Securities Act Registration No. 33-70978
Investment Company Act Registration No. 811-8122
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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. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 10 [X]
(Check appropriate box or boxes.)
THE AQUINAS FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
5310 Harvest Hill Road
Suite 248
Dallas, Texas 75230
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(Address of Principal Executive Offices) (Zip Code)
(972) 233-6655
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(Registrant's Telephone Number, including Area Code)
Copy to:
Frank A. Rauscher Richard L. Teigen
Aquinas Investment Advisors, Inc. Foley & Lardner
5310 Harvest Hill Road 777 East Wisconsin Avenue
Dallas, Texas 75230 Milwaukee, Wisconsin 53202
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
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, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485
[ ] on (date) pursuant to paragraph (a) (1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a) (2) of Rule 485
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
(LOGO)
Prospectus
APRIL 30, 2000
The funds follow a policy of socially
responsible investing. The funds' investment
adviser screens issuers for policies on
issues including abortion, contraceptives,
weapons of mass destruction, human rights,
economic priorities, environmental
responsibility, fair employment practices and
tobacco. The funds may invest in a company
whose policies on these issues do not satisfy
the adviser's criteria. In such event, the
funds will attempt to change the company's
policies or activities. If the funds are
unable to engage in positive dialogue, or are
unable to make reasonable progress toward
their goals with respect to these issues,
they will exclude the company from their
portfolios.
As with all mutual funds, the Securities and
Exchange Commission has not approved or
disapproved these securities or passed on the
adequacy of this prospectus. Any
representation to the contrary is a criminal
offense.
An investment in the funds is not a deposit
of any bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation
or any other government agency.
<PAGE>
Table of Contents
The Funds
Aquinas Equity Funds....................... 1
Aquinas Fixed Income Fund.................. 5
Aquinas Balanced Fund...................... 9
Other Investment Practices and Risks
Portfolio Structure....................... 13
Investment Objectives..................... 13
Portfolio Turnover........................ 13
Management
Investment Adviser........................ 14
The Adviser............................... 14
Portfolio Managers........................ 15
Your Investment
Determining Share Price................... 17
How to Open an Account.................... 17
Buying Shares............................. 19
Opening an Account...................... 19
Adding to an Account.................... 20
Other Purchase Policies................. 21
Exchanging Shares......................... 21
How it Works............................ 22
Other Exchange Policies................. 22
Selling Shares............................ 23
Other Redemption Policies................. 24
Other Investment Policies................. 25
Dividends and Distributions............... 25
Taxes..................................... 25
Shareholder Reports....................... 26
Financial Highlights...................... 26
Directors and Officers......................... 31
For More Information........................... 32
Purchase Application........................... 33
<PAGE>
The Funds
Aquinas Equity Funds
INVESTMENT OBJECTIVES
- - The Equity Income Fund seeks long-term capital growth and a high level of
current dividend income.
- - The Equity Growth Fund seeks long-term capital growth.
PRINCIPAL INVESTMENT STRATEGIES
Equity Income Fund
The Equity Income Fund invests primarily in dividend-paying common stocks. The
portfolio managers focus on stocks with low price/earnings ratios that they
consider to be undervalued. The fund mainly invests in companies with market
capitalizations exceeding $2 billion, but may purchase stocks of companies of
all sizes.
Equity Growth Fund
The Equity Growth Fund invests primarily in common stocks of companies the
portfolio managers believe offer above-average potential for growth in revenues,
profits or cash flow. Dividend and interest income are not important
considerations in investment selection. This fund may invest in companies of all
sizes.
In selecting investments, the portfolio managers rely primarily on fundamental
analysis, reviewing the issuing company's financial statements, the fundamentals
of other companies in the same industry, market trends and economic conditions.
Equity Income Fund and Equity Growth Fund
The funds practice socially responsible investing. The fund's investment adviser
monitors all issuers the portfolio managers select for policies on issues such
as abortion, contraceptives, weapons of mass destruction, human rights, economic
priorities, environmental responsibility, fair employment practices, and
tobacco. If a fund invests in a company whose policies don't meet the adviser's
criteria, the fund will attempt to change the company's policies. If the funds
are unable to engage in positive dialogue, or are unable to make reasonable
progress toward their goals with respect to these issues, the portfolio managers
will sell the security.
The funds generally intend to stay fully invested and are not market timers.
However, they may invest without limit in high-quality money market instruments
for temporary defensive purposes. Under these circumstances, the funds won't be
able to achieve their investment objective of long-term capital appreciation,
since money market instruments don't appreciate in value and the funds may not
participate in stock market advances or declines as they would if more fully
invested in common stocks.
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The significance
of P/E ratio
THE PRICE/EARNINGS RATIO SHOWS HOW THE PRICE OF A COMPANY'S STOCK RELATES TO ITS
EARNINGS AND MAY HELP INDICATE WHETHER THE STOCK IS OVER- OR UNDER-VALUED. TO
CALCULATE A COMPANY'S P/E RATIO, DIVIDE THE PRICE PER SHARE BY EARNINGS PER
SHARE.
FOR EXAMPLE, A COMPANY WHOSE STOCK IS SELLING AT $60 PER SHARE AND HAD EARNINGS
OF $4 PER SHARE HAS A P/E RATIO OF 15. IF THIS COMPANY'S P/E RATIO IS LOWER THAN
THAT OF SIMILAR COMPANIES, ITS STOCK MIGHT BE UNDERVALUED. IF ITS P/E RATIO IS
HIGHER, ITS STOCK MIGHT BE OVERVALUED. THE PORTFOLIO MANAGERS CONSIDER THE P/E
RATIO ALONG WITH MANY OTHER FACTORS BEFORE DECIDING TO INVEST.
BECAUSE P/E RATIO IS BASED ON PAST EARNINGS AND PROJECTED EARNINGS, TWO
COMPANIES WITH THE SAME RATIO MAY END UP WITH VERY DIFFERENT PERFORMANCE.
Aquinas Funds 1 Prospectus
<PAGE>
PRINCIPAL RISKS OF INVESTING
GENERAL MARKET RISKS. Factors affecting the securities markets include domestic
and foreign economic growth or decline, interest rate levels and political
events. There is a risk the portfolio managers won't accurately predict the
impact of these and other factors, in which case the securities the funds
purchase might decline in value. This means you could lose money investing in
the funds. You should consider your own investment goals, investment horizon and
risk tolerance before investing.
COMMON STOCKS. Both funds invest primarily in common stocks, whose risks
include:
- - a company not performing as anticipated. Factors affecting a company's
performance can include the strength of its management and the demand for its
products or services. Negative performance may affect the earnings growth the
portfolio managers anticipated when selecting the stock.
- - instability in the stock market. The market generally moves in cycles, with
stock prices rising and falling. The value of the funds' investments may
increase or decrease more than the stock market in general.
SOCIALLY RESPONSIBLE INVESTING. Because the adviser and the portfolio managers
consider other factors in addition to traditional investment criteria when
selecting portfolio securities, they may forego a profitable investment
opportunity or sell a security when it may be disadvantageous to do so.
VALUE INVESTING. The Equity Income Fund is primarily value oriented. There is a
risk that the portfolio managers are wrong in their assessment of a company's
value and the stocks do not reach what the portfolio managers believe are their
full values. There is also a risk that the fund may not perform as well as other
types of mutual funds when its investing style is out-of-favor with other
investors.
GROWTH INVESTING. The Equity Growth Fund is growth oriented. There is a risk
that the portfolio managers are wrong in their assessment of a company's
potential for growth and the stocks do not grow as the portfolio managers
anticipate. There is also a risk that the fund may not perform as well as other
types of mutual funds when its investing style is out-of-favor with other
investors.
Aquinas Funds 2 Prospectus
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and table below give some indication of the risks of investing in
the Equity Income Fund and the Equity Growth Fund by showing how each fund's
performance changes from year to year and how the funds' average annual returns
for various periods compare to those of various broad-based measures of market
performance. Please keep in mind that the funds' past performance does not
necessarily indicate how the funds will perform in the future.
Bar Chart
The bar chart below shows each fund's total returns for the past six calendar
years (since inception).
Equity Income Fund Equity Growth Fund
1994 -2.93% -6.78%
1995 35.62% 30.29%
1996 20.43% 22.90%
1997 27.85% 28.97%
1998 5.50% 21.95%
1999 1.12% 23.12%
During the period reflected in the bar chart, the Equity Income Fund's highest
quarterly return was 14.19% (for the quarter ended December 31, 1998) and its
lowest quarterly return was -12.02% (for the quarter ended September 30, 1998).
The Equity Growth Fund's highest quarterly return was 23.17% (for the quarter
ended December 31, 1998) and its lowest quarterly return was -15.04% (for the
quarter ended September 30, 1998).
Performance Table
The table below compares each fund's average annual total returns over various
periods ended December 31, 1999 to those of the Standard & Poor's 500/R
Composite Stock Index, the Russell 3000 Value Index and the Russell 3000 Index.
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE INCEPTION
1 YEAR RETURN 5 YEAR RETURN JANUARY 3, 1994
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Equity Income Fund 1.12% 17.37% 13.73%
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Equity Growth Fund 23.12% 25.40% 19.37%
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S&P 500/R 21.04% 28.56% 23.58%
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Russell 3000 Value Index 6.65% 22.15% 17.78%
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Russell 3000 Index 20.90% 26.94% 22.05%
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The S&P 500/R Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
The Russell 3000 Value Index measures the performance of those Russell 3000
Index companies with lower price-to-book ratios and lower forecasted growth
values.
The Russell 3000 Index is composed of the 3,000 largest U.S. securities, as
determined by total market capitalization. This portfolio of securities
represents approximately 98% of the investable U.S. market.
Aquinas Funds 3 Prospectus
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Equity Income Fund or the Equity Growth Fund.
Shareholder Fees
(fees paid directly from your investment)
There are no shareholder fees for the purchase, redemption or exchange of
shares.
Annual Fund Operating Expenses
(expenses deducted from fund assets)
EQUITY EQUITY
INCOME FUND GROWTH FUND
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Management fees 1.00% 1.00%
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Distribution (12b-1) and/or service fees None None
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Other expenses 0.38% 0.41%
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Total annual fund operating expenses 1.38% 1.41%
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Example
This example is intended to help you compare the cost of investing in the Equity
Income Fund and the Equity Growth Fund with the cost of investing in other
mutual funds. It assumes that:
- - you invest $10,000 for the time indicated and then redeem all your shares at
the end of that period;
- - your investment has a 5% return each year;
- - each fund's operating expenses remain the same; and
- - you reinvest all dividends and distributions.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Equity Income Fund $141 $437 $755 $1,657
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Equity Growth Fund $144 $446 $771 $1,691
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This expense example is for comparison purposes only. It does not represent the
funds' actual expenses or returns, past or future. Actual expenses or returns
may be higher or lower than those shown.
Aquinas Funds 4 Prospectus
<PAGE>
Aquinas Fixed Income Fund
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FIXED INCOME SECURITIES MAY BE RATED BY NATIONALLY RECOGNIZED RATING AGENCIES
SUCH AS MOODY'S INVESTORS SERVICE, INC., STANDARD & POOR'S CORPORATION AND DUFF
& PHELPS, INC. EACH AGENCY HAS ITS OWN SYSTEM FOR CLASSIFYING SECURITIES, BUT
EACH TRIES TO INDICATE A COMPANY'S ABILITY TO MAKE TIMELY PAYMENTS OF PRINCIPAL
AND INTEREST.
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INVESTMENT OBJECTIVE
The Fixed Income Fund seeks a high level of current income with reasonable
opportunity for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fixed Income Fund invests primarily in investment-grade debt securities of
domestic and foreign issuers, including corporations and government agencies, as
well as mortgage-backed and asset-backed securities. The fund may also invest in
unrated debt securities the portfolio managers determine are of comparable
quality. In selecting securities, the portfolio managers focus on the issuer's
credit strength as well as the security's effective duration and yield.
Effective duration is a measure of a debt security's price sensitivity to
interest rate changes. Effective duration takes into account a debt security's
cash flows over time including the possibility that a debt security might be
prepaid by the issuer or redeemed by the holder prior to its stated maturity
date. In contrast, maturity measures only the time until final payment is due.
The fund also looks for securities that appear comparatively undervalued. For
example, the fund would consider a security having a yield that is higher than
another security of similar credit quality and duration to be comparatively
undervalued.
The fund will invest at least a majority of its assets in securities rated at
least A (or an equivalent rating) at the time of purchase by a nationally
recognized rating agency, or unrated securities of comparable quality, and in
securities issued by the U.S. government, its agencies or its instrumentalities.
The fund will invest no more than 25% of its assets in securities whose highest
rating, at the time of purchase, is BBB (or an equivalent rating).
"Investment grade" securities are government securities and corporate bonds,
debentures or notes rated at least BBB (or an equivalent rating), or unrated
securities the portfolio managers consider to be of comparable quality. The fund
may retain up to 5% of its assets in securities whose ratings fall below
investment grade.
Unlike funds investing solely for income, the Fixed Income Fund also seeks
modest capital appreciation and growth of investment income. The fund may
purchase securities that are convertible into common stock or carry warrants or
common stock purchase rights when the portfolio managers believe they offer
higher return potential than nonconvertible securities. The fund may also seek
capital appreciation by investing in fixed income securities when the portfolio
managers believe interest rates on such investments may decline, thereby
increasing the market value of the fund's fixed income securities. The portfolio
managers may also purchase securities they believe have a high potential for
credit upgrade.
The value of fixed income securities tends to decrease when interest rates rise
and increase when interest rates fall. While securities with shorter maturities
generally offer lower yields, they are less affected by interest rate changes
and generally provide greater price stability than longer-term securities. When
the portfolio managers
Aquinas Funds 5 Prospectus
<PAGE>
expect interest rates to rise, they may purchase fixed income securities with
shorter maturities or invest in money market instruments. When they expect
interest rates to fall, the portfolio managers may invest in longer-term fixed
income securities.
The fund may invest in securities backed by mortgages, credit card receivables,
automobile loans and other assets.
PRINCIPAL RISKS OF INVESTING
General Market Risks
Factors affecting the securities markets include domestic and foreign economic
growth and decline, interest rate levels and political events. There is a risk
the portfolio managers will not accurately predict the impact of these and other
factors, in which case the securities the fund purchases might decline in value.
This means you could lose money investing in the fund. You should consider your
own investment goals, investment horizon and risk tolerance before investing.
Fixed Income Investing
CREDIT RISK. The value of the fund's fixed income securities is affected by the
issuers' continued ability to make interest and principal payments. The fund
could lose money if the issuers cannot meet their financial obligations or their
credit ratings are downgraded.
INTEREST RATE RISK. The value of the fund's securities is also affected by
changes in interest rates. When interest rates rise, the value of the fund's
securities and its share value will decline. A change in interest rates will
also change the amount of income the fund generates.
SECURITIES RATINGS. Securities rated in the lowest of the investment-grade
categories (e.g., Baa or BBB) are considered more speculative than higher-rated
securities. Their issuers may not be as financially strong as those of higher-
rated bonds and may be more likely to not be able to make interest or principal
payments during periods of economic uncertainty or downturn.
MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage- and asset-backed securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debts may be refinanced or paid off before they mature, particularly
during periods of declining interest rates. This could lower the fund's return
and result in losses to the fund if some securities were acquired at a premium.
Asset-backed securities may also carry a greater default risk than other
securities because of the nature of the collateral. For example, credit card
receivables are generally unsecured and are subject to consumer credit laws that
may permit cardholders to reduce balances due. Holders of automobile receivables
may not have an enforceable security interest in the underlying automobiles. In
times of financial stress, these securities could become harder to value or to
sell.
Aquinas Funds 6 Prospectus
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and table below give some indication of the risks of investing in
the Fixed Income Fund by showing how the fund's performance changes from year to
year and how its average annual returns for various periods compare to those of
a broad measure of market performance. Please keep in mind that past performance
does not necessarily indicate how the fund will perform in the future.
Bar Chart
The bar chart below shows the fund's total returns for the past six calendar
years (since inception).
1994 -3.09%
1995 16.26%
1996 2.83%
1997 8.54%
1998 7.17%
1999 -1.86%
During the period reflected in the bar chart, the fund's highest quarterly
return was 5.53% (for the quarter ended June 30, 1995), and the lowest quarterly
return was -2.25% (for the quarter ended March 31, 1994).
Performance Table
The table below compares the fund's average annual total returns over various
periods ended December 31, 1999 to those of the Lehman Brothers Government/
Corporate Bond Index.
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE INCEPTION
1 YEAR RETURN 5 YEAR RETURN JANUARY 3, 1994
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Fixed Income Fund -1.86% 6.41% 4.77%
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Lehman Brothers
Government/Corporate Bond Index -2.15% 7.60% 5.67%
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The Lehman Brothers Government/Corporate Bond Index includes all public
obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted
issues; all publicly issued debt of U.S. government agencies and quasi-federal
corporations, and corporate debt guaranteed by the U.S. government; and all
publicly issued, fixed rate, nonconvertible, investment grade, dollar-
denominated, SEC-registered corporate debt (including debt issued or guaranteed
by foreign sovereign governments, municipalities, or governmental agencies, or
international agencies).
Aquinas Funds 7 Prospectus
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fixed Income Fund.
Shareholder Fees
(fees paid directly from your investment)
There are no shareholder fees for the purchase, redemption or exchange of
shares.
Annual Fund Operating Expenses
(expenses deducted from fund assets)
FIXED INCOME FUND
- -------------------------------------------------------------
Management fees<F1> 0.60%
- -------------------------------------------------------------
Distribution (12b-1) and/or service fees None
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Other expenses 0.42%
- -------------------------------------------------------------
Total annual fund operating expenses 1.02%
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<F1> The expenses listed above do not reflect that the adviser has agreed to
limit the fund's total expenses (excluding interest, taxes, brokerage and
extraordinary expenses) to an annual rate of 1.00% of the fund's average
net assets. This fee waiver is voluntary and may be terminated at any time.
For the fiscal year ended December 31, 1999, the adviser waived a portion
of its management fee for the Fixed Income Fund, so the actual management
fee the fund paid was 0.58% of average net assets, reducing total expenses
from 1.02% to 1.00%.
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. It assumes that:
- - you invest $10,000 for the time indicated and then redeem all your shares at
the end of that period;
- - your investment has a 5% return each year;
- - the fund's operating expenses remain the same; and
- - you reinvest all dividends and distributions.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Fixed Income Fund $104 $325 $563 $1,248
- -------------------------------------------------------------------
The expense example is for comparison purposes only. It does not represent the
fund's actual expenses or returns, either past or future. Actual expenses or
returns may be higher or lower than those shown.
Aquinas Funds 8 Prospectus
<PAGE>
Aquinas Balanced Fund
INVESTMENT OBJECTIVE
The Balanced Fund seeks long-term capital growth consistent with reasonable risk
to principal. It's designed to provide one vehicle for participating in the
strategies of the Equity Income, Equity Growth and Fixed Income Funds.
PRINCIPAL INVESTMENT STRATEGIES
The Balanced Fund is in effect a combination of each of the other Aquinas Funds.
The adviser allocates the fund's assets among certain of the portfolio managers
of the Equity Income, Equity Growth and Fixed Income Funds. The portfolio
managers manage the assets allocated to them in the same manner as they manage
the assets of those funds. The adviser varies this allocation according to
economic and market conditions.
The fund invests in a diversified portfolio of common stocks of established
companies and investment-grade fixed income securities, including government
securities. The portfolio managers select investments for the Balanced Fund
using the criteria set for the Equity Income, Equity Growth and Fixed Income
Funds. The portfolio managers that are also the portfolio managers for the
Equity Income Fund focus on dividend-paying common stocks with low
price/earnings ratios that they consider to be undervalued. The portfolio
managers that are also the portfolio managers for the Equity Growth Fund focus
on common stocks of companies that offer above-average potential for growth in
revenues, profits or cash flow. In selecting common stocks, the portfolio
managers rely primarily on fundamental analysis, reviewing the issuing company's
financial statements, the fundamentals of other companies in the same industry,
market trends and economic conditions.
The portfolio managers that are also the portfolio managers for the Fixed Income
Fund focus on investment-grade debt securities of domestic and foreign issuers,
as well as mortgage-backed and asset-backed securities. They may also have the
fund invest in unrated debt securities that they determine are of comparable
quality. In selecting debt securities, the portfolio managers focus on the
issuer's credit strength as well as the security's duration and yield. Duration
takes into account a debt security's cash flow over time including the
possibility that a debt security might be prepaid by the issuer or redeemed by
the holder prior to its stated maturity date. In contrast, maturity measures
only the time until final payment is due. The fund also looks for securities
that appear comparatively undervalued. The portfolio managers may also purchase
securities they believe have a high potential for credit upgrade.
The fund typically expects to invest about 60% of its assets in equities and 40%
in fixed income securities. At any time, the fund's portfolio may consist of 25%
to 50% fixed income securities and 40% to 70% equity securities.
PRINCIPAL RISKS OF INVESTING
An investment in the Balanced Fund carries the same types of risks as an
investment in the other Aquinas Funds. The risks of the Equity Income and Equity
Growth Funds apply to the extent the Balanced Fund invests in equities and the
risks of the Fixed Income Fund apply to the extent the Balanced Fund invests in
fixed income securities.
Risks of Equity Investing
Common stocks. The fund invests in common stocks, whose risks include:
Aquinas Funds 9 Prospectus
<PAGE>
- - A company not performing as anticipated. Factors affecting a company's
performance can include the strength of its management and the demand for its
products or services. Negative performance may affect the earnings growth the
portfolio managers anticipated when selecting the stock.
- - Instability in the stock market. The market generally moves in cycles, with
stock prices rising and falling. The value of the fund's investments may
increase or decrease more than the stock market in general.
VALUE INVESTING. There is a risk that the portfolio managers are wrong in their
assessment of a company's value and the stocks do not reach what the portfolio
managers believe are their full values.
GROWTH INVESTING. There is a risk that the portfolio managers are wrong in their
assessment of a company's potential for growth and the stocks do not grow as the
portfolio managers anticipate.
Risks of Fixed Income Investing
CREDIT RISK. The value of the fund's fixed income securities is affected by the
issuers' continued ability to make interest and principal payments. The fund
could lose money if the issuers cannot meet their financial obligations or their
credit ratings are downgraded.
INTEREST RATE RISK. The value of the fund's fixed income securities is also
affected by changes in interest rates. When interest rates rise, the value of
the fund's securities and its share value will decline. A change in interest
rates will also change the amount of income the fund generates.
SECURITIES RATINGS. Securities rated in the lowest of the investment-grade
categories are considered more speculative than higher-rated securities. Their
issuers may not be as financially strong as those of higher-rated bonds and may
be more likely to not be able to make interest or principal payments during
periods of economic uncertainty or downturn.
MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage- and some asset-backed
securities involve prepayment risk, which is the risk that the underlying
mortgages or other debts may be refinanced or paid off before they mature,
particularly during periods of declining interest rates. This could lower the
fund's return and result in losses to the fund if some securities were acquired
at a premium. Asset-backed securities may also carry a greater default risk than
other securities because of the nature of the collateral. For example, credit
card receivables are generally unsecured and are subject to consumer credit laws
that may permit cardholders to reduce balances due. Holders of automobile
receivables may not have an enforceable security interest in the underlying
automobiles. In times of financial stress, these securities could become hard to
value or sell.
General Market Risks
Factors affecting securities markets include domestic and foreign economic
growth or decline, interest-rate levels and political events. There is a risk
the portfolio managers won't accurately predict the impact of these and other
factors, in which case the securities the fund purchases might decline in value.
This means you could lose money investing in the fund. You should consider your
own investment goals, investment horizon and risk tolerance before investing.
Socially Responsible Investing
Because the adviser and the portfolio managers consider other factors in
addition to traditional investment criteria when selecting portfolio securities,
they may forego a
Aquinas Funds 10 Prospectus
<PAGE>
profitable investment opportunity or sell a security when it may be
disadvantageous to do so.
BAR CHART AND PERFORMANCE TABLE
The bar chart and table below give some indication of the risks of investing in
the Balanced Fund by showing how the fund's performance changes from year to
year and how its average annual returns for various periods compare to those of
a broad measure of market performance. Please keep in mind that past performance
does not necessarily indicate how the fund will perform in the future.
Bar Chart
The bar chart below shows the fund's total returns for the past six calendar
years (since inception).
1994 -3.06%
1995 23.14%
1996 15.29%
1997 19.91%
1998 8.46%
1999 4.06%
During the period reflected in the bar chart, the fund's highest quarterly
return was 9.95% (for the quarter ended June 30, 1997), and the lowest quarterly
return was -6.81% (for the quarter ended September 30, 1998).
Performance Table
The table below compares the fund's average annual total returns over various
periods ended December 31, 1999 to the Standard & Poor's 500/R Composite Stock
Index, the Lehman Brothers Government/Corporate Bond Index and a composite index
("Composite") of the Standard & Poor's 500/R Composite Stock Index (60%) and the
Lehman Brothers Government/Corporate Bond Index (40%).
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE INCEPTION
1 YEAR RETURN 5 YEAR RETURN JANUARY 3, 1994
- --------------------------------------------------------------------------------
Balanced Fund 4.06% 13.95% 10.93%
- --------------------------------------------------------------------------------
S&P 500/R 21.04% 28.56% 23.58%
- --------------------------------------------------------------------------------
Lehman Brothers -2.15% 7.60% 5.67%
- --------------------------------------------------------------------------------
Composite 11.76% 20.18% 16.42%
- --------------------------------------------------------------------------------
The S&P 500/R Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
The Lehman Brothers Government/Corporate Bond Index includes all public
obligations of the U.S. Treasury, excluding flower bonds and foreign-targeted
issues; all publicly issued debt of U.S. government agencies and quasi-federal
corporations, and corporate debt guaranteed by the U.S. government; and all
publicly issued, fixed rate, nonconvertible, investment grade, dollar-
denominated, SEC-registered corporate debt (including debt issued or guaranteed
by foreign sovereign governments, municipalities, or governmental agencies, or
international agencies).
Aquinas Funds 11 Prospectus
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Balanced Fund.
Shareholder Fees
(fees paid directly from your investment)
There are no shareholder fees for the purchase, redemption or exchange of
shares.
Annual Fund Operating Expenses
(expenses deducted from fund assets)
BALANCED FUND
- ---------------------------------------------------------------
Management fee<F1> 1.00%
- ---------------------------------------------------------------
Distribution (12b-1) and/or service fees None
- ---------------------------------------------------------------
Other expenses 0.53%
- ---------------------------------------------------------------
Total annual fund operating expenses 1.53%
- ---------------------------------------------------------------
<F1> The expenses listed above do not reflect that the adviser has agreed to
limit the fund's total expenses (excluding interest, taxes, brokerage and
extraordinary expenses) to an annual rate of 1.50% of the fund's average
net assets. This fee waiver is voluntary and may be terminated at any time.
For the fiscal year ended December 31, 1999, the adviser waived a portion
of its management fee for the Balanced Fund, so the actual management fee
the fund paid was 0.97% of average net assets, reducing total expenses from
1.53% to 1.50%.
