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MAGNA MONEY MARKET FUND
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(800) 219-4182
PROSPECTUS
JUNE 1, 1999
Magna Money Market Fund (the "Fund") is a series of Magna Funds (the
"Trust"), a mutual fund currently offering three series of shares. The other two
series of shares, Magna Intermediate Government Bond Fund and Magna Growth &
Income Fund, are offered pursuant to a separate prospectus. The Fund's
investment adviser is Union Planters Bank, National Association ("Union
Planters").
This Prospectus concisely describes the information that you should know
before investing in the Fund. Please read it carefully and keep it for future
reference. A Statement of Additional Information dated June 1, 1999 is available
free of charge; write to Magna Funds, P.O. Box 182754, Columbus, Ohio 43218-2754
or telephone (800) 219-4182. The Statement of Additional Information (the
"Statement"), which contains more detailed information about the Fund, 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.
For information about the Fund, including:
- -- Establishing an account
- -- Account procedures and status
- -- Shareholder services
Call (800) 219-4182
Shares of the Fund 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 Fund involves the risk of a possible loss of principal.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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
INVESTMENT OBJECTIVES AND POLICIES.......................... 2
RISK AND OTHER INFORMATION ABOUT THE FUND'S INVESTMENTS..... 3
THE FUND'S INVESTMENT ADVISER............................... 3
FUND MANAGEMENT AND EXPENSES................................ 4
PORTFOLIO TRANSACTIONS...................................... 4
HOW TO PURCHASE SHARES...................................... 4
SHAREHOLDER SERVICES........................................ 5
HOW TO REDEEM SHARES........................................ 6
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES............ 7
THE TRUST................................................... 8
ADDITIONAL INFORMATION...................................... 8
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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 the Fund, you will bear directly or
indirectly. The table below summarizes your maximum transaction costs from an
investment in the Fund and the expenses which the Fund is expected to incur
during the current fiscal year. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the 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. 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
FUND'S PORTFOLIO.
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MAGNA MONEY
MARKET FUND
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Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchase (as % of
offering price)....................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as
% of offering price).................................. None
Deferred Sales Load (as % of original purchase price or
redemption proceeds, as applicable)................... None
Redemption Fees(1)..................................... None
Exchange Fees.......................................... None
Annual Fund Operating Expenses (as % of net assets):
Investment Advisory Fees (after fee waiver)(2)......... 0.17%
12b-1 Fees (after fee waiver)(2)....................... 0.00%
Other Expenses(3)(4)................................... 0.36%
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Total Fund Operating Expenses.......................... 0.53%
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(1) A Wire Fee (currently $5.00) will be deducted from the proceeds of
redemptions effected by telephone. See "How to Redeem Shares."
(2) The Fund's investment adviser and distributor have voluntarily agreed to
reduce their fees to the amounts shown in the table above through August 31,
2000. Without such voluntary reductions, the adviser would be entitled to
receive an investment advisory fee of 0.40% of the Fund's average daily net
assets, and the distributor would be entitled to receive 12b-1 fees of 0.25%
of the Fund's average daily net assets.
(3) Based on estimated expenses for the Fund's first fiscal year.
(4) The administrator has voluntarily agreed to reduce its fee to 0.17% of the
Fund's average daily net assets through August 31, 2000. Without such
voluntary reduction, the administrator would be entitled to receive an
administrative fee of 0.20% of the Fund's average daily net assets and the
Fund's estimated Other Expenses would increase from 0.36% to 0.39%.
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):
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One Year.................................................... $ 5.00
Three Years................................................. $17.00
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INVESTMENT OBJECTIVES AND POLICIES
The Fund seeks maximum current income consistent with preservation of
capital and liquidity. The Fund invests in a variety of high quality money
market instruments. Investments in the Fund will be pooled with money from other
investors in the Fund to invest in a managed portfolio consisting of securities
appropriate to the Fund's investment objective and policies, as described below.
There can be no assurance that the Fund will achieve its objective.
The Fund invests in certificates of deposits, bankers' acceptances and
other dollar-denominated obligations of banks whose net assets exceed $100
million. Up to 100% of the Fund's assets may be invested in these kinds of
obligations. These obligations may be issued by U.S. banks or their foreign
branches, or foreign banks (including their U.S. or foreign branches), subject
to the conditions set forth in the Statement.
The Fund may invest in commercial paper and other corporate debt
obligations that satisfy the Fund's quality and maturity standards.
The Fund may invest in "U.S. Government Securities," which term, as used in
this prospectus, includes all securities issued or guaranteed by the U.S.
Government or its agencies, authorities or instrumentalities. Some U.S.
Government Securities are backed by the full faith and credit of the United
States, some are supported by the discretionary authority of the U.S. Government
to purchase the issuer's obligations (e.g., obligations of the Federal National
Mortgage Association), some by the right of the issuer to borrow from the U.S.
Government (e.g., obligations of Federal Home Loan Banks), while still others
are supported only by the credit of the issuer itself (e.g., obligations of the
Student Loan Marketing Association).
The Fund may also invest in repurchase agreements relating to any of the
securities referred to above. In repurchase agreements, the Fund buys a security
from a seller, usually a bank or brokerage firm, with the understanding that the
seller will repurchase the security from the Fund at a higher price at a later
date.
All of the Fund's investments at the time of purchase (other than U.S.
Government Securities and repurchase agreements relating thereto) will be rated
in the highest rating category by a major rating agency or, if unrated, will be
of comparable quality as determined by Union Planters Bank, National Association
("Union Planters" or the "Adviser"), under guidelines approved by the Trust's
board of trustees.
All investments of the Fund mature in 397 days or less, and the average
maturity of the Fund's investments is 90 days or less. The maturity of
repurchase agreements is calculated by reference to the repurchase date, not by
reference to the maturity of the underlying security. All investments of the
Fund will be in U.S. dollars and will be determined by the Adviser to present
minimal credit risks under guidelines established by the Trust's board of
trustees.
