee waiver/expense reimbursement purposes do not include
interest, taxes, brokerage charges, litigation or extraordinary items.
Veredus Asset Management LLC
The Investment Advisor for Alleghany/Veredus Aggressive Growth Fund is
Veredus Asset Management LLC, a registered investment advisor located at 6900
Bowling Blvd., Suite 250, Louisville, KY 40207. Veredus was founded in 1998 and
is indirectly partially owned by Alleghany Corporation.
Veredus provides investment advisory services to Alleghany/Veredus
Aggressive Growth Fund. Pursuant to an Investment Advisory Agreement with the
Company, Veredus provides an investment program for the Fund in accordance with
its investment policies, limitations and restrictions, and furnishes executive,
administrative and clerical services required for the transaction of the Fund's
business.
Veredus managed approximately $66 million in assets at June 30, 1998.
For providing investment advisory services, the Fund has agreed to pay
Veredus a monthly fee at an annual rate, exclusive of voluntary fee waivers,
based on its average daily net assets of 1.00%.
Veredus has voluntarily undertaken to reduce its advisory fee and to
reimburse the Fund for operating expenses in excess of 1.40%. Such fee
reimbursement may be terminated or reduced at the discretion of Veredus.
Operating expenses for fee waiver/expense reimbursement purposes do not include
interest, taxes, brokerage charges, litigation or extraordinary items.
PORTFOLIO MANAGEMENT METHODS
Investment Management Teams
Investment decisions for Alleghany/Chicago Trust SmallCap Value Fund
are made by an investment management team at Chicago Trust. The team is headed
by Patricia A. Falkowski, the portfolio manager of the Fund. Ms. Falkowski had
served as President and Chief Investment Officer of Fiduciary Management
Associates, Inc. from 1993 to 1998.
Investment decisions for Alleghany/Veredus Aggressive Growth Fund are made
by B. Anthony Weber, the portfolio manager of the Fund. B. Anthony Weber has
served as President of Veredus since June 1998. Prior to June 1998, he was the
President of SMC Capital, Inc., another registered investment adviser. Mr. Weber
is responsible for the day-to-day management of the Fund's portfolio. He has
managed equity accounts at SMC Capital, Inc. from the time of its founding in
1993 to the present.
The Chicago Trust Company
The performance objective of Alleghany/Chicago Trust SmallCap Value Fund is
to produce returns above the Russell 2000 Index over the long-term. Stock
selection is the critical component of the equity philosophy. The Fund's overall
approach to investing in small capitalization value stocks is based upon
research performed by its investment advisor which shows that extremely
undervalued companies offer potential for high returns over time and excellent
diversification versus other domestic equity investment styles. This strategy
may under-emphasize widely followed, institutional favorites and result in
holdings of stocks with little "Wall Street" or outside research coverage.
Advantages of investing in distressed and/or neglected issues based on internal,
fundamental research include:
low valuations that offer some downside protection;
lack of institutional ownership that results in return
streams not highly correlated with market indices;
potential for upside surprises that is increased as stocks
exceed minimal expectations and are "discovered" by other
investors; and
low transaction costs based solely on best execution rather
than research commitments.
The companies in which the Fund intends to invest will generally have the
following characteristics:
a market capitalization of less than $1 billion;
a low relative ratio of price to book value per share;
a positive or improving cash flow and other measures of
financial strength; and
a low stock price relative to historical levels.
By following these criteria, the Fund intends to select securities
which can have enhanced appreciation prospects and may provide investment
returns superior to the market as a whole. However, the market value of these
companies' securities tends to be volatile and in the past offered greater
potential for gain as well as loss than securities of larger capitalization
companies.
A key component of the equity process is the sell discipline. Chicago
Trust looks for sale candidates when one or more of the following criteria
exist: (i) deteriorating company fundamentals; (ii) the stock no longer meets
our purchase criteria; (iii) the stock grows by 25% in stock market value in a
short time; and (iv) the price target has been achieved.
The Fund will commence operations on or about November 6, 1998 and therefore has
no operating history. The investment objectives, policies and strategies of the
Alleghany/Chicago Trust SmallCap Value Fund are substantially similar in all
material aspects to the UAM FMA Small Company Portfolio, which has been managed
by Ms. Patricia A. Falkowski. Ms. Falkowski became a managing director at
Chicago Trust on August 24, 1998. She manages the investment program of the
Alleghany/Chicago Trust SmallCap Value Fund and is primarily responsible for the
day-to-day management of the Fund's portfolio. Ms. Falkowski had been chief
investment officer of Fiduciary Management Associates, Inc. since 1992 and
president since 1993. In that capacity Ms. Falkowski was the portfolio manager
for the UAM FMA Small Company Portfolio with full discretionary authority over
the selection of investments for that fund from July 1992 through August 1998.
The UAM FMA Small Company Portfolio Institutional Class Shares had net assets of
$182.7 million as of June 30, 1998. Average annual returns for the one-year,
three-year, five-year, and since July 1, 1992 periods ended June 30, 1998
compared with the performance of the Russell 2000 Index were:
<TABLE>
<CAPTION>
<S> <C> <C>
UAM FMA Small Company Portfolio (1), Russell 2000 Index
(2) (3)
-------------------------------------- --- -----------------------------------------
One Year 23.14% 16.50%
Three Years 25.62 18.86
Five Years 19.19 16.05
Since July 1, 1992 (4) 21.97 17.65
</TABLE>
(1) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses.
(2) The expense ratio of UAM FMA Small Company Portfolio was capped at
1.03% from July 1, 1992 through June 30, 1998. The expense ratio of the
Alleghany/Chicago Trust SmallCap Value Fund will be capped at 1.40%
beginning at its inception. The returns shown have been restated to
reflect an expense ratio of 1.40% (consistent with the expected expense
cap of the Alleghany/Chicago Trust SmallCap Value Fund).
(3) The Russell 2000 Index is a widely recognized, unmanaged index of
common stocks of the 2,000 smallest companies in the Russell 3000
Index. The Russell 3000 Index is comprised of the 3,000 largest U.S.
companies based on total market capitalization. Each Index is adjusted
to reflect reinvestment of dividends.
(4) The inception date of the UAM FMA Small Company Portfolio was July 31,
1991. Ms. Falkowski began managing the Fund in July of 1992.
Historical performance is not indicative of future performance. The UAM FMA
Small Company Portfolio is a separate fund and its historical performance is not
indicative of the potential performance of the Alleghany/Chicago Trust SmallCap
Value Fund. Share prices and investment returns will fluctuate reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
Veredus Asset Management LLC
B. Anthony Weber, President of Veredus, is primarily responsible for
the day-to-day management of the Fund. Prior to forming Veredus in 1998, Mr.
Weber was President and Senior Portfolio Manager of SMC Capital, Inc. (from its
inception in 1993). Prior to that date, he was the portfolio manager primarily
responsible for management of certain accounts, including three common trust
funds, of Shelby County Trust Bank (from July 1, 1989). The performance
information presented below is the performance of a composite of those equity
accounts for which Mr. Weber was primarily responsible for the day-to-day
management (since July 1, 1989) which have investment objectives, policies and
strategies substantially similar to those of the Fund. As of December 31, 1997,
the assets in those accounts totaled approximately $36 million. The composite
does not include performance of The Shelby Fund, a mutual fund for which Mr.
Weber was co-manager.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Managed Accounts S&P 500 Index Russell 2000 Index
---------------- ------------- ------------------
1998* 18.66% 17.71% 4.93%
1997 4.82 33.36 22.36
1996 14.44 22.96 16.50
1995 39.67 37.59 28.44
1994 2.46 1.32 -1.82
1993 14.70 10.08 18.91
1992 32.98 7.64 18.41
1991 42.80 30.48 46.05
1990 -1.04 -3.12 -19.51
1989** 11.67 12.99 1.47
Average Annual Returns***
One Year 24.63% 30.16% 16.50%
Five Years 16.38 23.08 16.05
Since July 1, 1989 19.32 18.35 13.67
<FN>
* 1998 percentages represent the rates of return for the six month period ended June 30, 1998.
** 1989 percentages represent the rates of return for the six month period ended December 31, 1989.
*** Average Annual Returns for the periods ended June 30, 1998, using the
Performance Presentation Standards of the Association for Investment
Management and Research ("AIMR") calculation of performance (see below),
which differs from the standardized SEC calculation.
</FN>
</TABLE>
From July 1, 1989 through December 31, 1991, the performance information
is based on a quarterly, linked time-weighted rate of return calculation method.
Beginning January 1, 1992, the accounts within the composite allowed
participants to contribute on a monthly basis. Therefore, beginning January 1,
1992, the performance information is based on a monthly, liked, time-weighted
rate of return calculation method. The composite rate of return is
market-weighted, reflecting the relative size of each eligible account, at the
beginning of the relevant period. Performance figures reflected are net of
management fees and net of all expenses, including transaction costs and
commissions. Results include the reinvestment of dividends and capital gains.
The presentation of the performance composite complies with the AIMR. The AIMR
calculation of performance differs from the standardized SEC calculation.
The S&P 500 Index is a widely recognized, unmanaged index of market
activity based upon the aggregate performance of a selected portfolio of
publicly traded common stocks, including monthly adjustments to reflect the
reinvestment of dividends and other distributions. The Russell 2000 Index is a
widely recognized index of market activity based on the aggregate performance of
small to mid-sized publicly traded common stocks. Each Index reflects the total
return of securities comprising the Index, including changes in market prices as
well as accrued investment income, which is presumed to be reinvested.
Performance figures for each Index do not reflect deduction of transaction costs
or expenses, including management fees.
The investment objectives, policies and strategies of the
Alleghany/Veredus Aggressive Growth Fund are substantially similar to those of
the managed accounts. The performance of the accounts managed by Veredus does
not represent the historical performance of the Fund and should not be
considered indicative of future performance of the Fund. Results may differ
because of, among other things, differences in brokerage commissions, account
expenses, including management fees (the use of the Fund's expense structure
would have lowered the performance results), the size of positions taken in
relation to account size and diversification of securities, timing of purchases
and sales, and availability of cash for new investments. In addition, the
managed accounts are not subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the Investment
Company Act and the Internal Revenue Code which, if applicable, may have
adversely affected the performance results of the managed accounts composite.
The results for difference periods may vary.
ADMINISTRATION OF THE FUNDS
The Administrator and Sub-Administrator
Chicago Trust (the "Administrator") acts as the Company's Administrator
pursuant to an Administration Agreement with the Company. For services provided
as Administrator, Chicago Trust receives a fee at the annual rate of: 0.060% of
the first $2 billion of average daily net aggregate assets of the Company;
0.045% of the average daily net assets between $2 billion and $3.5 billion and
0.040% of the average daily net assets in excess of $3.5 billion. Chicago Trust
also receives a custody liaison fee equal to an annual fee per Fund of $10,000
for average daily net assets up to $100 million, $15,000 for average daily net
assets between $100 million and $500 million, and $20,000 for average daily net
assets in excess of $500 million.
Pursuant to a Sub-Administration Agreement, First Data Investor
Services Group, Inc. (the "Sub-Administrator"), 53 State Street, Boston,
Massachusetts 02109, acts as Sub-Administrator and receives a fee from the
Administrator equal to that received by the Administrator as set out above. The
Sub-Administrator also receives a custody liaison fee from Chicago Trust equal
to that received by the Administrator as set out above.
The services provided to the Funds under these Agreements include:
coordinating and monitoring of any third parties furnishing services to the
Funds; providing the necessary office space, equipment and personnel to perform
administrative and clerical functions for the Funds; preparing, filing and
distributing proxy materials, periodic reports to shareowners, registration
statements and other documents; and responding to shareowner inquiries.
The Sub-Administrator also performs certain accounting and pricing
services for the Funds, including the daily calculation of the Funds' respective
net asset values.
The Transfer Agent
First Data Investor Services Group, Inc. (the "Transfer Agent"), 4400
Computer Drive, Westborough, Massachusetts 01581, performs the following duties
in its capacity as Transfer Agent to each Fund: maintains the records of each
shareowner's account; answers shareowner inquiries concerning accounts;
processes purchases and redemptions of Fund shares; acts as dividend and
distribution disbursing agent; and performs other shareowner service functions.
Shareowner inquiries should be addressed to the Transfer Agent at (800)
992-8151.
The Distributor
First Data Distributors, Inc. (the "Distributor"), 4400 Computer Drive,
Westborough, Massachusetts 01581, is the principal underwriter and distributor
of the Funds pursuant to a distribution agreement with the Company.
<PAGE>
The Custodian
Bankers Trust Company (the "Custodian"), 16 Wall Street, New York, New
York 10005, is Custodian for the cash and securities of each Fund.
Expenses
Expenses attributable to the Company, but not to a particular Fund,
will be allocated to each Fund thereof on the basis of relative net assets.
Similarly, expenses attributable to a particular Fund, but not to a particular
class thereof, will be allocated to each class thereof on the basis of relative
net assets. General Company expenses may include but are not limited to:
insurance premiums; Trustee fees; expenses of maintaining the Company's legal
existence; and fees of industry organizations. General Fund expenses may include
but are not limited to: audit fees; brokerage commissions; registration of Fund
shares with the SEC and notification fees to the various state securities
commissions; fees of the Funds' Custodian, Administrator, Sub-Administrator and
Transfer Agent or other "service providers"; costs of obtaining quotations of
portfolio securities; and pricing of Fund shares.
Class-specific expenses relating to distribution fee payments
associated with a Rule 12b-1 plan for a particular class of shares and any other
costs relating to implementing or amending such plan (including obtaining
shareowner approval of such plan or any amendment thereto) will be borne solely
by shareowners of such class or classes. Other expense allocations which may
differ among classes, or which are determined by the Trustees to be
class-specific, may include but are not limited to: printing and postage
expenses related to preparing and distributing required documents such as
shareowner reports, prospectuses, and proxy statements to current shareowners of
a specific class; SEC registration fees and state "blue sky" fees incurred by a
specific class; litigation or other legal expenses relating to a specific class;
expenses incurred as a result of issues relating to a specific class; and
different transfer agency fees attributable to a specific class.
Notwithstanding the foregoing, the investment advisor or other service
providers may waive or reimburse the expenses of a specific class or classes to
the extent permitted under Rule 18f-3 under the 1940 Act.
PURCHASE OF SHARES
In General
Shares of each Fund may be purchased directly from the Fund at the net
asset value next determined after receipt of the order in proper form. Shares of
the Funds may be purchased through broker-dealers, banks and trust departments
which may charge the investor a transaction fee or other fee for their services
at time of purchase. Such fees would not otherwise be charged if the shares were
purchased directly from the Funds.
The minimum initial investment for regular accounts (other than IRAs
and UGMAs) is $2,500 for each Fund, and the minimum subsequent investment is
$50, except for accounts opened through a fund network. In such case, the
minimums of the fund network will apply. The minimum initial investment for IRAs
and UGMAs is $500, and the minimum subsequent investment for IRAs and UGMAs is
$50. The minimum initial and subsequent investment for those enrolled in the
Automatic Investment Plan is $50. There is no sales load or charge in connection
with the purchase of shares. The Company reserves the right to reject any
purchase order and to suspend the offering of shares of any Fund. Each Fund also
reserves the right to vary the initial and additional investment minimums, or to
waive the minimum investment requirements for any investor.
