As filed with the Securities and Exchange Commission on March 25, 1996
Registration No. 33-94022
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 [X]
(Check appropriate box or boxes)
LIFE CYCLE MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
C/O BENSON WHITE & COMPANY
656 EAST SWEDESFORD ROAD - SUITE 322, WAYNE, PENNSYLVANIA 19087
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 980-8400
TIMOTHY W. CUNNINGHAM
BENSON WHITE & COMPANY
656 EAST SWEDESFORD ROAD - SUITE 322
WAYNE, PENNSYLVANIA 19087
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, ESQ.
BATTLE FOWLER LLP
75 EAST 55TH STREET
NEW YORK, NEW YORK 10022
It is proposed that this filing will become effective: (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
The Registrant has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940, as amended, and Rule 24f-2 thereunder.
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
Registration Statement on Form N-1A
-----------------------
CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)
-----------------------
Part A
ITEM NO. PROSPECTUS HEADING
1. Cover Page.................... Cover Page
2. Synopsis...................... Summary of Portfolios; Expense Summary
3. Condensed Financial
Information................... Financial Highlights
4. General Description of
Registrant.................... Cover Page; Investment Objectives and
Policies; Additional Investment
Information and Risk Factors
5. Management of the Fund........ Management; Custodian, Transfer Agent and
Dividend Agent
5a. Management's Discussion
of the Fund.................. Management
6. Capital Stock and Other
Securities.................... Purchase of Shares; Redemption of Shares;
Description of Common Stock
7. Purchase of Securities Being
Offered....................... Purchase of Shares; Description of Common
Stock
8. Redemption or Repurchase...... Redemption of Shares
9. Legal Proceedings............. Not Applicable
-ii-
<PAGE>
Part B
CAPTION IN STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION
10. Cover Page.................... Cover Page
11. Table of Contents............. Table of Contents
12. General Information and
History....................... The Fund; Management of the Fund;
Description of Common Stock
13. Investment Objectives and
Policies...................... Investment Objective, Policies and
Restrictions
14. Management of the Fund........ Management of the Fund
15. Control Persons and
Principal Holders of
Securities.................... Management of the Fund
16. Investment Advisory and
Other Services................ Management of the Fund; Purchase,
Redemption and Exchange; Counsel and
Independent Auditors
17. Brokerage Allocation.......... Brokerage and Portfolio Turnover
18. Capital Stock and Other
Securities.................... Description of Common Stock
19. Purchase, Redemption and
Pricing of Securities
Being Offered................. Purchase, Redemption and Exchange; Net
Asset Value
20. Tax Status.................... Taxes
21. Underwriters.................. Management of the Fund
22. Calculations of Yield
Quotations of Money Market
Funds......................... Not Applicable
23. Financial Statements.......... Independent Auditor's Report; Statements
of Investments; Statement of Assets and
Liabilities; Statement of Operations;
Statements of Changes in Net Assets;
Notes to Financial Statements
-iii-
<PAGE>
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PROSPECTUS March 25, 1996
LIFE CYCLE MUTUAL FUNDS(TM), INC.
656 East Swedesford Road - Suite 322
Wayne, PA 19087
For information call
(800) 266-5240
Life Cycle Mutual Funds, Inc. (the "Fund") is a diversified, open-end,
management investment company, organized under Maryland law, that is composed of
four portfolios (the "Portfolio" or "Portfolios"): the Life Cycle Equity
Fund(TM) (the "Equity Fund"), the Life Cycle Bond Fund(TM) (the "Bond Fund"),
the Life Cycle Retirement Income Fund(TM) (the "Retirement Income Fund") and the
Life Cycle Harvest Fund(TM) (the "Harvest Fund"). The Portfolios are offered in
connection with an age-based asset allocation program (the "Life Cycle
Program(TM)") which is designed to meet the long-term retirement investment
needs of individual investors. The Life Cycle Program(TM) is intended to manage
investors' retirement assets by making disciplined age-based asset allocation
decisions to achieve this overall objective. The Life Cycle Program is described
more completely under the heading "The Life Cycle Program."
The minimum initial investment for the Fund is $2,000 for investors
participating in the Life Cycle Program and the minimum subsequent investment is
$250. Such investors must maintain a minimum balance of $2,000 in the Fund.
Investors may elect not to participate in the Life Cycle Program and
purchase shares in any of the Portfolios provided that they maintain at least a
$5,000 balance in any Portfolio in which they are invested and the minimum
subsequent investment for these investors is $1,000. Such investors will be
paying higher fees than would be charged by comparable funds that do not offer
the additional benefits of the Life Cycle Program (see "Management--Adviser's
Fees").
Exchanges among the Portfolios on behalf of a participant in the Life Cycle
Program may only be effected by the Adviser, pursuant to the terms of the Life
Cycle Program. Participants in the Life Cycle Program may not otherwise exchange
shares among the Portfolios. There are no fees for exchanges among the
Portfolios effected by the Fund's investment adviser pursuant to the continuing
allocation process of the Life Cycle Program. There are also no fees for
exchanges among the Portfolios for those not participating in the asset
allocation program if not done more than twice per year. Investors not
participating in the Life Cycle Program who make exchanges among the Portfolios
in excess of twice per year will be assessed a $25 fee per exchange. Investors
may redeem shares in any Portfolio at any time without being subject to a
redemption fee.
Each Portfolio of the Fund will pay Benson White & Company, the Fund's
investment adviser, a monthly advisory fee at the annual rate of .75% of its
average daily net assets. This fee is higher than the fee paid by most other
mutual funds because of the provision of the other services offered through the
Life Cycle Program described herein for which a separate fee is not charged. The
Fund, on behalf of each Portfolio, has adopted a distribution and service plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. The Plan will encompass both a service fee and an asset-based sales
charge for distribution assistance, which are 0.25% and 0.50% of each
Portfolio's average daily net assets per year, respectively. The maximum sales
charge imposed on purchases is 3.75%.
This Prospectus sets forth concisely the information about each Portfolio
that a prospective investor ought to know before investing and it should be
retained for future reference. Additional information about each Portfolio,
including additional information concerning risk factors relating to an
investment in each Portfolio, has been filed with the Securities and Exchange
Commission in a Statement of Additional Information for the Fund, dated March
25, 1996. This information is incorporated by reference and is available without
charge upon request from the Fund's distributor, Life Cycle Mutual Funds
Distributors, Inc., 230 Park Avenue, New York, New York 10169.
Shares of the Life Cycle Mutual Funds, Inc. are not deposits or obligations
of any bank, are not guaranteed by any bank, and are not insured by the FDIC or
any other agency, and involve investment risks, including possible loss of the
principal amount invested.
AN INVESTMENT IN THE FUND MAY INVOLVE SIGNIFICANT RISKS (See "Investment
Objectives and Policies" and "Risk Factors, Additional Investment Information
and Derivatives" herein, as well as "Description of the Fund's Investment
Securities and Derivatives" in the Statement of Additional Information).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM) PORTFOLIOS
THE LIFE CYCLE PROGRAM is intended to manage investors' retirement assets by
making disciplined age-based asset allocation decisions. Each Portfolio which is
managed by Benson White & Company, is designed to achieve its individual
objective set forth herein and to serve an integral function within the context
of the Life Cycle Program. See "The Life Cycle Program" for further description.
SUMMARY OF PORTFOLIOS(1)
<TABLE>
<CAPTION>
Portfolio Portfolio
Investment Objective Investment Policies Portfolio Restrictions
- ------------------------------------------------------------------------------------------------
LIFE CYCLE EQUITY FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Seeks to accumulate Investing in a portfolio of No privately placed securities. No
retirement assets by common stocks selected from securities issued by a foreign company
maximizing investors' the Standard & Poor's 500 and purchased on any foreign stock
total return. Index on the basis of such exchange.
stocks' ability to provide
capital appreciation and
generate dividend income.
LIFE CYCLE BOND FUND
- ------------------------------------------------------------------------------------------------
Seeks to maximize Investing in a laddered Under normal circumstances, at least
income consistent with portfolio of bonds issued and 65% of the value of the portfolio will
the preservation of backed by the full faith and be invested in bonds. At least 50% of
capital. credit of the U.S. the Portfolio will be invested in U.S.
Government and its agencies Government obligations, commercial
and instrumentalities, paper, negotiable CD's, repurchase
mortgage-backed securities, agreements, and short-term corporate
and investment-grade debt debt securities. No more than 50% of
securities issued by the Portfolio may be invested in
corporations and banks. The mortgage-backed securities and long-
Portfolio intends to invest in term corporate debt securities. No
debt securities with an foreign securities may be purchased.
average maturity between 1
and 10 years.
LIFE CYCLE RETIREMENT INCOME FUND
- ------------------------------------------------------------------------------------------------
Seeks to maximize Investing in a laddered At least 75% of the Portfolio will be
income consistent with portfolio of bonds issued and invested in U.S. Government
the preservation of backed by the full faith and obligations, commercial paper,
capital. credit of the U.S. negotiable CD's, repurchase
Government and its agencies agreements, short-term corporate debt
and instrumentalities, securities, and mortgage- backed
mortgage-backed securities, securities, with at least 25% of the
and investment-grade debt Portfolio invested in direct U.S.
securities issued by Government obligations and its
corporations and banks. The agencies and instrumentalities, backed
Portfolio intends to invest in by the full faith and credit of the U.S
debt securities with an Government. No more than 10% of
average maturity between 1 the Portfolio may be invested in
and 12 years. investment grade debt securities of
foreign corporations and direct
obligations of foreign nations.
LIFE CYCLE HARVEST FUND
- ------------------------------------------------------------------------------------------------
Seeks to earn income Investing in a laddered No foreign securities may be
consistent with the portfolio of short-term bonds purchased.
preservation of capital. issued and backed by the full
faith and credit of the U.S.
Government and its agencies
and instrumentalities,
negotiable CD's, repurchase
agreements, and short-term
corporate debt securities.
</TABLE>
Quality Ratings
Representative Investments Moody's S&P
- --------------------------------------------------------------------------------
LIFE CYCLE EQUITY FUND (continued)
- --------------------------------------------------------------------------------
Common Stock --- ---
Convertible Preferred Stock --- ---
LIFE CYCLE BOND FUND (continued)
- --------------------------------------------------------------------------------
U.S. Government Obligations --- ---
Commercial Paper P-1 A-1
Negotiable CDs --- ---
Bankers Acceptances --- ---
Corporate Debt Securities Baa BBB
Repurchase Agreements --- ---
Mortgage Pass Through --- ---
Securities
Planned Amortization --- ---
Class Mortgage-Backed
Securities
LIFE CYCLE RETIREMENT INCOME FUND (continued)
- --------------------------------------------------------------------------------
U.S. Government Obligations --- ---
Commercial Paper P-1 A-1
Negotiable CDs --- ---
Bankers Acceptances --- ---
Corporate Debt Securities Baa BBB
Repurchase Agreements --- ---
Mortgage Pass Through --- ---
Securities
Planned Amortization --- ---
Class Mortgage-Backed
Securities
Foreign Debt Securities --- ---
LIFE CYCLE HARVEST FUND (continued)
- --------------------------------------------------------------------------------
U.S. Government Obligations --- ---
Commercial Paper P-1 A-1
Corporate Notes, Bonds and
Other Obligations VMIG-1 A
Bankers Acceptances --- ---
Negotiable CDs --- ---
- ----------
(1) There can be no assurance that each Portfolio's investment objective will
be achieved. An investment in each Portfolio of the Fund entails certain
risks, including, for certain Portfolios, risks associated with the
purchase of when-issued and delayed delivery securities, repurchase
agreements, hedging instruments, foreign securities, as well as
investments made in connection with the age-based allocation methodology
(see "The Life Cycle Program") and the hurdle rate (see "The Hurdle
Rate"), which are further described under "Risk Factors, Additional
Investment Information and Derivatives" herein. For information regarding
how to purchase shares of the Fund see "Purchase of Shares" herein and for
information concerning redemption of shares of the Fund see "Redemption of
Shares" herein.
-2-
<PAGE>
EXPENSE SUMMARY
INVESTOR TRANSACTION EXPENSES
RETIREMENT
Portfolio EQUITY BOND INCOME HARVEST
Maximum Sales
Load Imposed on
Purchases (as a
percentage of the
offering price) 3.75% 3.75% 3.75% 3.75%
Redemption Fees NONE NONE NONE NONE
Exchange Fees1 NONE NONE NONE NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75% 0.75% 0.75% 0.75%
12b-1 Fees2 0.75% 0.75% 0.75% 0.75%
Other Expenses (after reimbursement) 0.45% 0.45% 0.45% 0.45%
Administration Fees 0.25%
(after reimbursement)
Operating Expenses 0.20%
(after reimbursement)
Total Portfolio Operating Expenses 1.95% 1.95% 1.95% 1.95%
EXAMPLE: An investor of each Portfolio would pay the following expenses on a
$1,000 investment in the Portfolio assuming a 5% annual return
reinvested in shares of a Portfolio and redemption at the end of each
time period:
Year 1 Year 3
$57 $96
- --------------------------------------------------------------------------------
The purpose of the expense table provided above is to assist investors in
understanding the various costs and expenses that an investor will bear directly
or indirectly. For a further discussion of these fees see "Management of the
Fund." The Adviser has voluntarily agreed to reimburse the Fund's Administration
Fees and Operating Expenses to the extent necessary to maintain the Annual Total
Portfolio Operating Expenses at not more than 1.95% of each Portfolio's average
net assets. Absent such reimbursements, Other Expenses, which is comprised of
Administration Fees (1.10%) and Operating Expenses (.729%), would have been
1.829% per Portfolio and Total Portfolio Operating Expenses would have been
3.329%. In addition, absent such reimbursements, the example provided above for
Year 1 and Year 3 would have been $70 and $136, respectively. The Adviser,
Administrator and the Distributor may voluntarily waive all or a portion of
their respective Management Fee, Administrative Fee or 12b-1 fees. There will be
no sales load for shares purchased on behalf of clients of financial
intermediaries holding such shares in fee based asset management accounts. The
expenses reflected above are estimates of the expenses the Fund will incur
during its first fiscal year. THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
- --------
1. Shareholders not participating in the Life Cycle Program may exchange
shares, without the assessment of a fee, twice a year. Exchanges among the
Portfolios in excess of twice per year by such investors will be assessed a
$25 fee per exchange.
2. 12b-1 fees are composed of a service fee payable to the Adviser and an
asset-based sales charge payable to the Distributor for distribution
assistance which are 0.25% and 0.50% of each Portfolio's average daily net
assets per year, respectively. As a result of the asset-based sales charge,
long-term shareholders of the Portfolio may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc.
-3-
<PAGE>
FINANCIAL HIGHLIGHTS+ (UNAUDITED)
The following table provides information about each Portfolio's financial
history. It is based on a single share outstanding throughout each period
provided. The table is part of each Portfolio's financial statements, which are
included in the Fund's semi-annual report and are incorporated by reference into
the Statement of Additional Information. This document is available to
shareholders upon request. The financial statements in the semi-annual report
are unaudited.
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
JANUARY 31, 1996 JANUARY 31, 1996 JANUARY 31, 1996 JANUARY 31, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.04 0.11 0.11 0.09
Net realized and unrealized gain on
investments.............................. 0.62 0.03 0.05 0.00
------ ------ ------ ------
Total from Investment Operations 0.66 0.14 0.16 0.09
LESS DISTRIBUTIONS:
Dividends from net investment income....... (0.04) (0.11) (0.11) (0.09)
------ ------ ------ ------
Net Asset Value, End of Period............. $10.62 $10.03 $10.05 $10.00
------ ------ ------ ------
Total Return............................... 6.20% 1.37% 1.59% 0.85%
Net Assets, End of Period (in
thousands)............................... $ 722 $ 116 $ 165 $1,006
RATIOS TO AVERAGE NET ASSETS OF:
Net investment income** 1.76% 3.10% 3.21% 2.58%
Expenses before waivers/
reimbursements**......................... 32.13% 162.66% 129.41% 13.24%
Expenses net of waivers/
reimbursements**......................... 1.95% 1.95% 1.95% 1.95%
Portfolio Turnover Rate...................... 2% 0 0 0
</TABLE>
* Commencement of operations.
+ Per share amounts based on the average number of shares outstanding during
the period from commencement of operations to January 31, 1996.
** Annualized
-4-
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE PROGRAM(TM)
The four Portfolios are offered in connection with an age-based asset allocation
program (the "Life Cycle Program") and have been designed as specialized and
unique tools to be used in accordance with the guidelines of the Life Cycle
Program. The Equity Fund seeks to accumulate investors' retirement assets by
maximizing investors' total return. The Bond Fund is a more conservative
portfolio than the Equity Fund and seeks to preserve capital. The Bond Fund,
under the Life Cycle Program, serves as a repository for assets exchanged from
the Equity Fund. The Retirement Income Fund also serves as a repository for
assets exchanged from the Equity Fund, but operates with a moderately higher
level of risk than the Bond Fund in an attempt to realize greater income. The
Harvest Fund seeks to serve as a repository for assets exchanged from the Equity
Fund, while earning income and preserving capital (see "The Hurdle Rate"). The
Harvest Fund also serves as the entry portfolio to the Life Cycle Program.
