Securities Act Registration No. 33-70978
Investment Company Act Registration No. 811-8122
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. __ [_]
Post-Effective Amendment No. 5 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 7 [X]
(Check appropriate box or boxes.)
THE AQUINAS FUNDS, INC.
(Exact name of Registrant as Specified in Charter)
5310 Harvest Hill Road
Suite 248
Dallas, Texas 75230
(Address of Principal Executive (Zip Code)
Offices)
(972) 661-9792
(Registrant's Telephone Number, including Area Code)
Copy to:
Frank M. Rauscher Richard L. Teigen
Aquinas Investment Advisers, Inc. Foley & Lardner
5310 Harvest Hill Road 777 East Wisconsin Avenue
Dallas, Texas 75230 Milwaukee, Wisconsin 53202
(Name and Address of Agent for
Service)
The Aquinas Funds, Inc. has registered an indefinite number or amount of
its Common Stock under the Securities Act of 1933 and filed its required
Rule 24f-2 Notice for the fiscal year ended December 31, 1996 on February
26, 1997.
It is proposed that this filing become effective (check appropriate box):
[_] Immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 1997 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
THE AQUINAS FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in Prospectus or
Item No. on Form N-1A Statement of Additional Information
PART A - INFORMATION REQUIRED
IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Fees and Expenses
3. Condensed Financial Condensed Financial Information; Fund
Information Performance
4. General Description of Management of the Funds; Information
Registrant About Investment Objectives and
Policies
5. Management of the Fund Information About Investment
Objectives and Policies; Risks and
Other Investment Practices;
Fundamental Investment Policies;
Management of the Funds; Capital
Structure
5A. Management's Discussion of Included in Annual Report to
Fund Performance Shareholders
6. Capital Stock and Other Dividends and Distributions; Taxes;
Securities Capital Structure; Stockholder Reports
7. Purchase of Securities How to Get Started - Opening an
Being Offered Account; How to Buy Additional Shares;
Determining Share Price; Dividends and
Distributions
8. Redemption or Repurchase Exchange Privilege; How to Sell Shares
9. Pending Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and *
History
13. Investment Objectives and Investment Restrictions; Investment
Policies Policies and Techniques
14. Management of the Fund Directors and Officers of the Company
15. Control Persons and Directors and Officers of the Company;
Principal Holders of Investment Adviser, Portfolio Managers
Securities and Administrator
16. Investment Advisory and Investment Adviser, Portfolio Managers
Other Services and Administrator; Custodian and
Transfer Agent; Independent
Accountants;
17. Brokerage Allocation and Allocation of Portfolio Brokerage
Other Practices
18. Capital Stock and Other Included in Prospectus under "Capital
Securities Structure"
19. Purchase, Redemption and Included in Prospectus under
Pricing of Securities "Determining Share Price"; "How to Get
Being Offered Started - Opening an Account"; "How to
Buy Additional Shares"; "Dividends and
Distributions"; Determination of Net
Asset Value; Purchase of Shares
20. Tax Status Taxes
21. Underwriters *
22. Calculation of Performance Performance Information
Data
23. Financial Statements Financial Statements
_______________________
* Answer negative or inapplicable
<PAGE>
Prospectus
April 30, 1997
5310 Harvest Hill Road, Suite 248
Dallas, Texas 75230
1-972-233-6655
The Aquinas Funds, Inc. (the "Company") is an open-end, diversified
management investment company, which currently offers four different
investment portfolios--better known as mutual funds ("Funds"). Aquinas
Investment Advisers, Inc. (the "Adviser") provides consulting, investment
and administrative services to the Funds. The Adviser is a wholly-owned
subsidiary of The Catholic Foundation, which provides an endowment fund
for educational, religious and charitable activities. The fees (net of
expenses, which for the fiscal year ended December 31, 1996 represented
approximately 99% of the Adviser's total fees) received by the Adviser for
its services to the Funds will be distributed to The Catholic Foundation
to support its educational, religious and charitable activities.
All of the Funds are 100% no-load, which means there are no sales
commissions, redemption fees or 12b-1 charges of any kind. This Prospectus
describes each of the four Funds listed below.
Each Fund seeks to achieve a specific investment objective by using
distinct investment strategies. Each Fund will attempt to achieve superior
performance consistent with its investment objective, while assuming no
more than reasonable levels of risk. Through the different Funds, you can
select a Fund or a combination of Funds that best meets your investment
goals.
* AQUINAS FIXED INCOME FUND
The Aquinas Fixed Income Fund seeks to provide a high level of
current income, with a reasonable opportunity for capital appreciation.
The Fixed Income Fund is designed for investors with current income needs.
This Fund invests primarily in a diversified portfolio of investment grade
fixed income securities.
* AQUINAS EQUITY INCOME FUND
The Aquinas Equity Income Fund seeks growth of capital and a high
level of current income by investing principally in conservative income-
producing equity securities (typically, dividend paying common stocks).
* AQUINAS EQUITY GROWTH FUND
The Aquinas Equity Growth Fund seeks capital appreciation by
investing in a diversified portfolio of equity securities (primarily
common stocks) that are believed to offer above average potential for
growth in revenues, profits or cash flow. Dividend and interest income
are not important considerations in selecting investments. This Fund is
designed for investors wishing to capitalize on the growth in companies
with reasonable levels of risk.
* AQUINAS BALANCED FUND
The Aquinas Balanced Fund seeks long-term growth of capital
consistent with reasonable risk to principal by investing in a diversified
portfolio of common stocks of established companies and investment grade
fixed income securities. This Fund expects to maintain approximately 65%
of its assets in common stocks and 35% in fixed income securities.
This Prospectus sets forth concisely the information about the Funds
that you should know before investing. You should read this Prospectus
and keep it for future reference.
Additional information about the Funds is included in a Statement of
Additional Information, dated April 30, 1997, as supplemented from time to
time, which has been filed with the Securities and Exchange Commission.
The Statement of Additional Information is incorporated in this Prospectus
by reference (which means that it is legally considered a part of this
Prospectus). A copy of the Statement of Additional Information may be
obtained, without charge, by writing or calling the Funds at the above
address and phone number.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS Page
FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 2
INFORMATION ABOUT INVESTMENT OBJECTIVES AND POLICIES
AQUINAS FIXED INCOME FUND . . . . . . . . . . . . . . . . . . . . 4
AQUINAS EQUITY INCOME FUND . . . . . . . . . . . . . . . . . . . . 6
AQUINAS EQUITY GROWTH FUND . . . . . . . . . . . . . . . . . . . . 6
AQUINAS BALANCED FUND . . . . . . . . . . . . . . . . . . . . . . 7
RISKS AND OTHER INVESTMENT PRACTICES
PORTFOLIO LENDING . . . . . . . . . . . . . . . . . . . . . . . . 7
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . 8
WHEN-ISSUED SECURITIES . . . . . . . . . . . . . . . . . . . . . . 8
REPURCHASE AGREEMENTS AND OTHER SHORT-TERM INVESTMENTS . . . . . . 8
FOREIGN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . 9
ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 9
MORTGAGE-BACKED SECURITIES . . . . . . . . . . . . . . . . . . . . 9
ASSET-BACKED SECURITIES . . . . . . . . . . . . . . . . . . . . . 10
HEDGING INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . 10
SOCIALLY RESPONSIBLE INVESTING . . . . . . . . . . . . . . . . . . 11
FUNDAMENTAL INVESTMENT POLICIES
DIVERSIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 11
CONCENTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 11
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
OTHER POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . 11
HOW TO GET STARTED -- OPENING AN ACCOUNT
INITIAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . 12
WAYS TO SET UP YOUR ACCOUNT . . . . . . . . . . . . . . . . . . . 12
WAYS TO BUY SHARES . . . . . . . . . . . . . . . . . . . . . . . . 13
HOW TO BUY ADDITIONAL SHARES
ADDING TO YOUR ACCOUNT . . . . . . . . . . . . . . . . . . . . . . 14
AUTOMATIC INVESTMENT PLAN . . . . . . . . . . . . . . . . . . . . 15
ADDITIONAL PURCHASE INFORMATION . . . . . . . . . . . . . . . . . 15
HOW TO EXCHANGE SHARES
LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
WAYS TO EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . 16
TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . 16
HOW TO SELL SHARES
WAYS TO SELL SHARES . . . . . . . . . . . . . . . . . . . . . . . 16
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . . . . . . 18
ADDITIONAL INFORMATION ABOUT REDEMPTIONS . . . . . . . . . . . . . 18
INFORMATION AND HELP LINE . . . . . . . . . . . . . . . . . . . . . . . 19
DETERMINING YOUR SHARE PRICE . . . . . . . . . . . . . . . . . . . . . 19
MANAGEMENT OF THE FUNDS
ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE PORTFOLIO MANAGERS . . . . . . . . . . . . . . . . . . . . . . 20
THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . 23
THE CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 24
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CAPITAL STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SHAREHOLDER REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FEES AND EXPENSES
The Funds do not charge any type of fee or commission when you buy or
sell a Fund's shares. All of the Funds are 100% no-load.*
Shareholder Transaction Expenses
Fixed Equity Equity
Income Income Growth Balanced
Maximum Sales Load (charge) Imposed
on Purchases . . . . . . . . . . None None None None
Maximum Sales Load (charge) Imposed
on Reinvested Dividends . . . . None None None None
Deferred Sales Load (charge) . . . None None None None
Redemption Fees . . . . . . . . . . None None None None
Exchange Fee . . . . . . . . . . . None None None None
_______________
* Investment professionals may charge investors a transaction-based fee
or other fee for their services at either the time of purchase or
redemption.
Investment companies, like other companies, incur a variety of
operating expenses, including expenses for portfolio management,
shareholder services such as maintaining your shareholder records and
furnishing your shareholder statements, tax reporting and other services.
Each Fund pays its annual operating expenses from its assets. A Fund's
expenses are factored into its share price each day and are not charged
directly to shareholder accounts.
The Annual Fund Operating Expenses are based on actual expenses
incurred for the year ended December 31, 1996.
Annual Fund Operating Expenses
Fixed Equity Equity
Income Income Growth Balanced
Management Fees (after fee
waivers)(1) . . . . . . . . . . . . .57% 1.00% .96% 1.00%
12b-1 Fees . . . . . . . . . . . . 0 0 0 0
Other Expenses(2) . . . . . . . . . .43% .40% .54% .44%
Total Fund Operating Expenses(3) . 1.00% 1.40% 1.50% 1.44%
_______________
(1) Absent fee waivers, management fees would have been .60% and 1.00%
for the Fixed Income and Equity Growth Funds, respectively.
(2) Absent fee waivers, other expenses would have been .49% for the
Balanced Fund.
(3) Absent fee waivers, total fund operating expenses would have been
1.03%, 1.54% and 1.49% for the Fixed Income, Equity Growth and
Balanced Funds, respectively.
Example: Assume that each Fund's annual return is 5% and that its
operating expenses are exactly as just described. For every $1,000 you
invested, the table below shows how much you would pay in total expenses
(net of reimbursements) if you closed your account by selling all your
shares after the number of years indicated.
Fixed Equity Equity
Income Income Growth Balanced
After 1 year . . . . . . . . . $10 $14 $15 $15
After 3 years . . . . . . . . . 32 45 48 46
After 5 years . . . . . . . . . 56 77 83 80
After 10 years . . . . . . . . 123 170 181 174
The Example is intended to assist you in understanding the various
expenses that an investor bears, directly or indirectly, by being a
shareholder of a Fund and uses a 5% annual rate of return as required by
Securities and Exchange Commission regulations. Neither the rate of
return nor the expenses should be considered a representation of past or
future returns and expenses. Actual returns and expenses may be greater
or less than those shown. For an explanation of management fees see
"Management Of The Funds" on Page 19.
FINANCIAL HIGHLIGHTS
The financial information for the periods specified in the following
table has been audited by Arthur Andersen LLP, independent accountants,
whose report thereon appears in the Company's Annual Report to
Shareholders. The financial information should be read in conjunction
with the Company's audited financial statements and related notes, which
are included in the Annual Report. Additional information about each
Fund's performance is contained in the Company's Annual Report, which may
be obtained, without charge, by writing or calling the Company.
<TABLE> FIXED INCOME FUND EQUITY INCOME FUND
<CAPTION>
Jan. 3, Jan. 3,
1994(1) 1994(1)
Year ended Year ended through Year ended Year ended through
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994 1996 1995 1994
_______ _______ _______ _________ _________
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.17 $9.24 $10.00 $11.83 $9.39 $10.00
Income from investment operations:
Net investment income (loss) 0.54 0.54 0.46 0.23 0.28 0.32
Net realized and unrealized gains
(losses) on investments (0.27) 0.93 (0.77) 2.18 3.03 (0.61)
______ _______ _______ ________ _________ _______
Total from investment operations 0.27 1.47 (0.31) 2.41 3.31 (0.29)
______ _______ _______ ________ _________ _______
Less distributions:
Dividends from net investment income (0.54) (0.54) (0.45) (0.23) (0.28) (0.32)
Distributions from net realized gains -- -- -- (0.75) (0.59) --
Total distributions (0.54) (0.54) (0.45) (0.98) (0.87) (0.32)
______ _______ _______ ________ _________ _______
Net asset value, end of period $9.90 $10.17 $9.24 $13.26 $11.83 $9.39
====== ======= ======= ======== ========= =======
Total return(2) 2.83% 16.26% (3.09)% 20.43% 35.62% (2.93)%
Supplemental data and ratios:
Net assets, end of period (in thousands) $37,229 $35,617 $28,147 $54,184 $42,102 $32,217
Ratio of net expenses to average net
assets (3)(4) 1.00% 0.98% 1.00% 1.40% 1.37% 1.45%
Ratio of net investment income (loss) to
average net assets(3)(4) 5.44% 5.46% 4.84% 1.79% 2.47% 3.33%
Portfolio turnover rate(2) 169% 126% 139% 32% 40% 106%
Average commission rate paid on
portfolio investment transactions(5) N/A N/A N/A $0.0554 N/A N/A
<CAPTION>
EQUITY GROWTH FUND BALANCED FUND
Jan. 3, Jan. 3,
1994(1) 1994(1)
Year ended Year ended through Year ended Year ended through
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31
1996 1995 1994 1996 1995 1994
________ _______ ________ _______ ________ ________
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.13 $9.31 $10.00 $11.03 $ 9.43 $ 10.00
Income from investment operations:
Net investment income (loss) (0.06) (0.01) 0.01 0.26 0.32 0.26
Net realized and unrealized gains
(losses) on investments 2.84 2.83 (0.69) 1.41 1.84 (0.57)
______ ______ _______ ______ ________ ________
Total from investment operations 2.78 2.82 (0.68) 1.67 2.16 (0.31)
______ ______ _______ ______ ________ ________
Less distributions:
Dividends from net investment income -- -- (0.01) (O.26) (0.33) (0.26)
Distributions from net realized gains (1.46) -- -- (0.91) (0.23) --
_______ ______ _______ ______ ________ ________
Total distributions (1.46) -- (0.01) (1.17) (0.56) (0.26)
_______ ______ _______ ______ ________ ________
Net asset value, end of period $13.45 $12.13 $9.31 $11.53 $11.03 $9.43
======= ====== ======= ====== ======== ========
Total return(2) 22.90% 30.29% (6.78)% 15.29% 23.14% (3.06)%
Supplemental data and ratios:
Net assets, end of period (in thousands) $22,593 $15,912 $10,104 $29,670 $26,779 $30,114
Ratio of net expenses to average net
assets (3)(4) 1.50% 1.50% 1.50% 1.44% 1.46% 1.49%
Ratio of net investment income (loss) to
average net assets(3)(4) (0.55)% (0.10)% 0.14% 2.23% 2.93% 2.75%
Portfolio turnover rate(2) 112% 102% 98% 111% 118% 111%
Average commission rate paid on
portfolio investment transactions(5) $0.0649 N/A N/A $0.0635 N/A N/A
(1) Commencement of operations.
(2) Not annualized for the period from January 3, 1994 through December 31, 1994.
(3) Net of waivers. Absent waivers, the ratio of net expenses to average net assets would be 1.03%,
0.98% and 1.11% for the Fixed Income Fund; 1.40%, 1.37% and 1.45% for the Equity Income Fund; 1.54%,
1.61% and 1.76% for the Equity Growth Fund; and 1.49%, 1.46% and 1.49% for the Balanced Fund,
respectively. The ratio of net investment income to average net assets (loss) would be 5.41%, 5.46%
and 4.73% for the Fixed Income Fund; 1.79%, 2.47% and 3.33% for the Equity Income Fund; (0.59%),
(0.21)% and (0.12)% for the Equity Growth Fund; and 2.18%, 2.93% and 2.75% for the Balanced Fund,
respectively.
(4) Annualized for the period from January 3, 1994 through December 31, 1994.
(5) Disclosure of this rate is required by the Securities and Exchange Commission on a prospective basis
beginning in 1996.
</TABLE>
INFORMATION ABOUT INVESTMENT OBJECTIVES AND POLICIES
The following descriptions of each Fund's investment objective,
restrictions and policies are designed to help you choose the Fund or a
combination of Funds that best fits your investment objectives. Each Fund
will attempt to achieve superior performance consistent with its
investment objective, while assuming no more than reasonable levels of
risk. For these purposes, "superior performance" means total return that
exceeds the total return from an investment in the securities comprising
the Lehman Brothers Government/Corporate Index for the Fixed Income Fund,
the Standard & Poor's 500 Composite Stock Index for the Equity Income and
the Equity Growth Funds and a composite index comprised 65% of the
Standard & Poor's 500 Composite Stock Index and 35% of the Salomon
Brothers 91-day Treasury Bill Index for the Balanced Fund, and "reasonable
levels of risk" means portfolio risk for the Fund that is equal to or less
than the variability of returns for the appropriate comparative index as
specified above. The Funds may sacrifice returns to reduce risks. A more
detailed discussion appears in the Statement of Additional Information.
AQUINAS FIXED INCOME FUND
* Investment Objective:
The investment objective of the Fixed Income Fund is to provide a
high level of current income, with a reasonable opportunity for capital
appreciation. For these purposes, "high level of current income" means
income in excess of that realized by the Salomon Brothers 91-day Treasury
Bill Index and "reasonable opportunity for capital appreciation" means
capital appreciation in excess of that realized by the Salomon Brothers
91-day Treasury Bill Index. The Fixed Income Fund is designed for
investors with current income needs.
* Investment Policies:
The Fixed Income Fund will attempt to achieve its investment
objective through investments in a diversified portfolio of investment
grade debt securities of domestic and foreign issuers, including
corporations and government agencies, as well as mortgage-backed and
asset-backed securities. Investment grade securities are (i) corporate
bonds, debentures or notes rated at least BBB by Standard & Poor's
Corporation ("S&P"), Duff & Phelps, Inc. ("D&P") or Fitch Investors
Services, Inc. ("Fitch") or Baa by Moody's Investors Service, Inc.
("Moody's") at the time of acquisition; and (ii) any type of unrated debt
security that the portfolio manager determines at the time of acquisition
to be of a quality comparable to the foregoing. A description of these
ratings is included in the Statement of Additional Information. The Fixed
Income Fund has adopted an investment policy pursuant to which it will
invest at least 65% of its total assets in investment grade fixed income
securities.
The Fixed Income Fund's principal objective is to obtain a high level
of current income. However, unlike funds investing solely for income,
this Fund intends also to take advantage of opportunities for modest
capital appreciation and growth of investment income. The Fixed Income
Fund may purchase securities which are convertible into, or exchangeable
for, common stock when the portfolio manager believes they offer the
potential for higher total return than nonconvertible securities, or may
purchase income securities that carry warrants or common stock purchase
rights attached as an added inducement to participate in the potential
growth of an issuer. The Fixed Income Fund may also attempt to realize
capital appreciation by investing in fixed income securities when the
portfolio manager believes interest rates on such investments may decline
thereby increasing the market value of the fixed income securities
purchased by the Fixed Income Fund. Finally, the Fixed Income Fund may
purchase fixed income securities that the portfolio manager believes offer
the potential for a higher investment rating (i.e., upgrading).
