<PAGE> 1
MAGNA FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(800) 219-4182
PROSPECTUS
JANUARY 1, 1999
Magna Funds (the "Trust") is a mutual fund currently 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. Union Planters Bank, National Association
("Union Planters") 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 1, 1999 is
available free of charge; write to Magna Funds, P.O. Box 182754, Columbus, Ohio
43218-2784 or telephone (800) 219-4182. 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 BISYS Fund Services ("BISYS"), 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 the Funds, including:
- -- Establishing an account
- -- 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, Union Planters Corporation, Union Planters Bank, National
Association, 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.
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TABLE OF CONTENTS
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PAGE
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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
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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, 1998. 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.
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GROWTH & INTERMEDIATE
INCOME GOVERNMENT
FUND BOND FUND
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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......................................... 0.49% 0.50%
---- ----
Total Fund Operating Expenses(4)....................... 0.99% 0.90%
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.......................................... $50 $49
Three Years....................................... $70 $68
Five Years........................................ $93 $88
Ten Years......................................... $156 $146
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(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,
1999. 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.
(4) Without such voluntary reductions, Total Fund Operating Expenses would be
1.49% and 1.25% for the Growth & Income Fund and the Intermediate Government
Bond Fund, respectively.
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FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
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GROWTH & INCOME FUND
---------------------------------------------------
SEPTEMBER 1,
YEAR YEAR YEAR 1994*
ENDED ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
---------- ---------- ---------- ------------
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Net Asset Value, Beginning
of Period................. $ 22.18 $ 16.42 $ 14.05 $ 12.50
------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income... 0.23 0.26 0.24 0.25
Net Realized and
Unrealized Gain (Loss)
From Investment
Transactions.......... 1.72 6.12 2.39 1.52
------- ------- ------- -------
Total From Investments
Operations............ 1.95 6.38 2.63 1.77
------- ------- ------- -------
Less Distributions:
Net Investment Income... (0.25) (0.25) (0.23) (0.22)
Net Realized Gain from
Investment
Transactions.......... (0.42) (0.37) (0.03) --
------- ------- ------- -------
Total Dividends and
Distributions......... (0.67) (0.62) (0.26) (0.22)
------- ------- ------- -------
Net Asset Value, End of
Period.................... $ 23.46 $ 22.18 $ 16.42 $ 14.05
======= ======= ======= =======
Total Return(1)............. 8.84% 39.59% 18.77% 14.33%
RATIOS/SUPPLEMENTAL DATA:
- ----------------------
Net Assets, End of Period
($000's).................. $74,131 $70,276 $39,995 $30,284
Ratio of Expenses to Average
Net Assets................ 0.99% 1.06% 1.27% 1.25%
Ratio of Net Investment
Income to Average Net
Assets.................... 0.96% 1.36% 1.56% 1.98%
Ratio of Expenses to Average
Net Assets without Fee
Waivers **................ 1.49% 1.56% 1.77% 1.88%
Ratio of Net Investment
Income to Average Net
Assets without Fee
Waivers**................. 0.46% 0.86% 1.06% 1.35%
Portfolio Turnover Rate..... 26% 17% 31% 41%
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INTERMEDIATE GOVERNMENT BOND FUND
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SEPTEMBER 1,
YEAR YEAR YEAR 1994*
ENDED ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995
----------- ---------- ---------- ------------
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Net Asset Value, Beginning
of Period................. $ 12.61 $ 12.43 $ 12.75 $ 12.50
------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income... 0.76 0.79 0.76 0.74
Net Realized and
Unrealized Gain (Loss)
From Investment
Transactions.......... 0.39 0.19 (0.32) 0.25
------- ------- ------- -------
Total From Investments
Operations............ 1.15 0.98 0.44 0.99
------- ------- ------- -------
Less Distributions:
Net Investment Income... (0.76) (0.79) (0.76) (0.74)
Net Realized Gain from
Investment
Transactions.......... -- (0.01) -- --
------- ------- ------- -------
Total Dividends and
Distributions......... (0.76) (0.80) (0.76) (0.74)
------- ------- ------- -------
Net Asset Value, End of
Period.................... $ 13.00 $ 12.61 $ 12.43 $ 12.75
======= ======= ======= =======
Total Return(1)............. 9.33% 7.96% 3.48% 8.30%
RATIOS/SUPPLEMENTAL DATA:
- ----------------------
Net Assets, End of Period
($000's).................. $72,614 $64,459 $56,764 $52,085
Ratio of Expenses to Average
Net Assets................ 0.90% 0.96% 1.05% 1.10%
Ratio of Net Investment
Income to Average Net
Assets.................... 5.92% 6.15% 5.97% 6.00%
Ratio of Expenses to Average
Net Assets without Fee