Purchase orders for shares of a Fund which are received by the Transfer
Agent or an authorized broker or its designee in proper form, including money
order, check or bank draft by the regular closing time of the New York Stock
Exchange ("NYSE") (currently 4:00 p.m. Eastern time) will be purchased at such
Fund's net asset value determined that day. If you invest by check, or
non-federal funds wire, allow one business day after receipt for conversion into
federal funds. Checks must be made payable to "Alleghany Funds." If you wire
money in the form of federal funds, your money will be invested at the share
price next determined after receipt of the wire. Orders for shares received in
proper form after 4:00 p.m. will be priced at the net asset value determined on
the next day that the NYSE is open for trading.
Each Fund may accept telephone orders from broker-dealers or service
organizations which have been previously approved by a Fund. It is the
responsibility of such broker-dealers or service organizations or their
authorized designees to promptly forward purchase orders and payments for same
to the Company.
Purchases may be made in one of the following ways:
Initial Purchases by Mail
Shares of each Fund may be purchased initially by completing the
application accompanying this Prospectus and mailing it to the Transfer Agent,
together with a check payable to "Alleghany Funds", c/o First Data Investor
Services Group, Inc., P.O. Box 5164, Westborough, Massachusetts 01581. The Funds
will not accept third party checks for the purchase of shares. Third party
checks are those that are made out to someone other than a Fund and are endorsed
over to the Fund.
Initial Purchases by Wire
An investor desiring to purchase shares of a Fund by wire should call
the Transfer Agent first at (800) 992-8151 and request an account number and
furnish the Fund with your tax identification number. Following such
notification to the Transfer Agent, federal funds and registration instructions
should be wired through the Federal Reserve System to:
BOSTON SAFE DEPOSIT & TRUST
ABA # 011001234
FOR: Alleghany Funds
A/C 140414
FBO "FUND NUMBER"
"SHAREOWNER ACCOUNT NUMBER"
A completed application with original signature(s) of registrant(s)
must be filed with the Transfer Agent immediately subsequent to the initial
wire. Investors should be aware that some banks may impose a wire service fee.
Subsequent Investments
Once an account has been opened, subsequent purchases in the minimum
amounts may be made by mail, bank wire, exchange or by telephone. When making
additional investments by mail, simply return the investment slip from a
previous confirmation or statement with your investment in the envelope
provided. Your check must be made payable to "Alleghany Funds" and mailed to the
Alleghany Funds, P.O. Box 5163, Westborough, Massachusetts 01581. The Funds will
not accept third party checks for the subsequent purchase of shares.
All investments must be made in U.S. dollars, and, to avoid fees and
delays, checks must be drawn only on banks located in the U.S. In order to help
ensure the receipt of good funds, the Company reserves the right to delay
sending your redemption proceeds up to 15 days if you purchased shares by check.
A charge ($20 minimum) will be imposed if any check used for the purchase of
shares is returned. The Funds and the Transfer Agent reserve the right to reject
any purchase order in whole or in part.
EXCHANGE OF SHARES
In General
Shares of any of the Funds within the Company may be exchanged for shares
of the same class of any of the other Funds within the Company. The Company
currently consists of the following Funds: Alleghany/Chicago Trust SmallCap
Value Fund, Alleghany/Veredus Aggressive Growth Fund, Montag & Caldwell Growth
Fund, Chicago Trust Growth & Income Fund, Chicago Trust Talon Fund, Chicago
Trust Balanced Fund, Montag & Caldwell Balanced Fund, Chicago Trust Bond Fund,
Chicago Trust Municipal Bond Fund, and Chicago Trust Money Market Fund.
The exchange privilege is a convenient way to respond to changes in
your investment goals or in market conditions. This privilege is not designed
for frequent trading in response to short-term market fluctuations. You may make
exchanges by mail or by telephone if you have previously elected the telephone
authorization privilege on the application form. The telephone exchange
privilege may be difficult to implement during times of drastic economic or
market changes. The purchase of shares of a Fund through an exchange transaction
is accepted at the net asset value next determined. You should keep in mind that
for tax purposes, an exchange is treated as a redemption and a new purchase,
each at net asset value of the appropriate Fund. The Funds and the Transfer
Agent reserve the right to limit, amend, impose charges upon, terminate or
otherwise modify the exchange privilege on prior written notice to shareowners.
Exchanges may be made only for shares of a Fund then offering its
shares for sale in your state of residence and are subject to the minimum
initial investment requirement. Requests for telephone exchanges must be
received by the Transfer Agent by the close of regular trading on the NYSE
(currently 4:00 p.m. Eastern time) on any day that the NYSE is open for regular
trading.
REDEMPTION OF SHARES
In General
Shares of each Fund may be redeemed without charge on any business day
that the NYSE is open for business. Redemptions will be effective at the net
asset value per share next determined after the receipt by the Transfer Agent of
a redemption request meeting the requirements described below. Each Fund
normally sends redemption proceeds on the next business day, but in any event
redemption proceeds are sent within seven calendar days of receipt of a
redemption request in proper form. However, your redemption proceeds may be
delayed up to 15 days if you purchased the shares to be redeemed by check until
such check has cleared. Payment may also be made by wire directly to any bank
previously designated by the shareowner in a shareowner account application. A
shareowner will be charged $20 for redemptions by wire. Also, please note that
the shareowner's bank may impose a fee for this wire service.
If your account is an Individual Retirement Account (IRA), your
redemption request must be submitted in writing. Please call a customer service
representative at (800-992-8151) to request an IRA Distribution Request form or
for further information.
Except as noted below, redemption requests received in proper form by
the Transfer Agent or an authorized broker or its designee prior to the close of
regular trading hours on the NYSE on any business day that the Fund calculates
its per share net asset value are effective that day.
Redemption requests received after the close of the NYSE are effective
as of the time the net asset value per share is next determined. No redemption
will be processed until the Transfer Agent has received a completed application
with respect to the account.
The Funds will satisfy redemption requests in cash to the fullest
extent feasible, so long as such payments would not, in the opinion of the Board
of Trustees, result in the necessity of a Fund selling assets under
disadvantageous conditions or to the detriment of the remaining shareowners of
the Fund. Pursuant to the Company's Trust Instrument, payment for shares
redeemed may be made either in cash or in-kind, or partly in cash and partly
in-kind. However, the Company has elected pursuant to Rule 18f-1 under the 1940
Act to redeem its shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund, during any ninety-day period for any one
shareowner. Payments in excess of this limit by any of the Funds will also be
made wholly in cash unless the Board of Trustees believes that economic
conditions exist which would make such a practice detrimental to the best
interests of any such Fund. Any portfolio securities paid or distributed in-kind
would be valued as described under "NET ASSET VALUE." In the event that an
in-kind distribution is made, a shareowner may incur additional expenses, such
as the payment of brokerage commissions, on the sale or other disposition of the
securities received from a Fund. In-kind payments need not constitute a
cross-section of the Fund's portfolio.
<PAGE>
Minimum Balances
Due to the relatively high cost of maintaining smaller accounts, the
Funds reserve the right to involuntarily redeem shares in any account for its
then current net asset value (which will be promptly paid to the shareowner) if
at any time the total investment does not have a value of at least $50. The
shareowner will be notified that the value of his or her account is less than
the required minimum and will be allowed at least sixty days to bring the value
of the account up to the minimum before the redemption is processed.
Shares may be redeemed in one of the following ways:
Redemptions by Mail
Shareowners may submit a written request for redemption to: Alleghany
Funds, P.O. Box 5164, Westborough, Massachusetts 01581. The request must be in
good order which means that it must: (i) identify the shareowner's account name
and account number; (ii) state the fund name, (iii) state the number of shares
to be redeemed; and (iv) be signed by each registered owner exactly as the
shares are registered.
To prevent fraudulent redemptions, a signature guarantee for the
signature of each person in whose name the account is registered is required on
all written redemption requests over $50,000. A guarantee may be obtained from
any commercial bank, trust company, savings and loan association, federal
savings bank, a member firm of a national securities exchange or other eligible
financial institution. Credit unions must be authorized to issue signature
guarantees; notary public endorsements will not be accepted. The Transfer Agent
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees, guardians, and retirement
plans.
A redemption request will not be deemed to be properly received until the
Transfer Agent receives all required documents in proper form. Questions with
respect to the proper form for redemption requests should be directed to the
Transfer Agent at (800) 992-8151.
Redemptions by Telephone
Shareowners who have so indicated on the application, or have
subsequently arranged in writing to do so, may redeem shares by instructing the
Transfer Agent by telephone at (800) 992-8151.
In order to arrange for redemption by wire or telephone after an
account has been opened, or to change the bank or account designated to receive
redemption proceeds, a written request must be sent to the Transfer Agent at the
address listed under "Redemptions by Mail" above. Such requests must be signed
by the shareowner, with signatures guaranteed (see "Redemptions by Mail" for
details regarding signature guarantees). Further documentation may be requested
from corporations, executors, administrators, trustees, or guardians.
The Funds reserve the right to refuse a wire or telephone redemption if
it is believed advisable to do so. Procedures for redeeming Fund shares by wire
or telephone may be modified or terminated at any time by any of the Funds.
Neither the Funds nor any of their service contractors will be liable for any
loss or expense in acting upon telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions are
genuine, the Funds will use such procedures as are considered reasonable,
including requesting a shareowner to correctly state his or her Fund account
number, the name in which his or her account is registered, his or her social
security number, banking institution, bank account number, and the name in which
his or her bank account is registered.
Shares of the Funds may be redeemed through certain broker-dealers, banks
and bank trust departments who may charge the investor a transaction fee or
other fee for their services at the time of redemption. Such fees would not
otherwise be charged if the shares were redeemed from the Company.
<PAGE>
ACCOUNT OPTIONS
In General
The following special services are available to shareowners. There are
no charges for the programs noted below and an investor may change or stop these
plans at any time by written notice to the Funds.
Automatic Investment Plan
This service allows you to make regular investments once your account
is established. You simply authorize the automatic withdrawal of funds from your
bank account into the Fund of your choice. The minimum initial and subsequent
investment pursuant to this plan is $50 per month. Your initial account must be
established prior to participating in this plan. Please complete the appropriate
section on the new account application enclosed with this Prospectus.
Systematic Withdrawal Program
The Funds offers a Systematic Withdrawal Program as another option
which may be utilized by an investor who wishes to withdraw funds from his or
her account on a regular basis. To participate in this option, an investor must
either own or purchase shares having a value of $50,000 or more. Automatic
payments by check will be mailed to the investor on either a monthly, quarterly,
semi-annual, or annual basis in amounts of $50 or more. All withdrawals are
processed on the 25th of the month or, if such day is not a business day, on the
next business day and paid promptly thereafter.
Individual Retirement Accounts
An Individual Retirement Account (IRA) is a custodial account created
for the exclusive benefit of you and your beneficiaries. There are many types of
IRAs available including Individual, Spousal, Rollover, SEP-IRA, SIMPLE-IRA,
Roth-Contributory and Roth-Conversion. Because income generated from an IRA is
tax-deferred.
The annual maintenance fee for an IRA is $15.00 per year. This fee will
be paid through an automatic liquidation of shares from your account each
December. You may choose to pay this fee prior to December by sending in a
check. Shareowners with a cumulative balance of $50,000 or more will have IRA
fees waived.
DISTRIBUTION PLAN
The Board of Trustees of the Company has adopted a Plan of Distribution
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act which permits the Class N
shares of each Fund to pay certain expenses associated with the distribution of
its shares. Under the Plan, each Fund may reimburse the Distributor for actual
expenses not exceeding, on an annual basis, 0.25% of a Fund's average daily net
assets.
The Plan authorizes a Fund to compensate the Distributor for the
following: (1) services rendered by the Distributor pursuant to the Distribution
Agreement between the Company and the Distributor; (2) payments the Distributor
makes to financial institutions and industry professionals, such as insurance
companies, investment counselors, accountants, estate planning firms and
broker-dealers, including Chicago Trust and its affiliates and subsidiaries,
Talon Securities, Inc. and the affiliates and subsidiaries of the Distributor
(collectively, "Participating Organizations"), in consideration for distribution
services provided or expenses assumed in connection with distribution
assistance, market research, and promotional services, including, but not
limited to, printing and distributing prospectuses to persons other than current
shareowners of a Fund, printing and distributing advertising and sales
literature and reports to shareowners and prospective shareowners used in
connection with the sale of a Fund's shares, and personnel and communication
equipment used in servicing shareowner accounts and prospective shareowner
inquiries; and (3) payments the Distributor makes to Participating Organizations
pursuant to an agreement to provide administrative support services to the
holders of a Fund's shares. Participating Organizations that are compensated for
distribution services may be required to register as dealers in certain
jurisdictions.
Payments for market research and promotional services may be based in
whole or in part on a percentage of the regular salary expense for those
employees of Participating Organizations engaged in marketing research and
promotional services specifically relating to the distribution of Fund shares
based on the amount of time devoted by such employees to such activities, and
any out-of-pocket expenses associated with the distribution of Fund shares.
All such payments made by a Fund pursuant to the Plan shall be made for
the purpose of selling shares issued by the Fund. Distribution expenses which
are attributable to a particular Fund will be charged against that Fund's
assets. Distribution expenses which are attributable to more than one Fund will
be allocated among the Funds in proportion to their relative net assets.
NET ASSET VALUE
The net asset value per share of each Fund is computed as of the close
of regular trading on the NYSE on each day the NYSE is open for trading. The
NYSE is closed on New Year's Day, Martin Luther King Jr.'s Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
The net asset value per share is computed by adding the value of all
securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. The portfolio securities of each Fund listed or traded on a stock
exchange are valued at the latest sale price. If no sale price is reported, the
mean of the latest bid and asked prices is used. Securities traded
over-the-counter are priced at the mean of the latest bid and asked prices. When
market quotations are not readily available, securities and other assets are
valued at fair value as determined in good faith by the Board of Trustees.
Bonds are valued through valuations obtained from a commercial pricing
service or at the mean of the most recent bid and asked prices provided by
investment dealers in accordance with procedures established by the Board of
Trustees. Options, futures and options on futures are valued at the settlement
price as determined by the appropriate clearing corporation.
DIVIDENDS AND TAXES
Dividends
Dividends, if any, from net investment income will be declared and paid
quarterly by each Fund. Aggregate net profits realized from the sale of
portfolio securities, if any, are distributed at least once each year unless
they are used to offset losses carried forward from prior years, in which case
no such gain will be distributed.
Income dividends and capital gain distributions are reinvested
automatically in additional shares at net asset value, unless you elect to
receive them in cash. Distribution options may be changed at any time by
requesting a change in writing. Any check in payment of dividends or other
distributions which cannot be delivered by the Post Office or which remains
uncashed for a period of more than one year may be reinvested in the
shareowner's account at the then current net asset value and the dividend option
may be changed from cash to reinvest. Dividends are reinvested on the
ex-dividend date (the "ex-date") at the net asset value determined at the close
of business on that date. Please note that shares purchased shortly before the
record date for a dividend or distribution may have the effect of returning
capital although such dividends and distributions are subject to taxes.
Taxes
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code ("the Code"). Such qualification
relieves a Fund of liability for Federal income taxes to the extent the Fund's
earnings are distributed in accordance with the Code. Each Fund is treated as a
separate corporate entity for Federal tax purposes. Distributions of any net
investment income and of any net realized short-term capital gains are taxable
to shareowners as ordinary income. Distributions of net capital gain (the excess
of net long-term capital gain over net short-term capital loss) are taxable to
shareowners as long-term capital gain regardless of how long a shareowner may
have held shares of a Fund. The tax treatment of distributions of ordinary
income or capital gains will be the same whether the shareowner reinvests the
distributions or elects to receive them in cash. A distribution will be treated
as paid on December 31 of the current calendar year if it is declared in
October, November or December with a record date in such a month and paid during
January of the following calendar year. Such distributions will be taxable to
shareowners in the calendar year in which the distributions are declared, rather
than the calendar year in which the distributions are received.
