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. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 8 [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 Offices) (Zip Code)
(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)
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, 1998 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.
Title of Securities Being Registered - Common Stock
<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>
<PAGE> 1
[AQUINAS FUNDS LOGO]
PROSPECTUS
April 30, 1998
AQUINAS FUNDS
5310 Harvest Hill Road, Suite 248
Dallas, Texas 75230
1-972-233-6655
1-800-423-6369
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, 1997 represented approximately 98% 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, 1998, 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. The Securities and
Exchange Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information regarding registrants that file electronically with the
Securities and Exchange Commission.
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> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEES AND EXPENSES..............................................................................................1
FINANCIAL HIGHLIGHTS...........................................................................................2
INFORMATION ABOUT INVESTMENT OBJECTIVES AND POLICIES
Aquinas Fixed Income Fund..................................................................................7
Aquinas Equity Income Fund.................................................................................7
Aquinas Equity Growth Fund.................................................................................9
Aquinas Balanced Fund.....................................................................................10
RISKS AND OTHER INVESTMENT PRACTICES
Portfolio Lending.........................................................................................11
Portfolio Turnover........................................................................................11
When-Issued Securities....................................................................................11
Repurchase Agreements and other Short-Term
Investments...............................................................................................12
Foreign Securities........................................................................................13
Illiquid Securities.......................................................................................13
Mortgage-Backed and Asset-Backed Securities...............................................................13
Hedging Instruments.......................................................................................14
Socially Responsible Investing............................................................................15
FUNDAMENTAL INVESTMENT POLICIES
Diversification...........................................................................................15
Concentration.............................................................................................15
Borrowing.................................................................................................16
Other Policies............................................................................................16
HOW TO GET STARTED -- OPENING AN ACCOUNT
Initial Investment........................................................................................16
Ways to Set Up Your Account...............................................................................16
Ways to Buy Shares........................................................................................17
HOW TO BUY ADDITIONAL SHARES
Adding to Your Account....................................................................................19
Automatic Investment Plan.................................................................................19
Additional Purchase Information...........................................................................20
HOW TO EXCHANGE SHARES
Limitations...............................................................................................20
Ways to Exchange..........................................................................................21
Tax Consequences..........................................................................................21
HOW TO SELL SHARES
Ways to Sell Shares.......................................................................................22
Systematic Withdrawal Plan................................................................................23
Additional Information About Redemptions..................................................................24
INFORMATION AND HELP LINE.....................................................................................24
DETERMINING YOUR SHARE PRICE..................................................................................24
MANAGEMENT OF THE FUNDS
Adviser...................................................................................................25
The Portfolio Managers....................................................................................26
The Administrator.........................................................................................29
The Custodian.............................................................................................30
DIVIDENDS AND DISTRIBUTIONS...................................................................................30
TAXES.........................................................................................................31
CAPITAL STRUCTURE.............................................................................................31
SHAREHOLDER REPORTS...........................................................................................32
FUND PERFORMANCE..............................................................................................32
</TABLE>
<PAGE> 3
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
<TABLE>
<CAPTION>
FIXED EQUITY EQUITY
INCOME INCOME GROWTH BALANCED
------ ------ ------ --------
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------
+ 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, 1997.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
FIXED EQUITY EQUITY
INCOME INCOME GROWTH BALANCED
------ ------ ------ --------
<S> <C> <C> <C> <C>
Management Fees (after fee waivers)(1)................... 0.54% 1.00% 1.00% 0.98%
12b-1 Fees............................................... 0 0 0 0
Other Expenses(2)........................................ 0.45% 0.37% 0.49% 0.47%
---- ---- ---- -----
Total Fund Operating Expenses(3)......................... 0.99% 1.37% 1.49% 1.45%
---- ---- ---- -----
</TABLE>
- ---------------
(1) Absent fee waivers, management fees would have been 0.60% and 1.00% for
the Fixed Income and Balanced Funds, respectively.
(2) Absent fee waivers, other expenses would have been 0.52% for the
Balanced Fund.
(3) Absent fee waivers, total fund operating expenses would have been 1.05%
and 1.52% for the Fixed Income and Balanced Funds, respectively.
1
<PAGE> 4
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.
<TABLE>
<CAPTION>
FIXED EQUITY EQUITY
INCOME INCOME GROWTH BALANCED
------ ------ ------ --------
<S> <C> <C> <C> <C>
After 1 year............................................. $ 10 $ 14 $ 15 $ 15
After 3 years............................................ 32 43 47 46
After 5 years............................................ 55 75 81 79
After 10 years........................................... 121 165 178 174
</TABLE>
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 25.
FINANCIAL HIGHLIGHTS
The financial information for the periods specified in the following
tables 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.
2
<PAGE> 5
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FIXED INCOME
FUND
----
Year Year Year Jan. 3, 1994(1)
Ended Ended Ended through
Dec.31, 1997 Dec.31,1996 Dec. 31, 1995 Dec. 31, 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.90 $ 10.17 $ 9.24 $ 10.00
Income from Investment Operations:
Net investment income (loss) 0.55 0.54 0.54 0.46
Net realized and unrealized
gains (losses) on investments 0.27 (0.27) 0.93 (0.77)
----------- ----------- ----------- -----------
Total from Investment Operations 0.82 0.27 1.47 (0.31)
----------- ----------- ----------- -----------
Less Distributions:
Dividends from net investment
income (0.55) (0.54) (0.54) (0.45)
Distributions from net realized gains -- -- -- --
----------- ----------- ----------- -----------
Total Distributions (0.55) (0.54) (0.54) (0.45)
----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 10.17 $ 9.90 $ 10.17 $ 9.24
=========== =========== =========== ===========
Total Return(2) 8.54% 2.83% 16.26% (3.09)%
Supplemental Data and Ratios:
Net assets, end of period
(in thousands) $ 40,699 $ 37,229 $ 35,617 $ 28,147
Ratio to Average Net Assets of:(3)
Expenses, net of waivers
and reimbursements 0.99% 1.00% 0.98% 1.00%
Expenses, before waivers
and reimbursements 1.05% 1.03% 0.98% 1.11%
Net investment income (loss), net
of waivers and reimbursements 5.54% 5.44% 5.46% 4.84%
Net investment income (loss),
before waivers and reimbursements 5.48% 5.41% 5.46% 4.73%
Portfolio turnover rate(2) 102% 169% 126% 139%
Average commission rate paid on
portfolio investment transactions(4) N/A N/A N/A N/A
</TABLE>
- --------------
(1) Commencement of operations.
(2) Not annualized for the period January 3, 1994 through December 31,
1994.
(3) Annualized for the period January 3, 1994 through December 31, 1994.
(4) Disclosure of this rate is required by the Securities and Exchange
Commission on a prospective basis beginning in 1996.
3
<PAGE> 6
FINANCIAL HIGHLIGHTS (CONT'D.)
<TABLE>
<CAPTION>
EQUITY INCOME
FUND
----
Year Year Year Jan. 3, 1994(1)
Ended Ended Ended through
Dec.31, 1997 Dec.31,1996 Dec. 31, 1995 Dec. 31, 1994
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.26 $ 11.83 $ 9.39 $ 10.00
Income from Investment Operations:
Net investment income (loss) 0.26 0.23 0.28 0.32
Net realized and unrealized
gains (losses) on investments 3.40 2.18 3.03 (0.61)
------------ ------------ ------------ ------------
Total from Investment Operations 3.66 2.41 3.31 (0.29)
------------ ------------ ------------ ------------
Less Distributions:
Dividends from net investment
income (0.26) (0.23) (0.28) (0.32)
Distributions from net realized gains (1.77) (0.75) (0.59) --
------------ ------------ ------------ ------------
Total Distributions (2.03) (0.98) (0.87) (0.32)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 14.89 $ 13.26 $ 11.83 $ 9.39
============ ============ ============ ============
Total Return(2) 27.85% 20.43% 35.62% (2.93)%
Supplemental Data and Ratios:
Net assets, end of period
(in thousands) $ 73,594 $ 54,184 $ 42,102 $ 32,217
Ratio to Average Net Assets of:(3)
Expenses, net of waivers
and reimbursements 1.37% 1.40% 1.37% 1.45%
Expenses, before waivers
and reimbursements 1.37% 1.40% 1.37% 1.45%
Net investment income (loss), net
of waivers and reimbursements 1.74% 1.79% 2.47% 3.33%
Net investment income (loss),
before waivers and reimbursements 1.74% 1.79% 2.47% 3.33%
Portfolio turnover rate(2) 42% 32% 40% 106%
Average commission rate paid on
portfolio investment transactions(4) $ 0.0562 $ 0.0554 N/A N/A
</TABLE>
- --------------
(1) Commencement of operations.
(2) Not annualized for the period January 3, 1994 through December 31,
1994.
(3) Annualized for the period January 3, 1994 through December 31, 1994.
(4) Disclosure of this rate is required by the Securities and Exchange
Commisssion on a prospective basis beginning in 1996.
4
<PAGE> 7
FINANCIAL HIGHLIGHTS (CONT'D.)
<TABLE>
<CAPTION>
EQUITY GROWTH
FUND
----
Year Year Year Jan. 3, 1994(1)
Ended Ended Ended through
Dec.31, 1997 Dec.31,1996 Dec. 31, 1995 Dec. 31, 1994
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.45 $ 12.13 $ 9.31 $ 10.00
Income from Investment Operations:
Net investment income (loss) 0.06 (0.06) (0.01) 0.01
Net realized and unrealized
gains (losses) on investments 3.81 2.84 2.83 (0.69)
------------ ------------ ------------ ------------
Total from Investment Operations 3.87 2.78 2.82 (0.68)
------------ ------------ ------------ ------------
Less Distributions:
Dividends from net investment
income -- -- -- (0.01)
Distributions from net realized gains (2.20) (1.46) -- --
------------ ------------ ------------ ------------
Total Distributions (2.20) (1.46) -- (0.01)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 15.12 $ 13.45 $ 12.13 $ 9.31
============ ============ ============ ============
Total Return(2) 28.97% 22.90% 30.29% (6.78)%
Supplemental Data and Ratios:
Net assets, end of period
(in thousands) $ 35,990 $ 22,593 $ 15,912 $ 10,104
Ratio to Average Net Assets of:(3)
Expenses, net of waivers
and reimbursements 1.49% 1.50% 1.50% 1.50%
Expenses, before waivers
and reimbursements 1.49% 1.54% 1.61% 1.76%
Net investment income (loss), net
of waivers and reimbursements (0.66)% (0.55)% (0.10)% 0.14%
Net investment income (loss),
before waivers and reimbursements (0.66)% (0.59)% (0.21)% (0.12)%
Portfolio turnover rate(2) 104% 112% 102% 98%
Average commission rate paid on
portfolio investment transactions(4) $ 0.0624 $ 0.0649 N/A N/A
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Not annualized for the period January 3, 1994 through December 31,
1994.
(3) Annualized for the period January 3, 1994 through December 31, 1994.
(4) Disclosure of this rate is required by the Securities and Exchange
Commission on a prospective basis beginning in 1996.
5
<PAGE> 8
FINANCIAL HIGHLIGHTS (CONT'D.)
<TABLE>
<CAPTION>
BALANCED
FUND
----
Year Year Year Jan. 3, 1994(1)
Ended Ended Ended Through
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.53 $ 11.03 $ 9.43 $ 10.00
Income from Investment Operations:
Net investment income (loss) 0.31 0.26 0.32 0.26
Net realized and unrealized
gains (losses) on investments 1.95 1.41 1.84 (0.57)
------------ ------------ ------------ ------------
Total from Investment Operations 2.26 1.67 2.16 (0.31)
------------ ------------ ------------ ------------
Less Distributions:
Dividends from net investment
income (0.30) (0.26) (0.33) (0.26)
Distributions from net realized gains (1.91) (0.91) (0.23) --
------------ ------------ ------------ ------------
Total Distributions (2.21) (1.17) (0.56) (0.26)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 11.58 $ 11.53 $ 11.03 $ 9.43
============ ============ ============ ============
Total Return(2) 19.91% 15.29% 23.14% (3.06)%
Supplemental Data and Ratios:
Net assets, end of period $ 29,164 $ 29,670 $ 26,779 $ 30,114
(in thousands)
Ratio to Average Net Assets of:(3)
Expenses, net of waivers
and reimbursements 1.45% 1.44% 1.46% 1.49%
Expenses, before waivers
and reimbursements 1.52% 1.49% 1.46% 1.49%
Net investment income (loss), net
of waivers and reimbursements 2.44% 2.23% 2.93% 2.75%
Net investment income (loss),
before waivers and reimbursements 2.37% 2.18% 2.93% 2.75%
Portfolio turnover rate(2) 94% 111% 118% 111%
Average commission rate paid on
portfolio investment transactions(4) $ 0.0586 $ 0.0635 N/A N/A
</TABLE>
- -------------
(1) Commencement of operations.
(2) Not annualized for the period January 3, 1994 through December 31,
1994.
(3) Annualized for the period January 3, 1994 through December 31, 1994.
(4) Disclosure of this rate is required by the Securities and Exchange
Commission on a prospective basis beginning in 1996.
