<PAGE> 1
INVESTMENT ADVISER
Union Planters Bank, National Association
One South Church Street
Suite 500
Belleville, Illinois 62220
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
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, Massachusetts 02110
QUESTIONS?
Call 1-800-219-4182 or your investment representative.
MAGNA FUNDS
MAGNA GROWTH & INCOME FUND
MAGNA INTERMEDIATE GOVERNMENT BOND FUND
MAGNA TAX EXEMPT BOND FUND
MAGNA MONEY MARKET FUND
---------------
PROSPECTUS
JANUARY 1, 2000
---------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS
IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 2
MAGNA FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this 1 Magna Growth & Income Fund
important section, which 4 Magna Intermediate Government Bond Fund
summarizes each Fund's 8 Magna Tax Exempt Bond Fund
investments, risks, past 10 Magna Money Market Fund
performance, and fees. 11 Fees and Expenses
12 Investing for Defensive Purposes
12 Additional Information Regarding Fund Policies
12 Year 2000 and the Magna Funds
FUND MANAGEMENT
Review this section for 13 Investment Adviser
details on the people and 13 Portfolio Managers
organizations who oversee 13 Distributor and Administrator
the Funds and their
investments.
SHAREHOLDER INFORMATION
Consult this section to 14 Pricing of Fund Shares
obtain details on how shares 16 Purchasing and Adding to Your Shares
are valued, how to purchase, 18 Selling Your Shares
sell and exchange shares, 19 General Policies on Selling Shares
related charges and payments 21 Distribution Arrangements/Sales Charges
of dividends. 22 Exchanging Your Shares
23 Dividends and Distributions
24 Taxation
FINANCIAL HIGHLIGHTS
Review this section for 25 Financial Highlights
details on the selected
financial statements of the
Funds.
</TABLE>
<PAGE> 3
MAGNA GROWTH &
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES Long-term growth of capital, current income and growth of
income.
PRINCIPAL The Fund invests primarily in common stocks that Union
INVESTMENT STRATEGIES Planters Bank, National Association ("the Adviser") believes
have potential primarily for capital growth and secondarily
for income. The Fund intends to hold a combination of growth
stocks and value stocks. By investing in a blend of stocks
that demonstrate strong long-term earnings potential and
undervalued stocks, the Fund seeks to achieve strong returns
with less volatility. A portion of the Fund's assets may
also be invested in preferred stocks, bonds (primarily
investment grade) convertible into common stock and
securities of foreign issuers traded in U. S. securities
markets. The Fund's investment in foreign issuers will be
primarily through American Depositary Receipts ("ADRs"). The
Fund expects to earn current income mainly from dividends
paid on common and preferred stocks and from interest on
convertible bonds.
The Adviser utilizes both "top-down" and "bottom-up"
approaches in constructing the Fund's portfolio. This means
the Adviser looks at the condition of the overall economy
and industry segments in addition to data on individual
companies. The Adviser selects stocks with the intent of
realizing long-term capital appreciation, not for quick
turnover. The Adviser exercises patience and discipline in
making decisions to sell or continue to hold individual
stocks over time.
PRINCIPAL Two principal risks of investing in stocks are market risk
INVESTMENT RISKS and selection risk. Market risk means that the stock market
in general has ups and downs, which may affect the
performance of the individual stocks held by the Fund, and
thus the performance of the Fund as a whole. Selection risk
means that the particular stocks that are selected by the
Adviser for the Fund may underperform the market or those
stocks selected by other funds with similar objectives.
The Fund will invest principally in common stocks, which
have historically presented greater potential for capital
appreciation than fixed income securities, but do not
provide the same protection of capital or assurance of
income and therefore may involve greater risk of loss. The
Fund may invest a significant portion of its assets in
"growth securities" and/or "value securities." Growth
securities typically trade at higher multiples of current
earnings than other stocks and are often more volatile than
other types of securities because their market prices tend
to place greater emphasis on future earnings expectations.
Value securities bear the risk that the companies may not
overcome the adverse business or other developments that
caused the securities to be out of favor or that the market
does not recognize the value of the company, such that the
price of its securities declines or does not approach the
value the Adviser anticipates.
</TABLE>
- -
1
<PAGE> 4
MAGNA GROWTH &
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
<TABLE>
<S> <C>
The Fund's investments in foreign issuers (which will be
primarily through ADR's) carry potential risks that are in
addition to those associated with domestic investments. Such
risks may include, but are not limited to: (1) currency
exchange rate fluctuations, including adverse effects due to
the euro conversion, (2) political and financial
instability, (3) less liquidity and greater volatility of
foreign investments, (4) the lack of uniform accounting,
auditing and financial reporting standards, and (5) less
government regulation and supervision of foreign stock
exchanges, brokers and listed companies.
Investing in the Fund involves risks common to any
investment in securities. By itself, no Fund constitutes a
balanced investment program. There is no guarantee that the
Fund will meet its goals. When you sell your shares in the
Fund, they may be worth more or less than you paid for them.
It is possible to lose money by investing in the Fund.
An investment in the Fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
A more complete discussion of the Fund's investments and
related risks can be found in the Statement of Additional
Information.
</TABLE>
2
<PAGE> 5
MAGNA GROWTH &
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
PERFORMANCE BAR CHART AND TABLE(1)
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
[PERFORMANCE BAR CHART AND TABLE]
<TABLE>
<CAPTION>
MAGNA GROWTH & INCOME FUND (%)
------------------------------
<S> <C>
1995 31.30
1996 21.88
1997 28.97
1998 30.45
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns. For
the period January 1, 1999 through September
30, 1999, the Fund's total return was 4.32%.
Best quarter: Q4 1998 16.30%
Worst quarter: Q3 1998 -5.24%
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending
December 31, 1998)
<TABLE>
<CAPTION>
SINCE FUND
ONE INCEPTION
YEAR (9/1/94)
<S> <C> <C>
MAGNA GROWTH & INCOME FUND(2) 25.25% 26.78%
S&P 500(R) INDEX 28.58% 27.13%
LIPPER GROWTH & INCOME INDEX 8.17% 19.83%
LIPPER LARGE CAP CORE INDEX 26.93% 23.78%
</TABLE>
(1) Both the chart and the table assume reinvestment of all dividends and
distributions.
(2) Reflects payment of maximum 4.00% sales charge.
PERFORMANCE INFORMATION
The bar chart and table
provide an indication of
the risks of an investment
in the Fund by showing
changes in its performance
from year to year and by
showing how the Fund's
average annual returns
compare with those of a
broad-based securities
index. The Standard and
Poor's 500 Composite Stock
Price Index (the "S&P 500")
in the table below is an
unmanaged, independently
maintained U.S. large
capitalization stock index.
The information provided
regarding the Lipper Growth
& Income Index and the
Lipper Large Cap Core Index
shows how the Fund's
average annual total
returns compare with the
returns of two indexes of
funds that the Adviser
believes have similar
investment objectives.
Past performance does not
indicate how the Fund will
perform in the future.
3
<PAGE> 6
MAGNA INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES GOVERNMENT BOND FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES Current income consistent with preservation of capital.
PRINCIPAL INVESTMENT The Fund invests primarily in U.S. Government securities (those that are
STRATEGIES issued or guaranteed as to principal and/or interest payments by the U.S.
Government or its agencies or instrumentalities) and high grade bonds and
notes of non-governmental issuers. Under normal market conditions, at least
65% of the Fund's total assets will be invested in U.S. Government
securities. The Fund will maintain a dollar-weighted average portfolio
maturity between three and ten years, but may purchase individual securities
with longer or shorter maturities.
By limiting the maturity of its portfolio securities the Fund seeks to
moderate principal fluctuations. In addition, the Fund's Adviser seeks to
increase total return by actively managing portfolio maturity and security
selection considering economic and market conditions.
The Fund's investments in U.S. Government securities may include direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and
bonds, as well as obligations of U.S. government agencies, authorities or
instrumentalities such as the Federal Home Loan Banks, FNMA, GNMA, the
Federal Farm Credit Banks, the Student Loan Marketing Association, the
Federal Home Loan Mortgage Corporation or the Tennessee Valley Authority.
The Fund will invest primarily in issues rated in one of the three highest
categories by a nationally recognized statistical rating organization
("NRSRO") (that is, rated Aaa, Aa or A by Moody's Investors Service, Inc.
("Moody's") or AAA, AA or A by Standard & Poor's Rating Service ("Standard &
Poor's")) or unrated issues deemed by the Adviser to be of comparable
quality. If a security's rating is reduced below the required minimum after
the Fund has purchased it, the Fund is not required to sell the security,
but may consider doing so. However, the Fund does not intend to hold more
than 5% of its assets in securities rated below investment grade (that is,
below BBB or Baa).
The Fund may also invest in corporate debt obligations, mortgage-backed
securities, collateralized mortgage obligations and repurchase agreements.
While short-term interest rate bets are avoided, the Adviser constantly
monitors economic conditions and adjusts portfolio maturity, where
appropriate, to capitalize on interest rate trends. Security selection is
managed considering factors such as credit risk and relative interest rate
yields available among fixed income market sectors.
While maturity and credit quality are the most important investment factors,
other factors considered by the Fund when making investment decisions
include:
- Current yield and yield to maturity.
- Potential for capital gain.
</TABLE>
4
<PAGE> 7
MAGNA INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES GOVERNMENT BOND FUND
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT RISKS The Magna Intermediate Government Bond Fund will invest primarily in fixed
income securities, which provide income and a level of protection of
capital, but present less potential for capital appreciation than equity
securities. Two principal risks of fixed income (bond) investing are market
risk and selection risk. Market risk means that the bond market in general
has ups and downs, which may affect the performance of any individual fixed
income security. Selection risk means that the particular bonds that are
selected for the Fund may underperform the market or other funds with
similar objectives.
INTEREST RATE RISK: All bonds fluctuate in value as interest rates
fluctuate. Generally, as interest rates rise, the value of a Fund's bond
investments, and of its shares, will decline. If interest rates decline, the
Fund's bond investments (and its share price) will generally increase in
value. In general, the shorter the maturity of a bond, the lower the risk of
price fluctuation and the lower the return.
CREDIT RISK: It is possible that a bond issuer may have its credit rating
downgraded, or may not make timely interest and/or principal payments on its
bonds. The lower a bond's rating, the greater its credit risk. Nearly all
fixed income investments, including U.S. Government securities, have
exposure to some degree of credit risk. U.S. Government securities may be
subject to different types and amounts of credit support, as certain U.S.
Government securities are not backed by the full faith and credit of the
U.S. Government. Corporate bonds and notes, which may constitute up to 35%
of the Fund's assets, generally involve more credit risk than U.S.
Government securities. Mortgage-backed securities may also be exposed to
high levels of credit risk, depending upon the credit of the assets
underlying such securities, the issuer's exposure to the credit risk of its
affiliates and others, and the amount and quality of any credit enhancement
associated with the security.
INCOME RISK: It is possible that the Fund's income will decline over time
because of a decrease in interest rates or other factors. Income risk is
generally lower for long-term bonds and higher for short-term bonds. Because
interest rates vary, it is impossible to predict the income or yield of the
Fund for any particular period.
PREPAYMENT RISK: Many of the Fund's investments, including investments in
mortgage-backed securities, are subject to the risk that the principal
amount of the underlying loan may be repaid prior to the bond's maturity
date. Such repayments are common when interest rates decline. When such a
repayment occurs, no additional interest will be paid on the investment.
Prepayment exposes a Fund to potentially lower return upon subsequent
reinvestment of the principal.
</TABLE>
5
<PAGE> 8
MAGNA INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES GOVERNMENT BOND FUND
<TABLE>
<S> <C>
Investing in the Fund involves risks common to any investment in securities.
By itself, no Fund constitutes a balanced investment program. There is no
guarantee that the Fund will meet its goals. When you sell your shares in
the Fund, they may be worth more or less than you paid for them. It is
possible to lose money by investing in the Fund.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
A more complete discussion of the Fund's investments and related risks can
be found in the Statement of Additional Information.
</TABLE>
6
<PAGE> 9
MAGNA INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES GOVERNMENT BOND FUND
PERFORMANCE INFORMATION
The bar chart and table
provide an indication of
the risks of an investment
in the Fund by showing
changes in its performance
from year to year and by
showing how the Fund's
average annual returns
compare with those of a
broad-based securities
index. The Lipper
Intermediate Government
Bond Index in the table
below is an unmanaged,
independently maintained
index comprised of U.S.
Treasury issues, publicly
issued debt of U.S.
Government agencies, and
corporate debt guaranteed
by the U.S. Government.
Past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
PAST SINCE FUND
YEAR INCEPTION (9/1/94)
<S> <C> <C>
MAGNA INTERMEDIATE GOVERNMENT
BOND FUND(2) 3.89% 7.56%
LIPPER INTERMEDIATE GOVERNMENT
BOND INDEX 8.17% 7.69%
</TABLE>
(1) Both the chart and the table assume reinvestment of all dividends and
distributions.
(2) Reflects payment of maximum 4.00% sales charge.
PERFORMANCE BAR CHART AND TABLE(1)
YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31
<TABLE>
<CAPTION>
MAGNA INTERMEDIATE GOVERNMENT BOND FUND (%)
-------------------------------------------
<S> <C>
1995 14.95
1996 3.43
1997 7.86
1998 8.19
</TABLE>
The bar chart above does not reflect the
impact of any applicable sales charges or
account fees which would reduce returns. For
the period January 1, 1999 through September
30, 1999, the Fund's total return was
-3.06%.
Best quarter: Q2 1995 5.19%
Worst quarter: Q1 1996 -1.00%
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending
December 31, 1998)
7
<PAGE> 10
MAGNA TAX EXEMPT
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES Current income that is exempt from federal income tax consistent with
preservation of capital. Capital appreciation is a secondary objective.
PRINCIPAL INVESTMENT The Magna Tax Exempt Bond Fund normally invests at least 80% of its total
STRATEGIES assets in obligations producing income that is exempt from federal income
taxation. Federally tax-exempt obligations may include municipal bonds,
notes and commercial paper issued by states and other local governments that
are exempt from federal taxes. Securities whose interest is considered a tax
preference item under the federal alternative minimum tax will be considered
taxable for purposes of this policy. The Fund may invest up to 20% of its
net assets in U.S. Government securities, money market instruments or
"private activity" bonds (some or all of which may produce income subject to
federal income taxation). The Fund maintains a dollar-weighted average
portfolio maturity between 10 and 20 years.
The Magna Tax Exempt Bond Fund will only purchase securities rated in one of
the four highest rating categories by an NRSRO (that is, Aaa, Aa, A or Baa
by Moody's or AAA, AA, A or BBB by Standard & Poor's) or unrated securities
deemed by the Adviser to be of comparable quality. If a security's rating is
reduced below the required minimum after the Fund has purchased it, the Fund
is not required to sell the security, but may consider doing so. However,
the Fund does not intend to hold more than 10% of its assets in securities
that have been downgraded below investment grade (that is, below Baa by
Moody's or BBB by Standard & Poor's).
While maturity and credit quality are the most important investment factors,
the Fund also considers the following when making investment decisions:
- Current yield and yield to maturity.
- Potential for capital gain.
PRINCIPAL INVESTMENT RISKS The Magna Tax Exempt Bond Fund will invest primarily in fixed income
securities, which provide income and a level of protection of capital, but
present less potential for capital appreciation than equity securities. Two
principal risks of fixed income (bond) investing are market risk and
selection risk. Market risk means that the bond market in general has ups
and downs, which may affect the performance of any individual fixed income
security. Selection risk means that the particular bonds that are selected
for the Fund may underperform the market or other funds with similar
objectives.