Shareowners will be advised annually of the source and tax status of
all distributions for Federal income tax purposes. Dividends and distributions
may be subject to state and local income taxes. Further information regarding
the tax consequences of investing in the Funds is included in the Statement of
Additional Information. The above discussion is intended for general information
only. Investors should consult their own tax advisors for more specific
information on the tax consequences of particular types of distributions.
Redemptions of Fund shares, and the exchange of shares between Funds of
the Company, are taxable events and, accordingly, shareowners may realize
capital gains or losses on these transactions.
Shareowners may be subject to back-up withholding on reportable
dividend and redemption payments ("back-up withholding") if a certified taxpayer
identification number is not on file with the Fund, or if, to the Fund's
knowledge, an incorrect number has been furnished. An individual's taxpayer
identification number is his/her social security number.
PERFORMANCE OF THE FUNDS
In General
Performance, whether it be "total return" or "average annual total
return" of a Fund, may be advertised to present or prospective shareowners. The
figures are based on historical performance and should not be considered
representative of future results. The value of an investment in a Fund will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. Performance information for a Fund may be compared to
various unmanaged indices such as the Dow Jones Industrial Average and the S&P
500, and to the performance of other mutual funds tracked by mutual fund rating
services. Further information about the performance of the Funds is included in
the Statement of Additional Information, which may be obtained without charge by
contacting the Fund at (800) 992-8151.
Total Return
Total Return is defined as the change in value of an investment in a
Fund over a particular period, assuming that all distributions have been
reinvested. Thus, total return reflects not only income earned, but also
variations in share prices at the beginning and end of the period. Average
annual total return is determined by computing the annual compound return over a
stated period of time that would have produced a Fund's cumulative total return
over the same period if the Fund's performance had remained constant throughout.
GENERAL INFORMATION
Organization
Each Fund is a separate, diversified, series of the Company, a Delaware
business trust organized pursuant to a Trust Instrument dated September 10,
1993. The Company is registered under the 1940 Act as an open-end management
investment company, commonly known as a mutual fund. The Trustees of the Company
may establish additional series or classes of shares without the approval of
shareowners. The assets of each series belong only to that series, and the
liabilities of each series are borne solely by that series and no other.
Description of Shares
Each Fund is authorized to issue an unlimited number of shares of
beneficial interest without par value. Currently, there is only one class of
shares issued by each Fund which is Class N shares for retail investors. Shares
of each Fund represent equal proportionate interests in the assets of that Fund
only and have identical voting, dividend, redemption, liquidation, and other
rights. All shares issued are fully paid and non-assessable, and shareowners
have no preemptive or other right to subscribe to any additional shares and no
conversion rights. For more information about other Company funds and their
respective class or classes, please call (800) 992-8151.
Voting Rights
Each issued and outstanding full and fractional share of a Fund is
entitled to one full and fractional vote in the Fund. Shares of a Fund
participate equally in regard to dividends, distributions, and liquidations with
respect to that Fund subject to preferences (such as Rule 12b-1 distribution
fees), rights or privileges of any share class. Shareowners have equal
non-cumulative voting rights. Class N shares have exclusive voting rights with
respect to the distribution plan. On any matter submitted to a vote of
shareowners, shares of each Fund will vote separately except when a vote of
shareowners in the aggregate is required by law, or when the Trustees have
determined that the matter affects the interests of more than one Fund, in which
case the shareowners of all such Funds shall be entitled to vote thereon.
Shareowner Meetings
The Trustees of the Company do not intend to hold annual meetings of
shareowners of the Funds. The Trustees have undertaken to the SEC, however, that
they will promptly call a meeting for the purpose of voting upon the question of
removal of any Trustee when requested to do so by not less than 10% of the
outstanding shareowners of the Funds. In addition, subject to certain
conditions, shareowners of the Funds may apply to the Company to communicate
with other shareowners to request a shareowners' meeting to vote upon the
removal of a Trustee or Trustees.
Certain Provisions of Trust Instrument
Under Delaware law, the shareowners of the Funds will not be personally
liable for the obligations of any Fund; a shareowner is entitled to the same
limitation of personal liability extended to shareowners of corporations. To
guard against the risk that the Delaware law might not be applied in other
states, the Trust Instrument requires that every written obligation of the
Company or a Fund contain a statement that such obligation may only be enforced
against the assets of the Company or Fund and provides for indemnification out
of Company or Fund property of any shareowner nevertheless held personally
liable for Company or Fund obligations.
Portfolio Transactions and Brokerage Commissions
The Company will attempt to obtain the best overall price and most
favorable execution of transactions in portfolio securities. However, subject to
policies established by the Board of Trustees of the Company, a Fund may pay a
broker-dealer a commission for effecting a portfolio transaction for a Fund in
excess of the amount of commission another broker-dealer would have charged if
Chicago Trust determines in good faith that the commission paid was reasonable
in relation to the brokerage or research services provided by such
broker-dealer, viewed in terms of that particular transaction or such firm's
overall responsibilities with respect to the clients, including the Fund, as to
which it exercises investment discretion. In selecting and monitoring
broker-dealers and negotiating commissions, consideration will be given to a
broker-dealer's reliability, the quality of its execution services on a
continuing basis and its financial condition.
Subject to the foregoing considerations, preference may be given in
executing portfolio transactions for a Fund to brokers which have sold shares of
that Fund. Any such transactions, however, will comply with Rule 17e-1 under the
1940 Act.
Shareowner Reports and Inquiries
Shareowners will receive Semi-Annual Reports showing portfolio
investments and other information as of April 30 and Annual Reports audited by
independent accountants as of October 31. Shareowners with inquiries should call
the Company at (800) 992-8151 or write to Alleghany Funds, P.O. Box 5164,
Westborough, Massachusetts 01581.
<PAGE>
APPENDIX
Debt Ratings
Moody's Investors Service, Inc. describes classifications of corporate bonds as
follows:
"Aaa" -- These bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or 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" -- These bonds 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 in "Aaa" securities.
"A" -- These bonds 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" -- These bonds 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" -- These bonds are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
"B" -- These bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
"Caa" -- These bonds are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
"Ca" -- These bonds represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
"C" -- These bonds are the lowest-rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's may modify a rating of "Aa", "A" or "Baa" by adding numerical modifiers
1, 2, 3 to show relative standing within these categories.
Standard & Poor's Corporation describes classifications of corporate and
municipal debt as follows:
"AAA" -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
"AA" -- These bonds also qualify as high-quality debt obligations. Their
capacity to pay interest and repay principal is very strong, and differs from
the "AAA" issues only in small degree.
"A" -- These bonds have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB" -- These bonds are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher rated categories.
"BB", "B", "CCC", "CC", or "C" -- These bonds are regarded as having
predominantly speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal. "BB" indicates the lowest degree of
speculation and "C" the highest degree of speculation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse conditions. 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. The "BB" rating category is also used
for debt subordinated to senior debt that is assigned an actual or implied
"BBB-" rating. Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Debt rated "CCC" has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. The rating "CC" is
typically applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC" rating. The rating "C" is typically applied to debt
subordinated to senior debt which is assigned an actual or implied "CCC-" debt
rating.
"CI" -- This rating is reserved for income bonds on which no interest is being
paid.
"D" -- Debt is in default, and payment of interest and/or repayment of principal
is in arrears.
PLUS (+) OR MINUS (-) -- The ratings from "AA" through "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
INVESTMENT ADVISOR
The Chicago Trust Company
171 North Clark Street
Chicago, IL 60601-3294
Veredus Asset Management LLC
6900 Bowling Blvd., Suite 250
Louisville, KY 40207
ADMINISTRATOR
The Chicago Trust Company
171 North Clark Street
Chicago, IL 60601-3294
CUSTODIAN
Bankers Trust Company
16 Wall Street
New York, NY 10005
For Additional Information about Alleghany Funds, call:
(800) 992-8151
<PAGE>
ALLEGHANY FUNDS
Montag & Caldwell Growth Fund-
Chicago Trust Growth & Income Fund
Chicago Trust Talon Fund
Chicago Trust Balanced Fund
Montag & Caldwell Balanced Fund
Chicago Trust Bond Fund
Chicago Trust Municipal Bond Fund
Chicago Trust Money Market Fund
Alleghany/Chicago Trust SmallCap Value Fund
Alleghany/Veredus Aggressive Growth Fund
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 6, 1998
This Statement of Additional Information provides supplementary
information pertaining to shares representing interests in ten investment
portfolios of Alleghany Funds (formerly known as the "CT&T Funds") (the
"Company"): Montag & Caldwell Growth Fund; Chicago Trust Growth & Income Fund;
Chicago Trust Talon Fund; Chicago Trust Balanced Fund (formerly known as
"Chicago Trust Asset Allocation Fund"); Montag & Caldwell Balanced Fund; Chicago
Trust Bond Fund; Chicago Trust Municipal Bond Fund; Chicago Trust Money Market
Fund; Alleghany/Chicago Trust SmallCap Value Fund; and Alleghany/Veredus
Aggressive Growth Fund. Each Fund offers Class N shares for retail investors and
Montag & Caldwell Growth Fund also offers Class I shares for institutional
investors.
This Statement of Additional Information is not a Prospectus, and
should be read only in conjunction with the Prospectus for the Montag & Caldwell
Growth Fund; Chicago Trust Growth & Income Fund; Chicago Trust Talon Fund;
Chicago Trust Balanced Fund; Montag & Caldwell Balanced Fund; Chicago Trust Bond
Fund; Chicago Trust Municipal Bond Fund and Chicago Trust Money Market Fund
dated February 27, 1998 or the Prospectus for Alleghany/Chicago Trust SmallCap
Value Fund and Alleghany/Veredus Aggressive Growth Fund dated November 6, 1998
(the "Prospectus"). No investment in shares should be made without first reading
the Prospectus. A copy of the Prospectus may be obtained without charge from the
Company at the address and telephone number below.
Alleghany Funds: Investment Advisor to Certain Funds:
171 North Clark Street THE CHICAGO TRUST COMPANY
Chicago, IL 60601 171 North Clark Street
(800) 992-8151 Chicago, IL 60601
Investment Advisor to Certain Funds:
MONTAG & CALDWELL, INC.
1100 Atlanta Financial Center
3343 Peachtree Road, NE
Atlanta, GA 30326-1450
Investment Advisor to Certain Funds:
VEREDUS ASSET MANAGEMENT LLC
6900 Bowling Blvd., Suite 250
Louisville, KY 40207
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information or in
the Prospectus in connection with the offering made by the Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or its distributor. The Prospectus does
not constitute an offering by the Company or by the distributor in any
jurisdiction in which such offering may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
Page
THE FUNDS 3
INVESTMENT POLICIES AND RISK CONSIDERATIONS 3
INVESTMENT RESTRICTIONS 15
TRUSTEES AND OFFICERS 16
PRINCIPAL HOLDERS OF SECURITIES 18
INVESTMENT ADVISORY AND OTHER SERVICES 20
Investment Advisory Agreements 20
Sub-Investment Advisory Agreement 22
The Administrator and Sub-Administrator 23
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS 24
TAXES 25
PERFORMANCE INFORMATION 27
OTHER INFORMATION 30
APPENDIX 31
The Annual Report Including Audited Financial Statements dated October 31, 1997
Montag & Caldwell Growth Fund
Chicago Trust Growth & Income Fund
Chicago Trust Talon Fund
Chicago Trust Balanced Fund
Montag & Caldwell Balanced Fund
Chicago Trust Bond Fund
Chicago Trust Municipal Bond Fund
Chicago Trust Money Market Fund
The Semi-Annual Report Including Unaudited Financial Statements dated April 30,
1998
Montag & Caldwell Growth Fund
Chicago Trust Growth & Income Fund
Chicago Trust Talon Fund
Chicago Trust Balanced Fund
Montag & Caldwell Balanced Fund
Chicago Trust Bond Fund
Chicago Trust Municipal Bond Fund
Chicago Trust Money Market Fund
<PAGE>
THE FUNDS
Alleghany Funds, 171 North Clark Street, Chicago, Illinois 60601, is a
no-load, open-end management investment company which currently offers ten
series of shares of beneficial interest representing separate portfolios of
investments: Montag & Caldwell Growth Fund, Chicago Trust Growth & Income Fund,
Chicago Trust Talon Fund, Chicago Trust Balanced Fund, Montag & Caldwell
Balanced Fund, Chicago Trust Bond Fund, Chicago Trust Municipal Bond Fund,
Chicago Trust Money Market Fund, Alleghany/Chicago Trust SmallCap Value Fund,
and Alleghany/Veredus Aggressive Growth Fund (collectively referred to as
"Funds" or individually as a "Fund").
INVESTMENT POLICIES AND RISK CONSIDERATIONS
The following supplements the information contained in the Prospectus
concerning the investment policies of the Funds. Except as otherwise stated
below or in the Prospectus, all Funds may invest in the portfolio investments
included in this section. A description of applicable credit ratings is set
forth in the Appendix to the Prospectus.
The investment practices described below, except for the discussion of
portfolio loan transactions, are not fundamental and may be changed by the Board
of Trustees without the approval of the shareowners.
As discussed in the Prospectus, certain of the following investment
instruments are generally considered "derivative" in nature and are so noted.
While not a fundamental policy, each Fund that is permitted the use of such
instruments will generally limit its aggregate holdings of such instruments to
20% or less of its total assets.
RESTRICTED SECURITIES
Each Fund will limit investments in securities of issuers which the
Fund is restricted from selling to the public without registration under the
1933 Act to no more than 5% of the Fund's total assets, excluding restricted
securities eligible for resale pursuant to Rule 144A that have been determined
to be liquid by a Fund's Investment Advisor, pursuant to guidelines adopted by
the Company's Board of Trustees.
CONVERTIBLE SECURITIES
Common stock occupies the most junior position in a company's capital
structure. Convertible securities entitle the holder to exchange the securities
for a specified number of shares of common stock, usually of the same company,
at specified prices within a certain period of time and to receive interest or
dividends until the holder elects to convert. The provisions of any convertible
security determine its ranking in a company's capital structure. In the case of
subordinated convertible debentures, the holder's claims on assets and earnings
are subordinated to the claims of other creditors, and are senior to the claims
of preferred and common shareowners. In the case of preferred stock and
convertible preferred stock, the holder's claims on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareowners.
MONEY MARKET INSTRUMENTS AND RELATED RISKS
Money market instruments in which the Funds may invest include, but are
not limited to the following: short-term corporate obligations; Certificates of
Deposit ("CDs"); Eurodollar Certificates of Deposit ("Euro CDs"); Yankee
Certificates of Deposit ("Yankee CDs"); foreign bankers' acceptances; foreign
commercial paper; letter of credit-backed commercial paper; time deposits; loan
participations ("LPs"); variable- and floating-rate instruments; and master
demand notes.
Euro CDs, Yankee CDs and foreign bankers' acceptances involve risks
that are different from investments in securities of U.S. banks. The major risk,
which is sometimes referred to as "sovereign risk," pertains to possible future
unfavorable political and economic developments, possible withholding taxes,
seizures of foreign deposits, currency controls, interest limitations, or other
governmental restrictions which might affect payment of principal or interest.
