<PAGE>
As filed with the Securities and Exchange Commission on December 20, 1996
Registration No. 811-8494 and 33-78408
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. 3 [x]
and
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 5
(Check appropriate box or boxes) [x]
------------------------
MAGNA FUNDS
(Exact name of registrant as specified in charter)
60 State Street
Suite 700
Boston, Massachusetts 02109
Registrant's Telephone Number, Including Area Code: (617) 267-2525
Name and address
of agent for service Copy to
- -------------------- -------
Robert A. Bonelli John M. Loder, Esq.
Ernst & Company Ropes & Gray
One Battery Park Plaza One International Place
New York, NY 10004-1478 Boston, MA 02110
------------------------
It is proposed that this filing will become effective January 1, 1997
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933.
DECLARATION PURSUANT TO RULE 24f-2
----------------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its shares of
beneficial interest. The Registrant filed a Rule 24f-2 Notice on October 30,
1996 with respect to the Registrant's fiscal year ended August 31, 1996.
<PAGE>
MAGNA FUNDS
Cross Reference Sheet
Items required by Form N-1A
<TABLE>
<CAPTION>
PART A
Item Registration Statement Caption Caption in Prospectus
No.
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; The Trust;
Investment Objectives and
Policies; Risk and Other
Information About the Funds'
Investments
5. Management of the Fund Cover Page; The Trust; The
Funds' Investment Adviser;
Fund Management and Expenses;
Portfolio Transactions; Back
Cover
6. Capital Stock and Other Securities The Trust; Shareholder
Services; Dividends, Capital
Gain Distributions and Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services; Fund
Management and Expenses
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
PART B
Item Registration Statement Caption Caption in Statement of
No. Additional Information
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment Objectives,
Policies and Restrictions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Holders Management of the Trust;
of Securities Description of the Trust
16. Investment Advisory and Other Investment Advisory and Other
Services Services
17. Brokerage Allocation and Other Portfolio Transactions and
Practices Brokerage
18 Capital Stock and Other Securities How to Redeem Shares
(Prospectus); Redemptions;
Dividends, Capital Gain
Distributions and Taxes
(Prospectus); Income
Dividends, Capital Gain
Distributions and Tax Status;
Description of the Trust
19. Purchase, Redemption and Pricing of How to Purchase Shares
Securities Being Offered (Prospectus); Shareholder
Services; How to Redeem Shares
(Prospectus); Redemptions; Net
Asset Value and Public
Offering Price; Specimen Price
Make-Up
20. Tax Status Dividends, Capital Gain
Distributions and Taxes
(Prospectus); Income
Dividends, Capital Gain
Distributions and Tax Status
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
PART B (con't)
Item Registration Statement Caption Caption in Statement of
No. Additional Information
<S> <C> <C>
21. Underwriters Investment Advisory and Other
Services
22. Calculations of Performance Data Not Applicable
23. Financial Statements Financial Statements
</TABLE>
PART C
The information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of the Registration Statement.
-4-
<PAGE>
MAGNA FUNDS
60 STATE STREET
SUITE 700
BOSTON, MASSACHUSETTS 02109
(617) 267-2525
PROSPECTUS
JANUARY 2, 1997
Magna Funds (the "Trust") is a mutual fund issuing two series of shares--
Magna Intermediate Government Bond Fund and Magna Growth & Income Fund (the
"Funds"). Each Fund has its own investment objective and invests in a
different portfolio of securities. Magna Bank, N.A. ("Magna") is the
investment adviser for each Fund.
This Prospectus concisely describes the information that you should know
before investing in a Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated January 2, 1997 is
available free of charge; write to Magna Funds, 60 State Street, Suite 700,
Boston, Massachusetts 02109 or telephone 617-267-2525. The Statement of
Additional Information, which contains more detailed information about the
Funds, has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Prospectus.
Shares are offered to the public through Ernst & Company ("Ernst"), the
Trust's distributor. Shares are offered at net asset value plus a sales
charge. As of the date of this Prospectus, each Fund offers a single class of
shares. Shares of the Funds may, in the future, be offered in two or more
classes with different sales load arrangements.
For information about: For all other information about the
Funds:
. Establishing an account Call 617-267-2525
. Account procedures and status
. Exchanges
. Shareholder services
Call 800-219-4182
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, Magna Group, Inc., Magna Bank, N.A. or any other bank, and shares
are not federally insured by the Federal Deposit Insurance Corporation or any
other government agency. Investment in the Funds involves the risk of a
possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF EXPENSES........................................................ 1
FINANCIAL HIGHLIGHTS....................................................... 2
INVESTMENT OBJECTIVES AND POLICIES......................................... 3
RISK AND OTHER INFORMATION ABOUT THE FUNDS' INVESTMENTS.................... 5
THE FUNDS' INVESTMENT ADVISER.............................................. 11
FUND MANAGEMENT AND EXPENSES............................................... 11
PORTFOLIO TRANSACTIONS..................................................... 12
HOW TO PURCHASE SHARES..................................................... 12
REDUCED SALES CHARGES...................................................... 14
SHAREHOLDER SERVICES....................................................... 15
HOW TO REDEEM SHARES....................................................... 15
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES........................... 16
THE TRUST.................................................................. 17
</TABLE>
<PAGE>
SUMMARY OF EXPENSES
The following information is provided to assist you in understanding the
various expenses that, as an investor in a Fund, you will bear directly or
indirectly. The table below summarizes your maximum transaction costs from an
investment in the Funds and the expenses which each Fund is expected to incur
during the current fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in any Fund over specified
periods. The information below should not be considered a representation of
future expenses, as actual expenses may be greater or less than those shown.
Other Expenses for both Funds are actual expenses for the fiscal year ended
August 31, 1996. THE ASSUMED 5% ANNUAL RETURN IN THE EXAMPLE BELOW SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE FUND INVESTMENT PERFORMANCE,
SINCE ACTUAL PERFORMANCE WILL DEPEND UPON ACTUAL INVESTMENT RESULTS OF
SECURITIES HELD IN THE PARTICULAR FUND'S PORTFOLIO.
<TABLE>
<CAPTION>
GROWTH & INTERMEDIATE
INCOME GOVERNMENT
FUND BOND FUND
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<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchase (as % of
offering price)...................................... 4.0% 4.0%
Maximum Sales Load Imposed on Reinvested Dividends (as
% of offering price)................................. None None
Deferred Sales Load (as % of original purchase price
or redemption proceeds, as applicable)............... None(1) None(1)
Redemption Fees(2).................................... None None
Exchange Fees......................................... None None
Annual Fund Operating Expenses (as % of net assets):
Investment Advisory Fees (after fee waiver) (3)....... 0.50% 0.40%
12b-1 Fees (after fee waiver) (3)..................... 0.00% 0.00%
Other Expenses........................................ 0.77% 0.65%
----- -----
Total Fund Operating Expenses......................... 1.27% 1.05%
Example
You would pay the following expenses on a $1,000
investment assuming a 5% annual return (with or
without a redemption at the end of each time period):
One Year............................................ $53 $50
Three Years......................................... $79 $72
Five Years.......................................... $108 $96
Ten Years........................................... $188 $164
</TABLE>
- --------
(1) Purchases of over $3 million are not subject to any sales load at the time
of purchase, but a 1% contingent deferred sales charge applies on amounts
redeemed within one year after purchase.
(2) A Wire Fee (currently $5.00) will be deducted from the proceeds of
redemptions effected by telephone. See "How to Redeem Shares."
(3) The Trust's investment adviser and distributor have voluntarily agreed to
reduce their fees to the amounts shown in the table above through August
31, 1997. Without such voluntary reductions, the adviser would be entitled
to receive investment advisory fees of 0.75% and 0.50% of the average
daily net assets of the Growth & Income Fund and the Intermediate
Government Bond Fund, respectively, and the distributor would be entitled
to receive 12b-1 fees of 0.25% of the average daily net assets of each
Fund.
1
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
GROWTH & INCOME FUND INTERMEDIATE GOVERNMENT BOND FUND
---------------------------------- ----------------------------------
SEPTEMBER 1, 1994* SEPTEMBER 1, 1994*
YEAR ENDED THROUGH YEAR ENDED THROUGH
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $14.05 $12.50 $12.75 $12.50
======= ======= ======= =======
Income from Investment
Operations:
Net Investment Income. 0.24 0.25 0.76 0.74
Net Realized and
Unrealized Gain
(Loss) on
Investments.......... 2.39 1.52 (0.32) 0.25
------- ------- ------- -------
Total From Investments
Operations........... 2.63 1.77 0.44 0.99
------- ------- ------- -------
Less Distributions:
Dividends from net
investment income.... (0.23) (0.22) (0.76) (0.74)
Dividends from net
realized gains....... (0.03) 0.00 0.00 0.00
------- ------- ------- -------
Total Dividends and
Distributions........ (0.26) (0.22) (0.76) (0.74)
------- ------- ------- -------
Net Asset Value, End of
Period................. $16.42 $14.05 $12.43 $12.75
======= ======= ======= =======
Total Investment
Return(1).............. 18.77% 14.33% 3.48% 8.30%
======= ======= ======= =======
RATIOS/SUPPLEMENTAL
DATA:
- -------------------
Net Assets, End of
Period ($000's)........ $39,995 $30,284 $56,764 $52,085
Ratio of Expenses to
Average Net Assets..... 1.27% 1.25% 1.05% 1.10%
Ratio of Net Investment
Income to Average Net
Assets................. 1.56% 1.98% 5.97% 6.00%
Portfolio Turnover Rate. 31% 41% 20% 34%
Average Commission Rate
Paid(2)................ $0.0600 N/A N/A N/A
</TABLE>
- --------
Net investment income per share and the annualized ratios of expenses and
net investment income to average net assets before reductions and waivers of
fees by the adviser, distributor and administrator for the year ended August
31, 1996 were $0.17, 1.77% and 1.06%, and $0.72, 1.40% and 5.62% for the Magna
Growth & Income Fund and Magna Intermediate Bond Fund, respectively, and for
the period September 1, 1994* through August 31, 1995, were $0.13, 1.88% and
1.35%, and $0.70, 1.43% and 5.66% for the Magna Growth & Income Fund and Magna
Intermediate Government Bond Fund, respectively.
*Commencement of operations.
(1) Total return excludes sales charges. Had the advisor, distributor and
administrator not reduced or waived certain expenses, total returns would
have been lower.
(2) The average commission rate paid is applicable for Funds that invest
greater than 10% of average net assets in equity security transactions on
which commissions are charged. This disclosure is required for fiscal
periods beginning on or after September 1, 1995.
The above information has been audited by Coopers & Lybrand L.L.P.,
independent accountants. This statement should be read in connection with the
other audited financial statements and related notes which are incorporated by
reference in the Trust's Statement of Additional Information.
The investment adviser's discussion of performance of each Fund in the
fiscal year ended August 31, 1996, as well as a comparison of each Fund's
performance over the life of the Fund with that of a benchmark securities
index selected by the investment adviser, is included in the Trust's Annual
Report for the fiscal year ended August 31, 1996. Copies of the Annual Report
are available upon request without charge.
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
MAGNA INTERMEDIATE GOVERNMENT BOND FUND
The investment objective of the Intermediate Government Bond Fund is to
achieve current income consistent with preservation of capital.
The Fund pursues this objective by investing in a portfolio consisting
primarily of U.S. Government Securities, and high grade bonds and notes of
non-governmental issuers. Under normal circumstances, the Fund will invest at
least 65% of the total value of its assets in U.S. Government Securities,
which include all securities issued or guaranteed by the U.S. Government or
any of its agencies, authorities or instrumentalities. Repurchase agreements
that are fully collateralized by U.S. Government Securities will be treated as
U.S. Government Securities for the purpose of this 65% test. U.S. Government
Securities include certain mortgage-backed securities. (See "Risk and Other
Information About the Funds' Investments--Intermediate Government Bond Fund--
Mortgage-Backed and Other Asset-Backed Securities.") The Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, but
may purchase individual securities with longer or shorter maturities. For
purposes of computing average maturity, (1) securities that are subject to
call, refund or redemption will be treated as maturing on the ultimate
maturity date unless Magna believes it is probable that the issuer of the
security will take advantage of the call, refund or redemption provision (in
which case the date of such probable call, refund or redemption will be
treated as the maturity date), (2) new issues by the Government National
Mortgage Association ("GNMA") or the Federal National Mortgage Association
("FNMA"), which typically have a 30-year stated maturity, will be treated as
having a 12-year maturity unless Magna believes, based on publicly available
information from a nationally recognized source, that the issue will have a
longer or shorter average life; and (3) certain nominally long-term securities
will be deemed to have a shorter maturity because of the existence of a demand
feature exercisable by the Fund prior to the stated maturity.
The securities in which the Fund invests include, but are not limited to:
. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
. obligations of U.S. government agencies, authorities or instrumentalities
such as the Federal Home Loan Banks, FNMA, GNMA, the Federal Farm Credit
Banks, the Student Loan Marketing Association, the Federal Home Loan
Mortgage Corporation or the Tennessee Valley Authority;
. corporate debt obligations having floating or fixed rates of interest and
rated in one of the three highest categories by a nationally recognized
statistical rating organization ("NRSRO") (that is, rated Aaa, Aa or A by
Moody's Investors Service, Inc. ("Moody's") or AAA, AA or A by Standard &
Poor's Corporation ("Standard & Poor's") or Fitch Investors Service, Inc.
("Fitch")), or which are not rated but are of comparable quality in the
judgment of Magna;
. asset-backed securities rated A or higher by an NRSRO, which may include,
but are not limited to, interests in pools of receivables such as motor
vehicle installment purchase obligations and credit card receivables;
. mortgage-backed securities;
. collateralized mortgage obligations; and
. repurchase agreements collateralized by eligible investments.
3
<PAGE>
If a security's rating is reduced below the required minimum after the Fund
has purchased it, the Fund is not required to sell the security, but may
consider doing so. However, the Fund does not intend to hold more than 5% of
its assets in securities that have been downgraded below investment grade
(that is, below BBB or Baa).
The Fund may also engage in options transactions for hedging purposes.
MAGNA GROWTH & INCOME FUND
The investment objective of Magna Growth & Income Fund is to seek long-term
growth of capital, current income and growth of income.
The Fund invests primarily in common stocks, preferred stocks and securities
convertible into common stocks of companies which offer the prospect for
growth of earnings while paying current dividends (or interest, in the case of
certain convertible securities). Over time, continued growth of earnings tends
to lead to higher dividends and enhancement of capital value. The Fund may
also purchase such securities which do not pay current dividends but which
offer prospects for growth of capital and future income. The Fund may invest a
portion of its assets in securities of foreign issuers traded in U.S.
securities markets, which may subject it to special risks. See "Foreign
Securities" below. The Fund allocates its investments among different
industries and companies, and changes its portfolio securities for investment
considerations and not for trading purposes.
In addition, the Fund may invest up to 10% of its total assets in debt
obligations with maturities of longer than one year at the time of purchase,
including U.S. Government Securities, high grade bonds and notes of non-
governmental issuers and other fixed income securities generally suitable for
investment by the Intermediate Government Bond Fund. (See "Investment
Objectives and Policies--Magna Intermediate Government Bond Fund.") The Fund
may also invest in repurchase agreements, and may engage in options
transactions for hedging purposes.
BOTH FUNDS
There is no assurance that either Fund will achieve its investment
objective. Although the Funds have adopted policies designed to limit risk,
investments in the Funds involve the risk of losing a substantial portion of
your investment.
The Funds are permitted to invest in a variety of different securities and
instruments, subject to the policies and limitations described in this
Prospectus and the Statement of Additional Information. The Funds are not
required, however, to use all of the different investment instruments and
techniques described in this Prospectus and the Statement of Additional
Information. At any particular time, each Fund's assets will consist of
investments that Magna believes are appropriate for that Fund under the market
and economic conditions in effect at that time, consistent with the Fund's
investment objectives and policies.
Except for matters that are explicitly identified as "fundamental" in this
Prospectus or the Statement of Additional Information, the investment policies
of the Funds may be changed without shareholder approval. The investment
objective of each Fund is fundamental and thus may not be changed without a
vote of that Fund's shareholders.
4
<PAGE>
RISK AND OTHER INFORMATION ABOUT THE FUNDS' INVESTMENTS
INTERMEDIATE GOVERNMENT BOND FUND
General Characteristics of Bonds and Notes
All types of bonds and notes are subject to market and credit risk. Market
risk relates to changes in a security's value as a result of changes in
interest rates generally. In general, the values of fixed income securities
increase when prevailing interest rates fall and decrease when interest rates
rise. Credit risk relates to the ability of the issuer to make payments of
principal and interest. Corporate bonds and notes, which under normal
circumstances may constitute up to 35% of the Fund's assets, generally involve
more credit risk than U.S. Government bonds and notes. The net asset value of
the Fund's shares will vary as a result of changes in the value of the
securities in a Fund's portfolio. Therefore, your investment may decline in
value, resulting in a loss of part of your invested principal. Because interest
rates vary, it is impossible to predict the income or yield of the Fund for any
particular period.
Many bonds and notes are also subject to prepayment risk. This risk results
from the ability of the issuer to prepay all or part of the principal of the
bond or note before the stated maturity date. For example, a corporation may
issue a bond with a stated maturity of twenty years, but subject to the
corporation's right to "call" or prepay the bond after only five or seven
years. Many asset-backed securities (see below) are prepayable at any time.
During periods of falling interest rates, securities that can be called or
prepaid may decline in value relative to similar securities that are not
subject to call or prepayment.
U.S. Government Securities
U.S. Government Securities have different kinds of government support. For
example, some U.S. Government Securities, such as U.S. Treasury bonds and
notes, are supported by the full faith and credit of the United States. Certain
other U.S. Government Securities are not supported by the full faith and credit
of the United States, but may be backed by (1) the credit of a particular
agency or instrumentality, (2) the agency's or instrumentality's ability to
borrow specified amounts from the U.S. Treasury or (3) the discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality. Examples of U.S. Government Securities that are not backed
by the full faith and credit of the United States include obligations of the
Federal Home Loan Mortgage Corporation, the Federal Home Loan Banks, FNMA and
the Tennessee Valley Authority.
Although U.S. Government Securities generally do not involve the credit risks
associated with other types of fixed income securities, the market values of
U.S. Government Securities do go up and down as interest rates change. Thus,
the value of an investment in a mutual fund that holds U.S. Government
Securities, such as the Intermediate Government Bond Fund, may fall during
times of rising interest rates. Yields on U.S. Government Securities tend to be
lower than those of corporate securities of comparable maturities.
In addition to investing directly in U.S. Government Securities, the Funds
may purchase certificates of accrual or similar instruments ("strips")
evidencing undivided ownership interests in interest payments or principal
payments, or both, on U.S. Government Securities. These investment instruments
may be highly volatile. For purposes of its policy of normally investing at
least 65% of its total assets in U.S. Government Securities, the Fund will not
treat a "strip" as a U.S. Government Security unless the strip itself is
directly issued or guaranteed by the U.S. Government or an agency, authority or
instrumentality thereof.
5
<PAGE>
Zero Coupon Securities
The Fund may invest in "zero coupon" securities. These securities accrue
interest at a specified rate, but do not pay interest in cash on a current
basis. The Fund is required to distribute the income on these securities to
Fund shareholders as the income accrues, even though the Fund is not receiving
the income in cash on a current basis. Thus the Fund may have to sell other
investments to obtain cash to make income distributions. The market value of
zero coupon securities is often more volatile than that of non-zero coupon
fixed income securities of comparable quality and maturity.
Mortgage-Backed and Other Asset-Backed Securities
The Fund may invest in various types of asset-backed securities. Asset-
backed securities are created by the grouping of certain governmental,
government-related or private loans, receivables and other lender assets into
pools. Interests in these pools are sold as individual securities. Payments
from the asset pools may be divided into several different classes of debt
securities, with some classes entitled to receive regular installments of
principal and interest, other classes entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other classes entitled to receive payments of principal and accrued
interest only at maturity or upon specified call dates. Different classes of
securities will bear different interest rates, which may be fixed or floating.
Certain classes may be entitled to receive only interest, or only principal;
the value of these classes may fluctuate dramatically during periods when
market interest rates are changing.