</TABLE>
8
<PAGE> 11
MAGNA TAX EXEMPT
RISK/RETURN SUMMARY AND FUND EXPENSES BOND FUND
<TABLE>
<S> <C>
INTEREST RATE RISK: All bonds fluctuate in value as interest rates
fluctuate. Generally, as interest rates rise, the value of a Fund's bond
investments, and of its shares, will decline. If interest rates decline, the
Fund's bond investments (and its share price) will generally increase in
value. In general, the shorter the maturity of a bond, the lower the risk of
price fluctuation and the lower the return.
CREDIT RISK: It is possible that a bond issuer may have its credit rating
downgraded, or may not make timely interest and/or principal payments on its
bonds. The lower a bond's rating, the greater its credit risk. Nearly all
fixed income investments have exposure to some degree of credit risk.
INCOME RISK: It is possible that the Fund's income will decline over time
because of a decrease in interest rates or other factors. Income risk is
generally lower for long-term bonds and higher for short-term bonds. Because
interest rates vary, it is impossible to predict the income or yield of the
Fund for any particular period.
Investing in the Fund involves risks common to any investment in securities.
By itself, no Fund constitutes a balanced investment program. There is no
guarantee that the Fund will meet its goals. When you sell your shares in
the Fund, they may be worth more or less than you paid for them. It is
possible to lose money by investing in the Fund.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
A more complete discussion of the Fund's investments and related risks can
be found in the Statement of Additional Information.
No performance is shown for the Magna Tax Exempt Bond Fund because as of the
date of this Prospectus, the Fund had not completed a full calendar year of
operations.
</TABLE>
9
<PAGE> 12
MAGNA MONEY
RISK/RETURN SUMMARY AND FUND EXPENSES MARKET FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES Maximum current income consistent with preservation of capital and
liquidity.
PRINCIPAL INVESTMENT The Fund invests in a variety of high-quality money market instruments,
STRATEGIES including U. S. Government securities, taxable municipal debt, commercial
paper and other corporate debt obligations, certificates of deposit,
repurchase agreements, bankers' acceptances and other dollar-denominated
bank obligations, including obligations issued by U. S. banks, their foreign
branches and/or foreign banks. At the time of purchase, all of the Fund's
investments (other than U.S. Government securities and related repurchase
agreements) will be rated in the highest rating category by an NRSRO (that
is, Aaa by Moody's or AAA by Standard & Poor's) or, if unrated, deemed by
the Adviser to be of comparable quality. In addition, all Fund investments
will mature in 397 days or less, and the Fund's average maturity will not
exceed 90 days.
PRINCIPAL The Fund will invest primarily in high quality fixed income securities,
INVESTMENT RISKS which provide income and a level of protection of capital, but present less
potential for capital appreciation than equity securities. The Fund's
quality and maturity limitations described above will reduce, but not
altogether eliminate the following risks.
INTEREST RATE RISK: All bonds fluctuate in value as interest rates
fluctuate. Generally, as interest rates rise, the value of a Fund's bond
investments, and of its shares, will decline. If interest rates decline, the
Fund's bond investments (and its share price) will generally increase in
value. In general, the shorter the maturity of a bond, the lower the risk of
price fluctuation and the lower the return.
CREDIT RISK: It is possible that a bond issuer may have its credit rating
downgraded, or may not make timely interest and/or principal payments on its
bonds. The lower a bond's rating, the greater its credit risk. Nearly all
fixed income investments have exposure to some degree of credit risk.
Corporate bonds and notes generally involve more credit risk although even
U.S. Government securities are generally considered to have some credit
risk. The Fund's use of repurchase agreements also involves credit risk,
primarily the risk of loss if the seller defaults.
INCOME RISK: It is possible that the Fund's income will decline over time
because of a decrease in interest rates or other factors. Income risk is
generally lower for longer-term bonds and higher for shorter-term bonds.
Because interest rates vary, it is impossible to predict the income or yield
of the Fund for any particular period.
Investing in the Fund involves risks common to any investment in securities.
By itself, no Fund constitutes a balanced investment program. There is no
guarantee that the Fund will meet its goals.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
this Fund.
A more complete discussion of the Fund's investments and related risks can
be found in the Statement of Additional Information.
No performance is shown for the Magna Money Market Fund because as of the
date of this Prospectus, the Fund had not completed a full calendar year of
operations.
</TABLE>
10
<PAGE> 13
RISK/RETURN SUMMARY AND FUND EXPENSES FEES AND EXPENSES
FEES AND EXPENSES
The following table describes the Fees and Expenses that you may pay if you
buy and hold shares of the Funds:
<TABLE>
MAGNA MAGNA MAGNA MAGNA
SHAREHOLDER FEES GROWTH & INTERMEDIATE TAX MONEY
(FEES PAID DIRECTLY FROM INCOME GOVERNMENT EXEMPT MARKET
YOUR INVESTMENT) FUND FUND BOND FUND FUND
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) 4.00% 4.00% 4.00% None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None None
Maximum Deferred Sales Load(1) None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fees(2) 0.75% 0.50% 0.50% 0.40%
Distribution and Service (12b-1) Fees(2) 0.25% 0.25% 0.25% 0.25%
Other Expenses 0.37% 0.42% 0.57%(3) 0.37%(3)
Total Annual Fund Operating Expenses 1.37% 1.17% 1.32% 1.02%
Fee Waiver(2) 0.50% 0.35% 0.45% 0.51%
Net Annual Fund Operating Expenses 0.87% 0.82% 0.87% 0.51%
</TABLE>
(1) On purchases over $3 million, the Magna Growth & Income Fund, the Magna
Intermediate Government Bond Fund and the Magna Tax Exempt Bond Fund will
charge a 1% Contingent Deferred Sales Charge on amounts redeemed within one
year after purchase by shareholders that would have otherwise been subject to
a sales charge.
(2) The Adviser has contractually agreed to waive a portion of its management
fees from the Magna Growth & Income Fund, Magna Intermediate Government Bond
Fund and Magna Tax Exempt Bond Fund through December 31, 2000, such that
annual management fees will be 0.50%, 0.40% and 0.30% for the Magna Growth &
Income Fund, Magna Intermediate Government Bond Fund and Magna Tax Exempt
Bond Fund, respectively. The Adviser has also contractually agreed to waive a
portion of its management fees from the Magna Money Market Fund such that
annual management fees will be 0.17% through August 31, 2000, and 0.20%
thereafter through December 31, 2000. The Distributor has contractually
agreed to waive its entire fee amount under each Fund's 12b-1 plan through
December 31, 2000. The Administrator has contractually agreed to waive 0.03%
of its administration fees from the Magna Money Market Fund through December
31, 2000. Absent such agreement, the Fund's administration fees would be
0.20%.
(3) Other Expenses are estimated for the current fiscal year.
The Example at the right
is intended to help you
compare the cost of
investing in the Magna
Funds with the costs of
investing in other mutual
funds. It illustrates the
amount of fees and
expenses you would pay,
assuming the following:
- $10,000 investment
- 5% annual return
- redemption at the end
of each period
- no changes in the
Fund's operating
expenses
Because this example is
hypothetical and for
comparison only, your
actual costs may be higher
or lower. Estimated
expenses through the first
year of each period shown
in the examples reflect
applicable fee waivers;
thereafter, no fee waivers are reflected.
EXAMPLE
1 3 5 10
YEAR YEARS YEARS YEARS
MAGNA GROWTH & INCOME FUND $485 $769 $1,074 $1,939
MAGNA INTERMEDIATE GOVERNMENT
BOND FUND $480 $723 $ 985 $1,734
MAGNA TAX EXEMPT BOND FUND $485 $759
MAGNA MONEY MARKET FUND $ 53 $275
11
<PAGE> 14
RISK/RETURN SUMMARY AND FUND EXPENSES
INVESTING FOR DEFENSIVE PURPOSES
When the Adviser determines that market conditions are appropriate, each Fund
may, for temporary defensive purposes, invest up to 100% of its assets in
money market instruments. (The Money Market Fund may invest 100% of its
assets in money market investments for any purpose.) Each of the Intermediate
Government Bond Fund and the Tax Exempt Bond Fund may also shorten its
dollar-weighted average maturity below its normal range if such action is
deemed appropriate by the Adviser for temporary defensive purposes. If a Fund
is investing defensively, it will not be pursuing its investment objective.
ADDITIONAL INFORMATION REGARDING FUND POLICIES
Except for those policies specifically identified as "fundamental", the
investment objectives and policies set forth in this Prospectus may be
changed by the Adviser, subject to review and approval by the Trust's board
of trustees, without shareholder vote. The investment objective of each of
the Growth & Income Fund and Intermediate Government Bond Fund is
fundamental. The investment objective of each of the Tax Exempt Bond Fund and
the Money Market Fund is non-fundamental, and may be changed without
shareholder vote.
YEAR 2000 AND THE MAGNA FUNDS
Like other funds and business organizations around the world, the Funds could
be adversely affected if the computer systems used by the Adviser and the
Funds' other service providers do not properly process dates beyond December
31, 1999. In addition, year 2000 issues may adversely affect companies in
which the Funds invest where, for example, such companies incur substantial
costs to address year 2000 issues or suffer losses caused by the failure to
adequately or timely do so. It is possible that year 2000 issues could
adversely affect the Funds after January 1, 2000.
12
<PAGE> 15
logo
FUND MANAGEMENT
INVESTMENT ADVISER
Union Planters Bank, National Association ("Union Planters" or the
"Adviser"), One South Church Street, Suite 500, Belleville, Illinois 62220
serves as investment adviser to the Magna Funds. On October 9, 1998, Magna
Bank, N.A. ("Magna Bank"), which together with its predecessors had served as
the investment adviser to Magna Funds since the Funds' inception in 1994,
merged with Union Planters. Union Planters, a wholly owned subsidiary of
Union Planters Corporation, is a multi-state national banking association
headquartered in Memphis, Tennessee with total assets of approximately $30
billion.
For investment advisory services provided by Union Planters, the Funds paid
as follows during the fiscal year ended August 31, 1999:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 8/31/99*
<S> <C>
------------------------------
Magna Growth & Income Fund 0.50%
------------------------------
Magna Intermediate Government Bond Fund 0.40%
------------------------------
Magna Money Market Fund 0.17%
-------------------------------------------------------------------------------------
</TABLE>
* Absent expense limitations that were in place throughout this period, these
amounts would have been 0.75%, 0.50% and 0.40% for the Magna Growth &
Income Fund, Magna Intermediate Government Bond Fund and Magna Money Market
Fund, respectively.
PORTFOLIO MANAGERS
Union Planters has several portfolio managers committed to the day-to-day
management of the Funds.
L. Clark Zedric is the portfolio manager for the Magna Intermediate
Government Bond Fund. He received his MBA from Illinois State University and
is currently Vice President of Union Planters.
Gary J. Guthrie is the portfolio manager for the Magna Growth & Income Fund.
Mr. Guthrie is a graduate of Southern Illinois University and is currently
Vice President of Union Planters.
Both Mr. Zedric and Mr. Guthrie have served as portfolio managers since these
Funds' inception in 1994.
Lucy Kasson is the portfolio manager for the Magna Tax Exempt Bond Fund and
the Magna Money Market Fund. A graduate of DePaul University, Ms. Kasson
joined Union Planters in 1999, and has served as the portfolio manager for
these Funds since their inception. She is currently Vice President of Union
Planters. Ms. Kasson has over 20 years of investment management experience,
and was involved in asset management for Nuveen Advisory Corporation from
1978 until 1999.
The Statement of Additional Information ("SAI") has more detailed information
about the Adviser and the Funds' other service providers.
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") provides management and administrative services
to the Funds, including providing office space, equipment and clerical
personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping and legal services. BISYS Fund Services, Inc., an affiliate of
BISYS, acts as the fund accountant, transfer agent and dividend paying agent
of the Funds. BISYS and BISYS Fund Services, Inc. are each located at 3435
Stelzer Road, Columbus, Ohio 43219.
13
<PAGE> 16
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
----------------------------------------
HOW NAV IS CALCULATED
The NAV is calculated by
adding the total value of
the Fund's investments and
other assets, subtracting
its liabilities and then
dividing that figure by the
number of outstanding
shares of the Fund:
NAV =
Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
---------------------------
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31%
of taxable dividends, capital gains
distributions and redemptions paid to
shareholders who have not provided the
Fund with their certified taxpayer
identification number in compliance
with IRS rules. To avoid this, make
sure you provide your correct Tax
Identification Number (Social Security
Number for most investors) on your
account application.
MAGNA MONEY MARKET FUND
The Magna Money Market Fund's net asset value, or NAV, is expected to be
constant at $1.00 per share, although this value is not guaranteed. The NAV
is determined at 1:00 p.m. Eastern time on days when the New York Stock
Exchange (the "Exchange") is open for regular trading. In addition to
Exchange holidays, the Magna Money Market Fund will also be closed on
Columbus Day and Veteran's Day. The Magna Money Market Fund values its
securities at amortized cost. The amortized cost method involves valuing a
portfolio security initially at its cost on the date of the purchase and
thereafter assuming a constant amortization to maturity of the difference
between the principal amount due at maturity and initial cost.
MAGNA GROWTH & INCOME FUND
MAGNA INTERMEDIATE GOVERNMENT BOND FUND
MAGNA TAX EXEMPT BOND FUND
The per share NAV for each Fund other than the Money Market Fund is
determined and its shares are priced at the close of regular trading on the
Exchange, normally at 4:00 p.m. Eastern time, on days the Exchange is open
for regular trading.
Your order for the purchase, sale or exchange of shares is priced at the next
NAV calculated after a properly completed order is received and accepted by
the Fund less any applicable sales charges (see "Distribution
Arrangements/Sales Charges") on any day that the Exchange is open for
business. For example, if you place a purchase order to buy shares of the
Magna Growth & Income Fund, it must be received prior to the close of regular
trading on the Exchange (generally 4:00 p.m. Eastern time) in order to
receive the NAV calculated on that day. If your order is received after the
close of regular trading on the Exchange that day, you will receive the NAV
calculated on the next business day.
The Funds' (other than the Money Market Fund) securities, other than
short-term debt obligations, are generally valued at current market prices
unless market quotations are not available, in which case securities will be
valued by a method that the Board of Trustees believes accurately reflects
fair value. Debt obligations with remaining maturities of 60 days or less are
valued at amortized cost or based on their acquisition cost.
14
<PAGE> 17
SHAREHOLDER INFORMATION
PURCHASING AND SELLING
YOUR SHARES
You may purchase shares of
the Magna Funds through the
Funds' Distributor or
through banks, brokers and
other investment
representatives, which may
charge additional fees and
may require higher minimum
investments or impose other
limitations on buying and
selling shares. If you
purchase shares through an
investment representative,
that party is responsible
for transmitting orders by
close of business and may
have an earlier cut-off
time for purchase and sale
requests. Consult your
investment representative
or institution for specific
information.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
<S> <C> <C>
Regular $ 250 $150
(non-retirement)
-----------------------------------------------------
Retirement (IRA) $ 150 $150
-----------------------------------------------------
Automatic Investment
Plan $ 100 $100
</TABLE>
All purchases must be in U.S. dollars.
Third-party checks are not accepted.
For details and application forms, call
1-800-219-4182 or write to: Magna Funds,
P.O. Box 182754, Columbus, OH
43218-2784.
A Fund may waive its minimum investment
requirement in the Adviser's discretion.
The Adviser or Distributor may reject a
purchase order if it considers it in the
best interest of the Fund and its
shareholders.
15
<PAGE> 18
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY MAIL
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
All investments made by regular mail or express delivery, whether initial or
subsequent, should be sent:
<TABLE>
<S> <C>
BY REGULAR MAIL: BY EXPRESS MAIL:
Magna Funds Magna Funds
P.O. Box 182754 3435 Stelzer Road
Columbus, OH 43218-2784 Columbus, OH 43219
</TABLE>
For Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Magna Funds" and include
the name of the appropriate Fund(s) on the check.