Investment in foreign commercial paper also involves risks that are different
from investments in securities of commercial paper issued by U.S. companies.
Non-U.S. securities markets generally are not as developed or efficient as those
in the United States. Such securities may be less liquid and more volatile than
securities of comparable U.S. corporations. Non-U.S. issuers are not generally
subject to uniform accounting and financial reporting standards, practices and
requirements comparable to those applicable to U.S. issuers. In addition, there
may be less public information available about foreign banks, their branches and
other issuers.
Time deposits usually trade at a premium over Treasuries of the same
maturity. Investors regard such deposits as carrying some credit risk, which
Treasuries do not; also, investors regard time deposits as being sufficiently
less liquid than Treasuries; hence, investors demand some extra yield for buying
time deposits rather than Treasuries. The investor in a loan participation has a
dual credit risk to both the borrower and also the selling bank. The second risk
arises because it is the selling bank that collects interest and principal and
sends it to the investor.
Variable- and Floating-Rate Instruments and Related Risks
With respect to the variable- and floating-rate instruments that may be
acquired by Chicago Trust Balanced Fund, Montag & Caldwell Balanced Fund,
Chicago Trust Bond Fund and Chicago Trust Municipal Bond Fund, the Investment
Advisor will consider the earning power, cash flows and other liquidity ratios
of the issuers and guarantors of such instruments and, if the instruments are
subject to demand features, will monitor their financial status with respect to
the ability of the issuer to meet its obligation to make payment on demand.
Where necessary to ensure that a variable- or floating-rate instrument meets a
Fund's quality requirements, the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Because variable and floating-rate instruments are direct lending
arrangements between the lender and the borrower, it is not contemplated that
such instruments will generally be traded, and there is generally no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of credit
or other credit support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand.
The same credit research must be done for master demand notes as in
accepted names for potential commercial paper issuers to reduce the chances of a
borrower getting into serious financial difficulties.
Loans of Portfolio Securities and Related Risks
All Funds except Alleghany/Chicago Trust SmallCap Value Fund and
Alleghany/Veredus Aggressive Growth Fund may lend portfolio securities to
broker-dealers and financial institutions provided: (1) the loan is secured
continuously by collateral marked-to-market daily and maintained in an amount at
least equal to the current market value of the securities loaned; (2) a Fund may
call the loan at any time and receive the securities loaned; (3) a Fund will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities loaned by a Fund will not at any time
exceed 25% of the total assets of such Fund.
Collateral will consist of U.S. Government securities, cash
equivalents, or irrevocable letters of credit. Loans of securities involve a
risk that the borrower may fail to return the securities or may fail to maintain
the proper amount of collateral. Therefore, a Fund will only enter into
portfolio loans after a review by the Investment Advisor, under the supervision
of the Board of Trustees, including a review of the creditworthiness of the
borrower. Such reviews will be monitored on an ongoing basis.
Loan Participations ("LPs")
All Funds may engage in LPs. LPs are loans sold by the lending bank to
an investor. The loan participant borrower may be a company with highly-rated
commercial paper that finds it can obtain cheaper funding through an LP than
with commercial paper and can also increase the company's name recognition in
the capital markets. LPs often generate greater yield than commercial paper.
The borrower of the underlying loan will be deemed to be the issuer
except to the extent the Fund derives its rights from the intermediary bank
which sold the LPs. Because LPs are undivided interests in a loan made by the
issuing bank, the Fund may not have the right to proceed against the LP borrower
without the consent of other holders of the LPs. In addition, LPs will be
treated as illiquid if, in the judgment of the Investment Advisor, they cannot
be sold within seven days.
Foreign Bankers' Acceptances
All Funds may purchase foreign bankers' acceptances, although Chicago
Trust Money Market Fund's purchases are limited by the quality standards of Rule
2a-7 under the Investment Company Act of 1940 (the "1940 Act"). Foreign bankers'
acceptances are short-term (270 days or less), non-interest-bearing notes sold
at a discount and redeemed by the accepting foreign bank at maturity for full
face value and denominated in U.S. dollars. Foreign bankers' acceptances are the
obligations of the foreign bank involved, to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and the
drawer to pay the face amount of the instrument upon maturity.
Foreign Commercial Paper
All Funds may purchase foreign commercial paper, although Chicago Trust
Money Market Fund's purchases are limited by the quality standards of Rule 2a-7
under the 1940 Act. Foreign commercial paper consists of short-term unsecured
promissory notes denominated in U.S. dollars, either issued directly by a
foreign firm in the U.S., or issued by a "domestic shell" subsidiary of a
foreign firm established to raise dollars for the firm's operations abroad or
for its U.S. subsidiary. Like commercial paper issued by U.S. companies, foreign
commercial paper is rated by the rating agencies (Moody's, S&P) as to the
issuer's creditworthiness. Foreign commercial paper can potentially provide the
investor with a greater yield than domestic commercial paper.
Eurodollar Certificates of Deposit ("Euro CDs")
A Euro CD is a receipt from a bank for funds deposited at that bank for
a specific period of time at some specific rate of return and denominated in
U.S. dollars. It is the liability of a U.S. bank branch or foreign bank located
outside the U.S. Almost all Euro CDs are issued in London.
Yankee Certificates of Deposit ("Yankee CDs")
Yankee CDs are certificates of deposit that are issued domestically by
foreign banks. It is a means by which foreign banks may gain access to U.S.
markets through their branches which are located in the United States, typically
in New York. These CDs are treated as domestic securities.
Repurchase Agreements
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Repurchase agreements
may be considered loans by a Fund under the 1940 Act.
The financial institutions with which a Fund may enter into repurchase
agreements are banks and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers and
banks, if such banks and non-bank dealers are deemed creditworthy by the
Investment Advisor or Sub-Investment Advisor. The Investment Advisor or
Sub-Investment Advisor will continue to monitor the creditworthiness of the
seller under a repurchase agreement, and will require the seller to maintain
during the term of the agreement the value of the securities subject to the
agreement at not less than the repurchase price.
Each Fund will only enter into a repurchase agreement where the market
value of the underlying security, including interest accrued, will be at all
times equal to or exceed the value of the repurchase agreement. The securities
held subject to a repurchase agreement by Chicago Trust Money Market Fund may
have stated maturities exceeding 13 months, provided the repurchase agreement
itself matures in less than 13 months.
Reverse Repurchase Agreements
Reverse repurchase agreements involve the sale of securities held by a
Fund pursuant to a Fund's agreement to repurchase the securities at an agreed
upon price, date and rate of interest. Such agreements are considered to be
borrowings under the 1940 Act, and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, a
Fund will maintain in a segregated account cash, or liquid, securities in an
amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement. (Liquid securities as used in the prospectus
and this Statement of Additional Information include equity securities and debt
securities that are unencumbered and market-to-market daily.) Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
such securities.
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Securities of Other Investment Companies
Each Fund intends to limit its investments in securities issued by
other investment companies so that, as determined immediately after a purchase
of such securities is made: (i) not more than 5% of the value of the Fund's
total assets will be invested in the securities of any one investment company;
(ii) not more than 10% of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the Fund
as a whole. Each Fund will also limit investments in securities of other
investment companies as described in the Prospectus under "INVESTMENT STRATEGIES
AND RISK CONSIDERATIONS" and in this Statement of Additional Information under
"INVESTMENT RESTRICTIONS."
Lower-Grade Debt Securities and Related Risks
The following discussion applies to Chicago Trust Growth & Income Fund,
Chicago Trust Talon Fund, Chicago Trust Balanced Fund, Chicago Trust Bond Fund,
and Chicago Trust Municipal Bond Fund.
Fixed income securities rated lower than "Baa3" by Moody's or "BBB-" by
S&P are considered to be of poor standing and predominantly speculative. Such
securities are subject to a substantial degree of credit risk. Such medium- and
low-grade bonds held by a Fund may be issued as a consequence of corporate
restructurings, such as leveraged buy-outs, mergers, acquisitions, debt
recapitalizations; or similar events. Also, high-yield bonds are often issued by
smaller, less creditworthy companies or by highly leveraged firms, which are
generally less able than more financially stable firms to make scheduled
payments of interest and principal. The risks posed by bonds issued under such
circumstances are substantial.
In the past, the high yields from low-grade bonds have more than
compensated for the higher default rates on such securities. However, there can
be no assurance that diversification will protect the Fund from widespread bond
defaults brought about by a sustained economic downturn, or that yields will
continue to offset default rates on high-yield bonds in the future. Issuers of
these securities are often highly leveraged, so that their ability to service
their debt obligations during an economic downturn or during sustained periods
of rising interest rates may be impaired. In addition, such issuers may not have
more traditional methods of financing available to them, and may be unable to
repay debt at maturity by refinancing. Further, the recent economic recession
has resulted in default levels with respect to such securities in excess of
historic averages.
The value of lower-rated debt securities will be influenced not only by
changing interest rates, but also by the bond market's perception of credit
quality and the outlook for economic growth. When economic conditions appear to
be deteriorating, low- and medium-rated bonds may decline in market value due to
investors' heightened concern over credit quality, regardless of prevailing
interest rates. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the value and liquidity of lower-rated
securities held by a Fund, especially in a thinly traded market. Illiquid or
restricted securities held by a Fund may involve valuation difficulties.
Especially at such times, trading in the secondary market for
high-yield bonds may become thin and market liquidity may be significantly
reduced. Even under normal conditions, the market for high-yield bonds may be
less liquid than the market for investment-grade corporate bonds. There are
fewer securities dealers in the high-yield market, and purchasers of high-yield
bonds are concentrated among a smaller group of securities dealers and
institutional investors. In periods of reduced market liquidity, high-yield bond
prices may become more volatile.
Youth and Growth of Lower-Rated Securities Market -- The recent growth
of the lower-rated securities market has paralleled a long economic expansion,
and it has not weathered a recession in the market's present size and form. An
economic downturn or increase in interest rates is likely to have an adverse
effect on the lower-rated securities market generally (resulting in more
defaults) and on the value of lower-rated securities contained in the portfolios
of the Funds which hold these securities.
Sensitivity to Interest Rate and Economic Changes -- The economy and
interest rates can affect lower-rated securities differently from other
securities. For example, the prices of lower-rated securities are more sensitive
to adverse economic changes or individual corporate developments than are the
prices of higher-rated investments. Also, during an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a
lower-rated security defaulted, a Fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of lower-rated
securities and a Fund's net asset values.
Liquidity and Valuation -- To the extent that an established secondary
market does not exist and a particular obligation is thinly traded, the
obligation's fair value may be difficult to determine because of the absence of
reliable, objective data. As a result, a Fund's valuation of the obligation and
the price it could obtain upon its disposition could differ. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower-rated securities held by the Funds,
especially in a thinly traded market.
Credit Ratings -- The credit ratings of Moody's and S&P are evaluations
of the safety of principal and interest payments, not market value risk, of
lower-rated securities. Also, credit rating agencies may fail to timely change
the credit ratings to reflect subsequent events. Therefore, in addition to using
recognized rating agencies and other sources, the Investment Advisor or
Sub-Investment Advisor also performs its own analysis of issuers in selecting
investments for the Funds. The Investment Advisor's or Sub-Investment Advisor's
analysis of issuers may include, among other things, historic and current
financial condition, current and anticipated cash flow and borrowing strength of
management, responsiveness to business conditions, credit standing, and current
and anticipated results of operations.
Yields and Ratings -- The yields on certain obligations are dependent
on a variety of factors, including general market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer, the
size of the offering, the maturity of the obligation and the ratings of the
issue. The ratings of Moody's and S&P represent their respective opinions as to
the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices.
While any investment carries some risk, certain risks associated with
lower-rated securities are different from those for investment-grade securities.
The risk of loss through default is greater because lower-rated securities are
usually unsecured and are often subordinate to an issuer's other obligations.
Additionally, the issuers of these securities frequently have high debt levels
and are thus more sensitive to difficult economic conditions, individual
corporate developments, and rising interest rates. Consequently, the market
price of these securities may be quite volatile and may result in wider
fluctuations of a Fund's net asset value per share. A description of various
bond ratings appears in the Appendix to the Prospectus.
Options and Related Risks
All Funds except Chicago Trust Money Market Fund and Alleghany/Chicago
Trust SmallCap Value Fund may buy put and call options and write covered call
and secured put options. These options are generally considered to be derivative
securities. Such options may relate to particular securities, stock indices, or
financial instruments and may or may not be listed on a national securities
exchange and issued by the Options Clearing Corporation. Options trading is a
highly specialized activity which entails greater than ordinary investment risk.
Options on particular securities may be more volatile than the underlying
securities, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
securities themselves.
These Funds will write call options only if they are "covered." In the
case of a call option on a security, the option is "covered" if a Fund owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, cash or liquid securities, in such amount are held in
a segregated account by its custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if a
Fund maintains with its custodian a diversified stock portfolio, or liquid
assets equal to the contract value.
A call option is also covered if a Fund holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written; or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Fund in cash or liquid securities in a segregated account with
its custodian. The Funds will write put options only if they are "secured" by
liquid assets maintained in a segregated account by the Funds' Custodian in an
amount not less than the exercise price of the option at all times during the
option period.
A Fund's obligation to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the
Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series as the previously written
option. Such a purchase does not result in the ownership of an option. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding option, to prevent an underlying security from being called, to
permit the sale of the underlying security, or to permit the writing of a new
option containing different terms on such underlying security. The cost of such
a liquidation purchase plus transaction costs may be greater than the premium
received upon the original option, in which event the Fund will have incurred a
loss in the transaction.
There is no assurance that a liquid secondary market will exist for any
particular option. An option writer, unable to effect a closing purchase
transaction, will not be able to sell the underlying security (in the case of a
covered call option) or liquidate the segregated account (in the case of a
secured put option) until the option expires or the optioned security is
delivered upon exercise with the result that the writer in such circumstances
will be subject to the risk of market decline or appreciation in the security
during such period.
Purchasing Call Options -- Each of these Funds may purchase call
options to the extent that premiums paid by such Fund do not aggregate more than
20% of that Fund's total assets. When a Fund purchases a call option, in return
for a premium paid by the Fund to the writer of the option, the Fund obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that a Fund may
alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with transactions, except the cost of the option.
A Fund may, following the purchase of a call option, liquidate its
position by effecting a closing sale transaction by selling an option of the
same series as the option previously purchased. The Fund will realize a profit
from a closing sale transaction if the price received on the transaction is more
than the premium paid to purchase the original call option; the Fund will
realize a loss from a closing sale transaction if the price received on the
transaction is less than the premium paid to purchase the original call option.
Although a Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an Exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
Exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the result that a Fund would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by a Fund may expire without any value to
the Fund, in which event the Fund would realize a capital loss which will be
short-term unless the option was held for more than one year.
Covered Call Writing -- Each of these Funds may write covered call
options from time to time on such portions of their portfolios, without limit,
as the Investment Advisor or Sub-Investment Advisor determines is appropriate in
pursuing a Fund's investment objective. The advantage to a Fund of writing
covered calls is that the Fund receives a premium which is additional income.
However, if the security rises in value, the Fund may not fully participate in
the market appreciation.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
or upon entering a closing purchase transaction. A closing purchase transaction,
in which a Fund, as writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written, cannot be
effected with respect to an option once the option writer has received an
exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable a Fund
to write another call option on the underlying security with either a different
exercise price or expiration date or both. A Fund may realize a net gain or loss
from a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a
short-term capital gain in the amount of the premium on the option less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, a Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security plus the amount of the
premium on the option less the commission paid.