Because the loans held in an asset pool often may be prepaid without penalty
or premium (with prepayments passed through to the holders of the asset-backed
securities), asset-backed securities are generally subject to higher
prepayment risks than most other types of debt instruments. For example,
prepayment risks on mortgage securities tend to increase during periods of
declining mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Depending upon market
conditions, the yield that the Fund receives from the reinvestment of such
prepayments, or any scheduled principal payments, may be lower than the yield
on the original mortgage security. As a consequence, mortgage securities may
be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less
potential for capital appreciation. For certain types of asset pools, such as
collateralized mortgage obligations ("CMOs") (see below), prepayments may be
allocated to one class of securities ahead of other classes, in order to
reduce the risk of prepayment for the other classes. Prepayments may result in
a capital loss to the Fund to the extent that the prepaid mortgage securities
were purchased at a market premium over their stated principal amount.
Conversely, the prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate the recognition of
interest income by the Fund, which would be taxed as ordinary income when
distributed to shareholders.
CMOs are bonds issued by single purpose finance subsidiaries or trusts
established by financial institutions, government agencies, brokerage firms or
companies related to the construction industry. CMOs purchased by the Fund may
be:
. collateralized by pools of mortgages in which every mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
. collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer of the CMO and such guarantee is
collateralized by government securities; or
. securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest is supported by the
credit of an agency or instrumentality of the U.S. government.
The Fund will not invest more than 25% of its total assets in CMOs.
6
<PAGE>
The Fund may invest in non-mortgage related asset-backed securities,
including interests in pools of receivables, such as credit card or other
accounts receivable, student loans or motor vehicle and other installment
purchase obligations and leases. The securities, which are generally issued by
non-governmental entities and carry no direct or indirect government
guarantee, are structurally similar to collateralized mortgage obligations and
mortgage pass-through securities. Like mortgage-backed securities, other
asset-backed securities are typically subject to substantial prepayment risk.
Many mortgage-backed securities are issued or guaranteed by a U.S.
Government agency or instrumentality, such as GNMA, FNMA or the Federal Home
Loan Mortgage Corporation; they are treated as U.S. Government Securities for
purposes of the Fund's policy of normally investing at least 65% of its total
assets in U.S. Government Securities. For purposes of this policy, the Fund
will not treat as a U.S. Government Security any mortgage or other asset-
backed security that is not issued or guaranteed by a U.S. Government agency,
authority or instrumentality (even if the underlying mortgages or other assets
are Government-guaranteed). These non-U.S. Government mortgage-backed or other
asset-backed securities will constitute less than 25% of the Fund's total
assets, and together with any other assets that are not U.S. Government
Securities will normally constitute less than 35% of the Fund's total assets.
The credit characteristics of mortgage-backed and other asset-backed
securities differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities (other than
those issued or guaranteed by a U.S. Government agency or instrumentality)
depends primarily upon the credit quality of the assets underlying such
securities, how well the entity issuing the securities is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement to such securities.
GROWTH & INCOME FUND
General Characteristics of Equity Securities
Common and preferred stocks and similar equity securities such as warrants
and convertibles are subject to greater fluctuation in value and risk of loss
than some other forms of investment. The values of these securities can rise
or fall based on the financial performance of, or other factors relating to,
the company that issued the securities, or based on more general factors
affecting particular industries or the stock market or economy as a whole. The
value of your investment in the Growth & Income Fund will rise or fall based
on the value of the stocks and other securities the Fund holds. Equity
securities of companies with relatively small market capitalization may be
more volatile than the securities of larger, more established companies and
the broad equity market indexes.
Convertible Securities
Convertible securities are generally convertible into common stock at either
a stated price or a stated rate. The price of the convertible security will
normally vary in some proportion to changes in the price of the underlying
common stock because of this conversion feature. A convertible security will
normally also provide a fixed income stream. For this reason, a convertible
security may not decline in price as rapidly as the underlying common stock.
Magna will select convertible securities to be purchased by the Growth &
Income Fund based primarily upon its evaluation of the fundamental investment
characteristics and growth prospects of the issuer of the security. As a
fixed-income security, a convertible security tends to increase in market
value when interest rates
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<PAGE>
decline and to decrease in value when interest rates rise. While convertible
securities generally offer lower interest or dividend yields than non-
convertible fixed-income securities of similar quality, their value tends to
increase as the market value of the underlying stock increases and to decrease
when the value of the underlying stock decreases. The Growth & Income Fund
will not purchase any convertible security that is rated below BBB by Standard
& Poor's or Baa by Moody's (or that is unrated but determined by Magna to be
comparable in quality to securities rated below BBB or Baa), if as a result of
such purchase more than 5% of the Fund's assets would be invested in such
securities. Securities rated BBB or Baa or lower (and comparable unrated
securities) have speculative characteristics. Unfavorable changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity of the issuer of these securities to make principal and interest
payments than is the case with higher quality securities.
Foreign Securities
The Fund may invest any portion of its assets in securities of issuers
organized or headquartered outside the United States ("foreign securities").
The Fund intends to invest in such securities only by buying "American
Depository Receipts," which are traded in U.S. stock markets, rather than by
buying foreign securities directly on foreign stock exchanges.
Although investing in foreign securities may increase the Fund's
diversification and thereby reduce portfolio volatility, foreign securities
may present risks not associated with investments in comparable securities of
U.S. issuers. There may be less information publicly available about a foreign
corporate or government issuer than about a U.S. issuer, and foreign corporate
issuers are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States.
The securities of some foreign issuers are less liquid and at times more
volatile than securities of comparable U.S. issuers. With respect to certain
foreign countries, there is a possibility of governmental expropriation of
assets, confiscatory taxation, political or financial instability and
diplomatic developments that could affect the value of investments in those
countries.
Long-Term Debt Obligations
The Fund may invest up to 10% of its total assets in debt obligations with
maturities of longer than one year at the time of purchase, including U.S.
Government Securities, high grade bonds and notes of non-governmental issuers
and other fixed income securities generally suitable for investment by the
Intermediate Government Bond Fund. See "Risk and Other Information About the
Funds' Investments--Intermediate Government Bond Fund" for a detailed
description of such investments and the risks associated with them.
BOTH FUNDS
Short-Term Investments
Each Fund may invest a portion of its assets in short-term investments with
remaining maturities of less than one year at the time of purchase, such as
U.S. Treasury obligations, U.S. Government Securities, commercial paper and
other money market instruments or repurchase agreements (see below). Under
normal market conditions, these investments will not exceed 35% of a Fund's
assets. Under unusual market conditions, however, when Magna determines that a
more "defensive" portfolio position is appropriate, the Funds may invest any
portion of their assets in short-term investments.
Repurchase Agreements
Each Fund may enter into repurchase agreements. Repurchase agreements are
arrangements in which banks, broker-dealers and other recognized financial
institutions sell U.S. Government Securities or other securities to the Fund
and agree at the time of sale to repurchase them at a mutually agreed upon
time and price. If the original
8
<PAGE>
seller does not repurchase the securities from the Fund, the Fund has rights to
sell the securities. However, the Fund may be subject to various delays and
risks of loss, including (a) possible declines in the value of the underlying
security during the period while the Fund seeks to enforce its rights thereto,
(b) possible reduced levels of income and lack of access to income during this
period and (c) possible inability to enforce rights and the expenses involved
in enforcement or attempted enforcement.
Investments in Other Investment Companies
Each Fund may invest up to 10% of its assets in securities of investment
companies. As a shareholder of an investment company, a Fund will indirectly
bear investment management fees and other operating expenses of that investment
company, which are in addition to the management fees the Fund pays Magna and
the Fund's other expenses.
Illiquid Securities
Each Fund will limit its investments in illiquid securities, including non-
negotiable time deposits, and repurchase agreements providing for settlement in
more than seven days, to 15% of its net assets.
When-Issued and Delayed Delivery Transactions
Each Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund is required to
maintain in a segregated account with its custodian cash or high-grade, liquid
debt obligations with a value at least equal to the Fund's payment obligations
for when-issued or delayed delivery transactions. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete the
transaction. If the seller fails to complete the transaction, the Fund may be
unable to acquire the same securities at as favorable a price, or might acquire
other securities that have a less favorable yield. Also, the Fund may have
forgone the opportunity to make other attractive investments or to earn a
higher return on the amounts held in the segregated account.
Lending of Portfolio Securities
In order to generate additional income, each Fund may lend portfolio
securities on a short-term or long-term basis to broker-dealers, banks or other
institutional borrowers of securities. The Fund will enter into loan
arrangements only with broker-dealers, banks or other institutions that Magna
has determined are creditworthy and will receive collateral in the form of cash
or U.S. Government Securities equal to at least 100% of the value of the
securities loaned. The value of the collateral will be monitored on a daily
basis. If the borrower of the security does not redeliver the loaned security
as required by the terms of the loan, the Fund has rights to sell the
collateral. However, the Fund may be subject to various delays and risks of
loss, including (a) possible declines in the value of the collateral while the
Fund seeks to enforce its rights thereto, (b) possible reduced levels of income
and lack of access to income during this period and (c) possible inability to
enforce rights and the expenses involved in enforcement or attempted
enforcement.
Purchase of Options on Securities or Indexes
For hedging purposes, each Fund may buy call or put options on securities or
securities indexes. Call options purchased by a Fund give the Fund the right to
buy a specified security at a stated exercise price on or before a specified
date; put options give the Fund the right to sell a specified security at a
stated price. Options on indexes are similar, but relate to an index of
securities (such as the Standard & Poor's 500) rather than to a specific stock
9
<PAGE>
or bond. To acquire an option, the Fund pays an amount of cash known as a
"premium." There is no limit on the aggregate percentage of each Fund's assets
that may be invested in options.
Each Fund may seek to terminate an option prior to its expiration by
entering into a closing purchase transaction in which it sells an option
having the same terms as the option it previously purchased. It is possible,
however, that illiquidity in the options markets may make it difficult from
time to time for a Fund to close out its option positions.
Each Fund may purchase put options to hedge against a decline in the value
of its portfolio. For example, if Magna expects the value of securities held
by a Fund to decline, the Fund might buy a put option on those securities. If
the securities decline in value, the Fund could exercise the put, thereby
selling the securities at a price above the market value. Alternatively, it
might sell the option at a profit, thereby offsetting some or all of the
decline in the value of the securities. By using put options in this manner,
the Fund will reduce any profit it might otherwise have realized in the
underlying security by the amount of the premium paid for the put option and
by transaction costs.
Each Fund may purchase call options on securities or on relevant securities
indexes to hedge against an increase in the value of securities that the Fund
wants to buy sometime in the future. For example, if Magna expects an increase
in the value of a security that a Fund might later purchase, the Fund could
buy a call, thereby "locking in," until the expiration of the option, a lower
price.
Each Fund may purchase either exchange-traded or over-the-counter options on
securities. A Fund's ability to terminate options positions established in the
over-the-counter market may be more limited than in the case of exchange-
traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund.
The correlation between price movements of options and of the securities
which are the subject of the hedge is often imperfect. For example, the Growth
& Income Fund, which invests in equity securities, will generally not own all
the securities included in a particular stock index, and so the value of the
Fund's holdings of equities may change to a different extent than does the
value of an option on that index. Also, movements in the value of options may
not exactly correspond to movements in the value of the index or security to
which the option relates. It is also possible that, because of market factors,
a Fund will not be able to close out an option at the desired time. In that
event, the Fund would remain subject to the risks of adverse movements in the
value of the option.
Transactions in options involve costs. For example, to acquire an option, a
Fund pays cash. Since options expire after a specified time period, the Fund's
investment in the option becomes worthless if the Fund does not sell or
exercise the option before it expires. Furthermore, although the Funds are
permitted to use options, they are not required to do so. Therefore, at any
particular time, the Funds' portfolios may not be "hedged," and the Funds
would then be fully exposed to the risk of loss from adverse economic or
market developments affecting the Funds' investments in securities.
Successful use of options for hedging purposes depends in large part on
whether Magna is correct in its forecast of interest rates, market movements
and other economic factors. If Magna's forecast of these factors is incorrect,
use of options will in some cases result in a lower return than if the Fund
had not been "hedged."
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<PAGE>
THE FUNDS' INVESTMENT ADVISER
Magna serves as the investment adviser to the Funds. Magna was incorporated
under the laws of the State of Missouri in 1970 as a banking corporation. On
December 15, 1993, Magna was converted into a trust company chartered under
the laws of the State of Missouri. On November 17, 1995, Magna converted to a
national bank, and changed its name from "Magna Bank of Missouri" to "Magna
Bank, N.A." Magna is a wholly-owned indirect subsidiary of Magna Group, Inc.,
1401 South Brentwood Boulevard, St. Louis, Missouri 63144, a bank holding
company.
Magna operates as a community bank and concentrates on relationship-oriented
financial service activities, including business, consumer and real estate
loans; credit cards; and checking, savings and time deposits. Magna's deposit
base consists of core deposits from within the communities it serves, and
lending activity is targeted to consumers and mid-sized businesses in Magna's
immediate geographic areas. Magna's customers can conveniently access a broad
range of investment and insurance services through certain of its
subsidiaries.
L. Clark Zedric is the Intermediate Government Bond Fund's portfolio
manager, and has acted as such since the Fund's inception. Mr. Zedric joined
Magna Trust Company, an affiliate of Magna, in 1983 and is currently Vice
President of Magna Trust Company. He is Assistant Vice President of Magna. Mr.
Zedric received his MBA from Illinois State University.
Gary J. Guthrie is the Growth & Income Fund's portfolio manager, and has
acted as such since the Fund's inception. Mr. Guthrie holds the positions of
Vice President of Magna Trust Company and Assistant Vice President of Magna.
Mr. Guthrie is a graduate of Southern Illinois University.
During the fiscal year ended August 31, 1996, Magna received, as
compensation for advisory services rendered in such year (after waiver) 0.40%
of the Intermediate Government Bond Fund's average net assets, and (after
waiver) 0.50% of the Growth & Income Fund's average net assets.
FUND MANAGEMENT AND EXPENSES
Each Fund has agreed to pay Magna an investment advisory fee at the
following annual percentage of that Fund's average daily net assets: for the
Intermediate Government Bond Fund, 0.50%; for the Growth & Income Fund, 0.75%.
Magna has voluntarily agreed, however, to reduce the annual rate of its fee
with respect to the Growth & Income Fund, to 0.50%, and with respect to the
Intermediate Government Bond Fund, to 0.40%, through August 31, 1997.
Under an agreement with the Trust, Ernst Asset Management Corporation
("EAMC") provides management and administrative services to the Funds, and, in
general, supervises the operations of the Trust. EAMC does not provide
investment advisory services. The Trust pays EAMC a fee for its services to
each Fund at the annual rate of 0.19% of the first $125 million of the average
daily net assets of that Fund, 0.17% of the next $125 million of such assets
and 0.15% of such assets in excess of $250 million. EAMC is a wholly-owned
subsidiary of Ernst & Company ("Ernst"), a securities firm founded in 1924.
Each Fund has adopted a plan under Rule 12b-1 under the Investment Company Act
of 1940 providing for the payment to Ernst of a service fee at the annual rate
of 0.25% of the Funds' average daily net assets. Ernst has voluntarily agreed
to waive this fee through August 31, 1997. If the fee were not being waived,
Ernst would use the fee to pay the dealer responsible for a shareholder's
account a service fee at the annual rate of 0.20% of the average daily net
assets of such account.
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<PAGE>
In addition to the investment advisory, management and 12b-1 fees, each Fund
pays all expenses of the Fund's operations not expressly assumed by Magna or
EAMC, including taxes, brokerage commissions, fees and expenses of registering
or qualifying the Fund's shares under federal and state securities laws, fees
of the Fund's custodian, transfer agent, independent accountants and legal
counsel, expenses of shareholders' and trustees' meetings, expenses of
preparing, printing and mailing prospectuses to existing shareholders, and
fees of Trust trustees who are not directors, officers or employees of Magna,
EAMC or their respective affiliated companies.
The Trust's board of trustees oversees and supervises the affairs of the
Trust, including the provision of services to the Trust by Magna, EAMC and
Ernst.
PORTFOLIO TRANSACTIONS
Portfolio turnover considerations will not limit Magna's investment
discretion in managing the Funds' assets. Magna anticipates that the Funds'
portfolio turnover rates will vary significantly from time to time depending
on the volatility of economic and market conditions, but will not ordinarily
exceed 100% annually for either Fund. High portfolio turnover may involve
higher costs and higher levels of taxable gains.
Magna selects brokers and dealers to execute portfolio transactions for the
Funds. In selecting brokers Magna may consider research and brokerage services
furnished to it and its affiliates, and may cause the Funds to pay higher
commissions in recognition of the provision of these services. Subject to
seeking best price and execution, Magna may allocate Fund portfolio
transactions to brokers or dealers whose customers have invested in the Trust.
Magna may select Ernst to execute brokerage transactions for the Funds; the
Funds would pay Ernst commissions for executing such transactions.
HOW TO PURCHASE SHARES
Each Fund currently offers one class of shares (Class A shares).
Class A shares are offered at public offering prices determined by adding
the following sales charges to the net asset value of the shares being
purchased. On each purchase, the net asset value is invested in the Fund and
the sales charge is paid to Ernst as distributor. Ernst reallows a portion of
the sales charge to the dealer responsible for your order, as shown in the
following table. (If you do not place your order through a dealer, Ernst will
designate Magna Investments, Inc., an affiliate of Magna, as the dealer
responsible for your account, and Magna Investments, Inc. will receive any
dealer reallowance.)
<TABLE>
<CAPTION>
SALES CHARGE DEALER
----------------- REALLOWANCE
AS % OF AS % OF AS % OF
PUBLIC NET PUBLIC
AMOUNT OF PURCHASE OFFERING AMOUNT OFFERING
($) PRICE INVESTED PRICE
- ------------------ -------- -------- -----------
<S> <C> <C> <C>
Less than 100,000................................ 4.00 4.17 3.50
100,000 but less than 250,000.................... 3.50 3.63 3.25
250,000 but less than 500,000.................... 3.00 3.09 2.75
500,000 but less than 750,000.................... 2.50 2.56 2.25
750,000 but less than 1 million.................. 1.75 1.78 1.50
1 million but less than 3 million................ 1.00 1.01 1.00
over 3 million................................... 0.00 0.00 0.00
</TABLE>
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<PAGE>
In the case of purchases of over $3 million, a 1% contingent deferred sales
charge (payable to Ernst) will be imposed on redemptions occurring within one
year following the purchase.
You may make an initial purchase of shares of any Fund by submitting a
completed application form and payment to:
Boston Financial Data Services
P.O. Box 8500
Boston, Massachusetts 02266
Attn: Magna Funds
The minimum initial investment in any Fund is $250 for regular accounts and
$50 for IRAs and tax qualified retirement plans. Subsequent investments must
be at least $50. See "Shareholder Services" below for further information
about minimum investments in certain other circumstances.
Certificates will not be issued for shares unless you request them in
writing. The Fund may refuse any purchase order for its shares. See the
Statement of Additional Information for more information.
Upon acceptance of your order, Boston Financial Data Services, Inc.
("BFDS"), the shareholder servicing agent for State Street Bank and Trust
Company ("State Street Bank"), opens an account for you, applies the payment
to the purchase of full and fractional Fund shares and mails a statement of
the account confirming the transaction.
After an account has been established, you may send subsequent investments
at any time directly to BFDS at the above address. The remittance must be
accompanied by either the account identification slip detached from a
statement of account or a note containing sufficient information to identify
the account, i.e., the Fund name and your account number or your name and
social security number.
Subsequent investments can also be made by federal funds wire. Instruct your
bank to wire federal funds to State Street Bank and Trust Company, Boston, MA
(ABA #0110-0028), Attention Magna Funds, Mutual Funds Division (DDA #9904-680-
7). Also, include the name the account is registered in, the account number
and the name of the Fund to be invested in.
Each Fund reserves the right to reject any purchase order, including orders
in connection with exchanges, for any reason which the Fund in its sole
discretion deems appropriate. Although the Funds do not anticipate that they
will do so, each Fund reserves the right to suspend or change the terms of the
offering of its shares.
The price you pay will be the per share net asset value next calculated
after a proper investment order is received by BFDS, plus any applicable sales
charge. The net asset value of each Fund's shares is calculated once daily as
of the close of regular trading on the New York Stock Exchange on each day the
Exchange is open for trading, by dividing the Fund's net assets by the number
of shares outstanding. Portfolio securities are valued at their market value
as more fully described in the Statement of Additional Information.
Each Fund may accept telephone orders from broker-dealers who have been
previously approved by Ernst. It is the responsibility of such broker-dealers
to forward purchase or redemption orders promptly to the Fund. In addition to
any sales charge, broker-dealers may charge the investor a transaction-based
fee or other fee for their services at either the time of purchase or the time
of redemption. Such charges may vary among broker-dealers but in all cases
will be retained by the broker-dealer and not remitted to the Fund or Magna.