3. Mail or deliver application and payment to address above.
For Subsequent Investments:
1. Use the investment slip attached to your account statement. Or, if
unavailable, provide the following information:
- Fund name
- Amount invested
- Account name and account number
2. Make check, bank draft or money order payable to "Magna Funds" and include
your account number on the check.
3. Mail or deliver investment slip and payment to the address above.
16
<PAGE> 19
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Please call Magna Funds at 1-800-219-4182 for instructions on opening an
account or purchasing additional shares by wire transfer.
Note: Your bank may charge a wire transfer fee.
You can add to your account by using the convenient options described below.
The Funds reserve the right to change or eliminate these privileges at any
time with 60 days notice.
AUTOMATIC INVESTMENT PROGRAM
You can make automatic investments in the Funds from your bank account,
through payroll deduction or from your federal employment, Social Security,
Supplement Security Income or other regular government checks. Automatic
investments can be as little as $100.
To invest regularly from your bank account:
- Complete the Automatic Investment Plan portion on your Account
Application.
Make sure you note:
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $100)
- How often you want to invest (every month, four times a year,
twice a year or once a year)
- Attach a voided personal check.
To invest regularly from your paycheck or government check: Call
1-800-219-4182 for an enrollment form.
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital
gains and dividends) reinvested in another Magna Fund without a sales charge.
You must maintain the minimum balance in each Fund into which you plan to
reinvest dividends or the reinvestment will be suspended and your dividends
paid to you. The Fund may modify or terminate this reinvestment option
without notice. You can change or terminate your participation in the
reinvestment option at any time.
-----------------------------------------------------------------------------
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. You can, however, elect to receive them in cash. There are
no sales charges for reinvested distributions. Capital gains are distributed
at least annually.
DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE
OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION
DATE, SOME OF YOUR INVESTMENT MAY BE RETURNED TO YOU IN THE FORM OF A TAXABLE
DISTRIBUTION.
-----------------------------------------------------------------------------
17
<PAGE> 20
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
You may sell your shares
on any day the Exchange is
open for regular trading
(except, in the case of
the Money Market Fund
only, Columbus Day and
Veteran's Day). Your sales
price will be the NAV next
determined after your sell
order is received by the
Funds, its transfer agent,
or your investment
representative. Normally
you will receive your
proceeds within a week
after your request is
received. See section on
"General Policies on
Selling Shares" below.
If selling your shares through your financial adviser or broker, ask him or
her for redemption procedures. Your adviser and/or broker may have
transaction minimums and/or transaction times which will affect your
redemption. For all other sales transactions, follow the instructions below.
BY TELEPHONE (unless you have declined telephone sales privileges)
1. Call 1-800-219-4182 with instructions as to how you wish to receive your
funds (mail or wire). (See "General Policies on Selling
Shares -- Verifying Telephone Redemptions" below.)
BY MAIL (See "General Policies on Selling Shares -- When Written Redemption
Requests are Required" below.)
1. Call 1-800-219-4182 to request redemption forms (if your account is an IRA
or another form of retirement plan) or write a letter of instruction
indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner(s) signature
2. Mail to: Magna Funds P.O. Box 182754 Columbus, OH 43218-2784
BY OVERNIGHT SERVICE (See "General Policies on Selling Shares -- Redemptions
in Writing Required" below.)
See instruction 1 above.
2. Send to Magna Funds c/o BISYS Fund Services Attn: T.A. Operations 3435
Stelzer Road Columbus, OH 43219
WIRE TRANSFER
You must indicate this option on your application.
The Fund may charge a wire transfer fee of up to $10 per wire.
Note: Your financial institution may also charge a separate fee.
Call 1-800-219-4182 to request a wire transfer.
If you call by 1 p.m. Eastern time for transfers from the Magna Money Market
Fund, or by 4 p.m. Eastern time for transfers from any of the other Magna
Funds, your payment will normally be wired to your bank on the next business
day.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are
technically selling shares when you request
a withdrawal in cash. This is also known as
redeeming shares or a redemption of shares.
18
<PAGE> 21
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The maximum withdrawal per year is 12% of the
account value at the time of election. To activate this feature:
- Make sure you've checked the appropriate box on the Account Application.
Or call 1-800-219-4182.
- Include a voided personal check.
- Your account must have a value of $5,000 or more to start automatic
withdrawals.
- If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
REDEMPTION BY CHECK WRITING -- MONEY MARKET FUND ONLY
You may write checks in amounts of $250 or more on your account in the Money
Market Fund. To obtain checks, complete the signature card section of the
Account Application or contact the Fund to obtain a signature card. Dividends
and distributions will continue to be paid up to the day the check is
presented for payment. You must maintain the minimum required account balance
of $10,000 and you may not close your Money Market Fund account by writing a
check.
GENERAL POLICIES ON SELLING SHARES
WHEN WRITTEN REDEMPTION REQUESTS ARE REQUIRED
You must request redemptions in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following.
- Redemptions over $10,000
- Your account registration or the name(s) in your account has changed
within the last 90 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration
Signature guarantees can be obtained from a U.S. stock exchange member, a
U.S. commercial bank or trust company, or any other financial institution
that is a member of the STAMP (Securities Transfer
19
<PAGE> 22
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
CONTINUED
Agents Medallion Program), MSP (New York Stock Exchange Medallion Signature
Program) or SEMP (Stock Exchanges Medallion Program). Members are subject to
dollar limitations which must be considered when requesting their guarantee.
The Transfer Agent may reject any signature guarantee if it believes the
transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Funds make every effort to insure that telephone redemptions are made by
authorized shareholders only. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has
cleared (which may require up to 10 business days). You can avoid this delay
by purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
The Funds may postpone payment for shares at times when the New York Stock
Exchange is closed or under any emergency circumstances as determined by the
U.S. Securities and Exchange Commission. If you experience difficulty making
a telephone redemption during periods of drastic economic or market change,
you can send the Funds your request by regular or express mail. Follow the
instructions above under "Withdrawing Money From Your Fund Investment--By
Mail" in this section.
REDEMPTION IN KIND
The Funds reserve the right to make payment in securities rather than cash,
known as a "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of a Fund's net assets), or in other
circumstances where the Fund deems it to be in best interests of the Fund and
its other shareholders. Redemptions in kind will consist of securities equal
in market value to your shares. These securities will generally consist of
liquid securities, but will not generally represent a pro rata share of the
relevant Fund's assets. When you convert these securities to cash, you will
pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If primarily by reason of a redemption or exchange your account falls below
$25 or, in the case of the Magna Money Market Fund $100, the relevant Fund
may ask you to increase your balance. If it is still below the minimum after
60 days, the Fund may close your account and send you the proceeds at the
current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the appropriate Fund.
20
<PAGE> 23
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CALCULATION OF SALES CHARGES
Shares of the Magna Funds are sold at their public offering price. This price
includes the initial sales charge. Therefore, part of the money you invest
will be used to pay the sales charge. The remainder is invested in Fund
shares. The sales charge decreases with larger purchases. There is no sales
charge on reinvested dividends and distributions.
The current sales charge rates for the MAGNA GROWTH & INCOME FUND, MAGNA
INTERMEDIATE GOVERNMENT BOND FUND and the MAGNA TAX EXEMPT BOND FUND are as
follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
YOUR AS A % OF AS A % OF
INVESTMENT OFFERING PRICE YOUR INVESTMENT
<S> <C> <C>
Up to $99,999 4.00% 4.17%
------------------------------------------------------------------------------------------
$100,000 up to $249,999 3.50% 3.63%
------------------------------------------------------------------------------------------
$250,000 up to $499,999 3.00% 3.09%
------------------------------------------------------------------------------------------
$500,000 up to $749,999 2.50% 2.56%
------------------------------------------------------------------------------------------
$750,000 up to $999,999 1.75% 1.78%
------------------------------------------------------------------------------------------
$1,000,000 up to $2,999,999 1.00% 1.01%
------------------------------------------------------------------------------------------
*$3,000,000 and over 0.00% 0.00%
</TABLE>
* A contingent deferred sales charge equal to 1% of the net asset value of
the amount redeemed will be applied on all redemptions of shares by
shareholders otherwise subject to a sales charge within one year of
purchase.
SALES CHARGE REDUCTIONS
Reduced sales charges are available to shareholders with investments of
$100,000 or more. In addition, you may qualify for reduced sales charges
under the following circumstances.
- Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge.
- Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for
reduced sales charges, your added investment will qualify for the reduced
sales charge.
- Combination Privilege. An investor may qualify for a lower sales charge
by combining concurrent purchases of shares of one or more of the Funds
sold with a sales charge. For example, if a shareholder concurrently
purchases shares in one Fund sold with a sales charge at the total public
offering price of $50,000 and shares in another Fund of the Trust at the
total public offering price of $50,000, the sales charge would be that
applicable to a $100,000 purchase as shown in the table above.
21
<PAGE> 24
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE WAIVERS
The following qualify for waivers of sales charges:
- Shares purchased by investment representatives through fee-based
investment products or accounts.
- Proceeds from redemptions from another mutual fund complex or the
Planters Funds' Tennessee Tax Free Bond Fund within 30 days after
redemption, if you paid a front end sales charge for those shares. To
qualify for this waiver, you must furnish a broker's confirmation
statement showing the payment of the sales charge. This arrangement is
not available if you paid a contingent deferred sales charge on the
redemption.
- Shares purchased by Union Planters or its affiliates for the account of
their trust customers.
- Shares purchased by directors, trustees, employees or retired employees,
and family members of employees or retired employees of the Adviser and
its affiliates and of BISYS Fund Services and its affiliates.
DISTRIBUTION AND SERVICE (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and
distribution of the Fund's shares and/or for providing shareholder services.
12b-1 fees are paid from Fund assets on an ongoing basis, and will increase
the cost of your investment. 12b-1 fees may cost you more than paying other
types of sales charges. The Distributor may use up to .25% of the 12b-1 fee
for shareholder servicing.
Over time, shareholders may pay more than the equivalent of the maximum
permitted front-end sales charge because 12b-1 service fees are paid out of
the Fund's assets on an on-going basis.
EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of another Magna Fund,
often without paying additional sales charges (see "Notes" below). No
transaction fees are charged for exchanges
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Magna Funds, P.O. Box
182754, Columbus OH 43218-2784, or by calling 1-800-219-4182. Please provide
the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
See "General Policies on Selling Shares" above for important information
about telephone transactions.
22
<PAGE> 25
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
CONTINUED
AUTOMATIC EXCHANGES
You can use the Funds' Automatic Exchange feature to purchase shares of the
Funds at regular intervals through regular, automatic redemptions from the
Money Market Fund. To participate in the Automatic Exchange:
- Complete the appropriate section of the Account Application.
- Keep a minimum of $10,000 in the Money Market Fund and $1,000 in the Fund
whose shares you are buying.
To change the Automatic Exchange instructions or to discontinue the feature,
you should write to Magna Funds, P.O. Box 182754, Columbus, Ohio 43218-2784.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge
to a Fund with a higher sales charge, you will pay the difference. For
example, if you exchange shares of the Magna Money Market Fund for shares of
the Magna Growth & Income Fund, you will be subject to a sales charge of up
to 4.00%, subject to any applicable reduction or waiver of the sales charge.
The registration and taxpayer identification numbers of the two accounts must
be identical. If you don't have an account with the new Fund, a new account
will be opened with the same features unless you write to tell us to change
them.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time with 60 days notice.
Be sure to read the Prospectus carefully of any Fund into which you wish to
exchange shares.
The exchange privilege is available only in states where shares of the new
Fund may be sold.
If shares of a Fund are purchased by check, those shares cannot be exchanged
until your check has been collected. This could take 10 days or more.
All exchanges are based on the relative net asset value next determined after
the exchange order is received by the Funds, subject to any applicable sales
charge.
DIVIDENDS AND DISTRIBUTIONS
The Funds pay dividends to their shareholders from the Funds' respective net
investment income. The Funds distribute any net capital gains that have been
realized. Income dividends on the Growth & Income Fund are declared and paid
quarterly, while income dividends for the Magna Intermediate Government Bond
Fund, Magna Tax Exempt Bond Fund and for the Magna Money Market Fund are
declared daily and paid monthly. Capital gains, if any, for all Funds are
distributed at least annually.
23
<PAGE> 26
SHAREHOLDER INFORMATION
TAXATION
FEDERAL TAXES
Each Fund intends to qualify as a "regulated investment company" for federal
income tax purposes and to meet all other requirements necessary for it to be
relieved of federal taxes on income and gains it distributes to shareholders.
Each Fund contemplates declaring as dividends each year all or substantially
all of its taxable income, including its net capital gain (the excess of net
long-term capital gain over net short-term capital loss). You will be subject
to income tax on these distributions regardless of whether they are paid in
cash or rein- vested in additional shares. Distributions properly designated
by a Fund as derived from net capital gain of a Fund will be taxable to you
as such, regardless of how long you have held your shares. Other Fund
distributions (other than "exempt-interest dividends" paid by the Magna
Tax-Exempt Bond Fund) will generally be taxable as ordinary income.
Distributions designated by the Magna Tax-Exempt Bond Fund as
"exempt-interest dividends" are not generally subject to federal income tax.
However, if you receive social security or railroad retirement benefits, you
should consult your tax adviser to determine what effect, if any, an
investment in such fund may have on the federal taxation of your benefits. In
addition, an investment in the Magna Tax-Exempt Bond Fund may result in
liability for federal alternative minimum tax, both for corporate and
individual shareholders. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxable on the entire amount of the
distribution received, even though, as an economic matter, the distribution
simply constitutes a return of capital. This is known as "buying into a
dividend."
Except in the case of the Magna Money Market Fund, you will recognize taxable
gain or loss on a sale, exchange or redemption of your shares, including an
exchange for shares of another Fund based on the difference between your tax
basis in the shares and the amount you receive for them. (To aid in computing
your tax basis, you should retain your account statements for the periods
during which you held shares.) Any loss realized on shares held for six
months or less will be treated as a long-term capital loss to the extent of
any capital gain dividends that were received on the shares.
One notable exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
The foregoing is a summary of certain federal income tax consequences of
investing in the Funds. For more information on the federal income taxation
of the Funds, see the SAI. You should consult your tax adviser to determine
the precise effect of an investment in the Funds on your particular tax
situation (including possible liability for state and local taxes).
24
<PAGE> 27
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The Financial Highlights tables are intended to help you understand each
Fund's financial performance for the period of each Fund's operations.
Certain information reflects financial results for a single Fund share. The
total returns in the tables represent the rate that an investor would have
earned or lost on an investment in a Fund (assuming reinvestment of all
dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Funds' financial
statements, is incorporated by reference in the Trust's Statement of
Additional Information ("SAI"), which is available upon request.
MAGNA GROWTH &
INCOME FUND
<TABLE>
<CAPTION>
SEPTEMBER 1,
YEAR YEAR YEAR YEAR 1994*
ENDED ENDED ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF
PERIOD $ 23.46 $ 22.18 $ 16.42 $ 14.05 $ 12.50
--------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.30 0.23 0.26 0.24 0.25
Net realized and unrealized gains
from investment transactions 7.53 1.72 6.12 2.39 1.52
--------------------------------------------------------------------------------------------------------
Total income from investment
operations 7.83 1.95 6.38 2.63 1.77
--------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Net investment income (0.27) (0.25) (0.25) (0.23) (0.22)
Net realized gain from investment
transactions (0.65) (0.42) (0.37) (0.03) --
--------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.92) (0.67) (0.62) (0.26) (0.22)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF PERIOD $ 30.37 $ 23.46 $ 22.18 $ 16.42 $ 14.05
--------------------------------------------------------------------------------------------------------
Total return (1) 33.73% 8.84% 39.59% 18.77% 14.33%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, at end of period
($000's) $145,919 $74,131 $70,276 $39,995 $ 30,284
Ratio of expenses to average net
assets 0.87% 0.99% 1.06% 1.27% 1.25%
Ratio of net investment income to
average net assets 1.05% 0.96% 1.36% 1.56% 1.98%
Ratio of expenses to average net
assets without fee waivers** 1.37% 1.49% 1.56% 1.77% 1.88%
Ratio of net investment income to
average net assets without fee
waivers** 0.55% 0.46% 0.86% 1.06% 1.35%
Portfolio turnover rate 9% 26% 17% 31% 41%
</TABLE>
* Commencement of operations.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(1) Total return excludes sales charges. Had the advisor, distributor and
administrator not reduced or waived certain expenses total returns would
have been lower.