Generally, when a fixed income security's rating is upgraded, the market
value of the security will appreciate.
The Fixed Income Fund will invest at least 75% of its net assets in
obligations which, at the time of purchase by the Fund, are rated at least
A by any one of S&P, Moody's, D&P or Fitch and securities issued or
guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Obligations"). No more
than 25% of the Fixed Income Fund's net assets will be invested in
securities whose highest rating is Baa by Moody's or BBB by S&P, D&P or
Fitch at the time of purchase. The Fixed Income Fund will invest in
securities which are rated, at the time of investment, investment grade
by at least one rating agency. Securities rated BBB by S&P, D&P or Fitch
or Baa by Moody's, although investment grade, do exhibit speculative
characteristics and changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity of issuers to make principal
and interest payments than is the case for higher rated securities. If a
security held by the Fixed Income Fund falls below a Baa rating by Moody's
and a BBB rating by S&P, D&P or Fitch, the Fund will consider all
circumstances deemed relevant in determining whether to hold the security,
but in no event will retain more than 5% of its net assets in securities
not rated at least BBB by any one of S&P, D&P or Fitch or Baa by Moody's.
Examples of the types of U.S. Government Obligations that may be held by
the Fixed Income Fund include direct obligations of the U.S. Treasury such
as U.S. Treasury bills, notes and bonds; and notes, bonds, and discount
notes of U.S. Government agencies or instrumentalities such as the Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of
the United States, Small Business Administration, Government National
Mortgage Association, Federal National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank
for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks and Maritime Administration. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S.
Government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S.
Treasury. No assurances can be given that the U.S. Government will
provide financial support to other agencies or instrumentalities, since it
is not obligated to do so. These instruments are supported by the
issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury, the discretionary authority of the U.S. Government
to purchase certain obligations of an agency or instrumentality, or the
credit of the agency or instrumentality. While the U.S. Government
currently provides financial support to such U.S. Government-sponsored
instrumentalities, no assurance can be given that it always will do so.
The U.S. Government, its agencies and instrumentalities do not guaranty
the market value of their securities, and consequently, the value of such
securities may fluctuate.
The Fixed Income Fund may invest up to 10% of its net assets in zero
coupon U.S. Government and corporate debt securities, which do not pay
current interest, but are purchased at a discount from their face values.
The market prices of zero coupon securities generally are more volatile
than the prices of securities that pay interest periodically and in cash
and are likely to respond to changes in interest rates to a greater degree
than do other types of debt securities having similar maturities and
credit quality.
The values of the securities in the Fixed Income Fund are subject to
price fluctuations resulting from various factors, including rising or
declining interest rates ("market risks") and the ability of the issuers
of such investments to make scheduled interest and principal payments
("financial risks"). The portfolio managers attempt to minimize these
risks when selecting investments by taking into account interest rates,
terms and marketability of obligations, as well as the capitalization,
earnings, liquidity and other indicators of the issuer's financial
condition. The Fixed Income Fund's intention to invest in investment
grade securities (determined at the time of acquisition as described
above) will also limit to some degree financial risks.
The value of fixed income securities will tend to decrease when
interest rates rise and increase when interest rates fall. The Fixed
Income Fund's share prices will react similarly. Securities with shorter
maturities, while generally offering lower yields, generally provide
greater price stability than longer-term securities and are less effected
by changes in interest rates. When the portfolio managers believe
interest rates may decline, the Fixed Income Fund may emphasize longer-
term maturities. Conversely, when they expect interest rates to rise, the
Fixed Income Fund may shorten maturities and/or maintain a larger than
normal position in money market instruments. The Fixed Income Fund has
the flexibility to invest in fixed income securities without restriction
upon the average maturity of the Fixed Income Fund's securities. However,
the portfolio managers anticipate that the Fixed Income Fund will
typically have an average portfolio maturity of between five and fifteen
years.
The Fixed Income Fund has authority to buy and sell options and
futures contracts to manage its exposure to changing interest rates and
security prices. The Fixed Income Fund may invest in debt futures and
options on debt futures. See "Hedging Instruments" on Page 10.
AQUINAS EQUITY INCOME FUND
* Investment Objective:
The investment objective of the Equity Income Fund is to provide
growth of capital and a high level of current income by investing
principally in conservative income-producing equity securities (typically,
dividend paying common stocks). For these purposes, "high level of
current income" means income in excess of the published composite yield of
the securities comprising the Standard & Poor's 500 Composite Stock Index
(the "S&P 500 Index"). The S&P 500 Index yield will change from year to
year due to changes in prices and dividends of stocks in the S&P 500
Index. As of February 28, 1997, the published composite yield of the S&P
500 Index was 1.93%. There is, of course, no assurance that this
objective can be achieved. The S&P 500 Index is a broad-based index of
500 companies designed to measure performance of the domestic economy.
* Investment Policies:
The Equity Income Fund normally will invest in equity securities with
favorable long-term characteristics when the securities have achieved the
upper end of their historical yield ranges. These securities may be
issued by major U.S. corporations in a mature stage of development or
operating in slower areas of the economy. Typically, such stocks will
have a market capitalization in excess of $2 billion. The Equity Income
Fund will not invest in equity securities that do not pay dividends.
There can, of course, be no assurance that an issuer will continue to pay
dividends.
Under normal market conditions, the Equity Income Fund will invest at
least 85% of its total assets in income-producing equity securities. The
remaining 15% of the Equity Income Fund's assets may be invested in cash
equivalents or securities issued by the U.S. Government, its agencies and
instrumentalities and investment grade bonds and other debt securities
issued by domestic companies. The Equity Income Fund may invest without
limitation in high-quality money-market instruments if deemed appropriate
by the Equity Income Fund's portfolio managers for temporary defensive
purposes.
AQUINAS EQUITY GROWTH FUND
* Investment Objective:
The investment objective of the Equity Growth Fund is capital
appreciation. The Equity Growth Fund will attempt to achieve its
objective by investing in a diversified portfolio of equity securities
(primarily common stocks) of companies that are believed to offer above
average potential for growth in revenues, profits or cash flow. Dividend
and interest income are not important considerations in the selection of
investments.
* Investment Policies:
The Equity Growth Fund, under normal market conditions, will invest
substantially all (or at least 85%) of its assets in equity securities.
Usually such investments will be common stock, but may be preferred stock
or other types of securities convertible into equity such as convertible
debt securities and warrants. The Equity Growth Fund will not invest more
than 5% of its net assets at the time of investment in convertible
securities rated less than investment grade by at least one of S&P, D&P,
Fitch or Moody's. The portfolio managers will select those convertible
securities for which they believe (i) the underlying common stock is a
suitable investment for the Equity Growth Fund using the criteria
described above and (ii) the potential for greater total return exists by
purchasing the convertible security because of its higher yield.
Securities rated BBB by S&P, D&P or Fitch or Baa by Moody's, although
investment grade, do exhibit speculative characteristics and are more
sensitive, than higher rated securities, to changes in economic
conditions. Investments in less than investment grade securities entail
relatively greater risk of loss of income or principal than investments in
investment grade securities. The remaining 15% of the Equity Growth
Fund's assets may be invested in cash equivalents or securities issued by
the U.S. Government, its agencies and instrumentalities.
The Equity Growth Fund's portfolio managers generally expect to meet
the Fund's objectives by each investing in the securities of between 35
and 65 companies which they believe to offer the potential for above
average rates of growth in revenues, earnings or cash flow. In selecting
investments, the portfolio managers primarily use fundamental analysis
reviewing the financial statements of the issuing corporation and other
companies in the same industry, market trends and economic conditions in
general.
AQUINAS BALANCED FUND
* Investment Objective:
The investment objective of the Balanced Fund is to provide long-term
capital growth consistent with reasonable risk to principal by investing
in a diversified portfolio of common stocks of established companies and
investment grade fixed income securities, including securities issued or
guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities. For these purposes, "long-term" means in
excess of one year and "reasonable risk to principal" means portfolio risk
for the Balanced Fund that is less than the variability of return for a
composite index comprised 65% of the Standard & Poor's 500 Index and 35%
of the Salomon Brothers 91-day Treasury Bill Index.
* Investment Policies:
The Balanced Fund is designed to provide a single vehicle with which
to participate in the portfolio managers' equity and fixed income
strategies, combined with the Adviser's asset allocation decisions. The
Balanced Fund seeks to achieve its objective by investing in a combination
of stocks, bonds and short-term cash equivalents. A typical asset mix of
the Balanced Fund is expected to be 65% equities and 35% fixed income
securities. However, depending upon market conditions, the mix may vary,
and cash equivalent investments will be maintained when deemed appropriate
by the portfolio managers. Under normal conditions, the range of exposure
to fixed income senior securities is expected to be 25% to 50% of the
Balanced Fund, and the range of exposure to equity securities is expected
to be 40% to 70%.
The Balanced Fund has authority to buy and sell options and futures
contracts to manage its exposure to changing interest rates and security
prices. The Balanced Fund may invest in debt futures and options on debt
futures. See "Hedging Instruments" on page 10.
Equity and fixed income securities are selected using approaches
similar to those for the Equity Growth Fund, Equity Income Fund and Fixed
Income Fund as set forth above.
RISKS AND OTHER INVESTMENT PRACTICES
In order to achieve their investment objectives, the Funds may engage
in the following investment practices in addition to those previously
discussed.
PORTFOLIO LENDING
In order to realize additional income, each of the Funds may lend its
portfolio securities to unaffiliated persons who are deemed to be
creditworthy. Such loans must be secured continuously by cash collateral
or U.S. Government securities maintained on a current basis in an amount
at least equal to the market value of the securities loaned. Cash
collateral will be invested in money market instruments. During the
existence of the loan, the applicable Fund will continue to receive the
equivalent of the interest and dividends paid by the issuer on the
securities purchased with the collateral, either of which type of interest
may be shared with the borrower. The applicable Fund will have the right
to call the loan and obtain the securities loaned at any time on three
days' notice, including the right to call the loan to enable the
applicable Fund to vote the securities. Such loans may not exceed 10% of
the net assets of the lending Fund.
PORTFOLIO TURNOVER
In order to achieve its investment objective, the portfolio managers
of the Funds will generally purchase and sell securities without regard to
the length of time the security has been held and, accordingly, it can be
expected that the rate of portfolio turnover may be substantial. The
portfolio managers of the Funds intend to purchase a given security
whenever they believe it will contribute to the stated objective of the
Fund, even if the same security has only recently been sold. In selling a
given security, the portfolio manager keeps in mind that (i) profits from
sales of securities held less than three months must be limited in order
to meet the requirements of Subchapter M of the Internal Revenue Code; and
(ii) profits from sales of securities are taxable to certain shareholders.
Subject to those considerations, the Funds may sell a given security, no
matter for how long or for how short a period it has been held in the
portfolio, and no matter whether the sale is at a gain or at a loss, if
the portfolio managers believe that it is not fulfilling its purpose.
Since investment decisions are based on the anticipated contribution of
the security in question to the applicable Fund's objectives, the rate of
portfolio turnover is irrelevant when the portfolio mangers believe a
change is in order to achieve those objectives, and each of the Fund's
annual portfolio turnover rate may vary from year to year.
High portfolio turnover (i.e., over 100%) may involve correspondingly
greater brokerage commissions and other transaction costs, which are borne
directly by the Funds. In addition, high portfolio turnover may result in
increased short-term capital gains which, when distributed to
shareholders, are treated as ordinary income.
WHEN-ISSUED SECURITIES
The Fixed Income Fund and the Balanced Fund may purchase securities
on a forward commitment or when-issued basis, which means that the price
of the securities is fixed at the time the commitment to purchase is made.
Delivery of and payment for these securities typically occur 15 to 90 days
after the commitment to purchase. Interest rates on debt securities at
the time of delivery may be higher or lower than those contracted for on
the when-issued security. The Funds will make commitments to purchase
when-issued securities only with the intention of actually acquiring the
securities, but the Funds may sell these securities before the settlement
date if the portfolio manager deems it advisable. The Funds will not
accrue income in respect of a when-issued security prior to its stated
delivery date.
When the Funds purchase securities on a when-issued basis, they will
maintain in a segregated account with the Funds' custodian cash or liquid
securities having an aggregate value equal to the amount of its purchase
commitment until payment is made. The purpose and effect of such
segregation is to prevent the Fund from gaining investment leverage from
when-issued transactions. When-issued securities may decline or increase
in value during the period from the Fund's investment commitment to the
settlement of the purchase.
REPURCHASE AGREEMENTS AND OTHER SHORT-TERM INVESTMENTS
Each of the Funds may enter into repurchase agreements with banks or
certain non-bank broker-dealers. In a repurchase agreement, the Fund buys
an interest-bearing security at one price and simultaneously agrees to
sell it back at a mutually agreed upon time and price. The repurchase
price reflects an agreed-upon interest rate during the time the Fund's
money is invested in the security. Since the security purchased
constitutes security for the repurchase obligation, a repurchase agreement
can be considered as a loan collateralized by the security purchased. The
Fund's risk is the ability of the seller to pay the agreed-upon price on
the delivery date. If the seller defaults, the Fund may incur costs in
disposing of the collateral, which would reduce the amount realized
thereon. If the seller seeks relief under the bankruptcy laws, the
disposition of the collateral may be delayed or limited. To the extent
the value of the security decreases, the Fund could experience a loss.
Repurchase agreements will be acquired in accordance with procedures
established by the Funds' Board of Directors which are designed to
evaluate the credit worthiness of the other parties to the repurchase
agreements.
In addition to repurchase agreements, each of the Funds may invest in
commercial paper and other cash equivalents rated A-1 or A-2 by S&P or
Prime-1 or Prime-2 by Moody's, commercial paper master notes (which are
demand instruments bearing interest at rates which are fixed to known
lending rates and automatically adjusted when such lending rates change)
of issuers whose commercial paper is rated A-1 or A-2 by S&P or Prime-1 or
Prime-2 by Moody's and unrated debt securities which are deemed by the
portfolio manager to be of comparable quality. Each of the Funds may also
invest in United States Treasury Bills and Notes, and certificates of
deposit of domestic branches of U.S. banks. The Funds (other than the
Equity Income Fund) will invest in such securities only for temporary
defensive purposes or to maintain liquidity to pay potential redemption
requests.
FOREIGN SECURITIES
Each of the Funds may invest up to 15% of its total assets in
securities of foreign issuers that are U.S. dollar-denominated and up to
5% of its total assets in securities of foreign issuers denominated in
foreign currencies. Securities of foreign issuers in the form of American
Depository Receipts ("ADRs") that are regularly traded on recognized U.S.
exchanges or in the U.S. over-the-counter market are not considered
foreign securities for purposes of these limitations. Each of the Funds,
however, will not invest more than 10% of its total assets in such ADRs
and will only invest in ADRs that are issuer sponsored. Investments in
securities of foreign issuers involve risks which are in addition to the
usual risks inherent in domestic investments. The value of a Fund's
foreign investments may be significantly affected by changes in currency
exchange rates, and the Funds may incur certain costs in converting
securities denominated in foreign currencies to U.S. dollars. In many
countries, there is less publicly available information about issuers than
is available in the reports and ratings published about companies in the
United States. Additionally, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards. Dividends and
interest on foreign securities may be subject to foreign withholding taxes
which would reduce a Fund's income without providing a tax credit for the
Fund's shareholders. Although the Funds intend to invest in securities of
foreign issuers domiciled in nations in which their respective portfolio
managers consider as having stable and friendly governments, there is a
possibility of expropriation, confiscatory taxation, currency blockage or
political or social instability which could affect investments in those
nations.0
ILLIQUID SECURITIES
Each of the Funds may invest up to 5% of its net assets in illiquid
securities, which may include restricted securities, repurchase agreements
maturing in more than seven days and other securities that are not readily
marketable. Securities eligible to be resold pursuant to Rule 144A under
the Securities Act of 1933 may be considered liquid by the Funds. Risks
associated with illiquid securities include the potential inability of the
Fund to promptly sell a portfolio security after its decision to sell and,
with respect to illiquid restricted securities, the Fund may be required
to pay all or a part of the registration expenses to sell the restricted
securities. For further information about illiquid securities, see
"Investment Policies and Techniques--Illiquid Securities" in the Statement
of Additional Information.
MORTGAGE-BACKED SECURITIES
The Fixed Income Fund and the Balanced Fund may invest in mortgage-
backed securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans secured by real property. Mortgage-backed
securities are subject to prepayment risks in addition to market risks and
financial risks.
Mortgage-backed securities include guaranteed government agency
mortgage-backed securities, which represent participation interests in
pools of residential mortgage loans originated by U.S. governmental or
private lenders and guaranteed, to the extent provided in such securities,
by the U.S. Government or one of its agencies or instrumentalities. Such
securities are ownership interests in the underlying mortgage loans and
provide for monthly payments that are a pass-through of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees paid to
the guarantor of such securities and their servicer of the underlying
mortgage loans.
Mortgage-backed securities also include collateralized mortgage
obligations ("CMOs"). CMOs are securities collateralized by mortgages or
mortgage-backed securities. CMOs are issued with a variety of classes or
series, which have different maturities, and are often retired in
sequence. CMOs may be issued by governmental or non-governmental entities
such as banks and other mortgage lenders. Securities issued by entities
other than governmental entities may offer a higher yield but also may be
subject to greater price fluctuation than securities issued by
governmental entities.
The Fixed Income Fund and the Balanced Fund may enter into mortgage
"dollar rolls" in which the Fund sells mortgage-backed securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. During the roll period, the Fund forgoes principal
and interest paid on the mortgage-backed securities. The Fund is
compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for
which there is an offsetting cash position or a cash equivalent security
position which matures on or before the forward settlement date of the
dollar roll transaction. The Fixed Income Fund and the Balanced Fund will
only enter into covered rolls. Covered rolls are not treated as a
borrowing or other senior security and will be excluded from the
calculation of the Funds' borrowings and other senior securities.
Certain classes of CMOs and other types of mortgage pass-through
securities, including interest only classes, principal only classes,
inverse floaters, Z or accrual classes and companion classes, are designed
to be highly sensitive to changes in prepayment and interest rates and can
subject the holder to extreme reductions of yield and loss of principal.
Neither the Fixed Income Fund nor the Balanced Fund will invest in such
high-risk derivative mortgage-backed securities.
ASSET-BACKED SECURITIES
The Fixed Income Fund and Balanced Fund also may invest in asset-
backed securities. The securitization techniques used to develop
mortgage-backed securities may be applied to a broad range of assets,
primarily credit card and automobile receivables. Other types of asset-
backed securities may be developed in the future. In general, the
collateral supporting asset-backed securities is of shorter maturity than
mortgage loans and is less likely to experience substantial prepayments.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral as do
mortgage-backed securities.
HEDGING INSTRUMENTS
The Fixed Income Fund and the Balanced Fund may buy and sell futures
contracts on debt securities ("Debt Futures"). When the Funds buy a Debt
Future, they agree to take delivery of a specific type of debt security at
a specific future date for a fixed price; when they sell a Debt Future,
they agree to deliver a specific type of debt security at a specific
future date for a fixed price. Either obligation may be satisfied by the
actual taking, delivering or entering into an offsetting Debt Future to
close out the futures position. The Fixed Income Fund and the Balanced
Fund may purchase puts but only if (i) the investments to which the puts
relate are Debt Futures; and (ii) the puts are traded on a domestic
commodities exchange. Such puts need not be protective (i.e., the Funds
need not own the related Debt Futures). The Funds may write covered puts
on Debt Futures. For a put to be covered, the Fund must maintain in a
segregated account cash or liquid securities equal to the option price.