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<PAGE>
REDUCED SALES CHARGES
AMOUNTS REDEEMED FROM OTHER MUTUAL FUNDS
No sales charge applies on amounts invested in the Fund that represent the
proceeds of an investor's redemption, within the 30 days immediately preceding
investment in the Fund, of shares of another mutual fund on which the investor
paid a front-end sales charge. On such purchases of Fund shares where Magna
Investments, Inc., an affiliate of Magna, is the dealer of record, Magna Trust
Company will pay Magna Investments, Inc. a commission in the amount of 1.00%
of the amount of the purchase. To qualify for this arrangement, the investor
must furnish a broker's confirmation statement (or other documentation
satisfactory to Ernst) showing the payment of the sales charge. This
arrangement is not available if the investor paid a contingent deferred sales
charge on the redemption.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter
of Intent that expresses the intention of such investor to invest a certain
amount in shares of the Funds within a period of 13 months. Each purchase of
shares under a Letter of Intent will be made at the public offering price plus
the sales charge applicable at the time of such purchase to a single
transaction of the total dollar amount indicated in the Letter of Intent. The
13-month period during which the Letter of Intent is in effect will begin on
the date of the earliest purchase to be included. Five percent of all
investments made by a shareholder under a Letter of Intent will be held in
escrow for the period of the Letter. If the investor does not fulfill the
Letter of Intent, the amount of the sales charge that would apply in the
absence of the Letter will be paid to Ernst out of the escrowed portion of the
shareholder's account. The Letter of Intent program may be modified or
eliminated at any time or from time to time by either of the Funds without
notice.
CONCURRENT PURCHASES AND RIGHTS OF ACCUMULATION
An investor may qualify for a lower sales charge by combining concurrent
purchases of shares of one or more of the Funds sold with a sales charge. For
example, if a shareholder concurrently purchases shares in one Fund sold with
a sales charge at the total public offering price of $50,000 and shares in
another Magna Fund at the total public offering price of $50,000, the sales
charge would be that applicable to a $100,000 purchase as shown in the table
above. This privilege, however, may be modified or eliminated at any time or
from time to time by the Funds without notice.
Pursuant to rights of accumulation, a shareholder may combine a current
purchase of shares of a Fund with prior purchases of shares of either Fund.
The public offering price applicable to a purchase of shares is based on the
sum of (i) the shareholder's current purchase of shares of any Magna Fund and
(ii) the then current net asset value of the shareholder's combined holdings
of shares of both of the Magna Funds.
PURCHASES BY CERTAIN INVESTORS
No sales charge applies to purchases by Magna Trust Company for the account
of its customers; to purchases by the Trustees of the Trust; or to purchases
by directors, advisory directors, officers or employees of Magna Group, Inc.
and its affiliated companies (or by the spouses or children of such persons).
14
<PAGE>
SHAREHOLDER SERVICES
The Funds offer the following shareholder services which are more fully
described in the Statement of Additional Information. Explanations and forms
are available from BFDS.
SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $5,000 you may have periodic cash
withdrawals automatically paid to you or any person you designate.
AUTOMATIC INVESTMENT PLAN
Voluntary monthly investments of at least $100 may be made automatically by
pre-authorized withdrawals from your checking account.
RETIREMENT PLANS
The Fund's shares may be purchased by all types of tax-deferred retirement
plans. Magna and its affiliates make available retirement plan forms for IRAs.
HOW TO REDEEM SHARES
You can redeem your shares by sending a written request to Boston Financial
Data Services, Inc., P.O. Box 8500, Boston, Massachusetts 02266.
The request must include the name of the Fund, your account number, the
exact name(s) in which your shares are registered, and the number of shares or
the dollar amount to be redeemed. All owners of the shares must sign the
request in the exact names in which the shares are registered (this appears on
your confirmation statement) and should indicate any special capacity in which
they are signing (such as trustee or custodian or on behalf of a partnership,
corporation or other entity).
If you are redeeming shares worth more than $10,000, or requesting that the
proceeds check be made out to someone other than the registered owner(s), or
be sent to an address other than your record address, you must have your
signature guaranteed by an eligible guarantor. Eligible guarantors include
commercial banks, trust companies, savings associations, credit unions and
brokerage firms that are members of domestic securities exchanges. Before
submitting your redemption request, you should verify with the guarantor
institution that it is an eligible guarantor. Signature guarantees by notaries
public are not acceptable.
If you have requested certificates for your investment, you must enclose the
certificates and a properly completed redemption form or stock power. The
Funds recommend that certificates be sent by registered mail.
You may also redeem your shares by making a telephone call directly to BFDS
at 800-219-4182. When you telephone a redemption request, the proceeds are
wired to the bank account previously chosen by you. A wire fee (currently
$5.00) will be deducted from the proceeds. A telephonic redemption request
must be received by BFDS prior to the close of regular trading on the New York
Stock Exchange. If you telephone your request to BFDS after the Exchange
closes or on a day when the Exchange is not open for business, BFDS cannot
accept your request and a new one will be necessary. The Trust, BFDS and State
Street Bank are not responsible for the authenticity of withdrawal
instructions received by telephone. Reasonable procedures will be adopted to
verify that telephone instructions are genuine.
15
<PAGE>
You may select the telephone redemption service when you fill out your
initial application or you may select it later by completing the Service
Options Form (with a signature guarantee), available from BFDS. If you decide
to change the bank account to which proceeds are to be wired, you must send in
this change on the Service Options Form with a signature guarantee. Telephonic
redemptions may be made only if your bank is a member of the Federal Reserve
System or has a correspondent bank that is a member of the System. If your
account is with a savings bank, it must have only one correspondent bank that
is a member of the System. In times of heavy market activity, a shareholder
who encounters difficulty in placing a redemption or exchange order by
telephone may wish to place the order by mail as described above.
The redemption price will be the net asset value per share next determined
after the redemption request and any necessary special documentation are
received by BFDS in proper form.
Proceeds resulting from a written redemption request will normally be mailed
to you within seven days after receipt of your request in good order.
Telephonic redemption proceeds will normally be wired to your bank on the
first business day following receipt of a proper redemption request. If you
purchased your shares by check and your check was deposited less than 15 days
prior to the redemption request, the Fund may withhold redemption proceeds
until your check has cleared, which may take up to 15 days from the purchase
date.
The Fund may suspend the right of redemption and may postpone payment for
more than seven days when the New York Stock Exchange is closed for other than
weekends or holidays, or if permitted by the rules of the SEC when trading on
the Exchange is restricted or during an emergency which makes it impracticable
for the Fund to dispose of its securities or to determine fairly the value of
its net assets, or during any other period permitted by the SEC for the
protection of investors.
If the value of your account with a Fund falls below a minimum amount set by
the trustees of the Trust (currently $25), the Fund may close your account and
send you the balance. The Fund will notify you at least 60 days before closing
your account, to give you time to purchase additional shares to bring your
account value above the minimum. Accounts will not be closed solely because
the value of shares has fallen through market price movements.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
The Intermediate Government Bond Fund will declare dividends daily and make
payments monthly. The Growth & Income Fund will declare dividends quarterly
and make payments quarterly. Each Fund also distributes all of its net capital
gains realized from the sale of portfolio securities. Any capital gains
distributions are normally made annually, but may, to the extent permitted by
law, be made more frequently as deemed advisable by the trustees of the Trust.
The Trust's trustees may change the frequency with which the Funds declare or
pay dividends.
Your dividends and capital gains distributions will automatically be
reinvested in additional shares of the same Fund on the record date unless you
have elected to receive cash.
Each Fund intends to qualify as a regulated investment company for federal
tax purposes and as such will not be subject to federal taxation on amounts of
net investment income and net capital gains it timely distributes to its
shareholders.
16
<PAGE>
As a shareholder of the Fund, the dividends and distributions you receive
from Fund net investment income and short-term capital gains will be taxable
to you as ordinary income whether distributed to you in cash or automatically
reinvested in additional shares. Long-term capital gain distributions from all
Funds are taxable as long term capital gains whether distributed to you in
cash or automatically reinvested in additional shares and regardless of how
long you have owned shares of the Fund. Any loss on shares held for six months
or less will be treated as long-term capital loss to the extent of any long-
term capital gains distribution received with respect to such shares.
Each Fund is required to withhold 31% of any redemption proceeds (including
the value of shares exchanged) and all income dividends and capital gains
distributions it pays to you unless you provide a correct, certified taxpayer
identification number. Such withholding is also required if the Fund is
notified to withhold by the Internal Revenue Service.
Dividends derived from interest on U.S. Government Securities may be exempt
from state and local taxes. A portion of the dividends from the Growth &
Income Fund is expected to be eligible for the dividends-received deduction
for corporate shareholders.
The Trust will send you and the IRS an annual statement detailing federal
tax information, including information about dividends and distributions paid
to you during the preceding year. Be sure to keep this statement as a
permanent record. A fee may be charged for any duplicate information that you
request. Additional tax information is available in the Funds' Statement of
Additional Information.
THE TRUST
The Trust is a diversified open-end management investment company organized
as a Massachusetts business trust on April 28, 1994. The Trust is authorized
to issue an unlimited number of full and fractional shares of beneficial
interest in multiple series. Shares are freely transferable and entitle
shareholders to receive dividends as determined by the Trust's board of
trustees and to cast a vote for each share held at shareholder meetings. The
Trust does not generally hold shareholder meetings and will do so only when
required by law. Shareholders may call meetings to consider removal of the
Trust's trustees.
17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
Magna Bank, N.A.
1401 South Brentwood Boulevard
St. Louis, Missouri 63144
ADMINISTRATOR
Ernst Asset Management Corporation
60 State Street
Suite 700
Boston, Massachusetts 02109
SUB-ADMINISTRATOR, TRANSFER
AND DIVIDEND PAYING AGENT
AND CUSTODIAN OF ASSETS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
SHAREHOLDER SERVICING AGENT
FOR STATE STREET BANK AND
TRUST COMPANY
Boston Financial Data Services, Inc.
P.O. Box 8500
Boston, Massachusetts 02266
DISTRIBUTOR
Ernst & Company
One Battery Park Plaza
New York, New York 10004-1478
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
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MAGNA FUNDS
A FAMILY OF FUNDS
PROSPECTUS
AND
APPLICATION
JANUARY 2, 1997
60 STATE STREET
SUITE 700
BOSTON, MASSACHUSETTS 02109
(617) 267-2525
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Magna Funds
STATEMENT OF ADDITIONAL INFORMATION
January 2, 1997
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Magna Funds Prospectus dated
January 2, 1997, and should be read in conjunction therewith. A copy of the
Prospectus may be obtained by writing to Magna Funds, 60 State Street, Suite
700, Boston, MA 02109, or calling 617-267-2525.
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<TABLE>
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS..............................1
MANAGEMENT OF THE TRUST......................................................13
INVESTMENT ADVISORY AND OTHER SERVICES.......................................16
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................19
DESCRIPTION OF THE TRUST.....................................................21
HOW TO BUY SHARES............................................................24
NET ASSET VALUE AND PUBLIC OFFERING PRICE....................................24
SHAREHOLDER SERVICES.........................................................25
Open Accounts.......................................................25
Systematic Withdrawal Plan..........................................25
IRAs................................................................26
REDEMPTIONS..................................................................26
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.................28
SPECIMEN PRICE MAKE-UP.......................................................30
APPENDIX A - DESCRIPTION OF BOND RATINGS....................................A-1
APPENDIX B - FINANCIAL STATEMENTS...........................................B-1
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INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objective and policies of each series ("Fund") of Magna
Funds (the "Trust"), are summarized in the Prospectus under "Investment
Objectives and Policies" and "Risk and Other Information About the Funds'
Investments." The investment policies of each Fund set forth in the Prospectus
and in this Statement of Additional Information may be changed by Magna Bank,
N.A. ("Magna"), the Funds' adviser, subject to review and approval by the
Trust's board of trustees, without shareholder approval, except that the
investment objective of each Fund as set forth in the Prospectus and any Fund
policy explicitly identified as "fundamental" may not be changed without the
approval of the holders of a majority of the outstanding shares of the relevant
Fund (which in the Prospectus and this Statement of Additional Information means
the lesser of (i) 67% of the shares of that Fund represented at a meeting at
which 50% or more of the outstanding shares are represented or (ii) more than
50% of the outstanding shares).
In addition to its investment objective and policies set forth in the
Prospectus, the following investment restrictions are policies of each Fund (and
those marked with an asterisk are fundamental policies of each Fund):
Each Fund will not:
(1) Invest in companies for the purpose of exercising control or
management.
*(2) Act as underwriter, except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.
*(3) Invest in oil, gas or other mineral leases, rights or royalty
contracts or in real estate, commodities or commodity contracts. (This
restriction does not prevent any Fund from investing in issuers that
invest or deal in the foregoing types of assets or from purchasing
securities that are secured by real estate.)
*(4) Make loans. (For purposes of this investment restriction,
neither (i) entering into repurchase agreements nor (ii) purchasing
bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public
or of a type commonly purchased by financial institutions, is
considered the making of a loan.)
(5) Purchase any security (other than a U.S. Government
Security) if, as a result, more than 5% of the Fund's total assets
(taken at current value) would then be invested in securities of a
single issuer.
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(6) Invest more than 5% of its total assets (taken at current
value) in securities of companies that (with predecessor companies)
have a record of less than three years of continuous operations.
(7) Acquire more than 10% of any class of securities of an
issuer (taking all preferred stock issues as a single class and all
debt issues as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer.
(8) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions or in connection with a merger, consolidation or
similar transaction. (Under the Investment Company Act of 1940 (the
"1940 Act"), each Fund generally may not: (a) invest more than 10% of
its total assets (taken at current value) in such securities; (b) own
securities of any one investment company having a value in excess of 5%
of the Fund's total assets (taken at current value); or (c) own more
than 3% of the outstanding voting stock of any one investment company.)
(9) Pledge, mortgage, hypothecate or otherwise encumber any of
its assets, except that each Fund may pledge assets having a value not
exceeding 10% of its total assets to secure borrowings permitted by
restriction (12) below. (For the purpose of this restriction,
collateral arrangements with respect to options, futures contracts and
options on futures contracts and with respect to initial and variation
margin are not deemed to be a pledge or other encumbrance of assets.)
(10) Purchase or retain securities of an issuer if officers and
trustees of the Trust and officers and directors of its investment
adviser who individually own more than 1/2 of 1% of the shares or
securities of such issuer together own more than 5% of such shares or
securities.
*(11) Purchase any security (other than U.S. Government
Securities) if, as a result, 25% or more of the Fund's total assets
(taken at current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies will
be considered as being in separate industries).
*(12) Borrow money in excess of 10% of its total assets (taken at
cost) or 5% of its total assets (taken at current value), whichever is
lower, nor borrow any money except as a temporary measure for
extraordinary or emergency purposes.
*(13) Purchase securities on margin (except such short term credits
as are necessary for clearance of transactions); or make short sales
(except where, by virtue of ownership of other securities, it has the
right to obtain, without payment of additional consideration,
securities equivalent in kind and amount to those sold).
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(14) Participate on a joint or joint and several basis in any
trading account in securities. (The "bunching" of orders for the
purchase or sale of portfolio securities with Magna or its affiliates
or accounts under their management to reduce brokerage commissions, to
average prices among them or to facilitate such transactions is not
considered a trading account in securities for purposes of this
restriction.)
(15) Purchase any illiquid security if, as a result, more than
15% of the Fund's net assets (based on current value) would then be
invested in such securities; provided, however, that no more than 10%
of the Fund's assets may be invested in the aggregate in (1) restricted
securities, (2) securities of companies that (with predecessor
companies) have a record of less than three years of continuous
operations and (3) securities that are not readily marketable.
(16) Write or purchase puts, calls or combinations of both
except that each Fund may (1) acquire warrants or rights to subscribe
to securities of companies issuing such warrants or rights, or of
parents or subsidiaries of such companies, (2) write, purchase and sell
put and call options on securities, securities indices or futures
contracts and (3) write, purchase and sell put and call options on
currencies and enter into currency forward contracts.
*(17) Issue senior securities. (For the purpose of this
restriction none of the following is deemed to be a senior security:
any pledge or other encumbrance of assets permitted by restriction (9)
above; any borrowing permitted by restriction (12) above; any
collateral arrangements with respect to options, futures contracts and
options on futures contracts and with respect to initial and variation
margin; and the purchase or sale of options, forward contracts, futures
contracts or options on futures contracts.)
Each Fund intends, based on the views of the staff of the Securities
and Exchange Commission (the "SEC"), to restrict its investments in repurchase
agreements maturing in more than seven days, together with other investments in
illiquid securities, to 15% of the Fund's net assets.
Although authorized to invest in restricted securities, each Fund, as a
matter of non- fundamental operating policy, currently does not intend to invest
in such securities in the coming year. Although authorized to make short sales
subject to the condition specified in restriction (13) above, each Fund as a
matter of non-fundamental operating policy currently does not intend to make
such short sales in the coming year. Although authorized under restriction (16)
above to write, purchase and sell put and call options on currencies and to
enter into currency forward contracts, each Fund, as a matter of non-fundamental
operating policy, currently does not intend to do so in the coming year. Each
Fund has given undertakings to a state regulatory authority in connection with
the qualification of Fund shares for sale in such state that its investments in
warrants will not exceed 5% of the value of its net assets and that not more
than 2% of its net assets will be invested in warrants which are not listed on
the New York or American Stock
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Exchanges. Each Fund as a matter of non-fundamental operating policy has
undertaken to a state regulatory authority in connection with the qualification
of Fund shares for sale in such state that it will not invest any part of its
total assets in real estate limited partnership interests. If any of the
policies and undertakings described in this paragraph are changed, the Trust
will revise its Statement of Additional Information to reflect any such changes.
U.S. Government Securities
As described in the Prospectus, each Fund may invest in U.S. Government
Securities. U.S. Government Securities include direct obligations of the U.S.
Treasury, as well as securities issued or guaranteed by U.S. Government
agencies, authorities and instrumentalities, including, among others, the
Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Federal Housing
Administration, the Resolution Funding Corporation, the Federal Farm Credit
Banks, the Federal Home Loan Banks, the Tennessee Valley Authority, the Student
Loan Marketing Association and the Small Business Administration. More detailed
information about some of these categories of U.S. Government Securities
follows.
. U.S. Treasury Bills--Direct obligations of the United States Treasury
which are issued in maturities of one year or less. No interest is
paid on Treasury bills; instead, they are issued at a discount and
repaid at full face value when they mature. They are backed by the
full faith and credit of the United States Government.
. US Treasury Notes and Bonds--Direct obligations of the United States
Treasury issued in maturities that vary between one and forty years,
with interest normally payable every six months. They are backed by
the full faith and credit of the United States Government.
. "Ginnie Maes"--Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured
by the Federal Housing Administration or the Farmer's Home
Administration or guaranteed by the Veterans Administration. The
Government National Mortgage Association ("GNMA") guarantees the
timely payment of principal and interest when such payments are due,
whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. An assistant attorney
general of the United States has rendered an opinion that the
guarantee by GNMA is a general obligation of the United States backed
by its full faith and credit. Mortgages included in single family or
multi-family residential mortgage pools backing an issue of Ginnie
Maes have a maximum maturity of up to 30 years. Scheduled payments of
principal and interest are made to the registered holders of Ginnie
Maes (such as the Fund) each month. Unscheduled prepayments may be
made by homeowners, or as a result of a default. Prepayments are
passed through to the registered holder of Ginnie Maes along with
regular monthly payments of principal and interest.
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. "Fannie Maes"--The Federal National Mortgage Association ("FNMA") is
a government- sponsored corporation owned entirely by private
stockholders that purchases residential mortgages from a list of
approved seller/servicers. Fannie Maes are pass-through securities
issued by FNMA that are guaranteed as to timely payment of principal
and interest by FNMA but are not backed by the full faith and credit
of the United States Government.
. "Freddie Macs"--The Federal Home Loan Mortgage Corporation ("FHLMC")
is a corporate instrumentality of the United States Government.
Freddie Macs are participation certificates issued by FHLMC that
represent interests in residential mortgages from FHLMC's National
Portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but Freddie Macs are not backed by
the full faith and credit of the United States Government.
As described in the Prospectus, U.S. Government Securities do not
involve the credit risks associated with investments in other types of
fixed-income securities, although, as a result, the yields available from U.S.
Government Securities are generally lower than the yields available from
corporate fixed-income securities. Like other fixed-income securities, however,
the values of U.S. Government Securities change as interest rates fluctuate.