Investors' funds are initially invested in the Harvest Fund, for a period not to
exceed four business days, and earn income, until those monies are allocated in
two of the other three Portfolios. Purchasing shares in connection with the Life
Cycle Program is described more completely under the heading "Purchase of
Shares."
The Life Cycle Program is based upon the premise that the single most relevant
factor in determining portfolio strategy for investing retirement assets is the
age of the investor and, therefore, asset allocations correspond to the age of
each individual investor. Shares of the Equity Fund are exchanged for shares of
either the Bond Fund or the Retirement Income Fund under the Life Cycle Program
for the purpose of building and preserving wealth throughout an investor's
working life and generating additional income and preserving the investor's
purchasing power once the investor has retired. All initial and subsequent
purchases made in the Portfolios by Life Cycle Program participants
("Participants") are allocated between the Equity Fund and either the Bond Fund
or the Retirement Income Fund in accordance with age-based asset allocation
models predetermined by Benson White & Company (the "Adviser").
Such age-based asset allocations are authorized by Participants at the time of
their initial purchase of shares, as described under the heading "Purchase of
Shares." Up to and including each Participant's 45th birthday, 80% of a
Participant's assets will be allocated into the Equity Fund and the remaining
20% of the Participant's assets will be allocated into the Bond Fund. Starting
with each Participant's 46th birthday, and on each successive birthday, the
Adviser gradually decreases the Participant's holdings in the Equity Fund and
increases the Participant's holdings in the Bond Fund or the Retirement Fund.
There is no fee for this exchange of assets. The Life Cycle Program re-allocates
each Participant's shares in the Equity Fund, until reaching the age of 60, into
the Bond Fund. Upon reaching the age of 60, the Participant's shares in the Bond
Fund are exchanged for shares in the Retirement Income Fund. On each successive
birthday starting with a Participant's 60th birthday, age-based asset
allocations will be made through share exchanges from the Equity Fund to shares
in the Retirement Income Fund. For example, at age 50 all Participants would
hold 70% of their account in the Equity Fund and 30% in the Bond Fund, whereas
at age 65 they would hold 50% of their account in the Equity Fund, and 50% in
the Retirement Fund.
Once a Participant turns 60 years old, under the Life Cycle Program, assets are
exchanged from the Bond Fund into the Retirement Income Fund because of the
increasing need to generate additional income to meet retirement- related
expenses. During retirement, withdrawals of income are preferable to withdrawals
of principal so as not to decrease the amount of principal from which additional
income may be generated. Therefore, once an investor reaches the age of 60
years, at which age withdrawals from a tax-qualified account are currently free
from the premature distribution penalty, the investor may have greater need for
income production to support subsequent withdrawals. Although the Retirement
Income Fund has a higher risk to principal than the Bond Fund, the Bond Fund may
be less likely to generate sufficient amounts of income to meet the anticipated
expenses of a retiree without invading the principal.
-5-
<PAGE>
Under the Life Cycle Program, shares are exchanged from the Equity Fund for
shares of either the Bond Fund or the Retirement Income Fund in two situations.
For Participants between the ages of 46 and 75; once a year on each
Participant's birthday or, if that birthday does not fall on a business day,
then on the first business day following the Participant's birthday, the
Participant will have his or her investment in the Equity Fund decreased while
his or her investment in the Bond Fund or the Retirement Income Fund is
increased. These exchanges are intended to increase retirement wealth by
providing added exposure to the equity market when a Participant is younger and
to generate more retirement income as the Participant nears retirement age,
while maintaining appropriate exposure to the following risks, based on the
Participant's age: (1) risk to principal; (2) risk to income; and (3) risk of
diminished purchasing power through inflation. Historically, risks concerning
diminished purchasing power as a result of inflation have been mitigated by
exposure to equity securities. Additionally, the risk of experiencing diminished
purchasing power as a result of inflation is higher for individuals who are
further away from the age of retirement than individuals who are closer to the
age of retirement. Thus, an increased exposure to equity securities when an
investor is younger is warranted. Nonetheless, retired investors continue to
have the need to protect themselves from the risk of inflation which is why the
Life Cycle Program maintains Participants' funds in equity securities on a
diminishing basis as they get older. The outcome of basing investment allocation
on a Participant's date of birth is that each account is highly individualized.
In addition to the allocation adjustments pursuant to the age-based asset
allocation table ("the Table") on page 6 herein, subsequent to the application
of the Hurdle Rate (see "The Hurdle Rate"), shares will be exchanged between the
Equity Fund and the Bond Fund (or Retirement Income Fund for Participants 60
years or older) under the Life Cycle Program, if on a Participant's birthday the
net asset value per share of either Portfolio has increased or decreased by a
greater proportion than the net asset value per share of the other Portfolio
since the Participant's last birthday, and as a result, the allocation among the
two Portfolios is no longer in conformity with the asset allocation prescribed
in the Table. Shares of the two Portfolios will be exchanged at such time to
bring the individual Participant's account into alignment with the Table.
The Life Cycle Program's age-based asset allocations will not be changed by the
Adviser in reaction to general market fluctuations. The Adviser may, however,
upon approval from individual Participants, modify the asset allocation formula
of the Life Cycle Program to react to what it believes to be material structural
changes in the capital markets. An example of a "material structural change in
the capital markets" might involve the effects of changing demographics on the
demand for various securities. As a larger percentage of the population
approaches retirement age, they may be forced to sell equities to raise cash for
retirement expenses. This requirement for liquidity could cause pervasive and
persistent selling pressure on the domestic equity markets. If this type of
pressure asserted itself, it might qualify as a "material structural change in
the capital markets" that could force a reconsideration of the speed of asset
conversion (from equity to debt) for Participants. In the event that the Adviser
believes that the Table should be modified, it will provide Participants 60
days' prior notice of any recommended modification in order to allow
Participants an opportunity to approve such modification. Modifications to the
Table can only be implemented by the Adviser on behalf of each Participant with
the prior written approval of such Participant.
The Life Cycle Program's allocation process takes place over a period of years
that may, depending on a Participant's age, stretch for decades. The Adviser
believes that short-term market fluctuations in the capital markets are less
likely to adversely impact the asset allocation process because the Life Cycle
Program is intended to be utilized over a longer period of time. Historically,
equity markets have been subject to a number of multi-year declines or periods
of depressed prices and if an investor is forced to sell equities during a
period of depressed market prices, the investor will have to liquidate a larger
position to raise a sufficient amount of cash. The Life Cycle Program's
allocation process between the Equity Fund and either the Bond Fund or the
Retirement Income Fund is intended to be spread out over a period of years in an
attempt to avoid the risk that a Participant will be divested from the Equity
Fund throughout a period in which equity securities' market prices are
depressed.
-6-
<PAGE>
Provided below is the Life Cycle Program's age-based asset allocation table:
Bond Fund or
Investor Age Equity Fund Retirement Income Fund
Up to age 45 80% 20%
At age 46 78% 22%
At age 47 76% 24%
At age 48 74% 26%
At age 49 72% 28%
At age 50 70% 30%
At age 51 68% 32%
At age 52 66% 34%
At age 53 64% 36%
At age 54 62% 38%
At age 55 60% 40%
At age 56 59% 41%
At age 57 58% 42%
At age 58 57% 43%
At age 59 56% 44%
At age 60 55% 45%
At age 61 54% 46%
At age 62 53% 47%
At age 63 52% 48%
At age 64 51% 49%
At age 65 50% 50%
At age 66 48% 52%
At age 67 46% 54%
At age 68 44% 56%
At age 69 42% 58%
At age 70 40% 60%
At age 71 38% 62%
At age 72 36% 64%
At age 73 34% 66%
At age 74 32% 68%
Age 75 & over 30% 70%
There are certain risks inherent in using an age-based allocation methodology.
An explanation of these risks is provided under the heading "Risk Factors,
Additional Investment Information and Derivatives."
While investors participating in the Life Cycle Program may redeem shares held
in any Portfolio, at any time, in whole or in part, any shares remaining in one
or more of the Portfolios after a partial redemption will be reallocated among
the Portfolios in accordance with the Life Cycle Program. All exchanges of
shares pursuant to the Life Cycle Program are made, without cost, on the basis
of the relative net asset values per share. Investors who are not participating
in the Life Cycle Program with holdings of at least $5,000 have the flexibility
to elect to initially determine an asset allocation different than the Life
Cycle Program. Further, these investors will have the right, without a fee, to
adjust their own allocation mix twice each year which may differ from the
parameters of the Life Cycle Program. Any additional exchanges in excess of
twice per year will be assessed a $25 fee per exchange. However, such investors
will be paying higher fees than would be charged by comparable funds and will
not receive the benefits of the Life Cycle Program described herein (see
"Management--Adviser's Fees). For further information concerning the Life Cycle
Program and/or the individual Portfolios investors may call (800) 266-5240.
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HURDLE RATES
The hurdle rate is a given rate of return predetermined by the Adviser, which
may vary over time based upon the overall performance of the U.S. equity markets
that is applied annually to the total return of the Equity Fund (the "Hurdle
Rate") . On each Participant's birthday or, if that birthday does not fall on a
business day, then on the first business day following each Participant's
birthday, the calculated Hurdle Rate is applied to that Participant's shares in
the Equity Fund. Whenever the annual total return of the Equity Fund is in
excess of the Hurdle Rate then in effect for each Participant, a portion of such
Participant's shares in the Equity Fund reflecting the excess value over the
Hurdle Rate are automatically exchanged for shares of the Harvest Fund.
The Adviser believes that the application of the Hurdle Rate and the exchange of
shares within certain Portfolios is an incremental risk management discipline
that is age-based and reflects the rates of return experienced by the
shareholder relative to average historic rates of return. The Hurdle Rate was
created as an investment strategy to minimize the effect that large swings in
the equity market would otherwise have on the Equity Fund and, therefore, to
reduce its volatility. A different Hurdle Rate is determined for Participants by
age and will generally be higher for younger Participants than older
Participants, because it is presumed that younger Participants have more time to
make up any losses sustained in the equity market, while older Participants
require greater liquidity from their investments due to their withdrawals of
income. The application of the Hurdle Rate to the Equity Fund will impose a cap
upon a Participant's return from that Portfolio. Thus, for example, a
Participant who has a Hurdle Rate of 20% per year will have the incremental
excess equity return over 20% per year exchanged from the Equity Fund into the
Harvest Fund. As a result, incremental returns that are exceedingly high from a
historic perspective will be placed at less risk to principal in the Harvest
Fund than they would have been had they remained in the Equity Fund. It is
expected that under most market conditions, the largest component of total
returns will likely fall below the Hurdle Rate and that a Participant's funds
will be solely subject to the asset-based allocations of the Life Cycle Program.
The calculation and application of the appropriate Hurdle Rate will depend upon
prevailing values in the equity markets as measured by such traditional measures
of market valuation as dividend yields, price to book ratios, and dividend yield
and bond yield ratios. Depending on the relation between the total return and
the Hurdle Rate, shares of the Equity Fund may be automatically exchanged for
shares of the Harvest Fund, on the Participant's birthday. When and if the
domestic stock market enters into a condition that, in the Adviser's view, is
considered to be undervalued, Harvest Fund shares will be exchanged in
accordance with the age-based allocation target appropriate for the
Participant's age (e.g., Equity Fund/Bond Fund (up to age 60) or Equity
Fund/Retirement Income Fund (60 years or over in age)). The test of "reasonable
valuation" is based upon market conditions and, as described above, tempered
with age-based judgment. There are certain risks inherent in using the Hurdle
Rate. An explanation of these risks is provided under the heading "Risk Factors,
Additional Investment Information and Derivatives."
INVESTMENT OBJECTIVES AND POLICIES
LIFE CYCLE EQUITY FUND(TM)
INVESTMENT OBJECTIVE
The Equity Fund's investment objective is to maximize investors' total return by
investing in a portfolio of common stocks selected from the Standard & Poor's
500 Index (the "S&P 500") on the basis of such stocks' ability to provide
capital appreciation and generate dividend income. The investment objective is
fundamental to this Portfolio and may not be changed without stockholder
approval. There can be no assurance that the Equity Fund's investment objective
will be achieved.
Under normal circumstances, the Portfolio will invest substantially all of its
assets (i.e., 90%) in certain of the stocks comprising the S&P 500, that the
Adviser believes will allow the portfolio to meet its objectives. Equity
securities are selected on their ability to provide capital appreciation and
generate dividend income through a quantitative methodology that analyzes an
issuer's ability to produce high, stable and growing dividends. This analysis
includes the examination of quantitative characteristics including, but not
limited to, the debt to equity ratio, the price to book ratio, the price to
earnings ratio, the issuer's history of paying growing dividends, the dividend
payout ratio and the size of the dividend yield as compared to other
dividend-paying stocks within the S&P 500.
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PERMITTED INVESTMENTS
The investment policy of the Portfolio will emphasize flexibility in arranging
its portfolio, consistent with its investment objective to maximize investors'
total return and, under normal circumstances, to invest substantially all of its
assets (i.e. 90%) in certain of the stocks comprising the S&P 500.
The Equity Fund Portfolio is quantitatively managed based on fundamental
characteristics of the companies that have issued the securities eligible for
purchase by the Portfolio. The Adviser has developed proprietary computer
screening methods that screen for fundamental corporate characteristics related
to the ability of the portfolio securities to generate capital appreciation and
dividend income. The Adviser will consider certain factors in the selection of
securities including but not limited to fundamental factors as debt to equity
ratios, dividend payout ratios, price to earnings ratios, current dividend
yield, historic dividend growth, and price to book ratios. All stocks in the S&P
500 will be screened for fundamental quality and income generation and the
Portfolio will be rebalanced periodically in accordance with the results of such
screening. The Portfolio Stocks that no longer meet the quality or dividend
production criteria established by the Adviser will be sold and replaced with
securities that meet the established criteria.
The Portfolio may also invest in publicly-traded common and preferred stocks not
presently included in the S&P 500. While the Portfolio has no present intention
of investing any significant portion of its assets in such securities, it
reserves the right to invest in such securities if purchase thereof at the time
of purchase would not cause more than 10% of the value of its total assets to be
invested therein.
The Portfolio may use certain hedging instruments to try to reduce risks of
market fluctuations that affect the value of the securities in the Portfolio.
The Portfolio will not invest in such hedging instruments for speculation. See
"Risk Factors, Additional Investment Information and Derivatives" herein.
The Portfolio may invest not more than 10% of its total assets in money market
instruments and in investment-grade corporate debt securities and convertible
preferred stocks offering a significant opportunity for income. Money market
instruments include short-term obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities (including such obligations
subject to repurchase agreements), commercial paper rated in the highest grade
by any nationally recognized statistical rating organizations and certificates
of deposit and bankers' acceptances issued by domestic banks having total assets
in excess of one billion dollars. A repurchase agreement is an instrument under
which an investor purchases a U.S. Government security from a vendor, with an
agreement by the vendor to repurchase the security at the same price, plus
interest at a specified rate. Repurchase agreements may be entered into with
member banks of the Federal Reserve System or "primary dealers" (as designated
by the Federal Reserve Bank of New York) in U.S. Government securities.
Repurchase agreements usually have a short duration, often less than one week.
In the event that a vendor defaults on its repurchase obligation, the Portfolio
might suffer a loss to the extent that the proceeds from the sale of the
collateral were less than the repurchase price. If the vendor becomes bankrupt,
the Portfolio might be delayed, or may incur costs or possible losses of
principal and income, in selling the collateral.
The Portfolio, without limitation, will not necessarily dispose of any
securities that fall below investment-grade (I.E., rated within the four highest
ratings categories by a nationally recognized statistical rating organization,
E.G., BBB by Standard & Poor's Corporation ("S&P"), Baa by Moody's Investor
Services Inc. ("Moody's"), BBB by Fitch Investors Services, Inc., or BBB by Duff
& Phelps Credit Rating Co., based upon the Adviser's determination as to whether
retention of such a security is consistent with the Portfolio's investment
objective.
Portfolio turnover will be influenced by the Portfolio's investment objective,
other investment policies, and the need to meet redemptions. While the rate of
portfolio turnover will not be a limiting factor when the Adviser deems changes
appropriate, it is anticipated that given the Portfolio's investment objective,
its annual portfolio turnover should not generally exceed 75%. (A portfolio
turnover rate of 75% would occur, for example, if three-fourths of the stocks in
the Portfolio were replaced in a period of one year.)
The Portfolio's investment policies, unlike its investment objective, are not
fundamental and may be changed by the Board of Directors without stockholder
approval. If a percentage limitation is adhered to at the time an investment is
made, a later change in percentage resulting from changes in the value of the
Portfolio's securities will not be considered a violation of the Portfolio's
policies or restrictions.
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LIFE CYCLE BOND FUND(TM)
INVESTMENT OBJECTIVE
The Bond Fund's investment objective is to maximize income consistent with the
preservation of capital. The Bond Fund intends to achieve its investment
objective, with a low risk to capital, by investing in a laddered portfolio of
bonds issued and backed by the full faith and credit of the U.S. Government and
its agencies and instrumentalities, mortgage-backed securities, and
investment-grade debt securities issued by corporations and banks. Under normal
circumstances, at least 65% of the value of the Portfolio's total assets will be
invested in bonds. The Portfolio intends to invest in debt securities with an
average maturity between 1 and 10 years. The investment objective is fundamental
to this Portfolio and may not be changed without stockholder approval. There can
be no assurance that the Bond Fund's investment objective will be achieved.