Waivers **................ 1.25% 1.31% 1.40% 1.43%
Ratio of Net Investment
Income to Average Net
Assets without Fee
Waivers**................. 5.57% 5.80% 5.62% 5.66%
Portfolio Turnover Rate..... 32% 19% 20% 34%
</TABLE>
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* Commencement of operations.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(1) Total return excludes sales charges. Had the advisor, distributor and
administrator not reduced or waived certain expenses, total returns would
have been lower.
The above information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This statement should be read in conjunction 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, 1998, 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, 1998. Copies of the Annual Report are available
upon request without charge.
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INVESTMENT OBJECTIVES AND POLICIES
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 its total 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
Union Planters 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 Union
Planters 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 Union Planters;
-- 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.
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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.
GROWTH & INCOME FUND
The investment objective of the 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 -- 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 Union Planters 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.
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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 total 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> 8
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.
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The Fund will not invest more than 25% of its total assets in CMOs.
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 convertible securities 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.
Union Planters 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
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<PAGE> 10
the security. As a fixed-income security, a convertible security tends to
increase in market value when interest rates 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 Union Planters 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 Union Planters determines that a
more "defensive" portfolio position is appropriate, the Funds may invest any
portion of their assets in short-term investments.
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<PAGE> 11
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 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 other
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
Union Planters 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 liquid
securities 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 Union
Planters 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.
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<PAGE> 12
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
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 Union Planters 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 Union Planters 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 Union Planters is correct in its forecast of interest rates, market
movements and other economic factors. If Union Planters' forecast of these
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<PAGE> 13
factors is incorrect, use of options will in some cases result in a lower return
than if the Fund had not been "hedged."
Special Year 2000 Risk Considerations
Many of the services provided to the Funds depend on the proper functioning
of computer systems. Many systems in use today cannot distinguish between the
year 1900 and the year 2000. Should any of the Funds' (including the Funds'
third party providers') service systems fail to process information properly,
that could have an adverse impact on the Funds' operations and services provided
to shareholders. Union Planters, as well as the Funds' administrator, transfer
agent, custodian and other service providers, have reported that each is working
toward mitigating the risks associated with the so-called "Year 2000 Problem."
However, there can be no assurance that the problem will be corrected in all
respects and that the Funds' operations and services provided to shareholders
will not be adversely affected.
THE FUNDS' INVESTMENT ADVISER
Union Planters serves as the investment adviser to the Funds. On October 9,
1998, Magna Bank, N.A. ("Magna"), which together with its predecessors had
served as the Funds' investment adviser since the Funds' inception in 1994,
merged with and into Union Planters. The same portfolio managers and other key
investment personnel responsible for Magna's management of each Fund's
investment operations immediately prior to the merger continue to have such
responsibilities as officers and employees of Union Planters as of the date of
this Prospectus. Union Planters, a national bank, is an indirect wholly-owned
subsidiary of Union Planters Corporation, a Tennessee corporation and a bank
holding company.
Union Planters is a multi-state national banking association headquartered
in Memphis, Tennessee with total assets of approximately $30 billion. Union
Planters strives to provide a full array of financial services to all segments
of its customer base including business, commercial, consumer, agricultural and
mortgage loans, warehouse lending and personal banking and trust services.