A Fund will write call options only on a covered basis, which means
that a Fund will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, a Fund would be required to continue to hold a security which it might
otherwise wish to sell or deliver a security it would want to hold. The exercise
price of a call option may be below, equal to, or above the current market value
of the underlying security at the time the option is written.
Purchasing Put Options -- Each of these Funds may invest up to 20% of
its total assets in the purchase of put options. A Fund will, at all times
during which it holds a put option, own the security covered by such option.
With regard to the writing of put options, each Fund will limit the aggregate
value of the obligations underlying such put options to 50% of its total assets.
The purchase of the put on substantially identical securities held will
constitute a short sale for tax purposes, the effect of which is to create
short-term capital gain on the sale of the security and to suspend running of
its holding period (and treat it as commencing on the date of the closing of the
short sale) or that of a security acquired to cover the same if at the time the
put was acquired, the security had not been held for more than one year.
A put option purchased by a Fund gives it the right to sell one of its
securities for an agreed price up to an agreed date. A Fund would purchase put
options in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option ("protective puts"). The ability to purchase put options allows a Fund to
protect unrealized gains in an appreciated security in their portfolios without
actually selling the security. If the security does not drop in value, a Fund
will lose the value of the premium paid. A Fund may sell a put option which it
has previously purchased prior to the sale of the securities underlying such
option. Such sale will result in a net gain or loss depending on whether the
amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold.
Each of these Funds may sell a put option purchased on individual
portfolio securities. Additionally, a Fund may enter into closing sale
transactions. A closing sale transaction is one in which a Fund, when it is the
holder of an outstanding option, liquidates its position by selling an option of
the same series as the option previously purchased.
Writing Put Options -- Each of these Funds may also write put options
on a secured basis which means that a Fund will maintain in a segregated account
with its Custodian, cash or U.S. Government securities in an amount not less
than the exercise price of the option at all times during the option period. The
amount of cash or U.S. Government securities held in the segregated account will
be adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Secured put options
will generally be written in circumstances where the Investment Advisor or
Sub-Investment Advisor wishes to purchase the underlying security for a Fund's
portfolio at a price lower than the current market price of the security. In
such event, that Fund would write a secured put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay.
Following the writing of a put option, a Fund may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
Futures Contracts and Related Risks
All Funds except Chicago Trust Money Market Fund, Alleghany/Chicago
Trust SmallCap Value Fund and Alleghany/Veredus Aggressive Growth Fund may enter
into contracts for the purchase or sale for future delivery of securities,
including index contracts. Futures contracts are generally considered to be
derivative securities. While futures contracts provide for the delivery of
securities, deliveries usually do not occur. Contracts are generally terminated
by entering into offsetting transactions.
The Funds may enter into such futures contracts to protect against the
adverse effects of fluctuations in security prices, or interest rates without
actually buying or selling the securities. For example, if interest rates are
expected to increase, a Fund might enter into futures contracts for the sale of
debt securities. Such a sale would have much the same effect as selling an
equivalent value of the debt securities owned by the Fund. If interest rates did
increase, the value of the debt securities in the portfolio would decline, but
the value of the futures contracts to the Fund would increase at approximately
the same rate, thereby keeping the net asset value of the Fund from declining as
much as it otherwise would have. Similarly, when it is expected that interest
rates may decline, futures contracts may be purchased to hedge in anticipation
of subsequent purchases of securities at higher prices. Since the fluctuations
in the value of futures contracts should be similar to those of debt securities,
the Fund could take advantage of the anticipated rise in value of debt
securities without actually buying them until the market had stabilized. At that
time, the futures contracts could be liquidated and the Fund could then buy debt
securities on the cash market.
A stock index futures contract obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement was made. Open
futures contracts are valued on a daily basis and a Fund may be obligated to
provide or receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index is made in the
future.
With respect to options on futures contracts, when a Fund is
temporarily not fully invested, it may purchase a call option on a futures
contract to hedge against a market advance. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based, or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when a Fund is not fully invested, it may purchase a call
option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against the declining price of the security or foreign currency
which is deliverable upon exercise of the futures contract. If the futures price
at the expiration of the option is below the exercise price, the Fund will
retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the value of the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against the increasing price of the security or foreign currency
which is deliverable upon exercise of the futures contract. If the futures price
at the expiration of the option is higher than the exercise price, the Fund will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which the Fund intends to
purchase.
Call and put options on stock index futures are similar to options on
securities except that, rather than the right to purchase or sell stock at a
specified price, options on a stock index future give the holder the right to
receive cash. Upon exercise of the option, the delivery of the futures position
by the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing price of the futures contract on the expiration date.
If a put or call option which a Fund has written is exercised, the Fund
may incur a loss which will be reduced by the amount of the premium it received.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options positions, the
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The purchase of a
put option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities and for Federal tax purposes, will be
considered a "short sale." For example, a Fund will purchase a put option on a
futures contract to hedge the Fund's portfolio against the risk of rising
interest rates.
To the extent that market prices move in an unexpected direction, a
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if the Fund is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities held in its portfolio and interest rates decrease
instead, the Fund would lose part or all of the benefit of the increased value
which it has because it would have offsetting losses in its futures position. In
addition, in such situations, if the Fund had insufficient cash, it may be
required to sell securities from its portfolio to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. A Fund may be required to sell
securities at a time when it may be disadvantageous to do so.
Further, with respect to options on futures contracts, a Fund may seek
to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.
Forward Commitments, When-Issued Securities, and Delayed Delivery Transactions
and Related Risks
All Funds except Chicago Trust Money Market Fund and Alleghany/Chicago
Trust SmallCap Value Fund may dispose of or negotiate a when-issued or forward
commitment after entering into these transactions. Such transactions are
generally considered to be derivative transactions. These Funds will normally
realize a capital gain or loss in connection with these transactions. For
purposes of determining a Fund's average dollar-weighted maturity, the maturity
of when-issued or forward commitment securities will be calculated from the
commitment date.
When a Fund purchases securities on a when-issued, delayed delivery or
forward commitment basis, the Fund's Custodian will maintain in a segregated
account: cash, or liquid securities having a value (determined daily) at least
equal to the amount of the Fund's purchase commitments. In the case of a forward
commitment to sell portfolio securities, the Custodian will hold the portfolio
securities themselves in a segregated account while the commitment is
outstanding. These procedures are designed to ensure that the Fund will maintain
sufficient assets at all times to cover its obligations under when-issued
purchases, forward commitments and delayed delivery transactions.
Asset-Backed Securities and Related Risks
All Funds except Montag & Caldwell Growth Fund, Chicago Trust Talon
Fund, Chicago Trust Money Market Fund, Alleghany/Chicago Trust SmallCap Value
Fund and Alleghany/Veredus Aggressive Growth Fund may invest in asset-backed
securities. Asset-backed securities are securities backed by installment
contracts, credit card and other receivables, or other financial type assets.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets underlying securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments. An asset-backed security's
stated maturity may be shortened, and the security's total return may be
difficult to predict precisely.
Mortgage-Backed Securities and Mortgage Pass-Through Securities and
Related Risks
All Funds except Montag & Caldwell Growth Fund, Chicago Trust Talon
Fund, Chicago Trust Money Market Fund, Alleghany/Chicago Trust SmallCap Value
Fund and Alleghany/Veredus Aggressive Growth Fund may also invest in
mortgage-backed securities. The timely payment of principal and interest on
mortgage-backed securities issued or guaranteed by Ginnie Mae (formerly known as
the Government National Mortgage Association) ("GNMA") is backed by GNMA and the
full faith and credit of the U.S. Government. Also, securities issued by GNMA
and other mortgage-backed securities may be purchased at a premium over the
maturity value of the underlying mortgages. This premium is not guaranteed and
would be lost if prepayment occurs. Mortgage-backed securities issued by U.S.
Government agencies or instrumentalities other than GNMA are not "full faith and
credit" obligations. Certain obligations, such as those issued by the Federal
Home Loan Bank are supported by the issuer's right to borrow from the U.S.
Treasury; while others, such as those issued by the Federal National Mortgage
Association ("FNMA"), are supported only by the credit of the issuer.
Unscheduled or early payments on the underlying mortgages may shorten the
securities' effective maturities and reduce returns. These Funds may agree to
purchase or sell these securities with payment and delivery taking place at a
future date.
Mortgage-backed securities have greater market volatility then other
types of securities. In addition, because prepayments often occur at times when
interest rates are low or are declining, the Funds may be unable to reinvest
such funds in securities which offer comparable yields. The yields provided by
these mortgage securities have historically exceeded the yields on other types
of U.S. Government securities with comparable maturities in large measure due to
the risks associated with prepayment features. (See "General Risks of Mortgage
Securities" herein.)
For Federal tax purposes other than diversification under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), mortgage-backed
securities are not considered to be separate securities but rather "grantor
trusts" conveying to the holder an individual interest in each of the mortgages
constituting the pool.
The mortgage securities which are issued or guaranteed by GNMA, Federal
Home Loan Mortgage Corporation ("FHLMC"), or FNMA ("certificates") are called
pass-through certificates because a pro-rata share of both regular interest and
principal payments (less GNMA's, FHLMC's, or FNMA's fees and any applicable loan
servicing fees), as well as unscheduled early prepayments on the underlying
mortgage pool, are passed through monthly to the holder of the certificate
(i.e., the portfolio).
Each of these Funds may also invest in pass-through certificates issued
by non-governmental issuers. Pools of conventional residential mortgage loans
created by such issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payment. Timely payment of interest and principal of
these pools is, however, generally supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurance
and the mortgage poolers. Such insurance and guarantees and the creditworthiness
of the issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund's quality standards. The Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers, the investment
manager determines that the securities meet the Fund's quality standards.
Collateralized Mortgage Obligations ("CMOs"), Real Estate Mortgage Investment
Conduits ("REMICs"), Multi-Class Pass-Throughs, and Related Risks
All Funds except Montag & Caldwell Growth Fund, Chicago Trust Talon
Fund, Chicago Trust Money Market Fund, Alleghany/Chicago Trust SmallCap Value
Fund and Alleghany/Veredus Aggressive Growth Fund may also invest in certain
debt obligations which are collateralized by mortgage loans or mortgage
pass-through securities. These obligations are generally considered to be
derivative securities. CMOs and REMICs are debt instruments issued by
special-purpose entities which are secured by pools or mortgage loans or other
mortgage-backed securities. Multi-class pass-through securities are equity
interests in a trust composed of mortgage loans or other mortgage-backed
securities. Payments of principal and interest on underlying collateral provides
the funds to pay debt service on the CMO or REMIC or make scheduled
distributions on the multi-class pass-through securities. CMOs, REMICs, and
multi-class pass-through securities (collectively, CMOs unless the context
indicates otherwise) may be issued by agencies or instrumentalities of the U.S.
Government or by private organizations.
In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specified coupon rate or adjustable rate tranche (to be discussed in the next
paragraph) and has a stated maturity or final distribution date. Principal
prepayments on collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO on a monthly, quarterly, or
semi-annual basis. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. In a common
structure, payments of principal, including any principal prepayments, on the
underlying mortgages are applied to the classes of a series of a CMO in the
order of their respective stated maturities or final distribution dates, so that
no payment of principal will be made on any class of a CMO until all other
classes having an earlier stated maturity or final distribution date have been
paid in full.
One or more tranches of a CMO may have coupon rates which reset
periodically at a specified increment over an index such as the London Interbank
Offered Rate ("LIBOR"). These adjustable-rate tranches, known as "floating-rate
CMOs," will be considered as adjustable-rate mortgage securities ("ARMs") by the
Funds. Floating-rate CMOs may be backed by fixed-rate or adjustable-rate
mortgages; to date, fixed-rate mortgages have been more commonly utilized for
this purpose. Floating-rate CMOs are typically issued with lifetime "caps" on
the coupon rate thereon. These "caps," similar to the "caps" on adjustable-rate
mortgages, represent a ceiling beyond which the coupon rate on a floating-rate
CMO may not be increased regardless of increases in the interest rate index to
which the floating-rate CMO is geared.
REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities. As with CMOs, the
mortgages which collateralize the REMICs in which the Funds may invest include
mortgages backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or issued
by private entities, which are not guaranteed by any government agency.
Yields on privately issued CMOs as described above have been
historically higher than the yields on CMOs issued or guaranteed by U.S.
Government agencies. However, the risk of loss due to default on such
instruments is higher since they are not guaranteed by the U.S. Government.
These Funds will not invest in subordinated privately issued CMOs.
Resets -- The interest rates paid on the ARMs and CMOs in which these
Funds may invest generally are readjusted at intervals of one year or less to an
increment over some predetermined interest rate index. There are three main
categories of indices: those based on U.S. Treasury securities; those derived
from a calculated measure such as a cost of funds index; or a moving average of
mortgage rates. Commonly utilized indices include: the one-year, three-year and
five-year constant maturity Treasury rates; the three-month Treasury bill rate;
the six-month Treasury bill rate; rates on longer-term Treasury securities; the
11th District Federal Home Loan Bank Cost of Funds; the National Median Cost of
Funds; the one-month, three-month, six-month or one-year LIBOR; the prime rate
of a specific bank; or commercial paper rates. Some indices, such as the
one-year constant maturity Treasury rate, closely mirror changes in market
interest rate levels. Others, such as the 11th District Federal Home Loan Bank
Cost of Funds index, tend to lag behind changes in market rate levels and tend
to be somewhat less volatile.
Caps and Floors -- The underlying mortgages which collateralize the
ARMs and CMOs in which these Funds may invest will frequently have caps and
floors which limit the maximum amount by which the loan rate to the residential
borrower may change up or down (1) per reset or adjustment interval and (2) over
the life of the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly principal and interest
payments rather than limiting interest rate changes. These payment caps may
result in negative amortization.
Stripped Mortgage Securities and Related Risks
All Funds except Montag & Caldwell Growth Fund, Chicago Trust Talon
Fund, Chicago Trust Money Market Fund, Alleghany/Chicago Trust SmallCap Value
Fund and Alleghany/Veredus Aggressive Growth Fund may also invest in stripped
mortgage securities. The stripped mortgage securities in which the Funds may
invest will only be issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Stripped mortgage securities have greater market volatility
than other types of mortgage securities in which the Funds invest.
Stripped mortgage securities are usually structured with two classes
that receive different proportions of the interest and principal distributions
on a pool of mortgage assets. A common type of stripped mortgage security will
have one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the yield to maturity
of any such IOs held by a Fund. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities even if the securities are
rated in the highest rating categories--"Aaa" or "AAA" by Moody's or S&P,
respectively.
Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet been fully developed; accordingly,
certain of these securities may generally be illiquid. The Fund will treat
stripped mortgage securities as illiquid securities except for those securities
which are issued by U.S. Government agencies and instrumentalities and backed by
fixed rate mortgages whose liquidity is monitored by the Investment Advisor,
subject to the supervision of the Board of Trustees. The staff of the Securities
and Exchange Commission (the "SEC") has indicated that it views such securities
as illiquid. Until further clarification of this matter is provided by the
staff, a Fund's investment in stripped mortgage securities will be treated as
illiquid and will, together with any other illiquid investments, not exceed 15%
of such Fund's net assets.