The Funds may purchase calls and write calls but only if (i) the
investments to which the calls relate are Debt Futures; and (ii) the calls
are traded on a domestic commodities exchange.
Due to requirements of the Commodities Futures Trading Commission,
the Funds will purchase or sell Debt Futures, or options on Debt Futures,
only for hedging purposes (except that nonhedging positions may be
established if the initial margin and premiums required to establish such
positions do not exceed 5% of the Fund's net assets), and are otherwise
within the limits of a Rule of that Commission. When required by
Securities and Exchange Commission guidelines, the Funds will place liquid
high grade debt securities in a segregated custodial account to secure
their options and Debt Futures positions.
Hedging transactions can be volatile investments and involve certain
risks. If a portfolio manager for the Funds applies a hedge at an
inappropriate time or judges interest rates incorrectly, hedging
transactions may lower the Fund's return. The Funds could also experience
losses if their options and Debt Futures positions were poorly correlated
with their other investments, or if they could not close out their
positions because of an illiquid secondary market.
SOCIALLY RESPONSIBLE INVESTING
The Funds currently follow a policy of socially responsible
investing. The Adviser screens all issuers selected by the portfolio
managers for their policies on certain social issues including abortion,
contraceptives, weapons of mass destruction, human rights, economic
priorities, environmental responsibility, fair employment practices,
tobacco, and other issues. If the Funds invest in a company whose
policies on such issues do not satisfy criteria established by the
Adviser, the Funds will attempt to change the company's policies. If,
after the purchase of such a security by a Fund, it is determined that the
company's policies and activities cannot be changed to satisfy the
criteria established by the Adviser, the securities of such companies may
be eliminated from the Fund's portfolio. This policy may cause a Fund to
dispose of a security at a time when it may be disadvantageous to do so or
to forego a profitable investment opportunity.
FUNDAMENTAL INVESTMENT POLICIES
DIVERSIFICATION
Each of the Funds will attempt to diversify its portfolio to reduce
some of the risks of investing. This may include limiting the amount of
money invested in any one company. None of the Funds will, with respect
to 75% of its total assets, purchase the securities of any issuer if such
purchase would cause more than 5% of the value of the Fund's total assets
to be invested in the securities of any one issuer or purchase more than
10% of the outstanding voting securities of any one issuer. These
limitations do not apply to U.S. Government securities.
CONCENTRATION
None of the Funds will concentrate 25% or more of the value of its
assets, determined at the time an investment is made, in securities issued
by companies primarily engaged in the same industry. This limitation does
not apply to U.S. Government securities.
BORROWING
Each of the Funds may temporarily borrow money from banks for
emergency or extraordinary purposes (but not for the purpose of
investment) and then only in an amount not in excess of 25% of its total
assets.
OTHER POLICIES
Each Fund has adopted certain fundamental investment restrictions
which may not be changed unless authorized by a vote of the Fund's
shareholders. Such restrictions include the policies relating to
borrowing, concentration, diversification and hedging instruments
discussed above. Each Fund's investment objective and the other
investment restrictions described in the Prospectus are not fundamental
policies and may be changed without a vote of the Fund's shareholders.
Such changes may result in a Fund having an investment objective different
from the objective which the shareholder considered appropriate at the
time of investment in the Fund. At least 30 days prior to any change by a
Fund in its investment objective, the Fund will provide written notice to
its shareholders regarding the proposed change. For further information
regarding the Funds' investment restrictions, see the Statement of
Additional Information.
HOW TO GET STARTED -- OPENING AN ACCOUNT
INITIAL INVESTMENT (Minimum $500 or $50 with the Automatic Investment
Plan)
You may open an account and invest in a Fund by completing and
signing the Account Application Form which accompanies this Prospectus.
The Application has instructions to assist you. You may obtain additional
Application Forms from the Company. You may also open an account through
brokers, financial institutions or other investment professionals. These
investment professionals may charge you a transaction-based fee or other
fee for their services at either the time of purchase or redemption.
These charges may vary among investment professionals but in all cases
will be retained by the investment professional and not remitted to the
Funds or the Adviser.
The minimum initial investment is $500 for each Fund or $50 if you
set up the Automatic Investment Plan. No sales commission is charged by a
Fund for purchases of its shares. These minimum amounts are subject to
change at any time but you will be notified in advance of any changes.
The price you pay when buying a Fund's shares is the next determined
per share net asset value after your Application is received and accepted.
Share price is usually calculated as of 4:00 p.m. Eastern time. For
additional information see "Determining Your Share Price" on page 19.
WAYS TO SET UP YOUR ACCOUNT
You may set up or register your account in the following ways by
checking the appropriate box on the Application Form.
- Individual or Joint Account
You may set up an individual account (e.g., in your own name) which
is owned by one person. Joint accounts list two or more persons who
are the owners.
- Uniform Gifts to Minors Act Account
Accounts for minors are custodial accounts that provide a way to
invest for a child's education or other future needs. A parent,
grandparent or any other person can give up to $10,000 a year per
child without paying federal gift tax. Depending on state law, you
may set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA). You will need
to include the minor's social security number.
- Trust, Business or Organization
Trusts, corporations, associations, partnerships, institutions and
other groups may invest in a Fund. These types of accounts may
require documentation in addition to the Application. Please call 1-
800-423-6369 for additional information.
- Retirement Plans
The Funds offer the following retirement plans that may be funded
with purchases of a Fund's shares and may allow investors to shelter
some of their income from taxes:
Individual Retirement Account ("IRA"). Individuals who receive
compensation or earned income, even if they are active
participants in a qualified retirement plan (or certain similar
retirement plans), may establish their own tax-sheltered IRA.
The Funds offer a prototype IRA plan which may be adopted by
individuals. The Fund's transfer agent, DST Systems, Inc. (the
"Transfer Agent"), currently charges an annual maintenance fee
of $12. Earnings on amounts held in an IRA are not taxed until
withdrawn. However, the amount of deduction, if any, allowed
for IRA contributions is limited for individuals who are active
participants in an employer-maintained retirement plan and whose
incomes exceed specific limits.
Model 403(b)(7) Plan. A model 403(b)(7) plan is
available for employees of certain charitable,
educational and governmental entities.
Model 401(k) Plan. A model 401(k) plan is available for
employees of corporations and other employers.
Savings Incentive Match Plans for Employees ("SIMPLEs"). A
model simple plan is available for employees of corporations and
other employers.
The Funds will provide you with a description of applicable service
fees and certain limitations on contributions and withdrawals, as well as
application forms, upon request. The IRA documents contain a disclosure
statement which the Internal Revenue Service requires to be furnished to
individuals who are considering adopting the IRA. Because a retirement
program involves commitments covering future years, it is important that
the investment objective of the Fund that you select be consistent with
the participant's retirement objectives. Premature withdrawals from a
retirement plan will result in adverse tax consequences. The Funds
recommend that you consult with a financial and tax adviser regarding the
retirement plans. These services may be available to you through The
Catholic Foundation. For more information call 972-661-9792.
WAYS TO BUY SHARES
You may purchase shares of a Fund in any of the following ways:
By Mail
After you have completed the Application, please mail it directly to:
The Aquinas Funds, Inc.
P. O. Box 419533
Kansas City, MO 64141-6533
To purchase shares by overnight or express mail, please use the
following street address:
DST Systems, Inc.
1004 Baltimore St., 2nd Fl.
c/o The Aquinas Funds, Inc.
Kansas City, MO 64105
Your Application must be accompanied by payment in the form of a
check made payable to "The Aquinas Funds, Inc." Your purchase must be
made in U.S. dollars and checks must be drawn on U.S. banks. The Funds
are not permitted to accept third party checks (i.e., checks not made
payable to the Funds) or cash. The Transfer Agent will charge a $15 fee
against a shareholder's account for any payment check returned to the
custodian for insufficient funds. The shareholder will also be
responsible for any losses suffered by the Fund as a result. To protect
the Funds when a purchase is made by check and a redemption (sale) of such
shares is requested shortly thereafter, the Transfer Agent may delay the
payment of a redemption request until the check clears, which may take up
to fifteen days. If you anticipate redemptions soon after you purchase
your shares, you may want to purchase shares by wire to avoid delays.
By Wire
You may purchase shares by direct wire transfer. Before establishing
a new account by wire transfer, please call the Transfer Agent at 1-800-
423-6369. The Transfer Agent requires that an Application be completed
and delivered to the Transfer Agent prior to the wire being effected. A
shareholder's financial institution may charge a fee for processing a wire
request. Funds should be wired through the Federal Reserve System as
follows:
UMB Bank, n.a.
ABA Number 101000695
For credit to Aquinas Funds Purchase Account
For further credit to The Aquinas Funds, Inc.
(investor account number)
(name or account registration)
(social security or tax identification number)
(identify which Fund to purchase)
By Exchange
You may also buy shares in a Fund by exchanging shares from another
Fund. The registration of the account from which the exchange is being
made and the account to which the exchange is being made must be
identical. State securities laws may restrict your ability to make
exchanges.
HOW TO BUY ADDITIONAL SHARES
ADDING TO YOUR ACCOUNT (Minimum $250)
You may add to your account at any time by choosing one of the
following purchase options. The minimum amount for an additional
investment is $250, except for 403(b) accounts where the minimum
additional purchase is $10 and accounts set up as IRAs or purchases under
the Automatic Investment Plan where the minimum additional purchase is
$50.
By Mail
When adding to your account by mail, please send the additional
investment form which appears at the bottom of each confirmation to the
Transfer Agent. If you do not have this form, you may send the Transfer
Agent your investment accompanied by a note giving the full name of the
account and the Fund account number to P.O. Box 419533, Kansas City,
Missouri 64141-6533.
By Wire
When making additional investments by wire transfer, please use the
wiring instructions for initial purchases, which are discussed above.
Please include the full registered name(s) of the account and the account
number on the bank wiring instructions. You should use the same
instructions as with a new purchase, except that the account number must
be included.
By Exchange
You may also buy shares in a Fund by exchanging shares from another
Fund. The registration of the account from which the exchange is being
made and the account to which the exchange is being made must be
identical. State securities laws may restrict your ability to make
exchanges.
AUTOMATIC INVESTMENT PLAN
Once your account is open, you may automatically make purchases of
shares of a Fund on a regular, convenient basis through the Funds'
Automatic Investment Plan. These investments must be in amounts of not
less than $50 per transaction. Under the Automatic Investment Plan, your
designated bank or other financial institution debits a preauthorized
amount on your account by the 16th day of each month and applies the
amount to the purchase of a Fund's shares. The Automatic Investment Plan
must be implemented with a financial institution that is a member of the
Automated Clearing House ("ACH"). In addition, the Fund's shares must be
qualified for sale in those states in which it is required. No service
fee is currently charged by the Funds for participating in the Automatic
Investment Plan. A $15 fee will be imposed by the Transfer Agent if
sufficient funds are not available in the investor's account at the time
of the automatic transaction. Applications to establish the Automatic
Investment Plan are available from the Transfer Agent. A $50 minimum
initial investment for a Fund must be made before the Automatic Investment
Plan may be established.
You may change the amount of your monthly investment at any time by
writing or calling the Funds at least 7 business days before the change is
to become effective.
ADDITIONAL PURCHASE INFORMATION
All Applications to purchase a Fund's shares are subject to
acceptance by the particular Fund and are not binding until so accepted.
The Funds do not accept telephone orders for purchases of shares (other
than by exchange), and they reserve the right to reject applications in
whole or in part.
To relieve you of responsibility for safekeeping and delivery of
stock certificates, the Funds do not issue stock certificates. Instead,
shares purchased are automatically credited to an account maintained for
you on the books of the particular Fund by the Transfer Agent. You will
receive a statement showing the details of each transaction.
HOW TO EXCHANGE SHARES
You may also buy shares in a Fund by exchanging shares from another
Fund. The registration of the account from which the exchange is being
made and the account to which the exchange is being made must be
identical. State securities laws may restrict your ability to make
exchanges.
LIMITATIONS
Exchange requests are subject to a $500 minimum, except for telephone
exchanges which are subject to a $1,000 minimum. In addition, the Funds
reserve the right to terminate indefinitely the exchange privilege of any
shareholder, broker, investment adviser or agent who requests more than
four exchanges within a calendar year, whether for oneself, or one's
customers. The Funds may determine to do so without further notice to the
shareholder, broker, investment adviser or agent based on a consideration
of both the number of exchanges the particular shareholder, broker,
investment adviser or agent has requested and the time period over which
those exchange requests have been made, together with the level of expense
to the Funds or other adverse effects which may result from the additional
exchange requests. If any portion of the shares to be exchanged
represents an investment made by check, a Fund may delay the exchange
until the Transfer Agent is reasonably satisfied that the check has been
collected, which could take up to fifteen days from the purchase date.
Except as stated above, the Funds currently do not impose any limitations
on exchanges. An exchange may be made in writing or by telephone. There
are no fees for exchange requests. In establishing a new account in
another Fund through the exchange privilege, the exchange is subject to
the minimum initial investment of $500.
WAYS TO EXCHANGE
You may exchange your shares in the following ways:
By Mail
You may make a written request to exchange shares of one Fund for
shares of another Fund. The signature and other requirements for written
exchange requests are the same as those explained under "How To Sell
Shares" below. Please mail all written exchange requests to:
The Aquinas Funds, Inc.
P. O. Box 419533
Kansas City, MO 64141-6533
By Telephone
You may exchange shares of one Fund for shares of another Fund by
telephone unless you have specifically declined this privilege in your
Application. If you add the telephone exchange option to your account
after it is opened, you must have each owner's signature guaranteed. Only
exchanges of $1,000 or more may be executed by telephone. Telephone
exchanges can only be made by calling the Transfer Agent at 1-800-423-
6369.
Each Fund reserves the right to refuse a telephone exchange if it
believes it to be in the best interest of all shareholders to do so.
Procedures for exchanging shares by telephone may be modified or
terminated at any time by the Funds. Neither the Funds nor the Transfer
Agent will be liable for following instructions received by telephone that
they reasonably believe to be genuine, provided reasonable procedures are
used to confirm the genuineness of the telephone instructions, but may be
liable for any losses due to unauthorized or fraudulent instructions if
they fail to follow such procedures. These procedures include requiring
some form of personal identification before acting upon telephone
instructions, providing written confirmation of any transaction requested
by telephone and tape recording any instructions received by telephone.
All shareholders of the Funds may redeem shares by telephone, unless the
shareholder has specifically declined these privileges. If you do not
wish to have telephone privileges for your account, you must mark the
appropriate section on the Application or notify the Fund in writing.
TAX CONSEQUENCES
An exchange involves a redemption (repurchase by a Fund) of all or a
portion of your shares of that Fund and the investment of the proceeds in
shares of another Fund. The redemption will be made at the per share net
asset value of the shares to be redeemed next determined after the
exchange request is received as described above. The shares of the Fund
to be acquired will be purchased at the per share net asset value of those
shares next determined coincident with or after the time of redemption.
For federal income tax purposes, an exchange of shares is a taxable event
and, accordingly, you may realize a capital gain or loss. You may wish to
consult a tax or other financial adviser to determine the tax consequences
of a particular exchange. For further information regarding the exchange
privilege, see "Exchange Privilege" in the Statement of Additional
Information.
HOW TO SELL SHARES
WAYS TO SELL SHARES
You may take money out of your account at any time by selling
(redeeming) some or all of your shares back to the Fund. You may sell
shares in the following ways:
By Mail
For most redemption requests, you need only deliver to the Transfer
Agent a written, unconditional request to redeem your shares at net asset
value. You must sign the request for redemption exactly as the shares are
registered, including the signature of each joint owner, and must specify
either the number of shares or the dollar amount of shares that you would
like redeemed. In certain situations, such as where corporations,
executors, administrators, trustees and guardians are involved, additional
documentation and signature guarantees may be required. If you have any
questions concerning the nature of such additional requirements, please
call the Transfer Agent in advance.
Redemption requests may be submitted directly to the Transfer Agent
at The Aquinas Funds, Inc., P. O. Box 419533, Kansas City, MO 64141-6533,
at no cost to the investor. They may also be submitted through securities
dealers, financial institutions or other investment professionals who may
charge a service fee. If a redemption request is not sent directly to the
Transfer Agent, it will be forwarded to the Transfer Agent, and the
effective date of redemption will be delayed until the request is received
by the Transfer Agent. To avoid delay, please submit redemption requests
directly to the Transfer Agent.
The signatures on the redemption request need not be guaranteed
unless (i) the redemption request exceeds $25,000, (ii) the proceeds of
the redemption are requested to be sent by wire transfer, to a person
other than the registered holder or holders of the shares to be redeemed,
or to be mailed to other than the address as shown on the records of the
Transfer Agent, or (iii) the redemption request is to be received by the
Transfer Agent within 30 days after the shareholder has requested a change
in the address of record or the bank or account designated to receive
redemption proceeds. In these cases, each signature on a redemption
request must be guaranteed by a commercial bank or trust company in the
United States, a member firm of the New York Stock Exchange or other
eligible guarantor institution.
The redemption price per share is the next determined net asset value
per share for the Fund after the Transfer Agent receives your written
request containing the information set forth above, accompanied by all
required documentation. The amount you receive will depend on the market
value of the investments in the Fund's portfolio at the time of
determination of net asset value and may be more or less than the cost of
the shares redeemed. The Transfer Agent will mail a check in payment for
shares redeemed typically within one or two days, but no later than the
seventh day after receipt of the redemption request in proper form and of
all required documentation (except as indicated above for certain
redemptions of shares purchased by check).
By Telephone
All shareholders of the Funds may redeem shares by telephone, unless
the shareholder has specifically declined these privileges. If you do not
wish to have telephone privileges for your account, you must check the
appropriate box on the Application or notify the Fund in writing. If this
feature has not been declined, you may redeem shares by phoning the
Transfer Agent at 1-800-423-6369 and giving the account name, account
number and either the number of shares or the dollar amount to be
redeemed. Proceeds redeemed by telephone will be mailed only to your
address or wired to your bank as shown on the records of the Transfer
Agent. Telephone redemptions must be in amounts of $1,000 or more, but
not more than $25,000.
Payment of the redemption proceeds for shares of a Fund redeemed by
telephone where you request wire payment will normally be made in federal
funds on the next business day. As stated above, the Transfer Agent will
wire redemption proceeds only to the bank and account designated on the
Application or in written instructions subsequently received by the
Transfer Agent, and only if the bank is a commercial bank located within
the United States. A shareholder's financial institution may charge a fee
for providing such a request. Each shareholder is responsible for the
verification of any such fee.
Shareholders must send a telephone redemption request form or a
written request to the Transfer Agent to arrange for telephone redemptions
after a Fund account has been opened or to change the bank, account or
address designated to receive redemption proceeds. The form or request
must be signed by each registered holder of the account and the signatures
must be guaranteed by a commercial bank or trust company in the United
States, a member firm of the New York Stock Exchange or other eligible
guarantor institution. Further documentation may be requested from
corporations, executors, administrators, trustees and guardians.
The Funds reserve the right to refuse a telephone redemption if they
believe it is advisable to do so. Procedures for redeeming shares of the
Funds by telephone may be modified or terminated by the Funds at any time.
Neither the Funds, the Transfer Agent nor their agents will be liable for
following instructions for telephone redemption transactions they
reasonably believe to be genuine. The Funds and the Transfer Agent will
use reasonable procedures to confirm that telephone instructions are
genuine, and if they do not, they may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures are similar to
those described for telephone exchanges on page 16.
You should be aware that during periods of substantial economic or
market change, telephone or wire redemptions may be difficult to
implement. If you are unable to contact the Transfer Agent by telephone,
shares may also be redeemed by delivering the redemption request to the
Transfer Agent by mail as described above.
SYSTEMATIC WITHDRAWAL PLAN
You can set up automatic withdrawals from your account at monthly,
quarterly, or annual intervals. To begin distributions, you must have an
initial balance of $10,000 in your account and withdraw at least $250 per
payment. To establish the Systematic Withdrawal Plan, request a form by
calling 1-800-423-6369.