Further, Union Planters' customers can conveniently access investment and
insurance services through Union Planters' 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 the operations of which merged into
Magna in 1997, in 1983. He is currently Vice President of Union Planters. 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 is currently Vice
President of Union Planters. Mr. Guthrie is a graduate of Southern Illinois
University.
During the fiscal year ended August 31, 1998, 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 Union Planters 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%.
Union Planters has voluntarily agreed, however, to reduce the annual rate of its
fee with
11
<PAGE> 14
respect to the Growth & Income Fund, to 0.50%, and with respect to the
Intermediate Government Bond Fund, to 0.40%, through August 31, 1999.
Under an agreement with the Trust, BISYS Fund Services ("BISYS") provides
management and administrative services to the Funds, and, in general, supervises
the operations of the Trust. The Trust pays BISYS a fee for its services to each
Fund at the annual rate of 0.20% of the Trust's average net assets. Each Fund
has adopted a plan under Rule 12b-1 under the Investment Company Act of 1940
providing for payment to BISYS of a service fee at the annual rate of 0.25% of
the Fund's average daily net assets. BISYS has agreed to waive this fee through
August 31, 1999. If the fee were not being waived, BISYS 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.
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 Union
Planters or BISYS, 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 Union
Planters, BISYS 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 Union Planters and
BISYS.
PORTFOLIO TRANSACTIONS
Portfolio turnover considerations will not limit Union Planters' investment
discretion in managing the Funds' assets. Union Planters 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.
Union Planters selects brokers and dealers to execute portfolio
transactions for the Funds. In selecting brokers, Union Planters 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, Union Planters may
allocate Fund portfolio transactions to brokers or dealers whose customers have
invested in the Trust.
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 BISYS as distributor. BISYS 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, BISYS will designate
Magna Investments, Inc., an affiliate of Union Planters, as the dealer
responsible for your account, and Magna Investments, Inc. will receive any
dealer reallowance.)
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<PAGE> 15
<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>
You may make an initial purchase of shares of any Fund by submitting a
completed application form and payment to:
Magna Funds
P.O. Box 182754
Columbus, OH 43218-2784
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. The Fund may refuse any
purchase order for its shares. See the Statement of Additional Information for
more information.
Upon acceptance of your order, BISYS Fund Services ("BISYS"), the Funds'
shareholder servicing agent, will open an account for you, apply the payment to
the purchase of full and fractional Fund shares and mail a statement of the
account confirming the transaction.
After an account has been established, you may send subsequent investments
at any time directly to BISYS 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. To purchase
shares by wire, contact the Trust at (800) 219-4182 to obtain instructions
regarding the bank account number into which the funds should be wired and other
pertinent information.
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 BISYS, 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.
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<PAGE> 16
Each Fund may accept telephone orders from broker-dealers who have been
previously approved by BISYS. 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 Union Planters.
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 Union Planters, is the dealer of record,
Union Planters 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 BISYS) 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
BISYS 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
Fund of the Trust 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 Fund of the Trust and
(ii) the then current net asset value of the shareholder's combined holdings of
shares of both Funds of the Trust.
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<PAGE> 17
PURCHASES BY CERTAIN INVESTORS
No sales charge applies to purchases by Union Planters for the account of
its trust customers, or to purchases by officers, trustees, directors, employees
and retired employees of the Trust, Union Planters and its affiliates, and BISYS
Fund Services and its affiliates (and spouses and children of such persons).
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 BISYS.
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 Funds' shares may be purchased by all types of tax-deferred retirement
plans. Union Planters 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 Magna Funds,
P.O. Box 182754, Columbus, Ohio 43218-2754.
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 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
BISYS at (800) 219-4182. When you telephone a redemption request, the proceeds
are wired to the bank account previously chosen by you. A telephonic redemption
request must be received by BISYS prior to the close of regular trading on the
New York
15
<PAGE> 18
Stock Exchange. If you telephone your request to BISYS after the Exchange closes
or on a day when the Exchange is not open for business, the redemption price
will be the net asset value per share next determined. The Trust, BISYS and
Fifth Third Bank, the Trust's custodian, are not responsible for the
authenticity of withdrawal instructions received by telephone. Reasonable
procedures will be adopted to verify that telephone instructions are genuine.