6
<PAGE> 9
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 Smith Barney 3-month 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 Smith Barney 3-month Treasury Bill Index and
"reasonable opportunity for capital appreciation" means capital appreciation in
excess of that realized by the Salomon Smith Barney 3-month 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 IBCA, 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'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.
7
<PAGE> 10
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 agencies or instrumentalities whose obligations are not supported by the full
faith and credit of the U.S. Treasury, 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
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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 14.
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 March 31, 1998, the published composite
yield of the S&P 500 Index was 1.44%. There is, of course, no assurance that
this objective can be achieved. The S&P 500 Index is a broad-based index of 500
common stocks which is considered to be generally representative of the United
States stock market.
* 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.
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<PAGE> 12
* 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 Smith Barney 3-month
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 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 14.
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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 profits from sales of securities are taxable to certain
shareholders. Subject to these 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 for federal tax purposes.
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
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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.
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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.
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 AND ASSET-BACKED SECURITIES
The Fixed Income Fund and the Balanced Fund may invest in
mortgage-backed securities as well as other asset-backed securities (i.e.,
securities backed by credit card receivables, automobile loans or other assets).
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-
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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 may involve certain risks that are not
presented by mortgage-backed securities arising primarily from the nature of the
underlying assets (i.e., credit card and automobile loan receivables as opposed
to real estate mortgages). Non-mortgage asset-backed securities do not have the
benefit of the same security interest in the collateral as mortgage-backed
securities. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which have given debtors the right to reduce the balance due on
the credit cards. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is the risk that the purchaser would
acquire an interest superior to that of the holders of related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have an effective security
interest in all of the obligations backing such receivables. Therefore, there is
a possibility that payments on the receivables together with recoveries on
repossessed collateral may not, in some cases, be able to support payments on
these securities.
Asset-backed securities may be subject to greater risk of default
during periods of economic downturn than other instruments. Also, while the
secondary market for asset-backed securities is ordinarily quite liquid, in
times of financial stress the secondary market may not be as liquid as the
market for other types of securities, which could cause the Fixed Income Fund or
Balanced Fund to experience difficulty in valuing or liquidating such
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
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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.
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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. 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 24.
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
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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 a variety of retirement plans including Traditional
IRAs, Roth IRAs, SEP/IRAs, Model 403(b)7 Plans, Model 401(k) Plans and
SIMPLEs that may allow investors to shelter a portion of their income
from taxes. Complete information, including application forms,
descriptions of applicable service fees and certain limitations on
contribu-tions and withdrawals, are available from the Transfer Agent
(1-800-423-6369) or Aquinas Investment Advisers, Inc. (1-972-233-6655).
The Funds recommend that you consult with a financial and tax adviser
regarding the retirement plans.
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.
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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. See "How To Exchange Shares."
THROUGH PROCESSING INTERMEDIARIES
You may purchase shares in a Fund through programs of services offered
or administered by broker-dealers, financial institutions or other service
providers ("Processing Intermediaries") that have entered into agreements with
the Funds. Such Processing Intermediaries may become shareholders of record and
may use procedures and impose restrictions in addition to or different from
those applicable to shareholders who invest directly in the Funds. Certain
services of the Funds may not be available or may be modified under the programs
provided by Processing Intermediaries. The Funds may accept requests to purchase
additional shares into an account in which the Processing Intermediary is the
shareholder of record only from the Processing Intermediary.
The Funds may authorize one or more Processing Intermediaries (and
other Processing Intermediaries properly designated thereby) to accept purchase
orders on the Fund's behalf. In such event, a Fund will be deemed to have
received a purchase order when the Processing Intermediary accepts the customer
order, and the order will be priced at the Fund's net asset value next computed
after it is accepted by the Processing Intermediary.
Processing Intermediaries may charge fees or assess other charges for
their services. Any such fee or charge paid directly by shareholders is retained
by the Processing Intermediary and not remitted to the Funds or the Adviser.
Additionally, the Adviser and/or the Fund may pay fees to Processing
Intermediaires to compensate them for the services they provide. Before
investing in this manner, read the program materials provided by the Processing
Intermediary together with the Prospectus. Shares of the Funds may be purchased
through Processing Intermediaires without regard to a Fund's minimum purchase
requirements.
18
<PAGE> 21
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. See "How To Exchange Shares."
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.
19
<PAGE> 22
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. In addition,
effective July 1, 1998, you may exchange all or a portion of your shares of the
Funds for shares of the PlanAhead Class of the American AAdvantage Money Market
Fund (the "American AAdvantage Money Market Fund"). The American AAdvantage
Money Market Fund is described in a separate prospectus available from the
Funds. You may subsequently exchange such shares and shares purchased with
reinvested dividends for shares of the Funds. Use of the exchange privilege is
subject to the minimum purchase and redemption amounts set forth in this
Prospectus and in the prospectus for the American AAdvantage Money Market Fund,
and is available only if shares of the American AAdvantage Money Market Fund are
registered for sale in the state of residence of the investor. You may obtain a
copy of the prospectus for the American AAdvantage Money Market Fund from the
Funds and are advised to read it carefully before authorizing any investment in
shares of such fund.
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.
20
<PAGE> 23
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 or the American AAdvantage Money Market 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 or the
American AAdvantage Money Market 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) of all or a portion of
your shares of a Fund and the investment of the proceeds in shares of another
Fund or the American AAdvantage Money Market 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 or the American AAdvantage Money Market 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.
21
<PAGE> 24
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
22
<PAGE> 25
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 21.
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.
THROUGH PROCESSING INTERMEDIARIES
If you purchased shares through programs of Processing Intermediaries
that have entered into agreements with the Funds, you may be required to redeem
your shares through such programs. Processing Intermediaries may become
shareholders of record and use procedures and impose restrictions in addition to
or different from those applicable to shares redeemed directly through the
Funds. The Funds may accept redemption requests for an account in which the
Processing Intermediary is the shareholder of record only from the Processing
Intermediary. The Funds may authorize one or more Processing Intermediaries to
accept redemption requests on the Funds' behalf. In such event, a Fund will be
deemed to have received a redemption request when the Processing Intermediary
accepts the shareholder's request, and the redemption price will be the Fund's
net asset value next computed after the shareholder's redemption request is
accepted by the Processing Intermediary.
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.
23
<PAGE> 26
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 17 and "How to Exchange Shares" on page
20.
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) 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
24
<PAGE> 27
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 or the
Nasdaq Stock Market 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 Road, 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, 1998, the
Foundation managed approximately $163 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.
25
<PAGE> 28
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: 0.60% 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. 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, Jr., John J.
Kickham and Mark Godvin, 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 and President and CEO since May 1997. From
1989 to 1993, Mr. Rauscher was president of American Federal Bank, F.S.B. Mr.
Strauss is a director of the Adviser and was a principal of Barrow, Hanley,
Mewhinney & Strauss, an investment advisory firm, from 1980 until his
retirement in January 1998. 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. Since March 1994, Mr. Kickham has been the
president of Quarterdeck of Texas, Inc., a mortgage banking firm. Prior to
this, he was the CEO and president of Wing Industries from November 1994 to
November 1995. He has also been the chairman of T.K.G. Inc., a private
investment company, since March 1985. Mr. Godvin, has been a managing director
for Merrill Lynch since January 1996, and has been an executive of that firm
since January 1998.
26
<PAGE> 29
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, 1998, AAM managed approximately $2.8
billion in assets.
Effective September 1, 1997, for its services to the Fixed Income Fund
and the Balanced Fund, AAM receives a fee computed daily and payable monthly,
paid by the Adviser (not the Funds) determined by multiplying the average daily
net assets of each of the Fixed Income Fund and the Balanced Fund during the
month by 1/12 of the Performance Fee Rate. The Performance Fee Rate is
determined by applying the following formula:
Performance Fee Rate = 0.30% + [0.20 x (Excess Return - 1.20%)]
Notwithstanding the above formula, the Performance Fee Rate will not be
lower than 0.10% and will not be higher than 0.50%. "Excess Return" is equal to
AAM's Total Return less the Benchmark Total Return for the twelve month period
beginning on the first day of the eleventh month prior to the month for which
the Performance Fee Rate is calculated and ending on the last day of such month
(e.g. the Performance Fee Rate for August 1998 is based on total returns for the
period beginning September 1, 1997 and ending August 31, 1998). The "Benchmark
Total Return" is the change in the level of the Lehman Brothers Aggregate Bond
Index during the measuring period. "AAM's Total Return" is the change in value
of assets of the Fixed Income Fund and the Balanced Fund under the management of
AAM plus any interest paid or accrued on such assets less brokerage commissions
paid on the acquisition or disposition of such assets during the measuring
period. AAM's Total Return is adjusted on a time-weighted basis for any assets
added to or withdrawn from the assets under the management of AAM. Since the fee
received by AAM from the Adviser is based in part on AAM's performance, there
exists the risk that AAM might take undue risks to increase its investment
performance.
Prior to September 1, 1997, for its services to the Funds, AAM received
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:
<TABLE>
<CAPTION>
ASSETS FEE RATE
------ --------
<S> <C>
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%
</TABLE>
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
27
<PAGE> 30
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, 1998, IRM managed over $2.2
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:
<TABLE>
<CAPTION>
ASSETS FEE RATE
------ --------
<S> <C>
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%
</TABLE>
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, 1998, BGCM managed
approximately $2.0 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:
<TABLE>
<CAPTION>
ASSETS FEE RATE
------ --------
<S> <C>
0 to $25 million.......................................................................0.450%
Over $25 million.......................................................................0.315%
</TABLE>
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, 1998 were approximately $2.7 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:
<TABLE>
<CAPTION>
ASSETS FEE RATE
------ --------
<S> <C>
0 to $25 million.......................................................................0.450%
Over $25 million.......................................................................0.315%
</TABLE>
28
<PAGE> 31
EQUITY 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 $3.6 billion as of March 31, 1998.
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, 1998, Sirach had over $7.3 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:
<TABLE>
<CAPTION>
ASSETS FEE RATE
------ --------
<S> <C>
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%
</TABLE>
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
29
<PAGE> 32
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 of net
investment income quarterly. 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.
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.
30
<PAGE> 33
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. The Funds will also be
directed to withhold Federal income tax if the Funds are required by another
section of the Code. 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, 1998, the Foundation was deemed to
"control", as that term is defined in the Investment Company Act of 1940,
each of the Funds and 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,
31
<PAGE> 34
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.
32
<PAGE> 35
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
<TABLE>
<CAPTION>
Equity
Fixed Equity Growth Balanced
Income Fund Income Fund Fund Fund
----------- ----------- ------- --------
<S> <C> <C> <C> <C>
12 months ended 12/31/97(1)................................. 8.54% 27.85% 28.97% 19.91%
Period from 1/3/94 (inception) to 12/31/97(1)............... 5.90% 19.35% 17.82% 13.36%
</TABLE>
- ---------------
(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 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.
33
<PAGE> 36
DIRECTORS AND OFFICERS
Directors:
Michael R. Corboy
Imelda Gonzalez, CDP
Thomas J. Marquez
John L. Strauss
Charles Clark, Jr.
Principal Officers:
Frank Rauscher, President and Treasurer
John J. Kickham, Vice President
Charles Clark, Jr., Secretary
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
34
<PAGE> 37
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, 1998 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.
35
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION April 30, 1998
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, 1998. 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-13
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . B-14
DIRECTORS AND OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . B-14
INVESTMENT ADVISER, PORTFOLIO MANAGERS AND ADMINISTRATOR . . . . . . B-16
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . B-19
CUSTODIAN AND TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . B-20
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . B-20
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . B-20
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . B-23
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . B-24
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, 1998 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 a 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 profits realized from the premiums
received on options which expire unexercised 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
profits realized from the premiums received on options which expire
unexercised 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.
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, Dr. Martin Luther King, Jr. Day, President's Day, 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 preceding Friday and when any such holiday falls on a Sunday, 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. The New York Stock Exchange also may be
closed on national days of mourning.
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:
FRANK RAUSCHER*, 54, President and Treasurer.
5310 Harvest Hill Road
Suite 248
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.
MICHAEL R. CORBOY, 67, Director.
#2 Braewick Court
Dallas, Texas 75225
Mr. Corboy is President of Corboy Investment Company, a private
investment company.
SISTER IMELDA GONZALEZ, CDP, 57, Director.
c/o NATRI
8824 Cameron Street
Silver Spring, Maryland 20910
Sister Gonzalez has been a member of 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, 60, Director.
8300 Douglas Avenue,
Suite 800
Dallas, Texas 75225
Mr. Marquez has been a self-employed private investor since
1990.
CHARLES CLARK*, 59, 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*, 58, Director.
3232 McKinney Avenue
15th Floor
Dallas, Texas 75204
Mr. Strauss was a principal of Barrow, Hanley, Mewhinney &
Strauss, an investment advisory firm from 1980 until his retirement in
January 1998. Mr. Strauss is a director of the Adviser.
JOHN J. KICKHAM, 56, Vice President.
5310 Harvest Hill Road
Suite 245
Dallas, Texas 75230
Mr. Kickham has been the President of Quarterdeck of Texas,
Inc., a mortgage banking firm, since March 1994. From November 1994
through November 1995, he was President of Wing Industries, a door
manufacturer. Mr. Kickham has been Chairman of the Kickham Group, Inc., a
private investment company, since March 1985.
_______________
* Messrs. 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, 1997.