Depending upon the size of the account and the withdrawals requested
(and fluctuations in the price of the shares redeemed), redemptions for
the purpose of satisfying such withdrawals may reduce or even exhaust the
account. If the amount remaining in the account is not sufficient to meet
a Systematic Withdrawal Plan payment, the remaining amount will be
redeemed and the Plan will be terminated. The Funds reserve the right to
suspend, modify, amend or terminate the Plan at any time.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS
To relieve the Funds of the cost of maintaining uneconomical
accounts, each Fund reserves the right to redeem the shares held in any
account if, at the time of any redemption of shares in the account, the
net asset value of the remaining shares in the account falls below $750.
Before such involuntary redemption would occur, the shareholder would be
given at least 60 days written notice and, during that period, the
shareholder could make an additional investment to restore the account to
at least the minimum amount, in which case there would be no such
redemption. Involuntary redemptions will not be made because the value of
shares in an account falls below the minimum amount solely because of a
decline in the Fund's net asset value. Any such involuntary redemption
would be at net asset value.
The right to redeem shares of the Funds will be suspended for any
period during which the New York Stock Exchange is closed because of
financial conditions or any other extraordinary reason and may be
suspended for any period during which (i) trading on the New York Stock
Exchange is restricted pursuant to rules and regulations of the Securities
and Exchange Commission, (ii) the Securities and Exchange Commission has
by order permitted such suspension or (iii) an emergency, as defined by
rules and regulations of the Securities and Exchange Commission, exists as
a result of which it is not reasonably practicable for the Funds to
dispose of their securities or fairly determine the value of their net
assets.
INFORMATION AND HELP LINE
If you have any questions about the Funds or your account or need
account assistance or information, you may call our toll-free investors
line at 1-800-423-6369. Our telephone representatives can provide the
information or service you need. You may also write to The Aquinas Funds,
Inc., 5310 Harvest Hill Road, Suite 248, Dallas, Texas 75230, Attention:
Corporate Secretary.
DETERMINING YOUR SHARE PRICE
The price you pay when buying a Fund's shares, and the price you
receive when selling (redeeming) a Fund's shares, is the net asset value
of the shares. No sales charge or commission of any kind is added by the
Fund upon a purchase and no charge is deducted upon a redemption. The
Funds are all 100% no-load, which means you pay no commissions to
purchase, exchange or redeem your shares. See "Ways to Buy Shares" on
page 13 and "How to Exchange Shares" on page 15.
The per share net asset value of a Fund is determined by dividing the
total value of its net assets (meaning its assets less its liabilities
excluding capital and surplus) by the total number of its shares
outstanding at that time. The net asset value is determined as of the
close of regular trading (currently 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the New York Stock Exchange is open for
trading. This determination is applicable to all transactions in shares
of the Fund prior to that time and after the previous time as of which net
asset value was determined. Accordingly, account Applications accepted or
redemption requests received prior to the close of regular trading on a
day the New York Stock Exchange is open for trading will be valued as of
the close of trading, and account Applications accepted or redemption
requests received after that time will be valued as of the close of the
next trading day.
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities
are primarily traded or at last sale price on the national securities
market. Exchange-traded securities for which there were no transactions
are valued at the current bid prices. Securities traded on only over-the-
counter markets are valued on the basis of closing over-the-counter bid
prices. Debt securities (other than short-term instruments) are valued at
prices furnished by a pricing service, subject to review and possible
revision by the Funds' Adviser. Any modification of the price of a debt
security furnished by a pricing service is made under the supervision of
and will be the ultimate responsibility of the Company's Board of
Directors. Debt instruments maturing within 60 days are valued by the
amortized cost method. Any securities for which market quotations are not
readily available are valued at their fair value as determined in good
faith by the Adviser under the supervision of the Company's Board of
Directors, although such day-to-day determinations are made by the Adviser
under the supervision of or pursuant to guidelines established by the
Company's Board of Directors.
MANAGEMENT OF THE FUNDS
As a Maryland corporation, the business and affairs of the Funds are
managed by the Company's Board of Directors. The investment activities of
the Funds are managed through a multi-manager structure. Each of the
Funds has entered into an investment advisory agreement (the "Management
Agreements") with Aquinas Investment Advisers, Inc., 5310 Harvest Hill,
Suite 248, Dallas, Texas 75230 (the "Adviser"), pursuant to which the
Adviser provides consulting, investment and administrative services to the
Funds. The specific security investments for each Fund are made by
portfolio managers (sub-advisers) selected for the Funds by the Adviser.
The Adviser was organized in September, 1993 to become the investment
adviser to the Funds. The Adviser currently has a limited number of other
clients. The Adviser is a wholly-owned subsidiary of The Catholic
Foundation (the "Foundation"), which provides an endowment fund for
individuals. The assets of the Foundation are used to fund grants to
charitable, religious and educational organizations. The Foundation,
which is a registered investment adviser, presently manages the assets of
the Foundation and is also the investment adviser to religious
organizations, nonprofit agencies and individuals with substantial
investment portfolios. As of March 31, 1997, the Foundation managed
approximately $150 million in assets.
The Management Agreements provide that the Adviser, subject to the
management and direction of the Company's Board of Directors and officers,
will evaluate, select and monitor the various portfolio managers for each
Fund. The Funds and the Adviser enter into sub-advisory contracts with
each portfolio manager.
ADVISER
The Adviser (i) provides or oversees the provision of all general
management and administration, investment advisory and portfolio
management, and distribution services for the Funds; (ii) provides the
Funds with office space, equipment and personnel necessary to operate and
administer the Funds' business, and to supervise provision of services by
third parties such as the portfolio managers and custodian; (iii) develops
the investment programs, selects portfolio managers, allocates assets
among portfolio managers and monitors the portfolio managers' investment
programs and results; and (iv) is authorized to select or hire portfolio
managers to select individual portfolio securities held in the Funds. The
Adviser bears the expenses it incurs in providing these services as well
as the costs of preparing and distributing explanatory materials
concerning the Funds. The Adviser also provides asset management
consulting services - including the objective-setting and asset-allocation
technology, and portfolio manager research and evaluation assistance.
The Adviser receives an annual management fee from each Fund. The
Adviser is responsible for the payment of all fees to the portfolio
managers. The annual management fees, payable monthly on a pro rata
basis, are the following percentages of the average daily net assets of
the Funds: .60% for the Fixed Income Fund; 1.00% for the Equity Income
Fund; 1.00% for the Equity Growth Fund; and 1.00% for the Balanced Fund.
The Adviser may voluntarily waive all or a portion of the advisory fees
otherwise payable by the Funds. Such a waiver may be terminated at any
time in the Adviser's discretion.
THE PORTFOLIO MANAGERS
The assets of each Fund are allocated currently among the portfolio
managers listed below. The allocation of a Fund's assets among portfolio
managers may be changed at any time by the Adviser. Portfolio managers
may be employed or their services may be terminated at any time by the
Adviser, subject to approval by the Company's Board of Directors. The
employment of a new portfolio manager for a Fund currently requires the
prior approval of the shareholders of that Fund. The Funds, however, have
requested an order of the Securities and Exchange Commission exempting the
Funds from the requirement for shareholder approval of new portfolio
managers. If the order is granted, the Funds will provide written
information concerning a new portfolio manager to shareholders of the Fund
concerned. There can be no assurance, however, that such an order will be
granted to the Funds.
The Adviser pays the fees of each portfolio manager. Each portfolio
manager is paid an annual fee expressed as a percentage of Fund assets
under management; there are no performance or incentive fees. Some
portfolio managers may execute portfolio transactions for the Funds
through broker-dealer affiliates and receive brokerage commissions for
doing so.
Portfolio managers are selected for the Funds based primarily upon
the research and recommendations of the Adviser, which evaluates
quantitatively the manager's skills and results in managing assets for
specific asset classes, investment styles and strategies. The Adviser
evaluates the risks and returns of a portfolio manager's investment style
over an entire market cycle. Short-term investment performance, by
itself, is not a controlling factor in selecting or terminating a
portfolio manager.
Each portfolio manager has complete discretion to purchase and sell
portfolio securities for that segment of the assets of a Fund under its
management in accordance with the Fund's investment objectives,
restrictions and policies, and the more specific strategies developed by
the Adviser. All investment decisions made by the Adviser for the Funds
are made by an investment committee and no one person is primarily
responsible for making investment recommendations to that committee.
Although the portfolio manager's activities are subject to general
oversight by the Board of Directors and officers of the Funds, none of the
Board, the officers or the Adviser evaluates the investment merits of the
portfolio manager's individual securities selections.
The investment committee of the Adviser, which currently consists
of Frank Rauscher, John L. Strauss, J. Ray Nixon, Jr., Charles Clark and
John J. Kickham, has been responsible for overall day-to-day management
of the Funds since January 3, 1994. Mr. Rauscher has been the Chief
Operating Officer of the Funds since June 1994. From 1989 to 1993,
Mr. Rauscher was president of American Federal Bank, F.S.B. Mr. Strauss
is a director of the Adviser and has been a principal of Barrow, Hanley,
Mewhinney & Strauss, an investment advisory firm, since 1980. Mr. Nixon
is a director of the Adviser and has been a principal of Barrow, Hanley,
Mewhinney & Strauss since August 1994. Prior thereto he was a stockbroker
with Smith Barney Shearson. Mr. Clark is secretary, treasurer and
a director of the Adviser and is president of Olmsted-Kirk Paper Company.
Mr. Kickham was the Chief Executive Officer and president of Wing
Industries, a door manufacturer, from November 1994 until November 1995.
From 1990 to October 1994, he was Chairman of the Kickham Group, Inc., a
private investment company.
Portfolio Manager Profiles. The portfolio managers have no
affiliations with the Funds or the Adviser, other than as portfolio
managers. Each manager has been in business for at least five years,
except Atlantic Asset Management Partners, L.L.C., and is principally
engaged in managing investment advisory accounts or providing investment
supervisory services. The portfolio managers may also serve as managers
or advisers to other investment funds.
FIXED INCOME FUND
Atlantic Asset Management Partners, L.L.C. ("AAM"), 40 Signal Road,
Stamford, Connecticut 06902, is a registered investment adviser controlled
by Ronald Sellers. AAM manages fixed-income portfolios and asset
allocation strategies for institutional clients including foundations,
endowments and public and corporate employee benefit plans. The Funds are
one of several mutual funds managed by AAM, however, its investment
professionals have managed several other fixed income mutual funds for
other institutions throughout their professional careers. As of March 31,
1997, AAM managed approximately $3.2 billion in assets.
For its services to the Funds, AAM receives a fee, computed daily and
payable monthly, paid by the Adviser (not the Funds), at the following
annual rate based on average daily net assets under its management:
Assets Fee Rate
0 to $15 million . . . . . 0.380%
$15 million to $45 million 0.300%
$45 million to $100 million 0.200%
Over $100 million . . . . . 0.100%
Income Research & Management, Inc. ("IRM"), 100 Federal Street, 29th
Floor, Boston, Massachusetts 02110, is a corporation controlled by John A.
Sommers. IRM serves a variety of institutions including major public and
private pension plans, insurance companies and several non-profit
organizations. John Sommers, the president of IRM, had extensive
experience managing mutual funds at a previous organization. As of March
31, 1997, IRM managed over $1.9 billion in assets.
For its services to the Funds, the Adviser (not the Funds) pays IRM a
fee, computed daily and payable monthly, at the following annual rate
based on average daily net assets under its management:
Assets Fee Rate
0 to $10 million . . . . . . 0.400%
$10 million to $20 million . 0.300%
$20 million to $60 million . 0.250%
$60 million to $100 million . 0.200%
Over $100 million . . . . . . 0.150%
EQUITY INCOME FUND
Beutel, Goodman Capital Management ("BGCM"), 5847 San Felipe, Suite
4500, Houston, Texas 77057, is a partnership with two general partners,
Value Corp., a Subchapter S corporation, and Beutel, Goodman America,
Inc., a Texas Corporation ("BG America"). BG America is owned by Beutel,
Goodman & Co., Ltd., a Canadian corporation which is owned 18.8% by three
individuals and 49% by Duff & Phelps, a U.S. public corporation whose
stock is listed on the New York Stock Exchange. BGCM provides investment
advisory services to individuals, investment companies, pension and profit
sharing plans, trusts, estates, charitable organizations and corporations.
BGCM has acted as a sub-adviser to a registered mutual fund since
December, 1993. As of March 31, 1997, BGCM managed approximately $1.5
billion in assets.
For its services to the Funds, the Adviser (not the Funds) pays BGCM
a fee, computed daily and payable monthly, at the following annual rate
based on average daily net assets under its management:
Assets Fee Rate
0 to $25 million . . . . 0.450%
Over $25 million . . . . 0.315%
NFJ Investment Group ("NFJ"), 2121 San Jacinto, Suite 1440, Dallas,
Texas 75201, is a general partnership of which the majority interest is
directly or indirectly owned by Pacific Mutual Life Insurance Company and
its affiliates. Pacific Mutual Life Insurance Company is an insurance
company which, through its direct and indirect subsidiaries, also provides
investment advisory, mutual fund, financial investment management and
broker/dealer services. NFJ provides investment supervisory services to
individuals, banks or thrift institutions, investment companies, pension
and profit-sharing plans, trusts, estates or charitable organizations and
foundations. NFJ began acting as a sub-investment adviser to a registered
mutual fund in 1990 and currently provides such services to four
registered mutual funds. NFJ's total assets under management at March 31,
1997 were approximately $1.7 billion.
For its services to the Funds, the Adviser (not the Funds) pays NFJ a
fee, computed daily and payable monthly, at the following annual rate
based on average daily net assets under its management:
Assets Fee Rate
0 to $25 million . . . . 0.450%
Over $25 million . . . . 0.315%
GROWTH FUND
John McStay Investment Counsel, ("JMIC"), 5949 Sherry Lane, Suite
1560, Dallas, Texas 75225, is a limited partnership controlled by its
general partner, John McStay & Associates. The managing partner is John
DeWitt McStay, who is also a partner of John McStay & Associates. JMIC
manages a limited number of large investment accounts for employee benefit
plans, foundations and endowments. Assets under management exceed $1.9
billion as of March 31, 1997.
For its services to the Funds, the Adviser (not the Funds) pays JMIC
a fee, computed daily and payable monthly, equal to 0.8% of the average
daily net assets under its management.
Sirach Capital Management, Inc., ("Sirach"), 3323 One Union Square,
6000 University Street, Seattle, Washington 98101, is a wholly owned
subsidiary of United Asset Management Corporation, a publicly traded
corporation. Sirach provides investment management services to
corporations, pension and profit-sharing plans, 401(k) and thrift plans,
trusts, estates and other institutions and individuals. As of March 31,
1997, Sirach had over $7.1 billion in assets under management.
For its services to the Fund, the Adviser (not the Fund) pays Sirach
a fee, computed daily and payable monthly, at the following annual rate
based on average daily net assets under its management:
Assets Fee Rate
0 to $10 million . . . . . . . 0.600%
$10 million to $30 million . . . 0.500%
$30 million to $50 million . . . 0.350%
Over $50 million . . . . . . . 0.250%
BALANCED FUND
Each of the portfolio managers for the Fixed Income Fund, Equity
Income Fund and Growth Fund, except Sirach, serves as a portfolio manager
to the Balanced Fund.
THE ADMINISTRATOR
Pursuant to an Administration and Fund Accounting Agreement (the
"Administration Agreement"), Sunstone Financial Group, Inc. (the
"Administrator"), 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin
53202, calculates the daily net asset value of the Funds, prepares and
files all federal income and excise tax returns and state income tax
returns (other than those required to be made by the Funds' custodian or
the Transfer Agent), oversees the Funds' insurance relationships,
participates in the preparation of the Funds' registration statement,
proxy statements and reports, prepares compliance filings relating to the
registration of the securities of the Funds pursuant to state securities
laws, compiles data for and prepares notices to the Securities and
Exchange Commission, prepares the financial statements for the annual and
semi-annual reports to the Securities and Exchange Commission and current
investors, monitors the Funds' expense accruals and performs securities
valuations, monitors the Funds' status as a registered investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and monitors compliance with the Funds' investment policies and
restrictions, from time to time, and generally assists in the Funds'
administrative operations. The Administrator, at is own expense and
without reimbursement from the Funds, furnishes office space and all
necessary office facilities, equipment, supplies and clerical and
executive personnel for performing the services required to be performed
by it under the Administration Agreement. For the foregoing, the
Administrator receives from the Funds a fee, computed daily and payable
monthly, based on the Funds' aggregate average net assets at the annual
rate of .23 of 1% on the first $50 million of average net assets, .20 of
1% on the next $50 million of average net assets, .10 of 1% on the next
$150 million, and .075 of 1% on average net assets in excess of $250
million, subject to an annual aggregate minimum of $185,000, plus out-of-
pocket expenses.
The Funds pay all of their own expenses, including, without
limitation, the cost of preparing and printing their registration
statements required under the Securities Act of 1933 and the Investment
Company Act of 1940 and any amendments thereto, the expense of registering
their shares with the Securities and Exchange Commission and in the
various states, the printing and distribution costs of prospectuses mailed
to existing investors, reports to investors, reports to government
authorities and proxy statements, fees paid to directors who are not
interested persons of the Adviser, interest charges, taxes, legal
expenses, association membership dues, auditing services, insurance
premiums, brokerage commissions and expenses in connection with portfolio
transactions, fees and expenses of the custodian of the Funds' assets,
printing and mailing expenses and charges and expenses of dividend
disbursing agents, accounting services agents, registrars and stock
transfer agents.
THE CUSTODIAN
UMB Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64141, is the
custodian for all securities and cash of the Funds.
DIVIDENDS AND DISTRIBUTIONS
DIVIDEND REINVESTMENT
All of the Funds except the Fixed Income Fund pay dividends quarterly
of net investment income. The Fixed Income Fund declares and pays
dividends of net investment income monthly. Any net realized capital gain
not offset by capital loss carryovers is distributed annually. You may
elect to have all income dividends and capital gains distributions
reinvested in the respective Fund, automatically invested in one or more
other Funds, or paid in cash. If you do not specify an election, all
income dividends and capital gains distributions will automatically be
reinvested in full and fractional shares of the particular Fund,
calculated to the nearest 1,000th of a share. Shares will be purchased at
the net asset value in effect on the business day after the dividend
record date and will be credited to your account on that date. You will
be advised of the number of shares purchased and the price following each
reinvestment. An election to reinvest or receive dividends and
distributions in cash will apply to all shares of the Fund registered in
the same name, including those previously purchased. Reinvested dividends
and distributions receive the same tax treatment as those paid in cash.
For the purpose of calculating dividends, net investment income
consists of income accrued on portfolio assets, less accrued expenses.
Income earned on weekends, holidays and other days on which the net asset
value is not calculated will be declared as a dividend in advance on the
preceding business day.
You may change your election at any time by notifying the Funds in
writing. If such a notice is received between a dividend declaration date
and payment date, it will become effective on the day following the
payment date. The Fund may modify or terminate the dividend reinvestment
program at any time on 30 days' notice to participants.
DIRECTED REINVESTMENT
In addition to having income dividends and/or capital gains
distributions reinvested in shares of the Fund from which such
distributions are paid, you may elect to have dividends and capital gains
distributions automatically invested in one or more of the other Funds.
Distributions can only be directed to an existing Fund account (which
account must meet the minimum investment requirement) with a registration
identical to the account on which the distributions are paid. Directed
reinvestments from a qualified plan account to a regular account may have
adverse tax consequences, including imposition of a penalty tax, and,
therefore, you should consult your own advisors before commencing these
transactions.
No service fee is currently charged by the Funds for effecting
directed reinvestment transactions. There are also no sales charges
payable on directed reinvestment transactions. Additional information
regarding this service may be obtained from the Transfer Agent.