Example
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. It assumes that:
- - you invest $10,000 for the time indicated and then redeem all your shares at
the end of that period;
- - your investment has a 5% return each year;
- - the fund's operating expenses remain the same; and
- - you reinvest all dividends and distributions.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
Balanced Fund $156 $483 $834 $1,824
- -----------------------------------------------------------------
The expense example is for comparison purposes only. It does not represent the
fund's actual expenses or returns, either past or future. Actual expenses or
returns may be higher or lower than those shown.
Aquinas Funds 12 Prospectus
<PAGE>
Other Investment Practices and Risks
In seeking to achieve their investment objectives, the funds may follow
investment practices and assume risks in addition to those discussed previously.
PORTFOLIO STRUCTURE
The Equity Income, Equity Growth and Fixed Income Funds are each made up of at
least two basic portfolios. Each portfolio is managed by separate portfolio
managers selected and monitored by the funds' adviser. Each portfolio follows
independent but complementary strategies intended to meet the funds' overall
objectives. The Balanced Fund follows the strategies of all three of the other
funds. The adviser believes this structure offers investors the advantages of
diversification and varied investment approaches within one investment vehicle.
INVESTMENT OBJECTIVES
Each fund's investment objective may be changed by the Board of Directors
without shareholder approval. You'll receive advance written notice of any
material changes to your fund's goals.
PORTFOLIO TURNOVER
The portfolio managers generally buy and sell portfolio securities without
regard to the length of time a fund has held a security as they seek to achieve
the funds' investment objectives. Although the funds generally do not intend to
engage in frequent short-term trading, in most years, each fund's (other than
the Equity Income Fund's) annual portfolio turnover rate has exceeded 100%. High
portfolio turnover (100% or more) may increase the funds' transaction costs and
negatively affect their performance. It may also result in increased
distributions to the funds' shareholders. These distributions, to the extent
they are short-term capital gains, will be taxed at ordinary income tax rates
for federal income tax purposes, rather than at lower capital gains rates.
Aquinas Funds 13 Prospectus
<PAGE>
Management
INVESTMENT ADVISER
Aquinas Investment Advisers, Inc., 5310 Harvest Hill Road, Suite 248, Dallas,
Texas 75230, was organized in 1993 to provide consulting, investment, and
administrative services to the funds. The adviser has a limited number of other
clients. It is a wholly owned subsidiary of The Catholic Foundation, an
endowment fund for individuals. All the adviser's profits benefit The Catholic
Foundation to support that organization's charitable, religious and educational
activities.
The Foundation, a registered investment adviser, manages its own assets and acts
as investment adviser to other religious organizations, nonprofit agencies, and
individuals with substantial portfolios. As of December 31, 1999, the Foundation
managed about $156 million in assets.
The funds use a multi-manager structure. The adviser generally manages and
oversees administration, investment activities and distribution services for the
funds, while independent portfolio managers make the specific investments for
the funds.
THE ADVISER
- - conducts the socially responsible investing activities for the funds;
- - selects and monitors portfolio managers (sub-advisers); and
- - allocates each fund's assets among the portfolio managers.
Each fund pays the adviser an annual management fee equal to the following
percentages of average daily net assets:
ANNUAL MANAGEMENT FEE
- ----------------------------------------------
Equity Income Fund 1.00%
- ----------------------------------------------
Equity Growth Fund 1.00%
- ----------------------------------------------
Fixed Income Fund 0.60%
- ----------------------------------------------
Balanced Fund 1.00%
- ----------------------------------------------
The adviser may elect to waive some or all of the management fees and may
terminate this waiver at any time. The adviser is responsible for paying fees to
the portfolio managers. All investment decisions the adviser makes for the funds
are made by an investment committee, and no one person is primarily responsible
for making investment recommendations to that committee. While the funds' Board
of Directors and officers generally oversee portfolio managers' activities, no
member of the board, the officers or the adviser evaluates the investment merits
of specific securities. The adviser's investment committee is responsible for
the overall day-to-day management of the Funds. Current members are:
- - Frank A. Rauscher, chief operating officer of the funds since June 1994 and
president and CEO since May 1997. Mr. Rauscher was president of American
Federal Bank, F.S.B. from 1989 to 1993.
Aquinas Funds 14 Prospectus
<PAGE>
- - John L. Strauss, a director of the funds. Mr. Strauss was a principal of
Barrow, Hanley, Mewhinney & Strauss, an investment advisory firm, from 1980
until his retirement in January 1998.
- - J. Ray Nixon, Jr., a director of the adviser. Mr. Nixon has been a principal
of Barrow, Hanley, Mewhinney & Strauss since August 1994. Before that he was
a stockbroker with Smith, Barney Shearson.
- - Charles Clark, Jr., secretary, treasurer and a director of the funds. He is
president of Olmstead-Kirk Paper Company.
- - John J. Kickham, a vice president of the funds. He has been president of
Quarterdeck of Texas, Inc., a mortgage banking firm since 1994. Before that
he was CEO and president of Wing Industries from November 1994 to November
1995, and chairman of T.K.G., Inc., a private investment company, since March
1985.
- - Mark Godvin, a director of the adviser. He is a managing director of Merrill
Lynch since 1996 and an executive of that firm since 1998.
PORTFOLIO MANAGERS
The portfolios of the Fixed Income, Equity Income, and Equity Growth Funds are
managed by separate portfolio managers (sub-advisers) selected and monitored by
the adviser. In choosing portfolio managers, the adviser evaluates their skills
in managing assets for specific asset classes, investment styles and strategies,
looking at risks and returns over an entire market cycle. Short-term investment
performance alone does not control the adviser's decision to select or terminate
a portfolio manager.
The portfolio managers follow independent but complementary strategies intended
to contribute toward a fund's overall objective. The Balanced Fund is allocated
among the portfolio managers for the other funds and follows strategies from all
three of the other funds.
Each portfolio manager has complete discretion to buy and sell securities for
the portion of the fund it manages, within the parameters of the fund's
investment objectives, policies and restrictions, and the more specific
strategies developed by the adviser. The adviser may change the asset allocation
at any time.
THE ADVISER IS ULTIMATELY RESPONSIBLE FOR THE FUND'S INVESTMENT PERFORMANCE
BECAUSE OF ITS RESPONSIBILITY TO OVERSEE THE PORTFOLIO MANAGERS. Pursuant to an
order of exemption from the SEC, the adviser has the ability, subject to
approval by the Board of Directors, to hire and terminate portfolio managers and
to change materially the terms of the portfolio management agreements, including
the compensation paid to the portfolio managers by the adviser, without the
approval of the shareholders of the funds. The funds will notify shareholders of
any change in portfolio managers. The portfolio managers have no affiliations
with the funds or the adviser other than as portfolio managers.
Aquinas Funds 15 Prospectus
<PAGE>
The adviser, not the funds, pays the fees of each portfolio manager. For details
on how individual portfolio managers are compensated, see the SAI.
The adviser has allocated the assets of each fund among the portfolio managers
listed below.
Equity Income Fund
Waite & Associates L.L.C., 350 South Grand Avenue, Suite 3970, Los Angeles, CA
90071, provides investment management services to corporations, investment
companies, pension and profit-sharing plans and other institutions and
individuals. It has been a sub-adviser to a registered mutual fund since
December 1997. As of December 31, 1999, Waite had about $647 million in assets
under management.
NFJ Investment Group, 2121 San Jacinto, Suite 1840, Dallas, TX 75201, provides
investment supervisory services to individuals, financial institutions,
investment companies, pension and profit sharing plans, trusts, estates and
charitable organizations and foundations. NFJ became sub-adviser to a registered
mutual fund in 1990 and currently serves four registered mutual funds. Its total
assets under management as of December 31, 1999 were about $2.1 billion.
Equity Growth Fund
Sirach Capital Management, Inc., 3323 One Union Square, 600 University Street,
Seattle, WA 98101, 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 December 31, 1999, Sirach had about
$7.5 billion in assets under management.
John McStay Investment Counsel, L.L.C. 5949 Sherry Lane, Suite 1560, Dallas, TX
75225, manages a limited number of large investment accounts for employee
benefit plans, foundations, and endowments. Assets under management exceeded
$5.2 billion as of December 31, 1999.
Fixed Income Fund
Income Research and Management, Inc., One Federal Street, 23rd Floor, Boston, MA
02110, serves institutions including major public and private pension plans,
insurance companies, and non-profit organizations. As of December 31, 1999, IRM
managed more than $3.4 billion in assets.
Atlantic Asset Management, LLC, 2187 Atlantic Street, Stamford, CT 06902,
manages fixed income portfolios and asset allocation strategies for clients
including foundations, endowments and public and corporate employee benefit
plans. As of December 31, 1999, AAM managed about $5.0 billion in assets.
Balanced Fund
With the exception of Sirach Capital Management, each of the portfolio managers
for the Fixed Income, Equity Income and Equity Growth Funds serves as portfolio
manager to the Balanced Fund.
Aquinas Funds 16 Prospectus
<PAGE>
Your Investment
DETERMINING SHARE PRICE
NET ASSET VALUE (NAV) is the price for one share of a fund. Each fund calculates
its NAV as of the end of trading hours (typically 4 p.m. Eastern time) each day
the New York Stock Exchange is open for trading. The New York Stock Exchange is
closed on weekends and most major holidays.
If the transfer agent receives your buy or sell order in proper form before that
time, you will pay or receive the NAV calculated as of the close of trading that
day. If the transfer agent receives your buy or sell order after that time, you
will pay or receive the NAV calculated as of the close of the next trading day.
To calculate each fund's NAV, we divide that fund's total assets, minus any
liabilities, by the number of shares outstanding. The funds value securities,
other than debt instruments maturing within 60 days, at market prices. The funds
value debt securities maturing within 60 days at amortized cost.
HOW TO OPEN AN ACCOUNT
Getting Started
To invest in the Aquinas Funds,
- - Read this prospectus carefully. Decide which fund or funds you want to invest
in.
- - Decide how much you want to invest. The minimum initial investment is $500,
or $50 if you choose the Automatic Investment Plan.
- - Complete the account application enclosed with this prospectus. If you need
an application, call toll-free 1-877-AQUINAS (1-877-278-4627).
OR
Open your account through a broker, financial institution, or other investment
professional. These investment professionals may charge you a transaction or
service fee when you buy or sell shares; this fee goes to the service provider,
not to Aquinas Funds. Also, the funds and/or the adviser may pay fees to the
investment professionals to compensate them for the services they provide their
customers. Before investing through an investment professional, you should read
their program materials together with this prospectus.
ALL APPLICATIONS TO PURCHASE SHARES ARE SUBJECT TO ACCEPTANCE BY THE FUNDS. THE
FUNDS RESERVE THE RIGHT TO REJECT APPLICATIONS IN WHOLE OR IN PART. THE FUNDS DO
NOT ACCEPT TELEPHONE PURCHASE ORDERS.
Aquinas Funds 17 Prospectus
<PAGE>
Ways to Set Up Your Account
Check the appropriate box on the application to select account ownership:
- - INDIVIDUAL OR JOINT ACCOUNT
An individual account (for example, one in your own name) is owned by one
person. A joint account lists two or more people as the owners.
- - UNIFORM GIFT TO MINORS ACT ACCOUNT
Parents, grandparents and other adults can establish an account for a minor.
Depending on state law, you may set up the account under the Uniform Gift to
Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).
- - TRUST, BUSINESS OR ORGANIZATION
Trusts, corporations, associations, partnerships, institutions and other
groups may invest in the funds. Such accounts may require documentation
beyond the account application. For details, call 1-800-423-6369.
- - RETIREMENT PLANS
The funds offer various retirement plans that may help investors shelter
income from taxes. These plans include:
- Traditional IRAs
- Roth IRAs
- SEP IRAs
- 403(b) plans
- 401(k) plans
- SIMPLE IRAs
You should consult your tax adviser before choosing a plan. For details on plan
applications, service fees, and contribution/withdrawal limits, call the funds'
transfer agent at 1-800-423-6369 or Aquinas Investment Advisers, Inc. at 1-972-
233-6655.
QUESTIONS? CALL TOLL-FREE 1-877-AQUINAS (1-877-278-4627)
Aquinas Funds 18 Prospectus
<PAGE>
Buying Shares
OPENING AN ACCOUNT
- --------------------------------------------------------------------------------
BY MAIL
- -------
- - Complete an account application, available by calling toll-free
1-877-AQUINAS (1-877-278-4627).
- - Mail it with a check payable to The Aquinas Funds, Inc. to:
The Aquinas Funds, Inc.
c/o DST Systems, Inc.
P.O. Box 219533
Kansas City, MO 64121-9533
- - For overnight or express mail, use this address:
The Aquinas Funds
c/o DST Systems, Inc.
330 West 9th Street, First Floor
Kansas City, MO 64105
- --------------------------------------------------------------------------------
BY WIRE
- -------
- - Call the transfer agent at 1-800-423-6369. You need to complete and return an
account application before your bank sends the wire.
- - Have your bank wire UMB Bank, n.a., as follows:
A.B.A. #101000695
For credit to Aquinas Funds Purchase Account
For further credit to The Aquinas Funds, Inc.
Deposit Account Number 9870523922
(investor account number)
(name or account registration)
(social security or taxpayer identification number)
(name of fund in which to invest)
- --------------------------------------------------------------------------------
AUTOMATICALLY
- -------------
- - Complete the Automatic Investment Plan section on your account application.
Open your account with at least $50.
- - On the 16th of each month, the amount you specify ($50 or more) is
automatically withdrawn from your bank account and used to buy fund shares.
- - We charge no service fee for the plan, but if there's not enough money in
your account to cover the withdrawal, the transfer agent will charge you $15.
You'll also be responsible for any resulting losses to the fund.
- - You can change your investment amount, or cancel your plan, by calling or
writing the funds. The fund has up to 7 business days to make the change.
- --------------------------------------------------------------------------------
By Exchange
- -----------
You may also buy shares in a fund by exchanging shares from another fund. See
"Exchanging Shares."
- --------------------------------------------------------------------------------
Aquinas Funds 19 Prospectus
<PAGE>
Buying Shares (continued)
ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
BY MAIL
- -------
The minimum additional investment is $250 for a regular account; $100 for an
UGMA account; $50 for an IRA or Automatic Investment Plan; and $10 for a 403(b)
account.
- - Send your check, plus the "Additional Investment" form from a recent
confirmation statement or a signed note with the account's registration and
number.
- - Use the addresses on page 19.
- --------------------------------------------------------------------------------
BY WIRE
- -------
- - Follow the instructions on page 19. Be sure to include your account number
and the full registered name(s) of the account on the bank wiring
instructions.
- - Wired funds are considered received in proper form on the day they reach the
funds' bank account and all required information is provided in the wire
instructions.
- --------------------------------------------------------------------------------
AUTOMATICALLY
- -------------
- - If your account is already open, call 1-800-423-6369 to set up an Automatic
Investment Plan. Adding this plan to your account requires a signature
guarantee, described under "Other Purchase Policies."
- - When your plan is established, it follows the description on page 19.
- -------------------------------------------------------------------------------
Meet your transfer agent
THE FUNDS' TRANSFER AND DISBURSING AGENT, DST SYSTEMS INC., HANDLES THE
ADMINISTRATIVE DETAILS OF YOUR ACCOUNT. WHEN YOU BUY SHARES, YOU SEND THE
PAYMENT TO THE TRANSFER AGENT. WHEN YOU REDEEM SHARES, YOU SEND YOUR REQUEST TO
THE TRANSFER AGENT, AND THE TRANSFER AGENT SENDS YOU YOUR MONEY.
Aquinas Funds 20 Prospectus
<PAGE>
OTHER PURCHASE POLICIES
CERTIFICATES. The funds don't issue stock certificates. You'll receive a
statement confirming the details of your transaction.
PURCHASES THROUGH INTERMEDIARIES. If you buy shares from a broker/dealer,
financial institution, or other provider, their fees, policies, investment
minimums, and restrictions may differ from those described here. Any fees
charged go to the intermediary, not to Aquinas Funds.
If the intermediary is the shareholder of record, the funds may accept requests
to buy additional shares into the account only from the intermediary.
The funds may authorize intermediaries and their designees to accept purchase
orders on the funds' behalf. Such orders are considered received by the funds
when the intermediary accepts them, and are priced at the next calculated net
asset value.
CHECKS/INSUFFICIENT FUNDS. Your purchase must be made in U.S. dollars via checks
drawn on U.S. banks. The funds do not accept third-party checks or cash.
The transfer agent will charge a $15 fee against your account for any check
returned unpaid. You'll also be responsible for any resulting loss to the funds.
REDEMPTION REQUESTS SHORTLY AFTER PURCHASE BY CHECK. Payment for such
redemptions may be delayed up to 15 days to make sure there are sufficient funds
to cover the check. If you anticipate making a redemption soon after you buy
your shares, you may want to purchase by wire to avoid delays.
Exchanging Shares
You may exchange shares of one Aquinas Fund for those of another Aquinas Fund or
the American AAdvantage Money Market Fund. The AAdvantage Money Market Fund is
described in a separate prospectus. Call toll-free 1-877-AQUINAS (1-877-278-
4627) for a free copy, and read it carefully before investing.
Note that an exchange is treated as an ordinary sale and purchase for federal
income tax purposes; you may realize a capital gain or loss.
These conditions apply to exchanges:
- - The exchange must be between identically registered accounts.
- - Any checks used to purchase your shares must have cleared (up to 15 days).
- - Minimum purchase and redemption requirements apply.
QUESTIONS? CALL TOLL-FREE 1-877-AQUINAS (1-877-278-4627)
Aquinas Funds 21 Prospectus
<PAGE>
HOW IT WORKS
You may request an exchange two ways:
- - In writing. Follow the procedures in "Selling Shares," on page 23. The
minimum is $500.
- - By telephone (unless you've waived telephone privileges). Call 1-800-423-
6369. The minimum is $1,000.
The funds redeem the shares to be sold at the net asset value next calculated
after the transfer agent receives your exchange request. The shares you want to
acquire will be purchased at the net asset value next calculated after the
transfer agent receives your request in proper form.
OTHER EXCHANGE POLICIES
LIMITATIONS. The funds reserve the right to terminate without notice the
exchange privilege of any shareholder, broker, investment adviser or agent who
requests more than four exchanges in a calendar year, for oneself or one's
customers. The funds will consider the number of exchanges requested, the time
within which requests are made, and the level of expense to the funds or adverse
effects to other shareholders.
FEES. There are no fees for exchanging shares.
QUESTIONS? CALL TOLL-FREE 1-877-AQUINAS (1-877-278-4627)
Aquinas Funds 22 Prospectus
<PAGE>
Selling Shares
You may take money out of your account anytime at no charge by selling some or
all of your shares back to the fund (redeeming). The price you receive will be
the net asset value next calculated after the fund receives your request in
proper form. Note that when you sell shares, you may realize a capital gain or
loss for federal income tax purposes.
- --------------------------------------------------------------------------------
BY MAIL
- -------
- - Send your written request with:
- the number of shares or the dollar amount to be redeemed;
- the fund's name;
- the name(s) on the account registration; and
- the account number.
- - Sign the request exactly as the account is registered. You'll need a
signature guarantee if:
- the amount requested is more than $25,000;
- the proceeds are to be sent to someone other than the shareholders of
record or to somewhere other than the address of record;
- the request is made within 30 days of a change in address; or
- the bank to receive wire transfers is changed within 30 days.
See "Signature Guarantees," under "Other Investment Policies," on page 25.
- - Include documentation required for corporate, partnership or fiduciary
accounts, or for people acting on Power of Attorney. If you have questions,
call 1-800-423-6369.
- - Mail to the transfer agent at:
The Aquinas Funds, Inc.
c/o DST Systems, Inc.
P.O. Box 219533
Kansas City, MO 64121-9533
- - For overnight or express mail, use this address:
The Aquinas Funds
c/o DST Systems, Inc.
330 West 9th Street, First Floor
Kansas City, MO 64105
If you don't send your redemption request directly to the transfer agent, it may
be delayed. Please submit requests to the address above.
- --------------------------------------------------------------------------------
BY TELEPHONE
- ------------
(unless you've waived telephone privileges)
- - Call the transfer agent at 1-800-423-6369 to redeem from $1,000 to $25,000 in
shares. You must request redemptions over $25,000 in writing, with signatures
guaranteed.
- - The funds will mail proceeds to your address of record or send by wire to the
account listed in your fund records.
- - The funds do not accept redemption requests via fax.
Aquinas Funds 23 Prospectus
<PAGE>
OTHER REDEMPTION POLICIES
PAYMENT. When you redeem shares, you'll receive payment as follows:
- - Mailed payments will typically be sent within 1 or 2 days but no later than 7
days of receiving proper redemption instructions.
- - Wire payments for redemptions requested by phone will usually be made on the
next business day to the bank designated on your account application (which
must be a commercial bank within the U.S.).
The funds may delay payment for up to 7 days after receiving a redemption
request. The funds may suspend redemptions if the New York Stock Exchange closes
or for other emergencies.
REDEEMING SHARES THROUGH INTERMEDIARIES. A broker/dealer, financial institution
or other intermediary may charge a fee to redeem your fund shares. If the
intermediary is the shareholder of record, the funds accept redemption requests
only from the intermediary.
The funds may authorize intermediaries and their designees to accept redemption
requests on the funds' behalf. The redemption price you receive for redemption
requests made through intermediaries is the next determined net asset value
after the intermediary receives your request in proper form with all required
information.
REDEMPTION REQUESTS SHORTLY AFTER PURCHASE BY CHECK. Payment for such
redemptions may be delayed up to 15 days to make sure there are sufficient funds
to cover the check. If you anticipate making a redemption soon after you buy
your shares, you may want to purchase by wire to avoid delays.
TELEPHONE TRANSACTIONS. The funds won't accept telephone redemption requests for
payment by check for 30 days following an address change. You must make the
request in writing, with signatures guaranteed.
As long as reasonable measures are taken to prevent telephone fraud, neither the
funds nor the transfer agent are liable for losses from unauthorized
transactions. The funds reserve the right to refuse a telephone transaction.
During shifts in the market or economy, it may be difficult to redeem shares by
telephone or wire. You can mail your redemption requests as described above.
SMALL ACCOUNTS. If your account balance falls below $500 and it is not a Uniform
Gift to Minors Account or you don't have an Automatic Investment Plan, the funds
may ask you to add to your balance. If your account balance is still below $500
after 60 days, the funds may close your account and send you the proceeds.
SYSTEMATIC WITHDRAWAL PLAN. If your account balance is $10,000 or more, you can
request monthly, quarterly, or annual distributions of at least $250. Note that
withdrawals may result in a gain or loss for federal income tax purposes. If the
amount in the account is not enough to make your requested payment, the
remaining amount will be redeemed and the plan ended.
Aquinas Funds 24 Prospectus
<PAGE>
Call 1-800-423-6369 for a Systematic Withdrawal Plan application. To change the
withdrawal amount or cancel your plan, send a request in writing, with a
signature guarantee for each registered holder of the account. The funds may
change or eliminate this privilege at any time.
OTHER INVESTMENT POLICIES
TELEPHONE TRANSACTIONS. Unless you waive telephone privileges on your account
application or in writing, you automatically have the privilege to make
telephone inquiries, exchanges and redemptions. Once the account is established,
requests to change or add these privileges must be in writing, signed by each
registered holder of the account, with signatures guaranteed. As long as
reasonable measures are taken to prevent telephone fraud, neither the funds nor
the transfer agent are liable for losses from unauthorized transactions. The
funds reserve the right to refuse a telephone transaction.
SIGNATURE GUARANTEES. Generally, whenever you change your account, your bank
information, or your registration information, you need signature guarantees for
each registered holder. These guarantees may seem inconvenient, but they're
intended to protect you from fraud. You can have signatures guaranteed by a U.S.
commercial bank or trust company, a member of the National Association of
Securities Dealers, Inc., or other eligible institutions. A notary public is not
an acceptable guarantor.
DIVIDENDS AND DISTRIBUTIONS
All the funds pay dividends of net investment income quarterly except the Fixed
Income Fund, which pays dividends of net investment income monthly. The funds
distribute any net realized capital gains annually.
Each fund will automatically reinvest dividends in shares of that fund, unless
you ask to have dividends paid in cash or invested in another of the Aquinas
Funds (account minimums apply).
TAXES
Each year the funds will give you federal tax information about the dividends
and distributions you've received. If your income is subject to tax,
distributions are taxable whether they are paid in cash or reinvested in
additional shares. In general, any dividends and net short-term capital gains
you receive from the funds are taxed at ordinary income rates. Any net long-term
capital gains you receive are taxed at capital gains rates. The funds expect
that distributions of the Fixed Income Fund will consist primarily of ordinary
income; the distributions of the Equity Growth Fund will consist primarily of
capital gains; and the distributions of the Equity Income Fund and Balanced Fund
will consist of both ordinary income and capital gains. Also, if you have
distributions from a qualified plan reinvested in a regular account, you may
face a penalty tax.
Anytime you sell or exchange shares, it is considered a taxable event. Depending
on the purchase price and the sale price of the shares you sell or exchange, you
may realize a gain or loss on the transaction for federal income tax purposes.
Aquinas Funds 25 Prospectus
<PAGE>
Because everyone's tax situation is unique, and state and local law may also
affect you, the funds strongly recommend you consult with your tax adviser.
If you don't complete the certification form included with your account
application, the funds are required by federal law to withhold 31% of any
distribution and redemption proceeds for federal income tax purposes.
SHAREHOLDER REPORTS
As a shareholder, you'll receive:
- - Confirmation statements each time you buy, sell, transfer or exchange shares.
You'll also receive a summary of transactions since the beginning of the
year. If you find any errors, notify the fund within 30 days. If you do not,
the fund will not be obligated to correct the error.
- - Individual account statements, mailed within 5 business days of a purchase or
redemption. If dividend reinvestment is the only account activity, statements
will be quarterly (monthly for the Fixed Income Fund).
- - An annual statement after December 31 listing all your transactions in shares
of the funds for the year.
- - Semi-annual reports showing your fund's portfolio and other information.
- - An annual report after the close of the funds' fiscal year (December 31),
with audited financial statements.
FINANCIAL HIGHLIGHTS
The following tables show the funds' financial performance for the past five
years. Some of the information reflects results for single fund shares. "Total
return" shows how much your investment in the fund would have increased (or
decreased), assuming you had reinvested all dividends and distributions. These
figures have been audited by Arthur Andersen LLP, the funds' independent
accountants. Their report, along with the funds' financial statements, is
included in the annual report, which is available upon request.