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Accrued Annual From
Aggregate as Part of Benefits Company and
Compensation Fund Upon Fund Complex
Name of Person from Company Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
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 2,000 0 0 2,000
John L. Strauss 0 0 0 0
William Pollock(2) 0 0 0 0
Charles S. 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>
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, 1997, there were reimbursements of $2,162 for travel
expenses. Sister Gonzalez has assigned all directors fees that she
receives to her religious order.
As of March 31, 1998, the officers and directors of the Fund as
a group owned less than 1% of the outstanding securities of each Fund. At
March 31, 1998, The Catholic Foundation, 5310 Harvest Hill Road, Suite
248, Dallas, Texas, owned 3,109,496 shares (83.0% of the outstanding) of
the Fixed Income Fund, of which 1,747,408 shares (46.6%) were owned as
trustee and 1,362,088 shares (36.4%) were beneficially owned; 3,027,885
shares (68.9% of the outstanding) of the Equity Income Fund, of which
1,906,814 shares (43.4%) were owned as trustee and 1,121,071 shares
(25.5%) were beneficially owned; 1,490,453 shares (63.0% of the
outstanding) of the Equity Growth Fund, of which 759,084 shares (32.1%)
were owned as trustee and 731,369 shares (30.9%) were beneficially owned;
and 2,179,455 shares (88.7% of the outstanding) of the Balanced Fund, of
which 602,760 shares (24.5%) were owned as trustee and 1,576,695 shares
(64.2%) 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, each of the Funds
and 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 are 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, 1997, December 31, 1996
and December 31, 1995, the fees paid to the Adviser for management and
investment advisory services were $209,779 (net of waivers of $22,939),
$203,761 (net of waivers of $10,507), and $200,763, respectively, for the
Fixed Income Fund, $633,726, $479,210, and $367,212, respectively, for the
Equity Income Fund, $291,466, $181,345 (net of waivers of $7,841), and
$110,950 (net of waivers of $13,165), respectively, for the Equity Growth
Fund and $289,730, $278,719 and $296,312, 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, 1997, December 31, 1996
and December 31, 1995, the fees paid to the Administrator were $66,698,
$67,228 and $67,763, respectively, for the Fixed Income Fund, $108,782,
$90,155 and $74,366, respectively, for the Equity Income Fund, $49,986,
$35,579 and $25,062, respectively, for the Equity Growth Fund and $30,627
(net of voluntary waivers of $19,189), $38,524 (net of voluntary waivers
of $13,936) and $58,199 (net of voluntary waivers of $1,787),
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. In addition, effective July 1,
1998, shareholders of the Funds may exchange shares of a Fund for shares
of the PlanAhead Class of American AAdvantage Money Market 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, 1997, the Equity Income
Fund paid brokerage commissions of $67,306 on total transactions of
$49,959,809, the Equity Growth Fund paid brokerage commissions of $67,248
on total transactions of $40,480,115 and the Balanced Fund paid brokerage
commissions of $36,448 on total transactions of $22,830,609. 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. 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, 1997, December 31, 1996 and
December 31, 1995.
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 are taxable to investors as ordinary income, while distributions of
net long-term capital gain are taxable as long-term capital gain
regardless of the shareholder's holding period for the shares. The Code
provides for a three-tiered tax rate structure for long-term capital gains
dependent upon a Fund's holding period of the underlying financial
instrument or capital asset. 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, 1997
was 8.54% for the Fixed Income Fund, 27.85% for the Equity Income Fund,
28.97% for the Equity Growth Fund and 19.91% for the Balanced Fund. The
average annual compounded return for the period from January 3, 1994
(commencement of operations) through December 31, 1997 was 5.90% for the
Fixed Income Fund, 19.35% for the Equity Income Fund, 17.82% for the
Equity Growth Fund and 13.36% 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:
a-b 6
YIELD = 2 (---- + 1) -1
cd
Where a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = 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, 1997 through December 31, 1997 was 5.37%. Absent fee waivers,
the yield would have been 5.08%.
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 IBCA, 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 IBCA, 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 IBCA, Inc. 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 IBCA, 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, 1997 (File No. 811-8122), as filed with the Securities
and Exchange Commission through the EDGAR System on February 27, 1998:
(1) Report of Independent Public Accountants
(2) Schedule of Investments at December 31, 1997
(3) Statements of Assets and Liabilities at December 31, 1997
(4) Statements of Operations for the year ended December 31,
1997
(5) Statements of Changes in Net Assets for the years ended
December 31, 1997 and December 31, 1996
(6) Financial Highlights for the years ended December 31, 1997,
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, 1997 (File No. 811-8122) as filed with the
Securities and Exchange Commission on February 27, 1998 in Part
B of this Registration Statement.)
Report of Independent Public Accountants
Schedule of Investments at December 31, 1997
Statements of Assets and Liabilities at December 31, 1997
Statements of Operations for the year ended December 31,
1997
Statements of Changes in Net Assets for the years ended
December 31, 1997 and December 31, 1996
Financial Highlights for the years ended December 31, 1997,
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. 4 to Registrant's
Registration Statement on Form N-1A ("Post-Effective
Amendment No. 4") is incorporated by reference)
1.2 Registrant's Articles Supplementary (Exhibit 1.2 to
Post-Effective Amendment No. 4 is incorporated by
reference)
2. Registrant's Bylaws (Exhibit 2 to Post-Effective
Amendment No. 4 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. 4 is incorporated by
reference)
5.2 Form of Sub-Advisory Agreement (Exhibit 5.2 to
Post-Effective Amendment No. 4 is incorporated by
reference)
5.3 Form of Sub-Advisory Agreement with Atlantic Asset
Management Partners, L.L.C. relating to the Fixed
Income Fund and Balanced Fund
6. None
7. None
8. Custody Agreement with United Missouri Bank n.a.
(Exhibit 8 to Post-Effective Amendment No. 4 is
incorporated by reference)
9.1 Administration and Fund Accounting Agreement with
Sunstone Financial Group, Inc.
9.2 Transfer Agency Agreement with DST Systems, Inc.
(Exhibit 9.2 to Post-Effective Amendment No. 4 is
incorporated by reference)
10 Opinion of Foley & Lardner, counsel for Registrant
(Exhibit 10 to Post-Effective Amendment No. 4 is
incorporated by reference)
11 Consent of Arthur Andersen LLP.
12 None
13 Subscription Agreement (Exhibit 13 to Post-Effective
Amendment No. 4 is incorporated by reference)
14.1 Individual Retirement Accounts
14.2 Model Section 403(b)(7) Plan (Exhibit 14.2 to
Post-Effective Amendment No. 4 is incorporated by
reference)
14.3 Model 401(k) plan (Exhibit 14.3 to Post-Effective
Amendment No. 4 is incorporated by reference)
15 None
16 Schedule for Computation of Performance Quotation
(Exhibit 16 to Post-Effective Amendment No. 4 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, 1998, 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, 1998
Series A Common Stock (Fixed Income Fund) 244
Series B Common Stock (Equity Income Fund) 926
Series C Common Stock (Equity Growth Fund) 844
Series D Common Stock (Balanced Fund) 237
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 25-26 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 28th day of April, 1998.
THE AQUINAS FUNDS, INC.
(Registrant)
By: /s/ Frank Rauscher
Frank Rauscher
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/ Frank Rauscher President and April 28, 1998
Frank Rauscher Treasurer (Principal
Executive, Financial
and Accounting
Officer)
/s/ Michael R. Corboy Director April 23, 1998
Michael R. Corboy
/s/ Thomas J. Marquez Director April 28, 1998
Thomas J. Marquez
/s/ Sister Imelda Gonzalez,CDP Director April 28, 1998
Sister Imelda Gonzalez, CDP
/s/ Charles Clark Director April 28, 1998
Charles Clark
Director April __, 1998
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*
5.3 Form of Sub-Advisory Agreement with Atlantic Asset
Management Partners, L.L.C. relating to Fixed Income
Fund and Balanced Fund
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 Accounts
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 5.3
SUB-ADVISORY AGREEMENT
AQUINAS FIXED INCOME FUND
THIS SUB-ADVISORY AGREEMENT, made this ____ day of _________,
1998, between THE AQUINAS FUNDS, INC., a Maryland corporation (the
"Company"), AQUINAS INVESTMENT ADVISERS, INC., a Texas corporation (the
"Adviser") and ATLANTIC ASSET MANAGEMENT PARTNERS, L.L.C., a limited
liability corporation (the "Portfolio Manager").
W I T N E S S E T H :
The Company is a diversified open-end management investment
company registered as an investment company under the Investment Company
Act of 1940 (the "Act"), and subject to the rules and regulations
promulgated thereunder. The Company's shares of beneficial interest, par
value $.0001 per share, are initially divided into four separate
investment portfolios or funds ("Funds") each with different investment
objectives and policies. Each share of a Fund represents an undivided
interest in the assets, subject to the liabilities, allocated to that
portfolio.
The Adviser acts as the manager and administrator for each
portfolio of the Company pursuant to the terms of a Management and
Advisory Agreement and is an "investment adviser" to the Company as
defined in Section 2(a)(20) of the Act. The Adviser is responsible for
the day-to-day management and overall administration of the Funds and the
coordination of investment of each Fund's assets in portfolio securities.
However, specific portfolio purchases and sales for each Fund's investment
portfolio, or a portion thereof, are to be made by advisory organizations
recommended and selected by the Adviser, subject to the approval of the
Board of Directors of the Company.
WHEREAS, the Adviser and the Company desire to retain the
Portfolio Manager as the investment adviser and portfolio manager for the
Aquinas Fixed Income Fund (the "Fund").
NOW, THEREFORE, the Company, the Adviser and the Portfolio
Manager do mutually promise and agree as follows:
1. Employment. The Adviser being duly authorized hereby
appoints and employs the Portfolio Manager as a discretionary portfolio
manager to the Fund for those assets of the Fund which the Adviser
determines to assign to the Portfolio Manager (those assets being referred
to as the "Fund Account"), for the period and on the terms set forth in
this Agreement. The Portfolio Manager hereby accepts the appointment as a
discretionary portfolio manager and agrees to use its best professional
judgment to make timely investment decisions for the Fund with respect to
the investments of the Fund Account in accordance with the provisions of
this Agreement.
2. Authority of the Portfolio Manager. The Portfolio Manager
shall for all purposes herein be deemed to be an independent contractor
and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Company or the Fund in any way or
otherwise be deemed an agent of the Company or the Fund.
3. Portfolio Management Services of Portfolio Manager.
Portfolio Manager is hereby employed and authorized to select portfolio
securities for investment by the Fund, to purchase and sell securities of
the Fund Account, and upon making any purchase or sale decision, to place
orders for the execution of such portfolio transactions in accordance with
paragraphs 5 and 6 hereof and such operational procedures as may be agreed
to from time to time by the Portfolio Manager and the Company or the
Adviser (the "Operational Procedures"). In providing portfolio management
services to the Fund Account, Portfolio Manager shall be subject to such
investment restrictions as are set forth in the Act and the rules
thereunder, the Internal Revenue Code, applicable state securities laws,
the supervision and control of the Board of Directors of the Company, such
specific instructions as the Board of Directors may adopt and communicate
to Portfolio Manager, the investment objectives, policies and restrictions
of the Fund furnished pursuant to paragraph 4, the provisions of Schedule
A hereto and instructions from the Adviser. Portfolio Manger is not
authorized by the Company to take any action, including the purchase or
sale of securities for the Fund Account, in contravention of any
restriction, limitation, objective, policy or instruction described in the
previous sentence. Portfolio Manager shall maintain on behalf of the Fund
the records listed in Schedule A hereto (as amended from time to time).
At the Company's or the Adviser's reasonable request, Portfolio Manager
will consult with Company or with the Adviser with respect to any decision
made by it with respect to the investments of the Fund Account.
4. Investment Objectives, Policies and Restrictions. The
Company will provide Portfolio Manager with a statement of the investment
objectives, policies and restrictions applicable to the Fund and any
specific investment restrictions applicable to the Fund as established by
the Company, including those set forth in its registration statement under
the Act and the Securities Act of 1933. Company retains the right, on
written notice to Portfolio Manager from Company or Adviser, to modify any
such objectives, policies or restrictions in any manner at any time.
5. Transaction Procedures. All transactions will be
consummated by payment to or delivery by United Bank of Missouri (the
"Custodian"), or such depositories or agents as may be designated by the
Custodian in writing, as custodian for the Fund, of all cash and/or
securities due to or from the Fund Account, and Portfolio Manager shall
not have possession or custody thereof or any responsibility or liability
with respect thereto. Portfolio Manager shall advise Custodian and
confirm in writing to Company and to the Fund's administrator, Sunstone
Financial Group, Inc., or any other designated agent of Company, all
transactions for the Fund Account executed by it with brokers and dealers
at the time and in the manner as set forth in the Operational Procedures.
Portfolio Manager shall issue to the Custodian such instructions as may be
appropriate in connection with the settlement of any transaction initiated
by Portfolio Manager. Company shall be responsible for all custodial
arrangements and the payment of all custodial charges and fees, and, upon
giving proper instructions to the Custodian, Portfolio Manager shall have
no responsibility or liability with respect to custodial arrangements or
the acts, omissions or other conduct of the Custodian, except that it
shall be the responsibility of the Adviser to take appropriate action if
the Custodian fails to confirm in writing proper execution of the
instructions.
