<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON FEBRUARY 5, 1996
REGISTRATION NO. 33-91448 811-9024
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. __ [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 2
(Check appropriate box or boxes)
TIME HORIZON FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Address of Principal Executive Offices, including Zip Code)
J. DAVID HUBER
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Name and Address of Agent for Service)
COPY TO:
CATHY G. O'KELLY
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 N. LASALLE
CHICAGO, ILLINOIS 60695
________________
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite number of shares of beneficial interest under the
Securities Act of 1933. Registrant's initial Rule 24f-2 Notice will be filed
no later than August 29, 1996.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b); or
[X] on February 5, 1996 pursuant to paragraph (b); or
[ ] 60 days after filing pursuant to paragraph (a)(1); or
[ ] on (date) pursuant to paragraph (a)(1); or
[ ] 75 days after filing pursuant to paragraph (a)(2); or
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
TIME HORIZON FUNDS
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------
PART A
<S> <C> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expense Summary
Item 3. Condensed Financial Information . . . . . . . . . . . . . . . . . . . Financial Highlights
Item 4. General Description of Registrant . . . . . . . . . . . . . . . . . . Cover Page; Fund Investments; The
Business of the Funds; Description of
Shares
Item 5. Management of Fund . . . . . . . . . . . . . . . . . . . . . . . . . The Business of the Funds
Item 5A. Management's Discussion of Fund Performance . . . . . . . . . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . . . . . . . . . Description of Shares; Shareholder
Guide; Tax Information
Item 7. Purchase of Securities Being Offered . . . . . . . . . . . . . . . . Shareholder Guide; Plan Payments
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . . . . . . . . Shareholder Guide
Item 9. Pending Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . Not Applicable
PART B
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
Item 12. General Information and History . . . . . . . . . . . . . . . . . . . Not Applicable
Item 13. Investment Objectives and Policies . . . . . . . . . . . . . . . . . Investment Objectives and Policies
Item 14. Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . Management
Item 15. Control Persons and Principal Holders of Securities . . . . . . . . . General Information
Item 16. Investment Advisory and Other Services . . . . . . . . . . . . . . . Management
Item 17. Brokerage Allocation and Other Practices . . . . . . . . . . . . . . Management
Item 18. Capital Stock and Other Securities . . . . . . . . . . . . . . . . . General Information
Item 19. Purchase, Redemption and Pricing of Securities Additional Purchase and Redemption
Being Offered . . . . . . . . . . . . . . . . . . . . . . . . . . Information
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Information Concerning Taxes
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Information
Item 22. Calculation of Performance Data . . . . . . . . . . . . . . . . . . . General Information
Item 23. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration
Statement.
<PAGE> 3
PROSPECTUS
FEBRUARY 5, 1996
TIME HORIZON PORTFOLIO 1
TIME HORIZON PORTFOLIO 2
TIME HORIZON PORTFOLIO 3
Investment Funds offered by Time Horizon Funds
- --------------------------------------------------------------------------------
The Time Horizon Series of Funds consists of three asset allocation funds
offered by Time Horizon Funds, an open-end management investment company (the
"Company") registered under the Investment Company Act of 1940 (the "1940 Act").
By this Prospectus, Time Horizon Funds is offering shares in three funds, Time
Horizon Portfolio 1 ("Portfolio 1"), Time Horizon Portfolio 2 ("Portfolio 2")
and Time Horizon Portfolio 3 ("Portfolio 3") (each individually a "Fund" and
collectively the "Funds" or "Time Horizon Series of Funds").
The Time Horizon Funds' investment objective is to provide long-term investors
maximum total return over a stated investment time period while also
increasingly emphasizing capital preservation as each Fund approaches its target
time horizon. Each Fund targets a specific investment time horizon (the year
2005 for Portfolio 1, the year 2015 for Portfolio 2 and the year 2025 for
Portfolio 3). Investors are encouraged to choose the appropriate Time Horizon
Fund depending upon their evaluation of the anticipated timing of major
investment goals such as sending a child to college, nearing retirement or
purchasing a home.
Bank of America National Trust and Savings Association ("Bank of America" or the
"Manager") serves as the Funds' manager. Based in San Francisco, California,
Bank of America and its affiliates have over $50 billion under management, of
which over $10 billion is in mutual funds.
This Prospectus describes concisely the information about the Funds and the
Company that you should know before investing. Please read it carefully and
retain it for future reference.
More information about the Funds is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. To
obtain a free copy, call (800) 247-9728. The Statement of Additional
Information, as it may be revised from time to time, is dated February 5, 1996
and is incorporated by reference into this Prospectus.
- --------------------------------------------------------------------------------
Fund shares are not bank deposits or obligations of, or guaranteed or endorsed
by, Bank of America or any of its affiliates and are not federally insured by,
guaranteed by, obligations of or otherwise supported by the U.S. Government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
governmental agency. Investment in a Fund involves investment risk, including
the possible loss of principal amount invested.
- --------------------------------------------------------------------------------
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
This Prospectus is part of a Registration Statement that has been filed with the
Securities and Exchange Commission in Washington, D.C. under the Securities Act
of 1933.
No person has been authorized to give any information or to make any
representations in connection with the offer of a Fund's shares, other than as
contained in this Prospectus and the Fund's official sales literature.
Therefore, other information and representations must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer in any State in which, or to any person to whom, such offering may not
lawfully be made.
- --------------------------------------------------------------------------------
<PAGE> 4
CONTENTS
<TABLE>
<S> <C> <C>
EXPENSE SUMMARY 2
FINANCIAL HIGHLIGHTS 4
FUND INVESTMENTS 5 INVESTMENT OBJECTIVES
5 ASSET ALLOCATION
6 UPON REACHING THE TIME HORIZON
6 RISK FACTORS
6 TYPES OF INVESTMENTS
8 FUNDAMENTAL LIMITATIONS
9 OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
SHAREHOLDER GUIDE 13 HOW TO BUY SHARES
13 What Is My Minimum Investment In A Fund?
13 What Alternative Sales Arrangements Are Available?
14 How Are Shares Priced?
17 How Do I Decide Which Class To Buy?
18 How Can I Buy Shares?
20 What Price Will I Receive When I Buy Shares?
21 What Else Should I Know To Make A Purchase?
21 HOW TO SELL SHARES
21 How Do I Redeem My Shares?
23 What "NAV" Will I Receive For Shares I Want To Sell?
23 What Kind Of Paperwork Is Involved In Selling Shares?
24 How Quickly Can I Receive My Redemption Proceeds?
24 Do I Have Any Reinstatement Privileges After I Have
Redeemed Shares?
24 DIVIDEND AND DISTRIBUTION POLICIES
SHAREHOLDER SERVICES 25 CAN I USE A FUND IN MY RETIREMENT PLAN?
25 CAN I EXCHANGE MY INVESTMENT FROM ONE FUND
TO ANOTHER?
26 WHAT IS TELETRADE?
26 CAN I ARRANGE TO HAVE AUTOMATIC INVESTMENTS MADE ON A
REGULAR BASIS?
26 WHAT IS DOLLAR COST AVERAGING AND HOW CAN I IMPLEMENT IT?
27 CAN I ARRANGE PERIODIC WITHDRAWALS?
27 CAN MY DIVIDENDS FROM A FUND BE INVESTED
IN OTHER FUNDS?
27 IS THERE A SALARY DEDUCTION PLAN AVAILABLE?
THE BUSINESS OF THE FUNDS 28 BOARD OF TRUSTEES
28 EXPENSES
28 MANAGER
29 FUND ACCOUNTANT
29 DISTRIBUTOR
29 CUSTODIAN AND TRANSFER AGENT
29 FEE WAIVERS
PLAN PAYMENTS 30 THE SHAREHOLDER SERVICE PLAN
30 THE DISTRIBUTION PLAN
TAX INFORMATION 31 FEDERAL TAXES
32 STATE AND LOCAL TAXES
MEASURING PERFORMANCE 32
DESCRIPTION OF SHARES 33 ABOUT THE COMPANY
33 VOTING RIGHTS
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR: MANAGER:
Concord Financial Group, Inc. Bank of America National Trust and Savings Association
BISYS Fund Group, Inc. 555 California Street
3435 Stelzer Road San Francisco, CA 94104
Columbus, OH 43219
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when buying or selling
shares of a Fund. The Company offers two classes of shares. Class A shares are
offered at net asset value plus an initial sales charge (see page 14 of the
Prospectus for an explanation of net asset value per shares) and are subject to
a shareholder servicing fee. Class B shares are offered at net asset value
without a sales charge but subject to a contingent deferred sales charge plus
distribution plan and shareholder servicing fees. Class B shares will convert to
Class A shares on the first business day of the month following the eighth
anniversary of the date of purchase.
ANNUAL FUND OPERATING EXPENSES include payments by a Fund which are allocable to
the Fund. Operating expenses include fees for portfolio management, maintenance
of shareholder accounts, general administration, distribution plan, shareholder
servicing, accounting and other services.
Below is a summary of the shareholder transaction expenses charged by each Fund
for Class A and Class B shares and each Fund's estimated operating expenses for
the first twelve months of operations. A hypothetical example based on the
summary is also shown.
<TABLE>
<CAPTION>
PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3
----------------- ----------------- -----------------
CLASS CLASS CLASS CLASS CLASS CLASS
SHAREHOLDER TRANSACTION EXPENSES A B A B A B
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)+............... 4.50% None 4.50% None 4.50% None
Sales Load Imposed on Reinvested Dividends..... None None None None None None
Maximum Contingent Deferred Sales Load......... None 5.00% None 5.00% None 5.00%
Redemption Fee................................. None None None None None None
Exchange Fee................................... None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets
after expense reimbursements*)
Management Fees (after expense
reimbursements*)............................. 0.30% 0.30% 0.30% 0.30% 0.30% 0.30%
12b-1 Fees..................................... None 0.75% None 0.75% None 0.75%
All Other Estimated Expenses
(after expense reimbursements*)
Shareholder Service Payments............... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Estimated Expenses................... 0.45% 0.45% 0.45% 0.45% 0.45% 0.45%
Total Estimated Fund Operating Expenses........ 1.00% 1.75% 1.00% 1.75% 1.00% 1.75%
<FN>
- -----------------------
+ Class B shareholders who hold their shares for an extended period of
time may pay more in Rule 12b-1 distribution fees than the economic
equivalent of the maximum front-end sales charges permitted under the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc. See "How to Buy Shares," below.
* The Manager has agreed to reduce its fees and absorb other operating
expenses to ensure that the operating expenses for each Fund (other
than interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extraordinary expenses)
will not exceed 1.00% and 1.75% of the average net assets of each
Fund's Class A and Class B shares, respectively, on an annual basis
for the first twelve months of the Funds' operations. Absent expense
reimbursement, management fees would be 0.60% of average net assets,
actual "Other Estimated Expenses" for each Fund's Class A and Class B
shares for the fiscal year ended June 30, 1996, would be 1.75% and
1.75% of average net assets (annualized), respectively, and actual
"Total Estimated Fund Operating Expenses" for each Fund's Class A and
Class B shares for the fiscal year ended June 30, 1996, would be 2.60%
and 3.35% of average net assets (annualized), respectively.
</TABLE>
2
<PAGE> 6
- --------------------------------------------------------------------------------
EXAMPLE: Assume the annual return is 5% and operating expenses are the same as
those stated above. For every $1,000 you invest in a Fund, for example, here's
how much you would have paid in total expenses if you closed your account after
the number of years indicated:
<TABLE>
<CAPTION>
AFTER AFTER
1 3
YEAR YEARS
---- ----
<S> <C> <C>
Class A shares(1).............................................................. $ 55 $ 75
Class B shares
Assuming complete redemption at end of period(2)........................... $ 68 $ 85
Assuming no redemption..................................................... $ 18 $ 55
<FN>
- ---------------
1. Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
2. Assumes deduction at time of redemption of maximum applicable contingent
deferred sales charge.
Note: The preceding example should not be considered representative of future
investment returns and operating expenses. The Funds are new and the above
figures are based on estimated expenses for the first twelve months of Fund
operations only. Actual investment returns and operating expenses may be more or
less than those shown.
</TABLE>
- --------------------------------------------------------------------------------
This expense information is provided to help you understand the expenses you
would bear either directly (as with transaction expenses) or indirectly (as with
annual operating expenses) as a Fund shareholder.
The Funds pay a management fee at the annual rate of 0.60% of a Fund's average
daily net assets.
A distribution plan payment is made in the amount of 0.75% of the average daily
net assets of a Fund's Class B shares. A shareholder service payment is made in
the amount of 0.25% of the average daily net assets of a Fund's Class A and
Class B shares. For a further description of shareholder transaction expenses
and each Fund's operating expenses, see the sections entitled "Shareholder
Guide," "The Business of the Funds" and "Plan Payments," below.
The alternative sales arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other circumstances.
Investors should determine whether under their particular circumstances it is
more advantageous to incur an initial sales charge, or to have the entire
initial purchase price invested in a Fund with the investment thereafter being
subject to an annual distribution plan charge and a contingent deferred sales
charge. See the section entitled "How to Buy Shares," below.
3
<PAGE> 7
FINANCIAL HIGHLIGHTS
The table below shows certain information concerning the investment results for
the Funds for the period indicated.
The Financial Highlights should be read in conjunction with the financial
statements and notes thereto in the Statement of Additional Information. The
Statement of Additional Information may be obtained from the Funds free of
charge by calling (800) 247-9728.
<TABLE>
<CAPTION>
PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3
---------------------------- ---------------------------- ----------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------------ ------------ ------------ ------------ ------------ ------------
SEPTEMBER 5, SEPTEMBER 5, SEPTEMBER 5, SEPTEMBER 5, SEPTEMBER 5, SEPTEMBER 5,
1995 TO 1995 TO 1995 TO 1995 TO 1995 TO 1995 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995(A) 1995(A) 1995(A) 1995(A) 1995(A) 1995(A)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $10.04(d) $10.04(d) $10.04(d) $10.04(d) $10.04(d) $10.04(d)
------------ ------------ ------------ ------------ ------------ ------------
INVESTMENT ACTIVITIES:
Net investment income.......... 0.06 0.05 0.06 0.05 0.05 0.04
Net realized and unrealized
gains on investments......... 0.27 0.27 0.34 0.34 0.40 0.40
------------ ------------ ------------ ------------ ------------ ------------
0.33 0.32 0.40 0.39 0.45 0.44
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS:
Net investment income.......... (0.06) (0.05) (0.06) (0.05) (0.05) (0.04)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period... $10.31 $10.31 $10.38 $10.38 $10.44 $10.44
============= ============= ============= ============= ============= =============
Total Return (excludes sales and
redemption charges)(b)......... 3.27% 3.19% 3.97% 3.78% 4.36% 4.38%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)........................ $2,712 $6,945 $2,702 $4,823 $2,041 $4,400
Ratio of expenses to average
net assets(c)................ 0.02% 0.72% 0.02% 0.68% 0.02% 0.74%
Ratio of net investment income
to average net assets(c)..... 4.54% 3.87% 4.16% 3.55% 4.04% 3.37%
Ratios Without Reimbursement:*
Ratio of expenses to average
net assets(c)*............... 2.98% 3.72% 3.35% 4.10% 3.04% 3.78%
Ratio of net investment income
to average net assets(c)*.... 1.58% 0.87% 0.83% 0.13% 1.02% 0.33%
Portfolio turnover**........... 85.33% 85.33% 59.79% 59.79% 33.02% 33.02%
<FN>
-----------------
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had not
occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Net asset value includes the effect of income earned on initial seed money
for the period from July 26, 1995 (initial seed date) through September 4,
1995.
</TABLE>
4
<PAGE> 8
FUND INVESTMENTS
- ----------------------------------------------------------------------------
INVESTMENT OBJECTIVES
THE INVESTMENT OBJECTIVE OF THE TIME HORIZON FUNDS IS TO PROVIDE LONG-TERM
INVESTORS MAXIMUM TOTAL RETURN OVER A STATED INVESTMENT TIME PERIOD WHILE ALSO
INCREASINGLY EMPHASIZING CAPITAL PRESERVATION AS EACH FUND APPROACHES ITS TARGET
TIME HORIZON. TOTAL RETURN IS DEFINED AS THE CHANGE IN VALUE OF AN INVESTMENT IN
A FUND OVER THE STATED TIME PERIOD, ASSUMING THAT ALL DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS MADE BY THE FUND DURING THE PERIOD ARE REINVESTED IN
ADDITIONAL FUND SHARES. EACH FUND SEEKS TO ACHIEVE ITS OBJECTIVE THROUGH AN
ASSET ALLOCATION STRATEGY PRINCIPALLY USING EQUITY SECURITIES AND FIXED INCOME
SECURITIES.
TIME HORIZON PORTFOLIO 1 IS MANAGED FOR INDIVIDUALS INVESTING FOR A FINANCIAL
GOAL EXPECTED TO OCCUR AROUND THE YEAR 2005.
TIME HORIZON PORTFOLIO 2 IS MANAGED FOR INDIVIDUALS INVESTING FOR A FINANCIAL
GOAL EXPECTED TO OCCUR AROUND THE YEAR 2015.
TIME HORIZON PORTFOLIO 3 IS MANAGED FOR INDIVIDUALS INVESTING FOR A FINANCIAL
GOAL EXPECTED TO OCCUR AROUND THE YEAR 2025.
THE TARGET TIME HORIZON DATES ARE NOT MATURITY DATES, BUT ESTIMATED DATES AT
WHICH THE FUNDS WILL BE MANAGED WITH A PREDOMINANT EMPHASIS ON CAPITAL
PRESERVATION, AS DESCRIBED UNDER "UPON REACHING THE TIME HORIZON," BELOW. THE
FUNDS DO NOT HAVE A PLANNED TERMINATION VALUE, AND AN INVESTOR'S SHARES, AT A
FUND'S TARGET TIME HORIZON, MAY BE WORTH MORE OR LESS THAN THE INVESTOR'S
ORIGINAL INVESTMENT. AS WITH ANY OPEN-END INVESTMENT MANAGEMENT COMPANY,
INVESTORS MAY REDEEM THEIR SHARES AT ANY TIME, AS DESCRIBED UNDER "HOW TO SELL
SHARES," BELOW.
- ----------------------------------------------------------------------------
ASSET ALLOCATION
Each Time Horizon Fund has a strategic mix of its investments allocated
principally to two asset classes: equity securities and fixed income securities.
The strategic asset allocation mix for each Fund varies over time as the Fund
moves closer to its target time horizon. Typically, the more distant a Fund's
target time horizon, the greater the allocation to assets with higher growth
potential and more risk, such as equity securities. Conversely, the closer a
Fund's target time horizon, the greater the emphasis on capital preservation
assets such as short-term fixed income securities. Each Time Horizon Fund will
be managed more conservatively as it moves closer to its stated target time
horizon, with the goal of reducing risk as measured by the probability of loss
in a given year. Thus, assuming static market conditions, ten years from now the
asset allocation mix of Portfolio 2 could be expected to look like the current
asset allocation mix of Portfolio 1.
Under normal market conditions, Bank of America currently actively manages each
Fund's strategic asset allocation mix within the ranges shown below, based on an
evaluation of the anticipated returns and risks for various asset classes in the
near-term future. For example, if stocks are considered to have a greater
appreciation potential relative to bonds during a given period, each Fund's
percentage weighting of stocks may be increased within the ranges indicated
below. Allocating assets within the specified ranges permits each Fund to
attempt to optimize performance consistent with its investment objective and
time horizon.
5
<PAGE> 9
CURRENT ASSET ALLOCATION:
<TABLE>
<CAPTION>
PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3
------------------------ ------------------------ ------------------------
STRATEGIC STRATEGIC STRATEGIC
ALLOCATION RANGE ALLOCATION RANGE ALLOCATION RANGE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Equity Securities............... 35% 15%-45% 50% 30%-70% 70% 40%-100%
Fixed Income Securities......... 65% 55%-85% 50% 30%-70% 30% 0%-60%
</TABLE>
From time to time, each Fund may also utilize certain other instruments that do
not fall within the asset classes listed above, including options, futures
contracts, and repurchase agreements, as described below under "Types of
Investments" and "Other Investment Practices and Considerations." Under normal
market conditions, no more than 10% of a Fund's total assets will be invested in
such instruments.
Until a Fund attains an asset level of approximately $15 million, the Manager
anticipates that the Fund's portfolio may be invested in fewer securities within
each strategically allocated asset class, as indicated above, than it otherwise
would. As each Fund approaches this minimum asset level, the Manager expects to
acquire additional securities within the asset classes, and thereby achieve the
desired diversification level over time.
UPON REACHING THE TIME HORIZON
It is anticipated that after reaching their respective target time horizons,
having shifted their emphases from total return, the Funds will continue to be
managed with a predominant emphasis on preservation of capital. Upon reaching
the specific Fund's time horizon, investors should consider whether the Fund
continues to meet their objectives. After a Fund has reached its target time
horizon, its assets may begin to decrease as a result of investor withdrawals,
in which event the Board of Trustees of the Company will monitor withdrawals and
consider what action would be appropriate to protect the interests of all its
shareholders. Such action could include a merger of the Fund with another fund
with similar investment objectives (i.e., capital preservation) or termination
of the Fund.
RISK FACTORS
The Funds' investment practices involve certain risks, including the market
risks inherent in equity investments and market and interest rate risks inherent
in fixed income investments, and may involve risks associated with investment in
foreign securities and the use of derivative securities such as options and
futures contracts. Such risks are described under "Types of Investments" and
"Other Investment Practices and Considerations," below. The Statement of
Additional Information contains more detailed information about these
investments and the risks that may be associated with them.
TYPES OF INVESTMENTS
IN GENERAL. Each Fund is a diversified portfolio which will invest
substantially all of its assets through an asset allocation approach using
equity and fixed income securities.
The Funds' investments in equity securities will be comprised of common and
preferred stocks, and securities convertible into such stocks, of domestic and
foreign companies with small, medium and large market capitalizations (public
market price times total outstanding shares). Historically, while equity
securities have experienced a higher level of volatility due to market
fluctuations than fixed income securities, they also have provided higher levels
of total return. In addition, investments in companies with smaller market
capitalizations involve greater risk than investments in larger, more
established companies, including more volatile market price movements.
Fixed income securities acquired by the Funds will be investment grade at the
time of purchase, and may include domestic and foreign corporate debt
obligations (including bonds, debentures,
6
<PAGE> 10
notes, and zero coupon securities), government debt obligations, and
mortgage-backed and asset-backed securities. The Funds are not restricted as to
the maturity or average maturity of their fixed income investments. If fixed
income securities purchased by the Funds subsequently fall below investment
grade, the Funds will seek to dispose of the securities in an orderly and
prudent manner, normally over a period of approximately 30 to 90 days.
Investment grade bonds are bonds that are rated in one of the four highest
rating categories by a nationally recognized statistical rating organization,
e.g., BBB or better by Standard & Poor's Corporation ("S&P"), Duff & Phelps
Credit Co. ("D&P") or Fitch Investors Service, Inc. ("Fitch") or Baa or better
by Moody's Investors Service, Inc. ("Moody's"). Investment grade debt securities
ordinarily carry lower rates of interest income than lower quality debt
securities with similar maturities. While bonds rated investment grade are
regarded as having adequate capacity to pay interest and repay principal,
adverse economic conditions, changing circumstances, or circumstances not known
or adequately taken into account by the rating agency could lead to a weakened
capacity to pay interest and repay principal. Bonds with the lowest investment
grade rating (i.e., BBB or Baa) do not have outstanding investment
characteristics and may have speculative characteristics as well. Unrated
securities will be purchased only if the Manager believes that they are of
comparable quality to the rated securities in which the Funds may invest.
Fixed income securities held by the Funds are subject to interest rate risk, as
the value of such securities will vary inversely with changes in interest rates.
Fixed income securities held by the Funds are also subject to market risk, as
the value of such securities will vary with a variety of market and economic
conditions.
U.S. GOVERNMENT OBLIGATIONS. Investments in U.S. Treasury securities are backed
by the "full faith and credit" of the U.S. Government. Such securities include
Treasury bills, Treasury notes and Treasury bonds. The Funds may also purchase
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Small Business Administration, are backed by the
full faith and credit of the U.S. Government; others, like the Federal National
Mortgage Association, are backed by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, including the
Student Loan Marketing Association, are backed solely by the issuer's credit.
There is no assurance that the U.S. Government would support a U.S. Government-
sponsored entity if it were not required to do so by law.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities, such as Government
National Mortgage Association ("GNMA"), Federal National Mortgage Association
("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC") securities,
consist of interests in pools of real estate mortgage loans, and will be
guaranteed as to principal and interest, but not market value, by the U.S.
Government or by one of its agencies or instrumentalities. A risk associated
with mortgage-backed securities is early paydown resulting from refinancing of
the underlying mortgages which is similar to the risk that corporate bonds might
be called by the issuer if the bond interest rate is higher than currently
prevailing interest rates. The rate of such prepayments, and hence the life of
the security, will be primarily a function of current market rates. In periods
of falling interest rates, the rate of prepayments tends to increase. During
such periods, the reinvestment of prepayment proceeds will generally be at lower
rates than the rates on the prepaid obligations.
ASSET-BACKED SECURITIES. Asset-backed securities consist of undivided
fractional interests in pools of mortgages, consumer loans or receivables held
in a trust. Examples include collateralized mortgage obligations ("CMOS"),
certificates for automobile receivables ("CARS") and credit card
7
<PAGE> 11
receivables ("CARDS"). Payments of principal and interest on the mortgages,
loans or receivables are passed through to certificate holders. Asset-backed
securities may be issued by either governmental or non-governmental entities.
Payment on asset-backed securities of private issuers is typically supported by
some form of credit enhancement, such as a letter of credit, surety bond,
limited guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's value.
Ultimately, asset-backed securities are dependent upon payment of the mortgages,
consumer loans or receivables by individuals, and the certificate holder
frequently has no recourse to the entity that originated the loans or
receivables. All asset-backed securities purchased by the Funds will either be
issued or guaranteed by a U.S. Government entity, rated AAA by S&P or Aaa by
Moody's, or have an equivalent rating from another rating agency.
The assets underlying asset-backed securities may be prepaid with the result of
shortening the certificates' weighted average life. Prepayment rates vary widely
and may be affected by changes in market interest rates. It is not possible to
accurately predict the average life of a particular pool of mortgages, loans or
receivables. The proceeds of prepayments received by a Fund must be reinvested
in securities whose yields reflect interest rates prevailing at the time. Thus,
a Fund's ability to maintain a portfolio which includes high-yielding
asset-backed securities will be adversely affected to the extent reinvestments
are in lower yielding securities. The actual maturity and realized yield will
therefore vary based upon the prepayment experience of the underlying asset pool
and prevailing interest rates at the time of prepayment. Also, while the
secondary market for certain asset-backed securities is ordinarily quite liquid,
in times of financial stress the secondary market may not be as liquid as the
market for other types of securities, which could make valuing or liquidating
such securities difficult.
CASH EQUIVALENTS. For temporary defensive purposes (for example, when Bank of
America believes such a position is warranted by uncertain or unusual market
conditions, or when liquidity is required to meet unusually high redemption
requests), the Funds may invest without limitation in cash equivalents such as
money market instruments (including short-term bank time deposits, certificates
of deposit, bankers' acceptances, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and commercial paper issued by
U.S. and foreign issuers which is rated at the time of purchase at least Prime-2
by Moody's or A-2 by S&P) and, subject to the investment limitations described
below, shares of other open-end investment companies which seek to maintain a
$1.00 net asset value per share ("Money Market Funds"). Under normal market
conditions, prior to reaching its time horizon date, no more than 10% of a
Fund's net assets will be invested in cash equivalents. After reaching its
stated time horizon, the percentage of each Fund's net assets invested in cash
equivalents may increase, consistent with its predominant emphasis on capital
preservation.
The Funds may also make other investments as described more fully below under
"Other Investment Practices and Considerations."
FUNDAMENTAL LIMITATIONS
The investment objective of a Fund may not be changed without a vote by the
holders of a majority of the outstanding shares of the Fund. Policies requiring
such a vote to effect a change are known as "fundamental." Included in the
Funds' fundamental policies is the restriction that no Fund may invest more than
10% of the value of its net assets in securities that at the time of purchase
have legal or contractual restrictions on resale or are otherwise illiquid. The
Manager will monitor the amount of illiquid securities in the Funds' portfolios,
under the supervision of the Board of Trustees, to ensure compliance with the
Funds' investment restrictions. A complete list of the Funds' fundamental
investment limitations is
8
<PAGE> 12
set out in the Statement of Additional Information.
OTHER INVESTMENT PRACTICES AND CONSIDERATIONS
FOREIGN SECURITIES. Subject to its investment objective and policies stated
above, each Fund may invest in debt and equity securities of foreign issuers
that may or may not be publicly traded in the United States. Such securities may
include, subject to the further investment limitations stated under "Investment
Company Securities," below, shares of open-end investment companies that invest
primarily in securities of foreign issuers. It is currently the intention of
each Fund to invest no more than 20% of its total assets at the time of purchase
in securities of foreign issuers, of which up to 10% of such total assets may be
invested in debt obligations of foreign issuers. Foreign debt securities may
include Yankee bonds (dollar-denominated bonds sold in the United States by
non-U.S. issuers) and Eurobonds (bonds issued in a country and sometimes a
currency other than the country of the issuer). A Fund's investment limitations
regarding its investments in foreign securities also apply to investments in
dollar-denominated American Depositary Receipts ("ADRs") traded in the United
States on exchanges or in the over-the-counter markets. ADRs are
dollar-denominated receipts for the shares of a foreign-based corporation held
by a U.S. bank and traded in U.S. markets. ADRs may be sponsored by the foreign
issuer or may be unsponsored. Unsponsored ADRs are organized independently and
without the cooperation of the foreign issuer of the underlying securities; as a
result, available information regarding the issuer may not be as current as for
sponsored ADRs, and the prices of unsponsored ADRs may be more volatile than if
they were sponsored by the issuers of the underlying securities. The Funds may
be subjected to additional risks associated with the holding of property abroad
such as future political and economic developments, currency fluctuations,
possible withholding of tax payments, possible seizure or nationalization of
foreign assets, possible establishment of currency exchange control regulations
or the adoption of other foreign government restrictions that might adversely
affect the payment of principal or interest on foreign securities in the Funds.
Securities of some foreign companies are less liquid, and their prices more
volatile, than those of domestic companies. There is less publicly available
information about foreign companies than domestic companies, and foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies.
CONVERTIBLE SECURITIES. The convertible securities in which the Funds may
invest include convertible preferred stocks, convertible debentures and warrants
which may be exchanged for, converted into, or exercised to acquire a
predetermined number of shares of the issuer's common stock at the option of the
holder during a specified time period. Convertible securities generally pay
interest or dividends and provide for participation in the appreciation of the
underlying common stock but generally have a lower level of risk because the
yield is higher and the security is senior to common stock. Convertible
securities may also include warrants which give the holder the right to purchase
at any time during a specified period a predetermined number of shares of common
stock at a fixed price but which do not pay a fixed dividend. Investments in
warrants involve certain risks, including the possible lack of a liquid market
for resale and the failure of the price of the underlying security to reach or
have reasonable prospects of reaching a level at which the warrant can be
prudently exercised.
OPTIONS. Each of the Funds may purchase put and call options on listed
securities and stock indexes so long as the aggregate premiums paid for options
does not exceed 2% of the net assets of the Fund (this restriction does not
apply to options on futures contracts). Put options may be purchased in order to
protect the Fund's portfolio securities in expectation of a declining market,
and call options may be purchased to
9
<PAGE> 13
benefit from anticipated price increases in the underlying securities or index.
A Fund may not write put options but may write fully covered call options in
order to realize current income from the premiums received as long as the Fund
remains fully covered throughout the life of the option, either by owning the
optioned securities or possessing a call issued by another writer that is
identical in all respects to the call written by the Fund.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. Although the Fund's risk when purchasing options is
limited to the amount of the original premiums paid plus transaction costs,
options may be more volatile than the underlying instruments, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying instruments themselves. When
writing covered call options, the Fund gives up the opportunity to profit from a
price increase in the underlying security above the option's exercise price in
return for the premium, but retains the risk of loss should the price of the
underlying security fall. In addition, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives, and there is no guarantee that a liquid secondary market for
particular options will exist. For additional information relating to options
transactions and the particular risks thereof, please refer to the Statement of
Additional Information.
FUTURES. The Funds may purchase and sell futures contracts (and may purchase
related options) on domestic and foreign stock indexes, interest rates, bonds
and currencies as a hedge against anticipated interest rate fluctuations or
changes resulting from market conditions in the values of the securities that a
Fund holds in its portfolio or intends to purchase or sell, and where the
transactions are economically appropriate for the reduction of risks inherent in
the ongoing management of the Fund's portfolio. In addition, the Funds may
purchase and sell futures contracts on interest rates, bonds and stock indexes,
such as U.S. Treasury bonds or the S&P 500 Index, as a substitute for purchasing
or selling the underlying securities. The Fund may not purchase or sell a
futures contract or purchase a related option unless, immediately after any such
transaction, the sum of the aggregate amount of initial margin deposits on its
existing futures positions and the amount of premiums paid for related options
is 5% or less of its total assets (after taking into account certain technical
adjustments).
The Funds may be subject to additional risks associated with futures contracts,
such as the possibility that the Manager's forecasts of market values and other
factors are not correct, imperfect correlation between a Fund's hedging
instrument and the asset or liability being hedged, default by the other party
to the transaction, and inability to close out a position because of the lack of
a liquid market. In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in a futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. As a result of these factors, a correct forecast of general market
trends or interest rate movements by the Manager may still not result in a
successful hedging transaction over a short time frame. More information
regarding futures contracts and related options, including the costs and risks
related to such instruments, is included in the Statement of Additional
Information.
The transactions described in "Options" and "Futures," above, are frequently
referred to as derivative transactions. In general, derivatives are instruments
whose value is based upon, or derived from, some underlying index, reference
rate (e.g., interest rates or currency exchange rates), security, commodity or
other asset.
VARIABLE RATE INSTRUMENTS. The Funds may invest in variable and floating rate
instruments, which may include master demand notes.
10
<PAGE> 14
Although payable on demand by a Fund, master demand notes may not be marketable.
Consequently, the ability to redeem such notes may depend on the borrower's
ability to pay, which will be monitored by the Manager. Such notes will be
purchased only from domestic corporations that either (a) are rated Aa or better
by Moody's or AA or better by S&P, (b) have commercial paper rated at least
Prime-2 by Moody's or A-2 by S&P, (c) are backed by a bank letter of credit or
(d) are unrated and are determined by the Manager to be of a quality comparable
to securities described in either clause (a) or (b).
INVESTMENT COMPANY SECURITIES. As described under "Cash Equivalents," above,
the Funds may invest in securities of Money Market Funds as a temporary
defensive measure, when market conditions are uncertain or unusual, or for other
purposes. The Funds may also invest in securities issued by other open-end
investment companies, including those which invest in foreign securities of the
type in which the Funds are authorized to invest. No more than 10% of the value
of a Fund's total assets will be invested in securities of other investment
companies, with no more than 5% invested in the securities of any one investment
company. In addition, a Fund may hold no more than 3% of the outstanding voting
stock of any other investment company. As a shareholder of another investment
company, a Fund would bear, along with other shareholders, its pro rata portion
of the other investment company's expenses, including advisory fees; however,
Bank of America will reduce its advisory fees by the amount of any advisory fees
of such other investment company borne by the Funds.
The Company reserves the right to apply to the Securities and Exchange
Commission for an exemption from certain other provisions of the 1940 Act, which
limit each Fund's investment in investment companies to the percentages of its
total assets indicated above. If an exemption is applied for and granted, each
Fund may not be limited as to the amount of its total assets that may be
invested in securities of other investment companies managed by the Manager.
Prior to any such investment, the Funds' shareholders will be asked to approve
the other funds, this Prospectus will be amended to describe the other funds,
and all operating expenses of the Funds will be paid by the Manager.
REPURCHASE AGREEMENTS. The Funds may buy securities subject to the seller's
agreement to repurchase them at an agreed upon time and price. These
transactions are known as repurchase agreements. The Funds will enter into
repurchase agreements only with banks which have a commercial paper rating of
A-2 or better by S&P or Prime-2 or better by Moody's or registered
broker-dealers deemed creditworthy by the Manager, under guidelines approved by
the Company's Board of Trustees. A Fund's investments in repurchase agreements
with maturities greater than seven days, together with all other illiquid
securities, will not exceed 10% of the value of its net assets.
During the term of any repurchase agreement, the seller must maintain the value
(including accrued interest) of the securities subject to the agreement in an
amount that is greater than the repurchase price. The Manager monitors that
value to make sure that it is maintained. Nonetheless, should the seller default
on its obligations under the agreement, the Fund would be exposed to possible
loss due to adverse market action or delays connected with the disposition of
the underlying obligations.
REVERSE REPURCHASE AGREEMENTS. The Funds may borrow money for temporary
purposes by entering into transactions called reverse repurchase agreements.
Under these agreements, the Funds sell portfolio securities to financial
institutions and agree to buy them back later at an agreed upon time and price.
The Funds will conduct reverse repurchase transactions only with banks which
have a commercial paper rating of A-2 or better by S&P or Prime-2 or better by
Moody's or registered broker-dealers deemed creditworthy by the Manager, under
guidelines approved by the Company's Board of Trustees.
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<PAGE> 15
When a Fund enters into a reverse repurchase agreement, it places in a separate
custodial account either liquid assets or other high-grade debt securities which
have a value equal to or greater than the repurchase price. The account is
monitored by the Manager to make sure that an appropriate value is maintained.
Reverse repurchase agreements involve the risk that the value of portfolio
securities a Fund relinquishes may decline below the price the Fund must pay
when the transaction closes. The Funds will only enter into reverse repurchase
agreements to avoid the need to sell portfolio securities to meet redemption
requests.
SECURITIES LENDING. In order to earn additional income, the Funds may lend
portfolio securities to broker-dealers that the Manager considers to be of good
standing. Borrowers of portfolio securities may not be affiliated directly or
indirectly with the Company. If the broker-dealer should become bankrupt,
however, a Fund could experience delays in recovering its securities. A
securities loan will only be made when, in the Manager's judgment, the possible
reward from the loan justifies the possible risks. In addition, such loans will
not be made if, as a result, the value of securities loaned by a Fund exceeds
10% of its total assets. Securities loans will be fully collateralized.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Funds may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions, which involve a commitment by a
Fund to purchase or sell particular securities with payment and delivery taking
place at a future date (perhaps one or two months later), permit a Fund to
lock-in a price or yield on a security, regardless of future changes in interest
rates. When-issued and forward commitment transactions involve the risk that the
price or yield obtained may be less favorable than the price or yield available
when the delivery takes place. A Fund will set aside in a segregated account
cash or liquid securities equal to the amount of any when-issued or forward
commitment purchases. A Fund's when-issued purchases and forward commitments may
not exceed 25% of the value of the Fund's total assets absent unusual market
conditions. The Funds do not intend to engage in when-issued purchases and
forward commitments for speculative purposes but only in furtherance of their
investment objectives.
SECURITIES ISSUED BY BANK OF AMERICA AND AFFILIATES. The Funds will not invest
in instruments or securities issued by Bank of America or any of its affiliates.
FUND TRANSACTIONS. Other investment companies and accounts managed by the
Manager and its affiliated entities may also invest in the same securities as
the Funds. When a purchase or sale of the same security is made at substantially
the same time on behalf of a Fund and another investment company or account,
available investments or opportunities for sales will be equitably allocated
pursuant to procedures of Bank of America. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by a Fund.
From time to time, the Funds may pay brokerage commissions to an affiliate of
the Funds' distributor, Concord Financial Group, Inc. (the "Distributor"), on
securities acquired by a Fund. In allocating the purchase and sale orders for
investment securities involving the payment of brokerage commissions or dealer
concessions, the Manager may consider the sale of Fund shares by broker-dealers
and other financial institutions (including affiliates of the Manager and the
Funds' distributor to the extent permitted by law), provided it believes the
quality of the transaction and the price to a Fund are not less favorable than
what they would be with any other qualified firm.
PORTFOLIO TURNOVER. The Funds' investment practices may result in portfolio
turnover greater than that of other mutual fund portfolios. Higher rates of
turnover may require payment of brokerage commissions, impose other transaction
costs
12
<PAGE> 16
and could increase substantially the amount of income received by the Funds that
constitutes taxable capital gains. To the extent capital gains are realized,
distributions from those gains may be ordinary income for federal tax purposes
(see "Tax Information"). Although no commissions are paid on bond transactions,
purchases and sales are at net prices which reflect dealers' mark-ups and
mark-downs, and a higher portfolio turnover rate for bond investments will
result in the payment of more dealer mark-ups and markdowns than would otherwise
be the case. Each Fund's annual portfolio turnover rate is not expected to
exceed 150% for common stock investments and 100% for bond investments and its
composite annual portfolio turnover rate is not expected to exceed 125%.
Turnover will not be a limiting factor in making investment decisions for the
Funds.
SHAREHOLDER GUIDE
THE FOLLOWING SECTION WILL PROVIDE YOU WITH ANSWERS TO SOME OF THE MOST
OFTEN-ASKED QUESTIONS REGARDING BUYING AND SELLING A FUND'S SHARES AND
REGARDING A FUND'S DIVIDENDS.
HOW TO BUY SHARES
WHAT IS MY MINIMUM INVESTMENT IN A FUND?
Generally, there is a minimum investment requirement of $500 for initial
purchases and $50 for subsequent purchases, although these amounts may be
altered in certain circumstances as shown below and may be changed at anytime in
the sole discretion of the Funds.
INVESTMENT MINIMUMS
FOR SPECIFIC TYPES OF ACCOUNTS
<TABLE>
<CAPTION>
INITIAL SUBSEQUENT
INVESTMENT INVESTMENT
------- -------------
<S> <C> <C>
Regular Account $ 500* $50
Automatic Investment Plan $ 50 $50
IRAs, SEP-IRAs (one
participant) $ 500 No minimum
Spousal IRAs** $ 250 No minimum
SEP-IRAs (more than one
participant) $ 2,500 No minimum
<FN>
* The minimum investment is $100 for purchases made through Bank of America's
trust and agency accounts or a Service Organization (defined below) whose
clients have made aggregate minimum purchases of $1,000,000. For shares
purchased with a Bank AmeriChoice award certificate the minimum investment
is $200.
** A regular IRA must be opened in conjunction with this account.
</TABLE>
WHAT ALTERNATIVE SALES ARRANGEMENTS ARE AVAILABLE?
Each Fund issues two classes of shares. Class A shares are sold to investors
choosing the initial sales charge alternative, and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B shares bear the expenses of distribution plan fees and the deferred sales
charge arrangements and any expenses (which may include incremental transfer
agency costs) resulting from such arrangements, and have exclusive voting rights
with respect to the distribution plan. The two Classes also have different
exchange privileges, as described below.
The net income attributable to Class B shares and the dividends payable on Class
B shares will be reduced by the amount of the distribution plan fees
attributable to Class B shares and incremental expenses associated with such
plan. Sales personnel may receive different compensation for selling Class A and
Class B shares, and only Class A shares may be available for purchase through
certain securities dealers.
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<PAGE> 17
HOW ARE SHARES PRICED?
Shares are purchased at their public offering price, which is based upon a
Fund's net asset value per share, plus a front-end sales load on the Class A
shares. Each Fund calculates its net asset value ("NAV") as follows:
(Value of Fund Assets) - (Fund Liabilities)
NAV = ----------------------------------------------------
Number of Outstanding Shares
Net asset value is determined as of the end of regular trading hours on the New
York Stock Exchange (the "Exchange") (normally 4:00 p.m. Eastern time) on days
the Exchange is open.
A Fund's investments in securities that are primarily traded on a domestic
exchange or traded on the NASDAQ National Market System are valued at the last
sale price on the exchange or market where primarily traded or listed or, if
there is no recent sale price available, at the last current bid quotation.
Securities not so traded are valued at the last current bid quotation if market
quotations are available. Except for short-term securities with remaining
maturities of 60 days or less ("Short-Term Securities"), fixed income securities
are valued by using market quotations, or independent pricing services that use
prices provided by market makers or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Short-Term Securities are valued at amortized cost, which approximates market
value. Equity options are valued at the last sale price unless the bid price is
higher or the asked price is lower, in which event such bid or asked price is
used. Futures contracts and options thereon are valued at the settlement price
established each day by the board of trade or exchange on which they are traded.
Other securities and assets are valued at fair value as determined in good faith
pursuant to procedures adopted by the Board of Trustees. Trading in foreign
securities is generally completed prior to the end of regular trading on the
Exchange. Trading may occur in foreign securities, however, on Saturdays and
U.S. holidays and at other times when the Exchange is closed. As a result, there
may be delays in reflecting changes in the market values of foreign securities
in the calculation of the net asset value of a Fund. There may be variations in
the net asset value per share of a Fund on days when net asset value is not
calculated and on which shareholders of a Fund cannot redeem due to changes in
values of securities traded in foreign markets. For further information about
valuing securities, see the Statement of Additional Information. For voice
recorded price and yield information call (800) 247-9728.
CLASS A SHARES SALES LOAD. The front-end sales load for the Class A shares of
each Fund begins at 4.50% of the offering price and may decrease as the amount
you invest increases, as shown in the following chart:
<TABLE>
<CAPTION>
AS A % OF
-------------- DEALER'S
NET REALLOWANCE
OFFERING ASSET AS A
PRICE VALUE % OF
AMOUNT OF PER PER OFFERING
TRANSACTION SHARE SHARE PRICE*
------------------ ---- ---- ----
<S> <C> <C> <C>
Less than $100,000 4.50 4.71 4.00
$100,000 but less
than $250,000 3.75 3.90 3.35
$250,000 but less
than $500,000 2.50 2.56 2.20
$500,000 but less
than $750,000 2.00 2.04 1.75
$750,000 but less
than $3,000,000 1.00 1.01 0.90
$3,000,000 or more 0.00 0.00 0.00
<FN>
* Dealer's reallowance may be changed periodically.
From time to time, the Funds' Distributor may make or allow additional
payments or promotional incentives in the form of cash or other compensation
such as trips to sales seminars, tickets to sporting and other entertainment
events and gifts of merchandise to firms that sell shares of the Funds.
</TABLE>
CLASS B SHARES DEFERRED SALES CHARGE. Investors choosing the deferred sales
charge alternative purchase Class B shares at net asset value per share without
the imposition of a sales charge at the time of purchase. The Funds'
14
<PAGE> 18
Distributor compensates broker-dealers that have entered into a selling
agreement with the Distributor from its own funds at the time the shares are
purchased. The proceeds of the contingent deferred sales charge and the ongoing
distribution plan fees described below are used to reimburse the Distributor for
its expenses, including compensation of broker-dealers.
Class B shares that are redeemed within 6 years of purchase are subject to the
contingent deferred sales charge at the rates set forth below, charged as a
percentage of the lesser of the current market value or the cost of the shares
being redeemed. Accordingly, no sales charge will be imposed on increases in net
asset value above the initial purchase price. In addition, no charge will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions. Class B shares will convert to Class A shares on the first
business day of the month following the eighth anniversary of the date of
purchase.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEARS ELAPSED SINCE OF DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
------------------- -------------------------
<S> <C>
Less than one 5.0%
More than one, but
less than two 4.0%
More than two, but
less than three 3.0%
More than three,
but less than
four 3.0%
More than four, but
less than five 2.0%
More than five, but
less than six 1.0%
After six years None
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption of Class B shares, the calculation will be made in a manner that
results in the lowest possible rate. It will be assumed that the redemption is
made first of amounts representing Class B shares acquired pursuant to the
reinvestment of dividends and distributions; then of amounts representing the
increase in net asset value of your holdings of Class B shares above the total
amount of payments for the purchase of Class B shares during the preceding 6
years; then of amounts representing the cost of Class B shares held beyond the
applicable contingent deferred sales charge period; and finally, of amounts
representing the cost of the Class B shares held for the longest period of time.
As an example, assume that you purchased 100 shares at $10 per share (at a cost
of $1,000), that in the third year after purchase the net asset value per share
is $12, and that during the three-year period you had acquired 10 additional
shares through dividend reinvestment. If at such time you make your first
redemption of 50 shares (proceeds of $600), 10 shares will not be subject to the
charge because of dividend reinvestment. With respect to the remaining 40
shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.00% (the applicable rate in
the third year after purchase).
WHEN NO SALES LOAD IS APPLIED. You pay no front-end sales load on the
following types of transactions:
- - reinvestment of dividends or distributions;
- - exchanges from Class A shares of another Time Horizon Fund or any Class A
shares offered by Pacific Horizon Funds, Inc. ("Pacific Horizon Funds");
- - employer-sponsored employee pension or retirement plans making direct
investments in a Fund;
- - any purchase of shares by an investment adviser regulated by federal or state
governmental authority when the investment adviser is purchasing shares for
its own account or for an account for which it is authorized to make
investment decisions (i.e., a discretionary account);
15
<PAGE> 19
- - any purchase of shares made with proceeds from the redemption of another
open-end investment company on which you paid a front-end sales charge where
(i) such redemption occurred within thirty (30) days prior to the date of the
purchase order; and (ii) such other investment company is distributed and
advised by entities other than the Distributor and Bank of America,
respectively, or their affiliates. You must notify the Company and/or
Transfer Agent at the time you place such purchase order of your eligibility
for the waiver of front-end sales charges and provide satisfactory evidence
thereof (e.g. a confirmation of redemption);
- - accounts that are opened for shareholders where the initial amount invested
represents redemption proceeds from a terminated thrift plan that has made
arrangements with the Funds' Distributor for such treatment, and subsequent
investments into such accounts, provided that: (i) the initial purchase of
shares of the Fund is made within 60 days of the redemption from the thrift
plan, and (ii) sufficient documentation as the Funds' Distributor may require
is provided at the time such Fund shares are purchased;
- - accounts opened by a bank, trust company or thrift institution, acting as a
fiduciary, provided appropriate notification of such status is given at the
time of investment;
- - any purchase of shares by clients of The Private Bank of Bank of America
Illinois or by Private Banking clients of Seattle-First National Bank or by or
on behalf of agency accounts administered by any bank or trust company
affiliate of Bank of America;
- - holders of the Bank Americard with an appropriate award certificate with the
Bank AmeriChoice Program;
- - any purchase of shares pursuant to the Reinstatement Privilege described
below; and
- - any purchase of shares pursuant to the Directed Distribution Plan described
below.
Additionally, the following individuals are not required to pay a front-end
sales load when purchasing Fund shares:
- - Members of the Company's Board of Trustees;
- - U.S.-based employees and retirees (including employees who are U.S. citizens
but work abroad and retirees who are U.S. citizens but worked abroad) of Bank
of America or any of its affiliates, and their spouses, minor children,
grandchildren and parents, as well as members of the Board of Directors of
Bank of America or any of its affiliates; and
- - registered representatives or full-time employees of broker-dealers having
agreements with the Funds' Distributor pertaining to the sale of Fund shares
(and their spouses and minor children) to the extent permitted by such
organizations.
WHEN NO CONTINGENT DEFERRED SALES CHARGE IS APPLIED. To receive one of the
first three exemptions listed below, you must explain the status of your
redemption at the time you redeem your shares. The contingent deferred sales
charge with respect to Class B Shares is not charged on (1) exchanges described
under "Shareholder Services -- Can I Exchange My Investment From One Fund to
Another?"; (2) redemptions in connection with minimum required distributions
from IRA, 403(b)(7) and Qualified Plan accounts due to the shareholder's
reaching age 70 1/2; (3) redemptions in connection with a shareholder's death or
disability (as defined in the Internal Revenue Code); and (4) involuntary
redemptions as a result of an account's net asset value remaining below $500
after 60 days written notice. In addition, no contingent deferred sales charge
is charged on shares acquired through the reinvestment of dividends or
distributions.
RIGHTS OF ACCUMULATION. When buying Class A shares in the Time Horizon Funds,
your current aggregate investment determines the sales load that you pay. Your
current aggregate investment is the accumulated combination of your immediate
investment along with the value of Class A
16
<PAGE> 20
shares that you beneficially own in any other Time Horizon Fund on which you
paid a sales load (including shares that carry no sales load but were obtained
through an exchange and can be traced back to shares that were acquired with a
sales load). There is no specified time limit within which purchases must be
made to qualify for rights of accumulation.
To qualify for a reduced sales load on Class A shares, you or your Service
Organization (which is an institution such as a bank or broker-dealer that has
entered into a selling and/or servicing agreement with the Funds' Distributor)
must notify the Funds' transfer agent, BISYS Fund Services Ohio, Inc. (the
"Transfer Agent"), at the time of investment that a quantity discount is
applicable. Use of this service is subject to a check of appropriate records,
after which you will receive the lowest applicable sales charge. If you want to
participate you can so indicate on your Account Application or make a subsequent
written request to the Transfer Agent.
Example: Suppose you beneficially own Class A shares of Portfolio 3 that can be
traced back to the purchase of shares carrying a sales load (or any combination
thereof) with an aggregate current value of $90,000. If you subsequently
purchase additional Class A shares of Portfolio 2 with a current value of
$10,000, the load applicable to the subsequent purchase would be reduced to
3.75% of the offering price.
LETTER OF INTENT. You may also obtain a reduced sales charge on Class A
shares by means of a written Letter of Intent, which expresses your non-binding
commitment to invest in the aggregate a gross amount of $100,000 or more within
a period of 13 months, beginning up to 90 days prior to the date of the Letter's
execution. Class A shares of Time Horizon Funds purchased during that period
count as a credit toward completion of the Letter of Intent. Any investments you
make during the period receive the discounted sales load based on the full
amount of your investment commitment. When your commitment is fulfilled, an
adjustment will be made to reflect any reduced sales load applicable to shares
purchased during the 90-day period prior to the submission of your Letter of
Intent.
While signing a Letter of Intent does not bind you to purchase, or the Company
to sell, the full amount indicated at the sales load in effect at the time of
signing, you must complete the intended purchase to obtain the reduced sales
load. When you sign a Letter of Intent, the Company holds in escrow shares
purchased by you in an amount equal to 5% of the total amount of your
commitment. After you fulfill the terms of the Letter of Intent, the escrow will
be released.
If your aggregate investment exceeds the amount indicated in your Letter of
Intent, you will receive an adjustment which reflects the further reduced sales
load applicable to your excess investment. It will be in the form of additional
shares credited to your account at the then current offering price applicable to
a single purchase of the total amount of the total purchase.
If your aggregate investment is less than the amount you committed, you will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent will
redeem an appropriate number of shares held in escrow to realize the difference.
If you would like to participate, complete the Letter of Intent on your Account
Application. Please read it carefully, as you will be bound by its terms. If you
have any questions regarding the Letter of Intent, call (800) 247-9728.
HOW DO I DECIDE WHICH CLASS TO BUY?
The alternative sales arrangements of the Funds permit investors to choose the
method of purchasing shares that is most beneficial given the amount of their
purchase, the length of time they expect to hold the shares and other relevant
circumstances. Investors should determine whether under their particular
circumstances it is
17
<PAGE> 21
more advantageous to incur an initial sales charge and an ongoing shareholder
service plan fee, as discussed below, or to have the entire initial purchase
price invested in a Fund with the investment thereafter being subject to a
contingent deferred sales charge and ongoing shareholder service plan and
distribution fees.
As an illustration, investors who qualify for a significantly reduced sales
load, as described above, might elect the initial sales charge alternative
(Class A shares) because similar sales charge reductions are not available for
purchases under the deferred sales charge alternative (Class B shares).
Moreover, Class A shares would not be subject to an ongoing distribution plan
fee, as described below. However, because initial sales charges are deducted at
the time of purchase, such investors would not have all their funds invested
initially.
Investors not qualifying for a reduced initial sales charge who expect to
maintain their investment for an extended period of time might also elect the
initial sales charge alternative because over time the accumulated continuing
shareholder service and distribution fees related to Class B shares may exceed
the initial sales charge and ongoing shareholder service fees related to Class A
shares. However, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
shareholder service and distribution fees will be offset to the extent any
return is realized on the additional funds initially invested under the deferred
sales charge alternative.
Certain other investors might determine it to be more advantageous to have all
their funds invested initially, although subject to continuing shareholder
service plan and distribution plan fees, and to a contingent deferred sales
charge for a 6-year period of time.
HOW CAN I BUY SHARES?
The chart below provides more information regarding some of the different
methods for investing in the Funds.
18
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
TO BUY SHARES
- --------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------------------------------
THROUGH BANK OF AMERICA, YOUR BROKER OR ANOTHER SERVICE ORGANIZATION
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE FUND'S TRANSFER AGENT)
Contact them directly for Contact them directly for
instructions instructions
- --------------------------------------------------------------------------------------------------------
THROUGH THE DISTRIBUTOR
(IF YOU ARE OR WILL BE THE SHAREHOLDER OF RECORD ON THE FUND'S BOOKS)
BY MAIL
Complete Account Application Mail all subsequent
and mail it with a check investments to:
(payable to the Time Horizon
Funds, Portfolio selected) to Time Horizon Funds,
the address on the File No. 54614
application. Los Angeles, CA 90074-4614
- --------------------------------------------------------------------------------------------------------
IN PERSON
Time Horizon Funds Deliver Account Application Deliver your payment directly
BISYS Fund Services Ohio, Inc. and your payment directly to to the address on the left.
3435 Stelzer Road the address on the left.
Columbus, Ohio 43219
- --------------------------------------------------------------------------------------------------------
BY WIRE
PNC Bank, NA A wire may not be used to Contact the Fund's Transfer
make an initial purchase. Agent at (800) 247-9728 for
wiring instructions.
Instruct your bank to
transmit immediately
available funds for purchase
of particular Fund shares in
your name. Indicate that you
are making a subsequent
purchase. Be sure to include
your Fund account number.
Consult your bank for information on remitting funds by wire
and any associated bank charges.
</TABLE>
19
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
TO BUY SHARES
- --------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------------------------------
BY TELETRADE TeleTrade Privileges may not You may place purchase orders
(a service permitting transfers be used to make an initial by telephone in the minimum
of money from your purchase. amount of $500 and the
checking, NOW or bank maximum amount of $50,000 per
money market account) transaction as soon as
appropriate information
regarding your bank account
has been established on your
Fund account. This
information may be provided
on the Account Application or
in a signature guaranteed
letter of instruction to the
Transfer Agent. Signature
guarantees are discussed
under "How to Sell Shares,"
below.
Call (800) 247-9728 to make
your purchase.
You should refer to the "Shareholder Services" section
below for additional important information about the TeleTrade Privilege.
YOU MAY USE OTHER INVESTMENT OPTIONS, INCLUDING AUTOMATIC INVESTMENTS
AND EXCHANGES, TO INVEST IN YOUR FUND ACCOUNT.
PLEASE REFER TO THE SECTION ENTITLED "SHAREHOLDER SERVICES" FOR MORE INFORMATION.
</TABLE>
WHAT PRICE WILL I RECEIVE WHEN I BUY SHARES?
Your shares will be purchased at the particular Fund's public offering price
calculated at the next close of regular trading on the Exchange (normally 4:00
p.m. Eastern time) after your purchase order is received in proper form by the
Funds' Transfer Agent, BISYS Fund Services Ohio, Inc., at its Columbus office.
If you purchase shares through Bank of America, your broker or another Service
Organization, the entity involved is responsible for transmitting your order and
required funds to the Transfer Agent on a timely basis in accordance with the
procedures in this Prospectus. Share purchases (and redemptions) executed
through Bank of America or a Service Organization are executed only on days on
which the particular institution and the Funds are open for business. Purchase
orders received by a Service Organization in proper form by 4:00 p.m. Eastern
time on a business day will be effected at the public offering price calculated
at 4:00 p.m. Eastern time on that day, if the Service Organization transmits
your order to the Transfer Agent by the end of its business day. Except as
provided in the following two sentences, if the order is not received in proper
form by a Service Organization by 4:00 p.m. Eastern time or not received by the
Transfer Agent by the close of its business day, the order will be based upon
the next determined purchase price. The Company may from time to time in its
sole discretion appoint one or more entities as the Funds' agent to receive
irrevocable purchase and redemption orders and
20
<PAGE> 24
to transmit them on a net basis to the Transfer Agent. In these instances orders
received by the entity by 4:00 p.m. Eastern time on a business day will be
effected as of 4:00 p.m. Eastern time that day if the order is actually received
by the Transfer Agent not later than the next business morning accompanied by
payment in federal funds.
Please refer to "What is TeleTrade?" under "Shareholder Services," below, for
information regarding purchases via TeleTrade.
WHAT ELSE SHOULD I KNOW TO MAKE A PURCHASE?
You must specify at the time of investment whether you are purchasing Class A or
Class B shares.
Federal regulations require you to provide a certified taxpayer identification
number upon opening or reopening your account. Applications received without a
certified taxpayer identification number may be accepted but could be subject to
backup withholding by the Funds on any distributions, redemptions or other
disbursements.
If your check used for investment does not clear, a fee may be imposed by the
Transfer Agent. All payments should be in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. Please remember that the Company
reserves the right to reject any purchase order.
You should note that Bank of America, Service Organizations and registered
investment advisers may charge a separate fee or transaction charge to their
clients for providing them with administrative services related to their
investment in the Funds' shares. These fees could constitute a substantial
portion of smaller accounts and may not be in an investor's best interest. Bank
of America and Service Organizations may also impose minimum customer account
and other requirements in addition to those imposed by each Fund. If you
purchase or redeem shares directly from a Fund, you may do so without incurring
any charges other than those described in this Prospectus.
HOW TO SELL SHARES
HOW DO I REDEEM MY SHARES?
Time Horizon Funds makes it easy to sell, or "redeem," shares. A Fund imposes no
charge when you redeem shares (other than the contingent deferred sales charge
if you redeem Class B shares within 6 years of purchase). The value of the
shares you redeem may be more or less than your cost, depending on a particular
Fund's current net asset value.
If you purchased your shares through an account at Bank of America, your Broker
or another Service Organization, you may redeem all or part of your shares in
accordance with the instructions pertaining to that account. If you are also the
shareholder of record on the Fund's books, you may redeem shares in accordance
with the procedures described in the chart below as well as those of your
account. To use the redemption methods described below, you must arrange with
Bank of America or your Service Organization for delivery of the required
application(s) to the Transfer Agent.
21
<PAGE> 25
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------
TO SELL SHARES
---------------------------------------------------------------------------------------------
THROUGH BANK OF AMERICA, YOUR BROKER OR ANOTHER SERVICE ORGANIZATION
(ORDERS ARE NOT EFFECTIVE UNTIL RECEIVED BY THE TRANSFER AGENT IN PROPER FORM)
Contact them directly for instructions.
---------------------------------------------------------------------------------------------
THROUGH THE DISTRIBUTOR
(IF YOU ARE A SHAREHOLDER OF RECORD ON THE COMPANY'S BOOKS)
BY MAIL
Time Horizon Funds Send a signed, written request (each owner, including each
c/o BISYS Fund Services joint owner, must sign) to the Transfer Agent at the address
Ohio, Inc. on the left.
3435 Stelzer Road
Columbus, Ohio 43219
---------------------------------------------------------------------------------------------
IN PERSON
Time Horizon Funds
c/o BISYS Fund Services Deliver your signed, written request (each owner, including
Ohio, Inc. each joint owner, must sign) directly to the offices of the
3435 Stelzer Road Transfer Agent at the address on the left.
Columbus, Ohio 43219
---------------------------------------------------------------------------------------------
BY WIRE As soon as appropriate information regarding your bank
account has been established on your Fund account, you may
write, telephone or telegraph redemption requests to the
Transfer Agent, and redemption proceeds will be wired in
federal funds to the commercial bank you have specified.