Aquinas Funds 26 Prospectus
<PAGE>
Fixed Income Fund
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $10.18 $10.17 $9.90 $10.17 $9.24
Income from Investment
Operations:
Net investment income 0.53 0.54 0.55 0.54 0.54
Net realized and
unrealized gains
(losses) on investments (0.71) 0.17 0.27 (0.27) 0.93
- -----------------------------------------------------------------------------
Total from Investment
Operations (0.18) 0.71 0.82 0.27 1.47
- -----------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income (0.53) (0.54) (0.55) (0.54) (0.54)
Distributions from
net realized gains - (0.16) - - -
- -----------------------------------------------------------------------------
Total Distributions (0.53) (0.70) (0.55) (0.54) (0.54)
- -----------------------------------------------------------------------------
Net Asset Value,
End of Period $9.47 $10.18 $10.17 $9.90 $10.17
=============================================================================
Total Return (1.86)% 7.17% 8.54% 2.83% 16.26%
Supplemental Data and Ratios:
Net assets, end of
period (in thousands) $42,154 $42,865 $40,699 $37,229 $35,617
Ratio to Average
Net Assets of:
Expenses, net of waivers
and reimbursements 1.00% 1.00% 0.99% 1.00% 0.98%
Expenses, before waivers
and reimbursements 1.02% 1.03% 1.05% 1.03% 0.98%
Net investment income,
net of waivers
and reimbursements 5.37% 5.27% 5.54% 5.44% 5.46%
Net investment income,
before waivers
and reimbursements 5.35% 5.24% 5.48% 5.41% 5.46%
Portfolio turnover rate 131% 120% 102% 169% 126%
Aquinas Funds 27 Prospectus
<PAGE>
Equity Income Fund
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $13.21 $14.89 $13.26 $11.83 $9.39
Income from Investment
Operations:
Net investment income 0.21 0.23 0.26 0.23 0.28
Net realized and
unrealized gains
(losses) on investments (0.09) 0.57 3.40 2.18 3.03
- -----------------------------------------------------------------------------
Total from Investment
Operations 0.12 0.80 3.66 2.41 3.31
- -----------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income (0.20) (0.23) (0.26) (0.23) (0.28)
Distributions from net
realized gains (1.79) (2.25) (1.77) (0.75) (0.59)
- -----------------------------------------------------------------------------
Total Distributions (1.99) (2.48) (2.03) (0.98) (0.87)
- -----------------------------------------------------------------------------
Net Asset Value,
End of Period $11.34 $13.21 $14.89 $13.26 $11.83
=============================================================================
Total Return 1.12% 5.50% 27.85% 20.43% 35.62%
Supplemental Data and Ratios:
Net assets, end of period
(in thousands) $57,813 $64,877 $73,594 $54,184 $42,102
Ratio to Average
Net Assets of:
Expenses, net of waivers
and reimbursements 1.38% 1.36% 1.37% 1.40% 1.37%
Expenses, before waivers
and reimbursements 1.38% 1.36% 1.37% 1.40% 1.37%
Net investment income,
net of waivers
and reimbursements 1.56% 1.49% 1.74% 1.79% 2.47%
Net investment income,
before waivers
and reimbursements 1.56% 1.49% 1.74% 1.79% 2.47%
Portfolio turnover rate 100% 64% 42% 32% 40%
Aquinas Funds 28 Prospectus
<PAGE>
Equity Growth Fund
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $17.57 $15.12 $13.45 $12.13 $9.31
Income from Investment
Operations:
Net investment
income (loss) (0.14) (0.10) (0.06) (0.06) (0.01)
Net realized and
unrealized gains
(losses) on investments 4.20 3.40 3.93 2.84 2.83
- -----------------------------------------------------------------------------
Total from Investment
Operations 4.06 3.30 3.87 2.78 2.82
- -----------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income - - - - -
Distributions from net
realized gains (2.15) (0.85) (2.20) (1.46) -
- -----------------------------------------------------------------------------
Total Distributions (2.15) (0.85) (2.20) (1.46) -
- -----------------------------------------------------------------------------
Net Asset Value,
End of Period $19.48 $17.57 $15.12 $13.45 $12.13
=============================================================================
Total Return 23.12% 21.95% 28.97% 22.90% 30.29%
Supplemental Data
and Ratios:
Net assets, end of
period (in thousands) $59,867 $47,400 $35,990 $22,593 $15,912
Ratio to Average
Net Assets of:
Expenses, net of waivers
and reimbursements 1.41% 1.42% 1.49% 1.50% 1.50%
Expenses, before waivers
and reimbursements 1.41% 1.42% 1.49% 1.54% 1.61%
Net investment income
(loss), net of waivers
and reimbursements (0.83)% (0.71)% (0.66)% (0.55)% (0.10)%
Net investment income
(loss), before waivers
and reimbursements (0.83)% (0.71)% (0.66)% (0.59)% (0.21)%
Portfolio turnover rate 99% 96% 104% 112% 102%
Aquinas Funds 29 Prospectus
<PAGE>
Balanced Fund
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.34 $11.58 $11.53 $11.03 $9.43
Income from Investment
Operations:
Net investment income 0.27 0.28 0.31 0.26 0.32
Net realized and
unrealized gains
(losses) on investments 0.17 0.68 1.95 1.41 1.84
- -----------------------------------------------------------------------------
Total from Investment
Operations 0.44 0.96 2.26 1.67 2.16
- -----------------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income (0.26) (0.28) (0.30) (0.26) (0.33)
Distributions from net
realized gains (1.12) (0.92) (1.91) (0.91) (0.23)
- -----------------------------------------------------------------------------
Total Distributions (1.38) (1.20) (2.21) (1.17) (0.56)
- -----------------------------------------------------------------------------
Net Asset Value,
End of Period $10.40 $11.34 $11.58 $11.53 $11.03
=============================================================================
Total Return 4.06% 8.46% 19.91% 15.29% 23.14%
Supplemental Data and Ratios:
Net assets, end of period
(in thousands) $24,936 $27,089 $29,164 $29,670 $26,779
Ratio to Average Net
Assets of:
Expenses, net of waivers
and reimbursements 1.50% 1.44% 1.45% 1.44% 1.46%
Expenses, before waivers
and reimbursements 1.53% 1.49% 1.52% 1.49% 1.46%
Net investment income
(loss), net of waivers
and reimbursements 2.39% 2.38% 2.44% 2.23% 2.93%
Net investment income
(loss), before waivers
and reimbursements 2.36% 2.33% 2.37% 2.18% 2.93%
Portfolio turnover rate 118% 102% 94% 111% 118%
Aquinas Funds 30 Prospectus
<PAGE>
Directors and Officers
Directors:
Michael R. Corboy
Imelda Gonzalez, CDP
Thomas J. Marquez
John L. Strauss
Charles Clark, Jr.
Kathleen Muldoon
Levy Curry
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
For regular mail, use this address:
The Aquinas Funds, Inc.
c/o DST Systems, Inc.
P.O. Box 219533
Kansas City, MO 64121-9533
For overnight or express mail, use this address:
The Aquinas Funds, Inc.
c/o DST Systems, Inc.
330 West 9th Street, First Floor
Kansas City, MO 64105
Aquinas Funds 31 Prospectus
<PAGE>
For More Information
If you'd like more information about the funds, ask for a free copy of the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI). You'll find more detailed information
about the funds in the SAI. The SAI is incorporated by reference, which means it
is legally part of this prospectus.
ANNUAL/SEMI-ANNUAL REPORTS. These reports offer additional information about the
funds' investments. In the annual report, you'll find a discussion of the market
conditions and investment strategies that significantly affected each fund's
performance during its last fiscal year.
To request the SAI, annual and semi-annual reports, and other information about
the funds, write:
THE AQUINAS FUNDS
5310 HARVEST HILL ROAD, SUITE 248
DALLAS, TEXAS 75230
Or call 1-800-423-6369.
Prospective investors and shareholders who have questions about the funds may
also call the above number or write to the above address.
You can also review and copy information about the funds (including the SAI) at
the SEC's Public Reference Room in Washington, D.C. For information about the
operation of the Public Reference Room, call 1-202-942-8090.
Reports and other information about the funds are available on the SEC's
Internet site at www.sec.gov. You may obtain copies of this information for a
duplicating fee by electronic request at the following e-mail address: public
[email protected], or by writing to the SEC's Public Reference Section at 405 5th
Street, N.W., Washington, D.C. 20549-6009. The SAI is also available from
broker/dealers and banks through which shares of the funds may be sold.
Investment Company Act file number: 811-8122
Aquinas Funds 32 Prospectus
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION April 30, 2000
AQUINAS FIXED INCOME FUND
AQUINAS EQUITY INCOME FUND
AQUINAS EQUITY GROWTH FUND
AQUINAS BALANCED FUND
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, 2000. 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.
The following financial statements are incorporated by reference to
the Annual Report, dated December 31, 1999, of The Aquinas Funds, Inc. (File No.
811-8122) as filed with the Securities and Exchange Commission on March 7, 2000.
Report of Independent Public Accountants
Schedule of Investments at December 31, 1999
Statements of Assets and Liabilities at December 31, 1999
Statements of Operations for the year ended December 31, 1999
Statements of Changes in Net Assets for the years ended December 31,
1999 and December 31, 1998
Financial Highlights for the years ended December 31, 1999, December
31, 1998, December 31, 1997, December 31, 1996 and December 31, 1995
Notes to Financial Statements
Shareholders may obtain a copy of the Annual Report, without charge,
by calling 1-877-278-4627.
<PAGE>
THE AQUINAS FUNDS, INC.
TABLE OF CONTENTS
Page
FUND HISTORY AND CLASSIFICATION................................................1
INVESTMENT RESTRICTIONS........................................................1
INVESTMENT POLICIES AND TECHNIQUES.............................................3
DETERMINATION OF NET ASSET VALUE..............................................16
PURCHASE OF SHARES............................................................17
EXCHANGE PRIVILEGE............................................................17
DIRECTORS AND OFFICERS OF THE COMPANY.........................................17
INVESTMENT ADVISER, PORTFOLIO
MANAGERS AND ADMINISTRATOR..................................................21
CUSTODIAN AND TRANSFER AGENT..................................................26
ALLOCATION OF PORTFOLIO BROKERAGE.............................................27
TAXES ........................................................................28
CAPITAL STRUCTURE.............................................................30
SHAREHOLDER MEETINGS..........................................................31
PERFORMANCE INFORMATION.......................................................32
DESCRIPTION OF SECURITIES RATINGS.............................................35
INDEPENDENT ACCOUNTANTS.......................................................40
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus dated April 30, 2000 and, if given or made, such
information or representations may not be relied upon as having been authorized
by The Aquinas Funds, Inc.
This Statement of Additional Information does not constitute an offer
to sell securities.
(i)
<PAGE>
FUND HISTORY AND CLASSIFICATION
The Aquinas Funds, Inc. (the "Company") is an open-end, diversified
management investment company, consisting of four separate diversified
portfolios: 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").
The Aquinas Funds, Inc. is registered under the Investment Company Act of 1940.
The Aquinas Funds, Inc. was incorporated as a Maryland corporation on October
20, 1993.
INVESTMENT RESTRICTIONS
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.
B-1
<PAGE>
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
B-2
<PAGE>
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 shareholders prior to their
implementation.
INVESTMENT POLICIES AND TECHNIQUES
The Prospectus describes the Funds' principal investment strategies
and risks. This section expands upon that discussion and also discusses
non-principal investment strategies and risks.
Temporary Investments
For temporary defensive purposes, each Fund may invest up to 100% of
its total assets in cash and high-quality money market obligations. Money market
securities include short-term investment-grade fixed-income securities, bankers'
acceptances, commercial paper, commercial paper master notes and repurchase
agreements.
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
B-3
<PAGE>
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 Fund may also invest in United States Treasury bills and Notes,
and certificates of deposit of domestic branches of U.S. banks.
The Funds may invest in repurchase agreements issued by banks and
certain non-bank broker-dealers. In a repurchase agreement, a 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. When entering into repurchase agreements, a Fund must hold an amount
of cash or government securities at least equal to the market value of the
securities that are part of the repurchase agreement. A repurchase agreement can
be considered as a loan collateralized by the security purchased. A repurchase
agreement involves the risk that a seller may declare bankruptcy or default. In
that event, a Fund may experience delays, increased costs and a possible 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.
Lending Portfolio Securities
Each of the Funds may lend a portion of its portfolio securities. Such
loans may not exceed 10% of the net assets of the lending Fund. 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
Advisors, 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.
B-4
<PAGE>
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.
When-Issued Securities
The Fixed Income Fund and the Balanced Fund may purchase securities on
a forward commitment or when-issued basis, which means that the price of the
securities is fixed at the time the commitment to purchase is made. Delivery of
and payment for these securities typically occur 15 to 90 days after the
commitment to purchase. Interest rates on debt securities at the time of
delivery may be higher or lower than those contracted for on the when-issued
security. The Funds will make commitments to purchase when-issued securities
only with the intention of actually acquiring the securities, but the Funds may
sell these securities before the settlement date if the portfolio manager deems
it advisable. The Funds will not accrue income in respect of a when-issued
security prior to its stated delivery date.
When the Funds purchase securities on a when-issued basis, they will
maintain in a segregated account with the Funds' custodian cash or liquid
securities having an aggregate value equal to the amount of its purchase
commitment until payment is made. The purpose and effect of such segregation is
to prevent the Fund from gaining investment leverage from when- issued
transactions. When-issued securities may decline or increase in value during the
period from the Fund's investment commitment to the settlement of the purchase.
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.
B-5
<PAGE>
Mortgage-Backed and Asset-Backed Securities
The Fixed Income Fund and the Balanced Fund may invest in
Mortgage-Backed 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 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 as well as other asset-backed
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
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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
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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. In
particular, certain classes of CMO's 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.
Mortgage Dollar Rolls. 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 foregoes principal and
interest paid on the Mortgage-Backed Securities. The Fund is
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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.
Asset-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.
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.
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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. Risks associated with illiquid
securities include the potential inability of a Fund to promptly sell a
portfolio security after its decision to sell.
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
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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.
Zero Coupon Securities
Each of the Fixed Income Fund and the Balanced 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 to other types of debt securities having similar maturities and
credit qualities.
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
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puts relate are Debt Futures; and (ii) the puts are traded on a domestic
commodities exchange. Such puts need not be protective (i.e., the Funds need not
own the related Debt Futures). The Funds may write covered puts on Debt Futures.
For a put to be covered, the Fund must maintain 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.
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 Debt Futures. 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
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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
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
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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
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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 maintain U.S. Government securities, cash or
liquid securities in the amount prescribed. Securities so maintained 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
such maintenance 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 Debt Futures and options on Debt Futures 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 Debt Futures and options
thereon and movements in the prices of the securities being hedged; (iii)
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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. 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.
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 the 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.
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.
B-16
<PAGE>
EXCHANGE PRIVILEGE
Investors may exchange shares of a Fund having a value of $500 or more
for shares of any other Fund. In addition, 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. 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 Code.
DIRECTORS AND OFFICERS OF THE COMPANY
As a Maryland corporation, the business and affairs of the Company are
managed by its officers under the direction of the Board of Directors. 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:
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<PAGE>
FRANK A. RAUSCHER, 56, 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, 69, Director.
#7 Kings Gate Court
Dallas, Texas 75225
Mr. Corboy is President of Corboy Investment Company, a private
investment company.
SISTER IMELDA GONZALEZ, CDP, 59, 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, 62, Director.
5526 Delouche
Dallas, Texas 75220
Mr. Marquez has been a self-employed private investor since 1990.
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<PAGE>
CHARLES CLARK*, 61, Director and Secretary.
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*, 60, Director.
4601 Christopher Place
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.
KATHLEEN MULDOON, 51, Director
8117 Preston Road, Suite 420
Dallas, Texas 75225
Ms. Muldoon is Vice President of Carter Financial Management, a
financial planning firm. She has been employed by Carter Financial Management
since 1979.
LEVY CURRY, 51, Director
2200 Ross Avenue, Suite 1600
Dallas, Texas 75225
Mr. Curry has been Senior Manager, Human Resources Strategic Group, of
Deloitte & Touche LLP since 1998. Prior thereto he served as Vice President,
Human Resources, for Paging Network Inc. (Pagenet), a wireless messaging
company. Mr. Curry serves as an adjunct professor at Southern Methodist
University Cox School of Business.
JOHN J. KICKHAM*, 58, Vice President.
5310 Harvest Hill Road
Suite 245
Dallas, Texas 75230
- ----------------------
* Messrs. Clark and Strauss are directors who are "interested persons" of the
Company as that term is defined in the 1940 Act.
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<PAGE>
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.
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, 1999. Mr. Curry and Ms. Muldoon have been directors of the Company
since February 24, 2000.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From
Aggregate Benefits Accrued Estimated Annual Company and
Compensation as Part of Fund Benefits Upon Fund Complex
Name of Person from Company Expenses Retirement Paid to Directors
-------------- ------------ ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Charles Clark $ 0 0 0 $ 0
Michael R. Corboy 2,000 0 0 2,000
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
</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, 1999, there were
reimbursements of $1,459.10 for travel expenses. Sister Gonzalez has assigned
all directors fees that she receives to her religious order.
The Company, the Adviser and each of the portfolio managers have
adopted separate codes of ethics pursuant to Rule 17j-1 under the 1940 Act. Each
code of ethics permits personnel subject thereto to invest in securities,
including securities that may be purchased or held by the Funds. Each code of
ethics generally prohibits, among other things, persons subject thereto from
purchasing or selling securities if they know at the time of such purchase or
sale that the security is being considered for purchase or sale by a Fund or is
being purchased or sold by a Fund.
As of March 31, 2000, the officers and directors of the Fund
as a group owned less than 1% of the outstanding securities of each Fund. At
March 31, 2000, The Catholic Foundation, 5310 Harvest Hill Road, Suite 248,
Dallas, Texas 75230, owned 3,072,084 shares (75.7% of the outstanding) of the
Fixed Income Fund, of which 1,494,065 shares (36.8%) were owned as trustee and
1,578,019 shares (38.9%) were beneficially owned; 3,114,443 shares (63.9% of the
outstanding) of the Equity Income Fund, of which 1,809,894 shares (37.1%) were
owned as trustee and 1,304,549 shares (26.8%) were beneficially owned; 1,556,026
shares (48.7% of the outstanding) of the Equity Growth Fund, of which 714,403
shares (22.4%) were owned as trustee and 841,623 shares
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<PAGE>
(26.3%) were beneficially owned; and 1,933,612 shares (82.2% of the outstanding)
of the Balanced Fund, of which 310,852 shares (13.2%) were owned as trustee and
1,622,760 shares (69.0%) were beneficially owned. The Lay Employees of the Roman
Catholic Diocese of Dallas 403(b)(7) plan, P.O. Box 190507, Dallas, Texas 75219,
owned 199,611 shares (8.5% of the outstanding, of the Balanced Fund and 192,076
shares (6.0% of the outstanding) of the Equity Growth Fund. The Bishop Charles
V. Grahmann Trust, P.O. Box 190507, Dallas, Texas 75219, owned 244,336 shares
(6.0% of the outstanding) of the Fixed Income Fund and 267,081 shares (5.5% of
the outstanding) of the Equity Income Fund. 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 Investment Company Act of 1940, 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. 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. For its
services to the Funds, the Adviser receives a monthly fee based on the average
daily net assets of each Fund at the annual rate of 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 specific investments for each Fund are made by
portfolio managers selected for the Funds by the Adviser. The Adviser pays the
fees of each portfolio manager. The Adviser (i) provides or oversees the
provision of all general management and administration, investment advisory and
portfolio management, and distribution services for the Funds; (ii) provides the
Funds with office space, equipment and personnel necessary to operate and
administer the Funds' business, and to supervise provision of services by third
parties such as the portfolio managers and custodian; (iii) develops the
investment programs, selects portfolio managers, allocates assets among
portfolio managers and monitors the portfolio managers' investment programs and
results; and (iv) is authorized to select or hire portfolio managers to select
individual portfolio securities held in the Funds. The Adviser bears the
expenses it incurs in providing these services as well as the costs of preparing
and distributing explanatory materials concerning the Funds. The Adviser also
provides asset management consulting services - including the objective-setting
and asset-allocation technology, and portfolio manager research and evaluation
assistance.
The 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
B-21
<PAGE>
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 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 has agreed to reimburse each Fund to the
extent aggregate annual operating expenses as described above exceed 1.50% of
the average daily net assets of a Fund (1.00% for the Fixed Income Fund). 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, 1999, December 31, 1998 and
December 31, 1997, the fees paid to the Adviser for management and investment
advisory services were $253,217 (net of waivers of $9,810), $222,321 (net of
waivers of $10,042) and $209,779 (net of waivers of $22,939), respectively, for
the Fixed Income Fund, $617,513, $653,479 and $633,726, respectively, for the
Equity Income Fund, $505,013, $396,047 and $291,466, respectively, for the
Equity Growth Fund and $244,380 (net of waivers of $3,353), $290,593 and
$289,730, 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 shareholders on
B-19
<PAGE>
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 Funds and the
Adviser have obtained an order of exemption from the SEC that permits the
Adviser to enter into and materially amend portfolio management agreements with
nonaffiliated portfolio managers without obtaining shareholder approval. The
Funds will notify shareholders of any change in portfolio managers. 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 away 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.
Atlantic Asset Management, L.L.C. ("AAM") is a portfolio manager for
the Fixed Income Fund and the Balanced Fund. AAM is controlled by Ronald
Sellars. 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:
B-23
<PAGE>
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 1999 is based on total returns
for the period beginning September 1, 1998 and ending August 31, 1999). 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 is 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:
Assets Fee Rate
------ --------
0 to $15 million..................................................... 0.380%
$15 million to $45 million........................................... 0.300%
$45 million to $100 million.......................................... 0.200%
Over $100 million.................................................... 0.100%
Income Research & Management, Inc. ("IRM") serves as a portfolio
manager to the Fixed Income Fund and the Balanced Fund. IRM is controlled by
John A. Sommers. For its services to the Funds, the Adviser (not the Funds) pays
IRM a fee, computed daily and payable monthly, at the following annual rate
based on average daily net assets under its management:
Assets Fee Rate
------ --------
0 to $10 million..................................................... 0.400%
$10 million to $20 million........................................... 0.300%
$20 million to $60 million........................................... 0.250%
$60 million to $100 million.......................................... 0.200%
Over $100 million.................................................... 0.150%
Waite & Associates L.L.C. ("Waite") is a portfolio manager for the
Equity Income Fund and the Balanced Fund. Waite is controlled by Leslie A.
Waite. For its services
B-24
<PAGE>
to the Funds, the Adviser (not the Funds) pays Waite a fee, computed daily and
payable monthly, equal to 0.315% per annum of the average daily net assets under
its management:
NFJ Investment Group ("NFJ") serves as a portfolio manager for the
Equity Income Fund and the Balanced Fund. NFJ 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"). The parent corporation
of Pacific Mutual has entered into an agreement with Allianz AG pursuant to
which Allianz AG will acquire a majority ownership interest in the parent. For
its services to the Funds, the Adviser (not the Funds) pays NFJ a fee, computed
daily and payable monthly, at the following annual rate based on average daily
net assets under its management:
Assets Fee Rate
------ --------
0 to $25 million..................................................... 0.450%
Over $25 million..................................................... 0.315%
John McStay Investment Counsel, L.L.C. ("JMIC") is a portfolio manager
for the Equity Growth Fund and the Balanced Fund. American International Group,
Inc. directly or indirectly through its affiliates owns a majority interest in
JMIC. For 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") is a portfolio manager for
the Equity Growth Fund. Sirach is a wholly-owned subsidiary of United Asset
Management Corporation, a publicly traded company. For its services to the Fund,
the Adviser (not the Fund) pays Sirach a fee, computed daily and payable
monthly, at the following annual rate based on average daily net assets under
its management:
Assets Fee Rate
------ --------
0 million to $30 million............................................. 0.500%
$30 million to $50 million........................................... 0.350%
Over $50 million..................................................... 0.250%
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
B-25
<PAGE>
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 its own expense and without
reimbursement from the Funds, furnishes office space and all necessary office
facilities, equipment, supplies and clerical and executive personnel for
performing the services required to be performed by it under the Administration
Agreement. For the foregoing, the Administrator receives from the Funds a fee,
computed daily and payable monthly, based on the Funds' aggregate average net
assets at the annual rate of .23 of 1% on the first $50 million of average net
assets, .20 of 1% on the next $50 million of average net assets, .10 of 1% of
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. For the fiscal years ended December 31, 1999, December 31, 1998 and
December 31, 1997, the fees paid to the Administrator were $71,712, $64,510 and
$66,698, respectively, for the Fixed Income Fund, $101,015, $108,853 and
$108,782, respectively, for the Equity Income Fund, $82,611, $65,971 and
$49,986, respectively, for the Equity Growth Fund and $36,473 (net of voluntary
waivers of $4,052), $33,880 (net of voluntary waivers of $14,525) and $30,627
(net of voluntary waivers of $19,189), respectively, for the Balanced Fund.
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.
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 shareholders 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.
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,
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<PAGE>
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 shareholders.
DST Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105-1807,
acts as the Funds' transfer agent and dividend disbursing agent.
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 (i.e. "markups" when the market maker sells a
security and "markdowns" when the market maker buys a security). In some
instances, the portfolio managers may determine that better prices are available
from non-principal market makers who are paid commissions directly. 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, computer hardware and software, market quotations,
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
B-27
<PAGE>
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, 1999, the Equity Income Fund
paid brokerage commissions of $143,572 on total transactions of $117,525,718;
the Equity Growth Fund paid brokerage commissions of $85,486 on total
transactions of $63,260,901; and the Balanced Fund paid brokerage commissions of
$34,524 on total transactions of $25,664,202. For the fiscal year ended December
31, 1998, the Equity Income Fund paid brokerage commissions of $119,657 on total
transactions of $88,427,853; the Equity Growth Fund paid brokerage commissions
of $89,896 on total transactions of $50,591,288; and the Balanced Fund paid
brokerage commissions of $37,849 on total transactions of $23,781,232. 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, 1999, the
Fixed Income Fund paid brokerage commissions of $156 on total transactions of
$1,228,978. For the fiscal year ended December 31, 1998, the Fixed Income Fund
paid brokerage commissions of $1,551 on total transactions of $3,316,350. The
Fixed Income Fund did not pay any brokerage commissions during the fiscal year
ended December 31, 1997. During the fiscal year ended December 31, 1999, the
Equity Income Fund paid brokerage commissions of $113,245 on transactions of
$102,235,737 to brokers who provided research; the Equity Growth Fund paid
brokerage commissions of $68,342 on transactions of $50,233,508 to brokers who
provided research; and the Balanced Fund paid brokerage commissions of $28,856
on transactions of $22,078,776 to brokers who provided research. The Fixed
Income Fund paid no brokerage commissions to brokers who provided research
during the fiscal year ended December 31, 1999.
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, 1999, 1998
and 1997.
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<PAGE>
TAXES
Each Fund intends to qualify annually for and elect tax treatment
applicable to a regulated investment company under Subchapter M of the Code. The
discussion that follows is not intended to be a complete 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.
If a Fund fails to qualify as a regulated investment company under
Subchapter M in any fiscal year, it will be treated as a corporation for federal
income tax purposes. As such the Fund would be required to pay income taxes on
its net investment income and net realized capital gains, if any, at the rates
generally applicable to corporations. Shareholders of a Fund that did not
qualify as a regulated investment company under Subchapter M would not be liable
for income tax on the Fund's net investment income or net realized capital gains
in their individual capacities. Distributions to shareholders, whether from the
Fund's net investment income or net realized capital gains, would be treated as
taxable dividends to the extent of current or accumulated earnings and profits
of the Fund.