At least 50% of the Portfolio will be invested in U.S. Government obligations,
commercial paper, negotiable CD's, repurchase agreements, and short-term
corporate debt securities. No more than 50% of the Portfolio may be invested in
mortgage-backed securities and long-term corporate debt securities. No foreign
securities will be purchased by this Portfolio.
LIFE CYCLE RETIREMENT INCOME FUND(TM)
INVESTMENT OBJECTIVE
The Retirement Income Fund's investment objective is to maximize income
consistent with the preservation of capital. The Retirement Income Fund intends
to achieve its investment objective, with a moderate risk to capital, by
investing in a laddered portfolio of bonds issued and backed by the full faith
and credit of the U.S. Government and its agencies and instrumentalities,
mortgage-backed securities, and investment-grade debt securities issued by
corporations and banks. The Portfolio intends to invest in debt securities with
an average maturity between 1 and 12 years. The investment objective is
fundamental to this Portfolio and may not be changed without stockholder
approval. There can be no assurance that the Retirement Income Fund's investment
objective will be achieved.
At least 75% of the Portfolio will be invested in U.S. Government obligations,
commercial paper, negotiable CD's, repurchase agreements, short-term corporate
debt securities, mortgage-backed securities, and corporate debt securities, with
no less than 25% of the Portfolio invested in direct U.S. Government obligations
and its agencies and instrumentalities, backed by the full faith and credit of
the United States. In addition, no more than 10% of the Portfolio may be
invested in investment-grade debt securities of foreign corporations and direct
obligations of foreign nations. Additional information concerning such foreign
investments is provided under the heading "Risk Factors, Additional Investment
Information and Derivatives."
PERMITTED INVESTMENTS FOR THE BOND FUND AND THE RETIREMENT INCOME FUND
U.S. GOVERNMENT OBLIGATIONS - obligations issued or guaranteed by the U.S.
Government or by its agencies and instrumentalities. These obligations are
backed by the full faith and credit of the United States, by the credit of the
issuing or guaranteeing agency or by the agency's right to borrow from the U.S.
Treasury. U.S. Government obligations include U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturity of one year or less), U.S. Treasury Notes
(maturities of one to ten years) and U.S. Treasury bonds; however, U.S. Treasury
Bonds generally have maturities of greater than ten years. For further
description of the government obligations in which the Portfolios will invest,
see "Risk Factors, Additional Investment Information and Derivatives."
COMMERCIAL PAPER AND OTHER CORPORATE DEBT SECURITIES - commercial paper and
other domestic corporate debt securities, including corporate bonds and variable
amount master demand notes. Each Portfolio is permitted to purchase commercial
paper, including variable amount master demand notes, if they are rated A-1 by
S&P or Prime-1 by Moody's, or if not rated, issued by a corporation having an
outstanding unsecured debt issue rating of A or better by either S&P or Moody's.
Each Portfolio is permitted to purchase corporate obligations which are
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rated BBB/Baa or better by either S&P or Moody's. Each Portfolio, however, will
not necessarily dispose of a security that falls below investment-grade.
BANK OBLIGATIONS - certificates of deposit, bankers' acceptances and other
obligations (or instruments secured by such obligations) of domestic banks
subject to regulation by the U.S. Government or its agencies (such as the
Federal Reserve Board, the Comptroller of the Currency or the FDIC) and having
total assets of over $10 billion.
MORTGAGE PASS-THROUGH SECURITIES - includes those issued by the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association and the Federal Housing
Administration ("FHLMCA"). Securities of the GNMA include GNMA Certificates,
which are mortgage-backed securities representing part ownership of a pool of
mortgage loans. Such loans are initially made by lenders such as mortgage
bankers, commercial banks and savings and loan associations and are either
insured by the FHLMCA or Farmers' Home Administration ("FMHA") or guaranteed by
the Veterans Administration ("VA"). A GNMA Certificate represents an interest in
a specific pool of such mortgages which, after being approved by GNMA, is
offered to investors through securities dealers. Each Portfolio will invest in
GNMA certificates only of the "fully modified pass-through" type which are
guaranteed as to timely payment of principal and interest by the full faith and
credit of the U.S. Government.
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities, due to
prepayments of principal by mortgagors and mortgage foreclosures which will
usually result in the return of the greater part of principal investment long
before the maturity of the mortgages in the pool. The occurrence of mortgage
prepayments is affected by many factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. At the time principal prepayments or payments
upon foreclosure are received by the Portfolio, prevailing interest rates may be
higher or lower than the current yield of a Portfolio. Prepayments often occur
following a decline in interest rates, in which case reinvestment will take
place at a lower interest rate than the rate on the prepaid obligation.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee; however, inasmuch as foreclosures will involve a repayment of
principal to a Portfolio, the Portfolio's yield on its portfolio securities will
be affected if reinvestment takes place at a higher or lower interest rate.
The prices of U.S. Government securities, like conventional bonds, are inversely
affected by changes in interest rate levels. A decrease in rates generally
produces an increase in the value of the Portfolio's investments, while an
increase in rates generally reduces the value of these investments. Investors
should be prepared to accept the principal volatility normally associated with
investment in longer term fixed income securities and should not rely on either
Portfolio for their short-term financial needs. The Portfolios are not intended
to be vehicles for trading on short-term swings in the market.
PLANNED AMORTIZATION CLASS MORTGAGED-BACKED SECURITIES - includes certain
Collateralized Mortgage Obligations ("CMOs") that are Planned Amortization Class
bonds ("PACs"). CMOs are debt obligations or multi-class pass-through
certificates issued by agencies or instrumentalities of the U.S. Government or
by private originators or investors in mortgage loans. CMOs are backed by
mortgage pass-through securities or pools of whole mortgage loans and are
evidenced by a series of bonds issued in multiple classes. PACs are a type of
CMO tranche or series designed to provide relatively predictable payments of
principal provided that, among other things, the actual prepayment experience on
the underlying mortgage loans falls within a predefined range. Because of these
features, PACs generally are less subject to the risks of prepayment than are
other types of mortgage-backed securities. However, if the actual prepayment
experience on the underlying mortgage loans is at a rate faster or slower than
the predefined range or if deviations from other assumptions occur, principal
payments on the PACs may be earlier or later than predicted. Additional
information concerning PACs is provided in the Statement of Additional
Information under the heading "Description of the Fund's Investment Securities
and Derivatives."
REPURCHASE AGREEMENTS - each Portfolio's investment portfolio may include
repurchase agreements with banks and dealers in U.S. Government securities. A
repurchase agreement involves the purchase by either Portfolio of an investment
contract from a bank or an authorized dealer in U.S. Government securities and
is secured by U.S. Government obligations, as defined above (see "U.S.
Government Obligations"), whose value is equal to or greater than the value of
the repurchase agreement including the agreed upon interest. The agreement
provides that the institution will repurchase the underlying securities at an
agreed upon time and price. The total amount received on repurchase would exceed
the price paid by each Portfolio, reflecting an agreed upon rate of interest for
the
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period from the date of the repurchase agreement to the settlement date, and
would not be related to the interest rate on the underlying securities. The
difference between the total amount to be received upon the repurchase of the
securities and the price paid by either Portfolio upon their acquisition is
accrued daily as interest. The Portfolios require continual maintenance by each
Portfolio's custodian of the market value of underlying collateral in amounts
equal to, or in excess of, the value of the repurchase agreement including the
agreed upon interest. If the institution defaults on the repurchase agreement,
each Portfolio dealing with such institution will retain possession of the
underlying securities. In addition, if bankruptcy proceedings are commenced with
respect to the seller, realization on the collateral by the Portfolio dealing
with such institution may be delayed or limited and such Portfolio may incur
additional costs. In such case the Portfolio will be subject to risks associated
with changes in the market value of the collateral securities. Each Portfolio
intends to limit repurchase agreements to transactions with institutions
believed by the Adviser to present minimal credit risk. Repurchase agreements
may be considered to be loans under the Investment Company Act of 1940.
Portfolio turnover will be influenced by the Portfolios' investment objectives,
other investment policies, and the need to meet redemptions. While the rate of
each Portfolio's turnover will not be a limiting factor when the Adviser
believes that portfolio changes are appropriate, it is anticipated that given
each Portfolio's investment objective, the annual portfolio turnover rate of
each Portfolio should generally not exceed 100%. A 100% turnover rate would
occur, for example, if all of the securities in either Portfolio are replaced
once within a period of one year. The Portfolios will not normally engage in
short-term trading but reserve the right to do so.
Short-term obligations may be purchased pending investment of proceeds of sales
of either Portfolio's shares or portfolio securities, or to maintain liquidity
to meet anticipated redemptions.
LIFE CYCLE HARVEST FUND(TM)
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to earn income consistent with the
preservation of capital. The Harvest Fund intends to achieve its investment
objective by investing in a laddered portfolio of short-term bonds issued and
backed by the full faith and credit of the U.S. Government and its agencies and
instrumentalities, negotiable CD's, repurchase agreements, and short-term
corporate debt securities. The investment objective is fundamental to this
Portfolio and may not be changed without stockholder approval. There can be no
assurance that the Harvest Fund's investment objective will be achieved.
No foreign securities will be purchased for this Portfolio. The weighted average
maturity of the Portfolio initially will not exceed 90 days, and the maximum
maturity of each security initially will not exceed 13 months.
Portfolio turnover will be influenced by the Portfolio's investment objective,
other investment policies, and the need to meet redemptions. While the rate of
portfolio turnover will not be a limiting factor when the Adviser believes that
portfolio changes are appropriate, it is anticipated that given the Portfolio's
investment objective, its annual portfolio turnover rate should generally not
exceed 500%. A 500% turnover rate would occur, for example, if all of the
securities in the Portfolio are replaced five times within a period of one year.
The relatively high turnover rate is primarily a result of the short-term
maturities of the securities in the Portfolio and not of excessive trading in
the Portfolio. The high rate of portfolio turnover should not result in
correspondingly high brokerage expenses for the Portfolio because usually such
transactions are principal transactions conducted on a net basis with no
brokerage costs being paid by the Portfolio. In order to qualify as a regulated
investment company, less than 30% of the Portfolio's gross income must be
derived from the sale or other disposition of stock, securities or certain other
investments held for less than three months. Although increased portfolio
turnover may increase the likelihood of additional capital gains for the
Portfolio, the Portfolio expects to satisfy the 30% income test.
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PERMITTED INVESTMENTS
U.S. GOVERNMENT OBLIGATIONS - obligations issued or guaranteed by the U.S.
Government or by its agencies and instrumentalities. These obligations are
backed by the full faith and credit of the United States, by the credit of the
issuing or guaranteeing agency or by the agency's right to borrow from the U.S.
Treasury. U.S. Government obligations include U.S. Treasury obligations which
differ only in their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturity of one year or less), and U.S. Treasury
Notes (maturities of one to ten years). For further description of the
government obligations in which the Portfolio will invest, see "Risk Factors,
Additional Investment Information and Derivatives."
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS - commercial paper
and other short-term domestic corporate obligations, including corporate bonds,
variable amount master demand notes. The Portfolio is permitted to purchase
commercial paper, including variable amount master demand notes, if they are
rated A or better by S&P or P-1 or better by Moody's, and short-term domestic
corporate obligations, if they are rated A or better by S&P or A or VMIG-1 or
better by Moody's.
BANK OBLIGATIONS - certificates of deposit, bankers' acceptances and other
obligations (or instruments secured by such obligations) of domestic banks
subject to regulation by the U.S. Government or its agencies (such as the
Federal Reserve Board, the Comptroller of the Currency or the FDIC) and having
total assets of over $10 billion.
RISK FACTORS, ADDITIONAL INVESTMENT INFORMATION AND DERIVATIVES
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may purchase
securities on a "when-issued" or "delayed delivery" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. The securities are subject to market
fluctuation during this period and no interest accrues to a Portfolio until
settlement. The use of when-issued transactions enables the Portfolios to hedge
against an anticipated decline in interest rates and increase in prices.
However, if the Adviser was to forecast incorrectly the direction of interest
rate movement, a Portfolio might be required to complete a when-issued
transaction at a price less than the current market price. Each Portfolio
maintains with The Bank of New York (the "Custodian") a separate account with a
segregated portfolio of liquid high grade debt securities in an amount at least
equal to these commitments. No when-issued commitments will be made if, as a
result, more than 20% of the value of each Portfolio's total assets would be
committed to such transactions. See "Description of the Fund's Investment
Securities and Derivatives" in the Statement of Additional Information.
LENDING OF SECURITIES. Each Portfolio may lend its portfolio securities to
qualified institutions as determined by the Adviser. By lending its portfolio
securities, each Portfolio attempts to increase its income through the receipt
of interest on the loan. Any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Portfolio in such transaction. No Portfolio will lend portfolio securities if,
as a result, the aggregate of such loans exceeds 331/3% of the value of that
particular Portfolio's total assets (including such loans). All relevant facts
and circumstances, including the creditworthiness of the qualified institution,
will be monitored by the Adviser, and will be considered in making decisions
with respect to lending of securities, subject to review by the Fund's Board of
Directors. Each Portfolio may pay reasonable negotiated fees in connection with
loaned securities, so long as such fees are set forth in a written contract and
their reasonableness is determined by the Fund's Board of Directors.
FOREIGN INVESTMENT INFORMATION FOR THE RETIREMENT INCOME FUND. The Retirement
Income Fund may invest in direct obligations of foreign nations and
investment-grade foreign corporate debt securities which are U.S. dollar
denominated. Investment in direct obligations of foreign nations and investment
grade foreign corporate debt securities involves somewhat different investment
risks from those affecting obligations of United States domestic issuers. There
may be limited publicly available information with respect to these securities
and they may not generally be subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to domestic
companies. There may also be less government supervision and regulation of
foreign securities exchanges, brokers and listed companies than in the United
States. Foreign securities markets have substantially less volume than domestic
securities exchanges and securities of some foreign companies are less liquid
and more volatile than securities of comparable domestic companies. Brokerage
commissions and other transaction
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costs on foreign securities exchanges are generally higher than in the United
States. Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid to the Portfolio
by domestic issuers. Additional risks include future political and economic
developments; the possibility that a foreign jurisdiction might impose or change
withholding taxes on income payable with respect to foreign securities; the
possible seizure, nationalization or expropriation of the foreign issuer or
foreign deposits; and the possible adoption of foreign governmental restrictions
such as exchange controls.
HEDGING FOR THE EQUITY FUND. Hedging is a means of transferring risk which an
investor does not desire to assume during an uncertain market environment. The
Equity Fund is permitted to enter into the transactions more fully described in
the Statement of Additional Information solely (a) to hedge against changes in
the market value of portfolio securities or (b) to close out or offset existing
positions. THE TRANSACTIONS MUST BE APPROPRIATE TO REDUCTION OF RISK; THEY
CANNOT BE FOR SPECULATION. In particular, the Equity Fund may write covered call
options on securities or stock indices. By writing call options, the Equity Fund
limits its profit to the amount of the premium received. By writing a covered
call option, the Equity Fund assumes the risk that it may be required to deliver
the security having a market value higher than its market value at the time the
option was written. The Equity Fund will not write options if immediately after
such sale the aggregate value of the obligations under the outstanding options
would exceed 25% of the Fund's net assets. See "Description of the Fund's
Investment Securities and Derivatives" in the Statement of Additional
Information.
To the extent the Portfolio uses hedging instruments which do not involve
specific portfolio securities, offsetting price changes between the hedging
instruments and the securities being hedged will not always be possible, and
market value fluctuations of the Portfolio may not be completely eliminated.
When using hedging instruments that do not specifically correlate with
securities in a Portfolio, the Adviser will attempt to create a very closely
correlated hedge.
BROKERAGE AND EXECUTION POLICIES
The Adviser is responsible for the selection of broker-dealers and the
negotiation of brokerage commission rates. The Adviser's primary consideration
in effecting a security transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Adviser will also consider the reliability, integrity and financial condition of
the broker-dealer, the size of and difficulty in executing the order, the value
of the expected contribution of the broker-dealer to the investment performance
of the Fund on a continuing basis, as well as other factors such as the
broker-dealer's ability to engage in transactions in securities of issuers which
are thinly traded. The Adviser does not intend to employ a broker-dealer whose
commission rates fall outside of the prevailing ranges of execution costs
charged by other broker-dealers offering similar services.
LIFE CYCLE PROGRAM RISK CONSIDERATIONS
AGE-BASED ALLOCATION METHODOLOGY
The Life Cycle Program is an age-based allocation methodology. The Adviser will
utilize the Life Cycle Program for allocating Participants' assets among the
Portfolios. As a result of the strict application of the age-based allocation,
Participants are subject to risks associated with market movements. Allocation
among the Portfolios will be made on each Participant's birthday or, if that
birthday does not fall on a business day, then on the first business day
following each Participant's birthday, without regard to market movements.
Because the Life Cycle Program predetermines each Participant's allocation among
the Portfolios and a Participant's assets are automatically allocated on each of
their birthdays, each Participant will experience a different return on his or
her investment due to the different dates on which a Participant's assets are
allocated among the Portfolios. Thus, Participants may have shares allocated to
a Portfolio prior to or subsequent to changes in the valuation of the securities
held by that Portfolio. For example, a Participant may remain invested in a
Portfolio that is in a downward cycle, may be divested from a Portfolio that is
about to enter an upward movement, or may be exchanged into a Portfolio
subsequent to an upward market movement or prior to a downward cycle. The
Adviser believes that there are long-term benefits for Participants which
outweigh the risks related to market fluctuations.