TAXES
The Funds intend to qualify annually for and elect tax treatment
applicable to a "regulated investment company" under Subchapter M of the
Code. The Funds intend to distribute all of their taxable net income and
realized net gains to their investors so that the Funds will not be
required to pay any income taxes. The Funds also intend to declare and
distribute dividends during each year sufficient to prevent imposition of
a 4% excise tax. These distributions are taxable as ordinary income or
capital gains to you unless your income is not subject to income tax. You
may also be subject to state and local taxes on such distributions. You
will be informed annually of the amount and nature of such income or gain.
A portion of the Funds' income distributions may be eligible for the
dividends received deduction, which is available only to certain
corporations.
The Funds will be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividend payments and redemption and
exchange proceeds if you fail to complete the certification form included
as part of the account Application at the back of this Prospectus. You
should consult your tax advisers for a complete review of the tax
ramifications of an investment in the Funds.
CAPITAL STRUCTURE
The Funds constitute a single corporation (the Company) that was
organized as a Maryland corporation on October 20, 1993. The Company's
authorized capital consists of a single class of 500,000,000 shares of
Common Stock, $0.0001 par value. The Common Stock is divisible into an
unlimited number of "series," each of which is a separate Fund. Each
share of a Fund represents an equal proportionate interest in that Fund.
As a shareholder, you will be entitled: (i) to one vote per full share of
Common Stock; (ii) to such distributions as may be legally declared by the
Company's Board of Directors; and (iii) upon liquidation, to share in the
assets available for distribution. There are no conversion or sinking
fund provisions applicable to the shares, and shareholders have no
preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the shares of
Common Stock voting for the election of directors can elect the entire
Board of Directors, and in such event, the holders of the remaining shares
voting for the election of directors will not be able to elect any person
or persons to the Board of Directors. As of March 31, 1997, the
Foundation beneficially owned 58.6% of the shares of the Balanced Fund
and may be deemed to be a controlling person of the Balanced Fund under
the Investment Company Act of 1940. Although the Foundation may control
the Balanced Fund, it does not control the Company. Unless it is required
by the Investment Company Act of 1940, it will not be necessary for the
Funds to hold annual meetings of shareholders. As a result, shareholders
may not consider each year the election of directors or the appointment of
auditors. The Company, however, has adopted provisions in its Bylaws for
the removal of directors by the shareholders. See "Stockholder Meetings"
in the Statement of Additional Information.
Shares of Common Stock are redeemable and are transferable. All
shares issued and sold by the Funds will be fully paid and nonassessable.
Fractional shares of Common Stock entitle the holder to the same rights as
whole shares of Common Stock. The Funds will not issue certificates
evidencing shares of Common Stock purchased. Instead, your account will
be credited with the number of shares purchased, relieving you of
responsibility for safekeeping of certificates and the need to deliver
them upon redemption. The Transfer Agent will issue written confirmations
for all purchases of Common Stock.
The Board of Directors may classify or reclassify any unissued shares
of the Funds and may designate or redesignate the name of any outstanding
class of shares of the Funds. As a general matter, shares are voted in
the aggregate and not by class, except where class voting would be
required by Maryland law or the Investment Company Act of 1940 (e.g., a
change in investment policy or approval of an investment advisory
agreement). All consideration received from the sale of shares of any
class of the Funds' shares, together with all income, earnings, profits
and proceeds thereof, would belong to that class and would be charged with
the liabilities in respect of that class and of that class's share of the
general liabilities of the Funds in the proportion that the total net
assets of the class bear to the total net assets of all classes of the
Funds' shares. The net asset value of a share of any class would be based
on the assets belonging to that class less the liabilities charged to that
class, and dividends could be paid on shares of any class of Common Stock
only out of lawfully available assets belonging to that class. In the
event of liquidation or dissolution of the Funds, the holders of each
class would be entitled, out of the assets of the Funds available for
distribution, to the assets belonging to that class.
SHAREHOLDER REPORTS
You will be provided at least semi-annually with a report showing
your particular Fund's portfolio and other information. After the close
of the Fund's fiscal year, which ends December 31, you will be provided
with an annual report containing audited financial statements.
An individual account statement will be sent to you by regular postal
service within approximately 5 business days of the transaction date for
each purchase or redemption of shares of a Fund. For accounts with
dividend reinvestments as the only activity, individual account statements
will be provided on a quarterly basis (monthly basis for the Fixed Income
Fund). You will also receive an annual statement after the end of the
calendar year listing all your transactions in shares of the Funds during
such year.
Each time you invest, sell, transfer or convert shares, you will
receive a confirmation of the transaction and a summary of your
transactions since the beginning of the year. Carefully review all the
information relating to the transactions to insure that your instructions
were acted on properly. Please notify the Funds immediately if there is
an error. If you fail to provide notification of an error within 30 days
of the transaction, you will be deemed to have ratified the transaction.
FUND PERFORMANCE
From time to time, the Funds may advertise several types of
performance information. The Funds may advertise "yield", "average annual
total return," "total return" and "cumulative total return." The Funds
may occasionally cite statistics to reflect volatility or risk. Each of
these figures is based upon historical results and is not necessarily
representative of the future performance of the Funds.
Average annual total return and total return figures measure both the
net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in
a Fund for the stated period, assuming the reinvestment of all dividends.
Thus, these figures reflect the change in the value of an investment in a
Fund during a specified period. Average annual total return will be
quoted for at least the one, five and ten year periods ending on a recent
calendar quarter (or if such periods have not elapsed, at the end of the
shorter period corresponding to the life of the Fund). Average annual
total return figures are annualized and, therefore, represent the average
annual percentage change over the period in question. Total return
figures are not annualized and represent the aggregate percentage or
dollar value change over the period in question. Cumulative total return
reflects a Fund's performance over a stated period of time.
Total Return
Fixed Equity Equity
Income Income Growth Balanced
Fund Fund Fund Fund
12 months ended 12/31/96(1) . . 2.83% 20.43% 22.90% 15.29%
Period from 1/3/94
(inception) to 12/31/96(1) . 5.04% 16.64% 14.31% 11.25%
_______________
(1) Represents average annual total return
A Fund's yield is a measure of the net investment income per share
earned by the Fund over a specified one-month period expressed as a
percentage of the maximum offering price of the Fund's shares at the end
of the period. Yield is an annualized figure, which means that it is
assumed that the Fund generates the same level of net investment income
over a one-year period. Net investment income is assumed to be compounded
semiannually when it is annualized.
In reports or other communications to investors and in advertising
material, the Funds may compare their performance to the Consumer Price
Index, the Dow Jones Industrial Average, the Standard & Poor's 500
Composite Stock Index, the Shearson Lehman Brothers Aggregate Bond Index,
the Lehman Brothers Intermediate Government/Corporate Bond Index, the
Lehman Brothers Government/Corporate Bond Index and the Russell 3000, and
to the performance of mutual fund indexes as reported by Lipper Analytical
Services, Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA"), or
Morningstar, Inc. ("Morningstar"), three widely recognized independent
mutual fund reporting services. Lipper, CDA and Morningstar performance
calculations include reinvestment of all capital gain and income dividends
for the periods covered by the calculations. The Consumer Price Index is
generally considered to be a measure of inflation. The Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index and the Russell
3000 Index are unmanaged indices of common stocks which are considered to
be generally representative of the United States stock market or segments
thereof. The market prices and yields of these stocks will fluctuate.
The securities represented in the Lehman Brothers Intermediate
Government/Corporate Bond Index and Government/Corporate Bond Index
include fixed-rate U.S. Treasury, U.S. Government agency and U.S.
corporate debt and dollar-denominated debt of certain foreign, sovereign
or supranational entities. The Funds also may quote performance
information from publications such as Inc., The Wall Street Journal, Money
Magazine, Forbes, Barron's, Chicago Tribune and USA Today.
Investment Adviser
Aquinas Investment Advisers, Inc.
5310 Harvest Hill Road
Suite 248
Dallas, Texas 75230
Administrator
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
Custodian
UMB Bank, n.a.
Securities Services Division
P. O. Box 419226
Kansas City, Missouri 64141
Independent Accountants
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Legal Counsel
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Transfer Agent and Dividend Disbursing Agent
DST Systems, Inc.
1004 Baltimore
Kansas City, Missouri 64105-1807
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1997 AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE AQUINAS FUNDS, INC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
[Logo]
AQUINAS FUNDS
ACCOUNT APPLICATION
USE THIS FORM TO OPEN A NEW ACCOUNT OR AMEND
AN EXISTING AQUINAS FUND ACCOUNT
For help with this Application or to request an IRA New Account
Application call 1-800-423-6369. A separate application must be
used to open each new account or amend each existing account. If
this application amends an existing account, please indicate the
account number.
[_][_][_][_][_][_][_][_][_][_][_][_][_][_]
ALL INVESTORS must sign the Signature and Taxpayer Certification
(Section 5). Mail completed, signed application to:
The Aquinas Funds, Inc.
P.O. Box 419533
Kansas City, MO 64141-6533
PLEASE PRINT CLEARLY
1. REGISTRATION
[_] Individual or Joint* Account
__________________________________________________________________
Owner's First Name Middle Initial Last Name Social Security
Number
__________________________________________________________________
Joint Owner's First Name Middle Initial Last Name Social
Security
Number
(*Joint Tenants with Right of Survivorship, unless you indicate
otherwise. For joint accounts, signatures of both Owners are
required in Section 5.)
[_] Gift/Transfer to Minor
__________________________________________________________________
Custodian's First Name Middle Initial Last Name Social
Security
Number
__________________________________________________________________
Minor's First Name Middle Initial Last Name Social
Security
Number
(Under the ___________________________________ Uniform
State Gift/Transfer to
Minors Act)
[_] Corporation, Trust, Partnership or Other Entity
__________________________________________________________________
Name of Corporation or Other Entity Taxpayer I.D.
Number
2. MAILING ADDRESS
__________________________________________________________________
Street or P.O. Box
__________________________________________________________________
City State Zip Code
__________________________________________________________________
Telephone Number Day Evening
Are you a U.S. Citizen? [_] Yes [_] No If no, specify
country of citizenship.
<PAGE>
3. Initial Investment
$500 minimum per Fund. Only one application is needed per
account, however, a separate application must be used to open each
different registration type (i.e., an individual account and a
joint account requires two applications).
Name of Fund Amount Name of Fund Amount
Equity Growth Fund $__________ Balanced Fund $__________
Equity Income Fund $__________ Fixed Income Fund $__________
Make check(s) payable to The Aquinas Funds, Inc.
[_] or the money is being sent by Federal Funds wire transfer on
__________________ for $__________
Date
4. ESTABLISH YOUR ACCOUNT FEATURES
Check only one.
[_] I would like my dividend income and any
Distribution capital gains distributions automatically
Options. reinvested in additional shares.
If no option is [_] I would like my dividend income in cash,
checked, all and any capital gains distributions
dividends and reinvested.
capital gains will [_] I would like my dividend income and any
be reinvested. capital gains distributions in cash.
TELEPHONE EXCHANGE & REDEMPTION FEATURES
Unless otherwise indicated below, all Accounts will have the
ability to exchange one Aquinas Fund for another or redeem shares
through telephone authorizations. Proceeds will be mailed to the
address on the account.
[_] I do not want this account to have telephone exchange
and redemption privileges. I understand by declining
this option, all exchanges and redemptions must be
enacted through written communication only.
Accounts will have the ability to have the following services
added. To adapt these features, contact us at 1-800-423-6369 to
receive the proper documents which must be completed.
AUTOMATIC INVESTMENT - Automatically withdraws a specific amount
on a monthly basis from your bank account.
BANK WIRING - Allows "bank to bank" transactions to avoid handling
checks through the postal system. (Additional bank charges will
apply, see Prospectus for a listing of these charges).
4A. AUTOMATIC INVESTMENT PROGRAM (OPTIONAL)
You can invest $50 or more monthly, directly from your bank
account to your Fund account by completing this Section and
Section 4B.
[_] I authorize the Transfer Agent to debit $________ (minimum
$50) from my bank account indicated below on the 16th day of
the month (or, if such day is not a business day, the
previous business day) and invest it in Fund shares.
This privilege may be revoked without prior written notice if a
debit of your account is refused upon presentation. This
privilege may be discontinued by the Fund upon 30 days written
notice prior to a payment date or by you by written notice to the
Transfer Agent (effective 7 days following receipt of the notice)
and your bank.
<PAGE>
4B. BANK INFORMATION
You must complete this Section for Bank Wiring Privileges and/or
Automatic Investment Program (Section 4A). The name on your bank
account must be the same as in Section 1.
[_] Federal Wire [_] ACH (Automated Clearing House)
__________________________________________________________________
Name of Your Bank Bank ABA Number Account Number
__________________________________________________________________
Your Bank's address City State Zip Code
__________________________________________________________________
Name of Depositor Joint Depositor (if any)
Type of Account: [_] Checking [_] NOW [_] Other
I (we) (1) hereby request and authorize you to honor all debit and
credit entries initiated by me (us) from time to time through the
Transfer Agent, (2) agree that your treatment of each such entry,
and your rights with respect to it, shall be the same as if it
were signed personally by me (or either of us) and further agree
that if any such entries are dishonored with good and sufficient
cause, you shall be under no liability whatsoever, (3) further
agree that such authorization, unless sooner terminated by you in
writing, is to remain in effect until three (3) business days
after receipt by you of written notice from me (or either of us)
of its revocation.
WIRE AND ACH - Wire Redemption Privileges
permit monies to be transmitted via Federal
Funds wire directly to your bank account. The
Funds do charge for this service, and your
You must attach bank may impose a fee for wire services. This
your voided check type of transfer allows the money to be
here. available for use immediately upon receipt of
the wire by your bank. The Funds do not
charge for ACH redemption by phone. Money
sent via ACH may be held before clearing and
may not be immediately available for your use.
5. SIGNATURE AND TAXPAYER CERTIFICATION
By signing this form I certify that:
- I have received, read and agree to the terms of the
Prospectus, have the authority and legal capacity to purchase
mutual fund shares, am of legal age in my state, and believe
such investment is suitable for me.
- I authorize The Aquinas Funds, Inc., DST (the Transfer Agent)
affiliates thereof, and the directors and employees of such
entities, to act on any instructions or inquiries reasonably
believed to be genuine and agree that they will not be liable
for any resulting loss or expense from such instructions or
inquiries.
- Under the penalty of perjury, I certify that (1) the Taxpayer
Identification Number (Social Security Number for
individuals) shown on this form is my correct Social Security
Number or Taxpayer Identification Number (or I am waiting for
a number to be issued), and (2) I am not subject to backup
withholding either because I am exempt from backup
withholding, I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup withholding as a
result of failure to report all interest or dividends, or the
IRS has notified me that I am no longer subject to backup
withholding. Certification Instructions: I must cross out
item (2) of this paragraph if the IRS has provided
notification that I am currently subject to backup
withholding because of underreporting interest or dividends
on my tax return. The IRS does not require your consent to
any provision of this document other than the certifications
required to avoid backup withholding.
- Upon any telephone order, which may be tape recorded, for
share purchase or redemptions received from me or any person
so representing him or herself, the Transfer Agent is
authorized, without the giving of any notice regardless of
the amount of any preceding transaction, to debit or credit
my account at my bank indicated in Section 4B. (There are
limitations as to amount frequency of transactions
permissible through bank wiring. In order to determine
current limitations, please call toll free 1-800-423-6369.)
I further certify that by authorizing the Transfer Agent to
PLEASE SIGN HERE A signature guarantee is
required when amending
Sections 1 and 4B. Signature
_________________________________ guarantees can usually be
Signature (Owner, Custodian, etc., attained through brokerage
exactly as it appears in Section houses or commercial banks.
1) Date Note: a signature guarantee
is not a notary public.
_________________________________
Signature (Joint Owner, Custodian, This guarantee can be attained
etc., exactly as it appears in through your bank.
Section 1) Date
Signature Guarantee
_________________________________ Place Stamp Here
Corporate Officer, Partner,
Trustee, etc. Title Date ______________________________
Name of Institution
Guaranteeing Signature(s)
THANK YOU FOR INVESTING IN THE AQUINAS FUNDS.
WE WILL SEND YOU A CONFIRMATION STATEMENT SHORTLY.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION April 30, 1997
THE AQUINAS FUNDS, INC.
5310 Harvest Hill Road
Suite 248
Dallas, Texas 75230
Call 1-972-233-6655
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of The Aquinas Funds,
Inc. dated April 30, 1997. Requests for copies of the Prospectus should
be made by writing to The Aquinas Funds, Inc., 5310 Harvest Hill Road,
Dallas, Texas 75230, Attention: Corporate Secretary, or by calling 1-
972-233-6655.
<PAGE>
THE AQUINAS FUNDS, INC.
TABLE OF CONTENTS
Page
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . B-1
INVESTMENT POLICIES AND TECHNIQUES . . . . . . . . . . . . . . . . . B-3
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . B-14
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . B-14
DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . B-14
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR . . . . . . B-17
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . B-20
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . B-20
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . B-21
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . B-21
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . B-23
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . B-25
DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . . . . . . . . B-26
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . B-32
INVESTMENT RESTRICTIONS
The Aquinas Funds, Inc. (the "Company") is an open-end
diversified management investment company which is authorized to establish
and operate one or more separate series of mutual funds (herein "Funds" or
individually a "Fund"). The Company currently consists of four funds:
the Aquinas Fixed Income Fund (the "Fixed Income Fund"), the Aquinas
Equity Income Fund (the "Equity Income Fund"), the Aquinas Equity Growth
Fund (the "Equity Growth Fund") and the Aquinas Balanced Fund (the
"Balanced Fund"). As set forth in the Prospectus dated April 30, 1997 of
the Company under the caption "INFORMATION ABOUT INVESTMENT OBJECTIVES AND
POLICIES," the investment objective of the Fixed Income Fund is to provide
a high level of current income, with a reasonable opportunity for capital
appreciation; the investment objective of the Equity Income Fund is to
produce long-term growth of capital and a high level of current income;
the investment objective of the Equity Growth Fund is to produce long-term
capital appreciation; and the investment objective of the Balanced Fund is
to provide long-term capital growth consistent with reasonable risk to
principal. Consistent with these investment objectives, each of the Funds
has adopted the following investment restrictions which are matters of
fundamental policy and cannot be changed without approval of the holders
of the lesser of: (i) 67% of the Fund's shares present or represented at
a stockholder's meeting at which the holders of more than 50% of such
shares are present or represented; or (ii) more than 50% of the
outstanding shares of the Fund.
1. Each of the Funds will diversify its assets in different
companies and will not purchase securities of any issuer if, as a result
of such purchase, the Fund would own more than 10% of the outstanding
voting securities of such issuer or more than 5% of the Fund's assets
would be invested in securities of such issuer (except that up to 25% of
the value of the Fund's total assets may be invested without regard to
this limitation). This restriction does not apply to obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
2. None of the Funds will purchase securities on margin,
participate in a joint trading account or sell securities short (except
for such short term credits as are necessary for the clearance of
transactions); provided, however, that the Fixed Income Fund and the
Balanced Fund may (i) enter into interest rate swap transactions; (ii)
purchase or sell futures contracts; (iii) make initial and variation
margin payments in connection with purchases or sales of futures contracts
or options on futures contracts; (iv) write or invest in put or call
options; and (v) enter into foreign currency exchange contracts.
3. None of the Funds will borrow money or issue senior
securities, except the Funds may borrow for temporary or emergency
purposes, and then only from banks, in an amount not exceeding 25% of the
value of the Fund's total assets. The Funds will not borrow money for the
purpose of investing in securities, and the Funds will not purchase any
portfolio securities while any borrowed amounts remain outstanding.
Notwithstanding the foregoing, the Fixed Income Fund and the Balanced Fund
may enter into options, futures, options on futures, foreign currency
exchange contracts and interest rate swap transactions.
4. None of the Funds will pledge or hypothecate its assets,
except to secure borrowings for temporary or emergency purposes.