Dividends from a Fund's net investment income, including short-term
capital gains, are taxable to shareholders 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. Such
dividends and distributions are taxable to shareholders whether received in cash
or in additional shares. A portion of the Funds' income distributions may be
eligible for the 70% dividends-received deduction for domestic corporate
shareholders.
At December 31, 1999, the Fixed Income Fund had a capital loss
carryforward of $321,203 expiring in the year 2007. To the extent that the Fixed
Income Fund realizes future net capital gains, these gains will be offset by any
unused capital loss carryforwards.
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, 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 even though it
results in a return of capital to him.
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 shareholders' holding period for the shares. 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 may be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividend payments and redemption and exchange
proceeds if an
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<PAGE>
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.
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. Shareholders are 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. Unless it is required by the Investment Company Act of 1940,
it will not be necessary for the Funds to hold annual meetings of shareholders.
As a result, shareholders may not consider each year the election of directors
or the appointment of auditors. The Company, however, has adopted provisions in
its Bylaws for the removal of directors by the shareholders. See "Shareholder
Meetings."
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, a shareholder's account will be credited with the
number of shares purchased, relieving the shareholder 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
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<PAGE>
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 MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Company, to operate without an annual meeting of
shareholders 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 shareholders
under said Act.
The Company's Bylaws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly called and
at which a quorum is present, the shareholders 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 shareholders
for the purpose of voting upon the question of removal of any director. Whenever
ten or more shareholders 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
shareholders 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 shareholders as recorded on the books of the Company; or
(ii) inform such applicants as to the approximate number of shareholders 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 shareholders 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
B-31
<PAGE>
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 shareholders with reasonable promptness after the
entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
From time to time, the Funds may advertise several types of
performance information. The Funds may advertise "yield," "average annual total
return," "total return" and "cumulative total return." The Funds may
occasionally cite statistics to reflect volatility or risk. Each of these
figures is based upon historical results and is not necessarily representative
of the future performance of the Funds.
Average annual total return and total return figures measure both the
net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in a Fund
for the stated period, assuming the reinvestment of all dividends. Thus, these
figures reflect the change in the value of an investment in a Fund during a
specific 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.
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:
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<PAGE>
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 average annual total return for the one year period ended December
31, 1999 was (1.86%) for the Fixed Income Fund, 1.12% for the Equity Income
Fund, 23.12% for the Equity Growth Fund and 4.06% for the Balanced Fund. The
average annual compounded return for the five year period ended December 31,
1999 was 6.41% for the Fixed Income Fund, 17.37% for the Equity Income Fund,
25.46% for the Equity Growth Fund and 13.95% for the Balanced Fund. The average
annual compounded return for the period from January 3, 1994 (commencement of
operations) through December 31, 1999 was 4.77% for the Fixed Income Fund,
13.73% for the Equity Income Fund, 19.37% for the Equity Growth Fund and 10.93%
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. 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.
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:
6
YIELD = 2[ (a-b/cd + 1) - 1 ]
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<PAGE>
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, 1999 through December 31, 1999 was 6.16%. Absent fee waivers, the yield would
have been 6.11%.
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.
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, the Russell 3000 Index and the Russell 3000
Value Index, 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, the Russell 3000 Index and the Russell 3000 Value Index
are unmanaged indices of common stocks which are considered to be generally
representative of the United States stock market or segments thereof. The marked
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.
DESCRIPTION OF SECURITIES RATINGS
The Fixed Income Fund and the Balanced 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.
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<PAGE>
("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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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,
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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:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o 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.
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<PAGE>
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.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, serves as the independent accountants for each of the Funds.
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PART C
OTHER INFORMATION
Item 23. Exhibits
(a)(1) Registrant's Articles of Incorporation(1)
(a)(2) Registrant's Articles Supplementary(1)
(b) Registrant's Bylaws(1)
(c) None
(d)(1) Form of Management and Advisory Agreement(1)
(d)(2) Form of Sub-Advisory Agreement(1)
(d)(3) Form of Sub-Advisory Agreement with Atlantic Asset
Management Partners, L.L.C. relating to the Fixed Income
Fund and Balanced Fund(2)
(e) None
(f) None
(g) Custody Agreement with UMB Bank, n.a. (formerly known as
United Missouri Bank n.a.)(1)
(h)(1) Administration and Fund Accounting Agreement with Sunstone
Financial Group, Inc.(2)
(h)(2) Transfer Agency Agreement with DST Systems, Inc.(1)
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP.
(k) None
(l) Subscription Agreement(1)
(m) None
(n) None
S-1
<PAGE>
(o) None
(p)(i) Code of Ethics of The Aquinas Funds, Inc.
(ii) Code of Ethics of Aquinas Investment Advisers, Inc.
(iii) Code of Ethics of Atlantic Asset Management, LLC.
(iv) Code of Ethics of Income Research and Management, Inc.
(v) Code of Ethics of John McStay Investment Counsel, LLC.
(vi) Code of Ethics of NFJ Investment Group(3)
(vii) Code of Ethics of Sirach Capital Management, Inc.
(viii) Code of Ethics of Waite & Associates L.L.C.
- ---------------
(1) Previously filed as an exhibit to Post-Effective Amendment No. 4 to the
Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 4 was filed on April 29, 1996 and its
accession number is 0000897069-96-000099.
(2) Previously filed as an exhibit to Post-Effective Amendment No. 6 to the
Registration Statement and incorporated by reference thereto.
Post-Effective Amendment No. 6 was filed on April 30, 1998 and its
accession number is 0000897069-98-000251.
(3) To be filed by amendment.
Item 24. Persons Controlled by or under Common Control with Registrant
As of March 31, 2000, Registrant did not control any person.
Registrant is under common control with its investment adviser, Aquinas
Investment Advisers, Inc., which is also controlled by The Catholic Foundation.
Item 25. 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:
S-2
<PAGE>
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
S-3
<PAGE>
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 shareholders 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 26. Business and Other Connections of Investment Adviser
S-4
<PAGE>
Incorporated by reference to pages 17-25 of the Statement of
Additional Information pursuant to Rule 411 under the Securities Act of 1933.
Item 27. Principal Underwriters
Not Applicable.
Item 28. 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 29. Management Services
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 30. Undertakings
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.
S-5
<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 under
Rule 485(b) under the Securities Act 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 7th day of
April, 2000.
THE AQUINAS FUNDS, INC.
(Registrant)
By: /s/ Frank A. Rauscher
------------------------------
Frank A. 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 A. Rauscher President and Treasurer April 7, 2000
- ------------------------------- (Principal Executive,
Frank A. Rauscher Financial and
Accounting Officer)
/s/ Michael R. Corboy Director April 12, 2000
- -------------------------------
Michael R. Corboy
/s/ Thomas J. Marquez Director April 10, 2000
- -------------------------------
Thomas J. Marquez
/s/ Sister Imelda Gonzalez, CDP Director April 10, 2000
- -------------------------------
Sister Imelda Gonzalez, CDP
/s/ Charles Clark Director April 10, 2000
- -------------------------------
Charles Clark
Director April __, 2000
- -------------------------------
John L. Strauss
/s/ Kathleen Muldoon Director April 11, 2000
- -------------------------------
Kathleen Muldoon
/s/ Levy Curry Director April 17, 2000
- -------------------------------
Levy Curry
S-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
(a)(1) Registrant's Articles of Incorporation*
(a)(2) Articles Supplementary*
(b) Registrant's Bylaws*
(c) None
(d)(1) Form of Management and Advisory Agreement*
(d)(2) Form of Sub-Advisory Agreement*
(d)(3) Form of Sub-Advisory Agreement with Atlantic Asset
Management Partners, L.L.C. relating to Fixed Income Fund
and Balanced Fund*
(e) None
(f) None
(g) Custody Agreement with UMB Bank, n.a. (formerly known as
United Missouri Bank n.a.) *
(h)(1) Administration and Fund Accounting Agreement with Sunstone
Financial Group, Inc.*
(h)(2) Transfer Agency Agreement with DST Systems, Inc. *
(i) Opinion of Foley & Lardner, counsel for Registrant
(j) Consent of Arthur Andersen LLP
(k) None
(l) Subscription Agreement*
(m) None
(n) None
(o) None
- --------------------
* Incorporated by reference.
<PAGE>
(p)(i) Code of Ethics of The Aquinas Funds, Inc.
(ii) Code of Ethics of Aquinas Investment Advisers, Inc.
(iii) Code of Ethics of Atlantic Asset Management, LLC
(iv) Code of Ethics of Income Research and Management, Inc.
(v) Code of Ethics of John McStay Investment Counsel, LLC**
(vi) Code of Ethics of NFJ Investment Group
(vii) Code of Ethics of Sirach Capital Management, Inc.
(viii) Code of Ethics of Waite & Associates L.L.C.
- -----------------
**To be filed by amendment.
Exhibit (i)
FOLEY & LARDNER
CHICAGO FIRSTAR CENTER SACRAMENTO
DENVER 777 EAST WISCONSIN AVENUE SAN DIEGO
JACKSONVILLE MILWAUKEE, WISCONSIN 53202-5367 SAN FRANCISCO
LOS ANGELES TELEPHONE (414) 271-2400 TALLAHASSEE
MADISON FACSIMILE (414) 297-4900 TAMPA
MILWAUKEE WASHINGTON, D.C.
ORLANDO WEST PALM BEACH
April 25, 2000
The Aquinas Funds, Inc.
5310 Harvest Hill Road, Suite 248
Dallas, TX 75230
Ladies & Gentlemen:
We have acted as counsel for The Aquinas Funds, Inc. in connection
with the preparation of an amendment to your Registration Statement on Form N-1A
relating to the sale by you of an indefinite amount of The Aquinas Funds, Inc.
Common Stock (such Common Stock being hereinafter referred to as the "Stock") in
the manner set forth in the Amended Registration Statement to which reference is
made. In this connection we have examined: (a) the Amended Registration
Statement on Form N-1A; (b) your Articles of Incorporation and Bylaws, as
amended to date; (c) corporate proceedings relative to the authorization for
issuance of the Stock; and (d) such other proceedings, documents and records as
we have deemed necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of
Stock when sold as contemplated in the Amended Registration Statement will be
legally issued, fully paid and nonassessable
We hereby consent to the use of this opinion as an exhibit to the
Amended Registration Statement on Form N-1A. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the Securities Act
of 1933, as amended, or within the category of persons whose consent is required
by Section 7 of said Act.
Very truly yours,
/s/ Foley & Lardner
Foley & Lardner
Exhibit (j)
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 (No. 33-70978) for The Aquinas Funds, Inc.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 24, 2000
Exhibit (p)(i)
THE AQUINAS FUNDS, INC.
Code of Ethics
Amended effective as of February 24, 2000
I. DEFINITIONS
A. "Access person" means any director, officer or advisory person of the
Fund.
B. "Act" means the Investment Company Act of 1940, as amended.
C. "Advisory person" means: (i) any employee of the Fund or of any
company in a control relationship to the Fund, who, in connection with
his or her regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of Covered
Securities by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of Covered Securities by the Fund.
D. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
E. "Beneficial ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) under the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a
security for purposes as such Act and the rules and regulations
promulgated thereunder.
F. "Compliance Administrator" means the person or entity designated by
the Board of Directors of the Fund to serve in such capacity and
perform the services described herein.
G. "Control" has the same meaning as that set forth in Section 2(a)(9) of
the Act.
H. "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
<PAGE>
(iii) Shares issued by open-end registered investment companies.
I. "Disinterested director" means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19)
of the Act.
J. "Fund" means The Aquinas Funds, Inc. or any series of The Aquinas
Funds, Inc.
K. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
L. "Investment personnel" means: (i) any employee of the Fund or of any
company in a control relationship to the Fund who, in connection with
his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of securities by
the Fund; and (ii) any natural person who controls the Fund and who
obtains information concerning recommendations made to the Fund
regarding the purchase or sale of securities by the Fund.
M. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506
thereunder.
N. "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
II. CODES OF ETHICS OF INVESTMENT ADVISERS AND SUB-ADVISERS
A. Prior to retaining the services of an investment adviser or
sub-adviser to the Fund, the Board of Directors of the Fund, including
a majority of the Disinterested directors, shall approve the code of
ethics adopted by such investment adviser or sub-adviser pursuant to
Rule 17j-1 under the Act. The Board of Directors of the Fund,
including a majority of the Disinterested directors, shall approve any
material changes to any such code of ethics within six months after
the adoption of the material change. Prior to approving any such code
of ethics or amendment thereto, the Board of Directors shall receive a
certification from such investment adviser or sub-adviser that it has
adopted such procedures as are reasonably necessary to prevent access
persons of such investment adviser or sub-adviser from violating such
code. Prior to approving this Code of Ethics and the code of ethics of
an investment adviser or sub-adviser, and any material changes
thereto, the Board of Directors must determine that any such code of
ethics contain provisions reasonably necessary to prevent the
applicable access persons from violating Rule 17j-1(b) of the Act.
2
<PAGE>
B. No less frequently than annually, the officers of the Fund, the
officers of each investment adviser to the Fund and the officers of
each sub-adviser to the Fund shall furnish a report to the Board of
Directors of the Fund:
1. Describing issues arising under the applicable code of ethics
since the last report to the Board of Directors, including, but
not limited to, information about material violations of the code
and sanctions imposed in response to such material violations.
Such report shall also include a list of access persons under the
code of ethics.
2. Certifying that the Fund, investment adviser or sub-adviser as
applicable has adopted such procedures as are reasonably
necessary to prevent access persons from violating the code of
ethics.
C. The officers of each investment adviser to the Fund and each
sub-adviser to the Fund shall furnish a written report to the Board of
Directors of the Fund describing any material changes made to the code
of ethics of such investment adviser or sub-adviser within ten (10)
days after making any such material change.
D. This Code of Ethics, the code of ethics of each investment adviser and
sub-adviser, the certifications required by Sections II.A. and
II.B.(2), and the reports required by Sections II.B.(1), II.C and V.
shall be maintained by the Compliance Administrator.
III. EXEMPTED TRANSACTIONS
The prohibitions of Section IV of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible
for purchase or sale by any Fund; provided, however, that the
prohibitions of Section IV.B of this Code of Ethics shall apply
to such purchases and sales.
(c) Purchases or sales which are non-volitional on the part of either
the access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
3
<PAGE>
(f) Purchases or sales which receive the prior approval of the Board
of Directors of the Fund because they are only remotely
potentially harmful to a Fund because they would be very unlikely
to affect a highly institutional market, or because they clearly
are not related economically to the securities to be purchased,
sold or held by the Funds.
IV. PROHIBITED ACTIVITIES
A. Except in a transaction exempted by Section III of this Code, no
access person shall purchase or sell, directly or indirectly, any
Covered Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his
actual knowledge at the time of such purchase or sale is being
considered for purchase or sale by a Fund or is being purchased or
sold by a Fund. The code of ethics of each investment adviser and
sub-adviser for the Fund shall contain a similar prohibition.
B. Except in a transaction exempted by Section III of this Code of
Ethics, Investment Personnel of the Fund must obtain approval from the
Board of Directors before directly or indirectly acquiring beneficial
ownership in any securities in an Initial Public Offering or in a
Limited Offering. Prior approval shall not be given if the Board of
Directors believes that the investment opportunity should be reserved
for the Fund or is being offered to the individual by reason of his or
her position with the Fund. The code of ethics of each investment
adviser and sub-adviser for the Fund shall contain a similar
prohibition, but may provide for prior approval of an officer of the
investment adviser or sub-adviser.
C. All access persons shall notify the Board of Directors of the Fund in
the event he or she serves on the board of directors of a publicly
traded company. Upon receipt of such notice, the Board of Directors of
the Fund shall determine whether such board service is consistent with
the interests of the Fund and its shareholders and take such action,
if any, that it deems appropriate.
V. REPORTING
A. Except as provided in Section V.B. of this Code of Ethics, every
access person shall report to the Fund the information described in
Section V.C., Section V.D. and Section V.E. of this Code of Ethics.
All reports shall be filed with the Compliance Administrator.
B. 1. A Disinterested director of the Fund need not make a report
pursuant to Section V.C. and V.E. of this Code of Ethics and need
only report a transaction in a Covered Security pursuant to
Section V.D. of this Code of Ethics if such Disinterested
director, at the time of such transaction, knew or, in the
ordinary course of fulfilling his official duties as a director
of the Fund, should have known that, during the 15-day period
4
<PAGE>
immediately preceding the date of the transaction by the
director, such Covered Security was purchased or sold by a Fund
or was being considered by the Fund or their investment advisers
or sub-advisers for purchase or sale by the Fund.
2. An access person need not make a report with respect to
transactions effected for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
3. An access person need not make a quarterly transaction report
pursuant to Section V.D. of this Code of Ethics if the report
would duplicate information contained in broker trade
confirmations or account statements received by the Fund with
respect to the access person in the time period required by
Section V.D., provided that all of the information required by
Section V.D. is contained in the broker trade confirmations or
account statements or in the records of the Fund.
4. An access person that is required to file reports pursuant to the
code of ethics of an investment adviser or sub-adviser need not
make any report pursuant to Section V.C., Section V.D. and
Section V.E. of this Code of Ethics if such access person makes
comparable reports pursuant to the code of ethics of such
investment adviser or sub-adviser.
C. Every access person shall, no later than ten (10) days after the
person becomes an access person, file an initial holdings report
containing the following information:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership when the person becomes an access person;
2. The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
D. Every access person shall, no later than ten (10) days after the end
of a calendar quarter, file a quarterly transaction report containing
the following information:
1. With respect to any transaction during the quarter in a Covered
Security in which the access person had any direct or indirect
beneficial ownership:
(a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
5
<PAGE>
(b) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) The price of the Covered Security at which the transaction
was effected;
(d) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(e) The date that the report is submitted by the access person.
2. With respect to any account established by the access person in
which any securities were held during the quarter for the direct
or indirect benefit of the access person:
(a) The name of the broker, dealer or bank with whom the access
person established the account;
(b) The date the account was established; and
(c) The date that the report is submitted by the access person.
E. Every access person shall, no later than January 30 each year, file an
annual holdings report containing the following information as of the
preceding December 31:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the access
person maintains an account in which any securities are held for
the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
F. Any report filed pursuant to Section V.C., Section V.D. or Section
V.E. of this Code of Ethics may contain a statement that the report
shall not be construed as an admission by the person making such
report that he has any direct or indirect beneficial ownership in the
security to which the report relates.
G. The Compliance Administrator shall review all reports filed pursuant
to Section V.C., Section V.D. or Section V.E. of this Code of Ethics.
The Compliance Administrator shall identify all access persons who are
required to file reports pursuant to this Section V of this Code of
Ethics and must inform such access persons of their reporting
obligation.
6
<PAGE>
H. Each year access persons shall certify to the Fund that (i) they have
read and understand this Code of Ethics and recognize that they are
subject thereto, and (ii) they have complied with the requirements of
this Code of Ethics and that they have disclosed or reported all
personal securities transactions required to be disclosed or reported
pursuant to the requirements of this Code of Ethics.
III. SANCTIONS
Upon discovering a violation of this Code of Ethics, the Board of Directors of
the Fund may impose such sanctions as it deems appropriate.
7
AQUINAS INVESTMENT ADVISERS, INC.
Code of Ethics
Amended effective as of February 24, 2000
I. DEFINITIONS
A. "Access person" means any director, officer or advisory person of the
Adviser.
B. "Act" means the Investment Company Act of 1940, as amended.
C. "Adviser" means Aquinas Investment Advisers, Inc.
D. "Advisory person" means: (i) any employee of the Adviser or of any
company in a control relationship to the Adviser, who, in connection
with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of Covered
Securities by the Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to the Adviser who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of Covered Securities by the Fund.
E. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell the Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
F. "Beneficial ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) under the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a
security for purposes as such Act and the rules and regulations
promulgated thereunder.
G. "Control" has the same meaning as that set forth in Section 2(a)(9) of
the Act.
H. "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include:
(i) Direct obligations of the Government of the United States;
(ii) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
(iii) Shares issued by open-end registered investment companies.
<PAGE>
I. "Disinterested director" means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19)
of the Act and the rules and regulations promulgated thereunder.
J. "Fund" means The Aquinas Funds, Inc. or any series of The Aquinas
Funds, Inc.
K. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934.
L. "Investment personnel" means: (i) any employee of the Adviser or of
any company in a control relationship to the Adviser who, in
connection with his or her regular functions or duties, makes or
participates in making recommendations regarding the purchase or sale
of securities by the Fund; and (ii) any natural person who controls
the Adviser and who obtains information concerning recommendations
made to the Fund regarding the purchase or sale of securities by the
Fund.
M. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506
thereunder.
N. "Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
II. APPROVAL OF CODE OF ETHICS
A. The Board of Directors of the Fund, including a majority of the
Disinterested directors, shall approve this Code of Ethics and any
material changes thereto.
B. No less frequently than annually, the President of the Adviser shall
furnish a report to the Board of Directors of the Fund:
1. Describing issues arising under the Code of Ethics since the last
report to the Board of Directors, including, but not limited to,
information about material violations of the Code of Ethics and
sanctions imposed in response to such material violations. Such
report shall also include a list of access persons under the Code
of Ethics.
2. Certifying that the Adviser has adopted such procedures as are
reasonably necessary to prevent access persons from violating the
Code of Ethics.
2
<PAGE>
C. The President of the Adviser shall furnish a written report to
the Board of Directors of the Fund describing any material
changes to this Code of Ethics within ten (10) days after making
any such material change.
III. EXEMPTED TRANSACTIONS
The prohibitions of Section IV of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access
person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible
for purchase or sale by any Fund; provided, however, that the
prohibitions of Section IV.B of this Code of Ethics shall apply
to such purchases and sales.
(c) Purchases or sales which are non-volitional on the part of either
the access person or the Fund.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
(f) Purchases or sales which receive the prior approval of the Board
of Directors of the Fund because they are only remotely
potentially harmful to the Fund because they would be very
unlikely to affect a highly institutional market, or because they
clearly are not related economically to the securities to be
purchased, sold or held by the Fund.
IV. PROHIBITED ACTIVITIES
A. Except in a transaction exempted by Section III of this Code, no
access person shall purchase or sell, directly or indirectly, any
Covered Security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his
actual knowledge at the time of such purchase or sale is being
considered for purchase or sale by the Fund or is being purchased or
sold by the Fund.
B. Except in a transaction exempted by Section III of this Code of
Ethics, Investment Personnel (other than the Adviser's President) must
obtain approval from the Adviser's President before directly or
indirectly acquiring beneficial ownership in any securities in an
Initial Public Offering or in a Limited Offering. The Adviser's
President must obtain approval from a majority of the Disinterested
directors before directly or indirectly acquiring beneficial
3
<PAGE>
ownership in any securities in an Initial Public Offering or in a
Limited Offering. Prior approval shall not be given if the Adviser's
President or the Disinterested directors, as applicable, believe(s)
that the investment opportunity should be reserved for the Fund or is
being offered to the individual by reason of his or her position with
the Fund.
C. All access persons shall notify the Board of Directors of the Fund in
the event he or she serves on the board of directors of a publicly
traded company. Upon receipt of such notice, the Board of Directors of
the Fund shall determine whether such board service is consistent with
the interests of the Fund and its shareholders and take such action,
if any, that it deems appropriate.
V. REPORTING AND COMPLIANCE PROCEDURES
A. Except as provided in Section V.B. of this Code of Ethics, every
access person shall report the information described in Section V.C.,
Section V.D. and Section V.E. of this Code of Ethics. All reports
shall be filed with the Adviser's President.
B. 1. An access person need not make a report with respect to
transactions effected for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
2. An access person need not make a quarterly transaction report
pursuant to Section V.D. of this Code of Ethics if the report
would duplicate information contained in broker trade
confirmations or account statements received by the Adviser's
President with respect to the access person in the time period
required by Section V.D., provided that all of the information
required by Section V.D. is contained in the broker trade
confirmations or account statements or in the records of the
Fund.
C. Every access person shall, no later than ten (10) days after the
person becomes an access person, file an initial holdings report
containing the following information:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership when the person becomes an access person;
2. The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
4
<PAGE>
D. Every access person shall, no later than ten (10) days after the end
of a calendar quarter, file a quarterly transaction report containing
the following information:
1. With respect to any transaction during the quarter in a Covered
Security in which the access person had any direct or indirect
beneficial ownership:
(a) The date of the transaction, the title and the number of
shares, and the principal amount of each security involved;
(b) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) The price of the Covered Security at which the transaction
was effected;
(d) The name of the broker, dealer or bank with or through whom
the transaction was effected; and
(e) The date that the report is submitted by the access person.
2. With respect to any account established by the access person in
which any securities were held during the quarter for the direct
or indirect benefit of the access person:
(a) The name of the broker, dealer or bank with whom the access
person established the account;
(b) The date the account was established; and
(c) The date that the report is submitted by the access person.
E. Every access person shall, no later than January 30 each year, file an
annual holdings report containing the following information as of the
preceding December 31:
1. The title, number of shares and principal amount of each Covered
Security in which the access person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the access
person maintains an account in which any securities are held for
the direct or indirect benefit of the access person; and
3. The date that the report is submitted by the access person.
5
<PAGE>
F. Any report filed pursuant to Section V.C., Section V.D. or Section
V.E. of this Code of Ethics may contain a statement that the report
shall not be construed as an admission by the person making such
report that he has any direct or indirect beneficial ownership in the
security to which the report relates.
G. The Adviser's President shall review all reports filed pursuant to
Section V.C., Section V.D. or Section V.E. of this Code of Ethics. The
Adviser's President shall identify all access persons who are required
to file reports pursuant to this Section V of this Code of Ethics and
must inform such access persons of their reporting obligation.
H. Each year access persons shall certify to the Adviser that (i) they
have read and understand this Code of Ethics and recognize that they
are subject thereto, and (ii) they have complied with the requirements
of this Code of Ethics and that they have disclosed or reported all
personal securities transactions required to be disclosed or reported
pursuant to the requirements of this Code of Ethics.
I. Compliance with this Code of Ethics does not relieve access persons of
their obligations under any other code of ethics.
J. It is the policy of the Adviser that no director, officer or employee
may trade, either personally or on behalf of others, on material
nonpublic information or communicate material nonpublic information in
violation of the law. Attached to this Code of Ethics as Appendix A is
a detailed discussion of the Adviser's Insider Trading Policies and
Procedures.
VI. SANCTIONS
Upon discovering a violation of this Code of Ethics, the Board of Directors of
the Adviser may impose such sanctions as it deems appropriate.
6
Exhibit (p)(iii)
Atlantic Asset Management, L.L.C.
Code of Ethics and Personal Trading Compliance
Section 270.17-j of the Investment Company Act of 1940 requires that each
investment advisor adopt a written code of ethics and adopt provisions that
prevent access persons from engaging in activities that would serve to defraud
the investment company or its clients.
As such, AAM has adopted the Code of Ethics and Standards of Professional
Conduct developed by the Association of Investment Management and Research. We
are aware that potential conflicts of interest may arise in any investment
advisory organization. We believe that following these guidelines will serve to
minimize any potential conflict of interest. At all times and under all
circumstance AAM and its employees will place the interests of our clients
first.