No more than 10% of the Fund's net assets will be invested in illiquid
securities, including repurchase agreements with maturities of more than seven
days.
Note: Except for certain policies that are explicitly described as
fundamental in this Prospectus or in the Statement, the investment policies of
the Fund and the Fund's investment objective may be changed without shareholder
approval or prior notice.
The Fund intends that all of its investments will comply with Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act").
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RISK AND OTHER INFORMATION ABOUT THE FUND'S INVESTMENTS
It is important to understand the following risks inherent in investing in
the Fund before you invest.
By investing only in high-quality, short-term securities, the Fund seeks to
minimize risk. Although changes in interest rates can change the market value of
the Fund's investments, the Fund expects those changes in the value of its
investments to be minimal. The Fund cannot guarantee, however, that it will be
able to maintain the net asset value of its shares at $1.00.
All repurchase agreements entered into by the Fund provide that the
seller's obligations must be fully collateralized at all times. The Fund may,
however, face various delays and risks of loss if the seller defaults.
The Fund's holdings of obligations of foreign banks or of foreign branches
or subsidiaries of U.S. banks may be subject to different risks than obligations
of domestic banks. These risks include: foreign economic, political and legal
developments; less public information with respect to issuers of securities;
less governmental supervision of exchanges, brokers and issuers; different
accounting, auditing and financial reporting standards; different settlement
periods and trading practices; less liquidity and frequently greater price
volatility; imposition of foreign taxes; and sometimes less advantageous legal,
operational and financial protections.
Special Year 2000 Risk Considerations
Many services provided to the Fund 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 Fund's (including the Fund's third
party providers') service systems fail to process information properly, that
could have an adverse impact on the Fund's operations and services provided to
shareholders. Union Planters, as well as the Fund's 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 Fund's operations and services provided to shareholders
will not be adversely affected, nor can there be any assurance that the Year
2000 problem will not have an adverse effect on the entities whose securities
are held by the Fund or on U.S. or global markets or economies generally.
THE FUND'S INVESTMENT ADVISER
Union Planters serves as the investment adviser to the Fund. 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.
Lucy Kasson will be primarily responsible for day-to-day management of the
Fund's portfolio. Ms. Kasson has over 20 years of investment management
experience.
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FUND MANAGEMENT AND EXPENSES
The Fund has agreed to pay Union Planters an investment advisory fee at the
annual rate of 0.40% of the Fund's average daily net assets. Union Planters has
voluntarily agreed, however, to reduce the annual rate of its fee with respect
to the Fund to 0.17% through August 31, 2000.
Under an agreement with the Trust, BISYS Fund Services ("BISYS") provides
management and administrative services to the Fund, and, in general, supervises
the operations of the Trust. The Fund pays BISYS a fee for its services to the
Fund at the annual rate of 0.20% of the Fund's average net assets. BISYS has
voluntarily agreed, however, to reduce the annual rate of its fee with respect
to the Fund to 0.17% through August 31, 2000. The Fund has adopted a plan under
Rule 12b-1 under the 1940 Act 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, 2000. If the fee was 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 0.25% of the average
daily net assets of such account.
In addition to the investment advisory, management and 12b-1 fees, the 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's 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
Fund, including the provision of services to the Fund by Union Planters and
BISYS.
PORTFOLIO TRANSACTIONS
In placing orders for the purchase and sale of portfolio securities for the
Fund, Union Planters will always seek the best price and execution. It is
expected that the Fund's portfolio transactions will generally be with issuers
or dealers in money market instruments acting as principal. Accordingly, the
Fund does not anticipate that it will pay significant brokerage commissions.
Some of the Fund's portfolio transactions may be placed with brokers who
provide Union Planters with supplementary information and statistical
information or furnish market quotations to the Fund or other accounts advised
by Union Planters. The business would not be so placed if the Fund would not
thereby obtain the best price and execution. Although it is not possible to
assign an exact dollar value to these research services, they may, to the extent
used, tend to reduce the expenses of Union Planters. The research services may
also be used by Union Planters in connection with its other advisory accounts
and in some cases may not be used with respect to the Fund or the other funds of
the Trust. Subject to seeking best price and execution, Union Planters may also
allocate Fund portfolio transactions to dealers whose customers have invested in
the Trust.
HOW TO PURCHASE SHARES
The Fund currently offers one class of shares (Class A shares). You may
make an initial purchase of shares of the Fund by submitting a completed
application form and payment to:
Magna Funds
P.O. Box 182754
Columbus, OH 43218-2754
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The minimum initial investment in any Fund is $1,000 for regular accounts
and $100 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.
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's 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.
The 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 Fund does not anticipate that it will
do so, the 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 no later than 1:00 p.m.
Eastern time. Assets of the Fund normally are valued at amortized cost on each
day that the New York Stock Exchange is open for trading. Net asset value per
share is determined by dividing the Fund's net assets by the total number of
Fund shares outstanding. The Fund's net assets are equal to the value of its
investments and its other assets minus its liabilities.
The 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. 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.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services, the terms, restrictions
and limitations of which are more fully described in the Statement. Application
forms are available from BISYS.
AUTOMATIC INVESTMENT PLAN
Voluntary monthly investments of at least $100 may be made automatically by
pre-authorized withdrawals from your checking account.
RETIREMENT PLANS
The Fund's shares may be purchased by all types of tax-deferred retirement
plans. Union Planters and its affiliates make available retirement plan forms
for IRAs.
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SYSTEMATIC WITHDRAWAL PLAN
If the value of your account is at least $10,000 you may have periodic cash
withdrawals automatically paid to you or any person you designate.
CHECK WRITING
If the value of your account is at least $10,000 you may select the check
writing option on your application. The Fund will send you checks drawn on The
Huntington Bank. Each check must be written for $250 or more, subject to any
exceptions set forth in the Statement.
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 Fund's name, your account number, the exact
name(s) in which your shares are registered, and the number of shares or the
dollar amount to be redeemed. All owners of the shares must sign the request in
the exact names in which the shares are registered (this appears on your
confirmation statement) and should indicate any special capacity in which they
are signing (such as trustee or custodian or on behalf of a partnership,
corporation or other entity).