Fluctuations in the value of portfolio securities will not affect interest
income on existing portfolio securities but will be reflected in the Fund's net
asset value.
When-Issued Securities
As described in the Prospectus, each Fund may enter into agreements
with banks or broker-dealers for the purchase or sale of securities at an
agreed-upon price on a specified future date. Such agreements might be entered
into, for example, when a Fund that invests in fixed-income securities
anticipates a decline in interest rates and is able to obtain a more
advantageous yield by committing currently to purchase securities to be issued
later. When a Fund purchases securities in this manner (i.e., on a when-issued
or delayed-delivery basis), it is required to create a segregated account with
the Trust's custodian and to maintain in that account cash, U.S. Government
Securities or other high-grade, liquid debt obligations in an amount equal to or
greater than, on a daily basis, the amount of the Fund's when-issued or
delayed-delivery commitments. Each Fund will make commitments to purchase on a
when-issued or delayed- delivery basis only securities meeting that Fund's
investment criteria. The Fund may take delivery of these securities or, if it is
deemed advisable as a matter of investment strategy, the Fund may sell these
securities before the settlement date. When the time comes to pay for when-
issued or delayed-delivery securities, the Fund will meet its obligations from
then available cash flow or the sale of securities, or from the sale of the
when-issued or delayed-delivery securities themselves (which may have a value
greater or less than the Fund's payment obligation).
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Convertible Securities
Convertible securities include corporate bonds, notes or preferred
stocks of U.S. or foreign issuers that can be converted into (that is, exchanged
for) common stocks or other equity securities. Convertible securities also
include other securities, such as warrants, that provide an opportunity for
equity participation. Because convertible securities can be converted into
equity securities, their values will normally vary in some proportion with those
of the underlying equity securities. Convertible securities usually provide a
higher yield than the underlying equity, however, so that the price decline of a
convertible security may sometimes be less substantial than that of the
underlying equity security.
Zero Coupon Bonds
Zero coupon bonds are debt obligations that do not entitle the holder
to any periodic payments of interest either for the entire life of the
obligation or for an initial period after the issuance of the obligations. Such
bonds are issued and traded at a discount from their face amounts. The amount of
the discount varies depending on such factors as the time remaining until
maturity of the bonds, prevailing interest rates, the liquidity of the security
and the perceived credit quality of the issuer. The market prices of zero coupon
bonds generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do non-zero coupon bonds having similar maturities and
credit quality. In order to satisfy a requirement for qualification as a
"regulated investment company" under the Internal Revenue Code (the "Code"),
each Fund must distribute each year at least 90% of its net investment income,
including the original issue discount accrued on zero coupon bonds. Because a
Fund investing in zero coupon bonds will not on a current basis receive cash
payments from the issuer in respect of accrued original issue discount, the Fund
may have to distribute cash obtained from other sources in order to satisfy the
90% distribution requirement under the Code. Such cash might be obtained from
selling other portfolio holdings of the Fund. In some circumstances, such sales
might be necessary in order to satisfy cash distribution requirements even
though investment considerations might otherwise make it undesirable for the
Fund to sell such securities at such time.
Repurchase Agreements
Each Fund may enter into repurchase agreements, by which the Fund
purchases a security and obtains a simultaneous commitment from the seller (a
bank or, to the extent permitted by the 1940 Act, a recognized securities
dealer) to repurchase the security at an agreed upon price and date (usually
seven days or less from the date of original purchase). The resale price is in
excess of the purchase price and reflects an agreed upon market rate unrelated
to the coupon rate on the purchased security. Such transactions afford the Funds
the opportunity to earn a return on temporarily available cash at minimal market
risk. While the underlying security may be a bill, certificate of indebtedness,
note or bond issued by an agency, authority or instrumentality of the United
States Government, the obligation of the seller is not guaranteed by the U.S.
Government
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and there is a risk that the seller may fail to repurchase the underlying
security. In such event, the Fund would attempt to exercise rights with respect
to the underlying security, including possible disposition in the market.
However, the Fund may be subject to various delays and risks of loss, including
(a) possible declines in the value of the underlying security during the period
while the Fund seeks to enforce its rights thereto, (b) possible reduced levels
of income and lack of access to income during this period and (c) possible
inability to enforce rights and the expenses involved in enforcement or
attempted enforcement.
Loans of Portfolio Securities
Each Fund may lend its portfolio securities to broker-dealers under
contracts calling for cash collateral equal to at least the market value of the
securities loaned, marked to the market on a daily basis. A Fund will continue
to benefit from interest or dividends on the securities loaned and will also
receive interest through investment of the cash collateral in short-term liquid
investments, which may include shares of money market funds, subject to the
investment restrictions listed above. Any voting rights, or rights to consent,
relating to securities loaned pass to the borrowers. However, if a material
event affecting the investment occurs, such loans may be called so that the
securities may be voted by the Fund. The Funds pay various fees in connection
with such loans. If the borrower of the security does not redeliver the loaned
securities as required by the terms of the loan, the Fund has rights to sell the
collateral. However, the Fund may be subject to various delays and risks of
loss, including (a) possible declines in the value of the collateral while the
Fund seeks to enforce its rights thereto, (b) possible reduced levels of income
and lack of access to income during this period and (c) possible inability to
enforce rights and the expenses involved in enforcement or attempted
enforcement.
Options
As described in the Prospectus, each Fund may engage in certain options
transactions for hedging purposes. The following information supplements the
information about options included in the Prospectus.
An "American style" option allows exercise of the option at any time
during the term of the option. A "European style" option allows an option to be
exercised only at the end of its term. Options may be traded on or off an
established securities exchange.
If the holder of an option wishes to terminate its position, it may
seek to effect a closing sale transaction by selling an option identical to the
option previously purchased. The effect of the purchase is that the previous
option position will be canceled. A Fund will realize a profit from closing out
an option if the price received for selling the offsetting position is more than
the premium paid to purchase the option; the Fund will realize a loss from
closing out an option transaction if the price received for selling the
offsetting option is less than the premium paid to purchase the option.
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The successful use of options depends in part on the ability of Magna
to forecast correctly the direction and extent of interest rate or stock price
movements within a given time frame. To the extent interest rates or stock
prices move in a direction opposite to that anticipated, a Fund may realize a
loss on the hedging transaction that is not fully or partially offset by an
increase in the value of portfolio securities. In addition, whether or not
interest rates or stock prices move during the period that the Fund holds
options positions, the Fund will pay the cost of acquiring those positions
(i.e., brokerage costs). As a result of these factors, the Fund's total return
for such period may be less than if it had not engaged in the hedging
transaction.
An over-the-counter option (an option not traded on an established
exchange) may be closed out only with the other party to the original option
transaction. While each Fund will seek to enter into over-the counter options
only with dealers who agree to or are expected to be capable of entering into
closing transactions with the Fund, there can be no assurance that a Fund will
be able to liquidate an over-the-counter option at a favorable price at any time
prior to its expiration. Accordingly, a Fund might have to exercise an
over-the-counter option it holds in order to achieve the intended hedge.
Over-the-counter options are not subject to the protections afforded purchasers
of exchange-listed options by the Options Clearing Corporation or other clearing
organization.
The staff of the SEC has taken the position that over-the-counter
options should be treated as illiquid securities for purposes of each Fund's
investment restriction prohibiting it from investing more than 15% of its net
assets in illiquid securities. The Funds intend to comply with this position.
Futures and Related Options Transactions
A futures contract is an agreement between two parties to buy and sell
a security or commodity for a set price on a future date. These contracts are
traded on exchanges, so that, in most cases, either party can close out its
position on the exchange for cash, without actually delivering the security or
commodity. An option on a futures contract gives the holder of the option the
right to buy or sell a position in a futures contract to the writer of the
option, at a specified price and on or before a specified expiration date.
Both Funds may buy or sell futures contracts relating to U.S.
Government Securities, and may buy or sell options on such futures contracts. In
addition, the Growth & Income Fund may buy or sell futures contracts relating to
stock indexes, and may buy or sell options on such futures contracts.
The Funds may use futures contracts to "hedge" against the adverse
effects of broad movements in the securities markets or changes in the value of
specific securities. For example, to protect against the fall in the value of
its investments in long-term debt securities that would result from in increase
in interest rates, the Intermediate Government Bond Fund might sell futures
contracts with respect to U.S. Government Securities. Then if interest rates do
rise and
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the value of the securities declines, the value of the futures contracts
should increase. Likewise, if the Intermediate Government Bond Fund holds cash
reserves and short-term investments and Magna expects interest rates to fall,
the Fund might purchase futures contracts on U.S. Government Securities. If, as
expected, the market value both of long-term debt securities and futures
contracts with respect thereto increases, the Fund would benefit from a rise in
the value of long-term securities without actually buying them until the market
had stabilized. The Growth & Income Fund could make similar use of stock index
futures, to hedge against broad movements in stock market values.
Options on futures contracts may also be used for hedging. For example,
if the value of the Intermediate Government Bond Fund's portfolio securities is
expected to decline as a result of an increase in interest rates, the Fund might
purchase put options on futures contracts rather than selling futures contracts.
Similarly, to hedge against an anticipated increase in the price of long-term
debt securities, the Fund might purchase call options as a substitute for the
purchase of futures contracts.
When a Fund enters into a futures contract, it is required to deposit
with the broker as "initial margin" an amount of cash or short-term U.S.
Government Securities equal to approximately 5% of the contract amount. That
amount is adjusted by payments to or from the broker ("variation margin") as the
value of the contract changes. Neither Fund will purchase or sell futures
contracts or related options if as a result such Fund's initial margin deposits
plus premiums paid for outstanding related options would be greater than 5% of
the Fund's assets. Further information concerning futures contracts and options
on futures contracts is set forth below.
Futures Contracts. A futures contract sale creates an obligation by the
seller to deliver the type of commodity or financial instrument called for in
the contract in a specified delivery month for a stated price. A futures
contract purchase creates in obligation by the purchaser to take delivery of the
underlying commodity or financial instrument in a specified delivery month at a
stated price. The specific instruments delivered or taken, respectively, at
settlement date are not determined until at or near that date. The determination
is made in accordance with the rules of the exchange on which the futures
contract sale or purchase was made. A stock index futures contract is similar
except that the parties agree to take or make delivery of an amount of cash
equal to a specified dollar amount times the difference between the stock index
value at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. Futures contracts are traded
only on commodity exchanges--known as "contract markets"- - approved for such
trading by the Commodity Futures Trading Commission (the "CFTC"), and must be
executed through a futures commission merchant or brokerage firm which is a
member of a contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of commodities or securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out a futures contract sale is effected by
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purchasing a futures contract for the same aggregate amount of the specific type
of financial instrument or commodity and the same delivery date. If the price of
the initial sale of the futures contract exceeds the price of the offsetting
purchase, the seller is paid the difference and realizes a gain. Conversely, if
the price of the offsetting purchase exceeds the price of the initial sale, the
seller realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the purchaser entering into a futures contract sale. If
the offsetting sale price exceeds the purchase price, the purchaser realizes a
gain, and if the purchase price exceeds the offsetting sale price, it realizes a
loss.
The purchase of (that is, assuming a long position in) or sale of (that
is, assuming a short position in) a futures contract differs from the purchase
or sale of a security or an option, in that no price or premium is paid or
received. Instead, an amount of cash or U.S. Treasury bills generally not
exceeding 5% of the contract amount must be deposited with the broker. This
amount is known as initial margin. Subsequent payments to and from the broker,
known as variation margin, are made on a daily basis as the price of the
underlying futures contract fluctuates, making the long and short positions in
the futures contract more or less valuable, a process known as "marking to
market." At any time prior to the settlement date of the futures contract, the
position may be closed out by taking an opposite position which will operate to
terminate the position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid to or
released by the broker, and the purchaser realizes a loss or gain. In addition,
a commission is paid on each completed purchase and sale transaction.
Each Fund may engage in transactions in futures contracts for the
purpose of hedging against changes in the values of securities. Each Fund may
sell such futures contracts in anticipation of a decline in the value of its
investments. The risk of such a decline could be reduced without employing
futures as a hedge by selling long-term debt securities or equity securities and
either reinvesting the proceeds in securities with shorter maturities or by
holding assets in cash. This strategy, however, entails increased transaction
costs in the form of brokerage commissions and dealer spreads and will typically
reduce a Fund's average yield (with respect to futures on debt securities) as a
result of the shortening of maturities. The sale of futures contracts provides
an alternative means of hedging a Fund against a decline in the value of its
investments in debt or equity securities. As such values decline, the value of a
Fund's position in the futures contracts will tend to increase, thus offsetting
all or a portion of the depreciation in the market value of the securities that
are being hedged. While the Fund will incur commission expenses in establishing
and closing out futures positions, commissions on futures transactions may be
significantly lower than transaction costs incurred in the purchase and sale of
debt or equity securities. Employing futures as a hedge may also permit a Fund
to assume a defensive posture without reducing its yield on its investments.
Stock Index Futures. A stock index assigns relative values to the
common stocks included in the index. A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the
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difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the underlying stocks in the index is made.
The Growth & Income Fund may engage in transactions in stock index
futures contracts only for hedging purposes. Examples of the use of such
contracts for hedging purposes include (1) the sale of a futures contract to
offset possible declines in the value of securities the Fund owns and (2) the
purchase of a futures contract when the Fund holds cash and seeks to protect
against the possibility that the equity markets will rise before the Fund has
had the opportunity to invest the cash in equity securities. As discussed below
under "Risk Factors in Options and Futures Transactions," the Fund will
generally not own (or intend to own) all of the securities in the index that is
the subject of the futures contract. Thus, hedging through stock index futures
involves significant "correlation risk."
Call Options on Futures Contracts. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
underlying securities or index, it may be more or less risky than ownership of
the futures contract or underlying securities. As with the purchase of a futures
contract, the Funds may purchase a call option on a futures contract to hedge
against a market advance when the Fund is not fully invested.
Put Options on Futures Contracts. The purchase of a put option on a
futures contract is similar in some respects to the purchase of protective put
options on portfolio securities. The Funds may purchase put options on futures
contracts to hedge against the risk of rising interest rates or declines in
stock market prices. The Funds may purchase put options on futures contracts for
the same reasons as they would sell futures contracts.
Limitations on the Use of Options and Futures Portfolio Strategies
Neither Fund will "over-hedge," that is, neither Fund will maintain
open short positions in futures contracts if, in the aggregate, the value of its
open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on such open
positions, adjusted for the historical volatility relationship between the
portfolio and futures contracts.
A Fund's ability to engage in the options and futures strategies
described above will depend on the availability of liquid markets in such
instruments. Markets in certain options and futures are relatively new and still
developing. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore no assurance can be
given that a Fund will be able to utilize these instruments effectively for the
purposes set forth above. Furthermore, a Fund's ability to engage in options and
futures transactions may be limited by tax considerations and CFTC rules.
11
<PAGE>
Risk Factors in Options and Futures Transactions
Options Transactions. An exchange-traded option may be closed out only
on a national securities exchange (an "Exchange") which generally provides a
liquid secondary market for an option of the same series. An over-the-counter
option may be closed out only with the other party to the option transaction. If
a liquid secondary market for an exchange-traded option does not exist, it might
not be possible to effect a closing transaction with respect to a particular
option, with the result that the Fund would have to exercise the option in order
to realize any profit. Reasons for the absence of a liquid secondary market on
an Exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an Exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Exchanges have established limitations governing the maximum number
of options which may be written by an investor or group of investors acting in
concert. It is possible that the Trust, Magna and its affiliates and their other
clients may be considered to be such a group. These position limits may restrict
the Funds' ability to purchase or sell options on a particular security.
Futures Transactions. Investment by a Fund in futures contracts
involves risk. Some of that risk may be caused by an imperfect correlation
between movements in the price of the futures contract and the price of the
security or other investment being hedged. The hedge will not be fully effective
where there is such imperfect correlation. For example, if the price of the
futures contract moves more than the price of the hedged security, a Fund would
experience either a loss or gain on the future which is not completely offset by
movements in the price of the hedged securities. To compensate for imperfect
correlations, a Fund may purchase or sell futures contracts in a greater dollar
amount than the hedged securities if the volatility of the hedged security is
historically greater than the volatility of the futures contracts. Conversely, a
Fund may purchase or sell fewer contracts if the volatility of the price of the
hedged securities is historically less than that of the futures contracts. The
risk of imperfect correlation generally tends to diminish as the maturity date
of a futures contract approaches.
Futures contracts or options thereon may be used to hedge against a
possible increase in the price of securities which a Fund anticipates
purchasing. In such instances, it is possible that
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<PAGE>
the market may instead decline. If the Fund does not then invest in such
securities because of concern as to possible further market decline or for other
reasons, the Fund may realize a loss on the futures contract or option that is
not offset by a reduction in the price of securities purchased.
The amount of risk a Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
exceeded the daily limit on a number of consecutive trading days.
The successful use of transactions in futures and related options also
depends on the ability of Magna to forecast correctly the direction and extent
of interest rate movements within a given time frame. To the extent interest
rates or stock index levels remain stable during the period in which a futures
contract or related option is held by a Fund or such rates or index levels move
in a direction opposite to that anticipated, a Fund may realize a loss on the
hedging transaction which is not fully or partially offset by an increase in the
value of portfolio securities. As a result, a Fund's total return for such
period may be less than if it had not engaged in the hedging transaction.
MANAGEMENT OF THE TRUST
The trustees and officers of the Trust and their principal occupations
during the past five years are as follows (an asterisk indicates a trustee who
is an "interested person" of the Trust as defined in the 1940 Act):
Principal Occupations
Name and Address Position with the Trust During the Past Five Years
- ---------------- ----------------------- --------------------------
Robert R. Archibald, Ph.D Trustee President, Missouri
Missouri Historical Society Historical Society
P.O. Box 11940
St. Louis, MO 63112-0940
Earl E. Lazerson Trustee President (until 1993)
5 Hidden Valley Lane and Professor
Edwardsville, IL 62022 (until 1994),
So. Illinois University
at Edwardsville
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<PAGE>
Principal Occupations
Name and Address Position with the Trust During the Past Five Years
- ---------------- ----------------------- --------------------------
Robert E. Saur Trustee President and Owner,
750 S. Hanley Street Conrad Properties Corp.
Clayton, MO 63105 (real estate)
Harry R. Maier* Trustee Chief Executive Officer,
118 Sun Lake Dr. Memorial Hospital
Belleville, IL 62221 Belleville, Illinois
Neil Seitz Trustee Dean, School of Business,
School of Business St. Louis University;
St. Louis University Professor (until 1993),
3674 Lindell Blvd. St. Louis University
St. Louis, MO 63108
Barry Hartstone President and Chairman and Chief
Ernst Asset Management Corporation Treasurer Executive Officer,
60 State Street Ernst Asset Management
Suite 700 Corporation; Principal,
Boston, MA 02109 The Hartstone Group
(investment firm); Vice
Chairman (until 1991),
Putnam Mutual Funds Corp.
(formerly Putnam Financial
Services, Inc., a mutual
funds distributor)
Roger L. Beaman Executive Vice President and Chief
Magna Trust Company President Executive Officer,
1401 S. Brentwood Blvd. Magna Trust Company
St. Louis, MO 63144-1435
Robert A. Bonelli Executive Vice Executive Vice President
President and and Chief Financial
Secretary Officer,
Ernst & Company
Thomas W. Streeter Vice President Director of Compliance,
Ernst & Company
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<PAGE>
Principal Occupations
Name and Address Position with the Trust During the Past Five Years
- ---------------- ----------------------- --------------------------
Mary L. Forgy Vice President Senior Vice President
Magna Trust Company of Operations, Magna
One South Church Street Trust Company
Belleville, IL 62220
Steven J. Paraggio Vice President Controller, Ernst &
Company; Audit Manager,
Coopers & Lybrand L.L.P.
(until 1994)
Previous positions of Trust officers during the past five years with
Ernst, Magna or their affiliates are omitted if not materially different from
their current positions.
Except as indicated above, the address of officers of the Trust
affiliated with Ernst is One Battery Park Plaza, New York, New York 10004.
The Trust pays no compensation to its officers. Each trustee is
compensated at the rate of $5,000 per annum plus $500 for each meeting of the
trustees he attends. The Trust provides no pension or retirement benefits to
Trustees, but has adopted a deferred payment arrangement under which each
Trustee may elect not to receive fees from the Trust on a current basis but to
receive in a subsequent period an amount equal to the value that such fees would
have if they had been invested in each Fund on the normal payment date for such
fees. As a result of this method of calculating the deferred payments, each
Fund, upon making the deferred payments, will be in the same financial position
as if the fees had been paid on the normal payment dates.