25
<PAGE> 28
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
CONTINUED
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MAGNA INTERMEDIATE
GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
SEPTEMBER 1,
YEAR YEAR YEAR YEAR 1994*
ENDED ENDED ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD $ 13.00 $ 12.61 $ 12.43 $ 12.75 $ 12.50
----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.72 0.76 0.79 0.76 0.74
Net realized and unrealized gains
(losses) from investment
transactions (0.96) 0.39 0.19 (0.32) 0.25
----------------------------------------------------------------------------------------------------------
Total income from investment
operations (0.24) 1.15 0.98 0.44 0.99
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Net investment income (0.72) (0.76) (0.79) (0.76) (0.74)
In excess of net investment income -- -- (0.01) -- --
----------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.72) (0.76) (0.80) (0.76) (0.74)
----------------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF PERIOD $ 12.04 $ 13.00 $ 12.61 $ 12.43 $ 12.75
----------------------------------------------------------------------------------------------------------
Total return (1) (1.97)% 9.33% 7.96% 3.48% 8.30%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, at end of period ($000's) $80,607 $72,614 $64,459 $56,764 $52,085
Ratio of expenses to average net
assets 0.82% 0.90% 0.96% 1.05% 1.10%
Ratio of net investment income to
average net assets 5.69% 5.92% 6.15% 5.97% 6.00%
Ratio of expenses to average net
assets without fee waivers** 1.17% 1.25% 1.31% 1.40% 1.43%
Ratio of net investment income to
average net assets without fee
waivers** 5.34% 5.57% 5.80% 5.62% 5.66%
Portfolio turnover rate 16% 32% 19% 20% 34%
</TABLE>
* Commencement of operations.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(1) Total return excludes sales charges. Had the advisor, distributor and
administrator not reduced or waived certain expenses total returns would
have been lower.
26
<PAGE> 29
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
CONTINUED
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
MAGNA MONEY MARKET FUND
<TABLE>
<CAPTION>
JULY 7,
1999*
THROUGH
AUGUST 31,
1999
<S> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD $ 1.000
--------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.007
Net realized and unrealized gains from investment
transactions --
--------------------------------------------------------------------------
Total income from investment operations 0.007
--------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Net investment income (0.007)
--------------------------------------------------------------------------
Total dividends and distributions (0.007)
--------------------------------------------------------------------------
NET ASSET VALUE -- END OF PERIOD $ 1.000
--------------------------------------------------------------------------
Total return (1) 0.67%(b)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, at end of period ($000's) $166,335
Ratio of expenses to average net assets 0.51%(a)
Ratio of net investment income to average net assets 4.35%(a)
Ratio of expenses to average net assets without fee
waivers** 1.02%(a)
Ratio of net investment income to average net assets
without fee waivers** 3.84%(a)
</TABLE>
* Commencement of operations.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(1) Had the advisor, distributor and administrator not reduced or waived certain
expenses total returns would have been lower.
(a) Annualized
(b) Not annualized
27
<PAGE> 30
The following additional information is available to you upon request and
without charge.
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Funds' Annual and Semi-Annual Reports to shareholders contain additional
information regarding the Funds' investments. In the Annual Report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including their
operations and investment policies. It is incorporated by reference and is
legally considered to be part of this prospectus.
You can get free copies of Annual and Semi-Annual Reports and the SAI, or
request other information and discuss your questions about the Funds by
contacting a broker or other financial institution that sells the Funds. In
addition, you may contact the Funds at:
MAGNA FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-219-4182
You can review the Annual and Semi-Annual Reports and the SAI at the Public
Reference Room of the Securities and Exchange Commission. You can get copies:
- - For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-0102 or calling 1-202-942-8090.
- - At no charge from the Commission's Website at http://www.sec.gov.
- - By electronic request at the following e-mail address: [email protected].
Investment Company Act file no. 811-8494
<PAGE> 31
MAGNA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2000
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Magna Funds (the "Trust")
Prospectus dated January 1, 2000, and should be read in conjunction therewith.
The contents of the Prospectus are hereby incorporated into this Statement of
Additional Information. A copy of the Prospectus may be obtained free of charge
by writing to Magna Funds, P.O. Box 182754, Columbus, OH 43218-2784, or calling
(800) 219-4182.
The Trust's audited Financial Statements for the fiscal year ended
August 31, 1999 included in the Trust's Annual Report are hereby incorporated
into this Statement of Additional Information. A copy of the Trust's Annual
Report is available without charge upon request from Magna Funds, P.O. Box
182754, Columbus, Ohio 43218-2754, or by calling (800) 219-4182.
<PAGE> 32
<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS.............................. - 1 -
INVESTMENT RESTRICTIONS....................................................... - 5 -
ADDITIONAL INFORMATION REGARDING
FUND INVESTMENTS AND RELATED RISKS................................... - 10 -
MANAGEMENT OF THE TRUST....................................................... - 22 -
INVESTMENT ADVISORY AND OTHER SERVICES........................................ - 25 -
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................... - 28 -
DESCRIPTION OF THE TRUST...................................................... - 29 -
NET ASSET VALUE AND PUBLIC OFFERING PRICE..................................... - 33 -
SHAREHOLDER SERVICES.......................................................... - 34 -
REDEMPTIONS................................................................... - 36 -
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS.................. - 37 -
PERFORMANCE INFORMATION....................................................... - 40 -
APPENDIX A.................................................................... A-1
DESCRIPTION OF CERTAIN FUND INVESTMENTS....................................... A-1
APPENDIX B.................................................................... B-1
DESCRIPTION OF BOND RATINGS .................................................. B-1
</TABLE>
<PAGE> 33
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The investment objective and policies of each Fund (a "Fund") of Magna
Funds (the "Trust") are summarized in the Trust's Prospectus. The investment
policies 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 investment objectives of each of the Growth & Income Fund and
Intermediate Government Bond Fund are fundamental.
There is no assurance that any Fund will achieve its investment
objective. The Funds are permitted to invest in a variety of different
securities and instruments, subject to the policies and limitations set forth in
the Prospectus and this Statement of Additional Information. The Funds are not
required, however, to use all of the different investment instruments and
techniques described in the Prospectus or this Statement of Additional
Information. At any particular time, each Fund's assets will consist of
investments that Union Planters believes are appropriate for that Fund under the
market and economic conditions in effect at that time, consistent with the
Fund's investment objectives and policies.
Growth & Income Fund
- --------------------
As described in the Prospectus, the investment objective of the Growth
& Income Fund is to seek long-term growth of capital, current income and growth
of income. The Fund invests primarily in common stocks, preferred stocks and
securities convertible into common stocks of companies which offer the prospect
for growth of earnings while paying current dividends (or interest, in the case
of certain convertible securities). Over time, continued growth of earnings
tends to lead to higher dividends and enhancement of capital value. The Fund may
also purchase such securities which do not pay current dividends but which offer
prospects for growth of capital and future income. The Fund may invest a portion
of its assets in securities of foreign issuers traded in U.S. securities
markets, which may subject it to special risks. The Fund allocates its
investments among different industries and companies, and changes its portfolio
securities for investment considerations and not for trading purposes.
In addition, the Fund may invest up to 10% of its total assets in debt
obligations with maturities of longer than one year at the time of purchase,
including U.S. Government Securities, high grade bonds and notes of
non-governmental issuers and other fixed income securities generally suitable
for investment by the Intermediate Government Bond Fund. The
- 1 -
<PAGE> 34
Fund may also invest in repurchase agreements, and may engage in options
transactions for hedging purposes.
Intermediate Government Bond Fund
- ---------------------------------
As described in the Prospectus, the investment objective of the
Intermediate Government Bond Fund is to achieve current income consistent with
preservation of capital. The Fund pursues this objective by investing in a
portfolio consisting primarily of U.S. Government Securities, and high grade
bonds and notes of non-governmental issuers. Under normal circumstances, the
Fund will invest at least 65% of its total assets in U.S. Government Securities,
which include all securities issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Repurchase agreements that
are fully collateralized by U.S. Government Securities will be treated as U.S.
Government Securities for the purpose of this 65% test. U.S. Government
Securities include certain mortgage-backed securities. The Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years, but
may purchase individual securities with longer or shorter maturities. For
purposes of computing average maturity, (1) securities that are subject to call,
refund or redemption will be treated as maturing on the ultimate maturity date
unless Union Planters believes it is probable that the issuer of the security
will take advantage of the call, refund or redemption provision (in which case
the date of such probable call, refund or redemption will be treated as the
maturity date), (2) new issues by the Government National Mortgage Association
("GNMA") or the Federal National Mortgage Association ("FNMA"), which typically
have a 30-year stated maturity, will be treated as having a 12-year maturity
unless Union Planters believes, based on publicly available information from a
nationally recognized source, that the issue will have a longer or shorter
average life; and (3) certain nominally long-term securities will be deemed to
have a shorter-maturity because of the existence of a demand feature exercisable
by the Fund prior to the stated maturity.
The securities in which the Fund invests include, but are not limited
to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
o obligations of U.S. government agencies, authorities or
instrumentalities such as the Federal Home Loan Banks, FNMA, GNMA, the
Federal Farm Credit Banks, the Student Loan Marketing Association, the
Federal Home Loan Mortgage Corporation or the Tennessee Valley
Authority;
o corporate debt obligations having floating or fixed rates of interest
and rated in one of the three highest categories by a nationally
recognized statistical rating organization ("NRSRO") (that is, rated
Aaa, Aa or A by Moody's Investors Service, Inc. ("Moody's") or AAA, AA
or A by Standard & Poor's Rating Service ("Standard & Poor's") or Fitch
Investors Service, Inc. ("Fitch")), or which are not rated but are of
comparable quality in the judgment of Union Planters;
- 2 -
<PAGE> 35
o asset-backed securities rated A or higher by an NRSRO, which may
include, but are not limited to interests in pools of receivables such
as motor vehicle installment purchase obligations and credit card
receivables;
o mortgage-backed securities;
o collateralized mortgage obligations; and
o repurchase agreements collateralized by eligible investments.
If a security's rating is reduced below the required minimum after the Fund has
purchased it, the Fund is not required to sell the security, but may consider
doing so. However, the Fund does not intend to hold more than 5% of its assets
in securities that have been downgraded below investment grade (that is, below
BBB or Baa).
The Fund may also engage in options transactions for hedging purposes.
Tax Exempt Bond Fund
- --------------------
In addition to the investments described in the Prospectus, the Tax
Exempt Bond Fund may also invest in any of the securities and other instruments
described above with respect to the Intermediate Government Bond Fund. As a
result, a portion of the income earned by the Tax Exempt Bond Fund may not be
exempt from federal income taxation when distributed to shareholders.
Money Market Fund
- -----------------
The Money Market 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 money market instruments in which the Money Market Fund
may invest, and the related descriptions of the ratings of Standard & Poor's and
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 Money Market 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
- 3 -
<PAGE> 36
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, record keeping and the public
availability of information. Obligations of such branches or banks will be
purchased only when Union Planters believes the risks are minimal.
Considerations of liquidity, safety and preservation of capital may
preclude the Money Market Fund from investing in money market instruments paying
the highest available yield at a particular time. The Money Market Fund,
consistent with its investment objective, attempts to maximize yields by
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 Money Market 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.
As described in the Prospectus, all of the Money Market Fund's
investments will, at the time of investment, have remaining maturities of 397
days or less. The average maturity of the Money Market 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 Money
Market 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 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
- 4 -
<PAGE> 37
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 Money Market 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 Standard & Poor's (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
Investment Restrictions - All Funds except Magna Money Market Fund
In addition to its investment objective and policies set forth in the
Prospectus, the following investment restrictions are policies of each Fund (and
those marked with an asterisk are fundamental policies of each Fund) except for
the Money Market Fund:
Each such Fund will not:
(1) Invest in companies for the purpose of exercising control
or management.
*(2) Act as underwriter, except to the extent that, in
connection with the disposition of portfolio securities, it may be
deemed to be an underwriter under certain federal securities laws.
*(3) Invest in oil, gas or other mineral leases, rights or
royalty contracts or in real estate, commodities or commodity
contracts. (This restriction does not prevent any Fund from investing
in issuers that invest or deal in the foregoing types of assets or from
purchasing securities that are secured by real estate.)
*(4) Make loans. (For purposes of this investment restriction,
neither (i) entering into repurchase agreements nor (ii) purchasing
bonds, debentures, commercial paper, corporate notes and similar
evidences of indebtedness, which are a part of an issue to the public
or of a type commonly purchased by financial institutions, is
considered the making of a loan.)
- 5 -
<PAGE> 38
(5) Except for the Tax Exempt Bond Fund, purchase any
security (other than a U.S. Government Security) if, as a result, more
than 5% of the Fund's total assets (taken at current value) would then
be invested in securities of a single issuer.
(6) Invest more than 5% of its total assets (taken at
current value) in securities of companies that (with predecessor
companies) have a record of less than three years of continuous
operations.
(7) Except for the Tax Exempt Bond Fund, acquire more than
10% of any class of securities of an issuer (taking all preferred stock
issues as a single class and all debt issues as a single class) or
acquire more than 10% of the outstanding voting securities of an
issuer.
(8) Invest in the securities of other investment companies,
except by purchases in the open market involving only customary
brokers' commissions or in connection with a merger, consolidation or
similar transaction. (Under the Investment Company Act of 1940 (the
"1940 Act"), each Fund generally may not: (a) invest more than 10% of
its total assets (taken at current value) in such securities; (b) own
securities of any one investment company having a value in excess of 5%
of the Fund's total assets (taken at current value); or (c) own more
than 3% of the outstanding voting stock of any one investment company.)
(9) Pledge, mortgage, hypothecate or otherwise encumber any
of its assets, except that each Fund may pledge assets having a value
not exceeding 10% of its total assets to secure borrowings permitted by
restriction (12) below. (For the purpose of this restriction,
collateral arrangements with respect to options, futures contracts and
options on futures contracts and with respect to initial and variation
margin are not deemed to be a pledge or other encumbrance of assets.)
(10) Purchase or retain securities of an issuer if officers
and trustees of the Trust and officers and directors of its investment
adviser who individually own more than 1/2 of 1% of the shares or
securities of such issuer together own more than 5% of such shares or
securities.
*(11) Purchase any security (other than U.S. Government
Securities) if, as a result, 25% or more of the Fund's total assets
(taken at current value) would be invested in any one industry (in the
utilities category, gas, electric, water and telephone companies will
be considered as being in separate industries).
*(12) Borrow money in excess of 10% of its total assets (taken
at cost) or 5% of its total assets (taken at current value), whichever
is lower, nor borrow any money except as a temporary measure for
extraordinary or emergency purposes.
- 6 -
<PAGE> 39
*(13) Purchase securities on margin (except such short term
credits as are necessary for clearance of transactions); or make short
sales (except where, by virtue of ownership of other securities, it has
the right to obtain, without payment of additional consideration,
securities equivalent in kind and amount to those sold).