If you are redeeming shares worth more than $10,000, or requesting that the
proceeds check be made out to someone other than the registered owner(s), or be
sent to an address other than your record address, you must have your signature
guaranteed by an eligible guarantor. Eligible guarantors include commercial
banks, trust companies, savings associations, credit unions and brokerage firms
that are members of domestic securities exchanges. Before submitting your
redemption request, you should verify with the guarantor institution that it is
an eligible guarantor. Signature guarantees by notaries public are not
acceptable.
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 Stock Exchange ("NYSE"). If you telephone your request to BISYS after
the NYSE closes or on a day when the NYSE is not open for business, the
redemption price will be the net asset value per share next determined. The
Trust, BISYS and The 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 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 (as
described above) are received by BISYS in proper form.
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Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in proper form.
Telephonic redemption proceeds will normally be wired to your bank on the first
business day following receipt of a redemption request in proper form, unless it
would be disadvantageous to the Fund or its shareholders to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner. 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 falls below a minimum amount set by the
trustees of the Trust (currently $100), 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 Fund pays out as dividends substantially all of the net investment
income from interest it receives from its investments. The Fund's dividends are
declared daily and paid to you monthly. If all of your Fund shares are redeemed
at any time during a month, all dividends accrued to date will be paid together
with the redemption proceeds. Dividends are automatically reinvested in more
shares. If you prefer, you may receive them in cash by selecting that option on
your Account Application. You may change your distribution option by notifying
BISYS in writing or by calling (800) 219-4182. If you elect to receive your
dividends in cash and the dividend checks sent to you are returned
"undeliverable" to the Fund or remain uncashed for six months, your cash
election will be automatically changed and your future dividends will be
reinvested.
For current yield information, shareholders or their investment
representatives may call BISYS at (800) 219-4182.
As long as the Fund distributes substantially all its net investment income
and net short-term capital gains, if any, to its shareholders, it will not pay
federal income tax on the amounts distributed.
The Fund does not expect to realize a substantial amount of long-term
capital gains. If it does, it will distribute them annually and they will be
taxable to you as long-term capital gains, whether received in cash or
additional shares and regardless of how long you have held your shares. No
distribution from any Fund is expected to be eligible for the dividends-received
deduction for corporations.
To avoid certain excise taxes, the Fund must distribute by December 31 of
each year virtually all of its ordinary income realized in that year, and all of
any previously undistributed capital gain net income it realized in the twelve
months ending October 31 of that year. Certain dividends declared by the Fund in
December, but not actually received by you until January, will be treated for
federal tax purposes as though you had received them on December 31.
BISYS will send you and the Internal Revenue Service an annual statement
detailing federal tax information, including information about dividends and
distributions paid to you during the preceding year. You
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<PAGE> 10
should consult your tax adviser about any state or local taxes that may apply to
such distributions. BE SURE TO KEEP THIS STATEMENT AS A PERMANENT RECORD. A FEE
MAY BE CHARGED FOR ANY DUPLICATE INFORMATION REQUESTED.
The Fund is required to withhold 31% of all income dividends and capital
gain distributions they pay to you if you do not provide a correct, certified
taxpayer identification number, if the Fund is notified that you have
underreported income in the past, or if you fail to certify to the Fund that you
are not subject to such federal back-up withholding. In addition, the Fund is
required to withhold 31% of the gross proceeds of Fund shares you redeem if you
have not provided a correct, certified taxpayer identification number. If you
are a tax-exempt shareholder, however, these backup withholding rules will not
apply so long as you furnish the Fund with an appropriate certification.
Dividends and distributions of short-term capital gains, if any, are
taxable to you as ordinary income, whether paid in cash or in additional shares.
Dividends derived from interest on U.S. Government Securities may be exempt
from state and local taxes. The Fund intends to advise shareholders of the
proportion of its dividends derived from such interest.
Before investing in the Fund, you should check the consequences of your
local and state tax laws, and of any retirement plan offering tax benefits.
Note: The information above is only a summary of applicable tax law. You
should consult your own tax adviser for more information about the tax
consequences of an investment in the Fund.
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. The Fund is a series of the Trust that commenced operations
in 1999. 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.
ADDITIONAL INFORMATION
The Fund may include its yield in advertisements or other written sales
material. Yield may be either the yield for a particular seven-day period
(stated on an annualized basis), or an "effective yield" calculated by assuming
that an investor reinvests all Fund dividends throughout a one-year period and
that the Fund earns net income for the entire year at the same rate as net
income is earned during a particular seven-day period.
The Fund may also show illustrations of how the value of an account with
the Fund would have grown over past time periods, assuming that all dividends
paid to that account were immediately reinvested in shares of the Fund.
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INVESTMENT ADVISER
Union Planters Bank, National Association
1401 South Brentwood Boulevard
St. Louis, Missouri 63144
ADMINISTRATOR & DISTRIBUTOR
BISYS Fund Services, L.P.
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AND DIVIDEND
PAYING AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Fifth Third Bank
Fifth Third Center
Cincinnati, Ohio 45263
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, Ohio 43215
MAG2P060199
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MAGNA FUNDS
MAGNA MONEY MARKET FUND
PROSPECTUS
JUNE 1, 1999
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(800) 219-4182
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<PAGE> 13
MAGNA MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 1999
This Statement of Additional Information (the "Statement") is not a
prospectus. This Statement relates to the prospectus of Magna Money Market Fund
(the "Fund") dated June 1, 1999 (the "Prospectus"), and should be read in
conjunction therewith. A copy of the Prospectus may be obtained from the Fund's
distributor, BISYS Fund Services, 3435 Stelzer Road, Columbus Ohio 43219 ((800)
219-4182).