Information regarding your bank account may be provided on
the Account Application or in a signature guaranteed letter
of instruction to the Transfer Agent. Signature guarantee
requirements are discussed in the section entitled "What
Kind Of Paperwork Is Involved In Selling Shares?"
Redemption proceeds will normally be wired the business day
after your request and any other necessary documents have
been received by the Transfer Agent.
Wire Privileges apply automatically unless you indicate on
the Account Application or in a subsequent written notice to
the Transfer Agent that you do not wish to have them.
Requests must be for at least $1,000 and may be subject to
limits on frequency and amount.
Wire Privileges may be modified or suspended at any time.
Contact your bank for information on any charges imposed by
the bank in connection with receipt of redemptions by wire.
</TABLE>
22
<PAGE> 26
<TABLE>
<S> <C>
TO SELL SHARES
---------------------------------------------------------------------------------------------
BY TELETRADE You may redeem Fund shares (minimum of $500 and maximum of
(a service permitting $50,000 per transaction) by telephone after appropriate
transfers of money to your information regarding your bank account has been established
checking, NOW or bank money on your Fund account. This information may be provided on
market account) the Account Application or in a signature guaranteed letter
of instruction to the Transfer Agent. Signature guarantee
requirements are discussed in the section entitled "What
Kind Of Paperwork Is Involved In Selling Shares?"
Redemption orders may be placed by calling (800) 247-9728.
TeleTrade Privileges apply automatically unless you indicate
on the Account Application or in a subsequent written notice
to the Transfer Agent that you do not wish to have them.
You should refer to the "Shareholder Services" section for
additional important information about the TeleTrade
Privilege.
OTHER REDEMPTION OPTIONS, INCLUDING EXCHANGES AND AUTOMATIC WITHDRAWALS, ARE ALSO
AVAILABLE. PLEASE REFER TO THE SECTION ENTITLED "SHAREHOLDER SERVICES" FOR MORE INFORMATION.
</TABLE>
WHAT "NAV" WILL I RECEIVE FOR SHARES
I WANT TO SELL?
Redemption orders are effected at the net asset value per share next determined
after receipt of the order in proper form by the Transfer Agent at its Columbus
office. Although the Funds impose no charge when Class A shares are redeemed, if
you purchase your Class A shares through Bank of America or a Service
Organization, they may charge a fee for providing certain services in connection
with investments in the Funds' shares. As described in the section "Shareholder
Guide -- How to Buy Shares," when you redeem your Class B shares within 6 years
of purchase, you may be subject to a contingent deferred sales charge.
The Company reserves the right to redeem any account (other than IRA and
non-working spousal IRA accounts) involuntarily if, after sixty days' written
notice, the account's net asset value remains below a $500 minimum balance.
WHAT KIND OF PAPERWORK IS INVOLVED
IN SELLING SHARES?
Redemption requests must be signed by each shareholder, including each joint
owner. When redeeming shares, you should indicate whether you are redeeming
Class A or Class B shares. If you own both Class A and Class B shares, Class A
shares will be redeemed first unless you request otherwise. Certain types of
redemption requests will need to include a signature guarantee. Signature
guarantees must accompany redemption requests for: (i) an amount in excess of
$50,000; (ii) any amount if the redemption proceeds are to be sent somewhere
other than the address of record on the Funds' books; or (iii) an amount of
$50,000 or less if the address of record has not been on the Funds' books for
sixty days.
You may obtain a signature guarantee from: (i) a bank which is a member of the
FDIC; (ii) a trust company; (iii) a member firm of a national securities
exchange; or (iv) another eligible guarantor institution. Guarantees must be
signed by an authorized signatory of the guarantor
23
<PAGE> 27
institution and be accompanied by the words "Signature Guaranteed." The Transfer
Agent will not accept guarantees from notaries public.
HOW QUICKLY CAN I RECEIVE MY REDEMPTION PROCEEDS?
The Fund ordinarily will make payment for all shares redeemed within three days
after the Transfer Agent receives a request in proper form, except as provided
by the rules of the Securities and Exchange Commission. However, if the shares
to be redeemed have been purchased by check or by TeleTrade, the Company will,
upon the clearance of the purchase check or TeleTrade payment, mail the
redemption proceeds. It may take up to 15 days for the purchase check or
TeleTrade payment to clear. This does not apply to situations where a Fund
receives payment in cash or immediately available funds for the purchase of
shares.
Bank of America and the Service Organizations are responsible for transmitting
redemption orders and crediting their customers' accounts with redemption
proceeds on a timely basis.
DO I HAVE ANY REINSTATEMENT PRIVILEGES AFTER I HAVE REDEEMED SHARES?
You may reinvest all or any portion of your redemption proceeds in shares of the
same class of the Time Horizon Fund out of which you redeemed, in like shares of
another Fund in the Time Horizon Series of Funds or in like shares of a Pacific
Horizon load fund within 90 days of your redemption trade date without paying a
sales load. Upon such a reinvestment, the Distributor will credit to your
account any contingent deferred sales charge imposed on any redeemed Class B
shares. Shares so reinvested will be purchased at a price equal to the net asset
value next determined after the Transfer Agent receives a reinstatement request
and payment in proper form.
If you wish to use this privilege, you must submit a written reinstatement
request to the Transfer Agent stating that you are eligible to use the
privilege. The reinstatement request and payment must be received within 90 days
of the trade date of the redemption. Currently, there are no restrictions on the
number of times you may use this privilege.
Generally, exercising the Reinstatement Privilege will not affect the character
of any gain or loss realized on redemption for federal income tax purposes.
However, if a redemption results in a loss, the reinstatement may result in the
loss being disallowed under IRS "wash sale" rules.
DIVIDEND AND DISTRIBUTION POLICIES
Shareholders of a Fund are entitled to dividends and distributions arising from
the net investment income and net realized gains, if any, earned on investments
of the Fund. A Fund's net income and net capital gains (if any) are declared and
paid annually. Distributions are paid within five business days after the end of
the year.
You will automatically receive dividends and capital gain distributions in
additional shares without a sales load unless you: (i) elect in writing to
receive payment in cash; or (ii) elect to participate in the Directed
Distribution Plan described in the section below entitled "Can My Dividends From
A Fund Be Invested In Other Funds?" To elect to receive payment in cash, or to
revoke such election, you must do so in writing to the Transfer Agent, BISYS
Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219. The election
or revocation will become effective with respect to dividends paid after it is
received by the Transfer Agent.
24
<PAGE> 28
SHAREHOLDER SERVICES
TIME HORIZON FUNDS PROVIDES A VARIETY OF WAYS TO MAKE MANAGING YOUR
INVESTMENTS MORE CONVENIENT.
Some or all of the following services and privileges as well as others described
in this Prospectus may not be available for, or may have different conditions
imposed on them than as described in this Prospectus with respect to, certain
clients of Bank of America and particular Service Organizations. Consult these
entities for more information.
CAN I USE A FUND IN MY RETIREMENT PLAN?
You are able to set up Individual Retirement Accounts ("IRAs"), including IRAs
under a Simplified Employee Pension Plan ("SEP-IRAs") and IRA "Rollover
Accounts." YOUR INVESTMENTS GROW TAX DEFERRED UNTIL WITHDRAWAL AT RETIREMENT AND
IN MANY CASES THE INITIAL INVESTMENT IS TAX DEDUCTIBLE. For details, contact the
Distributor at (800) 247-9728. Investors should also read the IRA Disclosure
Statement and the Bank Custodial Agreement for further details on eligibility,
service fees and tax implications, and should consult their tax adviser.
CAN I EXCHANGE MY INVESTMENT FROM ONE FUND TO ANOTHER?
As a shareholder, you have the privilege of exchanging your shares for shares of
the same class of another Time Horizon Fund or of a Pacific Horizon Fund that
legally may be sold in your state of residence (the "Exchange Privilege"). An
investment in a Fund automatically entitles you to use the Exchange Privilege
unless you indicate on the Account Application or in a subsequent letter to the
Transfer Agent that you do not wish to use the Exchange Privilege. No additional
sales load will be incurred when exchanging Class A shares purchased with a
sales load for Class A shares of another load fund. Class B shares of a Fund may
be exchanged for Class B shares of any other Fund or for Pacific Horizon Shares
of the Pacific Horizon Prime Fund (the "Prime Fund") without payment of any
contingent deferred sales charge at the time the exchange is made. In
determining the holding period for calculating the contingent deferred sales
charge payable upon redemption of Class B shares, the holding period of the
shares originally held will be added to the holding period of the Class B shares
acquired through exchange. However, if Class B shares are exchanged for shares
of the Prime Fund, the holding period of the Prime Fund shares will not count
toward the total holding period of the Class B shares.
Fund share transactions pursuant to the Exchange Privilege must have a current
value of at least $500 and are subject to the minimum initial investment
requirements of the particular Fund into which the exchange is being made. You
may obtain a prospectus regarding the Fund into which you wish to make an
exchange from your Service Organization or the Fund's Distributor.
You may provide instructions to effect the Exchange Privilege described above by
calling the Transfer Agent at (800) 247-9728. (See the section below entitled
"What is TeleTrade?" for a description of the Company's policy regarding
responsibility for telephone instructions.) You may also send exchange
instructions in writing by following the directions set forth previously under
"How To Sell Shares."
If you would like more information on the Exchange Privilege, please read the
Statement of Additional Information and consult your Service Organization or the
Distributor.
The Funds reserve the right to reject any exchange request and the Exchange
Privilege may be modified or terminated at any time. At least 60 days' notice of
any material modification or termination will be given to shareholders
25
<PAGE> 29
except where notice is not required under the regulations of the Securities and
Exchange Commission.
WHAT IS TELETRADE?
TELETRADE IS A SERVICE WHICH ALLOWS YOU TO AUTHORIZE ELECTRONIC TRANSFERS OF
MONEY TO PURCHASE SHARES IN OR REDEEM SHARES FROM AN ESTABLISHED FUND ACCOUNT.
THE SERVICE MAY BE USED LIKE AN "ELECTRONIC CHECK" TO MOVE MONEY BETWEEN AN
ACCOUNT AT A FINANCIAL INSTITUTION AND A FUND ACCOUNT WITH A SINGLE TELEPHONE
CALL.
Purchase and redemption proceeds with respect to TeleTrade transactions will be
transferred between your Fund account and the checking, NOW or bank money market
account designated by you. Only an account maintained at a domestic financial
institution that is an Automated Clearing House member may be so designated.
TeleTrade purchases will be effected at the public offering price next
determined after the Transfer Agent receives payment for the transaction.
Redemption proceeds will be on deposit in your account at your financial
institution generally two business days after the redemption request is received
by the Transfer Agent. You may also request receipt of your redemption proceeds
by check, which will be payable to the registered owners of your Fund account
and will be sent only to the address of record.
You should note that the Transfer Agent may act upon a telephone redemption
request (including a telephone wire redemption request) from any person
representing himself or herself to be you and reasonably believed by the
Transfer Agent to be genuine. Neither the Company nor any of its service
contractors will be liable for any loss or expense in acting upon telephone
instructions that are reasonably believed to be genuine. In attempting to
confirm that telephone instructions are genuine, the Company will use such
procedures as are considered reasonable. These procedures include (1)
establishing the identity of the caller by use of a "Personal Identification
Number" and/or confirming the shareholder's name, address and Taxpayer
Identification Number; (2) recording all telephone conversations with the
Transfer Agent; (3) transmitting redemption proceeds only according to
previously established instructions; and (4) mailing a statement confirming each
transaction to the shareholder. If you should experience difficulty in
contacting the Transfer Agent to place telephone redemptions (including
telephone wire redemption requests), for example because of unusual market
activity, you are urged to consider redeeming your shares by mail or in person.
The Funds may modify the TeleTrade Privilege at any time or charge a service fee
upon notice to shareholders. No such fee currently is contemplated.
CAN I ARRANGE TO HAVE AUTOMATIC
INVESTMENTS MADE ON A REGULAR BASIS?
YOU MAY ARRANGE, THROUGH THE AUTOMATIC INVESTMENT PROGRAM, FOR SYSTEMATIC
INVESTMENTS IN YOUR FUND ACCOUNT IN AMOUNTS OF $50 OR MORE BY DIRECTLY DEBITING
YOUR ACCOUNT AT YOUR FINANCIAL INSTITUTION. At your option, your checking, NOW
or bank money market account designated by you will be debited in the specified
amount, and a particular Fund's shares will be purchased, once a month, on
either the first or fifteenth day, or twice a month, on both days. Only accounts
maintained at a domestic financial institution which permits automatic
withdrawals and is an Automated Clearing House member are eligible. The
Automatic Investment Program is one means by which you may use Dollar Cost
Averaging in making investments.
WHAT IS DOLLAR COST AVERAGING AND HOW CAN I IMPLEMENT IT?
DOLLAR COST AVERAGING INVOLVES INVESTING A FIXED DOLLAR AMOUNT AT REGULAR
PREDETERMINED INTERVALS. BECAUSE MORE SHARES ARE BOUGHT DURING PERIODS WITH
LOWER SHARE PRICES AND FEWER SHARES ARE BOUGHT WHEN THE PRICE IS HIGHER, YOUR
AVERAGE COST PER SHARE MAY BE REDUCED. You may also implement Dollar Cost
Averaging on your own initiative or through other entities.
26
<PAGE> 30
In order to be effective, Dollar Cost Averaging should be followed on a
sustained, consistent basis. You should be aware, however, that shares bought
using Dollar Cost Averaging are purchased without regard to their price on the
day of investment or to market trends. In addition, while you may find Dollar
Cost Averaging to be beneficial, it will not prevent a loss if you ultimately
redeem your shares at a price that is lower than their purchase price.
To establish an Automatic Investment account that uses the Dollar Cost Averaging
method, check the appropriate box and supply the necessary information on the
Account Application or in a subsequent written request to the Transfer Agent.
You may cancel this privilege or change the amount of purchase at any time by
mailing written notification to the Transfer Agent.
Notification will be effective three business days following receipt. The Funds
may modify or terminate this privilege at any time or charge a service fee,
although no such fee currently is contemplated.
CAN I ARRANGE PERIODIC WITHDRAWALS?
IF YOU ARE A SHAREHOLDER WITH A FUND ACCOUNT VALUED AT $5,000 OR MORE, YOU MAY
WITHDRAW AMOUNTS IN MULTIPLES OF $50 FROM YOUR ACCOUNT ON A MONTHLY, QUARTERLY,
SEMI-ANNUAL OR ANNUAL BASIS THROUGH THE AUTOMATIC WITHDRAWAL PLAN.
At your option, monthly, quarterly, semi-annual and annual withdrawals will be
made on either the first or fifteenth day of the particular month selected. To
participate in this Plan, check the appropriate box and supply the necessary
information on the Account Application or in a subsequent signature guaranteed
written request to the Transfer Agent. Purchases of additional shares
concurrently with withdrawals are ordinarily not advantageous because of the
Funds' sales load.
Use of this Plan may also be disadvantageous for Class B shares during the first
6 years shares are held, due to the potential need to pay a contingent deferred
sales charge.
CAN MY DIVIDENDS FROM A FUND BE
INVESTED IN OTHER FUNDS?
YOU MAY ELECT TO HAVE YOUR DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, OR BOTH
("DISTRIBUTION PROCEEDS") RECEIVED FROM A NON-RETIREMENT FUND ACCOUNT
AUTOMATICALLY INVESTED IN SHARES OF ANY OTHER INVESTMENT PORTFOLIO OF THE
COMPANY, OR IN SHARES OF AN INVESTMENT PORTFOLIO OF PACIFIC HORIZON FUNDS,
PROVIDED SUCH SHARES ARE HELD IN A NON-RETIREMENT ACCOUNT. To participate in
this program, known as the Directed Distribution Plan, check the appropriate box
and supply the necessary information on the Account Application or subsequently
send a written request to the Transfer Agent. Investments will be made at a
price equal to the net asset value of the purchased shares next determined after
receipt of the distribution proceeds by the Transfer Agent.
There are no subsequent investment requirements for accounts to which
distribution proceeds are directed nor are service fees currently charged for
effecting these transactions.
IS THERE A SALARY DEDUCTION PLAN AVAILABLE?
YOU MAY PURCHASE A FUND'S SHARES BY HAVING PAYMENTS AUTOMATICALLY DEPOSITED INTO
YOUR FUND ACCOUNT (MINIMUM OF $50 AND MAXIMUM OF $50,000 PER TRANSACTION) IF YOU
RECEIVE A FEDERAL SALARY, SOCIAL SECURITY OR CERTAIN VETERAN'S, MILITARY OR
OTHER PAYMENTS FROM THE FEDERAL GOVERNMENT. Subject to these limitations, you
may deposit as much of your payments as you wish. For instructions on how to
enroll in this Direct Deposit Program, call the Transfer Agent at (800)
247-9728.
Note: Death or legal incapacity will terminate participation in the Program. You
may also choose at any time to terminate your participation by notifying the
appropriate federal agency in writing. Further, a Fund may terminate your
participation after 30 days' notice.
27
<PAGE> 31
THE BUSINESS OF THE FUNDS
BOARD OF TRUSTEES
The business affairs of Time Horizon Funds are managed under the general
supervision of its Board of Trustees, under the laws of the State of Delaware.
Information about the Trustees and officers of the Company is included in the
Statement of Additional Information in the section entitled "Management."
EXPENSES
Operating expenses borne by the Funds include taxes, fees and expenses of the
Trustees and officers, administration, custodial and transfer agency fees,
certain insurance premiums, outside auditing and legal expenses, costs of
shareholder reports and meetings and any extraordinary expenses. The Funds'
expenses also include Securities and Exchange Commission fees, state securities
qualification fees, costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders, and certain shareholder servicing fees. Except as noted
in this Prospectus, the service contractors bear all expenses in connection with
the performance of their services and the Funds bear the expenses incurred in
their operations.
MANAGER
Bank of America serves as the Funds' Manager. Bank of America is a subsidiary of
BankAmerica Corporation, a registered bank holding company. Its principal
offices are located at 555 California Street, San Francisco, California 94104.
Formed in 1904, Bank of America is a national banking association that provides
commercial banking and trust business through an extensive system of branches
across the western United States. Bank of America's principal banking affiliates
operate branches in ten U.S. states as well as corporate banking and business
credit offices in major U.S. cities and branches, corporate offices and
representative offices in 37 countries.
In its management agreement, Bank of America has agreed to manage the Funds'
investments and to be responsible for, place orders for, and make decisions with
respect to, all purchases and sales of the Funds' securities. The management
agreement also provides that Bank of America may, in its discretion, provide
advisory services through its own employees or employees of one or more of its
affiliates that are under the common control and management of Bank of America's
parent, BankAmerica Corporation. Bank of America may also employ a sub-adviser
provided that Bank of America remains fully responsible to the Funds for the
acts and omissions of the sub-adviser.
Bank of America Illinois' Investment Advisors Division is responsible for the
day-to-day investment activities of the Funds. The investment management team is
headed by James Miller, Executive Vice President and Chief Investment Officer of
BofA Illinois (a wholly-owned subsidiary of BankAmerica Corporation). Mr. Miller
has been associated with BofA Illinois (and its predecessor Continental Bank)
since 1988. Mr. Miller is a Chartered Financial Analyst, a member of the
Association of Investment Management and Research, and a Director of the
Investment Analysts Society of Chicago.
Under its management agreement, Bank of America has also agreed to provide
statistical and research data, data processing services, and clerical services,
and coordinate the preparation of reports to shareholders of the Funds and the
Securities and Exchange Commission.
For its services as manager, Bank of America is entitled to receive a fee from
the Funds at the
28
<PAGE> 32
annual rate of .60% of the Funds' average daily net assets. This amount may be
reduced pursuant to undertakings by Bank of America. (See the information below
in the section entitled "Fee Waivers.") In addition, Bank of America, and its
affiliates may be entitled to fees under the Shareholder Services Plan as
described below in "Plan Payments" and may receive fees charged directly to
their accounts in connection with investments in a particular Fund's shares.
Pursuant to the authority granted in its management agreement, Bank of America
has entered into a Sub-Administration Agreement with BISYS Fund Services Limited
Partnership ("BISYS Fund Services") under which BISYS Fund Services will perform
certain of the services listed above, e.g., pay the costs of maintaining the
offices of the Company, maintain the registration or qualification of the Funds'
shares for sale under state securities laws; maintain books and records of the
Funds; and generally assist in all aspects of the operations of the Funds. Bank
of America bears all fees and expenses charged by BISYS for these services.
FUND ACCOUNTANT
BISYS Fund Services Ohio, Inc. ("BISYS") serves as fund accountant of the Funds.
In its accounting services agreement, BISYS has agreed to provide certain
accounting services to the Funds including calculation of the net asset value of
the Funds, and dividends and capital gains distributions to shareholders, and
preparation of tax returns.
For its services under its accounting services agreement, BISYS is entitled to
receive an annual fee from the Funds based on the greater of $2,500 or the
following fee schedule: 0.0125% of the Funds' average net assets between $10
million and $50 million; 0.025% of average net assets between $50 million and
$200 million; 0.02% of average net assets between $200 million and $500 million;
and 0.015% of average net assets greater than $500 million. This amount may be
reduced pursuant to undertakings by Bank of America. (See the information below
in the section entitled "Fee Waivers.")
DISTRIBUTOR
The Funds' shares are sold on a continuous basis by Concord Financial Group,
Inc. The Distributor is an indirect, wholly-owned subsidiary of The BISYS Group,
Inc. Its principal office is located at 3435 Stelzer Road, Columbus, Ohio
43219-3035.
CUSTODIAN AND TRANSFER AGENT
PNC Bank, N.A., Broad and Chestnut Streets, Philadelphia, Pennsylvania, 19101
serves as the custodian of the Fund. BISYS Fund Services Ohio, Inc. is the
transfer and dividend disbursing agent of the Funds and is located at 3435
Stelzer Road, Columbus, Ohio, 43219.
FEE WAIVERS
Bank of America has agreed to reduce its fees and absorb other operating
expenses to ensure that the operating expenses for each Fund (other than
interest, taxes, brokerage commissions and other portfolio transaction expenses,
capital expenditures and extraordinary expenses) will not exceed 1.00% and 1.75%
of the average net assets of each Fund's Class A and Class B shares,
respectively, on an annual basis for the first twelve months of the Funds'
operations.
Expenses can also be reduced by voluntary fee waivers and expense reimbursements
by Bank of America and other service providers as well as by certain expense
limitations imposed by state securities regulators. From time to time during the
course of the Funds' fiscal year, Bank of America and/or the Distributor may
prospectively waive fee payments and/or may assume certain of the Funds'
expenses as a result of competitive pressures and in order to preserve and
protect the business and reputation of Bank of America and the Distributor. This
will have the effect of increasing yield to investors at the time such fees are
not received or amounts are assumed, and decreasing yield when such fees or
amounts are reimbursed. However, the service
29
<PAGE> 33
providers retain the ability to stop such fee waivers at any time.
PLAN PAYMENTS
THE COMPANY HAS ADOPTED A SHAREHOLDER SERVICE PLAN FOR CLASS A AND CLASS B
SHARES, AND A DISTRIBUTION PLAN FOR CLASS B SHARES
The Company has adopted a Shareholder Service Plan for Class A and Class B
shares, under which the Class A and Class B shares of the Funds reimburse the
Distributor and Service Organizations for shareholder servicing expenses
incurred. The Company has also adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act, under which the Class B shares of each Fund compensate
the Distributor for services rendered and costs incurred in connection with
distribution of the Class B shares.
THE SHAREHOLDER SERVICE PLAN
Shareholder servicing expenses include expenses incurred in connection with
shareholder services provided by the Distributor and payments to Service
Organizations for support services for the beneficial owners of a Fund's shares,
such as establishing and maintaining accounts and records relating to the
Service Organization's clients who invest in Fund shares; assisting those
clients in processing exchange and redemption requests and in changing dividend
options and account designations; and responding to inquiries from clients
concerning their investments.
Under the Shareholder Service Plan, payments by a Fund for shareholder servicing
expenses may not exceed 0.25% (annualized) of the Fund's average daily net
assets.
If in any month the Distributor is due more monies than are immediately payable
because of the percentage limitation described above, the unpaid amount is
"carried forward" from month to month while the Shareholder Service Plan is in
effect until such time when it may be paid. However, any "carried forward"
amounts will not be payable beyond the fiscal year during which the amounts are
accrued. No interest, carrying or other finance charge is borne by a Fund with
respect to the amount "carried forward."
Banks may act as Service Organizations. The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting securities. If a bank were prohibited from acting as a
Service Organization its shareholder clients would be permitted to remain
Company shareholders and alternative means for continuing the servicing of such
shareholders would be sought. In such event, changes in the operation of the
Company might occur and a shareholder serviced by such bank might no longer be
able to avail itself of the automatic investment or other services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
THE DISTRIBUTION PLAN
Distribution expenses include advertising and marketing expenses, commissions
and other payments to broker-dealers and others which have entered into
agreements with the Distributor, the expenses of preparing, printing and
distributing prospectuses, and indirect and overhead costs associated with the
sale of Class B shares.
Under the Distribution Plan, payments by the Class B shares of a Fund for
distribution expenses are incurred at the rate of 0.75% (annualized) of the
average daily net assets of the Fund attributable to the Class B shares. This
amount may be reduced pursuant to the undertakings by the Distributor.
30
<PAGE> 34
The Distribution Plan is a "compensation" plan, which means that the
distribution fees paid to the Distributor under the Plan are intended to
compensate the Distributor for services rendered and expenses borne even if the
amounts paid exceed the Distributor's actual expenses (in which case the
Distributor would realize a profit). If in any month the Distributor's expenses
incurred in connection with the distribution of a Fund's Class B shares exceed
the distribution fees paid by the Fund, the Distributor will recover the excess
only if the Distribution Plan with respect to such shares continues to be in
effect in some later year when the distribution fees exceed the Distributor's
expenses. No interest, carrying or other finance charge is borne by a Fund with
respect to any amounts "carried forward," and no Fund will be obligated to pay
any unreimbursed expenses that may exist at such time, if any, as the
Distribution Plan is terminated.
TAX INFORMATION
YOU WILL BE ADVISED AT LEAST ANNUALLY REGARDING THE FEDERAL INCOME TAX
TREATMENT OF DIVIDENDS AND DISTRIBUTIONS MADE TO YOU. YOU SHOULD SAVE YOUR
ACCOUNT STATEMENTS BECAUSE THEY CONTAIN INFORMATION YOU WILL NEED TO CALCULATE
YOUR CAPITAL GAINS OR LOSSES UPON YOUR ULTIMATE SALE OR EXCHANGE OF SHARES IN
THE FUNDS.
As with any investment, you should consider the tax implications of an
investment in a Fund. The following is only a brief summary of some of the
important tax considerations generally affecting the Funds and their
shareholders. Consult your tax adviser with specific reference to your own tax
situation.
FEDERAL TAXES
Each Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (the "Code") for the current taxable year. As a result of
this qualification, the Funds generally are not required to pay federal income
taxes to the extent earnings are distributed in accordance with the Code. The
Funds intend to qualify for this special tax treatment as long as it is in the
best interest of shareholders.
Distributions (whether received in cash or additional shares) of ordinary income
and/or excesses of net short-term capital gain over net long-term capital loss
are taxable to the shareholder as ordinary income. (These distributions are
eligible for the dividends received deduction allowed to corporations to the
extent of the total qualifying dividends received by the Funds from domestic
corporations for the taxable year.)
Any distribution you receive comprised of the excess of net long-term capital
gain over net short-term capital loss will be taxed as a long-term capital gain
no matter how long you have held a Fund's shares. (Such distributions are not
eligible for the dividends received deduction allowed to corporations.)
A dividend paid to a shareholder by the Funds in January of a particular year
will be deemed to have been received by the shareholder on December 31 of the
preceding year, if the dividend is declared and payable to shareholders of
record on a specified date in October, November or December of that preceding
year.
If you are considering buying shares of a Fund on or just before the record date
of a dividend, you should be aware that the amount of the forthcoming dividend
payment, although in effect a return of capital, will be taxable to you.
You may realize a taxable gain (or loss) upon redemption or exchange of a Fund's
shares, depending upon the tax basis of your shares and
31
<PAGE> 35
their price at the time of such redemption or exchange. Generally, you may
include sales loads incurred in the purchase of a Fund's shares in your tax
basis when determining your gain (or loss) on a redemption or exchange of these
shares. However, if you exchange such shares for shares of another Fund in the
Time Horizon Funds within 90 days of the purchase and are able to reduce the
sales load on the new shares through the Exchange Privilege, the reduction may
not be included in the tax basis of your exchanged shares. It may be included in
the tax basis of the new shares. If you hold a Fund's shares for six months or
less and during that time receive a capital gain dividend on those shares, any
loss on the sale or exchange of those shares will be treated as a long-term
capital loss to the extent of the capital gain dividend.
Certain interest income and dividends earned by the Funds from foreign
securities is expected to be subject to foreign withholding taxes or other
taxes. Certain realized gains or losses on the sale or retirement of foreign
bonds held by a Fund, to the extent attributable to fluctuations in currency or
exchange rules, as well as other gains or losses attributable to exchange rate
fluctuations, are typically treated as ordinary income or loss. Such income or
loss may increase or decrease (or possibly eliminate) income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, income available for distribution is decreased or
eliminated, all or a portion of the dividends declared by a Fund may be treated
for federal income tax purposes as a return of capital, or in some
circumstances, as capital gain. Generally, your tax basis in your Fund shares
will be reduced to the extent that an amount distributed to you is treated as a
return of capital.
STATE AND LOCAL TAXES
You should consult your tax adviser regarding state and local tax consequences
which may differ from the federal tax consequences described above.
MEASURING PERFORMANCE
A FUND'S PERFORMANCE MAY BE QUOTED IN TERMS OF AVERAGE ANNUAL TOTAL RETURN AND
AGGREGATE TOTAL RETURN. PERFORMANCE INFORMATION IS HISTORICAL AND IS NOT
INTENDED TO INDICATE FUTURE RESULTS.
Average annual total return reflects the average annual percentage change in
value of an investment in a Fund over the period being measured, while aggregate
total return reflects the total percentage change in value over the period being
measured.
Periodically, a Fund's total return (calculated on an average annual total
return and/or an aggregate total return basis for various periods) may be quoted
in advertisements or in communications to shareholders. Both methods of
calculating total return reflect the sales load charged by a Fund and assume
dividends and capital gains distributions made by the Fund during the period are
reinvested in Fund shares. A Fund may also advertise total return data without
reflecting the sales load imposed on the purchase of Fund shares in accordance
with the rules of the Securities and Exchange Commission. Quotations that do not
reflect the sales load will, of course, be higher than quotations that do
reflect sales loads.
A Fund may compare its total return to that of other mutual funds with similar
investment objectives and to stock and other relevant indexes or to rankings
prepared by independent services or other financial or industry publications
that monitor mutual fund performance. For example, a Fund's total return may be
compared to the Consumer Price Index or to data prepared
32
<PAGE> 36
by: Lipper Analytical Services, Inc.; Donoghue's Money Fund Report; Mutual Fund
Forecaster; Morningstar; Micropal; Wiesenberger Investment Companies Services;
or CDA Investment Technologies, Inc. Total return data as reported in national
financial publications such as Money, Forbes, Barron's, The Wall Street Journal
and The New York Times, or in local or regional publications, may also be used
in comparing Fund performance. A Fund's total return also may be compared to
indices such as: the Dow Jones Industrial Average; the Financial Times World
Stock Index; the Europe, Asia and Far East Index ("EAFE"); the Lipper
International Fund Index; the Standard & Poor's 500 Stock Index; the Shearson
Lehman Bond Indexes; or the Wilshire 5000 Equity Indexes.
Since a Fund's performance will fluctuate, it should not be compared with bank
deposits, savings accounts and similar investments that often provide an agreed
or guaranteed fixed yield for a stated period of time. Performance is generally
a function of the kind and quality of the instruments in a portfolio, portfolio
maturity, operating expenses and market conditions. Not included in a Fund's
calculations of total return are fees charged by Bank of America and other
Service Organizations directly to their customer accounts in connection with
investments in a Fund (e.g. account maintenance fees, compensating balance
requirements or fees based upon account transactions, assets or income).
DESCRIPTION OF SHARES
THE COMPANY IS A DELAWARE BUSINESS TRUST THAT WAS ORGANIZED ON APRIL 12, 1995.
ABOUT THE COMPANY
THE COMPANY'S CHARTER AUTHORIZES THE BOARD OF TRUSTEES TO ISSUE AN UNLIMITED
NUMBER OF SHARES OF BENEFICIAL INTEREST AND TO CLASSIFY AND RECLASSIFY ANY
AUTHORIZED AND UNISSUED SHARES INTO ONE OR MORE CLASSES OF SHARES.
Shares representing beneficial interests in a Fund are entitled to participate
in the dividends and distributions declared by the Board of Trustees and in the
net distributable assets of the Fund on liquidation. The Funds' shares have no
preemptive rights and only such conversion and exchange rights as the Board may
grant in its discretion. When issued for payment as described in this
Prospectus, a Fund's shares will be fully paid and non-assessable.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held. Additionally, shareholders will vote in the
aggregate and not by class or series, except as required by law (or when
permitted by the Board of Trustees). Only Class A shares will vote on matters
relating solely to Class A and only Class B shares will vote on matters (such as
the distribution plan described above) relating solely to Class B. The Funds do
not presently intend to hold annual meetings of shareholders to elect trustees
or for other business unless and until such time as less than a majority of the
trustees holding office has been elected by the shareholders. At that time, the
trustees then in office will call a shareholders' meeting for the election of
trustees. Under certain circumstances, however, shareholders have the right to
call a shareholder meeting to consider the removal of one or more trustees. Such
meetings will be held when requested by the shareholders of 10% or more of the
Company's outstanding shares of beneficial interest. Each Fund will assist in
shareholder communications in such matters to the extent required by law and the
Company's undertaking with the Securities and Exchange Commission.
33
<PAGE> 37
TIME HORIZON FUNDS
--------------------
PORTFOLIO 1
PORTFOLIO 2
PORTFOLIO 3
PROSPECTUS
FEBRUARY 5, 1996
LOGO
NOT FDIC INSURED
COPTMHR96P
<PAGE> 38
Time Horizon Funds
(the "Company")
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR
Time Horizon Portfolio 1
Time Horizon Portfolio 2
Time Horizon Portfolio 3
February 5, 1996
TABLE OF CONTENTS
Page
----
<TABLE>
<S> <C>
Investment Objectives And Policies . . . . . . . . . . . . 2
Additional Purchase And Redemption Information . . . . . . 25
Additional Information Concerning Taxes . . . . . . . . . . 33
Management . . . . . . . . . . . . . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . . . . . . . . . 51
Financial Statements . . . . . . . . . . . . . . . . . . . 54
Appendix A - Ratings . . . . . . . . . . . . . . . . . . . A-1
Appendix B - Futures Contracts . . . . . . . . . . . . . . B-1
</TABLE>
This Statement of Additional Information applies to the Class A and
Class B shares of three asset allocation funds offered by Time Horizon Funds,
an open-end management investment company (the "Company") -- Time Horizon
Portfolio 1 ("Portfolio 1"), Time Horizon Portfolio 2 ("Portfolio 2") and Time
Horizon Portfolio 3 ("Portfolio 3") (each individually a "Fund" and
collectively the "Funds" or "Time Horizon Series of Funds"). This Statement of
Additional Information is meant to be read in conjunction with the Prospectus
dated February 5, 1996, as it may from time to time be revised, which describes
the Funds. This Statement of Additional Information is incorporated by
reference in its entirety into such Prospectus. Because this Statement of
Additional Information is not itself a prospectus, no investment in either
Class A shares or Class B shares of any Fund should be made solely upon the
information contained herein. Copies of the Prospectus may be obtained by
calling the Distributor at (800) 247-9728. Capitalized terms used but not
defined herein have the same meaning as in the Prospectus.
<PAGE> 39
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus for the Funds describes the investment objectives of
the Funds. The following is a discussion of the various investments and
techniques employed by each Fund. The following information supplements and
should be read in conjunction with the descriptions of the investment
objectives and policies in the Prospectus for the Funds.
PORTFOLIO TRANSACTION
- ---------------------
The portfolio turnover rate described in the Prospectus is calculated
by dividing the lesser of purchases or sales of portfolio securities for the
year by the monthly average value of the portfolio securities. The calculation
excludes all securities with maturities at the time of acquisition of one year
or less. Portfolio turnover may vary greatly from year to year as well as
within a particular year, and may also be affected by cash requirements for
redemptions of shares and by requirements which enable the Company to receive
certain favorable tax treatment. Portfolio turnover will not be a limiting
factor in making portfolio decisions.
Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. There is generally no stated commission in the case of
securities traded in the over-the-counter market, but the price includes an
undisclosed commission or mark-up. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down.
In executing portfolio transactions and selecting brokers or dealers,
it is the Funds' policy to seek the best overall terms available. The
Management Agreement between the Company and Bank of America provides that, in
assessing the best overall terms available for any transaction, Bank of America
shall consider factors it deems relevant, including the breadth of the market
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, the Agreement authorizes Bank of America, subject to the approval of
the Board of Trustees of the Company to cause the Funds to pay a broker-dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker-dealer for effecting the same
transaction, provided that such commission is deemed reasonable in terms of
either that particular transaction or the overall responsibilities of Bank of
America to the particular Fund. Brokerage and research services may include:
(1) advice as to the value of securities, the advisability of investing in,
purchasing or selling securities and the availability of securities or
purchasers or sellers of securities; and (2) analyses and reports concerning
industries, securities, economic factors and trends, portfolio strategies and
the performance of accounts.
It is possible that certain of the brokerage and research services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised by Bank of America.
Conversely, one or more Funds may be the
<PAGE> 40
primary beneficiary of the brokerage or research services received as a result
of portfolio transactions effected for such other accounts or investment
companies. Brokerage and research services so received are in addition to and
not in lieu of services required to be performed by Bank of America and do not
reduce the advisory fee payable to Bank of America. Such services may be
useful to Bank of America in serving both the Company and other clients and,
conversely, services obtained by the placement of business of other clients may
be useful to Bank of America in carrying out its obligations to the Company.
In connection with its investment management services with respect to
the Funds, Bank of America will not acquire certificates of deposit or other
securities issued by it or its affiliates, and will give no preference to
certificates of deposit or other securities issued by Service Organizations.
Portfolio securities can be purchased from and sold to affiliates of the
Company, Bank of America, the Distributor and their affiliates acting as
principal, underwriter, syndicate member, market-maker, dealer, broker or in
any similar capacity, provided such purchase, sale or dealing is permitted
under the Investment Company Act of 1940 and the rules thereunder.
A Fund may participate, if and when practicable, in bidding for the
purchase of securities of the U.S. Government and its agencies and
instrumentalities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will
engage in this practice only when Bank of America in its discretion, subject to
guidelines adopted by the Board of Trustees of the Company, believes such
practice to be in the interest of the Funds. In addition, to the extent
permitted by law, Bank of America may aggregate the securities to be sold or
purchased on behalf of the Funds with those to be sold or purchased for other
investment companies or common trust funds in order to obtain best execution.
TYPES OF OBLIGATIONS, INVESTMENT RISKS, AND OTHER INVESTMENT INFORMATION
- ------------------------------------------------------------------------
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
Certificates of deposit, bankers' acceptances and time deposits are eligible
investments for each of the Funds as described in the Prospectus. Certificates
of deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Certificates of deposit
and bankers' acceptances will be obligations of domestic or foreign banks or
financial institutions with total assets at the time of purchase in excess of
$2.5 billion (including assets of both domestic and foreign branches). Time
deposits are non-negotiable deposits maintained at a banking institution for a
specified period of time at a specified interest rate. Obligations issued by
the International Bank for Reconstruction and Development, the Asian
Development Bank or the Inter-American Development Bank are not permissible
investments for the Funds.
Instruments issued by foreign banks and financial institutions may be
subject to investment risks that are different in some respects than the risks
associated with instruments
-3-
<PAGE> 41
issued by U.S. banks and financial institutions. Such risks include future
political and economic developments, the possible imposition of withholding
taxes by the particular country in which the issuer is located on interest
income payable on the instruments, the possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on these instruments.
Domestic banks and foreign banks are subject to different governmental
regulations with respect to the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry depends largely upon the availability and cost of funds for
the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operations of the banking industry.
As a result of federal and state laws and regulations, domestic banks
are, among other things, required to maintain specified levels of reserves,
limited in the amount which they can loan to a single borrower, and subject to
other regulations designed to promote financial soundness. However, such laws
and regulations do not necessarily apply to foreign bank obligations.
COMMERCIAL PAPER AND SHORT-TERM NOTES The Funds may invest in
commercial paper and short-term notes. Commercial paper consists of unsecured
promissory notes issued by domestic and foreign corporations. Except as noted
below with respect to variable and floating rate instruments, issues of
commercial paper and short-term notes will normally have maturities of less
than 9 months and fixed rates of return, although such instruments may have
maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase A-2 or higher by Standard & Poor's Corporation ("S&P"),
Prime-2 or higher by Moody's Investors Service, Inc. ("Moody's"), or similarly
rated by another nationally recognized statistical rating organization
("NRSRO") or, if unrated, will be determined by Bank of America to be of
comparable quality under procedures established by the Board of Trustees of the
Company. These rating symbols are described in Appendix A.
MONEY MARKET FUNDS. The Funds may under certain circumstances invest
a portion of their assets in certain money market funds. The Investment
Company Act of 1940 (the "1940 Act") prohibits each Fund from investing more
than 5% of the value of its total assets in any one investment company, or more
than 10% of the value of its total assets in investment companies as a group,
and also restricts its investment in any investment company to 3% of the voting
securities of such investment company. Investment by a Fund in a money market
fund will involve payment of the Fund's pro rata share of advisory and
administration fees charged by such fund, in addition to those paid by the
Fund. As indicated in the Prospectus, the Company intends to apply to the
Securities and Exchange Commission for an exemption from
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this provision of the 1940 Act. If an exemption is granted, each Fund may not
be limited as to the amount of its total assets that may be invested in
securities of other investment companies managed by Bank of America.
REPURCHASE AGREEMENTS. Each Fund is permitted to enter into
repurchase agreements with respect to its portfolio securities. Pursuant to
such agreements, a Fund acquires securities from financial institutions such as
banks and broker-dealers as are deemed to be creditworthy, subject to the
seller's agreement to repurchase and the agreement of the Fund to resell such
securities at a mutually agreed upon date and price. Repurchase agreements
maturing in more than seven days will not exceed 10% of the value of the total
assets of a Fund. The Funds are not permitted to enter into repurchase
agreements with Bank of America or its affiliates, and will give no preference
to repurchase agreements with Service Organizations. The repurchase price
generally equals the price paid by a Fund plus interest negotiated on the basis
of current short-term rates (which may be more or less than the rate on the
underlying portfolio security). Securities subject to repurchase agreements
will be held by the custodian of the Fund or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the underlying securities at not less than 102% of the
repurchase price under the agreement. If the seller defaulted on its
repurchase obligation, a Fund would suffer a loss to the extent that the
proceeds from a sale of the underlying securities were less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting
seller may cause the particular Fund's rights with respect to such securities
to be delayed or limited. Repurchase agreements are considered to be loans by
a Fund under the Investment Company Act of 1940.
GOVERNMENT OBLIGATIONS. Each Fund is permitted to make investments in
U.S. Government obligations. Such obligations include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of such entities as
the Government National Mortgage Association, Export-Import Bank of the United
States, Tennessee Valley Authority, Resolution Funding Corporation, Farmers
Home Administration, Federal Home Loan Banks, Federal Intermediate Credit
Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, and Student Loan Marketing Association. Treasury bills
have maturities of one year or less, Treasury notes have maturities of one to
ten years and Treasury bonds generally have maturities of more than ten years.
Some of these obligations, such as those of the Government National Mortgage
Association, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government sponsored instrumentalities if it is not obligated to do so
by law.
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VARIABLE AND FLOATING RATE INSTRUMENTS. The Funds may acquire
variable and floating rate instruments. Such instruments are frequently not
rated by credit rating agencies. However, in determining the creditworthiness
of unrated variable and floating rate instruments and their eligibility for
purchase by a Fund, Bank of America will consider the earning power, cash flow
and other liquidity ratios of the issuers of such instruments (which include
financial, merchandising, bank holding and other companies) and will monitor
their financial condition. An active secondary market may not exist with
respect to particular variable or floating rate instruments purchased by a
Fund. The absence of such an active secondary market could make it difficult
to dispose of a variable or floating rate instrument in the event the issuer of
the instrument defaulted on its payment obligation or during periods that the
Fund is not entitled to exercise its demand rights, and the Fund could, for
these or other reasons, suffer a loss to the extent of the default.
Investments in illiquid variable and floating rate instruments (instruments
which are not payable upon seven days' notice and do not have active trading
markets) are subject to a Fund's fundamental 10% limitation on illiquid
securities. Variable and floating rate instruments may be secured by bank
letters of credit.
ZERO COUPON SECURITIES. The Funds may invest in zero coupon
securities issued by the U.S. Treasury on up to 5% of their respective net
assets. Zero coupon Treasury securities are U.S. Treasury notes and bonds
which have been stripped of their unmatured interest coupons and receipts, or
certificates representing interests in such stripped debt obligations or
coupons. Because a zero coupon security pays no interest to its holder during
its life or for a substantial period of time, it usually trades at a deep
discount from its face or par value and will be subject to greater fluctuations
of market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest.
REVERSE REPURCHASE AGREEMENTS. The Funds are permitted to borrow
funds for temporary purposes by entering into reverse repurchase agreements
with such financial institutions as banks and broker-dealers. Whenever a Fund
enters into a reverse repurchase agreement, it will place in a segregated
account maintained with its custodian liquid assets such as cash, U.S.
Government securities or other liquid high grade debt securities having a value
equal to the repurchase price (including accrued interest) and Bank of America
will monitor the account for maintenance of such equivalent value. The Funds
intend to enter into reverse repurchase agreements to avoid otherwise having to
sell securities during unfavorable market conditions in order to meet
redemptions. Reverse repurchase agreements are considered to be borrowings by
a Fund under the Investment Company Act of 1940.
CORPORATE DEBT SECURITIES. The Funds may invest in nonconvertible
corporate debt securities, including obligations of varying maturities (such as
debentures, bonds and notes) over a cross-section of industries. The value of
a debt security changes as interest rates fluctuate, with the values of
longer-term securities fluctuating more widely in response to changes in
interest rates than those of shorter- term securities. A decline in interest
rates usually produces an increase in the value of debt securities, while an
increase in interest rates generally reduces their value.
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CONVERTIBLE SECURITIES. The Funds may invest in preferred securities
which may be exchanged for, converted into, or exercised to acquire a
predetermined number of shares of the issuer's common stock at the option of
the holder during a specified time period. Convertible preferred securities
generally pay interest or dividends and provide for participation in the
appreciation of the underlying common stock but have a lower level of risk
because the yield is higher and the security is senior to common stock. The
value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted
into the underlying common stock). The credit standing of the issuer and other
factors may also affect the investment value of convertible security. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. To the extent the market price of the underlying
common stock approaches or exceeds conversion price, the price of the
convertible security will be increasingly influenced by its conversion value.
Convertible securities may be subject to redemption at the option of the issuer
at a price established in the instrument governing the convertible security.
If a convertible security held by a Fund is called for redemption, the Fund
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock or sell it to a third party.
ILLIQUID SECURITIES. No Fund may invest more than 10% of the value of
its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. The Manager will
monitor the amount of illiquid securities in the Funds' portfolios, under the
supervision of the Board of Trustees, to ensure compliance with the Funds'
investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and the Fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption within seven days. The Fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public
offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional
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investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments. If such securities are subject to purchase by
institutional buyers in accordance with Rule 144A promulgated by the Commission
under the Securities Act, the Board of Trustees may determine that such
securities are not illiquid securities notwithstanding their legal or
contractual restrictions on resale. In all other cases, however, securities
subject to restrictions on resale will be deemed illiquid.
MORTGAGE-BACKED SECURITIES. The Funds invest in mortgage-backed
securities. Mortgage-backed securities are derivative interests in pools of
mortgage loans made to U.S. residential home buyers, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private
organizations. The Funds may also invest in debt securities which are secured
with collateral consisting of U.S. mortgage-related securities, and in other
types of U.S. mortgage-related securities.
Interests in pools of mortgage-related securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their residential mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs which may be incurred. Some
mortgage-related securities (such as securities issued by the Government
National Mortgage Association) are described as "modified pass-throughs."
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment.
The principal governmental guarantor of U.S. mortgage-related
securities is the Government National Mortgage Association ("GNMA"). GNMA is a
wholly owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Agency or
guaranteed by the Veterans Administration.
Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders and subject to general
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regulation by the Secretary of Housing and Urban Development. FNMA purchases
conventional residential mortgages not insured or guaranteed by any government
agency from a list of approved seller/services which include state and
federally chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. FHLMC is a
government-sponsored corporation created to increase availability of mortgage
credit for residential housing and owned entirely by private stockholders.
FHLMC issues participation certificates which represent interests in
conventional mortgages from FHLMC's national portfolio. Pass-through securities
issued by FNMA and participation certificates issued by FHLMC are guaranteed as
to timely payment of principal and interest by FNMA and FHLMC, respectively,
but are not backed by the full faith and credit of the United States
Government.
Although the underlying mortgage loans in a pool may have maturities
of up to 30 years, the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In
periods of falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of the pool certificates.
Conversely, when interest rates are rising, the rate of prepayments tends to
decrease, thereby lengthening the actual average life of the certificates.
Accordingly, it is not possible to predict accurately the average life of a
particular pool.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs in which the Funds
may invest are a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to the investors holding the shortest maturity class. Investors
holding the longer maturity classes received principal only after the first
class has been retired.
ASSET-BACKED SECURITIES. The Funds may invest in asset-backed
securities, including mortgage-backed securities discussed above. Non-
mortgage-backed securities include interest in pools of receivables, such as
motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided factual ownership interest in the underlying pools of
assets. Such securities may also be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Non-mortgage- backed securities are not issued or
guaranteed by the U.S. Government or its agencies or instrumentalities;
however, the payment of principal and interest
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on such obligations may be guaranteed up to certain amounts and for certain
time periods by a letter of credit issued by financial institution (such as a
bank or insurance company) unaffiliated with the issuer of such securities.
The purchase of asset-backed securities raises considerations peculiar
to the financing of the instruments underlying such securities. For example,
most organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in the respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In
such circumstances, if the servicer were to sell the same obligations to
another party, in violation of its duty not to do so, there is a risk that such
party could acquire an interest in the obligation superior to that of the
holders of the asset-backed securities. Also, although most such obligations
grant a security interest in the motor vehicle being financed, in most states
the security interest in a motor vehicle must be noted on the certificate of
title to protect such security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on those securities. In addition, various State and federal
laws give the motor vehicle owner the right to assert against the holder of the
owner's obligation certain defenses such owner would have against the seller of
the motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities.
Insofar as credit card receivables are concerned, credit card holders
are entitled to the protection of a number of state and federal consumer credit
laws, many of which give such holders the right to set off certain amounts
against balances owed on the credit card, thereby reducing the amount paid on
such receivables. In addition, unlike most other asset-backed securities,
credit card receivables are unsecured obligations of the card holder.
Asset-backed securities may be subject to greater risk of default
during periods of economic downturn than other instruments. Also, while the
secondary market for certain asset-backed securities is ordinarily quite
liquid, in times of financial stress the secondary market may not be as liquid
as the market for other types of securities, which could result in the
Portfolio's experiencing difficulty in valuing or liquidating such securities.
OPTIONS. The Funds may each purchase put and call options. Such
options may relate to particular securities or to various stock indices. The
Funds presently intend that the aggregate premiums paid will not exceed 2% of
the value of the Fund's total assets. The investment policies of the Funds
provide that the aggregate value of any Fund's assets subject to options may
not exceed 25% of the value of its net assets.
A listed call option for a particular security gives the purchaser of
the option the right to buy from a clearing corporation, and a writer has the
obligation to sell to the clearing
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corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking
the obligations under the option contract. A listed put option gives the
purchaser the right to sell to a clearing corporation the underlying security
at the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security. A Fund will continue
to receive interest or dividend income on the securities underlying such puts
until they are exercised by the Fund.
In contrast to an option on a particular security, an option on a
stock index provides the holder with the right to make or receive a cash
settlement upon exercise of the option. The amount of this settlement will be
equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
The Funds are permitted to write call options if they are "covered."
In the case of a call option on a security, the option is "covered" if a Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount as are
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian cash or cash equivalents equal
to the contract value. A call option is also covered if a Fund holds a call on
the same security or index as the call written where the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written provided the
difference is maintained by the Fund in cash or cash equivalents in a
segregated account with its custodian.
The principal reason for writing call options on a securities
portfolio is the attempt to realize, through the receipt of premiums, a greater
current return than would be realized on the securities alone. In return for
the premium, the covered option writer gives up the opportunity for profit from
a price increase in the underlying security above the exercise price so long as
his obligation as a writer continues, but retains the risk of loss should the
price of the security decline. Unlike one who owns securities not subject to
an option, the covered option writer has no control over when it may be
required to sell its securities, since it may be assigned an exercise notice at
any time prior to the expiration of its obligation as a writer.
If a Fund desires to sell a particular security it owns, on which it
has written an option, the Fund will seek to effect a closing purchase
transaction prior to, or concurrently with, the sale of the security. In order
to close out a covered call option position, a Fund will enter into a "closing
purchase transaction" - the purchase of a call option on a security or stock
index with the same exercise price and expiration date as the call option which
it previously wrote on the same security or index. If a Fund is unable to
effect a closing purchase transaction, it will not be able to sell a security
on which a call option has been written until the option expires or a Fund
delivers the underlying security upon exercise.
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When a Fund purchases a put or call option, the premium paid by it is
recorded as an asset of the Fund. When a Fund writes an option, an amount
equal to the net premium (the premium less the commission) received by the Fund
is included in the liability section of the statement of assets and liabilities
as a deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the average of the closing bid and asked
prices. If an option purchased by a Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If a Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by it on the closing transaction is more than the premium
paid to purchase the option, or a loss if it is less. Moreover, because
increases in the market price of an option will generally reflect (although not
necessarily in direct proportion) increases in the market price of the
underlying security any loss resulting from a closing purchase transaction is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund. If an option written by a Fund expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option
written by a Fund is exercised, the proceeds of the sale will be increased by
the net premium originally received and the Fund will realize a gain or loss.
As noted previously, there are several risks associated with
transactions in options on securities and indices. For example, there are
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options, may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by a national securities exchange ("Exchange") on
opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an Exchange; the facilities of
an Exchange or the Options Clearing Corporation may not at all times be
adequate to handle current trading volume; or one or more Exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding options
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.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
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FUTURES. The Funds may purchase and sell stock index, bond, interest
rate and currency futures contracts (as well purchase related options). A
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 value of a specified obligation or
stock index (which assigns relative values to the common stocks included in the
index) 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 securities is normally made.
A Fund may not purchase or sell futures contracts and purchase related
options unless immediately after any such transaction the aggregate initial
margin that is required to be posted by that Fund under the rules of the
exchange on which the futures contract (or futures option) is traded, plus any
premiums paid by the Fund on its open futures options positions, does not
exceed 5% of the Fund's total assets, after taking into account any unrealized
profits and losses on the Fund's open contracts and excluding the amount that a
futures option is "in- the-money" at the time of purchase. An option to buy a
futures contract is "in-the-money" if the then current purchase price of the
contract that is subject to the option is less than the exercise or strike
price; an option to sell a futures contract is "in-the-money" if the exercise
or strike price exceeds the then current purchase price of the contract that is
the subject of the option.
There are several risks in connection with the use of futures
contracts by a Fund as a hedging devise. One risk arises because of the
imperfect correlation between movements in the price of the futures contract
and movements in the price of the securities which are the subject of hedge.
The price of the futures contract may move more than or less than the price of
the securities being hedged. If the price of the futures contract moves less
than the price of the securities which are the subject of the hedge, the hedge
will not be fully effective but, if the price of the securities being hedged
has moved in an unfavorable direction, the Fund would be in a better position
than if it had not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be partially offset by
the loss on the futures contract. If the price of the futures contract moves
more than the price of the hedged securities, the Fund will experience either a
loss or gain on the futures contract which will not be completely offset by
movements in the price of the securities which are the subject of the hedge.
It is also possible that, where a Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of securities held in the Fund may decline. If this occurred, the
Fund would lose money on the futures contract and also experience a decline in
value in its portfolio securities.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in a futures contract
and the securities being hedged, the price of futures contracts may not
correlate perfectly with movement in the cash market due to certain market
distortions. As a result of these factors, a correct forecast of general
market trends or interest rate movements by Bank of America may still not
result in a successful hedging transaction over a short time frame.
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Positions in futures contracts may be closed out only on an exchange
or board of trade which provides a secondary market for such futures contracts.
Although the Funds intend to purchase or sell futures contracts only on
exchanges or boards of trade where there appear to be active secondary markets,
there is no assurance that a liquid secondary market on any exchange or board
of trade will exist for any particular contract or at any particular time. In
such event, it may not be possible to close a futures investment position, and
in the event of adverse price movements, a Fund would continue to be required
to make daily cash payments of variation margin. The liquidity of a secondary
market in a futures contract may in addition 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.
For additional information concerning futures and options thereon,
please see Appendix B to this Statement of Additional Information.
FOREIGN INVESTMENTS. The Funds may invest in securities of foreign
issuers that may or may not be publicly traded in the United States.
Investments in foreign securities involve certain inherent risks, such as
political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to
greater fluctuations in price than securities of domestic corporations. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Foreign brokerage
commissions and custodian fees are generally higher than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, or diplomatic developments which could
affect investment in those countries.
In considering whether to invest in the securities of a foreign
company, Bank of America considers such factors as the characteristics of the
particular company, differences between economic trends and the performance of
securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which a
Fund will be invested in foreign companies will fluctuate from time to time
depending on Bank of America's assessment of prevailing market, economic and
other conditions.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. When a Fund agrees to
purchase securities on a "when-issued" or "forward commitment" basis, its
custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment. In such a
case, a Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the commitment. It may be expected that the net assets of a
Fund will fluctuate to a greater degree
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when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. The Funds do not intend to engage in these
transactions for speculative purposes but only in furtherance of their
investment objectives. Because a Fund will set aside cash or liquid portfolio
securities to satisfy its purchase commitments in the manner described, its
liquidity and the ability of the investment adviser to manage it may be
affected in the event the forward commitments and commitments to purchase
when-issued securities ever exceeded 25% of the value of the Fund's total
assets.
A Fund will purchase securities on a when-issued or forward commitment
basis only with the intention of completion the transaction. If deemed
advisable as a matter of investment strategy, however, a Fund may dispose of or
renegotiate a commitment after it is entered into, and may sell securities it
has committed to purchase before those securities are delivered to the Fund on
the settlement date. In these cases the Fund may realize a taxable capital
gain or loss.
When a Fund engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Fund's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when issued purchase
or forward commitment transaction and any subsequent fluctuations in their
market value is taken into account when determining the market value of a Fund
starting on the day the Fund agrees to purchase the securities. A Fund does
not earn interest on the securities it has committed to purchase until they are
paid for and delivered on the settlement date.
SECURITIES LENDING. The Funds may lend their securities to brokers,
dealers and financial institutions, provided (1) the loan is secured
continuously by collateral consisting of U.S. Government securities or cash or
letters of credit which is marked to the market daily to ensure that each loan
is fully collateralized at all times; (2) the Fund involved may call the loan
at any time upon reasonable notice; (3) the Fund will receive any interest or
dividends paid on the securities loaned; and (4) the aggregate market value of
securities loaned will not at any time exceed 10% of the total assets of the
Fund.
A Fund will earn income on the collateral for lending its securities.
In connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to provide additional
collateral.
Although the Funds reserve the right to lend their securities, none of
these Funds have any current intention of doing so in the foreseeable future.
SMALLER CAPITALIZATION SECURITIES. Fund holdings may include common
stocks of companies with relatively small market capitalizations that the
Manager expects will experience above-average growth in earnings and price.
Some of these companies have limited product lines, markets and financial
resources and will be dependent upon a limited management group.
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Examples of possible investments include emerging growth companies employing
new technology, initial public offerings of companies offering high growth
potential, or other corporations offering good potential for high growth in
market value. The securities of smaller companies may be subject to more
abrupt or erratic market movements than larger, more established companies both
because the securities typically are traded in lower volume and because the
issuers typically are subject to a greater degree to changes in earnings and
prospects.
Some of the securities owned by the Funds may be traded only in the
over-the-counter market or on a regional securities exchange, may be listed
only in the quotation service commonly known as the "pink sheets," and may not
be traded every day or in the volume typical of trading on a national
securities exchange. As a result, the disposition by the Funds of portfolio
securities, to meet redemptions or otherwise, may require a Fund to sell these
securities at a discount from market prices, to sell during periods when such
disposition is not desirable, or to make many small sales over a lengthy period
of time.
OTHER INVESTMENT LIMITATIONS
- ----------------------------
The following is a list of restrictions and fundamental policies that
may not be changed for any Fund without the affirmative vote of the holders of
the majority of the Fund's outstanding shares (as defined below under "General
Information - Miscellaneous").
None of the Funds may:
1. Purchase securities (except securities issued by the U.S.
Government, its agencies or instrumentalities) if, as a
result, more than 5% of its total assets will be invested in
the securities of any one issuer or it would own more than 10%
of the voting securities of such issuer, except that (a) up to
25% of its total assets may be invested without regard to
these limitations, and (b) assets may be invested in the
securities of one or more diversified open-end management
investment companies to the extent permitted by the 1940 Act.
2. Pledge, mortgage or hypothecate the assets of the Fund to any
extent greater than 10% of the value of the total assets of
the Fund.
3. Purchase any securities that would cause more than 25% of the
value of the Fund's total assets at the time of such purchase
to be invested in the securities of one or more issuers
conducting their principal activities in the same industry,
provided that (a) there is no limitation with respect to
investments in obligations issued or guaranteed by the United
States Government, its agencies and instrumentalities, and (b)
assets may be invested in the securities of one or more
diversified open-end management investment companies to the
extent permitted by the 1940 Act.
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<PAGE> 54
4. Invest the assets of any Fund in securities that are not
readily marketable or with legal or contractual restrictions
on resale (including repurchase agreements maturing in more
than seven days, restricted securities, and stripped
mortgage-backed securities) to any extent greater than 10% of
the value of the net assets of the Fund.
5. Borrow money for any Fund except for temporary emergency
purposes and then only in an amount not exceeding 5% of the
value of the total assets of that Fund. Borrowing shall, for
purposes of this paragraph, include reverse repurchase
agreements. Any borrowings, other than reverse repurchase
agreements, will be from banks. The Company will repay all
borrowings in a Fund before making additional investments for
the Fund, and interest paid on such borrowings will reduce
income.
6. Issue senior securities, except in connection with permissible
futures and options transactions.
7. Underwrite any issue of securities.
8. Purchase or sell real estate or real estate mortgage loans,
but this shall not prevent investments in instruments secured
by real estate or interests therein or in marketable
securities of issuers that engage in real estate operations.
9. Purchase on margin or sell short, except that this limitation
shall not apply to transactions in options or futures
contracts.
10. Purchase or retain securities of an issuer if those members of
the Board of the Company, the Company's officers and
investment manager, each of whom own more than 1/2 of 1% of
such securities, together own more than 5% of the securities
of such issuer.
11. Purchase securities of any other open-end or closed-end
investment company, except (a) by purchase in the open market
where no commission or profit to a sponsor or dealer results
from the purchase other than the customary broker's
commission, or (b) in connection with a merger, consolidation,
acquisition or reorganization, and (c) assets may be invested
in the securities of one or more diversified open-end
management investment companies to the extent permitted by the
1940 Act.
12. Invest in or sell put, call, straddle or spread options or
other interests in oil, gas or other mineral exploration or
development programs.