6. Proxies. The Company or the Adviser will vote all proxies
solicited by or with respect to the issuers of securities in which assets
of the Fund Account may be invested from time to time. At the request of
Company, Portfolio Manager shall provide Company with its recommendations
as to the voting of such proxies.
7. Compensation of the Portfolio Manager. The compensation of
Portfolio Manager for its services under this Agreement shall be
calculated and paid by Adviser in accordance with the attached Schedule B.
Pursuant to the provisions of the Management and Advisory Agreement
between Company and Adviser, Adviser is solely responsible for the payment
of fees to Portfolio Manager, and Portfolio Manager agrees to seek payment
of its fees solely from Adviser.
8. Other Investment Activities of Portfolio Manager. Company
acknowledges that Portfolio Manager or one or more of its affiliates may
have investment responsibilities or render investment advice to or perform
other investment advisory services for other individuals or entities and
that Portfolio Manager, its affiliates or any of its or their directors,
officers, agents or employees may buy, sell or trade in any securities for
its or their respective accounts ("Affiliated Accounts"). Subject to the
provisions of paragraph 2 hereof, Company agrees that Portfolio Manager or
its affiliates may give advice or exercise investment responsibility and
take such other action with respect to other Affiliated Accounts which may
differ from the advice given or the timing or nature of action taken with
respect to the Fund Account, provided that Portfolio Manager acts in good
faith, and provided further, that it is Portfolio Manager's policy to
allocate, within its reasonable discretion, investment opportunities to
the Fund Account over a period of time on a fair and equitable basis
relative to the Affiliated Accounts, taking into account the investment
objectives and policies of the Fund and any specific investment
restrictions applicable thereto. Company acknowledges that one or more of
the Affiliated Accounts may at any time hold, acquire, increase, decrease,
dispose of or otherwise deal with positions in investments in which the
Fund Account may have an interest from time to time, whether in
transactions which involve the Fund Account or otherwise. Portfolio
Manager shall have no obligation to acquire for the Fund Account a
position in any investment which any Affiliated Account may acquire, and
Company shall have no first refusal, co-investment or other rights in
respect of any such investment, either for the Fund Account or otherwise.
9. Certificate or Authority. Company, Adviser and Portfolio
Manager shall furnish to each other from time to time certified copies of
the resolutions of their Boards of Directors or executive committees, as
the case may be, evidencing the authority of officers and employees who
are authorized to act on behalf of Company, the Fund Account, the
Portfolio Manager and/or Adviser.
10. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of Portfolio Manager, Portfolio Manager shall not be
liable for any act or omission in the course of, or connected with,
rendering services hereunder, or for any losses that may be sustained in
the purchase, holding or sale of any security.
11. Brokerage Commissions. The Adviser, subject to the control
and direction of the Board of Directors of the Company, and the Portfolio
Manager, subject to the control and direction of the Board of Directors of
the Company and the Adviser, shall have authority and discretion to select
brokers and dealers to execute portfolio transactions initiated by the
Portfolio Manager for the Fund and for the selection of the markets on or
in which the transactions will be executed. The Adviser or the Portfolio
Manager may cause the Fund to pay a broker-dealer which provides brokerage
and research services, as such services are defined in Section 28(e) of
the Securities Exchange Act of 1934 (the "Exchange Act"), to the Adviser
or the Portfolio Manager a commission for effecting a securities
transaction in excess of the amount another broker-dealer would have
charged for effecting such transaction, if the Adviser or 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-dealer viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion (as defined in
Section 3(a)(35) of the Exchange Act). The Portfolio Manager shall
provide such reports as the Board of Directors of the Company or the
Adviser may reasonably request with respect to the Fund's total brokerage
and the manner in which that brokerage was allocated.
12. Confidentiality. Subject to the duty of Portfolio Manager
and Company to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction, the parties hereto
shall treat as confidential all information pertaining to the Fund Account
and the actions of Portfolio Manager and Company in respect thereto.
13. Representations, Warranties and Agreements of Company.
Company represents, warrants and agrees that:
A. Portfolio Manager has been duly appointed by the
Board of Directors of Company to provide investment services to
the Fund Account as contemplated hereby.
B. Company will deliver to Portfolio Manager a true
and complete copy of its then current prospectus and statement
of additional information as effective from time to time and
such other documents or instruments governing the investment of
the Fund Account and such other information as is necessary for
Portfolio Manager to carry out its obligations under this
Agreement.
14. Representations, Warranties and Agreements of Portfolio
Manager. Portfolio Manager represents, warrants and agrees that:
A. Portfolio Manager is registered as an "investment
adviser" under the Investment Advisers Act of 1940 ("Advisers
Act"); or is a "bank" as defined in Section 202(a)(2) of the
Advisers Act or an "insurance company" as defined in Section
202(a)(2) of the Advisers Act.
B. Portfolio Manager will maintain, keep current and
preserve on behalf of Company, in the manner required or
permitted by the Act, the records identified in Schedule B.
Portfolio Manager agrees that such records (unless otherwise
indicated on Schedule B) are the property of Company, and will
be surrendered to the Company promptly upon request.
C. Portfolio Manager will complete such reports
concerning purchases or sales of securities on behalf of the
Fund Account as the Adviser or Company may from time to time
require to ensure compliance with the Act, the Internal Revenue
Code and applicable state securities laws.
D. Portfolio Manager will adopt a written code of
ethics complying with the requirements of Rule 17j-1 under the
Act and will provide Company with a copy of the code of ethics
and evidence of its adoption. Upon the written request of
Company, Portfolio Manager shall permit Company, its employees
or its agents to examine the reports required to be made to
Portfolio Manager by Rule 17j-1(c)(1).
E. Portfolio Manager will promptly after filing with
the Securities and Exchange Commission an amendment to its Form
ADV furnish a copy of such amendment to each Company and the
Adviser.
F. Portfolio Manager will immediately notify Company
and the Adviser of the occurrence of any event which would
disqualify Portfolio Manager from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the
Act or otherwise.
15. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the Board of Directors in the manner
required by the Act.
16. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by any party hereto immediately upon
written notice to the others in the event of a breach of any provision
hereof by the party so notified, or otherwise, upon giving thirty (30)
days' written notice to the others, but any such termination shall not
affect the status, obligations or liabilities of any party hereto to the
others. This Agreement shall terminate automatically in the event of its
assignment (as defined in Section 2(a)(4) of the Act). Subject to prior
termination as hereinbefore provided, this Agreement shall continue in
effect for an initial period beginning as of the date hereof and ending
December 31, 1995 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by
the Board of Directors of the Company in the manner required by the Act.
17. Governing Law. This Agreement shall be construed and
interpreted in accordance with the internal laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
THE AQUINAS FUNDS, INC.
(the "Company")
Attest: ________________________ By: _________________________________
Charles Clark Frank Rauscher
Secretary President
AQUINAS INVESTMENT ADVISERS,
INC.
(the "Adviser")
Attest: ________________________ By: ______________________________
Name/Title:_______________________ Name/Title:________________________
ATLANTIC ASSET MANAGEMENT
PARTNERS, L.L.C.
(the "Portfolio Manager")
Attest: ________________________ By: _________________________________
________________________ _________________________________
<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE PORTFOLIO MANAGER
1. (1940 Act Rule 31a-1(b)(5) and (6)). A record of each brokerage
order, and all other portfolio purchases and sales, given by the
Portfolio Manager on behalf of the Fund for, or in connection with,
the purchase or sale of securities, whether executed or unexecuted.
Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications
or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the
Fund.
2. (1940 Act Rule 31a-1(b)(9)). A record for each fiscal quarter,
completed within ten (10) days after the end of the quarter, showing
specifically the basis or bases upon which the allocation of orders
for the purchase and sale of portfolio securities to named brokers or
dealers was effected, and the division of brokerage commissions or
other compensation on such purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) the sale of shares of the Fund by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers
to:
(a) The Fund,
(b) The Adviser,
(c) The Portfolio Manager, and
(d) Any person other than the foregoing.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made
available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the determination
of such allocation and such division of brokerage commissions or
other compensation.
3. (1940 Act Rule 31a-1(b)(10)). A record in the form of an appropriate
memorandum identifying the person or persons, committees or groups
authorizing the purchase or sale of portfolio securities. Where an
authorization is made by a committee or group, a record shall be kept
of the names of its members who participate in the authorization.
There shall be retained as part of this record: any memorandum,
recommendation or instruction supporting or authorizing the purchase
or sale of portfolio securities and such other information as is
appropriate to support the authorization. 1
1 Such information might include: the current Form 10-K,
annual and quarterly reports, press releases, reports by analysts
and from brokerage firms (including their recommendation; i.e.,
buy, sell, hold) or any internal reports or portfolio adviser
reviews).
4. (1940 Act Rule 31a-1(f)). Such accounts, books and other documents
as are required to be maintained by registered investment advisers by
rule adopted under Section 204 of the Investment Advisers Act of
1940, to the extent such records are necessary or appropriate to
record the Portfolio Manager's transactions with respect to the Fund
Account.
SCHEDULE B
FEE SCHEDULE
Commencing September 1, 1997 and ending August 31, 1998 for its
services to the Fund, the Adviser shall pay the Portfolio Manager a fee,
computed daily and paid monthly, at the annual rate of 0.10% of the
average daily net assets of the Fund under the management of the Portfolio
Manager. On or before September 10, 1998 the Adviser shall pay the
Portfolio Manager a fee in an amount equal to (a) the product obtained by
multiplying the average daily net assets of the Fund under the management
of the Portfolio Manager during the twelve month period commencing
September 1, 1997 and ending August 31, 1998 by the Performance Fee Rate
for August, 1998 as determined below, less (b) the sum of all payments
made by the Adviser to the Portfolio Manager pursuant to the first
sentence of this paragraph.
Beginning September 1, 1998, for its services to the Fund, the
Adviser shall pay the Portfolio Manager a fee, computed daily and paid
monthly determined by multiplying the average daily net assets of the Fund
under the management of the Portfolio Manager during the month by 1/12 of
the Performance Fee Rate. The Performance Fee Rate means the rate
determined by applying the formula set forth below; provided, however,
that the Performance Fee Rate may never be lower than 0.10% and may never
be greater than 0.50%.
Performance Fee Rate = 0.30% + [0.20 x (Excess Return -1.20%)]
Excess Return is equal to the Portfolio Manager's Total Return less the
Benchmark Total Return for the twelve month period beginning on the first
day of the eleventh month prior to the month for which the Performance Fee
Rate is calculated and ending on the last day of such month (e.g. the
Performance Fee Rate for September, 1998 is based on total returns for the
period beginning October 1, 1997 and ending September 30, 1998). The
Benchmark Total Return is the total return of the Lehman Brothers
Aggregate Bond Index and the Portfolio Manager's Total Return is the total
return of the assets under the management of the Portfolio Manager. The
Portfolio Manager's Total Return is adjusted on a time-weighted basis for
any assets added to or withdrawn from the assets under the management of
the Portfolio Manager.
The total return for the Lehman Brothers Aggregate Bond Index is
the change in the level of the Lehman Brothers Aggregate Bond Index during
the measuring period. The total return of the assets under the management
of the Portfolio Manager is the change in value of such assets plus any
interest paid or accrued on such assets less brokerage commissions paid on
the acquisition or disposition of such assets during the measuring period.
The value of the assets under the management of the Portfolio Manager
shall be based on the prices used in calculating the Fund's net asset
value.
The Adviser shall pay the fees owed to the Portfolio Manager on
or about the tenth day of the month following the month in which such fees
are earned. The fee shall be pro-rated for any month in which the Sub-
Advisory Agreement is in effect for only a portion of the month.
AMENDED AND RESTATED
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
THIS AGREEMENT is made as of this 20th day of November, 1997, by and
between The Aquinas Funds, Inc., a Maryland corporation ("Aquinas Funds"),
and Sunstone Financial Group, Inc., a Wisconsin corporation (the
"Administrator").
WHEREAS, Aquinas Funds is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment
company and is authorized to issue shares of common stock (the "Shares")
in separate series with each such series representing the interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Aquinas Funds and the Administrator desire to enter into
an agreement pursuant to which the Administrator shall provide
administration and fund accounting services to such investment portfolios
of Aquinas Funds as are listed on Schedule A hereto and any additional
investment portfolios the Aquinas Funds and Administrator may agree upon
and include on Schedule A as such Schedule may be amended from time to
time (such investment portfolios and any additional investment portfolios
are individually referred to as a "Fund" and collectively the "Funds").
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1. Appointment
Aquinas Funds hereby appoints the Administrator as administrator and
fund accountant for the Funds for the period and on the terms set forth in
this Agreement. The Administrator accepts such appointment and agrees to
render the services herein set forth, for the compensation herein
provided.