The following table sets forth the amount of the compensation paid (or
deferred in lieu of current payment) by the Trust during its fiscal year ended
August 31, 1996 to the persons who served as Trustees during all or any portion
of such fiscal year:
Aggregate Total
Compensation Compensation
Person From Trust From Trust
- ------ ---------- ----------
Randall E. Ganim $5,250 $5,250
Robert R. Archibald $7,000 $7,000
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<PAGE>
Aggregate Total
Compensation Compensation
Person From Trust From Trust
- ------ ---------- ----------
Wayne M. Lerner $7,000 $7,000
Earl E. Lazerson $3,500 $3,500
Robert E. Sauer $3,500 $3,500
Harry R. Maier $3,500 $3,500
Neil Seitz $1,750 $1,750
As of November 25, 1996, the Trustees and officers of the Trust
beneficially owned as a group less than 1% of the outstanding shares of each of
the Intermediate Government Bond Fund and the Growth & Income Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Under a separate investment advisory agreement with each Fund, Magna
provides investment advice for, and supervises the investment programs of, the
Funds. Magna, located at 1401 South Brentwood Boulevard, St. Louis, Missouri
63144, is a wholly-owned subsidiary of Landmark Bancshares Corporation, itself a
wholly-owned subsidiary of Magna Group, Inc., a bank holding company with
approximately $5.38 billion in total consolidated assets as of September 30,
1996. Through their offices in Missouri and Illinois, Magna Group, Inc. and its
subsidiaries provide a broad range of financial services to individuals and
businesses.
Each of the Funds pays Magna an annual investment advisory fee based on
a percentage of the Fund's average daily net assets. Pursuant to Magna's
voluntary reduction of its advisory fees through August 31, 1997, such fees are
as follows: Intermediate Government Bond Fund, 0.40%; Growth & Income Fund,
0.50%. Without such voluntary reduction, such fees would be as follows:
Intermediate Government Bond Fund, 0.50%; Growth & Income Fund, 0.75%.
Each advisory agreement provides that it will continue in effect for
two years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the board of trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
relevant Fund and (ii) by vote of a majority of the trustees who are not
"interested persons" of the Trust, as that term is defined in the 1940 Act, cast
in person at a meeting called for the purpose of voting on such approval. Any
amendment to an advisory agreement must be approved (i) by vote of a majority of
the outstanding voting
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<PAGE>
securities of the relevant Fund and (ii) by vote of a majority of the trustees
who are not such interested persons, cast in person at a meeting called for the
purpose of voting on such approval. Each agreement may be terminated without
penalty by vote of the board of trustees or by vote of a majority of the
outstanding voting securities of the relevant Fund, upon sixty days' written
notice, or by Magna upon ninety days' written notice, and terminates
automatically in the event of its assignment. In addition, each agreement will
automatically terminate if the Trust or the Fund shall at any time be required
by Magna to eliminate all reference to the word "Magna" in the name of the Trust
or the Fund, unless the continuance of the agreement after such change of name
is approved by a majority of the outstanding voting securities of the relevant
Fund and by a majority of the trustees who are not interested persons of the
Trust or Magna.
Each advisory agreement provides that Magna shall not be subject to any
liability in connection with the performance of its services thereunder in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Magna and its affiliates also provide investment advice to numerous
other corporate and fiduciary clients. These other clients sometimes invest in
securities in which the Funds also invest. If a Fund and such other clients
desire to buy or sell the same portfolio securities at the same time, purchases
and sales may be allocated, to the extent practicable, on a pro rata basis in
proportion to the amounts desired to be purchased or sold for each. It is
recognized that in some cases the practices described in this paragraph could
have a detrimental effect on the price or amount of the securities which a Fund
purchases or sells. In other cases, however, it is believed that these practices
may benefit the Funds. It is the opinion of the trustees that the desirability
of retaining Magna as adviser for the Funds outweighs the disadvantages, if any,
which might result from these practices.
During the last two fiscal years, the Fund paid the following amounts
as investment advisory fees to Magna pursuant to the relevant advisory
agreement:
<TABLE>
<CAPTION>
Fiscal Gross Net
Year (before (after
Ended voluntary voluntary
Fund Aug. 31, reduction) Reduction reduction)
- ---- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
Magna Intermediate 1995 $236,230 $ 0 $236,230
Government Bond Fund 1996 $274,199 $54,840 $219,359
Magna Growth 1995 $190,761 $38,152 $152,609
& Income Fund 1996 $271,864 $90,621 $181,243
</TABLE>
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<PAGE>
Administrator
Ernst Asset Management Corporation ("EAMC"), a wholly owned subsidiary
of Ernst & Company, under an agreement with the Trust, provides management and
administrative services to the Funds, and, in general supervises the operations
of the Trust. EAMC does not provide investment advisory services. As part of its
duties, EAMC provides office space, equipment and clerical personnel for
managing and administering the affairs of the Trust (other than investment
advisory services). EAMC supervises the provision of custodial, auditing,
valuation, bookkeeping, legal, stock transfer and dividend disbursing services
and provides other management and administrative services. EAMC is located at 60
State Street, Suite 700, Boston, Massachusetts 02109. State Street Bank and
Trust Company ("State Street Bank"), under an agreement with EAMC, provides sub-
administration services to the Trust at EAMC's expense. The Trust pays EAMC a
fee for its services to each Fund at the annual rate of 0.19% of the first $125
million of such assets, 0.17% of the next $125 million of such assets, and 0.15%
of such assets in excess of $250 million.
Trust Expenses
The Trust pays the compensation of its trustees; registration, filing
and other fees in connection with requirements of regulatory authorities; all
charges and expenses of its custodian and transfer agent; the charges and
expenses of its independent accountants; all brokerage commissions and transfer
taxes in connection with portfolio transactions; all taxes and fees payable to
governmental agencies; the cost of any certificates representing shares of the
Funds; the expenses of meetings of the shareholders and trustees of the Trust;
the charges and expenses of the Trust's legal counsel; interest on any
borrowings by the Funds; the cost of services, including services of counsel,
required in connection with the preparation of, and the cost of printing, the
Trust's registration statements and prospectuses, including amendments and
revisions thereto, annual, semiannual and other periodic reports of the Trust,
and notices and proxy solicitation material furnished to shareholders or
regulatory authorities, to the extent that any such materials relate to the
Trust or its shareholders; and the Trust's expenses of bookkeeping, accounting,
auditing and financial reporting, including related clerical expenses.
Under the investment advisory and administration agreements, if the
total ordinary business expenses of a Fund or the Trust as a whole for any
fiscal year exceed the lowest applicable limitation (based on percentage of
average net assets or income) prescribed by any state in which the shares of the
Fund or the Trust are qualified for sale, Magna or EAMC shall pay such excess.
At present, the most restrictive state annual expense limitation is 2 1/2% of a
Fund's average annual net assets up to $30,000,000, 2% of the next $70,000,000
of such assets and 1 1/2% of such assets in excess of $100,000,000. Magna or
EAMC will not be required to reduce its fee or pay such expenses to an extent or
under circumstances which might result in any Fund's inability to qualify as a
regulated
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<PAGE>
investment company under the Code. The term "expenses" is defined in the
advisory agreements or in relevant state regulations and excludes brokerage
commissions, taxes, interest, distribution-related expenses and extraordinary
expenses.
Custodial Arrangements. State Street Bank is the Trust's custodian. As
such, State Street Bank holds in safekeeping certificated securities and cash
belonging to the Funds and, in such capacity, is the registered owner of
securities held in book entry form belonging to the Funds. Upon instruction,
State Street Bank receives and delivers cash and securities of the Funds in
connection with Fund transactions and collects all dividends and other
distributions made with respect to Fund portfolio securities. State Street Bank
also maintains certain accounts and records of the Funds and calculates the
total net asset value, total net income and net asset value per share of each
Fund on a daily basis.
Independent Accountants. The Funds' independent accountants are Coopers
& Lybrand L.L.P., One Post Office Square, Boston, Massachusetts. Coopers &
Lybrand L.L.P. conducts an annual audit of the Trust's financial statements,
assists in the preparation of the Funds' federal and state income tax returns
and consults with the Funds as to matters of accounting and federal and state
income taxation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions on U.S. stock exchanges and other agency transactions for
the account of a Fund involve the payment by the Fund of negotiated brokerage
commissions. Such commissions vary among different brokers. A particular broker
may charge different commissions according to such factors as the difficulty and
size of the transaction. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Fund usually includes an undisclosed dealer commission or markup. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is anticipated
that most purchases and sales of securities by the Intermediate Government Bond
Fund will be with the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, the Intermediate Government Bond
Fund will not ordinarily pay significant brokerage commissions with respect to
securities transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934 (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from third parties
with which such broker-dealers have arrangements. Magna or its affiliates
receive brokerage and research services and other similar services from many
broker-dealers with which Magna places the Funds' portfolio transactions and
from third parties with which these broker-dealers have arrangements. These
services include such matters as general economic and market reviews, industry
and company reviews,
19
<PAGE>
evaluations of investments, newspapers, magazines, pricing services, quotation
services, news services, timing services and personal computers utilized by
Magna's or its affiliates' portfolio managers and analysts. Some of these
services are of value to Magna and its affiliates in advising various of their
clients (including the Funds), although not all of these services are
necessarily useful and of value in managing the Funds. The management fees paid
by the Funds are not reduced because Magna and its affiliates receive these
services, even though Magna might otherwise be required to purchase some of
these services for cash.
Magna places all orders for the purchase and sale of portfolio
investments for the Funds. In doing so, Magna uses its best efforts to obtain
for each Fund the most favorable price and execution available, except to the
extent it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Magna, having in mind
the Fund's best interests, considers all factors it deems relevant, including,
by way of illustration, price, the size of the transaction, the nature of the
market for the security or other investment, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer involved and
the quality of service rendered by the broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, Magna may cause each
Fund to pay a broker-dealer which provides "brokerage and research services" (as
defined in the 1934 Act) to Magna or its affiliates an amount of disclosed
commission for effecting securities transactions on stock exchanges and other
transactions for the Fund on an agency basis in excess of the commission which
another broker would have charged for effecting that transaction. Magna's
authority to cause the Funds to pay any such greater commissions is also subject
to such policies as the Trust's trustees may adopt from time to time. It is the
position of the staff of the SEC that Section 28(e) does not apply to the
payment of such greater commissions in "principal" transactions. Accordingly,
Magna will use its best effort to obtain the most favorable price and execution
available with respect to such transactions, as described above.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trust's trustees may
determine, Magna considers sales of shares of the Funds as a factor in the
selection of broker-dealers to execute portfolio transactions for the Funds.
Magna may select Ernst to execute brokerage transactions for each
Fund's portfolio. A rule of the SEC requires that commissions paid to Ernst by a
Fund for portfolio transactions not exceed "usual and customary" brokerage
commissions. The rule defines "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other
20
<PAGE>
brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The trustees of the Trust, including those who are not
"interested persons" of the Trust, have adopted procedures for evaluating the
reasonableness of commissions paid to Ernst and will review these procedures
periodically.
Under the 1940 Act, persons affiliated with the Trust are prohibited
from dealing with the Funds as a principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts,
affiliated persons of the Trust, such as Ernst, may not serve as the Funds'
dealer in connection with such transactions.
During the fiscal years ended August 31, 1995 and August 31, 1996,
the Trust paid, on behalf of the Growth & Income Fund, $28,183 and $19,499,
respectively, in brokerage commissions. No such commissions were paid to the
Trust.
DESCRIPTION OF THE TRUST
The Trust, registered as a diversified open-end management investment
company, is organized as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust (the "Declaration of
Trust") dated April 28, 1994.
Series and Classes of Shares
The Declaration of Trust currently permits the trustees to issue an
unlimited number of full and fractional shares, in multiple series. Each Fund
represents a separate series of shares. Each share of each Fund represents an
equal proportionate interest in such Fund with each other share of that Fund and
is entitled to a proportionate interest in the dividends and distributions from
that Fund. The shares of each Fund do not have any preemptive rights. Upon
termination of any Fund, whether pursuant to liquidation of the Trust or
otherwise, shareholders of that Fund are entitled to share pro rata in the net
assets of that Fund available for distribution to shareholders. The Declaration
of Trust also permits the Trustees to charge shareholders directly for
custodial, transfer agency and servicing expenses.
The assets received by each Fund for the issue or sale of its shares
and all income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to, and constitute the underlying
assets of, that Fund. The underlying assets are segregated and are charged with
the expenses with respect to that Fund and with a share of the general expenses
of the Trust. Any general expenses of the Trust that are not readily
identifiable as belonging to a particular Fund are allocated by or under the
direction of the Trustees in such manner as the trustees determine to be fair
and equitable. Although the
21
<PAGE>
expenses of the Trust are allocated to the separate books of account of each
Fund, certain expenses may be legally chargeable against the assets of both
Funds.
The Declaration of Trust also permits the trustees, without shareholder
approval, to subdivide any series of shares into various sub-series or classes
of shares with such dividend preferences and other rights as the trustees may
designate. The Trust may, at a future date offer different classes of shares of
each Fund with different sales charge arrangements. The trustees may also,
without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust or merge two or more existing
portfolios. Shareholders' investments in such an additional or merged portfolio
would be evidenced by a separate series of shares (i.e., a new "Fund").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any Fund, however, may be terminated at any time by a vote
of at least two-thirds of the outstanding shares of each Fund affected. The
Declaration of Trust further provides that the trustees may also terminate the
Trust or any Fund upon written notice to the shareholders.
Voting Rights
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) in the
election of trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or sub-series unless the rights of a particular
series or sub-series would be adversely affected by the vote, in which case a
separate vote of that series or sub-series shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule l8f-2 under the 1940 Act provides in effect that a
class shall be deemed to be affected by a matter unless it is clear that the
interests of each class in the matter are substantially identical or that the
matter does not affect any interest of such class. On matters affecting an
individual series, only shareholders of that series are entitled to vote.
Consistent with the current position of the SEC, shareholders of all series vote
together, irrespective of series, on the election of trustees and the selection
of the Trust's independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as certain
changes in investment policies of that series or the approval of the investment
advisory agreement relating to that series.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees
22
<PAGE>
holding office have been elected by shareholders, and (ii) if, as a result of a
vacancy on the board of trustees, less than two-thirds of the trustees holding
office have been elected by the shareholders, that vacancy may be filled only by
a vote of the shareholders. In addition, trustees may be removed from office by
a written consent signed by the holders of two-thirds of the outstanding shares
and filed with the Trust's custodian or by a vote of the holders of two-thirds
of the outstanding shares at a meeting duly called for that purpose, which
meeting shall be held upon the written request of the holders of not less than
10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold office
and may appoint successor trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
(i) to change the Trust's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund of
which they are shareholders. However, the Declaration of Trust disclaims
shareholder ability for acts or obligations of each Fund and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees. The Declaration of Trust
provides for indemnification out of Fund property for all loss and expense of
any shareholder held personally liable for the obligations of a Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and the relevant Fund itself would be unable to meet
its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to
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<PAGE>
any matter as to which any such person did not act in good faith in the
reasonable belief that such action was in or not opposed to the best interests
of the Trust. No officer or trustee may be indemnified against any liability to
the Trust or the Trust's shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Record and Beneficial Owners of 5% or more of the Fund's Shares
As of December 3, 1996, 99.5% of the Intermediate Government Bond Fund
shares and 97.6% of the Growth & Income Fund shares were owned of record by
Magna Trust Company (an affiliate of Magna Bank, N.A.); all of such shares were
held for the benefit of accounts for which it acts as trustee or custodian.
The following chart sets forth the names, addresses and percentage
ownership of those shareholders known to the Trust as owning beneficially 5% or
more of the outstanding shares of either Fund as of December 2, 1996:
Name and Address %
Fund of Beneficial Owner Ownership
---- ------------------- ---------
Magna Growth & Magna Group, Inc. Pension 10.9%
Income Fund Fund c/o Magna Trust Company
as Trustee, One South Church
Street, Belleville, Illinois 62220.
HOW TO BUY SHARES
The procedures for purchasing shares of the Funds are summarized in the
Prospectus under "How to Purchase Shares."
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The net asset value of the shares of each Fund is determined by
dividing that Fund's total net assets (the excess of its assets over its
liabilities) by the total number of shares of the Fund outstanding and rounding
to the nearest cent. Such determination is made as of the close of regular
trading on the New York Stock Exchange on each day on which that Exchange is
open for unrestricted trading, and no less frequently than once daily on each
day during which there is sufficient trading in a Fund's portfolio securities
that the value of that Fund's shares might be materially affected. During the
twelve months following the date of this Statement of Additional Information,
the New York Stock Exchange is expected to be closed on the following week days:
Thanksgiving Day, Christmas Day, New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day and Labor Day.
24
<PAGE>
Equity securities listed on an established securities exchange or on the NASDAQ
National Market System are normally valued at their last sale price on the
exchange where primarily traded or, if there is no reported sale during the day,
and in the case of over-the-counter securities not so listed, at the last bid
price. Long-term debt securities are valued by a pricing service, which
determines valuations of normal institutional-size trading units of long-term
debt securities. Such valuations are determined using methods based on market
transactions for comparable securities and on various relationships between
securities which are generally recognized by institutional traders. Other
securities for which current market quotations are not readily available
(including restricted securities, if any) and all other assets are taken at fair
value as determined in good faith by the trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
trustees.
SHAREHOLDER SERVICES
Open Accounts
A shareholder's investment in any Fund is automatically credited to an
open account maintained for the shareholder by Boston Financial Data Services,
Inc. ("BFDS"), the shareholder servicing agent for State Street Bank.
Certificates representing shares are issued only upon written request to BFDS
but are not issued for fractional shares. Following each transaction in the
account, a shareholder will receive an account statement disclosing the current
balance of shares owned and the details of recent transactions in the account.
After the close of each fiscal year State Street Bank will send each shareholder
a statement providing federal tax information on dividends and distributions
paid to the shareholder during the year. This should be retained as a permanent
record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates the problems of handling and safekeeping
certificates, and the cost and inconvenience of replacing lost, stolen,
mutilated or destroyed certificates.
The costs of maintaining the open account system are borne by the
Trust, and no direct charges are made to shareholders. Although the Trust has no
present intention of making such direct charges to shareholders, it reserves the
right to do so. Shareholders will receive prior notice before any such charges
are made.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan, referred to in the Prospectus under
"Shareholder Services--Systematic Withdrawal Plan," provides for monthly,
quarterly, semiannual or annual withdrawal payments of $50 or more from the
account of a shareholder provided that the account has a value of at least $250
at the time the plan is established.
25
<PAGE>
Payments will be made either to the shareholder or to any other person
designated by the shareholder. If payments are issued to an individual other
than the registered owner(s), a signature guarantee will be required on the Plan
application. All shares in an account that is subject to a Systematic Withdrawal
Plan must be held in an open account rather than in certificated form. Income
dividends and capital gain distributions will be reinvested at the net asset
value determined as of the close of regular trading on the New York Stock
Exchange on the record date for the dividend or distribution.
Since withdrawal payments represent proceeds from the liquidation of
shares, the shareholder should recognize that withdrawals may reduce and
possibly exhaust the value of the account, particularly in the event of a
decline in net asset value. Accordingly, the shareholder should consider whether
a Systematic Withdrawal Plan and the specified amounts to be withdrawn are
appropriate in the circumstances. The Fund makes no recommendations or
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
IRAs
Under "Shareholder Services--Retirement Plans," the Prospectus refers
to IRAs established under a prototype plan made available by Magna. These plans
may be funded with shares of either Fund.
All income dividends and capital gain distributions of plan
participants must be reinvested. Plan documents and further information can be
obtained from Magna.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
REDEMPTIONS
The procedures for redemption of Fund shares are summarized in the
Prospectus under "How to Redeem Shares."
Except as noted below, signatures on redemption requests must be
guaranteed by commercial banks, trust companies, savings associations, credit
unions or brokerage firms that are members of domestic securities exchanges.
Signature guarantees by notaries public are not acceptable. However, as noted in
the Prospectus, a signature guarantee will not be required if the proceeds of
the redemption do not exceed $100,000 and the proceeds check is made payable to
the registered owner(s) and mailed to the record address.
26
<PAGE>
If a shareholder selects the telephone redemption service in the manner
described in the next paragraph, Fund shares may be redeemed by making a
telephone call directly to BFDS at 800-343-5678. When a telephonic redemption
request is received, the proceeds are wired to the bank account previously
chosen by the shareholder and a nominal wire fee (currently $5.00) is deducted.