13. Purchase or sell commodities or commodity contracts, or invest
in oil, gas or mineral exploration or development programs,
except that a Fund may, to the
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extent appropriate to its investment objectives, invest in
securities of companies which purchase or sell commodities or
commodities contracts or which invest in such programs, and
purchase or sell futures contracts and options on futures
contracts.
14. Purchase securities of companies for the purpose of exercising
control.
15. Make loans, except that a Fund may purchase or hold debt
instruments pursuant to its investment objectives and policies
and may lend portfolio securities against collateral
consisting of cash or securities of the U.S. Government and
its agencies and instrumentalities which are consistent with
its permitted investments in an amount not exceeding 30% of
its total assets.
16. Invest an aggregate of more than 15% of its net assets in (a)
securities of any issuer which has been in continuous
operation for less than three years (including operations of
predecessors), except obligations issued or guaranteed by the
U.S. Government or its agencies, and (b) securities of any
issuer which are restricted as to disposition.
17. Invest more than 5% of its net assets in warrants, of which
not more than 2% may be warrants which are not listed on the
New York or American Stock Exchanges.
* * *
If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of such restriction.
In accordance with the current views of the Staff of the SEC and as a
matter of non-fundamental policy that may be changed without a vote of
shareholders or interestholders, the Funds treat all supranational
organizations as a single industry and each foreign government (and all of its
agencies) as a separate industry.
In order to permit the sale of the Funds' shares (or a particular
class of shares) in certain states, the Company may make commitments more
restrictive than the investment policies and limitations described above. In
the event that the Company determines that any such commitment is no longer in
the best interests of a Fund, it may revoke its commitment. In such event,
such Fund may no longer be able to sell its securities in certain states.
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<PAGE> 56
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
VALUATION OF THE FUNDS
- ----------------------
In addition to the valuation procedures described in the Prospectus,
assets are valued as follows: (a) United States Government and agency
obligations are valued based upon bid quotations from the Federal Reserve Bank
for identical or similar obligations; and (b) short-term money market
instruments with maturities in excess of 60 days (such as certificates of
deposit, bankers' acceptances and commercial paper) are valued by bid
quotations or by reference to bid quotations of available yields for similar
instruments of issuers with similar credit ratings. Bid quotations for
short-term money market instruments reported by a pricing service are the bid
quotations reported to it by major dealers in such instruments.
The valuation of options is described above in the section entitled
"Investment Objectives and Policies -- Options Trading."
Debt securities held by the Funds with remaining maturities of 60 days
or less are valued on the basis of amortized cost, which provides stability of
net asset value. Under this method of valuation, the security is initially
valued at cost on the date of purchase or, in the case of securities purchased
with more than 60 days remaining to maturity and to be valued on the amortized
cost basis only during the final 60 days of its maturity, the market value on
the 61st day prior to maturity. Thereafter the Funds assume a constant
proportionate amortization in value until maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security, unless the Board of Trustees determines that amortized cost no
longer represents fair value. The Funds will monitor the market value of these
investments for the purpose of ascertaining whether any such circumstances
exist.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of
business day in New York. In addition, foreign securities trading may not take
place on all business days in New York, and may occur in various foreign
markets on days which are not business days in New York and on which net asset
value is not calculated. The calculation of net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the
New York Stock Exchange will not be reflected in the calculation of net asset
value unless the Board of Trustees deems that the particular event would
materially affect net asset value, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value into U.S.
dollars at the spot exchange rates at 12:00 noon New York time or at such other
rates as the Manager may determine to be appropriate in computing net asset
value.
When approved by the Board of Trustees, certain securities may be
valued on the basis of valuations provided by an independent pricing service
when such prices are believed to reflect
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<PAGE> 57
the fair market value of such securities. These securities may include those
that have no available recent market value, have few outstanding shares and
therefore infrequent trades, or for which there is a lack of consensus on the
value, with quoted prices covering a wide range. The lack of consensus might
result from relatively unusual circumstances such as no trading in the security
for long periods of time, or a company's involvement in merger or acquisition
activity, with widely varying valuations placed on the company's assets or
stock. Prices provided by an independent pricing service may be determined
without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data.
In the absence of an ascertainable market value, assets are valued at
their fair value as determined using methods and procedures reviewed and
approved by the Board of Trustees.
SUPPLEMENTARY PURCHASE INFORMATION: ALL FUNDS
- ----------------------------------------------
IN GENERAL. As described in the Prospectus, both Class A and Class B
shares may be purchased directly by the public, by clients of Bank of America
through their qualified trust and agency accounts, or by clients of securities
dealers, financial institutions (including banks) and other industry
professionals, such as investment advisers, accountants and estate planning
firms that have entered into service and/or selling agreements with the
Distributor. (The Distributor, such institutions and professionals are
collectively referred to as "Service Organizations.") Bank of America and
Service Organizations may impose minimum customer account and other
requirements in addition to those imposed by the Fund and described in the
Prospectus. Purchase orders will be effected only on business days.
Class A shares are sold with a sales load. Class B shares are sold
without a front-end sales load, but are subject to a contingent deferred sales
charge and an ongoing distribution fee. Service Organizations may be paid by
the Distributor at the Company's expense for shareholder services. Depending
on the terms of the particular account, Bank of America, its affiliates, and
Service Organizations also may charge their customers fees for automatic
investment, redemption and other services provided. Such fees may include, for
example, account maintenance fees, compensating balance requirements or fees
based upon account transactions, assets or income. Bank of America or the
particular Service Organization is responsible for providing information
concerning these services and any charges to any customer who must authorize
the purchase of Fund shares prior to such purchase.
Persons wishing to purchase Company shares through their accounts at
Bank of America or a Service Organization should contact such entity directly
for appropriate instructions.
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<PAGE> 58
All fees charged are described in the appropriate form. Shares may be
purchased in connection with these plans only by direct remittance to the
Transfer Agent. Purchases for IRA accounts will be effective only when
payments received by the Transfer Agent are converted into federal funds.
Purchases for these plans may not be made in advance of receipt of funds.
DEALER COMMISSIONS ON CLASS B SHARES. Commissions of 4% of the
purchase price of Class B shares will be paid by the Distributor to
broker-dealers who initiate and are responsible for purchases of such shares.
Dealers requesting further information may call (800) 247-9728.
EXCHANGE PRIVILEGE. Shareholders in the Time Horizon Funds may
exchange all or part of their Class A Shares or Class B shares for other like
shares of another Time Horizon Fund or a Pacific Horizon Fund. By use of the
Exchange Privilege, the investor authorizes the Transfer Agent to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself or herself to be the investor and believed by the Transfer
Agent to be genuine. The Transfer Agent's records of such instructions are
binding. The Exchange Privilege may be modified or terminated at any time upon
notice to shareholders. For federal income tax purposes, exchange transactions
are treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares exchanged is more or less than his
basis in such shares at the time of the transaction.
Exchange transactions described below will be made on the basis of the
relative net asset values per share of the shares involved in the transaction.
A. Class A shares of any Fund in the Time Horizon Series of Funds
purchased with a front-end sales load, as well as additional
shares acquired through reinvestment of dividends or
distributions on such shares, may be exchanged without a sales
load for Class A shares of any other Fund in the Time Horizon
Series of Funds.
B. Class A shares of any Fund in the Time Horizon Series of Funds
acquired by a previous exchange transaction involving shares
on which a sales load has directly or indirectly been paid
(e.g. shares purchased with a sales load or issued in
connection with an exchange transaction involving shares that
had been purchased with a sales load), as well as additional
shares acquired through reinvestment of dividends or
distributions on such shares, may be redeemed and the proceeds
used to purchase without a sales load Class A shares of any
other Fund. To accomplish an exchange transaction under the
provisions of this paragraph, investors must notify the
Transfer Agent of their prior ownership of shares and their
account number.
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<PAGE> 59
C. Class A shares of any Time Horizon Fund may be exchanged
without a sales load for shares of any investment portfolio of
the Pacific Horizon Family of Funds that is offered without a
sales load.
D. Class B shares of any Fund in the Time Horizon Series of Funds
may be exchanged for Class B shares of any other Time Horizon
Fund without the payment of a contingent deferred sales charge
at the time of exchange. Class B shares acquired pursuant to
an exchange transaction will continue to be subject to a
contingent deferred sales charge. However, in determining the
holding period for calculating the contingent deferred sale
charge payable on redemption of Class B shares, the holding
period of the shares originally held will be added to the
holding period of the shares acquired through exchange.
E. Class B shares of any Time Horizon Fund may be exchanged for
shares of the Pacific Horizon Prime Fund without paying a
contingent deferred sales charge. At the time of such an
exchange, a shareholder's holding period for calculating the
contingent deferred sales charge payable on redemption of
Class B shares will cease to accumulate. If the shareholder
subsequently exchanges the shares back into Class B shares,
the holding period accumulation on the shares will resume as
of the time when the exchange was made into the Pacific
Horizon Prime Fund. In the event that a shareholder wishes to
redeem shares of the Pacific Horizon Prime Fund acquired by
exchange for Class B shares of a Time Horizon Fund, the
contingent deferred sales charge applicable to the accumulated
Class B share holding period prior to the exchange into the
Pacific Horizon Prime Fund will be charged.
Exchange requests received on a business day prior to the time shares
of the Fund involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the Fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset
value per share next determined on the date of receipt. Shares of the new Fund
into which the shareholder is investing will also normally be purchased at the
net asset value per share next determined coincident to or after the time of
redemption. Exchange requests received on a business day after the time shares
of the investment portfolios involved in the request are priced will be
processed on the next business day in the manner described above.
RIGHT OF ACCUMULATION AND LETTER OF INTENT. For the purpose of
applying the Class A Right of Accumulation or Letter of Intent privileges
described in the Prospectus, the scale of sales loads applies to purchases of
Class A Shares made by any "purchaser," which term includes an individual
and/or spouse purchasing securities for his, her or their own account or for
the account of any minor children; or a trustee or other fiduciary account
(including a pension, profit-sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Internal Revenue Code)
although more than one beneficiary is involved; or "a qualified group" which
has been in existence for more than six months and has not been
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organized for the purpose of buying redeemable securities of a registered
investment company at a discount, provided that the purchases are made through
a central administrator or a single dealer, or by other means which result in
economy of sales effort or expense. A "qualified group" must have more than 10
members, must be available to arrange for group meetings between
representatives of the Funds and the members, and must be able to arrange for
mailings to members at reduced or no cost to the Distributor. The value of
Class A shares eligible for the Right of Accumulation privilege may also be
used as a credit toward completion of the Letter of Intent privilege. Such
Class A shares will be valued at their offering price prevailing on the date of
submission of the Letter of Intent. Distributions on Class A shares held in
escrow pursuant to the Letter of Intent privilege will be credited to the
shareholder, but such Class A shares are not eligible for a Fund's Exchange
Privilege.
MISCELLANEOUS. Certificates for shares will not be issued unless
expressly requested in writing and will not be issued for fractional shares.
Depending on the terms of the customer account at Bank of America or a
Service Organization, certain purchasers may arrange with the Company's
custodian for sub-accounting services paid by the Company without direct charge
to the purchaser.
A "business day" for purposes of processing share purchases and
redemptions received by the Transfer Agent at its Columbus office is a day on
which the New York Stock Exchange is open for trading. In 1996, the holidays
on which the New York Stock Exchange is closed are Presidents' Day, Good
Friday, Memorial Day (when observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day (when observed).
The Company reserves the right in its sole discretion to suspend the
continued offering of the Funds' shares and to reject purchase orders in whole
or in part when such rejection is in the best interests of the Company and the
affected Funds.
SUPPLEMENTARY REDEMPTION INFORMATION
- ------------------------------------
Shares in the Funds for which orders for wire redemption are received
on a business day before the close of regular trading hours on the New York
Stock Exchange (normally 4:00 p.m. Eastern Time) will be redeemed as of the
close of regular trading hours on such Exchange and the proceeds of redemption
(less any applicable contingent deferred sales charge on Class B shares) will
normally be wired in federal funds on the next business day to the commercial
bank specified by the investor on the Account Application (or other bank of
record on the investor's file with the Transfer Agent). To qualify to use the
wire redemption privilege, the payment for Fund shares must be drawn on, and
redemption proceeds paid to, the same bank and account as designated on the
Account Application (or other bank of record as described above). If the
proceeds of a particular redemption are to be wired to another bank, the
request must be in writing and signature guaranteed. Shares for which orders
for wire redemption are received after the close of regular trading hours on
the New York Stock Exchange or on a non-business day will be redeemed as of the
close of trading on such Exchange on the next day on which
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shares of the particular Fund are priced and the proceeds (less any applicable
contingent deferred sales charge on Class B shares) will normally be wired in
federal funds on the next business day thereafter. Redemption proceeds (less
any applicable contingent deferred sales charge on Class B shares) will be
wired to a correspondent member bank if the investor's designated bank is not a
member of the Federal Reserve System. Immediate notification by the
correspondent bank to the investor's bank is necessary to avoid a delay in
crediting the funds to the investor's bank account. Proceeds of less than
$1,000 will be mailed to the investor's address.
To change the commercial bank or account designated to receive
redemption proceeds, a written request must be sent to the Company, c/o BISYS
Fund Services Ohio, Inc., Department L - 1631, Columbus, Ohio 43260-1631. Such
request must be signed by each shareholder, with each signature guaranteed as
described in the Funds' Prospectus. Guarantees must be signed by an authorized
signatory and "signature guaranteed" must appear with the signature. The
Transfer Agent may request further documentation from corporations, executors,
administrators, trustees or guardians, and will accept other suitable
verification arrangements from foreign investors, such as consular
verification.
An investor must have completed and forwarded to the Transfer Agent an
Account Application, including any required signature guarantees, before any
redemptions of shares purchased by wire may be processed.
For processing redemptions, the Transfer Agent may request further
documentation from corporations, executors, administrators, trustees or
guardians. The Transfer Agent will accept other suitable verification
arrangements from foreign investors, such as consular verification.
Investors should be aware that if they have selected the TeleTrade
Privilege, any request for a wire redemption will be effected as a TeleTrade
transaction through the Automated Clearing House (ACH) system unless more
prompt transmittal is specifically requested. Redemption proceeds of a
TeleTrade transaction will be on deposit in the investor's account at the ACH
member bank normally two business days after receipt of the redemption request.
The Company may suspend the right of redemption or postpone the date
of payment for shares during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. The Company may also suspend or
postpone the recordation of the transfer of its shares upon the occurrence of
any of the foregoing conditions.
The Company's Declaration of Trust permits its Board of Trustees to
require a shareholder to redeem involuntarily shares in a Fund if the balance
held of record by the shareholder drops below $500 and such shareholder does
not increase such balance to $500 or more upon 60 days' notice. The Company
will not require a shareholder to redeem shares of
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<PAGE> 62
a Fund if the balance held of record by the shareholder is less than $500
solely because of a decline in the net asset value of the Fund's shares.
If the Company's Board of Trustees determines that conditions exist
which make payment of redemption proceeds wholly in cash unwise or undesirable,
the Company may make payment wholly or partly in securities or other property.
In such an event, a shareholder would incur transaction costs in selling the
securities or other property. The Company has committed that it will pay all
redemption requests by a shareholder of record in cash, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of
$250,000 or 1% of the net asset value at the beginning of such period.
ADDITIONAL INFORMATION CONCERNING TAXES
FEDERAL TAXES
- -------------
Each Fund will be treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended (the "Code"), and intends to qualify
as a "regulated investment company." By following this policy, each Fund
expects to eliminate or reduce to a nominal amount the federal income taxes to
which it may be subject. If for any taxable year a Fund of the Company does
not qualify for the special federal tax treatment afforded regulated investment
companies, all of the Fund's taxable income would be subject to tax at regular
corporate rates (without any deduction for distributions to shareholders). In
such event, the Fund's dividend distributions to shareholders would be taxable
as ordinary income to the extent of the current and accumulated earnings and
profits of the particular Fund and would be eligible for the dividends received
deduction in the case of corporate shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that each Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable
income (if any) and 90% of its tax-exempt income (if any), net of certain
deductions for each taxable year. In general, a Fund's investment company
taxable income will be its taxable income, including dividends, interest, and
short-term capital gains (the excess of net short-term capital gain over net
long-term capital loss), subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year. A Fund will be taxed on its
undistributed investment company taxable income, if any. Each Fund of the
Company intends to distribute at least 90% of its investment company taxable
income (if any) for each taxable year. To the extent such income is
distributed by a Fund (whether in cash or additional shares), it will be
taxable to shareholders as ordinary income.
A Fund will not be treated as a regulated investment company under the
Code if 30% or more of the Fund's gross income for a taxable year is derived
from gains realized on the sale or other disposition of the following
investments held for less than three months: (1) stock and securities (as
defined in section 2(a)(36) of the Investment Company Act of 1940); (2)
options,
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futures and forward contracts other than those on foreign currencies; and (3)
foreign currencies (and options, futures and forward contracts on foreign
currencies) that are not directly related to a Fund's principal business of
investing in stock and securities (and options and futures with respect to
stocks and securities). Interest (including original issue discount and
accrued market discount) received by a Fund upon maturity or disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of this requirement. However, any other income that is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose. With respect to covered call
options, if the call is exercised by the holder, the premium and the price
received on exercise constitute the proceeds of sale, and the difference
between the proceeds and the cost of the securities subject to the call is
capital gain or loss. Premiums from expired call options written by a Fund and
net gains from closing purchase transactions are treated as short-term capital
gains for federal income tax purposes, and losses on closing purchase
transactions are short-term capital losses. See Appendix B -- "Accounting and
Tax Treatment" for a general discussion of the federal tax treatment of futures
contracts, related options thereon and other financial instruments, including
their treatment under the 30% test.
Any distribution of the excess of net long-term capital gains over net
short-term capital losses is taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the distributing Fund's
shares and whether such gains are received in cash or additional Fund shares.
The Fund will designate such a distribution as a capital gain dividend in a
written notice mailed to shareholders after the close of the Fund's taxable
year. It should be noted that, upon the sale or exchange of Fund shares, if
the shareholder has not held such shares for longer than six months, any loss
on the sale or exchange of those shares will be treated as long-term capital
loss to the extent of the capital gain dividends received with respect to the
shares.
Ordinary income of individuals is taxable at a maximum nominal rate of
39.6%, but because of limitations on itemized deductions otherwise allowable
and the phase-out of personal exemptions, the maximum effective marginal rate
of tax for some taxpayers may be higher. An individual's long-term capital
gains are taxable at a maximum nominal rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (an effective marginal rate of 39% applies in the case of
corporations having taxable income between $100,000 and $335,000).
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail currently to distribute specific percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this
excise tax.
The Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or 31% of gross proceeds
realized upon sale paid to
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<PAGE> 64
shareholders who have failed to provide either a correct tax identification
number in the manner provided, who are subject to withholding by the Internal
Revenue Service for failure to properly include on their return payments of
taxable interest or dividends, or who have failed to certify to the Company
when required to do so that they are subject to backup withholding or that they
are "exempt recipients."
OTHER INFORMATION
- -----------------
Depending upon the extent of activities in states and localities in
which its offices are maintained, in which its agents or independent
contractors are located or in which it is otherwise deemed to be conducting
business, the Funds may be subject to the tax laws of such states or
localities.
Shareholders are advised to consult their tax advisers because state
and local tax consequences may be different from the federal tax consequences
described above.
The foregoing discussion is based on tax laws and regulations which
are in effect on the date of this Statement of Additional Information. Such
laws and regulations may be changed by legislative or administrative action.
This discussion is only a summary of some of the important tax considerations
generally affecting purchasers of Fund shares. No attempt is made to present a
detailed explanation of the federal income tax treatment of the Funds or their
shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential purchasers of Fund shares should consult
their tax advisers with specific reference to their own tax situation.
-27-
<PAGE> 65
MANAGEMENT
TRUSTEES AND OFFICERS OF THE COMPANY
- ------------------------------------
The trustees and officers of the Company, their addresses, and
principal occupations during the past five years are:
NAME AND ADDRESS POSITION WITH COMPANY PRINCIPAL OCCUPATIONS AND AGE
- ---------------- --------------------- -----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Robert E. Greeley Trustee/Chairman Chairman, Page Mill Asset Management (a private
Page Mill Asset Management investment company) since 1991; Director, Pacific Horizon
433 California Street Funds, Inc. (since 1994), Morgan Grenfell Small-Cap Fund
Suite 900 (since 1986), Trustee, Master Investment Trust Series I
San Francisco, CA 94104 (since 1993), Master Investment Trust, Series II (since
1993), (registered investment companies); Formerly
Director, Bunker Hill Income Securities, Inc. (1989 to
1994) (registered investment companies); Formerly
Director, Manager, Corporate Investments, Hewlett Packard
Company from 1979 to 1991; former Trustee, SunAmerica
Fund Group (previously Equitec Siebel Fund Group), 1984
to 1992. Age: 64.
Edward S. Bottum Trustee Managing Director, Chase Franklin Corporation (venture
capital firm) since 1990; formerly Vice Chairman of
Continental Bank N.A. (retired 1990); Trustee, 231 Funds
(February 1993 to August 1995). Age: 62.
William P. Carmichael Trustee Formerly Senior Vice President, Sara Lee Corporation
(1992 to 1993); Treasurer, Senior Vice President and
Chief Financial Officer, Beatrice Company (1987 to 1990);
Trustee, 231 Funds (registered investment company)
(February 1993 to August 1995). Age: 52.
John P. Privat Trustee Director, Seafirst Retirement Funds (since 1993)
8852 NE 24th Street (registered investment company). Age: 61.
Bellevue, WA 98004
J. David Huber President Senior Vice President of Client Services, BISYS Fund
BISYS Fund Services Services since 1987. Age: 49.
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
-28-
<PAGE> 66
<TABLE>
<CAPTION>
<S> <C> <C>
Irimga McKay Vice President First Vice President, April 1995 to date, BISYS Fund
BISYS Fund Services Services, prior thereto Vice President, Concord Holding
7863 Girard Ave., Corporation (November 1988 to April 1995); Vice
Suite 306 President, Master Investment Trust, Series II (since
La Jolla, CA 92037 1993). Age: 35.
W. Eugene Spurbeck Vice President and Manager of Client Services, BISYS Fund Services (since
BISYS Fund Services Secretary 1993); formerly Vice President of Retail Lending
515 Figueroa Street Operations, Bank One (1989 to 1993). Age: 39.
Suite 335
Los Angeles, CA 92037
George O. Martinez Vice President Senior Vice President and Director of Legal and
BISYS Fund Services Compliance Services, BISYS Fund Services (since April
3435 Stelzer Road 1995); formerly Vice President and Associate General
Columbus, Ohio 43219 Counsel, Alliance Capital Management (1990 to 1995).
Age: 36.
Charles L. Booth Treasurer Associate Director of Legal and Compliance Services,
BISYS Fund Services BISYS Fund Services (since 1988). Age: 35.
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
None of the trustees are classified as an interested person as defined in
Section 2(a)(19) of the Investment Company Act.
The Audit Committee of the Board is comprised of all the trustees.
The Board does not have an Executive Committee.
Each trustee receives an estimated aggregate annual fee of $1,500 per
Fund plus $500 per day for each full day devoted to travel in connection with
each meeting attended, for his or her services as trustee of all of the funds
of the Company. Each trustee will also be reimbursed for out-of-pocket
expenses incurred as a trustee. The following table sets forth the aggregate
compensation expected to be paid by the Company for the fiscal year ending June
30, 1996, to the Trustees who are not affiliated with the Manager and the
aggregate compensation paid to such Trustees for services on the Company's
Board and that of all other funds in the Company Complex (as defined in
Schedule 14A under the Securities Exchange Act of 1934):
-29-
<PAGE> 67
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued as Benefit from Trust and
Compensation Part of Trust Upon Trust Complex
NAME FROM TRUST EXPENSES RETIREMENT PAID TO TRUSTEE
- ---- ---------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Edward S. Bottom $6,500 0 0 $ 6,500 ( 3*)
William P.
Carmichael $6,500 0 0 $ 6,500 ( 3*)
Robert E. Greeley $6,500 0 0 $68,750 (19*)
John P. Privat $6,500 0 0 $10,500 ( 6*)
- -----------------------------
</TABLE>
*Indicates total number of portfolios in Company Complex for which the
individual serves as a trustee.
As of January 25, 1996, the trustees and officers of the Company, as a
group, owned less than 1% of the outstanding shares of each of the Funds and no
person owned of record 5% or more of the outstanding shares of any Fund, except
the persons indicated in the chart below.
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
- ---------------- ------- ---- -----
<S> <C> <C> <C> <C> <C>
BA Investment Services Inc. 6.58 Portfolio 1 A
185 Berry St., 3rd Floor 2640
San Francisco, CA 94104
BA Investment Services Inc. 6.02 Portfolio 1 B
185 Berry St., 3rd Floor 2640
San Francisco, CA 94104
BA Investment Services Inc. 29.74 Portfolio 2 A
185 Berry St., 3rd Floor 2640
San Francisco, CA 94104
Ling Cheung 6.07 Portfolio 2 A
3 Willow Run
Irvine, CA 92714
Freya Block TTEE, Freya
Block Design 8.79 Portfolio 3 A
236 W. 27th Street, 7th Floor
New York NY 10001
</TABLE>
-30-
<PAGE> 68
<TABLE>
<CAPTION>
NAME AND ADDRESS % OWNED FUND CLASS
- ---------------- ------- ---- -----
<S> <C> <C> <C>
BA Investment Services Inc. 6.36 Portfolio 3 B
185 Berry St., 3rd Floor 2640
San Francisco, CA 94014
</TABLE>
MANAGER
- -------
In the Management Agreement with the Company, Bank of America (the
"Manager") has agreed to provide investment advisory and administrative
services as described in the Prospectus.
Bank of America has agreed to pay all expenses incurred by it in
connection with its activities under the Agreement other than the cost of
securities, including brokerage commissions, if any, purchased for the Funds,
and the fees charged by BISYS for certain Fund accounting services. Expenses
borne by the Funds include taxes, interest, brokerage fees and commissions, if
any, fees of Board members who are not officers, directors, partners, employees
or holders of 5% or more of the outstanding voting securities of Bank of
America or any of its affiliates, Securities and Exchange Commission fees and
state securities qualification fees, advisory fees, administration fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, outside auditing and legal expenses, costs of maintaining
trust existence, costs attributable to investor services (including without
limitation telephone and personnel expenses), costs of preparing and printing
prospectuses and Statements of Additional Information for regulatory purposes,
cost of shareholders' reports and corporate meetings and any extraordinary
expenses. Certain distribution and shareholder servicing fees in connection
with the Company's shares are also paid by the Company. See "Distributor and
Plan Payments" below.
If total expenses borne by any Fund in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, the
Company may deduct the amount of such excess from the payments to be made with
respect to such Fund to the Manager, or the Manager will bear the amount of
such excess, to the extent required by such regulations in proportion to the
fees otherwise payable to them for such year. Such amount, if any, will be
estimated, reconciled and effected or paid, as the case may be, on a monthly
basis. As of the date of this Statement of Additional Information, the most
restrictive expense limitation that may be applicable to the Company or the
Funds limits aggregate annual expenses with respect to a Fund, including
management and advisory fees but excluding Distribution Plan Fees, interest,
taxes, brokerage commissions, and certain other expenses, to 2-1/2% of the
first $30 million of its average daily net assets, 2% of the next $70 million,
and 1-1/2% of its remaining average daily net assets. During the course of the
Company's fiscal year, the Manager may assume certain expenses and/or not
receive payment of fees of one or more of the Funds, while retaining the
ability to be reimbursed by such Funds for such amounts prior to the end of the
fiscal year. This will have the effect of increasing yield to investors at the
time such fees are not received or amounts are assumed and decreasing yield
when such fees or amounts are reimbursed.
In rendering its advisory services, Bank of America may utilize Bank
officers from one or more of the departments of the Bank which are authorized
to exercise the fiduciary powers of Bank of America with respect to the
investment of trust assets. In some cases, these officers may also serve as
officers, and utilize the facilities, of wholly-owned subsidiaries and other
affiliates of Bank of America or its parent corporation.
-31-
<PAGE> 69
For the services provided and expenses assumed pursuant to the
Management Agreement, the Funds have agreed to pay Bank of America fees,
accrued daily and paid monthly, at the annual rate of .60%. The fees payable
to Bank of America are not subject to reduction as the value of each Fund's net
assets increases. From time to time, Bank of America may waive fees or
reimburse the Funds for expenses voluntarily or as required by certain state
securities laws. Bank of America has agreed to reduce its advisory fees by the
amount of any advisory fees paid to other investment companies relating to the
Funds' investment in such investment companies' securities.
The Management Agreement will continue in effect until October 31,
1996 and thereafter will be extended with respect to each Fund for successive
one year periods, provided that each such extension is specifically approved
(a) by vote of a majority of those members of the Company's Board of Trustees
who are not interested persons of any party to the Agreement, cast in person at
a meeting called for the purpose of voting on such approval, and (b) the
Company's Board of Trustees or by vote of a majority of the outstanding voting
securities of such Fund. The Agreement is terminable during any term without
cause upon 60 days' prior written notice to the Manager.
Bank of America is authorized by the Management Agreement to employ or
associate with itself such persons as it believes are appropriate to assist it
in the performance of its duties. Any such person is required to be
compensated by Bank of America, not by the Funds, and to be approved by the
interestholders of the Funds as required by the 1940 Act.
The Management Agreement provides that Bank of America shall not be
liable for any error of judgment or mistake of law or for any loss suffered in
connection with the performance of the investment advisory agreements, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties or from reckless disregard
by it of its duties and obligations thereunder.
THE GLASS-STEAGALL ACT AND PROPOSED LEGISLATION
- -----------------------------------------------
The Glass-Steagall Act, among other things, prohibits banks from
engaging in the business of underwriting securities, although national and
state-chartered banks generally are permitted to purchase and sell securities
upon the order and for the account of their customers. In 1971, the United
States Supreme Court held in INVESTMENT COMPANY INSTITUTE V. CAMP that the
Glass-Steagall Act prohibits a national bank from operating a fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer agent
and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing
-32-
<PAGE> 70
bank holding companies and their non-bank affiliates to act as investment
advisers to registered closed-end investment companies.
Bank of America believes that if the question were properly presented,
a court should hold that Bank of America may perform the services for the Funds
and the Company contemplated by the Management Agreement, the Prospectus, and
this Statement of Additional Information without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. It should
be noted, however, that there have been no cases deciding whether a national
bank may perform services comparable to those performed by Bank of America and
that future changes in either federal or state statutes and regulations
relating to permissible activities of banks or trust companies and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations,
could prevent Bank of America from continuing to perform such services for the
Funds and the Company or from continuing to purchase Fund shares for the
accounts of its customers.
On the other hand, as described herein, the Funds are currently
distributed by Concord Financial Group, Inc. If current restrictions under the
Glass-Steagall Act preventing a bank from sponsoring, organizing, controlling,
or distributing shares of an investment company were relaxed, the Company
expects that Bank of America would consider the possibility of offering to
perform some or all of the services now provided by Concord Financial Group,
Inc. From time to time, legislation modifying such restriction has been
introduced in Congress which, if enacted, would permit a bank holding company
to establish a non-bank subsidiary having the authority to organize, sponsor
and distribute shares of an investment company. If this or similar legislation
were enacted, the Funds and the Company expects that Bank of America's parent
bank holding company would consider the possibility of one of its non-bank
subsidiaries offering to perform some or all of the services now provided by
Concord Financial Group, Inc. It is not possible, of course, to predict
whether or in what form such legislation might be enacted or the terms upon
which Bank of America or such a non-bank affiliate might offer to provide
services for consideration by the Company's Board of Trustees.
DISTRIBUTOR AND PLAN PAYMENTS
- -----------------------------
Concord Financial Group, Inc. (the "Distributor"), an indirect,
wholly-owned subsidiary of The BISYS Group, Inc., acts as distributor of the
shares of the Company pursuant to a distribution agreement with the Company.
The Distributor's principal offices are at 3435 Stelzer Road, Columbus, Ohio
43219-3035. Shares are sold on a continuous basis by the Distributor. The
Distributor has agreed to use its best efforts to solicit orders for the sale
of the Company's shares, but it is not obliged to sell any particular amount of
shares. The distribution agreement will continue in effect with respect to
each Fund until October 31, 1996. Thereafter, if not terminated, the
distribution agreement will continue automatically for successive terms of one
year, provided that such continuance is specifically approved at least annually
(a) by a vote of a majority of those members of the Board of Trustees of the
Company who are not parties to the distribution agreement or "interested
persons" of any such party, cast in person at a meeting called for the purpose
of voting on such approval, and (b) by the Board of Trustees of the Company or
by vote of a "majority of the outstanding voting securities" of the Funds as to
which the distribution agreement is effective. The distribution agreement may
be terminated by the Company at any time with respect to a Fund, without the
payment of any penalty, by vote of a majority of the entire Board of Trustees
of the Company or by a vote of a "majority of the
-33-
<PAGE> 71
outstanding voting securities" of such Fund on 60 days' written notice to the
Distributor, or by the Distributor at any time, without the payment of any
penalty, on 90 days written notice to the Company. The agreement will
automatically and immediately terminate in the event of its "assignment."
Pursuant to the Distribution Agreement, the Company has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933.
SHAREHOLDER SERVICE PLAN. The Distributor is entitled to payment by
the Company for certain shareholder servicing expenses, in addition to the
sales loads and distribution fees described in the Prospectus, under the
Shareholder Service Plan adopted by the Company. Under the Shareholder Service
Plan, the Company pays the Distributor, with respect to each of the Funds, for
(a) non-distribution shareholder services provided by the Distributor to
Service Organizations and/or the beneficial owners of Fund shares, including,
but not limited to shareholder servicing provided by the Distributor at
facilities dedicated for Company use, provided such shareholder servicing is
not duplicative of the servicing otherwise provided on behalf of the Funds, and
(b) fees paid to Service Organizations (which may include the Distributor
itself) for the provision of support services, based on the average daily value
of the Fund shares beneficially owned by shareholders for whom the Service
Organization is the dealer of record or holder of record or with whom the
Service Organization has a servicing relationship ("Clients").
Support services provided by Service Organizations may include, among
other things: (i) establishing and maintaining accounts and records relating
to Clients that invest in Fund shares; (ii) processing dividend and
distribution payments from the Funds on behalf of Clients; (iii) providing
information periodically to Clients regarding their positions in shares; (iv)
arranging for bank wires; (v) responding to Client inquiries concerning their
investments in Fund shares; (vi) providing the information to the Funds
necessary for accounting or subaccounting; (vii) if required by law, forwarding
shareholder communications from the Funds (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Clients; (viii) assisting in processing exchange and
redemption requests from Clients; (ix) assisting Clients in changing dividend
options, account designations and addresses; and (x) providing such other
similar services as may be agreed upon by the Service Organization and the
Distributor.
The Shareholder Service Plan provides that the Distributor is entitled
to receive payments for expenses on a monthly basis, at an annual rate not
exceeding .25% of the average daily net assets during such month of the Funds,
for shareholder servicing expenses. Further, payments made out of or charged
against the assets of a particular Fund must be in payment for expenses
incurred on behalf of the Fund.
If in any month the Distributor expends or is due more monies than can
be immediately paid due to the percentage limitations described above, the
unpaid amount is carried forward from month to month while the Plan is in
effect until such time, if ever, when it can be paid in accordance with such
percentage limitations. Conversely, if in any month the Distributor does not
expend the entire amount then available under the Plan, and assuming that no
unpaid amounts have been carried forward and remain unpaid, then the amount not
expended will be a credit to be drawn upon by the Distributor to permit future
payment. However, any unpaid
-34-
<PAGE> 72
amounts or credits due under the Plan may not be carried forward" beyond the
end of the fiscal year in which such amounts or credits due are accrued.
Payments for Shareholder Service expenses are not subject to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Although such
provisions are not required by the Rule, the Shareholder Service Plan contains
similar provisions to the Rule, including quarterly review by the Board of the
Company of amounts expended and the purposes for such expenditures, except that
shareholder approval is not required to increase materially the Shareholder
Service expenses paid by the Funds.
The Shareholder Service Plan is subject to annual re-approval by a
majority of the trustees who are neither "interested persons" (as that term is
defined in the Investment Company Act of 1940) of the Company nor have any
direct or indirect financial interest in the operation of the Shareholder
Service Plan (the "Non-Interested Plan Directors") and are terminable at any
time with respect to any Fund by a vote of majority of such Trustees or by vote
of the holders of a majority of the shares of the Fund involved. Any agreement
entered into pursuant to the Plan with a Service Organization is terminable
with respect to any Fund without penalty, at any time, by vote of a majority of
the Non-Interested Plan Trustees, by vote of the holders of a majority of the
shares of such Fund, by the Distributor or by the Service Organization. Each
agreement will also terminate automatically in the event of its assignment.
The Company understands that Bank of America and/or some Service
Organizations may charge their clients a direct fee for administrative and
shareholder services in connection with the holding of Fund shares. These fees
would be in addition to any amounts which might be received under the Plan.
Small, inactive long-term accounts involving such additional charges may not be
in the best interest of shareholders.
DISTRIBUTION PLAN. Pursuant to the Company's Distribution Plan, the
Distributor is entitled to payment by the Company for certain services it
provides, and costs and expenses it incurs, related to marketing shares of the
Funds, in addition to the sales loads described in the Prospectus and
shareholder servicing fees under the Shareholder Servicing Plan. Payments
under the Distribution Plan cover (a) expenses incurred in connection with
advertising and marketing shares of the Fund; (b) periodic payments of fees or
commissions for distribution assistance made to one or more eligible Service
Organizations and the Distributor itself in respect of the average daily value
of shares owned by their Clients; and (c) expenses incurred in preparing,
printing and distributing the Funds' prospectuses and statements of additional
information.
Payments for Distribution Plan expenses are subject to Rule 12b-1, as
described above under "Shareholder Service Plan." The Distribution Plan is
subject to annual re-approval and termination in the same manner as described
above with respect to the Shareholder Service Plan, and shareholder approval is
required to increase the Distribution Plan fees paid by the Funds. Payments
under the Plan are reviewed quarterly by the Board of Trustees. In addition,
so long as the Distribution Plan remains in effect, the selection and
nomination of Trustees who are not interested persons of the Company will be
committed to the Trustees who are not interested persons of the Company.
-35-
<PAGE> 73
The Distributor pays eligible Service Organizations out of its
distribution fees quarterly trail commissions of up to .25% of the average
daily net assets attributable to shares of the Funds by their Clients.
YIELD AND TOTAL RETURN
- ----------------------
From time to time, the yields and the total returns of the Funds may
be quoted in and compared to other mutual funds with similar investment
objectives in advertisements, shareholder reports or other communications to
shareholders. The Funds may also include calculations in such communications
that describe hypothetical investment results. (Such performance examples will
be based on an express set of assumptions and are not indicative of the
performance of any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash.
The Funds may also include discussions or illustrations of the potential
investment goals of a prospective investor (including but not limited to tax
and/or retirement planning), investment management techniques, policies or
investment suitability of a Fund, economic conditions, legislative developments
(including pending legislation), the effects of inflation and historical
performance of various asset classes, including but not limited to stocks,
bonds and Treasury bills. From time to time advertisements or communications
to shareholders may summarize the substance of information contained in
shareholder reports (including the investment composition of a Fund), as well
as the views of the Manager as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments, investment
strategies and related matters believed to be of relevance to a Fund. The
Funds may also include in advertisements charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to stocks, bonds, Treasury bills and shares
of a Fund. In addition, advertisements or shareholder communications may
include a discussion of certain attributes or benefits to be derived by an
investment in a Fund and may include testimonials by clients as to the
investment manager's investment capabilities. Such advertisements or
communications may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein. With proper
authorization, a Fund may reprint articles (or excerpts) written regarding the
Fund and provide them to prospective shareholders. Performance information
with respect to the Funds is generally available by calling (800) 247-9728.
The average annual total return and aggregate total return for the Class A
shares of Portfolio 1 for the period from September 5, 1995 (initial investment
of public monies) through (December 31, 1995) at the maximum public offering
price was (1.34)% and at net asset value was 3.27%. The yield for the Class A
shares of Portfolio 1 at the maximum public offering price was 4.11% and at
net asset value was 4.31% for the 30 days ended (December 31, 1995). The
average annual total return and aggregate total return for the Class B shares of
Portfolio 1 for the period from September 5, 1995 (initial investment of public
monies) through (December 31, 1995) at the maximum public offering price was
(1.82)% and at net asset value was 3.19%. The yield for the Class B shares of
Portfolio 1 at net asset value was 3.52% for the 30 days ended (December 31,
1995). The foregoing figures have not been computed on an annualized basis.
-36-
<PAGE> 74
The average annual total return and aggregate total return for the Class A
shares of Portfolio 2 for the period from September 5, 1995 (initial investment
of public monies) through (December 31, 1995) at the maxium public offering
price was (.68)% and at net asset value was 3.97%. The yield for the Class A
shares of Portfolio 2 at the maximum public offering price was 3.81% and at net
asset value was 4.00% for the 30 days ended (December 31, 1995). The average
annual total return and aggregate total return for the Class B shares of
Portfolio 2 for the period from September 5, 1995 (initial investment of public
monies) through (December 31, 1995) at the maximum public offering price was
(1.23)% and at net asset value was 3.78%. The yeild for the Class B shares of
Portfolio 2 at net asset value was 3.21% for the 30 days ended (December 31,
1995). The foregoing figures have not been computed on an annualized basis.
The average anual total return and aggregate total return for the Class A
shares of Portfolio 3 for the period from September 5, 1995 (initial investment
of public monies) through (December 31, 1995) at the maximum public offering
price was (.31)% and at net asset value was 4.36%. The yield for the Class A
shares of Portfolio 3 at the maximum public offering price was 3.64% and at net
asset value was 3.81% for the 30 days ended (December 31, 1995). The average
annual total return and aggregate total return for the Class B shares of
Portfolio 3 for the period from September 5, 1995 (initial investment of public
monies) through (December 31,1995) at the maximum public offering price was
(.62)% and at net asset value was 4.38%. The yield for the Class B shares of
Portfolio 3 at net asset value was 3.04% for the 30 days ended (December 31,
1995). The foregoing figures have not been computed on an annualized basis.
YIELD CALCULATIONS. The yield for each class of shares of a Fund is
calculated by dividing the net investment income per share (as described below)
earned by such class during a 30-day (or one month) period by the maximum
offering price per share (including the maximum front end sales charge of a
Class A share) on the last day of the period and annualizing the result by
adding one to the quotient, raising the sum to the power of six, subtracting
one from the result and then doubling the difference. The Fund's net
investment income per share earned during the period with respect to a
particular class is based on the average daily number of shares in the class
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period attributable to that class
minus expenses accrued for the
-37-
<PAGE> 75
period attributable to that class, net of reimbursements. This calculation can
be expressed as follows:
a-b
____
Yield = 2 [( + 1)(raised to the 6th power) - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities is
recognized by accruing 1/360 of the stated dividend rate of the security each
day. Except as noted below, interest earned on debt obligations is calculated
by computing the yield to maturity of each obligation based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued interest),
and dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is held. For purposes of this calculation, it is assumed that each
month contains 30 days. The maturity of an obligation with a call provision is
the next call date on which the obligation reasonably may be expected to be
called or, if none, the maturity date. With respect to debt obligations
purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the
case of tax-exempt obligations that are issued with original issue discount but
which have discounts based on current market value that exceed the
then-remaining portion of the original issue discount (market discount), the
yield to maturity is the imputed rate based on the original issue discount
calculation. On the other hand, in the case of tax-exempt obligations that are
issued with original issue discount but which have the discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on the
market value.
With respect to mortgage or other receivables-backed obligations which
are expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are
accounted for as an increase or decrease to interest income during the period;
and (b) a Fund may elect either (i) to amortize the discount and premium on the
remaining security, based on the cost of the security, to the weighted average
maturity date, if such information is available, or to the remaining term of
the security, if any,
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<PAGE> 76
if the weighted average maturity date is not available, or (ii) not to amortize
discount or premium on the remaining security.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter. A Fund's maximum offering price per
Class A share for purposes of the formula includes the maximum sales load
imposed by the Fund -- currently 4.5% of the per share offering price.
TOTAL RETURN CALCULATIONS. The Funds compute their average annual
total returns separately for each class of shares by determining the average
annual compounded rates of return during specified periods that equate the
initial amount invested in a particular class to the ending redeemable value of
such investment in the class. This is done by dividing the ending redeemable
value of a hypothetical $1,000 initial payment by $1,000 and raising the
quotient to a power equal to one divided by the number of years (or fractional
portion thereof) covered by the computation and subtracting one from the
result. This calculation can be expressed as follows:
T = [(ERV/P)1/n - 1]
Where: T = average annual total return.
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of Years.
The Funds compute their aggregate total returns separately for their
separate share classes by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular class to the ending redeemable value of such investment in the
class. The formula for calculating aggregate total return is as follows:
aggregate total return = [(ERV - 1)]
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations. In addition, the average
annual total return and aggregate total return quotations for Class A shares
reflect the deduction of the maximum sales load charged in connection with the
purchase of Fund shares.
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<PAGE> 77
The Funds may also advertise total return data without reflecting the
sales load imposed on the purchase of shares of the Funds in accordance with
the rules of the Securities and Exchange Commission. Quotations which do not
reflect the sales load will, of course, be higher than quotations which do.
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<PAGE> 78
GENERAL INFORMATION
DESCRIPTION OF SHARES
- ---------------------
The Company is an open-end management investment company organized as
a Delaware business trust. The Company's Declaration of Trust authorizes the
Board of Trustees to issue an unlimited number of full and fractional shares of
beneficial interest. Pursuant to the authority granted in the Charter, the
Board of Trustees has authorized the issuance of two classes of shares, Classes
A and B shares, representing interests in the three separate series.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board may grant in its discretion. When issued for payment as
described in the Prospectus, the Company's shares will be fully paid and
non-assessable. For information concerning possible restrictions upon the
transferability of the Company's shares and redemption provisions with respect
to such shares, see "Additional Purchase and Redemption Information" above.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series except as otherwise required by the Investment Company
Act of 1940 ("1940 Act") or other applicable law or when permitted by the Board
of Trustees. Shares have cumulative voting rights to the extent they may be
required by applicable law.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Company shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of each Fund
affected by the matter. A Fund is affected by a matter unless it is clear that
the interests of each Fund in the matter are substantially identical or that
the matter does not affect any interest of the Fund. Under Rule 18f-2 the
approval of an investment advisory agreement or 12b-1 distribution plan or any
change in a fundamental investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding shares of
such Fund. However, the rule also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts and the election of directors may be effectively acted upon by
shareholders of the Company voting without regard to particular Funds.
Unless otherwise provided by law (for example, by Rule 18f-2 discussed
above) or by the Company's Declaration of Trust, the Company may take or
authorize any action upon the favorable vote of the holders of more than 50 of
the shares of the Company voting without regard to class.
The Declaration of Trust of the Company provide that obligations of
the Company are not binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents will not be
liable to the Company or its investors for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee, officer, employee or
agent against any liability to the Company or its investors to which the
Trustee, officer, employee or agent would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of his
or her duties. The Declaration of Trust also provides that the debts,
liabilities, obligations and expenses incurred, contracted for or existing with
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<PAGE> 79
respect to a designated Portfolio or Fund shall be enforceable against the
assets and property of such Fund only, and not against the assets or property
of any other Fund or the investors therein.
REPORTS
- -------
Shareholders will receive unaudited semi-annual reports describing the
Company's investment operations and annual financial statements audited by
independent accountants. Copies of the Company's annual reports to
shareholders may be obtained at no charge by writing or telephoning the Company
at (800) 247-9728.
CUSTODIAN, ACCOUNTING AGENT AND TRANSFER AGENT
- ----------------------------------------------
The Company has appointed PNC Bank, National Association as custodian
for the Funds. BISYS provides the Funds with certain accounting services
pursuant to a Fund Accounting Services Agreement with the Manager. Under the
Fund Accounting Services Agreement, BISYS has agreed to provide certain
accounting, bookkeeping, pricing, dividend and distribution calculation
services with respect to the Company and the Funds. The monthly fees charged
by BISYS under the Fund Accounting Agreements are borne by the Funds. As
custodian of the Company's assets, PNC Bank: (i) maintains a separate account
or accounts in the name of the respective Funds; (ii) holds and disburses
portfolio securities; (iii) makes receipts and disbursements of money; (iv)
collects and receives income and other payments and distributions on account of
portfolio securities; (v) responds to correspondence from security brokers and
others relating to their respective duties; and (vi) makes periodic reports
concerning their duties.
BISYS Fund Services Ohio, Inc. is transfer and dividend disbursing
agent for the Funds.
COUNSEL
- -------
Vedder, Price, Kaufman & Kammholz serves as counsel to the Company.
INDEPENDENT ACCOUNTANTS
- -----------------------
Coopers & Lybrand L.L.P. has been selected as independent accountants
of each Fund.
FINANCIAL STATEMENTS
- --------------------
The Company's Statement of Assets as of December 31, 1995, included
at the end of this Statement of Additional Information, has been included
herein in reliance upon the report of Coopers & Lybrand L.L.P. given on the
authority of that firm as experts in accounting and auditing.
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<PAGE> 80
MISCELLANEOUS
- -------------
As used in the Prospectus and this Statement of Additional
Information, a "vote of a majority of the outstanding shares of a Fund, means
the affirmative vote of the lesser of (a) more than 50% of the outstanding
interests or shares of a Fund, or (b) 67% of the interests or shares of a Fund
present at a meeting at which more than 50% of the outstanding interests or
shares of a Fund are represented in person or by proxy.
The Prospectus relating to the Funds and this Statement of Additional
Information omit certain information contained in the Company's registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the Commission by paying the charges
prescribed under its rules and regulations.
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<PAGE> 81
APPENDIX A
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard
and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory obligations.
Principal repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained.
A-1
<PAGE> 82
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps or investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"Duff 4" - Debt possesses speculative investment characteristics.
"Duff 5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues carrying this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
A-2
<PAGE> 83
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and non-bank
banks; nonUnited States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations are supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by a strong capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A-3
<PAGE> 84
"A3" - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
"B" - Obligations' capacity for timely repayment is susceptible to
adverse changes in business, economic, or financial conditions.
"C" - Obligations have an inadequate capacity to ensure timely
repayment.
"D" - Obligations have a high risk of default or are currently in
default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents 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" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC," and "C" - Debt that possesses one of these
ratings is regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
the obligation. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
"CI" - This rating is reserved for income bonds on which no interest
is being paid.
"D" - Debt is in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
A-4
<PAGE> 85
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds 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 are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered 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," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be
in default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating category.
The following summarizes the ratings used by Duff & Phelps for
corporate and municipal long-term debt:
A-5
<PAGE> 86
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligors ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
A-6
<PAGE> 87
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of
these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree
of speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to
denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
A-7
<PAGE> 88
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Corporation for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
A-8
<PAGE> 89
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch uses the short-term ratings described under Commercial Paper
Ratings for municipal notes.
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APPENDIX B
FUTURES CONTRACTS
As stated in the Prospectus, the Funds may enter into futures
contracts and options for hedging purposes. Such transactions are described in
this Appendix.
I. INTEREST RATE FUTURES CONTRACTS.
--------------------------------
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by a Fund, through using
future contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase
would create an obligation by a Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by the Fund's
entering into a futures contract sale. If the offsetting sale price exceeds
the purchase price, the
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Fund realizes a gain, and if the purchase price exceeds the offsetting sale
price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges principally, the Chicago Board of Trade and
the Chicago Mercantile Exchange. The Fund would deal only in standardized
contracts on recognized exchanges. Each exchange guarantees performance under
contract provisions through a clearing corporation, a nonprofit organization
managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury bonds and
notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury bills; and
ninety-day commercial paper. A Fund may trade in any futures contract for
which there exists a public market, including, without limitation, the
foregoing instruments.
EXAMPLES OF FUTURES CONTRACT SALE. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in the
Portfolio 1 tends to move in concert with the futures market prices of
long-term United States Treasury bonds ("Treasury bonds"). The adviser wishes
to fix the current market value of this portfolio security until some point in
the future. Assume the portfolio security has a market value of 100, and the
adviser believes that, because of an anticipated rise in interest rates, the
value will decline to 95. A Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
Bank of America could be wrong in its forecast of interest rates and
the equivalent futures market price could rise above 98. In this case, the
market value of the portfolio securities, including the portfolio security
being protected, would increase. The benefit of this increase would be reduced
by the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an off-setting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
EXAMPLES OF FUTURES CONTRACT PURCHASE. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time
the income advantage from
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investing in the short-term securities; the Fund would be endeavoring at the
same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that a
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The adviser wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the adviser believes that,
because of an anticipated fall in interest rates, the-price will have risen to
105 (and the yield will have dropped to about 9 1/2%) in four months. The Fund
might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to
105, the equivalent futures market price for Treasury bonds might also rise
from 98 to 103. In that case, the 5-point increase in the price that the Fund
pays for the long-term bond would be offset by the 5-point gain realized by
closing out the futures contract purchase.
Bank of America could be wrong in its forecast of interest rates;
long-term interest rates might rise to above 10%; and the equivalent futures
market price could fall below 98. If short-term rates at the same time fall to
10% or below, it is possible that the Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term
rates, it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing
out the futures contract purchase. In each transaction, expenses would also be
incurred.
II. STOCK INDEX FUTURES CONTRACTS.
-----------------------------
A stock index assigns relative values to the stocks included in the index
and the index fluctuates with changes in the market values of the stocks
included. 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
(which assigns relative values to the common stocks included in the index) 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. Some stock index futures contracts are based on
broad market indices, such as the Standard & Poor's 500 or the New York Stock
Exchange Composite Index. In contrast, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100 or
indices based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges or boards of trade
regulated by the Commodity Futures Trading Commission.
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Transactions on such exchanges are cleared through a clearing corporation,
which guarantees the performance of the parties to each contract.
The Funds may sell stock index futures contracts in order to offset a
decrease in market value of their respective portfolio securities that might
otherwise result from a market decline. The Funds may do so either to hedge
the value of their respective portfolios as a whole, or to protect against
declines, occurring prior to sales of securities, in the value of the
securities to be sold. Conversely, the Funds may purchase stock index futures
contracts in anticipation of purchases of securities. In a substantial
majority of these transactions, the Funds will purchase such securities upon
termination of the long futures position, but a long futures position may be
terminated without a corresponding purchase of securities.
In addition, the Funds may utilize stock index futures contracts in
anticipation of changes in the composition of their respective portfolio
holdings or as a substitute for purchasing or selling the underlying
securities. For example, in the event that a Fund expects to narrow the range
of industry groups represented in its holdings it may, prior to making
purchases of the actual securities, establish a long futures position based on
a more restrictive index, such as an index comprised of securities of a
particular industry group. The Funds may also sell futures contracts in
connection with this strategy, in order to protect against the possibility that
the value of the securities to be sold as part of the restructuring of their
respective portfolios will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
FUND FUTURES
---- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures
Portfolio 2 at 125
Value of Futures =
$62,500/Contract
-Day Hedge is Lifted-
Buy Portfolio 2 with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Price = Contract
$2,500 Gain on Futures = $2,500
HEDGING A STOCK FUND: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index = 1.0
FUND FUTURES
---- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Portfolio 2 Value of Futures = $1,000,000
-Day Hedge is Lifted-
Portfolio 2-Own Stock with Buy 16 Index Future at 120
Value = $960,000 Value of Futures = $960,000
Loss in Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is,
market value decreased and a Fund had entered into an anticipatory purchase
hedge, or market value increased and a Fund had hedged its stock portfolio, the
results of the Fund's transactions in stock index futures would be as set forth
below.
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ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
FUND FUTURES
---- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Portfolio 2 Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Portfolio 2 with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/
Decrease in Purchase Price = $2,500 Contract
Loss on Futures = $2,500
HEDGING A STOCK FUND: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Fund
Factors:
Value of Stock Fund = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Fund Beta Relative to the Index . 1.0
FUND FUTURES
---- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Portfolio 2 Value of Futures = $1,000,000
-Day Hedge is Lifted-
Portfolio 2-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Value = $40,000 Loss of Futures = $40,000
III. FUTURES CONTRACTS ON FOREIGN CURRENCIES.
---------------------------------------
A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by the Fund to hedge
against exposure to fluctuations in exchange rates between the U.S. dollar and
other currencies arising from multinational transactions.
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IV. MARGIN PAYMENTS.
----------------
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying instruments fluctuates
making the long and short positions in the futures contract more or less
valuable, a process known as marking-to-market. For example, when a Fund has
purchased a futures contract and the price of the contract has risen in
response to a rise in the underlying instruments, that position will have
increased in value and the Fund will be entitled to receive from the broker a
variation margin payment equal to that increase in value. Conversely, where a
Fund has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable and the Fund would be required to make a variation
margin payment to the broker. At any time prior to expiration of the futures
contract, the adviser may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain.
V. OPTIONS ON FUTURES CONTRACTS
----------------------------
Each Fund may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer
or seller of a futures contract, the holder, or writer, of an option has the
right to terminate its position prior to the scheduled expiration of the option
by selling, or purchasing, an option of the same series, at which time the
person entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, 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. Depending on the pricing of the option compared to either
the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts
may frequently involve less potential risk to the Funds
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because the maximum amount at risk is the premium paid for the options (plus
transaction costs).
VI. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.
-------------------------------------------
There are several risks in connection with the use of futures in the
Funds as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the future and movements in the
price of the securities which are the subject of the hedge. The price of the
future may move more than or less than the price of the securities being
hedged. If the price of the future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had not hedged at
all. If the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by the loss on the future.
If the price of the future moves more than the price of the hedged securities,
the Fund involved will experience either a loss or gain on the future which
will not be completely offset by movements in the price of the securities which
are the subject of the hedge. To compensate for the imperfect correlation of
movements in the price of securities being hedged and movement in the price of
futures contracts, a Fund may buy or sell futures contracts in a greater dollar
amount than the dollar amount of securities being hedged if the volatility over
a particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to
be appropriate by the investment adviser. Conversely, a Fund may buy or sell
fewer futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such
time period of the futures contract being used, or if otherwise deemed to be
appropriate by the adviser. It is also possible that, where the Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest
in securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of
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the futures market depends on participants entering into off-setting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced thus producing distortions. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee
that the price of the securities will in fact correlate with the price
movements in the futures contract and thus provide an offset on a futures
contract.
Further, it should be noted that 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.
Successful use of futures to hedge its portfolio by a Fund is also
subject to the Bank of America's ability to predict correctly movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by
it and securities prices increase instead, the Fund will lose part of all of
the benefit to the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Fund may have to sell securities at a time when
it may be disadvantageous to do so.
VII. OTHER HEDGING TRANSACTIONS
--------------------------
The Funds presently intend to use interest rate futures contracts,
stock index futures contracts and foreign currency futures contracts in
connection with their hedging activities. Nevertheless, each of the Funds is
authorized to enter into hedging transactions in any other futures contracts
which are currently traded or which may subsequently become available for
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trading. Such instruments may be employed in connection with the Funds'
hedging strategies if, in the judgment of the adviser, transactions therein are
necessary or advisable.
VIII. ACCOUNTING AND TAX TREATMENT.
----------------------------
Accounting for futures contracts and related options will be in
accordance with generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by
a Fund at the close of the Fund's taxable year will be treated for federal
income tax purposes as sold for their fair market value on the last business
day of such year, a process known as "marking-to-market." Forty percent of any
gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60% of such gain or loss will be treated as
long-term capital gain or loss without regard to the length of time the Fund
holds the futures contract or option ("the 40%-60% rule"). The amount of any
capital gain or loss actually realized by a Fund in a subsequent sale or other
disposition of those futures contracts or options will be adjusted to reflect
any capital gain or loss taken into account by a Fund in a prior year as a
result of the constructive sale of the contracts. With respect to futures
contracts to sell, which will be regarded as parts of a "mixed straddle"
because their values fluctuate inversely to the values of specific securities
held by a Fund, losses as to such contracts to sell will be subject to certain
loss deferral rules which limit the amount of loss currently deductible on
either part of the straddle to the amount thereof which exceeds the
unrecognized gain (if any) with respect to the other part of the straddle, and
to certain wash sales regulations. Under short sales rules, which will also be
applicable, the holding period of the securities forming part of the straddle
will (if they have not been held for the long-term holding period) be deemed
not to begin prior to termination of the straddle. With respect to certain
futures contracts, deductions for interest and carrying charges will not be
allowed. Notwithstanding the rules described above, with respect to futures
contracts to sell which are properly identified as such, a Fund may make an
election which will exempt (in whole or in part) those identified futures
contracts from being treated for federal income tax purposes as sold on the
last business day of the Fund's taxable year, but gains and losses will be
subject to such short sales, wash sales and loss deferral rules and the
requirement to capitalize interest and carrying charges. Under Temporary
Regulations, a Fund would be allowed (in lieu of the foregoing) to elect to
either (1) offset gains or losses from portions which are part of a mixed
straddle by separately identifying each mixed straddle to which such treatment
applies, or (2) establish a mixed straddle account for which gains and losses
would be recognized and offset on a periodic basis during the taxable year.
Under either election, the 40%-60% rule will apply to the net gain or loss
attributable to the futures contracts, but in the case of a mixed straddle
account election, not more than 50 percent of any net gain may be treated as
long-term and no more than 40 percent of any net loss may be treated as
short-term.
Certain foreign currency contracts entered into by the Funds may be
subject to the "marking-to-market" process but gain or loss will be treated as
100% ordinary income or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated
futures contracts are traded or upon which the settlement value of the contract
depends; (2) the contract must be entered into at arm's length at a price
determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market.
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The Treasury Department has broad authority to issue regulations under the
provisions respecting foreign currency contracts. As of the date of this
Statement of Additional Information, the Treasury has not issued any such
regulations. Foreign currency contracts entered into by the Fund may result in
the creation of one or more straddles for federal income tax purposes, in which
case certain loss deferral, short sales, and wash sales rules and the
requirement to capitalize interest and carrying charges may apply.
Some investments may be subject to special rules which govern the
federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
marking-to-market rules unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency
rules. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. In accordance with Treasury regulations, certain
transactions subject to the special currency rules that are part of a "section
988 hedging transaction" (as defined in the Code and the Treasury regulations)
will be integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. "Section 988 hedging transactions" are
not subject to the mark-to-market or loss deferral rules under the Code. It is
anticipated that some of the non-U.S. dollar denominated investments and
foreign currency contracts that the Funds may make or may enter into will be
subject to the special currency rules described above. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Fund which are not subject to special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital
gain or loss and will not be segregated from the gain or loss on the underlying
transaction.
Qualification as a regulated investment company under the Code
requires that each Fund satisfy certain requirements with respect to the source
of its income during a taxable year. At least 90% of the gross income of each
Fund must be derived from dividends, interests, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including but not limited to gains
from options, futures, or forward contracts) derived with respect to the Fund's
business of investing in such stock, securities or currencies. The Treasury
Department may by regulation exclude from qualifying income foreign currency
gains which are not directly related to a Fund's principal business of
investing in stock or securities, or futures with respect to stock or
securities. Any income derived by a Fund from a partnership or trust is
treated as derived with respect to the Fund's business of investing in stock,
securities or currencies only to the extent that such income is
B-11
<PAGE> 101
attributable to items of income which would have been qualifying income if
realized by the Fund in the same manner as by the partnership or trust.