<PAGE> 14
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES............................................1
INVESTMENT RESTRICTIONS.......................................................3
MANAGEMENT OF THE TRUST.......................................................6
INVESTMENT ADVISORY AND OTHER SERVICES........................................9
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................11
DESCRIPTION OF THE TRUST.....................................................12
HOW TO BUY SHARES............................................................15
NET INCOME, DIVIDENDS AND VALUATION..........................................15
SHAREHOLDER SERVICES.........................................................16
REDEMPTIONS..................................................................18
TAX STATUS...................................................................19
PERFORMANCE INFORMATION......................................................20
APPENDIX A..................................................................A-1
DESCRIPTION OF CERTAIN FUND INVESTMENTS.....................................A-1
APPENDIX B..................................................................B-1
RATINGS OF CORPORATE AND COMMERCIAL PAPER...................................B-1
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INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objective and policies of the Magna Money Market Fund
(the "Fund"), a series of Magna Funds (the "Trust"), are summarized in the
Fund's Prospectus under "Investment Objective and Policies" and "Risk and Other
Information about the Fund's Investments." The investment policies of the 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 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 Fund (which in the Prospectus and this
Statement of Additional Information means the lesser of (i) 67% of the shares of
the 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).
The Fund will invest only in securities which Union Planters, acting
under guidelines established by the Trust's board of trustees, has determined
are of high quality and present minimal credit risk. For a description of
certain of the money market instruments in which the Fund may invest, and the
related descriptions of the ratings of Standard & Poor's Corporation ("S&P") and
Moody's Investors Service, Inc. ("Moody's"), see Appendices A and B to this
Statement. Money market instruments maturing in less than one year may yield
less than obligations of comparable quality having longer maturities.
As described in the Prospectus, the Fund's investments may include
certain U.S. dollar-denominated obligations of foreign banks or of foreign
branches and subsidiaries of U.S. banks, which may be subject to foreign
economic, political and legal risks. Such risks include foreign economic and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign withholding
and other taxes on interest income, difficulties in obtaining and enforcing a
judgment against a foreign obligor, exchange control regulations (including
currency blockage), and the expropriation or nationalization of assets or
deposits. Foreign branches of U.S. banks and foreign banks are not necessarily
subject to the same or similar regulatory requirements that apply to domestic
banks. For instance, such branches and banks may not be subject to the types of
requirements imposed on domestic banks with respect to mandatory reserves, loan
limitations, examinations, accounting, auditing, recordkeeping and the public
availability of information. Obligations of such branches or banks will be
purchased only when the Adviser believes the risks are minimal.
Considerations of liquidity, safety and preservation of capital may
preclude the Fund from investing in money market instruments paying the highest
available yield at a particular time. The Fund, consistent with its investment
objective, attempts to maximize yields by
1
<PAGE> 16
engaging in portfolio trading and by buying and selling portfolio investments in
anticipation of or in response to changing economic and money market conditions
and trends. The Fund also invests to take advantage of what are believed to be
temporary disparities in the yields of the different segments of the high
quality money market or among particular instruments within the same segment of
the market. These policies, as well as the relatively short maturity of
obligations to be purchased by the Fund, may result in frequent changes in the
portfolio of the Fund. There are usually no brokerage commissions as such paid
by the Fund in connection with the purchase of securities of the type in which
it invests. See "Portfolio Transactions" and "Investment Restrictions" below.
As noted in the Prospectus, the Fund may enter into repurchase
agreements, which are agreements by which the Fund purchases a security and
obtains a simultaneous commitment from the seller (a member bank of the Federal
Reserve or, to the extent permitted by the Investment Company Act of 1940 (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 Fund the opportunity to earn a return on
temporarily available cash at relatively low market risk. While the underlying
security may be a U.S. Government Security or another type of high quality money
market instrument, the obligation of the seller is not guaranteed by the U.S.
Government or the issuer of any other high quality money market instrument
underlying the agreement, and there is a risk that the seller may fail to
repurchase the underlying security. In such event, the Fund would attempt to
exercise rights with respect to the underlying security, including possible
disposition in the market. However, in case of such a default, 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) inability to enforce rights and the
expenses involved in attempted enforcement. The Fund will enter into repurchase
agreements only where the market value of the underlying security equals or
exceeds the repurchase price, and the Fund will require the seller to provide
additional collateral if this market value falls below the repurchase price at
any time during the term of the repurchase agreement.
As described in the Prospectus, all of the Fund's investments will, at
the time of investment, have remaining maturities of 397 days or less. The
average maturity of the Fund's portfolio securities based on dollar value will
not exceed 90 days at the time of each investment. If the disposition of a
portfolio security results in a dollar-weighted average portfolio maturity in
excess of 90 days for the Fund, the Fund will invest its available cash in such
a manner as to reduce its dollar-weighted average portfolio maturity to 90 days
or less as soon as reasonably practicable. For the purposes of the foregoing
maturity restrictions, variable rate instruments which are scheduled to mature
in more than 397 days are treated as having a maturity equal to the longer of
(i) the period remaining until the next readjustment of the interest rate and
(ii) if the Fund is entitled to demand prepayment of the instrument, the
2
<PAGE> 17
notice period remaining before the Fund is entitled to such prepayment; other
variable rate instruments are treated as having a maturity equal to the shorter
of such periods. Floating rate instruments which are scheduled to mature in more
than 397 days are treated as having a maturity equal to the notice period
remaining before the Fund is entitled to demand prepayment of the instrument;
other floating rate instruments, and all such instruments which are U.S.
Government Securities, are treated as having a maturity of one day.
The value of the securities held by the Fund can be expected to vary
inversely with changes in prevailing interest rates. Thus, if interest rates
increase after a security is purchased, that security, if sold, might be sold at
a loss. Conversely, if interest rates decline after purchase, the security, if
sold, might be sold at a profit. In either instance, if the security was held to
maturity, no gain or loss would normally be realized as a result of these
fluctuations. Substantial redemptions of Fund shares could require the sale of
portfolio investments at a time when a sale might not be desirable.
After purchase by the Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event will necessarily require a sale of such security by such Fund.