(14) Participate on a joint or joint and several basis in
any trading account in securities. (The "bunching" of orders for the
purchase or sale of portfolio securities with Union Planters or its
affiliates or accounts under their management to reduce brokerage
commissions, to average prices among them or to facilitate such
transactions is not considered a trading account in securities for
purposes of this restriction.)
(15) Purchase any illiquid security if, as a result, more
than 15% of the Fund's net assets (based on current value) would then
be invested in such securities; provided, however, that no more than
10% of the Fund's total assets may be invested in the aggregate in (1)
restricted securities, (2) securities of companies that (with
predecessor companies) have a record of less than three years of
continuous operations and (3) securities that are not readily
marketable.
(16) Write or purchase puts, calls or combinations of both
except that each Fund may (1) acquire warrants or rights to subscribe
to securities of companies issuing such warrants or rights, or of
parents or subsidiaries of such companies, (2) write, purchase and sell
put and call options on securities, securities indices or futures
contracts and (3) write, purchase and sell put and call options on
currencies and enter into currency forward contracts.
*(17) Issue senior securities. (For the purpose of this
restriction none of the following is deemed to be a senior security:
any pledge or other encumbrance of assets permitted by restriction (9)
above; any borrowing permitted by restriction (12) above; any
collateral arrangements with respect to options, futures contracts and
options on futures contracts and with respect to initial and variation
margin; and the purchase or sale of options, forward contracts, futures
contracts or options on futures contracts.)
Each Fund intends, based on the views of the staff of the Securities
and Exchange Commission (the "SEC"), to restrict its investments in repurchase
agreements maturing in more than seven days, together with other investments in
illiquid securities, to 15% of the Fund's net assets.
Although authorized to invest in restricted securities, each Fund, as a
matter of non-fundamental operating policy, currently does not intend to invest
in such securities in the coming year. Although authorized to make short sales
subject to the condition specified in restriction (13) above, each Fund as a
matter of non-fundamental operating policy currently does not intend to make
such short sales in the coming year. Although authorized under restriction (16)
above to write, purchase and sell put and call options on currencies and to
enter into currency forward
- 7 -
<PAGE> 40
contracts, each Fund, as a matter of non-fundamental operating policy, currently
does not intend to do so in the coming year.
Investment Restrictions - Money Market Fund
- -------------------------------------------
The following is a list of the Money Market 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 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 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 -
<PAGE> 41
*(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 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.)
* 1 moved here; text not shown
The Money Market 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.
** 1 Except as otherwise stated, all percentage limitations set forth
in this Statement of Additional Information and/or the Prospectus will
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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.
Each Fund is a "diversified" fund as such term is defined under the
1940 Act. This means that it is a fundamental policy of each Fund, which may not
be changed without shareholder approval, that at least 75% of the value of each
such Fund's total assets are represented by cash and cash items (including
receivables), U.S. Government securities, securities of other investment
companies, and other securities for the purposes of this calculation limited in
respect of any one issuer to an amount not greater than 5% of the value of the
relevant Fund's total assets and to not more than 10% of the outstanding voting
securities of any single issuer.
ADDITIONAL INFORMATION REGARDING
FUND INVESTMENTS AND RELATED RISKS
U.S. GOVERNMENT SECURITIES
As described in the Prospectus, each Fund may invest in U.S. Government
Securities. U.S. Government Securities include direct obligations of the U.S.
Treasury, as well as securities issued or guaranteed by U.S. Government
agencies, authorities and instrumentalities, including, among others, the
Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Federal Housing
Administration, the Resolution Funding Corporation, the Federal Farm Credit
Banks, the Federal Home Loan Banks, the Tennessee Valley Authority, the Student
Loan Marketing Association and the Small Business Administration. More detailed
information about some of these categories of U.S. Government Securities
follows.
o U.S. Treasury Bills--Direct obligations of the United States
Treasury which are issued in maturities of one year or less.
No interest is paid on Treasury bills; instead, they are
issued at a discount and repaid at full face value when they
mature. They are backed by the full faith and credit of the
United States Government.
o U.S. Treasury Notes and Bonds--Direct obligations of the
United States Treasury issued in maturities that vary between
one and forty years, with interest normally payable every six
months. They are backed by the full faith and credit of the
United States Government.
o "Ginnie Maes"--Debt securities issued by a mortgage banker or
other mortgagee which represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmer's Home Administration or guaranteed by the Veterans
Administration. The Government National Mortgage Association
("GNMA") guarantees the timely payment of principal and
interest when such payments are due, whether or not
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these amounts are collected by the issuer of these
certificates on the underlying mortgages. An assistant
attorney general of the United States has rendered an opinion
that the guarantee by GNMA is a general obligation of the
United States backed by its full faith and credit. Mortgages
included in single family or multi-family residential mortgage
pools backing an issue of Ginnie Maes have a maximum maturity
of up to 30 years. Scheduled payments of principal and
interest are made to the registered holders of Ginnie Maes
(such as the Fund) each month. Unscheduled prepayments may be
made by homeowners, or as a result of a default. Prepayments
are passed through to the registered holder of Ginnie Maes
along with regular monthly payments of principal and interest.
o "Fannie Maes"--The Federal National Mortgage Association
("FNMA") is a government-sponsored corporation owned entirely
by private stockholders that purchases residential mortgages
from a list of approved seller/servicers. Fannie Maes are
pass-through securities issued by FNMA that are guaranteed as
to timely payment of principal and interest by FNMA but are
not backed by the full faith and credit of the United States
Government.
o "Freddie Macs"--The Federal Home Loan Mortgage Corporation
("FHLMC") is a corporate instrumentality of the United States
Government. Freddie Macs are participation certificates issued
by FHLMC that represent interests in residential mortgages
from FHLMC's National Portfolio. FHLMC guarantees the timely
payment of interest and ultimate collection of principal, but
Freddie Macs are not backed by the full faith and credit of
the United States Government.
As described in the Prospectus, U.S. Government Securities do not
involve the credit risks associated with investments in other types of
fixed-income securities, although, as a result, the yields available from U.S.
Government Securities are generally lower than the yields available from
corporate fixed-income securities. Like other fixed-income securities, however,
the values of U.S. Government Securities change as interest rates fluctuate.
Fluctuations in the value of portfolio securities will not affect interest
income on existing portfolio securities but will be reflected in the Fund's net
asset value.
WHEN-ISSUED SECURITIES
Each Fund may enter into agreements with banks or broker-dealers for
the purchase or sale of securities at an agreed-upon price on a specified future
date. Such agreements might be entered into, for example, when a Fund that
invests in fixed-income securities anticipates a decline in interest rates and
is able to obtain a more advantageous yield by committing currently to purchase
securities to be issued later. When a Fund purchases securities in this manner
(i.e., on a when-issued or delayed-delivery basis), it is required to create a
segregated account with the Trust's custodian and to maintain in that account
cash, U.S. Government Securities or other liquid securities in an amount equal
to or greater than, on a daily basis, the amount of the Fund's when-
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<PAGE> 44
issued or delayed-delivery commitments. No income is generally earned of these
securities until after delivery. Each Fund will make commitments to purchase on
a when-issued or delayed-delivery basis only securities meeting that Fund's
investment criteria. The Fund may take delivery of these securities or, if it is
deemed advisable as a matter of investment strategy, the Fund may sell these
securities before the settlement date. When the time comes to pay for
when-issued or delayed-delivery securities, the Fund will meet its obligations
from then available cash flow or the sale of securities, or from the sale of the
when-issued or delayed-delivery securities themselves (which may have a value
greater or less than the Fund's payment obligation).
CONVERTIBLE SECURITIES
The Growth & Income Fund may invest in convertible securities.
Convertible securities include corporate bonds, notes or preferred stocks of
U.S. or foreign issuers that can be converted into (that is, exchanged for)
common stocks or other equity securities. Convertible securities also include
other securities, such as warrants, that provide an opportunity for equity
participation. The price of a convertible security will normally vary in some
proportion to changes in the price of the underlying common stock because of
this conversion feature. A convertible security will normally also provide fixed
income stream. For this reason, a convertible security may not decline in price
as rapidly as the underlying common stock.
Union Planters will select convertible securities to be purchased by
the Growth & Income Fund based primarily upon its evaluation of the fundamental
investment characteristics and growth prospects of the issuer of the security.
As a fixed-income security, a convertible security tends to increase in market
value when interest rates decline and to decrease in value when interest rates
rise. While convertible securities generally offer lower interest or dividend
yields than non-convertible fixed-income securities of similar quality, their
value tends to increase as the market value of the underlying stock increases
and to decrease when the value of the underlying stock decreases. The Growth &
Income Fund will not purchase any convertible security that is rated below BBB
by Standard & Poor's or Baa by Moody's (or that is unrated but determined by
Union Planters to be comparable in quality to securities rated below BBB or
Baa), if as a result of such purchase more than 5% of the Fund's total assets
would be invested in such securities. Securities rated BBB or Baa or lower (and
comparable unrated securities) have speculative characteristics. Unfavorable
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer of these securities to make principal and
interest payments than is the case with higher quality securities.
ZERO COUPON BONDS
The Intermediate Government Bond Fund and the Tax Exempt Bond Fund may
each invest in zero coupon bonds. Zero coupon bonds are debt obligations that do
not entitle the holder to any periodic payments of interest either for the
entire life of the obligation or for an initial period after the issuance of the
obligations. Such bonds are issued and traded at a discount from their face
amounts. The amount of the discount varies depending on such factors as the time
remaining until
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<PAGE> 45
maturity of the bonds, prevailing interest rates, the liquidity of the security
and the perceived credit quality of the issuer. The market prices of zero coupon
bonds generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do non-zero coupon bonds having similar maturities and
credit quality. In order to satisfy a requirement for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), each Fund must distribute each year at least 90% of its
net investment income, including the original issue discount accrued on zero
coupon bonds. Because a Fund investing in zero coupon bonds will not on a
current basis receive cash payments from the issuer in respect of accrued
original issue discount, the Fund may have to distribute cash obtained from
other sources in order to satisfy the 90% distribution requirement under the
Code. Such cash might be obtained from selling other portfolio holdings of the
Fund. In some circumstances, such sales might be necessary in order to satisfy
cash distribution requirements even though investment considerations might
otherwise make it undesirable for the Fund to sell such securities at such time.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements, by which the Fund
purchases a security and obtains a simultaneous commitment from the seller (a
bank or, to the extent permitted by the 1940 Act, a recognized securities
dealer) to repurchase the security at an agreed upon price and date (usually
seven days or less from the date of original purchase). The resale price is in
excess of the purchase price and reflects an agreed upon market rate unrelated
to the coupon rate on the purchased security. Such transactions afford the Funds
the opportunity to earn a return on temporarily available cash at minimal market
risk. While the underlying security may be a bill, certificate of indebtedness,
note or bond issued by an agency, authority or instrumentality of the U. S.
Government, 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, the Fund may be subject to various delays
and risks of loss, including (a) possible declines in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto, (b) possible reduced levels of income and lack of access to income
during this period and (c) possible inability to enforce rights and the expenses
involved in enforcement or attempted enforcement. The Funds 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.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities to broker-dealers under
contracts calling for cash or eligible liquid securities as collateral equal to
at least the market value of the securities loaned, marked to the market on a
daily basis. A Fund will continue to benefit from interest or dividends on the
securities loaned and will also receive interest through investment of the cash
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<PAGE> 46
collateral in short-term liquid investments, which may include shares of money
market funds, subject to the investment restrictions listed above. Any voting
rights, or rights to consent, relating to securities loaned pass to the
borrowers. However, if a material event affecting the investment occurs, such
loans may be called so that the securities may be voted by the Fund. The Funds
pay various fees in connection with such loans. If the borrower of the security
does not redeliver the loaned securities as required by the terms of the loan,
the Fund has rights to sell the collateral. However, the Fund may be subject to
various delays and risks of loss, including (a) possible declines in the value
of the collateral while the Fund seeks to enforce its rights thereto, (b)
possible reduced levels of income and lack of access to income during this
period and (c) possible inability to enforce rights and the expenses involved in
enforcement or attempted enforcement.
OPTIONS
Each Fund may engage in options transactions for hedging purposes.
An "American style" option allows exercise of the option at any time
during the term of the option. A "European style" option allows an option to be
exercised only at the end of its term.
Options may be traded on or off an established securities exchange.
If the holder of an option wishes to terminate its position, it may
seek to effect a closing sale transaction by selling an option identical to the
option previously purchased. The effect of the purchase is that the previous
option position will be canceled. A Fund will realize a profit from closing out
an option if the price received for selling the offsetting position is more than
the premium paid to purchase the option; the Fund will realize a loss from
closing out an option transaction if the price received for selling the
offsetting option is less than the premium paid to purchase the option.
The successful use of options depends in part on the ability of Union
Planters to forecast correctly the direction and extent of interest rate or
stock price movements within a given time frame. To the extent interest rates or
stock prices move in a direction opposite to that anticipated, a Fund may
realize a loss on the hedging transaction that is not fully or partially offset
by an increase in the value of portfolio securities. In addition, whether or not
interest rates or stock prices move during the period that the Fund holds
options positions, the Fund will pay the cost of acquiring those positions
(i.e., brokerage costs). As a result of these factors, the Fund's total return
for such period may be less than if it had not engaged in the hedging
transaction.
An over-the-counter option (an option not traded on an established
exchange) may be closed out only with the other party to the original option
transaction. While each Fund will seek to enter into over-the counter options
only with dealers who agree to or are expected to be capable of entering into
closing transactions with the Fund, there can be no assurance that a Fund will
be able to liquidate an over-the-counter option at a favorable price at any time
prior to its expiration. Accordingly, a Fund might have to exercise an
over-the-counter option it holds in order to achieve the intended hedge.
Over-the-counter options are not subject to the protections afforded
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<PAGE> 47
purchasers of exchange-listed options by the Options Clearing Corporation or
other clearing organization.
The staff of the SEC has taken the position that over-the-counter
options should be treated as illiquid securities for purposes of each Fund's
investment restriction prohibiting it from investing more than 15% of its net
assets in illiquid securities. The Funds intend to comply with this position.
FUTURES AND RELATED OPTIONS TRANSACTIONS
A futures contract is an agreement between two parties to buy and sell
a security or commodity for a set price on a future date. These contracts are
traded on exchanges, so that, in most cases, either party can close out its
position on the exchange for cash, without actually delivering the security or
commodity. An option on a futures contract gives the holder of the option the
right to buy or sell a position in a futures contract to the writer of the
option, at a specified price and on or before a specified expiration date.
Each Fund (except for the Money Market Fund) may buy or sell futures
contracts relating to U.S. Government Securities, and may buy or sell options on
such futures contracts. In addition, the Growth & Income Fund may buy or sell
futures contracts relating to stock indexes, and may buy or sell options on such
futures contracts.
These Funds may use futures contracts to "hedge" against the adverse
effects of broad movements in the securities markets or changes in the value of
specific securities. For example, to protect against the fall in the value of
its investments in long-term debt securities that would result from an increase
in interest rates, the Intermediate Government Bond Fund might sell futures
contracts with respect to U.S. Government Securities. Then if interest rates do
rise and the value of the securities declines, the value of the futures
contracts should increase. Likewise, if the Intermediate Government Bond Fund
holds cash reserves and short-term investments and Union Planters expects
interest rates to fall, the Fund might purchase futures contracts on U.S.
Government Securities. If, as expected, the market value both of long-term debt
securities and futures contracts with respect thereto increases, the Fund would
benefit from a rise in the value of long-term securities without actually buying
them until the market had stabilized. The Growth & Income Fund could make
similar use of stock index futures, to hedge against broad movements in stock
market values.