Telephonic redemption requests must be received by BFDS prior to the close of
regular trading on the New York Stock Exchange on a day when the Exchange is
open for business. Requests made after that time or on a day when the New York
Stock Exchange is not open for business cannot be accepted by BFDS and a new
request will be necessary.
In order to redeem shares by telephone, a shareholder must either
select this service when completing the Fund application or must do so
subsequently on the Service Options Form available from BFDS. When selecting the
service, a shareholder must designate a bank account to which the redemption
proceeds should be wired. Any change in the bank account so designated must be
made by furnishing to BFDS a completed Service Options Form with a signature
guarantee. Whenever the Service Options Form is used, the shareholder's
signature must be guaranteed as described above. Telephone redemptions may only
be made if an investor's bank is a member of the Federal Reserve System or has a
correspondent bank that is a member of the System. If the account is with a
savings bank, it must have only one correspondent bank that is a member of the
System. The Trust, BFDS and State Street Bank are not responsible for the
authenticity of withdrawal instructions received by telephone.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by BFDS in proper form. Proceeds resulting from a written
redemption request will normally be mailed to you within seven days after
receipt of your request in good order. Telephonic redemption proceeds will
normally be wired on the first business day following receipt of a proper
redemption request. In those cases where you have recently purchased your shares
by check and your check was received less than 15 days prior to the redemption
request, the Fund may withhold redemption proceeds until your check has cleared,
which may take up to 15 days from the purchase date.
Each Fund will normally redeem shares for cash; however, each Fund
reserves the right to pay the redemption price wholly or partly in kind if the
board of trustees of the Trust determines it to be advisable in the interest of
the remaining shareholders. If portfolio securities are distributed in lieu of
cash, the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule l8f-l under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period.
27
<PAGE>
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gains
or loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
It is the policy of each Fund to pay its shareholders, as dividends,
substantially all net investment income and to distribute annually all net
realized capital gains, if any, after offsetting any capital loss carryovers.
Income dividends and capital gains distributions are payable in full
and fractional shares of the particular Fund based upon the net asset value
determined as of the close of regular trading on the New York Stock Exchange on
the record date for each dividend or distribution. Shareholders, however, may
elect to receive their income dividends or capital gains distributions, or both,
in cash. The election may be made at any time by submitting a written request
directly to BFDS. In order for a change to be in effect for any dividend or
distribution, it must be received by BFDS on or before the record date for such
dividend or distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order so to qualify, the Fund must,
among other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, gains from the sale
of securities, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock or securities; (ii) derive less than 30% of its gross income from
gains from the sale or other disposition of securities held for less than three
months; (iii) distribute at least 90% of its dividend, interest and certain
other taxable income each year; and (iv) at the end of each fiscal quarter
maintain at least 50% of the value of its total assets in cash, government
securities, securities of other regulated investment companies, and other
securities of issuers which represent, with respect to each issuer, no more than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, with no more than 25% of its assets invested in the
securities (other than those of the U.S. government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. To satisfy these conditions, the Funds may be limited in their
ability to use certain investment techniques and may be required to liquidate
assets to distribute income. Moreover, some investment techniques used by the
Funds may change the character and amount of income recognized by the Funds. As
a regulated investment company, each Fund will not be subject to federal
28
<PAGE>
income tax on income paid on a timely basis to its shareholders in the form of
dividends or capital gain distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Fund's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its capital gains net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from prior years. Each Fund intends to make distributions sufficient to
avoid imposition of the excise tax. Distributions declared by a Fund during
October, November or December to shareholders of record on a date in any such
month and paid by the Fund during the following January will be treated for
federal tax purposes as paid by the Fund and received by shareholders on
December 31 of the year in which declared.
Shareholders of each Fund will be subject to federal income taxes on
distributions made by the Fund, whether received in cash or additional shares of
the Fund. Distributions by each Fund of net income and short-term capital gains,
if any, will be taxable to shareholders as ordinary income. Distributions of
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held shares of the
Fund. A loss on the sale of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gain dividend
paid to the shareholder with respect to such shares.
Dividends and distributions on Fund shares are subject to federal
income taxes even if in effect they are a return of capital.
Redemptions and exchanges of each Fund's shares are taxable events and,
accordingly, shareholders may realize gains and losses on these transactions. If
shares have been held for more than one year, gain or loss realized will be
long-term capital gain or loss, provided the shareholder holds the shares as a
capital asset. Furthermore, no loss will be allowed on the sale of Fund shares
to the extent the shareholder acquired other shares of the same Fund within 30
days prior to the sale of the loss shares or 30 days after such sale.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and regulations currently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action.
Dividends and distributions also may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state or local taxes.
29
<PAGE>
The foregoing discussion relates solely to U.S. investors. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of a Fund, including the possibility that distributions may
be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
<TABLE>
<CAPTION>
SPECIMEN PRICE MAKE-UP
Total Offering Price Per Unit (as of August 31, 1996):
- ------------------------------------------------------
Growth & Intermediate
Income Government
Fund Bond Fund
- -------------------------------------------------------------------------------
<S> <C> <C>
Shares of beneficial interest outstanding 2,436,247 4,566,580
- -------------------------------------------------------------------------------
Net asset value and redemption price per $16.42 $12.43
share
- -------------------------------------------------------------------------------
Maximum offering price per share $17.10 $12.95
($16.42/0.96 and $12.43/0.96)
- -------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S CORPORATION AND
MOODY'S INVESTORS SERVICE, INC.
STANDARD & POOR'S CORPORATION
AAA
This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA
Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher-rated categories.
BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately 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 CC the highest degree of speculation. While
such bonds will likely have some quality and
A-1
<PAGE>
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default. and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa
Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." 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 that are rated Aa are judged to be 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 that make the
long-term risks appear somewhat larger than in Aaa securities.
A
Bonds that 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
that suggest a susceptibility to impairment sometime in the future.
A-2
<PAGE>
Baa
Bonds that are rated Baa are considered as medium-grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest
Ca
Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest-rated class of bonds, and issues
so rated can be regarded having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
A-3
<PAGE>
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by
the symbols Aa1, A1, Baa1, Ba1 and B1.
A-4
<PAGE>
APPENDIX B
FINANCIAL STATEMENTS
The Trust's audited Financial Statements for the fiscal year ended
August 31, 1996 included in the Trust's Annual Report filed with the Securities
and Exchange Commission on October 29, 1996 pursuant to Section 30(d) of the
Investment Company Act of 1940, as amended, and the rules promulgated
thereunder, are hereby incorporated in this Statement of Additional Information.
A copy of the Trust's Annual Report is available without charge upon request
from Magna Funds, 60 State Street, Suite 700, Boston, Massachusetts 02109, or
calling (617) 267-2525.
B-1
<PAGE>
Part C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial statements: See "Financial Highlights" in the Prospectus
and "Financial Statements" in the Statement
of Additional Information.
<TABLE>
<CAPTION>
(b) Exhibits:
<S> <C>
1. Agreement and Declaration of Trust.
2. By-Laws.
3. None.
4. Form of Share Certificate./*/
5. Form of Investment Advisory Agreement.
6.(a)Form of Distribution Agreement./*/
6.(b)Not Applicable.
7. None.
8. Form of Custodian Agreement./*/
9.(a)Form of Administration Agreement./**/
9.(b)Form of Transfer Agent Agreement./*/
9.(c)Form of Organizational Expense Reimbursement Agreement./*/
</TABLE>
- -------------------------
/*/ Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-78408) filed on July 12, 1994.
/**/ Incorporated by reference to the Registrant's initial Registration
Statement on Form N-1A (File No. 33-78408) filed on May 2, 1994.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10. Opinion and Consent of Counsel/*/
11. Consent of Independent Accountant.
12. None.
13. Letter regarding sale of initial shares./**/
14. Not Applicable.
15. Rule 12b-1 Plan./**/
16. Not Applicable.
17. Financial Data Schedule.
18. Not Applicable.
19. Powers of Attorney of Robert A. Archibald, Barry Hartstone and
Steven Paraggio;/**/ Powers of Attorney of Earl E. Lazerson,
Robert E. Saur, Harry R. Maier and Neil Seitz.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
None.
- ------------------------
/*/ Incorporated by reference to Registrant's Rule 24f-2 Notice with
respect to the fiscal year ended August 31, 1996 filed on October 30, 1996. The
Registrant intends to file a Rule 24f-2 Notice (including an opinion and consent
of counsel) with respect to shares sold during the fiscal year ended August 31,
1997 following the conclusion of such fiscal year.
/**/ Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No. 33-78408) filed on
July 12, 1994.
-2-
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
The following table sets forth the number of recordholders of each
class of the Trust's securities as of December 2, 1996:
Number of
Fund Record Holders
---- --------------
Magna Intermediate
Government Bond Fund 22
Magna Growth & Income
Fund 58
Item 27. Indemnification
---------------
See Item 27 of Pre-Effective Amendment No. 2 to the Registration
Statement on Form N-1A (File No. 33-78408) filed on July 15, 1994,
which is hereby incorporated by reference.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) Magna Bank, N.A. ("Magna"), the adviser of the Registrant, is a
national bank. Magna operates as a community bank providing
various financial services to customers and mid-sized businesses
in its immediate geographic area. Magna does not serve as
investment adviser to any other registered investment
company.
(b) Magna's directors and officers have been engaged during the past
two years in the following other businesses, vocations or
employments of a substantial nature:
-3-
<PAGE>
<TABLE>
<CAPTION>
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -------------------------------------------------------------------------------
<S> <C> <C>
G. Thomas Andes Magna Group, Inc. Chairman of the
Director and Chairman 1401 South Brentwood Board and Chief
of the Board, President St. Louis, MO 63144 Executive Officer
Chief Operating Officer
Magna Bank of Illinois Director Chairman of the
222 East Main Street Board, President and
Belleville, IL 62220 Chief Executive Officer
(until 11/95)
David D. Harris Magna Bank of Missouri Director,
Executive Vice President, 1401 South Brentwood President and
Credit Administration St. Louis, MO 63144 Chief Executive
Officer (until 12/94)
Magna Group, Inc. Officer
1401 South Brentwood
Belleville, IL 62220
Magna Bank of Illinois Officer
222 East Main Street (until 11/95)
Belleville, IL 62220
James A. Auffenberg, Jr. Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
St. Clair AutoMall President and
105 Auto Court Director
O'Fallon, IL 62269
Auffenberg Belleville President and
901 South Illinois St. Director
Belleville, IL 62220
Auffenberg Enterprises President and Director
of Illinois, Inc.
830 South Illinois St.
Belleville, IL 62220
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -------------------------------------------------------------------------------
<S> <C> <C>
Frank R. Trulaske Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Frank R. Trulaske Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
True Fitness Technology, Officer
Inc.
P.O. Box 8803
O'Fallon, MO 63366
Wayne T. Ewing Magna Group, Inc. Director
1401 South Brentwood
St. Louis, MO 63144
The Ewing Company Owner and
123 Robert S. Kerr President
P.O. Box 25861
Oklahoma City, OK 73102
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
Kerr-McGee Coal Corporation Officer
123 Robert S. Kerr (until 12/96)
P.O. Box 25861
Oklahoma City, OK 73102
Donald P. Gallop Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -------------------------------------------------------------------------------
<S> <C> <C>
Gallop, Johnson & Neuman, L.C. Director
Interco Corporate Tower
101 South Hanley Rd.
St. Louis, MO 63105
C.E. Heiligenstein Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
Heiligenstein & Badgley, P.C. Partner
30 Public Square
Belleville, IL 62220
Carl S. Hogan, Sr. Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
Hogan Motor Leasing, Inc. Chairman and
1000 N. 14th St. Chief Executive
St. Louis, MO Officer
Franklin A. Jacobs Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -------------------------------------------------------------------------------
<S> <C> <C>
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
Falcon Products, Inc. Chairman and Chief
9387 Dielman Industrial Dr. Executive Officer
St. Louis, MO 63132
Wendell J. Kelley Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
S. Lee Kling Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
Kling, Rechter & Co. Chairman of
1401 South Brentwood Blvd the Board
Suite 800
St. Louis, MO 63144
Ralph F. Korte Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -------------------------------------------------------------------------------
<S> <C> <C>
Korte Construction Company Chairman of
P.O. Box 146 the Board
Highland, IL 62249
Robert E. McGlynn Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
McGlynn & McGlynn Partner
65 South 65th Street
Belleville, IL 62223
Dr. George T. Wilkins, Jr. Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Magna Bank of Illinois Director
222 East Main Street (until 11/95)
Belleville, IL 62220
Linda K. Fabel Magna Group, Inc. Officer
Executive Vice President, 1401 South Brentwood
Retail Banking St. Louis, MO 63144
Magna Bank of Illinois Officer
222 East Main Street (until 11/95)
Belleville, IL 62220
Gary D. Hemmer Magna Group, Inc. Officer
Executive Vice President, 1401 South Brentwood
Administration St. Louis, MO 63144
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Magna Bank of Illinois Officer
222 East Main Street (until 11/95)
Belleville, IL 62220
Robert M. Olson, Jr. Magna Group, Inc. Officer
Executive Vice President, 1401 South Brentwood
Operations and Technology St. Louis, MO 63144
Magna Bank of Illinois Officer
222 East Main Street (until 11/95)
Belleville, IL 62220
Ronald A. Buerges Magna Group, Inc. Officer
Executive Vice President, 1401 South Brentwood
Chief Executive Officer St. Louis, MO 63144
Randall E. Ganim Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
Ganim, Medor, Childers & Officer
Hoering, P.C.
1 Bronze Point
Swansea, IL 62221
John G. Helmkamp, Jr. Magna Group, Inc. Director
Director 1401 South Brentwood
St. Louis, MO 63144
River Bend Bancshares, Inc. Chairman and
347 West Main St. Chief Executive
East Alton, IL 62024 Officer
</TABLE>
-10-
<PAGE>
Item 29. Principal Underwriters
----------------------
Ernst & Company ("Ernst"), the distributor of the Registrant, is a
securities firm offering specialist and clearing broker services.
Ernst also serves as distributor to one other registered investment
company (Volumetric Fund, Inc. ).
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Distributor with Registrant
- ---------------- ---------------- ---------------------
<S> <C> <C>
William P. Behrens Chairman of the Board,
Chief Executive Officer
Alexander Wohlgemuth Vice Chairman of the
Board, Chairman of the
Executive Committee
Daniel J. Cristofano Director, President,
Chief Operating Officer,
Assistant Secretary
Lionel C. Bandler Director, Executive
Vice President,
Corporate Secretary
Robert A. Bonelli Director, Executive Executive Vice
Vice President, President and
Chief Financial Officer Secretary
Robert M. Arias Director, Executive
Vice President
Gery W. Sperling Director, Executive
Vice President
Owen J. DeCoursey Senior Vice President
Ursula Garris Senior Vice President
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Distributor with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Ronald Prekop Senior Vice President
Mitchell R. Meisler Senior Vice President
Steven J. Paraggio Senior Vice President Vice President
Martin L. Schlow Senior Vice President
G. Thomas Andes Director
William Stafford Director
</TABLE>
* The mailing address of each of the directors and officers is c/o Ernst &
Company, One Battery Park Plaza, New York, New York 10004-1478 unless otherwise
indicated.
Item 30. Location of Accounts and Records
--------------------------------
The following companies maintain possession of the documents
required by the specified rules:
(a) Magna Bank, N.A.
Rule 31a-1(b)(10),(11) and
(12)(e) and (f)
Rule 31a-2(d) and (e)
(b) State Street Bank and Trust Company
Rule 31a-1(b)(1) - (9)
Rule 31a-2(c)
(c) Ernst & Company
Rule 31a-1(b)(12)(c) and (d)
Rule 31a-2(c) and (c)
Item 31. Management Services
-------------------
-12-
<PAGE>
Not applicable.
Item 32. Undertakings
------------
(a) See Item 32(ii) of Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A (File No. 33-78408) filed on
July 15, 1994 which is hereby incorporated by reference.
(b) The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders containing the information required
by Item 5A of Form N-1A omitted from the Prospectus, upon request
and without charge.
-13-
<PAGE>
********************
NOTICE
A copy of the Agreement and Declaration of Trust of Magna Funds (the
"Trust") is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Trust.
-14-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Magna Funds, represents that
this Post-Effective Amendment is being filed solely for one or more purposes
specified in paragraph (b)(1) of Rule 485 under the Securities Act of 1933, and
that no material event requiring disclosure in the Prospectus other than those
specified in such paragraph (b)(1) has occurred since the effective date of the
Registration Statement, and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and The State of New York on
the 18th day of December, 1996.
MAGNA FUNDS
By: /s/ Robert A. Bonelli
-----------------------------
Robert A. Bonelli
Executive Vice President
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the date indicated.
Date: December 18, 1996
/s/ Robert A. Bonelli
- -------------------------
Robert A. Bonelli
Executive Vice President
and Secretary as Attorney in Fact
for Barry Hartstone, President and Treasurer
*STEVEN PARAGGIO
- --------------------
Steven Paraggio
Vice President (Chief Accounting Officer)
*EARL E. LAZERSON *ROBERT E. SAUR *NEIL SEITZ
- ------------------- ----------------- -------------
Earl E. Lazerson Robert E. Saur Neil Seitz
Trustee Trustee Trustee
*ROBERT R. ARCHIBALD *HARRY R. MAIER *By: /s/Robert A. Bonelli
- -------------------- ----------------- ------------------------
Robert R. Archibald Harry R. Maier Robert A. Bonelli
Trustee Trustee Attorney in Fact
-15-
<PAGE>
- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE *- Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No. 33-78408) filed on
July 12, 1994.
- -FOOTNOTE * **-
Incorporated by reference to the Registrant's initial
Registration Statement on Form N- (File No. 33-78408) filed on May 2, 1994.
- -FOOTNOTE ** *-
Incorporated by reference to Registrant's Rule 24f-2 Notice
with respect to the fiscal year ended August 31, 1996 filed on October 30, 1996.
The Registrant intends to file a Rule 24f-2 Notice (including an opinion and
consent of counsel) with respect to shares sold during the fiscal year ended
August 31, 1997 following the conclusion of such fiscal year.
- -FOOTNOTE *-
Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-78408) filed on July 12,
1994.