Other Mortgage-Backed Securities
All Funds except Montag & Caldwell Growth Fund, Chicago Trust Talon
Fund, Chicago Trust Money Market Fund, Alleghany/Chicago Trust SmallCap Value
Fund and Alleghany/Veredus Aggressive Growth Fund may invest in other
mortgage-backed securities. The Investment Advisor expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term
fixed-rate mortgages. As new types of mortgage-related securities are developed
and offered to investors, the Investment Advisor will, consistent with a Fund's
investment objective, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
General Risks of Mortgage Securities
The mortgage securities in which a Fund invests differ from
conventional bonds in that principal is paid back over the life of the mortgage
security rather than at maturity. As a result, the holder of the mortgage
securities (i.e., the Fund) receives monthly scheduled payments of principal and
interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. When the holder reinvests the payments
and any unscheduled prepayments of principal it receives, it may receive a rate
of interest which is lower than the rate on the existing mortgage securities.
For this reason, mortgage securities may be less effective than other types of
securities as a means of "locking in" long-term interest rates.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages and expose a Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by a
Fund, the prepayment right of mortgagors may decrease or limit the increase in
net asset value of the Fund because the value of the mortgage-backed securities
held by the Fund may decline more than or may not appreciate as much as the
price of non-callable debt securities. To the extent market interest rates
increase beyond the applicable cap or maximum rate on a mortgage security, the
market value of the mortgage security would likely decline to the same extent as
a conventional fixed-rate security. The volatility of the security would likely
increase, however, because the expected decline in prepayments would lead to
longer effective maturity of the underlying mortgages.
In addition, to the extent mortgage securities are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the holder's principal investment to the extent of the premium
paid. On the other hand, if mortgage securities are purchased at a discount,
both a scheduled payment of principal and an unscheduled prepayment of principal
will increase current and total returns and will accelerate the recognition of
income which when distributed to shareowners will be taxable as ordinary income.
With respect to pass-through mortgage pools issued by non-governmental
issuers, there can be no assurance that the private insurers associated with
such securities can meet their obligations under the policies. Although the
market for such non-governmental issued or guaranteed mortgage securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. The purchase of such securities is subject to
each Fund's limit with respect to investment in illiquid securities.
Interest Rate Swaps and Related Risks
Only Chicago Trust Balanced Fund, Chicago Trust Bond Fund, and Chicago
Trust Municipal Bond Fund may enter into interest rate swaps for hedging
purposes and not for speculation. Interest rate swaps are generally considered
to be derivative transactions. A Fund will typically use interest rate swaps to
preserve a return on a particular investment or portion of its portfolio or to
shorten the effective duration of its portfolio investments. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed-rate
payments for floating-rate payments.
A Fund will only enter into interest rate swaps on a net basis, i.e.,
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as these
transactions are entered into for good faith hedging purposes, the Funds and the
Investment Advisor believe that such obligations do not constitute senior
securities as defined in the 1940 Act and, accordingly, will not treat them as
being subject to the Funds' borrowing restrictions. The net amount of the
excess, if any, of a Fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis and an amount of cash
or liquid securities, having an aggregate net asset value at least equal to such
accrued excess will be maintained in a segregated account by the Fund's
Custodian.
In a cap or floor, one party agrees, usually in return for a fee, to
make payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed level; the purchaser of an interest rate floor
has the right to receive payments to the extent a specified interest rate falls
below an agreed level. A collar entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile;
depending on how they are used, they may have a considerable impact on a Fund's
performance. Swap agreements involve risks depending upon the other party's
creditworthiness and ability to perform, as judged by the Investment Advisor as
well as the Fund's ability to terminate its swap agreements or reduce its
exposure through offsetting transactions.
Municipal Securities
Chicago Trust Municipal Bond Fund is expected to maintain a
dollar-weighted average maturity of between three and ten years under normal
market conditions. An assessment of a portfolio's dollar-weighted average
maturity requires the consideration a number of factors, including each bond's
yield, coupon interest payments, final maturity, call and put features, and
prepayment exposure. The Fund's computation of its dollar-weighted average
maturity is based upon estimated rather than known factors and there can be no
assurance that the anticipated average weighted maturity will be attained. In
that regard, a change in interest rates generally will affect a portfolio's
dollar-weighted average maturity.
Other Investments
The Board of Trustees may, in the future, authorize a Fund to invest in
securities other than those listed here and in the Prospectus, provided that
such investment would be consistent with that Fund's investment objective and
that it would not violate any fundamental investment policies or restrictions
applicable to that Fund.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies
and may not be changed as to a Fund without the approval of a majority of the
outstanding voting shares (as defined in the 1940 Act) of the Fund. Unless
otherwise indicated, all percentage limitations governing the investments of
each Fund apply only at the time of transaction. Accordingly, if a percentage
restriction is adhered to at the time of investment, a later increase or
decrease in the percentage which results from a relative change in values or
from a change in a Fund's total assets will not be considered a violation.
Except as set forth under "INVESTMENT OBJECTIVES AND POLICIES" and
INVESTMENT STRATEGIES AND RISK CONSIDERATIONS" in the Prospectus, each Fund may
not:
(1) As to 75% of the total assets of each Fund, purchase the securities of
any one issuer (other than securities issued by the U.S. Government or
its agencies or instrumentalities) if immediately after such purchase,
more than 5% of the value of the Fund's total assets would be invested
in securities of such issuer;
(2) Purchase or sell real estate (but this restriction shall not prevent
the Funds from investing directly or indirectly in portfolio
instruments secured by real estate or interests therein or acquiring
securities of real estate investment trusts or other issuers that deal
in real estate), interests in oil, gas and/or mineral exploration or
development programs or leases;
(3) Purchase or sell commodities or commodity contracts, except that a Fund
may enter into futures contracts and options thereon in accordance with
such Fund's investment objectives and policies;
(4) Make investments in securities for the purpose of exercising control;
(5) Purchase the securities of any one issuer if, immediately after such
purchase, a Fund would own more than 10% of the outstanding voting
securities of such issuer;
(6) Sell securities short or purchase securities on margin, except such
short-term credits as are necessary for the clearance of transactions.
For this purpose, the deposit or payment by a Fund for initial or
maintenance margin in connection with futures contracts is not
considered to be the purchase or sale of a security on margin;
(7) Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of debt instruments in accordance with a Fund's
investment objectives and policies, (b) the lending of portfolio
securities, or (c) entry into repurchase agreements with banks or
broker-dealers;
(8) Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its total
assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the total assets of the Fund at the
time of its borrowing. All borrowings will be done from a bank and
asset coverage of at least 300% is required. A Fund will not purchase
securities when borrowings exceed 5% of that Fund's total assets;
(9) Purchase the securities of issuers conducting their principal business
activities in the same industry (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities)
if immediately after such purchase the value of a Fund's investments in
such industry would exceed 25% of the value of the total assets of the
Fund;
(10) Act as an underwriter of securities, except that, in connection with
the disposition of a security, a Fund may be deemed to be an
"underwriter" as that term is defined in the 1933 Act;
(11) Invest in puts, calls, straddles or combinations thereof except to the
extent disclosed in the Prospectus;
(12) Invest more than 5% of its total assets in securities of companies less
than three years old. Such three year periods shall include the
operation of any predecessor company or companies.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and Executive Officers of the
Company is set forth below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
POSITION PRINCIPAL OCCUPATIONS
NAME AGE WITH COMPANY FOR PAST FIVE YEARS
Stuart D. Bilton* 53 Chairman, Board of Trustees Mr. Bilton is Executive Vice President
171 North Clark Street (Chief Executive Officer) of Chicago Title and Trust Company and
Chicago, IL 60601 President and Chief Executive Officer
of The Chicago Trust Company, where
he is responsible for the Financial
Services Group. Mr. Bilton has
held a variety of positions
within Chicago Title and Trust Company
including: Chief Economist; Senior
Vice President--Corporate Marketing
and Strategic Planning; Vice President--
Lincoln National Life; and Manager of
Eastern Region Reinsurance Operations. Mr.
Bilton was educated at the London School of
Economics and at the University
of Wisconsin. He is a Chartered Financial Analyst,
a Director of Montag & Caldwell, Inc., and
a Director of Baldwin & Lyons, Inc., an
Indianapolis-based insurance company, and of
the Boys and Girls Clubs of Chicago.
Dorothea C. Gilliam* 46 Trustee Ms. Gilliam is Vice President of
171 North Clark Street Investments of the Alleghany
Chicago, IL 60601 Corporation, the parent company of
Chicago Title and Trust Company.
Previously, she was an Assistant Vice
President of Chicago Title and Trust
Company.
<PAGE>
POSITION PRINCIPAL OCCUPATIONS
NAME AGE WITH COMPANY FOR PAST FIVE YEARS
Leonard F. Amari 56 Trustee Mr. Amari is a Partner at the law
734 North Wells Street offices of Amari & Locallo, a practice
Chicago, IL 60610 confined exclusively to the real
estate tax assessment process.
Gregory T. Mutz 53 Trustee Mr. Mutz is the Chairman of the Board
125 South Wacker Drive for both the Amli Realty and Amli
Suite 3100 Residential Properties Inc. As
Chicago, IL 60606 Chairman, he is responsible for the
operation of the two real estate companies
whose principal businesses are
multi-family apartments, land, and business,
office and industrial parks.
Nathan Shapiro 62 Trustee Mr. Shapiro is the President of SF
1700 Ridge Investments, Inc., a broker/dealer and
Highland Park, IL 60035 investment banking firm. Previously,
he was President of SLD Corporation,
a consulting firm, and Senior Vice
President of Pekin, Singer and Shapiro, an
investment advisory firm. He is a
Director of Baldwin & Lyons, Inc.
Kenneth C. Anderson 34 President Mr. Anderson is a Senior Vice
171 North Clark Street (Chief Operating Officer) President of The Chicago Trust Company
Chicago, IL 60601 and has been an officer since 1993.
He is responsible for the mutual fund operations
and marketing. Mr. Anderson is a Certified Public
Accountant.
David F. Seng 57 Senior Vice President Mr. Seng is an Executive Vice
1100 Atlanta Financial President and Chief Operating Officer
Center of Montag & Caldwell, Inc., and a
3343 Peachtree Road, NE Chartered Financial Analyst.
Atlanta, GA 30326-8151
Gerald F. Dillenburg 31 Vice President, Secretary, Mr. Dillenburg is a Vice President of The
171 North Clark Street and Treasurer (Chief Financial Chicago Trust Company and has been the
Chicago, IL 60601 Officer and Compliance Officer)the operations manager and compliance officer
of the mutual funds since 1996.
Previously, he was an audit manager with KPMG
Peat Marwick LLP, specializing in
investment services, including mutual and
trust funds, broker/dealers and
investment advisors. Mr. Dillenburg is a
Certified Public Accountant.
</TABLE>
* These Trustees are considered "interested persons" of the Funds as defined
under the 1940 Act.
The Trustees of the Company who are not "interested persons" of the
Funds receive fees and expenses for each meeting of the Board of Trustees they
attend. Prior to January 1, 1997, such Trustees received $1,500 for each Board
Meeting attended, and an annual retainer of $1,500. Effective January 1, 1998,
such Trustees will receive $2,000 for each Board Meeting attended, and an annual
retainer of $2,000. No officer or employee of Chicago Title and Trust Company or
The Chicago Trust Company ("Chicago Trust") or their affiliates receives any
compensation from the Funds for acting as a Trustee of the Company. The Officers
of the Company receive no compensation directly from the Funds for performing
the duties of their offices.
Set forth below are the total fees which were paid to each of the
Trustees who are not "interested persons" during the fiscal period ended October
31, 1997.
Aggregate Fees Paid
Trustee by the Company
Leonard F. Amari $5,375
Gregory T. Mutz $6,875
Nathan Shapiro $6,875
As of November 2, 1998, the Trustees and Officers of the Company as a group
owned less than 1% of the outstanding shares of any class of each Fund.
PRINCIPAL HOLDERS OF SECURITIES
Listed below are the names and addresses of those shareowners who, as
of November 2, 1998, owned of record or beneficially of 5% or more of the shares
of the Funds. The shares held in the nominee names of Marshall & Ilsley Trust
Co. are owned of record by Chicago Trust. Chicago Title and Trust Company
("Chicago Title and Trust"), an Illinois chartered trust company, a wholly-owned
subsidiary of Alleghany Corporation ("Alleghany"), is the owner of Alleghany
Asset Management, which is the holding company of Chicago Trust and Montag &
Caldwell, Inc. ("Montag and Caldwell"), the Investment Advisors for the Funds.
Shareowners who have the power to vote a large percentage of shares of a
particular Fund can control the Fund and determine the outcome of a
shareholders' meeting.
MONTAG & CALDWELL GROWTH FUND
Class N
Percentage
Shareowners Owned
Charles Schwab & Co., Inc. 30.70%
Special Custody Account for Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Miter & Co.c/o 18.28%
Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
MONTAG & CALDWELL GROWTH FUND
Class I
Percentage
Shareowners Owned
The Bank of Mississippi 6.85%
c/o Trust
P.O. Box 1605
Jackson, MS 39215
The Bank of Mississippi 6.66%
c/o Trust
P.O. Box 1605
Jackson, MS 39215
<PAGE>
Miter & Co. 12.31%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
CHICAGO TRUST GROWTH & INCOME FUND
Percentage
Shareowners Owned
Miter & Co. 86.04%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
CHICAGO TRUST TALON FUND
Percentage
Shareowners Owned
Miter & Co. 5.90%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
CHICAGO TRUST BALANCED FUND
Percentage
Shareowners Owned
Miter & Co. 97.13%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
MONTAG & CALDWELL BALANCED FUND
Percentage
Shareowners Owned
Miter & Co. 34.90%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
American Express Trust Company 9.75%
FBO American Express Trust Retirement Services
P.O. Box 534
Minneapolis, MN 55422
Huntington Trust Co. 6.31%
FBO Diocese of Covington
Attn: Mutual Funds
P.O. Box 1558
Columbus, OH 43260
BNY Western Trust Company 5.85%
Columbia River Logscalers
Two Union Square Suite 520
601 Union Street
Seattle, WA 98121
CHICAGO TRUST BOND FUND
Percentage
Shareowners Owned
Miter & Co. 81.12%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
Davis & Company 8.78%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
CHICAGO TRUST MUNICIPAL BOND FUND
Percentage
Shareowners Owned
Davis & Company 90.91%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
CHICAGO TRUST MONEY MARKET FUND
Percentage
Shareowners Owned
Davis & Company 92.48%
c/o Marshall & Ilsley Trust Co.
Attn: Outsourcing
P.O. Box 2977
Milwaukee, WI 53202
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Agreements
The advisory services provided by the Investment Advisor of each Fund,
and the fees received by it for such services, are described in the Prospectus.
The Investment Advisor of each Fund may from time to time voluntarily waive a
portion of its advisory fees with respect to such Fund and/or reimburse a
portion of the Fund's expenses.