Options on futures contracts may also be used for hedging. For example,
if the value of the Intermediate Government Bond Fund's portfolio securities is
expected to decline as a result of an increase in interest rates, the Fund might
purchase put options on futures contracts rather than selling futures contracts.
Similarly, to hedge against an anticipated increase in the price of long-term
debt securities, the Fund might purchase call options as a substitute for the
purchase of futures contracts.
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<PAGE> 48
When a Fund enters into a futures contract, it is required to deposit
with the broker as "initial margin" an amount of cash or short-term U.S.
Government Securities equal to approximately 5% of the contract amount. That
amount is adjusted by payments to or from the broker ("variation margin") as the
value of the contract changes. Neither Fund will purchase or sell futures
contracts or related options if as a result such Fund's initial margin deposits
plus premiums paid for outstanding related options would be greater than 5% of
the Fund's total assets. Further information concerning futures contracts and
options on futures contracts is set forth below.
Futures Contracts. A futures contract sale creates an obligation by the
seller to deliver the type of commodity or financial instrument called for in
the contract in a specified delivery month for a stated price. A futures
contract purchase creates an obligation by the purchaser to take delivery of the
underlying commodity or financial instrument in a specified delivery month at a
stated price. The specific instruments delivered or taken, respectively, at
settlement date are not determined until at or near that date. The determination
is made in accordance with the rules of the exchange on which the futures
contract sale or purchase was made. A stock index futures contract is similar
except that the parties agree to take or make delivery of an amount of cash
equal to a specified dollar amount times the difference between the stock index
value at the close of the last trading day of the contract and the price at
which the futures contract is originally struck. Futures contracts are traded
only on commodity exchanges--known as "contract markets"--approved for such
trading by the Commodity Futures Trading Commission (the "CFTC"), and must be
executed through a futures commission merchant or brokerage firm which is a
member of a contract market.
Although futures contracts by their terms call for actual delivery or
acceptance of commodities or securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out a futures contract sale is effected by purchasing a futures contract for the
same aggregate amount of the specific type of financial instrument or commodity
and the same delivery date. If the price of the initial sale of the futures
contract exceeds the price of the offsetting purchase, the seller is paid the
difference and realizes a gain. Conversely, if the price of the offsetting
purchase exceeds the price of the initial sale, the seller realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
purchaser entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if the purchase
price exceeds the offsetting sale price, it realizes a loss.
The purchase of (that is, assuming a long position in) or sale of (that
is, assuming a short position in) a futures contract differs from the purchase
or sale of a security or an option, in that no price or premium is paid or
received. Instead, an amount of cash or U.S. Treasury bills generally not
exceeding 5% of the contract amount must be deposited with the broker. This
amount is known as initial margin. Subsequent payments to and from the broker,
known as variation margin, are made on a daily basis as the price of the
underlying futures contract fluctuates, making the long and short positions in
the futures contract more or less valuable, a process known as "marking to
market." At any time prior to the settlement date of the futures
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contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker, and the purchaser realizes a loss or gain.
In addition, a commission is paid on each completed purchase and sale
transaction.
Each Fund (except for the Money Market Fund) may engage in transactions
in futures contracts for the purpose of hedging against changes in the values of
securities. Each such Fund may sell such futures contracts in anticipation of a
decline in the value of its investments. The risk of such a decline could be
reduced without employing futures as a hedge by selling long-term debt
securities or equity securities and either reinvesting the proceeds in
securities with shorter maturities or by holding assets in cash. This strategy,
however, entails increased transaction costs in the form of brokerage
commissions and dealer spreads and will typically reduce a Fund's average yield
(with respect to futures on debt securities) as a result of the shortening of
maturities. The sale of futures contracts provides an alternative means of
hedging a Fund against a decline in the value of its investments in debt or
equity securities. As such values decline, the value of a Fund's position in the
futures contracts will tend to increase, thus offsetting all or a portion of the
depreciation in the market value of the securities that are being hedged. While
the Fund will incur commission expenses in establishing and closing out futures
positions, commissions on futures transactions may be significantly lower than
transaction costs incurred in the purchase and sale of debt or equity
securities. Employing futures as a hedge may also permit a Fund to assume a
defensive posture without reducing its yield on its investments.
Stock Index Futures. A stock index assigns relative values to the
common stocks included in the index. A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks in the index is made.
The Growth & Income Fund may engage in transactions in stock index
futures contracts only for hedging purposes. Examples of the use of such
contracts for hedging purposes include (1) the sale of a futures contract to
offset possible declines in the value of securities the Fund owns and (2) the
purchase of a futures contract when the Fund holds cash and seeks to protect
against the possibility that the equity markets will rise before the Fund has
had the opportunity to invest the cash in equity securities. As discussed below
under "Risk Factors in Options and Futures Transactions," the Fund will
generally not own (or intend to own) all of the securities in the index that is
the subject of the futures contract. Thus, hedging through stock index futures
involves significant "correlation risk."
Call Options on Futures Contracts. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
underlying securities or index, it may be more or less risky than ownership of
the
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futures contract or underlying securities. As with the purchase of a futures
contract, the Funds may purchase a call option on a futures contract to hedge
against a market advance when the Fund is not fully invested.
Put Options on Futures Contracts. The purchase of a put option on a
futures contract is similar in some respects to the purchase of protective put
options on portfolio securities. The Funds may purchase put options on futures
contracts to hedge against the risk of rising interest rates or declines in
stock market prices. The Funds may purchase put options on futures contracts for
the same reasons as they would sell futures contracts.
LIMITATIONS ON THE USE OF OPTIONS AND FUTURES PORTFOLIO STRATEGIES
The Funds will not "over-hedge," that is, no Fund will maintain open
short positions in futures contracts if, in the aggregate, the value of its open
positions (marked to market) exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on such open positions,
adjusted for the historical volatility relationship between the portfolio and
futures contracts.
A Fund's ability to engage in the options and futures strategies
described above will depend on the availability of liquid markets in such
instruments. Markets in certain options and futures are relatively new and still
developing. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore no assurance can be
given that a Fund will be able to utilize these instruments effectively for the
purposes set forth above. Furthermore, a Fund's ability to engage in options and
futures transactions may be limited by tax considerations, CFTC rules and
transaction costs.
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
Options Transactions. An exchange-traded option may be closed out only
on a national securities exchange (an "Exchange") which generally provides a
liquid secondary market for an option of the same series. An over-the-counter
option may be closed out only with the other party to the option transaction. If
a liquid secondary market for an exchange-traded option does not exist, it might
not be possible to effect a closing transaction with respect to a particular
option, with the result that the Fund would have to exercise the option in order
to realize any profit. Reasons for the absence of a liquid secondary market on
an Exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an Exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; (v) the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although
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outstanding options on that Exchange that had been issued by the Options
Clearing Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Exchanges have established limitations governing the maximum number
of options which may be written by an investor or group of investors acting in
concert. It is possible that the Trust, Union Planters and its affiliates and
their other clients may be considered to be such a group. These position limits
may restrict the Funds' ability to purchase or sell options on a particular
security.
Futures Transactions. Investment by a Fund in futures contracts
involves risk. Some of that risk may be caused by an imperfect correlation
between movements in the price of the futures contract and the price of the
security or other investment being hedged. The hedge will not be fully effective
where there is such imperfect correlation. For example, if the price of the
futures contract moves more than the price of the hedged security, a Fund would
experience either a loss or gain on the future which is not completely offset by
movements in the price of the hedged securities. To compensate for imperfect
correlations, a Fund may purchase or sell futures contracts in a greater dollar
amount than the hedged securities if the volatility of the hedged security is
historically greater than the volatility of the futures contracts. Conversely, a
Fund may purchase or sell fewer contracts if the volatility of the price of the
hedged securities is historically less than that of the futures contracts. The
risk of imperfect correlation generally tends to diminish as the maturity date
of a futures contract approaches.
Futures contracts or options thereon may be used to hedge against a
possible increase in the price of securities which a Fund anticipates
purchasing. In such instances, it is possible that the market may instead
decline. If the Fund does not then invest in such securities because of concern
as to possible further market decline or for other reasons, the Fund may realize
a loss on the futures contract or option that is not offset by a reduction in
the price of securities purchased.
The amount of risk a Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges which limit the amount of fluctuation in a futures contract price
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
exceeded the daily limit on a number of consecutive trading days.
The successful use of transactions in futures and related options also
depends on the ability of Union Planters to forecast correctly the direction and
extent of interest rate movements within
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a given time frame. To the extent interest rates or stock index levels remain
stable during the period in which a futures contract or related option is held
by a Fund or such rates or index levels move in a direction opposite to that
anticipated, a Fund may realize a loss on the hedging transaction which is not
fully or partially offset by an increase in the value of portfolio securities.
As a result, a Fund's total return for such period may be less than if it had
not engaged in the hedging transaction.
MORTGAGE-BACKED AND OTHER ASSET BACKED SECURITIES
The Intermediate Government Bond Fund and the Tax Exempt Bond Fund may
invest in various types of asset-backed securities. Asset-backed securities are
created by the grouping of certain governmental, government-related or private
loans, receivables and other lender assets into pools. Interests in these pools
are sold as individual securities. Payments from the asset pools may be divided
into several different classes of debt securities, with some classes entitled to
receive regular installments of principal and interest, other classes entitled
to receive regular installments of interest, with principal payable at maturity
or upon specified call dates, and other classes entitled to receive payments of
principal and accrued interest only at maturity or upon specified call dates.
Different classes of securities will bear different interest rates, which may be
fixed or floating. Certain classes may be entitled to receive only interest, or
only principal; the value of these classes may fluctuate dramatically during
periods when market interest rates are changing.
Because the loans held in an asset pool often may be prepaid without
penalty or premium (with prepayments passed through to the holders of the
asset-backed securities), asset-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. For example,
prepayment risks on mortgage securities tend to increase during periods of
declining mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Depending upon market
conditions, the yield that a Fund receives from the reinvestment of such
prepayments, or any scheduled principal payments, may be lower than the yield on
the original mortgage security. As a consequence, mortgage securities may be a
less effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity and may also have less potential for
capital appreciation. For certain types of asset pools, such as collateralized
mortgage obligations ("CMOs") (see below), prepayments may be allocated to one
class of securities ahead of other classes, in order to reduce the risk of
prepayment for the other classes. Prepayments may result in a capital loss to
the Fund to the extent that the prepaid mortgage securities were purchased at a
market premium over their stated principal amount. Conversely, the prepayment of
mortgage securities purchased at a market discount from their stated principal
amount will accelerate the recognition of interest income by a Fund, which would
be taxed as ordinary income when distributed to shareholders.
CMOs are bonds issued by single purpose finance subsidiaries or trusts
established by financial institutions, government agencies, brokerage firms or
companies related to the construction industry. CMOs purchased by the Fund may
be:
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<PAGE> 53
o collateralized by pools of mortgages in which every mortgage
is guaranteed as to payment of principal and interest by an
agency or instrumentality of the U.S. government;
o collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer of the CMO
and such guarantee is collateralized by government securities;
or
o securities in which the proceeds of the issuance are invested
in mortgage securities and payment of the principal and
interest is supported by the credit of an agency or
instrumentality of the U.S. government.
No Fund will invest more than 25% of its total assets in CMOs.
A Fund may invest in non-mortgage related asset-backed securities,
including interests in pools of receivables, such as credit card or other
accounts receivable, student loans or motor vehicle and other installment
purchase obligations and leases. The securities, which are generally issued by
non-governmental entities and carry no direct or indirect government guarantee,
are structurally similar to collateralized mortgage obligations and mortgage
pass-through securities. Like mortgage-backed securities, other asset-backed
securities are typically subject to substantial prepayment risk.
Many mortgage-backed securities are issued or guaranteed by a U.S.
Government agency or instrumentality, such as GNMA, FNMA or the Federal Home
Loan Mortgage Corporation; they are treated as U.S. Government Securities for
purposes of the Intermediate Government Bond Fund's policy of normally investing
at least 65% of its total assets in U.S. Government Securities. For purposes of
this policy, this Fund will not treat as a U.S. Government Security any mortgage
or other asset-backed security that is not issued or guaranteed by a U.S.
Government agency, authority or instrumentality (even if the underlying
mortgages or other assets are Government-guaranteed). These non-U.S. Government
mortgage-backed or other asset-backed securities will constitute less than 25%
of the Intermediate Government Bond Fund's total assets, and together with any
other assets that are not U.S. Government Securities will normally constitute
less than 35% of the Fund's total assets.
The credit characteristics of mortgage-backed and other asset-backed
securities differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities (other than those
issued or guaranteed by a U.S. Government agency or instrumentality) depends
primarily upon the credit quality of the assets underlying such securities, how
well the entity issuing the securities is insulated from the credit risk of the
originator or any other affiliated entities, and the amount and quality of any
credit enhancement to such securities.
- 21 -
<PAGE> 54
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in securities of
other investment companies. As a shareholder of an investment company, a Fund
will indirectly bear investment management fees and other operating expenses of
that investment company, which are in addition to the management fees the Fund
pays Union Planters and the Fund's other expenses.
Pursuant to the terms of an exemptive order received by the Trust from
the Securities and Exchange Commission, the Growth & Income Fund, the
Intermediate Government Bond Fund and the Tax Exempt Bond Fund may each purchase
and redeem shares of the Money Market Fund. Any such investments will result in
Union Planters receiving management fees from both the investing Fund and the
Money Market Fund. Any such investments will also count toward the investing
Fund's 10% limitation described above.
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
</TABLE>
- 22 -
<PAGE> 55
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION WITH THE TRUST DURING THE PAST FIVE YEARS
- --------------------- ----------------------- --------------------------
<S> <C> <C>
Harry R. Maier* (52) Trustee Chief Executive Officer,
118 Sun Lake Dr. Memorial Hospital
Belleville, IL 62221 Belleville, Illinois
Neil Seitz (55) Trustee Dean, School of Business, Saint
School of Business Louis University; Professor, Saint
Saint Louis University Louis University (until 1993)
3674 Lindell Blvd.
St. Louis, MO 63108
Walter B. Grimm (53) President Senior Vice President, BISYS
BISYS Fund Services Fund Services, Limited
3435 Stelzer Road Partnership; President, Leigh
Columbus, Ohio 43219 Investments Consulting
(investments firm)
Charles L. Booth (38) Vice President Vice President, BISYS
BISYS Fund Services Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
- 23 -
<PAGE> 56
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION WITH THE TRUST DURING THE PAST FIVE YEARS
- --------------------- ----------------------- --------------------------
<S> <C> <C>
Gary Tenkman (29) Treasurer From April 1998 to present,
3435 Stelzer Road employee of BISYS Fund Services;
Columbus, Ohio 43219 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 Secretary Chief Administrator,
BISYS Fund Services Administrative and Regulatory
3435 Stelzer Road Services, BISYS Fund Services,
Columbus, Ohio 43219 Limited Partnership
Warren Leslie (37) Assistant Secretary From May 1995 to present,
BISYS Fund Services employee of BISYS Fund Services;
3435 Stelzer Road from April 1988 to May 1995,
Columbus, Ohio 43219 employee of American Express
</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.
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. 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. These costs are spread across all Funds of the Trust, and
are allocated to each Fund pro rata based on their relative average net assets
for the relevant fiscal period. 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
- 24 -
<PAGE> 57
had been invested in each Fund on the normal payment date for such fees. As a
result of this method of calculating the deferred payments, each Fund, upon
making the deferred payments, will be in the same financial position as if the
fees had been paid on the normal payment dates.