- ------------------ COMPARISON OF HEADERS ------------------
- -HEADER 1-
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -HEADER 2-
Name and Office Name and Address Nature of
with Magna of Other Affiliations Connection
- -HEADER 3-
Header Discontinued
- ------------------ COMPARISON OF FOOTERS ------------------
- -FOOTER 1-
-16-
<PAGE>
MAGNA FUNDS - EXHIBIT INDEX
---------------------------
Exhibit No. Title of Exhibit
- ----------- ----------------
1 Agreement and Declaration of Trust
2 By-Laws of the Trust
5 Form of Investment Advisory Agreement
11 Consent of Independent Accountant
17 Financial Data Schedules
19 Powers of Attorney
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000922637
<NAME> MAGNA FUNDS
<SERIES>
<NUMBER> 1
<NAME> MAGNA INTERMEDIATE GOVT BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 55,852,624
<INVESTMENTS-AT-VALUE> 55,827,481
<RECEIVABLES> 1,136,102
<ASSETS-OTHER> 127,441
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,091,024
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327,076
<TOTAL-LIABILITIES> 327,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,056,291
<SHARES-COMMON-STOCK> 4,566,580
<SHARES-COMMON-PRIOR> 4,084,065
<ACCUMULATED-NII-CURRENT> 1,466
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (268,666)
<ACCUM-APPREC-OR-DEPREC> (25,143)
<NET-ASSETS> 56,763,948
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,850,089
<OTHER-INCOME> 0
<EXPENSES-NET> (574,740)
<NET-INVESTMENT-INCOME> 3,275,349
<REALIZED-GAINS-CURRENT> 67,299
<APPREC-INCREASE-CURRENT> (1,523,540)
<NET-CHANGE-FROM-OPS> 1,819,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,277,592)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,087,902
<NUMBER-OF-SHARES-REDEEMED> (5,587,492)
<SHARES-REINVESTED> 636,548
<NET-CHANGE-IN-ASSETS> 4,678,474
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 166
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 274,199
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 766,679
<AVERAGE-NET-ASSETS> 54,839,776
<PER-SHARE-NAV-BEGIN> 12.75
<PER-SHARE-NII> 0.76
<PER-SHARE-GAIN-APPREC> (0.32)
<PER-SHARE-DIVIDEND> (0.76)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.43
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000922637
<NAME> THE MAGNA FUNDS
<SERIES>
<NUMBER> 2
<NAME> MAGNA GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 31,924,274
<INVESTMENTS-AT-VALUE> 39,479,377
<RECEIVABLES> 552,529
<ASSETS-OTHER> 42,181
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,074,087
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,155
<TOTAL-LIABILITIES> 79,155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,416,152
<SHARES-COMMON-STOCK> 2,436,247
<SHARES-COMMON-PRIOR> 2,155,748
<ACCUMULATED-NII-CURRENT> 114,458
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 909,219
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,555,103
<NET-ASSETS> 39,994,932
<DIVIDEND-INCOME> 755,703
<INTEREST-INCOME> 268,795
<OTHER-INCOME> 0
<EXPENSES-NET> (459,206)
<NET-INVESTMENT-INCOME> 565,292
<REALIZED-GAINS-CURRENT> 1,077,400
<APPREC-INCREASE-CURRENT> 4,250,144
<NET-CHANGE-FROM-OPS> 5,892,836
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (522,116)
<DISTRIBUTIONS-OF-GAINS> (60,437)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,430,315
<NUMBER-OF-SHARES-REDEEMED> (2,268,580)
<SHARES-REINVESTED> 239,172
<NET-CHANGE-IN-ASSETS> 9,711,190
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 71,282
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 271,864
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 640,449
<AVERAGE-NET-ASSETS> 36,248,494
<PER-SHARE-NAV-BEGIN> 14.05
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 2.39
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.42
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 1
MAGNA FUNDS
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 28th
day of April, 1994 by the Trustees hereunder and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder, IN TRUST to manage and dispose of the same upon
the following terms and conditions for the benefit of the holders from time to
time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "Magna Funds", and the Trustees
shall conduct the business of the Trust under that name or any other name as
they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) "Trust" refers to the Massachusetts business trust established by this
Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or elected
in accordance with Article IV hereof;
(c) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time
to time or, if more than one series or class of Shares is authorized by the
Trustees, the equal proportionate transferable units into which each series
or class of Shares shall be divided from time to time;
<PAGE>
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Principal Underwriter" and "Majority Shareholder Vote" (the
sixty-seven percent (67%) or fifty percent (50%) requirement of the third
sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable)
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(i) "Series" or "Series of Shares" refers to the one or more separate
investment portfolios of the Trust into which the assets and liabilities of
the Trust may be divided and the Shares of the Trust representing the
beneficial interest of Shareholders in such respective portfolios; and
(j) "Class" or "Class of Shares" refers to the division of Shares
representing any Series into two or more Classes as provided in Article
III, Section 1 hereof.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character and to carry on such other business as the Trustees may from
time to time determine pursuant to their authority under this Declaration of
Trust.
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more Series as
the Trustees may, without shareholder approval, authorize. Each Series shall be
preferred over all other Series in respect of the assets specifically allocated
to that Series within the meaning of the 1940 Act and shall represent a separate
investment portfolio of the Trust. The beneficial interest in each Series shall
at all times be divided into Shares, without par value, each of which shall,
except as provided in the following sentence, represent an equal proportionate
interest in the Series with each other Share
-2-
<PAGE>
of the same Series, none having priority or preference over another. The
Trustees may, without Shareholder approval, divide the Shares of any Series into
two or more Classes, Shares of each such Class having such preferences and
special or relative rights and privileges (including conversion rights, if any)
as the Trustees may determine or as shall be set forth in the By-Laws. The
number of Shares authorized shall be unlimited. The Trustees may from time to
time divide or combine the Shares of any Series or Class into a greater or
lesser number without thereby changing the proportionate beneficial interest in
the Series or Class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or a transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders of
each Series and Class and as to the number of Shares of each Series and Class
held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they or the By-
Laws from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of
each Series, together with all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the Series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such Series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this Declaration of Trust or the By-Laws. Every Shareholder
by virtue of having become a Shareholder shall be held to have
-3-
<PAGE>
expressly assented and agreed to the terms of this Declaration of Trust and the
By-Laws and to have become a party hereto. The death of a Shareholder during
the continuance of the Trust shall not operate to terminate the same nor entitle
the representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but such
representative shall be entitled only to the rights of said decedent under this
Declaration of Trust. Ownership of Shares shall not entitle the Shareholder to
any title in or to the whole or any part of the Trust property or right to call
for a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust, shall have any
power to bind personally any Shareholder, nor except as specifically provided in
this Declaration of Trust to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay.
ARTICLE IV
The Trustees
Election, Tenure and Removal
Section 1. The initial Trustee shall be Barry Hartstone. The Trustees may
fix the number of Trustees, fill vacancies in the Trustees, including vacancies
arising from an increase in the number of Trustees, or remove Trustees with or
without cause. Each Trustee shall serve during the continued lifetime of the
Trust until he or she dies, resigns or is removed, or, if sooner, until the next
meeting of Shareholders called for the purpose of electing Trustees and until
the election and qualification of his or her successor. Any Trustee may resign
at any time by written instrument signed by him or her and delivered to any
officer of the Trust or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal. The Shareholders may fix the number
of Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose and to the extent required by applicable law,
including paragraphs (a) and (b) of Section 16 of the 1940 Act.
No natural person shall serve as Trustee after the holders of record of not
less than two-thirds of the outstanding Shares have declared that such Trustee
be removed from that office either by declaration in writing filed with the
Trust's custodian or by votes cast in person or by proxy at a meeting called for
the purpose. The Trustees shall promptly call a meeting of Shareholders for the
purpose of voting upon the question of removal of any Trustee when requested to
do so in writing by the record holders of not less than ten percent (10%) of the
outstanding Shares.
Whenever ten or more Shareholders of record, who have been such for at
least six months preceding the date of application and who hold Shares in the
-4-
<PAGE>
aggregate having a net asset value of at least one percent (1%) of the
outstanding Shares, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to request a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (a) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded on the books of the Trust; or (b) inform such applicants as to the
approximate cost of mailing to all Shareholders the proposed communication and
form of request. If the Trustees elect to follow the course specified in clause
(b), the Trustees, 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 of the Trust, unless within
five business days after such tender the Trustees shall mail to such applicants
and file with the Commission, together with a copy of the material proposed to
be mailed, a written statement signed by at least a majority of the Trustees to
the effect that in their opinion either such material contains untrue statements
of fact or omits to state facts necessary to make the statements contained
therein not misleading, or would be in violation of applicable law, and
specifying the basis of such opinion. If the Commission shall enter an order
refusing to sustain any of the objections specified in the written statement so
filed, or if, after the entry of an order sustaining one or more of such
objections, the 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 Trustees shall mail copies of such material to all Shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such By-Laws do not reserve
that right to the Shareholders; they may fill vacancies, including vacancies
caused by enlargement of their number, and may remove Trustees with or without
cause; they may elect and remove, with or without cause, such officers and
appoint and terminate such agents as they consider appropriate; they may appoint
from their own number, and terminate, any one or more committees consisting of
two or more Trustees, including an executive committee which may, when the
Trustees are not in session, exercise some or
-5-
<PAGE>
all of the power and authority of the Trustees as the Trustees may determine;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities,
retain a transfer agent or a Shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of, or broker or
dealer in, securities and other property;
(d) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(e) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of
the Trustees or of the Trust or in the name of a custodian, subcustodian or
other depositary or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities, income and expenses of the Trust to a
particular Series of Shares or to apportion the same among two or more
Series, provided that any liabilities or expenses incurred by a particular
Series of Shares shall be payable solely out of the assets of that Series;
and, to the extent necessary or appropriate to give effect to the
preferences and special or relative rights and privileges of any Classes of
Shares, to allocate assets, liabilities, income and expenses of a Series to
a particular Class of Shares of that Series or to apportion the same among
two or more Classes of Shares of that Series;
-6-
<PAGE>
(h) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which
is or was held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;
(i) To join other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(l) To borrow funds;
(m) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise
assume liability for payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all such obligations;
(n) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the Trust's
business, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or
administrators, principal underwriters or independent contractors of the
Trust individually against all claims and liabilities of every nature
arising by reason of holding or having held any such office or position, or
by reason of any action alleged to have been taken or omitted by any such
person as Shareholder, Trustee, officer, employee, agent, investment
adviser or administrator, principal underwriter or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify such
person against such liability;
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<PAGE>
(o) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust; and
(p) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Act may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees.
Except as otherwise provided herein or from time to time in the By-Laws,
any action to be taken by the Trustees may be taken (A) by a majority of the
Trustees present at a meeting of the Trustees (a quorum being present), within
or without Massachusetts, including any meeting held by means of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time (participation
by which means shall for all purposes constitute presence in person at a
meeting), or (B) by written consents of a majority of the Trustees then in
office (which written consents shall be filed with the records of the meetings
of the Trustees and shall be treated for all purposes as a vote taken at a
meeting of Trustees).
Payment of Expenses by Trust and by Shareholders
Section 4. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and partly
out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, in connection with
the management thereof, or in connection with the financing of the sale of
Shares, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees, any
investment adviser, administrator or sub-adviser or sub-administrator, principal
underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur, provided,
however, that all expenses, fees, charges, taxes and liabilities incurred by or
arising in connection with a particular Series of Shares, as determined by the
Trustees, shall be payable solely out of the assets of that Series and may, as
the Trustees from time to time may determine, be allocated to a particular Class
of Shares of a Series or apportioned among two or more Classes of Shares of a
Series.
The Trustees shall have the power, as frequently as they may determine, to
cause each Shareholder, or each Shareholder of any particular Series or Class,
to pay directly, in advance or arrears, for charges of the Trust's
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<PAGE>
custodian or transfer, shareholder servicing or similar agent, an amount fixed
from time to time by the Trustees, by setting off such charges due from such
Shareholder from declared but unpaid dividends owed such Shareholder and/or by
reducing the number of Shares in the account of such Shareholder by that number
of full and/or fractional Shares which represents the outstanding amount of such
charges due from such Shareholder.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each Series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.
Advisory, Administration and Distribution
Section 6. The Trustees may, at any time and from time to time, contract
for exclusive or nonexclusive advisory and/or administrative services with any
corporation, trust, association or other organization (the "Adviser" or the
"Administrator", respectively), every such contract to comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may provide for one or more sub-advisers or sub-administrators who
shall perform all or part of the obligations of the Adviser or Administrator
under such contract and may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from time to time what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments. The Trustees may also, at any time and from time to
time, contract with the Adviser, the Administrator or any other corporation,
trust, association or other organization, appointing it exclusive or
nonexclusive distributor or principal underwriter for the Shares, every such
contract to comply with such requirements and restrictions as may be set forth
in the By-Laws; and any such contract may contain such other terms interpretive
of or in addition to said requirements and restrictions as the Trustees may
determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, administrator,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
administrative contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other agency contract may
have been or may hereafter be made, or that any such organization, or any
parent or affiliate thereof, is a Shareholder or has an interest in the
Trust, or that
(ii) any corporation, trust, association or other organization with which
an advisory or administrative contract or principal
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<PAGE>
underwriter's or distributor's contract, or transfer, shareholder servicing
or other agency contract may have been or may hereafter be made also has an
advisory or administrative contract, or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other agency
contract with one or more other corporations, trusts, associations or other
organizations, or has other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1 of this Declaration of
Trust, provided, however, that no meeting of Shareholders is required to be
-------- -------
called for the purpose of electing Trustees unless and until such time as less
than a majority of the Trustees have been elected by the Shareholders, (ii) with
respect to any Adviser or sub-adviser to the extent required by the 1940 Act,
(iii) with respect to any termination of this Trust to the extent and as
provided in Article IX, Section 4 of this Declaration of Trust, (iv) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article IX, Section 7 of this Declaration of Trust and (v) with
respect to such additional matters relating to the Trust as may be required by
law, this Declaration of Trust, the By-Laws or any registration of the Trust
with the Commission (or any successor agency) or any state, or as the Trustees
may consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to a proportionate fractional vote. On any matter submitted
to a vote of Shareholders all Shares of the Trust then entitled to vote shall be
voted by individual Series, except (i) when required by the 1940 Act, Shares
shall be voted in the aggregate and not by individual Series and (ii) when the
Trustees have determined that the matter affects only the interests of one or
more Series or Classes, then only Shareholders of such Series or Classes shall
be entitled to vote thereon. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
permitted or required of the Shareholders by law, this Declaration of Trust or
the By-Laws.
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Meetings
Section 2. Meetings of the Shareholders may be called by the Trustees for
the purpose of electing Trustees as provided in Article IV, Section 1 of this
Declaration of Trust and for such other purposes as may be prescribed by law, by
this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or
caused to be given by the Trustees by mailing such notice at least seven days
before such meeting, postage prepaid, stating the time and place of the meeting,
to each Shareholder entitled to vote at such meeting at the Shareholder's
address as it appears on the records of the Trust. Whenever notice of a meeting
is required to be given to a Shareholder under this Declaration of Trust or the
By-Laws, a written waiver thereof, executed before or after the meeting by such
Shareholder or his or her attorney thereunto authorized and filed with the
records of the meeting, shall be deemed equivalent to such notice.
Quorum and Required Vote
Section 3. Forty percent (40%) of the Shares entitled to vote shall be a
quorum for the transaction of business at a Shareholders' meeting, except that
where any provision of law or of this Declaration of Trust or the By-Laws
permits or requires that holders of any Series or Class shall vote as a Series
or Class, then forty percent (40%) of the aggregate number of Shares of that
Series or Class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of law or this Declaration of Trust or the By-Laws, a majority of the
Shares voted shall decide any questions and a plurality shall elect a Trustee,
provided that where any provision of law or of this Declaration of Trust or the
By-Laws permits or requires that the holders of any Series or Class shall vote
as a Series or Class, then a majority of the Shares of that Series or Class
voted on the matter (or a plurality with respect to the election of a Trustee)
shall decide that matter insofar as that Series or Class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of law or this
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
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Additional Provisions
Section 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Distributions
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each Series out of the assets of
such Series such amounts as the Trustees may determine. Any such distribution
to the Shareholders of a particular Series shall be made to said Shareholders
pro rata in proportion to the number of Shares of such Series held by each of
them, except to the extent otherwise required or permitted by the preferences
and special or relative rights and privileges of any Classes of Shares of that
Series, and any distribution to the Shareholders of a particular Class of Shares
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such Class held by each of them. Such distributions shall be made in
cash, Shares or other property, or a combination thereof, as determined by the
Trustees. Any such distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with the By-Laws.
Redemptions and Repurchases
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the By-Laws, less
any redemption charge or fee as the Trustees may from time to time authorize.
Payment for said Shares shall be made by the Trust to the Shareholder within
seven days after the date on which the request is made. The obligation set forth
in this Section 2 is subject to the provision that in the event that any time
the New York Stock Exchange is closed for other than customary weekends or
holidays, or, if permitted by rules of the Commission, during periods when
trading on the Exchange is restricted or during any emergency which makes it
impractical for the Trust to dispose of its investments or to determine fairly
the value of its net assets, or during any other period permitted by order or
other action of the Commission for the protection of investors, such obligation
may be suspended or postponed by the Trustees. The Trust may also purchase or
repurchase Shares at a price not exceeding the net asset value of such Shares in
effect when the purchase or repurchase or any contract to purchase or repurchase
is made.
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Redemption at the Option of the Trust
Section 3. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the By-Laws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular Series or Class of Shares equal to
or in excess of a percentage of the outstanding Shares of that Series or Class
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking, underwriting,
brokerage or other services and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, adviser,
administrator or principal underwriter of the Trust, nor shall any Trustee be
responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The By-Laws may include provisions whereby the Trust may
provide indemnity to its Trustees and officers, including persons who serve at
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the Trust's request as directors, officers or trustees of another organization
in which the Trust has any interest as a shareholder, creditor or otherwise
(each such Trustee, officer or person hereinafter referred to as a "Covered
Person"), against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Covered Person. Any indemnity provided to Covered Persons by the
By-Laws may, if the By-Laws so provide, be in addition to any other indemnity to
which such persons may be entitled by law, contract or otherwise.
ARTICLE IX
Miscellaneous
Trustees, Shareholders etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular Series of Shares shall look only to the
assets of the Trust or the assets of that particular Series of Shares for
payment under such credit, contract or claim, and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or Trustees or as officer or officers
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.
Shareholders
Section 2. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representative or, in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled
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<PAGE>
to be held harmless from and indemnified against all loss and expense arising
from such liability, but only out of the assets of the particular Series of
Shares of which he or she is or was a Shareholder.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 3. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for the errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees as such shall not be required to
give any bond, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 4. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
Section 5. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least sixty-six and two-thirds percent (66 2/3%) of the
Shares entitled to vote, or by the Trustees by written notice to the
Shareholders. Any Series or Class of Shares may be terminated at any time by
vote of Shareholders holding at least sixty-six and two-thirds percent (66 2/3%)
of the Shares of such Series or Class entitled to vote, or by the Trustees by
written notice to the Shareholders of such Series or Class. Upon termination of
the Trust or of any one or more Series or Classes of Shares, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated, of the Trust or of the particular Series or Class
as may be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash or shares or other property, or any combination
thereof, and distribute the proceeds to the Shareholders of the Series involved,
ratably according to the number of Shares of such Series held by the several
Shareholders of such Series on the date of termination, except to the extent
otherwise required or permitted by the preferences and special or relative
rights and privileges of any Classes of Shares of that Series, provided that any
distribution to the Shareholders of a particular Class of Shares shall be made
to such Shareholders pro rata in proportion to the number of Shares of such
Class held by each of them.
Filing and Copies, References, Headings
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Section 6. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Applicable Law
Section 7. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust and, without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
Section 8. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees shall
affect the holders of one or more Series or Classes of Shares but not the
holders of all outstanding Series and Classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each Series
and Class affected and no vote of Shareholders of a Series or Class not affected
shall be required. Amendments having the purpose of changing the name of the
Trust, of establishing, changing or eliminating the par value of any Shares or
of supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained herein shall not
require authorization by vote of any Shareholders.
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in
the City of Boston, Massachusetts for himself and his assigns, as of the day and
year first above written.
/s/ Barry Hartstone
-------------------
Barry Hartstone
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, April 28, 1994
Then personally appeared the above named Barry Hartstone and acknowledged
the foregoing instrument to be his free act and deed, before me,
/s/ Frances E. DeFiore
----------------------
Notary Public
My Commission Expires: 5/25/95
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EXHIBIT 2
BY-LAWS
OF
MAGNA FUNDS
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
----------------------------------
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Magna Funds (the "Trust"), the Massachusetts
business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
-----------------------------
located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without
----------------
call or notice at such places and at such times as the Trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any
----------------
time and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Secretary
or an Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
------
send notice by mail at least forty-eight hours or by telegram at least twenty-
four hours before the meeting addressed to the Trustee at his or her usual or
last known business or residence address or to give notice to him or her in
person or by telephone at least twenty-four hours before the meeting. Notice of
a meeting need not be given (a) to any Trustee if a written waiver of notice,
executed by him before or
<PAGE>
after the meeting, is filed with the records of the meeting; or (b) to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. Neither notice of a meeting nor
a waiver of a notice need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
------
office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and the meeting may be held as adjourned without further notice.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
--------------------------
President, a Treasurer, a Secretary, and such other officers, if any, as the
Trustees from time to time may in their discretion elect. The Trust may also
have such agents as the Trustees may appoint from time to time in their
discretion. If a Chairman of the Board is elected, he or she shall be a Trustee
and may but need not be a shareholder; and any other officer may be but none
need be a Trustee or shareholder. Any two or more offices may be held by the
same person.
3.2 Election and Tenure. The President, the Treasurer, the Secretary and such
-------------------
other officers as the Trustees may in their discretion from time to time elect
shall each be elected by the Trustees to serve until his or her successor is
elected or qualified, or until he or she sooner dies, resigns, is removed or
becomes disqualified. Each officer shall hold office and each agent shall
retain authority at the pleasure of the Trustees.
3.3 Powers. Subject to the other provisions of these By-Laws, each officer
------
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
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<PAGE>
3.4 President and Vice Presidents. The President shall have the duties and
-----------------------------
powers specified in these By-Laws and shall have such other duties and powers as
may be determined by the Trustees. Any Vice Presidents shall have such duties
and powers as shall be designated from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
-----------------------
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the shareholders and of
the Trustees. If no such designation is made, the President shall be the Chief
Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected,
---------------------
he or she shall have the duties and powers specified in these By-Laws and shall
have such other duties and powers as may be determined by the Trustees.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting
---------
officer of the Trust, and shall, subject to the provisions of the Declaration of
Trust and to any arrangement made by the Trustees with a custodian, investment
adviser or administrator or transfer, shareholder servicing or similar agent, be
in charge of the valuable papers, books of account and accounting records of the
Trust, and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the President.