The investment advisory fees earned and waived by Chicago Trust and
Montag & Caldwell, as well as expenses reimbursed, with respect to the
applicable Funds for which each acts as Investment Advisor, are set forth below:
<PAGE>
Fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Gross Advisory Net Advisory Waived Fees
Fees Earned Fees After and Reimbursed
by Advisors Fee Waivers Expenses
Montag & Caldwell Growth Fund $ 3,800,124 $3,758,696 $ 41,428
Chicago Trust Growth & Income Fund $ 1,734,260 $1,604,403 $ 129,857
Chicago Trust Talon Fund $ 182,742 $ 97,146 $ 85,596
Chicago Trust Balanced Fund $ 1,228,508 $1,126,305 $ 102,203
Montag & Caldwell Balanced Fund $ 400,868 $ 355,895 $ 44,973
Chicago Trust Bond Fund $ 550,514 $ 328,975 $ 221,539
Chicago Trust Municipal Bond Fund $ 69,127 $ 0 $ 85,359
Chicago Trust Money Market Fund $ 1,004,607 $ 862,275 $ 142,332
Fiscal year ended October 31, 1996:
Gross Advisory Net Advisory Waived Fees
Fees Earned Fees After and Reimbursed
by Advisors Fee Waivers Expenses
Montag & Caldwell Growth Fund $ 834,718 $ 800,071 $ 34,647
Chicago Trust Growth & Income Fund $ 1,324,207 $ 1,038,213 $ 285,994
Chicago Trust Talon Fund $ 112,153 $ 16,856 $ 95,297
Chicago Trust Balanced Fund $ 1,075,631 $ 815,487 $ 260,144
Montag & Caldwell Balanced Fund $ 195,796 $ 110,391 $ 85,405
Chicago Trust Bond Fund $ 416,462 $ 190,705 $ 225,757
Chicago Trust Municipal Bond Fund $ 67,672 $ 0 $ 70,437
Chicago Trust Money Market Fund $ 821,513 $ 647,188 $ 174,325
Fiscal year ended October 31, 1995:
Gross Advisory Net Advisory Waived Fees
Fees Earned Fees After and Reimbursed
by Advisors Fee Waivers Expenses
Montag & Caldwell Growth Fund $ 154,451 $ 45,631 $ 108,820
Chicago Trust Growth & Income Fund $ 222,466 $ 94,834 $ 127,632
Chicago Trust Talon Fund $ 64,359 $ 0 $ 139,529
Chicago Trust Balanced Fund $ 121,079 $ 90,985 $ 30,094
Montag & Caldwell Balanced Fund $ 78,125 $ 0 $ 129,051
Chicago Trust Bond Fund $ 123,919 $ 0 $ 165,348
Chicago Trust Municipal Bond Fund $ 66,027 $ 0 $ 138,875
Chicago Trust Money Market Fund $ 638,608 $ 346,606 $ 292,002
</TABLE>
Under the Investment Advisory Agreements, the Investment Advisor of
each Fund is not liable for any error of judgment or mistake of law or for any
loss suffered by the Company or a Fund in connection with the performance of the
Agreement, except a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard of its duties and obligations thereunder.
Each Investment Advisory Agreement is terminable with respect to a Fund
by vote of the Board of Trustees or by the holders of a majority of the
outstanding voting securities of the Fund, at any time without penalty, on 60
days' written notice to the Investment Advisor. An Investment Advisor may also
terminate its advisory relationship with respect to a Fund on 60 days' written
notice to the Company. Each Investment Advisory Agreement terminates
automatically in the event of its assignment.
Under each Investment Advisory Agreement, the Fund pays the following
expenses: (1) the fees and expenses of the Company's disinterested directors;
(2) the salaries and expenses of any of the Company's officers or employees who
are not affiliated with the Investment Advisor; (3) interest expenses; (4) taxes
and governmental fees; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Company's Custodian, Administrator, Sub-Administrator and
Transfer Agent and any related services; (10) expenses of obtaining quotations
of the Funds' portfolio securities and of pricing the Funds' shares; (11)
expenses of maintaining the Company's legal existence and of shareowners'
meetings; (12) expenses of preparation and distribution to existing shareowners
of reports, proxies and prospectuses; and (13) fees and expenses of membership
in industry organizations.
Chicago Title and Trust, 171 North Clark Street, Chicago, Illinois
60601, an Illinois chartered trust company and a wholly-owned subsidiary of
Alleghany, provided investment advisory services to certain Funds of the Company
since their respective inception dates through October 30, 1995. As described
more fully below, Chicago Trust, an Illinois corporation, assumed those
responsibilities on October 30, 1995. Such Funds include: Chicago Trust Growth &
Income Fund; Chicago Trust Balanced Fund; Chicago Trust Bond Fund; Chicago Trust
Municipal Bond Fund; Chicago Trust Money Market Fund; Alleghany/Chicago Trust
SmallCap Value Fund; Chicago Trust Talon Fund, with Talon Asset Management, Inc.
("Talon") serving as Sub-Investment Advisor ("Sub-Advisor") for that Fund.
Chicago Title and Trust formed Alleghany Asset Management, Inc.
("AAM"), a wholly-owned subsidiary, to act as a holding company for certain of
its financial services entities. On October 30, 1995, Chicago Title and Trust
transferred substantially all of its fiduciary business and investment
operations to Chicago Trust, a wholly-owned subsidiary of AAM. As part of such
transfer, Chicago Trust assumed all of Chicago Title and Trust's obligations and
liabilities under its existing Investment Advisory Agreements. Chicago Title and
Trust entered into a Guaranty Agreement with the Company on behalf of each Fund
for which it serves as Investment Advisor, pursuant to which it guarantees all
the obligations and liabilities of Chicago Trust under such Agreements. The
investment management operations with respect to the Company remain unchanged,
and those persons or groups responsible for the investment management of the
applicable Funds of the Company continue to have such responsibility for Chicago
Trust.
Chicago Trust managed approximately $7.0 billion in assets at June 30,
1998, consisting primarily of pension and profit sharing accounts, high net
worth individuals, families and insurance companies. Chicago Trust, an Illinois
corporation, is an indirect and wholly-owned subsidiary of AAM. AAM, located at
Park Avenue Plaza, New York City, New York 10055, is engaged through its
subsidiaries in the business of title insurance, reinsurance, other financial
services and industrial minerals.
As part of the corporate reorganization of Chicago Title and Trust
described above, Montag & Caldwell became an indirect wholly-owned subsidiary of
Chicago Title and Trust. Prior to October 30, 1995, Montag & Caldwell was a
wholly-owned subsidiary of AAM.
AAM holds a 40% minority interest in Veredus Asset Management, with
certain options over the next nine years to acquire up to a 70% interest.
Sub-Investment Advisory Agreement
Pursuant to a Sub-Investment Advisory Agreement between Chicago Trust
and Talon, Talon provides an investment program for Chicago Trust Talon Fund,
including investment research and the determination from time to time of the
securities that will be purchased and sold by the Fund, subject to the
supervision of Chicago Trust and the Board of Trustees of the Company. Prior to
December 23, 1996, as compensation for its services, Talon received from Chicago
Trust an annual fee of 0.40% of the first $8 million, 0.50% of the next $12
million, 0.70% of the next $230 million of the average daily net assets of this
Fund, and 0.75% of such average daily net assets in excess of $250 million.
Effective December 23, 1996, for months in which the Fund's average daily net
assets exceed $18 million, the Investment Advisor will pay the Sub-Advisor a fee
equal to 68.75% of the management fee that the Investment Advisor receives from
the Fund, net of any expense reimbursement. For the months in which the Fund's
average daily net assets are $18 million or less, the Sub-Advisor will receive
no fee. During the fiscal years ended October 31, 1995, 1996 and 1997, Talon was
paid $37,762, $15,109 and $60,407, respectively, for sub-investment advisory
services rendered.
Under the Sub-Investment Advisory Agreement, Talon is not liable for
any error of judgment or mistake of law or for any loss suffered by Chicago
Trust or the Funds in connection with the performance of the Sub-Investment
Advisory Agreement, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard of its duties and obligations thereunder.
The Administrator and Sub-Administrator
As Administrator, Chicago Trust, 171 North Clark Street, Chicago,
Illinois 60601, provides certain administrative services to the Company pursuant
to an Administration Agreement. First Data Investor Services Group, Inc.
("Investor Services Group"), 53 State Street, Boston, Massachusetts 02109,
provides certain administrative services for the Funds and Chicago Trust
pursuant to a Sub-Administration Agreement.
Under the Administration Agreement, the Administrator is responsible
for: (1) coordinating with the Custodian and Transfer Agent and monitoring the
services they provide to the Funds; (2) coordinating with and monitoring any
other third parties furnishing services to the Funds; (3) providing the Funds
with necessary office space, telephones and other communications facilities and
personnel competent to perform administrative and clerical functions; (4)
supervising the maintenance by third parties of such books and records of the
Funds as may be required by applicable Federal or state law; (5) preparing or
supervising the preparation by third parties of all Federal, state and local tax
returns and reports of the Funds required by applicable law; (6) preparing and,
after approval by the Funds, filing and arranging for the distribution of proxy
materials and periodic reports to shareowners of the Funds as required by
applicable law; (7) preparing and, after approval by the Company, arranging for
the filing of such registration statements and other documents with the SEC and
other Federal and state regulatory authorities as may be required by applicable
law; (8) reviewing and submitting to the Officers of the Company for their
approval invoices or other requests for payment of the Funds' expenses and
instructing the Custodian to issue checks in payment thereof; and (9) taking
such other action with respect to the Company or the Funds as may be necessary
in the opinion of the Administrator to perform its duties under the Agreement.
As compensation for services performed under the Administration
Agreement, the Administrator receives a fee payable monthly at an annual rate
(as described in the Prospectus) multiplied by the average daily net assets of
the Company.
The administrative fees earned with respect to each Fund are set forth
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Administrative Administrative Administrative
Fees Fees Fees
FYE FYE FYE
Oct. 31, 1995 Oct. 31, 1996 October 31, 1997
------------- ------------- ----------------
FPS First Data
Montag & Caldwell Growth Fund $ 28,574 $ 58,127 $ 76,898 $ 165,326
Chicago Trust Growth & Income Fund $ 35,261 $ 104,720 $ 52,175 $ 69,751
Chicago Trust Talon Fund $ 27,445 $ 9,096 $ 5,005 $ 6,670
Chicago Trust Balanced Fund $ 8,685 $ 83,563 $ 38,136 $ 47,246
Montag & Caldwell Balanced Fund $ 27,554 $ 15,232 $ 9,676 $ 17,554
Chicago Trust Bond Fund $ 30,042 $ 41,966 $ 21,291 $ 28,043
Chicago Trust Municipal Bond Fund $ 27,050 $ 6,481 $ 2,679 $ 3,007
Chicago Trust Money Market Fund $ 36,291 $ 113,018 $ 56,421 $ 65,373
</TABLE>
Prior to June 1, 1997, FPS Broker Services, Inc. ("FPSB"), 3200 Horizon
Drive, King of Prussia, Pennsylvania 19406, acted as an Underwriter of the
Funds' shares for the purpose of facilitating the registration of shares of the
Funds under state securities laws and assisted in sales of shares pursuant to
the Underwriting Agreement approved by the Company's Trustees. Pursuant to its
Underwriter Compensation Agreement with the Company, FPSB was paid an annual
underwriter fee of $2,500 for each Class N Shares Fund and $2,000 for each Class
I Shares Fund ($22,000 per annum total for eight Class N Shares Funds and one
Class I Shares Fund), and certain other registration and transaction fees. For
the fiscal years ended October 31, 1995 and 1996, an aggregate of $18,125 and
$20,833 was paid on behalf of the then-existing Funds.
Effective June 1, 1997, First Data Distributors, Inc. replaced FPS Broker
Services, Inc. as principal underwriter and distributor of the Funds' shares.
<PAGE>
Distribution Plan
The Board of Trustees of the Company has adopted a Plan of Distribution
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act which permits the Class N
shares of each Fund (except Chicago Trust Money Market Fund) to pay certain
expenses associated with the distribution of its shares. Under the Plan, each
Fund may pay actual expenses not exceeding, on an annual basis, 0.25% of a
Fund's average daily net assets. To the Company's knowledge, no interested
person of the Company, nor any of its Trustees who are not "interested persons,"
has a direct or indirect financial interest in the operation of the Plan. The
Company anticipates that each Fund will benefit from additional shareholders and
assets as a result of implementation of the Plan. The terms of such Plan are
more fully described in the Prospectus under "DISTRIBUTION PLAN." Amounts spent
on behalf of each Fund pursuant to such Plan during the fiscal year ended
October 31, 1997 are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation Compensation
Distribution to Broker to Sales
Printing Services Dealers Personnel
Montag & Caldwell Growth Fund $ 19,215 $ 27,812 $ 498,145 $ 11,738
Chicago Trust Growth & Income Fund $ 30,404 $ 26,242 $ 125,246 $ 11,097
Chicago Trust Talon Fund $ 3,684 $ 10,855 $ 7,166 $ 1,750
Chicago Trust Balanced Fund $ 14,980 $ 21,233 $ 94,632 $ 1,732
Montag & Caldwell Balanced Fund $ 3,319 $ 12,615 $ 60,338 $ 4,873
Chicago Trust Bond Fund $ 8,401 $ 16,784 $ 61,136 $ 5,920
Chicago Trust Municipal Bond Fund $ 1,017 $ 10,097 $ 4,500 $ 109
Marketing Services Providers Total
Montag & Caldwell Growth Fund $ 148,846 $ 22,097 $ 727,853
Chicago Trust Growth & Income Fund $ 293,428 $ 48,204 $ 534,621
Chicago Trust Talon Fund $ 10,904 $ 229 $ 34,588
Chicago Trust Balanced Fund $ 277,955 $ 36,782 $ 447,314
Montag & Caldwell Balanced Fund $ 14,892 $ 4,736 $ 100,772
Chicago Trust Bond Fund $ 63,038 $ 14,725 $ 170,004
Chicago Trust Municipal Bond Fund $ 2,129 $ 0 $ 17,852
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Investment Advisor or Sub-Advisor is responsible for decisions to
buy and sell securities for the Funds and for the placement of its portfolio
business and the negotiation of commissions, if any, paid on such transactions.
The Investment Advisor, in placing trades for a Fund, will follow the Company's
policy of seeking best execution of orders. Securities traded in the
over-the-counter market are generally traded on a net basis. These securities
are generally traded on a net basis with dealers acting as principal for their
own accounts without a stated commission. In over-the-counter transactions,
orders are placed directly with a principal market-maker unless a better price
and execution can be obtained by using a broker. Brokerage commissions are paid
on transactions in listed securities, futures contracts, and options.
The Investment Advisor or Sub-Advisor effects portfolio transactions
for other investment companies and advisory accounts. Research services
furnished by broker-dealers through whom the Funds effect securities
transactions may be used by the Investment Advisor or Sub-Advisor, as the case
may be, in servicing all of their respective accounts; not all such services may
be used in connection with the Funds. The Investment Advisor and Sub-Advisor
will attempt to equitably allocate portfolio transactions among the Funds and
others whenever concurrent decisions are made to purchase or sell securities by
the Funds and other accounts. In making such allocations between the Funds and
others, the main factors to be considered are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the persons responsible for
recommending investments to the Funds and the others. In some cases, this
procedure could have an adverse effect on the Funds. In the opinion of the
Investment Advisor and Sub-Advisor, however, the results of such procedures
will, on the whole, be in the best interest of each of the clients.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Brokerage Brokerage Brokerage
Commissions Commissions Commissions
FYE FYE FYE
Oct. 31, 1995 Oct. 31, 1996 Oct. 31, 1997
------------- ------------- -------------
Montag & Caldwell Growth Fund $50,125 $204,066 $537,610
Chicago Trust Growth & Income Fund $13,723 $122,722 $130,947
Chicago Trust Talon Fund $49,652 $40,019 $55,212*
Chicago Trust Balanced Fund N/A $66,370 $58,087
Montag & Caldwell Balanced Fund $15,328 $17,700 $34,393
Chicago Trust Bond Fund N/A N/A N/A
Chicago Trust Municipal Bond Fund N/A N/A N/A
Chicago Trust Money Market Fund N/A N/A N/A
</TABLE>
* Of this amount, $1,300 paid to Talon Securities, Inc. ("TSI"), an
affiliate of Talon, the Fund's Sub-Advisor. The amount paid to TSI
represents: (a) 0.20% of the aggregate brokerage commissions received
by TSI from all clients during the most recent fiscal year; and (b)
2.35% of the total commissions paid by Chicago Trust Talon Fund to all
brokers through whom trades were placed during the Fund's most recent
fiscal year.