However, such event will be considered in determining whether the Fund should
continue to hold the security. To the extent that the ratings given by Moody's
or S&P (or another SEC-approved nationally recognized statistical rating
organization ("NRSRO")) may change as a result of changes in such organizations
or their rating systems, each Fund will, in accordance with standards approved
by the Board of Trustees, attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the
Prospectus.
INVESTMENT RESTRICTIONS
The following is a list of the Fund's investment restrictions. The
restrictions set forth in the numbered paragraphs marked with an asterisk are
fundamental policies and, accordingly, will not be changed without the consent
of the holders of a majority of the outstanding voting securities of the
applicable Fund.
The Fund will not:
(1) Purchase any security (other than U.S. Government Securities and
repurchase agreements relating thereto) if, as a result, more than 5% of the
Fund's total assets (taken at current value) would be invested in securities of
a single issuer. This restriction applies to securities subject to repurchase
agreements but not to the repurchase agreements themselves;
*(2) Purchase any security if, as a result, more than 25% of the Fund's
total assets (taken at current value) would be invested in any one industry.
This restriction does not apply to U.S. Government Securities and bank
obligations. For purposes of this restriction, telephone, gas and electric
public utilities are each regarded as separate industries and finance
3
<PAGE> 18
companies whose financing activities are related primarily to the activities of
their parent companies are classified in the industry of their parents;
*(3) Purchase securities on margin (but it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities); or make short sales except where, by virtue of ownership of other
securities, it has the right to obtain, without payment of further
consideration, securities equivalent in kind and amount to those sold, and the
Fund will not deposit or pledge more than 10% of its total assets (taken at
current value) as collateral for such sales;
(4) Acquire more than 10% of the total value of any class of the
outstanding securities of an issuer or acquire more than 10% of the outstanding
voting securities of an issuer. This restriction does not apply to U.S.
Government Securities;
*(5) Borrow money, except as a temporary measure for extraordinary or
emergency purposes (but not for the purpose of investment), in excess of 10% of
its total assets (taken at cost) or 5% of such total assets (taken at current
value), whichever is lower;
(6) Pledge, mortgage or hypothecate more than 10% of its total assets
(taken at cost);
*(7) Make loans, except by purchase of debt obligations in which the
Fund may invest consistent with its objective and investment policies. This
restriction does not apply to repurchase agreements;
*(8) Buy or sell oil, gas or other mineral leases, rights or royalty
contracts, commodities or commodity contractors or real estate. This restriction
does not prevent the Fund from purchasing securities of companies investing in
real estate or of companies which are not principally engaged in the business of
buying or selling such leases, rights or contracts;
*(9) 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 the federal securities laws;
(10) Make investments for the purpose of exercising control or
management;
(11) 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 other accounts under the management of Union Planters
to reduce acquisition costs, to average prices among them, or to facilitate such
transactions, is not considered participating in a trading account in
securities);
(12) Write or purchase puts, calls or combinations thereof; except that
the Fund may (1) acquire warrants or rights to subscribe to securities of
companies issuing such warrants or
4
<PAGE> 19
rights, or of parents or subsidiaries of such companies, and (2) write, purchase
and sell put and call options on securities, securities indices, futures
contracts and currencies.
(13) Invest in the securities of other investment companies, except in
connection with a merger, consolidation or similar transaction; or
(14) 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 6 above; any borrowing permitted
by restriction 5 above; any collateral arrangements with respect to options,
futures contracts and options on futures contracts and with respect to initial
and variational margin; and the purchase or sale of options, forward contracts,
futures contracts or options on futures contracts.)
Except as otherwise stated, the foregoing percentages and the
percentage limitations set forth in the Prospectus will apply at the time of the
purchase of a security and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of a purchase of
such security.
The Fund will not purchase any security restricted as to disposition
under federal securities laws if, as a result, more than 10% of the Fund's net
assets would be invested in such securities or in other securities that are
illiquid.
The staff of the SEC is currently of the view that repurchase
agreements maturing in more than seven days are "illiquid" securities. The Fund
currently intends to conduct its operations in a manner consistent with this
view. In addition, certain loan participations may be "illiquid" securities for
this purpose.
5
<PAGE> 20
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
Brad L. Badgley* (47) Trustee Attorney, Heiligenstein &
Heiligenstein & Badgley PC Badgley, PC; Director, Magna
30 Public Square Trust Company (an affiliate of
Belleville, Illinois 62220 Magna Bank, N.A., 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* (52) Trustee Chief Executive Officer, Memorial
118 Sun Lake Dr. Hospital, Belleville, Illinois
Belleville, IL 62221
</TABLE>
- -----------------------
* Trustee 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.
6
<PAGE> 21
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION WITH THE TRUST DURING THE PAST FIVE YEARS
- --------------------- ----------------------- --------------------------
<S> <C> <C>
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 Senior Vice President, BISYS
BISYS Fund Services Fund Services, Limited
3435 Stelzer Road Partnership; President, Leigh
Columbus, Ohio 43219 Investments Consulting
(investments firm)
George Landreth (57) Vice President Senior Vice President, BISYS
BISYS Fund Services Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Chuck L. Booth (38) Vice President Vice President, BISYS
BISYS Fund Services Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Gary Tenkman (29) Treasurer From April 1998 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, Ohio 43219 Services; from September 1990
to April 1998, employee of Ernst
& Young LLP
Robert L. Tuch (47) Secretary Vice President, BISYS Fund
BISYS Fund Services Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Alaina V. Metz (31) Assistant Chief Administrator,
BISYS Fund Services Secretary Administrative and Regulatory
3435 Stelzer Road Services, BISYS Fund Services,
Columbus, Ohio 43219 Limited Partnership
Warren Leslie (37) Assistant From May 1995 to present,
BISYS Fund Services Secretary employee of BISYS Fund
3435 Stelzer Road Services; from April 1988 to
Columbus, Ohio 43219 May 1995, employee of
American Express
</TABLE>
7
<PAGE> 22
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 was first elected by the trustees to serve in the
office noted above in January 1997. Ms. Metz and Messrs. Booth and Tuch were
first elected by the trustees to serve in the offices noted above in October
1997. Messrs. Landreth, Tenkman and Leslie were first elected by the trustees to
service in offices noted in April 1999. 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.