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 BISYS. 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 BISYS 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.
16
<PAGE> 19
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.
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. Distributions designated by the Funds as
deriving from net gains on securities held for more than one year will be
taxable to you as such (generally at a 20% rate for noncorporate shareholders),
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. Distributions are taxable to a shareholder of a Fund even if they
are paid from income or gains earned by the Fund prior to a shareholder's
investment (and thus were included in the price paid by the shareholder).
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 that meet the holding period requirements in the Internal
Revenue Code of 1986, as amended.
The Growth & Income Fund's investments in foreign securities may be subject
to withholding taxes at the source on dividend or interest payments. In that
case, the Fund's yield on those securities would be decreased.
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 Trust's 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.
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<PAGE> 20
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- ------------------------------------------------------
INVESTMENT ADVISER
Union Planters Bank, National Association
1401 South Brentwood Boulevard
St. Louis, Missouri 63144
ADMINISTRATOR & DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AND DIVIDEND
PAYING AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Fifth Third Bank
Fifth Third Center
Cincinnati, Ohio 45263
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, Ohio 43215
MAG1P010199
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
MAGNA FUNDS
A FAMILY OF FUNDS
PROSPECTUS
AND
APPLICATION
JANUARY 1, 1999
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(800) 219-4182
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 21
Magna Funds
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1999
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Magna Funds Prospectus dated
January 1, 1999, and should be read in conjunction therewith. A copy of the
Prospectus may be obtained by writing to Magna Funds, P.O. Box 182754, Columbus,
OH 43218-2784, or calling (800) 219-4182.
<PAGE> 22
TABLE OF CONTENTS
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....................................................20
HOW TO BUY SHARES...........................................................23
NET ASSET VALUE AND PUBLIC OFFERING PRICE...................................24
SHAREHOLDER SERVICES........................................................24
REDEMPTIONS.................................................................26
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS................27
PERFORMANCE INFORMATION.....................................................29
SPECIMEN PRICE MAKE-UP......................................................30
APPENDIX A: DESCRIPTION OF BOND RATINGS....................................A-1
APPENDIX B: FINANCIAL STATEMENTS...........................................B-1
-2-
<PAGE> 23
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 Union Planters
Bank, National Association ("Union Planters"), 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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<PAGE> 25
(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 Union Planters 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 total 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.
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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.
o 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.
o U.S. 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.
o "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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<PAGE> 27
o "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.
o "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 liquid securities 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 of 1986, as
amended (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 and there is a risk that the seller may fail to repurchase the
underlying security. In such event,
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<PAGE> 29
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 or eligible liquid securities as 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.
The successful use of options depends in part on the ability of Union
Planters to forecast correctly the direction and extent of interest rate or
stock price movements within a given
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<PAGE> 30
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 an 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 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
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<PAGE> 31
Union Planters 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 total 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 an 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 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
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<PAGE> 32
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 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.
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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.
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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, Union Planters 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
- 12 -
<PAGE> 35
that 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 Union Planters 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):
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION WITH THE TRUST DURING THE PAST FIVE YEARS
- --------------------- ----------------------- --------------------------
<S> <C> <C>
Robert R. Archibald, Ph.D (50) Trustee President, Missouri
Missouri Historical Society Historical Society
P.O. Box 11940
St. Louis, MO 63112-0940
Earl E. Lazerson (67) Trustee Director, National Stockyards;
5 Hidden Valley Lane Director, AAA of Missouri;
Edwardsville, IL 62022 President (until 1993) and
Professor (until 1994), So. Illinois
University at Edwardsville
</TABLE>
- 13 -
<PAGE> 36
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION WITH THE TRUST DURING THE PAST FIVE YEARS
- --------------------- ----------------------- --------------------------
<S> <C> <C>
Brad L. Badgley* (46) Trustee Attorney, Heiligenstein & Badgley,
Heiligenstein & Badgley PC PC; Director, Magna Trust Company
30 Public Square (an affiliate of Magna Bank, N.A.,
Belleville, Illinois 62220 which merged into Union Planters in
1998) (until 1997); Director, Banc
Star One (1995 to present)