Attached is the Code of Ethics that has been adopted by AAM. Please read and
retain a copy. All investment personnel are expected to be familiar with the
requirements of the Code of Ethics and adhere strictly to them.
Personal Trading Policy:
These reporting procedures for personal trading have been adopted to avoid any
conflicts of interest in trading personal security accounts, to prohibit
employees from carrying out any transactions that would place their interests
above any AAM client and to prevent any trading on inside information that could
arise.
All access persons (persons with access to intended security transactions made
by the firm) must obtain prior approval from the Compliance Officer for any
personal securities transactions or opening an account (see exemptions).
Brokerage firms should be notified of your employment with AAM and duplicate
trade confirms and account statements should be sent to AAM's Compliance
Officer. This applies to all accounts where you have a "beneficial interest"(1).
AAM will provide a letter for brokers requesting the necessary information. This
must be done for all new accounts and any existing account. If an access person
chooses to not have duplicate account statements and confirms sent to AAM, then
all trades must be reported on the quarterly transaction reports and a complete
list of holdings must be submitted annually.
The following is a list of securities and transactions which are excluded from
this reporting policy:
o U.S. Treasury securities issued
o Bankers acceptances, bank certificates of deposit, time deposits
o Commercial paper
o Repurchase agreements
o Shares of open-end investment companies
o Accounts where the employee does not exercise any discretion or
investment authority
- ------------------------
(1) "Covered accounts" is generally defined when a person is regarded as having
benefit ownership or interest of securities held in the name of: a husband, wife
or a minor child; a relative (including in-laws, step-children, or step-parent)
sharing the same house; anyone else if the person obtains benefits substantially
equivalent to ownership of the securities; or can obtain ownership of the
securities immediately or at some future time.
Amended March 1, 2000
<PAGE>
Code of Ethics and Personal Trading Compliance
Page Two
Also in conjunction with section 270.17-j of the Investment Company Act of 1940
every access person shall complete and return to AAM's Compliance Officer a
transactions summary report within 10 days after the end of the quarter. A
sample is attached.
The Amended Rule 17j-1 requires that within 10 days of becoming an access
person, the employee must provide an initial holdings report listing all
securities beneficially owned by the access person. Annually, a complete
holdings report must be submitted to the Compliance Officer by each access
person.
The Amended Rule 17j-1 also requires any "investment personnel"2 to obtain
pre-approval and review by the Compliance Officer of any investment in an
Initial Public Offering (IPO) or private placement (including securities issued
under Rule 144A).
Please indicate by signing below that you have received and acknowledge AAM's
Code of Ethics and indicate your willingness to comply with the practices set
forth herein.
- ------------------------------------------- ---------------------
Signature Date
- ------------------------
(2) "Investment personnel" is defined in Rule 17j-1 to include portfolio
managers and other employees of the fund or its investment adviser who
participate in making investment recommendations to the fund as well as persons
in a control relationship to the fund who obtain information about investment
recommendations made to the fund.
Amended March 1, 2000
<PAGE>
Atlantic Asset Management, L.L.C.
Statement of Security Holdings
For the quarter ended 3/31/00
Please use this form to report all securities which you, your immediate family
or other members of your immediate household, any trust, estate or account for
which you, your spouse or child is the beneficial owner or a fiduciary, or any
transaction in which you have a beneficial interest.
Transactions in the following types of securities need not be reported:
Securities issued or guaranteed by the US government or its agencies or
instrumentalities, bankers acceptances, bank CD's and time deposits, commercial
paper, repurchase agreements and shares of registered open-end investment
companies.
[ ] None
[ ] New account established (summarize below)
[ ] All my personal financial transactions which
involve buying or selling securities not
excluded above are summarized below or on
the attached beneficial interest statement
[ ] A copy of all my financial statements
involving the transactions described above
are sent directly to AAM's compliance office
Transaction Summary:
Broker/
Security Type of Par Dealer
Date Security Type Transaction Value Price Executed Acct #
- ---- -------- -------- ----------- ----- ----- -------- ------
New Account Summary:
Are Transactions Have Duplicate Statements
Date Broker Listed Above? Been Requested For AAM?
I certify that the information supplied by me on this form is true and complete
to the best of my knowledge.
- -------------------------------
Printed Name
- ------------------------------- -----------------------
Signature Date
Amended March 1, 2000
Exhibit (p)(iv)
Draft April 26, 2000
INCOME RESEARCH & MANAGEMENT, INC.
CODE OF ETHICS
I. Definitions
The following definitions are used throughout this code to make the text
simpler and easier to read.
A. Acquisition or acquire Any purchase and the receipt of any gift of a
covered security.
B. Access person Any director, officer or advisory person of IR&M.
Advisory person means:
1. Every employee of IR&M (or of any company in a control
relationship to IR&M) who, in connection with his or her regular
functions or duties, makes, participates in, or obtains
information regarding, the purchase or sale of covered securities
by a fund or other client, or whose functions relate to the
making of any recommendations about these purchases or sales of
covered securities by a fund or other client and
2. Every natural person in a control relationship to IR&M who
obtains information about recommendations made to a fund or other
client concerning the purchase or sale of a covered security and
every other employee or independent contractor of IR&M designated
as an access person by the compliance director.
C. Beneficial ownership A direct or indirect "pecuniary interest" (as
defined in subparagraph (a)(2) of rule 16a-1 under the Securities
Exchange Act of 1934 (the "1934 Act")) that is held or shared by a
person directly or indirectly (through any contract, arrangement,
understanding, relationship or otherwise) in a security. While the
definition of "pecuniary interest" in subparagraph (a)(2) of rule
16a-1 is complex, the term generally means the opportunity directly or
indirectly to profit or share in any profit derived from a transaction
in a security. See the examples at the back of this code.
D. Compliance director The IR&M officer who is responsible for enforcing
and interpreting this code. The current compliance director is Jack A.
Sommers.
E. Control The power to exercise a controlling influence over the
management or policies of a company, unless this power is solely the
result of an official position with the company.
F. Covered security Any security other than those excluded in
subparagraphs 1 through 4 of this paragraph. The term covered security
includes any type of equity or debt security, any rights to acquire,
dispose of or otherwise relating to the security, such as put and call
options, warrants and convertible securities, and any other derivative
instrument based on the security. Covered securities exclude:
April 26, 2000 Page 1 of 14
<PAGE>
1. Direct obligations of the government of the United States.
2. Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements.
3. Shares issued by open-end management investment companies
registered under the 1940 Act.
4. Any other security determined by the Securities and Exchange
Commission ("SEC") or its staff to be excluded from the
definition of "covered security" contained in rule 17j-1 under
the 1940 Act.
G. Covered security held or to be acquired
1. Any covered security which, within the most recent 15 days:
a. Is or has been held by any fund or other IR&M client; or
b. Is being or has been considered by the Adviser for purchase
by a fund or other IR&M client. A covered security is "being
or has been considered for purchase" when any individual who
makes the final investment decision for a fund or other IR&M
client is giving or has given serious consideration to a
purchase of the covered security.
2. Any option to purchase or sell, and any security convertible
into, or exchangeable for, a covered security described in
paragraph (1) of this definition.
H. Disposition or dispose Any sale and the making of any personal or
charitable gift of covered securities.
I. Fund Any investment company registered under the 1940 Act or any
series of a registered investment company for which IR&M acts as
investment adviser or subadviser.
J Immediate family member An IR&M employee's child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-
or father-in-law, sister- or brother-in-law, and son- or
daughter-in-law. This term includes adoptive relationships.
K. Initial public offering An offering of securities registered under the
Securities Act of 1933 (the "1933 Act"), the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of section 13 or 15(d) of the 1934 Act.
L. Investment person Any access person who, in connection with his or her
regular functions or duties, makes or participates in making
recommendations regarding the purchase or sale of covered securities
by an IR&M client. Investment persons generally
April 26, 2000 Page 2 of 14
<PAGE>
include portfolio managers and analysts whose primary responsibilities
include recommending and selecting securities for the accounts of IR&M
clients.
M. IR&M Income Research & Management, Inc.
N. IR&M client Any client, including a fund, for which IR&M manages
assets. Any reference to client accounts refers only to accounts
managed by IR&M and not accounts managed by others.
O. IR&M employee Any employee of IR&M, acting for an account in which any
of the following persons has direct or indirect beneficial ownership:
1. the employee, the employee's spouse or minor children or any
member of the employee's immediate family sharing the same
household (an "employee account"), or
2. the employee or an immediate family member of the employee (for
example, a family trust) if the account receives investment
advice of any kind from the employee (a "family account").
P. Limited offering An offering that is exempt from registration under
the 1933 Act pursuant to section 4(2) or section 4(6) of the 1933 Act
or rule 504, 505 or 506 under the 1933 Act.
Q. 1940 Act The Investment Company Act of 1940 and the rules thereunder,
both as amended from time to time, and any order or orders thereunder
that may from time to time be applicable to any fund.
R. Purchase Among other things, the writing of an option to purchase a
security.
S. Sale Among other things, the writing of an option to sell a security.
T. Security A security as defined in section 2(a)(36) of the 1940 Act.
U. Short-Term Trading The sale of a covered security (or closing of an
option on the covered security) within 90 days after purchasing the
covered security (or entering into the option). The exercise by the
holder of an option written by the IR&M employee is not a closing of
the option. For sales that require preclearance, all sales of a
particular security covered by the same written approval will be
treated as a single transaction. For sales that do not require
preclearance, all sales of a particular security effected within any
period of 5 business days will be treated as a single transaction.
II. General Principles
All IR&M employees should always place the interests of IR&M clients ahead
of their own. Each IR&M employee should conduct all personal securities
transactions in a manner that is consistent with this code of ethics and avoids
any actual or potential conflict of interest. No
April 26, 2000 Page 3 of 14
<PAGE>
IR&M employee may misuse information about client accounts, abuse the employee's
position of trust and responsibility or take inappropriate advantage of the
employee's position.
III. Prohibited Transactions
A. Fraudulent Practices No IR&M employee, in connection with the purchase
or sale, directly or indirectly, by that employee of a covered
security held or to be acquired by a fund or other IR&M client, may:
1. employ any device, scheme or artifice to defraud a fund or other
IR&M client;
2. make to the fund or other IR&M client any untrue statement of a
material fact or omit to state to a fund or other IR&M client a
material fact necessary in order to make the statement made, in
light of the circumstances under which it was made, not
misleading;
3. engage in any act, practice or course of business which operates
or would operate as a fraud or deceit upon a fund or other IR&M
client; or
4. engage in any manipulative practice with respect to a fund or
other IR&M client.
B. Improper Use of Information No IR&M employee may use information from
any source in a manner contrary to the interest of, or in competition
with, any IR&M client. No IR&M employee may use his or her knowledge
about the securities transactions or holdings of an IR&M client in
trading for any employee or family account. Any investment ideas
developed by an IR&M employee must be made available to the IR&M
clients before the IR&M employee may engage in personal transactions
based on these ideas.
C. Front-Running. No IR&M employee may engage in front-running an order
or recommendation for an IR&M client, regardless of who is handling or
generated the order or recommendation. Front-running means purchasing
or selling the same or underlying securities, or derivatives based on
these securities, ahead of and based on a knowledge of IR&M client
securities transactions that are likely to affect the value of these
securities.
D. Personal Trading While Client Trades are Pending. No IR&M employee may
purchase or sell any covered security that:
1. Is being purchased or sold on behalf of an IR&M client. (This
means that an order has been entered but not executed for the
IR&M client);
2. Has been purchased or sold on behalf of an IR&M client within the
previous 5 business days; or
3. Currently is being considered for purchase or sale on behalf of
any IR&M client, even though no order has been placed, unless the
transaction is exempt under section VI below.
April 26, 2000 Page 4 of 14
<PAGE>
These prohibitions will continue until IR&M completes the purchase or
sale or decides not to engage in the transaction.
================================================================================
REMINDER
The buying, writing or closing out of a put or call option on a
covered security is considered to be a transaction in the
underlying covered security and is subject to the same restrictions
as the direct purchase or sale of the covered security.
================================================================================
E. Short Sales No IR&M employee may sell short a covered security held in
an IR&M client account managed by IR&M.
F. Excessive Short-Term Trading Although short-term trading is not
absolutely prohibited, IR&M employees are hired and compensated with
the expectation that they will invest for their employee and family
accounts on a long-term basis. Short-term trading is excessive when it
(1) presents an unacceptable risk of conflicts with the interests of
IR&M clients, (2) may over time impair the IR&M employee's judgment on
behalf of IR&M clients or (3) may unduly occupy an IR&M employee's
thoughts and time during working hours. Accordingly, no IR&M employee
may continue to engage in a pattern of short-term trading that the
compliance director has determined to be excessive. The compliance
director will make this determination case-by-case, taking into
account all relevant factors, including prevailing securities market
conditions and the types of securities traded.
G. Transactions With or Involving IR&M Clients No IR&M employee may
directly or indirectly sell to or purchase from an IR&M client any
security or other property, other than shares issued by the funds.
Each IR&M employee must also refrain from knowingly engaging in any
transaction (1) to which an IR&M client is a party or (2) that affects
the interests of an IR&M client.
H. Disclosure of Confidential IR&M Information No IR&M employee may
disclose unnecessarily or for personal gain to any person outside IR&M
any confidential information about (1) IR&M's research or (2) the
portfolio or actual or proposed securities transactions of any IR&M
client. All information about IR&M and its clients is considered
confidential unless it has been publicly announced or reported, or
there is a valid business reason for disclosing the information.
I. Inside Information No IR&M employee may use or trade on the basis of
inside information about any issuer of securities, whether on behalf
of the employee, an IR&M client or any other person. Inside
information is material information not generally available to the
public. No IR&M employee may solicit inside information from any
company, whether or not IR&M clients own the company's stock or IR&M
analysts follow the company. Any IR&M employee who inadvertently
receives inside information should contact the compliance director
immediately.
April 26, 2000 Page 5 of 14
<PAGE>
J. Improper Use of Funds No IR&M employee may pay, or offer or commit to
pay any consideration which might be or appear to be a bribe, kickback
or other improper payment in connection with IR&M's business. Any IR&M
employee who learns of any such payments or has any questions on this
subject should immediately contact the compliance director.
K. Solicitation of Contributions No IR&M employee may solicit any
charitable, political or other contribution on IR&M letterhead, while
referring to IR&M in connection with the solicitation or in person
while on IR&M business. An IR&M employee who uses other permitted
media to solicit such a contribution from IR&M vendors must refrain
from suggesting that the contribution is required to keep IR&M's
business.
L. Gifts or Other Preferential Treatment No IR&M employee or member of
his or her immediate family living in the same household may seek or
accept gifts, favors, preferential treatment or special arrangements
of material value from any broker, dealer, investment adviser, bank,
financial institution or other supplier of goods or services to IR&M,
on behalf of itself or its clients. The following table provides a
non-exclusive list of examples of items that are considered or not
considered to have material value.
----------------------------------------------------------------------
Items With Material Value Items Without Material Value
DO NOT ACCEPT YOU MAY ACCEPT
------------------------------- ----------------------------------
Any gift with a value of over Occasional lunches and dinners
$100 or which, together with conducted for business purposes
other gifts received from the ----------------------------------
same source during the same Occasional attendance at theater,
calendar year, has a value of sporting or other entertainment
over $100 events
------------------------------- ----------------------------------
Entertainment (such as sporting Occasional cocktail parties or
events, theater, golf games, similar social events conducted
etc.) of a recurring nature for business purposes
from the same source
------------------------------- ----------------------------------
The cost of transportation to, Small gifts (usually in the form
and lodging and meals while in, of reminder advertising) such as
a place outside the Boston pens, calendars, etc., with a
Metropolitan area, unless the cumulative value during any one
receipt of these items has been calendar year of not more than
approved in advance by the $100 per source.
compliance director
------------------------------- ----------------------------------
Personal loans to the employee
of family member on terms more
favorable than those generally
available to persons of
comparable credit standing and
with comparable collateral
-------------------------------
Preferential brokerage
commissions or spreads for, the
allocation of stock in 'hot
issue' initial public offerings
to or the opportunity to buy
securities in a limited
offering for an employee or
account of an IR&M employee
----------------------------------------------------------------------
April 26, 2000 Page 6 of 14
<PAGE>
Notwithstanding the above examples, an IR&M employee may not, under any
circumstances, accept anything that could lead to or reinforce the appearance of
any conflict of interest. For example, an IR&M employee may not accept any gift
that appears to be a reward or inducement for directing IR&M's business to the
giver or the giver's employer.
IV. Special Rules for Investment Persons
A. An investment person, before purchasing securities for the account of
an IR&M client managed by that investment person, must sell from the
investment person's employee and family accounts any of those
securities that were purchased within the last 15 calendar days.
B. An investment person must obtain advance written approval from the
compliance director in order to voluntarily sell from an employee or
family account any security held in an IR&M client portfolio that is
managed by the investment person. The compliance director may grant
this approval if he determines that:
1. Preventing the sale would impose undue hardship on the investment
person or
2. The sale would not reflect adversely on the suitability of the
security for the IR&M client portfolios managed by the investment
person.
V. Activities and Transactions that Require Preclearance or Waivers
A. Preclearance Requirement No IR&M employee may engage in any of the
activities described in this section unless the employee applies for
and obtains advance written approval from the compliance director.
1. Initial Public Offerings Purchasing covered securities in an
initial public offering or on the open market within 5 business
days after the termination of an initial public offering of the
covered securities.
2. Limited Offerings Purchasing covered securities in a limited
offering.
3. Service on Unaffiliated Company Boards Serving as a director or
trustee of an unaffiliated company. The compliance director will
not usually approve requests by investment persons to serve as
directors or trustees of companies that might be eligible for
investment by any IR&M client.
4. Outside Fiduciary Positions Accepting an appointment or serving
as a trustee, executor, custodian or other fiduciary, or as a
private investment adviser or counselor, for any outside account.
5. Outside Consulting Services Becoming involved in consultations or
negotiations for corporate financing, acquisitions or other
transactions for outside companies
April 26, 2000 Page 7 of 14
<PAGE>
(whether or not held by any IR&M client) or negotiating or
accepting a fee in connection with these activities.
B. Waivers The compliance director, after consultation with the
appropriate IR&M personnel, may grant a written waiver from any of the
substantive provisions of this code if the compliance director
determines that the waiver (1) is justified to avoid undue hardship to
the affected IR&M employee and (2) would not lead to any of the abuses
or potential abuses that this code is designed to prevent. IR&M
employees should not expect waivers to be routinely granted and are
discouraged from seeking waivers except in unusual circumstances.
VI. Exemptions
The following transactions are exempt from the substantive restrictions and
preclearance requirements in sections III, IV and V, but not from the reporting
provisions, of this code.
A. No Influence or Control Purchases or sales of securities for an
account over which the IR&M employee has no direct or indirect
influence or control.
B Non-Volitional Transactions Purchases or sales of securities which are
non-volitional on the part of the IR&M employee. These include:
1. Option Exercises by Others The purchase or sale of a security in
conformity with an IR&M employee's contractual obligations under
a put or call option sold (written) in compliance with this code
and exercised by the holder of the option. An exercise does not
include the closing out of an option by the IR&M employee.
2. Margin Calls The sale by a broker-dealer of a security in a
margin account maintained with the broker-dealer by an IR&M
employee pursuant to a bona fide margin call, but only if the
withdrawal of collateral from the account was not a factor
contributing to the occurrence of the margin call.
C. Automatic Purchases or Sales Purchases or sales of securities that are
part of an automatic dividend reinvestment, cash purchase or
withdrawal plan, but only if the IR&M employee makes no adjustment to
the amount of securities purchased or sold under the plan.
D. Exercises of Rights Purchases of securities resulting from the
exercise of rights issued by an issuer pro rata to all holders of a
class of its securities, to the extent these rights were acquired by
the IR&M employee from the issuer, and sales of rights so acquired.
E. All or None Tender Offers Tenders of securities pursuant to tender
offers which are expressly conditioned on the tender offeror's
acquisition of all of the securities of the same class.
April 26, 2000 Page 8 of 14
<PAGE>
VII. Brokerage Accounts
IR&M employees must direct their brokers to supply to the compliance director on
a timely basis duplicate copies of confirmations of all covered securities
transactions in which the IR&M employee has a beneficial ownership interest and
related periodic statements for all employee and family accounts, whether or not
one of the exemptions listed in section VI applies. If an IR&M employee is
unable to arrange for duplicate copies of confirmations and periodic account
statements to be sent to the compliance director, the IR&M employee must
immediately notify the compliance director.
VIII.Reporting Requirements
Every IR&M access person subject to this section VIII must submit to the
compliance director, on forms designated by the compliance director, the
following reports as to (1) all covered securities and brokerage accounts in
which the access person has, or by reason of a transaction, acquires beneficial
ownership, whether or not the IR&M employee had any direct or indirect control
over the covered securities or accounts and (2) all family accounts, in each
case, including reports covering securities and accounts exempted by section VI.
A. Initial Holdings Reports Not later than 10 days after an access person
becomes an access person, the following information:
1. The title, number of shares and principal amount of each covered
security (x) in which the access person had any direct or
indirect beneficial ownership and (y) that was included in a
family account when the access person became an access person.
2. The name of any broker, dealer or bank with whom the IR&M
employee maintained (x) an account containing securities
(including but not limited to covered securities) in which the
access person had any direct or indirect beneficial ownership or
(y) a family account, each as of the date the access person
became an access person.
3. The date the report is being submitted by the access person.
B. Quarterly Transaction Reports Not later than 10 days after the end of
each calendar quarter, the following information:
1. Covered Securities Transaction. For any acquisition or
disposition during the calendar quarter of a covered security (x)
in which the access person had any direct or indirect beneficial
ownership and (y) that was included in a family account:
a. The date of the acquisition or disposition, the title, the
interest rate and maturity date (if applicable), the number
of shares and the principal amount of each covered security.
April 26, 2000 Page 9 of 14
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b. The nature of the acquisition or disposition (i.e.,
purchase, sale, gift or any other type of acquisition or
disposition).
c. The price of the covered security at which the acquisition
or disposition was effected.
d. The name of the broker, dealer or bank with or through which
the acquisition or disposition was effected.
e. The date the report is being submitted by the access person.
2. Brokerage Accounts For (x) any account established by the access
person containing securities (including but not limited to
covered securities) in which the person had a direct or indirect
beneficial ownership and (y) a family account during the quarter:
a. The name of the broker, dealer or bank with whom the access
person established the account.
b. The date the account was established.
c. The date the report is being submitted by the access person.
3. If There Are No Transactions or New Accounts If no reportable
transactions in any covered securities were effected or new
accounts opened during a calendar quarter, the affected access
person must submit to the compliance director, within ten
calendar days after the end of the quarter, a report stating that
no reportable covered securities transactions were effected and
no new accounts were opened during the quarter.
C. Annual Holdings Reports By a date specified by the compliance director
and as of a date within 30 days before this reporting deadline, the
following information:
1. The title, number of shares and principal amount of each covered
security (x) in which the access person had any direct or
indirect beneficial ownership and (y) that was included in a
family account.
2. The name of any broker, dealer or bank with whom the access
person maintained (x) an account containing securities in which
the access person had any direct or indirect beneficial ownership
and (y) a family account.
3. The date the report is being submitted by the access person.
D. Identification of Exemptions Every report concerning a covered
securities transaction that would be prohibited by section III, IV or
V if an exemption were not available under section VI must identify
the exemption relied upon and describe the circumstances of the
transaction.
April 26, 2000 Page 10 of 14
<PAGE>
E. Avoiding Duplicative Reports Notwithstanding paragraph B of this
section VIII, an access person need not make quarterly transaction
reports under this code of ethics if the reported information would
duplicate information (1) contained in a broker confirmation or
account statement submitted in accordance with section VII of this
code or (2) reported pursuant to rule 204-2(a)(12) under the
Investment Advisers Act of 1940 (the "Advisers Act").
F. Disclaimer of Beneficial Ownership Any report submitted by an access
person in accordance with this code may contain a statement that the
report will not be construed as an admission by that person that he or
she has any direct or indirect beneficial ownership in any covered
security to which the report relates. The existence of any report will
not by itself be construed as an admission that any event included in
the report is a violation of this code.
G. Alternative Reporting Procedures To the extent consistent with rule
17j-1 under the 1940 Act, and rule 204-2(a)(12) under the Advisers
Act, the compliance director may approve other alternative reporting
procedures.
IX. Initial and Annual Certification of Compliance
A. Initial Certification Each IR&M employee, within ten (10) days after
becoming an IR&M employee, must certify, on a form designated by the
compliance director, that the IR&M employee:
1. Has received, read and understands this code of ethics and
recognizes that the IR&M employee is subject to the code;
2. Will comply with all the requirements of this code of ethics; and
3. Has disclosed to the compliance director all holdings of covered
securities and all accounts required to be disclosed pursuant to
the requirements of this code of ethics.
B. Annual Certification Each IR&M employee must also certify annually (by
a date specified by and on the form designated by the compliance
director) that the IR&M employee:
1. Has received, read and understand this code of ethics and
recognizes that the IR&M employee is subject to the code;
2. Has complied with all the requirements of this code of ethics;
and
3. Has disclosed or reported all personal securities
transactions, holdings and accounts required to be disclosed
or reported in compliance with the requirements of this code
of ethics.
April 26, 2000 Page 11 of 14
<PAGE>
X. Confidentiality
All information obtained from any IR&M employee under this code normally will be
kept in strict confidence by IR&M, except that reports of transactions and other
information obtained under this code may be made available to the SEC or any
other regulatory or self-regulatory organization or other civil or criminal
authority to the extent required by law or regulation or to the extent
considered appropriate by senior management of IR&M in light of all the
circumstances. In addition, in the event of violations or apparent violations of
the code, this information may be disclosed to affected IR&M clients.
XI. Identification of and Notice to Access Persons
The compliance director will (A) identify all persons who are considered to be
access persons and investment persons, (B) inform these persons of their
respective duties and (C) provide these persons with copies of this code of
ethics.
XII. Review of Reports
A. The compliance director will compare the reported personal securities
transactions and holdings of each IR&M employee with completed and
contemplated portfolio transactions and holdings of IR&M clients to
determine whether a violation of this code may have occurred. The
alternative compliance director will make this comparison in reviewing
the reports of the compliance director. Before determining that a
violation has been committed by any IR&M employee, the compliance
director or alternative compliance director will provide that person
with an opportunity to supply additional explanatory material.
B. If the compliance director or alternative compliance director
determines that a violation of this code has or may have occurred, he
or she will submit a written determination, together with the related
report by the IR&M employee and any additional explanatory material
provided by the IR&M employee, to the president of IR&M, who will
independently consider and determine whether a violation has occurred.
C. On an annual basis, the compliance director will prepare a summary of
the level of compliance by all IR&M employees with this code during
the previous year. This summary will include the percentage of access
person reports timely filed, the number and nature of all material
violations and any other material information.
XIII.Sanctions
Any violation of this code of ethics will result in the imposition of such
sanctions as the management of IR&M may deem appropriate under the
circumstances. These sanctions may include, but are not limited to, a warning,
disgorgement of profits obtained in connection with a violation, the imposition
of fines, suspension, demotion, termination of employment or referral to civil
or criminal authorities.