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HURDLE RATE
Participants whose assets are allocated pursuant to the Hurdle Rate are subject
to certain risks. As a result of the strict application of the Hurdle Rate,
Participants are subject to risks associated with market movements. Because the
Hurdle Rate predetermines rates of return upon which a Participant's incremental
asset allocation among the Portfolios will be changed, each Participant will
experience a different rate of return on his or her investment due to the date
on which the rate of return is calculated and compared to the Hurdle Rate.
Participants are also subject to the risk of (i) being divested from a Portfolio
prior to an upward market movement or (ii) exchanging into a Portfolio
subsequent to an upward market movement or prior to a downward market movement.
PURCHASE OF SHARES
The purchase of shares in the Portfolios under the age-based allocation
methodology offered by the Life Cycle Program must be made through the purchase
of shares in the Harvest Fund. While invested in the Harvest Fund, Participants'
shares are credited with income. Due to weekends, holidays, or order entry
problems and delays, Participants may experience a delay of up to four business
days in getting their investment allocated from the Harvest Fund into the other
Portfolios. This potential delay subjects Participants to risks associated with
market movements. As a result of potential delay, Participants may be exchanged
into a Portfolio subsequent to an upward movement or prior to a downward cycle.
EXCHANGE OF SHARES
An exchange of shares between any Portfolios resulting from any change in an
investment or any reallocation pursuant to the Life Cycle Program or the Hurdle
Rate will be treated, for federal income tax purposes, as a redemption of shares
in one Portfolio and the purchase of shares in another Portfolio. For investors
not holding their shares in a tax deferred retirement account the redemption of
shares may result in the investor recognizing taxable income or a tax loss, even
though the investor does not derive any cash proceeds from the transaction. If
the shares that are redeemed have been held by the investor for more or less
than one year, the investor will generally realize a long-term or short-term
capital gain or loss upon a redemption, as the case may be. The investor will
take a tax basis in the shares that are acquired equal to the investor's cost of
those shares, which will generally equal the amount realized by the investor
upon the redemption. Investors should consult their tax advisors about the
federal, state and local tax consequences of an exchange of shares.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of each of the Portfolios
is subject to the following limitations: (a) each Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the United States Government and its agencies and
instrumentalities, and (b) each Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. The classification of the Fund
as a diversified investment company is a fundamental policy of the Fund and may
be changed only with the approval of the holders of a majority of the Fund's
outstanding shares. As used in this Prospectus, the term "majority of the
outstanding shares" of a Portfolio means, respectively, the vote of the lesser
of (i) 67% or more of the shares of the Portfolio present at the meeting, if
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Portfolio.
Each Portfolio also operates under certain investment restrictions which are
deemed fundamental policies of the Portfolio and also may be changed only with
the approval of the holders of a majority of a Portfolio's outstanding shares.
In addition to other restrictions listed in the Statement of Additional
Information, none of the Portfolios may (except where specified):
(i) invest more than 15% of the market value of the Fund's net assets
in illiquid investments including foreign securities and bank
participation interests for which a readily available market does
not exist;
(ii) purchase securities on margin or borrow money, except (a) from
banks for extraordinary or emergency purposes (not for leveraging
or investment) or (b) by engaging in reverse repurchase
agreements, provided that (a) and (b) in the aggregate do not
exceed an amount equal to one-third of
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the value of the total assets of that Portfolio less its
liabilities (not including the amount borrowed) at the time of
the borrowing, and further provided that 300% asset coverage is
maintained at all times;
(iii) purchase securities while borrowings exceed 5% of its total
assets;
(iv) mortgage, pledge or hypothecate any assets except that a
Portfolio may pledge not more than one-third of its total assets
to secure borrowings made in accordance with paragraph (ii)
above. However, although not a fundamental policy of the Fund, as
a matter of operating policy in order to comply with certain
state statutes, no Portfolio will pledge its assets in excess of
an amount equal to 10% of net assets; or
(v) lend portfolio securities of value exceeding in the aggregate
one-third of the market value of the Portfolio's total assets
less liabilities other than obligations created by these
transactions.
For a more detailed discussion of investment restrictions, see "Description of
the Fund's Investment Securities and Derivatives" in the Statement of Additional
Information.
MANAGEMENT
ADVISER. Benson White & Company, a registered investment adviser, is a Delaware
corporation founded by Clay B. Mansfield and Timothy W. Cunningham, with offices
located at 656 East Swedesford Road, Suite 322, Wayne, Pennsylvania 19087.
Benson White & Company has been retained by the Board of Directors as the
investment adviser for each Portfolio pursuant to an Investment Advisory
Agreement entered into by the Fund on behalf of each Portfolio. The Adviser
supervises all aspects of the Fund's operations and provides investment advice
and portfolio management services to the Fund. Subject to the supervision of the
Fund's Board of Directors, the Adviser makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the portfolio investments. The Adviser is also responsible for
the management and implementation of the Life Cycle Program.
The Adviser also provides supervisory personnel who are responsible for
supervising the performance of administrative services, accounting and related
services, net asset value and yield calculations, reports to and filings with
regulatory authorities and services relating to such functions. However, the
Administrator provides personnel to perform the operational components of such
services.
Messrs. Mansfield and Cunningham are principally engaged in the management of
the affairs of Benson White & Company and serve as portfolio managers and
Directors of the Fund. Mr. Mansfield is a former Executive Secretary of the
Pennsylvania School District Liquid Asset Fund which represented approximately
$2 billion of short-term assets invested on behalf of the Pennsylvania School
districts, and former Chief Investment Officer of the Pennsylvania Public School
Employees' Retirement System where he was responsible for the direct management
of over $1 billion in assets and supervised numerous asset managers of over $16
billion in equities, fixed income, real estate and venture capital. He is the
Chairman of the Board and the Chief Investment Officer of the Adviser. Mr.
Cunningham previously co-founded a group of private investment partnerships with
an aggregate of $25 million under management. He also founded and was President
of a specialty pension fund consulting company, Springhouse Associates, Inc.,
that provided advisory services in connection with approximately $650 million of
pension fund assets. He is the President and Chief Executive Officer of the Fund
and serves as a Director to the Adviser.
Messrs. Mansfield and Cunningham are co-authors of the book PENSION FUNDS: A
COMMONSENSE GUIDE TO A COMMON GOAL, and the book PAY YOURSELF FIRST: A
COMMONSENSE GUIDE TO LIFE CYCLE RETIREMENT INVESTING. In addition, Mr. Mansfield
is the Publisher and Mr. Cunningham is the Editor of THE TRUSTEE'S JOURNAL, a
quarterly periodical providing research to pension fund trustees and staff. Mr.
Mansfield is a graduate of Bucknell University. Mr. Cunningham earned a Master
of International Management Degree from the American Graduate School of
International Management in Glendale, Arizona and a Bachelor of Arts Degree from
Williams College in Williamstown, Massachusetts.
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<PAGE>
The Adviser provides persons satisfactory to the Fund's Board of Directors to
serve as officers of the Fund. Such officers, as well as certain other employees
and Directors of the Fund, may be directors, officers or employees of the
Adviser or its affiliates. Due to the services performed on its behalf by the
Adviser and the Administrator, the Fund currently has no employees and its
officers are not required to devote their full time to the affairs of the Fund.
The Statement of Additional Information contains general background information
regarding each Director and principal officers of the Fund. The Fund's Annual
Report will contain information regarding the performance of each Portfolio and,
when available, will be provided without charge, upon request.
ADVISER'S FEES. Pursuant to the terms of an Investment Advisory Agreement, each
Portfolio will pay monthly advisory fees equal to 0.75% of such Portfolio's
average daily net asset per annum. This fee is higher than the fee paid by most
other mutual funds because of the provision of the other services offered
through the Life Cycle Program. Such other services include individualized
age-based annual asset allocation, the application of hurdle rate risk
management, and preparation and annual dissemination of an individualized Life
Cycle Program participant account statement. Because the advisory fees paid by
the Portfolios compensate the Adviser both for the provision of portfolio
investment advisory services as well as the provision of such asset allocation
services to the Life Cycle Program, investors in the Portfolios not
participating in the Life Cycle Program will be paying fees higher than those
charged by comparable funds that do not offer these benefits and whose
investment advisory fees relate solely to the provision of portfolio investment
management services. Any portion of the advisory fees received by the Adviser
may be used by the Adviser to provide investor and administrative services and
for distribution of Fund shares. The Adviser reserves the right to assess an
administrative account charge in connection with the Life Cycle Program
participants. The Adviser may voluntarily waive a portion of its fee or assume
certain expenses of any Portfolio of the Fund. This would have the effect of
lowering the overall expense ratio of the Portfolio and of increasing yield to
investors in that Portfolio. See "Expense Limitation" in the Statement of
Additional Information.
ADMINISTRATOR. The Administrator for the Fund is Furman Selz LLC (the
"Administrator"), which has its principal office at 230 Park Avenue, New York,
New York 10169, and is primarily an institutional brokerage whose activities
include membership on the New York, American, Boston, Midwest, Pacific and
Philadelphia Stock Exchanges, investment banking activities with offices in New
York and San Francisco, and mutual fund administrative activities with
approximately $28 billion under administration for numerous mutual funds.
Pursuant to an Administrative Services Agreement with the Fund, on behalf of
each of the Portfolios, the Administrator provides all administrative services
necessary for the Fund, other than those provided by the Adviser, subject to the
supervision of the Fund's Board of Directors. The Adviser and the Administrator
will provide persons to serve as officers of the Fund. Such officers may be
directors, officers or employees of the Adviser or the Administrator or their
affiliates.
Each of the Investment Advisory Agreements and the Administrative Services
Agreement is terminable by the Board of Directors of the Fund, the Adviser or
the Administrator, respectively, on sixty days' written notice and terminate
automatically in the event of an "assignment" as defined by the 1940 Act. Each
Agreement shall remain in effect for two years from the date of its initial
approval, and subject to annual approval of the Fund's Board of Directors for
one-year periods thereafter. Each Agreement provides that in the absence of
willful misfeasance, bad faith or gross negligence on the part of the Adviser or
the Administrator, respectively, or reckless disregard of its obligations
thereunder, the Adviser or the Administrator shall not be liable for any action
or failure to act in accordance with its duties thereunder.
ADMINISTRATOR'S FEES. For the services rendered to the Fund by the
Administrator, the Fund pays the Administrator an annual fee paid monthly equal
to 0.20% of the Fund's aggregate average daily net assets up to $100 million,
0.15% of the Fund's aggregate average daily net assets between $100 and $400
million, and 0.10% of the Fund's aggregate average daily net assets over $500
million. The Administrator also provides the Fund with all accounting related
services. The Fund pays the Administrator $30,000 per Portfolio per year plus
out-of-pocket expenses for such services. The minimum fee for all services
provided by the Administrator, in the aggregate, is $250,000 per year. For
additional information, see "Custodian, Transfer Agent and Dividend Agent."
EXPENSES. Each Portfolio is responsible for payment of its expenses, including
the following expenses, without limitation: fees payable to the Adviser,
Administrator, Custodian, Transfer Agent and Dividend Agent; brokerage and
commission expenses; Federal, state or local taxes, including issuance and
transfer taxes incurred by or levied
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on them; commitment fees, certain insurance premiums and membership fees and
dues in investment company organizations; interest charges on borrowings;
telecommunications expenses; recurring and nonrecurring legal and auditing
expenses; costs of organizing and maintaining the Fund's existence as a
corporation; compensation, including directors' fees, of any directors, officers
or employees who are not the officers of the Adviser, the Administrator or their
affiliates; costs of other personnel providing administrative and clerical
services; costs of stockholders' services and costs of stockholders' reports,
proxy solicitations, and corporate meetings; fees and expenses of registering
their shares under the appropriate federal securities laws and of qualifying
their shares under applicable state securities laws, including expenses
attendant upon the initial registration and qualification of these shares and
attendant upon renewals of, or amendments to, those registrations and
qualifications; and expenses of preparing, printing and delivering the
Prospectus to existing investors and of printing investor application forms for
investor accounts. The Distributor pays the promotional and advertising expenses
related to the distribution of the Fund's shares and for the printing of all
Fund prospectuses used in connection with the distribution and sale of Fund
shares. See "Management of Fund" in the Statement of Additional Information. The
Adviser and the Administrator have each agreed to a reduction in the amounts
payable to it and to reimburse each Portfolio, as necessary, if in any fiscal
year the sum of the Portfolio's expenses exceeds the limits set by applicable
regulations of state securities commissions.
DISTRIBUTOR. Life Cycle Mutual Funds Distributors, Inc. serves as distributor of
the shares of the Fund and is an affiliate of the Administrator. The Distributor
pays the promotional and advertising expenses related to the distribution of the
Fund's shares and for the printing of all Fund prospectuses used in connection
with the distribution and sale of Fund shares. See "Management of Fund" in the
Statement of Additional Information.
PURCHASE OF SHARES
OPENING A NEW LIFE CYCLE MUTUAL FUNDS ACCOUNT
FOR PARTICIPANT IN THE LIFE CYCLE PROGRAM.
By Check
1. Complete the application form and sign the Exchange Agreement. Make sure to
include your birthdate.
2. Make check payable to Life Cycle Mutual Funds, Inc. (Initial purchases are
subject to a $2,000 minimum investment to participate in the Life Cycle
Program.)
3. Deliver the completed application, signed Exchange Agreement and check to
your registered representative or selling broker, or mail it directly to
the Fund.
By Wire
1. Obtain an account number by contacting your registered representative or
selling broker, or by calling 1- 800-266-5240
2. Instruct your bank to wire funds to: Investors Fiduciary Trust Company
Kansas City, MO 64105
ABA# 1010-0362-1
Account # 751-3003
Further Credit to: Life Cycle Harvest
Fund
Your Account Number XXX-XXXX
Name(s) under which account is
registered.
3. Complete the application form and sign the Exchange Agreement. Make sure to
include your birthdate.
4. Deliver the completed application, signed Exchange Agreement and check to
your registered representative or selling broker, or mail it directly to
the Fund.
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<PAGE>
OPENING A NEW LIFE CYCLE MUTUAL FUNDS ACCOUNT
FOR NON-PARTICIPANT IN THE LIFE CYCLE PROGRAM
By Check
1. Complete the application form (Do not sign Exchange Agreement) and indicate
in which Portfolio you wish to invest.
2. Make check payable to Life Cycle Mutual Funds, Inc. (Initial purchases are
subject to a $5,000 per Portfolio minimum initial investment.)
3. Deliver the completed application form to your registered representative or
selling broker, or mail it directly to the Fund.
By Wire
1. Obtain an account number by contacting your registered representative or
selling broker, or by calling 1- 800-266-5240
2. Instruct your bank to wire funds to: Investors Fiduciary Trust Company
Kansas City, MO 64105
ABA# 1010-0362-1
Account # 751-3003
Further Credit to: The Name of the
Portfolio You Wish to Purchase
Your Account Number XXX-XXXX
Name(s) under which account is
registered.
3. Complete the application form.
4. Deliver the completed application form to your registered representative or
selling broker, or mail it directly to the Fund.
PURCHASE OF ADDITIONAL SHARES IN A LIFE CYCLE MUTUAL FUNDS ACCOUNT
FOR PARTICIPANT IN THE LIFE CYCLE PROGRAM.
By Check
1. If available, fill out an additional purchase form included with your
Account Statement and fill in the dollar amount of the purchase and the
account number.
2. Make check payable to Life Cycle Mutual Funds, Inc. (There is a minimum
$250 purchase for additional investments into an existing Life Cycle
account.)
3. Deliver the check to your registered representative or selling broker, or
mail it directly to the Fund.
By Wire
1. Instruct your bank to wire funds to: Investors Fiduciary Trust Company
Kansas City, MO 64105
ABA# 1010-0362-1
Account # 751-3003
Further Credit to: Life Cycle Harvest
Fund
Your Account Number XXX-XXXX
Name(s) under which account is
registered.
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<PAGE>
PURCHASE OF ADDITIONAL SHARES IN A LIFE CYCLE MUTUAL FUNDS ACCOUNT
FOR NON-PARTICIPANT IN THE LIFE CYCLE PROGRAM.
By Check
1. If available, fill out an additional purchase form included with your
Account Statement and fill in the dollar amount of the purchase and the
account number.
2. Make check payable to Life Cycle Mutual Funds, Inc. (There is a minimum
$1,000 purchase for additional investments into any Portfolio for
shareholders who are not participants in the Life Cycle Program.)
3. Deliver the check to your registered representative or selling broker, or
mail it directly to the Fund.
By Wire
1. Instruct your bank to wire funds to: Investors Fiduciary Trust Company
Kansas City, MO 64105
ABA# 1010-0362-1
Account # 751-3003
Further Credit to: The Name of the
Portfolio You Wish to Purchase
Your Account Number XXX-XXXX
Name(s) under which account is
registered.