Robert E. Saur (55) Trustee President and Owner,
750 S. Hanley Street Conrad Properties Corp.
Clayton, MO 63105 (real estate); Director, Enterbank
Holding Company
Harry R. Maier* (51) Trustee Chief Executive Officer, Memorial
118 Sun Lake Dr. Hospital
Belleville, IL 62221 Belleville, Illinois
Neil Seitz (55) Trustee Dean, School of Business, Saint
School of Business Louis University; Professor, Saint
Saint Louis University Louis University (until 1993)
3674 Lindell Blvd.
St. Louis, MO 63108
Walter B. Grimm (53) President Employee, BISYS Fund Services,
BISYS Fund Services Limited Partnership; President,
3435 Stelzer Road Leigh Investments Consulting
Columbus, Ohio 43219 (investments firm)
William J. Tomko (40) Vice President Vice President, BISYS
BISYS Fund Services Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
- 14 -
<PAGE> 37
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION WITH THE TRUST DURING THE PAST FIVE YEARS
- --------------------- ----------------------- --------------------------
<S> <C> <C>
Alaina V. Metz (31) Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and Regulatory
3435 Stelzer Road Services,
Columbus, Ohio 43219 BISYS Fund Services,
Limited Partnership
Chuck L. Booth (38) Vice President Vice President, BISYS
BISYS Fund Services Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Paul T. Kane (41) Treasurer From December 1997 to present, employee
3435 Stelzer Road of BISYS Fund Services; from March 1995
Columbus, Ohio 43219 to December 1997, employee of Fidelity
Service Company
Robert L. Tuch (47) Secretary Vice President, BISYS Fund
BISYS Fund Services Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
- -----------------------
* Trustee or Nominee who is an "interested person" (as defined in the 1940
Act) of the Trust. Mr. Maier and Mr. Badgley are "interested persons" by
reason of owning shares of Union Planters Corporation, the ultimate parent
company of Union Planters.
Previous positions of officers of the Trust during the past five years
with BISYS or its affiliates are omitted if not materially different from their
current positions. Mr. Grimm and Mr. Tomko were first elected by the Trustees to
the serve in the offices noted above in January 1997. All other officers of the
Trust noted above were first elected by the Trustees to serve in the offices
noted above in October 1997. Each officer of the Trust serves at the pleasure of
the Trustees until his or her successor is elected or qualified, or until he or
she sooner dies, resigns, is removed or becomes disqualified.
- 15 -
<PAGE> 38
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, 1998 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
- ------ ---------- ----------
Robert R. Archibald $6000 $6000
Brad L. Badgley $7000 $7000
Earl E. Lazerson $6500 $6500
Harry R. Maier $7000 $7000
Robert E. Saur $7000 $7000
Neil Seitz $7000 $7000
As of November 1, 1998, 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.
- 16 -
<PAGE> 39
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Under a separate investment advisory agreement with each Fund, Union
Planters provides investment advice for, and supervises the investment programs
of, the Funds. Union Planters, located at 1401 South Brentwood Boulevard, St.
Louis, Missouri 63144, is a wholly-owned subsidiary of Union Planters Holding
Corporation, itself a wholly-owned subsidiary of Union Planters Corporation, a
Tennessee corporation and a bank holding company. Union Planters Corporation,
headquartered in Memphis, Tennessee, is one of the 30 largest banking
organizations in the country, with total assets of approximately $30 billion.
Through their offices in twelve states, Union Planters Corporation and its
subsidiaries provide a broad range of financial services to individuals and
businesses.