April 26, 2000 Page 12 of 14
<PAGE>
XIV. Recordkeeping Requirements
IR&M will maintain and preserve:
A. In an easily accessible place, a copy of this code of ethics (and any
prior code of ethics that was in effect at any time during the past
five years) for a period of five years;
B. In an easily accessible place, a record of any violation of this code
of ethics (and any prior code of ethics that was in effect at any time
during the past five years) and of any action taken as a result of
this violation for a period of five years following the end of the
fiscal year in which the violation occurs;
C. A copy of each report (or computer printout) submitted under this code
of ethics for a period of five years. For the first two years these
reports must be maintained and preserved in an easily accessible
place;
D. In an easily accessible place, a list of all persons who are, or
within the past five years were, required to make or required to
review, reports pursuant to this code of ethics.
E. A copy of each report provided to any fund as required by paragraph
(c)(2)(ii) of rule 17j-1 under the 1940 Act or any successor provision
for a period of five years following the end of the fiscal year in
which the report is made. For the first two years each report will be
preserved in an easily accessible place; and
F. A written record of any decision, and the reasons supporting any
decision, to approve the purchase by an access person of any security
in an initial public offering or in a limited offering. Each record
must be maintained for a period of five years following the end of the
fiscal year in which the approval is granted.
Approved: March , 2000
April 26, 2000 Page 13 of 14
<PAGE>
EXAMPLES OF BENEFICIAL OWNERSHIP
"Beneficial ownership" of a security has been addressed by the Securities and
Exchange Commission in a number of releases and encompasses many diverse
situations, including the following:
1. Securities held by you for your own benefit, whether bearer form,
registered in your name, or otherwise.
2. Securities held by others for your benefit (regardless of whether or
how they are registered), such as securities held for you by a
custodian, broker, relative, executor or administrator.
3. Securities held for your account by a pledgee.
4. Securities held by a trust in which you have an income or remainder
interest, unless you only interest is to receive principal if (i) some
other remainderman dies before distribution, or (ii) some other person
by will directs a distribution of trust property or income to you.
5. Securities held by you as trustee or co-trustee, if either you or a
member of your immediate family (i.e., your spouse, children and their
descendants, step-children, parents and their ancestors, and
step-parents [treating a legal adoption as a blood relationship]) have
an income or remainder interest in the trust.
6. Securities held by a trust of which you are the settlor, if you have
the power to revoke the trust without obtaining the consent of all the
beneficiaries.
7. Securities held by any partnership in which you are a partner.
8. Securities held by a personal holding company controlled by you alone
or jointly with others.
9. Securities held in the name of your spouse unless you are legally
separated.
10. Securities held in the name of your minor child or in the name of any
relative of yours or of your spouse (including an adult child) who is
presently sharing your home, even if the securities were not received
from you and the dividends are not actually used for the maintenance
of your home.
11. Securities held in the name of another person (other than those listed
in examples 9 and 10 above), if by reason of any contract,
understanding, relationship, agreement or other arrangement, you
obtain benefits substantially equivalent the those of ownership.
12. Securities held in the name of any person other than yourself, even
though you do not obtain benefits substantially equivalent to those of
ownership (as described in example 11 above), if you can vest or
revest title in yourself.
April 26, 2000 Page 14 of 14
NFJ INVESTMENT GROUP
CODE OF ETHICS
Effective May 1, 1996
INTRODUCTION
Fiduciary Duty
This Code of Ethics is based on the principle that you, as a director,
officer or employee of NFJ Investment Group (Partnership), owe a fiduciary duty
to the shareholders of the registered investment companies (the Funds) and other
clients (together with the Funds, the Advisory Clients) for which Partnership
serves as an adviser or subadviser. Accordingly, you must avoid activities,
interests and relationships that might interfere or appear to interfere with
making decisions in the best interests of our Advisory Clients.
At all times, you must:
1. Place the interests of our Advisory Clients first. In other
words, as a fiduciary you must scrupulously avoid serving your
own personal interests ahead of the interests of our Advisory
Clients. You may not cause an Advisory Client to take action, or
not to take action, for your personal benefit rather than the
benefit of the Advisory Client. For example, you would violate
this Code if you caused an Advisory Client to purchase a Security
you owned for the purpose of increasing the price of that
Security. If you are a portfolio manager or an employee who
provides information or advice to a portfolio manager or helps
execute a portfolio manager's decisions (each, a Portfolio
Employee), you would also violate this Code if you made a
personal investment in a Security that might be an appropriate
investment for an Advisory Client without first considering the
Security as an investment for the Advisory Client.
2. Conduct all of your personal Securities transactions in full
compliance with this Code and the Partnership Insider Trading
Policy. The Partnership encourages you and your family to develop
personal investment programs. However, you must not take any
action in connection with your personal investments that could
cause even the appearance of unfairness or impropriety.
Accordingly, you must comply with the policies and procedures set
forth in this Code under the heading Personal Securities
Transactions. In addition, you must comply with the policies and
procedures set forth in the Partnership Insider Trading Policy,
which is attached to this Code as Appendix I. Doubtful situations
should be resolved against your personal trading.
<PAGE>
3. Avoid taking inappropriate advantage of your position. The
receipt of investment opportunities, gifts or gratuities from
persons seeking business with the Partnership directly or on
behalf of an Advisory Client could call into question the
independence of your business judgment. Accordingly, you must
comply with the policies and procedures set forth in this Code
under the heading Fiduciary Duties. Doubtful situations should be
resolved against your personal interest.
Appendices
The following appendices are attached to this Code and are a part of
this Code:
I. The Partnership Insider Trading Policy.
II. Form for preclearance of Non Exempt Securities transactions.
III. Form for annual report of personal Securities holdings.
IV. Form for quarterly report of Securities transactions.
V. Form for acknowledgment of receipt of this Code.
VI. Form for annual certification of compliance with this Code.
Questions
Questions regarding this Code should be addressed to a Compliance
Officer. As of the effective date of this Code, the Compliance Officers for your
organization are Kenneth M. Poovey, Sharon A. Cheever, Richard Weil, Mark J.
Porterfield and John Johnson.
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PERSONAL SECURITIES TRANSACTIONS
Trading in General
You may not engage, and you may not permit any other person or entity
to engage, in any purchase or sale of Securities (other than Exempt Securities)
of which you have, or by reason of the transaction will acquire, Beneficial
Ownership, unless the transaction is an Exempt Transaction.
Securities
The following are Securities:
Any note, stock, treasury stock, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option or privilege on
any security (including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value thereof), or
any put, call, straddle, option or privilege entered into on a national
securities exchange relating to foreign currency, or, in general, any interest
or instrument commonly known as a security, or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase, any security.
The following are not Securities:
Commodities, futures and options traded on a commodities exchange,
including currency futures. However, futures and options on any group or index
of Securities are Securities.
Exempt Securities
The following are &empt Securities:
1. Securities issued by the Government of the United States.
2. Bankers' acceptances, bank certificates of deposit, commercial
paper, bank repurchase agreements and such other money market
instruments as may be designated from time to time by the
committee appointed by the Partnership to administer this Code
(the Compliance Committee). The Compliance Committee consists of
the following members: Kenneth M. Poovey, Sharon A. Cheever,
Richard Weil, Mark J. Porterfield and John Johnson.
3. Shares of registered open-end investment companies.
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Beneficial Ownership
You are considered to have Beneficial Ownership of Securities if you
have or share a direct or indirect Pecuniary Interest in the Securities.
You have a Pecuniary Interest in Securities if you have the
opportunity, directly or indirectly, to profit or share in any profit derived
from a transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in
Securities:
1. Securities held by members of your immediate family sharing the
same household; however, this presumption may be rebutted by
convincing evidence that profits derived from transactions in
these Securities will not provide you with any economic benefit.
Immediate family means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a
general or limited partnership.
3. Your interest as a manager-member in the Securities held by a
limited liability company.
You do not have an indirect Pecuniary Interest in Securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, unless you are a controlling equityholder or you have
or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of
Securities held by a trust:
1. Your ownership of Securities as a trustee where either you or
members of your immediate family have a vested interest in the
principal or income of the trust.
2. Your ownership of a vested beneficial interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of
the beneficiaries is required in order for you to revoke the
trust.
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<PAGE>
Exempt Transactions
The following are Exempt Transactions:
1. Any transaction in Securities in an account over which you do not
have any direct or indirect influence or control. There is a
presumption that you can exert some measure of influence or
control over accounts held by members of your immediate family
sharing the same household, but this presumption may be rebutted
by convincing evidence.
2. Purchases of Securities under dividend reinvestment plans.
3. Purchases of Securities by exercise of rights issued to the
holders of a class of Securities pro rata, to the extent they are
issued with respect to Securities of which you have Beneficial
Ownership.
4. Acquisitions or dispositions of Securities as the result of a
stock dividend, stock split, reverse stock split, merger,
consolidation, spin-off or other similar corporate distribution
or reorganization applicable to all holders of a class of
Securities of which you have Beneficial Ownership.
5. Subject to the restrictions on participation in private
placements set forth below under Private Placements, acquisitions
or dispositions of Securities of a private issuer. A private
issuer is an issuer which has no outstanding publicly-traded
Securities, and no outstanding Securities which are convertible
into or exchangeable for, or represent the right to purchase or
otherwise acquire, publicly-traded Securities. However, you will
have Beneficial Ownership of Securities held by a private issuer
whose equity Securities you hold, unless you are not a
controlling equityholder and do not have or share investment
control over the Securities held by the entity.
6. Such other classes of transactions as may be designated from time
to time by the Compliance Committee based upon a determination
that the transactions do not involve any realistic possibility of
a violation of Rule 17j-1 under the Investment Company Act of
1940, as amended. The Compliance Committee may exempt designated
classes if transactions from any of the provisions of this Code
except the provisions set forth below under Reporting.
7. Such other specific transactions as may be exempted from time to
time by a Compliance Officer. On a case-by-case hardship basis
when no abuse is involved, a Compliance Officer may exempt a
specific transaction from any of the provisions of this Code
except the provisions set forth below under Reporting.
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<PAGE>
Circumstances Requiring Preclearance
If you have Beneficial Ownership of Securities which are not Exempt
Securities and which cannot be sold in Exempt Transactions, such Securities may
be sold only in compliance with the procedures set forth below under
Preclearance Procedures.
The Compliance Committee may designate as Exempt Transactions
purchases and sales of Securities which are purchased or sold in compliance with
the procedures set forth below under Preclearance Procedures.
Preclearance Procedures
If a Securities transaction requires preclearance:
1. The Securities may not be purchased or sold on any day during
which there is a pending buy or sell order in the same Security
on behalf of an Advisory Client until that order is executed or
withdrawn.
2. If you are a portfolio manager, the Securities may not be
purchased or sold during the period which begins seven days
before and ends seven days after the day on which a portfolio you
manage trades in the same Security.
3. The Securities may be purchased or sold only if you have asked a
Compliance Officer to preclear the purchase or sale, the
Compliance Officer has given you preclearance in writing, and the
purchase or sale is executed by the close of business on the day
preclearance is given. Preclearance will not be given unless a
determination is made that the purchase or sale complies with
this Code and the foregoing restrictions. The form for requesting
preclearance is attached to this Code as Appendix II.
Initial Public Offerings
If you are a Portfolio Employee, you may not acquire Beneficial
Ownership of any Securities (other than Exempt Securities) in an initial public
offering.
Private Placements
If you are a Portfolio Employee, you may not acquire Beneficial
Ownership of any Securities (other than Exempt Securities) in a private
placement, unless you have received the prior written approval of the Chief
Executive Officer and a Compliance Officer of the Partnership. Approval will be
not be given unless a determination is made that the investment opportunity
should not be reserved for one or more Advisory Clients, and that the
opportunity to invest has not been offered to you by virtue of your position.
If you have acquired Beneficial Ownership of Securities in a private
placement, you must disclose your investment when you play a part in any
consideration of an investment by
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<PAGE>
an Advisory Client in the issuer of the Securities, and any decision to make
such an investment must be independently reviewed by a portfolio manager who
does not have Beneficial Ownership of any Securities of the issuer.
Short-Term Trading Profits
If you are a Portfolio Employee, you may not profit from the purchase
and sale, or sale and purchase, within 60 calendar days, of the same (or
equivalent) Securities (other than Exempt Securities) of which you have
Beneficial Ownership. Any such short-term trade must be unwound, or if that is
not practical, the profits must be contributed to a charitable organization.
You are considered to profit from a short-term trade if Securities of
which you have Beneficial Ownership are sold for more than their purchase price,
even though the Securities purchased and the Securities sold are held of record
or beneficially by different persons or entities.
REPORTING
Use of Broker-Dealers
Unless you are an independent director, you may not engage, and you
may not permit any other person or entity to engage, in any purchase or sale of
publicly-traded Securities (other than Exempt Securities) of which you have, or
by reason of the transaction will acquire, Beneficial Ownership, except through
a registered broker-dealer.
Reporting of Transactions
Unless you are an independent director, you must cause each
broker-dealer who maintains an account for Securities of which you have
Beneficial Ownership, to provide to the Compliance Officer of the Partnership,
on a timely basis, duplicate copies of confirmations of all transactions in the
account and of periodic statements for the account and you must report to the
Compliance Officer of the Partnership, on a timely basis, all transactions
effected without the use of a broker in Securities (other than Exempt Securities
of which you have Beneficial Ownership).
Annual Reports
If you are a Portfolio Employee, you must disclose your holdings of
all Securities (other than Exempt Securities) of which you have Beneficial
Ownership upon commencement of your employment by the Partnership or the
effective date of this Code, whichever occurs later, and annually thereafter.
The form for this purpose is attached to this Code as Appendix III.
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<PAGE>
Independent Directors
If you are an independent director, you must provide a quarterly
report of any transaction in Securities (other than Exempt Securities) of which
you had, or by reason of the transaction acquired, Beneficial Ownership, and as
to which you knew, or in the ordinary course of fulfilling your official duties
as a director should have known, that during the 15-day period immediately
preceding or after the date of the transaction, such Securities were purchased
or sold, or considered for purchase or sale, on behalf of an Advisory Client.
The report must be provided to the Compliance Officer of the Partnership within
10 days after the end of each calendar quarter. The form for this purpose is
attached to this Code as Appendix IV.
As of the effective date of this Code, there are no independent
directors.
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FIDUCIARY DUTIES
Gifts.
You may not accept any investment opportunity, gift, gratuity or other
thing of more than nominal value, from any person or entity that does business,
or desires to do business, with the Partnership directly or on behalf of an
Advisory Client. You may accept gifts from a single giver so long as their
aggregate annual value does not exceed $100, and you may attend business meals,
sporting events and other entertainment events at the expense of a giver, so
long as the expense is reasonable and both you and the giver are present.
Service as a Director
If you are a Portfolio Employee, you may not serve on the board of
directors or other governing board of a publicly traded entity, unless you have
received the prior written approval of the Chief Executive Officer and the
General Counsel of Partnership. Approval will not be given unless a
determination is made that your service on the board would be consistent with
the interests of our Advisory Clients. If you are permitted to serve on the
board of a publicly traded entity, you will be isolated from those Portfolio
Employees who make investment decisions with respect to the securities of that
entity, through a "Chinese Wall" or other procedures.
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<PAGE>
NFJ INVESTMENT GROUP
2121 San Jacinto, Suite 1840
Dallas, Texas 75201
N F J Tel: 214-754-1780
TO: Mark Porterfield
FROM: John Johnson
DATE: May 21, 1998
RE: Amendment to Code of Ethics
The Managing Directors of NFJ have approved, effective today, the following
amendment to our Code of Ethics concerning the section on gifts to conform to
the language utilized by the other equity subsidiaries:
Gifts
It is the policy of the Adviser that all business relationships with
issuers, vendors, suppliers, brokers, research providers, independent analysts
and consultants be established on the basis of the quality and value of the
goods and services provided for the benefit of the Adviser and for its clients.
Business relationships frequently involve some amount of entertainment, gift
giving and social interplay, some of which may be reciprocal.
In accepting gifts and entertainment, employees are only permitted to
accept gifts of de minimis value (generally interpreted to be less than $200)
and entertainment (theater tickets, sporting event tickets, dinners, golf
outings, etc.) which is reasonable by industry standards and not lavish. Trips
to exotic locales, expensive jewelry or other accessories, any amount of cash or
any financial subsidy such as loans, mortgages, advances, employment of family
members, etc. may not be accepted.
If any question arises about the propriety of any gift or
entertainment, the matter should be disclosed to and discussed with the
Compliance Department or the General Counsel.
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COMPLIANCE
Certificate of Receipt
You are required to acknowledge receipt of your copy of this Code. A
form for this purpose is attached to this Code as Appendix V.
Certificate of Compliance
Unless you are an independent director, you are required to certify
upon commencement of your employment or the effective date of this Code,
whichever occurs later, and annually thereafter, that you have read and
understand this Code and recognize that you are subject to this Code. Each
annual certificate will also state that you have complied with the requirements
of this Code during the prior year, and that you have disclosed, reported, or
caused to be reported all transactions during the prior year in Securities of
which you had or acquired Beneficial Ownership. A form for this purpose is
attached to this Code as Appendix VI.
Remedial Actions
If you violate this Code, you are subject to remedial actions, which
may include, but are not limited to, disgorgement of profits, imposition of a
substantial fine, demotion, suspension or termination.
REPORTS TO DIRECTORS AND TRUSTEES
Reports of Significant Remedial Action
The managing directors of the Partnership, the supervisory partner and
the directors or trustees of each Fund which is an Advisory Client will be
informed on a timely basis of each significant remedial action taken in response
to a violation of this Code. For this purpose, a significant remedial action
will include any action that has a significant financial effect on the violator,
such as disgorgement of profits, imposition of a substantial fine, demotion,
suspension or termination.
Annual Reports
Management of the Partnership will report annually to the managing
directors and the supervisory partner of the Partnership and the directors or
trustees of each Fund which is an Advisory Client with regard to efforts to
ensure compliance by the directors, officers and employees of the Partnership
with their fiduciary obligations to our Advisory Clients.
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The annual report will, at a minimum:
1. Summarize existing procedures regarding personal Securities
transactions, and any changes in such procedures during the prior
year;
2. Summarize the violations of this Code, if any, which resulted in
significant remedial action during the prior year; and
3. Describe any recommended changes in existing procedures or
restrictions based upon experience with this Code, evolving
industry practices, or developments in applicable laws or
regulations.
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NFJ INVESTMENT GROUP
EXEMPT TRANSACTIONS
Effective August 15, 1996
INTRODUCTION
The Partnership Code of Ethics provides that no director, officer or
employee may engage, or permit any other person or entity to engage, in any
purchase or sale of a Security (other than an Exempt Security) of which such
director, officer or employee has, or by reason of the transaction will acquire,
Beneficial Ownership, unless the transaction is an Exempt Transaction.
The Code further provides that, in addition to the Exempt Transactions
described in the Code, other transactions may be designated as Exempt
Transactions by the Compliance Committee.
DESIGNATION OF EXEMPT TRANSACTIONS
In accordance with the Code, the Partnership Compliance Committee
designates the following transactions as Exempt Transactions, based upon a
determination that the transactions do not involve any realistic possibility of
a violation of Rule 17j-1 under the Investment Company Act of 1940, as amended:
Exempt Transactions Not Requiring Preclearance
The following Exempt Transactions do not require preclearance:
1. Purchases or sales of up to $100,000 per issuer per calendar
month of fixed-income Securities.
2. Any purchases or sales of fixed-income Securities issued by
agencies or instrumentalities of, or unconditionally guaranteed
by, the Government of the United States.
3. Purchases or sales of up to $1,000,000 per issuer per calendar
month of fixed-income Securities issued by qualified foreign
governments.
A qualified foreign government is a national government of a
developed foreign country with outstanding fixed-income
securities in excess of fifty billion dollars.
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A list of qualified foreign governments will be prepared as of
last business day of each calendar quarter, will be available for
review with any Compliance Officer, and will be effective for the
following calendar quarter.
4. Purchases or sales of up to 1000 shares per day, per issuer, of
large-cap issuers.
A large-cap issuer is an issuer with a total market
capitalization in excess of one billion dollars and an average
daily trading volume during the preceding three calendar months,
on a principal securities exchange (including NASDAQ) on which
its shares are traded, in excess of 100,000 shares.
A list of large-cap issuers will be prepared as of the last
business day of each calendar month, will be available for review
with any Compliance Officer, and will be effective for the
following calendar month.
5. Purchases or sales of up to the lesser of 500 shares or $5,000
per calendar week, per issuer, of stock of issuers other than
large-cap issuers.
6. Purchases or sales of up to $1,000,000 in total notional open
interest per calendar month, per index, of exchange-traded
options on broadly-based indices.
A broadly-based index is an index with an average notional open
interest during the preceding calendar quarter in excess of one
billion dollars.
A list of broadly-based indices will be prepared as of the last
business day of each calendar quarter, will be available for
review with any Compliance Officer, and will be effective for the
following calendar quarter.
7. Any purchase or sale of shares of closed-end mutual funds other
than PIMCO Commercial Mortgage Security Trust, Inc.
8. Other than those securities that may be purchased pursuant to the
provisions above, shares of any issuer not owned by any of the
Partnership Client accounts and not contemplated for purchase for
any client accounts, based upon the investment discipline of the
Partnership that such securities are not eligible for purchase.
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Exempt Transactions Requiring Preclearance
The following Exempt Transactions require preclearance in compliance
with the procedures set forth in the Code:
1. Purchases or sales in excess of $100,000 per issuer per calendar
month, of
municipal bonds.
2. Any purchase or sale of shares of PIMCO Commercial Mortgage
Security Trust, Inc.
CAUTION
You should keep in mind the following:
1. If you are a Portfolio Employee, Exempt Transactions are subject
to the prohibition against short-swing trading profits set forth
in the Code.
2. Unless you are an independent director, Exempt Transactions must
be reported to the Partnership by your broker-dealer.
3. The lists of qualified foreign governments, large-cap issuers and
broadly-based indices may change from month to month.
Accordingly, you may purchase Securities in an Exempt
Transaction, only to find that you cannot sell them later in an
Exempt Transaction. In that case, you will be able to sell them
only if you preclear the sale in compliance with the procedures
set forth in the Code.
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NFJ Investment Group
Code of Ethics Amendment
Effective August 1, 1998
The following is an amendment to the NFJ Investment Group Code of Ethics dated
May 1, 1996. This amendment will replace point 4 under the section titled
"Exempt Transactions Not Requiring Preclearance."
4. Purchases or sales of up to 1000 shares per day, per issuer, of
large-cap issuers.
A large-cap issuer is an issuer with a total market
capitalization in excess of one billion dollars and an average
daily trading volume during the preceding three calendar months,
on a principal securities exchange (including NASDAQ) on which
its shares are traded, in excess of 100,000 shares.
A list of large-cap issuers will be prepared as of the last
business day of each calendar month, will be available for review
with any Compliance Officer, and will be effective for the
following calendar month.
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APPENDIX I
PIMCO Advisors L.P.
INSIDER TRADING POLICY AND PROCEDURES
Effective as of May 1, 1996
SECTION I. POLICY STATEMENT ON INSIDER TRADING.
A. Policy Statement on Insider Trading.
PIMCO Advisors L.P. ("PALP"), its affiliated Subpartnerships, PIMCO
Partners, G.P. ("PIMCO GP") and PIMCO Advisors Distribution Company ("PADCo")
(collectively the "Company" or "PIMCO Advisors") forbid any of their officers,
directors or employees from trading, either personally or on behalf of others
(such as, mutual funds and private accounts managed by PALP or its affiliated
Subpartnerships), on the basis of material non-public information or
communicating material non-public information to others in violation of the law.
This conduct is frequently referred to as "insider trading".
The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material non-public
information to trade in securities or to communications of material non-public
information to others in breach of a fiduciary duty.
While the law concerning insider trading is not static, it is
generally understood that the law prohibits:
(1) trading by an insider, while in possession of material
non-public information, or
(2) trading by a non-insider, while in possession of
material non-public information, where the information was disclosed
to the non-insider in violation of an insider's duty to keep it
confidential, or
(3) communicating material non-public information to others
in breach of a fiduciary duty.
This policy applies to every such officer, director and employee and
extends to activities within and outside their duties at PIMCO Advisors. Every
officer, director and employee must read and retain this policy statement. Any
questions regarding this policy statement and the related procedures set forth
herein should be referred to a Compliance Officer of PALP or the applicable
subpartnership.
The remainder of this memorandum discusses in detail the elements of
insider trading, the penalties for such unlawful conduct and the procedures
adopted by the Company to implement its policy against insider trading.
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1. TO WHOM DOES THIS POLICY APPLY?
This Policy applies to all employees, officers and directors (direct
or indirect) of the Company ("Covered Persons"), as well as to any transactions
in any securities participated in by family members, trusts or corporations
controlled by such persons. In particular, this Policy applies to securities
transactions by:
the Covered Person's spouse;
the Covered Person's minor children;
any other relatives living in the Covered Person's household;
a trust in which the Covered Person has a beneficial interest,
unless such person has no direct or indirect control over the
trust; a trust as to which the Covered Person is a trustee; a
revocable trust as to which the Covered Person is a settlor; a
corporation of which the Covered Person is an officer,
director or 10% or greater stockholder; or a partnership of
which the Covered Person is a partner (including most
investment clubs) unless the Covered Person has direct or
indirect control over the partnership.
2. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities.
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Although there is no precise, generally accepted definition of
materiality, information is likely to be "material" if it relates to significant
changes affecting such matters as:
dividend or earnings expectations;
write-downs or write-offs of assets;
additions to reserves for bad debts or contingent liabilities;
expansion or curtailment of company or major division operations;
proposals or agreements involving a joint venture, merger,
acquisition, divestiture, or leveraged buy-out;
new products or services;
exploratory, discovery or research developments;
criminal indictments, civil litigation or government
investigations;
disputes with major suppliers or customers or significant
changes in the relationships with such parties;
labor disputes including strikes or lockouts;
substantial changes in accounting methods;
major litigation developments;
major personnel changes;
debt service or liquidity problems;
bankruptcy or insolvency;
extraordinary management developments;
public offerings or private sales of debt or equity securities;
calls, redemptions or purchases of a company's own stock;
issuer tender offers; or recapitalizations.
Information provided by a company could be material because of its
expected effect on a particular class of the company's securities, all of the
company's securities, the securities of another company, or the securities of
several companies. Moreover, the resulting prohibition against the misuses of
"material" information reaches all types of securities (whether stock or other
equity interests, corporate debt, government or municipal obligations, or
commercial paper) as well as any option related to that security (such as a put,
call or index security).
Material information does not have to relate to a company's business.
For example, in Carpenter v. U.S. 108 U.S. 316 (1987), the Supreme Court
considered as material certain information about the contents of a forthcoming
newspaper column that was expected to affect the market price of a security. In
that case, a reporter for The Wall Street Journal was found criminally liable
for disclosing to others the dates that reports on various companies would
appear in the Journal and whether those reports would be favorable or not.