The following table sets forth the amount of the compensation paid (or
deferred in lieu of current payment) by the Trust during its fiscal year ended
August 31, 1999 to the persons who served as Trustees during all or any portion
of such fiscal year:
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PERSON FROM TRUST
------ ----------
<S> <C>
Robert R. Archibald $7000
Brad L. Badgley $7000
Earl E. Lazerson $7000
Harry R. Maier $7000
Robert E. Saur $7000
Neil Seitz $7000
</TABLE>
As of December 1, 1999, the Trustees and officers of the Trust
beneficially owned as a group less than 1% of the outstanding shares of each
Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Under a separate investment advisory agreement with each Fund, Union
Planters provides investment advice for, and supervises the investment programs
of, the Funds. Union Planters, located at 1401 South Brentwood Boulevard, St.
Louis, Missouri 63144, is a wholly-owned subsidiary of Union Planters Holding
Corporation, itself a wholly-owned subsidiary of Union Planters Corporation, a
Tennessee corporation and a bank holding company. Union Planters Corporation,
headquartered in Memphis, Tennessee, is one of the 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.
- 25 -
<PAGE> 58
Each of the Funds pays Union Planters an annual investment advisory fee
based on a percentage of the Fund's average daily net assets. Pursuant to Union
Planters' agreement to reduce its advisory fees through December 31, 2000, such
fees are as follows: Intermediate Government Bond Fund, 0.40%; Growth & Income
Fund, 0.50%; Money Market Fund, 0.17% (through August 31, 2000) or 0.20%
(thereafter through December 31, 2000), as the case may be; Tax-Exempt Bond
Fund, 0.30%. Without such reduction, such fees would be as follows: Intermediate
Government Bond Fund, 0.50%; Growth & Income Fund, 0.75%; Money Market Fund,
0.40%; Tax-Exempt Bond Fund, 0.50%.
Each advisory agreement provides that it will continue in effect for
two years from its date of execution and thereafter from year to year if its
continuance is approved at least annually (i) by the board of trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
relevant Fund and (ii) by vote of a majority of the trustees who are not
"interested persons" of the Trust, as that term is defined in the 1940 Act, cast
in person at a meeting called for the purpose of voting on such approval. Any
amendment to an advisory agreement must be approved (i) by vote of a majority of
the outstanding voting securities of the relevant Fund and (ii) by vote of a
majority of the trustees who are not such interested persons, cast in person at
a meeting called for the purpose of voting on such approval. Each agreement may
be terminated without penalty by vote of the board of trustees or by vote of a
majority of the outstanding voting securities of the relevant Fund, upon sixty
days' written notice, or by Union Planters upon ninety days' written notice, and
terminates automatically in the event of its assignment. In addition, each
agreement will automatically terminate if the Trust or the Fund shall at any
time be required by Union Planters to eliminate all reference to the word
"Magna" in the name of the Trust or the Fund, unless the continuance of the
agreement after such change of name is approved by a majority of the outstanding
voting securities of the relevant Fund and by a majority of the trustees who are
not interested persons of the Trust or Union Planters.
Each advisory agreement provides that Union Planters shall not be
subject to any liability in connection with the performance of its services
thereunder in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
Union Planters and its affiliates also provide investment advice to
numerous other corporate and fiduciary clients. These other clients sometimes
invest in securities in which the Funds also invest. If a Fund and such other
clients desire to buy or sell the same portfolio securities at the same time,
purchases and sales may be allocated, to the extent practicable, on a pro rata
basis in proportion to the amounts desired to be purchased or sold for each. It
is recognized that in some cases the practices described in this paragraph could
have a detrimental effect on the price or amount of the securities which a Fund
purchases or sells. In other cases, however, it is believed that these practices
may benefit the Funds. It is the opinion of the trustees that the desirability
of retaining Union Planters as adviser for the Funds outweighs the
disadvantages, if any, which might result from these practices.
During the last three fiscal years, each Fund paid the following
amounts as investment advisory fees to Union Planters (including all amounts
paid by the Fund to Magna Bank, N.A.,
- 26 -
<PAGE> 59
which served as investment adviser to each Fund from inception through October
1998, when Magna Bank, N.A. merged with and into Union Planters), pursuant to
the relevant advisory agreement:
<TABLE>
<CAPTION>
FISCAL
YEAR GROSS (BEFORE NET (AFTER
ENDED VOLUNTARY VOLUNTARY
FUND AUG. 31 REDUCTION) REDUCTION REDUCTION)
---- ------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Magna Growth & Income
Fund 1997 $396,797 $132,266 $264,531
1998 $596,301 $198,767 $397,534
1999 $967,691 $322,563 $645,128
Magna Intermediate
Government Bond Fund 1997 $304,596 $ 60,919 $243,677
1998 $338,078 $ 67,615 $270,463
1999 $387,178 $ 77,435 $309,743
Magna Money Market Fund 1999 $ 96,163 $ 55,293 $ 40,870
</TABLE>
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<PAGE> 60
ADMINISTRATOR
BISYS Fund Services ("BISYS"), under an agreement with the Trust,
provides management and administrative services to the Funds, and, in general,
supervises the operations of the Trust. BISYS does not provide investment
advisory services. As part of its duties, BISYS provides office space, equipment
and clerical personnel for managing and administering the affairs of the Trust.
BISYS supervises the provision of custodial, auditing, valuation, bookkeeping,
legal, and dividend disbursing services and provides other management and
administrative services. The Trust pays BISYS a fee for its services to each
Fund at the annual rate of 0.20% of the Trust's average daily net assets;
provided, however, that BISYS has agreed to reduce its fees with respect to the
Magna Money Market Fund to 0.17% through December 31, 2000.
For the fiscal year ended August 31, 1999, pursuant to the terms of
this Agreement, the Growth & Income Fund paid BISYS $257,852, the Intermediate
Government Bond Fund paid BISYS $154,873, and the Money Market Fund paid BISYS
$40,867 (which is $7,212 less than the maximum administration fees the Fund
would have paid absent BISYS' agreement to reduce its fees to 0.17%). For the
fiscal year ended August 31, 1998, pursuant to the terms of this Agreement, the
Growth & Income Fund paid BISYS $158,698, and the Intermediate Government Bond
Fund paid BISYS $134,948. For the period June 2, 1997 (the date the Trust
entered into this agreement with BISYS) through August 31, 1997, pursuant to the
terms of this Agreement, the Growth & Income Fund paid BISYS $29,572, and the
Intermediate Government Bond Fund paid BISYS $27,878. Prior to June 2, 1997,
Ernst Asset Management Corporation ("EAMC") provided management and
administrative services to the Funds. For the period September 1, 1996 through
June 1, 1997, the Growth & Income Fund and the Intermediate Bond Fund paid EAMC
$70,951 and $87,869, respectively.
TRUST EXPENSES
The Trust pays the compensation of its trustees; registration, filing
and other fees in connection with requirements of regulatory authorities; all
charges and expenses of its custodian and transfer agent; the charges and
expenses of its independent accountants; all brokerage commissions and transfer
taxes in connection with portfolio transactions; all taxes and fees payable to
governmental agencies; the cost of any certificates representing shares of the
Funds; the expenses of meetings of the shareholders and trustees of the Trust;
the charges and expenses of the Trust's legal counsel; interest on any
borrowings by the Funds; the cost of services, including services of counsel,
required in connection with the preparation of, and the cost of printing, the
Trust's
- 28 -
<PAGE> 61
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
Funds and, in such capacity, is the registered owner of securities held in book
entry form belonging to the Funds. Upon instruction, The Fifth Third Bank
receives and delivers cash and securities of the Funds in connection with Fund
transactions and collects all dividends and other distributions made with
respect to Fund portfolio securities. Pursuant to an agreement with the Trust,
the Custodian receives compensation from each Fund for such services based upon
a percentage of each Fund's average daily net assets.
Independent Accountants. The Funds' independent accountants are
PricewaterhouseCoopers LLP, 100 East Broad Street, Columbus, Ohio 43215.
PricewaterhouseCoopers LLP conducts an annual audit of the Trust's financial
statements, assists in the preparation of the Funds' federal and state income
tax returns and consults with the Funds as to matters of accounting and federal
and state income taxation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions on U.S. stock exchanges and other agency transactions for
the account of a Fund involve the payment by the Fund of negotiated brokerage
commissions. Such commissions vary among different brokers. A particular broker
may charge different commissions according to such factors as the difficulty and
size of the transaction. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Fund usually includes an undisclosed dealer commission or markup. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is anticipated
that most purchases and sales of securities by the Funds (except for the Growth
& Income Fund) will be with the issuer or with underwriters of or dealers in
those securities, acting as principal. Accordingly, only the Growth & Income
Fund will 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 Funds' portfolio
transactions and from third parties with which these broker-dealers have
arrangements. These services include such matters as general economic and market
reviews,
- 29 -
<PAGE> 62
industry and company reviews, evaluations of investments, newspapers, magazines,
pricing services, quotation services, news services, timing services and
personal computers utilized by Union Planters' or its affiliates' portfolio
managers and analysts. Some of these services are of value to Union Planters and
its affiliates in advising various of their clients (including the Funds),
although not all of these services are necessarily useful and of value in
managing the Funds. The management fees paid by the Funds are not reduced
because Union Planters and its affiliates receive these services, even though
Union Planters might otherwise be required to purchase some of these services
for cash.
Union Planters places all orders for the purchase and sale of portfolio
investments for the Funds. In doing so, Union Planters uses its best efforts to
obtain for each Fund the most favorable price and execution available, except to
the extent it may be permitted to pay higher brokerage commissions as described
below. In seeking the most favorable price and execution, Union Planters, having
in mind the Fund's best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security or other investment, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
As permitted by Section 28(e) of the 1934 Act, Union Planters may cause
each Fund to pay a broker-dealer which provides "brokerage and research
services" (as defined in the 1934 Act) to Union Planters or its affiliates an
amount of disclosed commission for effecting securities transactions on stock
exchanges and other transactions for the Fund on an agency basis in excess of
the commission which another broker would have charged for effecting that
transaction. Union Planters' authority to cause the Funds to pay any such
greater commissions is also subject to such policies as the Trust's trustees may
adopt from time to time. It is the position of the staff of the SEC that Section
28(e) does not apply to the payment of such greater commissions in "principal"
transactions. Accordingly, Union Planters will use its best effort to obtain the
most favorable price and execution available with respect to such transactions,
as described above.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trust's trustees may
determine, Union Planters considers sales of shares of the Funds as a factor in
the selection of broker-dealers to execute portfolio transactions for the Funds.
Under the 1940 Act, persons affiliated with the Trust are prohibited
from dealing with the Funds as a principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts,
affiliated persons of the Trust, such as BISYS, may not serve as the Funds'
dealer in connection with such transactions.
During the fiscal years ended August 31, 1997, August 31, 1998 and
August 31, 1999, the Trust paid, on behalf of the Growth & Income Fund, $24,797,
$31,137 and $51,122, respectively, in brokerage commissions. No such commissions
were paid to the Trust.
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<PAGE> 63
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 four separate
series - one for each of the Growth & Income Fund, the Intermediate Government
Bond Fund, the Money Market Fund and the Tax-Exempt 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 general expenses
of the Trust. Any general expenses of the Trust that are not readily
identifiable as belonging to a particular Fund are allocated by or under the
direction of the Trustees in such manner as the trustees determine to be fair
and equitable. Although the expenses of the Trust are allocated to the separate
books of account of each Fund, certain expenses may be legally chargeable
against the assets of both Funds.
The Declaration of Trust also permits the trustees, without shareholder
approval, to subdivide any series of shares into various sub-series or classes
of shares with such dividend preferences and other rights as the trustees may
designate. The Trust may at a future date offer different classes of shares of
each Fund with different sales charge arrangements. The trustees may also,
without shareholder approval, establish one or more additional separate
portfolios for investments in the Trust or merge two or more existing
portfolios. Shareholders' investments in such an additional or merged portfolio
would be evidenced by a separate series of shares (i.e., a new "Fund").
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.
- 31 -
<PAGE> 64
VOTING RIGHTS
As summarized in the Prospectus, shareholders are entitled to one vote
for each full share held (with fractional votes for each fractional share held)
and may vote (to the extent provided in the Declaration of Trust) in the
election of trustees and the termination of the Trust and on other matters
submitted to the vote of shareholders.
The Declaration of Trust provides that on any matter submitted to a
vote of all Trust shareholders, all Trust shares entitled to vote shall be voted
together irrespective of series or sub-series unless the rights of a particular
series or sub-series would be adversely affected by the vote, in which case a
separate vote of that series or sub-series shall also be required to decide the
question. Also, a separate vote shall be held whenever required by the 1940 Act
or any rule thereunder. Rule l8f-2 under the 1940 Act provides in effect that a
class shall be deemed to be affected by a matter unless it is clear that the
interests of each class in the matter are substantially identical or that the
matter does not affect any interest of such class. On matters affecting an
individual series, only shareholders of that series are entitled to vote.
Consistent with the current position of the SEC, shareholders of all series vote
together, irrespective of series, on the election of trustees and the selection
of the Trust's independent accountants, but shareholders of each series vote
separately on other matters requiring shareholder approval, such as certain
changes in investment policies of that series or the approval of the investment
advisory agreement relating to that series.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that, in accordance with the 1940 Act, (i) the Trust
will hold a shareholders' meeting for the election of trustees at such time as
less than a majority of the trustees holding office have been elected by
shareholders, and (ii) if, as a result of a vacancy on the board of trustees,
less than two-thirds of the trustees holding office have been elected by the
shareholders, that vacancy may be filled only by a vote of the shareholders. In
addition, trustees may be removed from office by a written consent signed by the
holders of two-thirds of the outstanding shares and filed with the Trust's
custodian or by a vote of the holders of two-thirds of the outstanding shares at
a meeting duly called for that purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Trust has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders).
Except as set forth above, the trustees shall continue to hold office
and may appoint successor trustees. Voting rights are not cumulative.
- 32 -
<PAGE> 65
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Trust, except
(i) to change the Trust's name or to cure technical problems in the Declaration
of Trust and (ii) to establish, change or eliminate the par value of any shares
(currently all shares have no par value).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund of
which they are shareholders. However, the Declaration of Trust disclaims
shareholder liability for acts or obligations of each Fund and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees. The Declaration of Trust
provides for indemnification out of Fund property for all loss and expense of
any shareholder held personally liable for the obligations of a Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and the relevant Fund itself would be unable to meet
its obligations.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The By-Laws of the Trust provide for indemnification by the Trust of
the trustees and officers of the Trust except with respect to any matter as to
which any such person did not act in good faith in the reasonable belief that
such action was in or not opposed to the best interests of the Trust. No officer
or trustee may be indemnified against any liability to the Trust or the Trust's
shareholders to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
RECORD AND BENEFICIAL OWNERS OF 5% OR MORE OF THE FUND'S SHARES
As of November 1, 1999, 99.79% of the Intermediate Government Bond Fund
shares, 98.01% of the Growth & Income Fund shares and 96.45% of the Money Market
Fund shares were owned of record by Union Planters; all of such shares were held
for the benefit of accounts for which Union Planters acts as trustee or
custodian.
The following chart sets forth the names, addresses and percentage
ownership of those shareholders known to the Trust as owning beneficially 5% or
more of the outstanding shares of any Fund as of November 1, 1999:
- 33 -
<PAGE> 66
<TABLE>
<CAPTION>
Name and Address %
Fund of Beneficial Owner Ownership
- ---- ------------------- ---------
<S> <C> <C>
Magna Growth & Income ISTCO A Partnership 98.01%
Fund P.O. Box 523
Belleville, IL 62222-0523
Magna Intermediate ISTCO A Partnership 99.79%
Government Bond Fund P.O. Box 523
Belleville, IL 62222-0523
Magna Money Market ISTCO A Partnership 96.45%
Fund P.O. Box 523
Belleville, IL 62222-0523
</TABLE>
NET ASSET VALUE AND PUBLIC OFFERING PRICE
All Funds
- ---------
The net asset value of the shares of each Fund is determined by
dividing that Fund's total net assets (the excess of its assets over its
liabilities) by the total number of shares of the Fund outstanding and rounding
to the nearest cent. Such determination is made by BISYS as of the close of
regular trading on the New York Stock Exchange on each day on which that
Exchange is open for unrestricted trading, and no less frequently than once
daily on each day during which there is sufficient trading in a Fund's portfolio
securities that the value of that Fund's shares might be materially affected.