5. None of the Funds will act as an underwriter or distributor
of securities other than shares of the applicable Fund (except to the
extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended, in the disposition of
restricted securities).
6. None of the Funds will make loans, except through (i) the
acquisition of debt securities from the issuer or others which are
publicly distributed or are of a type normally acquired by institutional
investors; or (ii) repurchase agreements and except that the Funds may
make loans of portfolio securities to unaffiliated persons who are deemed
to be creditworthy if any such loans are secured continuously by
collateral at least equal to the market value of the securities loaned in
the form of cash and/or securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and provided that no such
loan will be made if upon the making of that loan more than 30% of the
value of the lending Fund's total assets would be the subject of such
loans.
7. None of the Funds will concentrate 25% or more of its total
assets, determined at the time an investment is made, in securities issued
by companies primarily engaged in the same industry. This restriction
does not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.
8. None of the Funds will purchase or sell real estate or real
estate mortgage loans and will not make any investments in real estate
limited partnerships but the Funds may purchase and sell securities that
are backed by real estate or issued by companies that invest in or deal in
real estate. Certain of the Funds may purchase mortgage-backed securities
and similar securities in accordance with their investment objectives and
policies.
9. None of the Funds will purchase or sell any interest in any
oil, gas or other mineral exploration or development program, including
any oil, gas or mineral leases.
10. None of the Funds will purchase or sell commodities or
commodities contracts, except that the Fixed Income Fund and the Balanced
Fund may enter into futures contracts and options on futures contracts.
Each of the Funds has adopted certain other investment
restrictions which are not fundamental policies and which may be changed
without stockholder approval. These additional restrictions are as
follows:
1. The Funds will not acquire or retain any security
issued by a company, an officer or director of which is an
officer or director of the Company or an officer, director or
other affiliated person of the Funds' investment adviser.
2. None of the Funds will invest more than 5% of its
total assets in securities of any issuer which has a record of
less than three (3) years of continuous operation, including the
operation of any predecessor business of a company which came
into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of
such predecessor business.
3. None of the Funds will purchase securities of other
investment companies (as defined in the Investment Company Act
of 1940 (the "1940 Act")), except as part of a plan of merger,
consolidation, reorganization or acquisition of assets.
4. No Fund's investments in illiquid securities will
exceed 5% of the total value of its net assets.
5. None of the Funds will make investments for the
purpose of exercising control or management of any company.
6. No Fund's investment in warrants, valued at the lower
of cost or market, will exceed 5% of the total value of the
Fund's net assets. Included within that amount, but not to
exceed 2% of the total value of the Fund's net assets, may be
warrants that are not listed on the New York Stock Exchange or
the American Stock Exchange.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions are adhered to at the time an investment is
made, and such percentage subsequently changes as a result of changing
market values or some similar event, no violation of a Fund's fundamental
restrictions will be deemed to have occurred. Any changes in a Fund's
investment restrictions made by the Board of Directors will be
communicated to stockholders prior to their implementation.
INVESTMENT POLICIES AND TECHNIQUES
In addition to the policies described above and in the
Prospectus, the investment policies and techniques described below have
been adopted by the Funds as indicated.
Lending Portfolio Securities
Each of the Funds may lend a portion of its portfolio securities
although none of the Funds intends to engage in any such transaction if it
would cause more than 5% of its net assets to be subject to such loans.
Income may be earned on collateral received to secure the loans. Cash
collateral would be invested in money market instruments. U.S. Government
securities collateral would yield interest or earn discount. Part of this
income might be shared with the borrower. Alternatively, the lending Fund
could allow the borrower to receive the income from the collateral and
charge the borrower a fee. In either event, the Fund would receive the
amount of dividends or interest paid on the loaned securities.
Usually these loans would be made to brokers, dealers or
financial institutions. Loans would be fully secured by collateral
deposited with the Fund's custodian in the form of cash and/or securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. This collateral must be increased within one business
day in the event that its value shall become less than the market value of
the loaned securities. While there may be delays in recovery or even loss
of rights in the collateral should the borrower fail financially, the
loans will be made only to firms deemed by Aquinas Investment Advisers,
Inc., the Funds' investment adviser (the "Adviser") and the Funds'
portfolio managers, to be of good standing. Loans will not be made
unless, in the judgment of the Adviser, the consideration which can be
earned from such loans justifies the risk.
The borrower, upon notice, must redeliver the loaned securities
within 3 business days. In the event that voting rights with respect to
the loaned securities pass to the borrower and a material proposal
affecting the securities arises, the loan may be called or the Fund will
otherwise secure or be granted a valid proxy in time for it to vote on the
proposal.
In making such loans, the Fund may utilize the services of a
loan broker and pay a fee therefor. The Fund may incur additional
custodian fees for services in connection with lending of securities.
Mortgage-Backed Securities
The Fixed Income Fund and the Balanced Fund may invest in
Mortgage-Backed Securities, which are securities that directly or
indirectly represent a participation in, or are secured by and payable
from, mortgage loans secured by real property. Mortgage-Backed Securities
include: (i) Guaranteed Government Agency Mortgage-Backed Securities;
(ii) Privately-Issued Mortgage-Backed Securities; and (iii) collateralized
mortgage obligations and multiclass pass-through securities. These
securities are described below.
Guaranteed Government Agency Mortgage-Backed Securities.
Mortgage-Backed Securities include Guaranteed Government Agency Mortgage-
Backed Securities, which represent participation interests in pools of
residential mortgage loans originated by United States governmental or
private lenders and guaranteed, to the extent provided in such securities,
by the United States Government or one of its agencies or
instrumentalities. Such securities, with the exception of collateralized
mortgage obligations, are ownership interests in the underlying mortgage
loans and provide for monthly payments that are a "pass-through" of the
monthly interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled mortgage loans, net of any fees
paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The Guaranteed Government Agency Mortgage-Backed Securities in
which the Fixed Income Fund and the Balanced Fund may invest will include
those issued or guaranteed by the Government National Mortgage Association
("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae")
and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). As more
fully described below, these securities may include collateralized
mortgage obligations, multiclass pass-through securities and stripped
mortgage-backed securities.
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and
Urban Development. The National Housing Act of 1934, as amended (the
"Housing Act"), authorizes Ginnie Mae to guarantee the timely payment of
the principal of and interest on certificates that are based on and backed
by a pool of mortgage loans insured by the Federal Housing Administration
Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed by
the Veterans' Administration under the Servicemen's Readjustment Act of
1944, as amended ("VA Loans"), or by pools of other eligible mortgage
loans. The Housing Act provides that the full faith and credit of the
United States Government is pledged to the payment of all amounts that may
be required to be paid under any guarantee. To meet its obligations under
such guarantee, Ginnie Mae is authorized to borrow from the United States
Treasury with no limitations as to amount.
Fannie Mae Certificates. Fannie Mae is a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act. Fannie Mae was originally
established in 1938 as a United States Government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder owned and privately managed corporation by legislation enacted
in 1968. Fannie Mae provides funds to the mortgage market primarily by
purchasing home mortgage loans from local lenders, thereby replenishing
their funds for additional lending. Fannie Mae acquires funds to purchase
home mortgage loans from many capital market investors that ordinarily may
not invest in mortgage loans directly, thereby expanding the total amount
of funds available for housing.
Each Fannie Mae Certificate will entitle the registered holder
thereof to receive amounts representing such holder's pro rata interest in
scheduled principal payments and interest payments (at such Fannie Mae
Certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), and any principal
prepayments, on the mortgage loans in the pool represented by such Fannie
Mae Certificate and such holder's proportionate interest in the full
principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest
on each Fannie Mae Certificate will be guaranteed by Fannie Mae, which
guarantee is not backed by the full faith and credit of the United States
Government.
Freddie Mac Certificates. Freddie Mac is a corporate
instrumentality of the United States created pursuant to the Emergency
Home Finance Act of 1970, as amended (the "FHLMC Act"). Freddie Mac was
established primarily for the purpose of increasing the availability of
mortgage credit for the financing of needed housing. The principal
activity of Freddie Mac currently consists of the purchase of first lien,
conventional, residential mortgage loans and participation interests in
such mortgage loans and the resale of the mortgage loans so purchased in
the form of mortgage securities, primarily Freddie Mac Certificates.
Freddie Mac guarantees to each registered holder of a Freddie
Mac Certificate the timely payment of interest at the rate provided for by
such Freddie Mac Certificate, whether or not received. Freddie Mac also
guarantees to each registered holder of a Freddie Mac Certificate ultimate
collection of all principal of the related mortgage loans, without any
offset or deduction, but, generally, does not guarantee the timely payment
of scheduled principal. Freddie Mac may remit the amount due on account
of its guarantee of collection of principal at any time after default on
an underlying mortgage loan, but not later than 30 days following
(i) foreclosure sale, (ii) payment of claim by any mortgage insurer, or
(iii) the expiration of any right of redemption, whichever occurs later,
but in any event no later than one year after demand has been made upon
the mortgagor for accelerated payment of principal. The obligations of
Freddie Mac under its guarantee are obligations solely of Freddie Mac and
are not backed by the full faith and credit of the United States
Government.
Privately-Issued Mortgage-Backed Securities. Privately-Issued
Mortgage-Backed Securities are issued by private issuers and represent an
interest in or are collateralized by (i) Mortgage-Backed Securities issued
or guaranteed by the U.S. Government or one of its agencies or
instrumentalities ("Privately-Issued Agency Mortgage-Backed Securities"),
or (ii) whole mortgage loans or non-Agency collateralized Mortgage-Backed
Securities ("Privately-Issued Non-Agency Mortgage-Backed Securities").
These securities are structured similarly to the Ginnie Mae, Fannie Mae
and Freddie Mac mortgage pass-through securities described above and are
issued by originators of and investors in mortgage loans, including
savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
Privately-Issued Agency Mortgage-Backed Securities usually are backed by a
pool of Ginnie Mae, Fannie Mae and Freddie Mac Certificates. Privately-
Issued Non-Agency Mortgage-Backed Securities usually are backed by a pool
of conventional fixed rate or adjustable rate mortgage loans that are not
guaranteed by an entity having the credit status of Ginnie Mae, Fannie Mae
or Freddie Mac, and generally are structured with one or more types of
credit enhancement. As more fully described below, these securities may
include collateralized mortgage obligations, multiclass pass-through
securities and stripped mortgage-backed securities.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. Mortgage-Backed Securities include collateralized mortgage
obligations or "CMOs," which are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but
also may be collateralized by other Mortgage-Backed Securities or whole
loans (such collateral collectively hereinafter referred to as "Mortgage
Assets"). CMOs include multiclass pass-through securities, which can be
equity interests in a trust composed of Mortgage Assets. Payments of
principal of and interest on the Mortgage Assets, and any reinvestment
income thereon, provide the funds to pay debt service on the CMOs or make
scheduled distributions on the multiclass pass-through securities. CMOs
may be issued by agencies or instrumentalities of the United States
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a Real Estate
Mortgage Investment Conduit.
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 specific fixed or floating coupon rate and has a stated
maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier
than their stated maturities or final distribution dates. Interest is
paid or accrues on classes of the CMOs on a monthly, quarterly or
semiannual basis. The principal of and interest on the Mortgage Assets
may be allocated among the several classes of a CMO series in innumerable
ways, some of which bear substantially more risk than others.
Miscellaneous. The yield characteristics of Mortgage-Backed
Securities differ from traditional debt securities. Among the major
differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans generally may be prepaid at any
time. As a result, if a Fund purchases such a security at a premium, a
prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have
the opposite effect of increasing yield to maturity. Conversely, if a
Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Certain classes of CMOs and other types of
mortgage pass-through securities, including those whose interest rates
fluctuate based on multiples of a stated index, are designed to be highly
sensitive to changes in prepayment and interest rates and can subject the
holders thereof to extreme reductions of yield and possibly loss of
principal.
Prepayments on a pool of mortgage loans are influenced by a
variety of economic, geographic, social and other factors, including
changes in the mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgaged properties and servicing
decisions. Generally, however, prepayments on fixed rate mortgage loans
will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Accordingly, amounts available
for reinvestment by a Fund are likely to be greater during a period of
declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates.
Mortgage-Backed Securities may decrease in value as a result of increases
in interest rates and may benefit less than other fixed income securities
from declining interest rates because of the risk of prepayment.
No assurance can be given as to the liquidity of the market for
certain Mortgage-Backed Securities, such as CMOs and multiclass pass-
through securities. Determination as to the liquidity of such securities
will be made in accordance with guidelines established by the Company's
Board of Directors. In accordance with such guidelines, the Adviser and
the portfolio managers will monitor each Fund's investments in such
securities with particular regard to trading activity, availability of
reliable price information and other relevant information.
Interest rates on variable rate Mortgage-Backed Securities are
subject to periodic adjustment based on changes or multiples of changes in
an applicable index. The One-Year Treasury Index and LIBOR are among the
common interest rate indexes. The One-Year Treasury Index is the figure
derived from the average weekly quoted yield on U.S. Treasury Securities
adjusted to a constant maturity of one year. LIBOR, the London interbank
offered rate, is the interest rate that the most creditworthy
international banks dealing in U.S. dollar-denominated deposits and loans
charge each other for large dollar-denominated loans. LIBOR is also
usually the base rate for large dollar-denominated loans in the
international market. LIBOR is generally quoted for loans having rate
adjustments at one, three, six or twelve month intervals.
Illiquid Securities
Each of the Funds may invest in illiquid securities, which
include certain restricted securities (privately placed securities),
repurchase agreements maturing in more than seven days and other
securities that are not readily marketable. However, no Fund will acquire
illiquid securities if, as a result, they would comprise more than 5% of
the value of the Fund's net assets. The Board of Directors of the Company
or its delegate has the ultimate authority to determine, to the extent
permissible under the federal securities laws, which securities are liquid
or illiquid for purposes of this 5% limitation. Securities eligible to be
resold pursuant to Rule 144A under the Securities Act may be considered
liquid by the Board of Directors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the
decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted
securities will be priced at fair value as determined in good faith by the
Board of Directors of the Company. If through the appreciation of
restricted securities or the depreciation of unrestricted securities, a
Fund should be in a position where more than 5% of the value of its net
assets are invested in illiquid assets, including restricted securities,
the Fund will take such steps as is deemed advisable, if any, to protect
liquidity.
U.S. Government Securities
Each of the Funds may invest in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities which include
Treasury securities which differ only in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year
or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten
years. Some obligations issued or guaranteed by U.S. Government agencies
and instrumentalities, for example, Ginnie Mae Certificates, are supported
by the full faith and credit of the U.S. Treasury; others, such as those
of the Federal Home Loan Banks, by the right of the issuer to borrow from
the Treasury; others, such as those issued by Fannie Mae, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. While the U.S. Government provides financial support to
such U.S. Government sponsored agencies or instrumentalities, no assurance
can be given that it will always do so since it is not so obligated by
law.
Hedging Instruments
The Fixed Income Fund and the Balanced Fund may engage in
various transactions including futures and options on futures which will
be used primarily to attempt to minimize adverse principal fluctuations
and unfavorable fluctuations in interest rates.
Futures Contracts. When a Fund purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future
date. When a Fund sells a futures contract, it agrees to sell the
underlying instrument at a specified future date. The price at which the
purchase and sale will take place is fixed when the Fund enters into the
contract. Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease
in tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a Fund's exposure to
positive and negative price fluctuations in the underlying instrument,
much as if the Fund had purchased the underlying instrument directly.
When the Fund sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the market.
Selling futures contracts, therefore, will tend to offset both positive
and negative market price changes, much as if the underlying instrument
had been sold.
Futures Margin Payments. The purchaser or seller of a futures
contract is not required to deliver or pay for the underlying instrument
unless the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker known as a Futures Commission Merchant (FCM), when the
contract is entered into. Initial margin deposits are equal to a
percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily
basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of a Fund's
investment limitations. In the event of the bankruptcy of an FCM that
holds margin on behalf of a Fund, the Fund may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's
other customers, potentially resulting in losses to the Fund.
Purchasing Put and Call Options. By purchasing a put option, a
Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right,
the Fund pays the current market price for the option (known as the option
premium). A Fund may purchase options on futures contracts on debt
securities. The Fund may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. If the
option is allowed to expire, the Fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a
put option position by closing it out in the secondary market at its
current price, if a liquid secondary market exists. The buyer of a put
option can expect to realize a gain if security prices fall substantially.
However, if the underlying instrument's price does not fall enough to
offset the cost of purchasing the option, a put buyer can expect to suffer
a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those
of put options, except that the purchaser of a call option obtains the
right to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option. Only exchange listed options will be
acquired.
Writing Call and Put Options. When a Fund writes a call option,
it receives a premium and agrees to sell the related investments to a
purchaser of the call during the call period (usually not more than nine
months) at a fixed exercise price (which may differ from the market price
of the related investments) regardless of market price changes during the
call period. If the call is exercised, the Fund forgoes any gain from an
increase in the market price over the exercise price. When writing an
option on a futures contract the Fund will be required to make margin
payments to an FCM as described above for futures contracts.
To terminate its obligation on a call which it has written, the
Fund may purchase a call in a "closing purchase transaction." (As
discussed above, the Fund may also purchase calls other than as part of
such closing transactions.) A profit or loss will be realized depending
on the amount of option transaction costs and whether the premium
previously received is more or less than the price of the call purchased.
A profit may also be realized if the call lapses unexercised, because the
Fund retains the premium received. Any such profits are considered short-
term gains for federal income tax purposes and, when distributed, are
taxable as ordinary income.
Writing calls generally is a profitable strategy if prices
remain the same or fall. Through receipt of the option premium, a call
writer mitigates the effects of a price decline. At the same time,
because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
When a Fund writes a put option, it takes the opposite side of
the transaction from the option's purchaser. In return for receipt of a
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. The Funds may only write covered puts. For a put to be
covered, the Fund must maintain in a segregated account cash or liquid
securities equal to the option price. A profit or loss will be realized
depending on the amount of option transaction costs and whether the
premium previously received is more or less than the put purchased in a
closing purchase transaction. A profit may also be realized if the put
lapses unexercised because the Fund retains the premium received. Any
such profits are considered short-term gains for federal income tax
purposes and, when distributed, are taxable as ordinary income.
Combined Option Positions. The Funds may purchase and write
options (subject to the limitations discussed above) in combination with
each other to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a
call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
involve multiple trades, they result in higher transaction costs and may
be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited
number of types of exchange-traded options and futures contracts, it is
likely that the standardized contracts available will not match a Fund's
current or anticipated investments. A Fund may invest in options and
futures contracts based on securities which differ from the securities in
which it typically invests. This involves a risk that the options or
futures position will not track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of
demand in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are
traded, or from imposition of daily price fluctuation limits or trading
halts. A Fund may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in
historical volatility between the contract and the securities, although
this may not be successful in all cases. If price changes in the Fund's
options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result
in losses that are not offset by gains in other investments. Successful
use of these techniques requires skills different from those needed to
select portfolio securities.
Liquidity of Options and Futures Contracts. There is no
assurance a liquid secondary market will exist for any particular options
or futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close to
the underlying instruments' current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is imposed,
it may be impossible for a Fund to enter into new positions or close out
existing positions. If the secondary market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require a Fund
to continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, the Fund's access to other assets held
to cover its options or futures positions could also be impaired.
Asset Coverage for Futures and Options Positions. The Funds
will comply with guidelines established by the Securities and Exchange
Commission with respect to coverage of options and futures strategies by
mutual funds, and if the guidelines so require will set aside U.S.