2. Services as Administrator
(a) Subject to the direction and control of Aquinas Funds' Board of
Directors and utilizing information provided by Aquinas Funds and its
agents, the Administrator will: (1) provide office space, facilities,
equipment and personnel to carry out its services hereunder; (2) compile
data for and prepare with respect to the Funds timely Notices to the
Securities and Exchange Commission (the "Commission") required pursuant to
Rule 24f-2 under the Act and Semi-Annual Reports on Form N-SAR; (3)
prepare for execution by Aquinas Funds and file all federal income and
excise tax returns and state income tax returns (and such other required
tax filings as may be agreed to by the parties) other than those required
to be made by Aquinas Funds' custodian or transfer agent; (4) prepare
compliance filings relating to the registration of the securities of the
Funds pursuant to state securities laws with the advice of Aquinas Funds'
counsel; (5) perform securities valuations; (6) determine the income and
expense accruals of the Funds; (7) calculate daily net asset values and
income factors of the Funds; (8) maintain all general ledger accounts and
related subledgers; (9) prepare financial statements for the Annual and
Semi-Annual Reports required pursuant to Section 30(d) under the Act; (10)
assist to the extent requested by Aquinas Funds with the preparation of
the Registration Statement for the Funds (on Form N-1A or any replacement
therefor) and any amendments thereto, and proxy materials; (11) prepare
and monitor each Fund's expense accruals and cause all appropriate
expenses to be paid from Fund assets on proper authorization from the
Fund; (12) assist in the acquisition of the Funds' fidelity bond required
by the Act, monitor the amount of the bond and make the necessary
Commission filings related thereto; (13) from time to time as the
Administrator deems appropriate, check each Fund's compliance with the
policies and limitations relating to portfolio investments as set forth in
the Prospectus, Statement of Additional Information, and Articles of
Incorporation and monitor each Fund's status as a regulated investment
company under Subchapter M of the Internal Revenue Code, as amended (but
this function shall not relieve each Fund's investment adviser of its
primary day-to-day responsibility for assuring such compliance); (14)
maintain, and/or coordinate with the other service providers the
maintenance of, the accounts, books and other documents required pursuant
to Rule 31a-1(a) and (b) under the Act; and (15) generally assist in each
Fund's administrative operations. The duties of the Administrator shall
be confined to those expressly set forth herein, and no implied duties are
assumed by or may be asserted against the Administrator hereunder.
(b) The Directors of Aquinas Funds shall cause the officers and
employees of Aquinas Funds, the adviser, legal counsel, independent
accountants, custodian and transfer agent and other agents and
representatives of the Funds to cooperate with the Administrator and to
provide the Administrator, upon request, with such information, documents
and advice relating to the Funds as is within the possession or knowledge
of such persons, in order to enable the Administrator to perform its
duties hereunder. In connection with its duties hereunder, the
Administrator shall be entitled to rely, shall not be liable or
responsible for any losses resulting from its reliance, and shall be held
harmless by the Funds when acting in reliance, upon the instruction,
advice, information or any documents relating to the Funds provided to the
Administrator by any of the aforementioned persons or their
representatives. Fees charged by such persons shall be an expense of the
Funds. The Administrator shall be entitled to rely on any document which
it reasonably believes to be genuine and to have been signed or presented
by the proper party. The Administrator shall not be held to have notice
of any change of authority of any officer, agent or employee of Aquinas
Funds until receipt of written notice thereof from Aquinas Funds.
(c) In compliance with the requirements of Rule 31a-3 under the Act,
the Administrator hereby agrees that all records which it maintains for
the Funds are the property of the Funds and further agrees to surrender
promptly to each Fund any of such records upon the Fund's request. The
Administrator further agrees to preserve for the periods prescribed by
Rule 31a-2 under the Act the records described in (a) above which are
maintained by the Administrator for the Fund.
(d) It is understood that in determining security valuations, the
Administrator employs one or more pricing services to determine valuations
of portfolio securities for purposes of calculating net asset values of
the Funds. The Administrator shall identify to the Aquinas Funds and the
Board of Directors any such pricing service utilized on behalf of the
Aquinas Funds. The Administrator is authorized to rely on the prices
provided by such service(s) or by the Funds' investment adviser, sub-
adviser or other authorized representative of the Funds.
(e) The Aquinas Fund's Board of Directors and the Aquinas Funds'
investment adviser and sub-advisers have and retain primary responsibility
for all compliance matters relating to the Funds including but not limited
to compliance with the Investment Company Act of 1940, as amended, the
Internal Revenue Code of 1986, as amended, and the policies and
limitations of each Fund relating to the portfolio investments as set
forth in the Prospectus and Statement of Additional Information.
3. Fees; Delegation; Expenses
(a) In consideration of the services rendered pursuant to this
Agreement, the Aquinas Funds will pay the Administrator a fee, computed
daily and payable monthly, as provided in Schedule B hereto, plus out-of-
pocket expenses. Out-of-pocket expenses include, but are not limited to,
travel, lodging and meals in connection with travel on behalf of the
Aquinas Funds, programming and related expenses (previously incurred or to
be incurred by Administrator) in connection with providing electronic
transmission of data between the Administrator and the Funds' other
service providers, brokers, dealers and depositories, fees and expenses of
pricing services, and photocopying, postage and overnight delivery
expenses. Fees shall be paid by each Fund at a rate that would aggregate
at least the applicable minimum fee for each Fund.
(b) For the purpose of determining fees payable to the
Administrator, net asset values shall be computed in accordance with the
Funds' Prospectuses and resolutions of Aquinas Funds' Board of Directors.
The fee for the period from the day of the month this Agreement is entered
into until the end of that month shall be pro-rated according to the
proportion which such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for
such part of a month shall be pro-rated according to the proportion which
such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement. Such fee as is attributable to
each Fund shall be a separate charge to such Fund and shall be the several
(and not joint or joint and several) obligation of each such Fund.
(c) The Administrator will from time to time employ or associate
itself with such person or persons as the Administrator may believe to be
particularly fitted to assist it in the performance of this Agreement.
Such person or persons may be officers and employees who are employed by
both the Administrator and Aquinas Funds. The compensation of such person
or persons shall be paid by the Administrator and no obligation shall be
incurred on behalf of the Funds in such respect.
(d) The Administrator will bear all expenses in connection with the
performance of its services under this Agreement except as otherwise
provided herein. Other costs and expenses to be incurred in the operation
of the Funds, including, but not limited to: taxes; interest; brokerage
fees and commissions, if any; salaries, fees and expenses of officers and
Directors; Commission fees and state Blue Sky fees; advisory and
administration fees; charges of custodians, transfer agents and dividend
disbursing agents; insurance premiums; outside auditing and legal
expenses; costs of organization and maintenance of corporate existence;
typesetting, proofing, printing and mailing of prospectuses, statements of
additional information, supplements, notices and proxy materials for
regulatory purposes and for distribution to current shareholders;
typesetting, proofing, printing, mailing and other costs of shareholder
reports; expenses incidental to holding meetings of shareholders and
Directors; security pricing services utilized by the Administrator; and
any extraordinary expenses; will be borne by the Funds. Expenses incurred
for distribution of securities of the Funds, including the typesetting,
proofing, printing and mailing of prospectuses for persons who are not
shareholders of the Funds, will be borne by the Funds' investment adviser.
4. Proprietary and Confidential Information
The Administrator agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of Aquinas Funds all
records and other information relative to the Funds and prior, present or
potential shareholders of the Funds (and clients of said shareholders),
and not to use such records and information for any purpose other than the
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by Aquinas Funds, which
approval shall not be unreasonably withheld and may not be withheld where
the Administrator may be exposed to civil or criminal proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by Aquinas Funds.
5. Limitation of Liability
(a) The Administrator shall not be liable for any error of judgment
or mistake of law or for any loss suffered by Aquinas Funds in connection
with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. Notwithstanding any
other provision of this Agreement, and so long as the Administrator acts
in good faith and without negligence, Aquinas Funds shall indemnify and
hold harmless the Administrator from and against any and all actions,
suits, claims, demands, losses, expenses and liabilities (whether with or
without basis in fact or law) of any and every nature which the
Administrator may sustain or incur or which may be asserted against the
Administrator by any person arising directly or indirectly out of any
action taken or omitted to be taken by it in performing the services
hereunder, or in reliance upon the instruction, advice, information or
documents provided to the Administrator by any party described in Section
2 (b). (As used in this Section 5(a), the term "Administrator" shall
include past and present directors, officers, employees and other
corporate agents of the Administrator as well as the corporation itself.)
The indemnity and defense provisions set forth herein shall indefinitely
survive the termination of this Agreement.
(b) Any persons, even though also a director, officer, employee,
shareholder or agent of the Administrator, who may be or become an
officer, employee or agent of Aquinas Funds, shall be deemed, when
rendering services to the Funds or acting on any business of the Funds
(other than services or business in connection with the Administrator's
duties hereunder), to be rendering such services to or acting solely for
the Funds and not as a director, officer, employee, shareholder or agent
of, or one under the control or direction of the Administrator, even
though paid by it.
6. Term
(a) This Agreement shall become effective with respect to each Fund
listed on Schedule A hereof as of the date hereof and, with respect to
each Fund not in existence on that date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed. If not
terminated as provided herein, this Agreement shall continue in effect
with respect to each Fund until December 31, 1998. Thereafter, if not
terminated as provided herein, this Agreement shall continue automatically
in effect as to each Fund for successive annual periods.
(b) This Agreement may be terminated with respect to any one or more
particular Funds without penalty (1) upon mutual consent of the parties or
(2) by either party upon not less than sixty (60) days' written notice to
the other party (which notice may be waived in writing by the party
entitled to notice).
(c) The terms of this Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever except by a
written instrument signed by the Administrator and the Fund.
(d) Notwithstanding anything herein to the contrary, upon the
termination of this Agreement or the liquidation of a Fund or Aquinas
Funds, the Administrator shall deliver the records of the Fund(s) and/or
Aquinas Funds as the case may be to Aquinas Funds or person(s) designated
by Aquinas Funds and thereafter Aquinas Funds or its designee shall be
solely responsible for preserving the records for the periods required by
all applicable laws, rules and regulations. In addition, in the event of
termination of this Agreement, or the proposed liquidation or merger of
Aquinas Funds or a Fund(s), and Aquinas Funds requests the Administrator
to provide services in connection therewith, the Administrator shall
provide such services and be entitled to such compensation as the parties
may mutually agree.
7. Non-Exclusivity
The services of the Administrator rendered hereunder are not deemed to
be exclusive. The Administrator may render such services and any other
services to others, including other investment companies. Aquinas Funds
recognizes that from time to time directors, officers and employees of the
Administrator may serve as directors, trustees, officers and employees of
other corporations or trusts (including other investment companies), that
such other entities may include the name of the Administrator as part of
their name and that the Administrator or its affiliates may enter into
administration, distribution, fund accounting or other agreements with
such other corporations or trusts.
8. Governing Law; Invalidity
This Agreement shall be governed by Wisconsin law. To the extent that
the applicable laws of the State of Wisconsin, or any of the provisions
herein, conflict with the applicable provisions of the Act, the latter
shall control, and nothing herein shall be construed in a manner
inconsistent with the Act or any rule or order of the Commission
thereunder. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
9. Notices
Any notice required or permitted to be given by either party to the
other shall be in writing and shall be deemed to have been given when sent
by registered or certified mail, postage prepaid, return receipt
requested, as follows: Notice to the Administrator shall be sent to
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, WI, 53202, Attention Miriam M. Allison, and notice to Aquinas
Funds shall be sent to The Aquinas Funds, Inc., 5310 Harvest Hill Road,
Suite 248, Dallas, Texas, 75230, Attention Frank Rauscher.
10. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original agreement but such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer as of the day and year first
above written.
THE AQUINAS FUNDS, INC.
("Aquinas Funds")
By: ________________________________
SUNSTONE FINANCIAL GROUP, INC.
("Administrator")
By: _______________________________
President
<PAGE>
Schedule A
to the
Administration and Fund Accounting Agreement
by and between
The Aquinas Funds, Inc.
and
Sunstone Financial Group, Inc.
Name of Funds
Fixed Income Fund
Equity Income Fund
Equity Growth Fund
Balanced Fund
<PAGE>
Schedule B
to the
Administration and Fund Accounting Agreement
by and between
The Aquinas Funds, Inc.
and
Sunstone Financial Group, Inc.
In consideration of the services rendered pursuant to this Agreement,
Aquinas Funds will pay the Administrator 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 of average net assets, 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. Fees shall be paid at a rate that
would aggregate at least the applicable minimum fee.
EXHIBIT 11
ARTHUR ANDERSEN LLP
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 28, 1998
EXHIBIT 14.1
The Aquinas Funds Company Universal Individual Retirement
Account Custodial Agreement
Provisions Applicable to Regular IRAs Provisions
The following provisions of Articles I to VII are in the form
promulgated by the Internal Revenue Service in Form 5305-A for use in
establishing an individual retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of
the Depositor for a tax year of the Depositor. The total cash
contributions are limited to $2,000 for the tax year unless the
contribution is a rollover contribution described in section 402(c) (but
only after December 31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described
in section 408(k). Rollover contributions before January 1, 1993 include
rollovers described in section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4),
403(b)(8) or 408(d)(3) of the Code or an employer contribution to a
simplified employee pension plan as described in section 408(k).
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with
other property except in a common trust fund or common investment fund
(within the meaning of section 408(a)(5) of the Code).
2. No part of the custodial funds may be invested in collectibles
(within the meaning of section 408(m) except as otherwise permitted by
section 408(m)(3) which provides an exception for certain gold and silver
coins and coins issued under the laws of any state.