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3. WHAT IS NON-PUBLIC INFORMATION?
In order for issues concerning insider trading to arise, information
must not only be "material", it must be "non-public". "Non-public" information
is information which has not been made available to investors generally.
Information received in circumstances indicating that it is not yet in general
circulation or where the recipient knows or should know that the information
could only have been provided by an "insider" is also deemed "non-public"
information.
At such time as material, non-public information has been effectively
distributed to the investing public, it is no longer subject to insider trading
restrictions. However, for "nonpublic" information to become public information,
it must be disseminated through recognized channels of distribution designed to
reach the securities marketplace.
To show that "material" information is public, you should be able to
point to some fact verifying that the information has become generally
available, for example, disclosure in a national business and financial wire
service (Dow Jones or Reuters), a national news service (AP or UPI), a national
newspaper (The Wall Street Journal or The New York Times), or a publicly
disseminated disclosure document (a proxy statement or prospectus). The
circulation of rumors or "talk on the street", even if accurate, widespread and
reported in the media, does not constitute the requisite public disclosure. The
information must not only be publicly disclosed, there must also be adequate
time for the market as a whole to digest the information. Although timing may
vary depending upon the circumstances, a good rule of thumb is that information
is considered non-public until the third business day after public disclosure.
Material non-public information is not made public by selective
dissemination. Material information improperly disclosed only to institutional
investors or to a fund analyst or a favored group of analysts retains its status
as "non-public" information which must not be disclosed or otherwise misused.
Similarly, partial disclosure does not constitute public dissemination. So long
as any material component of the "inside" information possessed by the Company
has yet to be publicly disclosed, the information is deemed "non-public" and may
not be misused.
Information Provided in Confidence. Occasionally, one or more
directors, officers, or employees of companies in PIMCO Advisors may become
temporary "insiders" because of a fiduciary or commercial relationship. For
example, personnel at PALP or a subpartnership may become insiders when an
external source, such as a company whose securities are held by one or more of
the accounts managed by PALP or a subpartnership, entrusts material, nonpublic
information to the Company portfolio managers or analysts with the expectation
that the information will remain confidential.
As an "insider", the Company has a fiduciary responsibility not to
breach the trust of the party that has communicated the "material non-public"
information by misusing that information. This fiduciary duty arises because the
Company has entered or has been invited to enter into a commercial relationship
with the client or prospective client and has been given
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access to confidential information solely for the corporate purposes of that
client or prospective client. This obligation remains whether or not the Company
ultimately participates in the transaction.
Information Disclosed in Breach of a Duty. Analysts and portfolio
managers at PIMCO Advisors must be especially wary of "material non-public"
information disclosed in breach of a corporate insider's fiduciary duty. Even
where there is no expectation of confidentiality, a person may become an
"insider" upon receiving material, non-public information in circumstances where
a person knows, or should know, that a corporate insider is disclosing
information in breach of the fiduciary duty he or she owes the corporation and
its shareholders. Whether the disclosure is an improper "tip" that renders the
recipient a "tippee" depends on whether the corporate insider expects to benefit
personally, either directly or indirectly, from the disclosure. In the context
of an improper disclosure by a corporate insider, the requisite "personal
benefit" may not be limited to a present or future monetary gain. Rather, a
prohibited personal benefit could include a reputational benefit, an expectation
of a quid pro quo from the recipient or the recipient's employer by a gift of
the "inside" information.
A person may, depending on the circumstances, also become an "insider"
or "tippee" when he or she obtains apparently material, non-public information
by happenstance, including information derived from social situations, business
gatherings, overheard conversations, misplaced documents, and "tips" from
insiders or other third parties.
4. IDENTIFYING MATERIAL INFORMATION?
Before trading for yourself or others, including investment companies
or private accounts managed by PALP or its affiliated Subpartnerships, in the
securities of a company about which you may have potential material, non-public
information, ask yourself the following questions:
i. Is this information that an investor could consider
important in making his or her investment decisions? Is this
information that could substantially affect the market price of the
securities if generally disclosed?
ii. To whom has this information been provided? Has the
information been effectively communicated to the marketplace by being
published in Reuters, The Wall Street Journal or other publications of
general circulation?
Given the potentially severe regulatory, civil and criminal sanctions
to which you and PIMCO Advisors and its personnel could be subject, any
director, officer and employee uncertain as to whether the information he or she
possesses is "material non-public" information should immediately take the
following steps:
i. Report the matter immediately to a Compliance Officer or
the Chief Executive Officer of PALP;
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ii. Do not purchase or sell the securities on, behalf of
yourself or others, including investment companies or private accounts
managed by PALP or the applicable affiliated subpartnership; and
iii. Do not communicate the information inside or outside
the Company, other than to Compliance Officer or the Chief Executive
Officer of PALP.
After a Compliance Officer or the Chief Executive Officer has reviewed
the issue, you will be instructed to continue the prohibitions against trading
and communication or will be allowed to trade and communicate the information.
5. PENALTIES FOR INSIDER TRADING.
Penalties for trading on or communicating material non-public
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
civil injunctions
treble damages
disgorgement of profits
jail sentences
fines for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or
not the person actually benefited, and
fines for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the
profit gained or loss avoided.
In addition, any violation of this policy statement can be expected to
result in serious sanctions by PIMCO Advisors, including dismissal of the
persons involved.
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SECTION II. PROCEDURES TO IMPLEMENT PIMCO ADVISORS' POLICY.
A. Procedures to Implement the Policy Against Insider Trading.
The following procedures have been established to aid the officers,
directors and employees of PIMCO Advisors in avoiding insider trading, and to
aid the Company in preventing, detecting and imposing sanctions against insider
trading. Every officer, director and employee of PIMCO Advisors must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties.
TRADING RESTRICTIONS AND REPORTING REQUIREMENTS
1. No employee, officer or director of the Company who possesses
material non-public information relating to the Company or any of
its affiliates or subsidiaries, may buy or sell any securities of
the Company or engage in any other action to take advantage of,
or pass on to others, such material non-public information.
2. No employee, officer or director of the Company who obtains
material non-public information which relates to any other
company or entity in circumstances in which such person is deemed
to be an insider or is otherwise subject to restrictions under
the federal securities laws may buy or sell securities of that
company or otherwise take advantage of, or pass on to others,
such material non-public information.
3. No employee, officer or director of the company shall engage in a
securities transaction with respect to the securities of PIMCO
Advisors, except in accordance with the specific procedures
published from time to time by the company.
4. Each employee, officer and director of the company shall submit
reports of every securities transaction involving securities of
PIMCO Advisors securities to a Compliance Officer in accordance
with the terms of the company's Code of Ethics as they relate to
any other securities transaction.
5. No Employee (as such term is defined in the applicable Code of
Ethics) shall engage in a securities transaction with respect to
any securities of any other company, except in accordance with
the specific procedures set forth in the Company's Code of
Ethics.
6. Employees shall submit reports concerning each securities
transaction in accordance with the terms of the Code of Ethics
and verify their personal ownership of securities in accordance
with the procedures set forth in the Code of Ethics.
7. Because even inadvertent disclosure of material non-public
information to others can lead to significant legal difficulties,
officers, directors and employees of the Company should not
discuss any potentially material non-public information
concerning the Company or other companies, including other
officers, employees and directors, except as specifically
required in the performance of their duties.
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B. Chinese Wall Procedures.
The Insider Trading and Securities Fraud Enforcement Act requires the
establishment and strict enforcement of procedures reasonably designed to
prevent the misuse of "inside" information1. Accordingly, you should not discuss
material non-public information about the Company or other companies with
anyone, including other employees, except as required in the performance of your
regular duties. In addition, care should be taken so that such information is
secure. For example, files containing material non-public information should be
sealed; access to computer files containing material non-public information
should be restricted.
C. Resolving Issues Concerning Insider Trading.
The federal securities laws, including the laws governing insider
trading, are complex. If you have any doubts or questions as to the materiality
or non-public nature of information in your possession or as to any of the
applicability or interpretation of any of the foregoing procedures or as to the
propriety of any action, you should contact a Compliance Officer. Until advised
to the contrary by a Compliance Officer, you should presume that the information
is material and non-public and you should not trade in the securities or
disclose this information to anyone.
- ----------------------------
(1) The antifraud provisions of United States securities laws reach insider
trading or tipping activity worldwide which defrauds domestic securities
markets. In addition, the Insider Trading and Securities Fraud Enforcement Act
specifically authorizes the SEC to conduct investigations at the request of
foreign governments, without regard to whether the conduct violates United
States law.
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APPENDIX III
PERSONAL SECURITIES HOLDINGS
In accordance with the Code of Ethics, please provide a list of all
Securities (other than Exempt Securities) in which you or any account, in which
you have a Pecuniary Interest, has a Beneficial Interest and all Securities
(other than Exempt Securities) in non-client accounts for which you make
investment decisions. This includes not only securities held by brokers, but
also Securities held at home, in safe deposit boxes, or by an issuer.
(1) Name of employee: ________________________________
(2) If different than #1, name of the
person in whose name the account is
held: ________________________________
(3) Relationship of (2) to (1): ________________________________
(4) Broker(s) at which Account is
Maintained: ________________________________
________________________________
________________________________
________________________________
(5) Account Number(s): ________________________________
________________________________
________________________________
________________________________
(6) Phone number(s) of Broker: ________________________________
________________________________
________________________________
________________________________
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(7) For each account, attach your most recent account statement listing
Securities in that account. If you own Securities that are not listed in an
attached account statement, list them below:
Name of Security Quantity Value Custodian
1. _______________ __________ __________ _______________
2. _______________ __________ __________ _______________
3. _______________ __________ __________ _______________
4. _______________ __________ __________ _______________
5. _______________ __________ __________ _______________
(Attached separate sheet if necessary)
I certify that this form and the attached statements (if any)
constitute all of the Securities of which I have Beneficial Ownership as defined
in the Code.
--------------------------------
Signature
--------------------------------
Print Name
Dated: ____________________
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PIMCO Advisors L.P. Appendix IV
Personal Securities Transactions Report
Quarter Ended:
MM/DD/YY
Please provide the in formation requested. Use additional pages if necessary. If
no transactions occurred, write "NONE." Duplicate confirms may be attached to
the form in lieu of filling out the form: please indicate the number of confirms
to be attached.
Make certain to provide information concerning non-exempt transactions not
effected through a broker-dealer (i.e. direct purchases of private placements or
limited partnerships).
<TABLE>
<CAPTION>
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
Transaction Number Price per
ecurity's Name Date Buy or Sell? of Shares Share Broker's Name
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
<S> <C> <C> <C> <C> <C>
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
- ---------------------- -------------------- --------------------- --------------------- ------------------ -----------------------
</TABLE>
The above information is a true, complete and correct list of my securities
transaction for the time period indicated.
Print Name: Sign Name:
------------------------- ------------------------
Date:
-------------------------------
Return to: Mark Porterfield -- PIMCO Advisors, T1 - G - Suite 100
See reverse side for further instructions on transactions and securities exempt
from reporting.
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APPENDIX IV (cont.)
1. Transactions required to be reported. You should report every transaction
in which you acquired or disposed of any beneficial ownership of any
security during the calendar quarter. The term "beneficial ownership" is
the subject of a long history of opinions and releases issued by the
Securities and Exchange Commission and generally means that you would
receive the benefits of owning a security. The term includes, but is not
limited to the following cases:
(A) Where the security is held for your benefit by others (brokers,
custodians, banks and pledgees);
(B) Where the security is held for the benefit of your spouse or minor
children (or any other relative who shares your residence);
(C) Where securities are held by a partnership of which you are a partner
or investment club or other unincorporated association of which you
are a member;
(D) Where securities are held in a trust over which you have any direct or
indirect influence or control and under which either you or any member
of your immediate family (i.e., your spouse, children, grandchildren,
parents and grandparents) is a beneficiary; and
(E) Where securities are held in a trust over which you alone, or in
conjunction with someone not having a substantial interest adverse to
yours, have the power to revoke and revest or revest title to yourself
at once or at some future time.
Notwithstanding the foregoing, none of the following transactions need be
reported:
(A) Transactions in securities which are direct obligations of the United
States;
(B) Transactions effected in any account over which you have no direct or
indirect influence or control (most mutual funds);
2. Title of Security. State the name of the issuer and the class of the
security (e.g., common stock, preferred stock or designated issue of debt
securities). In the case of the acquisition or disposition of a futures
contract, put, call option or other right (hereinafter referred to as
"options"), state the title of the security subject to the option and the
expiration date of the option.
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3. Futures Transactions. Please remember that duplicates of all Confirmations,
Purchase and Sale Reports, and Month-end Statements must be firm send to
the firm by your broker. Please double check to be sure this occurs if you
report a futures transaction. You should use the address below.
4. Date of Transaction. In the case of a market transaction, state the trade
date (not the settlement date).
5. Nature of Transaction. State the character of the transaction (e.g.,
purchase or sale of security, purchase or sale of option, or exercise of
option).
6. Amount of Security Involved. State the number of shares of stock, the face
amount of debt securities or other units of other securities. For options,
state the amount of securities subject to the option. If your ownership
interest was through a spouse, relative or other natural person or through
a partnership, trust, other entity, state the entire amount of securities
involved in the transaction. In such cases, you may also indicate, if you
wish, the extent of your interest in the transaction.
7. Purchase of Sale Price. Sate the purchase or sale price per share or other
unit, exclusive of brokerage commissions or other costs of execution. In
the case of an option, state the price at which it is currently
exercisable. No price need be reported for transactions not involving cash.
8. Broker, Dealer or Bank Effecting Transaction. State the name of the broker,
dealer or bank with or through whom the transaction was effected.
9. Signature. Sign the form in the space provided.
10. Filing of Report. A report should be filed NOT LATER THAN 10 CALENDAR DAYS
after the end of each calendar quarter with:
NFJ Investment Group
ATTN: Compliance Officer
2121 San Jacinto, Suite 1440
Dallas, TX 75201
29
<PAGE>
ACKNOWLEDGMENT CERTIFICATION
for the
Code of Ethics
and the
Insider Trading Policy and Procedures
NFJ INVESTMENT GROUP
I hereby certify that I have read and understand the attached Code of
Ethics and the Insider Trading Policy and Procedures. Pursuant to such Codes, I
recognize that I must disclose or report all personal securities transactions
required to be disclosed or reported thereunder and comply in all other respects
with the requirements of the Codes. I also agree to cooperate fully with any
investigation or inquiry as to whether a possible violation of the foregoing
Codes has occurred. I understand that any failure to comply in all aspects with
the foregoing and these policies and procedures may lead to sanctions including
dismissal.
Date:
------------------------------- ----------------------------------
Signature
----------------------------------
Print Name
30
<PAGE>
PIMCO ADVISORS L.P.
POLICY REGARDING SPECIAL TRADING PROCEDURES
FOR SECURITIES OF PIMCO ADVISORS L.P.
Effective as of May 1, 1996
INTRODUCTION
PIMCO Advisors L.P. (as defined below) has adopted an Insider Trading
Policy and Procedures applicable to all personnel which prohibits insider
trading in any securities, and prohibits all employees from improperly using or
disclosing material, non-public information, a copy of which has been supplied
to you.
For the purposes of this memorandum, the term the "Company" shall
include PIMCO Advisors L.P. ("PALP"), PIMCO Partners, G.P. ("PIMCO GP"), PIMCO
Advisors Distribution Company ("PADCO") and any entity in relation to which PALP
acts as a general partner or owns 50 % or more of one the issued and outstanding
stock.
PERSONS TO WHOM THIS SPECIAL TRADING POLICY APPLIES
This Policy applies to all employees of the Company and, in the case
of PALP, the inside members of the Operating Board and the Equity Board
("Covered Persons"), as well as to any transactions in securities participated
in by family members, trusts or corporations controlled by a Covered Person. In
particular; this Policy applies to securities transactions by:
a. the Covered Person's spouse;
b. the Covered Person's minor children;
c. any other relatives living in the Covered Person's household;
d. a trust in which the Covered Person has a beneficial interest,
unless such Covered Person has no direct or indirect control over the trust;
e. a trust as to which the Covered Person is a trustee;
f. a revocable trust as to which the Covered Person is a settlor;
g. a corporation of which the Covered Person is an officer, director
or 10% or greater stockholder; or
h. a partnership of which the Covered Person is a partner (including
most investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
The family members, trust and corporations listed above are hereinafter referred
to as "Related Persons."
31
<PAGE>
SECURITIES TO WHICH THIS SPECIAL TRADING POLICY APPLIES
Unless stated otherwise, the following Special Trading Procedures
apply to all transactions by Covered Persons and their Related Persons involving
any class or series of units of limited partner interest of PALP or other
securities of PALP, including options and other derivative securities (such as a
put, call or index security) in relation to such securities (the "PALP
Securities").
SPECIAL TRADING PROCEDURES RELATING TO SECURITIES OF PIMCO ADVISORS L.P.
1. Trading Windows
There are times when the Company may be engaged in a material
non-public development or transaction. Even if you are not aware of this
development or transaction, if you trade PALP's Securities before such
development or transaction is disclosed to the public, you might expose yourself
and the Company to a charge of insider trading that could be costly and
difficult to refute. In addition, such a trade by you could result in adverse
publicity to you or the company.
Therefore, the following rule shall apply: each Covered Person and all
of such person's Related Persons may only purchase or sell PALP Securities
during four "trading windows" that occur each year. The four trading windows
consist of the months of February, May, August and November. TRADING ON THE
BASIS OF MATERIAL NON-PUBLIC INFORMATION OR COMMUNICATING MATERIAL NON-PUBLIC
INFORMATION TO OTHERS AT ANY TIME, INCLUDING IN A TRADING WINDOW, IS A VIOLATION
OF THE LAW AND A VIOLATION OF THIS POLICY.
In accordance with the procedure for waivers described below, in
special circumstances a waiver may be given to allow a trade to occur outside of
a trading window.
Employees of PALP should be aware that there are potential tax
consequences for such employees resulting from the ownership of PALP Securities.
Each such employee contemplating purchasing PALP Securities should discuss the
matter with such employee's tax advisor.
The exercise of options to purchase PALP Securities for cash are not
Covered to the procedures outlined above, but the securities so acquired may not
be sold except during a trading window and after all other requirements of this
policy have been satisfied.
32
<PAGE>
2. Post-Trade Reporting
All Covered Persons shall submit to a Compliance Officer a report of
every securities transaction in PALP Securities in which they and any of their
Related Persons have participated as soon as practicable following the
transaction and in any event not later than the fifth day after the end of the
month in which the transaction occurred. The report shall include: (1) the date
of the transaction and the title and number of shares or principal amount of
each security involved; (2) the nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition); (3) the price at which the
transaction was effected; and (4) the name of the broker/dealer with or through
whom the transaction was effected. In addition, on an annual basis, each Covered
Person must confirm the amount of PALP Securities which such person and his her
Related Persons beneficially own.
Each Covered Person (and not the Company) is personally responsible
for insuring that his or her transactions comply fully with any and all
applicable securities laws, including, but not limited to, the restrictions
imposed under Section 16(b) of the Securities and Exchange Act of 1934 and Rule
144 under the Securities Act of 1933.
3. Resolving Issues Concerning Insider Trading
If you have any doubts or questions as to whether information is
material or non-public, or as to the applicability or interpretation of any of
the foregoing procedures, or as to the propriety of any action, you should
contact a Compliance Officer before trading or communicating the information to
anyone. Until these doubts or questions are satisfactorily resolved, you should
presume that the information is material and non-public and you should not trade
in the securities or communicate this information to anyone.
4. ModLfications and Waivers
The Company reserves the right to amend or modify this policy
statement at any time. Waiver of any provision of this policy statement in a
specific instance may be authorized in writing by a Compliance Officer and
either the Chief Executive Officer of PALP or any member of the Operating
Committee of PALP, and any such waiver shall be reported to the Equity and
Operating Boards of PALP at the next regularly scheduled meeting of each.
Exhibit (p)(vii)
SIRACH CAPITAL MANAGEMENT, INC.
CODE OF ETHICS
PREAMBLE
This Code of Ethics is being adopted in compliance with the
requirements of Rule 17j-1 (the "Rule") adopted by the United States Securities
and Exchange Commission under the Investment Company Act of 1940 (the "Act") to
effectuate the purposes and objectives of that Rule. The Rule makes it unlawful
for certain persons, including any officer or Board member of UAM Funds, Inc.,
UAM Funds Trust or UAM Funds Trust II (together, the "Fund") in connection with
the purchase or sale by such person of a security held or to be acquired by the
Fund(1):
(1) To employ a device, scheme or artifice to defraud the Fund;
(2) To make to the Fund any untrue statement of a material fact
or omit to state to the Fund a material fact necessary in
order to make the statements made, in light of the
circumstances in which they are made, not misleading;
(3) To engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the
Fund; or
(4) To engage in a manipulative practice with respect to the
Fund.
The Rule also requires that the Fund and each adviser to the Fund adopt a
written code of ethics containing provisions reasonably necessary to prevent
persons from engaging in acts in violation of the above standard and use
reasonable diligence and institute procedures reasonably necessary, to prevent
violations of the Code.
This Code of Ethics is adopted by the Board of Directors of the
Fund(2) in compliance with the Rule. This Code of Ethics is based upon the
principle that the Directors and officers of the Fund, and certain affiliated
persons of the Fund and its investment advisers, owe a fiduciary duty to, among
others, the shareholders of the Fund to conduct their affairs, including their
personal securities transactions, in such manner to avoid (i) serving their own
personal interests ahead of shareholders; (ii) taking inappropriate advantage of
their position with the Fund; and (iii) any actual or potential conflicts of
interest or any abuse of their position of trust and responsibility. This
fiduciary duty includes the duty of the investment advisers to the portfolios of
the Fund to report violations of this Code of Ethics to the Fund's Compliance
Officer. This Code may not be the only source of potential restrictions when
conducting personal securities transactions and transactions on behalf of the
Fund. If there are any questions with respect to other potentially applicable
restrictions, contract the Funds' Compliance Officer.
- ---------------------
(1) A security is deemed to be "held or to be acquired" if within the most
recent fifteen (15) days it (i) is or has been held by the Fund, or (ii) is
being or has been considered by the Fund or its investment adviser for purchase
by the Fund.
(2) Reference to a "Board of Directors" or a "Director" herein shall also
refer to a "Board of Trustees" or a "Trustee", as appropriate.
<PAGE>
A. DEFINITIONS
(1) "Access person" means any director/trustee, officer, general
partner or advisory person of the Fund.
(2) "Advisory person" means (a) any employee of the Fund who, in
connection with his regular functions or duties, normally makes, participates
in, or obtains current information regarding the purchase or sale of a security
by the Fund, or whose functions relate to the making of any recommendations with
respect to such purchases or sales; and (b) any natural person in a control
relationship to the Fund who obtains information concerning recommendations made
to the Fund with regard to the purchase or sale of a security by the Fund.
(3) "Affiliated company" means a company which is an affiliated
person.
(4) "Affiliated person" of another person means (a) any person
directly or indirectly owning, controlling, or holding with power to vote, 5 per
centrum or more of the outstanding voting securities or such other person; (b)
any person 5 per centrum or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote, by such
other person; (c) any person directly or indirectly controlling, controlled by,
or under common control with, such other person; (d) any officer,
director/trustee, partner, copartner, or employee of such other person; (e) if
such other person is an investment company, any investment adviser thereof or
any member of an advisory board thereof; and (f) if such other person is an
unincorporated investment company not having a Board of Directors, the depositor
thereof.
(5) A security is "being considered for purchase or sale" or is
"being purchased or sold" when a recommendation to purchase or sell the security
has been made and communicated, which includes when the Fund has a pending "buy"
or "sell" order with respect to a security, and, with respect to the person
making the recommendation, when such person seriously considers making such a
recommendation. "Purchase or sale of a security" includes the writing of an
option to purchase or sell a security.
(6) "Beneficial ownership" shall be as defined in, and interpreted in
the same manner as it would be in determining whether a person is subject to the
provisions of, Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder which, generally speaking, encompasses those
situations where the beneficial owner has the right to enjoy some economic
benefit from the ownership of the security. A person is normally regarded as the
beneficial owner of securities held in the name of his or her spouse or minor
children living in his or her household.
(7) "Control" means the power to exercise a controlling influence
over the management or policies of a company, unless such power is solely the
result of an official position with such company. Any person who owns
beneficially, either directly or through one or more controlled companies, more
than 25 per centrum of the voting securities of a company shall be presumed to
control such company. Any person who does not so own more than 25 per centrum of
the voting securities of any company shall be presumed not to control such
company. A natural person shall be presumed not to be a controlled person.
(8) "Disinterested director/trustee" means a director/trustee who is
not: an affiliated person (as defined above) of the Fund; a member of the
immediate family of any natural person who is an affiliated person of the Fund;
an interested person (as defined below) of the Fund, any investment adviser of
the Fund or any principal underwriter for the Fund.
<PAGE>
(9) "Interested Person" of another person means--
(a) when used with respect to an investment company--
(i) any affiliated person of such company,
(ii) any member of the immediate family of any natural
person who is an affiliated person of such company,
(iii) any interested person of any investment adviser of or
principal underwriter for such company,
(iv) any person or partner or employee of any person who at
any time since the beginning of the last two completed
fiscal years of such company has acted as legal
counsel for such company,
(v) any broker or dealer registered under the Securities
Exchange Act of 1934 or any affiliated person of such
a broker or dealer, and
(vi) any natural person whom the Commission by order shall
have determined to be an interested person by reason
of having had, at any time since the beginning of the
last two completed fiscal years of such company, a
material business or professional relationship with
such company or with the principal executive officer
of such company or with any other investment company
having the same investment adviser or principal
underwriter or with the principal executive officer of
such other investment company:
Provided, That no person shall be deemed to be an interested person of
an investment company solely by reason of (aa) his being a member of its Board
of Directors or advisory board or an owner of its securities, or (bb) his
membership in the immediate family of any person specified in clause (aa) of
this proviso.
(10) "Investment Personnel" means (a) any portfolio manager of the
Fund as defined in (12) below; and (b) securities analysts, traders and other
personnel who provide information and advice to the portfolio manager or who
help execute the portfolio manager's decisions.
(11) "Person" means a natural person or a company.
(12) "Portfolio Manager" means an employee of the investment adviser
or sub-investment adviser of the Fund entrusted with the direct responsibility
and authority to make investment decisions affecting an investment company.
(13) "Security" means any note, stock, treasury stock, bond,
debenture, evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option,
<PAGE>
or privilege on any security (including a certificate of deposit) or on any
group or index of securities (including any interest therein or based on the
value thereof), or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to foreign currency, or, in general, any
interest or instrument commonly known as a "security," or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to or purchase, any of the
foregoing.
(14) "Security" shall not include securities issued by the government
of the United States or by federal agencies and which are direct obligations of
the United States, bankers' acceptances, bank certificates of deposit,
commercial paper and shares of unaffiliated registered open-end investment
companies (mutual funds).
B. PROHIBITED TRANSACTIONS
(1) Access Persons
(a) No access person shall engage in any act, practice or course
of conduct, which would violate the provisions of Rule 17j-1 set forth above.