An additional requirement for qualification as a regulated investment
company under the Code is that less than 30% of a Fund's gross income must be
derived from gains realized on the sale or other disposition of the following
investments held for less than three moths: (1) stock and securities (as
defined in section 2(a)(36) of the Investment Company Act of 1940); (2)
options, futures and forward contracts other than those on foreign currencies;
and (3) foreign currencies (and options, futures and forward contracts on
foreign currencies) that are not directly related to a Fund's principal
business of investing in stock and securities (and futures with respect to
stocks and securities). With respect to futures contracts and other financial
instruments subject to the marking-to-market rules, the Internal Revenue
Service has ruled in private letter rulings that a gain realized from such a
futures contract or financial instrument will be treated as being derived from
a security held for three months or more (regardless of the actual period for
which the contract or instrument is held) if the gain arises as a result of a
constructive sale under the marking-to-market rules, and will be treated as
being derived from a security held for less than three months only if the
contract or instrument is terminated (or transferred) during the taxable year
(other than by reason of marking-to-market) and less than three months have
elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the 30% test is met for a taxable
year, increases and decreases in the value of each Fund's futures contracts and
other investments that qualify as part of a "designated hedge," as defined in
the Code, may be netted.
B-12
<PAGE> 102
TIME HORIZON FUNDS
Statements of Assets and Liabilities
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Portfolio 1 Portfolio 2 Portfolio 3
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 9,053,007 $ 7,296,556 $ 6,227,834
Cash 3,546 2,005 3,709
Interest receivable 54,709 59,999 31,421
Receivable from Investment Adviser 24,790 26,130 15,276
Unamortized organization costs 33,334 33,334 33,334
Receivable for capital shares issued 482,749 180,540 157,450
Prepaid expenses 46,598 45,236 35,983
---------------- ---------------- ---------------
Total Assets 9,698,733 7,643,800 6,505,007
---------------- ---------------- ---------------
LIABILITIES:
Capital shares redeemed 600 76,845 25,500
Accrued expenses and other payables:
Management fees 103 88 63
Sub-Administration fees 80 68 52
12b-1 fees (Class B Shares) 3,702 2,720 2,326
Organization costs 33,334 33,334 33,334
Legal and audit fees 2,197 2,648 963
Other 1,937 2,761 1,241
---------------- ---------------- ---------------
Total Liabilities 41,953 118,464 63,479
---------------- ---------------- ---------------
NET ASSETS:
Capital 9,551,413 7,408,648 6,361,432
Accumulated undistributed net investment income/loss 357 1,995 (233)
Net unrealized appreciation on investments 83,880 94,594 66,209
Accumulated undistributed net realized gains
on investment transactions 21,130 20,099 14,120
---------------- ---------------- ---------------
Net Assets $ 9,656,780 $ 7,525,336 $ 6,441,528
================ ================ ===============
Net Assets
Class A $ 2,712,240 $ 2,702,345 $ 2,041,030
Class B 6,944,540 4,822,991 4,400,498
---------------- ---------------- ---------------
Total $ 9,656,780 $ 7,525,336 $ 6,441,528
================ ================ ===============
Outstanding units of beneficial interest (shares)
Class A 263,020 260,305 195,589
Class B 673,482 464,842 421,411
---------------- ---------------- ---------------
Total 936,502 725,147 617,000
================ ================ ===============
Net asset value
Class A - redemption price per share $ 10.31 $ 10.38 $ 10.44
Class B - offering price per share* 10.31 10.38 10.44
================ ================ ===============
Maximum Sales Charge 4.50% 4.50% 4.50%
================ =============== ===============
Maximum Offering Price
(100%/(100% - Maximum Sales Charge) of net asset
value adjusted to nearest cent) per share (Class A) $ 10.80 $ 10.87 $ 10.93
================ ================ ===============
Investments, at cost $ 8,969,127 $ 7,201,962 $ 6,161,625
================ ================ ===============
<FN>
- --------------------
* Redemption price per share is equal to the net asset
value per share less any applicable redemption fee.
</TABLE>
See notes to financial statements.
<PAGE> 103
<TABLE>
TIME HORIZON FUNDS
Statements of Changes in Net Assets
(Unaudited)
<CAPTION>
Portfolio 1 Portfolio 2 Portfolio 3
------------ ------------ ------------
September 5, September 5, September 5,
1995 to 1995 to 1995 to
December 31, December 31, December 31,
1995(a) 1995(a) 1995(a)
------------ ------------ ------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 47,981 (b) $ 39,726 (b) $ 25,512 (b)
Net realized gains on investment transactions 21,130 20,099 14,120
Net change in unrealized appreciation on investments 83,880 94,594 66,209
---------- ---------- ----------
Change in net assets resulting from operations 152,991 154,419 105,841
---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A Shares (15,201) (15,518) (9,276)
Class B Shares (32,423) (22,213) (16,469)
---------- ---------- ----------
(47,624) (37,731) (25,745)
---------- ---------- ----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 9,638,721 7,577,360 6,415,507
Dividends reinvested 37,988 32,696 21,061
Cost of shares redeemed (125,296) (201,408) (75,136)
---------- ---------- ----------
Change in net assets from capital transactions 9,551,413 7,408,648 6,361,432
---------- ---------- ----------
Change in net assets 9,704,404 7,563,067 6,467,273
NET ASSETS:
Beginning of period _ _ _
---------- ---------- ----------
End of period $9,704,404 $7,563,067 $6,467,273
========== ========== ==========
SHARE TRANSACTIONS:
Sold 944,966 741,430 622,150
Reinvested 3,692 3,156 2,022
Redeemed (12,156) (19,439) (7,172)
---------- ---------- ----------
Change in shares 936,502 725,147 617,000
========== ========== ==========
<FN>
___________
(a) Period from commencement of operations.
(b) Includes income earned during the period from July 28, 1995
(initial seed date) through September 4, 1995.
</TABLE>
See notes to financial statements.
<PAGE> 104
<TABLE>
TIME HORIZON FUNDS
Statements of Operations
(Unaudited)
<CAPTION>
Portfolio 1 Portfolio 2 Portfolio 3
-------------------- -------------------- --------------------
September 5, 1995 September 5, 1995 September 5, 1995
to to to
December 31, 1995(a) December 31, 1995(a) December 31, 1995(a)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 47,567 $ 35,586 $ 20,854
Dividend income 6,503 8,819 8,035
-------- -------- --------
Total Income 54,070 (b) 44,405 (b) 28,889 (b)
-------- -------- --------
EXPENSES:
Management fees 6,690 5,887 3,941
Sub-Administration fees 223 196 131
12b-1 fees (Class B Shares) 6,322 5,085 3,369
Shareholder Services fees (Class A and Class B Shares) 2,787 2,453 1,642
Custodian and accounting fees 3,015 3,015 3,015
Legal and audit fees 7,035 6,700 2,613
Organization costs 402 402 402
Trustees' fees 1,809 2,144 737
Transfer agent fees 2,412 2,345 2,345
Registration and filing fees 5,360 5,762 4,154
Printing costs 3,216 3,886 1,340
Other 1,539 1,876 669
-------- -------- --------
Total Expenses before waivers and reimbursements 40,810 39,751 24,358
Expense waivers and reimbursements 34,721 35,072 20,981
-------- -------- --------
Total Expenses 6,089 4,679 3,377
-------- -------- --------
Net investment income 47,981 39,726 25,512
-------- -------- --------
REALIZED/UNREALIZED GAINS
ON INVESTMENTS:
Net realized gains on investment transactions 21,130 20,099 14,120
Net change in unrealized appreciation on investments 83,880 94,594 66,209
-------- -------- --------
Net realized/unrealized gains on investments 105,010 114,693 80,329
-------- -------- --------
Change in net assets resulting from operations $152,991 $154,419 $105,841
======== ======== ========
<FN>
___________
(a) Period from commencement of operations.
(b) Includes income earned during the period from July 28, 1995 (initial seed date)
through September 4, 1995 (initial sale of shares to public).
</TABLE>
See notes to financial statements.
<PAGE> 105
TIME HORIZON FUNDS
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Portfolio 1 Portfolio 2
Class A Class B Class A Class B
------------- ------------- ------------- --------------
September 5, September 5, September 5, September 5,
1995 to 1995 to 1995 to 1995 to
December 31, December 31, December 31, December 31,
1995(a) 1995(a) 1995(a) 1995(a)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.04 (d) $ 10.04 (d) $ 10.04 (d) $ 10.04 (d)
--------- ---------- ---------- ----------
INVESTMENT ACTIVITIES:
Net investment income 0.06 0.05 0.06 0.05
Net realized and unrealized gains
on investments 0.27 0.27 0.34 0.34
--------- ---------- ---------- ----------
0.33 0.32 0.40 0.39
--------- ---------- ---------- ----------
DISTRIBUTIONS:
Net investment income (0.06) (0.05) (0.06) (0.05)
--------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.31 $ 10.31 $ 10.38 $ 10.38
========= ========== ========== ==========
Total Return (excludes sales and redemption charges) (b) 3.27% 3.19% 3.97% 3.78%
RATIOS / SUPPLEMENTAL DATA:
Net Assets at end of period (000) $ 2,712 $ 6,945 $ 2,702 $ 4,823
Ratio of expenses to
average net assets (c) 0.02% 0.72% 0.02% 0.68%
Ratio of net investment income
to average net assets (c) 4.54% 3.87% 4.16% 3.55%
Ratio of expenses to
average net assets (c)* 2.98% 3.72% 3.35% 4.10%
Ratio of net investment income
to average net assets (c)* 1.58% 0.87% 0.83% 0.13%
Portfolio turnover ** 85.33% 85.33% 59.79% 59.79%
<CAPTION>
Portfolio 3
Class A Class B
------------- -------------
September 5, September 5,
1995 to 1995 to
December 31, December 31,
1995(a) 1995(a)
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.04 (d) $ 10.04 (d)
--------- ----------
INVESTMENT ACTIVITIES:
Net investment income 0.05 0.04
Net realized and unrealized gains
on investments 0.40 0.40
--------- ----------
0.45 0.44
--------- ----------
DISTRIBUTIONS:
Net investment income (0.05) (0.04)
--------- ----------
Net Asset Value, End of Period $ 10.44 $ 10.44
========= ==========
Total Return (excludes sales and redemption charges) (b) 4.36% 4.38%
RATIOS / SUPPLEMENTAL DATA:
Net Assets at end of period (000) $ 2,041 $ 4,400
Ratio of expenses to
average net assets (c) 0.02% 0.74%
Ratio of net investment income
to average net assets (c) 4.04% 3.37%
Ratio of expenses to
average net assets (c)* 3.04% 3.78%
Ratio of net investment income
to average net assets (c)* 1.02% 0.33%
Portfolio turnover ** 33.02% 33.02%
<FN>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Fund
as a whole without distunguishing between the classes
of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Net asset value includes the effect of income earned on initial seed
money for the period from July 28, 1995 (initial seed date) through
September 4, 1995 (initial sale of shares to public).
</TABLE>
See notes to financial statements.
<PAGE> 106
TIME HORIZON FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)
1. ORGANIZATION:
Time Horizon Funds (the "Company"), an open-end management investment
company established as a Delaware business trust, is registered under
the Investment Company Act of 1940 (the "1940 Act"). The Company
offers shares of the following funds: Time Horizon Portfolio 1
("Portfolio 1"), Time Horizon Portfolio 2 ("Portfolio 2"), and Time
Horizon Portfolio 3 ("Portfolio 3") (individually, a "Fund" and
collectively, the "Funds"), each of which offers Class A and Class B
shares. Class A shares are offered at net asset value plus an initial
sales charge and are subject to a shareholder servicing fee. Class B
shares are offered at net asset value without a sales charge but are
subject to a contingent deferred sales charge, plus distribution plan
and shareholder servicing fees. Class B shares will convert to Class A
shares on the first business day of the month following the eighth
anniversary of the date of purchase.
2. SIGNIFICANT ACCOUNTANT POLICIES:
The following is a summary of significant accounting policies followed
by the Company in the preparation of its financial statements.
The policies are in conformity with generally accepted accounting
principles.
SECURITIES VALUATION:
Investments in securities that are primarily traded on a domestic
exchange or traded on the NASDAQ National Market System are valued at
the last sale price on the exchange or market where primarily
traded or listed or if there is no recent sale price available, at the
last current bid quotation. Securities not so traded are valued at
the last current bid quotation if market quotations are available.
Except for short-term securities with remaining maturities of 60 days
or less ("Short-Term Securities"), fixed income securities are valued
by using market quotations, or independent pricing services that use
prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with
similar characteristics. Short-Term Securities are valued at
amortized cost, which approximates market value.
Investments in investment companies are valued at their net asset
values as reported by such companies. Other securities for
which quotations are not readily available are valued at their fair
value under procedures established by the Group's Board of Trustees.
The differences between the cost and market values of investments held
by the Funds are reflected as either unrealized appreciation or
depreciation.
<PAGE> 107
SECURITY TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized
on the accrual basis and includes, where applicable, the amortization
of premium or Discount. Dividend income is recorded on the
ex-dividend date. Gains or losses realized on sales of securities are
determined by comparing the identified cost of the security lot sold
with the net proceeds of sales.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial
institutions such as banks and broker dealers which Bank of
America National Trust and Saving Association ("Bank of America" or
the "Manager") deems creditworthy under guidelines approved by the
Board of Trustees, subject to the seller's agreement to repurchase
such securities at a mutually agreed-upon date and price. The
repurchase price generally equals the price paid by each Fund plus
interest negotiated on the basis of current short-term rates, which
may be more or less than the rate on the underlying portfolio
securities. The seller, under a repurchase agreement, is required to
maintain the value of collateral held pursuant to the agreement at
102% of the repurchase price (including accrued interest). If the
seller defaulted on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from a sale of the underlying
securities were less than the repurchase price under the agreement.
Bankruptcy or insolvency of such a defaulting seller may cause the
particular Fund's rights with respect to such securities be delayed or
limited. Securities subject to repurchase agreements are held by the
Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by the Funds under the 1940 Act.
ORGANIZATION EXPENSES:
All costs incurred by the Company in connection with the organization
of the Funds and the initial public offering of shares of the
Funds, principally professional fees and printing, have been deferred.
Upon commencement of investment operations of each Fund, the deferred
organization expenses are being amortized on a straight-line basis
over a period of five years. In the event that any of the initial
shares of the Funds are redeemed during the amortization period by any
holder thereof, the redemption proceeds will be reduced by any
unamortized organization expenses in the same proportion as the number
of said shares being redeemed bears to the number of initial shares
that are outstanding at the time of the redemption.
OTHER:
Expenses that are directly related to one of the Funds are charged
directly to that Fund and are allocated to each class of shares
based on the relative net assets of each class. Other operating
expenses of the Company are prorated to the Funds on the basis of
relative net assets.
<PAGE> 108
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities)
for the period from September 5, 1995 (commencement of operations)
through December 31, 1995 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- ----------
<S> <C> <C>
Portfolio 1...................... $11,821,011 $4,090,381
Portfolio 2...................... 8,862,239 2,551,809
Portfolio 3...................... 5,877,313 916,298
</TABLE>
4. DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared and paid annually
and distributable net realized capital gains, if any, are
declared and distributed at least annually for Class A Shares and
Class B Shares of the Funds.
Dividends from net investment income and net realized capital gains
are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for deferrals of
certain losses.
5. FEDERAL INCOME TAXES:
It is the policy of each of the Funds to qualify as a regulated
investment company by complying with the provisions available
to certain investment companies, as defined in applicable sections of
the Internal Revenue Code, and to make distributions of net investment
income and net realized capital gains sufficient to relieve it from
all, or substantially all, Federal income taxes.
6. CAPITAL SHARE TRANSACTIONS:
<TABLE>
Transactions in capital shares for the Funds are summarized below (amounts in thousands):
<CAPTION>
PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3
-------------------- -------------------- ---------------------
SEPTEMBER 5, 1995 SEPTEMBER 5, 1995 SEPTEMBER 5, 1995
TO TO TO
DECEMBER 31, 1995 (A) DECEMBER 31, 1995 (A) DECEMBER 31, 1995 (A)
-------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ---------- ------ ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
Issued 270 $ 2,753 274 $ 2,808 195 $ 2,006
Reinvested 1 13 1 14 1 7
Redeemed (8) (84) (15) (158) -- (3)
------ ---------- ------ ----------- ------ ----------
Net increase - Class A 263 2,682 260 2,664 196 2,010
------ ---------- ------ ----------- ------ ----------
Class B Shares
Issued 675 6,886 467 4,770 427 4,409
Reinvested 3 25 2 18 1 14
Redeemed (4) (42) (4) (43) (7) (72)
------ ---------- ------ ----------- ------ ----------
Net increase - Class B 674 6,869 465 4,745 421 4,351
------ ---------- ------ ----------- ------ ----------
Net increase in Fund 937 $ 9,551 725 $ 7,409 617 6,361
====== ========== ====== =========== ====== ==========
<FN>
- -------------------
(a) Period from commencement of operations.
</TABLE>
RELATED PARTY TRANSACTIONS
Bank of America National Trust and Savings Association ("Bank of
America") serves as the Funds' Manager. Bank of America is a
subsidiary of BankAmerica Corporation, a registered bank holding
company. Under the terms of the management agreement with the
Company, Bank of America is entitled to receive fees based on a
percentage of the average net assets of each Fund.
Pursuant to the authority granted in its management agreement, Bank of
America has entered into a Sub-Administration Agreement with
BISYS Fund Services, Inc. ("BISYS"), under which BISYS will perform
certain of the services to be provided under the management agreement.
Concord Financial Group, Inc. (the "Distributor") serves as
distributor of the Funds' shares. BISYS Fund Services Ohio, Inc.
serves as fund
<PAGE> 109
accountant and transfer and dividend disbursing agent of the Funds.
BISYS, BISYS Fund Services Ohio, Inc. and the Distributor are
each wholly-owned subsidiaries of The BISYS Group, Inc. For the
period from September 5, 1995 through December 31, 1995, BISYS
received $259,745 from commissions earned on sales of shares of the
Fund, none of which was reallowed to other broker/dealers.
The Company has adopted a Shareholder Service Plan for Class A shares
and Class B shares, under which the Class A shares and Class B
shares of the Funds reimburse the Distributor and Service
Organizations for shareholder servicing fees incurred. Under the
Shareholder Service Plan, payments by a Fund for shareholder servicing
expenses may not exceed an annual rate of 0.25% of the Fund's average
daily net assets. The Company has also adopted a Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act, under which the Class B
shares of each Fund compensate the Distributor for services rendered
and costs incurred in connection with distribution of the Class B
shares. Under the Distribution Plan, payments by the Class B shares
of a Fund for distribution expenses are incurred at the annual rate of
0.75% of the average daily net assets of the Fund attributable to the
Class B shares.
Certain officers of the Company are affiliated with BISYS. Such
persons are not paid directly by the Company for serving in
those capacities.
Bank of America has agreed to voluntarily reduce its fees, absorb
and/or reimburse operating expenses for the first twelve months of
the Funds' operations to ensure that the operating expenses
for each Fund do not exceed 1.00% and 1.75% (annualized) of the
average net assets of each Fund's Class A and Class B Shares,
respectively.
Information regarding related party transactions is as follows for the period
from September 5, 1995 (commencement of operations) to December 31, 1995:
<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO PORTFOLIO
1 2 3
-------------------------------------
<S> <C> <C> <C>
MANAGEMENT FEES:
Annual fee before voluntary fee reductions
(Percentage of average net assets)........ .60% .60% .60%
Voluntary fee reductions................... $6,587 $5,799 $3,878
SUB-ADMINISTRATION FEES:
Annual fee before voluntary fee reductions
(Percentage of average net assets)......... .02% .02% .02%
Voluntary fee reductions.................... $120 $108 $68
12B-1 FEES:
Annual fee before voluntary fee reductions
(Percentage of average net assets)........ .75% .75% .75%
Voluntary fee reductions................... $437 $582 $117
SHAREHOLDER SERVICES FEES:
Annual fee before voluntary fee reductions
(Percentage of average net assets)........ .25% .25% .25%
Voluntary fee reductions (Class A).......... $680 $758 $519
Voluntary fee reductions (Class B).......... $2,107 $1,695 $1,123
EXPENSES REIMBURSED: $24,790 $26,130 $15,276
TRANSFER AGENT FEES: $2,412 $2,345 $2,345
</TABLE>
<PAGE> 110
TIME HORIZON FUNDS
Portfolio 1
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- ----------- ------
<S> <C> <C>
Common Stocks (28.8%):
Automobiles & Trucks (0.4%):
800 General Motors Corp. $ 42,300
----------
Banks (1.5%):
600 Bank of New York Co., Inc. 29,250
900 Citicorp 60,526
543 First Chicago 21,448
500 NationsBank Corp. 34,813
----------
146,037
----------
Beverages (0.9%):
400 Coca-Cola Co. 29,700
1,000 PepsiCo, Inc. 55,875
----------
85,575
----------
Broadcasting (0.5%):
400 Capital Cities/ABC, Inc. 49,350
----------
Building Materials (0.1%):
200 Armstrong World 12,400
----------
Business Equip. & Services (0.3%):
200 Xerox Corp. 27,400
----------
Chemicals (1.2%):
900 Air Products & Chemicals, Inc. 47,475
400 Eastman Chemical Co. 25,050
200 E.I. du Pont de Nemours 13,975
200 Monsanto Co. 24,500
----------
111,000
----------
Computer Software (0.7%):
400 Cisco Systems, Inc. (b) 29,850
400 Microsoft Corp. (b) 35,100
----------
64,950
----------
Computers & Computer Systems (1.6%):
500 Compaq Computer Corp. (b) 24,000
600 Hewlett Packard 50,250
200 IBM Corp. 18,350
600 Oracle Corp. (b) 25,425
600 Sun Microsystems, Inc. 27,375
----------
145,400
----------
Construction Materials (0.2%):
500 PPG Industries, Inc. 22,875
----------
</TABLE>
<PAGE> 111
TIME HORIZON FUNDS
Portfolio 1
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- ----------- ------
<S> <C> <C>
Common Stocks, Continued:
Defense (1.2%):
600 General Dynamics Corp. $ 35,475
300 Lockheed Martin Corp. 23,700
700 Rockwell International Corp. 37,012
200 United Technologies Corp. 18,975
----------
115,162
----------
Electrical Equipment (0.2%):
400 Honeywell, Inc. 19,450
----------
Electronics & Electronic Components (1.7%):
700 Applied Materials, Inc. 27,563
100 General Electric Co. 79,200
600 Intel Corp. 34,050
500 Texas Instruments 25,875
----------
166,688
----------
Engineering & Construction (0.2%):
200 Fluor Corp. 13,200
----------
Entertainment (0.5%):
400 King World Productions (b) 15,550
600 The Walt Disney Co. 35,400
----------
50,950
----------
Financial Services (1.0%):
500 Bank of Boston Corp. 23,125
400 Dean Witter Discover & Co. 18,800
400 First Interstate Bancorp 54,600
----------
96,525
----------
Food & Related Products (1.1%):
300 Campbell Soup Co. 18,000
400 ConAgra, Inc. 16,500
300 IBP, Inc. 15,150
600 Philip Morris Co., Inc. 54,300
----------
103,950
----------
Forest & Paper Products (0.6%):
300 Kimberly-Clark Corp. 24,825
500 Mead Corp. 26,125
200 Williamette Industries, Inc. 11,250
----------
62,200
----------
</TABLE>
<PAGE> 112
TIME HORIZON FUNDS
Portfolio 1
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- ----------- ------
<S> <C> <C>
Common Stocks, Continued:
Hospital Supply & Mgmt. (0.1%):
200 Columbia HCA Healthcare Corp. $ 10,150
----------
Hotel Management & Related Services (0.2%):
600 Marriott International 22,950
----------
Household-General Products (0.7%):
600 Newell Co. 15,525
400 Premark International, Inc. 20,250
400 Procter & Gamble Co. 33,200
----------
68,975
----------
Insurance (1.7%):
400 Aetna Life & Casualty Co. 27,700
800 Allstate Insurance 32,900
200 General Re Corp. 31,000
900 Providian Corp. 36,675
500 Travelers Group, Inc. 31,438
----------
159,713
----------
Manufacturing (0.6%):
500 Illinois Tool Works 29,500
400 Johnson Controls 27,500
----------
57,000
----------
Medical - Biotechnology (0.2%):
400 Medtronic, Inc. 22,350
----------
Medical - Hosp. Mgt. & Svc. (0.3%):
400 United Healthcare Corp. 26,200
----------
Metal Fabrication (0.4%):
400 Aluminum Co. of America 21,150
500 Kennametal, Inc. 15,875
----------
37,025
----------
Metals - Diversified (0.1%):
200 Phelps Dodge Corp. 12,450
----------
Multiple Industry (0.4%):
300 ITT Destinations, Inc. (b) 15,900
300 ITT Hartford Group, Inc. (b) 14,513
300 ITT Industries, Inc. 7,200
----------
37,613
----------
</TABLE>
<PAGE> 113
TIME HORIZON FUNDS
Portfolio 1
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- ----------- ------
<S> <C> <C>
Common Stocks, Continued:
Oil & Gas (0.8%):
200 Atlantic Richfield Co. $ 22,150
400 Consolidated Natural Gas Co. 18,150
200 Royal Dutch Petroleum 28,225
200 Williams Companies, Inc. 8,775
----------
77,300
----------
Petroleum - Internationals & Services (1.8%):
200 Amoco Corp. 14,375
600 Exxon Corp. 48,075
900 Halliburton Co. 45,562
600 Mobil Corp. 67,200
----------
175,212
----------
Pharmaceuticals (1.8%):
400 Bristol-Myers Squibb Co. 34,350
500 Johnson & Johnson 42,812
600 Merck & Co., Inc. 39,450
800 Pfizer, Inc. 50,400
200 Schering-Plough 10,950
----------
177,962
----------
Photographic Equipment (0.1%):
200 Eastman Kodak Co. 13,400
----------
Publishing (0.5%):
500 Dow Jones & Co., Inc. 19,937
400 Tribune Co. 24,450
----------
44,387
----------
Railroad (0.3%):
400 Norfolk Southern Corp. 31,750
----------
Retail (1.3%):
400 The Gap, Inc. 16,800
800 Home Depot, Inc. 38,300
200 Kroger Co. (b) 7,500
400 Safeway, Inc. (b) 20,600
900 Sears Roebuck & Co. 35,100
----------
118,300
----------
Shoes- Leather (0.1%):
200 Nike, Inc., Class B 13,925
----------
Tires & Rubber Products (0.3%):
600 Goodyear Tire & Rubber Co. 27,225
----------
</TABLE>
<PAGE> 114
TIME HORIZON FUNDS
Portfolio 1
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- ----------- ------
<S> <C> <C>
Common Stocks, Continued:
Transportation-Air (0.1%):
100 AMR Corp. (b) $ 7,425
----------
Utilities-Electric (1.1%):
900 Detroit Edison Co. 31,050
500 FPL Group, Inc. 23,187
500 General Public Utilities Corp. 17,000
1,000 Unicom Corp. 32,750
----------
103,987
----------
Utilities-Telephone (2.0%):
1,000 Ameritech Corp. 59,000
400 AT&T Corp. 25,900
1,000 Bellsouth Corp. 43,500
500 Southwestern Bell Corp. 28,750
1,000 Sprint Corp 39,875
----------
197,025
----------
Total Common Stocks 2,777,736
----------
U.S. Treasury Bills (12.5%):
1,221,000 2/22/96 1,211,332
----------
Total U.S. Treasury Bills 1,211,332
----------
U.S. Treasury Notes (52.4%):
650,000 6.13%, 5/31/97 658,047
2,260,000 6.75%, 5/31/99 2,360,231
1,977,000 6.25%, 8/31/00 2,045,661
----------
Total U.S. Treasury Notes 5,063,939
----------
Total (Cost-$ 8,969,127) (a) $9,053,007
==========
<FN>
______________
Percentages indicated are based on net assets of $9,656,780
(a) Represents cost for federal income tax purposes and differs from value by net
unrealized appreciation of securities as follows:
Unrealized appreciation $ 126,770
Unrealized depreciation (42,890)
----------
Net unrealized appreciation $ 83,880
----------
(b) Represents non-income producing securities.
</TABLE>
See notes to financial statements.
<PAGE> 115
TIME HORIZON FUNDS
Portfolio 2
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- ------------- ------------ ----------
<S> <C> <C>
Common Stocks (41.9%):
Automobiles & Trucks (0.6%):
900 General Motors Corp. $ 47,588
----------
Banks (2.2%):
800 Bank of New York Co., Inc. 39,000
700 Citicorp 47,075
724 First Chicago 28,598
700 NationsBank Corp. 48,738
----------
163,411
----------
Beverages (1.4%):
500 Coca-Cola Co. 37,125
1,200 PepsiCo, Inc. 67,050
----------
104,175
----------
Broadcasting (0.7%):
400 Capital Cities/ABC, Inc. 49,350
----------
Building Materials (0.2%):
200 Armstrong World 12,400
----------
Business Equip. & Services (0.4%):
200 Xerox Corp. 27,400
----------
Chemicals (1.8%):
900 Air Products & Chemicals, Inc. 47,475
400 Eastman Chemical Co. 25,050
400 E.I. du Pont de Nemours 27,950
300 Monsanto Co. 36,750
----------
137,225
----------
Computer Software (1.1%):
500 Cisco Systems, Inc. (b) 37,313
500 Microsoft Corp. (b) 43,875
----------
81,188
----------
Computer Systems / Hardware (2.3%):
500 Compaq Computer Corp. (b) 24,000
600 Hewlett Packard 50,250
400 IBM Corp. 36,700
800 Oracle Corp. (b) 33,900
600 Sun Microsystems, Inc. 27,375
----------
172,225
----------
</TABLE>
<PAGE> 116
TIME HORIZON FUNDS
Portfolio 2
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- ------------- ------------ ----------
<S> <C> <C>
Common Stocks, Continued:
Construction Materials (0.3%):
500 PPG Industries, Inc. $ 22,875
----------
Defense (1.8%):
600 General Dynamics Corp. 35,475
300 Lockheed Martin Corp. 23,700
700 Rockwell International Corp. 37,013
400 United Technologies Corp. 37,950
----------
134,138
----------
Electrical Equipment (0.1%):
200 Honeywell, Inc. 9,725
----------
Electronics & Electronic Components (2.5%):
700 Applied Materials, Inc. 27,563
1,200 General Electric Co. 86,400
800 Intel Corp. 45,400
500 Texas Instruments 25,875
----------
185,238
----------
Engineering & Construction (0.3%):
300 Fluor Corp. 19,800
----------
Entertainment (0.9%):
500 King World Productions (b) 19,438
800 The Walt Disney Co. 47,200
----------
66,638
----------
Financial Services (1.7%):
800 Bank of Boston Corp. 37,000
700 Dean Witter Discover & Co. 32,900
400 First Interstate Bancorp 54,600
----------
124,500
----------
Food & Related (1.7%):
500 Campbell Soup Co. 30,000
500 ConAgra, Inc. 20,625
300 IBP, Inc. 15,150
700 Philip Morris Co., Inc. 63,350
----------
129,125
----------
</TABLE>
<PAGE> 117
TIME HORIZON FUNDS
Portfolio 2
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- ------------- ------------ ----------
<S> <C> <C>
Common Stocks, Continued:
Forest & Paper Products (0.7%):
200 Kimberly-Clark Corp. $ 16,550
500 Mead Corp. 26,125
200 Williamette Industries, Inc. 11,250
----------
53,925
----------
Hospital Supply & Mgmt. (0.2%):
300 Columbia HCA Healthcare Corp. 15,225
----------
Hotel Management & Related Services (0.3%):
600 Marriott International 22,950
----------
Household - General Products (1.0%):
400 Newell Co. 10,350
200 Premark International, Inc. 10,125
700 Procter & Gamble Co. 58,100
----------
78,575
----------
Insurance (2.0%):
400 Aetna Life & Casualty Co. 27,700
1,300 Allstate Insurance 53,462
200 General Re Corp. 31,000
700 Providian Corp. 28,525
200 Travelers Group, Inc. 12,575
----------
153,262
----------
Manufacturing (0.7%):
400 Illinois Tool Works 23,600
400 Johnson Controls 27,500
----------
51,100
----------
Medical - Biotechnology (0.3%):
400 Medtronic, Inc. 22,350
----------
Metal Fabrication (0.5%):
400 Aluminum Co. of America 21,150
500 Kennametal, Inc. 15,875
----------
37,025
----------
Metals (0.2%):
300 Phelps Dodge Corp. 18,675
----------
</TABLE>
<PAGE> 118
TIME HORIZON FUNDS
Portfolio 2
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- ------------- ------------ ----------
<S> <C> <C>
Common Stocks, Continued:
Multiple Industry (0.6%):
400 ITT Destinations, Inc. (b) $ 21,200
400 ITT Hartford Group, Inc. (b) 19,350
400 ITT Industries, Inc. 9,600
----------
50,150
----------
Oil & Gas (1.1%):
200 Atlantic Richfield Co. 22,150
400 Consolidated Natural Gas Co. 18,150
200 Royal Dutch Petroleum 28,225
300 Williams Companies, Inc. 13,162
----------
81,687
----------
Petroleum - Internationals & Services (2.8%):
400 Amoco Corp. 28,750
900 Exxon Corp. 72,112
900 Halliburton Co. 45,563
600 Mobil Corp. 67,200
----------
213,625
----------
Pharmaceuticals (3.0%):
600 Bristol-Myers Squibb Co. 51,525
700 Johnson & Johnson 59,937
700 Merck & Co., Inc. 46,025
900 Pfizer, Inc. 56,700
200 Schering-Plough 10,950
----------
225,137
----------
Photographic Equipment (0.3%):
300 Eastman Kodak Co. 20,100
----------
Publishing (0.6%):
500 Dow Jones & Co., Inc. 19,937
500 Tribune Co. 30,563
----------
50,500
----------
Railroad (0.4%):
400 Norfolk Southern Corp. 31,750
----------
</TABLE>
<PAGE> 119
TIME HORIZON FUNDS
Portfolio 2
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- ------------- ------------ ----------
<S> <C> <C>
Common Stocks, Continued:
Retail (1.7%):
400 The Gap, Inc. $ 16,800
900 Home Depot, Inc. 43,087
300 Kroger Co. (b) 11,250
300 Safeway, Inc. (b) 15,450
1,100 Sears Roebuck & Co. 42,900
---------
129,487
---------
Shoes - Leather (0.3%):
300 Nike, Inc., Class B 20,887
---------
Tires & Rubber Products (0.2%):
400 Goodyear Tire & Rubber Co. 18,150
---------
Transportation - Air (0.1%):
100 AMR Corp. (b) 7,425
---------
Utilities - Electric (1.7%):
900 Detroit Edison Co. 31,050
900 FPL Group, Inc. 41,737
700 General Public Utilities Corp. 23,800
900 Unicom Corp. 29,475
---------
126,062
---------
Utilities -Telephone (3.2%):
1,100 Ameritech Corp. 64,900
600 AT&T Corp. 38,850
1,500 Bellsouth Corp. 65,250
400 Southwestern Bell Corp. 23,000
1,200 Sprint Corp. 47,850
---------
239,850
---------
Total Common Stocks 3,154,898
---------
U.S. Treasury Bills (11.4%):
11,000 1/18/96 10,971
850,000 2/22/96 843,283
---------
Total U.S. Treasury Bills 854,254
---------
</TABLE>
<PAGE> 120
TIME HORIZON FUNDS
Portfolio 2
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- ------------- ------------ ----------
<S> <C> <C>
U.S. Treasury Notes (43.7%):
460,000 6.13%, 5/31/97 $ 465,695
2,727,000 6.25%, 8/31/00 2,821,709
-----------
Total U.S. Treasury Notes 3,287,404
-----------
Total (Cost-$ 7,201,962) (a) $ 7,296,556
===========
<FN>
______________
Percentages indicated are based on net assets of $7,525,336.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
</TABLE>
<TABLE>
<S> <C>
Unrealized appreciation $ 142,456
Unrealized depreciation (47,862)
-----------
Net unrealized appreciation $ 94,594
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
<PAGE> 121
TIME HORIZON FUNDS
Portfolio 3
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- -------------------------- ----------
<S> <C> <C>
Common Stocks (53.1%):
Automobiles & Trucks (0.9%):
1,100 General Motors Corp. $ 58,163
----------
Banks (3.5%):
1,700 Bank of New York Co., Inc. 82,875
1,000 Citicorp 67,250
905 First Chicago 35,747
600 NationsBank Corp. 41,775
----------
227,647
----------
Beverages (2.3%):
400 Coca-Cola Co. 29,700
2,100 PepsiCo, Inc. 117,337
----------
147,037
----------
Broadcasting (0.8%):
400 Capital Cities/ABC, Inc. 49,350
----------
Building Materials (0.2%):
200 Armstrong World 12,400
----------
Business Equip. & Services (0.4%):
200 Xerox Corp. 27,400
----------
Chemicals (2.0%):
900 Air Products & Chemicals, Inc. 47,475
700 Eastman Chemical Co. 43,837
200 E.I. du Pont de Nemours 13,975
200 Monsanto Co. 24,500
----------
129,787
----------
Computer Software (0.9%):
400 Cisco Systems, Inc. (b) 29,850
300 Microsoft Corp. (b) 26,325
----------
56,175
----------
Computers (2.5%):
1,000 Compaq Computer Corp. (b) 48,000
600 Hewlett Packard 50,250
200 IBM Corp. 18,350
400 Oracle Corp. (b) 16,950
600 Sun Microsystems, Inc. 27,375
----------
160,925
----------
</TABLE>
<PAGE> 122
TIME HORIZON FUNDS
Portfolio 3
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- -------------------------- ----------
<S> <C> <C>
Common Stocks, Continued:
Construction Materials (0.4%):
500 PPG Industries, Inc. $ 22,875
----------
Defense (1.8%):
600 General Dynamics Corp. 35,475
300 Lockheed Martin Corp. 23,700
700 Rockwell International Corp. 37,012
200 United Technologies Corp. 18,975
----------
115,162
----------
Electrical Equipment (0.4%):
500 Honeywell, Inc. 24,312
----------
Electronics (4.0%):
700 Applied Materials, Inc. 27,562
1,800 General Electric Co. 129,600
500 Intel Corp. 28,375
1,400 Texas Instruments 72,450
----------
257,987
----------
Engineering & Construction (0.3%):
300 Fluor Corp. 19,800
----------
Entertainment (1.0%):
300 King World Productions (b) 11,662
900 The Walt Disney Co. 53,100
----------
64,762
----------
Financial Services (1.4%):
400 Bank of Boston Corp. 18,500
400 Dean Witter Discover & Co. 18,800
400 First Interstate Bancorp 54,600
----------
91,900
----------
Food & Related Products(1.8%):
400 Campbell Soup Co. 24,000
500 ConAgra, Inc. 20,625
300 IBP, Inc. 15,150
600 Philip Morris Co., Inc. 54,300
----------
114,075
----------
</TABLE>
<PAGE> 123
TIME HORIZON FUNDS
Portfolio 3
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- -------------------------- ----------
<S> <C> <C>
Common Stocks, Continued:
Forest & Paper Products (0.8%):
200 Kimberly-Clark Corp. $ 16,550
500 Mead Corp. 26,125
200 Williamette Industries, Inc. 11,250
----------
53,925
----------
Hospital Supply & Mgmt. (0.2%):
200 Columbia HCA Healthcare Corp. 10,150
----------
Hotel Management & Related Services (0.4%):
600 Marriott International 22,950
----------
Household - General Products (1.2%):
600 Newell Co. 15,525
600 Premark International, Inc. 30,375
400 Procter & Gamble Co. 33,200
----------
79,100
----------
Insurance (2.6%):
400 Aetna Life & Casualty Co. 27,700
1,000 Allstate Insurance 41,125
200 General Re Corp. 31,000
900 Providian Corp. 36,675
500 Travelers Group, Inc. 31,438
----------
167,938
----------
Manufacturing (1.0%):
600 Illinois Tool Works 35,400
400 Johnson Controls 27,500
----------
62,900
----------
Medical - Biotechnology (0.3%):
400 Medtronic, Inc. 22,350
----------
Medical - Hosp. Mgt. & Svc. (0.4%)
400 United Healthcare Corp. 26,200
----------
Metal Fabrication (0.6%):
400 Aluminum Co. of America 21,150
500 Kennametal, Inc. 15,875
----------
37,025
----------
Metals - Diversified (0.2%):
200 Phelps Dodge Corp. 12,450
----------
</TABLE>
<PAGE> 124
TIME HORIZON FUNDS
Portfolio 3
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- -------------------------- ----------
<S> <C> <C>
Common Stocks, Continued:
Multiple Industry (0.4%):
200 ITT Destinations, Inc. (b) $ 10,600
200 ITT Hartford Group, Inc. (b) 9,675
200 ITT Industries, Inc. 4,800
----------
25,075
----------
Oil & Gas (1.2%):
200 Atlantic Richfield Co. 22,150
400 Consolidated Natural Gas Co. 18,150
200 Royal Dutch Petroleum 28,225
200 Williams Companies, Inc. 8,775
----------
77,300
----------
Petroleum - Internationals (3.2%):
400 Amoco Corp. 28,750
800 Exxon Corp. 64,100
900 Halliburton Co. 45,563
600 Mobil Corp. 67,200
----------
205,613
----------
Pharmaceuticals (4.1%):
400 Bristol-Myers Squibb Co. 34,350
500 Johnson & Johnson 42,813
1,400 Merck & Co., Inc. 92,050
1,200 Pfizer, Inc. 75,600
300 Schering-Plough 16,425
----------
261,238
----------
Photographic Equipment (0.3%):
300 Eastman Kodak Co. 20,100
----------
Publishing (0.7%):
500 Dow Jones & Co., Inc. 19,938
400 Tribune Co. 24,450
----------
44,388
----------
Railroad (0.5%):
400 Norfolk Southern Corp. 31,750
----------
</TABLE>
<PAGE> 125
TIME HORIZON FUNDS
Portfolio 3
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- -------------------------- ----------
<S> <C> <C>
Common Stocks, Continued:
Retail (2.7%):
500 The Gap, Inc. $ 21,000
900 Home Depot, Inc. 43,088
700 Kroger Co. (b) 26,250
200 Safeway, Inc. (b) 10,300
2,000 Sears Roebuck & Co. 78,000
----------
178,638
----------
Shoes - Leather (0.2%):
200 Nike, Inc., Class B 13,925
----------
Tires & Rubber Products (0.1%):
200 Goodyear Tire & Rubber Co. 9,075
----------
Transportation - Air (0.1%):
100 AMR Corp. (b) 7,425
----------
Utilities - Electric (2.5%):
900 Detroit Edison Co. 31,050
700 FPL Group, Inc. 32,463
1,700 General Public Utilities Corp. 57,800
1,300 Unicom Corp. 42,575
----------
163,888
----------
Utilities -Telephone (4.8%):
2,100 Ameritech Corp. 123,900
500 AT&T Corp. 32,375
1,600 Bellsouth Corp. 69,600
500 Southwestern Bell Corp. 28,750
1,300 Sprint Corp. 51,838
----------
306,463
----------
Total Common Stocks 3,419,623
----------
U.S. Treasury Bills (18.4%):
1,194,000 2/22/96 1,184,311
----------
Total U.S. Treasury Bills 1,184,311
----------
</TABLE>
<PAGE> 126
TIME HORIZON FUNDS
Portfolio 3
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- -------------------------- ----------
<S> <C> <C>
U.S. Treasury Notes (25.2%):
250,000 6.13%, 5/31/97 $ 253,095
985,000 6.25%, 8/31/00 1,019,209
335,000 6.38%, 8/15/02 351,596
----------
Total U.S. Treasury Notes 1,623,900
----------
Total (Cost - $6,161,625) (a) $ 6,227,834
===========
</TABLE>
______________
Percentages indicated are based on net assets of $6,441,528.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 114,395
Unrealized depreciation (48,186)
-----------
Net unrealized appreciation $ 66,209
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
<PAGE> 127
TIME HORIZON FUNDS
FORM N-1A
PART C: OTHER INFORMATION
--------------------------
<TABLE>
<S> <C>
Item 24. Financial Statements and Exhibits.
---------------------------------
a. Financial Statements:
(i) Financial Statements included in Part A of the Registration Statement:
Financial Highlights
(ii) Financial Statements included in Part B of the Registration Statement:
Statement of Assets and Liabilities as of July 28, 1995.
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the period ended December 31, 1995
Statement of Changes in net assets for the period ended
December 31, 1995
Portfolio of Investments as of December 31, 1995
Notes to financial statements
Schedules II, III, IV and V have been omitted as the required information is not present. Schedule I has been
omitted as the required information is presented in the portfolio of investments at December 31, 1995
b. Exhibits:
* (1.1) Certificate of Trust of Registrant.
** (1.2) Amended and Restated Declaration of Trust of Registrant.
* (2) Bylaws of Registrant.
(3) None.
(4) None.
</TABLE>
C-1
<PAGE> 128
<TABLE>
<S><C> <C>
*** (5) Management Agreement between Registrant and Bank of America.
*** (6) Distribution Agreement between Registrant and Concord Financial Group, Inc.
(7) None.
*** (8) Custodian Services Agreement between Registrant and PNC Bank, N.A.
*** (9.1) Accounting Services Agreement between Registrant and BISYS Fund Services.
*** (9.2) Transfer Agency and Service Agreement between Registrant and BISYS Fund Services.
** (9.3) Shareholder Service Plan.
*** (9.4) Sub-Administration Agreement between Registrant and BISYS Fund Services.
(10) Not applicable.
(11) Consent of independent accountants.
(12) Not applicable.
** (13) Investment Letter of initial investor in Registrant.
(14) None.
** (15) Distribution Plan.
(16) Performance Calculations.
** (17) Limited Powers of Attorney of Trustees.
** (18) Multi-Class Plan.
(19) 485(b) Representation of Counsel.
(27) Financial Data Schedule.
</TABLE>
__________________________
*Filed as exhibit to initial Registration Statement on April 21, 1995.
**Filed as exhibit to Pre-Effective Amendment No. 1 on July 31, 1995.
C-2
<PAGE> 129
***Form of agreement filed as exhibit to Pre-Effective Amendment No. 1 on July
31, 1995.
Item 25. Persons Controlled by or Under Common Control with Registrant.
Inapplicable.
Item 26. Number of Holders of Securities.
As of December 31, 1995, the number of record holders of each
series of Registrant was as follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
--------------- ------------------------
<S> <C>
Time Horizon Portfolio 1 630
Time Horizon Portfolio 2 593
Time Horizon Portfolio 3 633
</TABLE>
Item 27. Indemnification.
Article V of Registrant's Declaration of Trust, filed herewith
as Exhibit 1, provides for the indemnification of Registrant's trustees,
officers, employees and agents against liabilities incurred by them in
connection with the defense or disposition of any action or proceeding in which
they may be involved or with which they may be threatened, while in office or
thereafter, by reason of being or having been in such office, except with
respect to matters as to which it has been determined that they acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their office ("Disabling Conduct").
Registrant has obtained from a major insurance carrier a
trustees' and officers' liability policy covering certain types of errors and
omissions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer, or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
C-3
<PAGE> 130
Bank of America performs investment advisory services for
Registrant. Bank of America and its predecessors have been in the business of
managing investments of fiduciary and other accounts since 1904. In addition
to its trust business, Bank of America provides commercial and consumer banking
services.
To the knowledge of Registrant, none of the directors or
officers of Bank of America, except those set forth below, is or has been, at
any time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers of Bank of America also hold various positions with, and
engage in business for, BankAmerica Corporation (which owns all the outstanding
stock of Bank of America) or other subsidiaries of BankAmerica Corporation.
Set forth below are the names and principal businesses of the directors of Bank
of America and the directors and certain of the senior executive officers of
Bank of America who are engaged in any business, profession, vocation or
employment of a substantial nature other than with BankAmerica Corporation.
<TABLE>
<CAPTION>
Position with
Bank of America Principal
NT&SA Name Occupation Type of Business
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Director Joseph F. Alibrandi Chairman of the Board and Chief Manufacturer of Aerospace and
Executive Officer, Whittaker Biotechnology Products
Corporation
Director Jill E. Barad President and Chief Operating Toy Manufacturer
Officer, Mattel, Inc.
Director Peter B. Bedford Chairman and CEO, Bedford Property California based Real Estate
Investors, Inc. Development and Investment Firm
Director Andrew F. Brimmer President, Brimmer & Co., Inc. Consulting
Director Richard A. Clarke Chairman of the Board, Pacific Gas Utility Company
and Electric Company
Director Timm F. Crull Chairman of the Board, Nestle USA, Food and Related Products
Inc.
Director Kathleen Feldstein President, Economic Studies, Inc. Economic Consulting
Director Donald E. Guinn Chairman Emeritus, Pacific Telesis Telecommunications and Diversified
Group Holding Company
Director Philip M. Hawley Retired Chairman and Chief Executive Retail Department Stores
Officer, Carter Hawley Hale Stores,
Inc.
Director Frank L. Hope, Jr. Consulting Architect Architectural and Engineering
Consulting
Director Ignacio E. Lozano, Jr. Editor-In-Chief, "La Opinion" Newspaper Publishing
</TABLE>
C-4
<PAGE> 131
<TABLE>
<CAPTION>
Position with
Bank of America Principal
NT&SA Name Occupation Type of Business
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Director Cornell C. Maier Consultant, Kaiser Aluminum Aluminum Producer
Corporation and Retired Chairman and
Chief Executive Officer, Kaiser
Aluminum & Chemical
Director Walter E. Massey Provost and Senior Vice President Higher Education
for Academic Affairs, University of
California
Director John M. Richman Counsel, Wachtell, Lipton, Rosen & Law Firm
Katz
Director A. Michael Spense Dean of the Graduate School of Higher Education
Business, Stanford University
</TABLE>
Item 29. Principal Underwriters.
(a) Concord Financial Group, Inc. ("Concord") acts as
principal underwriter for the Company. Concord also acts as principal
underwriter or exclusive distributor for Pacific Horizon Funds, Inc., The
Centerland Funds, The Infinity Funds, Inc., The Pilot Funds, Seafirst
Retirement Funds and The Victory Funds, and distributor for the Mutual Fund
Group.
(b) For information as to the business, profession,
vocation or employment of a substantial nature of each of Concord, its officers
and directors, reference is made to the Form BD filed by Concord (File No.
8-3760), which is incorporated by reference herein. Information as to the
positions or offices of each of Concord, its officers and directors is as
follows:
<TABLE>
<CAPTION>
Position with Position with
Name and Address Concord Registrant
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lynn J. Mangum Chairman of the Board None
150 Clove Road
Little Falls, NJ 07424
Richard E. Stierwalt Chief Executive Officer None
125 W. 55th Street
New York, NY 10019
Robert J. McMullen Executive Vice President None
150 Clove Road
Little Falls, NJ 07424
Dennis Sheehan Vice President None
125 W. 55th Street
New York, NY 10019
Michael D. Burns Vice President, Compliance None
3435 Stelzer Road
Columbus, OH 43219-3036
Joseph Kissel Executive Vice President None
125 W. 55th Street
New York, NY 10019
J. Christopher Klutch Senior Executive Vice None
Suite 300
100 First Avenue
Pittsburgh, PA 15222
Irimga McKay Vice President Vice President
1230 Columbia Street
5th Floor, Suite 500
San Diego, CA 92101
Stephan G. Mintos Executive Vice President None
3435 Stelzer Road Chief Operating Officer
Columbus, OH 43219-3036
George O. Martinez Senior Vice President Vice President
3435 Stelzer Road
Columbus, OH 43219-3036
</TABLE>
C-5
<PAGE> 132
<TABLE>
<CAPTION>
Name and Address Position with Position with
Concord Registrant
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dale Smith Vice President None
1230 Columbia Street Chief Financial Officer
5th Floor, Suite 500
San Diego, CA 92101
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records.
(1) Concord Financial Group, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to the Distributor).
(2) Bank of America National Trust and Savings Association, 555
California Street, San Francisco, California 94104 (records
relating to the Manager).
(3) 3435 Stelzer Road, Columbus, Ohio 43219 (records relating to
the Transfer Agent).
(4) 222 N. LaSalle, 26th Floor, Chicago, Illinois 60601
(Registrant's Declaration of Trust, By-Laws and minute books).
(5) PNC Bank, N.A., Broad and Chestnut Streets, Philadelphia, PA
19101 (records relating to the Custodian).
C-6
<PAGE> 133
(6) 3435 Stelzer Road, Columbus, Ohio 43219 (records relating to
the Sub-Administrator).
(7) 3435 Stelzer Road, Columbus, Ohio 43219 (records relating to
the Accounting Services Agreement).
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings.
Registrant hereby undertakes that if it is requested by the
holders of at least 10% of its outstanding shares to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
Trustee, it will do so and will assist in communications with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
C-7
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirement for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Columbus, State of Ohio, on the 31st day of
January, 1996.
TIME HORIZON FUNDS
By /s/ J. David Huber
-----------------------------
J. David Huber, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/J. David Huber President January 31, 1996
- ----------------------------------
J. David Huber
/s/Charles L. Booth Treasurer January 31, 1996
- ----------------------------------
Charles L. Booth
Robert E. Greeley* Trustee January 31, 1996
- ----------------------------------
Robert E. Greeley
John Privat* Trustee January 31, 1996
- ----------------------------------
John Privat
Edward S. Bottum* Trustee January 31, 1996
- ----------------------------------
Edward S. Bottum
William P. Carmichael* Trustee January 31, 1996
- --------------------------
William P. Carmichael
</TABLE>
<PAGE> 135
<TABLE>
<S> <C>
*By /s/J. David Huber
-----------------------
J. David Huber
Attorney-in-fact
</TABLE>
<PAGE> 136
EXHIBIT INDEX
TIME HORIZON FUNDS
FORM N-1A REGISTRATION STATEMENT
FILE NO. 811-9024
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
----------- ----------------
<S> <C> <C>
* (1.1) Certificate of Trust of Registrant.
** (1.2) Amended and Restated Declaration of Trust of Registrant.
* (2) Bylaws of Registrant.
(3) None.
(4) None.
*** (5) Management Agreement between Registrant and Bank of America.
*** (6) Distribution Agreement between Registrant and Concord Financial Group, Inc.
(7) None.
</TABLE>
<PAGE> 137
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
----------- ----------------
<S> <C> <C>
*** (8) Custodian Services Agreement between Registrant and PNC Bank, .A.
*** (9.1) Accounting Services Agreement between Registrant and BISYS Fund Services.
*** (9.2) Transfer Agency and Service Agreement between Registrant and BISYS Fund Services.
** (9.3) Shareholder Service Plan.
*** (9.4) Sub-Administration Agreement between Registrant and BISYS Fund Services.
(10) Not applicable.
(11) Consent of independent accountants.
(12) Not applicable.
** (13) Investment Letter of initial investor in Registrant.
(14) None.
** (15) Distribution Plan.
(16) Performance Calculations.
** (17) Limited Powers of Attorney of Trustees.
** (18) Multi-Class Plan.
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
----------- ----------------
<S> <C>
(19) 485(b) Representation of Counsel.
(27) Financial Data Schedule.
</TABLE>
__________________________
*Filed as exhibit to initial Registration Statement on April 21, 1995.
**Filed as exhibit to Pre-Effective Amendment No. 1 on July 31, 1995.
***Form of agreement filed as exhibit to Pre-Effective Amendment No. 1 on July
31, 1995.
<PAGE> 1
EXHIBIT 1.1
CERTIFICATE OF TRUST
OF
TIME HORIZON FUNDS
The undersigned, constituting the sole member of the Board of
Trustees of TIME HORIZON FUNDS (the "Trust"), in order to form a Delaware
business trust pursuant to Section 3810 of the Delaware Business Trust Act,
does hereby certify the following:
1. The name of the Delaware business trust is TIME
HORIZON FUNDS.
2. Prior to the issuance of beneficial interests, the
Trust will become a registered investment company under the Investment Company
Act of 1940, as amended.
3. Notice is hereby given that pursuant to Section 3804 of
the Delaware Business Trust Act, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of such
series only and not against the assets of the Trust generally.
4. The registered office of the Trust in Delaware is
TIME HORIZON FUNDS, c/o Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.
5. The registered agent for service of process on the
Trust is Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801.
6. This Certificate of Trust shall be effective on the
date it is filed with the Office of the Delaware Secretary of State.
IN WITNESS WHEREOF, the undersigned Trustee of TIME HORIZON
FUNDS has executed this Certificate as of the 12th day of April 1995.
/S/ Michael Glazer
-----------------------------------
Michael Glazer
Trustee
<PAGE> 1
EXHIBIT 1.2
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
TIME HORIZON FUNDS
a Delaware Business Trust
June 12, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Trust Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Number and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Term and Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Resignation and Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Officers; Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III Powers of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Legal Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Sale of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Borrow Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6 Delegation; Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.7 Collection and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 Miscellaneous Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 Further Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV Investment Advisory, Administrative Services and Placement Agent Arrangements . . . 12
4.1 Investment Advisory and Other Arrangements . . . . . . . . . . . . . . . . . . . . . 12
4.2 Parties to Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V Limitations of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 No Personal Liability of Trustees Officers, Employees, Agents . . . . . . . . . . . 13
5.2 Indemnification of Trustees, Officers, Employees Agents . . . . . . . . . . . . . . 13
5.3 Liability of Holders; Indemnification . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 No Bond Required of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5 No Duty of Investigation; Notice in Trust Instruments, Etc . . . . . . . . . . . . . 15
5.6 Reliance on Experts, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.7 Assent To Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI Interests in the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 General Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Establishment of Series of Interests . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Establishment of Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Assets of Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Liabilities of Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.8 Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.9 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Equality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.11 Fractions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.12 Class Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.13 Conversion of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.14 Investments in the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.15 Trustees and Officers as Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.16 No Pre-emptive Rights; Derivative Suits . . . . . . . . . . . . . . . . . . . . . . 23
6.17 No Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.18 Status of Interests and Limitation of Personal Liability . . . . . . . . . . . . . . 23
ARTICLE VII Purchases and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2 Redemption by Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 Redemption by Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.4 Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1 Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2 Register of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Meetings of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.6 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.7 Proxies, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.8 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.9 Inspection of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.10 Voting Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.11 Holder Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.12 Holder Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IX Duration; Termination of Trust; Amendment; Mergers: Etc . . . . . . . . . . . . . . 31
9.1 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.2 Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Amendment Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.4 Merger, Consolidation and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . 33
9.5 Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE X Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.1 Certificate of Designation; Agent for Service of Process . . . . . . . . . . . . . . 35
10.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.4 Reliance by Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.5 Provisions in Conflict With Law or Regulations . . . . . . . . . . . . . . . . . . . 36
10.6 Trust Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.7 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.8 Headings and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
<PAGE> 5
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
TIME HORIZON FUNDS
This AMENDED AND RESTATED DECLARATION OF TRUST of TIME HORIZON
FUNDS is made on June 12, 1995 by the parties signatory hereto, as trustees.
WHEREAS, Time Horizon Funds has heretofore been formed as a
business trust under the law of Delaware for the investment and reinvestment of
its assets, by the execution of the Declaration of Trust of Time Horizon Funds
on April 12, 1995; and
WHEREAS, the Trustees desire to amend and restate such
Declaration of Trust ; and
WHEREAS, it is proposed that the Trust assets be composed of
cash, securities and other assets contributed to the Trust by the holders of
interests in the Trust entitled to ownership rights in the Trust;
NOW, THEREFORE, the Trustees hereby declare that the Trustees
will hold in trust all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder, and manage and
dispose of the same for the benefit of the holders of interests in the Trust
and subject to the following terms and conditions.
ARTICLE I
The Trust
1.1 Name. The name of the trust created hereby (the
"Trust") shall be "Time Horizon Funds," and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents and sue or
be sued under that name, which name (and the word "Trust" wherever hereinafter
used) shall not refer to the Trustees in their individual capacities or to the
officers, agents, employees or holders of interest in the Trust. However,
should the Trustees determine that the use of the name of the Trust is not
advisable, they may select such other name for the Trust as they deem proper
and the Trust may hold its property and
<PAGE> 6
conduct its activities under such other name. Any name change shall become
effective upon the execution by a majority of the then Trustees of an
instrument setting forth the new name and the filing of a certificate of
amendment pursuant to Section 3810(b) of the DBTA. Any such instrument shall
not require the approval of the holders of interests in the Trust, but shall
have the status of an amendment to this Declaration.
1.2 Trust Purpose. The purpose of the Trust is to
conduct, operate and carry on the business of an open-end management investment
company registered under the 1940 Act. In furtherance of the foregoing, it
shall be the purpose of the Trust to do everything necessary, suitable,
convenient or proper for the conduct, promotion and attainment of any
businesses and purposes which at any time may be incidental or may appear
conducive or expedient for the accomplishment of the business of an open-end
management investment company registered under the 1940 Act and which may be
engaged in or carried on by a trust organized under the DBTA, and in connection
therewith the Trust shall have and may exercise all of the powers conferred by
the laws of the State of Delaware upon a Delaware business trust.
1.3 Definitions. As used in this Declaration, the
following terms shall have the following meanings:
(a) "1940 Act" shall mean the Investment Company Act
of 1940, as amended from time to time, and the rules and regulations thereunder,
as adopted or amended from time to time.
(b) "Affiliated Person," "Assignment" and
"Interested Person" shall have the meanings given such terms in the 1940 Act.
(c) "Administrator" shall mean any party furnishing
services to the Trust pursuant to any administrative services contract described
in Section 4.1 hereof.
(d) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
(e) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, and the rules and regulations thereunder, as
adopted or amended from time to time.
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(f) "Commission" shall mean the Securities and
Exchange Commission.
(g) "Declaration" shall mean this Declaration of
Trust as amended from time to time. References in this Declaration to
"Declaration," "hereof," "herein" and "hereunder" shall be deemed to refer to
the Declaration rather than the article or section in which such words appear.
This Declaration shall, together with the By-Laws, constitute the governing
instrument of the Trust under the DBTA.
(h) "DBTA" shall mean the Delaware Business Trust
Act, Delaware Code Annotated title 12, Sections 3801 et seq., as amended from
time to time.
(i) "Fiscal Year" shall mean an annual period as
determined by the Trustees unless otherwise provided by the Code or applicable
regulations.
(j) "Holders" shall mean as of any particular time
any or all holders of record of Interests in the Trust or in Trust Property, as
the case may be, at such time.
(k) "Interest" shall mean a Holder's units of
interest into which the beneficial interest in the Trust and each series and
class of the Trust shall be divided from time to time.
(1) "Investment Adviser" shall mean any party
furnishing services to the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
(m) "Majority Interests Vote" shall mean the vote,
at a meeting of the Holders of Interests, of the lesser of (A) 67% or more of
the Interests present or represented at such meeting, provided the Holders of
more than 50% of the Interests are present or represented by proxy or (B) more
than 50% of the Interests.
(n) "Person" shall mean and include an individual,
corporation, partnership, trust, association, joint venture and other entity,
whether or not a legal entity, and a government and agencies and political
subdivisions thereof.
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(o) "Registration Statement" as of any particular
time shall mean the Registration Statement of the Trust which is effective at
such time under the 1940 Act.
(p) "Trust Property" shall mean as of any particular
time any and all property, real or personal, tangible or intangible, which at
such time is owned or held by or for the account of the Trust or the Trustees or
any series of the Trust established in accordance with Section 6.2.
(q) "Trustees" shall mean such persons who are
indemnified as trustees of the Trust on the signature page of this Declaration,
so long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, in their capacity as trustees
hereunder.
ARTICLE II
Trustees
2.1 Number and Qualification. The number of Trustees
shall initially be one and shall thereafter be fixed from time to time by
written instrument signed by majority of the Trustees so fixed then in office,
provided, however, that the number of Trustees shall in no event be less than
one. A Trustee shall be an individual at least 21 years of age who is not
under legal disability.