Life Cycle Mutual Funds Distributors, Inc. serves as the exclusive distributor
of the shares of each Portfolio pursuant to its Distribution Agreement with the
Fund. Investors may open accounts in the Portfolios in the Fund only through the
exclusive Distributor for the Fund. Under the Distribution Agreement, the
Distributor, for nominal consideration and as agent for the Fund, will solicit
orders for the purchase of Fund shares, provided that any subscriptions and
orders will not be binding on the Fund until accepted by the Fund as principal.
The Life Cycle Program requires a minimum initial investment of $2,000 per
investor participating in the Life Cycle Program, and $5,000 or more for an
investor not participating in the Life Cycle Program. Additionally, a minimum of
$250 is required for each subsequent investment for investors participating in
the Life Cycle Program, while a minimum of $1,000 is required for each
subsequent investment for investors not participating in the Life Cycle Program.
Investors not participating in the Life Cycle Program have the flexibility to
allocate their investment among the four Portfolios at their discretion provided
that they maintain at least a $5,000 balance in any portfolio in which they are
invested. Any exchanges among the Portfolios by investors not participating in
the Life Cycle Program in excess of twice per calendar year will entail an
exchange fee of $25 per exchange.
The price paid for shares of each Portfolio is the public offering price, that
is, the next determined net asset value of the shares after the order is placed
plus the applicable sales charge. The sales load is a one-time charge paid at
the time of purchase of shares, most of which ordinarily goes to the investor's
broker-dealer to compensate him for the services provided the investor. Shares
of each Portfolio are sold on a continuous basis with a front-end sales charge
of 3.75% of the net asset value per share. Volume discounts are provided for
both initial purchases of the Fund's shares, as well as for additional purchases
of the Fund's shares. See "Reduction or Elimination of Sales Loads" herein. The
Fund reserves the right to reject any subscription for the shares of its
Portfolios. In addition, the Fund does not intend to issue certificates.
An investor who wishes to purchase shares of the Fund pursuant to the Life Cycle
Program must provide their birthdate on the application. In addition, investors
participating in the asset allocation program must complete and execute the
Exchange Agreement. If an investor does not provide their birthdate on the
application or fails to provide an executed draft of the Exchange Agreement with
the application, the purchase will not be accepted and the investment will be
delayed. This delay may affect the price paid for shares dependent upon market
movements.
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<PAGE>
PURCHASE OF SHARES IN THE PORTFOLIOS UNDER THE AGE-BASED ALLOCATION METHODOLOGY
OFFERED BY THE LIFE CYCLE PROGRAM WILL BE MADE THROUGH AN INITIAL PURCHASE OF
SHARES IN THE HARVEST FUND. These monies are invested, for a period not to
exceed four business days, in the Harvest Fund. While invested in the Harvest
Fund, investors' shares are credited with income. The Harvest Fund shares are
then exchanged for the age-based allocated number of shares in two of the other
three Portfolios. Due to weekends, holidays, or order entry problems and delays,
investors may experience a delay of up to four business days in getting their
investment allocated into the Life Cycle Program. This potential delay may have
its own risks, depending on market movements.
The Fund must receive an order and payment by the close of business for the
purchase to be effective and dividends to be earned on the same day. If funds
are received after the close of business, the purchase will become effective and
dividends will be earned on the next business day. Purchases made by check will
be invested and begin earning income on the next business day after the check is
received.
As long as you have read the Prospectus, you may establish a new regular account
through the Wire Desk; IRAs may not be opened in this way. When new accounts are
established by wire, the distribution options will be set to reinvest and the
social security or tax identification number ("TIN") will not be certified until
a signed application is received. Completed applications should be forwarded
immediately to the Fund. With the application, the shareholder can specify other
distribution options and add any special features offered by the Fund. Should
any dividend distributions or redemptions be paid before the TIN is certified,
they will be subject to 31% Federal tax withholding.
INSTITUTIONAL ACCOUNTS. Bank trust departments and other institutional accounts,
not subject to sales charges, may place orders directly with Furman Selz
Incorporated by telephone at 1-800-266-5240.
REDUCTION OR ELIMINATION
OF SALES LOADS
VOLUME DISCOUNTS. Volume discounts are provided if the total amount being
invested in shares of the Portfolio reaches the levels indicated in the sales
load schedule provided below. The applicable volume discount available to
investors is determined by aggregating all share purchases of any of the
Portfolios of the Fund. Volume discounts are also available to investors making
sufficient additional purchases of Portfolio shares. The applicable sales charge
may be determined by adding to the total current value of shares already owned
in the Portfolio the value of new purchases computed at the offering price on
the day the additional purchase is made. For example, if an investor previously
purchased, and still holds, shares of the Portfolio worth $95,000 at the current
offering price and purchases an additional $5,000 worth of shares of the
Portfolio, the sales charge applicable to the new purchase would be that
applicable to the $100,000 to $249,999 bracket in the sales load schedule
provided below.
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<PAGE>
SALES Sales Charge as a % of Dealer Discount as a %
AMOUNT OF PURCHASE CHARGE NET AMOUNT INVESTED OF OFFERING PRICE
$2,000 to $49,999 3.75% 3.90% 3.00%
$50,000 to $99,999 3.00% 3.09% 2.50%
$100,000 to $249,999 2.25% 2.30% 2.00%
$250,000 to $499,999 1.25% 1.27% 1.00%
$500,000 to $999,999 .75% .76% .50%
$1 million and over 0% 0% 0%
LETTER OF INTENT. Any investor may sign a Letter of Intent, available from the
Fund, stating an intention to make purchases of shares totaling a specified
amount of all the Portfolios of the Fund on an aggregate basis within a period
of thirteen months. Purchases within the thirteen-month period can be made at
the reduced sales load applicable to the total amount of the intended purchase
noted in the Letter of Intent. If a larger purchase is actually made during the
period, then a downward adjustment will be made to the sales charge based on the
actual purchase size. Any shares purchased within 90 days preceding the actual
signing of the Letter of Intent are eligible for the reduced sales charge and
the appropriate price adjustment will be made on those share purchases. A number
of shares equal to 4.50% of the dollar amount of intended purchases specified in
the Letter of Intent is held in escrow by the Distributor until the purchases
are completed. Dividends and distributions on the escrowed shares are paid to
the investor. If the intended purchases are not completed during the Letter of
Intent period, the investor is required to pay the Fund an amount equal to the
difference between the regular sales load applicable to a single purchase of the
number of shares actually purchased and the sales load actually paid. If such
payment is not made within 20 days after written request by the Fund, then the
Fund has the right to redeem a sufficient number of escrowed shares to effect
payment of the amount due. Any remaining escrowed shares are released to the
investor's account. Agreeing to a Letter of Intent does not obligate you to buy,
or the Fund to sell, the indicated amount of shares. You should read the Letter
of Intent carefully before signing.
PURCHASES AT NET VALUE. There is no initial sales charge for "Qualified
Persons". Qualified Persons is defined to include persons who are active or
retired Trustees, Directors, officers, partners, employees, shareholders or
registered representatives (including their spouses and children) of the
Investment Adviser, Distributor or any affiliates or subsidiaries thereof (the
Directors, officers or employees of which shall also include their parents and
siblings for all purchases of Fund shares) or any Director, officer, partner,
employee or registered representative (including their spouses and children) of
any Broker-Dealer who has executed a valid and currently active selling
agreement with the Distributor. Further, there will be no initial sales charge
for shares purchased on behalf of clients of financial intermediaries holding
such shares in fee-based asset management accounts.
Participants in corporate retirement plans established pursuant to Section
401(k) or Section 457 of the Internal Revenue Code of 1986, as amended, or any
other qualified deferred compensation or retirement plan, other than a plan for
a self-employed person (collectively referred to as "Plan Participant") are not
subject to any minimum initial investment or subsequent investment for the Fund,
whether or not they are participating in the Life Cycle Program. Additionally,
any investment made by or on behalf of a Plan Participant will not be subject to
the sales charge.
REDEMPTION OF SHARES
Participants in the Life Cycle Program should understand that partial
redemptions made from their share holdings in any Portfolio will result in a
re-allocation of the remaining shares held in all Portfolios into the age-based
allocations established for their age. This re-allocation will usually take
place within four days of any such partial redemption.
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<PAGE>
REDEMPTION OF SHARES HELD IN A TAX-DEFERRED RETIREMENT ACCOUNT
By Mail
Any or all of the shares held in a tax-deferred retirement account (e.g. IRA,
Keogh, 401(k)) may be redeemed by notifying the Fund in writing or by contacting
your registered representative or selling broker and instructing him or her to
redeem shares on your behalf. Your broker may charge you for this service. You
may also select to notify the Fund of your intention to participate in the
Automatic Redemption Plan (see "Automatic Redemption Plan").
The request for redemption of your shares held in a tax-qualified retirement
account made by sending a letter to the Fund must include the following
information: your account number, your Social Security number, the amount you
wish to redeem, and the signature of all registered owners. A signature
guarantee may be required.
Direct transfer of funds resulting from a redemption of shares in the Fund from
one tax-qualified retirement account to another tax-qualified retirement account
can be made by instructing the Fund in writing at the time of your redemption
request.
Please be aware that if share redemptions from the Portfolios represent
withdrawals from a qualified tax-deferred retirement account, then such
redemptions may result in penalties and withholdings if not carried out in
accordance with applicable law. Consult your tax adviser for additional
information concerning these redemptions.
REDEMPTION OF SHARES NOT HELD IN A TAX-DEFERRED RETIREMENT ACCOUNT
By Mail
Any or all of an investor's shares may be redeemed by notifying the Fund in
writing or by contacting your registered representative or selling broker and
instructing him or her to redeem shares on your behalf. Your broker may charge
you for this service. You may also select to notify the Fund of your intention
to participate in the Automatic Redemption Plan (see "Automatic Redemption
Plan").
The request for redemption of your shares made by sending a letter to the Fund
must include the following information: your account number, your Social
Security number, the amount you wish to redeem, and the signature of all
registered owners. To protect shareholder accounts, the Fund and its transfer
agent from fraud, signature guarantees are required for redemptions of $25,000
or more, to enable the Fund's Distributor to verify the identity of the person
who has authorized a redemption from an account. Signature guarantees may be
obtained from certain eligible financial institutions, including but not limited
to, the following: banks, trust companies, credit unions, securities brokers and
dealers, savings and loan associations and participants in the Securities
Transfer Association Medallion Program ("STAMP"), the Stock Exchange Medallion
Program ("SEMP") or the New York Stock Exchange Medallion Signature Program
("MSP"). Shareholders may contact the Fund at 1-800-266-5240 for further
details.
By Telephone
You may redeem your shares by telephone by calling the Fund toll free at (800)
266-5240. You should be prepared to give the telephone representative the
following information:
1. Your account number.
2. Your Social Security number.
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<PAGE>
3. The amount you wish to redeem.
Investors participating in the Life Cycle Program may redeem shares, in whole or
in part, at any time, without cost, subject to the minimum balance requirement
of $2,000. Investors who are not participating in the Life Cycle Program must
maintain a share balance equal to at least $5,000 in any Portfolio in which they
wish to continue to invest. The Fund executes redemption requests at the next
determined net asset value per share after the order is placed. See "Net Asset
Value." The Fund reserves the right to satisfy redemption requests in cash or in
securities of the Portfolio whose shares are being redeemed. During a period of
dramatic economic or market change, increased volume may make the telephone
redemption option difficult to implement. Investors unable to reach the Fund by
telephone may wish to seek alternate means of communication, such as courier.
The Fund will employ procedures to confirm that telephone or telecopy redemption
instructions are genuine, and will require that investors electing such option
provide a form of personal identification. The failure of the Fund to employ
such procedures may cause the Fund to be liable for losses incurred by investors
due to telephone or telecopy redemptions based upon unauthorized or fraudulent
instructions.
AUTOMATIC REDEMPTION PLAN. The Automatic Redemption Plan provides shareholders
with a consistent monthly payment through redemption of a set dollar amount on a
monthly, quarterly, semi-annual, or annual basis. A shareholder owning shares in
the Portfolios whose value is $10,000 or more may elect to have withdrawals of
$100 or more made automatically each month. A sufficient number of full and
fractional shares will be redeemed so that the designated automatic redemption
is effected.
The Fund does not recommend a specific monthly amount, as each shareholder's
situation and needs vary. For Participants, the amount selected will be
withdrawn first from the shares in the Harvest Fund, if any, and then pro-rata
from the remaining two Portfolios based upon the age-based asset allocation then
applicable to the shareholder. The Automatic Redemption Plan is only available
to those shareholders who request it in writing. Automatic Redemption Plan
request forms are available from the Distributor, or through an authorized
registered representative. All Automatic Redemptions will be made in the form of
a check sent by mail to the investor.
The Automatic Redemption Plan should be used in conjunction with the
distribution options, which are described in "Choosing a Distribution Option"
herein. Typically, a retired shareholder will select the Automatic Reinvestment
Option and then use the Automatic Withdrawal Plan to set a level amount to be
sent each month. The shareholder should realize that this method may deplete the
account over time, especially if net investment income is insufficient to meet
the planned withdrawal. Therefore, the shareholder should give careful
consideration to all aspects of his or her situation before using this method of
withdrawal.
OPTIONAL REDEMPTION BY THE FUND. Investors participating in the Life Cycle
Program shall maintain a balance of at least $2,000 in the Fund. Investors not
participating in the Life Cycle Program shall maintain a balance of at least
$5,000 for each Portfolio in which they are invested. The Fund reserves the
right to redeem, after 60 days' written notice, shares in accounts that fall
below the minimum balance by reason of redemption and return the proceeds to
investors. The investors may restore and maintain a minimum balance during the
notice period.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a completed account application with a
certified Taxpayer Identification Number has not been received. See "Taxes." In
addition, if a customer sends a check for the purchase of Fund shares, and those
shares are redeemed before the check has cleared, the transmittal of redemption
proceeds may be delayed until 15 days after the check used to purchase the
shares has been deposited by the Fund.
Each of the Portfolios of the Fund reserves the right to suspend the right of
redemption and to postpone the date of payment upon redemption for up to seven
days and for such other periods as the Investment Company Act of 1940 may
permit.
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EXCHANGE OF SHARES
An investor who is not participating in the Life Cycle Program may, without
cost, exchange shares on any two occasions during any single calendar year, from
any of the Portfolios of the Fund into any other Portfolio of the Fund, subject
to the $5,000 minimum investment requirement per Portfolio. Exchanges among the
Portfolios in excess of twice per calendar year will incur a fee of $25 per
exchange. See "Purchase of Shares." Shares are exchanged on the basis of
relative net asset value per share. Exchanges are in effect redemptions from one
Portfolio and purchases of another Portfolio; and the Portfolio's purchase and
redemption procedures and requirements are applicable to exchanges. An exchange
pursuant to this exchange privilege is treated for federal income tax purposes
as a sale on which a investor may realize a taxable gain or loss. Investors
should contact their tax advisers if they have questions. See "Purchase of
Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
At least 90% of each Portfolio's net investment income, except for the Equity
Fund, will be declared as dividends and paid monthly. At least 90% of the net
investment income of the Equity Fund will be declared as dividends and paid
quarterly. If an investor's shares are redeemed prior to the date on which
dividends are normally declared and paid, accrued but unpaid dividends will be
paid with the redemption proceeds. Substantially all the realized net capital
gains for the Portfolios, if any, are declared and paid on an annual basis.
Dividends are payable to investors of record at the time of declaration.
Dividends of each Portfolio are automatically reinvested in additional Portfolio
shares in accordance with the asset allocation program unless the investor has
elected to have them paid in cash.
The net investment income of each Portfolio for each business day is determined
immediately prior to the determination of net asset value. Net investment income
for other days is determined at the time net asset value is determined on the
prior business day. Shares of each Portfolio earn dividends on the business day
their purchase is effective but not on the business day their redemption is
effective. See "Purchase of Shares" and "Redemption of Shares."
CHOOSING A DISTRIBUTION OPTION. Distribution of dividends from the Portfolios
may be made in accordance with several options. Cash distribution of dividends
paid on shares held in a qualified tax-deferred retirement plan may be subject
to tax penalties and withholdings, depending on the circumstances of the
individual shareholder. Shareholders should consult their tax advisors for
additional information concerning the tax consequences of cash distribution from
their retirement accounts.
A shareholder may select one of three distribution options:
1. AUTOMATIC REINVESTMENT OPTION. Both dividends and capital gains
distributions will be automatically reinvested in additional Portfolio
shares unless the investor has elected one of the other two options.
2. CASH DIVIDEND OPTION. Dividends will be paid in cash, and capital gains,
if any, will be reinvested in additional shares.
3. ALL CASH OPTION. Both dividend and capital gains distributions will be
paid in cash.
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NET ASSET VALUE
Net asset value per share for each Portfolio is determined by subtracting from
the value of each Portfolio's total assets the amount of its liabilities and
dividing the remainder by the number of its outstanding shares. The value of
each security for which readily available market quotations exist is based on a
decision as to the broadest and most representative market for the security; the
value is based either on the last sale price on a national securities exchange,
or, in the absence of recorded sales, at the readily available closing bid price
on such exchanges, or at the quoted bid price in the over-the-counter market.
Assets for which market quotations are not readily available are valued in
accordance with procedures established by the Fund's Board of Directors,
including use of an independent pricing service or services which use prices
based on yields or prices of comparable securities, indications as to values
from dealers and general market conditions.
Each Portfolio computes its net asset value once daily on Monday through Friday,
at 4:00 p.m. New York time, except on the holidays listed under "Net Asset
Value" in the Statement of Additional Information.