Portfolio Turnover
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of purchases or sales of portfolio investments for the
reporting period by the monthly average value of the portfolio investments owned
during the reporting period. The calculation excludes all securities, including
options, whose maturities or expiration dates at the time of acquisition are one
year or less. Portfolio turnover may vary greatly from year to year as well as
within a particular year, and may be affected by cash requirements for
redemption of units and by requirements which enable the Funds to receive
favorable tax treatment. In any event, portfolio turnover is generally not
expected to exceed 100% in the Funds, except for Chicago Trust Talon Fund and
Alleghany/Chicago Trust SmallCap Value Fund in which it is not expected to
exceed 150% and Alleghany/Veredus Aggressive Growth Fund in which it is not
expected to exceed 200%. A high rate of portfolio turnover (i.e., over 100%) may
result in the realization of substantial capital gains and involves
correspondingly greater transaction costs. To the extent that net capital gains
are realized, distributions derived from such gains are treated as ordinary
income for Federal income tax purposes.
The portfolio turnover rates for the Funds for their most recent fiscal
periods may be found under "FINANCIAL HIGHLIGHTS" in the Prospectus. Chicago
Trust Talon Fund experienced a portfolio turnover rate of 112.72% for the fiscal
year ended October 31, 1997 (vs. 126.83% for the fiscal year ended October 31,
1996 and 229.43% for the fiscal year ended October 31, 1995). The Fund is
periodically repositioned in the market as it seeks capital preservation, value
and competitive performance. Portfolio trades are executed in accordance with
the Fund's investment objective, in the best judgment of management.
TAXES
Each Fund intends to continue to qualify each year as a regulated
investment company under the Code.
In order to so qualify, a Fund must, among other things, (i) derive at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (ii) derive less than 30% of its gross
income from gains from the sale or other disposition of securities or certain
futures and options thereon held for less than three months ("short-short
gains"); (iii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iv) at the end of each fiscal quarter
maintain at least 50% of the value of its total assets in cash, U.S. Government
securities, securities of other regulated investment companies, and other
securities of issuers which represent, with respect to each issuer, no more than
5% of the value of a Fund's total assets and 10% of the outstanding voting
securities of such issuer, and with no more than 25% of its assets invested in
the securities (other than those of the government or other regulated investment
companies) of any one issuer or of two or more issuers which the Fund controls
and which are engaged in the same, similar or related trades and businesses.
To the extent such Fund qualifies for treatment as a regulated
investment company, it will not be subject to Federal income tax on income paid
to shareowners in the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of a Fund's "required distributions" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. The Funds intend to make distributions sufficient to avoid imposition of
the excise tax. For a distribution to qualify as such with respect to a calendar
year under the foregoing rules, it must be declared by a Fund during October,
November or December to shareowners of record during such month and paid by
January 31 of the following year. Such distributions will be taxable in the year
they are declared, rather than the year in which they are received.
When a Fund writes a call, or purchases a put option, an amount equal
to the premium received or paid by it is included in the Fund's accounts as an
asset and as an equivalent liability.
In writing a call, the amount of the liability is subsequently
"marked-to-market" to reflect the current market value of the option written.
The current market value of a written option is the last sale price on the
principal exchange on which such option is traded or, in the absence of a sale,
the mean between the last bid and asked prices. If an option which a Fund has
written expires on its stipulated expiration date, the Fund recognizes a
short-term capital gain. If a Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, the Fund realizes a
short-term gain (or loss if the cost of the closing transaction exceeds the
premium received when the option was sold) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such option is
extinguished. If a call option which a Fund has written is exercised, the Fund
realizes a capital gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
The premium paid by a Fund for the purchase of a put option is recorded
in the Fund's assets and liabilities as an investment and subsequently adjusted
daily to the current market value of the option. For example, if the current
market value of the option exceeds the premium paid, the excess would be
unrealized appreciation and, conversely, if the premium exceeds the current
market value, such excess would be unrealized depreciation. The current market
value of a purchased option is the last sale price on the principal exchange on
which such option is traded or, in the absence of a sale, the mean between the
last bid and asked prices. If an option which a Fund has purchased expires on
the stipulated expiration date, the Fund realizes a short-term or long-term
capital loss for Federal income tax purposes in the amount of the cost of the
option. If a Fund exercises a put option, it realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale which will be decreased by the premium originally paid.
The amount of any realized gain or loss on closing out options on
certain stock indices will result in a realized gain or loss for tax purposes.
Such options held by a Fund at the end of each fiscal year on a broad-based
stock index will be required to be "marked-to-market" for Federal income tax
purposes. Sixty percent of any net gain or loss recognized on such deemed sales
or on any actual sales will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss ("60/40 gain or
loss"). Certain options, futures contracts and options on futures contracts
utilized by the Funds are "Section 1256 contracts." Any gains or losses on
Section 1256 contracts held by a Fund at the end of each taxable year (and on
October 31 of each year for purposes of the 4% excise tax) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as a
60/40 gain or loss.
Shareowners will be subject to Federal income taxes on distributions
made by the Funds whether received in cash or additional shares of the Funds.
Distributions of net investment income and net short-term capital gains, if any,
will be taxable to shareowners as ordinary income. Distributions of net capital
gains (the excess of net capital gains over net short-term capital losses), if
any, will be taxable to shareowners as 28% rate gains or 20% rate gains, without
regard to how long a shareowner has held shares of a Fund. A loss on the sale of
shares held for six months or less will be treated as a long-term capital loss
to the extent of any long-term capital gain dividend paid to the shareowner with
respect to such shares. Dividends paid by a Fund may qualify in part for the 70%
dividends-received deduction for corporations, provided however, that those
shares have been held for at least 45 days.
An investment in Chicago Trust Municipal Bond Fund is not intended to
constitute a balanced investment program. Shares of this Fund would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans, and IRAs since
such plans and accounts are generally tax-exempt and, therefore, not only would
the shareowner receive less income and not gain any benefit from the Fund's
dividend being tax-exempt, but such dividends would be ultimately taxable to the
beneficiaries when distributed.
In order for Chicago Trust Municipal Bond Fund to pay exempt-interest
dividends for any taxable year, at the close of each taxable quarter, at least
50% of the aggregate value of the Fund's portfolio must consist of
exempt-interest obligations. Within 60 days after the close of its taxable year,
the Fund will notify its shareowners of the portion of the dividends paid by the
Fund which constitutes exempt-interest dividends with respect to such taxable
year.
The Funds will notify shareowners each year of the amount of dividends
and distributions, including the amount of any distribution of 28% rate gains
and 20% rate gains, and the portion of its dividends which qualify for the 70%
deduction.
Dividends and distributions also may be subject to state and local
taxes. Shareowners are urged to consult their tax advisors regarding specific
questions as to Federal, state and local taxes.
The foregoing discussion relates solely to U.S. Federal income tax law.
Non-U.S. investors should consult their tax advisors concerning the tax
consequences of ownership of shares of the Funds, including the possibility that
distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
PERFORMANCE INFORMATION
In General
From time to time, the Company may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to shareowners. The Company may also include
calculations, such as hypothetical compounding examples or tax-free compounding
examples, which describe hypothetical investment results in such communications.
Such performance examples will be based on an express set of assumptions and are
not indicative of the performance of any Fund. In addition, the Company may
include charts comparing various tax-free yields versus taxable yield
equivalents at different income levels.
From time to time, the yield and total return of a Fund may be quoted
in advertisements, shareowner reports or other communications to shareowners.
Total Return Calculations
The Funds that compute their average annual total returns do so by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
Average Annual Total Return = [(ERV) 1/n
P ] -1
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000 payment
made at the beginning of the period
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed in terms of years
The Funds that compute their aggregate total returns over a specified
period do so by determining the aggregate compounded rate of return during such
specified period that likewise equates over a specified period the initial
amount invested to the ending redeemable value of such investment. The formula
for calculating aggregate total return is as follows:
<PAGE>
Aggregate Annual Total Return = (ERV)
P-1
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000 payment
made at the beginning of the period
P = hypothetical initial payment of $1,000
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations. Such calculations are not
necessarily indicative of future results and do not take into account Federal,
state and local taxes that shareowners must pay on a current basis.
Since performance will fluctuate, performance data for the Funds should
not be used to compare an investment in the Funds' shares with bank deposits,
savings accounts and similar investment alternatives which often provide an
agreed or guaranteed fixed yield for a stated period of time. Shareowners should
remember that performance is generally a function of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions.
The average annual total returns for the Funds which quote such
performance were as follows for the periods shown:
<TABLE>
<CAPTION>
<S> <C> <C>
One Year From Inception
Series Ended of Fund through
10/31/97 10/31/97
Montag & Caldwell Growth Fund Class N 33.82 31.92
Montag & Caldwell Growth Fund Class I 34.26 33.56
Chicago Trust Growth & Income Fund 25.16 20.78
Chicago Trust Talon Fund 33.47 26.08
Chicago Trust Balanced Fund 20.10 18.20
Montag & Caldwell Balanced Fund 24.26 22.83
Chicago Trust Bond Fund 8.84 6.56
Chicago Trust Municipal Bond Fund 5.13 4.07
</TABLE>
Yield of Chicago Trust Money Market Fund
As summarized in the Prospectus, the yield of this Fund for a seven-day
period (the "base period") will be computed by determining the net change in
value (calculated as set forth below) of a hypothetical account having a balance
of one share at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to obtain
the base period return, and multiplying the base period return by 365/7 with the
resulting yield figure carried to the nearest hundredth of one percent. Net
changes in value of a hypothetical account will include the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, but will not include
realized gains or losses or unrealized appreciation or depreciation on portfolio
investments. Yield may also be calculated on a compound basis (the "effective
yield") which assumes that net income is reinvested in shares of the Fund at the
same rate as net income is earned for the base period.
The yield and effective yield of Chicago Trust Money Market Fund will
vary in response to fluctuations in interest rates and in the expenses of the
Fund. For comparative purposes, the current and effective yields should be
compared to current and effective yields offered by competing financial
institutions for the same base period and calculated by the methods described
above. For the seven-day period ended October 31, 1997, Chicago Trust Money
Market Fund had a yield of 5.22% and an effective yield of 5.32%.
Yields of Chicago Trust Bond Fund and Chicago Trust Municipal Bond Fund
The yield of each of these Funds is calculated by dividing the net
investment income per share (as described below) earned by the Fund during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. A Fund's net investment income per
share earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements.
This calculation can be expressed as follows:
YIELD = 2 [(a - b + 1) - 1]6
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = maximum offering price per share on the last day of the period
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the Fund. Except as noted below,
interest earned on any debt obligations held by a Fund is calculated by
computing the yield to maturity of each obligation held by that Fund based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of the month, the purchase price
(plus actual accrued interest) and dividing the result by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by that Fund. For
purposes of this calculation, it is assumed that each month contains 30 days.
The date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount premium. The amortization schedule will be adjusted monthly to reflect
changes in the market values of such debt obligations.
Expenses accrued for the period (variable "b" in the formula) include
all recurring fees charged by a Fund to all shareowner accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per capital
share (variable "d" in the formula).
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original discount (market discount), the yield to maturity is the
imputed rate based on the original issue discount calculation. On the other
hand, in the case of tax-exempt obligations that are issued with original issue
discount but which have discounts based on current market value that are less
than the then-remaining portion of the original discount (market premium), the
yield to maturity is based on the market value.
With respect to mortgage- or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest
("pay-downs"): (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period;
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
For the 30-day period ended October 31, 1997, Chicago Trust Bond Fund
had a yield of 5.74%.
For the 30-day period ended October 31, 1997, Chicago Trust Municipal
Bond Fund had a yield of 3.40%.
Tax-Equivalent Yield
The "tax-equivalent yield" of Chicago Trust Municipal Bond Fund is
computed by: (a) dividing the portion of the yield (calculated as above) that is
exempt from Federal income tax by one minus a stated Federal income tax rate;
and (b) adding to that figure to that portion, if any, of the yield that is not
exempt from Federal income tax.
The tax-equivalent yield of this Fund reflects the taxable yield that
an investor at the stated marginal Federal income tax rate would have to receive
to equal the primarily tax-exempt yield from Chicago Trust Municipal Bond Fund.
Before investing in this Fund, you may want to determine which investment --
tax-free or taxable -- will result in a higher after-tax yield. To do this,
divide the yield on the tax-free investment by the decimal determined by
subtracting from one the highest Federal tax rate you pay. For example, if the
tax-free yield is 5% and your maximum tax bracket is 36%, the computation is:
5% Tax-Free Yield - (1/.36 Tax Rate) = 5%/.64% = 7.81% Tax Equivalent Yield
In this example, your after-tax return would be higher from the 5%
tax-free investment if available taxable yields are below 7.81%. Conversely, the
taxable investment would provide a higher yield when taxable yields exceed
7.81%.
For the 30-day period ended October 31, 1997, Chicago Trust Municipal
Bond Fund had a tax-equivalent yield of 5.31%, based on the tax-free yield of
3.40%, shown above, and assuming a shareowner is at the 36% Federal income tax
rate.
OTHER INFORMATION
Statements contained in the Prospectus or in this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Statement of Additional
Information forms a part. Each such statement is qualified in all respects by
such reference.
Custodian
Bankers Trust Company ("Bankers Trust"), 16 Wall Street, New York, New
York 10005 serves as Custodian of the Company's assets pursuant to a Custodian
Agreement. Under such Agreement, Bankers Trust: (i) maintains a separate account
or accounts in the name of each Fund; (ii) holds and transfers portfolio
securities on account of each Fund; (iii) accepts receipts and makes
disbursements of money on behalf of each Fund; (iv) collects and receives all
income and other payments and distributions on account of each Fund's
securities; and (v) makes periodic reports to the Board of Trustees concerning
each Fund's operations.
Reports to Shareowners
Shareowners will receive unaudited semi-annual reports describing the
Funds' investment operations and annual financial statements audited by the
Funds' independent certified public accountants. Inquiries regarding the Funds
may be directed to the Investment Advisor or the Administrator at (800)
992-8151.
KPMG Peat Marwick LLP, 303 E. Wacker Drive, Chicago, Illinois is the
Company's independent public accountant and auditor.
<PAGE>
APPENDIX
FINANCIAL STATEMENTS
for
Montag & Caldwell Growth Fund
Chicago Trust Growth & Income Fund
Chicago Trust Talon Fund
Chicago Trust Balanced Fund
Montag & Caldwell Balanced Fund
Chicago Trust Bond Fund
Chicago Trust Municipal Bond Fund
Chicago Trust Money Market Fund
Fiscal Year Ended
October 31, 1997
ANNUAL REPORT TO SHAREOWNERS
Semi-Annual Period Ended
April 30, 1998
SEMI-ANNUAL REPORT TO SHAREOWNERS