Government securities, cash or liquid securities in a segregated custodial
account in the amount prescribed. Securities held in a segregated account
cannot be sold while the futures or option strategy is outstanding, unless
they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
Limitations on Futures and Options Transactions. The Fixed
Income Fund and the Balanced Fund filed a notice of eligibility for
exclusion from the definition of the term "commodity pool operator" with
the Commodity Futures Trading Commission (CFTC) and the National Futures
Association, which regulate trading in the futures markets, before
engaging in any purchases or sales of futures contracts or options on
futures contracts. Pursuant to Section 4.5 of the regulations under the
Commodity Exchange Act, the notice of eligibility included the following
representations:
(1) The Fund will use futures contracts and related
options solely for bona fide hedging purposes within the meaning
of CFTC regulations; provided that the Fund may hold positions
in futures contracts or options that do not fall within the
definition of bona fide hedging transactions if the aggregate
initial margin and premiums required to establish such positions
will not exceed 5% of the liquidation value of the Fund's
assets, after taking into account unrealized profits and losses
on any such contracts (subject to limited exclusions for options
that are in-the-money at the time of purchase); and
(2) The Fund will not market participations to the public
as or in a commodity pool or otherwise as or in a vehicle for
trading in the commodities futures or commodity option markets.
Possible Tax Limitations on Portfolio and Hedging Strategies
The Company intends that the Fixed Income Fund and the Balanced
Fund each qualifies as a regulated investment company under Subchapter M
of the Internal Revenue Code for each taxable year. In order to so
qualify, each Fund must, among other things, derive less than 30% of its
gross income from the sale or other disposition of stock or securities (or
options thereon) held less than three months. Due to this limitation,
each Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including futures, held for less than three months, whether or not they
were purchased on the exercise of a call; (ii) the writing of calls on
investments held less than three months; (iii) the writing or purchasing
of calls or the purchasing of puts which expire in less than three months;
(iv) effecting closing transactions with respect to calls written or
purchased or puts purchased less than three months previously; and (v)
exercising certain puts or calls held for less than three months.
Special Risks of Hedging and Income Enhancement Strategies
Participation in the options or futures markets involves
investment risks and transactions costs to which the Fixed Income Fund and
the Balanced Fund would not be subject absent the use of these strategies.
If a Fund's portfolio manager(s)' prediction of movements in the direction
of the securities and interest rate markets are inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. Risks inherent in the use of futures
contracts and options on futures contracts include (i) dependence on the
portfolio manager(s)' ability to predict correctly movements in the
direction of interest rates, securities prices and currency markets; (ii)
imperfect correlation between the price of options and futures contracts
and options thereon and movements in the prices of the securities being
hedged; (iii) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (iv) the
possible absence of a liquid secondary market for any particular
instrument at any time; and (v) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "DETERMINATION
OF NET ASSET VALUE," the net asset value of each of the Funds will be
determined as of the close of regular trading (currently 4:00 p.m. Eastern
time) on each day the New York Stock Exchange is open for trading. The
New York Stock Exchange is open for trading Monday through Friday except
New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Additionally, if any of the aforementioned holidays falls on a Saturday,
the New York Stock Exchange will not be open for trading on the succeeding
Monday, unless unusual business conditions exist, such as the ending of a
monthly or the yearly accounting period.
PURCHASE OF SHARES
Each of the Funds has adopted procedures pursuant to Rule 17a-7
under the 1940 Act pursuant to which a Fund may effect a purchase and sale
transaction with an affiliated person of the Fund (or an affiliated person
of such an affiliated person) in which the Fund issues its shares in
exchange for securities of a character which is a permitted investment for
the Fund. For purposes of determining the number of shares to be issued,
the securities to be exchanged will be valued in the manner required by
Rule 17a-7.
DIRECTORS AND OFFICERS OF THE COMPANY
The name, address, age, position(s) with the Company, principal
occupation(s) during the past five years, and certain other information
with respect to each of the directors and officers of the Company are as
follows:
BERNARD P. DiFIORE*, 47, Director, President and Treasurer.
5310 Harvest Hill Road
Suite 248
Dallas, Texas 75230
Mr. DiFiore has been the Executive Director of The Catholic
Foundation since May 1990. The Catholic Foundation provides an endowment
fund for educational, religious and charitable activities and is also a
registered investment adviser providing investment advisory services for
the Foundation, religious organizations, nonprofit agencies and
individuals with substantial portfolios. The Adviser is a wholly-owned
subsidiary of The Catholic Foundation. Mr. DiFiore has been President and
a Director of the Adviser since October 1993. From 1987 to 1990, Mr.
DiFiore was Vice President of August International, a third party health
care administrator and utilization review company.
MICHAEL R. CORBOY, 66, Director.
#2 Braewick Court
Dallas, Texas 75225
Mr. Corboy is President of Corboy Investment Company, a private
investment company.
IMELDA GONZALEZ, CDP, 56, Director.
c/o NATRI
8824 Cameron Street
Silver Spring, Maryland 20910
Sister Gonzalez has been on the staff of the National
Association of Treasurers of Religious Institutions, Silver Spring,
Maryland, since April 1997. Prior thereto, Sister Gonzalez was the
Treasurer General and Chief Financial Officer of the Congregation of
Divine Providence of San Antonio, Texas.
THOMAS J. MARQUEZ, 59, Director.
8300 Douglas Avenue,
Suite 800
Dallas, Texas 75225
Mr. Marquez has been a self-employed private investor since
1990.
CHARLES CLARK*, 58, Director.
2420 Butler
Dallas, Texas 75235
Mr. Clark is President of Olmsted-Kirk Paper Company. Mr. Clark
has been Secretary, Treasurer and a Director of the Adviser since
April 29, 1997.
JOHN L. STRAUSS*, 57, Director.
3232 McKinney Avenue
15th Floor
Dallas, Texas 75204
Mr. Strauss is a principal of Barrow, Hanley, Mewhinney &
Strauss, an investment advisory firm. Mr. Strauss is a director of the
Adviser.
FRANK RAUSCHER, 53, Vice President.
5310 Harvest Hill Road
Suite 245
Dallas, Texas 75230
Mr. Rauscher has been the Chief Operating Officer of Aquinas
Investment Advisers, Inc. since August 1994. Prior thereto he was
President and Chief Executive Officer of American Federal Bank.
_______________
* Messrs. DiFiore, Clark and Strauss are "interested persons" of the
Company as that term is defined in the 1940 Act.
The following table sets forth information on the compensation
paid to directors for services as directors of the Company during the
fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From
Aggregate Benefits Accrued Estimated Annual Company and
Compensation as Part of Fund Benefits Upon Fund Complex
Name of Person from Company Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
Bernard P. DiFiore $0 $0 $0 $0
Charles Clark(1) 0 0 0 0
Michael R. Corboy 1,500 0 0 1,500
Imelda Gonzalez, CDP 1,000 0 0 1,000
Thomas J. Marquez 1,500 0 0 1,500
C. William Pollock(2) 1,000 0 0 1,000
John L. Strauss 0 0 0 0
Charles J. Tusa(3) 0 0 0 0
_______________
(1) Mr. Clark became a director of the Company on February 28, 1997.
(2) Mr. Pollock resigned as a director of the Company in April 1997.
(3) Mr. Tusa resigned as a director of the Company in February 1997.
</TABLE>
Commencing in fiscal 1996, the Company compensates each
disinterested director $500 for each meeting of the Board of Directors
attended. The Company may also reimburse directors for travel expenses
incurred in order to attend meetings of the Board of Directors. During
the fiscal year ended December 31, 1996, there were reimbursements of
$3,287 for travel expenses. Sister Gonzalez has assigned all directors
fees that she receives to her religious order.
As of March 31, 1997, the officers and directors of the Fund as
a group owned less than 1% of the outstanding securities of each Fund. At
March 31, 1997, The Catholic Foundation, 5310 Harvest Hill Road, Suite
248, Dallas, Texas, owned 3,531,366 shares (91.2% of the outstanding) of
the Fixed Income Fund, of which 2,680,189 shares (69.3%) were owned as
trustee and 851,177 shares (21.9%) were beneficially owned; 3,351,154
shares (80.0% of the outstanding) of the Equity Income Fund, of which
2,469,508 shares (59.3%) were owned as trustee and 861,646 shares (20.7%)
were beneficially owned; 1,165,922 shares (64.9% of the outstanding) of the
Equity Growth Fund, of which 776,404 shares (43.2%) were owned as trustee
and 389,518 shares (21.7%) were beneficially owned; and 2,306,047 shares
(91.0% of the outstanding) of the Balanced Fund, of which 820,341 shares
(32.4%) were owned as trustee and 1,485,706 shares (58.6%) were
beneficially owned. No other person owns of record or beneficially 5% or
more of the outstanding securities of any Fund. By virtue of its stock
ownership, The Catholic Foundation is deemed to "control," as that term is
defined in the 1940 Act, the Balanced Fund. Although The Catholic
Foundation controls the Balanced Fund, it does not control the Company.
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR
The Board of Directors of the Company supervises the management,
activities and affairs of the Funds and has approved contracts with the
following business organizations to provide, among other services, day-to-
day management required by the Funds.
Investment Adviser. As set forth in the Prospectus under the
caption "MANAGEMENT OF THE FUNDS," the investment adviser to the Funds is
Aquinas Investment Advisers, Inc., 5310 Harvest Hill, Suite 248, Dallas,
Texas 75230 (the "Adviser"). The Adviser is a wholly-owned subsidiary of
The Catholic Foundation and was organized to become the investment adviser
to the Funds. Pursuant to investment advisory agreements entered into
between each of the Funds and the Adviser (the "Management Agreements"),
the Adviser provides consulting, investment and administrative services to
the Funds. The specific investments for each Fund will be made by
portfolio managers selected for the Funds by the Adviser. The Adviser has
overall responsibility for assets under management, provides overall
investment strategies and programs for the Funds, selects portfolio
managers, allocates assets among the portfolio managers and monitors and
evaluates portfolio managers' performance. The Adviser and the Funds
enter into advisory agreements with the portfolio managers. The Adviser
also provides the Funds with office space, equipment and personnel
necessary to operate and administer the Funds' business and to supervise
the provision of services by third parties such as the transfer agent and
the custodian.
The Adviser has undertaken to waive its advisory fees with
respect to each of the Funds to the extent that the aggregate annual
operating expenses, including the investment advisory fee and the
administration fee but excluding interest, taxes, brokerage commissions
and other costs incurred in connection with the purchase or sale of
portfolio securities, and extraordinary items, exceeded that percentage of
the average net assets of the Fund for such year, as determined by
valuations made as of the close of each business day of the year, which is
the most restrictive percentage provided by the state laws of the various
states in which the shares of the Funds are qualified for sale. As of the
date of this Statement of Additional Information, the shares of the Funds
are not qualified for sale in any state which imposes an expense
limitation. Additionally, the Adviser voluntarily agreed to reimburse
each Fund to the extent aggregate annual operating expenses as described
above exceeded 1.00%, 1.50%, 1.50% and 1.50% of the average daily net
assets of the Fixed Income Fund, Equity Income Fund, Equity Growth Fund
and Balance Fund, respectively. The Adviser may voluntarily continue to
waive all or a portion of the advisory fees otherwise payable by the
Funds. Such a waiver may be terminated at any time in the Adviser's
discretion. Each Fund monitors its expense ratio on a monthly basis. If
the accrued amount of the expenses of the Fund exceeds the expense
limitation, the Fund creates an account receivable from the Adviser for
the amount of such excess. In such a situation the monthly payment of the
Adviser's fee is reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Fund's fiscal year if
accrued expenses thereafter fall below this limit.
For the fiscal years ended December 31, 1996 and December 31,
1995 and the period from January 3, 1994 (commencement of operations)
through December 31, 1994, the fees paid to the Adviser for management and
investment advisory services were (net of waivers of $10,507) $203,761,
$200,763 and (net of waivers of $31,991) $137,298, respectively, for the
Fixed Income Fund, $479,210, $367,212 and $330,721, respectively, for the
Equity Income Fund, (net of waivers of $7,841) $181,345, (net of waivers
of $13,165) $110,950 and (net of waivers of $22,334) $62,902,
respectively, for the Equity Growth Fund and $278,719, $296,312 and
$301,801, respectively, for the Balanced Fund.
Each Management Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Company or by the vote of a majority (as defined in the
1940 Act) of the outstanding shares of the applicable Fund, and (ii) by
the vote of a majority of the directors of the Company who are not parties
to the Management Agreement or interested persons of the Adviser, cast in
person at a meeting called for the purpose of voting on such approval.
Each Management Agreement provides that it may be terminated at any time
without the payment of any penalty, by the Board of Directors of the
Company or by vote of the majority of the applicable Fund's stockholders
on sixty (60) days' written notice to the Adviser, and by the Adviser on
the same notice to the Fund, and that it shall be automatically terminated
if it is assigned.
Portfolio Managers. Each portfolio manager makes specific
portfolio investments for that segment of the assets of a Fund under its
management in accordance with the particular Fund's investment objective
and the portfolio manager's investment approach and strategies.
Portfolio managers are employed or terminated by the Adviser
subject to prior approval by the Board of Directors of the Company. The
employment of a new portfolio manager currently requires the prior
approval of the shareholders of the affected Fund. The Funds, however,
have requested an order of the Securities and Exchange Commission
exempting the Funds from the requirements under the Investment Company Act
of 1940 relating to shareholder approval of new portfolio managers. There
can be no assurance that such an order will be granted to the Funds.
Selection and retention criteria for portfolio managers include (i) their
historical performance records; (ii) an investment approach that is
distinct in relation to the approaches of each of the Funds' other
portfolio managers; (iii) consistent performance in the context of the
markets and preservation of capital in declining markets; (iv)
organizational stability and reputation; (v) the quality and depth of
investment personnel; and (vi) the ability of the portfolio manager to
apply its approach consistently. Each portfolio manager will not
necessarily exhibit all of the criteria to the same degree. Portfolio
managers are paid by the Adviser (not the Funds).
In general, the policy of the Adviser with respect to each Fund
is to allocate assets approximately equally among the portfolio managers
of each Fund and to maintain such an equal allocation at regular
intervals. Ordinarily, assets will not be allocated from a portfolio
manager whose performance is less than that of the other portfolio
managers of the Fund. The assets of each Fund are reallocated at least
quarterly but may be reallocated more frequently at the discretion of the
Adviser depending on cash flow and the evaluation of each portfolio
manager's performance. The allocation among portfolio managers within a
Fund may be temporarily unequal when portfolio managers are added to or
removed from a Fund or in the event of a net redemption. A portfolio
manager may purchase a particular security for the Fund at the same time
another portfolio manager is selling the same security for the Fund.
The portfolio managers' activities are subject to general
supervision by the Adviser and the Board of Directors of the Company.
Although the Adviser and Board do not evaluate the investment merits of
the portfolio managers' specific securities selections, they do review the
performance of each portfolio manager relative to the selection criteria.
Administrator. As set forth in the Prospectus under the caption
"MANAGEMENT OF THE FUNDS," the administrator and fund accountant to the
Funds is Sunstone Financial Group, Inc. (the "Administrator"). The
administration and fund accounting agreement entered into between the
Funds and the Administrator (the "Administration Agreement") will remain
in effect as long as its continuance is specifically approved at least
annually (i) by the Board of Directors of the Company or by the vote of a
majority (as defined in the 1940 Act) of the outstanding shares of the
Company, and (ii) by a vote of a majority of the directors of the Company
who are not interested persons (as defined in the 1940 Act) of any party
to the Administration Agreement, cast in person at a meeting called for
the purpose of voting on such approval. The Administration Agreement may
be terminated with respect to any one or more particular Funds without
penalty upon mutual consent of the Company and the Administrator or by
either party upon not less than 60 days' written notice to the other
party. For the fiscal years ended December 31, 1996 and December 31,
1995, and the period from January 3, 1994 (commencement of operations)
through December 31, 1994, the fees paid to the Administrator were
$67,228, $67,763 and $60,122, respectively, for the Fixed Income Fund,
$90,155, $74,366 and $70,609, respectively, for the Equity Income Fund,
$35,579, $25,062 and $18,197, respectively, for the Equity Growth Fund and
(net of voluntary waivers of $13,936) $38,524, (net of voluntary waivers
of $1,787) $58,199 and $64,436, respectively, for the Balanced Fund.
The Management Agreements, agreements with the portfolio
managers and the Administration Agreement provide that the Adviser, the
portfolio managers and the Administrator, as the case may be, shall not be
liable to the Funds or their stockholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. The Management Agreements, agreements with the
portfolio managers and the Administration Agreement also provide that the
Adviser, the portfolio managers and the Administrator, as the case may
be, and their officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
EXCHANGE PRIVILEGE
Investors may exchange shares of a Fund having a value of $500
or more for shares of any other Fund. Investors who are interested in
exercising the exchange privilege should first contact the Funds to obtain
instructions and any necessary forms.
The exchange privilege will not be available if the proceeds
from a redemption of shares of the Funds are paid directly to the investor
or at his or her discretion to any persons other than the Funds. There is
currently no limitation on the number of exchanges an investor may make.
The exchange privilege may be terminated by the Funds upon at least 60
days prior notice to investors.
For federal income tax purposes, a redemption of shares of the
Funds pursuant to the exchange privilege will result in a capital gain if
the proceeds received exceed the investor's tax-cost basis of the shares
of Common Stock redeemed. Such a redemption may also be taxed under state
and local tax laws, which may differ from the Internal Revenue Code of
1986, as amended (the "Code").
CUSTODIAN AND TRANSFER AGENT
UMB Bank, n.a. ("UMB"), P.O. Box 419226, Kansas City, Missouri
64141, acts as custodian for the Funds. As such, UMB holds all securities
and cash of the Funds, delivers and receives payment for securities sold,
receives and pays for securities purchased, collects income from
investments and performs other duties, all as directed by officers of the
Funds. UMB does not exercise any supervisory function over the management
of the Funds, the purchase and sale of securities or the payment of
distributions to stockholders.
DST Systems, Inc., 1004 Baltimore, Kansas City,
Missouri 64105-1807, acts as the Funds' transfer agent and dividend
disbursing agent.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202, serves as the independent accountants for each of the
Funds.
ALLOCATION OF PORTFOLIO BROKERAGE
The Funds' securities trading and brokerage policies and
procedures are reviewed by and subject to the supervision of the Company's
Board of Directors. Decisions to buy and sell securities for the Funds
are made by the portfolio managers subject to review by the Adviser and
the Company's Board of Directors. In placing purchase and sale orders for
portfolio securities for a Fund, it is the policy of the portfolio
managers to seek the best execution of orders at the most favorable price
in light of the overall quality of brokerage and research services
provided, as described in this and the following paragraph. Many of these
transactions involve payment of a brokerage commission by a Fund. In some
cases, transactions are with firms who act as principals for their own
accounts. In selecting brokers to effect portfolio transactions, the
determination of what is expected to result in best execution at the most
favorable price involves a number of largely judgmental considerations.
Among these are the portfolio manager's evaluation of the broker's
efficiency in executing and clearing transactions, block trading
capability (including the broker's willingness to position securities) and
the broker's reputation, financial strength and stability. The most
favorable price to a Fund means the best net price without regard to the
mix between purchase or sale price and commission, if any. Over-the-
counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the
security and its selling price. In some instances, the portfolio managers
may determine that better prices are available from non-principal market
makers who are paid commissions directly. Although the Funds do not
intend to market their shares through intermediary broker-dealers, a Fund
may place portfolio orders with broker-dealers who recommend the purchase
of Fund shares to clients (if the portfolio managers believe the
commissions and transaction quality are comparable to that available from
other brokers) and may allocate portfolio brokerage on that basis.
In allocating brokerage business for a Fund, the portfolio
managers also take into consideration the research, analytical,
statistical and other information and services provided by the broker,
such as general economic reports and information, reports or analyses of
particular companies or industry groups, market timing and technical
information, and the availability of the brokerage firm's analysts for
consultation. While the portfolio managers believe these services have
substantial value, they are considered supplemental to their own efforts
in the performance of their duties. Other clients of the portfolio
managers may indirectly benefit from the availability of these services to
the portfolio managers, and the Fund may indirectly benefit from services
available to the portfolio managers as a result of transactions for other
clients. Each of the portfolio managers may cause a Fund to pay a broker
which provides brokerage and research services to the portfolio manager a
commission for effecting a securities transaction in excess of the amount
another broker would have charged for effecting the transaction, if the
portfolio manager determines in good faith that such amount of commission
is reasonable in relation to the value of brokerage and research services
provided by the executing broker viewed in terms of either the particular
transaction or the portfolio manager's overall responsibilities with
respect to the Fund and the other accounts as to which he exercises
investment discretion.