The New York Stock Exchange is expected to be closed on the following weekdays:
Thanksgiving Day, Christmas Day, New Year's Day, President's Day, Good Friday,
Martin Luther King, Jr. Day, Memorial Day, Independence Day
- 34 -
<PAGE> 67
and Labor Day. The Money Market Fund will also be closed on Columbus Day and
Veteran's Day.
All Funds (except for the Money Market Fund)
- --------------------------------------------
Equity securities listed on an established securities exchange or on
the NASDAQ National Market System are normally valued at their last sale price
on the exchange where primarily traded or, if there is no reported sale during
the day, and in the case of over-the-counter securities not so listed, at the
last bid price. Long-term debt securities are valued by a pricing service, which
determines valuations of normal institutional-size trading units of long-term
debt securities. Such valuations are determined using methods based on market
transactions for comparable securities and on various relationships between
securities which are generally recognized by institutional traders. Other
securities for which current market quotations are not readily available
(including restricted securities, if any) and all other assets are taken at fair
value as determined in good faith by the trustees, although the actual
calculations may be made by persons acting pursuant to the direction of the
trustees.
Money Market Fund
- -----------------
Under normal market conditions, the Money Market Fund values its
portfolio securities at "amortized cost." 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 date 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 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 1/2 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.
- 35 -
<PAGE> 68
SHAREHOLDER SERVICES
Please see the Prospectus under "Shareholder Information" for additional
information regarding these and other services offered by the Funds.
OPEN ACCOUNTS
A shareholder's investment in any Fund is automatically credited to an
open account maintained for the shareholder by BISYS Fund Services, Inc.
("BISYS"), the shareholder servicing agent for Trust. Following each transaction
in the account, a shareholder will receive an account statement disclosing the
current balance of shares owned and the details of recent transactions in the
account. After the close of each fiscal year, BISYS will send each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year. This should be retained as a permanent
record. Shareholders will be charged a fee for duplicate information.
The open account system permits the purchase of full and fractional
shares and, by making the issuance and delivery of certificates representing
shares unnecessary, eliminates the problems of handling and safekeeping
certificates, and the cost and inconvenience of replacing lost, stolen,
mutilated or destroyed certificates.
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 Information," provides for monthly, quarterly, semiannual or annual
withdrawal payments of $50 or more ($100 or more in the case of the Money Market
Fund) from the account of a shareholder provided that the account has a value of
at least $5,000 ($10,000 in the case of the Money Market Fund) 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.
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
- 36 -
<PAGE> 69
representations in this regard. It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan. See "Redemptions" and
"Income Dividends, Capital Gain Distributions and Tax Status" below for certain
information as to federal income taxes.
IRA'S
Under "Shareholder Information," the Prospectus refers to IRAs
established under a prototype plan made available by Union Planters. These plans
may be funded with shares of any 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 (MONEY MARKET FUND ONLY)
A Money Market Fund 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. A minimum
account balance, as disclosed in the Prospectus from time to time, may also
apply.
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).
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
- 37 -
<PAGE> 70
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 "Shareholder Information."
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. The circumstances
under which a signature guarantee will be required are described in the
Prospectus.
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 (up to $10.00) is deducted.
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 where reasonable
procedures are followed to verify that telephone instructions are correct.
The redemption price will be the net asset value per share next
determined after the redemption request and any necessary special documentation
are received by BISYS in proper
- 38 -
<PAGE> 71
form. Proceeds resulting from a written redemption request will normally be
mailed to you within seven days after receipt of your request in good order.
Telephonic redemption proceeds will normally be wired on the first business day
following receipt of a proper redemption request. In those cases where you have
recently purchased your shares by check and your check was received less than 10
days prior to the redemption request, the Fund may withhold redemption proceeds
until your check has cleared, which may take up to 10 days from the purchase
date.
Each Fund will normally redeem shares for cash; however, each Fund
reserves the right to pay the redemption price wholly or partly in kind if the
board of trustees of the Trust determines it to be advisable in the interest of
the remaining shareholders. If portfolio securities are distributed in lieu of
cash, the shareholder will normally incur brokerage commissions upon subsequent
disposition of any such securities. However, the Trust has elected to be
governed by Rule l8f-l under the 1940 Act pursuant to which the Trust is
obligated to redeem shares solely in cash for any shareholder during any 90-day
period up to the lesser of $250,000 or 1% of the total net asset value of the
Trust at the beginning of such period. In the event Fund shares are redeemed in
kind, the Fund will attempt to distribute liquid securities.
A redemption constitutes a sale of the shares for federal income tax
purposes on which the investor may realize a long- or short-term capital gains
or loss. See "Income Dividends, Capital Gains Distributions and Tax Status."
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
It is the policy of each Fund to pay its shareholders, as dividends,
substantially all net investment income and to distribute annually all net
realized capital gains, if any, after offsetting any capital loss carryovers.
Please refer to "Dividends and Distributions" in the Prospectus for information
regarding the frequency with which each Fund declares and pays dividends.
Income dividends and capital gains distributions are payable in full
and fractional shares of the particular Fund based upon the net asset value
determined as of the close of regular trading on the New York Stock Exchange on
the record date for each dividend or distribution. Shareholders, however, may
elect to receive their income dividends or capital gains distributions, or both,
in cash. The election may be made at any time by submitting a written request
directly to BISYS. In order for a change to be in effect for any dividend or
distribution, it must be received by BISYS on or before the record date for such
dividend or distribution.
As required by federal law, detailed federal tax information will be
furnished to each shareholder for each calendar year on or before January 31 of
the succeeding year.
Each Fund intends to qualify each year as a regulated investment
company under Subchapter M of the Code. In order so to qualify, the Fund must,
among other things, (i)
- 39 -
<PAGE> 72
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 Funds may be limited in their
ability to use certain investment techniques and may be required to liquidate
assets to distribute income. Moreover, some investment techniques used by the
Funds may change the character and amount of income recognized by the Funds. As
a regulated investment company, each Fund will not be subject to federal income
tax on income paid on a timely basis to its shareholders in the form of
dividends or capital gain distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any,
of each Fund's "required distribution" (as defined in the Code) over its actual
distributions in any calendar year. Generally, the "required distribution" is
98% of the Fund's ordinary income for the calendar year plus 98% of its capital
gain net income recognized during the one-year period ending on October 31 plus
undistributed amounts from prior years. Each Fund intends to make distributions
sufficient to avoid imposition of the excise tax. Distributions declared by a
Fund during October, November or December to shareholders of record on a date in
any such month and paid by the Fund during the following January will be treated
for federal tax purposes as paid by the Fund and received by shareholders on
December 31 of the year in which declared.
The Tax-Exempt Bond Fund will be qualified to pay "exempt-interest
dividends" to its shareholders only if, at the close of each quarter of the
Fund's taxable year, at least 50% of the total value of the Fund's assets
consists of obligations, the interest on which is exempt from federal income
tax. Distributions that the Fund properly designates as exempt-interest
dividends are treated as interest excludable from shareholders' gross income for
federal income tax purposes but may be taxable for federal alternative minimum
tax purposes and for state and local purposes. Because Fund expenses
attributable to earning tax-exempt income do not reduce the Fund's current
earnings and profits, a portion of any distribution in excess of the Fund's net
tax-exempt and taxable income may be considered as paid out of the Fund's
earnings and profits and may therefore be treated as a taxable dividend (even
though that portion represents a return of the Fund's capital). Distributions,
if any, in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a shareholder's shares and, after that basis has been
reduced to zero, will constitute capital gains to such shareholder (assuming
that such shareholder held its shares as a capital asset).
If a shareholder incurs or continues indebtedness to purchase by or
carry shares of the Tax-Exempt Bond Fund, that portion of interest paid or
accrued on such indebtedness that equals the total interest paid or accrued on
the indebtedness, multiplied by the percentage of the Fund's total distributions
(not including distributions from net long-term capital gains) paid to such
shareholder that are exempt-interest dividends, is not deductible for federal
income tax purposes. The Internal Revenue Service may consider the purchase of
shares to have been
- 40 -
<PAGE> 73
made with borrowed funds even though such funds are not directly traceable to
the purchase of shares.
Each shareholder is advised to consult his or her tax adviser with
respect to whether exempt-interest dividends would retain the exclusion from tax
if such shareholder were treated as a "substantial user" or a "related person",
as those terms are defined in the Code, with respect to facilities financed
through any of the tax-exempt obligations held by the Tax-Exempt Bond Fund. In
addition, if you receive social security or railroad retirement benefits, you
should consult your tax adviser to determine what effect, if any, an investment
in the Tax-Exempt Bond Fund may have on the taxation of your benefits.
Shareholders of each Fund will be subject to federal income taxes on
distributions made by each Fund, whether received in cash or additional shares
of the Fund, as described herein and in the Prospectus. Distributions by each
Fund of net income and short-term capital gains, if any, will be taxable to
shareholders as ordinary income. Distributions designated by a Fund as deriving
from net gains on securities held for more than one year will be taxable to
shareholders as long-term capital gain (generally at a 20% rate for noncorporate
shareholders), regardless of how long a shareholder has held shares in the Fund.
A loss on the sale of shares held for six months or less will be treated as a
long-term capital loss to the extent of any long-term capital gain dividend paid
to the shareholder with respect to such shares. If a shareholder sells
Tax-Exempt Bond Fund shares held for six months or less at a loss, the loss will
be disallowed to the extent of any exempt-interest dividends received by the
shareholder with respect to the shares. For purposes of determining whether
shares have been held for six months or less, the holding period is suspended
for any periods during which a shareholder's risk of loss is diminished as a
result of holding one or more other positions in substantially similar or
related property, or through certain options or short sales.
Dividends and distributions on a Fund's shares are generally subject to
a federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when a Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed. Such realized gains may be required to be
distributed even when a Fund's net asset value also reflects unrealized losses.
Generally a Fund may designate dividends eligible for the
dividends-received deduction only to the extent that such dividends are derived
from dividends paid to the Fund with respect to which the Fund could have taken
the dividends-received deduction if it had been a regular corporation. The
dividends-received deduction is not available to non-corporate shareholders,
Subchapter S corporations or corporations who do not hold their shares for at
least 46 days during the 90-day period beginning on the date that is 45 days
before the ex-dividend date.
Redemptions, sales and exchanges of each Fund's shares are taxable
events and, accordingly, shareholders may realize gains and losses on these
transactions. Provided the shareholder holds the shares as a capital asset, any
gain realized upon a taxable disposition of shares will be treated as long-term
capital gain if the shares have been held for more than 12 months. Otherwise,
the gain on the redemption, sale or exchange of fund shares will be treated as
short-term capital gain. In general, any loss realized upon a taxable
disposition of shares will be treated as a long-term capital loss if the shares
have been held for more than 12 months, and otherwise as short-term capital
loss. No loss will be allowed on the sale of Fund shares to the extent the
shareholder acquired other shares of the same Fund within 30 days prior to the
sale of the loss shares or 30 days after such sale.
- 41 -
<PAGE> 74
A Fund's investment in securities issued at a discount and certain
other obligations will (and investments in securities purchased at a discount
may) require the Fund to accrue and distribute income not yet received. In such
cases, a Fund may be required to sell assets (including when it is not
advantageous to do so) to generate the cash necessary to distribute as dividends
to its shareholders all of its income and gains and therefore to eliminate any
tax liability at the Fund level.
A Fund's investment in foreign securities, if any, may be subject to
foreign withholding taxes. In that case, such Fund's yield on those securities
would be decreased. Shareholders generally will not be entitled to claim a
credit or deduction with respect to foreign taxes. In addition, a Fund's
investments in foreign securities or foreign currencies may increase or
accelerate such Fund's recognition of ordinary income and may affect the timing
or amount of such Fund's distributions.
A Fund's transactions, if any, in foreign currencies are likely to
result in a difference between the Fund's book income and taxable income. This
difference may cause a portion of the Fund's income distributions to constitute
a return of capital for tax purposes or require the Fund to make distributions
exceeding book income to avoid excise tax liability and to qualify as a
regulated investment company.
Dividends and distributions also may be subject to state and local
taxes. To the extent distributions consist of interest from securities of the
U.S. government and certain of its agencies and instrumentalities, they may be
exempt from state and local income taxes. Interest from obligations that are
merely guaranteed by the U.S. government or one of its agencies generally is not
entitled to this exemption. Shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state or local taxes.
The foregoing discussion relates solely to U.S. investors. Non-U.S.
investors should consult their tax advisers concerning the tax consequences of
ownership of shares of a Fund, including the possibility that distributions may
be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
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.
PERFORMANCE INFORMATION
Each Fund may from time to time include its total return and/or yield
in advertisements or in information furnished to present or prospective
shareholders. Each Fund may from time to time include in advertisements its
total return and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Morningstar, Donoghue or
Lipper Analytical Services as having the same investment objectives.
Each 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 each 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. Each 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.
- 42 -
<PAGE> 75
Yield. Each 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 in the case of the Magna Money
Market Fund) 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. A 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 a Fund's yield may be for any future period. A Fund's
yields are not guaranteed.
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 a 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.
The table below sets forth the average annual total return of each Fund
for the one year period ending August 31, 1999 and for the period from the
commencement of the Funds' operations until August 31, 1999:
<TABLE>
AVERAGE ANNUAL RETURN OF FUND SHARES FOR THE PERIODS LISTED
Assuming MAXIMUM sales load (4.00%):
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Total Return Total Return Total Return
FUND (One Year) (Three Year) (Since Inception)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Magna Growth & Income Fund 28.36% 18.21% 21.52%
(commencement of operations:
September 1, 1994)
- ---------------------------------------------------------------------------------------------------------
Magna Intermediate Government -5.88% 3.57% 4.49%
Bond Fund (commencement of
operations: September 1, 1994)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- 43 -
<PAGE> 76
<TABLE>
Assuming NO sales load (0.00%):
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Total Return Total Return Total Return
FUND (One Year) (Three Year) (Since Inception)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Magna Growth & Income Fund 33.73% 26.66% 22.51%
(commencement of operations:
September 1, 1994)
- ---------------------------------------------------------------------------------------------------------
Magna Intermediate Government -1.97% 4.99% 5.34%
Bond Fund (commencement of
operations: September 1, 1994)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Yield for Magna Money Market Fund
The table below sets forth the Magna Money Market Fund's yield and total
effective yield, in each case based on the seven days ended August 31, 1999;
<TABLE>
<CAPTION>
Magna Money Market Fund Yield Effective Yield
<S> <C> <C>
4.67% 4.78%
</TABLE>
- 44 -
<PAGE> 77
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> 78
APPENDIX B
DESCRIPTION OF BOND RATINGS ASSIGNED BY
STANDARD & POOR'S CORPORATION AND
MOODY'S INVESTORS SERVICE, INC.
STANDARD & POOR'S CORPORATION
Corporate Bonds
- ---------------
AAA
This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA
Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay interest and repay principal is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for bonds in higher-rated categories.
BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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
B-1
<PAGE> 79
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+."
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC.
Corporate Bonds
- ---------------
Aaa
Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large, or by an exceptionally
stable, margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A
Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
B-2
<PAGE> 80
Baa
Bonds that are rated Baa are considered as medium-grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest
Ca
Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest-rated class of bonds, and issues
so rated can be regarded having extremely poor prospects of ever attaining any
real investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are
not rated as a matter of policy.
B-3
<PAGE> 81
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is
not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
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-4