DISTRIBUTION AND SERVICE PLAN
The Fund, on behalf of each of the Portfolios, has adopted a distribution and
service plan, pursuant to Rule 12b-1 under the Act (the "Rule"). The Rule
provides that an investment company which bears any direct or indirect expense
of distributing its shares must do so only in accordance with a plan permitted
by the Rule. The Plan provides that each Portfolio may bear certain expenses and
costs which in the aggregate are subject to a maximum of 0.75% per annum of such
Portfolio's average daily net assets. Pursuant to the Plan, each Portfolio
entered into a Distribution Agreement with the Distributor and each Portfolio
also entered into a Shareholder Servicing Agreement with the Adviser. For its
services under the Distribution Agreement, the Distributor will receive
compensatory payments from each Portfolio of 0.50% per annum of the average
daily net assets of each Portfolio to permit it to make payments to
broker-dealers and other financial institutions with which it has written
agreements and whose clients are Fund shareholders (each a "Broker-Dealer") for
providing distribution assistance and to be used to provide distribution
assistance and promotional support to the Fund. For its service under the
Shareholder Servicing Agreement, the Adviser will receive a service fee from
each Portfolio equal to .25% per annum of each Portfolio's average daily net
assets to compensate it for providing shareholder services to Fund shareholders
and compensate parties with which it has written agreements and whose clients
are Fund shareholder for providing servicing to their clients ("Shareholder
Servicing").
Each Shareholder Servicing Agent and Broker-Dealer will, as agent for its
customers, among other things; answer customer inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
each Portfolio may be effected and certain other matters pertaining to the Fund;
assist shareholders in designating and changing dividend options, account
designations and addresses; provide necessary personnel and facilities to
establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder by the Portfolios) monthly and year-end statements and
confirmations of purchases and redemptions, as required by Rule 10b-10 under the
Securities Exchange Act of 1934; transmit, on behalf of each Portfolio, proxy
statements, annual reports, updating prospectuses and other communications from
each Portfolio to shareholders; receive, tabulate and transmit to the each
Portfolio, proxies executed by shareholders with respect to meeting of
shareholders of the Fund; and provide such other related services as the Fund or
a shareholder may request.
The Plan, the Shareholder Servicing Agreements and the Distribution Agreement
each provide that the Adviser and the Distributor may make payments from time to
time from their own resources which may include the advisory
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fee and the asset based sales changes and past profits for the following
purposes: (i) to defray the costs of and to compensate others, including
financial intermediaries with whom the Distributor or Adviser has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of each Portfolio; (ii) to compensate certain
financial intermediaries for providing assistance in distributing each
Portfolio's shares; (iii) to pay the costs of printing and distributing the
Portfolio's prospectus to prospective investors; and (iv) to defray the cost of
the preparation and printing of brochures and other promotional materials,
mailings to prospective shareholders, advertising, and other promotional
activities, including the salaries and/or commissions of sales personnel in
connection with the distribution of the Portfolio's shares. Further, it provides
that the Adviser may use its service fee for the purposes enumerated in (i)
above. The Distributor or the Adviser, as the case may be, in their sole
discretion, will determine the amount of such payments made pursuant to the Plan
with the Shareholder Servicing Agents and Broker-Dealers they have contracted
with, provided that such payments made pursuant to the Plan will not increase
the amount which a Portfolio is required to pay to the Distributor or the
Adviser for any fiscal year under the Shareholder Servicing Agreements or
otherwise.
Shareholder Servicing Agents and Broker-Dealers may charge investors a fee in
connection with their use of specialized purchase and redemption procedures
offered to investors by the Shareholder Servicing Agents and Broker-Dealers. In
addition, Shareholder Servicing Agents and Broker-Dealers offering purchase and
redemption procedures similar to those offered to shareholders who invest in a
Portfolio directly may impose charges, limitations, minimums and restrictions in
addition to or different from those applicable to shareholders who invest in a
Portfolio directly. Accordingly, the net yield to investors who invest through
Shareholder Servicing Agents and Broker-Dealers may be less than by investing in
the Portfolio directly. An investor should read the Prospectus in conjunction
with the materials provided by the Shareholder Servicing Agent and Broker-Dealer
describing the procedures under which Portfolio shares may be purchased and
redeemed through the Shareholder Servicing Agent and Broker-Dealer.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund's position
that banks are not prohibited from acting in other capacities for investment
companies, such as providing administrative and shareholder account maintenance
services and receiving compensation from the Distributor for providing such
services. However, this is an unsettled area of the law and if a determination
contrary to the Fund's position is made by a bank regulatory agency or court
concerning shareholder servicing and administration payments to banks from the
Distributor, any such payments will be terminated and any shares registered in
the banks' names, for their underlying customers, will be re-registered in the
name of the customers at no cost to each Portfolio or its shareholders. In
addition, state securities laws on this issue may differ from the interpretation
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into by the Fund, on behalf of a Portfolio, the
Distributor or the Adviser, and the Shareholder Servicing Agents, Broker-
Dealers, or other organizations must be in a form satisfactory to the Fund's
Board of Directors. In addition, the Plan requires the Fund and the Distributor
to prepare, at least quarterly, written reports setting forth all amounts
expended for distribution purposes by the Fund and the Distributor pursuant to
the Plan and identifying the distribution activities for which those
expenditures were made.
YIELD AND TOTAL RETURN INFORMATION
Each Portfolio may, from time to time, include yield, effective yield and total
return information in advertisements or reports to investors or prospective
investors. The "yield" refers to income generated by an investment in a
Portfolio over a thirty-day period. This income is then "annualized." That is,
the amount of income generated by the investment during that month is assumed to
be generated each month over a 12-month period and is shown as
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a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in the Portfolio is
assumed to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment. The
"total return" of a Portfolio is required to be included in any advertisement
containing the yield of the Portfolio. Total return is the average annual total
return for the period which began at the inception of the Portfolio and ended on
the date of the most recent balance sheet, and is computed by finding the
average annual compound rates of return over the period that would equate the
initial amount invested to the ending redeemable value. For a description of the
methods used to calculate total return, see the Statement of Additional
Information. Yield, effective yield and total return may fluctuate daily and do
not provide a basis for determining future yields, effective yields or total
returns.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on June 23, 1995. The authorized capital
stock of the Fund consists of 20 billion shares of stock having a par value of
one-tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the unissued shares into separate series of stock, each
series representing a separate, additional investment portfolio. The Board
currently has authorized the division of the unissued shares into four series,
one for each of the Portfolios. Shares of all series will have identical voting
rights, except where, by law, certain matters must be approved by a majority of
the shares of the affected series. Each share of any series of shares when
issued has equal dividend, distribution, liquidation and voting rights within
the series for which it was issued, and each fractional share has those rights
in proportion to the percentage that the fractional share represents of a whole
share. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully paid and
non-assessable. Shares are redeemable at net asset value, at the option of the
investor.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor who is an investor of record, the Fund does not issue certificates
evidencing Fund shares.
TAXES
Each Portfolio has qualified and intends to continue to qualify under the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company. As a regulated investment company, each Portfolio is not
subject to federal income taxes on the investment company taxable income and
long-term capital gains that it distributes to its investors, provided that at
least 90% of its investment company taxable income and at least 90% of its
tax-exempt net interest income for the taxable year is distributed. Each
Portfolio's policy is to distribute as dividends each year 100% (and in no event
less than 90%) of its investment company taxable income and tax-exempt net
interest income. Each Portfolio will be treated as a separate corporation and
generally will have to comply with the qualification and other requirements
applicable to regulated investment companies without regard to other Portfolios.
If for any taxable year a Portfolio does not qualify as a regulated investment
company, all of its taxable income will be taxed to it at corporate rates and no
distribution will be deductible.
The Fund has adopted a policy of declaring dividends monthly, except for the
Equity Fund, which declares dividends quarterly, in an amount based on its net
investment income. The amount of each dividend may differ from actual net
investment income calculated in accordance with federal income tax principles.
Dividend distributions generally will be made on the twentieth day of each
month. Dividends paid from taxable income and distributions of any realized
short-term capital gains are taxable to investors as ordinary income for federal
income
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tax purposes, whether received in cash or reinvested in additional shares of the
Fund. Distributions of net realized capital gains after utilization of capital
loss carryforwards, if any, are made annually to meet applicable distribution
and excise tax requirements. Investors in each Portfolio will automatically have
them reinvested in additional shares of the Portfolio or can elect to receive
such distribution in cash. An exchange of shares between Portfolios will be
treated, for federal income tax purposes, as a redemption of shares in one
Portfolio and the purchase of shares in another Portfolio. The redemption of
shares may result in the investor reorganizing taxable income or a tax loss,
even though the investor does not derive any cash proceeds from the transaction.
If the shares that are redeemed have been held by the investor for more than one
year, the investor will generally realize a long-term capital gain or loss upon
a redemption. The investor will take a tax basis in the shares that are acquired
equal to the investor's cost of those shares, which will generally equal the
amount realized by the investor upon the redemption.
While shares of each Portfolio are sold primarily to investors through their
qualified retirement plan accounts (e.g., 401(k), Keogh and IRA accounts), the
Adviser has reserved the right to accept subscriptions for Fund shares from
individuals outside these tax-deferred accounts.
If a Portfolio acquires debt instruments that were originally issued at a
discount, e.g., zero coupon bonds, it will be required to include annually in
gross income a portion of the "original issue discount" that accrues over the
term of the obligation regardless of whether the income is received by the
Portfolio, and to make distributions accordingly. To insure that each Portfolio
has sufficient cash to meet this distribution requirement, the Portfolio may
borrow funds on a short-term basis or sell certain investments. Since a
substantial percentage of each Portfolio's dividends are expected to be
reinvested and dividends that are declared and automatically reinvested satisfy
the distribution requirement, each Portfolio expects to satisfy the distribution
requirement even if it owns obligations with original issue discount. Investors
will realize taxable income on the automatic reinvestment of dividends that are
attributable to original issue discount on taxable obligations.
Each Portfolio is required, subject to certain exemptions, to withhold at a rate
of 31% from dividends paid or credited to investors in addition to the proceeds
from the redemption of Portfolio shares, if a correct taxpayer identification
number, certified when required, is not on file with the Fund. Corporate
investors are not subject to this requirement.
The Code imposes a nondeductible 4% excise tax on a Portfolio unless it meets
certain requirements with respect to distributions of net ordinary income and
capital gain net income. It is anticipated that this provision will not have any
material impact on a Portfolio.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes, which may decrease the net return on foreign investments as
compared to dividends and interest paid by domestic issuers. The Fund does not
expect that any Portfolio will qualify to elect to pass through to its investors
the right to take a foreign tax credit for foreign taxes withheld from dividends
and interest payments.
For federal income tax purposes, distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital loss), if any, are
taxable as net capital gains regardless of the length of time investors have
owned their shares. The Tax Reform Act of 1986 eliminated the preferential
treatment previously available for net capital gains. However, the Revenue
Reconciliation Act of 1990 restored, in limited circumstances, a preferential
tax rate for net capital gains. Distributions attributable to short-term capital
gains are taxable as ordinary income. Generally, on the sale or exchange of
obligations held for more than one year, gain realized by a Portfolio that is
not attributable to original issue discount or certain market discount will be
long-term capital gain. Such capital gain, if any, will be distributed as
capital gain dividends. Capital gain dividends, designated as such in a written
notice to investors mailed not later than 60 days after a Portfolio taxable year
closes, will be taxed as long-term capital gain. However, if an investor
receives a capital gain dividend and sells shares after holding them for six
months or less (not including periods during which the investor holds an
offsetting position), then any loss realized on the sale will be treated as
long-term capital loss to the extent of such capital gain dividend.
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All taxable dividends from investment company taxable income are taxable as
ordinary income.
The federal, state and local income tax rules that apply to each Portfolio and
its investors have changed extensively in recent years, and investors should
recognize that additional changes may be made in the future, some of which could
have an adverse effect on a Portfolio and its investors for federal and/or state
and local income tax purposes. Investors in the Portfolios should consult their
tax advisors about the federal, state and local tax consequences of an
investment in each Portfolio in light of their own individual circumstances.
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND AGENT
The Bank of New York serves as custodian for each Portfolio's cash and
securities. The Custodian does not assist in, and is not responsible for,
investment decisions involving assets of the Fund. Furman Selz LLC, the Fund's
Administrator, also acts as each Portfolio's transfer and dividend agent. The
Fund pays the Administrator $15 per year per account, plus out-of-pocket
expenses, for such services.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of common stock of the
Fund are passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022. Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia, PA
19103, independent certified public accountants, have been selected as auditors
for the Fund.
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TABLE OF CONTENTS
PAGE
SUMMARY OF PORTFOLIOS...................................... 2
EXPENSE SUMMARY............................................ 3
FINANCIAL HIGHLIGHTS....................................... 4
THE LIFE CYCLE PROGRAM(TM)................................. 5
Hurdle Rates......................................... 8
INVESTMENT OBJECTIVES AND POLICIES......................... 8
LIFE CYCLE EQUITY FUND(TM)................................. 8
Investment Objective................................. 8
Permitted Investments................................ 9
LIFE CYCLE BOND FUND(TM)................................... 10
Investment Objective................................. 10
LIFE CYCLE RETIREMENT INCOME FUND(TM)...................... 10
Investment Objective................................. 10
Permitted Investments For The Bond Fund and
The Retirement Income Fund......................... 10
LIFE CYCLE HARVEST FUND(TM)................................ 12
Investment Objective................................. 12
Permitted Investments................................ 13
RISK FACTORS, ADDITIONAL INVESTMENT INFORMATION AND
DERIVATIVES................................................ 13
When-Issued and Delayed Delivery Securities.......... 13
Lending of Securities................................ 13
Foreign Investment Information for the
Retirement Income Fund............................. 13
Hedging for the Equity Fund.......................... 14
Brokerage and Execution Policies..................... 14
LIFE CYCLE PROGRAM RISK CONSIDERATIONS..................... 14
Age-Based Allocation Methodology..................... 14
Hurdle Rate.......................................... 15
Purchase of Shares................................... 15
Exchange of Shares................................... 15
INVESTMENT RESTRICTIONS.................................... 15
MANAGEMENT................................................. 16
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PAGE
PURCHASE OF SHARES......................................... 18
REDUCTION OR ELIMINATION OF SALES LOADS.................... 21
REDEMPTION OF SHARES....................................... 22
EXCHANGE OF SHARES......................................... 25
DIVIDENDS AND DISTRIBUTIONS................................ 25
NET ASSET VALUE............................................ 26
DISTRIBUTION AND SERVICE PLAN.............................. 26
YIELD AND TOTAL RETURN INFORMATION......................... 27
DESCRIPTION OF COMMON STOCK................................ 28
TAXES ..................................................... 28
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT............... 30
COUNSEL AND INDEPENDENT AUDITORS........................... 30
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<PAGE>
LIFE CYCLE MUTUAL FUNDS,(TM) INC.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
March 25, 1996
- --------------------------------------------------------------------------------
This Statement of Additional Information sets forth
information which may be of interest to investors but which is not necessarily
included in the Fund's Prospectus, dated March 25, 1996 (the "Prospectus"). This
Statement of Additional Information is not a prospectus and should be read in
conjunction with the Prospectus, a copy of which may be obtained without charge
by writing to the Fund's distributor, Life Cycle Mutual Funds Distributors, Inc.
(the "Distributor"), 230 Park Avenue, New York, New York 10169. This Statement
of Additional Information is incorporated by reference into the Prospectus in
its entirety.
<PAGE>
TABLE OF CONTENTS
PAGE
THE FUND................................................................... 2
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................... 2
Life Cycle Equity Fund(TM).............................................2
Life Cycle Bond Fund(TM)...............................................2
Life Cycle Retirement Income Fund(TM)..................................3
Life Cycle Harvest Fund(TM)............................................3
DESCRIPTION OF THE FUND'S INVESTMENT SECURITIES............................ 3
U.S. Government Obligations.......................................... 3
Mortgage-Backed Securities........................................... 3
When-Issued Securities............................................... 6
Repurchase Agreements................................................ 6
Variable-Amount Master Demand Notes.................................. 7
Bank Obligations, Certificates of Deposit and Bankers' Acceptances... 8
Foreign Securities................................................... 8
Hedging Instruments.................................................. 8
INVESTMENT RESTRICTIONS.................................................... 9
Percentage Restrictions......................................... 10
MANAGEMENT OF THE FUND..................................................... 10
Officers and Directors of the Fund................................... 11
Investment Adviser................................................... 12
Adviser's Fees....................................................... 13
Expense Limitation................................................... 13
Administrator........................................................ 14
Administrator's Fees................................................. 15
Custodian, Transfer Agent and Dividend Agent......................... 15
TAXES...................................................................... 15
PURCHASE, REDEMPTION AND EXCHANGE.......................................... 17
DIVIDENDS AND DISTRIBUTIONS................................................ 17
NET ASSET VALUE............................................................ 18
COMPUTATION OF YIELD....................................................... 18
Computation of Total Return.......................................... 19
DESCRIPTION OF COMMON STOCK................................................ 19
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN................................ 20
BROKERAGE AND PORTFOLIO TURNOVER........................................... 21
Brokerage............................................................ 21
Portfolio Turnover................................................... 22
COUNSEL AND INDEPENDENT AUDITORS........................................... 23
RATINGS OF CORPORATE OBLIGATIONS........................................... 23
Unrated Bonds........................................................ 24
Commercial Paper Ratings............................................. 25
Money Market Fund Ratings............................................ 25
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Life Cycle Mutual Funds,(TM) Inc.