(a) Any vacancy created by an increase in Trustees
shall be filled by the appointment or election of an individual having the
qualifications described in this Article as provided in Section 2.4. Any such
appointment shall not become effective, however, until the individual appointed
or elected shall have accepted in writing such appointment or election and
agreed in writing to be bound by the terms of the Declaration. No reduction in
the number of Trustees shall have the effect of removing any Trustee from
office.
(b) Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.4 hereof,
the Trustees in office, regardless of their number, shall have all the powers
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granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by this Declaration.
2.2 Term and Election. Each Trustee named herein, or
elected or appointed prior to the first meeting of the Holders, shall (except
in the event of resignations or removals or vacancies pursuant to Section 2.3
or 2.4 hereof) hold office until his or her successor has been elected at such
meeting and has qualified to serve as Trustee. Beginning with the Trustees
elected at the first meeting of Holders, each Trustee shall hold office during
the lifetime of this Trust and until its termination as hereinafter provided
unless such Trustee resigns or is removed as provided in Section 2.3 below or
his term expires pursuant to Section 2.4 hereof.
2.3 Resignation and Removal. Any Trustee may resign
(without need for prior or subsequent accounting) by an instrument in writing
signed by him or her and delivered or mailed to the Chairman, if any, the
President or the Secretary and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument.
(a) Any of the Trustees may be removed with or
without cause by the affirmative vote of the Holders of two-thirds (2/3) of the
Interests or (provided the aggregate number of Trustees, after such removal and
after giving effect to any appointment made to fill the vacancy created by such
removal, shall not be less than the number required by Section 2.1 hereof) with
cause, by the action of two-thirds (2/3) of the remaining Trustees. Removal
with cause shall include, but not be limited to, the removal of a Trustee due
to physical or mental incapacity.
(b) Upon the resignation or removal of a Trustee, or
his or her otherwise ceasing to be a Trustee, he or she shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the death of any Trustee or
upon removal or resignation due to any Trustee's incapacity to serve as
trustee, his or her legal representative shall execute and deliver on his or
her behalf such documents as the remaining Trustees shall require as provided
in the preceding sentence.
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2.4 Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the earliest to occur of
the following: the Trustee's attainment of age 72, death, resignation,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of the Trustee. A vacancy shall also occur in the event of
an increase in the number of trustees as provided in Section 2.1. No such
vacancy shall operate to annul this Declaration or to revoke any existing trust
created pursuant to the terms of this Declaration. In the case of a vacancy,
the Holders of a plurality of the Interests entitled to vote, acting at any
meeting of the Holders held in accordance with Article VIII hereof, or, to the
extent permitted by the 1940 Act, a majority vote of the Trustees continuing in
office acting by written instrument or instruments, may fill such vacancy, and
any Trustee so elected by the Trustees or the Holders shall hold office as
provided in this Declaration. There shall be no cumulative voting by the
Holders in the election of Trustees.
2.5 Meetings. Meetings of the Trustees shall be held
from time to time within or without the State of Delaware upon the call of the
Chairman, if any, the President, the Chief Operating Officer, the Secretary, an
Assistant Secretary or any two Trustees.
(a) Regular meetings of the Trustees may be held
without call or notice at a time and place fixed by the By-Laws or by
resolution of the Trustees. Notice of any other meeting shall be given not
later than 72 hours preceding the meeting by United States mail or by
electronic transmission to each Trustee at his business address as set forth in
the records of the Trust or otherwise given personally not less than 24 hours
before the meeting but may be waived in writing by any Trustee either before or
after such meeting. The attendance of a Trustee at a meeting shall constitute
a waiver of notice of such meeting except where a Trustee attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting has not been lawfully called or convened.
(b) A quorum for all meetings of the Trustees shall
be one-third of the total number of Trustees, but (except at such time as there
is only one Trustee) no less than two Trustees. Unless provided otherwise in
this Declaration, any action of the Trustees may be taken at a meeting by vote
of a majority of the Trustees present (a quorum being present) or without a
meeting by written consent of a majority of the Trustees, which written
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consent shall be filed with the minutes of proceedings of the Trustees or any
such committee. If there be less than a quorum present at any meeting of the
Trustees, a majority of those present may adjourn the meeting until a quorum
shall have been obtained.
(c) Any committee of the Trustees, including an
executive committee, if any, may act with or without a meeting. A quorum for
all meetings of any such committee shall be two or more of the members thereof,
unless the Board shall provide otherwise. Unless provided otherwise in this
Declaration, any action of any such committee may be taken at a meeting by vote
of a majority of the members present (a quorum being present) or without a
meeting by written consent of a majority of the members, which written consent
shall be filed with the minutes of proceedings of the Trustees or any such
committee.
(d) With respect to actions of the Trustees and any
committee of the Trustees, Trustees who are Interested Persons of the Trust or
are otherwise interested in any action to be taken may be counted for quorum
purposes under this Section 2.5 and shall be entitled to vote to the extent
permitted by the 1940 Act.
(e) All or any one or more Trustees may participate
in a meeting of the Trustees or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to such communications system shall constitute presence in
person at such meeting, unless the 1940 Act specifically requires the Trustees
to act "in person," in which case such term shall be construed consistent with
Commission or staff releases or interpretations.
2.6 Officers; Chairman of the Board. The Trustees shall,
from time to time, elect officers of the Trust, including a President, a
Secretary and a Treasurer. The Trustees shall elect or appoint a Trustee to
act as Chairman of the Board who shall preside at all meetings of the Trustees
and carry out such other duties as the Trustees shall designate. The position
of the Chairman of the Board shall be rotated among the Trustees, each of whom
shall act as such for a term of two years. The Trustees may elect or appoint
or authorize the President to appoint such other officers or agents with such
powers as the Trustees may deem to be advisable. The President, Secretary and
Treasurer
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may, but need not, be a Trustee. Except as set forth above, the Chairman of
the Board and such officers of the Trust shall serve in such capacity for such
time and with such authority as the Trustees may, in their discretion, so
designate or as provided by in the By-Laws.
2.7 By-Laws. The Trustees may adopt and, from time to
time, amend or repeal the By-Laws for the conduct of the business of the Trust
not inconsistent with this Declaration and such By-Laws are hereby incorporated
in this Declaration by reference thereto.
ARTICLE III
Powers of Trustees
3.1 General. The Trustees shall have exclusive and
absolute control over management of the business and affairs of the Trust, but
with such powers of delegation as may be permitted by this Declaration and the
DBTA. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business and affairs of the Trust. The enumeration
of any specific power herein shall not be construed as limiting the aforesaid
power. Such powers of the Trustee may be exercised without order of or
recourse to any court.
3.2 Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of United States and foreign
currencies and related instruments including forward contracts, and securities,
including common and preferred stock, warrants, bonds, debentures, time notes
and all other evidences of indebtedness, negotiable or non-negotiable
instruments, obligations, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements, convertible
securities, forward contracts, options, futures contracts, and other
securities, including, without limitation, those issued, guaranteed or
sponsored by any state, territory or possession of the United States and the
District of Columbia and their political subdivisions,
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agencies and instrumentalities, or by the United States Government, any foreign
government, or any agency, instrumentality or political subdivision of the
United States Government or any foreign government, or international
instrumentalities, or by any bank, savings institution, corporation or other
business entity organized under the laws of the United States or under foreign
laws; and to exercise any and all rights, powers and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more persons, firms,
associations, or corporations to exercise any of said rights, powers and
privileges in respect of any of said instruments; and the Trustees shall be
deemed to have the foregoing powers with respect to any additional securities
in which the Trustees may determine to invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees
be limited by any law limiting the investments which may be made by
fiduciaries.
3.3 Legal Title. Legal title to all the Trust Property
shall be vested in the Trust as a separate legal entity under the DBTA, except
that the Trustees shall have the power to cause legal title to any Trust
Property to be held by or in the name of one or more of the Trustees or in the
name of any other Person on behalf of the Trust on such terms as the Trustees
may determine.
In the event that title to any part of the Trust Property is
vested in one or more Trustees, the right, title and interest of the Trustees
in the Trust Property shall vest automatically in each person who may hereafter
become a Trustee upon his or her due election and qualification. Upon the
resignation, removal or death of a Trustee he or she shall automatically cease
to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. To the extent permitted by law, such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4 Sale of Interests. Subject to the more detailed
provisions set forth in Article VII, the Trustees shall have the power to
permit persons to purchase Interests
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and to add or reduce, in whole or in part, their Interest in the Trust.
3.5 Borrow Money. The Trustees shall have power to
borrow money or otherwise obtain credit and to secure the same by mortgaging,
pledging or otherwise subjecting as security the assets of the Trust, including
the lending of portfolio securities, and to endorse, guarantee or undertake the
performance of any obligation, contract or engagement of any other person,
firm, association or corporation.
3.6 Delegation; Committees. The Trustees shall have the
power, consistent with their continuing exclusive authority over the management
of the Trust and the Trust Property, to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments, either in the name of the Trust
or the names of the Trustees or otherwise, as the Trustees may deem expedient.
3.7 Collection and Payment. The Trustees shall have
power to collect all property due to the Trust; to pay all claims, including
taxes, against the Trust Property; to prosecute, defend, compromise or abandon
any claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owned to the
Trust; and to enter into releases, agreements and other instruments.
3.8 Expenses. The Trustees shall have the power to incur
and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of this Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and
Trustees. The Trustees may pay themselves such compensation for special
services, including legal and brokerage services, as they in good faith may
deem reasonable (subject to any limitations in the 1940 Act), and reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust. There
shall be no retirement compensation plan for Trustees; provided, however, that
the Trustees may adopt a deferred compensation plan consistent with industry
and regulatory standards.
3.9 Miscellaneous Powers. The Trustees shall have the
power to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust and terminate such
employees or
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contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c)
purchase, and pay for out of Trust Property, insurance policies (including, but
not limited to, fidelity bonding and errors and omission policies) insuring the
Investment Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents, or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such person in such capacity, whether or not the Trust would
have the power to indemnify such Person against liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (e) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, distributor, Holders,
Trustees, officers, employees, agents or independent contractors of the Trust,
to such extent as the Trustees shall determine; (f) guarantee indebtedness or
contractual obligations of others; (g) determine and change the Fiscal Year of
the Trust and the method by which its accounts shall be kept; and (h) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
3.10 Further Powers. The Trustees shall have power to
conduct the business of the Trust and carry on its operations in any and all of
its branches and maintain offices, whether within or without the State of
Delaware, in any and all states of the United States of America, in the
District of Columbia, in any foreign countries, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign countries, and
to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive and shall be binding upon the Trust and the Holders, past,
present and future. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The
Trustees shall not be required to obtain any court order to deal with Trust
Property.
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ARTICLE IV
Investment Advisory, Administrative Services
and Placement Agent Arrangements
4.1 Investment Advisory and Other Arrangements. The
Trustees may in their discretion, from time to time, enter into contracts or
agreements for investment advisory services, administrative services (including
transfer and dividend disbursing agency services), distribution services,
fiduciary (including custodian) services, placement agent services, Holder
servicing and distribution services, or other services, whereby the other party
to such contract or agreement shall undertake to furnish the Trustees such
services as the Trustees shall, from time to time, consider desirable and all
upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any other provisions of this Declaration to the
contrary, the Trustees may authorize any Investment Adviser (subject to such
general or specific instructions as the Trustees may, from time to time, adopt)
to effect purchases, sales, loans or exchanges of Trust Property on behalf of
the Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of any such
Investment Adviser (all without further action by the Trustees). Any such
purchases, sales, loans and exchanges shall be binding upon the Trust.
4.2 Parties to Contract. Any contract or agreement of
the character described in Section 4.1 of this Article IV or in the By-Laws of
the Trust may be entered into with any Person, although one or more of the
Trustees or officers of the Trust or any Holder may be an officer, director,
trustee, shareholder, or member of such other party to the contract or
agreement, and no such contract or agreement shall be invalidated or rendered
voidable by reason of the existence of any such relationship, nor shall any
person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of such
contract or agreement or accountable for any profit realized directly or
indirectly therefrom, provided that the contract or agreement when entered into
was reasonable and fair and not inconsistent with the provisions of this
Article IV or the By-Laws. Any Trustee or officer of the Trust or any Holder
may be the other party to contracts or agreements entered into pursuant to
Section 4.1 hereof or the By-Laws of the Trust, and any Trustee or officer of
the Trust or any Holder may be
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financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts or agreements mentioned in this Section 4.2.
ARTICLE V
Limitations of Liability
5.1 No Personal Liability of Trustees Officers,
Employees, Agents. No Trustee, officer, employee or agent of the Trust when
acting in such capacity shall be subject to any personal liability whatsoever,
in his or her individual capacity, to any Person, other than the Trust or its
Holders, in connection with Trust Property or the affairs of the Trust; and all
such Persons shall look solely to the Trust Property for satisfaction of claims
of any nature against a Trustee, officer, employee or agent of the Trust
arising in connection with the affairs of the Trust. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, Holders of
Interests therein, or to any Trustee, officer, employee, or agent thereof for
any action or failure to act (including, without limitation, the failure to
compel in any way any former or acting Trustee to redress any breach of trust)
except for his or her own bad faith, willful misfeasance, gross negligence or
reckless disregard of his or her duties.
5.2 Indemnification of Trustees, Officers, Employees
Agents. The Trust shall indemnify each of its Trustees, officers, employees,
and agents (including Persons who serve at its request as directors, officers
or trustees of another organization in which it has any interest, as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as fines
and penalties, and as counsel fees) reasonably incurred by him or her in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he or she may be involved or
with which he or she may be threatened, while in office or thereafter, by
reason of his or her being or having been such a Trustee, officer, employee or
agent, except with respect to any matter as to which he or she shall have been
adjudicated to have acted in bad faith, willful misfeasance, gross negligence
or reckless disregard of his or her duties; provided, however, that as to any
matter disposed of by a compromise payment by such Person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other
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expenses shall be provided unless there has been a determination that such
Person did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office
by the court or other body approving the settlement or other disposition or by
a reasonable determination, based upon review of readily available facts (as
opposed to a full trial-type inquiry), that he or she did not engage in such
conduct by a reasonable determination, based upon a review of the facts, that
such Person was not liable by reason of such conduct, by (a) the vote of a
majority of a quorum of Trustees who are neither "interested persons" of the
Trust as defined in Section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) a written opinion from independent legal counsel approved by
the Trustees. The rights accruing to any Person under these provisions shall
not exclude any other right to which he or she may be lawfully entitled;
provided that no Person may satisfy any right of indemnity or reimbursement
granted herein or in Section 5.1 or to which he or she may be otherwise
entitled except out of the Trust Property. The Trustees may make advance
payments in connection with indemnification under this Section 5.2, provided
that the indemnified Person shall have given a written undertaking to reimburse
the Trust in the event it is subsequently determined that he or she is not
entitled to such indemnification.
5.3 Liability of Holders; Indemnification. The Trust
shall indemnify and hold each Holder harmless from and against any claim or
liability to which such Holder may become subject solely by reason of his or
her being or having been a Holder and not because of such Holder's acts or
omissions or for some other reason, and shall reimburse such Holder for all
legal and other expenses reasonably incurred by him or her in connection with
any such claim or liability (upon proper and timely request by the Holder);
provided, however, that no Holder shall be entitled to indemnification by any
series established in accordance with Section 6.2 unless such Holder is a
Holder of Interests of such series. The rights accruing to a Holder under this
Section 5.3 shall not exclude any other right to which such Holder may be
lawfully entitled, nor shall anything herein contained restrict the right of
the Trust to indemnify or reimburse a Holder in any appropriate situation even
though not specifically provided herein.
5.4 No Bond Required of Trustees. No Trustee shall, as
such, be obligated to give any bond or surety or
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other security for the performance of any of his or her duties hereunder.
5.5 No Duty of Investigation; Notice in Trust
Instruments, Etc. No purchaser, lender, or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate or other interest or undertaking of the
Trust, and every other act or thing whatsoever executed in connection with the
Trust, shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees or
agents of the Trust. Every written obligation, contract, instrument,
certificate or other interest or undertaking of the Trust made by the Trustees
or by any officer, employee or agent of the Trust, in his or her capacity as
such, shall contain an appropriate recital to the effect that the Trustee,
officer, employee and agent of the Trust shall not personally be bound by or
liable thereunder, nor shall resort be had to their private property or the
private property of the Holders for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust
Property, Holders, Trustees, officers, employees and agents in such amount as
the Trustees shall deem advisable.
5.6 Reliance on Experts, Etc. Each Trustee and officer
or employee of the Trust shall, in the performance of his or her duties, be
fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Trust, upon an opinion of counsel, or upon reports made
to the Trust by any of its officers or employees or by any Investment Adviser,
Administrator, accountant, appraiser or other experts or consultants selected
with reasonable care by the Trustees, officers or employees of the Trust,
regardless of whether such counsel or expert may also be a Trustee.
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5.7 Assent To Declaration. Every Holder, by virtue of
having become a Holder in accordance with the terms of this Declaration, shall
be held to have expressly assented and agreed to the terms hereof and to have
become a party hereto.
ARTICLE VI
Interests in the Trust
6.1 General Characteristics. (a) The Trustees shall have
the power and authority, without Holder approval, to issue Interests in one or
more series from time to time as they deem necessary or desirable. Each series
shall be separate from all other series in respect of the assets and
liabilities allocated to that series and shall represent a separate investment
portfolio of the Trust. The Trustees shall have exclusive power, without
Holder approval, to establish and designate such separate and distinct series,
as set forth in Section 6.2, and to fix and determine the relative rights and
preferences as between the Interests of the separate series as to right of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, conversion rights, and conditions under which the series
shall have separate voting rights or no voting rights.
(b) The Trustees may, without Holder approval,
divide Interests of any series into two or more classes, Interests of each such
class having such preferences and special or relative rights and privileges
(including conversion rights, if any) as the Trustees may determine as provided
in Section 6.3. The fact that a series shall have been initially established
and designated without any specific establishment or designation of classes,
shall not limit the authority of the Trustees to divide a series and establish
and designate separate classes thereof.
(c) The number of Interests authorized shall be
unlimited, and the Interests so authorized may be represented in part by
fractional Interests. From time to time, the Trustees may divide or combine
the Interests of any series or class into a greater or lesser number without
thereby changing the proportionate beneficial interests in the series or class.
The Trustees may issue Interests of any series or class thereof for such
consideration and on such terms as they may determine (or for no consideration
if
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pursuant to an Interest dividend or split-up), all without action or approval
of the Holders. All Interests when so issued on the terms determined by the
Trustees shall be fully paid and non-assessable. The Trustees may classify or
reclassify any unissued Interests or any Interests previously issued and
reacquired of any series or class thereof into one or more series or classes
thereof that may be established and designated from time to time. The Trustees
may hold as treasury Interests, reissue for such consideration and on such
terms as they may determine, or cancel, at their discretion from time to time,
any Interests of any series or class thereof reacquired by the Trust.
6.2 Establishment of Series of Interests. (a) Without
limiting the authority of the Trustees set forth in Section 6.2(b) to establish
and designate any further series, the Trustees hereby establish and designate
three series, as follows:
Time Horizon Portfolio 1
Time Horizon Portfolio 2
Time Horizon Portfolio 3
The provisions of this Article VI shall be applicable to the
above designated series and any further series that may from time to time be
established and designated by the Trustees as provided in Section 6.2(b).
(b) The establishment and designation of any
series of Interests other than those set forth above shall be effective upon
the execution by a majority of the then Trustees of an instrument setting forth
such establishment and designation and the relative rights and preferences of
such series, or as otherwise provided in such instrument. At any time that
there are no Interests outstanding of any particular series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
(c) Section 9.2 of this Agreement shall apply
also with respect to each such series as if such series were a separate trust.
6.3 Establishment of Classes. (a) Without limiting the
authority of the Trustees set forth in section 6.3(b) to establish and
designate any further classes, the
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Trustees hereby establish and designate two classes of Interests of each series
of the Trust: Class A Interests and Class B Interests. The Interests of each
such class shall be identical in all respects except as follows: (1) each
class shall bear the distribution expenses allocable to sales of Interests of
such class, as determined by the Trustees; (2) each class shall bear other
expenses of the series that are related to services provided only to the
holders of Interests of such class, as determined by the Trustees; (3) Class B
Interests of a series shall automatically convert to Class A Interests of such
series at such time as the Trustees specify; (4) Class A and Class B Interests
of a series may be exchanged for Class A and Class B Interests, respectively,
of any other series, on such terms as are determined by the Trustees; and (5)
the Holders of Class B Interests of a series shall have exclusive voting rights
with respect to certain matters as set forth in Section 6.7. Determinations of
such differences between classes shall be set forth in a written plan adopted
by a majority of the Trustees.
(b) The division of any series into two or more
classes and the establishment and designation of such classes, other than as
set forth above, shall be effective upon the execution by a majority of the
then Trustees of an Instrument setting forth such division, and the
establishment, designation, and relative rights and preferences of such
classes, or as otherwise provided in such instrument. The relative rights and
preferences of the classes of any series may differ in such respects as the
Trustees may determine to be appropriate, provided that such differences are
set forth in the aforementioned instrument. At any time that there are no
Interests outstanding of any particular class previously established and
designated, the Trustees may by an instrument executed by a majority of their
number abolish that class and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an amendment
to this Declaration.
6.4 Assets of Series. All consideration received by the
Trust for the issue or sale of Interests of a particular series together with
all Trust Property in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that series for all
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purposes, subject only to the rights of creditors of such series and except as
may otherwise be required by applicable tax laws, and shall be so recorded upon
the books of account of the Trust. Separate and distinct records shall be
maintained for each series and the assets associated with a series shall be
held and accounted for separately from the other assets of the Trust, or any
other series. In the event that there is any Trust Property, or any income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series established and designated
from time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the Holders of all Interests for all
purposes.
6.5 Liabilities of Series. (a) The Trust Property
belonging to each particular series shall be charged with the liabilities of
the Trust in respect of that series and all expenses, costs, charges and
reserves attributable to that series, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular series shall be allocated and charged by the
Trustees to and among any one or more of the series established and designated
from time to time in such manner and on such basis as the Trustees in their
sole discretion deem fair and equitable. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be conclusive and
binding upon the Holders of all Interests for all purposes. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital,
and each such determination and allocation shall be conclusive and binding upon
the Holders.
(b) Without limitation of the foregoing
provisions of this Section, but subject to the right of the Trustees in their
discretion to allocate general liabilities, expenses, costs, charges or
reserves as herein provided, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series shall be enforceable against the assets of such series only, and not
against the assets of any other series. Notice of this limitation on
interseries liabilities shall be set forth in the certificate of trust of the
Trust (whether originally or by amendment) as filed or to be filed in the
Office of the Secretary of State of
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the State of Delaware pursuant to the DBTA, and upon the giving of such notice
in the certificate of trust, the statutory provisions of Section 3804 of the
DBTA relating to limitations on interseries liabilities (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each series. Every note, bond,
contract or other undertaking issued by or on behalf of a particular series
shall include a recitation limiting the obligation represented thereby to that
series and its assets.
6.6 Dividends and Distributions. (a) Dividends and
distributions on Interests of a particular series or any class thereof may be
paid with such frequency as the Trustees may determine, which may be daily or
otherwise, pursuant to a standing resolution or resolution adopted only once or
with such frequency as the Trustees may determine, to the Holders of Interests
in that series or class, from such of the income and capital gains, accrued or
realized, from the Trust Property belonging to that series, or in the case of a
class, belonging to that series and allocable to that class, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Interests in a particular
series or class thereof shall be distributed pro rata to the Holders of
Interests in that series or class in proportion to the total outstanding
Interests in that series or class held by such Holders at the date and time of
record established for the payment of such dividends or distribution, except to
the extent otherwise required or permitted by the preferences and special or
relative rights and privileges of any series or class. Such dividends and
distributions may be made in cash or Interests of that series or class or a
combination thereof as determined by the Trustees or pursuant to any program
that the Trustees may have in effect at the time for the election by each
Holder of the mode of the making of such dividend or distribution to that
Holder. Any such dividend or distribution paid in Interests will be paid at
the net asset value thereof as determined in accordance with Section 7.4.
(b) The Interests in a series or a class of the
Trust shall represent beneficial interests in the Trust Property belonging to
such series or in the case of a class, belonging to such series and allocable
to such class. Each Holder of Interests in a series or a class shall be
entitled to receive its pro rata share of distributions of income and capital
gains made with respect to such series or such class. Upon reduction or
withdrawal of its Interests or
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indemnification for liabilities incurred by reason of being or having been a
Holder of Interests in a series or a class, such Holder shall be paid solely
out of the funds and property of such series or in the case of a class, the
funds and property of such series and allocable to such class of the Trust.
Upon liquidation or termination of a series or class of the Trust, Holders of
Interests in such series or class shall be entitled to receive a pro rata share
of the Trust Property belonging to such series or in the case of a class,
belong to such series and allocable to such class.
6.7 Voting Rights. Notwithstanding any other provision
hereof, on each matter submitted to a vote of the Holders, each Holder shall be
entitled to one vote for each whole Interest standing in his name on the books
of the Trust, and each fractional Interest shall be entitled to a proportionate
fractional vote, irrespective of the series thereof or class thereof and all
Interests of all series and classes thereof shall vote together as a single
class; provided, however, that as to any matter (i) with respect to which a
separate vote of one or more series or classes thereof is permitted or required
by the 1940 Act or the provisions of the instrument establishing and
designating the series or class, such requirements as to a separate vote by
such series or class thereof shall apply in lieu of all Interests of all series
and classes thereof voting together; and (ii) as to any matter which affects
only the interests of one or more particular series or classes thereof, only
the Holders of the one or more affected series or class shall be entitled to
vote, and each such series or class shall vote as a separate class.
6.8 Record Dates. The Trustees may from time to time
close the transfer books or establish record dates and times for the purposes
of determining the Holders entitled to be treated as such, to the extent
provided or referred to in Section 8.6.
6.9 Transfer. All Interests of each particular series or
class thereof shall be transferable, but transfers of Interests of a particular
series or class thereof will be recorded on the Interest transfer records of
the Trust applicable to that series or class only at such times as Holders
shall have the right to require the Trust to redeem Interests of that series or
class and at such other times as may be permitted by the Trustees.
6.10 Equality. Except as provided herein or in the
instrument designating and establishing any class or
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series, all Interests of each particular series or class thereof shall
represent an equal proportionate interest in the assets belonging to that
series, or in the case of a class, belonging to that series and allocable to
that class, subject to the liabilities belonging to that series, and each
Interest of any particular series or classes shall be equal to each other
Interest of that series or class; but the provisions of this sentence shall not
restrict any distinctions permissible under Section 6.7 that may exist with
respect to dividends and distributions on Interests of the same series or
class. The Trustees may from time to time divide or combine the Interests of
any particular series or class into a greater or lesser number of Interests of
that series or class without thereby changing the proportionate beneficial
interest in the assets belonging to that series or class or in any way
affecting the rights or Interests of any other series or class.
6.11 Fractions. Any fractional Interest of any series or
class, if any such fractional Interest is outstanding, shall carry
proportionately all the rights and obligations of a whole Interest of that
series or class, including rights and obligations with respect to voting,
receipt of dividends and distributions, redemption of Interests, and
liquidation of the Trust.
6.12 Class Differences. Subject to Section 6.3, the
relative rights and preferences of the classes of any series may differ in such
other respects as the Trustees may determine to be appropriate in their sole
discretion, provided that such differences are set forth in the instrument
establishing and designating such classes and executed by a majority of the
Trustees.
6.13 Conversion of Interests. Subject to compliance with
the requirements of the 1940 Act, the Trustees shall have the authority to
provide that Holders of Interests of any series shall have the right to convert
said Interests into one or more other series in accordance with such
requirements and procedures as may be established by the Trustees. The
Trustees shall also have the authority to provide that Holders of Interests of
any class of a particular series shall have the right to convert said Interests
into one or more other classes of that particular series or any other series in
accordance with such requirements and procedures as may be established by the
Trustees.
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6.14 Investments in the Trust. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any distributor,
principal underwriter, custodian, transfer agent or other person to accept
orders for the purchase of Interests that conform to such authorized terms and
to reject any purchase orders for Interests whether or not conforming to such
authorized terms.
6.15 Trustees and Officers as Holders. Any Trustee,
officer or other agent of the Trust, and any organization in which any such
person is interested, may acquire, own, hold and dispose of Interests of the
Trust to the same extent as if such person were not a Trustee, officer or other
agent of the Trust; and the Trust may issue and sell or cause to be issued and
sold and may purchase Interests from any such person or any such organization
subject only to the general limitations, restrictions or other provisions
applicable to the sale or purchase of Interests generally.
6.16 No Pre-emptive Rights; Derivative Suits. Holders
shall have no pre-emptive or other right to subscribe to any additional
Interests or other securities issued by the Trust. No action may be brought by
a Holder on behalf of the Trust unless Holders owning no less than 10% of the
then outstanding Interests, or series or class thereof, join in the bringing of
such action. A Holder of Interests in a particular series or a particular
class of the Trust shall not be entitled to participate in a derivative or
class action lawsuit on behalf of any other series or any other class or on
behalf of the Holders of Interests in any other series or any other class of
the Trust.
6.17 No Appraisal Rights. Holders shall have no right to
demand payment for their Interests or to any other rights of dissenting Holders
in the event the Trust participates in any transaction which would give rise to
appraisal or dissenters' rights by a stockholder of a corporation organized
under the General Corporation Law of Delaware, or otherwise.
6.18 Status of Interests and Limitation of Personal
Liability. Interests shall be deemed to be personal property giving only the
rights provided in this Amended and Restated Declaration of Trust. Every
Holder by
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virtue of acquiring Interests shall be held to have expressly assented and
agreed to the terms hereof and to be bound hereby. The death, incapacity,
dissolution, termination or bankruptcy of a Holder during the continuance of
the Trust shall not operate to dissolve or terminate the Trust or any series
thereof nor entitle the representative of such Holder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
shall entitle the representative of such Holder only to the rights of such
Holder under this Trust. Ownership of Interests shall not entitle the Holder
to any title in or to the whole or any part of the Trust Property or right to
call for a partition or division of the same or for an accounting, nor shall
the ownership of Interests constitute the Holders partners. Neither the Trust
nor the Trustees, nor any officer, employee or agent of the Trust, shall have
any power to bind personally any Holder, nor except as specifically provided
herein to call upon any Holder for the payment of any sum of money or
assessment whatsoever other than such as the Holder may at any time personally
agree to pay.
ARTICLE VII
Purchases and Redemptions
7.1 Purchases. The Trustees, in their discretion, may,
from time to time, without a vote of the Holders, permit the purchase of
Interests by such party or parties (or increase in the Interests of a Holder)
and for such type of consideration, including, without limitation, cash or
property, at such time or times (including, without limitation, each business
day), and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including, without limitation, the acquisition of assets
subject to, and in connection with the assumption of, liabilities) and
businesses.
7.2 Redemption by Holder. (a) Each Holder of Interests
of the Trust or any series or class thereof, shall have the right at such times
as may be permitted by the Trust to require the Trust to redeem all or any part
of his or her Interests of the Trust, or series or class thereof, at a
redemption price equal to the net asset value per Interest of the Trust or
series or class thereof, next determined in accordance with Section 7.4 hereof
after the Interests are properly tendered for redemption, subject to any
contingent deferred sales charge or redemption charge in
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effect at the time of redemption. Payment of the redemption price shall be in
cash; provided, however, that if the Trustees determine, which determination
shall be conclusive, that conditions exist which make payment wholly in cash
unwise or undesirable, the Trust may, subject to the requirements of the 1940
Act, make payment wholly or partly in securities or other assets belonging to
the Trust or series or class thereof of which the Interests being redeemed are
part at the value of such securities or assets used in such determination of
net asset value.
(b) Notwithstanding the foregoing, the Trust may
postpone payment of the redemption price and may suspend the right of the
Holders of Interests of the Trust, or series or class thereof, to require the
Trust to redeem Interests of the Trust, or of any series or class thereof,
during any period or at any time when and to the extent permissible under the
1940 Act.
7.3 Redemption by Trust. Each Interest of the Trust, or
series or class thereof, that has been established and designated is subject to
redemption by the Trust at the redemption price which would be applicable if
such Interest was then being redeemed by the Holder pursuant to Section 7.2
hereof: (i) at any time, if the Trustees determine in their sole discretion and
by majority vote that it is in the best interests of the Trust, or any series
or class thereof, to abolish any series or class of the Trust, or (ii) upon
such other conditions as may from time to time be determined by the Trustees
and set forth in the then current Prospectus of the Trust with respect to
maintenance of Holder accounts of a minimum amount. Upon such redemption the
Holders of the Interests so redeemed shall have no further right with respect
thereto other than to receive payment of such redemption price.
7.4 Net Asset Value. (a) The net asset value per
Interest of any series shall be (i) in the case of a series whose Interests are
not divided into classes, the quotient obtained by dividing the value of the
net assets of that series (being the value of the assets belonging to that
series less the liabilities belonging to that series) by the total number of
Interests of that series outstanding, and (ii) in the case of a class of
Interests of a series whose
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Interests are divided into classes, the quotient obtained by dividing the value
of the net assets of that series allocable to such class (being the value of
the assets belonging to that series allocable to such class less the
liabilities allocable to such class) by the total number of Interests of such
class outstanding; all determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time.
(b) The Trustees may determine to maintain the
net asset value per Interest of any series or any class at a designated
constant dollar amount and in connection therewith may adopt procedures
consistent with the 1940 Act for continuing declarations of income attributable
to that series or that class as dividends payable in additional Interests of
that series at the designated constant dollar amount and for the handling of
any losses attributable to that series or that class. Such procedures may
provide that in the event of any loss each Holder shall be deemed to have
contributed to the capital of the Trust attributable to that series his or her
pro rata portion of the total number of Interests required to be cancelled in
order to permit the net asset value per Interest of that series or class to be
maintained, after reflecting such loss, at the designated constant dollar
amount. Each Holder of the Trust shall be deemed to have agreed, by his or her
investment in any series or class with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
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ARTICLE VIII
Holders
8.1 Rights of Holders. The right to conduct any business
hereinbefore described is vested exclusively in the Trustees, and the Holders
shall have no rights under this Declaration or with respect to the Trust
Property other than the beneficial interest conferred by their Interests and
the voting rights accorded to them under this Declaration.
8.2 Register of Interests. A register shall be kept by
the Trust under the direction of the Trustees which shall contain the names and
addresses of the Holders and Interests held by each Holder. Each such register
shall be conclusive as to the identity of the Holders of the Trust and the
Persons who shall be entitled to payments of distributions or otherwise to
exercise or enjoy the rights of Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the
Trustees as shall keep the said register for entry thereon. No certificates
certifying the ownership of interests need be issued except the Trustees may
otherwise determine from time to time.
8.3 Notices. Any and all notices to which any Holder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if presented personally to a Holder, left at his or her
residence or usual place of business or sent via United States mail or by
electronic transmission to a Holder at his or her address as it is registered
with the Trust, as provided in Section 8.2. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
Holder at his or her address as it is registered with the Trust, as provided in
Section 8.2, with postage thereon prepaid.
8.4 Meetings of Holders. Meetings of the Holders may be
called at any time by a majority of the Trustees and shall be called by any
Trustee upon written request of Holders holding, in the aggregate, not less
than 10% of the Interests (or series or class thereof), such request specifying
the purpose or purposes for which such meeting is to be called. Any such
meeting shall be held within or without the State of Delaware on such day and
at such time as the Trustees shall designate. Holders of one-third of the
Interests in the Trust, present in person or by proxy,
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shall constitute a quorum for the transaction of any business, except as may
otherwise be required by the 1940 Act or other applicable law or by this
Declaration or the By-Laws of the Trust. If a quorum is present at a meeting,
an affirmative vote by the Holders present, in person or by proxy, holding more
than 50% of the total Interests (or series or class thereof) of the Holders
present, either in person or by proxy, at such meeting constitutes the action
of the Holders, unless the 1940 Act, other applicable law, this Declaration or
the By-Laws of the Trust requires a greater number of affirmative votes.
Notwithstanding the foregoing, the affirmative vote by the Holders present, in
person or by proxy, holding less than 50% of the Interests (or class or series
thereof) of the Holders present, in person or by proxy, at such meeting shall
be sufficient for adjournments. Any meeting of Holders, whether or not a
quorum is present, may be adjourned for any lawful purpose provided that no
meeting shall be adjourned for more than six months beyond the originally
scheduled meeting date. Any adjoined session or sessions may be held, within a
reasonable time after the date set for the original meeting without the
necessity of further notice.
8.5 Notice of Meetings. Written or printed notice of all
meetings of the Holders, stating the time, place and purposes of the meeting,
shall be given as provided in Section 8.3 for the giving of notices. At any
such meeting, any business properly before the meeting may be considered
whether or not stated in the notice of the meeting. Any adjourned meeting held
as provided in Section 8.4 shall not require the giving of additional notice.
8.6 Record Date. For the purpose of determining the Holders
who are entitled to notice of any meeting and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time fix a date, not more than 90 calendar days prior
to the date of any meeting of the Holders or payment of distributions or other
action, as the case may be, as a record date for the determination of the
persons to be treated as Holders of record for such purposes, and any Holder
who was a Holder at the date and time so fixed shall be entitled to vote at
such meeting or to be treated as a Holder of record for purposes of such other
action, even though he or she has since that date and time disposed of his or
her Interests, and no Holder becoming such after that date and time shall be so
entitled to vote at such meeting or to be treated as a Holder of record for
purposes of such other action. If the Trustees shall divide the Interests
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into two or more series in accordance with Section 6.2 herein, nothing in this
Section shall be construed as precluding the Trustees from setting different
record dates for different series and if the Trustees shall divide any series
into two or more classes in accordance with Section 6.3 herein, nothing in this
Section 8.5 shall be construed as precluding the Trustees from setting
different record dates for different classes.
8.7 Proxies, Etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for verification prior to the time at which such vote shall be
taken.
(a) Pursuant to a resolution of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or one
or more of the officers of the Trust. Only Holders of record shall be entitled
to vote. Each Holder shall be entitled to a vote proportionate to its Interest
in the Trust.
(b) When Interests are held jointly by several
persons, any one of them may vote at any meeting in person or by proxy in
respect of such Interest, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Interest.
(c) A proxy purporting to be executed by or on
behalf of a Holder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
If the Holder is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person regarding the charge
or management of its Interest, he or she may vote by his or her guardian or
such other person appointed or having such control, and such vote may be given
in person or by proxy.
8.8 Reports. The Trustees shall cause to be prepared, at
least annually, a report of operations containing a balance sheet and statement
of income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent
public accountant on such financial
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statements. The Trustees shall, in addition, furnish to the Holders at least
semi-annually interim reports containing an unaudited balance sheet as of the
end of such period and an unaudited statement of income and surplus for the
period from the beginning of the current Fiscal Year to the end of such period.
8.9 Inspection of Records. The records of the Trust shall be
open to inspection by Holders during normal business hours and for any purpose
not harmful to the Trust.
8.10 Voting Powers. (a) The Holders shall have power to vote
only (i) for the election of Trustees as contemplated by Section 2.2 hereof,
(ii) with respect to any investment advisory contract as contemplated by
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to amendments to the Amended and
Restated Declaration of Trust as provided in Section 9.3 hereof, (v) with
respect to any merger, consolidation or sale of assets as provided in Section
9.4 hereof, (vi) with respect to incorporation of the Trust to the extent and
as provided in Section 9.5 hereof, (vii) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, DBTA, or any
other applicable law, the Declaration, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state, or as and
when the Trustees may consider necessary or desirable.
(b) Each Holder shall be entitled to vote based
on the ratio its Interest bears to the Interests of all Holders entitled to
vote. Until Interests are issued, the Trustees may exercise all rights of
Holders and may take any action required by law, the Declaration or the By-Laws
to be taken by Holders. The By-Laws may include further provisions for
Holders' votes and meetings and related matters not inconsistent with this
Declaration.
8.11 Holder Action by Written Consent. Any action which
may be taken by Holders may be taken without notice and without a meeting if
Holders holding more than 50% of the total Interests entitled to vote (or such
larger proportion thereof as shall be required by any express provision of this
Declaration) shall consent to the action in writing and the written consents
shall be filed with the records of the meetings of Holders. Such consents
shall be treated for all purposes as votes taken at a meeting of Holders.
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8.12 Holder Communications. (a) Whenever ten or more
Holders who have been such for at least six months preceding the date of
application, and who hold in the aggregate at least 1% of the total Interests,
shall apply to the Trustees in writing, stating that they wish to communicate
with other Holders with a view to obtaining signatures to a request for a
meeting of Holders and accompanied by a form of communication and request which
they wish to transmit, the Trustees shall within five business days after
receipt of such application either (1) afford to such applicants access to a
list of the names and addresses of all Holders as recorded on the books of the
Trust; or (2) inform such applicants as to the approximate number of Holders,
and the approximate cost of transmitting to them the proposed communication and
form of request.
(b) If the Trustees elect to follow the course
specified in clause (2) above, the Trustees, upon the written request of such
applicants, accompanied by a tender of the material to be transmitted and of
the reasonable expenses of transmission, shall, with reasonable promptness,
transmit, by United States mail or by electronic transmission, such material to
all Holders at their addresses as recorded on the books, unless within five
business days after such tender the Trustees shall transmit, by United States
mail or by electronic transmission, to such applicants and file with the
Commission, together with a copy of the material to be transmitted, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion. The Trustees shall thereafter comply with any order
entered by the Commission and the requirements of the 1940 Act and the
Securities Exchange Act of 1934.
ARTICLE IX
Duration; Termination of Trust;
Amendment; Mergers: Etc.
9.1 Duration. Subject to possible termination in
accordance with the provisions of Section 9.2, the Trust created hereby shall
continue perpetually pursuant to Section 3808 of DBTA.
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9.2 Termination of Trust.
(a) The Trust may be terminated (i) by the
affirmative vote of the Holders of not less than two-thirds of the Interests in
the Trust at any meeting of the Holders, or (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
Holders of not less than two-thirds of such Interests, or (iii) by the Trustees
by written notice to the Holders. Upon any such termination,
(i) The Trust shall carry on no business
except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up
the affairs of the Trust and all of the powers of the Trustees under
this Declaration shall continue until the affairs of the Trust shall
have been wound up, including the power to fulfill or discharge the
contracts of the Trust, collect its assets, sell, convey, assign,
exchange, or otherwise dispose of all or all or any part of the
remaining Trust Property to one or more Persons at public or private
sale for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange, or
other disposition of all or substantially all of the Trust Property
shall require approval of the principal terms of the transaction and
the nature and amount of the consideration by the Holders by a
Majority Interests Vote.
(iii) After paying or adequately providing for
the payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary for their
protection, the Trustees may distribute the remaining Trust Property,
in cash or in kind or partly each, among the Holders according to
their respective rights.
(b) Upon termination of the Trust and distribution
to the Holders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination and file a certificate of cancellation in accordance
with Section 3810 of the DBTA. Upon termination
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of the Trust, the Trustees shall thereon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all Holders
shall thereupon cease.
9.3 Amendment Procedure.
(a) All rights granted to the Holders under this
Declaration of Trust are granted subject to the reservation of the right of the
Trustees to amend this Declaration of Trust as herein provided, except as set
forth herein to the contrary. Subject to the foregoing, the provisions of this
Declaration of Trust (whether or not related to the rights of Holders) may be
amended at any time, so long as such amendment is not in contravention of
applicable law, including the 1940 Act, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of the Trust pursuant to the
vote of a majority of such Trustees). Any such amendment shall be effective as
provided in the instrument containing the terms of such amendment or, if there
is no provision therein with respect to effectiveness, upon the execution of
such instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer of the Trust to the effect that such amendment
has been duly adopted.
(b) No amendment may be made, under Section 9.3(a)
above, which would change any rights with respect to any Interest in the Trust
by reducing the amount payable thereon upon liquidation of the Trust, by
repealing the limitations on personal liability of any Holder or Trustee, or by
diminishing or eliminating any voting rights pertaining thereto, except with a
Majority Interests Vote.
(c) A certification signed by a majority of the
Trustees setting forth an amendment and reciting that it was duly adopted by
the Holders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
(d) Notwithstanding any other provision hereof,
until such time as Interests are first sold, this Declaration may be terminated
or amended in any respect by the affirmative vote of a majority of the Trustees
or by an instrument signed by a majority of the Trustees.
9.4 Merger, Consolidation and Sale of Assets. The Trust
may merge or consolidate with any other
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corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of its property, including its good will,
upon such terms and conditions and for such consideration when and as
authorized by no less than a majority of the Trustees and by a Majority
Interests Vote of the Trust or by an instrument or instruments in writing
without a meeting, consented to by the Holders of not less than 50% of the
total Interests of the Trust and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to the statutes of the State of Delaware. In accordance with Section
3815(f) of DBTA, an agreement of merger or consolidation may effect any
amendment to the Declaration or By-Laws or effect the adoption of a new
declaration of trust or by-laws of the Trust if the Trust is the surviving or
resulting business trust. A certificate of merger or consolidation of the
Trust shall be signed by a majority of the Trustees.
9.5 Incorporation. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust,
partnership, association or other organization to take over all of the Trust
Property, or series thereof, or to carry on any business in which the Trust
shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust Property, or series thereof, to any such corporation, trust,
association or organization in exchange for the equity interests thereof or
otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust,
association or organization in which the Trust holds or is about to acquire
equity interests. The Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted
by law, as provided under the law then in effect. Nothing contained herein
shall be construed as requiring approval of the Holders for the Trustees to
organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.
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ARTICLE X
Miscellaneous
10.1 Certificate of Designation; Agent for Service of
Process. The Trust shall file, in accordance with Section 3812 of DBTA, in the
office of the Secretary of State of Delaware, a certificate of trust, in the
form and with such information required by Section 3810 by DBTA and executed in
the manner specified in Section 3811 of DBTA. In the event the Trust does not
have at least one Trustee qualified under Section 3807(a) of DBTA, then the
Trust shall comply with Section 3807(b) of DBTA by having and maintaining a
registered office in Delaware and by designating a registered agent for service
of process on the Trust, which agent shall have the same business office as the
Trust's registered office. The failure to file any such certificate, to
maintain a registered office, to designate a registered agent for service of
process, or to include such other information shall not affect the validity of
the establishment of the Trust, the Declaration, the By-Laws or any action
taken by the Trustees, the Trust officers or any other Person with respect to
the Trust except insofar as a provision of the DBTA would have governed, in
which case the Delaware common law governs.
10.2 Governing Law. This Declaration is executed by all
of the Trustees and delivered with reference to DBTA and the laws of the State
of Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to DBTA and
the laws of the State of Delaware (unless and to the extent otherwise provided
for and/or preempted by the 1940 Act or other applicable federal securities
laws); provided, however, that there shall not be applicable to the Trust, the
Trustees or this Declaration (a) the provisions of Section 3540 of Title 12 of
the Delaware Code or (b) any provisions of the laws (statutory or common) of
the State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration.
10.3 Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
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10.4 Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to (a) the number or identity of Trustees or Holders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Holders, (d) the fact that
the number of Trustees or Holders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trustees and their
successors.
10.5 Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are
severable, and if the Trustees shall determine, with the advice of counsel,
that any of such provisions is in conflict with the 1940 Act, the DBTA, or with
other applicable laws and regulations, the conflicting provisions shall be
deemed never to have constituted a part of this Declaration; provided, however,
that such determination shall not affect any of the remaining provisions of
this Declaration or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
10.6 Trust Only. It is the intention of the Trustees to
create only a business trust under DBTA with the relationship of Trustee and
beneficiary between the Trustees and each Holder from time to time. It is not
the intention of the Trustees to create a general partnership, limited
partnership, joint stock association, corporation, bailment, or any form of
legal relationship other than a Delaware
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business trust except to the extent such trust is deemed to constitute a
corporation under the Code and applicable state tax laws. Nothing in this
Declaration of Trust shall be construed to make the Holders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
10.7 Withholding. Should any Holder be subject to
withholding pursuant to the Code or any other provision of law, the Trust shall
withhold all amounts otherwise distributable to such Holder as shall be
required by law and any amounts so withheld shall be deemed to have been
distributed to such Holder under this Declaration of Trust. If any sums are
withheld pursuant to this provision, the Trust shall remit the sums so withheld
to and file the required forms with the Internal Revenue Service, or other
applicable government agency.
10.8 Headings and Construction. Headings are placed herein
for convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall
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include the plural; and the neuter, masculine and feminine genders shall
include each other, as applicable.
IN WITNESS WHEREOF, the undersigned have caused these presents
to be executed as of the day and year first above written.
<TABLE>
<S> <C>
- ----------------------------- June 12, 1995
Edward S. Bottum
Trustee
/s/ Willam P. Carmichael
- ----------------------------- June 12, 1995
William P. Carmichael
Trustee
/s/ Robert E. Greeley
- ----------------------------- June 12, 1995
Robert E. Greeley
Trustee
/s/ John Privat
- ----------------------------- June 12, 1995
John Privat
Trustee
</TABLE>
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<PAGE> 1
EXHIBIT 2
TIME HORIZON FUNDS
BY-LAWS
These By-Laws are made as of the 12th day of April, 1995 and
adopted pursuant to Section 2.7 of the Declaration of Trust establishing Time
Horizon Funds dated April 4, 1995, as from time to time amended (hereinafter
called the "Declaration"). All words and terms capitalized in these By-Laws
shall have the meaning or meanings set forth for such words or terms in the
Declaration.
ARTICLE I
Meetings of Holders
Section 1.1 Annual Meeting. An annual meeting of the Holders
of Interests in the Trust, which may be held on such date and at such hour as
may from time to time be designated by the Board of Trustees and stated in the
notice of such meeting, is not required to be held unless certain actions must
be taken by the Holders as set forth in Section 8.7 of the Declaration, or
except when the Trustees consider it necessary or desirable.
Section 1.2 Chairman. The President or, in his or her
absence, the Chief Operating Officer shall act as chairman at all meetings of
the Holders and, in the absence of both of them, the Trustee or Trustees
present at the meeting may elect a temporary chairman for the meeting, who may
be one of themselves or an officer of the Trust.
Section 1.3 Proxies; Voting. Holders may vote either in
person or by duly executed proxy and each Holder shall be entitled to a vote
proportionate to his or her Interest in the Trust, all as provided in Article
VIII of the Declaration. No proxy shall be valid after eleven (11) months from
the date of its execution, unless a longer period is expressly stated in such
proxy.
Section 1.4 Fixing Record Dates. For the purpose of
determining the Holders who are entitled to notice of or to vote or act at a
meeting, including any adjournment thereof, or who are entitled to participate
in any distributions, or for any other proper purpose, the Trustees may from
time to time fix a record date in the manner provided in Section 8.3 of the
Declaration. If the Trustees do not, prior to any meeting of the Holders, so
fix a record date, then the date of mailing notice of the meeting shall be the
record date.
<PAGE> 2
Section 1.5 Inspectors of Election. In advance of any
meeting of the Holders, the Trustees may appoint Inspectors of Election to act
at the meeting or any adjournment thereof. If Inspectors of Election are not
so appointed, the chairman, if any, of any meeting of the Holders may, and on
the request of any Holder or his or her proxy shall, appoint Inspectors of
Election of the meeting. The number of Inspectors shall be either one or
three. If appointed at the meeting on the request of one or more Holders or
proxies, a Majority Interests Vote shall determine whether one or three
Inspectors are to be appointed, but failure to allow such determination by the
Holders shall not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as Inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
Interests owned by Holders, the Interests represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies, shall
receive votes, ballots or consents, shall hear and determine all challenges and
questions in any way arising in connection with the right to vote, shall count
and tabulate all votes or consents, determine the results, and do such other
acts as may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. On request of the chairman, if any, of the meeting, or of
any Holder or his or her proxy, the Inspectors of Election shall make a report
in writing of any challenge or question or matter determined by them and shall
execute a certificate of any facts found by them.
Section 1.6 Records of Meetings of Holders. At each meeting
of the Holders there shall be open for inspection the minutes of the last
previous meeting of Holders of the Trust and a list of the Holders of the
Trust, certified to be true and correct by the Secretary or other proper agent
of the Trust, as of the record date of the meeting. Such list of Holders shall
contain the name of each Holder in alphabetical order, the Holder's address and
Interests owned by such Holder. Holders shall have the right to inspect books
and records of the Trust during normal business hours for any purpose not
harmful to the Trust.
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ARTICLE II
Trustees
Section 2.1 Annual and Regular Meetings. The Trustees shall
hold an Annual Meeting of the Trustees for the election of officers and the
transaction of other business which may come before such meeting. Regular
meetings of the Trustees may be held without call or notice at such place or
places and times as the Trustees may by resolution provide from time to time.
Section 2.2 Special Meetings. Special Meetings of the
Trustees shall be held upon the call of the chairman, if any, the President,
the Secretary, or any two Trustees, at such time, on such day and at such
place, as shall be designated in the notice of the meeting.
Section 2.3 Notice. Notice of a meeting shall be given by
mail (which term shall include overnight mail) or by telegram (which term shall
include a cablegram or telefacsimile) or delivered personally (which term shall
include notice by telephone). If notice is given by mail, it shall be mailed
not later than 72 hours preceding the meeting and if given by telegram or
personally, such notice shall be delivered not later than 24 hours preceding
the meeting. Notice of a meeting of Trustees may be waived before or after any
meeting by signed written waiver. Neither the business to be transacted at,
nor the purpose of, any meeting of the Board of Trustees need be stated in the
notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by written consent. The attendance of a Trustee at
a meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting, at the
commencement of such meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
Section 2.4 Chairman; Records. The Trustees shall appoint a
Chairman of the Board from among their number. Such Chairman of the Board
shall act as chairman at all meetings of the Trustees; in his or her absence
the President shall act as chairman; and, in the absence of all of them, the
Trustees present shall elect one of their number to act as temporary chairman.
The results of all actions taken at a meeting of the Trustees, or by written
consent of the Trustees, shall be recorded by the Secretary.
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Section 2.5 Audit Committee. The Board of Trustees may, by
the affirmative vote of a majority of the entire Board, appoint from its
members an Audit Committee composed of two or more Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust, as the Board
may from time to time determine. The Audit Committee shall (a) recommend
independent public accountants for selection by the Board, (b) review the scope
of audit, accounting and financial internal controls and the quality and
adequacy of the Trust's accounting staff with the independent public
accountants and such other persons as may be deemed appropriate, (c) review
with the accounting staff and the independent public accountants the compliance
of transactions of the Trust with its investment adviser, administrator or any
other service provider with the financial terms of applicable contracts or
agreements, (d) review reports of the independent public accountants and
comment to the Board when warranted, (e) report to the Board at least once each
year and at such other times as the committee deems desirable, and (f) be
directly available at all times to independent public accountants and
responsible officers of the Trust for consultation on audit, accounting and
related financial matters.
Section 2.6 Nominating Committee of Trustees. The Board of
Trustees may, by the affirmative vote of a majority of the entire Board,
appoint from its members a Trustee Nominating Committee composed of two or more
Trustees. The Trustee Nominating Committee shall recommend to the Board a
slate of persons to be nominated for election as Trustees by the Holders at a
meeting of the Holders and a person to be elected to fill any vacancy occurring
for any reason in the Board. Notwithstanding anything in this Section to the
contrary, if the Trust has in effect a plan pursuant to Rule 12b-1 under the
1940 Act, the selection and nomination of those Trustees who are not
"interested persons" (as defined in the Act) shall be committed to the
discretion of such Disinterested Trustees.
Section 2.7 Executive Committee. The Board of Trustees may
appoint from its members an Executive Committee composed of those Trustees as
the Board may from time to time determine, of which committee the Chairman of
the Board shall be a member. In the intervals between meetings of the Board,
the Executive Committee shall have the power of the Board to (a) determine the
value of securities and assets owned by the Trust, (b) elect or appoint
officers of the Trust to serve until the next meeting of the Board, and (c)
take such action as may be necessary to manage the
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portfolio security loan business of the Trust. All action by the Executive
Committee shall be recorded and reported to the Board at its meeting next
succeeding such action.
Section 2.8 Other Committees. The Board of Trustees may
appoint from among its members other committees composed of two or more of its
Trustees which shall have such powers as may be delegated or authorized by the
resolution appointing them.
Section 2.9 Committee Procedures. The Board of Trustees may
at any time change the members of any committee, fill vacancies or discharge
any committee. In the absence of any member of any committee, the member or
members thereof present at any meeting, whether or not they constitute a
quorum, may unanimously appoint to act in the place of such absent member a
member of the Board who, except in the case of the Executive Committee, is not
an "interested person" of the Trust as the Board may from time to time
determine. Each committee may fix its own rules of procedure and may meet as
and when provided by those rules. Copies of the minutes of all meetings of
committees other than the Nominating Committee and the Executive Committee
shall be distributed to the Board unless the Board shall otherwise provide.
ARTICLE III
Officers
Section 3.1 Officers of the Trust; Compensation. The
officers of the Trust shall consist of a President, a Secretary, a Treasurer
and such other officers or assistant officers, including Vice Presidents, as
may be elected by the Trustees. Any two or more of the offices may be held by
the same person. The Trustees may designate a Vice President as an Executive
Vice President and may designate the order in which the other Vice Presidents
may act. No officer of the Trust need be a Trustee. The Board of Trustees may
determine what, if any, compensation shall be paid to officers of the Trust.
Section 3.2 Election and Tenure. At the initial organization
meeting and thereafter at each annual meeting of the Trustees, the Trustees
shall elect the President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The
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Trustees may fill any vacancy in office or add any additional officers at any
time.
Section 3.3 Removal of Officers. Any officer may be removed
at any time, with or without cause, by action of a majority of the Trustees.
This provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of
action which any officer may have as a result of removal in breach of a
contract of employment. Any officer may resign at any time by notice in
writing signed by such officer and delivered or mailed to the President or
Secretary, and such resignation shall take effect immediately, or at a later
date according to the terms of such notice in writing.
Section 3.4 Bonds and Surety. Any officer may be required by
the Trustees to be bonded for the faithful performance of his or her duties in
such amount and with such sureties as the Trustees may determine.
Section 3.5 President and Vice-Presidents. The President
shall be the chief executive officer of the Trust and, subject to the control
of the Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of president of a
corporation. The President shall preside at all meetings of the Holders and,
in the absence of the Chairman of the Board, the President shall preside at all
meetings of the Trustees. The President shall be, ex officio, a member of all
standing committees. Subject to direction of the Trustees, the President shall
have the power, in the name and on behalf of the Trust, to execute any and all
loan documents, contracts, agreements, deeds, mortgages, and other instruments
in writing, and to employ and discharge employees and agents of the Trust.
Unless otherwise directed by the Trustees, the President shall have full
authority and power, on behalf of all of the Trustees, to attend and to act and
to vote, on behalf of the Trust at any meetings of business organizations in
which the Trust holds an interest, or to confer such powers upon any other
persons, by executing any proxies duly authorizing such persons. The President
shall have such further authorities and duties as the Trustees shall from time
to time determine. In the absence or disability of the President, the Vice
Presidents in order of their rank or the Vice President designated by the
Trustees, shall perform all of the duties of President, and when so acting
shall have all
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the powers of and be subject to all of the restrictions upon the President.
Subject to the direction of the President, the Treasurer and each Vice
President shall have the power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds, mortgages and
other instruments in writing, and, in addition, shall have such other duties
and powers as shall be designated from time to time by the Trustees, the
Chairman, or the President.
Section 3.6 Secretary. The Secretary shall keep the minutes
of all meetings of, and record all votes of, Holders, Trustees and any
committees of Trustees, provided that, in the absence or disability of the
Secretary, the Holders or Trustees or committee may appoint any other person to
keep the minutes of a meeting and record votes. The Secretary shall attest the
signature or signatures of the officer or officers executing any instrument on
behalf of the Trust. The Secretary shall also perform any other duties
commonly incident to such office in a Delaware business trust and shall have
such other authorities and duties as the Trustees shall from time to time
determine.
Section 3.7 Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents of
the Trust, and shall have and exercise under the supervision of the Trustees
and of the Chairman and the President all powers and duties normally incident
to his office. He or she may endorse for deposit or collection all notes,
checks and other instruments payable to the Trust or to its order. He or she
shall deposit all funds of the Trust as may be ordered by the Trustees, the
Chairman or the President. He or she shall keep accurate account of the books
of the Trust's transactions which shall be the property of the Trust and which,
together with all other property of the Trust in his or her possession, shall
be subject at all times to the inspection and control of the Trustees. Unless
the Trustees shall otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the principal financial
officer of the Trust. He or she shall have such other duties and authorities
as the Trustees shall from time to time determine. Notwithstanding anything to
the contrary herein contained, the Trustees may authorize any adviser or
administrator to maintain bank accounts and deposit and disburse funds on
behalf of the Trust.
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<PAGE> 8
Section 3.8 Other Officers and Duties. The Trustees may
elect such other officers and assistant officers as they shall from time to
time determine to be necessary or desirable in order to conduct the business of
the Trust. Assistant officers shall act generally in the absence of the
officer whom they assist and shall assist that officer in the duties of his or
her office. Each officer, employee and agent of the Trust shall have such
other duties and authority as may be conferred upon him or her by the Trustees
or delegated to him or her by the President.
ARTICLE IV
Custodian
Section 4.1 Appointment and Duties. The Trustees shall at
all times employ a custodian or custodians with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws:
(1) to hold the securities owned by the Trust and
deliver the same upon written order;
(2) to receive and receipt for any moneys due to
the Trust and deposit the same in its own banking department or
elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or
vouchers;
(4) if authorized by the Trustees, to keep the
books and accounts of the Trust and furnish clerical and accounting
services; and
(5) if authorized to do so by the Trustees, to
compute the net income and net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. The Trustees may also authorize the custodian to employ one
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustee.
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Section 4.2 Central Certificate System. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to deposit all or any part of the securities owned by the
Trust in a system for the central handling of securities established by a
national securities exchange or a national securities association registered
with the Commission under the Securities Exchange Act of 1934, any such other
person or entity with which the Trustees may authorize deposit in accordance
with the 1940 Act, pursuant to which system all securities of any particular
class or series of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities. All such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE V
Miscellaneous
Section 5.1 Depositories. In accordance with Article IV of
these By-Laws, the funds of the Trust shall be deposited in such depositories
as the Trustees shall designate and shall be drawn out on checks, drafts or
other orders signed by such officer, officers, agent or agents (including any
adviser or administrator), as the Trustees may from time to time authorize.
Section 5.2 Signatures. All contracts and other instruments
shall be executed on behalf of the Trust by such officer, officers, agent or
agents, as provided in these By-Laws or as the Trustees may from time to time
by resolution or authorization provide.
Section 5.3 Fiscal Year. The fiscal year of the Trust shall
end on June 30 of each year, subject, however, to change from time to time by
the Board of Trustees.
ARTICLE VI
Interests
Section 6.1 Interests. Except as otherwise provided by law,
the Trust shall be entitled to recognize the exclusive right of a person in
whose name Interests stand on the record of Holders as the owners of such
Interests for all purposes, including, without limitation, the rights to
receive distributions, and to vote as such owner, and the Trust shall not be
bound to recognize any
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<PAGE> 10
equitable or legal claim to or interest in any such Interests on the part of
any other person.
Section 6.2 Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as they
may deem expedient concerning the sale and purchase of Interests of the Trust.