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 of the Trust 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 for their services in such capacity:
TOTAL
COMPENSATION
PERSON FROM TRUST
- ------ ----------
Robert R. Archibald $6000
Brad L. Badgley $7000
Earl E. Lazerson $6500
Harry R. Maier $7000
Robert E. Saur $7000
Neil Seitz $7000
8
<PAGE> 23
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Under an investment advisory agreement with the Trust, on behalf of the
Fund, Union Planters provides investment advice for, and supervises the
investment program of, the Fund. 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.
The Fund 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, 2000, such fee is
0.20%. Without such voluntary reduction, such fee would be 0.40%.
The Fund's 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 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 the
advisory agreement must be approved (i) by vote of a majority of the outstanding
voting securities of the 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. The 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 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, the 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 Fund and
by a majority of the trustees who are not interested persons of the Trust or
Union Planters.
The 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 Fund also invests. If the Fund and such other
clients desire to buy or sell the same portfolio securities at the same time,
purchases and sales may be allocated, to the extent practicable, on a pro rata
basis in proportion to the amounts desired to be purchased or sold for each. It
is recognized that in some cases the practices described in this paragraph could
have a detrimental
9
<PAGE> 24
effect on the price or amount of the securities which the Fund purchases or
sells. In other cases, however, it is believed that these practices may benefit
the Fund. It is the opinion of the trustees that the desirability of retaining
Union Planters as adviser for the Fund outweighs the disadvantages, if any,
which might result from these practices.
ADMINISTRATOR
BISYS Fund Services ("BISYS"), under an agreement with the Trust,
provides management and administrative services to the Fund, 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 of the Trust at the annual rate of 0.20% of the Trust's average daily net
assets. BISYS has voluntarily agreed to reduce its fees with respect to the Fund
to 0.17% of the Fund's average daily net assets through August 31, 2000.
TRUST EXPENSES
The Trust pays the compensation of its trustees; registration, filing
and other fees in connection with requirements of regulatory authorities; all
charges and expenses of its custodian and transfer agent; the charges and
expenses of its independent accountants; all brokerage commissions and transfer
taxes in connection with portfolio transactions; all taxes and fees payable to
governmental agencies; the 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. The Fifth Third Bank, Fifth Third Center,
Cincinnati, Ohio 45263, became the Trust's custodian on June 2, 1997. As such,
The Fifth Third Bank holds in safekeeping securities and cash belonging to the
Fund and, in such capacity, is the registered owner of securities held in book
entry form belonging to the Fund. Upon instruction, The Fifth Third Bank
receives and delivers cash and securities of the Fund in connection with the
Fund's 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 the Fund for such services based upon a
percentage of the Fund's average daily net assets.
Independent Accountants. The Trust's independent accountants are
PricewaterhouseCoopers LLP, 100 East Broad Street, Columbus, Ohio 43215.
PricewaterhouseCoopers LLP conducts an annual audit of the Fund's financial
statements,
10
<PAGE> 25
assists in the preparation of the Fund's federal and state income tax returns
and consults with the Fund 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 Fund will be with the issuer
or with underwriters of or dealers in those securities, acting as principal.
Accordingly, the Fund will not ordinarily pay significant brokerage commissions
with respect to securities transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934 (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from third parties
with which such broker-dealers have arrangements. Union Planters or its
affiliates receive brokerage and research services and other similar services
from many broker-dealers with which Union Planters places the Fund's 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 Fund),
although not all of these services are necessarily useful and of value in
managing the Fund. The investment advisory fees paid by the Fund 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 Fund. In doing so, Union Planters uses its best efforts to
obtain for the 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.
11
<PAGE> 26
As permitted by Section 28(e) of the 1934 Act, Union Planters may cause
the 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 Fund 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 Fund as a factor in
the selection of broker-dealers to execute portfolio transactions for the Fund.
Under the 1940 Act, persons affiliated with the Trust are prohibited
from dealing with the Fund as a principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts,
affiliated persons of the Trust, such as BISYS, may not serve as the Fund's
dealer in connection with such transactions.
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. The Trust is currently divided into three separate
series -- one for the Fund, and one for each of the Magna Growth & Income Fund
and the Magna Intermediate Government Bond Fund.
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
12
<PAGE> 27
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 two or more Funds.
The Declaration of Trust also permits the trustees, without shareholder
approval, to subdivide any series of shares into various sub-series or classes
of shares with such dividend preferences and other rights as the trustees may
designate. The Trust may at a future date offer different classes of shares of
each Fund with different sales charge arrangements. The trustees may also,
without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust or merge two or more existing
portfolios. Shareholders' investments in such an additional or merged portfolio
would be evidenced by a separate series of shares (i.e., a new "Fund").
The Declaration of Trust provides for the perpetual existence of the
Trust. The Trust or any Fund, however, may be terminated at any time by a vote
of at least two-thirds of the outstanding shares of each Fund affected. The
Declaration of Trust further provides that the trustees may also terminate the
Trust or any Fund upon written notice to the shareholders.
VOTING RIGHTS
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) in the
election of trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or sub-series unless the rights of a particular
series or sub-series would be adversely affected by the vote, in which case a
separate vote of that series or sub-series shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule l8f-2 under the 1940 Act provides in effect that a
class shall be deemed to be affected by a matter unless it is clear that the
interests of each class in the matter are substantially identical or that the
matter does not affect any interest of such class. On matters affecting an
individual series, only shareholders of that series are entitled to vote.