Article IV.
1. Notwithstanding any provisions of this agreement to the
contrary, the distribution of the Depositor's interest in the custodial
account shall be made in accordance with the following requirements and
shall otherwise comply with section 408(a)(6) and Proposed Regulations
section 1.408-8, including the incidental death benefit provisions of
Proposed Regulations section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions are required
to begin to the Depositor under paragraph 3, or to the surviving spouse
under paragraph 4, other than in the case of a life annuity, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Depositor and the surviving spouse and shall apply
to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. The Depositor's entire interest in the custodial account must
be, or begin to be, distributed by the Depositor's required beginning
date, the April 1 following the calendar year end in which the Depositor
reaches age 70-1/2. By that date, the Depositor may elect, in a manner
acceptable to the Custodian, to have the balance in the custodial account
distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified
period that may not be longer than the Depositor's life
expectancy.
(e) Equal or substantially equal annual payments over a specified
period that may not be longer than the joint life and last
survivor expectancy of the Depositor and his or her designated
beneficiary.
4. If the Depositor dies before his or her entire interest is
distributed to him or her, the entire remaining interest will be
distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest
has begun, the entire remaining interest will, at the election
of the Depositor or, if the Depositor has not so elected, at the
election of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing
the fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments
over the life or life expectancy of the designated
beneficiary or beneficiaries starting by December 31 of the
year following the year of the Depositor's death. If,
however, the beneficiary is the Depositor's surviving
spouse, then this distribution is not required to begin
before December 31 of the year in which the Depositor would
have turned age 70-1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations
has irrevocably commenced, distributions are treated as having
begun on the Depositor's required beginning date, even though
payments may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contribution or rollover
contributions may be accepted in the account.
5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint life
and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and
designated beneficiary as of their birthdays in the year the Depositor
reaches age 70-1/2. In the case of a distribution in accordance with
paragraph 4(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use
the "alternative method" described in Notice 88-38, 1988-1 C.B. 524, to
satisfy the minimum distribution requirements described above. This
method permits an individual to satisfy these requirements by taking from
one individual retirement account the amount required to satisfy the
requirement for another.
Article V.
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under
section 408(i) and Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue
Service and the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through III and this sentence
will be controlling. Any additional articles that are not consistent with
section 408(a) and the related regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be
made with the consent of the persons whose signatures appear on the
Adoption Agreement.
Provisions applicable to Roth IRAs
See Section 25 of Provisions applicable to both Regular IRAs and Roth
IRAs for information about the following provisions of Articles I to VII.
Article I.
The Custodian may accept additional cash contributions on behalf of
the Depositor for a tax year of the Depositor. The total cash
contributions are limited to $2,000 for the tax year unless the
contribution is a rollover contribution which is a qualified rollover
described in Section 408A(c)(6) of the Code.
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with
other property except in a common trust fund or common investment fund
(within the meaning of section 408(a)(5) of the Code).
2. No part of the custodial funds may be invested in collectibles
(within the meaning of section 408(m)) except as otherwise permitted by
section 408(m)(3) which provides an exception for certain coins issued
under specified statutes, coins issued under the laws of any state, and
certain gold, silver, platinum or palladium bullion.
Article IV.
1. Notwithstanding any provisions of this agreement to the
contrary, the distribution of the Depositor's interest in the custodial
account shall be made in accordance with the following requirements and
shall otherwise comply with section 408(a)(6) as modified by
section 408A(c)(5).
2. Unless otherwise elected by the time distributions are required
to begin to the surviving spouse of the Depositor under paragraph 3, other
than in the case of a life annuity to the surviving spouse, life
expectancy of the surviving spouse shall be recalculated annually. Such
election shall be irrevocable as to the surviving spouse and shall apply
to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. If the Depositor dies before his or her entire interest is
distributed to him or her, the entire remaining interest will at the
election of the Depositor or, if the Depositor has not so elected, at the
election of the beneficiary or beneficiaries; either:
(a) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(b) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the
year of the Depositor's death. If, however, the beneficiary is
the Depositor's surviving spouse, then this distribution is not
required to begin before December 31 of the year in which the
Depositor would have turned age 70-1/2.
(c) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover
contributions may be accepted in the account.
4. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the designated beneficiary.
Determine that initial life expectancy using the attained age of the
designated beneficiary as of such beneficiary's birthday in the year
distributions are required to commence.
Article V.
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under
section 408(i) and section 408A(d)(3)(E) and regulations thereunder.
2. The Custodian agrees to submit reports to the Internal Revenue
Service and the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through III and this sentence
will be controlling. Any additional articles that are not consistent with
section 408A and any related regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be
made with the consent of the persons whose signatures appear on the
Adoption Agreement.
<PAGE>
RULES FOR ALL IRAS (REGULAR AND ROTH)
GENERAL INFORMATION
IRA Requirements
All IRAs must meet certain requirements. Contributions generally
must be made in cash. The IRA trustee or custodian must be a bank or
other person who has been approved by the Secretary of the Treasury. Your
contributions may not be invested in life insurance or collectibles or be
commingled with other property except in a common trust or investment
fund. Your interest in the account must be nonforfeitable at all times.
You may obtain further information on IRAs from any district office of the
Internal Revenue Service.
May I Revoke My IRA?
You may revoke a newly established Regular or Roth IRA at any time
within seven days after the date on which you receive this Disclosure
Statement. A Regular or Roth IRA established more than seven days after
the date of your receipt of this Disclosure Statement may not be revoked.
To revoke your Regular or Roth IRA, mail or deliver a written notice
of revocation to the Custodian at the address which appears at the end of
this Disclosure Statement. Mailed notice will be deemed given on the date
that it is postmarked (or, if sent by certified or registered mail, on the
date of certification or registration). If you revoke your Regular or
Roth IRA within the seven-day period, you are entitled to a return of the
entire amount you originally contributed into your Regular or Roth IRA,
without adjustment for such items as sales charges, administrative
expenses or fluctuations in market value.
INVESTMENTS
How Are My IRA Contributions Invested?
You control the investment and reinvestment of contributions to your
Regular or Roth IRA. Investments must be in one or more of the Fund(s)
available from time to time as listed in the Adoption Agreement for your
Regular or Roth IRA or in an investment selection form provided with your
Adoption Agreement or from the Fund Distributor or Service Company. You
direct the investment of your IRA by giving your investment instructions
to the Distributor or Service Company for the Fund(s). Since you control
the investment of your Regular or Roth IRA, you are responsible for any
losses; neither the Custodian, the Distributor nor the Service Company has
any responsibility for any loss or diminution in value occasioned by your
exercise of investment control. Transactions for your Regular or Roth IRA
will generally be at the applicable public offering price or net asset
value for shares of the Fund(s) involved next established after the
Distributor or the Service Company (whichever may apply) receives proper
investment instructions from you; consult the current prospectus for the
Fund(s) involved for additional information.
Before making any investment, read carefully the current prospectus
for any Fund you are considering as an investment for your Regular IRA or
Roth IRA. The prospectus will contain information about the Fund's
investment objectives and policies, as well as any minimum initial
investment or minimum balance requirements and any sales, redemption or
other charges.
Because you control the selection of investments for your Regular or
Roth IRA and because mutual fund shares fluctuate in value, the growth in
value of your Regular or Roth IRA cannot be guaranteed or projected.
Are There Any Restrictions on the Use of my IRA Assets?
The tax-exempt status of your Regular or Roth IRA will be revoked if
you engage in any of the prohibited transactions listed in Section 4975 of
the tax code. Upon such revocation, your Regular or Roth IRA is treated
as distributing its assets to you. The taxable portion of the amount in
your IRA will be subject to income tax (unless, in the case of a Roth IRA,
the requirements for a tax-free withdrawal are satisfied). Also, you may
be subject to a 10% penalty tax on the taxable amount as a premature
withdrawal if you have not yet reached the age of 59-1/2.
Any investment in a collectible (for example, rare stamps) by your
Regular or Roth IRA is treated as a withdrawal; the only exception
involves certain types of government-sponsored coins or certain types of
precious metal bullion.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets
in your Regular or Roth IRA. Some examples of prohibited transactions
are:
- Direct or indirect sale or exchange of property between you and
your Regular or Roth IRA.
- Transfer of any property from your Regular or Roth IRA to
yourself or from yourself to your Regular or Roth IRA.
Your Regular or Roth IRA could lose its tax exempt status if you use
all or part of your interest in your Regular or Roth IRA as security for a
loan or borrow any money from your Regular or Roth IRA. Any portion of
your Regular or Roth IRA used as security for a loan will be treated as a
distribution in the year in which the money is borrowed. This amount may
be taxable and you may also be subject to the 10% premature withdrawal
penalty on the taxable amount.
FEES AND EXPENSES
Custodian's Fees
The fees charged by the Custodian for maintaining either a Regular
IRA or a Roth IRA are listed in the Adoption Agreement.
General Fee Policies
- Fees may be paid by you directly, or the Custodian may deduct them
from your Regular or Roth IRA.
- Fees may be changed upon 30 days written notice to you.
- The full annual maintenance fee will be charged for any calendar year
during which you have a Regular or Roth IRA with us. This fee is not
prorated for periods of less than one full year.
- If provided for in this Disclosure Statement or the Adoption
Agreement, termination fees are charged when your account is closed
whether the funds are distributed to you or transferred to a
successor custodian or trustee.
- The Custodian may charge you for its reasonable expenses for services
not covered by its fee schedule.
Other Charges
- There may be sales or other charges associated with the purchase or
redemption of shares of a Fund in which your Regular IRA or Roth IRA
is invested. Before investing, be sure to read carefully the current
prospectus of any Fund you are considering as an investment for your
Regular IRA or Roth IRA for a description of applicable charges.
TAX MATTERS
What IRA Reports does the Custodian Issue?
The Custodian will report all withdrawals to the IRS and the
recipient on the appropriate form. For reporting purposes, a direct
transfer of assets to a successor custodian or trustee is not considered a
withdrawal.
The Custodian will report to the IRS the year-end value of your
account and the amount of any rollover (including conversions of a Regular
IRA to a Roth IRA) or regular contribution made during a calendar year, as
well as the tax year for which a contribution is made. Unless the
Custodian receives an indication from you to the contrary, it will treat
any amount as a contribution for the tax year in which it is received. It
is most important that a contribution between January and April 15th for
the prior year be clearly designated as such.
What Tax Information Must I Report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which
you made an excess contribution or you take a premature withdrawal that is
subject to the 10% penalty tax, or you withdraw less than the minimum
amount required from your Regular IRA. If your beneficiary fails to make
required minimum withdrawals from your Regular or Roth IRA after your
death, your beneficiary may be subject to an excise tax and be required to
file Form 5329.
For Regular IRAs, you must also report each nondeductible
contribution to the IRS by designating it a nondeductible contribution on
your tax return. Use Form 8606. In addition, for any year in which you
make a nondeductible contribution or take a withdrawal, you must include
additional information on your tax return. The information required
includes: (1) the amount of your nondeductible contributions for that
year; (2) the amount of withdrawals from Regular IRAs in that year; (3)
the amount by which your total nondeductible contributions for all the
years exceed the total amount of your distributions previously excluded
from gross income; and (4) the total value of all your Regular IRAs as of
the end of the year. If you fail to report any of this information, the
IRS will assume that all your contributions were deductible. This will
result in the taxation of the portion of your withdrawals that should be
treated as a nontaxable return of your nondeductible contributions.
Which Withdrawals Are Subject to Withholding?
Roth IRA
Federal income tax will be withheld at a flat rate of 10% of any
taxable withdrawal from your Roth IRA, unless you elect not to have tax
withheld. Withdrawals from a Roth IRA are not subject to the mandatory
20% income tax withholding that applies to most distributions from
qualified plans or 403(b) accounts that are not directly rolled over to
another plan or IRA.
Regular IRA
Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your Regular IRA, unless you elect not to have tax
withheld. Withdrawals from a Regular IRA are not subject to the mandatory
20% income tax withholding that applies to most distributions from
qualified plans or 403(b) accounts that are not directly rolled over to
another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Regular IRA or Roth IRA at any time after its
establishment by sending a completed withdrawal form, or a transfer
authorization form, to:
The Aquinas Funds
P.O. Box 419533
Kansas City, MO 64141-6533
Your Regular IRA or Roth IRA with The Aquinas Funds will terminate
upon the first to occur of the following:
- The date your properly executed withdrawal form (as described
above) withdrawing your total Regular IRA or Roth IRA balance is
received and accepted by the Custodian or, if later, the termination
date specified in the withdrawal form.
- The date the Regular IRA or Roth IRA ceases to qualify under the
tax code. This will be deemed a termination.
- The transfer of the Regular IRA or Roth IRA to another
custodian/trustee.
- The rollover of the amounts in the Regular IRA or Roth IRA to
another custodian/trustee.
Any outstanding fees must be received prior to such a termination of
your account.
The amount you receive from your IRA upon termination of the account
will be treated as a withdrawal, and thus the rules relating to Regular
IRA or Roth IRA withdrawals will apply. For example, if the IRA is
terminated before you reach age 59-1/2, the 10% early withdrawal penalty
may apply to the taxable amount you receive.