Each of the Funds pays Union Planters an annual investment advisory fee
based on a percentage of the Fund's average daily net assets. Pursuant to Union
Planters' voluntary reduction of its advisory fees through August 31, 1999, 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 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 Union Planters 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 Union Planters 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 Union Planters.
Each advisory agreement provides that Union Planters 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.
Union Planters 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
- 17 -
<PAGE> 40
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 Union Planters as
adviser for the Funds outweighs the disadvantages, if any, which might result
from these practices.
During the last three fiscal years, each Fund paid the following
amounts as investment advisory fees to Magna Bank, N.A. ("Magna"), which merged
into Union Planters in October 1998, pursuant to the relevant advisory
agreement:
<TABLE>
<CAPTION>
FISCAL
YEAR GROSS (BEFORE NET (AFTER
ENDED VOLUNTARY VOLUNTARY
FUND AUG. 31 REDUCTION) REDUCTION REDUCTION)
- ---- ------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Magna Intermediate 1996 $274,199 $ 54,840 $219,359
Government Bond Fund
1997 $304,596 $ 60,919 $243,677
1998 $338,078 $ 67,615 $270,463
==== ======== ======== ========
Magna Growth & Income 1996 $271,864 $ 90,621 $181,243
Fund
1997 $396,797 $132,266 $264,531
1998 $596,301 $198,767 $397,534
==== ======== ======== ========
</TABLE>
- 18 -
<PAGE> 41
ADMINISTRATOR
BISYS Fund Services ("BISYS"), under an agreement with the Trust,
provides management and administrative services to the Funds, and, in general,
supervises the operations of the Trust. BISYS does not provide investment
advisory services. As part of its duties, BISYS provides office space, equipment
and clerical personnel for managing and administering the affairs of the Trust.
BISYS supervises the provision of custodial, auditing, valuation, bookkeeping,
legal, and dividend disbursing services and provides other management and
administrative services. The Trust pays BISYS a fee for its services to each
Fund at the annual rate of 0.20% of the Trust's average daily net assets. For
the fiscal year ended August 31, 1998, pursuant to the terms of this Agreement,
the Growth & Income Fund paid BISYS $158,698, and the Intermediate Government
Bond Fund paid BISYS $134,948. For the period June 2, 1997 (the date the Trust
entered into this agreement with BISYS) through August 31, 1997, pursuant to the
terms of this agreement, the Growth & Income Fund paid BISYS $29,572, and the
Intermediate Government Bond Fund paid BISYS $27,878. Prior to June 2, 1997,
Ernst Asset Management Corporation ("EAMC") provided management and
administrative services to the Funds. For the period September 1, 1996 through
June 1, 1997, the Growth & Income Fund and the Intermediate Bond Fund paid EAMC
$70,951 and $87,869, respectively. For the fiscal year ended August 31, 1996,
the Growth & Income Fund paid EAMC $68,872, and the Intermediate Government Bond
Fund paid EAMC $104,196.
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
- 19 -
<PAGE> 42
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.
Custodial Arrangements. Fifth Third Bank, Fifth Third Center,
Cincinnati, Ohio 45263, became the Trust's custodian on June 2, 1997. As such,
Fifth Third Bank holds in safekeeping 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, Fifth Third 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. Pursuant to an agreement with the Trust, the Custodian
receives compensation from each Fund for such services based upon a percentage
of each Fund's average daily net assets.
Independent Accountants. The Funds' independent accountants are
PricewaterhouseCoopers LLP, 100 East Broad Street, Columbus, Ohio 43215.
PricewaterhouseCoopers LLP 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
- 20 -
<PAGE> 43
such broker-dealers have arrangements. Union Planters or its affiliates receive
brokerage and research services and other similar services from many
broker-dealers with which Union Planters 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, evaluations of investments, newspapers,
magazines, pricing services, quotation services, news services, timing services
and personal computers utilized by Union Planters' or its affiliates' portfolio
managers and analysts. Some of these services are of value to Union Planters 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 Union Planters and its affiliates receive these services, even though
Union Planters might otherwise be required to purchase some of these services
for cash.