Consistent with the current position of the SEC, shareholders of all series vote
together, irrespective of series, on the election of trustees and the selection
of the Trust's independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as certain
changes in investment policies of that series or the approval of the investment
advisory agreement relating to that series.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees 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
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<PAGE> 28
vacancy may be filled only by a vote of the shareholders. In addition, trustees
may be removed from office by a written consent signed by the holders of
two-thirds of the outstanding shares and filed with the Trust's custodian or by
a vote of the holders of two-thirds of the outstanding shares at a meeting duly
called for that purpose, which meeting shall be held upon the written request of
the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold office
and may appoint successor trustees. Voting rights are not cumulative.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
(i) to change the Trust's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, Fund shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
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 the Fund. Thus, the risk of a Fund 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 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.
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<PAGE> 29
HOW TO BUY SHARES
The procedures for purchasing shares of the Funds are summarized in the
Prospectus under "How to Purchase Shares."
NET INCOME, DIVIDENDS AND VALUATION
Determination of Net Income
- ---------------------------
The Fund's net income is determined as of the close of regular trading
on the New York Stock Exchange (the "NYSE") on each day that the NYSE is open
for trading. The NYSE is expected to be closed on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net income
includes (i) all interest accrued and discount earned on the Fund's portfolio
investments, minus (ii) amortized premium on such investments, plus or minus
(iii) all realized gains and losses on such investments, and minus (iv) all
expenses of the Fund.
Daily Dividends
- ---------------
As described in the Prospectus, the Fund's net income is declared as a
dividend, at the closing of regular trading on the NYSE each day that the NYSE
is open. Dividends will be paid in cash to the shareholder if the shareholder
has notified the Fund in writing of the election on or before payable date. The
net income for Saturdays, Sundays and other days on which the NYSE is closed is
declared as a dividend on the immediately preceding business day. Although the
Fund does not expect to realize any long-term capital gains, if such gains are
realized they will be distributed once a year.
Valuation of the Fund's Portfolio Investments
- ---------------------------------------------
The total net asset value of the Fund (the excess of the Fund's assets
over its liabilities) is determined by BISYS as of the close of regular trading
on the NYSE on each day the Exchange is open for trading. (See "Determination of
Net Income.") Under normal market conditions, portfolio securities will be
valued at amortized cost as described below. Fund expenses are paid or accrued
each day.
Under the amortized cost method of valuation, securities are valued at
cost on the date of purchase. Thereafter, the value of securities purchased at a
discount or premium is increased or decreased incrementally each day so that at
the maturity the purchase discount or premium is fully amortized and the value
of the security is equal to its principal amount. Due to fluctuations in
interest rates, the amortized cost value of the securities of the Fund may at
times be more or less than their market value.
By using amortized cost valuation, the Fund seeks to maintain a
constant net asset value of $1.00 per share despite minor shifts in the market
value of its portfolio securities. The yield on a shareholder's investment may
be more or less than that which would be recognized if the net asset value per
share were not constant and were permitted to fluctuate with the market
15
<PAGE> 30
value. It is believed that any difference will normally be minimal. The trustees
monitor quarterly the deviation between the Fund's net asset value per share as
determined by using available market quotations and its amortized cost price per
share. Union Planters makes such comparisons at least weekly and will advise the
trustees promptly in the event of any significant deviation. If the deviation
exceeds 2 of 1% for the Fund, the board of trustees will consider what action,
if any, should be initiated to provide fair valuation of the portfolio
securities of the Fund and prevent material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind; selling
portfolio securities prior to maturity; withholding dividends; or using a net
asset value per share as determined by using available market quotations. There
is no assurance that the Fund will be able to maintain its net asset value at
$1.00.
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 calendar 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.
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 $100 or more from the
account of a shareholder provided that the account has a value of at least
$10,000 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. 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.
16
<PAGE> 31
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 "Net Income,
Dividends and Valuation" above, and "Redemptions" and "Tax Status" below for
certain information as to federal income taxes.
IRAS
Under "Shareholder Services--Retirement Plans," the Prospectus refers
to IRAs established under a prototype plan made available by Union Planters.
These plans may be funded with shares of the 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.
CHECK WRITING
A shareholder may select the check writing option by completing the
relevant section of the application, the signature card and the other related
materials included in or attached to the application. Existing shareholders may
add check writing to an existing account by contacting BISYS at 1-800-219-4182
to receive the application and related materials. The Fund will send you checks
drawn on The Huntington Bank. You will continue to earn dividends on shares
redeemed by check until the check clears. Each check must be written for $250 or
more, except that qualified corporate retirement plans and certain other
corporate accounts may write checks for any amount.
If you use withdrawal checks, you will be subject to The Huntington
Bank's rules governing checking accounts. The Fund, Union Planters, BISYS and
their respective affiliates are in no way responsible for any check writing
account established with The Huntington Bank.
A shareholder may not close its Fund account by withdrawal check,
because the exact balance of the shareholder's account will not be known until
after the check is received by The Huntington Bank.
AUTOMATIC INVESTMENT
The Trust has an automatic investment plan. A shareholder may authorize
automatic monthly transfers of $100 or more from its bank checking or savings
account to purchase shares of the Fund (or any other fund of the Trust).
17
<PAGE> 32
For an initial investment, shareholders should indicate that they would
like to begin an automatic investment plan in the appropriate section of the
application. Please indicate the amount of the monthly investment and enclose a
check marked "Void" or a deposit slip from your bank account.
To add the automatic investment plan option to an existing account,
please call BISYS at 1-800-219-4182 for an application.
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 $10,000 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 NYSE on a day when the NYSE is open for business.
Requests made after that time or on a day when the NYSE is not open for business
will receive the net asset value per share next determined after the redemption
request is received in proper form.
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 The Fifth Third Bank are not responsible for the
authenticity of withdrawal instructions received by telephone. Reasonable
procedures will be adopted to verify that telephone instructions are genuine.
The Fund will normally redeem shares for cash; however, the 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
18
<PAGE> 33
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."
TAX STATUS
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.
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (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 more issuers which the Fund
controls and which are engaged in the same, similar or related trades and
businesses. To satisfy these conditions, the Fund may be limited in its ability
to use certain investment techniques and may be required to liquidate assets to
distribute income. Moreover, some investment techniques used by the Fund may
change the character and amount of income recognized by the Fund. As a regulated
investment company, the 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 the 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. The Fund intends to make distributions
sufficient to avoid imposition of the excise tax. Distributions declared by the
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 the 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 the
19
<PAGE> 34
Fund of net income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. Distributions designated by the 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 the 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.