Section 6.3 Distribution Disbursing Agents and the Like. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
ARTICLE VII
Amendment of By-Laws
Section 7.1 Amendment and Repeal of By-Laws. In accordance
with Section 2.7 of the Declaration, the Trustees shall have the power to
alter, amend or repeal the By-Laws or adopt new By-Laws at any time. The
Trustees shall in no event adopt By-Laws which are in conflict with the
Declaration, DBTA, the 1940 Act or applicable federal securities laws.
Section 7.2 No Personal Liability. The Declaration
establishing Time Horizon Funds provides that the name Time Horizon Funds does
not refer to the Trustees as individuals or personally; and no Trustee,
officer, employee or agent of, or Holder of Interest in, Time Horizon Funds
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of Time Horizon Funds (except to the extent of a
Holder's Interest in the Trust).
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<PAGE> 1
Exhibit 5
MANAGEMENT AGREEMENT
--------------------
This Management Agreement is made as of this September 5,
1995 between TIME HORIZON FUNDS, a Delaware business trust (herein called the
"Company"), and Bank of America National Trust and Savings Association (herein
called the "Manager").
WHEREAS, the Company is registered as an open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Company wishes to retain the Manager under this
Agreement to render investment advisory and management services to the
portfolios of the Company known as Time Horizon 1, Time Horizon 2 and Time
Horizon 3 (the "Initial Fund(s)", together with any other Company portfolios
which may be established later and served by the Manager hereunder, being
herein referred to collectively as the "Funds" and individually as a "Fund");
and
WHEREAS, pursuant to a Distribution Agreement of even date
herewith (the "Distribution Agreement") between the Company and Concord
Financial Group, Inc. (the "Distributor"), the Company has retained the
Distributor to provide for the sale and distribution of shares of beneficial
interest of each Fund (herein collectively called "Shares"); and
WHEREAS, the Company desires to retain the Manager to provide
management and administrative services for the Funds, and the Manager is
willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Manager.
----------------------
(A) The Company hereby appoints the
Manager as manager of each Fund on the terms and for the period set forth in
this Agreement and the Manager hereby accepts such appointment and agrees to
perform the services and duties set forth herein on the terms herein provided.
The Manager may, in its discretion, provide such services through its own
employees or the employees of one or more affiliated companies that are
qualified to provide such services to the Trust under applicable law and are
under the common control
<PAGE> 2
of BankAmerica Corporation, provided (i) that all persons, when providing
services hereunder, are functioning as part of an organized group of persons,
and (ii) that such organized group of persons is managed at all times by
authorized officers of the Manager.
(B) In the event that the Company
establishes one or more portfolios other than the Initial Fund(s) with respect
to which it desires to retain the Manager to render investment advisory and
management services hereunder, it shall notify the Manager in writing. If the
Manager is willing to render such services, it shall notify the Company in
writing whereupon such portfolio or portfolios shall become a Fund or Funds
hereunder.
2. ADMINISTRATIVE SERVICES AND DUTIES. Subject
to the supervision and control of the Company's Board of Trustees, the Manager
shall provide to the Company facilities, equipment, statistical and research
data, clerical, accounting and bookkeeping services, internal auditing and
legal services, and personnel to carry out all management services required for
operation of the business and affairs of the Funds other than those services to
be performed by the Distributor pursuant to the Distribution Agreement, those
services to be performed by PNC Bank, N.A., pursuant to the Company's Custody
Agreement, those services to be performed by BISYS Fund Services Ohio, Inc.
pursuant to the Company's Transfer Agency Agreement, those services to be
provided by BISYS Fund Services Ohio, Inc. pursuant to the Company's Fund
Accounting Agreement and those services normally performed by the Company's
counsel and auditors.
(A) The Manager's oversight responsibilities
shall include:
(1) Overseeing the performance of
PNC Bank, N.A. (the "Custodian") under the Custody Agreement with
respect to the Funds; and
(2) Overseeing the performance of
BISYS Fund Services Ohio, Inc. (the "Transfer Agent") under the
Transfer Agency Agreement with respect to the Funds.
(B) The Manager's other responsibilities shall
include without limitation the following services:
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<PAGE> 3
(1) Providing a facility to
receive purchase and redemption orders for Shares via toll-free
telephone lines;
(2) Making available information
concerning each Fund to its shareholders; distributing written
communications to each Fund's shareholders such as periodic listings
of each Fund's securities, annual and semi-annual reports, and
prospectuses and supplements thereto; and handling shareholder
problems and calls relating to administrative matters; and
(3) Providing and supervising
the services of employees whose principal responsibility and function
shall be to preserve and strengthen each Fund's relationships with its
shareholders.
(C) The Manager shall assure that
persons are available to transmit redemption requests for Shares to the
Company's Transfer Agent as promptly as practicable.
(D) The Manager shall assure that
persons are available to transmit orders accepted for the purchase of Shares to
the Transfer Agent of the Company as promptly as practicable.
(E) The Manager shall participate in the
periodic updating of the Funds' prospectuses and statements of additional
information and shall accumulate information for and, subject to approval by
the Company's Treasurer and legal counsel, coordinate the preparation, filing,
printing and dissemination of reports to the Funds' shareholders and the
Securities and Exchange Commission (the "Commission"), including but not
limited to annual reports and semi-annual reports on Form N-SAR, notices
pursuant to Rule 24f-2 and proxy materials pertaining to the Funds.
(F) The Manager shall calculate
dividends and capital gain distributions to be paid by each Fund in conformity
with subchapter M of the Internal Revenue Code of 1986, as amended.
(G) The Manager shall pay all costs and
expenses of maintaining the offices of the Company, wherever located, and shall
arrange for payment by the Company of all expenses payable by the Company.
(H) The Manager, after consultation
with legal counsel for the Company, shall determine the
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<PAGE> 4
jurisdictions in which the Shares shall be registered or qualified for sale
and, in connection therewith, shall be responsible for the maintenance of the
registration or qualification of the Shares for sale under the securities laws
of any state. Payment of Share registration fees and any fees for qualifying
or continuing the qualification of the Company shall be made by the Company.
(I) The Manager shall maintain such
other books and records with respect to the Funds as may be required by law or
may be required for the proper operation of the business and affairs of the
Funds, other than those required to be maintained under the Fund Accounting
Agreement and by the Manager under Section 3 of this Agreement. Without
limiting the foregoing, the Manager shall be responsible for the proper
maintenance of the records to be maintained by it, throughout the term of this
Agreement.
(J) The Manager shall prepare the Funds'
federal, state and local income tax returns.
(K) The Manager shall prepare and,
subject to approval of the Company's Treasurer, disseminate to the Company's
trustees each Fund's quarterly financial statements and schedules of
investments, and shall prepare such other reports relating to the business and
affairs of the Funds (not otherwise appropriately prepared by the Company's
counsel, auditors or other Company service providers) as the officers and
trustees of the Company may from time to time reasonably request in connection
with performance of their duties.
(L) The Manager shall assist the
Custodian, Transfer Agent, counsel and auditors as required to carry out the
business and operations of the Funds.
3. Investment Services and Duties. Subject to
the supervision of the Company's Board of Trustees, the Manager shall provide a
continuous investment program for the Funds, including investment research and
management with respect to all securities and investments and cash equivalents
in the Funds. The Manager shall determine from time to time what securities
and other investments will be purchased, retained or sold by the Company with
respect to each Fund. The Manager shall provide the services under this
Section 3 in accordance with the Funds' investment objectives, policies and
restrictions as stated in the
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<PAGE> 5
Funds' then current registration statement and resolutions of the Company's
Board of Trustees.
(A) The Manager shall use the same skill
and care in providing services under this Section 3 as it uses in providing
services to fiduciary accounts for which it has investment responsibilities.
(B) The Manager shall place all orders
for the purchase and sale of portfolio securities for the account of the each
Fund with brokers or dealers selected by the Manager. In executing portfolio
transactions and selecting brokers or dealers, the Manager will use its best
efforts to seek on behalf of each Fund the best overall terms available. In
assessing the best overall terms available for any transaction the Manager
shall consider all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. In evaluating the best overall terms available, and in selecting the
broker or dealer to execute a particular transaction, the Manager may also
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund
and/or other accounts over which the Manager or any affiliate of the Manager
exercise investment discretion. The Manager is authorized, subject to the
prior approval of the Company's Board of Trustees, to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for any Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Manager determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of that
particular transaction or in terms of the overall responsibilities of the
Manager to that Fund and to the Company. In no instance may portfolio
securities be purchased from or sold to the Manager, any sub-adviser, or an
affiliated person of any of them acting as principal or as broker, except as
permitted by law. In executing portfolio transactions for the Funds the
Manager may, to the extent permitted by applicable laws and regulations, but
shall not be obligated to, aggregate the securities to be sold or purchased
with those of other investment portfolios and its other clients where such
aggregation is not inconsistent with the policies set forth
-5-
<PAGE> 6
in the Company's registration statement. In such event, the Manager shall
allocate the securities so purchased or sold, and the expenses incurred in the
transaction, in the manner it considers to be the most equitable and consistent
with its fiduciary obligations to the Funds and such other clients.
(C) In performing the investment
advisory services hereunder, the Manager is authorized to purchase, sell or
otherwise deal with securities or other instruments for which (i) the Manager,
(ii) any affiliate of the Manager, (iii) an entity in which the Manager has a
direct or indirect interest, and (iv) another member of a syndicate or other
intermediary (where an entity referred to in (i), (ii) or (iii) above was a
member of the syndicate), has acted, now acts or in the future will act as an
underwriter, syndicate member, market-maker, dealer, broker or in any other
similar capacity, whether the purchase, sale or other dealing occurs during the
life of the syndicate or after the close of the syndicate, provided such
purchase, sale or dealing is permitted under the 1940 Act and the rules
thereunder. Insofar as permitted by law, any rules of or under applicable law
prohibiting or restricting in any way an agent or fiduciary from dealing with
itself or from dealing with respect to any matter in which it may or does have
a personal interest shall not apply to the Manager, to the extent its actions
are authorized under this paragraph.
(D) The Manager shall maintain books and
records with respect to the securities transactions of the Fund, and furnish
the Company's Board of Trustees such periodic special reports as the Board may
request.
(E) The Manager shall maintain a policy
and practice of conducting its investment advisory operations independently of
its commercial banking operations. When the Manager makes investment
recommendations for a Fund, its investment advisory personnel shall not inquire
or take into consideration whether the issuer of securities proposed for
purchase or sale for the Fund's account are customers of its commercial
department. In dealing with commercial customers, the Manager's commercial
department shall not inquire or take into consideration whether securities of
those customers are held by the Funds except as required by law.
(F) The Manager shall review, monitor
and report to the Board of Trustees regarding the performance and investment
procedures of any sub-adviser appointed by the Board of Trustees, and shall
assist and consult with any
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<PAGE> 7
sub-adviser in connection with the Fund's continuous investment program.
4. COMPLIANCE WITH GOVERNING INSTRUMENTS AND
LAWS. In performing its duties as Manager for the Funds, the Manager shall act
in conformity with the Company's Declaration of Trust, Bylaws, prospectuses and
statements of additional information, and the instructions and directions of
the Board of Trustees of the Company. In addition, the Manager shall conform
to and comply with the requirements of the 1940 Act, the Rules and Regulations
of the Commission, and all other applicable federal or state laws and
regulations.
5. SERVICES NOT EXCLUSIVE. The Manager shall
for all purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Board of
Trustees from time to time, have no authority to act for or represent the
Company in any way or otherwise be deemed its agent. The services furnished by
the Manager hereunder are not deemed exclusive, and the Manager shall be free
to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
6. BOOKS AND RECORDS. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, the Manager hereby agrees that
all records which it maintains for the Company are the property of the Company
and further agrees to surrender promptly to the Company any such records upon
the Company's request. The Manager further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
7. SUBCONTRACTORS. It is understood that the
Manager may from time to time employ or associate with itself such person or
persons as the Manager may believe to be particularly fitted to assist in the
performance of this Agreement; provided, however, that the compensation of such
person or persons shall be paid by the Manager and that the Manager shall be as
fully responsible to the Company for the acts and omissions of any
subcontractor as it is for its own acts and omissions. Without limiting the
generality of the foregoing, it is understood that the Manager and the Company
intend to enter into an agreement with the Fund Accountant under which said
institution will provide certain accounting, bookkeeping, pricing and dividend
and distribution
-7-
<PAGE> 8
calculation services with respect to the Funds at the expense of the Funds.
8. EXPENSES ASSUMED AS MANAGER. Except as
otherwise stated in this Agreement, the Manager shall pay all expenses incurred
by it in performing its services and duties hereunder as Manager including the
cost of any independent pricing service used in connection with the Funds
(other than the cost of securities purchased for the Company). The Company
shall bear other expenses incurred in the operation of the Funds, including
without limitation taxes, interest, brokerage fees and commissions, if any,
fees of trustees who are not officers, directors, partners, employees or
holders of 5 percent or more of the outstanding voting securities of the
Manager or any of its affiliates, Commission fees and state blue sky
registration and qualification fees, charges of custodians, transfer and
dividend disbursing agents' fees, certain insurance premiums, outside auditing
and legal expenses, costs of maintaining trust existence, costs of preparing
and printing prospectuses or any supplements or amendments thereto necessary
for the continued effective registration of the Shares under federal or state
securities laws, costs of printing and distributing any prospectus, supplement
or amendment thereto for existing shareholders of the Funds described therein,
costs of shareholders' reports and meetings, and any extraordinary expenses.
It is understood that certain advertising, marketing, shareholder servicing,
administration and/or distribution expenses to be incurred in connection with
the Shares may be paid by the Company as provided in any plan which may in the
sole discretion of the Company be adopted in accordance with Rule 12b-1 under
the 1940 Act, and that such expenses shall be paid apart from any fees paid
under this Agreement.
9. COMPENSATION. For the services provided and
the expenses assumed pursuant to this Agreement, the Company shall pay the
Manager a fee, computed daily and payable monthly, at the annual rate of 0.60%
of the average net assets of each Fund. Such fee as is attributable to each
Fund shall be a separate (and not joint or joint and several) obligation of
each such Fund. Notwithstanding anything to the contrary herein, if in any
fiscal year the aggregate expenses of any Fund (as defined under the securities
regulations of any state having jurisdiction over such Fund) exceed the expense
limitations of any such state, the Company may deduct from the fees to be paid
pursuant to this Agreement, or the Manager shall bear such excess, to the
extent required by state law. Such deduction or
-8-
<PAGE> 9
payment, if any, will be estimated and accrued daily and paid on a monthly
basis. The Company shall reduce the advisory fee to be paid to the Manager by
the amount of any advisory fees paid to other investment companies relating to
the Funds' investment in such investment companies' securities.
10. CONFIDENTIALITY. The Manager shall treat
confidentially and as proprietary information of the Company all records and
other information relative to the Company and prior or present shareholders or
those persons or entities who respond to the Distributor's inquiries concerning
investment in the Company, and shall not use such records and information for
any purpose other than performance of its responsibilities and duties hereunder
or under any other agreement with the Company except after prior notification
to and approval in writing by the Company, which approval shall not be
unreasonably withheld and may not be withheld where the Manager may be exposed
to civil or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Company. Nothing contained herein, however, shall prohibit
the Manager from advertising to or soliciting the public generally with respect
to other products or services, including, but not limited to, any advertising
or marketing via radio, television, newspapers, magazines or direct mail
solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Company shareholders or those persons
or entities who have responded to inquiries with respect to the Funds.
11. LIMITATIONS OF LIABILITY. Subject to the
provisions of Section 7 hereof concerning the Manager's responsibility for the
acts and omissions of persons employed or associated with the Manager, the
Manager shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company or by any Fund in connection with the matters
to which this Agreement relates, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, director, employee or agent of the Manager, who may be or become an
officer, director, employee or agent of the Company, shall be deemed, when
rendering services to the Company or to any Fund, or acting on any business of
the
-9-
<PAGE> 10
Company or of any Fund (other than services or business in connection with the
Manager's duties as Manager hereunder or under any other agreement with the
Company) to be rendering such services to or acting solely for the Company or
Fund and not as an officer, director, employee or agent or one under the
control or direction of the Manager even though paid by the Manager.
The Manager acknowledges and agrees that the Declaration of
Trust of the Company provides that the Trustees of the Company and the officers
of the Company executing this Agreement on behalf of the Company shall not be
personally bound hereby or liable hereunder, nor shall resort be had to their
private property or the private property of the shareholders of the Company for
the satisfaction of any claim or obligation under this Agreement.
12. DURATION OR TERMINATION. This Agreement
shall become effective as of the date first written above and, unless sooner
terminated as provided herein, shall continue until October 31, 1996.
Thereafter, this Agreement will be extended with respect to a particular Fund
for successive one-year periods ending on October 31st of each year, PROVIDED
each such extension is specifically approved at least annually (a) by vote of a
majority of those members of the Company's Board of Trustees who are not
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Company's
Board of Trustees or by vote of a majority of the outstanding voting securities
of such Fund. This Agreement may be terminated by the Company at any time with
respect to any Fund, without the payment of any penalty, by vote of a majority
of the entire Board of Trustees of the Company or by a vote of a majority of
the outstanding voting securities of such Fund on 60 days' written notice to
the Manager, or by the Manager at any time, without the payment of penalty, on
60 days' written notice to the Company. This Agreement will immediately
terminate in the event of its assignment. As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested persons" and
"assignment" shall have the same meanings as such terms have in the 1940 Act.
13. NAMES. The name "Time Horizon Funds" refers
to the trust created and the trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated April
12, 1995, as amended, which is hereby referred to and a copy of which is on
file at the
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<PAGE> 11
principal office of the Company. The trustees, officers, employees and agents
of the Company shall not personally be bound by or liable under any written
obligation, contract, instrument, certificate or other interest or undertaking
of the Company made by the trustees or by an officer, employee or agent of the
Company, in his or her capacity as such, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder.
All persons dealing with any series or class of shares of the Company may
enforce claims against the Company only against the assets belonging to such
series or class.
14. NOTICES. Notices of any kind to be given to
the Company hereunder by the Manager shall be in writing and shall be duly
given if mailed or delivered to the Company at the following:
BEFORE SEPTEMBER 5, 1995:
BISYS Fund Services Ohio, Inc.
1900 East Dublin-Granville Road
Columbus, Ohio 43229
Attn: President
AFTER SEPTEMBER 5, 1995:
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
With a copy to:
Cathy G. O'Kelly, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle, 26th Floor
Chicago, Illinois 60695
or at such other address or to such individual as shall be so specified by the
Company to the Manager. Notices of any kind to be given to the Manager
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to the Manager at:
Bank of America National Trust and
Savings Association
555 South Flower Street
Los Angeles, California 90071
Attn: Debra McGinty-Poteet
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<PAGE> 12
With a copy to:
Bank of America National Trust and Savings Association
555 South Flower Street, Eighth Floor
Los Angeles, California 90071
Attn: Arthur A. Fritz, Esq.
or at such other address or to such individual as shall be so specified by the
Manager to the Company.
15. MISCELLANEOUS. The captions in this
Agreement are included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their construction
or effect. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of Section 12 hereof,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by
Delaware law (without regard to principles of conflicts of law); PROVIDED,
HOWEVER, that nothing herein shall be
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<PAGE> 13
construed in a manner inconsistent with the 1940 Act or any rule or regulation
of the Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
TIME HORIZON FUNDS
By:/s/J. David Huber
-----------------------
J. David Huber
President
Attest:/s/W. Eugene Spurbuck
--------------------------
(name) W. Eugene Spurbuck
--------------------
Secretary
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:/s/Debra McGinty-Poteet
-----------------------------
(name) Debra McGinty-Poteet
-----------------------
(title) Senior Vice President
----------------------
Attest:/s/Sandra C. Brown
-------------------------
(name) Sandra C. Brown
-------------------------
(title) Vice President
-------------------------
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<PAGE> 1
Exhibit 6
DISTRIBUTION AGREEMENT
----------------------
This Distribution Agreement is made as of this 5th day of
September, 1995 between TIME HORIZON FUNDS, a Delaware business trust (herein
called the "Company), and CONCORD FINANCIAL GROUP, INC., a Delaware corporation
(herein called "CFG").
WHEREAS, the Company is an open-end, management investment
company and is so registered under the Investment Company Act of 1940; and
WHEREAS, the Company will offer and maintain the following
investment portfolios: Time Horizon Portfolio 1, Time Horizon Portfolio 2 and
Time Horizon Portfolio 3 (individually a "Fund" and collectively the "Funds");
and
WHEREAS, pursuant to a Management Agreement of even date
herewith between the Company and Bank of America National Trust and Savings
Association (the "Manager"), the Company has retained the Manager to provide
management services to the Funds; and
WHEREAS, the Company desires to retain CFG as Distributor for
the Funds to provide for the sale and distribution of shares of beneficial
interest of the Funds (herein collectively called "Shares"), and CFG is willing
to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
---------------------
The Company has delivered to CFG copies of each of the
following documents and shall deliver to it all future amendments and
supplements thereto, if any:
(a) The Company's Declaration of Trust and all
amendments thereto (such Declaration of Trust, as presently in effect and as it
shall from time to time be amended, herein called the "Company's Declaration");
(b) Bylaws of the Company (such Bylaws, as
presently in effect and as they shall from time to time be amended, herein
called the "Bylaws");
<PAGE> 2
(c) Resolutions of the Board of Trustees of the
Company authorizing the execution and delivery of this Agreement;
(d) The Company's registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act"), on Form N-1A as filed with
the Securities and Exchange Commission (the "Commission") relating to the
Shares, and all subsequent amendments thereto (said registration statement, as
presently in effect and as amended or supplemented from time to time, is herein
called the "Registration Statement");
(e) Notification of Registration of the Company
under the 1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and statements of additional
information of the Company and of the Funds (such prospectuses and statements
of additional information, as presently in effect and as they shall from time
to time be amended and supplemented, herein called individually the
"Prospectus" and collectively the "Prospectuses").
II. DISTRIBUTION
------------
1. APPOINTMENT OF DISTRIBUTOR. The Company hereby
appoints CFG as Distributor of the Funds' Shares and CFG hereby accepts such
appointment and agrees to render the services and duties set forth in this
Section II. The Distributor shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided herein or
authorized by the Board of Trustees of the Company from time to time, have no
authority to act for or represent the Company in any way or otherwise be deemed
its agent. The services furnished by the Distributor hereunder are not deemed
exclusive, and the Distributor shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
2. SERVICES AND DUTIES.
-------------------
(a) The Company agrees to sell through
CFG, as agent, from time to time during the term of this Agreement, Shares of
the Funds upon the terms and at the current offering price as described in the
applicable
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<PAGE> 3
Prospectus. CFG shall act only on its own behalf as principal in making
agreements with selected dealers or others for the sale and redemption of
Shares, and shall sell Shares only at the offering price thereof as set forth
in the applicable Prospectus. CFG shall devote its best efforts to effect
sales of Shares of each of the Funds, but shall not be obligated to sell any
certain number of Shares.
(b) In all matters relating to the sale
and redemption of Shares, CFG shall act in conformity with the Company's
Declaration, Bylaws and Prospectuses and with the instructions and directions
of the Board of Trustees of the Company, and shall conform to and comply with
the requirements of the 1933 Act, the 1940 Act, the regulations of the National
Association of Securities Dealers, Inc. and all other applicable federal or
state laws and regulations. In connection with such sales, CFG acknowledges
and agrees that it is not authorized to provide any information or make any
representations other than as contained in the Company's Registration Statement
and Prospectuses and any sales literature specifically approved by the Company.
The Company shall furnish from time to time, for use in connection with the
sale of the Shares, such information with respect to the Funds and the Shares
as CFG may reasonably request. The Company shall also furnish CFG upon request
with: (a) unaudited semi-annual statements of the Funds' books and accounts
prepared by the Company, (b) a monthly itemized list of the securities in the
Funds, (c) monthly balance sheets as soon as practicable after the end of each
month, and (d) from time to time such additional information regarding the
financial condition of the Funds as CFG may reasonably request.
(c) CFG shall bear the cost of (i)
printing and distributing any Prospectus (including any supplement thereto),
and (ii) preparing, printing and distributing any literature, advertisement or
material which is primarily intended to result in the sale of the Shares;
provided, however, that CFG shall not be obligated to bear the expenses
incurred by the Company in connection with (1) the preparation and printing of
any supplement or amendment to any Registration Statement or Prospectus
necessary for the continued effective registration of the Shares under the 1933
Act or any state securities laws; and (2) the printing and distribution of any
Prospectus, supplement or amendment thereto for existing shareholders of the
Fund described therein.
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<PAGE> 4
(d) All Shares of the Funds offered for
sale by CFG shall be offered for sale to the public at a price per Share (the
"offering price") equal to (i) their net asset value (determined in the manner
set forth in the Company's Declaration and then current Prospectuses) plus,
except with respect to those classes of persons or transactions set forth in
the then current Prospectuses, (ii) an initial sales charge or a contingent
deferred sales charge as set forth in the Company's then current Prospectuses.
The offering price, if not an exact multiple of one cent, shall be adjusted to
the nearest cent. Concessions by CFG to broker-dealers and other persons shall
be set forth in either the selling agreements between CFG and such
broker-dealers and persons or, if such concessions are described in the then
current Prospectuses, shall be as so set forth. No broker-dealer or other
person who enters into a selling agreement with CFG shall be authorized to act
as agent for the Company in connection with the offering or sale of its Shares
to the public or otherwise.
(e) The Company, or any agent of the
Company designated in writing by the Company, shall be promptly advised of all
purchase orders for Shares received by the Distributor or selected dealers.
CFG agrees, and shall cause any selected dealers to agree, to cause payment for
such Shares to be delivered promptly to the Company or its agent.
(f) If any Shares sold by CFG under the
terms of this Agreement are redeemed or repurchased by the Company or by CFG as
agent or are tendered for redemption within seven business days after the date
of confirmation of the original purchase of such Shares, CFG shall forfeit the
amount above the net asset value received by it in respect of such Shares,
provided that the portion, if any, of such amount re-allowed by CFG to
broker-dealers or other persons shall be repayable to the Company only to the
extent recovered by CFG from the broker-dealer or other person concerned. CFG
shall include in the forms of agreement with such broker-dealers and other
persons a corresponding provision for the forfeiture by them of their
concession with respect to Shares sold by them or their principals and redeemed
or repurchased by the Company or by CFG as agent (or tendered for redemption)
within seven business days after the date of confirmation of such initial
purchases.
(g) The Distributor shall provide the
services of certain persons who may be appointed as officers of the Company by
the Company's Board of Trustees.
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<PAGE> 5
3. SALES AND REDEMPTIONS.
---------------------
(a) The Company shall pay all costs and
expenses in connection with the registration of the Shares under the 1933 Act,
and all expenses in connection with maintaining facilities for the issue and
transfer of the Shares and for supplying information, prices and other data to
be furnished by the Company hereunder, and all expenses in connection with
preparing, printing and distributing the Prospectuses except as set forth in
subsection 2(c) of Section II hereof or in any other agreement entered into by
the Company.
(b) The Company shall execute all
documents, furnish all information and otherwise take all actions which may be
reasonably necessary in the discretion of the Company's officers in connection
with the qualification of the Shares for sale in such states as CFG may
designate to the Company and the Company may approve, and the Company shall pay
all filing fees which may be incurred in connection with such qualification.
CFG shall pay all expenses connected with its qualification as a dealer under
state or federal laws and, except as otherwise specifically provided in this
Agreement, all other expenses incurred by CFG in connection with the sale of
the Shares as contemplated in this Agreement.
(c) The Company shall have the right to
suspend the sale of Shares of any Fund at any time in response to conditions in
the securities markets or otherwise, and to suspend the redemption of Shares of
any Fund at any time as permitted by the 1940 Act or the rules of the
Commission ("Rules").
(d) The Company reserves the right to
reject any order for Shares, but shall not do so arbitrarily or without
reasonable cause.
III. PAYMENTS TO CFG
---------------
CFG shall receive and may retain any portion of any front-end
or contingent deferred sales charge which is imposed on sales and redemptions
of Shares, as set forth in the Prospectuses and not reallowed to others. Upon
termination of this Agreement for any reason, the obligation to pay any such
contingent deferred sales charge on Shares sold prior to the date of
termination shall survive the termina-
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<PAGE> 6
tion, and the Company or its agent shall collect and pay any such charges
thereafter imposed on such Shares to CFG.
It is understood that certain shareholder servicing expenses
to be incurred in connection with the Shares may be paid as provided in a
Shareholder Service Plan adopted by the Company, as the same may be amended by
the Company from time to time. CFG agrees to be responsible for the operation
of such Plan in accordance with the terms thereof.
The Company has adopted a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act, pursuant to which CFG shall be entitled to receive
certain payments as set forth in such Plan, as the same may be amended from
time to time. CFG agrees to be responsible for the operation of such Plan in
accordance with the terms thereof.
IV. LIMITATIONS OF LIABILITY
------------------------
CFG shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Company or any Fund in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement.
V. CONFIDENTIALITY
---------------
CFG shall treat confidentially and as proprietary information
of the Company all records and other information relative to the Company and
the Funds and prior or present shareholders or those persons or entities who
respond to CFG'S inquiries concerning investment in the Company, and shall not
use such records and information for any purpose other than the performance of
its responsibilities and duties hereunder or under any other agreement with the
Company, except after prior notification to and approval in writing by the
Company, which approval shall not be unreasonably withheld and may not be
withheld where CFG may be exposed to civil or criminal contempt proceedings for
failure to comply, when CFG is requested to divulge such information by duly
constituted authorities, or when CFG is so requested by the Company.
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<PAGE> 7
VI. INDEMNIFICATION
---------------
1. COMPANY REPRESENTATIONS. The Company represents and
warrants to CFG that (a) it is duly organized as a Delaware business trust and
is and at all times will remain duly authorized to enter into and perform this
Agreement, and (b) at all times the Registration Statement and Prospectuses
will in all material respects conform to the applicable requirements of the
1933 Act and the Rules and will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except that no representation or warranty
in this subsection shall apply to statements or omissions made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of and with respect to CFG expressly for use in the Registration
Statement or Prospectuses.
2. CFG REPRESENTATIONS. CFG represents and warrants to
the Company that (a) it is duly organized as a Delaware corporation and is and
at all times will remain duly authorized and licensed to carry out its services
as contemplated herein and (b) at all times any written information furnished
to the Company by or on behalf of CFG expressly for use in the Registration
Statement or Prospectuses will not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3. COMPANY INDEMNIFICATION. The Company shall
indemnify, defend and hold harmless CFG, its several officers and directors,
and any person who controls CFG within the meaning of Section 15 of the 1933
Act, from and against any losses, claims, damages or liabilities, joint or
several, to which any of them may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses or any application or other document
executed by or on behalf of the Company, or arise out of, or are based upon,
information furnished by or on behalf of the Company filed in any state in
order to qualify the Shares under the securities or blue sky laws thereof
("Blue Sky Application"), or arise out
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<PAGE> 8
of, or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse CFG, its several officers and
directors, and any person who controls CFG within the meaning of Section 15 of
the 1933 Act, for any legal or other expenses reasonably incurred by any of
them in investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that the Company shall not be liable in
any case to the extent that such loss, claim, damage or liability arises out
of, or is based upon, any untrue statement, alleged untrue statement, or
omission or alleged omission made in the Registration Statement, the
Prospectuses, any Blue Sky Application or any application or other document
executed by or on behalf of the Company in reliance upon and in conformity with
written information furnished to the Company by or on behalf of and with
respect to CFG specifically for inclusion therein.
The Company shall not indemnify any person pursuant to this
subsection 3 of Section VI hereof unless the court or other body before which
the proceeding was brought has rendered a final decision on the merits that
such person was not liable by reason of his willful misfeasance, bad faith or
negligence in the performance of his duties, or his reckless disregard of
obligations and duties, under this Agreement ("disabling conduct") or, in the
absence of such a decision, a reasonable determination (based upon a review of
the facts) that such person was not liable by reason of disabling conduct has
been made by the vote of a majority of a quorum of trustees of the Company who
are neither "interested persons" of the Company (as defined in the 1940 Act)
nor parties to the proceeding, or by an independent legal counsel in a written
opinion.
Each Fund shall advance attorneys' fees and other expenses
incurred by any person in defending any claim, demand, action or suit which is
the subject of a claim for indemnification pursuant to this subsection 3 of
Section VI hereof, so long as: (a) such person shall undertake to repay all
such advances unless it is ultimately determined that he is entitled to
indemnification hereunder; and (b) such person shall provide security for such
undertaking, or the Fund shall be insured against losses arising by reason of
any lawful advances, or a majority of a quorum of the disinterested, non-party
trustees of the Company (or an independent legal counsel in a written opinion)
shall determine based on a review of readily available facts (as opposed to a
full trial-type inquiry) that there is reason
-8-
<PAGE> 9
to believe that such person ultimately will be found entitled to
indemnification hereunder.
4. CFG INDEMNIFICATION. CFG shall indemnify, defend and
hold harmless the Company, each Fund, the Company's several officers and
trustees and any person who controls the Company or any Fund within the meaning
of Section 15 of the 1933 Act, from and against any losses, claims, damages or
liabilities, joint or several, to which any of them may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any breach of its representations and warranties in subsection 2 of
Section VI or its agreements in subsection 2 of Section II hereof, or which
arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, the
Prospectuses, any Blue Sky Application or any application or other document
executed by or on behalf of the Company, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, which statement or omission was
made in reliance upon and in conformity with information furnished in writing
to the Company or any of its several officers and trustees by or on behalf of
and with respect to CFG specifically for inclusion therein, and shall reimburse
the Company, each Fund, the Company's several officers and trustees, and any
person who controls the Company or any Fund within the meaning of Section 15 of
the 1933 Act, for any legal or other expenses reasonably incurred by any of
them in investigating, defending or preparing to defend any such action,
proceeding or claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying party
shall be liable under its indemnity agreement contained in subsection 3 or 4 of
Section VI hereof with respect to any claim made against such indemnifying
party unless the indemnified party shall have notified the indemnifying party
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the indemnified party (or after the indemnified party shall have received
notice of such service on any designated agent), but failure to notify the
indemnifying party of any such claim shall not relieve it from any liability
which it may otherwise have to the indemnified party. The indemnifying party
shall be entitled to participate at its own expense in the defense or, if it so
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<PAGE> 10
elects, to assume the defense of any suit brought to enforce any such
liability, and if the indemnifying party elects to assume the defense, such
defense shall be conducted by counsel chosen by it and reasonably satisfactory
to the indemnified party. In the event the indemnifying party elects to assume
the defense of any such suit and retain such counsel, the indemnified party
shall bear the fees and expenses of any additional counsel retained by the
indemnified party.
6. NAMES. The name "Time Horizon Funds" refers
to the trust created and the trustees, as trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated April
12, 1995, as amended, which is hereby referred to and a copy of which is on
file at the principal office of the Company. The trustees, officers, employees
and agents of the Company shall not personally be bound by or liable under any
written obligation, contract, instrument, certificate or other interest or
undertaking of the Company made by the trustees or by an officer, employee or
agent of the Company, in his or her capacity as such, nor shall resort be had
to their private property for the satisfaction of any obligation or claim
thereunder. All persons dealing with any series or class of shares of the
Company may enforce claims against the Company only against the assets
belonging to such series or class.
VII. DURATION AND TERMINATION
------------------------
This Agreement shall become effective as of the date hereof
and, unless sooner terminated as provided herein, shall continue in effect with
respect to each Fund until October 31, 1996. Thereafter, if not terminated,
this Agreement shall continue automatically for successive terms of one year,
provided that such continuance is specifically approved at least annually (a)
by a vote of a majority of those members of the Board of Trustees of the
Company who are not parties to this Agreement or "interested persons" of any
such party, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the Board of Trustees of the Company or by vote of a
"majority of the outstanding voting securities" of the Funds as to which the
Agreement is effective; provided, however, that this Agreement may be
terminated by the Company at any time, without the payment of any penalty, by
vote of a majority of the entire Board of Trustees of the Company or by a vote
of a "majority of the outstanding voting securities" of such Funds on sixty
(60) days' prior written notice to CFG, or by
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<PAGE> 11
CFG at any time, without the payment of any penalty, on sixty (60) days' prior
written notice to the Company. This Agreement shall automatically and
immediately terminate in the event of its "assignment." As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the 1940 Act.
VIII. AMENDMENT OF THIS AGREEMENT
---------------------------
No provision of this Agreement may be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against whom an enforcement of the change, waiver, discharge or termination is
sought.
IX. NOTICES
-------
Notices of any kind to be given to the Company hereunder by
CFG shall be in writing and shall be duly given if mailed or delivered to the
Company before September 18, 1995 at: 1900 Dublin-Granville Road, Columbus,
Ohio 43229 Attention: Stephen G. Mintos; after September 18, 1995 at: 3435
Stelzer Road, Columbus, Ohio 43219, Attention: Stephen G. Mintos; with a copy
to Cathy G. O'Kelly, Esq., Vedder, Price, Kaufman & Kammholz, 222 N. LaSalle,
26th Floor, Chicago, Illinois 60695, or at such other address or to such
individual as shall be so specified by the Company to CFG. Notices of any kind
to be given to CFG hereunder by the Company shall be in writing and shall be
duly given if mailed or delivered to CFG at 515 Figueroa Street, Suite 335, Los
Angeles, CA 90071, Attention: Gene Spurbeck, or at such other address or to
such individual as shall be so specified by CFG to the Company.
X. MISCELLANEOUS
-------------
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section VII hereof, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by New York law (without regard to
principles of conflicts of law);
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<PAGE> 12
PROVIDED, HOWEVER, that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or any rule or regulation of the Commission
thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
TIME HORIZON FUNDS
By:/s/J. David Huber
------------------------
J. David Huber
President
Attest:/s/W. Eugene Spurbuck
--------------------------
(name) W. Eugene Spurbuck
--------------------
Secretary
CONCORD FINANCIAL GROUP, INC.
By:/s/George O. Martinez
---------------------------
(name) George O. Martinez
-------------------
Chief Executive Officer
Attest:/s/Robert L. Tuch
----------------------
(name) Robert L. Tuch
---------------
Assistant Secretary
-12-
<PAGE> 1
EXHIBIT 8.0
CUSTODIAN SERVICES AGREEMENT
----------------------------
This Agreement is made as of August 8, 1995 by and between PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC Bank"), and TIME HORIZON
FUNDS, a Delaware business trust (the "Fund").
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940" Act). The Fund wishes
to retain PNC Bank to provide custodian services for the portfolios listed in
Appendix A, as attached hereto and as amended from time to time (each a
"Portfolio"), and PNC Bank wishes to furnish custodian services, either
directly or though an affiliate or affiliates, as more fully described herein.
In consideration of the premises and mutual covenants herein contained, the
parties agree as follows:
1. DEFINITIONS.
-----------
(a) "AUTHORIZED PERSON". The term "Authorized Person" shall mean any
officer of the Fund and any other person who is duly authorized by the Fund's
Governing Board to give Oral and Written Instructions on behalf of the Fund and
who is listed on the Authorized Persons Appendix attached hereto and made a
part hereof, as such appendix may be amended in writing by the Fund's Governing
<PAGE> 2
Board from time to time. An Authorized Person's scope of authority may be
limited by the Fund by setting forth such limitation in the Authorized Persons
Appendix.
(b) "BOOK-ENTRY SYSTEM". The term "Book-Entry System" shall mean the
Federal Reserve Treasury book-entry system for United States and federal agency
securities, its successor or successors, and its nominee or nominees and any
book-entry system maintained by an exchange registered with the SEC under the
1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities Futures Trading
Commission.
(d) "GOVERNING BOARD". The term "Governing Board" shall mean the Fund's
Board of Trustees, or, where duly authorized, a competent committee thereof.
(e) "ORAL INSTRUCTIONS". The term "Oral Instructions" shall mean oral
instructions received by PNC Bank from an Authorized Person or from a person
reasonably identified to PNC Bank as an Authorized Person.
(f) "PNC BANK". The term "PNC Bank" shall mean PNC Bank, National
Association or a subsidiary or affiliate of PNC Bank, National Association.
(g) "SEC". The term "SEC" shall mean the Securities and
2
<PAGE> 3
Exchange Commission.
(h) "SECURITIES AND COMMODITIES LAWS". The term "Securities and
Commodities Laws" shall mean the "1933 Act", which shall mean the Securities
Act of 1933, as amended, the "1934 Act", which shall mean the Securities
Exchange Act of 1934, as amended, the "1940 Act", which shall mean the
Investment Company Act of 1940, as amended and the "CEA", which shall mean the
Commodities Exchange Act, as amended.
(i) "SHARES". The term "Shares" shall mean the shares of any series or
class of units of beneficial interest of the Fund.
(j) "PROPERTY". The term "Property" shall mean:
(i) any and all securities and other investment items which the Fund
may from time to time deposit, or cause to be deposited, with
PNC Bank or which PNC Bank may from time to time hold for the
Fund;
(ii) All income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or investment
items; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by PNC Bank from time to time, from or on behalf of
the Fund.
(k) "WRITTEN INSTRUCTIONS". The term "Written Instructions" shall mean
written instructions signed by one or more
3
<PAGE> 4
Authorized Persons as required by the Governing Board from time to time and
received by PNC Bank. The instructions may be delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PNC Bank to provide custodian
services, and PNC Bank accepts such appointment and agrees to furnish such
services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective registration statement;
(c) a copy of the Fund's advisory agreement;
(d) a copy of the Fund's administration agreement;
(e) certified or authenticated copies of any and all amendments or
supplements to the foregoing; and
(f) copies of any shareholder servicing agreements made in respect of the
Fund or a Portfolio.
4. COMPLIANCE WITH GOVERNMENT RULES AND REGULATIONS. PNC Bank undertakes to
comply with all applicable requirements of the Securities and Commodities Laws
and any other laws, rules
4
<PAGE> 5
and regulations of state and federal governmental authorities having
jurisdiction with respect to all duties to be performed by PNC Bank hereunder.
Except as specifically set forth herein, PNC Bank assumes no responsibility for
such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS. Unless otherwise provided in this Agreement or by
resolution of the Governing Board which has been submitted to PNC Bank, PNC
Bank shall act only upon Oral and Written Instructions. PNC Bank shall be
entitled to rely upon any Oral and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by PNC Bank to be an
Authorized Person) pursuant to this Agreement. PNC Bank may assume that any
Oral or Written Instructions received hereunder are not in any way inconsistent
with the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Governing Board or any committee thereof
or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming Oral
Instructions so that PNC Bank receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact
that such confirming Written Instructions are not received by PNC Bank shall in
no way
5
<PAGE> 6
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions.
The Fund further agrees that, where Oral or Written Instructions reasonably
appear to have been received from an Authorized Person, PNC Bank shall incur no
liability to the Fund in acting upon such Oral or Written Instructions,
provided that PNC Bank's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or advice, including
Oral or Written Instructions, from the Fund.
(b) ADVICE OF COUNSEL. If PNC Bank shall be in doubt as to any question
of law pertaining to any action it should or should not take, PNC Bank may
request advice at its own cost from such counsel of its own choosing (who may
be counsel for the Fund, the Fund's investment adviser or PNC Bank, at the
option of PNC Bank).
(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral or Written Instructions PNC Bank receives from the Fund, and the
written advice it receives from counsel, PNC Bank shall be entitled to rely
upon and follow such advice of counsel after notice to the Fund.
6
<PAGE> 7
(d) PROTECTION OF PNC BANK. PNC Bank shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PNC Bank
believes, in good faith, to be consistent with those directions, advice or Oral
or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an obligation
upon PNC Bank (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PNC Bank's properly taking or not taking
such action.
Nothing in this subsection shall excuse PNC Bank when an action or omission
on the part of PNC Bank constitutes willful misfeasance, bad faith, negligence
or reckless disregard by PNC Bank of any duties or obligations under this
Agreement.
7. RECORDS. The books and records pertaining to the Fund and any Portfolio,
which are in the possession of PNC Bank, shall be the property of the Fund.
Such books and records shall be prepared and maintained as required by the 1940
Act and other applicable securities laws, rules and regulations and shall, to
the
7
<PAGE> 8
extent practicable, be maintained separately for each Portfolio of the Fund.
The Fund, or the Fund's authorized representatives, shall have access to such
books and records at all times during PNC Bank's normal business hours. Upon
the reasonable request of the Fund, copies of any such books and records shall
be provided by PNC Bank to the Fund or to an authorized representative of the
Fund, at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential and to treat as
proprietary information of the Fund all records of the Fund and information
relative to the Fund and its shareholders (past, present and potential), unless
the release of such records or information is otherwise authorized by the
Governing Board. The Fund further agrees that, should PNC Bank be required to
provide such information or records to duly constituted authorities (who may
institute civil or criminal contempt proceedings for failure to comply), PNC
Bank shall not be required to seek the Fund's consent prior to disclosing such
information; provided that PNC Bank gives the Fund prior written notice of the
provision of such information and records.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this
8
<PAGE> 9
Agreement to ensure that the necessary information is made available to such
accountants for the expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall at its expense enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provisions for emergency use of electronic data processing equipment
to the extent appropriate equipment is available. In the event of equipment
failures, PNC Bank shall, at no additional expense to the Fund, take reasonable
steps to minimize service interruptions but shall have no liability with
respect to the loss of data or service interruptions caused by equipment
failure provided such loss or interruption is not caused by PNC Bank's own
willful misfeasance, bad faith, negligence or reckless disregard of its duties
or obligations under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by PNC Bank
during the term of this Agreement, the Fund, on behalf of each of the
Portfolios, will pay to PNC Bank a fee or fees as may be agreed to in writing
from time to time by the Fund and PNC Bank.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PNC Bank and its affiliates
9
<PAGE> 10
from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities and
Commodities Laws, and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements, arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions provided that neither PNC Bank, nor any of its affiliates,
shall be indemnified against any liability to the Fund or to its shareholders
(or any expenses incident to such liability) arising out of PNC Bank's or its
affiliates' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
13. RESPONSIBILITY OF PNC BANK. PNC Bank shall be under no duty to
take any action on behalf of the Fund or any Portfolio except as specifically
set forth herein or as may be specifically agreed to by PNC Bank in writing.
PNC Bank shall be obligated to exercise care and diligence in the performance
of its duties hereunder and shall be responsible for its own or its affiliates'
and nominees' own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this
10
<PAGE> 11
Agreement. Without limiting the generality of the foregoing or of any other
provision of this Agreement, PNC Bank, in connection with its duties under this
Agreement, shall not be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or authority or lack thereof
of any Oral or Written Instruction, notice or other instrument which conforms
to the applicable requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (b) delays or errors or loss of data occurring by
reason of circumstances beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, fire, flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank shall
have no liability to the Fund or to any Portfolio for any consequential,
special or indirect losses or damages which the Fund may incur or suffer by or
as a consequence of PNC Bank's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known by PNC Bank.
14. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for
delivery to PNC Bank, all (except as otherwise
11
<PAGE> 12
determined by the Governing Board) of the Property owned by the Portfolios,
including cash received as a result of the distribution of its Shares, during
the period that is set forth in this Agreement. PNC Bank will not be
responsible for such Property until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PNC Bank, acting upon
Written Instructions, shall open and maintain separate account(s) in the Fund's
name using all cash received from or for the account of the Fund, subject to
the terms of this Agreement. In addition, upon Written Instructions, PNC Bank
shall open and maintain separate custodial accounts for each separate series,
Portfolio or class of the Fund and shall hold in such account(s) all cash
received from or for the accounts of the Fund specifically designated to each
separate series, Portfolio or class.
PNC Bank shall make cash payments from or for the account of each
Portfolio of the Fund only for:
(i) purchases of securities in the name of a Portfolio of the Fund or
PNC Bank or PNC Bank's nominee as provided in sub-paragraph
(j) and for which PNC Bank has received a copy of the broker's or
dealer's confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to PNC Bank;
(iii) payment of, subject to Written Instructions,
12
<PAGE> 13
interest, taxes, administration, accounting, distribution,
advisory, management fees or similar expenses which are to
be borne by a Portfolio;
(iv) payment to, subject to receipt of Written Instructions, the Fund's
transfer agent, as agent for the Fund's shareholders, of an amount
equal to the amount of dividends and distributions stated in the
Written Instructions to be distributed in cash by the transfer
agent to shareholders of the applicable Portfolio, or, in lieu of
paying the Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to shareholders
in accordance with procedures mutually agreed upon from time to
time by and among the Fund, PNC Bank and the Fund's transfer agent;
(v) payments, upon receipt of Written Instructions, in connection with
the conversion, exchange or surrender of securities owned or
subscribed to by the Fund and held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends received with respect to
securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-paragraph (c) of this Paragraph 14; and
(viii) payments, upon receipt of Written Instructions, for other proper
Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as
13
<PAGE> 14
custodian for the account of the Fund.
(c) RECEIPT AND WITHDRAWAL OF SECURITIES.
(i) PNC Bank shall hold all securities received by it for the
account of each Portfolio of the Fund in a separate account that
physically segregates such securities from those of any other
persons, firms or corporations. All such securities shall be
held or disposed of only upon Written Instructions of the Fund
pursuant to the terms of this Agreement. PNC Bank shall have no
power or authority to assign, hypothecate, pledge or otherwise
dispose of any such securities or investment items, except upon
the express terms of this Agreement and upon Written
Instructions authorizing the transaction. In no case may any
member of the Governing Board, or any officer, employee or
agent of the Fund withdraw any securities.
At PNC Bank's own expense and for its own convenience, PNC Bank
may enter into sub-custodian agreements with other United States
banks or trust companies to perform duties described in this
sub-paragraph (c). Such bank or trust company shall have an
aggregate capital, surplus and undivided profits, according to
its last published report, of at least one million dollars
($1,000,000), if it is a subsidiary or affiliate of PNC Bank, or
at least twenty million dollars ($20,000,000) if such bank or
trust company is not a subsidiary or affiliate of PNC Bank. In
addition, such bank or trust company must be qualified to act as
custodian and agree to comply with the relevant provisions of the
1940 Act and other applicable rules and regulations. Any such
arrangement will not be entered into without prior written
notice to the Fund.
14
<PAGE> 15
PNC Bank shall remain responsible for the performance of all of
its duties as described in this Agreement and shall hold the Fund
and each Portfolio harmless from its own acts or omissions, under
the standards of care provided for herein, or the acts and
omissions of any sub-custodian chosen by PNC Bank under the terms
of this sub-paragraph (c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral or Written
Instructions and not otherwise, PNC Bank, directly or through the use of the
Book-Entry System, shall:
(i) deliver any securities held for a Portfolio of the Fund against
the receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated
in such Oral or Written Instructions, proxies,
consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of
any securities on behalf of a Portfolio may be exercised;
(iii) deliver any securities held for a Portfolio of the Fund to the
issuer thereof, or its agent, when such securities are called,
redeemed, retired or otherwise become payable; provided that, in
any such case, the cash or other consideration is to be delivered
to PNC Bank;
(iv) deliver any securities held for a Portfolio of the Fund against
receipt of other securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, tender offer,
merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege;
(v) deliver any securities held for a Portfolio of
15
<PAGE> 16
the Fund to any protective committee, reorganization committee or
other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence
such delivery;
(vi) make such transfer or exchanges of the assets of a Portfolio of
the Fund and take such other steps as shall be stated in said Oral
or Written Instructions to be for the purpose of effectuating a
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(vii) release securities belonging to a Portfolio of the Fund to any
bank or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by a Portfolio of the
Fund; provided, however, that securities shall be released only
upon payment to PNC Bank of the monies borrowed, except that in
cases where additional collateral is required to secure a
borrowing already made subject to proper prior authorization,
further securities may be released for that purpose; and repay
such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing the loan;
(viii) release and deliver securities owned by a Portfolio of the Fund
in connection with any repurchase agreement entered into on
behalf of a Portfolio of the Fund, but only on receipt of payment
therefor; and pay out moneys of a Portfolio of the Fund in
connection with such repurchase agreements, but only upon the
delivery of the securities;
16
<PAGE> 17
(ix) release and deliver or exchange securities owned by a Portfolio
of the Fund in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by a Portfolio of the Fund
for the purpose of redeeming in kind shares of the Fund upon
delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by a Portfolio
of the Fund for other corporate purposes.
(e) USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Governing Board approving, authorizing and
instructing PNC Bank on a continuous and on-going basis, to deposit in the
Book-Entry System all securities belonging to each Portfolio of the Fund
eligible for deposit therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of purchases and sales of securities by
each Portfolio of the Fund, and deliveries and returns of securities loaned,
subject to repurchase agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties until it receives
Written or Oral Instructions authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions shall
apply:
17
<PAGE> 18
(i) With respect to securities of each Portfolio which are maintained in
the Book-Entry System, established pursuant to this sub-paragraph (e)
hereof, the records of PNC Bank shall identify by Book-Entry or
otherwise those securities belonging to the applicable Portfolio of
the Fund. PNC Bank shall furnish the Fund a detailed statement of
the Property held for each Portfolio of the Fund under this
Agreement at least monthly and from time to time and upon written
request;
(ii) Securities and any cash of each Portfolio deposited in the
Book-Entry System will at all times be segregated from any assets and
cash controlled by PNC Bank in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such
capacities. PNC Bank and its sub-custodian, if any, will pay out
money only upon receipt of securities and will deliver securities only
upon the receipt of money;
(iii) All books and records maintained by PNC Bank which relate to the
Fund's participation in the Book-Entry System will at all times
during PNC Bank's regular business hours be open to the inspection of
the Fund's duly authorized employees or agents, and the Fund will be
furnished with all information in respect of the services
rendered to it as it may require; and
(iv) PNC Bank will provide the Fund with copies of any report obtained by
PNC Bank on the system of internal accounting control of the
Book-Entry System promptly after receipt of such are port by PNC Bank.
18
<PAGE> 19
PNC Bank will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
(f) REGISTRATION OF SECURITIES. All securities held for a Portfolio which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for a Portfolio may be registered on behalf of that Portfolio,
PNC Bank, the Book-Entry System, a sub-custodian, or any duly appointed
nominee(s) of the Fund, PNC Bank, the Book-Entry System or any sub-custodian.
The Fund reserves the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund. The Fund agrees to
furnish to PNC Bank appropriate instruments to enable PNC Bank to hold or
deliver in proper form for transfer, or to register in the name of its
registered nominee or the Book-Entry System, any securities which it may hold
for the account of the Fund and which may from time to time be registered in
the name of the Fund on behalf of a Portfolio. PNC Bank shall hold all such
securities which are not held in the Book-Entry System in a separate account
for each Portfolio of the Fund in the name of the applicable Portfolio of the
Fund physically segregated at all times from those of any other person or
persons.
19
<PAGE> 20
(g) VOTING AND OTHER ACTION. Neither PNC Bank nor its nominee shall vote
any of the securities held pursuant to this Agreement by or for the account of
a Portfolio of the Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System, shall execute in
blank and promptly deliver all notices, proxies, and proxy soliciting materials
to the registered holder of such securities. If the registered holder is not
the Fund on behalf of a Portfolio, then Written or Oral Instructions must
designate the person(s) who owns such securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of contrary
Written Instructions, PNC Bank is authorized to take the following actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each Portfolio of the Fund,
all income, dividends, distributions, coupons, option premiums,
other payments and similar items, included or to be included in the
Property, and, in addition, promptly advise the Fund of such
receipt and credit such income, as collected, to the applicable
Portfolio's custodian account;
(B) endorse and deposit for collection, in the name of the applicable
Portfolio of the Fund, checks, drafts, or other orders for the
payment of money on the
20
<PAGE> 21
same day as received;
(C) receive and hold for the account of each Portfolio of the
Fund all securities received as a distribution on the Portfolio's
securities as a result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar securities
issued with respect to any portfolio securities belonging to the
Portfolio held by PNC Bank hereunder;
(D) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or
retired, or otherwise become payable on the date such
securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for collection
of checks, drafts, and other negotiable instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) PNC Bank is authorized to deliver or cause to be
delivered Property against payment or other consideration or
written receipt therefor in the following cases:
(1) for examination by a broker or dealer selling for the
account of a Portfolio of the Fund in accordance with
street delivery custom;
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<PAGE> 22
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of a Portfolio
of the Fund or PNC Bank or nominee of either, or for
exchange of securities for a different number of bonds,
certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the
same interest rate, maturity date and call provisions, if
any; provided that, in any such case, the new securities
are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or Written Instructions to
the contrary, PNC Bank shall:
(1) pay all income items held by it which call for payment
upon presentation and hold the cash received by it upon
such payment for the account of the applicable Portfolio
of the Fund;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of the applicable
Portfolio of the Fund;
(3) hold for the account of the applicable Portfolio of the
Fund all stock dividends, rights and similar securities
issued with respect to any securities held by PNC Bank; and
22
<PAGE> 23
(4) execute as agent on behalf of the applicable Portfolio of
the Fund all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax Regulations of
the United States Treasury Department or under the laws of
any State now or hereafter in effect, inserting the
Portfolio's name on such certificate as the owner of the
securities covered thereby to the extent it may lawfully
do so.
(i) SEGREGATED ACCOUNTS.
(i) PNC Bank shall upon receipt of Written or Oral Instructions
establish and maintain a segregated accounts(s) on its records for
and on behalf of each Portfolio of the Fund. Such account(s) may be
used to transfer cash and securities, including securities in the
Book-Entry System:
(A) for the purposes of compliance by the Fund with the procedures
required by a securities or option exchange, providing such
procedures comply with the 1940 Act and any regulations of the
SEC relating to the maintenance of segregated accounts by
registered investment companies; and
(B) Upon receipt of Written Instructions, for other proper corporate
purposes.
(ii) PNC Bank shall arrange for the establishment of IRA custodian
accounts for such shareholders holding shares through IRA
accounts, in accordance with the Prospectus, the Internal Revenue
Code (including
23
<PAGE> 24
regulations), and with such other procedures as are mutually agreed
upon from time to time by and among the Fund, PNC Bank and the
Fund's transfer agent.
(iii) PNC Bank may enter into separate custodial agreements with
various futures commission merchants ("FCMs") that the Fund uses
(each an "FCM Agreement"), pursuant to which the Fund's margin
deposits in any transactions involving futures contracts and
options on futures contracts will be held by PNC Bank in accounts
(each an "FCM Account") subject to the disposition by the FCM
involved in such contracts in accordance with the customer
contact between FCM and the Fund ("FCM Contract"), SEC rules
governing such segregated accounts, CFTC rules and the rules of
the applicable commodities exchange. Such FCM Agreements shall
only be entered into upon receipt of Written Instructions from
the Fund which state that (i) a customer agreement between the
FCM and the Fund has been entered into; and (ii) the Fund is in
compliance with all the rules and regulations of the CFTC.
Except as otherwise determined by the Governing Board, transfers
of initial margin shall be made into an FCM Account only upon
Written Instructions; transfers of premium and variation margin
may be made into an FCM Account pursuant to Oral Instructions.
Transfers of funds from an FCM Account to the FCM for which PNC
Bank holds such an account may only occur upon certification by
the FCM to PNC Bank that pursuant to the FCM Agreement and the
FCM Contract, all conditions precedent to its right to give PNC
Bank such instruction have been satisfied.
(j) PURCHASES OF SECURITIES. PNC Bank shall settle purchased securities
upon receipt of Oral or Written Instructions
24
<PAGE> 25
that specify:
(i) the name of the issuer and the title of the securities, including
CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the name of the person from whom or the broker through whom the
purchase was made; and
(vii) the Portfolio of the Fund to which such purchase applies. PNC
Bank shall upon receipt of securities purchased by or for a
Portfolio of the Fund pay out of the moneys held for the account
of such Portfolio the total amount payable to the person from
whom or the broker through whom the purchase was made, provided
that the same conforms to the total amount payable as set forth
in such Oral or Written Instructions.
(k) SALES OF SECURITIES. PNC Bank shall sell securities upon receipt of
Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security, including
CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
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<PAGE> 26
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the sale
was made;
(vii) the location to which the security must be delivered and delivery
deadline, if any; and
(viii) the Portfolio of the Fund to which such sale applies.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided that the total amount payable
is the same as was set forth in the Oral or Written Instructions. Subject to
the foregoing, PNC Bank may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PNC Bank shall furnish the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of each Portfolio of the Fund,
listing the portfolio securities
26
<PAGE> 27
belonging to each Portfolio of the Fund with the adjusted
average cost of each issue and the market value at the end
of such month, and stating the cash account of each
Portfolio of the Fund including disbursement;
(C) the reports to be furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be agreed upon from time to
time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy statement,
proxy material, notice of a call or conversion or similar
communication received by it as custodian of the Property. PNC
Bank shall be under no other obligation to inform the Fund as to
such actions or events.
(m) COLLECTIONS. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by PNC Bank) shall be at the sole risk of the Fund. If payment is
not received by PNC Bank within a reasonable time after proper demands have
been made, PNC Bank shall notify the Fund in writing, including copies of all
demand letters, any written responses, memoranda of all oral responses and to
telephonic demands thereto, and await instructions from the Fund. PNC Bank
shall not be obliged to take legal action for collection unless and until
reasonably indemnified to its satisfaction. PNC Bank shall also notify the
Fund as soon as
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<PAGE> 28
reasonably practicable whenever income due on securities is not collected in
due course.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PNC Bank on one hundred eighty (180) days' prior
written notice to the other party. In the event this Agreement is terminated
(pending appointment of a successor to PNC Bank or vote of the shareholders of
the Fund to dissolve or to function without a custodian of its cash, securities
or other property), PNC Bank shall not deliver cash, securities or other
property of the Fund to the Fund. It may deliver them to a bank or trust
company of PNC Bank's own selection, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000), as a custodian for the Fund to be held
under terms similar to those of this Agreement. PNC Bank shall not be required
to make any such delivery or payment until full payment shall have been made to
PNC Bank of all of its fees, compensation, costs and expenses.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank, at
Airport Business Center,
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International Court 2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked
for the attention of the Custodian Services Department (or its successor); (b)
if to the Fund, at the address of the Fund until September 5, 1995, at 1900
East Dublin-Granville Road, Columbus, OH 43229 (with a copy to Cathy G.
O'Kelly, Vedder, Price, Kaufman & Kammholz, 222 North La Salle, Chicago, IL
60601); or if to the Fund after September 5, 1995, at 3435 Stelzer Road,
Columbus OH 43219 (with a copy to Cathy G. O'Kelly, Vedder, Price, Kaufman &
Kammholz, 222 North La Salle, Chicago, IL 60601); or (c) if to neither of the
foregoing, at such other address as shall have been notified to the sender of
any such Notice or other communication. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to have
been given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given five days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the day it is
delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and
delegate its duties hereunder to any wholly-owned direct or
29
<PAGE> 30
indirect subsidiary of PNC Bank, National Association or PNC Bank Corp.,
provided that (i) PNC Bank gives the Fund thirty (30) days' prior written
notice; (ii) the delegate (or assignee) agrees with PNC Bank and the Fund to
comply with all relevant provisions of the 1940 Act; and (iii) PNC Bank and
such delegate (or assignee) promptly provide such information as the Fund may
request, and respond to such questions as the Fund may ask, relative to the
delegation (or assignment), including (without limitation) the capabilities of
the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one more separate documents their agreement, if any, with respect
to delegated duties and/or Oral Instructions.
The names "Time Horizon Funds" and "Trustees of Time Horizon
30
<PAGE> 31
Funds" refer respectively to the trust created and the trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated April 12, 1995, which is hereby referred to and a
copy of which is on file at the principal office of the Fund. The trustees,
officers, employees and agents of the Fund shall not personally be bound by or
liable under any written obligation, contract, instrument, certificate or other
interest or undertaking of the Fund made by the trustees or by an officer,
employee or agent of the Fund, in his or her capacity as such, nor shall resort
be had to their private property for the satisfaction of any obligation or
claim thereunder. All persons dealing with any class of shares of the Fund may
enforce claims against the Fund only against the assets belonging to such
class.