IRA DOCUMENTS
Regular IRA
The terms contained in Articles I to VII of Part One of the The
Aquinas Funds Company Universal Individual Retirement Custodial Account
document have been promulgated by the IRS in Form 5305-A for use in
establishing a Regular IRA Custodial Account that meets the requirements
of Code Section 408(a) for a valid Regular IRA. This IRS approval relates
only to the form of Articles I to VII and is not an approval of the merits
of the Regular IRA or of any investment permitted by the Regular IRA.
Roth IRA
The terms contained in Articles I through VII of The Aquinas Funds
Company Universal Individual Retirement Account Custodial Agreement
provisions applicable to Roth IRAs have not been promulgated or approved
by the IRS. It is expected that, if the IRS issues a model form for
establishing a Roth IRA, the Custodian will adopt the provisions of such
model form as an amendment to such provision.
Based on our legal advice, The Aquinas Funds believes that the use of
a Universal Individual Retirement Account Information Kit such as this,
containing information and documents for both a Regular IRA or a Roth IRA,
will be acceptable. However, if the IRS makes a ruling, or if Congress
enacts legislation, disallowing the use of a "combined" approach such as
this, The Aquinas Funds will forward to you a Regular IRA or a Roth IRA
Kit (as appropriate) for you to read and, if necessary, an appropriate new
Adoption Agreement to sign. By adopting a Regular IRA or a Roth IRA using
these materials, you acknowledge this possibility and agree to this
procedure if necessary. In all cases, to the extent permitted, The
Aquinas Funds will treat your IRA as being opened on the date your account
was opened using the Adoption Agreement in this Kit.
ADDITIONAL INFORMATION
For additional information you may write to the following address or
call the following telephone number.
P.O. Box 419533, Kansas City, MO 64141-6533 and
1-800-423-6369
<PAGE>
Provisions applicable to both Regular IRAs and Roth IRAs
Article VIII.
1. As used in this Article VIII the following terms have the
following meanings:
"Account" or "Custodial Account" means the individual retirement
account established using the terms of either Part One or Part Two and, in
either event, Part Three of this The Aquinas Funds Company Universal
Individual Retirement Account Custodial Agreement and the Adoption
Agreement signed by the Depositor. The Account may be a Regular
Individual Retirement Account or a Roth Individual Retirement Account, as
specified by the Depositor. See Section 24 below.
"Custodian" means The Aquinas Funds Company.
"Fund" means any registered investment company which is advised,
sponsored or distributed by Sponsor; provided, however, that such a mutual
fund or registered investment company must be legally offered for sale in
the state of the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s)
to serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned
hereunder to the Distributor may be performed by the Fund(s) or by an
entity that has a contract to perform management or investment advisory
services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform
various administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if
any) or by an entity specified in the second preceding paragraph.
"Sponsor" means [insert fund management company or other fund entity
that is making Fund(s) available under this Agreement and has the power to
appoint a successor Custodian].
2. The Depositor may revoke the Custodial Account established
hereunder by mailing or delivering a written notice of revocation to the
Custodian within seven days after the Depositor receives the Disclosure
Statement related to the Custodial Account. Mailed notice is treated as
given to the Custodian on date of the postmark (or on the date of Post
Office certification or registration in the case of notice sent by
certified or registered mail). Upon timely revocation, the Depositor's
initial contribution will be returned, without adjustment for
administrative expenses, commissions or sales charges, fluctuations in
market value or other changes.
The Depositor may certify in the Adoption Agreement that the
Depositor received the Disclosure Statement related to the Custodial
Account at least seven days before the Depositor signed the Adoption
Agreement to establish the Custodial Account, and the Custodian may rely
upon such certification.
3. All contributions to the Custodial Account shall be invested and
reinvested in full and fractional shares of one or more Funds. Such
investments shall be made in such proportions and/or in such amounts as
Depositor from time to time in the Adoption Agreement or by other written
notice to the Service Company (in such form as may be acceptable to the
Service Company) may direct.
The Service Company shall be responsible for promptly transmitting
all investment directions by the Depositor for the purchase or sale of
shares of one or more Funds hereunder to the Funds' transfer agent for
execution. However, if investment directions with respect to the
investment of any contribution hereunder are not received from the
Depositor as required or, if received, are unclear or incomplete in the
opinion of the Service Company, the contribution will be returned to the
Depositor, or will be held uninvested (or invested in a money market fund
if available) pending clarification or completion by the Depositor, in
either case without liability for interest or for loss of income or
appreciation. If any other directions or other orders by the Depositor
with respect to the sale or purchase of shares of one or more Funds for
the Custodial Account are unclear or incomplete in the opinion of the
Service Company, the Service Company will refrain from carrying out such
investment directions or from executing any such sale or purchase, without
liability for loss of income or for appreciation or depreciation of any
asset, pending receipt of clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum
initial or additional investment or minimum balance rules applicable to a
Fund as described in its prospectus.
All dividends and capital gains or other distributions received on
the shares of any Fund held in the Depositor's Account shall be (unless
received in additional shares) reinvested in full and fractional shares of
such Fund (or of any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum
balance and other exchange rules applicable to a Fund, the Depositor may
at any time direct the Service Company to exchange all or a specified
portion of the shares of a Fund in the Depositor's Account for shares and
fractional shares of one or more other Funds. The Depositor shall give
such directions by written notice acceptable to the Service Company, and
the Service Company will process such directions as soon as practicable
after receipt thereof (subject to the second paragraph of Section 3 of
this Article VIII).
5. Any purchase or redemption of shares of a Fund for or from the
Depositor's Account will be effected at the public offering price or net
asset value of such Fund (as described in the then effective prospectus
for such Fund) next established after the Service Company has transmitted
the Depositor's investment directions to the transfer agent for the
Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund
for or from the Depositor's Account will be subject to any applicable
sales, redemption or other charge as described in the then effective
prospectus for such Fund.
6. The Service Company shall maintain adequate records of all
purchases or sales of shares of one or more Funds for the Depositor's
Custodial Account. Any account maintained in connection herewith shall be
in the name of the Custodian for the benefit of the Depositor. All assets
of the Custodial Account shall be registered in the name of the Custodian
or of a suitable nominee. The books and records of the Custodian shall
show that all such investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate
records reflecting transactions of the Custodial Account. In the
discretion of the Custodian, records maintained by the Service Company
with respect to the Account hereunder will be deemed to satisfy the
Custodian's recordkeeping responsibilities therefor. The Service Company
agrees to furnish the Custodian with any information the Custodian
requires to carry out the Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to
the Custodial Account will have any responsibility for rendering advice
with respect to the investment and reinvestment of Depositor's Custodial
Account, nor shall such parties be liable for any loss or diminution in
value which results from Depositor's exercise of investment control over
his Custodial Account. Depositor shall have and exercise exclusive
responsibility for and control over the investment of the assets of his
Custodial Account, and neither Custodian nor any other such party shall
have any duty to question his directions in that regard or to advise him
regarding the purchase, retention or sale of shares of one or more Funds
for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with
respect to the Custodial Account on a form acceptable to the Custodian and
the Service Company. The investment advisor's appointment will be in
effect until written notice to the contrary is received by the Custodian
and the Service Company. While an investment advisor's appointment is in
effect, the investment advisor may issue investment directions or may
issue orders for the sale or purchase of shares of one or more Funds to
the Service Company, and the Service Company will be fully protected in
carrying out such investment directions or orders to the same extent as if
they had been given by the Depositor.
The Depositor's appointment of any investment advisor will also be
deemed to be instructions to the Custodian and the Service Company to pay
such investment advisor's fees to the investment advisor from the
Custodial Account hereunder without additional authorization by the
Depositor or the Custodian.
9. Distribution of the assets of the Custodial Account shall be
made at such time and in such form as Depositor (or the Beneficiary if
Depositor is deceased) shall elect by written order to the Custodian.
Depositor acknowledges that any distribution of a taxable amount from the
Custodial Account (except for distribution on account of Depositor's
disability or death, return of an "excess contribution" referred to in
Code Section 4973, or a "rollover" from this Custodial Account) made
earlier than age 59-1/2 may subject Depositor to an "additional tax on
early distributions" under Code Section 72(t) unless an exception to such
additional tax is applicable. For that purpose, Depositor will be
considered disabled if Depositor can prove, as provided in Code Section
72(m)(7), that Depositor is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or be of long-
continued and indefinite duration. It is the responsibility of the
Depositor (or the Beneficiary) by appropriate distribution instructions to
the Custodian to insure that any applicable distribution requirements of
Code Section 401(a)(9) and Article IV above are met. If the Depositor (or
Beneficiary) does not direct the Custodian to make distributions from the
Custodial Account by the time that such distributions are required to
commence in accordance with such distribution requirements, the Custodian
(and Service Company) shall assume that the Depositor (or Beneficiary) is
meeting the minimum distribution requirements from another individual
retirement arrangement maintained by the Depositor (or Beneficiary) and
the Custodian and Service Company shall be fully protected in so doing.
The Depositor (or the Depositor's surviving spouse) may elect to comply
with the distribution requirements in Article IV using the recalculation
of life expectancy method, or may elect that the life expectancy of the
Depositor and/or the Depositor's surviving spouse, as applicable, will not
be recalculated; any such election may be in such form as the Depositor
(or surviving spouse) provides (including the calculation of minimum
distribution amounts in accordance with a method that does not provide for
recalculation of the life expectancy of one or both of the Depositor and
surviving spouse and instructions for withdrawals to the Custodian in
accordance with such method). Notwithstanding paragraph 2 of Article IV,
unless an election to have life expectancies recalculated annually is made
by the time distributions are required to begin, life expectancies shall
not be recalculated. Neither the Custodian nor any other party providing
services to the Custodial Account assumes any responsibility for the tax
treatment of any distribution from the Custodial Account; such
responsibility rests solely with the person ordering the distribution.
10. The Custodian assumes (and shall have) no responsibility to make
any distribution except upon the written order of Depositor (or
Beneficiary if Depositor is deceased) containing such information as the
Custodian may reasonably request. Also, before making any distribution or
honoring any assignment of the Custodial Account, Custodian shall be
furnished with any and all applications, certificates, tax waivers,
signature guarantees and other documents (including proof of any legal
representative's authority) deemed necessary or advisable by Custodian,
but Custodian shall not be responsible for complying with any order or
instruction which appears on its face to be genuine, or for refusing to
comply if not satisfied it is genuine, and Custodian has no duty of
further inquiry. Any distributions from the Account may be mailed, first-
class postage prepaid, to the last known address of the person who is to
receive such distribution, as shown on the Custodian's records, and such
distribution shall to the extent thereof completely discharge the
Custodian's liability for such payment.
11. (a) The term "Beneficiary" means the person or persons
designated as such by the "designating person" (as defined
below) on a form acceptable to the Custodian for use in
connection with the Custodial Account, signed by the
designating person, and filed with the Custodian. The form
may name individuals, trusts, estates, or other entities as
either primary or contingent beneficiaries. However, if
the designation does not effectively dispose of the entire
Custodial Account as of the time distribution is to
commence, the term "Beneficiary" shall then mean the
designating person's estate with respect to the assets of
the Custodial Account not disposed of by the designation
form. The form last accepted by the Custodian before such
distribution is to commence, provided it was received by
the Custodian (or deposited in the U.S. Mail or with a
reputable delivery service) during the designating person's
lifetime, shall be controlling and, whether or not fully
dispositive of the Custodial Account, thereupon shall
revoke all such forms previously filed by that person. The
term "designating person" means Depositor during his/her
lifetime; after Depositor's death, it also means
Depositor's spouse, but only if the spouse elects to treat
the Custodial Account as the spouse's own Custodial Account
in accordance with applicable provisions of the Code.
(b) When and after distributions from the Custodial Account to
Depositor's Beneficiary commence, all rights and
obligations assigned to Depositor hereunder shall inure to,
and be enjoyed and exercised by, Beneficiary instead of
Depositor.
12. (a) The Depositor agrees to provide information to the
Custodian at such time and in such manner as may be
necessary for the Custodian to prepare any reports required
under Section 408(i) or Section 408A(d)(3)(E) of the Code
and the regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to
the Internal Revenue Service and the Depositor at such time
and manner and containing such information as is prescribed
by the Internal Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish
to each other such information relevant to the Custodial
Account as may be required under the Code any regulations
issued or forms adopted by the Treasury Department
thereunder or as may otherwise be necessary for the
administration of the Custodial Account.
(d) The Depositor shall file any reports to the Internal
Revenue Service which are required of him by law (including
Form 5329), and neither the Custodian nor Service Company
shall have any duty to advise Depositor concerning or
monitor Depositor's compliance with such requirement.