Union Planters places all orders for the purchase and sale of portfolio
investments for the Funds. In doing so, Union Planters 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, Union Planters, 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, Union Planters may cause
each Fund to pay a broker-dealer which provides "brokerage and research
services" (as defined in the 1934 Act) to Union Planters 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. Union Planters' 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, Union Planters 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 Conduct Rules 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, Union Planters considers sales of shares of the Funds as a factor in
the selection of broker-dealers to execute portfolio transactions for the Funds.
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
- 21 -
<PAGE> 44
market usually involve transactions with dealers acting as principals for their
own accounts, affiliated persons of the Trust, such as BISYS, may not serve as
the Funds' dealer in connection with such transactions.
During the fiscal years ended August 31, 1996, August 31, 1997 and
August 31, 1998, the Trust paid, on behalf of the Growth & Income Fund, $19,499,
$24,797 and $31,137, 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 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").
- 22 -
<PAGE> 45
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 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).
- 23 -
<PAGE> 46
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 liability 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 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 November 6, 1998, 95.4% of the Intermediate Government Bond Fund
shares and 94.6% of the Growth & Income Fund shares were owned of record by
Union Planters; all of such shares were held for the benefit of accounts for
which Union Planters acts as trustee or custodian.
- 24 -
<PAGE> 47
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 November 12, 1998:
Name and Address %
Fund of Beneficial Owner Ownership
- ---- ------------------- ---------
Magna Growth & Union Planters National Bank 15.44%
Income Fund Equity Discretionary Common
Trust Fund A
6200 Poplar Ave.
Memphis, TN 38119
Magna Growth & Magna Group, Inc. 10.88%
Income Fund Savings and Stock Investment
Plan
7130 Goodlett Farms Pkwy.
Cardova, TN 38018
Magna Growth & Union Planters Bank, N.A. 10.88%
Income Fund for Employee Benefit Trust
Equity Fund
6200 Poplar Ave.
Memphis, TN 38119
HOW TO BUY SHARES
The procedures for purchasing shares of the Funds are summarized in the
Prospectus under "How to Purchase Shares."
- 25 -
<PAGE> 48
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 weekdays:
Thanksgiving Day, Christmas Day, New Year's Day, President's Day, Good Friday,
Martin Luther King, Jr. Day, Memorial Day, Independence Day and Labor Day.
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 BISYS Fund Services, Inc.
("BISYS"), the shareholder servicing agent for Trust. 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, BISYS 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.
- 26 -
<PAGE> 49
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.
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.
IRA'S
Under "Shareholder Services--Retirement Plans," the Prospectus refers
to IRAs established under a prototype plan made available by Union Planters.
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 Union Planters.
Check with your financial or tax adviser as to the suitability of Fund
shares for your retirement plan.
- 27 -
<PAGE> 50
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.
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 BISYS at (800) 219-4182. 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 BISYS 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 BISYS 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 BISYS. 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 BISYS 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, BISYS and Fifth Third 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 BISYS 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 10 days prior to the redemption
request, the Fund may withhold redemption proceeds until your check has cleared,
which may take up to 10 days from the purchase date.
- 28 -
<PAGE> 51
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.
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 BISYS. In order for a change to be in effect for any dividend or
distribution, it must be received by BISYS 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
or other disposition of stock or 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)
distribute with respect to each taxable year at least 90% of the sum of its
taxable net investment income, its net tax-exempt income, and the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year; and (iii) at the end of each fiscal quarter maintain at least 50% of the
value of its total assets in cash, U.S. government securities, securities of
other regulated investment companies, and other securities of issuers which
represent, with respect to each issuer, no more than 5% of the value of 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
- 29 -
<PAGE> 52
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 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" (as defined in the Code) 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
gain 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
designated by a Fund as deriving from net gains on securities held for more than
one year will be taxable to shareholders as long-term capital gain (generally at
a 20% rate for noncorporate shareholders), regardless of how long a shareholder
has held shares in 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 a Fund's shares are generally subject to
a federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
- 30 -
<PAGE> 53
Redemptions, sales and exchanges of each Fund's shares are taxable
events and, accordingly, shareholders may realize gains and losses on these
transactions. Provided the shareholder holds the shares as a capital asset, any
gain realized upon a taxable disposition of shares will be treated as long-term
capital gain if the shares have been held for more than 12 months. Otherwise,
the gain on the redemption, sale or exchange of fund shares will be treated as
short-term capital gain. In general, any loss realized upon a taxable
disposition of shares will be treated as a long-term capital loss if the shares
have been held for more than 12 months, and otherwise as short-term capital
loss. 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.