The captions in this Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
This Agreement shall be deemed to be a contract governed by Pennsylvania law
(except for the second paragraph of this Paragraph 21, which shall be governed
by Delaware law). If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding upon
and
31
<PAGE> 32
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
32
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By:__________________________
Title:
TIME HORIZON FUNDS
By:__________________________
Title:
33
<PAGE> 34
APPENDIX A
----------
Portfolios
----------
Time Horizon 1
Time Horizon 2
Time Horizon 3
This Appendix A is dated as of August 8, 1995
34
<PAGE> 35
AUTHORIZED PERSONS APPENDIX
---------------------------
NAME (TYPE) SIGNATURE
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
_____________________ _____________________
35
<PAGE> 1
Exhibit 9.1
ACCOUNTING SERVICES AGREEMENT
This Agreement is made as of September 5, 1995 by and among
TIME HORIZON FUNDS, a Delaware business trust (the "Company"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Manager"), and BISYS Fund
Services Ohio, Inc., an Ohio corporation (the "Accountant").
WHEREAS, the Manager has entered into a Management Agreement
dated September 5, 1995 (the "Management Agreement") to provide administration
and advisory services (including but not limited to fund accounting services)
to the Company, which is an investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Management Agreement provides that the Manager
may from time to time employ or associate with itself such person or persons as
it may believe to be particularly fitted to assist in the performance of the
Management Agreement;
WHEREAS, the Manager desires to retain the Accountant to
provide fund accounting services for the portfolios of the Company listed on
Appendix A, as amended from time to time (each individually a "Fund," and
collectively, the "Funds"), and the Accountant is willing to provide such
services, all as more fully set forth below;
WHEREAS, the Accountant is experienced in providing fund
accounting services to investment companies and possesses facilities sufficient
to provide such services; and
WHEREAS, the Board of Trustees of the Company has approved the
appointment of the Accountant to provide fund accounting services on behalf of
the Company.
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, the parties agree as follows:
1. Definitions.
-----------
(a) "Authorized Person." The term "Authorized
Person" shall mean any officer of the Company and any other person, who is duly
authorized by the Company's Governing Board, to give Oral and Written
Instructions on behalf of the Company, provided, however, that if the Governing
Board determines that Oral Instructions or Written Instructions
<PAGE> 2
require the approval of more than one person, the term "Authorized Person"
shall mean such persons as are in combination so authorized. Such persons are
listed in the Certificate attached hereto, as amended from time to time, as the
Authorized Persons Appendix to this Agreement. If the Accountant provides more
than one service hereunder, the Company's designation of Authorized Persons may
vary by service.
(b) "CFTC." The term "CFTC" shall mean the
Commodities Futures Trading Commission.
(c) "GOVERNING BOARD." The term "Governing
Board" shall mean the Company's Board of Trustees or, where duly authorized, a
competent committee thereof.
(d) "ORAL INSTRUCTIONS." The term "Oral
Instructions" shall mean oral instructions received by the Accountant from an
Authorized Person or from a person reasonably identified to the Accountant as
an Authorized Person.
(e) "SEC." The term "SEC" shall mean the
Securities and Exchange Commission.
(f) "SECURITIES AND COMMODITIES LAWS." The term
"Securities and Commodities Laws" shall mean the "1933 Act" (which shall mean
the Securities Act of 1933), the "1934 Act" (which shall mean the Securities
Exchange Act of 1934), the "1940 Act" (which shall mean the Investment Company
Act of 1940), and the "CEA" (which shall mean the Commodities Exchange Act), in
each case as amended.
(g) "SHARES." The terms "Shares" shall mean the
shares or any series or class of units of beneficial interest of the Company.
(h) "WRITTEN INSTRUCTIONS." The term "Written
Instructions" shall mean written instructions signed by one or more Authorized
Persons as required by the Governing Board from time to time and received by
the Accountant. The instructions may be delivered by hand, mail, courier
service, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENt. The Manager hereby appoints the
Accountant to provide fund accounting services, in accordance with the terms
set forth in this Agreement. The
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<PAGE> 3
Accountant accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Manager has provided or,
where applicable, will provide the Accountant with the following:
(a) certified or authenticated copies of the
resolutions of the Company's Governing Board, approving the appointment of the
Accountant or its affiliates to provide fund accounting services;
(b) a copy of the Company's most recent effective
registration statement;
(c) a copy of the Company's Management Agreement;
and
(d) certified or authenticated copies of any and
all amendments or supplements to the foregoing.
4. DESCRIPTION OF ACCOUNTING SERVICES. The Accountant
shall perform all necessary accounting functions including, without limitation,
the following:
(a) Journalize the Company's investment, capital
share and income and expense activities;
(b) Verify investment buy/sell trade tickets when
received from the Manager and transmit trades to the Company's custodian for
proper settlement;
(c) Maintain individual ledgers for investment
securities in both U.S. dollars and foreign currency terms;
(d) Maintain historical tax lots for each
security and foreign currency;
(e) Reconcile cash and investment balances of the
Company with the custodian, and provide the Manager with the beginning cash
balance available for investment purposes in both U.S. dollar and foreign
currency terms;
(f) Reconcile capital share transactions between
the Transfer Agent and each Fund;
(g) Update the cash availability throughout
the day as required by the Manager;
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<PAGE> 4
(h) Post to and prepare the Company's Statement
of Assets and Liabilities and the Statement of Operations in U.S. dollar
terms;
(i) Calculate various contractual expenses (e.g.,
distribution and custody fees);
(j) Record and update expense accruals;
(k) Record all disbursements from the Company
upon Written Instructions;
(l) Pay all invoices properly authorized and
presented in proper form;
(m) Calculate capital gains and losses and
foreign exchange gains and losses;
(n) Determine each Fund's net income in both U.S.
dollar and foreign currency terms;
(o) Obtain security market quotes and foreign
exchange rates from independent pricing services approved by the Company's
Governing Board, or if such quotes are unavailable, then obtain them as
directed by resolution of the Governing Board, and in either case calculate the
market value of the Company's investments in both U.S. dollar and foreign
currency terms;
(p) Transmit or mail a copy of the daily
portfolio valuation and any other required reports to the Manager;
(q) Provide necessary computations for the
presentation of data in connection with financial information to be supplied to
regulators, shareholders, trustees, the Manager and any industry publications
(including but not limited to Lipper Analytical Services);
(r) Prepare any and all accounting data for
regulatory filings and shareholder communications;
(s) Compute the net asset value of each Fund of
the Company in U.S. dollars and the dividend rate per share on each business
day;
(t) As appropriate, compute each Fund's
yields, total return, expense ratios, portfolio turnover rate, and, if
required, portfolio average dollar-weighted maturity; and
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<PAGE> 5
(u) Prepare a monthly financial statement in U.S.
dollars, which will include the following items:
- Schedule of Investments
- Statement of Assets and Liabilities
- Statement of Operations
- Statement of Changes in Net Assets
- Cash Statement
- Schedule of Capital Gains and Losses.
(v) Provide certain financial information
necessary to facilitate the preparation of the Company's annual local, state
and U.S. federal income tax returns;
(w) Maintain records in connection with each
Fund's election to be treated as a regulated investment company under Section
851 of the Internal Revenue Code of 1986, as amended ("IRC"), including records
of gross income, dividends, interest and other categories of gross income
described in IRC section 851(b)(2), and gross income derived from the sale or
disposition by the Fund of stock, securities or other property described in IRC
section 851(b)(3) that was held for less than 3 months, and timely notify
Company management of any potential noncompliance with the gross income
requirements of IRC sections 851(b)(2) and 851(b)(3).
5. COMPLIANCE WITH GOVERNING INSTRUMENTS AND LAWS. In
performing its duties as Accountant for the Company, the Accountant shall act
in conformity with the Company's Declaration of Trust, Bylaws, prospectuses and
statements of additional information, and the instructions and directions of
the Board of Trustees of the Company. In addition, the Accountant shall
conform to and comply with the requirements of the 1940 Act, the Rules and
Regulations of the SEC, and all other applicable federal or state laws and
regulations.
6. INSTRUCTIONS. Unless otherwise provided in this
Agreement or by resolution of the Governing Board which has been submitted to
the Accountant, the Accountant shall act only upon Oral and Written
Instructions.
The Accountant shall be entitled to rely upon any Oral and
Written Instructions unless such reliance is unreasonable under the
circumstances. The Accountant may
assume that any Oral or Written Instruction received hereunder is not in any
way inconsistent with the provisions of organizational documents or this
Agreement or of any vote, resolution or proceeding of the Company's Governing
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<PAGE> 6
Board or of the Company's shareholders unless such assumption is unreasonable
under the circumstances.
The Manager shall forward to the Accountant Written
Instructions confirming Oral Instructions so that the Accountant receives the
Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by the Accountant shall in no way invalidate the transactions
or enforceability of the transactions authorized by the Oral Instructions. The
Accountant shall incur no liability to the Manager in acting upon Oral or
Written Instructions.
7. RIGHT TO RECEIVE ADVICE.
-----------------------
(a) ADVICE OF THE COMPANY. If the Accountant is
in doubt as to any action it should or should not take, the Accountant may
request Oral or Written Instructions.
(b) ADVICE OF COUNSEL. If the Accountant is in
doubt as to any question of law pertaining to any action it should or should
not take, the Accountant may request advice from reasonably qualified counsel
of its own choosing at its own cost (who may be counsel for the Company, the
Manager or the Accountant, at the option of the Accountant).
(c) CONFLICTING ADVICE. In the event of a
conflict between Oral or Written Instructions the Accountant receives from the
Company, and the written advice it receives from counsel, the Accountant shall
be entitled to rely upon and follow such advice of counsel after notice to the
Company and to the Manager.
(d) PROTECTION OF THE ACCOUNTANT. The
Accountant shall be protected in any action it takes or does not take in
reasonable reliance upon Oral or Written Instructions it receives from the
Company or written advice of reasonably qualified counsel. Nothing in this
paragraph (d) shall be construed so as to impose an obligation upon the
Accountant (i) to seek Oral or Written Instructions, or (ii) to act in
accordance with such Oral or Written Instructions unless, under the terms of
other provisions of this Agreement, the same is a condition of the Accountant's
properly taking or not taking such action. Nothing in this paragraph (d) shall
excuse the Accountant when an action or omission on the part of the Accountant
constitutes willful misfeasance, bad faith, negligence or reckless disregard by
the Accountant of any duties or obligations under this Agreement.
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<PAGE> 7
8. RECORDS. The books and records pertaining to the
Company which are in the possession of the Accountant shall be the property of
the Company. The Manager, the Company or the Company's Authorized Persons
shall have access to such books and records at all times during the
Accountant's normal business hours. Such inspections shall not unreasonably
disrupt the business of the Accountant. Upon the reasonable request of the
Manager or the Company, copies of any such books and records shall be provided
by the Accountant to the Manager or the Company or to an Authorized Person of
the Company at the expense of the Accountant.
The Accountant shall keep the following records:
(a) all books and records with respect to the Company's books of account
maintained by it pursuant to Section 4 hereof; and (b) records of all of the
Company's securities transactions. The Accountant shall preserve any such
books and records in accordance with the requirements of Rule 31a-2 under the
1940 Act.
All computer programs and procedures developed to perform
services required to be provided by the Accountant under this Agreement are the
property of the Accountant. All records and other data except such computer
programs and procedures are the exclusive property of the Company and all such
other records and data shall be furnished to the Company, or successor Company
Accountant or such other entity that the Company may specify, in a form
specified by the Company as soon as practicable after termination of this
Agreement for any reason.
9. CONFIDENTIALITY. The Accountant agrees to keep
confidential and to treat as proprietary information of the Company all records
of the Company and information relating to the Company and its shareholders
(past, present and potential), unless the release of such records or
information is otherwise authorized by the Governing Board. Should the
Accountant be required to provide such information or records to duly
constituted authorities (who may institute civil or criminal contempt
proceedings for failure to comply), the Accountant shall not be required to
seek the Company's consent prior to disclosing such information but shall be
required to give the Manager and the Company prior written notice of the
Accountant's intent to disclose such information.
10. LIAISON WITH ACCOUNTANTS. The Accountant shall act
as liaison with the Company's independent public accountants and shall provide
such accountants with account
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<PAGE> 8
analyses, fiscal year summaries, and other audit-related schedules. The
Accountant shall at all times keep the Manager fully informed regarding its
liaison activities and shall promptly notify the Manager and the Company of any
inquires or contact by governmental agencies regarding the Company. The
Accountant shall not respond to any such governmental inquiries without the
consent of the Company and the Manager, unless required to do so by law (in
which event it shall give the Manager and the Company prior written notice of
its response). The Accountant shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the
necessary information is made available to such accountants for the expression
of their opinion, as such may be required by the Company from time to time.
11. DISASTER RECOVERY. The Accountant shall at its own
expense enter into and shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency use of electronic
data processing equipment to the extent appropriate equipment is available. In
the event of equipment failures, the Accountant shall, at no additional expense
to the Company, take reasonable steps to minimize service interruptions but
shall have no liability with respect thereto.
12. COMPENSATION. As compensation for services rendered
by the Accountant during the term of this Agreement, the Company shall pay to
the Accountant a fee or fees as set forth in Appendix B.
13. INDEMNIFICATION. The Manager agrees to indemnify and
hold harmless the Accountant and its nominees from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities and Commodities Laws and any state and
foreign securities and blue sky laws, and amendments thereto) and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action which the Accountant takes or does not
take (i) at the request or on the direction of or in reliance on the advice of
the Manager or the Company or (ii) upon Oral or Written Instructions, provided
that neither the Accountant, nor any of its nominees, shall be indemnified
against any liability to the Manager, to the Company or to its shareholders (or
any expenses incident to such liability) arising out of the Accountant's own
willful misfeasance, bad faith, negligence
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<PAGE> 9
or reckless disregard of its duties and obligations under this Agreement.
The Accountant agrees to indemnify and hold harmless the
Manager and its nominees from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities and Commodities Laws and any state and foreign securities and blue
sky laws, and amendments thereto) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which the Manager takes or does not take at the request or on the
direction of or in reliance on the advice of the Accountant, provided that
neither the Manager, nor any of its nominees, shall be indemnified against any
liability to the Accountant, to the Company or to its shareholders (or any
expenses incident to such liability) arising out of the Manager's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
14. RESPONSIBILITY OF THE ACCOUNTANT. The Accountant
shall be under no duty to take any action on behalf of the Manager or the
Company except as specifically set forth herein or as may be specifically
agreed to by the Accountant in writing. The Accountant shall be obligated to
exercise care and diligence in the performance of its duties hereunder and
shall be responsible for failure to perform its duties under this Agreement
arising out of the Accountant's negligence. Notwithstanding the foregoing, the
Accountant shall not be responsible for losses beyond its control, provided
that the Accountant has acted in accordance with the standard of care set forth
above; and provided further that the Accountant shall only be responsible for
that portion of losses or damages suffered by the Company that are attributable
to the negligence of the Accountant.
15. DURATION AND TERMINATION. This Agreement shall
continue until terminated by the Company, the Manager or the Accountant on
sixty (60) days prior written notice to the other party. After such
termination, for so long as the Accountant, with the written consent of the
Company, in fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due the Accountant and unpaid by the Company upon such
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<PAGE> 10
termination shall be immediately due and payable upon and notwithstanding such
termination. The Accountant shall be entitled to collect from the Company, in
addition to the compensation described under Section 12 hereof the amount of
all of the Accountant's cash disbursements for services approved in advance by
the Manager in connection with the Accountant's activities in effecting such
termination, including without limitation the delivery to the Company and/or
its designees of the Company's property, records, instruments and documents, or
any copies thereof. Subsequent to such termination, for a reasonable fee the
Accountant shall provide the Company with reasonable access to any Company
documents or records remaining in its possession and previously provided to the
Company under Section 8, hereof.
16. NOTICES. Notices of any kind to be given to the
Manager hereunder by the Accountant shall be in writing and shall be duly given
if mailed or delivered to the Manager at the following address:
Bank of America NT&SA WITH A COPY TO:
555 South Flower Street Arthur A. Fritz
Los Angeles, CA 90071 Bank of America NT&SA
Attention: Debra McGinty Poteet 555 S. Flower Street
Los Angeles, CA 90071
or at such other address or to such individual as shall be so specified by the
Manager to the Accountant.
Notices of any kind to be given to the Accountant hereunder by
the Manager shall be in writing and shall be duly given if mailed or delivered
to the Accountant at the following address:
UNTIL SEPTEMBER 18, 1995:
------------------------
BISYS Fund Services Ohio, Inc.
1900 E. Dublin-Granville Road
Columbus, Ohio 43229
Attention: Stephen G. Mintos
AFTER SEPTEMBER 18, 1995:
------------------------
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Stephen G. Mintos
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<PAGE> 11
or at such other address or to such individual as shall be so specified by the
Accountant to the Manager.
A copy of all notices to the Manager or the Accountant shall be
given to the Company. Notices of any kind to be given to the Company by the
Manager or Accountant shall be in writing and shall be duly given if mailed or
delivered to the Company at the following address:
Time Horizon Funds with a copy to
1900 E. Dublin-Granville Cathy G. O'Kelly, Esq.
Columbus, Ohio 43229 Vedder, Price, Kaufman &
Attention: President Kammholz
222 N. LaSalle, 26th Floor
Chicago, IL 60695
or at such other address or such individual as shall be so specified by the
Company to the Manager and Accountant.
17. DELEGATION. The Accountant may not delegate any of its
duties under this Agreement to any affiliate or third party sub- contractor
without the prior written consent of the Company and the Manager.
18. AMENDMENTS. This Agreement, or any term thereof, may be
changed or waived only by written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
19. ASSIGNMENT. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the
Accountant to any person, including without limitation to any affiliate of the
Accountant, without the written consent of the Manager and of the Company,
authorized or approved by a resolution of the Company's Governing Board. This
Agreement will automatically terminate in the event of its assignment, as
described hereunder, or as such term is defined in the 1940 Act.
20. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 12
21. FURTHER ACTIONS. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
22. NAMES. The name "Time Horizon Funds" refers to the trust
created and the trustees, as trustees but not individually or personally,
acting from time to time under a Declaration of Trust dated April 12, 1995, as
amended, which is hereby referred to and a copy of which is on file at the
principal office of the Company. The trustees, officers, employees and agents
of the Company shall not personally be bound by or liable under any written
obligation, contract, instrument, certificate or other interest or undertaking
of the Company made by the trustees or by an officer, employee or agent of the
Company, in his or her capacity as such, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder.
All persons dealing with any series or class of shares of the Company may
enforce claims against the Company only against the assets belonging to such
series or class.
23. MISCELLANEOUS. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody with the approval of the Company in one or more
separate documents their agreement, if any, with respect to delegated and/or
Oral Instructions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement
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<PAGE> 13
shall be binding and shall inure to the benefit of the parties hereto and their
respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
/s/Debra McGinty-Poteet
--------------------------------
(title) Senior Vice President
-------------------------
BISYS FUND SERVICES OHIO, INC.
/s/J. David Huber
--------------------------------
(name) J. David Huber
--------------------------
(title) Executive Vice President
-------------------------
TIME HORIZON FUNDS
/s/George O. Martinez
--------------------------------
(name) George O. Martinez
--------------------------
(title) Senior Vice President
-------------------------
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<PAGE> 14
APPENDIX A
Funds
-----
Time Horizon Fund 1
Time Horizon Fund 2
Time Horizon Fund 3
And any other portfolios of the Company, whether now existing or
hereafter created, for which the Company has approved the Accountant to provide
accounting services and for which the Accountant provides accounting services.
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<PAGE> 15
APPENDIX B
FEE SCHEDULE
The monthly fees for each Fund will be calculated based upon the
greater of $2,500 or the following fee schedule: 0.0125% of average assets
between $10 million and $50 million; 0.025% of average net assets between $50
million and $200 million; 0.02% of next $200 million and $500 million of
average net assets; and 0.015% of average net assets greater than $500 million.
For the first year, the Fund Accountant shall receive no fee,
provided, however, that if the assets in the Funds reach $10 million, the Fund
Accountant shall receive the greater of $2,500 or 0.0125% of the average net
assets.
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<PAGE> 1
Exhibit 9.2
TRANSFER AGENCY AGREEMENT
This Transfer Agency Agreement is made as of the 5th of
September, 1995 between Time Horizon Funds, a Delaware business trust (herein
called the "Company"), having its principal office and place of business at
1900 E. Dublin-Granville Road, Columbus, Ohio 43229 and BISYS Fund Services
Ohio, Inc., an Ohio corporation having its principal office and place of
business at 1900 E. Dublin-Granville Road, Columbus, Ohio 43229 (herein called
the "Transfer Agent").
WITNESSETH:
That for and in consideration of the mutual promises herein
set forth, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following words and
phrases shall have the following meanings:
1. "APPROVED INSTITUTION" shall mean an entity
so named in a Certificate. From time to time the Company may amend a
Certificate by delivering to the Transfer Agent a Certificate naming an
additional entity or deleting any entity named in a previously delivered
Certificate.
2. "BOARD OF TRUSTEES" shall mean the Board of
Trustees of the Company.
3. "CERTIFICATE" shall mean any notice,
instruction, or other instrument in writing, authorized or required by this
Agreement to be given to the Transfer Agent by the Company which is signed by
any Officer, as hereinafter defined, and actually received by the Transfer
Agent.
4. "CLASS" shall mean a subclass of shares
within a particular series.
5. "CUSTODIAN" shall mean the financial
institution appointed as custodian under the terms and conditions of the
Custody Agreement between the financial institution and the Company, or its
successor(s).
<PAGE> 2
6. "COMPANY ACCOUNTANT" shall mean the entity
appointed as accountant under the terms and conditions of the Accounting
Services Agreement between the entity and the Company, or its successor(s).
7. "COMPANY BUSINESS DAY" shall be deemed to be
each day on which the New York Stock Exchange, Inc. and the Company are open
for trading.
8. "MANAGER" shall mean Bank of America, NT&SA,
acting under the terms and conditions of the Management Agreement and includes
any successor and assigns.
9. "OFFICER" shall be deemed to be the Company's
Chairman of the Board, the Company's President, any Vice President of the
Company, the Company's Secretary, the Company's Treasurer, the Company's
Controller, any Assistant Controller of the Company, any Assistant Treasurer of
the Company and any Assistant Secretary of the Company, and any other person
duly authorized by the Board of Trustees of the Company to execute any
Certificate, instruction, notice or other instrument on behalf of the Company
and named in the Certificate annexed hereto as Appendix A, as such Certificate
may be amended from time to time, and any person reasonably believed by the
Transfer Agent to be such a person.
10. "PROSPECTUS" shall mean with respect to a
Class or Series of Shares, the last Company prospectus actually received by the
Transfer Agent from the Company with respect to such Class or Series of Shares
and with respect to which the Company has indicated a Registration Statement
under the Securities Act of 1933, as amended, has become effective, including
the Statements of Additional Information, incorporated by reference therein.
11. "FUNDS" shall mean the various portfolios of
the Company as described from time to time in the current and effective
Prospectuses.
12. "SHARES" shall mean all or any part of each
class or series of shares of beneficial interest of the Company listed in the
Certificate, attached hereto as Appendix B, as may be amended from time to
time, which are from time to time authorized and/or issued by the Company.
13. "TRANSFER AGENT" shall mean BISYS Fund
Services Ohio, Inc., as transfer agent and dividend
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<PAGE> 3
disbursing agent under the terms and conditions of this Agreement, its
successor(s) or assign(s).
14. "OUT-OF-POCKET EXPENSES" means amounts reasonably necessary
and actually paid to third parties by the Transfer Agent in the provision of the
Transfer Agent services or pursuant to this Agreement. Such amounts will not
include charges of legal counsel, but will otherwise include amounts paid for
the following purposes: (i) postage and all freight and other delivery and
bonding charges incurred by the Transfer Agent in delivering materials to and
from the Company and in delivering all materials to shareholders; (ii) all
direct telephone, telephone transmission, telecopy, or other electronic
transmission expenses incurred by the Transfer Agent in communication with the
Company's dealers, shareholders or others, as required for the Transfer Agent
to perform the services to be provided hereunder; (iii) all charges related to
the settlement of shareholder transactions, including but not limited to
NSCC/FUND SERV charges, bank wire charges, and checking account charges; (iv)
charges associated with satisfying Internal Revenue Service tax reporting
requirements; (v) expenses associated with Securities and Exchange Commission
examinations of Company books and records; (vi) paper stocks and printing costs
for statements, checks, envelopes, tax and other forms; and (vii) such other
expenses paid or incurred by Transfer Agent on behalf of the Company at the
request of the Manager.
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
-----------------------------
The Company hereby appoints the Transfer Agent as transfer agent of all
the Shares of the Company and as dividend disbursing agent during the period
of this Agreement.
2. (a) The Transfer Agent hereby accepts
appointment as transfer agent and dividend disbursing agent and agrees to
perform the duties thereof as herein set forth, including those duties set
forth in Schedule I(a) hereto.
(b) The services and specific capabilities to be
provided under this Agreement by the Transfer Agent shall include those
specifically listed in this Agreement.
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<PAGE> 4
3. Upon the request of the Transfer Agent, the
Company shall deliver the following documents to the Transfer Agent:
(a) A copy of the Certificate of Trust and
Declaration of Trust of the Company and all amendments thereto certified by the
Secretary of the Company;
(b) A copy of the By-Laws of the Company certified by
the Secretary of the Company;
(c) A copy of a resolution of the Board of
Trustees of the Company certified by the Secretary of the Company appointing
the Transfer Agent and authorizing the execution of this Transfer Agency
Agreement;
(d) A Certificate signed by the Secretary or any
Assistant Secretary of the Company specifying: with respect to each Class or
Fund, the number of authorized Shares, the number of such authorized Shares
issued, and the number of such authorized Shares issued and currently
outstanding; the names and specimen signatures of the Officers of the Company;
and the name and address of the legal counsel for the Company;
(e) Copies of the Company's Registration
Statement, as amended to date, and the most recently filed Post-Effective
Amendment thereto, filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and under the
Investment Company Act of 1940, as amended, together with any applications
filed in connection therewith; and
(f) Opinion of counsel for the Company with
respect to the validity of the authorized and outstanding Shares, whether such
Shares are fully paid and non-assessable and the status of such Shares under
the Securities Act of 1933, as amended, and any other applicable federal law or
regulation (I.E., if subject to registration, that they have been registered
and that the Registration Statement has become effective or, if exempt, the
specific grounds therefor).
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<PAGE> 5
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
------------------------------------
1. The Company shall deliver to the Transfer Agent the
following documents on or before the effective date of any increase or decrease
in the total number of Shares authorized to be issued:
(a) A certified copy of the amendment to
the Declaration of Trust giving effect to such increase or decrease;
(b) In the case of an increase, an
opinion of counsel for the Company with respect to the validity of the Shares
of the Company and the status of such Shares under the Securities Act of 1933,
as amended, and any other applicable federal law or regulation (i.e., if
subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor); and
(c) In the case of an increase, if the
appointment of the Transfer Agent is expressly limited to the previously
authorized number of Shares, a certified copy of a resolution of the Board of
Trustees of the Company increasing the authority of the Transfer Agent.
2. Prior to the issuance of any additional
Shares of the Company pursuant to actions such as share dividends or share
splits, and prior to any reduction in the number of Shares outstanding, the
Company shall deliver the following documents to the Transfer Agent:
(a) A certified copy of the
resolution(s) adopted by the Board of Trustees and/or the shareholders of the
Company authorizing such issuance of additional Shares of the Company or such
reduction, as the case may be; and
(b) An opinion of counsel for the Company
with respect to the validity of the Shares of the Company and the status of
such Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to registration, that
they have been registered and that the Registration Statement has become
effective, or, if exempt, the specific grounds therefor).
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<PAGE> 6
ARTICLE IV
ISSUANCE,
---------
REDEMPTION AND TRANSFER OF SHARES
---------------------------------
1. The Transfer Agent acknowledges that it has
received a copy of the Company's Prospectus with respect to its currently
authorized Funds and Classes of Shares, which Prospectus describes how sales
and redemption of shares of the Company shall be made, and the Transfer Agent
agrees to accept purchase orders and redemption requests with respect to
Company shares on each Company Business Day in accordance with such Prospectus.
The Company agrees to notify the Transfer Agent as soon as possible under the
circumstances of any changes in the procedures set forth in the Prospectus
regarding such purchase and redemption procedures.
2. On each Company Business Day, a duly
authorized officer or employee of the Transfer Agent shall furnish the
following information by telephone call to an Officer of the Company or by such
other form to such other person as shall be agreed upon from time to time by
the Company and the Transfer Agent:
(a) The total dollar amount to be
applied to the purchase of Shares of each Class or Fund on such day, computed
by aggregating the amount so specified in such of the purchase orders described
in paragraph 1 of this Article IV with respect to which payment has been, or
will be, credited by the Custodian to the Company's custody account with the
Custodian on such day. The Transfer Agent shall also accept with respect to
each Company Business Day, at such times as are agreed upon from time to time
by the Transfer Agent and the Company, a computer tape consistent in all
respects with the Transfer Agent's tape layout package, as amended from time to
time, upon prior written notice to the Company or its Distributor, which is
believed by the Transfer Agent to be furnished by or on behalf of any Approved
Institution. The Transfer Agent shall not be liable for any loss or damage to
the Company or its shareholders in the event that a computer tape or electronic
data transmission from an Approved Institution is unable to be processed for
any reason beyond the control of the Transfer Agent, or if any of the
information on such tape or transmission is found to be incorrect.
(b) The total dollar amount of Shares of
each Class or Fund to be redeemed on such day, computed by aggregating the
amount so specified in (i) such of the redemption requests described in
paragraph 1 of this Article
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<PAGE> 7
IV with respect to which the amount payable as redemption proceeds has been, or
will be, charged by the Custodian on such day, and (ii) all computer tapes
described in paragraph 2(a) of this Article IV with respect to which the amount
payable as redemption proceeds has been, or will be, charged by the Custodian
on such day.
3. On each Company Business Day, the Transfer
Agent shall, as of the time at which the Company computes the net asset value
of each Class or Fund of the Company, issue to and redeem from the shareholder
accounts specified in a purchase order, redemption request or computer tape,
which in accordance with the Prospectuses is effective on such Company Business
Day, the appropriate number of full and fractional Shares based on the net
asset value per Share of such Class or Fund specified in an advice received on
such Company Business Day from the Company or the Company Accountant.
Notwithstanding the foregoing, if a redemption specified in a computer tape is
for a dollar value of Shares in excess of the dollar value of uncertificated
Shares in the specified account, the Transfer Agent shall not effect such
redemption in whole or in part and shall within twenty-four (24) hours orally
advise both the Company and the Approved Institution which supplied such tape
of the discrepancy.
4. In connection with a reinvestment of a
dividend or distribution on Shares of any Class or Fund of the Company, the
Transfer Agent shall, as of each Company Business Day, as specified in a
Certificate or resolution described in paragraph 1 of Article V, issue Shares
of a Class or Fund to the appropriate shareholder account, based on the net
asset value per Share of such Class or Fund specified in an advice received
from the Company or its Company Accountant on such Company Business Day.
5. On each Company Business Day, the Transfer
Agent shall supply the Company Accountant with a statement specifying with
respect to the immediately preceding Company Business Day: the total number of
Shares of each Class or Fund (including fractional Shares) issued and
outstanding at the opening of business on such day; the total number of Shares
of each Class or Fund sold on such day, pursuant to paragraph 3 of this Article
IV; the total number of Shares of each Class or Fund redeemed by the Transfer
Agent on such day; the total number of Shares of each Class or Fund, if any,
sold on such day pursuant to paragraph 4 of this Article IV; and the total
number of Shares of each Class or Fund issued and outstanding. On the same day
such statement
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<PAGE> 8
is received by the Company, the Company shall confirm the information contained
therein, after making any necessary corrections, by delivering to the Transfer
Agent a Certificate with respect to the same.
6. In connection with each purchase and each
redemption of Shares, and each reinvestment of a dividend or distribution of
Shares, the Transfer Agent shall send to the affected shareholder such
statements as are prescribed by the federal securities laws applicable to
transfer agents and as are described in the applicable Prospectus. If the
Prospectus indicates that certificates for Shares are available and if
specifically requested in writing by any shareholder, or if otherwise required
hereunder, the Transfer Agent shall countersign, issue and mail by first-class
mail to such shareholder at the address set forth in the records of the
Transfer Agent, a Share certificate for any full Shares requested.
7. As of each Company Business Day, the Transfer
Agent shall furnish the Custodian with a written statement (which may be by
facsimile transfer) setting forth the number and dollar amount of each Class or
Fund of Shares to be redeemed on such Company Business Day in accordance with
paragraph 3 of this Article IV.
8. Upon receipt of a proper redemption request
and moneys paid to it by the Custodian in connection with a redemption of
Shares, the Transfer Agent shall cancel the redeemed Shares and, after making
appropriate deduction for any withholding of taxes required of it by applicable
law, (a) in the case of a redemption of Shares pursuant to a redemption
described in paragraph 1 of this Article IV, make payment in accordance with
the Company's redemption and payment procedures described in the Prospectuses,
and (b) in the case of a redemption of Shares pursuant to a computer tape
described in paragraph 2(a) of this Article IV, make payment by directing a
federal funds wire order to the account previously designated by the Approved
Institution specified in the computer tape.
9. The Transfer Agent shall not be required to
issue any Shares after it has received from an Officer of the Company or from
an appropriate federal or state authority written notification that the sale of
Shares has been suspended or discontinued, and the Transfer Agent shall be
entitled to rely upon such written notification.
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<PAGE> 9
10. Upon the issuance of any Shares in accordance
with this Agreement, the Transfer Agent shall not be responsible for the
payment of any original issue or other taxes required to be paid by the Company
in connection with such issuance of any Shares.
11. The Transfer Agent shall accept a
computer tape consistent with the Transfer Agent's tape layout package, as
amended from time to time upon prior notice to the Company or the Distributor,
which is reasonably believed by the Transfer Agent to be furnished by or on
behalf of an Approved Institution and is represented to be instructions with
respect to the transfer of Shares from one account of such Approved Institution
to another such account, and shall effect the transfers specified in said
computer tape. The Transfer Agent shall not be liable for any losses to the
Company or its shareholders in the event that a computer tape or electronic
data transmission from an Approved Institution is unable to be processed for
any reason beyond the control of the Transfer Agent, or if any of the
information on such tape or transmission is found to be incorrect.
12 (a) Except as otherwise provided in
sub-paragraph (b) of this paragraph and in paragraph 14 of this Article IV,
Shares shall be transferred or redeemed upon presentation to the Transfer Agent
of Share certificates or instructions properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent deems necessary
to evidence the authority of the person making such transfer or redemption, and
bearing satisfactory evidence of the payment of any transfer taxes. In the
case of small estates where no administration is contemplated, the Transfer
Agent may, when furnished with an appropriate surety bond, and without further
approval of the Company, transfer or redeem Shares registered in the name of a
decedent where the current market value of the Shares being transferred does
not exceed such amount as may from time to time be prescribed by various
states. The Transfer Agent reserves the right to refuse to transfer or redeem
Shares until it is satisfied that the endorsement on the share certificate or
instructions is valid and genuine, and for that purpose it will require, unless
otherwise instructed by an authorized officer of the Company, a guarantee of
signature, acceptable to the Transfer Agent and in compliance with applicable
law. The Transfer Agent also reserves the right to refuse to transfer or
redeem Shares until it is satisfied that the requested transfer or redemption
is legally authorized, and it shall incur no
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<PAGE> 10
liability for the refusal, in good faith, to make transfers or redemptions
which the Transfer Agent, in its judgment, deems improper or unauthorized, or
until it is satisfied that there is no basis to any claims adverse to such
transfer or redemption. The Transfer Agent may, in effecting transfers and
redemptions of Shares, rely upon those provisions of the Uniform Act for the
Simplification of Fiduciary Security Transfers or the Uniform Commercial Code,
as the same may be amended from time to time and as is applicable to the
transfer in question, and the Company shall indemnify the Transfer Agent for
any act performed or omitted by it in good faith in reliance upon such laws.
(b) Notwithstanding the foregoing or any other
provision contained in this Agreement to the contrary, the Transfer Agent shall
be fully protected by the Company in the event the Transfer Agent does not
require any instruments, documents, assurances, endorsements or guarantees,
including, without limitation, any signature guarantees, in connection with a
redemption or transfer of Shares whenever the Transfer Agent reasonably
believes that requiring the same would be inconsistent with the transfer and
redemption procedures as described in the applicable Prospectus.
13. Notwithstanding any provision contained in
this Agreement to the contrary, the Transfer Agent shall not be required or
expected to require, as a condition to any transfer of any Shares pursuant to
paragraph 12 of this Article IV or any redemption of any Shares pursuant to a
computer tape described in this Agreement, any documents, including, without
limitation, any documents of the kind described in sub-paragraph (a) of
paragraph 13 of this Article IV, to evidence the authority of the person
requesting the transfer or redemption and/or the payment of any share transfer
taxes, and shall be fully protected in acting in accordance with the applicable
provisions of this Article IV.
14. (a) As used in this Agreement, the terms
"computer tape" and "computer tape believed by the Transfer Agent to be
furnished by an Approved Institution" shall include any tape or electronic
transmission generated by the Transfer Agent to reflect information believed by
the Transfer Agent to have been input by an Approved Institution, via a remote
terminal or other similar link, into a data processing, storage, or collection
system, or similar system (the "System"), located on the Transfer Agent's
premises or utilized by the Transfer Agent. For
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<PAGE> 11
purposes of paragraph 2 of this Article IV, such computer tape shall be deemed
to have been furnished at such times as are agreed upon from time to time by
the Transfer Agent and Company only if the information reflected thereon was
input into the System at such times as are agreed upon from time to time by the
Transfer Agent and the Company.
(a) Nothing contained in this Agreement
shall constitute any agreement or representation by the Transfer Agent to
permit, or to agree to permit, any Approved Institution to input information
into a System.
(b) The Transfer Agent reserves the
right to approve in advance any Approved Institution, such approval not to be
unreasonably withheld. The Transfer Agent also reserves the right to terminate
any and all automated data communications, at its discretion, upon a reasonable
attempt to notify the Company when in the opinion of the Transfer Agent
continuation of such communications would jeopardize the accuracy and/or
integrity of the Company's records on the System.
ARTICLE V
DIVIDENDS AND DISTRIBUTIONS
---------------------------
1. The Company shall furnish to the Transfer
Agent a copy of a resolution of its Board of Trustees, certified by the
Secretary or any Assistant Secretary, either (i) setting forth with respect to
a Class or Fund of Shares the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, thereof, the
record date as of which Shareholders entitled to payment or accrual shall be
determined, the amount per Share of such dividend or distribution, the payment
date on which all previously accrued and unpaid dividends are to be paid, and
the total amount, if any, payable to the Transfer Agent on such payment date,
or (ii) authorizing the declaration of dividends and distributions on a daily
or other periodic basis and authorizing the Transfer Agent to rely on a
Certificate setting forth the information described in subsection (i) of this
paragraph.
2. Upon the payment date specified in such
Certificate or resolution, the Company shall, in the case of a cash dividend or
distribution, cause the Custodian to pay to the Transfer Agent an amount of
cash, if any, sufficient for the Transfer Agent to make the payment, if any, as
of the payment date, specified in such Certificate or resolution, to the
shareholders who were of record on the
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<PAGE> 12
record date who are entitled to receive the cash dividend or distribution. The
Transfer Agent shall, upon receipt of any such cash, make payment of such cash
dividends or distributions to the shareholders of record as of the record date
by: (i) mailing a check, payable to the registered shareholder, to the address
of record or dividend mailing address, or transmitting payment through the
Automated Clearing House System, or (ii) wiring such amounts, or transmitting
such amounts through the Automated Clearing House System, to the accounts
previously designated by an Approved Institution. The Transfer Agent shall not
be liable for any improper payments made in good faith and without negligence,
in accordance with a Certificate or resolution described in the preceding
paragraph. If the Transfer Agent shall not receive from the Custodian
sufficient cash to make payment of any cash dividend or distribution to all
shareholders of a Class or Fund of Shares of the Company as of the record date
who are entitled to receive the cash dividend or distribution, the Transfer
Agent shall, upon notifying the Company, withhold payment to all shareholders
of record as of the record date until sufficient cash is provided to the
Transfer Agent.
3. It is understood that the Transfer Agent
shall in no way be responsible for the determination of the rate or form of
dividends or capital gain distributions due to the shareholders. It is
expressly agreed and understood that the Transfer Agent is not liable for any
loss as a result of processing a distribution based on information provided in
the Certificate that is incorrect. The Company agrees to pay the Transfer
Agent for any and all costs, both direct and Out-of-Pocket Expenses, incurred
in such corrective work as necessary to remedy such error.
4. It is understood that the Transfer Agent
shall file such appropriate information returns concerning the payment of
dividend and capital gain distributions with the proper federal, state and
local authorities as are required by law to be filed by the Company but shall
in no way be responsible for the collection or withholding of taxes due on such
dividends or distributions due to shareholders, except and only to the extent
required by applicable law. To the extent such collection or withholding of
taxes is required of the Transfer Agent, it shall pay on a timely basis to the
appropriate authority any amounts required to be remitted to the authority.
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<PAGE> 13
ARTICLE VI
CONCERNING THE COMPANY
----------------------
1. The Company represents to the Transfer Agent that:
(a) It is a business trust duly
organized and existing under the laws of the State of Delaware.
(b) It is empowered under applicable
laws and by its Declaration of Trust and By-Laws to enter into and perform this
Agreement.
(c) All requisite corporate proceedings
have been held to authorize it to enter into and perform this Agreement.
(d) It is an investment company
registered under the Investment Company Act of 1940 (the "1940 Act"), as
amended.
(e) A registration statement under the
Securities Act of 1933, as amended, with respect to the Shares is effective.
The Company shall notify the Transfer Agent if such registration statement or
any state securities registrations have been terminated or a stop order has
been entered with respect to the Shares.
2. Each copy of the Declaration of Trust of the Company
and any amendment thereto provided by the Company to the Transfer Agent shall
be certified by the Secretary of State (or other appropriate official) of the
state of organization, and if such Declaration of Trust and/or amendments are
required by law also to be filed with a county or other officer or official
body, a certificate of such filing shall be filed with a certified copy
submitted to the Transfer Agent. Each copy of the Declaration of Trust and
By-Laws and copies of all amendments thereto, and copies of resolutions of the
Board of Trustees of the Company, shall be certified by the Secretary or
Assistant Secretary of the Company.
3. It shall be the sole responsibility of the Company
to deliver to the Transfer Agent the Company's currently effective Prospectuses
and, for purposes of this Agreement, the Transfer Agent shall not be deemed to
have notice of any information contained in such Prospectuses until they are
actually received by the Transfer Agent.
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<PAGE> 14
ARTICLE VII
CONCERNING THE TRANSFER AGENT
-----------------------------
1. The Transfer Agent represents and warrants to
the Company that:
(a) It is a corporation duly organized and
existing under the laws of the State of Ohio.
(b) It is empowered under applicable law
and by its Charter and By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings
have been held to authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer
agent under Section 17A of the Securities Exchange Act of 1934, as amended.
The Transfer Agent shall promptly give written notice to the Company and the
Manager in the event that its registration is revoked or a proceeding is
commenced that could result in such revocation.
2. The Transfer Agent shall not be liable and
shall be indemnified in acting upon any computer tape, writing or document
reasonably believed by it to be genuine and to have been signed or made by the
proper person or persons and shall not be held to have any notice of any change
of authority of any person until receipt of written notice thereof from the
Company or such person. It shall also be protected in processing Share
certificates which bear the proper countersignature of the Transfer Agent and
which it reasonably believes to bear the proper manual or facsimile signature
of the Officers of the Company.
3. The Transfer Agent upon notice to and consent
of the Company, which consent will not be unreasonably withheld, may establish
such additional procedures, rules and regulations governing the transfer or
registration of Share certificates as it may deem advisable and consistent with
such rules and regulations generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as
are specified in Schedules I and II hereto in the form and manner and for such
period as it may deem advisable and is agreeable to the Company but not
inconsistent with the rules and regulations of appropriate government
authorities, in
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<PAGE> 15
particular Rules 31a-2 and 31a-3 under the 1940 Act, as amended. The Transfer
Agent may deliver to the Company from time to time at its discretion, for
safekeeping or disposition by the Company in accordance with law, such records,
papers, Share certificates which have been cancelled in transfer, exchange or
redemption, or other documents accumulated in the execution of its duties as
such Transfer Agent, as the Transfer Agent may deem expedient, other than those
which the Transfer Agent is required to maintain pursuant to applicable laws
and regulations. The Company shall assume all responsibility for any failure
thereafter to produce any record, paper, cancelled Share certificate, or other
document so returned, if and when required. The records maintained by the
Transfer Agent pursuant to this paragraph 4, which have not been previously
delivered to the Company pursuant to the foregoing provisions of this paragraph
4, shall be considered to be the property of the Company, shall be made
available upon request for inspection by the officers, employees, and auditors
of the Company or other persons authorized by the Company and shall be
delivered to the Company upon request and in any event upon the date of
termination of this Agreement, as specified in Article VIII of this Agreement,
in the form and manner kept by the Transfer Agent on such date of termination
or such earlier date as may be requested by the Company. Upon reasonable
request by the Company, the Transfer Agent shall provide in hard copy or on
microfilm, whichever the Transfer Agent shall elect, any records included in
any such delivery which are maintained by the Transfer Agent on a computer disk
or are similarly maintained.
5. The Transfer Agent shall not be liable for
any loss or damage, including counsel fees, resulting from its actions or
omissions to act or otherwise, except for any loss or damage arising out of its
bad faith, negligence, willful misfeasance, negligence or reckless disregard of
its duties under this Agreement.
6. In performing its services hereunder, the
Transfer Agent shall seek to attain the Performance Objectives set forth in
Schedule IV hereto. The Transfer Agent's failure to meet any Transfer Agent
Performance Objective shall not in and of itself constitute wilful misconduct
or negligence under this Agreement.
7. (a) The Company shall indemnify and hold
harmless the Transfer Agent from and against all claims (whether with or
without basis in fact or law), demands,
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<PAGE> 16
expenses (including attorneys' fees) and liabilities of any and every nature
which the Transfer Agent may sustain or incur or which may be asserted against
the Transfer Agent by any person as a result of any action taken or omitted to
be taken by the Transfer Agent in good faith and without negligence or willful
misconduct or in reliance upon (i) any provision of this Agreement; (ii) the
Prospectuses; (iii) any instruction or order including, without limitation, any
computer tape reasonably believed by the Transfer Agent to have been received
from an Approved Institution; (iv) any instrument or order reasonably believed
by it to be genuine and to be signed, countersigned or executed by any duly
authorized Officer of the Company; (v) any Certificate or other instruction of
an Officer; or (vi) any opinion of legal counsel for the Company or the
Transfer Agent. The Company shall indemnify and hold harmless the Transfer
Agent from and against all claims (whether with or without basis in fact or
law), demands, expenses (including attorneys' fees) and liabilities of any
nature which the Transfer Agent may sustain or incur or which may be asserted
against the Transfer Agent by any person by reason of or as a result of any
action taken or omitted to be taken by the Transfer Agent in good faith in
connection with its appointment or in reasonable reliance upon any law, act,
regulation or any interpretation of the same even though such law, act or
regulation may have been altered, changed, amended or repealed thereafter.
(b) The Transfer Agent shall indemnify
and hold harmless the Company, its officers, trustees, employees and agents
from and against all claims (whether with or without basis in fact or law),
demands, expenses (including attorneys' fees) and liabilities of any and every
nature which the Company may sustain or incur or which may be asserted against
the Company by any person as a result of any action taken or omitted to be
taken by the Transfer Agent which constitutes negligence or willful misconduct
or arising out of a failure of the Transfer Agent to comply with this Agreement
or a breach by the Transfer Agent of any representation or warranty contained
in this Agreement or the attached Exhibits or Schedules.
(c) Neither party ("Indemnified Party")
shall settle nor make any compromise of any claim, demand, expense or liability
to which it may seek indemnity pursuant to paragraph 6(a) of this Article VII
(each, an "Indemnifiable Claim") without the express written consent of the
other party ("Indemnifying Party"). The Indemnified Party shall notify the
Indemnifying Party within 15 days of
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<PAGE> 17
receipt of notification of an Indemnifiable Claim, provided that the failure by
the Indemnified Party to furnish such notification shall not impair its right
to seek indemnification from the Indemnifying Party unless the Indemnifying
Party's ability to adequately defend the Indemnifiable Claim is impaired as a
result of such failure, and further provided, that if as a result of the
Indemnified Party failure to provide the Indemnifying Party with timely notice
of the initiation of litigation, a judgment by default is entered, prior to
seeking indemnification from the Indemnifying Party, the Indemnified Party, at
its own cost and expense, shall oppose such judgment. The Indemnifying Party
shall have the right to defend any Indemnifiable Claim at its own expense,
provided that such defense shall be conducted by counsel selected by the
Indemnifying Party and reasonably acceptable to the Indemnified Party. The
Indemnified Party may join in such defense at its own expense, but to the
extent that it shall so desire, the Indemnifying Party shall direct such
defense. The Indemnifying Party shall not settle any Indemnifiable Claim
without the express written consent of the Indemnified Party if the Indemnified
Party determines that such settlement would have an adverse effect on the
Indemnified Party beyond the scope of this Agreement. In such event, each of
the Indemnifying Party and the Indemnified Party shall be responsible for their
own defense at their own cost and expense, and such claim shall not be deemed
an Indemnifiable Claim hereunder. If the Indemnifying Party fails or refuses
to defend an Indemnifiable Claim, the Indemnified Party may provide its own
defense at the cost and expense of the Indemnifying Party.
(d) Notwithstanding any provision in
this Agreement to the contrary, the Indemnifying Party shall not indemnify the
Indemnified Party against any liability or expense arising out of the
Indemnifying Party's negligence, willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement. The Indemnified Party shall indemnify and hold harmless the
Indemnifying Party from and against any and all claims (whether with or without
basis in fact or law), losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by the Indemnified Party as a result of the Indemnified
Party's bad faith, negligence, willful misfeasance, gross negligence or
reckless disregard of its duties under this Agreement.
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<PAGE> 18
8. Excluded from the consideration of whether
the Transfer Agent has been negligent or has breached this Agreement shall be
any period of time, and only such period of time, during which the Transfer
Agent's performance is materially affected by reason of circumstances beyond
its control (collectively, "Causes"), including without limitation mechanical
breakdowns of equipment (including any alternative power supply and operating
systems software), flood or catastrophe, acts of God, failures of
transportation, communication or power supply, strikes, lockouts, work
stoppages or other similar circumstances.
9. At any time, the Transfer Agent may apply to
an Officer of the Company for written instructions with respect to any matter
arising in connection with the Transfer Agent's duties and obligations under
this Agreement, and the Transfer Agent shall not be liable for any action taken
or omitted by it in good faith in accordance with such written instructions.
Such application by the Transfer Agent for written instructions from an Officer
of the Company may set forth in writing any action proposed to be taken or
omitted by the Transfer Agent with respect to its duties or obligations under
this Agreement and the date on and/or after which such action shall be taken.
The Transfer Agent shall not be liable for any action taken or omitted in
accordance with a proposal included in any such application on or after the
date specified therein unless, prior to taking or omitting any such action, the
Transfer Agent has received written instructions in response to such
application specifying the action to be taken or omitted. The Transfer Agent
may consult with counsel of the Company, or upon notice to and consent of the
Company and Manager, its own counsel, at the expense of the Company and shall
be fully protected with respect to anything done or omitted by it in good faith
in accordance with the advice or opinion of counsel to the Company or its own
counsel.
10. The Transfer Agent shall issue and mail
subscription warrants for Shares, Shares representing share dividends,
exchanges or splits, or act as conversion agent upon receiving written
instructions from an Officer and such other documents as the Transfer Agent may
deem necessary.
11. The Transfer Agent shall supply shareholder
lists to the Company upon receiving a request therefor from an Officer of the
Company.
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<PAGE> 19
12. (a) The Transfer Agent shall treat confidentially
and as proprietary information of the Company records and other information
relative to the Company and to persons who are at any time shareholders of the
Company, and shall not use such records and information for any purpose other
than the performance of its responsibilities and duties hereunder. In case of
any request or demand for the inspection of the shareholder records of the
Company, the Transfer Agent shall endeavor to notify the Company promptly and
to secure instructions from an Officer as to such inspection. The Transfer
Agent reserves the right, however, to exhibit the shareholder records to any
person whenever it receives an opinion from its counsel that there is a
reasonable likelihood that the Transfer Agent will be held liable for the
failure to exhibit the shareholder records to such person; provided, however,
that in connection with any such disclosure the Transfer Agent shall promptly
notify the Company and the Manger that such disclosure has been made or is to
be made.
(b) The obligations of confidentiality in this
Section shall survive termination or cancellation of this Agreement and shall
not apply to any information which a party has in its possession when disclosed
to it by the other party, information which a party develops, information which
is or becomes known to the public other than by breach of this Agreement, or
information rightfully received by either party from a third-party without the
obligation of confidentiality.
13. At the request of an Officer of the Company, the
Transfer Agent shall address and mail such appropriate notices to shareholders
as the Company may direct.
14. Notwithstanding any of the foregoing provisions of
this Agreement, the Transfer Agent shall be under no duty or obligation to
inquire into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares,
the sufficiency of the amount to be received therefor, or the authority of the
Approved Institution or of the Company to request such sale or issuance;
(b) The legality of a transfer of Shares, or of a
redemption of any Shares, the propriety of the amount to be paid therefor, or
the authority of the Approved Institution or of the Company to request such
transfer or redemption;
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<PAGE> 20
(c) The legality of the declaration of any dividend
by the Company, or the legality of the issue of any Shares in payment of any
share dividend; or
(d) The legality of any recapitalization or
readjustment of Shares.
15. The Transfer Agent shall be entitled to receive and
the Company hereby agrees to pay to the Transfer Agent for its
performance hereunder, including its performance of the duties and functions
set forth in Schedule I hereto, (i) its reasonable Out-of-Pocket Expenses
(including legal expenses and attorneys' fees) incurred in connection with its
performance hereunder and (ii) such compensation as may be agreed upon in
writing from time to time by the Transfer Agent and the Company.
16. The Transfer Agent shall have no duties or
responsibilities whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation shall
be implied in this Agreement against the Transfer Agent.
17. Purchase and Price of Services.
(a) The Company shall compensate the Transfer Agent
for, and the Transfer Agent will provide, beginning on the execution date of
this Agreement and continuing until the termination of this Agreement as
provided herein, the Services set forth in Schedules I(a) and I(b).
(b) The current unit prices for the Services shall
be as set forth in Schedule III (the "Schedule III Fee Schedule"). At least 90
days prior to the end of each calendar year, the Transfer Agent may negotiate
with the Company to adjust the Schedule III Fee Schedule for the following
calendar year upon the approval of the Board of Trustees of the Company.
Notwithstanding the above, at any time the Transfer Agent shall be entitled to
increased fees or one-time charges due to changes in legal or regulatory
requirements; provided that such increased fees or one-time charges shall be
subject to the approval of the Board of Trustees of the Company, which approval
shall not be unreasonably withheld.
-20-
<PAGE> 21
18. Billing and Payment.
(a) The Transfer Agent shall bill the Company as
follows: (i) monthly in arrears for Accounts maintained and in arrears for any
Out-of-Pocket Expenses incurred by the Transfer Agent; provided, however, that
with respect to Out-of-Pocket Expenses, the Transfer Agent shall provide the
Company monthly with an amount to be advanced to the Transfer Agent for
estimated postage expenses for the following month. Documentation to support
reconciliation of actual postal charges shall be provided to the Company
monthly. The Transfer Agent may from time to time request the Company to make
additional advances when appropriate.
(b) The Company shall pay the Transfer Agent in
immediately available funds at Columbus, Ohio within thirty (30) days of the
date of the bill, provided the bill is received in proper order and on a
timely basis.
19. The name "Time Horizon Funds" refers to the trust
created by, and the trustees, as trustees but not individually or personally,
acting from time to time under, a Declaration of Trust dated April 12, 1995,
as amended, which is hereby referred to and a copy of which is on file at the
principal office of the Company. The trustee, officers, employees and agents
of the Company shall not personally be bound by or liable under any written
obligation, contract, instrument, certificate or other interest or undertaking
of the Company made by the trustees or by any officer, employee or agent of the
Company, in his or her capacity as such, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder.
All persons dealing with any Fund or Class of Shares of the Company may enforce
claims against the Company only against the assets belonging to such Fund or
Class.
20. Transfer Agent shall provide the Company and the
Manager with annual financial statements not later than 90 days after the end
of each of Transfer Agent's fiscal years. These financial statements shall be
prepared in accordance with generally accepted accounting principles and shall
be audited by an independent firm of certified public accountants. Upon the
Company's request, Transfer Agent shall provide the Company and the Manager
with its quarterly financial statements no later than 45 days after the end of
each fiscal quarter.
-21-
<PAGE> 22
ARTICLE VIII
TERMINATION
-----------
1. Either of the parties hereto may terminate
this Agreement by giving to the other party notice in writing specifying the
date of such termination, which shall be not less than 90 days after the date
of receipt of such notice. Notwithstanding the foregoing, the Company may at
any time terminate this Agreement in accordance with the provisions of Schedule
IV hereto.
2. If either party fails to observe, keep or
perform any material term or condition of this Agreement, or if a voluntary or
involuntary petition is commenced by or against either party under Title 11 of
the United States Code or a party becomes insolvent, or should any substantial
part of either party's property be subject to any levy, seizure, assignment,
application or sale for or by any creditor or government agency, the other
party may terminate this Agreement in whole or in part. The party seeking to
terminate this Agreement shall give the other party written notice of any of
the foregoing claimed to be a basis for termination, and the Agreement shall
terminate 30 days after the receipt of the notice if the party receiving the
notice has then failed to correct or remedy the situation. The party charged
with alleged material breach may initiate the procedures in Article IX Section
5 and, in that case, termination shall not be effective during the pendency of
such procedures. In the event such notice is given by the Company, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Company,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement.
3. In the event such notice is given by the
Transfer Agent, the Company shall, on or before the termination date, deliver
to the Transfer Agent a copy of a resolution of its Board of Trustees certified
by the Secretary or an Assistant Secretary designating a successor transfer
agent or transfer agents. In the absence of such designation by the Company,
the Company shall, upon the date specified in the notice of termination of this
Agreement and delivery of the records maintained hereunder, be deemed to be its
own transfer agent and the Transfer Agent shall thereby be relieved of all
duties and responsibilities pursuant to this Agreement.
4. In the event this Agreement is terminated as
provided herein, upon the written request of the Company,
-22-
<PAGE> 23
the Transfer Agent shall deliver the records of the Company on electromagnetic
media to the Company or its successor transfer agent. The Company shall be
responsible to the Transfer Agent for the reasonable costs and expenses
associated with the preparation and delivery of such media, including copies of
computer ready formats, to the extent such costs were approved by the Company
prior to such costs being incurred. Upon termination as described in this
Section, for so long as the Transfer Agent continues to perform any one or more
of the services contemplated by this Agreement or any Schedule hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees
and out-of-pocket expenses incurred by the Transfer Agent but unpaid by the
Company upon such termination shall be immediately due and payable upon and
notwithstanding such termination. The Transfer Agent shall be entitled to
collect from the Company, in addition to the compensation described in this
Agreement the amount of all of the Transfer Agent's cash disbursements for
services approved in advance by the Company in connection with the Transfer
Agent's activities in effecting such termination, including without limitation
the delivery to the Company and/or its designees of the Company's property,
records, instruments and documents, or any copies thereof. Subsequent to such
termination, for a reasonable fee the Transfer Agent shall provide the Company
with reasonable access to any Company documents or records remaining in its
possession and previously provided to the Company.
ARTICLE IX
MISCELLANEOUS
-------------
1. Representatives of the Company's independent outside
auditors ("Auditors") shall have the right from time to time to perform on-site
audits at the facility of the Transfer Agent which do not result in an
unreasonable disruption of the business of the Transfer Agent. Such audits
shall be conducted in accordance with an audit program, the scope and frequency
of which shall be agreed upon from time to time in good faith by the parties.
The Auditors may obtain a reasonable number of copies of records and accounts
directly related to the services to be supplied hereunder by the Transfer
Agent. Except as provided in clause (c) below, nothing in this paragraph shall
be deemed to permit the Auditors to have access to any records or information
concerning (a) any other customer of the Transfer Agent, (b) the manner or
method used by the Transfer Agent in establishing the fees it charges any
-23-
<PAGE> 24
customer, including the Company or (c) the Transfer Agent's internal operating
procedures, provided that the Transfer Agent shall permit officers or employees
of the Auditors to have access to such internal operating procedures to the
extent necessary for the proper completion of such audit and the expression of
their unqualified opinion in the Company's semi-annual report on Form N-SAR,
provided such Auditors have agreed to keep such internal operating procedures
confidential and treat such information as proprietary information of the
Transfer Agent.
2. During the term of this Agreement, at no
additional cost to the Company, the Transfer Agent shall provide a facility
capable of safeguarding the transfer agency and dividend disbursing records of
the Company in case of damage to the primary facility providing those services
(the "Back-Up Facility"). Transfer of the transfer agency and dividend records
of the Company to the Back-Up Facility shall be at the Transfer Agent's
expense, shall commence immediately after damage to the primary facility
results in an inability to provide the transfer agency and dividend disbursing
services, and shall be completed within 72 hours of commencement. After the
primary facility has recovered, the Transfer Agent shall again utilize it to
provide the transfer agency and dividend disbursing services to the Company at
no additional cost to the Company. The Transfer Agent shall use reasonable
efforts to provide the services described in this Agreement from the Back-Up
Facility.
3. The Transfer Agent represents that it has and
is currently registered as a transfer agent with the Securities and Exchange
Commission ("SEC") and has complied with the SEC's regulations for registered
transfer agents. The Transfer Agent agrees that it will continue to be
registered with the SEC as a transfer agent for the duration of this Agreement.
Should the Transfer Agent fail to be registered with the SEC as a transfer
agent at any time during this Agreement, the Company may, upon written notice
to the Transfer Agent, immediately terminate this Agreement.
4. The following procedures will be adhered to
in all disputes arising under this Agreement which the parties cannot resolve
informally. The aggrieved party shall notify the other party in writing of the
nature of the dispute with as much detail as possible about the deficient
performance of the other party. Representatives of the parties shall meet (in
person or by telephone) within seven days of the date of the written
notification to reach an
-24-
<PAGE> 25
agreement about the nature of the deficiency and the corrective action to be
taken by the respective parties. The representatives of the parties shall
produce a report about the nature of the dispute in detail to their respective
management. If the representatives of the parties are unable to agree on
corrective action, the managers to whom the representatives of the parties
report or their successors ("Management") shall meet or otherwise act to
facilitate an agreement within 14 days of the date of the written notification.
If Management cannot resolve the dispute, or agree upon a written plan of
corrective action to do so, within seven days after their initial meeting or
other action, or if the agreed upon completion dates in the written plan of
corrective action are exceeded, either party may request arbitration as
provided for in this Agreement. Except as otherwise specifically provided,
neither party shall terminate this Agreement for breach or initiate arbitration
or other dispute resolution procedures unless and until this dispute resolution
procedure has been employed or waived in writing by both parties.