For the fiscal year ended December 31, 1996, the Equity Income
Fund paid brokerage commissions of $49,913 on total transactions of
$32,976,854, the Equity Growth Fund paid brokerage commissions of $53,405
on total transactions of $29,932,376 and the Balanced Fund paid brokerage
commissions of $39,127 on total transactions of $20,257,052. For the
fiscal year ended December 31, 1995, the Equity Income Fund paid brokerage
commissions of $47,391 on total transactions of $27,533,105, the Equity
Growth Fund paid brokerage commissions of $37,473 on total transactions of
$20,235,626 and the Balanced Fund paid brokerage commissions of $49,004 on
total transactions of $24,917,091. For the period January 3, 1994
(commencement of operations) through December 31, 1994, the Equity Income
Fund paid brokerage commissions of $90,281 on total transactions of
$101,107,006, the Equity Growth Fund paid brokerage commissions of $28,636
on total transactions of $25,512,039 and the Balanced Fund paid brokerage
commissions of $53,806 on total transactions of $97,455,026.
Substantially all of the brokers to whom commissions were paid provided
research services to the portfolio managers.
Any commission, fee or other remuneration paid to a portfolio
manager who causes a Fund to pay an affiliated broker-dealer is paid in
compliance with procedures adopted in accordance with Rule 17e-1 under the
Investment Company Act of 1940. The Funds do not expect that a
significant portion of any Fund's total brokerage business will be
effected with broker-dealers affiliated with portfolio managers. However,
a portfolio manager may effect portfolio transactions for the segments of
a Fund's portfolio assigned to it with a broker-dealer affiliated with the
portfolio manager, as well as with broker-dealers affiliated with other
portfolio managers. No such fees were paid to affiliated broker-dealers
for the fiscal years ended December 31, 1996 and December 31, 1995 and the
period from January 3, 1994 (commencement of operations) through December
31, 1994.
TAXES
As set forth in the Prospectus under the caption "TAXES," each
Fund will endeavor to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the
Code.
Each Fund intends to distribute all of its net investment income
and net capital gain each fiscal year. Dividends from net investment
income (including any excess of short-term capital gain over net long-term
capital loss) are taxable to investors as ordinary income, while
distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital
gain regardless of the shareholder's holding period for the shares.
Distributions from the Funds are taxable to investors, whether received in
cash or in additional shares of the respective Funds. A portion of the
Funds' income distributions may be eligible for the 70% dividends-received
deduction for domestic corporate shareholders.
Any dividend or capital gain distribution paid shortly after a
purchase of shares of a Fund will have the effect of reducing the per
share net asset value of such shares by the amount of the dividend or
distribution. Furthermore, even if the net asset value of the shares of
such Fund immediately after a dividend or distribution is less than the
cost of such shares to the investor, the dividend or distribution will be
taxable to the investor.
Redemption of shares will generally result in a capital gain or
loss for income tax purposes. Such capital gain or loss will be long term
or short term, depending upon the holding period. However, if a loss is
realized on shares held for six months or less, and the investor received
a capital gain distribution during that period, then such loss is treated
as a long-term capital loss to the extent of the capital gain distribution
received.
Investors may also be subject to state and local taxes.
Each Fund will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividend payments and redemption
and exchange proceeds if an investor fails to furnish the Fund with his
social security number or other tax identification number or fails to
certify under penalty of perjury that such number is correct or that he is
not subject to backup withholding due to the underreporting of income.
The certification form is included as part of the share purchase
application and should be completed when the account is opened.
This section is not intended to be a full discussion of present
or proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax
advisers for a complete review of the tax ramifications of an investment
in a Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered
investment companies, such as the Company, to operate without an annual
meeting of stockholders under specified circumstances if an annual meeting
is not required by the 1940 Act. The Company has adopted the appropriate
provisions in its Bylaws and may, at its discretion, not hold an annual
meeting in any year in which the election of directors is not required to
be acted on by stockholders under said Act.
The Company's Bylaws also contain procedures for the removal of
directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to
not less than ten percent (10%) of all the votes entitled to be cast at
such meeting, the Secretary of the Company shall promptly call a special
meeting of stockholders for the purpose of voting upon the question of
removal of any director. Whenever ten or more stockholders of record who
have been such for at least six months preceding the date of application,
and who hold in the aggregate either shares having a net asset value of at
least $25,000 or at least one percent (1%) of the total outstanding
shares, whichever is less, shall apply to the Company's Secretary in
writing, stating that they wish to communicate with other stockholders
with a view to obtaining signatures to a request for a meeting as
described above and accompanied by a form of communication and request
which they wish to transmit, the Secretary shall within five business days
after such application either: (i) afford to such applicants access to a
list of the names and addresses of all stockholders as recorded on the
books of the Company; or (ii) inform such applicants as to the approximate
number of stockholders of record and the approximate cost of mailing to
them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause
(ii) of the last sentence of the preceding paragraph, the Secretary, upon
the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all stockholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in
the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
Average annual total return measures both the net investment
income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in a Fund's
investment portfolio. Each Fund's average annual total return figures are
computed in accordance with the standardized method prescribed by the
Securities and Exchange Commission by determining the average annual
compounded rates of return over the periods indicated, that would equate
the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value or the appropriate reinvestment dates as
described in the Prospectus, and (ii) deducts all recurring fees, such as
advisory fees, charged as expenses to all investor accounts.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is
determined by assuming a hypothetical investment at the net asset value at
the beginning of the period, adding in the reinvestment of all income
dividends and capital gains, calculating the ending value of the
investment at the net asset value as of the end of the specified time
period, subtracting the amount of the original investment, and dividing
this amount by the amount of the original investment. This calculated
amount is then expressed as a percentage by multiplying by 100.
The total return for the one year period ended December 31, 1996
was 2.83% for the Fixed Income Fund, 20.43% for the Equity Income Fund,
22.90% for the Equity Growth Fund and 15.29% for the Balanced Fund. The
average annual compounded return for the period from January 3, 1994
(commencement of operations) through December 31, 1996 was 5.04% for the
Fixed Income Fund, 16.64% for the Equity Income Fund, 14.31% for the
Equity Growth Fund and 11.25% for the Balanced Fund.
The Fixed Income Fund's yield is computed in accordance with a
standardized method prescribed by the rules of the Securities and Exchange
Commission. Under that method, the current yield quotation for the Fixed
Income Fund is based on a one month or 30-day period. The Fixed Income
Fund's yield is computed by dividing the net investment income per share
earned during the 30-day or one month period by the maximum offering price
per share on the last day of the period, according to the following
formula:
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 = the maximum offering price per share on the last day
of the period.
The Fixed Income Fund's SEC 30-day yield for the period from
December 1, 1996 through December 31, 1996 was 5.41%. Absent fee waivers,
the yield would have been 5.38%.
Yield fluctuations may reflect changes in the Fixed Income
Fund's net income, and portfolio changes resulting from net purchases or
net redemptions of the Fixed Income Fund's shares may affect the yield.
Accordingly, the Fixed Income Fund's yield may vary from day to day, and
the yield stated for a particular past period is not necessarily
representative of its future yield. The Fixed Income Fund's yield is not
guaranteed and its principal is not insured.
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "INFORMATION
ABOUT INVESTMENT OBJECTIVES AND POLICIES," the Fixed Income Fund may
invest in bonds and debentures assigned one of the four highest ratings by
at least one of the following: Standard & Poor's Corporation ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps, Inc.
or Fitch Investors Services, Inc. ("Fitch"). As also set forth therein,
each Fund may invest in commercial paper and commercial paper master notes
rated A-2 or better by Standard & Poor's or Prime-2 or better by Moody's.
A brief description of the ratings symbols and their meanings follows.
Standard & Poor's Debt Ratings. A Standard & Poor's corporate
or municipal debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may
take into consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with
any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes
in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the
obligation in the event of bankruptcy, reorganization or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights;
AAA - Debt rated AAA has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debts in this category than in higher
rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Bond Ratings.
Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt 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 - Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered to be medium-
grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes Bonds in this class.
B - Bonds which are rated B generally lack characteristics of
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 - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's bond rating symbols may contain numerical modifiers of a
generic rating classification. The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the
company ranks in the lower end of its generic rating category.
Fitch Investors Service, Inc. Bond Ratings. The Fitch Bond
Rating provides a guide to investors in determining the investment risk
associated with a particular security. The rating represents its
assessment of the issuer's ability to meet the obligations of a specific
debt issue or class of debt in a timely manner. Fitch bond ratings are
not recommendations to buy, sell or hold securities since they incorporate
no information on market price or yield relative to other debt
instruments.
The rating takes into consideration special features of the
issue, its relationship to other obligations of the issuer, the record of
the issuer and of any guarantor, as well as the political and economic
environment that might affect the future financial strength and credit
quality of the issuer.
Bonds which have the same rating are of similar but not
necessarily identical investment quality since the limited number of
rating categories cannot fully reflect small differences in the degree of
risk. Moreover, the character of the risk factor varies from industry and
between corporate, health care and municipal obligations.
In assessing credit risk, Fitch Investors Service relies on
current information furnished by the issuer and/or guarantor and other
sources which it considers reliable. Fitch does not perform an audit of
the financial statements used in assigning a rating.
Ratings may be changed, withdrawn or suspended at any time to
reflect changes in the financial condition of the issuer, the status of
the issue relative to other debt of the issuer, or any other circumstances
that Fitch considers to have a material effect on the credit of the
obligor.
AAA rated bonds are considered to be investment grade and of
the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably
foreseeable events.
AA rated bonds are considered to be investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject
to possible change over the term of the issue.
A rated bonds are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest
and repay principal is considered to be strong, but may be
more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB rated bonds are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds
with higher ratings.
Duff & Phelps, Inc. Long-Term Ratings. These ratings represent
a summary opinion of the issuer's long-term fundamental quality. Rating
determination is based on qualitative and quantitative factors which may
vary according to the basic economic and financial characteristics of each
industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts,
cost structure, and management depth and expertise. The projected
viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of security
(e.g., first mortgage bonds, subordinated debt, preferred stock, etc.).
The extent of rating dispersion among the various classes of securities is
determined by several factors including relative weightings of the
different security classes in the capital structure, the overall credit
strength of the issuer and the nature of covenant protection. Review of
indenture restrictions is important to the analysis of a company's
operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once
per quarter (more frequently, if necessary).
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free
U.S. Treasury debt.
AA High credit quality. Protection factors are strong.
Risk is modest, but may vary slightly from time to time
because of economic conditions
A Protection factors are average but adequate. However,
risk factors are more variable and greater in periods
of economic stress.
BBB Below average protection factors but still considered
sufficient for prudent investment. Considerable
variability in risk during economic cycles.
Standard & Poor's Commercial Paper Ratings. A Standard & Poor's
commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from A-1 for the
highest quality obligations to D for the lowest. These categories are as
follows:
A-1. This highest category indicates that the degree of safety
regarding timely payment is strong. Those issuers determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2. Capacity for timely payment on issues with this
designation is satisfactory. However the relative degree of safety is not
as high as for issuers designed "A-1".
A-3. Issues carrying this designation have adequate capacity
for timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designation.
Moody's Short-Term Debt Ratings. Moody's short-term debt
ratings are opinions of the ability of issuers to repay punctually senior
debt obligations which have an original maturity not exceeding one year.
Obligations relying upon support mechanisms such as letters-of-credit and
bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of rated
issuers:
Prime-1. Issuers rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Fitch Investors Service, Inc. Short-Term Ratings. Fitch's
short-term ratings apply to debt obligations that are payable on demand or
have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes and municipal
and investment notes. Although the credit analysis is similar to Fitch's
bond rating analysis, the short-term rating places greater emphasis on the
existence of liquidity necessary to meet the issuer's obligations in a
timely manner. Relative strength or weakness of the degree of assurance
for timely payment determine whether the issuer's short-term debt is rated
Fitch-1, Fitch-2 or Fitch-3.
Duff & Phelps, Inc. Short-Term Ratings. Duff & Phelps' short-
term ratings are consistent with the rating criteria utilized by money
market participants. The ratings apply to all obligations with maturities
of under one year, including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of long-
term debt. Asset-backed commercial paper is also rated according to this
scale.
Emphasis is placed on liquidity which is defined as not only
cash from operations, but also access to alternative sources of funds
including trade credit, bank lines and the capital markets. An important
consideration is the level of an obligor's reliance on short-term funds on
an ongoing basis. Relative differences in these factors determine whether
the issuer's short-term debt is rated Duff 1, Duff 2 or Duff 3.
FINANCIAL STATEMENTS
The following audited financial statements for each of the Funds
are incorporated by reference to The Aquinas Funds, Inc. Annual Report
dated December 31, 1996 (File No. 811-8122), as filed with the Securities
and Exchange Commission through the EDGAR System on February 21, 1997:
(1) Report of Independent Public Accountants
(2) Schedule of Investments at December 31, 1996
(3) Statements of Assets and Liabilities at December 31, 1996
(4) Statements of Operations for the year ended December 31,
1996
(5) Statements of Changes in Net Assets for the years ended
December 31, 1996 and December 31, 1995
(6) Financial Highlights for the years ended December 31, 1996
and December 31, 1995 and the period from January 3, 1994
to December 31, 1994
(7) Notes to Financial Statements
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statements
(Financial Highlights included in Part A and all incorporated by
reference to The Aquinas Funds, Inc. Annual Report dated
December 31, 1996 (File No. 811-8122) as filed with the
Securities and Exchange Commission on February 21, 1997 in Part
B of this Registration Statement.)
Report of Independent Public Accountants
Schedule of Investments at December 31, 1996
Statements of Assets and Liabilities at December 31, 1996
Statements of Operations for the year ended December 31,
1996
Statements of Changes in Net Assets for the years ended
December 31, 1996 and December 31, 1995
Financial Highlights for the years ended December 31, 1996
and December 31, 1995 and the period from January 3, 1994
to December 31, 1994
Notes to Financial Statements
(b.) Exhibits
1.1 Registrant's Articles of Incorporation (Exhibit 1.1 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A ("Post-Effective
Amendment No. 5") is incorporated by reference)
1.2 Registrant's Articles Supplementary (Exhibit 1.2 to
Post-Effective Amendment No. 5 is incorporated by
reference)
2. Registrant's Bylaws (Exhibit 2 to Post-Effective
Amendment No. 5 is incorporated by reference)
3. None
4. Not Applicable
5.1 Form of Management and Advisory Agreement (Exhibit 5.1
to Post-Effective Amendment No. 5 is incorporated by
reference)
5.2 Form of Sub-Advisory Agreement (Exhibit 5.2 to
Post-Effective Amendment No. 5 is incorporated by
reference)
6. None
7. None
8. Custody Agreement with United Missouri Bank n.a.
(Exhibit 8 to Post-Effective Amendment No. 5 is
incorporated by reference)
9.1 Administration and Fund Accounting Agreement with
Sunstone Financial Group, Inc. (Exhibit 9.1 to
Post-Effective Amendment No. 5 is incorporated by
reference)
9.2 Transfer Agency Agreement with DST Systems, Inc.
(Exhibit 9.2 to Post-Effective Amendment No. 5 is
incorporated by reference)
10 Opinion of Foley & Lardner, counsel for Registrant
(Exhibit 10 to Post-Effective Amendment No. 5 is
incorporated by reference)
11 Consent of Arthur Andersen & Co.
12 None
13 Subscription Agreement (Exhibit 13 to Post-Effective
Amendment No. 5 is incorporated by reference)
14.1 Individual Retirement Custodial Account (Exhibit 14.1
to Post-Effective Amendment No. 5 is incorporated by
reference)
14.2 Model Section 403(b)(7) Plan (Exhibit 14.2 to
Post-Effective Amendment No. 5 is incorporated by
reference)
14.3 Model 401(k) plan (Exhibit 14.3 to Post-Effective
Amendment No. 5 is incorporated by reference)
15 None
16 Schedule for Computation of Performance Quotation
(Exhibit 16 to Post-Effective Amendment No. 5 is
incorporated by reference)
17 Financial Data Schedule
18 None
Item 25. Persons Controlled by or under Common Control with Registrant
As of March 31, 1997, Registrant neither controls any person nor
is under common control with any other person.
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class March 31, 1997
Series A Common Stock (Fixed Income Fund) 198
Series B Common Stock (Equity Income Fund) 645
Series C Common Stock (Equity Growth Fund) 546
Series D Common Stock (Balanced Fund) 180
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 19-20 of the Prospectus and
pages B-17-B-18 of the Statement of Additional Information pursuant to
Rule 411 under the Securities Act of 1933.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant, Registrant's Custodian and Registrant's
Administrator as follows: the documents required to be maintained by
paragraphs (5), (6), (7), (10) and (11) of Rule 31a-1(b) are maintained by
the Registrant; the documents required to be maintained by paragraph (4)
of Rule 31a-1(b) are maintained by Registrant's Administrator; and all
other records are maintained by the Registrant's Custodian.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
Registrant undertakes, upon the written request of the holders
of shares entitled to not less than 10% of the Funds' outstanding shares,
to call a meeting of stockholders for the purpose of voting upon the
question of removal of any director.
Registrant undertakes to furnish a copy of its latest Annual
Report to Shareholders upon request and without charge to any recipient of
a Prospectus. Such requests should be directed to The Aquinas Funds,
Inc., 5310 Harvest Hill Road, Dallas, Texas 75230, Attention: Corporate
Secretary, (972) 233-6655.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Amended Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amended Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Dallas and
State of Texas on the 30th day of April, 1997.
THE AQUINAS FUNDS, INC.
(Registrant)
By: /s/ Bernard P. DiFiore
Bernard P. DiFiore,
President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
Name Title Date
/s/ Bernard P. DiFiore President and Treasurer
Bernard P. DiFiore (Principal Executive,
Financial and Accounting
Officer) and a Director April 30, 1997
/s/ Michael R. Corboy Director April 30, 1997
Michael R. Corboy
___________________________ Director April __, 1997
Thomas J. Marquez
___________________________ Director April __, 1997
Imelda Gonzalez, CDP
/s/ Charles Clark Director April 30, 1997
Charles Clark
/s/ John L. Strauss Director April 30, 1997
John L. Strauss
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
1.1 Registrant's Articles of Incorporation*
1.2 Articles Supplementary*
2. Registrant's Bylaws*
3. None
4. Not Applicable
5.1 Form of Management and Advisory Agreement*
5.2 Form of Sub-Advisory Agreement*
6. None
7. None
8. Custody Agreement with United Missouri Bank n.a.*
9.1 Administration and Fund Accounting Agreement with
Sunstone Financial Group, Inc.*
9.2 Transfer Agency Agreement with DST Systems, Inc.*
10 Opinion of Foley & Lardner, counsel for Registrant*
11 Consent of Arthur Andersen LLP*
12 None
13 Subscription Agreement*
14.1 Individual Retirement Custodial Account*
14.2 Model Section 403(b)(7) Plan*
14.3 Model 401(k) Plan*
15 None
16 Schedule for Computation of Performance Quotation*
17 Financial Data Schedule
18 None
_____________
* Incorporated by reference.
EXHIBIT 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, and to all references to our firm, included in or made a part of
this Form N-1A registration statement for The Aquinas Funds, Inc.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 23, 1997
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<CIK> 0000914325
<NAME> THE AQUINAS FUNDS INC
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<NAME> INCOME
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<NAME> FIXED INCOME
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