3.8 Secretary. The Secretary shall record all proceedings of the Shareholders
---------
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the
Secretary from any meeting of the Shareholders or Trustees, an assistant
Secretary or, if there be none or if he or she is absent, a temporary Secretary
chosen at such meeting shall record the proceedings thereof in the aforesaid
books.
3.9 Resignations and Removals. Any officer may resign at any time by written
-------------------------
instrument signed by him or her and delivered to the President or the Secretary
or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified
-3-
<PAGE>
to be effective at some other time. The Trustees may remove any officer with or
without cause. Except to the extent expressly provided in a written agreement
with the Trust, no officer resigning and no officer removed shall have any right
to any compensation for any period following his or her resignation or removal,
or any right to damages on account of such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees
-----------------------
and officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (each such Trustee, officer or person
hereinafter referred to as a "Covered Person") against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees reasonably
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of any
alleged act or omission as a Trustee or officer or by reason of his or her being
or having been such a Trustee or officer, except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interest of
the Trust, and except that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such Covered Person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office. Expenses, including counsel fees so incurred by any
such Covered Person, may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or proceeding on the condition
that the amounts so paid shall be repaid to the Trust if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article.
-4-
<PAGE>
4.2 Compromise Payment. As to any matter disposed of by a compromise payment
------------------
by any such Covered Person referred to in Section 4.1 above, pursuant to a
consent decree or otherwise, no such indemnification either for said payment or
for any other expenses shall be provided unless such compromise shall be
approved as in the best interests of the Trust, after notice that it involved
such indemnification, (a) by a disinterested majority of the Trustees then in
office; or (b) by a majority of the disinterested Trustees then in office; or
(c) by any disinterested person or persons to whom the question may be referred
by the Trustees; or (d) by vote of Shareholders holding a majority of the Shares
entitled to vote thereon, exclusive of any Shares beneficially owned by any
interested Covered Person; provided, however, that such indemnification would
not protect such person against any liability to the Trust or its Shareholders
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of office. Approval by the Trustees pursuant to clause
(a) or (b) or by any disinterested person or persons pursuant to clause (c) of
this Section shall not prevent the recovery from any Covered Person of any
amount paid as indemnification to such Covered Person in accordance with any of
such clauses if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby
-----------------------------
provided shall not be exclusive of or affect any other rights to which any such
Covered Person may be entitled. As used in this Article 4, the term "Covered
Person" shall include such person's heirs, executors and administrators; an
"interested Covered Person" is one against whom the action, suit or other
proceeding in question or another action, suit or other proceeding on the same
or similar grounds is then or has been pending; and a "disinterested Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
-5-
<PAGE>
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law, or the power of the
Trust to purchase and maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and in
-------
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such additional reports as they may deem desirable or from time to
time as may be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as otherwise provided from time to time by the Trustees,
-------
the fiscal year of the Trust shall end on August 31 in each year.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
-------
word "Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon. Unless otherwise required by the
Trustees, it shall not be necessary to place the seal on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees, generally or in particular cases, may
-------
have authorized the execution thereof in some other manner, all checks, notes,
drafts and other obligations and all registration statements and amendments
thereto and all applications and amendments thereto to the Securities and
Exchange Commission shall be signed by any of the President, any
-6-
<PAGE>
Vice-President, the Treasurer or any of such other officers or agents as shall
be designated for that purpose by a vote of the Trustees.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for shares, the
------------------
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms of this Article 9.
The Trustees may at any time authorize the issuance of share certificates. In
that event, each shareholder shall be entitled to a certificate stating the
number of shares owned by him or her, in such form as shall be prescribed from
time to time by the Trustees. Such certificates shall be signed by the
President or any Vice-President and by the Treasurer or any Assistant Treasurer.
Such signatures may be facsimile if the certificate is signed by a transfer
agent, or by a registrar, other than a Trustee, officer or employee of the
Trust. In case any officer who has signed or whose facsimile signature has been
placed on such certificate shall cease to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he or she were such officer at the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or destruction or the
--------------------
mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificates to Pledgee. A pledgee of shares transferred
---------------------------------------
as collateral security shall be entitled to a new certificate if the instrument
of transfer substantially describes the debt or duty that is intended to be
secured thereby. Such new certificate shall express on its face that it is held
as collateral security, and the name of the pledgor shall
-7-
<PAGE>
be stated thereon, who alone shall be liable as a shareholder and entitled to
vote thereon.
9.4 Discontinuance of Issuance of Certificates. The Trustees may at any time
------------------------------------------
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not effect the ownership of
shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1 Determination of Net Asset Value Per Share. Net asset value per share of
------------------------------------------
each series or class of shares of the Trust shall be determined at the times and
in the manner specified from time to time by the Trustees.
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1 Record Dates. For the purpose of determining the shareholders who are
------------
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix a time, which shall be not more than 90 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or of any other distribution, as the record date for determining
the shareholders having the right to notice of and to vote at such meeting and
any adjournment thereof or the right to receive such dividend or distribution,
and in such case only shareholders of record on such record date shall have such
right notwithstanding any transfer of shares on the books of the Trust after the
record date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.
-8-
<PAGE>
ARTICLE 12
Amendments to the By-Laws
12.1 General. These By-Laws may be amended or repealed, in whole or in part,
-------
by a majority of the Trustees then in office at any meeting of the Trustees.
-9-
<PAGE>
EXHIBIT 5
MAGNA GROWTH & INCOME FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of August 31, 1994 between MAGNA FUNDS, a Massachusetts
business trust (herein called the "Trust"), and MAGNA BANK OF MISSOURI, a
Missouri Trust Company with its principal offices in St. Louis, Missouri (herein
called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory services to the Magna Growth & Income Fund (the "Fund"), an
investment portfolio of the Trust, and the Investment Adviser represents that it
is willing and possesses legal authority to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Appointment. The Trust hereby appoints the Investment Adviser to act
-----------
as investment adviser to the Fund for the period and on the terms set forth in
this Agreement. The Investment Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Management. Subject to the supervision of the Trust's Board of
----------
Trustees, the Investment Adviser will provide a continuous investment program
for the Trust, including investment research and management with respect to all
securities and investments and cash equivalents of the Fund. The Investment
Adviser will determine from time to time what securities and other investments
will be purchased, retained or sold by the Trust with respect to the Fund. The
Investment Adviser will provide the services under this Agreement in accordance
with the Trust's investment objective, policies and restrictions as stated in
the Prospectus and resolutions of the Trust's Board of Trustees. The Investment
Adviser further agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to any fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment
advisory activities of the Investment Adviser;
(c) will place orders pursuant to its investment determinations for the
Trust either directly with the issuer or with any broker or dealer. In
placing orders with brokers and dealers, the Investment
<PAGE>
Adviser will attempt to obtain prompt execution of orders in an effective manner
at the most favorable price. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are comparable,
the Investment Adviser may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the Investment Adviser
with research advice and other services. Unless and until appropriate
procedures are adopted by the Trustees of the Trust under Rule 17e-1 of the 1940
Act and unless the provisions of such Rule are complied with, portfolio
securities will not be purchased from or sold to Ernst & Company, the Investment
Adviser, or any affiliated person of the Trust, Ernst & Company, or the
Investment Adviser;
(d) will maintain all books and records with respect to the Trust's
securities transactions and will furnish the Trust's Board of Trustees such
periodic and special reports as the Board may request; and
(e) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and prior,
present or potential interestholders, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably withheld and
may not be withheld where the Investment Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust.
3. Services Not Exclusive. The investment management services furnished
----------------------
by the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 3la-3
-----------------
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Adviser further agrees to preserve for the periods prescribed by
Rule 3la-3 under the 1940 Act the records required to be maintained by Rule 3la-
1 under the 1940 Act.
5. Expenses. During the term of this Agreement, the Investment Adviser
--------
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Trust.
6. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Trust will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee computed
daily and paid monthly at the applicable annual rate of 0.75% of average daily
net assets. The Trust's obligation to pay the above-described fee to the
-2-
<PAGE>
Investment Adviser will begin as of the date of the initial public sale of
shares in the Fund.
If in any fiscal year the aggregate expenses of the Funds (as defined under
the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Investment Adviser will
reimburse the Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees otherwise payable by the Fund to the Investment
Adviser hereunder to the aggregate fees otherwise payable by the Fund to the
Investment Adviser hereunder and to Ernst Asset Management Corporation under the
Administration Agreement between Ernst Asset Management Corporation and the
Fund. The obligation of the Investment Adviser to reimburse the Fund hereunder
is limited in any fiscal year to the amount of its fee hereunder for such fiscal
year, provided, however, that notwithstanding the foregoing, the Investment
-------- -------
Adviser shall reimburse the Fund for such proportion of such excess expenses
regardless of the amount of fees paid to it during such fiscal year to the
extent that the securities regulations of any state having jurisdiction over the
Fund so require. Such expense reimbursement, if any, will be estimated daily
and reconciled and paid on a monthly basis.
7. Limitation of Liability. The Investment Adviser shall not be liable
-----------------------
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by the Investment Adviser of its obligations
and duties under this Agreement.
8. Duration and Termination. This Agreement will become effective as to
------------------------
the Trust as of the date first written above, provided that it shall have been
approved by vote of a majority of the outstanding voting securities of the
Trust, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until June 30,
1995.
Thereafter, if not terminated, this Agreement shall continue in effect for
successive periods of twelve months each ending on June 30th of each year,
provided such continuance is specifically approved at least annually (a) by the
- --------
vote of a majority of those members of the Trust's Board of Trustees who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the vote of a majority of the Trust's Board of Trustees or by the
vote of a majority of the outstanding voting securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated at any time on
sixty days' written notice, without the payment of any penalty, by the Trust (by
vote of the Fund's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund) or by the Investment Adviser. This Agreement will
immediately terminate in the event of its assignment. If the Investment Adviser
requires the Trust or the Fund to change its name so as
-3-
<PAGE>
to eliminate all references to the word "Magna," then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Fund and by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or the Investment Adviser, cast in person at a meeting called for the
purpose of voting on such approval. (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the same meaning of such terms in the 1940 Act.)
9. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
10. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the Commonwealth of Massachusetts.
A copy of the Agreement and Declaration of Trust establishing the Trust is
on file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed with respect to the Fund
on behalf of the Trust by officers of the Trust as officers and not individually
and that the obligations of or arising out of this Agreement are not binding
upon any of the Trustees, officers or shareholders individually but are binding
only upon the assets and property belonging to the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
MAGNA FUNDS
Seal By:
-----------------------------
Title:
--------------------------
MAGNA BANK OF MISSOURI
Seal By:
-----------------------------
Title:
--------------------------
-4-
<PAGE>
MAGNA INTERMEDIATE GOVERNMENT BOND FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of August 31, 1994 between MAGNA FUNDS, a Massachusetts
business trust (herein called the "Trust"), and MAGNA BANK OF MISSOURI, a
Missouri Trust Company with its principal offices in St. Louis, Missouri (herein
called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory services to the Magna Intermediate Government Bond Fund (the
"Fund"), an investment portfolio of the Trust, and the Investment Adviser
represents that it is willing and possesses legal authority to furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Appointment. The Trust hereby appoints the Investment Adviser to act
-----------
as investment adviser to the Fund for the period and on the terms set forth in
this Agreement. The Investment Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Management. Subject to the supervision of the Trust's Board of
----------
Trustees, the Investment Adviser will provide a continuous investment program
for the Trust, including investment research and management with respect to all
securities and investments and cash equivalents of the Fund. The Investment
Adviser will determine from time to time what securities and other investments
will be purchased, retained or sold by the Trust with respect to the Fund. The
Investment Adviser will provide the services under this Agreement in accordance
with the Trust's investment objective, policies and restrictions as stated in
the Prospectus and resolutions of the Trust's Board of Trustees. The Investment
Adviser further agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to any fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and in addition will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to the investment
advisory activities of the Investment Adviser;
(c) will place orders pursuant to its investment determinations for the
Trust either directly with the issuer or with any broker or
<PAGE>
dealer. In placing orders with brokers and dealers, the Investment Adviser
will attempt to obtain prompt execution of orders in an effective manner at
the most favorable price. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are
comparable, the Investment Adviser may, in its discretion, purchase and
sell portfolio securities to and from brokers and dealers who provide the
Investment Adviser with research advice and other services. Unless and
until appropriate procedures are adopted by the Trustees of the Trust under
Rule 17e-1 of the 1940 Act and unless the provisions of such Rule are
complied with, portfolio securities will not be purchased from or sold to
Ernst & Company, the Investment Adviser, or any affiliated person of the
Trust, Ernst & Company, or the Investment Adviser;
(d) will maintain all books and records with respect to the Trust's
securities transactions and will furnish the Trust's Board of Trustees such
periodic and special reports as the Board may request; and
(e) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and prior,
present or potential interestholders, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably withheld and
may not be withheld where the Investment Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust.
3. Services Not Exclusive. The investment management services furnished
----------------------
by the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
4. Books and Records. In compliance with the requirements of Rule 3la-3
-----------------
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Adviser further agrees to preserve for the periods prescribed by
Rule 3la-3 under the 1940 Act the records required to be maintained by Rule
3la-1 under the 1940 Act.
5. Expenses. During the term of this Agreement, the Investment Adviser
--------
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Trust.
6. Compensation. For the services provided and the expenses assumed
------------
pursuant to this Agreement, the Trust will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee computed
daily and paid monthly at the applicable annual rate of 0.50% of average daily
-2-
<PAGE>
net assets. The Trust's obligation to pay the above-described fee to the
Investment Adviser will begin as of the date of the initial public sale of
shares in the Fund.
If in any fiscal year the aggregate expenses of the Funds (as defined under
the securities regulations of any state having jurisdiction over the Fund)
exceed the expense limitations of any such state, the Investment Adviser will
reimburse the Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees otherwise payable by the Fund to the Investment
Adviser hereunder to the aggregate fees otherwise payable by the Fund to the
Investment Adviser hereunder and to Ernst Asset Management Corporation under the
Administration Agreement between Ernst Asset Management Corporation and the
Fund. The obligation of the Investment Adviser to reimburse the Fund hereunder
is limited in any fiscal year to the amount of its fee hereunder for such fiscal
year, provided, however, that notwithstanding the foregoing, the Investment
-------- -------
Adviser shall reimburse the Fund for such proportion of such excess expenses
regardless of the amount of fees paid to it during such fiscal year to the
extent that the securities regulations of any state having jurisdiction over the
Fund so require. Such expense reimbursement, if any, will be estimated daily
and reconciled and paid on a monthly basis.
7. Limitation of Liability. The Investment Adviser shall not be liable
-----------------------
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by the Investment Adviser of its obligations
and duties under this Agreement.
8. Duration and Termination. This Agreement will become effective as to
------------------------
the Trust as of the date first written above, provided that it shall have been
approved by vote of a majority of the outstanding voting securities of the
Trust, in accordance with the requirements under the 1940 Act, and, unless
sooner terminated as provided herein, shall continue in effect until June 30,
1995.
Thereafter, if not terminated, this Agreement shall continue in effect for
successive periods of twelve months each ending on June 30th of each year,
provided such continuance is specifically approved at least annually (a) by the
- --------
vote of a majority of those members of the Trust's Board of Trustees who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the vote of a majority of the Trust's Board of Trustees or by the
vote of a majority of the outstanding voting securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated at any time on
sixty days' written notice, without the payment of any penalty, by the Trust (by
vote of the Fund's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund) or by the Investment Adviser. This Agreement will
immediately terminate in the event of its assignment. If
-3-
<PAGE>
the Investment Adviser requires the Trust or the Fund to change its name so as
to eliminate all references to the word "Magna," then this Agreement shall
automatically terminate at the time of such change unless the continuance of
this Agreement after such change shall have been specifically approved by vote
of a majority of the outstanding voting securities of the Fund and by vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or the Investment Adviser, cast in person at a meeting called for the
purpose of voting on such approval. (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the same meaning of such terms in the 1940 Act.)
9. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
10. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the law of the Commonwealth of Massachusetts.
A copy of the Agreement and Declaration of Trust establishing the Trust is
on file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed with respect to the Fund
on behalf of the Trust by officers of the Trust as officers and not individually
and that the obligations of or arising out of this Agreement are not binding
upon any of the Trustees, officers or shareholders individually but are binding
only upon the assets and property belonging to the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
MAGNA FUNDS
Seal By: __________________________
Title: __________________________
MAGNA BANK OF MISSOURI
Seal By: __________________________
Title: __________________________
-4-
<PAGE>
EXHIBIT 11
Consent of Independent Accountants
To the Board of Trustees of
the Magna Funds:
Growth & Income Fund
Intermediate Government Bond Fund
We consent to the incorporation by reference in Post Effective Amendment No. 3
to the Registration Statement of the Magna Funds on Form N-1A (1933 Act File
No. 33-78408; 1940 Act File No. 811-8494) of our report dated October 18, 1996
on our audits of the financial statements and financial highlights of the Funds,
which report is included in the Annual Report to Shareholders for the year ended
August 31, 1996, which is incorporated by reference in the Registration
Statement. We also consent to the references to our Firm under the captions
"Financial Highlights" and "Independent Accounts".
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 17, 1996
<PAGE>
Exhibit 19
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POWER OF ATTORNEY
-----------------
The undersigned officer and/or trustee of Magna Funds hereby constitutes
Barry Hartstone and Robert A. Bonelli, and each of them singly, his true and
lawful attorneys, with full power to them and each of them to sign for him, in
his name and in his capacity as an officer and/or trustee of the Magna Funds, a
Massachusetts business trust, under the Securities Act of 1933 or the Investment
Company Act of 1940, and generally to do all such things in his name and in his
behalf to enable Magna Funds to comply with the provisions of the Securities Act
of 1933, the Investment Company Act of 1940, and all requirements and
regulations of the Securities and Exchange Commission, hereby ratifying and
confirming his signature as it may be signed by his said attorneys to any and
all registration statements and amendments thereto.
Witness my hand this 17th day of December 1996.
/s/ ROBERT E. SAUR
------------------
Robert E. Saur,
Trustee
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned officer and/or trustee of Magna Funds hereby constitutes
Barry Hartstone and Robert A. Bonelli, and each of them singly, his true and
lawful attorneys, with full power to them and each of them to sign for him, in
his name and in his capacity as an officer and/or trustee of the Magna Funds, a
Massachusetts business trust, under the Securities Act of 1933 or the Investment
Company Act of 1940, and generally to do all such things in his name and in his
behalf to enable Magna Funds to comply with the provisions of the Securities Act
of 1933, the Investment Company Act of 1940, and all requirements and
regulations of the Securities and Exchange Commission, hereby ratifying and
confirming his signature as it may be signed by his said attorneys to any and
all registration statements and amendments thereto.
Witness my hand this 15th day of December 1996.
/s/ EARL E. LAZERSON
--------------------
Earl E. Lazerson,
Trustee
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned officer and/or trustee of Magna Funds hereby constitutes
Barry Hartstone and Robert A. Bonelli, and each of them singly, his true and
lawful attorneys, with full power to them and each of them to sign for him, in
his name and in his capacity as an officer and/or trustee of the Magna Funds, a
Massachusetts business trust, under the Securities Act of 1933 or the Investment
Company Act of 1940, and generally to do all such things in his name and in his
behalf to enable Magna Funds to comply with the provisions of the Securities Act
of 1933, the Investment Company Act of 1940, and all requirements and
regulations of the Securities and Exchange Commission, hereby ratifying and
confirming his signature as it may be signed by his said attorneys to any and
all registration statements and amendments thereto.
Witness my hand this 17th day of December 1996.
/s/ HARRY R. MAIER
---------------------------------------
Harry R. Maier,
Trustee
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned officer and/or trustee of Magna Funds hereby constitutes
Barry Hartstone and Robert A. Bonelli, and each of them singly, his true and
lawful attorneys, with full power to them and each of them to sign for him, in
his name and in his capacity as an officer and/or trustee of the Magna Funds, a
Massachusetts business trust, under the Securities Act of 1933 or the Investment
Company Act of 1940, and generally to do all such things in his name and in his
behalf to enable Magna Funds to comply with the provisions of the Securities Act
of 1933, the Investment Company Act of 1940, and all requirements and
regulations of the Securities and Exchange Commission, hereby ratifying and
confirming his signature as it may be signed by his said attorneys to any and
all registration statements and amendments thereto.
Witness my hand this 16th day of December 1996.
/S/ NEIL SEITZ
-----------------------------------
Neil Seitz,
Trustee