5. (a) Any controversy or claim between or among
the parties, including, but not limited to, those arising out of or relating to
this Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The
arbitration shall be conducted in accordance with the United States Arbitration
Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this
Agreement, and under the auspices and rules of the American Arbitration
Association then in effect. The parties submit to personal jurisdiction in San
Francisco, California. Each party may serve a single request for production of
documents. If disputes arise concerning these requests, the arbitrator(s)
shall have sole and complete discretion to determine the disputes. The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim, and any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). The arbitrator(s) shall deliver a written
opinion setting forth findings of fact and the rationale for the decision. The
arbitrator(s) shall reconsider the decision once upon the motion and at the
expense of a party.
(b) The confidentiality provisions of Article VII
Section 12 of this Agreement shall apply to the arbitration proceeding, all
evidence taken and the opinion. Judgment upon the decision rendered by the
arbitrator(s) may
-25-
<PAGE> 26
be entered in any court having jurisdiction. The institution and maintenance
of an action for judicial relief or pursuit of a provisional or ancillary
remedy shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.
(c) No provision of this section shall limit the
right of a party to this Agreement to obtain provisional or ancillary remedies
from a court of competent jurisdiction before, after, or during the pendency of
any arbitration. The exercise of a remedy does not waive the right of either
party to resort to arbitration.
(d) If a legal action or arbitration is commenced
in connection with the enforcement of this Agreement or any instrument or
agreement required under this Agreement, the prevailing party shall be entitled
to attorneys' fees actually incurred (including allocated costs for in-house
legal services), costs and necessary disbursements incurred in connection with
such action or proceeding, as determined by the court or arbitrator(s).
6. The Company agrees that prior to effecting
any change in any Prospectus which would increase or alter the duties and
obligations of the Transfer Agent hereunder, it shall advise the Transfer Agent
of such proposed change prior to the intended date of the same, and shall
proceed with such change only if it shall have received the consent of the
Transfer Agent thereto, which shall not be unreasonably withheld.
7. (a) Notices of any kind to be given to
the Manager hereunder shall be in writing and shall be duly given if mailed or
delivered to the Manager at the following address:
Bank of America NT&SA With a copy to:
555 South Flower Street, Arthur A. Fritz, Esq.
5th Floor Bank of America NT&SA
Los Angeles, CA 90071 555 South Flower Street
Attn: Debra McGinty Poteet 8th Floor
Los Angeles, CA 90071
or at such other address or to such individual as shall be so specified by the
Manager.
-26-
<PAGE> 27
(b) Notices of any kind to be given to the Transfer
Agent hereunder shall be in writing and shall be duly given if mailed or
delivered to the Transfer Agent at the following address:
Until September 18, 1995: After September 18, 1995:
BISYS Fund Services Ohio, Inc. BISYS Fund Services Ohio, Inc.
1900 E. Dublin-Granville Rd. 3435 Stelzer Road
Columbus, Ohio 43229 Columbus, Ohio 43219
Attention: Stephen G. Mintos Attention: Stephen G. Mintos
or at such other address or to such individual as shall be so specified by the
Transfer Agent.
(c) Notices of any kind to be given to the Company
shall be in writing and shall be duly given if mailed or delivered to the
Company at the following address:
Until September 18, 1995: with a copy to
Time Horizon Funds Cathy G. O'Kelly, Esq.
1900 E. Dublin-Granville Rd. Vedder, Price, Kaufman & Kammholz
Columbus, Ohio 43229 222 N. LaSalle, 26th Floor
Chicago, Illinois 60695
After September 18, 1995:
3435 Stelzer Road
Columbus, Ohio 43219
Attention: President
8. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties to this
Agreement.
9. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns. This Agreement
shall not be assignable by either party without the written consent of the
other party. This Agreement will automatically terminate in the event of its
assignment, as described hereunder, or as such term is defined in the 1940 Act.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (without reference to
principles of conflicts of law).
-27-
<PAGE> 28
11. This Agreement may be executed in any number
of counterparts each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
12. The provisions of this Agreement are intended
to benefit only the Transfer Agent and the Company, and no rights shall be
granted to any other person by virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers, thereunto duly
authorized, as of the day and year first above written.
BISYS FUND SERVICES OHIO, INC. TIME HORIZON FUNDS
By: /s/Stephen G. Mintos By: /s/J. David Huber
------------------------ ------------------------
(Signature) (Signature)
Stephen G. Mintos J. David Huber
------------------------ ------------------------
(Name) (Name)
------------------------ ------------------------
(Title) (Title)
------------------------ ------------------------
(Date Signed) (Date Signed)
-28-
<PAGE> 29
TRANSFER AGENCY AGREEMENT
APPENDIX A
I, J. David Huber, President, and I, W. Eugene Spurbeck,
Secretary, of TIME HORIZON FUNDS, a Delaware business trust (the "Company"), do
hereby certify that:
The following individuals have been duly authorized by the
Board of Trustees of the Company in conformity with the Company's Declaration
of Trust and By-Laws to execute any Certificate, instruction, notice or other
instrument, including an amendment to Appendix B or Schedule I hereto, or to
give oral instructions on behalf of the Company, and the signatures set forth
opposite their respective names are their true and correct signatures.
<TABLE>
<CAPTION>
NAME SIGNATURE
---- ---------
<S> <C>
- ------------------------------------------- ----------------------------------------------------------
- ------------------------------------------- ----------------------------------------------------------
- ------------------------------------------- ----------------------------------------------------------
- ------------------------------------------- ----------------------------------------------------------
- ------------------------------------------- ----------------------------------------------------------
TIME HORIZON FUNDS
By: ______________________________
J. David Huber
President
Dated: __________________ By: ______________________________
W. Eugene Spurbeck
Secretary
</TABLE>
<PAGE> 30
TRANSFER AGENCY AGREEMENT
APPENDIX B
I, J. David Huber, President, and I, W. Eugene Spurbeck,
Secretary, of TIME HORIZON FUNDS, a Delaware business trust (the "Company"), do
hereby certify that:
The following is a list of the Classes and Funds of the
Company issued and/or authorized on or before the date of this Transfer Agency
Agreement:
Fund CLASS
---- -----
Time Horizon Portfolio 1 Class A
Class B
Time Horizon Portfolio 2 Class A
Class B
Time Horizon Portfolio 3 Class A
Class B
TIME HORIZON FUNDS
By: __________________________
J. David Huber
President
Dated:______________________ By: __________________________
W. Eugene Spurbeck
Secretary
<PAGE> 31
SCHEDULE I(A)
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at
such times as the Company and the Transfer Agent may agree, the Transfer Agent
shall provide the services set forth below:
Examine and process new accounts, subsequent payments,
liquidations, exchanges, telephone transactions, check redemptions, automatic
withdrawals, certificate issuances, wire order trades, direct trades,
dividends, dividend statements, dealer statements.
DAILY ACTIVITY
- --------------
Maintain the following shareholder information on computer
recordkeeping systems or in such other manner as the Transfer Agent
shall determine:
Name and Address, including Zip Code;
Balance of uncertificated Shares;
Balance of certificated Shares;
Certificate number, number of Shares, issuance date of each
certificate outstanding and cancellation date for each certificate no
longer outstanding, if issued;
Balance of Shares having paid a commission;
Balance of dollars available for redemption;
Dividend code (daily accrual, monthly reinvest, monthly cash or
quarterly cash);
Type of account code (regular account, Automatic Withdrawal Plan);
Dealer, Branch and Salesperson information;
Establishment date indicating the date an account was opened, carrying
forward pre-conversion data as available;
Original establishment date for accounts opened by exchange;
<PAGE> 32
W-9 withholding status and periodic reporting;
State of residence code;
Social Security or taxpayer identification number, and indication of
certification (SSN also usable as a reference for on-line account
lookup);
Historical transactions on the account for the most recent 18 months,
or other period as mutually agreed to from time-to-time;
Indication as to whether phone transactions can be accepted for this
account;
Beneficial owner code, i.e. male, female, joint tenant, etc.;
An alternate or "secondary" account number issued by a dealer (or
bank, etc.) to a customer for use in inquiry and transaction input by
"remote accessors" (Company client institutions with remote terminal
access or transmission capability).
FUNCTIONS
- ---------
Answer all investor and dealer telephone and/or written inquiries,
except those concerning Company policy or requests for investment
advice which will be referred to the Company or those which the
Company chooses to answer, and provide a staff until 8:00 pm Eastern
time on each business day in connection therewith.
Deposit Company Share certificates into accounts upon receipt of
instructions from the investor or other authorized person, if issued.
Examine and process transfers of Shares insuring that all transfer
requirements and legal documents have been supplied.
Process and confirm address changes.
Process standard account record changes as required, i.e. dividend
codes, dealer and salesperson codes, etc.
Microfilm source documents for transactions, such as account
applications and correspondence.
-2-
<PAGE> 33
Use of master account application to establish individual participant
accounts.
Perform backup withholding for those accounts which federal government
regulations indicate is necessary.
Perform withholdings on liquidations, if applicable, for employee
benefit plans.
Prepare and mail shareholder reporting forms relative to processing
performed, including 5498s, W2Ps, and 1099s.
Solicit missing taxpayer identification numbers.
Provide remote access inquiry to Company records via Company supplied
hardware.
REPORTS PROVIDED
- ----------------
<TABLE>
<S> <C>
Daily Journals Reflecting all Shares and dollar activity for the previous day
Blue Sky Report Supply information monthly for Company's preparation of Blue Sky
Reporting
N-SAR Report Supply monthly correspondence, redemption and liquidation information
for use in Company's N-SAR Report
12b-1 Report/ Supply monthly dealer reallowance, commission and other fee
Average Asset Reporting reporting
</TABLE>
Additionally, the following will be provided at the Company's request
to the Company at no charge:
1. Shareholder listings:
- by beneficial owner code
- by tax status code
- by state code
- by establishment date
- by dividend code
- by account plan type
- top ten shareholders.
2. Dealer Transaction Totals.
-3-
<PAGE> 34
3. Monthly average daily balance reports.
Prepare and mail copies of summary statements to dealers and
investment advisers;
Generate and mail confirmation statements for all financial
transactions. Send copies of financial transaction confirmations to
the dealer specified, as well as investment advisor and possibly other
indicated interested parties;
Monthly management report as Company and Transfer Agent agree that
will provide summary information of Company activity and quality of
services delivered.
DIVIDEND ACTIVITY
- -----------------
Reinvest or pay in cash including reinvesting in other funds within
the fund group serviced by the Transfer Agent as described in each
Company prospectus.
Distribute capital gains simultaneously with income dividend.
DEALER SERVICES
- ---------------
Prepare and mail confirmation statements to dealers daily.
Prepare and mail copies of statements to dealers, same frequency as
investor statements.
Allow on-line access to institutions designated by the Company from
time to time.
SHAREHOLDER MEETINGS
- ---------------------
One Proxy mailing per year per Fund.
Prepare certified list of Shareholders, hard copy or microfiche as
requested by the Company.
PERIODIC ACTIVITIES
- -------------------
Mail transaction confirmation statements daily to investors.
-4-
<PAGE> 35
Address and mail four (4) periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably
specified by the Transfer Agent).
Mail periodic statement to investors.
Compute, prepare and furnish all necessary reports to Governmental
authorities: Forms 1096, 1099DIV, 1099B, 1042 and 1042S.
Enclose various marketing material as designated by the Company in
statement mailings, i.e. monthly and quarterly statements (material
must be adaptable to mechanical equipment as reasonably specified by
the Transfer Agent).
-5-
<PAGE> 36
SCHEDULE I(B)
BISYS PROPOSAL TO BANK OF AMERICA
FOR TRANSFER AGENT SERVICES
MAY 18, 1995
(See Attached)
<PAGE> 37
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- Account applications
- Cancelled certificates plus share powers and supporting
documents
- Checks including check registers, reconciliation records, any
adjustment records and tax withholding documentation
- Indemnity bonds for replacement of lost or missing checks
- Liquidation, redemption, withdrawal and transfer requests
including share powers, signature guarantees and any
supporting documentation
- Proxy records for shareholder meetings held within the
previous twelve (12) months (held with the Transfer Agent's
Compliance Department)
- State and federal tax records
- Journals (or other records of original entry) containing
itemized daily record of all sales and redemptions
- Separate ledger accounts (or other records) showing number of
shares held by each shareholder of record (including details
with respect to periodic investment plans, dividend
reinvestment plans, etc.)
<PAGE> 38
SCHEDULE III
FEE SCHEDULE - TIME HORIZON FUNDS
SHARES OF TIME HORIZON PORTFOLIO 1
SHARES OF TIME HORIZON PORTFOLIO 2
SHARES OF TIME HORIZON PORTFOLIO 3
<TABLE>
<S> <C> <C>
Annual Base Fee Per Portfolio $10,000
Annual Open Account Fee
(Non-Daily Dividend) $15.00 per account
Annual Open Account Fee
(Daily Dividend) $17.75 per account
Annual Close Account Fee $3.00 per account
Annual IRA Fee $20.00 per TIN
Asset Allocation:
Annual Rebalancing $3,000 per portfolio
Monthly Rebalancing $4,000 per portfolio
Transaction Charge $0.50 per transaction
Payroll Deduction:
Initial Set-Up Fee $500 per portfolio
Transaction Charge $0.50 per transaction
[ ] Out-of-pocket charges will be billed on a pass-through basis.
[ ] BISYS agrees to annual percentage increases not to exceed the Consumer
Price Index.
[ ] The above schedule is based upon a three year contract. Additional
fee concessions are possible for an extended service contract.
[ ] All conversion costs will be absorbed by BISYS.
</TABLE>
<PAGE> 39
SCHEDULE IV
TRANSFER AGENT PERFORMANCE OBJECTIVES
TIME HORIZON FUNDS
The performance objectives set forth below represent what the Company believes
should be reasonably obtainable by the Transfer Agent, given the typical daily
variables associated with any transfer agent operation (i.e., transaction
volume fluctuations).
IF THE TRANSFER AGENT FAILS TO MEET THE PERFORMANCE LEVELS DESCRIBED BELOW AS
"ACCEPTABLE" FOR ONE OR MORE OF THE LISTED FUNCTIONS BASED ON A
TRANSACTION-VOLUME WEIGHTED AVERAGE OVER A CALENDAR MONTH PERIOD, THE TRANSFER
AGENT SHALL CREDIT THE COMPANY ON THE COMPANY'S INVOICE FOR THE NEXT MONTH TEN
PERCENT (10%) OF THE SERVICE FEES THE TRANSFER AGENT INVOICED THE COMPANY FOR
THE MONTH THE PERFORMANCE LEVELS WERE NOT MET.
IF THE TRANSFER AGENT FAILS TO MEET THE PERFORMANCE LEVELS DESCRIBED BELOW AS
"MARGINAL" FOR ANY ONE OR MORE OF THE LISTED FUNCTIONS BASED ON A
TRANSACTION-VOLUME WEIGHTED AVERAGE OVER A CALENDAR MONTH PERIOD, THE TRANSFER
AGENT SHALL CREDIT THE COMPANY ON THE COMPANY'S INVOICE FOR THE NEXT TWENTY
PERCENT (20%) OF THE SERVICE FEES THE TRANSFER AGENT INVOICED THE COMPANY FOR
THE MONTH PRIOR TO THE MONTH THE PERFORMANCE LEVELS WERE NOT MET.
This Agreement may be immediately terminated upon written notice by the Company
to the Transfer Agent in the event that the TRANSFER AGENT FAILS TO MEET THE
PERFORMANCE LEVELS DESCRIBED BELOW AS "UNACCEPTABLE" FOR ANY ONE OR MORE OF THE
LISTED FUNCTIONS BASED ON A TRANSACTION-VOLUME WEIGHTED AVERAGE OVER A
CALENDAR MONTH PERIOD and not cured by the Transfer Agent within a subsequent
period of 30 days. Notice of such failure to meet performance objectives shall
be provided in writing by the Company to the Transfer Agent.
-2-
<PAGE> 1
EXHIBIT 9.3
TIME HORIZON FUNDS
SHAREHOLDER SERVICE PLAN
The Board of Trustees of Time Horizon Funds (the "Company") has adopted the
following plan to pay for expenses incurred in connection with the provision of
shareholder services with respect to the shares of its investment portfolios
(collectively the "Funds" and each individually a "Fund").
Pursuant to the Plan, the Funds shall bear: (a) expenses incurred in
connection with non-distribution shareholder services provided by the
distributor of shares of the Company (the "Distributor") to securities dealers,
financial institutions or other industry professionals such as investment
advisers, accountants and estate planning firms (collectively, "Service
Organizations") and/or the beneficial owners of Fund shares; (b) periodic
payments made to Service Organizations for the provision of support services to
the beneficial owners of Fund shares; and (c) expenses incurred in implementing
and operating this Plan. Payments shall be made by the Company to the
Distributor to the extent described below.
The Board of Trustees, in considering whether the Company should implement
this Plan, has requested and evaluated such information as it deemed necessary
to an informed determination as to whether a written plan should be implemented
and has considered such pertinent factors as it deemed necessary to form the
basis for a decision to use assets of the Funds for such purposes.
In voting to approve the implementation of this Plan, the Trustees have
concluded, in the exercise of their reasonable business judgment and in light
of their respective fiduciary duties, that there is a reasonable likelihood
that the Plan will benefit the Funds and their shareholders.
I. FINANCING
The material aspects of the financing by the Company of shareholder
servicing expenses incurred in connection with shares of the Funds are as
follows:
The Funds will pay the Distributor for expenses incurred in connection with
non-distribution shareholder
<PAGE> 2
services provided by the Distributor to Service Organizations and/or the
beneficial owners of Fund shares, including but not limited to shareholder
servicing provided by the Distributor at facilities dedicated for Fund use,
provided that such shareholder servicing is not duplicative of the servicing
otherwise provided on behalf of the Funds.
In addition, the Funds will pay the Distributor for fees to Service
Organizations (which may include the Distributor itself) for the provision of
support services to persons who are the beneficial owners of Fund shares
("Clients"). Such services may include: (a) establishing and maintaining
accounts and records relating to Clients that invest in Fund shares; (b)
processing dividend and distribution payments from the Funds on behalf of
Clients; (c) providing information periodically to Clients regarding their
positions in Fund shares; (d) arranging for bank wires; (e) responding to
Client inquiries concerning their investments in Fund shares; (f) providing the
information to the Funds necessary for accounting and subaccounting; (g) if
required by law, forwarding shareholder communications from the Funds (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Clients; (h) assisting in processing
exchange and redemption requests from Clients; (i) assisting Clients in
changing dividend options, account designations and addresses; and (j)
providing such other similar services as the Distributor may reasonably
request.
While this Plan is in effect, the Distributor will be paid for such
shareholder servicing expenses that are incurred in connection with shares of
the Funds on a monthly basis, at an annual rate of up to but not more than
0.25% of each Fund's average daily net assets during such month. These monthly
payments to the Distributor shall be made in accordance with, and subject to,
the conditions set forth in Part II of this Plan.
II. OTHER PROVISIONS
(a) The monthly payments to the Distributor under Part I of this Plan shall
be made in accordance with, and subject to, the following conditions:
(1) the calculation of a Fund's average daily net assets shall not
include those assets held in accounts opened via a transfer of
assets from
-2-
<PAGE> 3
trust and agency accounts of Bank of America National Trust and
Savings Association;
(2) if in any month the Distributor expends or is due more monies
than can be immediately paid under Part I, due to the percentage
limitation noted therein, the unpaid amount shall be carried
forward from month to month while this Plan is in effect until such
time, if ever, when it can be paid in accordance with the provisions of
Part I;
(3) if in any month the Distributor does not expend the entire
amount then available under Part I, and if no unpaid amounts have
been carried forward and remain unpaid under Part I, then the amount
not expended shall be considered a credit and may be drawn upon from
month to month by the Distributor to permit payment under Part I when
necessary in the future (i.e., carried back);
(4) payments made out of or charged against the assets of a
particular Fund shall be in payment for shareholder services incurred
on behalf of such Fund; and
(5) payments made pursuant to Part I shall be for the shareholder
servicing expenses described therein.
Notwithstanding any provision of items (2) and (3) above, no amounts payable
or credit due pursuant to this Plan for any fiscal year may be carried over for
payment or utilized as a credit beyond the end of such year. In addition, any
amount being carried forward during any given year will be extinguished in the
event this Plan is terminated in that year.
Payments to a Service Organization under Part I shall be subject to
compliance by the Service Organization with the terms of an agreement between
the Service Organization and the Distributor. If an investor in a Fund ceases
to be a client of a Service Organization that has entered into an agreement
with the Distributor, but continues to hold shares of the Fund, the Distributor
will be entitled to receive similar payments with respect to the shareholder
servicing provided to such investor.
(b) For the purposes of determining the amount payable under this Plan,
the value of a Fund's net assets shall be
-3-
<PAGE> 4
computed in the manner specified in the Fund's prospectus as then in effect.
(c) The Distributor shall provide the Board of Trustees, at least
quarterly, with a written report of all amounts expended pursuant to Part I of
this Plan. The report shall state the purpose for which the amounts were
expended.
(d) This Plan shall continue until October 31, 1996 unless earlier
terminated in accordance with its terms, and thereafter shall continue
automatically for successive annual periods, provided such continuance is
approved by a majority of the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the Investment Company
Act of 1940) of the Company and who have no direct or indirect financial
interest in the operation of this Plan or in any agreements entered into in
connection with this Plan (the "Disinterested Trustees"), pursuant to a vote
cast in person at a meeting called for the purpose of voting on the continuance
of the Plan.
(e) This Plan may be amended at any time by the Board of Trustees, provided
that any material amendments of the terms of this Plan shall become effective
only upon approval as provided in paragraph (d) hereof.
(f) This Plan is terminable, as to any Fund, without penalty at any time by
(i) vote of a majority of the Disinterested Trustees, or (ii) vote of a
majority of the outstanding voting securities of such Fund.
(g) The Company's Board of Trustees has adopted this Plan as of June 12,
1995.
-4-
<PAGE> 1
EXHIBIT 9.4
SUB-ADMINISTRATION AGREEMENT
----------------------------
AGREEMENT made as of September 5, 1995 by and between Bank of America
National Trust and Savings Association (the "Manager") and BISYS Fund Services
Ohio, Inc., an Ohio corporation (the "Sub-Administrator").
WHEREAS, the Manager has entered into a Management Agreement dated
September 5, 1995 (the "Management Agreement") to provide management services
to Time Horizon Funds (the "Company"), which is an investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and which is comprised of multiple investment portfolios as specified in
the Management Agreement (each a "Fund" and collectively the "Funds");
WHEREAS, the Management Agreement provides that the Manager may from
time to time employ or associate with itself such person or persons as it may
believe to be particularly fitted to assist in the performance of the
Management Agreement;
WHEREAS, the Manager desires to retain the Sub-Administrator to
provide administration services for the Funds and the Sub-Administrator is
willing to provide such services, all as more fully set forth below;
WHEREAS, the Sub-Administrator is experienced in providing
administration services to investment companies and possesses facilities
sufficient to provide such services; and
WHEREAS, the Board of Trustees of the Company has approved the
appointment of the Sub-Administrator as sub-administrator of the Company.
NOW THEREFORE, in consideration of the mutual promises and agreements
contained herein, the parties hereby agree as follows:
I. SUB-ADMINISTRATION
------------------
1. APPOINTMENT OF SUB-ADMINISTRATOR. The Manager retains the
Sub-Administrator for the term of this Agreement and the Sub-Administrator
hereby agrees to perform the services and duties set forth in this Section I
for the compensation provided in this Section I.
<PAGE> 2
2. SERVICES AND DUTIES.
(A) The Sub-Administrator shall be responsible for all
services set forth in Section (A) of the Management Agreement except oversight
activities.
(B) The Sub-Administrator shall promptly notify the
Manager and the Company of any inquiries or contacts by governmental officers
regarding the Funds. The Sub-Administrator shall not reply to any such
governmental inquires without the consent of the Manager and the Company unless
required to do so by law (in which event it shall give the Manager and the
Company prior written notice of its response).
3. COMPENSATION. For the services provided and the
expenses assumed as Sub-Administrator until December 31, 1998, the Manager
shall pay the Sub-Administrator a fee, computed daily and payable monthly, at
the annual rate of 0.02% of each Fund's average daily net assets from $0 to
$124.99 million; 0.05% of each Fund's average daily net assets from $125.00
million to $199.99 million; and 0.08% of each Fund's average daily net assets
over $200.00 million. Thereafter, such fees shall be as agreed upon by the
Manager and Sub-Administrator from time to time. The Sub-Administrator shall
pay all costs and expenses of maintaining the offices of the Company, wherever
located, and shall arrange for payment by the Company of all expenses payable
by the Company.
4. SERVICES NOT EXCLUSIVE. The Sub-Administrator shall
for all purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Board of
Trustees from time to time, have no authority to act for or represent the
Company in any way or otherwise be deemed its agent. The services furnished by
the Sub-Administrator hereunder are not deemed exclusive, and the
Sub-Administrator shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
5. EXPENSES ASSUMED AS SUB-ADMINISTRATOR. Except as
otherwise stated in this Agreement, the Sub-Administrator shall pay all
expenses incurred by it in performing its services and duties hereunder as
Sub-Administrator including the cost of any independent pricing service used in
connection with the Funds (other than the cost of securities purchased for the
Company).
The Company shall bear other expenses incurred in the
operation of the Funds, including without limitation: (i) taxes, interest,
brokerage fees and commissions, if any, (ii) fees of
-2-
<PAGE> 3
trustees who are not officers, directors, partners, employees or holders of 5
percent or more of the outstanding voting securities of the Manager or any of
its affiliates, (iii) Securities and Exchange Commission (the "Commission")
fees and state blue sky registration and qualification fees, (iv) charges of
custodians, transfer and dividend disbursing agents' fees, (v) certain
insurance premiums, outside auditing and legal expenses, costs of maintaining
Company existence, (vi) costs of preparing and printing prospectuses or any
supplements or amendments thereto necessary for the continued effective
registration of the shares of the Company under federal or state securities
laws, (vii) costs of printing and distributing any prospectus, supplement or
amendment thereto for existing shareholders of the Funds described therein,
(viii) costs of shareholders' reports and meetings, and any extraordinary
expenses. It is understood that certain advertising, marketing, shareholder
servicing, administration and/or distribution expenses to be incurred in
connection with the shares of the Funds may be paid by the Company as provided
in any plan which may in the sole discretion of the Company be adopted in
accordance with Rule 12b-1 under the 1940 Act, and that such expenses shall be
paid apart from any fees paid under this Agreement.
6. RIGHT TO INSPECT. The Manager and the Company shall
have the right at any time to inspect the records (including work papers and
the other related documents) in the possession of the Sub-Administrator
relating to the Company.
7. DISASTER RECOVERY. The Sub-Administrator shall at
its expense enter into and shall maintain in effect with appropriate parties
one or more agreements making reasonable provision for emergency use of
electronic data processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, the Sub-Administrator shall, at
no additional expense to the Manager or the Company, take reasonable steps to
minimize service interruptions but shall have no liability with respect
thereto.
II. CONFIDENTIALITY
---------------
The Sub-Administrator shall treat confidentially and as
proprietary information of the Company all records and other information
relative to the Company and the Funds and prior or present shareholders or
those persons or entities who respond to inquires concerning investment in the
Funds, and shall not use such records and information for any purpose other
than performance of its responsibilities and duties hereunder or under any
agreement with the Company, except after prior notification
-3-
<PAGE> 4
to and approval by the Board of Trustees of the Company. The Manager shall use
its best efforts to cause the Company to not unreasonably withhold such
approval, it being understood that such approval will not be withheld where the
Sub-Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when the Sub-Administrator is requested to divulge such
information by duly constituted authorities.
III. LIMITATION OF LIABILITY
-----------------------
The Sub-Administrator acknowledges that the performance of
this Agreement is for the benefit of the Funds, that the Sub- Administrator
shall be directly liable and responsible to the Manager and the Company for
performance of its obligations hereunder, and that either the Funds (or the
Company on behalf of the Funds) or the Manager may therefore enforce in its own
name and for itself such liability and responsibility against the
Sub-Administrator; provided that, except as otherwise provided herein, the
Sub-Administrator shall not be liable for any error of judgment or mistake of
law or for any loss suffered by any Fund in connection with the matters to
which this Agreement relates, except loss resulting from willful misfeasance,
bad faith or negligence on its part in the performance of its obligations and
duties under this Agreement or reckless disregard of such obligations and
duties. Any person, even though also an officer, director, partner, employee
or agent of the Sub-Administrator, who may be or may become an officer,
trustee, employee or agent of the Company, shall be deemed, when rendering
services to the Company or to any Fund, or acting on any business of the
Company or any Fund (other than services or business in connection with the
Sub-Administrator's duties hereunder or under any agreement with the Company)
to be rendering such services to or acting solely for the Company or Fund and
not as an officer, director, partner, employee or agent or one under the
direction or control of the Sub-Administrator even though paid by the
Sub-Administrator.
IV. TERMINATION
-----------
This Agreement shall continue with respect to each Fund until
terminated with respect to such Fund by either party hereto, or by the Company,
giving notice in writing specifying the date of such termination, which date
shall be not less than 60 days after the date of the giving of such notice.
This Agreement shall not be assignable by the Sub-Administrator to any person,
including without limitation to any affiliate of the Sub-Administrator, without
the written consent of the Manager and the Company, authorized or approved by a
resolution of the Board of
-4-
<PAGE> 5
Trustees of the Company; and any attempt by the Sub-Administrator to assign any
of its rights and duties under this Agreement without such prior written
consent shall constitute grounds for immediate termination of this Agreement
and shall not require any notice. This Agreement will automatically terminate
upon the earlier of (i) termination of the Management Agreement, or (ii) the
date of its assignment, as described hereunder or as such term is defined in
the 1940 Act. After termination of this Agreement, for so long as the
Sub-Administrator, with the written consent of the Manager, in fact continues
to perform any one or more of the services contemplated by this Agreement or
any schedule or exhibit hereto, the provisions of this Agreement, including
without limitation the provisions dealing with indemnification, shall continue
in full force and effect. Compensation due the Sub-Administrator and unpaid by
the Manager upon such termination shall be immediately due and payable upon and
notwithstanding such termination. The Sub-Administrator shall be entitled to
collect from the Manager, in addition to the compensation described under
Section 1.3 hereof, the amount of all the Sub-Administrator's cash
disbursements for services approved in advance by the Manager in connection
with the Sub-Administrator's activities in effecting such termination,
including without limitation, the delivery to the Manager and/or its designees
of the Company's property, records, instruments and documents, or any copies
thereof. Subsequent to such termination, for a reasonable fee, the
Sub-Administrator shall provide the Manager and the Company with reasonable
access to any Company documents or records remaining in its possession.
V. INDEMNIFICATION
---------------
1. INDEMNIFICATION. The Manager agrees to indemnify and
hold harmless the Sub-Administrator and its nominees from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities and Commodities Laws and any state and
foreign securities and blue sky laws, and amendments thereto) and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action which the Sub-Administrator takes or
does not take (i) at the request or on the direction of or in reliance on the
advice of the Manager or the Company or (ii) upon Oral or Written Instructions,
provided that neither the Sub-Administrator, nor any of its nominees, shall be
indemnified against any liability to the Manager, to the Company or to its
shareholders (or any expenses incident to such liability) arising out of the
Sub-Administrator's own willful misfeasance, bad faith, negligence or
-5-
<PAGE> 6
reckless disregard of its duties and obligations under this Agreement.
The Sub-Administrator agrees to indemnify and hold harmless
the Manager and its nominees from all taxes, charges, expenses, assessments,
claims and liabilities (including, without limitation, liabilities arising
under the Securities and Commodities Laws and any state and foreign securities
and blue sky laws, and amendments thereto) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action which the Manager takes or does not take at the request or on
the direction of or in reliance on the advice of the Sub-Administrator,
provided that neither the Manager, nor any of its nominees, shall be
indemnified against any liability to the Sub-Administrator, to the Fund or to
its shareholders (or any expenses incident to such liability) arising out of
the Manager's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties and obligations under this Agreement.
2. NAMES. The name "Time Horizon Funds" refers to the
trust created and the trustees, as trustees but not individually or personally,
acting from time to time under a Declaration of Company dated April 12, 1995,
as amended, which is hereby referred to and a copy of which is on file at the
principal office of the Company. The trustees, officers, employees and agents
of the Company shall not personally be bound by or liable under any written
obligation, contract, instrument, certificate or other interest or undertaking
of the Company made by the trustees or by an officer, employee or agent of the
Company, in his or her capacity as such, nor shall resort be had to their
private property for the satisfaction of any obligation or claim thereunder.
All persons dealing with any series or class of shares of the Company may
enforce claims against the Company only against the assets belonging to such
series or class.
VI. AMENDMENT OF THIS AGREEMENT
---------------------------
No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
-6-
<PAGE> 7
VII. NOTICES
-------
Notices of any kind to be given to the Manager hereunder by the
Sub-Administrator shall be in writing and shall be duly given if mailed or
delivered to the manager at the following address:
Bank of America NT&SA
555 South Flower Street
Los Angeles, California 90071,
Attention: Debra McGinty-Poteet
WITH A COPY TO:
Bank of America NT&SA
Legal Department
555 South Flower Street
Los Angeles, California 90071
Attention: Arthur A. Fritz, Esq.
or at such other address or to such individual as shall be so specified by the
Manager to the Sub-Administrator.
Notices of any kind to be given to the Sub-Administrator hereunder by
the Manager shall be in writing and shall be duly given if mailed or
delivered to the Sub-Administrator at the following address:
Until September 18, 1995
BISYS Fund Services Ohio, Inc.
1900 E. Dublin-Granville Road
Columbus, Ohio 43229
Attention: Stephen G. Mintos
After September 18, 1995
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43217
Attention: Stephen G. Mintos
or at such other address or to such individual as shall be so specified by the
Sub-Administrator to the Manager.
A copy of all notices to the Manager or the Sub-Administrator shall be
given to the Company. Notices of any kind to be given to the Company by the
Manager or Sub-Administrator shall be in writing and shall be duly given if
mailed or delivered to the Company at the following address:
-7-
<PAGE> 8
<TABLE>
<S> <C>
Until September 18, 1995: WITH A COPY TO
Time Horizon Funds Cathy G. O'Kelly, Esq.
1900 E. Dublin-Granville Rd. Vedder, Price, Kaufman &
Columbus, Ohio 43229 Kammholz
Attention: President 222 N. LaSalle, 26TH Floor
Chicago, Illinois 60695
</TABLE>
After September 18, 1995:
Time Horizon Funds
3435 Stelzer Road
Columbus, Ohio 43217
Attention: President
or at such other address or such individual as shall be so specified by the
Company to the Manager and Sub-Administrator.
VIII. MISCELLANEOUS
-------------
THe captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
subject to the provisions of Section IV hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by Delaware law (without reference to
principles of conflicts of law); PROVIDED, HOWEVER, that nothing herein shall
be construed in a manner inconsistent with the 1940 Act or any rule or
regulation of the Commission thereunder.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
BISYS FUND Services Ohio, Inc.
(name)/s/J. David Huber
--------------------------
(title) Executive Vice President
-------------------------
Attest:/s/George O. Martinez
-------------------------
(name) George O. Martinez
-----------------------
(title) Senior Vice President
----------------------
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: /s/Debra McGinty-Poteet
--------------------------
(name) Debra McGinty-Poteet
-----------------------
(title) Senior Vice President
----------------------
Attest:/s/Sandra C. Brown
-------------------------
(name) Sandra C. Brown
-----------------------
(title) Vice President
----------------------
-9-
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
To the Board of Trustees and Shareholders of
Time Horizon Funds
We consent to the inclusion in the Post-Effective Amendment #1 to the
Registration Statement of form N-1A of Time Horizon Funds (File No. 33-91448)
of our report dated July 28, 1995 on our audits of the statements of assets and
liabilities of the portfolios of Time Horizon Funds as of July 28, 1995. We
also consent to the reference to our Firm under the captions "Independent
Accountants" and "Financial Statements" in the Statement of Additional
Information.
Los Angeles, California COOPERS & LYBRAND L.L.P.
February 2, 1996
<PAGE> 1
EXHIBIT 13
July 26, 1995
Time Horizon Funds
125 West 55th Street
New York, New York 10019
Ladies and Gentlemen:
In connection with your sale to us today of 10,003 shares of
beneficial interest ("Shares") of Time Horizon Funds (the "Trust"), I
understand that: (i) the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"); (ii) your sale of the Shares to us is
made in reliance on such sale being exempt under Section 4(2) of the 1933 Act
as not involving any public offering; (iii) in part, your reliance on such
exemption is predicated on our representation, which we hereby confirm, that we
are acquiring the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection with any
resale or distribution of the Shares or of any interest therein.
We hereby agree that we will not sell, assign or transfer the
Shares or any interest therein, except upon repurchase or redemption by the
Trust, unless and until the Shares have been registered under the 1933 Act or
you have received an opinion of your counsel indicating to your satisfaction
that such sale, assignment or transfer will not violate the provisions of the
1933 Act or any rules or regulations promulgated thereunder. We further agree
that if any portion of the Shares is redeemed prior to the full amortization of
the Trust's organizational expenses, the proceeds thereof will be reduced by a
pro rata portion of such unamortized balance in the same proportion as the
number of such Shares being redeemed bears to the number of such Shares
outstanding at the time of redemption.
BISYS FUND SERVICES, INC.
By: Steven G. Mintos
Title: Executive Vice President
<PAGE> 1
EXHIBIT 15
TIME HORIZON FUNDS
DISTRIBUTION SERVICE PLAN
The Board of Trustees of Time Horizon Funds (the "Company")
has adopted the following plan pursuant to the Investment Company Act of 1940
(the "Act") and Rule 12b-1 promulgated thereunder.
The Board of Trustees, in considering whether the Company
should implement this Plan, has requested and evaluated such information as it
deemed necessary to an informed determination as to whether a written plan
should be implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the various series
of the Company (each a "Fund") for such purposes.
In voting to approve the implementation of this Plan, the
Trustees have concluded, in the exercise of their reasonable business judgment
and in light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the Funds and their shareholders.
I. DISTRIBUTION PLAN
The Funds will pay the distributor of shares of the Company
(the "Distributor") for:
(a) expenses incurred in connection with the advertising and
marketing of their respective shares, including but not limited to, advertising
or marketing via radio, television, newspapers, magazines, telemarketing or
direct mail solicitations;
(b) periodic payments made to securities dealers, financial
institutions or other industry professionals such as investment advisers,
accountants and estate planning firms (collectively, "Service Organizations"),
for assistance in connection with the distribution (as the Securities and
Exchange Commission construes such term under Rule 12b-1) of shares of the
Funds in respect of the average daily value of the Funds' shares beneficially
owned by persons ("Clients") for whom the Service Organization is the dealer of
record or holder of record or with whom the Service Organization has a
servicing relationship; and
<PAGE> 2
(c) expenses incurred in preparing, printing and distributing
prospectuses for the Funds (except those used for regulatory purposes or for
distribution to existing shareholders of the Funds, which is considered a
non-12b-1 expense) and in implementing and operating this Combined Plan.
While this Plan is in effect, the Distributor will be
compensated by the Funds for such distribution expenses which are incurred in
connection with shares of the Funds on a monthly basis, at the annual rate of
0.75% of each Fund's average daily net assets during such month. These monthly
payments to the Distributor shall be made in accordance with, and subject to,
the conditions set forth in Part II of this Plan.
The payments to the Distributor are designed to compensate the
Distributor for the expenses it incurs and the services it renders in
distributing shares of the Funds. However, this Plan is a "compensation" plan,
and the Distributor will receive payments hereunder even if the amount paid
exceeds the Distributor's actual expenses. If in any year the Distributor's
expenses incurred in connection with the distribution of shares of a Fund
exceed the distribution fees paid by the Fund, the Distributor will recover
such excess only if this Plan with respect to the Fund continues to be in
effect in some later year when the payments hereunder exceed the Distributor's
expenses. There is no limit on the periods during which unreimbursed expenses
may be carried forward, although the Company is not obligated to repay any
unreimbursed expenses for a Fund that may exist at such time, if any, as this
Plan terminates or is not continued with respect to the Fund. No interest,
carrying or finance charge will be imposed on any amounts carried forward.
II. OTHER PROVISIONS
(a) The monthly payments to the Distributor under Part I
of this Plan shall be made in accordance with, and subject to, the following
conditions: (1) the calculation of a Fund's average daily net assets will not
include those assets held in accounts opened via a transfer of assets from
trust and agency accounts of Bank of America National Trust and Savings
Association; and (2) the payments made out of or charged against the assets of
a particular Fund shall be in payment for distribution expenses incurred on
behalf of such Fund.
-2-
<PAGE> 3
(b) Payments to a Service Organization made pursuant to
Part I shall be subject to compliance by the Service Organization with
the terms of an agreement between the Service Organization and the
Distributor. If an investor in a Fund ceases to be a client of a
Service Organization that has entered into an agreement with the
Distributor, but continues to hold shares of the Fund, the Distributor
will be entitled to receive similar payments with respect to the
assistance provided to such investor.
(c) For the purposes of determining the amounts payable
under this Plan, the value of a Fund's net assets shall be computed in the
manner specified in the Fund's prospectus as then in effect.
(d) The Distributor shall provide the Board of Trustees
with a written report at least quarterly, of all amounts expended pursuant to
Part I of this Plan. The report shall state the purpose for which the amounts
were expended.
(e) This Distribution Services Plan shall continue until
October 31, 1996, unless earlier terminated in accordance with its terms, and
thereafter shall continue automatically for successive annual periods, provided
such continuance is approved by a majority of the Board of Trustees, including
a majority of the Trustees who are not "interested persons" (as defined in the
Act) of the Company and who have no direct or indirect financial interest in
the operation of this Plan or in any agreements entered into in connection with
this Plan (the "Disinterested Trustees"), pursuant to a vote cast in person at
a meeting called for the purpose of voting on the continuance of this
Distribution Services Plan.
(e) This Plan may be amended at any time by the Board of
Trustees provided that (i) any amendment to increase materially the costs which
any Fund may bear for distribution services pursuant to Part I of the Plan
shall be effective only upon approval by a vote of a majority of the
outstanding voting securities of the respective Fund, and (ii) any material
amendments of the terms of this Plan shall become effective only upon approval
as provided in paragraph (d) hereof.
(f) This Plan is terminable, as to any Fund, without
penalty at any time by a (i) vote of a majority of
-3-
<PAGE> 4
the Disinterested Trustees, or (ii) vote of a majority of the outstanding
voting securities of such Fund.
(g) The Company's Board of Trustees has adopted this Plan
as of June 12, 1995.
-4-
<PAGE> 1
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS A SHARES
LOAD CALCULATIONS
PORTFOLIO 1
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 986.6 /1,000) - 1 = -1.34%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 986.6 /1,000) - 1 = -1.34%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 984.7 /1,000) - 1 = -1.53%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 963.6 /1,000) - 1 = -3.64%
<PAGE> 2
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS A SHARES
NO LOAD CALCULATIONS
PORTFOLIO 1
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 1,032.7 /1,000) - 1 = 3.27%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 1,032.7 /1,000) - 1 = 3.27%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 1,030.7 /1,000) - 1 = 3.07%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 1,008.6 /1,000) - 1 = 0.86%
<PAGE> 3
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
PORTFOLIO 1
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
- -------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 981.8 /1,000) - 1 = -1.82%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 981.8 /1,000) - 1 = -1.82%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 979.8 /1,000) - 1 = -2.02%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 957.8 /1,000) - 1 = -4.22%
<PAGE> 4
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC NO LOAD CALCULATIONS
PORTFOLIO 1
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- -------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 1,031.9 /1,000) - 1 = 3.19%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 1,031.9 /1,000) - 1 = 3.19%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 1,029.8 /1,000) - 1 = 2.98%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 1,007.8 /1,000) - 1 = 0.78%
<PAGE> 5
TIME HORIZON FUNDS
EXHIBIT 16
CLASS A SHARES
30-DAY S.E.C. YIELD CALCULATIONS
PORTFOLIO 1
(a-b)
----------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)(CARET)6]-1} =
WHERE
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.50% LOAD:
( 7,653.17 - 34.61 )
--------------------------
2 *{[( +1)(CARET)6]-1} = 4.11%
( 207,609.987 * 10.80 )
WITHOUT 4.50% LOAD:
( 7,653.17 - 34.61 )
--------------------------
2 *{[( +1)(CARET)6]-1} = 4.31%
( 207,609.987 * 10.31 )
The performance was computed based on the thirty day period ending
December 31, 1995.
<PAGE> 6
TIME HORIZON FUNDS
EXHIBIT 16
CLASS B SHARES
30-DAY S.E.C. YIELD CALCULATIONS
PORTFOLIO 1
(a-b)
------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)(CARET)6]-1} =
WHERE
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
BASED ON N.A.V.
( 20,140.90 - 3,696.35 )
----------------------------
2 *{[( +1)(CARET)6]-1} = 3.52%
( 546,959.561 * 10.31 )
The performance was computed based on the thirty day period ending
December 31, 1995.
<PAGE> 7
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS A SHARES
LOAD CALCULATIONS
PORTFOLIO 2
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 993.2 /1,000) - 1 = -0.68%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 993.2 /1,000) - 1 = -0.68%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 991.3 /1,000) - 1 = -0.87%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 963.9 /1,000) - 1 = -3.61%
<PAGE> 8
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS A SHARES
NO LOAD CALCULATIONS
PORTFOLIO 2
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 1,039.7 /1,000) - 1 = 3.97%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 1,039.7 /1,000) - 1 = 3.97%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 1,037.7 /1,000) - 1 = 3.77%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 1,009.6 /1,000) - 1 = 0.96%
<PAGE> 9
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
PORTFOLIO 2
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
- -------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 987.7 /1,000) - 1 = -1.23%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 987.7 /1,000) - 1 = -1.23%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 985.7 /1,000) - 1 = -1.43%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 958.6 /1,000) - 1 = -4.14%
<PAGE> 10
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC NO LOAD CALCULATIONS
PORTFOLIO 2
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- -------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 1,037.8 /1,000) - 1 = 3.78%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 1,037.8 /1,000) - 1 = 3.78%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 1,035.7 /1,000) - 1 = 3.57%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 1,008.6 /1,000) - 1 = 0.86%
<PAGE> 11
TIME HORIZON FUNDS
EXHIBIT 16
CLASS A SHARES
30-DAY S.E.C. YIELD CALCULATIONS
PORTFOLIO 2
(a-b)
----------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)(CARET)6]-1} =
WHERE
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.50% LOAD:
( 7,814.29 - 38.23 )
--------------------------
2 *{[( +1)(CARET)6]-1} = 3.81%
( 226,811.893 * 10.87 )
WITHOUT 4.50% LOAD:
( 7,814.29 - 38.23 )
--------------------------
2 *{[( +1)(CARET)6]-1} = 4.00%
( 226,811.893 * 10.38 )
The performance was computed based on the thirty day period ending
December 31, 1995.
<PAGE> 12
TIME HORIZON FUNDS
EXHIBIT 16
CLASS B SHARES
30-DAY S.E.C. YIELD CALCULATIONS
PORTFOLIO 2
(a-b)
------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)(CARET)6]-1} =
WHERE
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
BASED ON N.A.V.
( 13,692.58 - 2,713.72 )
----------------------------
2 *{[( +1)(CARET)6]-1} = 3.21%
( 397,431.250 * 10.38 )
The performance was computed based on the thirty day period ending
December 31, 1995.
<PAGE> 13
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS A SHARES
LOAD CALCULATIONS
PORTFOLIO 3
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 996.9 /1,000) - 1 = -0.31%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 996.9 /1,000) - 1 = -0.31%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 994.1 /1,000) - 1 = -0.59%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 960.4 /1,000) - 1 = -3.96%
<PAGE> 14
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS A SHARES
NO LOAD CALCULATIONS
PORTFOLIO 3
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 1,043.6 /1,000) - 1 = 4.36%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 1,043.6 /1,000) - 1 = 4.36%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 1,040.5 /1,000) - 1 = 4.05%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 1,005.5 /1,000) - 1 = 0.55%
<PAGE> 15
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
PORTFOLIO 3
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
- -------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 993.8 /1,000) - 1 = -0.62%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 993.8 /1,000) - 1 = -0.62%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 990.7 /1,000) - 1 = -0.93%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 955.8 /1,000) - 1 = -4.42%
<PAGE> 16
TIME HORIZON FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC NO LOAD CALCULATIONS
PORTFOLIO 3
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- -------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 09/05/95 TO 12/31/95 ):
( 1,043.8 /1,000) - 1 = 4.38%
YEAR TO DATE: ( 09/05/95 TO 12/31/95 ):
( 1,043.8 /1,000) - 1 = 4.38%
QUARTERLY: ( 10/01/95 TO 12/31/95 ):
( 1,040.7 /1,000) - 1 = 4.07%
MONTHLY: ( 12/01/95 TO 12/31/95 ):
( 1,005.8 /1,000) - 1 = 0.58%
<PAGE> 17
TIME HORIZON FUNDS
EXHIBIT 16
CLASS A SHARES
30-DAY S.E.C. YIELD CALCULATIONS
PORTFOLIO 3
(a-b)
----------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)(CARET)6]-1} =
WHERE
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.50% LOAD:
( 5,682.00 - 29.11 )
--------------------------
2 *{[( +1)(CARET)6]-1} = 3.64%
( 171,736.000 * 10.93 )
WITHOUT 4.50% LOAD:
( 5,682.00 - 29.11 )
--------------------------
2 *{[( +1)(CARET)6]-1} = 3.81%
( 171,736.000 * 10.44 )
The performance was computed based on the thirty day period ending
December 31, 1995.
<PAGE> 18
TIME HORIZON FUNDS
EXHIBIT 16
CLASS B SHARES
30-DAY S.E.C. YIELD CALCULATIONS
PORTFOLIO 3
(a-b)
------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)(CARET)6]-1} =
WHERE
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
BASED ON N.A.V.
( 11,195.92 - 2,305.91 )
----------------------------
2 *{[( +1)(CARET)6]-1} = 3.04%
( 338,392.252 * 10.44 )
The performance was computed based on the thirty day period ending
December 31, 1995.
<PAGE> 1
EXHIBIT 17
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints J. David Huber, Cathy O'Kelly, or either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Time Horizon Funds, a
Delaware business trust, on Form N-1A under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and any or all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent may lawfully do or cause to be done by virtue hereof.
DATED: June 27, 1995
/s/Robert E. Greeley
---------------------------
Robert E. Greeley
<PAGE> 2
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints J. David Huber, Cathy O'Kelly, or either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Time Horizon Funds, a
Delaware business trust, on Form N-1A under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and any or all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent may lawfully do or cause to be done by virtue hereof.
DATED: June 27, 1995
/s/ John Privat
----------------------------
John Privat
<PAGE> 3
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints J. David Huber, Cathy O'Kelly, or either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Time Horizon Funds, a
Delaware business trust, on Form N-1A under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and any or all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent may lawfully do or cause to be done by virtue hereof.
DATED: June 27, 1995
/s/ William P. Carmichael
-----------------------------
William P. Carmichael
<PAGE> 4
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints J. David Huber, Cathy O'Kelly, or either of them, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement of Time Horizon Funds, a
Delaware business trust, on Form N-1A under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and any or all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent may lawfully do or cause to be done by virtue hereof.
DATED: June 27, 1995
/s/ Edward S. Bottum
---------------------------
Edward S. Bottum
<PAGE> 1
EXHIBIT 18
TIME HORIZON FUNDS
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") has been prepared, pursuant to the
requirements of rule 18f-3(d) under the Investment Company Act of 1940
("Investment Company Act" or "Act"), in connection with the offer and sale of
shares of Time Horizon Funds (the "Company"). The Company is a multiple class
fund within the meaning of rule 18f-3, pursuant to action of the Board of
Trustees of the Company on June 12, 1995.
In accordance with the requirements of rule 18f-3, this Plan describes
the differences between the classes of shares that are issued by the Company,
including the various services offered to shareholders, the distribution
arrangement that pertains to each class, the methods of allocating expenses
relating to those differences, and the conversion features or exchange
privileges relating to the classes.
This Plan shall become effective immediately upon filing with the
Securities and Exchange Commission as an exhibit to the Form N-1A filed for
registering shares of the Company.
I. Background
The Company is an open-end investment company registered under the
Investment Company Act. The Company has three separate series ("Funds")--Time
Horizon Portfolio 1, Time Horizon Portfolio 2, and Time Horizon Portfolio 3.
Each Fund has a strategic mix of investments allocated principally to equity
and fixed income securities within certain specified ranges.
Each Fund has two classes of shares, Class A and Class B. The classes
of each Fund represent interests in the same portfolio of investments held by
that Fund and, except as described below, are identical in all respects. The
classes differ in the following respects: (1) in the manner in which an
investor may pay for the distribution of shares of the Funds; (2) in the
expenses that may be incurred by one class as compared to another, and in the
method of allocating expenses between the classes; (3) in the services provided
to shareholders of each class; and (4) in the voting rights accorded to each
class. These differences are discussed below in more detail.
<PAGE> 2
II. Discussion of Differences
A. Distribution and Service Arrangements
An investor in the Funds may pay for the distribution of Fund shares in
one of two ways: by paying a front-end sales load in connection with the
purchase of Class A shares, or by paying a "spread load" in connection with the
purchase of Class B shares. These two arrangements permit an investor to choose
the method of purchasing shares that the investor determines is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares, and other circumstances.
For example, an investor who intends to remain invested for the
long-term may decide to purchase a Class A share and pay a front-end sales load
since, over the long-term, as described below, a purchaser of Class B shares
may pay more under a "spread load" design than an investor who pays a front-end
sales load in connection with the purchase of Class A shares. In addition, an
investor who may qualify for a significantly reduced sales load in connection
with the purchase of Class A shares, as described below, may find it more
advantageous to purchase such shares.
A Class A shareholder of a Fund pays a front-end sales charge of up to
4.5% of the offering price at time of investing in the Fund. The offering price
is based on the Fund's net asset value per share plus the front-end sales load.
In addition, a Class A shareholder of a Fund pays a shareholder servicing fee
assessed at a rate of 0.25% of the average annual net assets of the Funds. The
shareholder servicing fee is deducted pursuant to a Shareholder Service Plan
that has been adopted by the Company.
A Class B shareholder of a Fund pays a "spread load" consisting of a
distribution fee and a contingent deferred sales load ("CDSL"). The
distribution fee is assessed pursuant to a Distribution Plan adopted by the
Board of Trustees for the Funds in accordance with the requirements of rule
12b-1 under the Investment Company Act. This fee is assessed at a current rate
of 0.75% of the average annual net assets of each Fund. The CDSL has been
established at a maximum level of 5.00% of the lesser of the current market
value or the cost of the shares being redeemed. A Class B shareholder of a Fund
also pays a shareholder servicing fee assessed at a rate of 0.25% of the
average annual net assets of the Fund.
-2-
<PAGE> 3
The net income attributable to Class B shares and the dividends payable
on Class B shares will be reduced by the amount of the distribution fee
attributable to Class B shares, as well as by certain incremental expenses
associated with such fee, as described below. A Class A shareholder does not
incur these expenses.
Over time, the accumulated continuing distribution and shareholder
servicing fees related to Class B shares may exceed the initial sales load and
ongoing shareholder servicing fees related to Class A shares. Such ongoing
fees, however, will be offset to the extent any return is realized on the
additional funds that will be invested under the "spread load" distribution
alternative when compared with the funds invested under the front-end sales
load method of paying for distribution.
Sales personnel may receive different compensation for selling Class A
and Class B shares, and only Class A shares may be available for purchase
through certain securities dealers.
B. Paying for Expenses
1. Expenses Allocated to a Particular Class
Certain expenses of each Fund will be allocated solely to a particular
class of shares of that Fund because they relate only to the distribution of
shares of that class or to services provided only to the shareholders of that
class. Such expenses include:
(a) distribution expenses associated with the sale of Class B shares
and for which a distribution fee will be assessed;
(b) incremental transfer agent fees identified by the transfer agent
as being attributable to a specific class;
(c) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses,
and proxies to shareholders of a particular class;
(d) blue sky registration fees incurred by a particular class;
-3-
<PAGE> 4
(e) SEC registration fees incurred by a particular class;
(f) the expenses of administrative personnel and services as required to
support the shareholders of a particular class;
(g) litigation or other legal expenses relating to one class;
(h) trustees' fees incurred as a result of issues relating to one class;
(i) any other incremental expenses subsequently identified that should be
properly allocated to one class of shares.
2. Expenses Allocated to Both Classes
Other expenses of each Fund will be allocated to both classes of
shares of the Fund in accordance with the requirements of rule 18f-3(c). These
include the management fee paid to Bank of America National Trust and Savings
Association ("Bank of America"), the manager to the Funds; the shareholder
servicing fee paid to Bank of America pursuant to the Shareholder Service Plan;
the custodial fee; and certain other expenses of the Funds. These expenses
will be allocated to each class of a Fund based on the net asset value of such
class in relation to the net asset value of the Fund.
C. Differences in Services Offered
1. Reduced Sales Charge for Class A Purchases
Holders of Class A shares of a Fund may obtain a reduced sales charge
by purchasing shares with an aggregate price in excess of $100,000. Holders of
Class A shares are also permitted, under a right of accumulation, to obtain a
reduced sales charge when purchasing such shares by aggregating their current
purchase with existing share holdings in order to qualify for a quantity
discount. Under this right, Class A shareholders may aggregate only those
existing shares on which a sales load was paid (including shares that carry no
sales load but which were obtained through an exchange and which can be traced
back to shares that were acquired with a sales load). Alternatively, a Class A
shareholder may obtain a reduced sales load by means
-4-
<PAGE> 5
of a written letter of intent expressing such shareholder's non-binding
commitment to invest, in the aggregate, $100,000 or more within a thirteen
month period.
Holders of Class B shares are not eligible for any quantity discounts
or other reductions in sales load.
2. Conversions or Exchanges of Classes of Shares
Class B shares will convert to Class A shares on the first business day
of the month following the eighth anniversary of the date of purchase.
The two classes have the following exchange privileges:
(a) Class A shares of any Fund purchased with a front-end sales load,
as well as additional shares acquired through reinvestment of dividends or
distributions on such shares, may be exchanged without a sales load for Class A
shares of any other Fund.
(b) Class A shares of any Fund acquired by a previous exchange
transaction involving shares on which a sales load has directly or indirectly
been paid (e.g., shares purchased with a sales load or issued in connection
with an exchange transaction involving shares that had been purchased with a
sales load), as well as additional shares acquired through reinvestment of
dividends or distributions on such shares, may be redeemed, and the proceeds
used to purchase without a sales load Class A shares of any other Fund. To
accomplish an exchange transaction as described in this paragraph, investors
must notify the Funds' transfer agent of their prior ownership of shares and
their account number.
(c) Class B shares of any Fund, as well as additional shares acquired
through reinvestment of dividends or distributions on shares, may be exchanged
for Class B shares of any other Fund. The purchase date for Class B shares
exchanged will be used for purposes of determining the contingent deferred
sales charge on the Class B shares received in the exchange.
(d) Except as described above, a sales load will be assessed when
shares of any Fund that were purchased or otherwise acquired without a sales
load are exchanged for shares of another Fund.
-5-
<PAGE> 6
D. Voting of Class Shares
A Class B shareholder of a Fund has exclusive voting rights with respect
to the approval of the Distribution Plan with respect to the Fund. In all other
respects, the voting rights of a Class A and Class B shareholder of a Fund are
the same. Each shareholder is entitled to one vote for each full share held and
fractional votes for fractional shares held. Shareholders will vote in the
aggregate and not by class or series, except as noted above and where otherwise
required by law (or when permitted by the Board of Trustees).
-6-
<PAGE> 1
EXHIBIT 19.0
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
January 25, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Time Horizon Funds
------------------
To The Commission:
We are counsel to the above-referenced investment company (the "Fund") and as
such have participated in the preparation and review of Post-Effective
Amendment No. 1 to the Fund's registration statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485, we hereby represent that such amendment does not contain
disclosures which would render it ineligible to become effective pursuant to
paragraph (b) thereof.
Very truly yours,
/s/Vedder, Price, Kaufman & Kammholz
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
COK/dd
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INVESTMENTS-AT-VALUE> 9,053,007
<RECEIVABLES> 562,248
<ASSETS-OTHER> 50,144
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<OTHER-ITEMS-LIABILITIES> 8,619
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 83,880
<NET-ASSETS> 9,656,780
<DIVIDEND-INCOME> 6,503
<INTEREST-INCOME> 47,567
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<REALIZED-GAINS-CURRENT> 21,130
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<NET-CHANGE-FROM-OPS> 152,991
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<NUMBER-OF-SHARES-REDEEMED> 8,103
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<NET-CHANGE-FROM-OPS> 152,991
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<DISTRIBUTIONS-OF-INCOME> 47,624
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<NUMBER-OF-SHARES-SOLD> 673,404
<NUMBER-OF-SHARES-REDEEMED> 4,053
<SHARES-REINVESTED> 2,465
<NET-CHANGE-IN-ASSETS> 9,656,780
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.04
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<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 7,201,962
<INVESTMENTS-AT-VALUE> 7,296,556
<RECEIVABLES> 266,669
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<TOTAL-ASSETS> 7,610,466
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<OTHER-ITEMS-LIABILITIES> 85,130
<TOTAL-LIABILITIES> 85,130
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,408,648
<SHARES-COMMON-STOCK> 260,305
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,995
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,099
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 94,594
<NET-ASSETS> 7,525,366
<DIVIDEND-INCOME> 8,819
<INTEREST-INCOME> 35,586
<OTHER-INCOME> 0
<EXPENSES-NET> 4,679
<NET-INVESTMENT-INCOME> 39,726
<REALIZED-GAINS-CURRENT> 20,099
<APPREC-INCREASE-CURRENT> 94,594
<NET-CHANGE-FROM-OPS> 154,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 37,731
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 272,539
<NUMBER-OF-SHARES-REDEEMED> 15,269
<SHARES-REINVESTED> 1,368
<NET-CHANGE-IN-ASSETS> 7,408,648
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39,751
<AVERAGE-NET-ASSETS> 948,134
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .34
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<AVG-DEBT-PER-SHARE> 0
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<OVERDISTRIBUTION-GAINS> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<INVESTMENTS-AT-VALUE> 6,227,834
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<TOTAL-LIABILITIES> 30,145
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<SHARES-COMMON-STOCK> 195,589
<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-GAINS> 0
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<INTEREST-INCOME> 20,854
<OTHER-INCOME> 0
<EXPENSES-NET> 3,377
<NET-INVESTMENT-INCOME> 25,512
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<APPREC-INCREASE-CURRENT> 66,209
<NET-CHANGE-FROM-OPS> 105,841
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<DISTRIBUTIONS-OF-GAINS> 0
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<SHARES-REINVESTED> 673
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<AVERAGE-NET-ASSETS> 649,468
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> .05
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<NAME> PORTFOLIO 3 CLASS B SHARES
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 6,161,625
<INVESTMENTS-AT-VALUE> 6,227,834
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,145
<TOTAL-LIABILITIES> 30,145
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,361,432
<SHARES-COMMON-STOCK> 421,411
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 233
<ACCUMULATED-NET-GAINS> 14,120
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 66,209
<NET-ASSETS> 6,441,528
<DIVIDEND-INCOME> 8,035
<INTEREST-INCOME> 20,854
<OTHER-INCOME> 0
<EXPENSES-NET> 3,377
<NET-INVESTMENT-INCOME> 25,512
<REALIZED-GAINS-CURRENT> 80,329
<APPREC-INCREASE-CURRENT> 66,209
<NET-CHANGE-FROM-OPS> 105,841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,745
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 425,284
<NUMBER-OF-SHARES-REDEEMED> 6,888
<SHARES-REINVESTED> 1,349
<NET-CHANGE-IN-ASSETS> 6,441,528
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,941
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24,358
<AVERAGE-NET-ASSETS> 649,468
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
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