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).
PERFORMANCE INFORMATION
Each Fund may from time to time include its total return in
advertisements or in information furnished to present or prospective
shareholders. Each Fund may from time to time include in advertisements its
total return and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives.
Quotations of average annual total return for a Fund will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Fund or class over periods of one, five, and ten years (or for
such shorter periods as shares of the Fund have been offered), calculated
pursuant to the following formula: P (1 + T) [n exponent]= ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years, and ERV = the ending redeemable value of a hypothetical
$1,000
- 31 -
<PAGE> 54
payment made at the beginning of the period). Except as noted below, all total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that (i) the maximum sales load (or other charges
deducted from payments) is deducted from the initial $1,000 payment and (ii) all
dividends and distributions are reinvested when paid. Quotations of total return
may also be shown for other periods. The Funds may also, with respect to certain
periods of less than one year, provide total return information for that period
that is unannualized. Any such information would be accompanied by standardized
total return information.
The table below sets forth the average annual total return of each Fund
for the one year period ending August 31, 1998 and for the period from the
commencement of the Funds' operations until August 31, 1998:
<TABLE>
<CAPTION>
TOTAL RETURN OF FUND SHARES FOR THE PERIODS LISTED
Assuming MAXIMUM sales load (4.00%):
- ---------------------------------------------------------------------------------------------------------------------
Total Return Total Return Total Return
FUND (One Year) (Three Year) (Since Inception)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Magna Growth & Income Fund 4.50% 20.09% 18.64%
(commencement of operations:
September 1, 1994)
- ---------------------------------------------------------------------------------------------------------------------
Magna Intermediate Government 4.92% 5.46% 6.17%
Bond Fund (commencement of
operations: September 1, 1994)
- ---------------------------------------------------------------------------------------------------------------------
Assuming NO sales load (0.00%):
- ---------------------------------------------------------------------------------------------------------------------
Total Return Total Return Total Return
FUND (One Year) (Three Year) (Since Inception)
- ---------------------------------------------------------------------------------------------------------------------
Magna Growth & Income Fund 8.84% 21.75% 19.86%
(commencement of operations:
September 1, 1994)
- ---------------------------------------------------------------------------------------------------------------------
Magna Intermediate Government 9.33% 6.91% 7.25%
Bond Fund (commencement of
operations: September 1, 1994)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- 32 -
<PAGE> 55
<TABLE>
<CAPTION>
SPECIMEN PRICE MAKE-UP
Total Offering Price Per Unit (as of August 31, 1998):
Growth & Intermediate
Income Government
Fund Bond Fund
---- ---------
<S> <C> <C>
Shares of beneficial interest outstanding 3,159,909 5,586,876
Net asset value and redemption price per $23.46 $13.00
share
Maximum offering price per share $24.44 $13.54
($23.46/0.96 and $13.00/0.96)
</TABLE>
- 33 -
<PAGE> 56
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 protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE> 57
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> 58
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> 59
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> 60
APPENDIX B
FINANCIAL STATEMENTS
The Trust's audited Financial Statements for the fiscal year ended
August 31, 1998 included in the Trust's Annual Report filed with the Securities
and Exchange Commission on October 27, 1998 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, P.O. Box 182754, Columbus, Ohio 43218-2754, or by calling
(800) 219-4182.
B-1