The Fund's portfolios are managed by subsidiaries of or organizations
otherwise affiliated with United Asset Management Corporation (the "Management
Companies"). Under the organizational structure of the Management Companies, the
entities maintain separate offices, independent operations and autonomy when
making investment decisions. In view of these circumstances, advisory personnel
of the Management Companies who are defined as "access persons" under the Act,
under normal circumstances would have no knowledge of proposed securities
transactions, pending "buy" or "sell" orders in a security, or the execution or
withdrawal of an order for any other portfolio in the UAM Family of Funds for
which a different Management Company serves as investment adviser. To restrict
the flow of investment information related to the portfolios of the Fund, the
Fund prohibits access persons at a Management Company from disclosing pending
"buy" or "sell" orders for a portfolio of the Fund to any employees of any other
Management Company until the order is executed or withdrawn. The Management
Companies shall implement procedures designed to achieve employee awareness of
this prohibition.
(b) No access person shall:
(i) purchase or sell, directly or indirectly, any security
in which he has or by reason of such transaction
acquires, any direct or indirect beneficial ownership
and which to his or her actual knowledge at the time
of such purchase or sale:
(A) is being considered for purchase or sale by the
Fund, or
(B) is being purchased or sold by any portfolio of
the Fund; or
(ii) disclose to other persons the securities activities
engaged in or contemplated for the various portfolios
of the Fund.
(2) Investment Personnel
<PAGE>
No investment personnel shall:
(a) accept any gift or other thing of more than de minimis value
from any person or entity that does business with or on
behalf of the Fund; for the purpose of this Code de minimis
shall be considered to be the annual receipt of gifts from
the same source valued at $250 or less per individual
recipient, when the gifts are in relation to the conduct of
the Fund's business;
(b) acquire securities, other than fixed income securities, in
an initial public offering, in order to preclude any
possibility of such person profiting from their positions
with the Fund;
(c) purchase any securities in a private placement, without
prior approval of the Compliance Officer of the Management
Company or other officer designated by the Board of
Directors. Any person authorized to purchase securities in a
private placement shall disclose that investment when they
play a part in any Fund's subsequent consideration of an
investment in the issuer. In such circumstances, the Fund's
decision to purchase securities of the issuer shall be
subject to independent review by investment personnel with
no personal interest in the issuer;
(d) profit in the purchase and sale, or sale and purchase, of
the same (or equivalent) securities within sixty (60)
calendar days. Trades made in violation of this prohibition
should be unwound, if possible. Otherwise, any profits
realized on such short-term trades shall be subject to
disgorgement to the appropriate portfolio of the investment
company.
Exceptions: The Compliance Officer of the Management Company may allow
exceptions to this policy on a case-by-case basis when the
abusive practices that the policy is designed to prevent,
such as frontrunning or conflicts of interest, are not
present and the equity of the situation strongly supports an
exemption. An example is the involuntary sale of securities
due to unforeseen corporate activity such as a merger.
[Seess.C below]. The ban on short-term trading profits is
specifically designed to deter potential conflicts of
interest and frontrunning transactions, which typically
involve a quick trading pattern to capitalize on a
short-lived market impact of a trade by one of the Fund's
portfolios. The Management Company shall consider the policy
reasons for the ban on short-term trades, as stated herein,
in determining when an exception to the prohibition is
permissible. The granting of an exception to this
prohibition shall be permissible if the securities involved
in the transaction are not (i) being considered for purchase
or sale by the portfolio of the Fund that serves as the
basis of the individual's "investment personnel" status or
(ii) being purchased or sold by the portfolio of the Fund
that serves as the basis of the
<PAGE>
individual's "investment personnel" status and, are not
economically related to such securities; exceptions granted
under this provision are conditioned upon receipt by a duly
authorized officer of the Management Company of a report
(Exhibit D) of the transaction and certification by the
respective investment personnel that the transaction is in
compliance with this Code of Ethics (see Exhibit D).
(e) serve on the Board of Directors of any publicly traded
company without prior authorization of the President or
other duly authorized officer of the Fund. Any such
authorization shall be based upon a determination that the
board service would be consistent with the interests of the
Fund and its shareholders. Authorization of board service
shall be subject to the implementation by the Management
Company of "Chinese Wall" or other procedures to isolate
such investment personnel from the investment personnel
making decisions about trading in that company's securities.
(3) Portfolio Managers
(a) No portfolio manager shall:
(i) buy or sell a security within seven (7) calendar days
before and within two (2) calendar days after any
portfolio of the Fund that he or she manages trades in
that security. Any trades made within the proscribed
period shall be unwound, if possible. Otherwise, any
profits realized on trades within the proscribed
period shall be disgorged to the appropriate portfolio
of the Fund.
C. EXEMPTED TRANSACTIONS
The prohibitions of Sections B(1)(b), B(2)(d) and B(3)(a) shall not
apply to:
(1) purchases or sales effected in any account over which the access
person has no direct or indirect influence or control;
(2) purchases or sales which are non-volitional on the part of either
the access person or the Fund;
(3) purchases which are part of an automatic dividend reinvestment
plan;
(4) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so acquired;
(5) purchases or sales of securities which are not eligible for
purchase by the Fund and which are not related economically to securities
purchased, sold or held by the Fund;
<PAGE>
(6) transactions which appear upon reasonable inquiry and
investigation to present no reasonable likelihood of harm to the Fund and which
are otherwise in accordance with Rule 17j-1; For example, such transactions
would normally include purchases or sales of:
(a) securities of companies with a market capitalization in
excess of $1 billion;
(b) up to $25,000 principal amount of a fixed income security or
100 shares of an equity security within any
three-consecutive month period (all trades within a
three-consecutive month period shall be integrated to
determine the availability of this exemption);
(c) up to 1,000 shares of a security which is being considered
for purchase or sale by a Fund (but not then being purchased
or sold) if the issuer has a market capitalization of over
$1 billion and if the proposed acquisition or disposition by
the Fund is less than one percent of the class outstanding
as shown by the most recent report or statement published by
the issuer, or less than one percent of the average weekly
reported volume of trading in such securities on all
national securities exchanges and/or reported through the
automated quotation system of a registered securities
association, during the four calendar weeks prior to the
individual's personal securities transaction; or
(d) any amount of securities if the proposed acquisition or
disposition by the Fund is in the amount of 1,000 or less
shares and the security is listed on a national securities
exchange or the National Association of Securities Dealers
Automated Quotation System.
D. COMPLIANCE PROCEDURES
(1) Pre-clearance
All access persons shall receive prior written approval (Exhibit E)
from the Compliance Officer of the Management Company for the respective
portfolios of the Fund, or other officer designated by the Board of Directors
before purchasing or selling securities.
Procedures implemented herein to pre-clear the securities transactions
of access persons shall not apply to a director/trustee of the Fund who is not
an "interested person" of the Fund as defined in this Code, except where such
director/trustee knew or, in the ordinary course of fulfilling his official
duties as a director/trustee of the Fund, should have known that during the
15-day period immediately preceding or after the date of the transaction in a
security by the director/trustee, such security is or was purchased or sold by
the Fund or such purchase or sale by the Fund is or was considered by the Fund.
Purchases or sales by access persons who are employees of United Asset
Management Corporation are not subject to the pre-clearance procedures set forth
herein, provided that such persons are required to pre-clear proposed
transactions in securities pursuant to a Code of Ethics.
<PAGE>
Purchases or sales by access persons who are employees of the
administrator for the Fund, Chase Global Fund Services Company, are not subject
to the pre-clearance procedures set forth herein, provided that such persons are
required to pre-clear proposed transactions in securities pursuant to a Code of
Ethics.
Purchases or sales of securities which are not eligible for purchase
or sale by the Fund or any portfolio of the Fund that serves as the basis of the
individual's "access person" status shall be entitled to clearance automatically
from the Compliance Officer of the Fund. This provision shall not relieve any
access person from compliance with pre-clearance procedures.
(2) Disclosure of Personal Holdings
All investment personnel shall disclose to the Compliance Officer of
the Management Company all personal securities holdings upon the later of
commencement of employment or adoption of this Code of Ethics and thereafter on
an annual basis as of December 31. This initial report shall be made on the form
attached as Exhibit A and shall be delivered to the Compliance Officer of the
Management Company and, upon request, to the Compliance Officer of the Fund.
(3) Certification of Compliance with Code of Ethics
(a) Every access person shall certify annually that:
(i) they have read and understand the Code of Ethics and
recognize that they are subject thereto;
(ii) they have complied with the requirements of the Code
of Ethics; and
(iii) they have reported all personal securities
transactions required to be reported pursuant to the
requirements of the Code of Ethics.
The annual report shall be made on the form attached as Exhibit B and
delivered to the Compliance Officers of the Fund and the Management Company.
(4) Reporting Requirements
(a) Every access person shall report to the Compliance Officer
of the Fund and the Management Company the information
described in, Sub-paragraph (4)(b) of this Section with
respect to transactions in any security in which such person
has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership in the security; provided,
however, that an access person shall not be required to make
a report with respect to transactions effected for any
account over which such person does not have any direct or
indirect influence.
(b) Reports required to be made under this Paragraph (4) shall
be made not later than 10 days after the end of the calendar
quarter in which the transaction to which the report relates
was effected. Every access person shall be required to
<PAGE>
submit a report for all periods, including those periods in
which no securities transactions were effected. A report
shall be made on the form attached hereto as Exhibit C or on
any other form containing the following information:
(i) the date of the transaction, the title and the number
of shares, and the principal amount of each security
involved;
(ii) the nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
(iii) the price at which the transaction was effected; and
(iv) the name of the broker, dealer or bank with or through
whom the transaction was effected.
Duplicate copies of the broker confirmation of all
personal transactions and copies of periodic
statements for all securities accounts may be appended
to Exhibit C to fulfill the reporting requirement.
(c) Any such report may contain a statement that the report
shall not be construed as an admission by the person making
such report that he or she has any direct or indirect
beneficial ownership in the security to which the report
relates.
(d) The Compliance Officer of the Fund shall notify each access
person that he or she is subject to these reporting
requirements, and shall deliver a copy of this Code of
Ethics to each such person upon request.
(e) Reports submitted to the Fund pursuant to this Code of
Ethics shall be confidential and shall be provided only to
the officers and Directors of the Fund, Fund counsel or
regulatory authorities upon appropriate request.
(f) Each director/trustee who is not an "interested person" of
the Fund as defined in the Act need only report a
transaction in a security if such director/trustee, at the
time of that transaction knew, or, in the ordinary course of
fulfilling his official duties as a director/trustee, should
have known that, during the 15-day period immediately
preceding or after the date of the transaction by the
director/trustee, such security was purchased or sold by the
Fund or was being considered for purchase by the Fund or by
its investment adviser or sub-investment adviser. Such
reports will include the information described in
Sub-paragraph (4)(b) of this Section.
<PAGE>
(5) Conflict of Interest
Every access person, except officers and Directors of the Fund, shall
notify the Compliance Officer of the Management Company of any personal conflict
of interest relationship which may involve the Fund, such as the existence of
any economic relationship between their transactions and securities held or to
be acquired by any portfolio of the Fund. Officer and Directors of the Fund
shall notify the Compliance Officer of the Fund of any personal conflict of
interest relationship which may involve the Fund. Such notification shall occur
in the pre-clearance process.
E. REPORTING OF VIOLATIONS TO THE BOARD OF DIRECTORS
(1) The Compliance Officer of the Fund shall promptly report to the
Board of Directors all apparent violations of this Code of Ethics and the
reporting requirements thereunder.
(2) When the Compliance Officer of the Fund finds that a transaction
otherwise reportable to the Board of Directors under Paragraph (1) of this
Section could not reasonably be found to have resulted in a fraud, deceit or
manipulative practice in violation of Rule 17j-1(a), he may, in his discretion,
lodge a written memorandum of such finding and the reasons therefor with the
reports made pursuant to this Code of Ethics, in lieu of reporting the
transaction to the Board of Directors.
(3) The Board of Directors, or a Committee of Directors created by
the Board of Directors for that purpose, shall consider reports made to the
Board of Directors hereunder and shall determine whether or not this Code of
Ethics has been violated and what sanctions, if any, should be imposed.
F. ANNUAL REPORTING TO THE BOARD OF DIRECTORS
(1) The Compliance Officer of the Fund shall prepare an annual report
relating to this Code of Ethics to the Board of Directors. Such annual report
shall:
(a) summarize existing procedures concerning personal investing
and any changes in the procedures made during the past year;
(b) identify any violations requiring significant remedial
action during the past year; and
(c) identify any recommended changes in the existing
restrictions or procedures based upon the Fund's experience
under its Code of Ethics, evolving industry practices or
developments in applicable laws or regulations.
G. SANCTIONS
Upon discovering a violation of this Code, the Board of Directors may
impose such sanctions as they deem appropriate, including, among other things, a
letter of censure or suspension or termination of the employment of the
violator.
H. RETENTION OF RECORDS
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The Fund shall maintain the following records as required under Rule
17j-l; reports received by a Management Company on behalf of the Fund shall be
maintained as required under Rule 17j-l:
(a) a copy of any Code of Ethics in effect within the most
recent five years;
(b) a list of all persons required to make reports hereunder
within the most recent five years, as shall be updated by
the Compliance Officer of the Fund;
(c) a copy of each report made by an access person hereunder for
a period of five years from the end of the fiscal year in
which it was made;
(d) each memorandum made by the Compliance Officer of the Fund
hereunder, for a period of five years from the end of the
fiscal year in which it was made; and
(e) a record of any violation hereof and any action taken as a
result of such violation, for a period of five years
following the end of the fiscal year in which the violation
occurred.
Dated: December 14, 1995.
Revised: January 23, 1997
September 23, 1998
Exhibit (P)(viii)
WAITE & ASSOCIATES L.L.C.
Code of Ethics
Adopted March 6, 1998
Revised April 19, 2000
In order to ensure that personnel of Waite & Associates L.L.C. ("WA")
comply with requirements of Section17 (j) of the Investment Company Act of 1940,
as amended (the "Act"), and of Rule 17j-1 thereunder, WA has adopted the Code of
Ethics (the "Code") set forth below.
This Code of Ethics is based on the principles that (i) Advisory Persons
(as such term is hereinafter defined) owe a fiduciary duty to investors and
investment advisory clients ("Investors") to conduct their personal transactions
in securities in a manner which neither interferes with Investors portfolio
transactions nor otherwise takes unfair or inappropriate advantage of an
Advisory Person's relationship to the Investors; (ii) Advisory Persons, in
complying with the fiduciary duty, owe Investors the highest duty of trust and
fair dealing; and (iii) Advisory Persons must, in all instances, place the
interests of Investors ahead of the Advisory Person's own personal interests or
the interests of others.
I. Definitions
(A) "Access Person" means any director, officer or Advisory Person of WA.
(B) "Advisory Person" means (i) any employee of WA or of any company in a
control relationship to WA, who, in connection with his or her
regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of a Security (as such
term is hereinafter defined) by the Investors, or whose functions
relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control
relationship to WA who obtains information concerning recommendations
made to the Investors with regard to the purchase or sale of a
Security.
(C) A Security is "being considered for purchase or sale" when a
recommendation to purchase or sell a Security has been made and
communicated or, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
(D) A Security is "being purchased or sold" by the Investors from the
time when a purchase or sale program has been communicated to the
person who places the buy and sell orders for the Investors until the
time when such program has been fully completed or terminated.
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Waite & Associates L.L.C. Page 2
April 19, 2000
(E) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder from time to time in effect, except that
the determination of direct or indirect beneficial ownership shall
apply to all Securities which an Advisory Person has or acquires. As
a general matter, "beneficial ownership" will be attributed to an
Advisory Person in all instances where the Advisory Person (i)
possesses the ability to purchase or sell the Securities (or the
ability to direct the disposition of the Securities); (ii) possesses
voting power (including the power to vote or to direct the voting
over such Securities); or (iii) receives any benefits substantially
equivalent to those of ownership.
(F) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act. Section 2(9) provides that "control" means the
power to exercise a controlling influence over the management or
policies of a company, unless such power is solely the result of an
official position with such company.
(G) "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
prior to the registration, was not subject to the reporting
requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934.
(H) "Limited Offering" means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) or Section
4(6) thereof or pursuant to Rule 504, Rule 505 or Rule 506
thereunder.
(I) "Purchase or sale of a Security" includes the writing of an option to
purchase or sell a Security.
(J) "Security" shall have the meaning set forth in Section 2(a)(36) of
the Act, except that it shall not include securities issued by the
Government of the United States, short-term debt securities which are
"government securities" within the meaning of Section 2(a)(16) of the
Act, shares of registered open-end investment companies, bankers'
acceptances, bank certificates of deposit, commercial paper and other
money market instruments, savings or demand deposit accounts with
banks or thrifts, or such other securities as may be excepted under
the provisions of Rule17j-1 under the Act as in effect from time to
time.
(K) "Security held or to be acquired" by the Investors means any Security
which, within the most recent fifteen (15) days, (i) is or has been
held by the Investors, or (ii) is being or has been considered by the
Investors or WA for purchase by the Investors.
A person who normally only assists in the preparation of public reports,
or receives public reports but receives no information about current
recommendations or trading, is not an Advisory Person. A single instance or
infrequent, inadvertent instances of obtaining knowledge does not make
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Waite & Associates L.L.C. Page 3
April 19, 2000
one either then or for all times an Advisory Person. Under the definition of
"Advisory Person" the phrase "makes . . . the purchase or sale" means someone
who places orders or otherwise arranges transactions.
II. Prohibited Purchases and Sales
(A) No Advisory Person shall, in connection with the purchase or sale,
directly or indirectly, by such person of a Security held, to be
acquired, or disposed of by the Investors:
(1) employ any device, scheme or artifice to defraud the Investors;
(2) make to the Investors any untrue statement of a material fact or
omit to state to the Investors a material fact, the omission of
which would, in light of the circumstances under which it is
made, will cause the statement to be misleading;
(3) engage in any act, practice or course of business which operates
or would operate as a fraud or deceit upon the Investors; or
(4) engage in any manipulative practice with respect to the
Investors.
(B) In this connection, subject to the exceptions stated in Section III,
of this Code, it shall be impermissible for any Advisory Person to
purchase or sell, directly or indirectly, any Security (or any option
to purchase or sell such Security) in which he or she had, or by
reason of such transaction acquires (or disposes), any direct or
indirect beneficial ownership and which he or she knows or should
have known at the time of such purchase or sale:
(1) is being considered for purchase or sale by the Investors; or
(2) is being purchased or sold by the Investors.
(C) Any Advisory Person who questions whether a contemplated transaction
is prohibited by this Code should discuss the transaction with the
Compliance Officer of the Investors prior to proceeding with the
transaction.
(D) An Advisory person may not acquire, directly or indirectly,
beneficial ownership in any securities in an Initial Public Offering
or in a Limited Offering without the prior approval of the WA
Management Committee. Prior approval shall not be given if the WA
Management Committee believes that the investment opportunity is
being offered to the individual by reason of his or her position with
WA, or should be reserved for any of WA's investment advisory
clients.
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Waite & Associates L.L.C. Page 4
April 19, 2000
III. Exempted Transactions
The prohibitions of Section II of this Code shall not apply to the
following transactions by Advisory Persons:
(A) Purchases or sales effected for any account over which the Advisory
Person has no direct or indirect influence or control.
(B) Purchases or sales of Securities which are not eligible for purchase
or sale by the Investors, as determined by reference to the Act and
regulations thereunder, the investment objectives and policies and
investment restrictions of the Investors, undertakings made to
regulatory authorities, and other policies adopted from time to time
by the Investors or WA.
(C) Purchases or sales which are nonvolitional on the part of either the
Advisory Person or the Investors, including purchases or sales upon
exercise of puts or calls written by the Advisory Person and sales
from a margin account pursuant to a bona fide margin call.
(D) Purchases that are either: (i) made solely with the dividend proceeds
received in a dividend reinvestment plan; or (ii) are part of an
automatic payroll deduction plan, whereby an employee purchases
Securities issued by an employer.
(E) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its Securities, to the extent
such rights were acquired from such issuer, and sales of such rights
so acquired.
(F) Transactions which appear to present no reasonable likelihood of harm
to the Investors, which are otherwise in accordance with Rule 17j-1
under the Act, and which the WA Compliance Officer has authorized in
advance. Such transactions would normally include purchases or sales
of up to 500 shares of a Security which is being considered for
purchase or sale by the Investors (but not being purchased or sold)
if the issuer has a market capitalization of $1 billion or greater.
IV. Reporting
(A) Each Advisory Person shall notify the WA Management Committee in the
event that he or she serves on the board of directors of a publicly
traded company. The WA Management Committee shall determine whether
such board service is consistent with the interests of the investment
advisory clients and take such action, if any, as it deems
appropriate.
(B) Every Advisory Person shall, not later than 10 days after becoming an
Advisory Person, and each January 30 thereafter, file with the WA
Compliance Officer an "initial
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Waite & Associates L.L.C. Page 5
April 19, 2000
holdings" and "annual holdings" report, respectively, containing the
information described in Section IV (D).
(C) Each Advisory Person shall, not later than 10 days after the end of a
calendar quarter, file with the WA Compliance Officer a "quarterly
transaction" report containing the information described in Section
IV (E). Said report will be made with respect to any transactions in
any Security in which such Advisory Person has, or by reason of such
transaction acquires, or disposes of, any direct or indirect
beneficial ownership in the Security, regardless of whether such
transaction is an Exempt Transaction as defined in Section III
(B)-(F). Provided, however, that such Advisory Person shall not be
required to make a report with respect to transactions effected for
any account over which such person does not have any direct or
indirect influence or control, if such person certifies such fact to
the Investors.
(D) Initial and Annual Holdings Reports shall contain the following
information:
(1) The title, number of shares and principal amount of each
Security in which the Advisory Person had any direct or indirect
beneficial ownership;
(2) The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the Advisory Person;
(3) The date that the report is submitted by the Advisory Person;
and
(4) A statement certifying that the Advisory Person has (i) read and
understands this Code and recognizes they are subject thereto,
and (ii) has complied with the requirements of this Code.
(E) Quarterly Transaction Reports shall contain the following
information:
(1) The date of the transaction, the title and number of
shares/principal amount of each Security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition), including information
sufficient to establish any exemption listed in Section III
(B)-(F) which is relied upon;
(3) The price at which the transaction was effected; and
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected.
(F) With respect to any account established by, and in which any
securities were held during a calendar quarter for the direct or
indirect benefit of the Advisory Person, a report containing the
following information shall be made to the WA Compliance Officer:
(1) The name of the broker, dealer or bank with whom the Advisory
Person established the account;
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Waite & Associates L.L.C. Page 6
April 19, 2000
(2) The date the account was established; and
(3) The date that the report is submitted by the Advisory Person.
(G) If an Advisory Person is not required to file a Quarterly Transaction
Report for any quarter because no reportable transactions were
effected by such Advisory Person or because any transaction effected
by such Advisory Person was for an account over which he or she has
no direct or indirect influence or control, such Advisory Person
shall certify these facts to the WA Compliance Officer within ten
(10) days of the end of such calendar quarter.
(H) The making of such report shall not be construed as an admission by
the person making such report that he or she has any direct or
indirect beneficial ownership in the Security to which the report
relates, and the existence of any report shall not be construed as an
admission that any event reported on constitutes a violation of
Section II (A) hereof.
V. Review and Enforcement
(A) Review
(1) The WA Compliance Officer shall cause the reported personal
Securities transactions to be compared with completed and
contemplated portfolio transactions of the Investors to
determine whether any transactions (each a "Reviewable
Transaction") listed in Section II may have occurred.
(2) If the WA Compliance Officer determines that a Reviewable
Transaction may have occurred, he or she shall then determine
whether a violation of this Code may have occurred, taking into
account all the exemptions provided under Section III. Before
making any determination that a violation has been committed by
an individual, the WA Compliance Officer shall give such person
an opportunity to supply additional information regarding the
transaction in question.
(B) Enforcement
(1) If the WA Compliance Officer determines that a violation of this
Code may have occurred, he or she shall promptly report the
possible violation to the WA Management Committee. The WA
Management Committee, with the exception of any person whose
transaction is under consideration, shall take such actions as
they consider appropriate, including imposition of sanctions.
Sanctions may include, among other actions, a letter of censure,
suspension of the violator's right to trade for his or her own
account or suspension or termination of the employment of the
violator.
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Waite & Associates L.L.C. Page 7
April 19, 2000
(2) No person shall participate in a determination of whether he or
she has committed a violation of this Code or in the imposition
of any sanction against himself or herself. If a Securities
transaction of the WA Compliance Officer or a member of the WA
Management Committee is under consideration, an employee or
other officer of WA designated for purpose by the vote of the
rest of the WA Management Committee shall act in all respects in
the manner prescribed herein for said member.
VI. Investment Adviser's and Principal Underwriter's Codes of Ethics
WA as the adviser of the Investors shall:
(A) Maintain its Code of Ethics adopted pursuant to Rule 17j-1 under the
Act, which Code shall be made available for review by Investors;
(B) Promptly report to Investors in writing any material amendments to
such Code;
(C) Maintain copies of any reports made pursuant to such code by any
person who is an Advisory Person to the Investors; and
(D) Maintain and furnish Investors upon request, all material information
regarding any violation of such Code by any person who is an Advisory
Person to the Investors.
VII. Records
(A) WA shall maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f)(1) under the Act and shall be
available for appropriate examination by representatives of the
Securities and Exchange Commission.
(1) A copy of this Code and any other Code, which is, or at any time
within the past five years has been, in effect, preserved in an
easily accessible place.
(2) A record of any violation of this Code, and of any action taken
as a result of such violation, preserved in an easily accessible
place for a period of not less than five years following the end
of the fiscal year in which the violation occurs.
(3) A copy of each report made pursuant to this Code by any Advisory
Person for a period of not less than five years from the end of
the fiscal year in which it is made. The most recent two years
of such reports will be maintained in an easily accessible
place.
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Waite & Associates L.L.C. Page 8
April 19, 2000
(4) A list of all persons who are, or within the last five years
have been, required to make reports pursuant to this Code shall
be maintained in an easily accessible place.
(B) Confidentiality
All reports of securities transactions and any other information
maintained pursuant to this Code shall be treated as confidential,
except as regards appropriate examinations by representatives of the
Securities and Exchange Commission.
VIII. Bundling
All fully discretionary accounts under the management of WA, including the
Investors, will share trades on an average cost basis. Once a decision to
purchase or sell a Security has been made by the portfolio manager, the trader
will execute the trade and then allocate shares in proportion to each respective
account size at the same average cost or sales price.
IX. Amendment: Interpretation of Provisions
WA may from time to time amend this Code or adopt such interpretations of
this Code, as they deem appropriate.
Acknowledged and Agreed to:
- ----------------------------------- -----------------------------------
Leslie A. Waite Diana Calhoun
President & Managing Director Managing Director
- ----------------------------------- -----------------------------------
Patrick Westmoreland Peter C. Brockett
Managing Director Managing Director
- ----------------------------------- -----------------------------------
Peter D. Tamny Charlene Hammill
Managing Director Vice President
- -----------------------------------
Kenneth J. Ott
Vice President