Redemptions, sales and exchanges of the 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 the 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
The Fund may from time to time include its total return and/or yield in
advertisements or in information furnished to present or prospective
shareholders. The Fund may from time to time include in advertisements its total
return and the ranking of those performance figures
20
<PAGE> 35
relative to such figures for groups of mutual funds categorized by Morningstar,
Donoghue, or Lipper Analytical Services as having the same investment objective.
The Fund may make reference in its advertising and sales literature to
awards, citations and honor bestowed on it or Union Planters by industry
organizations and other observers and raters, including, but not limited to
Dalbar's Quality Tested Service Seal and Key Honors Award. Such reference may
explain the criteria for the award, indicate the nature and significance of the
honor and provide statistical and other information about the award and the
selection process, including, but not limited to, the scores and categories in
which the Fund excelled, the names of funds and fund companies that have
previously won the award and comparative information and data about those
against whom the Fund competed for the award, honor or citation.
Total Return. Quotations of average annual total return for the 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 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 Fund
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.
Yield. The Fund's yield, as it may appear in advertisements or written sales
material, represents the net change, exclusive of capital changes, in the value
of a hypothetical account having a balance of one share at the beginning of the
period for which yield is determined (the "base period"). Current yield for the
base period (for example, seven calendar days) is calculated by dividing (i) the
net change in the value of the account for the base period by (ii) the number of
days in the base period. The resulting number is then multiplied by 365 to
determine the net income on an annualized basis. This amount is divided by the
value of the account as of the beginning of the base period, normally $1, in
order to state the current yield as a percentage. Yield may also be calculated
on a compound basis ("effective" or "compound" yield) which assumes continual
reinvestment throughout an entire year of net income earned at the same rate as
net income is earned by the account for the base period.
Yield is calculated without regard to realized and unrealized gains and
losses. The Fund's yield will vary depending on prevailing interest rates,
operating expenses and the quality, maturity and type of instruments held in the
Fund's portfolio. Consequently, no yield quotation should be considered as
representative of what the Fund's yield may be for any future period. The Fund's
yields are not guaranteed.
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<PAGE> 36
Shareholders comparing Fund yield with that of alternative investments
(such as savings accounts, various types of bank deposits, and other money
market funds) should consider such things as liquidity, minimum balance
requirements, check writing privileges, the differences in the periods and
methods used in the calculation of the yields being compared, and the impact of
taxes on alternative types of investments.
Yield information may be useful in reviewing the Fund's performance and
providing a basis for comparison with other investment alternatives. However,
unlike bank deposits, traditional corporate or municipal bonds or other
investments which pay a fixed yield for a stated period of time, money market
and tax exempt money market fund yields fluctuate.
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<PAGE> 37
APPENDIX A
DESCRIPTION OF CERTAIN FUND INVESTMENTS
Obligations Backed by Full Faith and Credit of the U.S. Government --
are bills, certificates of indebtedness, notes and bonds issued by (i) the U.S.
Treasury or (ii) agencies, authorities and instrumentalities of the U.S.
Government. Such obligations include, but are not limited to, obligations issued
by the Government National Mortgage Association, the Farmers' Home
Administration and the Small Business Administration.
Other U.S. Government Obligations -- are bills, certificates of
indebtedness, notes and bonds issued by agencies, authorities and
instrumentalities of the U.S. Government which are supported by the right of the
issuer to borrow from the U.S. Treasury or by the credit of the agency,
authority or instrumentality itself. Such obligations include, but are not
limited to, obligations issued by the Tennessee Valley Authority, the Bank for
Cooperatives, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks and the Federal National Mortgage Association.
Repurchase Agreements -- are agreements by which the Fund purchases a
security (usually a U.S. Government Obligation) and obtains a simultaneous
commitment from the seller (a member bank of the Federal Reserve System) to
repurchase the security at an agreed upon price and date. 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 an
opportunity for the Fund to earn a return on temporarily available cash at
minimal market risk, although the Fund may be subject to various delays and
risks of loss if the seller is unable to meet its obligation to repurchase.
Certificates of Deposit -- are certificates issued against funds
deposited in a bank, are for a definite period of time, earn a specified rate of
return and are normally negotiable.
Bankers' Acceptances -- are short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
Yankee dollar Obligations -- obligations of U.S. branches of foreign
banks.
Commercial Obligations -- include bonds and notes issued by
corporations in order to finance longer-term credit needs. (See Appendix B.)
A-1
<PAGE> 38
APPENDIX B
RATINGS OF CORPORATE AND COMMERCIAL PAPER
Set forth below are descriptions of the highest ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
for corporate bonds and commercial paper. Ratings for commercial paper have been
included since certain of the obligations which the Fund is authorized to
purchase have characteristics of commercial paper and have been rated as such by
Moody's and S&P.
MOODY'S RATINGS
Corporate Bonds
- ---------------
Aaa -- bonds which 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 which 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
which make the long-term risks appear somewhat larger than in Aaa securities.
Commercial Paper
- ----------------
The rating P-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Issuers rated Prime-1 are judged to be of the best quality. Their
short-term debt obligations carry the smallest degree of investment risk.
Margins of support for current indebtedness are large or stable with cash flow
and asset protection well assured. Current liquidity provides ample coverage of
near-term liabilities and unused alternative financing arrangements are
generally available. While protective elements may change over the intermediate
or long term, such changes are most unlikely to impair the fundamentally strong
position of short-term obligations.
B-1
<PAGE> 39
S&P RATINGS
Corporate Bonds
- ---------------
AAA -- this is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
Commercial Paper
- ----------------
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. Their
reliability and quality of management are unquestioned. Commercial paper within
the A-1 category which has overwhelming safety characteristics is denoted
"A-1+."
B-2