THE FUND
Life Cycle Mutual Funds, Inc. (the "Fund") is a diversified,
open-end, management investment company, organized under Maryland law on June
23, 1995, that is composed of four portfolios (the "Portfolio" or "Portfolios"):
the Life Cycle Equity Fund(TM) (the "Equity Fund"), the Life Cycle Bond Fund(TM)
(the "Bond Fund"), the Life Cycle Retirement Income Fund(TM) (the "Retirement
Income Fund") and the Life Cycle Harvest Fund(TM) (the "Harvest Fund"). The
Adviser, Benson White & Company, manages the investments of the Fund from
day-to-day in accordance with the Portfolios' investment objectives and
policies.
The Portfolios are offered in connection with an age-based
asset allocation program (the "Life Cycle Program") which is designed to meet
the long-term retirement investment needs of individual investors. The Life
Cycle Program(TM) is intended to manage investors' retirement assets by making
disciplined age-based asset allocation decisions to achieve this overall
objective. The Life Cycle Program is described more completely in the Fund's
Prospectus dated March 25, 1996.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
A detailed description of the types and quality of the
securities in which the Portfolios may invest is further described in the Fund's
Prospectus and is incorporated herein by reference. The investment objectives
stated below for each Portfolio are fundamental and may be changed only with the
approval of a majority of outstanding shares of that Portfolio. There can be no
assurance that the Portfolios' investment objectives will be achieved.
LIFE CYCLE EQUITY FUND(TM)
The Equity Fund's investment objective is to maximize
investors' total return by investing, under normal circumstances, substantially
all of its assets (i.e., 90%) in a portfolio of common stocks selected from the
Standard & Poor's 500 Index (the "S&P 500") on the basis of such stocks' ability
to provide capital appreciation and generate dividend income. The Portfolio may
also invest up to 10% of the value of its total assets in publicly-traded common
and preferred stocks not presently included in the S&P 500 and may invest up to
10% of its total assets in money market instruments and in investment-grade
corporate debt securities and convertible preferred stocks offering a
significant opportunity for income. Money market instruments include short-term
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (including such obligations subject to repurchase agreements),
commercial paper rated in the highest grade by any nationally recognized rating
agency and certificates of deposit and bankers' acceptances issued by domestic
banks having total assets in excess of one billion dollars. Although the
Portfolio may also use certain hedging instruments to try to reduce risks of
market fluctuations that affect the value of the securities in the Portfolio it
will not invest in such hedging instruments for speculation. When the Adviser
determines that adverse conditions warrant, the Portfolio may take a defensive
position and invest up to 10% of its assets temporarily in investment grade debt
securities, preferred stocks, and money market instruments. The Portfolio's
investment policies, unlike its investment objective, are not fundamental and
may be changed by the Board of Directors without stockholder approval. If a
percentage limitation is adhered to at the time an investment is made, a later
change in percentage resulting from changes in the value of the Portfolio's
securities will not be considered a violation of the Portfolio's policies or
restrictions.
LIFE CYCLE BOND FUND(TM)
The Bond Fund's investment objective is to maximize income
consistent with the preservation of capital. The Bond Fund intends to achieve
its investment objective, with a low risk to capital, by investing in a laddered
portfolio of bonds issued and backed by the full faith and credit of the U.S.
Government and its agencies and instrumentalities, mortgage-backed securities,
and the investment-grade debt securities issued by corporations and banks. Under
normal circumstances, at least 65% of the value of the Portfolio's total assets
will be invested in bonds. The Portfolio intends to invest in debt securities
with an average maturity between 1 and 10 years. At least 50% of the Portfolio
will be invested in U.S. Government obligations, commercial paper, negotiable
CD's, repurchase agreements, and short-term corporate debt securities. Up to 50%
of the Portfolio may be invested in mortgage-backed securities and long-term
corporate debt securities. No foreign securities may be purchased by this
Portfolio.
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LIFE CYCLE RETIREMENT INCOME FUND(TM)
The Retirement Income Fund's investment objective is to
maximize income consistent with the preservation of capital. The Retirement
Income Fund intends to achieve its investment objective, with a moderate risk to
capital, by investing in a laddered portfolio of bonds issued and backed by the
full faith and credit of the U.S. Government and its agencies and
instrumentalities, mortgage-backed securities, and the investment-grade debt
securities issued by corporations and banks. The Portfolio intends to invest in
debt securities with an average maturity between 1 and 12 years. At least 75% of
the Portfolio will be invested in U.S. Government obligations, commercial paper,
negotiable CD's, repurchase agreements, short-term corporate debt securities,
mortgage-backed securities, and corporate debt securities, with at least 25% of
the Portfolio invested in direct U.S. Government obligations and its agencies
and instrumentalities, backed by the full faith and credit of the United States.
In addition, up to 10% of the Portfolio may be invested in investment grade debt
securities of foreign corporations and direct obligations of foreign nations.
LIFE CYCLE HARVEST FUND(TM)
The Harvest Fund's investment objective is to earn income
consistent with the preservation of capital. The Harvest Fund intends to achieve
its investment objective by investing in a laddered portfolio of short-term
bonds issued and backed by the full faith and credit of the U.S. Government and
its agencies and instrumentalities, negotiable CD's, repurchase agreements, and
short-term corporate debt securities. No foreign securities will be purchased
for this Portfolio. The weighted average maturity of the Portfolio initially
will not exceed 90 days, and the maximum maturity of each security will not
exceed 13 months.
DESCRIPTION OF THE FUND'S INVESTMENT SECURITIES AND DERIVATIVES
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are obligations which are backed
by the full faith and credit of the United States, by the credit of the issuing
or guaranteeing agency or by the agency's right to borrow from the U.S.
Treasury. They include (i) U.S. Treasury obligations which differ only in their
interest rates, maturities and times of issuance as follows: U.S. Treasury bills
(maturity of one year or less), U.S. Treasury notes (maturity of one year tens
years), U.S. Treasury bonds (generally maturities of greater than ten years);
and (ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the United
States (such as securities issued by the Government National Mortgage
Association, the Federal Housing Administration, the Department of Housing and
Urban Development, the Export-Import Bank, the General Services Administration
and the Maritime Administration and certain securities issued by the Farmers'
Home Administration and the Small Business Administration, most of which are
explained below under the section entitled "Mortgage-Backed Securities"). The
maturities of U.S. Government obligations usually range from three months to
thirty years.
MORTGAGE-BACKED SECURITIES
GINNIE MAE CERTIFICATES -- The Government National Mortgage
Association ("Ginnie Mae") is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the "Housing Act"), authorizes Ginnie
Mae to guarantee the timely payment of the principal of and interest on
certificates that are based on and backed by a pool of mortgage loans insured by
the Federal Housing Administration under the Housing Act, or Title V of the
Housing Act of 1949 ("FHA Loans"), or guaranteed by the Department of Veterans
Affairs under the Servicemen's Readjustment Act of 1944, as amended ("VA
Loans"), or by pools of other eligible mortgage loans. The Housing Act provides
that the full faith and credit of the United States Government is pledged to the
payment of all amounts that may be required to be paid under any guaranty. In
order to meet its obligations under such guaranty, Ginnie Mae is authorized to
borrow from the United States Treasury with no limitations as to amount.
The Ginnie Mae Certificates represent a pro rata interest in
one or more pools of the following types of mortgage loans: (i) fixed rate level
payment mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii)
fixed rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured
by manufactured (mobile) homes, (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments
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during the early years of the mortgage loans ("buydown" mortgage loans); (viii)
mortgage loans that provide for adjustments in payments based on periodic
changes in interest rates or in other payment terms of the mortgage loans; and
(ix) mortgage-backed serial notes. All of these mortgage loans will be FHA Loans
or VA Loans and, except as otherwise specified above, will be fully-amortizing
loans secured by first liens on one-to four-family housing units.
FANNIE MAE CERTIFICATES - The Federal National Mortgage
Association ("Fannie Mae" or "FNMA") is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of FNMA are not backed by the
full faith and credit of the United States Government.
Each Fannie Mae Certificate will represent a pro rata interest
in one or more pools of FHA Loans, VA Loans or conventional mortgage loans
(I.E., mortgage loans that are not insured or guaranteed by any governmental
agency) of the following types: (i) fixed rate level payment mortgage loans;
(ii) fixed rate growing equity mortgage loans; (iii) fixed rate graduated
payment mortgage loans; (iv) variable rate California mortgage loans; (v) other
adjustable rate mortgage loans; and (vi) fixed rate and adjustable mortgage
loans secured by multi-family projects.
FREDDIE MAC CERTIFICATES -- The Federal Home Loan Mortgage
Corporation ("Freddie Mac") is a corporate instrumentality of the United States
created pursuant to the Emergency Home Finance Act of 1970, as amended (the
"FHLMC Act"). The obligations of Freddie Mac are obligations solely of Freddie
Mac and are not backed by the full faith and credit of the United States
Government.
Freddie Mac Certificates represent a pro rata interest in a
group of mortgage loans (a "Freddie Mac Certificate group") purchased by Freddie
Mac. The mortgage loans underlying the Freddie Mac Certificates will consist of
fixed rate or adjustable rate mortgage loans with original terms to maturity of
between ten and thirty years, substantially all of which are secured by first
liens on one- to four-family residential properties or multifamily projects.
Each mortgage loan must meet the applicable standards set forth in the FHLMC
Act. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
COLLATERALIZED MORTGAGE OBLIGATIONS -- Collateralized mortgage
obligations ("CMOs") are debt obligations or multi-class pass-through
certificates issued by agencies or instrumentalities of the U.S. Government or
by private originators or investors in mortgage loans. They are backed by
Mortgage Pass-Through Securities or pools of whole loans (all such assets, the
"Mortgage Assets") and are evidenced by a series of bonds or certificates issued
in multiple classes or "tranches." The principal and interest on the underlying
Mortgage Assets may be allocated among the several classes of a series of CMOs
in many ways. CMOs may be issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
In a CMO, a series of bonds or certificates are issued in
multiple classes. Each class of CMOs, often referred to as a "tranche," may be
issued with a specific fixed or floating coupon rate and has a stated maturity
or final scheduled distribution date. Principal prepayments on the underlying
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final scheduled distribution dates. Interest is paid
or accrues on CMOs on a monthly, quarterly or semi-annual basis. The principal
of and interest on the Mortgage Assets may be allocated among the several
classes of a CMO in many ways. The general goal in allocating cash flows on
Mortgage Assets to the various classes of a CMO is to create certain tranches on
which the expected cash flows have a higher degree of predictability than the
underlying Mortgage Assets. As a general matter, the more predictable the cash
flow is on a particular CMO tranche, the lower the anticipated yield will be on
that tranche at the time of issuance relative to prevailing market yields on
certain other Mortgage-Backed Securities. As part of the process of creating
more predictable cash flows on certain tranches of a CMO, one or more tranches
generally must be created that absorb most of the changes in the cash flows on
the underlying Mortgage Assets. The yields on these tranches are generally
higher than prevailing market yields on Mortgage-Backed Securities with similar
average lives. Because of the uncertainty of the cash flows on these tranches,
the market prices of and yields on these tranches are more volatile. The Fund
may purchase CMOs that have been sold in public offerings registered under the
Securities Act of 1933 or in private placements. CMOs acquired in private
placements will be subject to certain restrictions on resale and accordingly
will have limited marketability.
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SUBORDINATED CMOs -- Subordinated tranches of CMOs are
multiple class securities with one or more classes subordinate to other classes
as to the payment of principal thereof and interest thereon, with defaults on
the underlying assets being borne first by the holders of the most subordinated
class. The Portfolios will not invest in first loss classes of subordinated
CMOs. Subordinated tranches are entitled to receive repayment of principal only
after all required principal payments have been made on more senior tranches and
also have subordinate rights as to receipt of interest distributions. Such
subordinated tranches are subject to greater risk of non-payment than are more
senior tranches or CMOs backed by third party credit enhancement may have
limited marketability.
CMOs BACKED BY MORTGAGES ON MULTI-FAMILY DWELLING --
Multi-family dwellings are residential properties consisting of five or more
units. Investment in CMOs backed by mortgages on multi-family dwellings involves
different investment considerations than investment in Mortgage-Backed
Securities backed by single-family homes due to such factors as the investment
character of the underlying asset and regulatory requirements. CMOs backed by
multi-family dwelling mortgages are subject to risks generally not associated
with mortgages on single family homes, including vacancy rates, increases in
operating expenses, regulatory requirements and environmental liability issues.
In addition, such CMOs may have limited marketability.
PRIVATE PASS-THROUGHS -- Pass-Throughs are Mortgage-Backed
Securities that are structured similarly to government agency pass-through
securities such as Ginnie Mae, Fannie Mae and Freddie Mac Certificates, but are
issued by private sector originators of or investors in mortgage loans. Private
Pass-Throughs can represent an interest in any of the variety of types of
mortgage loans that can back an issue of Mortgage-Backed Securities. Since
Private Pass- Throughs typically lack a guarantee by an entity having the credit
status of a governmental agency or instrumentality, they are generally
structured with one or more forms of credit enhancement. All of the Private
Pass-Throughs purchased by the Fund will have been sold in public offerings
registered under the Securities Act of 1933 and will, accordingly, not be
subject to restrictions on resale generally imposed upon privately-placed
securities.
PLANNED AMORTIZATION CLASS -- Planned Amortization Class bonds
("PACs") are a type of CMO tranche or series designed to provide relatively
predictable payments of principal provided that, among other things, the actual
prepayment experience on the underlying mortgage loans falls within a predefined
range. Because of these features, PACs generally are less subject to the risks
of prepayment than are other types of mortgage-backed securities. However, if
the actual prepayment experience on the underlying mortgage loans is at a rate
faster or slower than the predefined range or if deviations from other from
other assumptions occur, principal payments on the PACs may be earlier or later
than predicted.
ADJUSTABLE RATE MORTGAGES -- INTEREST RATE INDICES -- The One
Year Treasury Index is the figure derived from the average weekly quoted yield
on U.S. Treasury Securities adjusted to a constant maturity of one year. The
Cost of Funds Index reflects the monthly weighted average cost of funds of
savings and loan associations and savings banks whose home offices are located
in Arizona, California and Nevada (the "FHLB Eleventh District") that are member
institutions of the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco"), as computed from statistics tabulated and published by the FHLB of
San Francisco. The FHLB of San Francisco normally announces the Cost of Funds
Index on the last working day of the month following the month in which the cost
of funds was incurred.
A number of factors affect the performance of the Cost of
Funds Index and may cause the Cost of Funds Index to move in a manner different
from indices based upon specific interest rates, such as the One Year Treasury
Index. Because of the various origination dates and maturities of the
liabilities of member institutions of the FHLB Eleventh District upon which the
Cost of Funds Index is based, among other things, at any time the Cost of Funds
Index may not reflect the average prevailing market interest rates on new
liabilities of similar maturities. There can be no assurance that the Cost of
Funds Index will necessarily move in the same direction or at the same rate as
prevailing interest rates since as longer term deposits or borrowings mature and
are renewed at market interest rates, the Cost of Funds Index will rise or fall
depending upon the differential between the prior and the new rates on such
deposits and borrowings. In addition, dislocations in the thrift industry in
recent years have caused and may continue to cause the cost of funds of thrift
institutions to change for reasons unrelated to changes in general interest rate
levels. Furthermore, any movement in the Cost of Funds Index as compared to
other indices based upon specific interest rates may be affected by changes
instituted by the FHLB of San Francisco in the method used to calculate the Cost
of Funds Index. To the extent that the Cost of Funds Index may reflect interest
changes on a more delayed basis than other indices, in a period of rising
interest rates, any increase may produce a higher yield later than would be
produced by such other indices, and in a period of declining interest rates, the
Cost of Funds Index may remain higher than other
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market interest rates. This may result in a higher level of principal
prepayments on mortgage loans which adjust in accordance with the Cost of Funds
Index than mortgage loans which adjust in accordance with other indices.
LIBOR, the London interbank offered rate, is the interest rate
that the most creditworthy international banks dealing in U.S.
dollar-denominated deposits and loans charge each other for large
dollar-denominated loans. LIBOR is also usually the base rate for large
dollar-denominated loans in the international market. LIBOR is generally quoted
for loans having rate adjustments at one, three, six or twelve month intervals.
WHEN-ISSUED SECURITIES
Each Portfolio may purchase debt obligations offered on a
"when-issued" or "delayed delivery" basis. When so offered, the price, which is
generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued securities take
place at a later date. Normally, the settlement date occurs within one month of
the purchase of debt obligations; during the period between purchase and
settlement, no payment is made by the purchaser to the issuer and no interest
accrues to the purchaser. To the extent that assets of a Portfolio are not
invested prior to the settlement of a purchase of securities, that Portfolio
will earn no income; however, it is intended that each Portfolio will be fully
invested to the extent practicable and subject to the policies stated above.
While when-issued securities may be sold prior to the settlement date, it is
intended that each Portfolio will purchase such securities with the purpose of
actually acquiring them unless a sale appears desirable for investment reasons.