13. (a) Depositor retains the right to amend this Custodial Account
document in any respect at any time, effective on a stated
date which shall be at least 60 days after giving written
notice of the amendments (including its exact terms) to
Custodian by registered or certified mail, unless Custodian
waives notice as to such amendment. If the Custodian does
not wish to continue serving as such under this Custodial
Account document as so amended, it may resign in accordance
with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right
so to amend, provided (i) the Custodian does not change the
investments available under this Custodial Agreement and
(ii) the Custodian amends in the same manner all agreements
comparable to this one, having the same Custodian,
permitting comparable investments, and under which such
power has been delegated to it; this includes the power to
amend retroactively if necessary or appropriate in the
opinion of the Custodian in order to conform this Custodial
Account to pertinent provisions of the Code and other laws
or successor provisions of law, or to obtain a governmental
ruling that such requirements are met, to adopt a prototype
or master form of agreement in substitution for this
Agreement, or as otherwise may be advisable in the opinion
of the Custodian. Such an amendment by the Custodian shall
be communicated in writing to Depositor, and Depositor
shall be deemed to have consented thereto unless, within 30
days after such communication to Depositor is mailed,
Depositor either (i) gives Custodian a written order for a
complete distribution or transfer of the Custodial Account,
or (ii) removes the Custodian and appoints a successor
under Section 17 below.
Pending the adoption of any amendment necessary or
desirable to conform this Custodial Account document to the
requirements of any amendment to any applicable provision
of the Internal Revenue Code or regulations or rulings
thereunder, the Custodian and the Service Company may
operate the Depositor's Custodial Account in accordance
with such requirements to the extent that the Custodian
and/or the Service Company deem necessary to preserve the
tax benefits of the Account.
(c) Notwithstanding the provisions of subsections (a) and (b)
above, no amendment shall increase the responsibilities or
duties of Custodian without its prior written consent.
(d) This Section 13 shall not be construed to restrict the
Custodian's right to substitute fee schedules in the manner
provided by Section 16 below, and no such substitution
shall be deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this
Agreement is terminated or if, within 30 days (or such
longer time as Custodian may agree) after resignation or
removal of Custodian under Section 17, Depositor or
Sponsor, as the case may be, has not appointed a successor
which has accepted such appointment. Termination of the
Custodial Account shall be effected by distributing all
assets thereof in a single payment in cash or in kind to
Depositor, subject to Custodian's right to reserve funds as
provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial
account document shall have no further force and effect
(except for Sections 15(f), 17(b) and (c) hereof which
shall survive the termination of the Custodial Account and
this document), and Custodian shall be relieved from all
further liability hereunder or with respect to the
Custodial Account and all assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more
contractors or service providers to carry out any of its
functions and may compensate them from the Custodial
Account for expenses attendant to those functions. In the
event of such appointment, all rights and privileges of the
Custodian under this Agreement shall pass through to such
contractors or service providers who shall be entitled to
enforce them as if a named party.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor
and for dealing with or forwarding the same to the transfer
agent for the Fund(s).
(c) The parties do not intend to confer any fiduciary duties on
Custodian or Service Company (or any other party providing
services to the Custodial Account), and none shall be
implied. Neither shall be liable (or assumes any
responsibility) for the collection of contributions, the
proper amount, time or tax treatment of any contribution to
the Custodial Account or the propriety of any contributions
under this Agreement, or the purpose, time, amount
(including any minimum distribution amounts), tax treatment
or propriety of any distribution hereunder, which matters
are the sole responsibility of Depositor and Depositor's
Beneficiary.
(d) Not later than 60 days after the close of each calendar
year (or after the Custodian's resignation or removal), the
Custodian or Service Company shall file with Depositor a
written report or reports reflecting the transactions
effected by it during such period and the assets of the
Custodial Account at its close. Upon the expiration of 60
days after such a report is sent to Depositor (or
Beneficiary), the Custodian or Service Company shall be
forever released and discharged from all liability and
accountability to anyone with respect to transactions shown
in or reflected by such report except with respect to any
such acts or transactions as to which Depositor shall have
filed written objections with the Custodian or Service
Company within such 60 day period.
(e) The Service Company shall deliver, or cause to be
delivered, to Depositor all notices, prospectuses,
financial statements and other reports to shareholders,
proxies and proxy soliciting materials relating to the
shares of the Fund(s) credited to the Custodial Account.
No shares shall be voted, and no other action shall be
taken pursuant to such documents, except upon receipt of
adequate written instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company,
Distributor, the Fund(s), Sponsor and Custodian and save
them harmless from any and all liability whatsoever which
may arise either (i) in connection with this Agreement and
the matters which it contemplates, except that which arises
directly out of the Service Company's, Distributor's,
Fund's, Sponsor's or Custodian's bad faith, gross
negligence or willful misconduct, (ii) with respect to
making or failing to make any distribution, other than for
failure to make distribution in accordance with an order
therefor which is in full compliance with Section 10, or
(iii) actions taken or omitted in good faith by such
parties. Neither Service Company nor Custodian shall be
obligated or expected to commence or defend any legal
action or proceeding in connection with this Agreement or
such matters unless agreed upon by that party and
Depositor, and unless fully indemnified for so doing to
that party's satisfaction.
(g) The Custodian and Service Company shall each be responsible
solely for performance of those duties expressly assigned
to it in this Agreement, and neither assumes any
responsibility as to duties assigned to anyone else
hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively
rely upon and shall be protected in acting upon any written
order from Depositor or Beneficiary, or any investment
advisor appointed under Section 8, or any other notice,
request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly
executed, and so long as it acts in good faith, in taking
or omitting to take any other action in reliance thereon.
In addition, Custodian will carry out the requirements of
any apparently valid court order relating to the Custodial
Account and will incur no liability or responsibility for
so doing.
16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the
applicable fee schedule. The fee schedule originally
applicable shall be the one specified in the Adoption
Agreement or Disclosure Statement, as applicable. The
Custodian may substitute a different fee schedule at any
time upon 30 days' written notice to Depositor. The
Custodian shall also receive reasonable fees for any
services not contemplated by any applicable fee schedule
and either deemed by it to be necessary or desirable or
requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other
taxes of any kind whatsoever, including transfer taxes
incurred in connection with the investment or reinvestment
of the assets of the Custodial Account, that may be levied
or assessed in respect to such assets, and all other
administrative expenses incurred by the Custodian in the
performance of its duties (including fees for legal
services rendered to it in connection with the Custodial
Account) shall be charged to the Custodial Account. If the
Custodian is required to pay any such amount, the Depositor
(or Beneficiary) shall promptly upon notice thereof
reimburse the Custodian.
(c) All such fees and taxes and other administrative expenses
charged to the Custodial Account shall be collected either
from the amount of any contribution or distribution to or
from the Account, or (at the option of the person entitled
to collect such amounts) to the extent possible under the
circumstances by the conversion into cash of sufficient
shares of one or more Funds held in the Custodial Account
(without liability for any loss incurred thereby).
Notwithstanding the foregoing, the Custodian or Service
Company may make demand upon the Depositor for payment of
the amount of such fees, taxes and other administrative
expenses. Fees which remain outstanding after 60 days may
be subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian,
Depositor or Sponsor, as the case may be, may remove it
from its office hereunder. Such notice, to be effective,
shall designate a successor custodian and shall be
accompanied by the successor's written acceptance. The
Custodian also may at any time resign upon 30 days' prior
written notice to Sponsor, whereupon the Sponsor shall
notify the Depositor (or Beneficiary) and shall appoint a
successor to the Custodian. In connection with its
resignation hereunder, the Custodian may, but is not
required to, designate a successor custodian by written
notice to the Sponsor or Depositor (or Beneficiary), and
the Sponsor or Depositor (or Beneficiary) will be deemed to
have consented to such successor unless the Sponsor or
Depositor (or Beneficiary) designates a different successor
custodian and provides written notice thereof together with
such a different successor's written acceptance by such
date as the Custodian specifies in its original notice to
the Sponsor or Depositor (or Beneficiary) (provided that
the Sponsor or Depositor (or Beneficiary) will have a
minimum of 30 days to designate a different successor).
(b) The successor custodian shall be a bank, insured credit
union, or other person satisfactory to the Secretary of the
Treasury under Code Section 408(a)(2). Upon receipt by
Custodian of written acceptance by its successor of such
successor's appointment, Custodian shall transfer and pay
over to such successor the assets of the Custodial Account
and all records (or copies thereof) of Custodian pertaining
thereto, provided that the successor custodian agrees not
to dispose of any such records without the Custodian's
consent. Custodian is authorized, however, to reserve such
sum of money or property as it may deem advisable for
payment of all its fees, compensation, costs, and expenses,
or for payment of any other liabilities constituting a
charge on or against the assets of the Custodial Account or
on or against the Custodian, with any balance of such
reserve remaining after the payment of all such items to be
paid over to the successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions
of its predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and
sections thereof shall mean the same as amended from time to time,
including successors to such sections.
19. Except where otherwise specifically required in this Agreement,
any notice from Custodian to any person provided for in this Agreement
shall be effective if sent by first-class mail to such person at that
person's last address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or
power to anticipate any part of the Custodial Account or to sell, assign,
transfer, pledge or hypothecate any part thereof. The Custodial Account
shall not be liable for the debts of Depositor or Depositor's Beneficiary
or subject to any seizure, attachment, execution or other legal process in
respect thereof except to the extent required by law. At no time shall it
be possible for any part of the assets of the Custodial Account to be used
for or diverted to purposes other than for the exclusive benefit of the
Depositor or his/her Beneficiary except to the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in
and shall be construed and administered in accordance with the laws of the
state where the principal offices of the Custodian are located. Any
action involving the Custodian brought by any other party must be brought
in a state or federal court in such state.
If in the Adoption Agreement, Depositor designates that the Custodial
Account is a Regular IRA, this Agreement is intended to qualify under Code
Section 408(a) as an individual retirement Custodial Account and to
entitle Depositor to the retirement savings deduction under Code Section
219 if available. If in the Adoption Agreement Depositor designates that
the Custodial Account is a Roth IRA, this Agreement is intended to qualify
under Code Section 408A as a Roth individual retirement Custodial Account
and to entitle Depositor to the tax-free withdrawal of amounts from the
Custodial Account to the extent permitted in such Code section.
If any provision hereof is subject to more than one interpretation or
any term used herein is subject to more than one construction, such
ambiguity shall be resolved in favor of that interpretation or
construction which is consistent with the intent expressed in whichever of
the two preceding sentences is applicable.
However, the Custodian shall not be responsible for whether or not
such intentions are achieved through use of this Agreement, and Depositor
is referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding
the legal consequences (including but not limited to federal and state tax
matters) of entering into this Agreement, contributing to the Custodial
Account, and ordering Custodian to make distributions from the Account.
Depositor acknowledges that Custodian and Service Company (and any company
associated therewith) are prohibited by law from rendering such advice.
23. If any provision of any document governing the Custodial Account
provides for notice, instructions or other communications from one party
to another in writing, to the extent provided for in the procedures of the
Custodian, Service Company or another party, any such notice, instructions
or other communications may be given by telephonic, computer, other
electronic or other means, and the requirement for written notice will be
deemed satisfied.
24. The legal documents governing the Custodial Account are as
follows:
(a) If in the Adoption Agreement the Depositor designated the
Custodial Account as a Regular IRA under Code Section
408(a), the provisions of Part One and Part Three of this
Agreement and the provisions of the Adoption Agreement are
the legal documents governing the Depositor's Custodial
Account.
(b) If in the Adoption Agreement the Depositor designated the
Custodial Account as a Roth IRA under Code Section 408A,
the provisions of Part Two and Part Three of this Agreement
and the provisions of the Adoption Agreement are the legal
documents governing the Depositor's Custodial Account.
25. Articles I through VII of Part One of this Agreement are in the
form promulgated by the Internal Revenue Service as Form 5305-A. It is
anticipated that, if and when the Internal Revenue Service promulgates
changes to Form 5305-A, the Custodian will amend this Agreement
correspondingly.
Articles I through VII of Part Two of this Agreement have not been
promulgated or approved by the Internal Revenue Service. It is
anticipated that, if and when the Internal Revenue Service promulgates a
model form to establish a Roth IRA Custodial Account, the Custodian will
amend this Agreement to substitute the provisions of such model Roth IRA
Custodial Account form for the provisions of Part Two of this Agreement,
and the Depositor specifically consents to such amendment in accordance
with Section 13(b) hereof.
If, due to changes in the applicable tax laws, or ruling of the
Internal Revenue Service, it is established that the use of the Adoption
Agreement or this Agreement do not establish a Regular IRA or a Roth IRA
(as the case may be), the Custodian will furnish the Depositor with
replacement documents and the Depositor will if necessary sign such
replacement documents. Depositor acknowledge and agrees to such
procedures and to cooperate with Custodian to preserve the intended tax
treatment of the Account.
26. If the Depositor maintains an Individual Retirement Account
under Code section 408(a), Depositor may convert or transfer such other
IRA to a Roth IRA under Code section 408A using the terms of this
Agreement and the Adoption Agreement by completing and executing the
Adoption Agreement and giving suitable directions to the Custodian and the
custodian or trustee of such other IRA. Alternatively, the Depositor may
convert or transfer such other IRA to a Roth IRA by use of a replay card
or by telephonic, computer or electronic means in accordance with
procedures adopted by the Custodian or Service Company intended to meet
the requirements of Code section 408A, and the Depositor will be deemed to
have executed the Adoption Agreement and adopted the provisions of this
Agreement and the Adoption Agreement in accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read
the current prospectus for each Fund in which his or her Account is
invested and the Individual Retirement Account Disclosure Statement
related to the Account. The Depositor represents under penalties of
perjury that his or her Social Security number (or other Taxpayer
Identification Number) as stated in the Adoption Agreement is correct.
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<NAME> FIXED INCOME
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