At the time the Portfolio makes the commitment to purchase a debt obligation on
a when-issued basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The Fund does not believe that the
net asset value or income of the Portfolios' securities portfolios will be
adversely affected by their purchase of debt obligations on a when-issued basis.
Each Portfolio will establish a segregated account in which it will maintain
cash and liquid high grade debt securities equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
REPURCHASE AGREEMENTS
When a Portfolio purchases securities, it may enter into a
repurchase agreement with the seller wherein the seller agrees, at the time of
sale, to repurchase the security at a mutually agreed upon time and price. A
Portfolio may enter into repurchase agreements with member banks of the Federal
Reserve System and with broker-dealers who are recognized as primary dealers in
United States government securities by the Federal Reserve Bank of New York.
Although the securities subject to the repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than 397 days after the Portfolio's acquisition of the securities and normally
would be within a shorter period of time. The resale price will be in excess of
the purchase price, reflecting an agreed upon market rate effective for the
period of time the Portfolio's money will be invested in the security, and will
not be related to the coupon rate of the purchased security. At the time a
Portfolio enters into a repurchase agreement the value of the underlying
security, including accrued interest, will be equal to or exceed the value of
the repurchase agreement, and, in the case of a repurchase agreement exceeding
one day, the seller will agree that the value of the underlying security,
including accrued interest, will at all times be equal to or exceed the value of
the repurchase agreement. Each Portfolio may engage in a repurchase agreement
with respect to any security in which that Portfolio is authorized to invest,
even though the underlying security may mature in more than one year. The
collateral securing the seller's obligation must be of a credit quality at least
equal to the Portfolio's investment criteria for Portfolio securities and will
be held by the Portfolio's Custodian or in the Federal Reserve Book Entry
System.
For purposes of the Investment Company Act of 1940, a
repurchase agreement is deemed to be a loan from a Portfolio to the seller
subject to the repurchase agreement and is therefore subject to that Portfolio's
investment restriction applicable to loans. It is not clear whether a court
would consider the securities purchased by a Portfolio subject to a repurchase
agreement as being owned by that Portfolio or as being collateral for a loan by
that Portfolio to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the securities before
repurchase of the security under a repurchase agreement, a Portfolio may
encounter delay and incur costs before being able to sell the security. Delays
may involve loss of interest or decline in price of the security. If the court
characterized the transaction as a loan and a Portfolio has not perfected a
security interest in the security, that Portfolio may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Portfolio would be at the risk of losing
some or all of the principal and income involved in the transaction. As with any
unsecured debt obligation purchased for a Portfolio, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the
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security, in which case a Portfolio may incur a loss if the proceeds to that
Portfolio of the sale to a third party are less than the repurchase price.
However, if the market value of the securities subject to the repurchase
agreement becomes less than the repurchase price (including interest), the
Portfolio involved will direct the seller of the security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that a
Portfolio will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.
VARIABLE-AMOUNT MASTER DEMAND NOTES
The Bond Fund, Retirement Income Fund and Harvest Fund may
purchase variable amount master demand notes ("VANs"). VANs are debt obligations
that provide for a periodic adjustment in the interest rate paid on the
instrument and permit the holder to demand payment of the unpaid principal
balance plus accrued interest at specified intervals upon a specified number of
days' notice either from the issuer or by drawing on a bank letter of credit, a
guarantee, insurance or other credit facility issued with respect to such
instrument.
The VANs in which the Portfolios may invest are payable on not
more than thirty calendar days' notice either on demand or at specified
intervals not exceeding one year depending upon the terms of the instrument.
Variable rate demand instruments with demand features in excess of 7 days are
considered illiquid. The terms of the instruments provide that interest rates
are adjustable at intervals ranging from daily to up to one year and their
adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. The
Fund will decide which variable rate demand instruments it will purchase in
accordance with procedures prescribed by its Board of Directors to minimize
credit risks.
The VANs that the Portfolios may invest in include
participation certificates purchased by the Portfolios from banks, insurance
companies or other financial institutions in fixed or variable rate, or taxable
debt obligations (VANs) owned by such institutions or affiliated organizations.
A participation certificate gives the Portfolios an undivided interest in the
obligation in the proportion that the Portfolio's participation interest bears
to the total principal amount of the obligation and provides the demand
repurchase feature described below. Where the institution issuing the
participation does not meet the Portfolio's high quality standards, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be a bank issuing a confirming letter of credit, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation or a bank serving as agent of the issuer with
respect to the possible repurchase of the issue) or insurance policy of an
insurance company that the Board of Directors of the Fund has determined meets
the prescribed quality standards for the Portfolio. [The Portfolio has the right
to sell the participation certificate back to the institution and, where
applicable, draw on the letter of credit, guarantee or insurance after no more
than 30 days' notice either on demand or at specified intervals not exceeding
397 days (depending on the terms of the participation), for all or any part of
the full principal amount of the Portfolio's participation interest in the
security, plus accrued interest.] The Portfolios intend to exercise the demand
only (1) upon a default under the terms of the bond documents, (2) as needed to
provide liquidity to the Portfolio in order to make redemptions of the Portfolio
shares, or (3) to maintain a high quality investment portfolio. The institutions
issuing the participation certificates will retain a service and letter of
credit fee (where applicable) and a fee for providing the demand repurchase
feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the participations were purchased
by the Portfolio. The total fees generally range from 5% to 15% of the
applicable prime rate* or other interest rate index. With respect to insurance,
the Portfolios will attempt to have the issuer of the participation certificate
bear the cost of the insurance, although the Portfolios retain the option to
purchase insurance if necessary, in which case the cost of insurance will be an
expense of the Portfolio subject to the expense limitation on investment company
expenses prescribed by any state in which the Portfolio's shares are qualified
for sale. The Adviser has been instructed by the Fund's Board of Directors to
continually monitor the pricing, quality and liquidity of the variable rate
demand instruments held by the Portfolio, including the participation
certificates, on the basis of published financial information and reports of the
rating agencies and other bank analytical services to which the Portfolio may
subscribe. Although these instruments may be sold by the Portfolio, the
Portfolio intends to hold them until maturity, except under the circumstances
stated above.
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* The "prime rate" is generally the rate charged by a bank to its most
creditworthy customers for short term loans. The prime rate of a
particular bank may differ from other banks and will be the rate
announced by each bank on a particular day. Changes in the prime rate
may occur with great frequency and generally become effective on the
date announced.
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While the value of the underlying variable rate demand
instruments may change with changes in interest rates generally, the variable
rate nature of the underlying variable rate demand instruments should minimize
changes in value of the instruments. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation and the risk of potential
capital depreciation is less than would be the case with a portfolio of fixed
income securities. The Portfolios may contain VANs on which stated minimum or
maximum rates, or maximum rates set by state law limit the degree to which
interest on such VANs may fluctuate; to the extent it does, increases or
decreases in value may be somewhat greater than would be the case without such
limits. In the event that interest rates increased so that the variable rate
exceeded the fixed-rate on the obligations, the obligations could no longer be
valued at par and this may cause the Portfolios to take corrective action,
including the elimination of the instruments. Because the adjustment of interest
rates on the VANs is made in relation to movements of the applicable banks'
"prime rate", or other interest rate adjustment index, the VANs are not
comparable to long-term fixed-rate securities. Accordingly, interest rates on
the VANs may be higher or lower than current market rates for fixed-rate
obligations or obligations of comparable quality with similar maturities.
For purposes of determining whether a VAN held by a Portfolio
matures within 397 days from the date of its acquisition, the maturity of the
instrument will be deemed to be the longer of (1) the period required before the
Portfolio is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment. If a variable rate demand instrument ceases to meet the investment
criteria of the Portfolio, it will be sold in the market or through exercise of
the repurchase demand.
BANK OBLIGATIONS, CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
All the Portfolios, except the Equity Fund, may purchase
certificates of deposit, bankers' acceptances and other obligations issued or
guaranteed by domestic banks subject to regulation by the U.S. Government or its
agencies (such as the Federal Reserve Board, the Comptroller of the Currency, or
the FDIC) and having total assets of over $10 billion. Domestic banks organized
under Federal law are supervised and examined by the Comptroller of the Currency
and are required to be members of the Federal Reserve System and to be insured
by the Federal Deposit Insurance Corporation ("FDIC"). Domestic banks organized
under state law are supervised and examined by state banking authorities; In
addition, state banks whose certificates of deposit may be purchased by the Fund
are insured and are subject to Federal examination and to a substantial body of
Federal law and regulation. At the time the Portfolios invest in any certificate
of deposit, bankers' acceptance or other bank obligation, the issuer must have
its debt rated within the quality standards of the Portfolio or if unrated be of
comparable quality as determined by the Fund's Board of Directors.
FOREIGN SECURITIES
The Retirement Income Fund may invest in certain foreign
securities. Investment in obligations of foreign issuers and in direct
obligations of foreign nations involves somewhat different investment risks from
those affecting obligations of United States domestic issuers. There may be
limited publicly available information with respect to foreign issuers and
foreign issuers are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to domestic
companies. There may also be less government supervision and regulation of
foreign securities exchanges, brokers and listed companies than in the United
States. Foreign securities markets have substantially less volume than domestic
securities exchanges and securities of some foreign companies are less liquid
and more volatile than securities of comparable domestic companies. Brokerage
commissions and other transaction costs on foreign securities exchanges are
generally higher than in the United States. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes, which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Portfolio by domestic companies. Additional risks include
future political and economic developments, the possibility that a foreign
jurisdiction might impose or change withholding taxes on income payable with
respect to foreign securities, the possible seizure, nationalization or
expropriation of the foreign issuer or foreign deposits and the possible
adoption of foreign governmental restrictions such as exchange controls.
HEDGING INSTRUMENTS
The Equity Fund may write covered call options on optionable
securities or stock indices of the types in which it is permitted to invest from
time to time as the Investment Adviser determines is appropriate in seeking to
attain its objective. Call options written by a Fund gives the holder the right
to buy the underlying securities or index from the Fund at a stated exercise
price. Options on stock indices are settled in cash.
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The Equity Fund may write only covered call options, which
means that, so long as a Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the options (or comparable
securities or cash satisfying the cover requirements of securities exchanges).
The Equity Fund will receive a premium for writing a covered
call option, which increases the return of the Fund in the event the option
expires unexercised or is closed out of a profit. The amount of the premium will
reflect, among other things, the relationship of the market price of the
underlying security or index to the exercise price of the option, the term of
the option and the volatility of the market price of the underlying security or
index. By writing a covered call option, the Fund limits its opportunity to
profit from any increase in the market price value of the underlying security or
index above the exercise price of the option.
The Equity Fund may terminate an option that they have written
prior to the option's expiration by entering into a closing purchase transaction
in which an option is purchased having the same terms as the option written. The
Fund will realize a profit of loss from such transaction if the cost of such
transaction is less or more than the premium received from the writing of the
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security or index, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by realized appreciation of the underlying security (or
securities) owned by the Equity Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment
restrictions which apply to each Portfolio and which may not be changed unless
approved by a majority of the outstanding shares of the Portfolio that would be
affected by such a change. The Portfolios may not:
(1) Make portfolio investments other than as described under
"Investments Objectives, Policies and Restrictions" or any other form of
investment, where applicable, which meets the Portfolio's quality criteria, as
determined by the Board of Directors and which is consistent with the
Portfolio's objectives and policies.
(2) Borrow Money. This restriction shall not apply to
borrowing from banks for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests that might otherwise require the
untimely disposition of securities, in an amount up to 15% of the value of the
Portfolio's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing was
made. While borrowings exceed 5% of the value of a Portfolio's total assets,
such Portfolio will not make any investments. Interest paid on borrowings will
reduce net income.
(3) Pledged, hypothecate, mortgage or otherwise encumber its
assets, except in an amount up to 15% of the value of its total assets and only
to secure borrowings for temporary or emergency purposes.
(4) Sell securities short or purchase securities on margin, or
engage in the purchase and sale of put, call, straddle or spread options or in
writing such options, except to the extent that securities subject to a demand
obligation and stand-by commitments may be purchased as set forth under
"Investment Objectives, Policies and Risks."
(5) Underwrite the securities of other issuers, except insofar
as the Portfolio may be deemed an underwriter under the Securities Act of 1933
in disposing of a portfolio security.
(6) The Fund may not purchase securities subject to
restrictions on disposition under the Securities Act of 1933 ("restricted
securities"). The Fund may not invest more than an aggregate of 15% of their net
assets in a repurchase agreement maturing in more than seven days, variable rate
demand instruments exercisable in more than seven days and securities that are
not readily marketable. The Fund may however, purchase variable rate demand
instruments consistent with the Portfolio's objectives, which contain a demand
feature.
(7) Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests, but
this shall not prevent the Portfolio from investing in Government obligations
secured by real estate or interests in real estate.
-9-
<PAGE>
(8) Make loans to others, except through the purchase of
portfolio investments, including repurchase agreements, as described under
"Investment Objectives, Policies and Risks."
(9) Purchase more than 10% of all outstanding voting
securities of any one issuer or invest in companies for the purpose of
exercising control.
(10) Invest more than 25% of its assets in the securities of
"issuers" in any single industry, provided that, (i) there shall be no
limitation on the Fund to purchase obligations issued or guaranteed by the
United States government, its agencies or instrumentalities. When the assets and
revenues of an agency, authority, instrumentality or other political subdivision
are separate from those of the government creating the issuing entity and a
security is backed only by the assets and revenues of the entity, the entity
would be deemed to be the sole issuer of the security. Similarly, in the case of
an industrial revenue bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government guarantees a security, such a guarantee would be considered a
separate security and would be treated as an issue of such government.
(11) Invest in securities of other investment companies, except
(i) the Portfolios may purchase unit investment trust securities where such unit
investment trusts meet the investment objectives of the Portfolios and then only
up to 5% of the Portfolios' net assets, except as they may be acquired as part
of a merger, consolidation or acquisition of assets and (ii) as permitted by
Section 12(d) of the Act.
(12 Issue senior securities except insofar as the Fund may be
deemed to have issued a senior security in connection with any permitted
borrowing.
PERCENTAGE RESTRICTIONS
Any investment restrictions herein which involve a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after, and is caused by, an
acquisition or encumbrance of securities or assets of, or borrowings by, the
Portfolio.
MANAGEMENT OF THE FUND
The directors and officers of the Fund and their principal
occupations during the past five years are set forth below. Their titles may
have varied during this period. Asterisks indicate that those directors are
"interested persons" (as defined in the Investment Company Act of 1940) of the
Fund. Unless otherwise indicated, the address of each director and officer is
656 East Swedesford Road, Suite 322, Wayne, Pennsylvania 19087.
-10-
<PAGE>
OFFICERS AND DIRECTORS OF THE FUND
*CLAY B. MANSFIELD Mr. Mansfield is co-founder, Chairman of the Board
Benson White & Company and Treasurer of the Benson White & Company Fund,
656 East Swedesford Road and Chief Investment Officer of Benson White &
Suite 322 Company, the Fund's investment adviser (the
Wayne, PA 19087 "Adviser") since June 1994. From June 1992 through
(46) May 1994, Mr. Mansfield was the principal of
Mansfield Investment Advisors. Prior to his
involvement with the Adviser, Mr. Mansfield served
as the Executive Secretary of the Pennsylvania
School District Liquid Asset Fund from March 1990
through May 1992, which has approximately $2
billion of short term assets invested on behalf of
Pennsylvania school districts. He also served as
the Chief Investment Officer of the multi-billion
dollar Pennsylvania Public School Employees'
Retirement System, where he managed an improvement
in the funded ratio from approximately 49% to 71%,
without changing the actuarial assumptions. Mr.
Mansfield was responsible for the direct management
of over $1 billion in assets, and supervised
numerous asset managers of over $16 billion in
equities, fixed income, real estate, and venture
capital.
*TIMOTHY W. CUNNINGHAM Mr. Cunningham is Director, President and Secretary
Benson White & Company of the Fund, and co- founder of the Adviser since
656 East Swedesford Road June 1994. Previously, he managed Springhouse
Suite 322 Associates, Inc., a specialty pension fund
Wayne, PA 19087 consulting company, that provided advisory services
(43) concerning some $550 million of pension fund
assets. From May 1989 through May 1994, Mr.
Cunningham served as president for Springhouse
Associates, Inc.
FREDERIK FAZER Mr. Fazer is a Director of the Fund. He also is
Oy Investa AB Managing Director of Oy Investa Ab, a Finland-based
Bulevardi 7 financial services and investment company since
00120 Helsinki, Finland April 1989.
(49)
THOMAS FLANIGAN Mr. Flanigan is a Director of the Fund. He also is
California State Teachers' the Chief Investment Officer for the $48.5 billion
Retirement System California State Teacher's Retirement System since
Investment Office June 1986.
7667 Folsom Blvd.
Sacramento, CA 95821
(48)
ROBERT STRANIERE Mr. Straniere is a Director of the Fund. He also is
The Straniere Law Firm a legislator in the New York State legislature
88 New Dorp Plaza since 1981.
New York, NY 10306
(53)
JOAN V. FIORE Ms. Fiore is Assistant Secretary of the Fund. She
Furman Selz LLC is also a Managing Director and Counsel to the
230 Park Avenue Administrator since 1991. Prior to joining the
New York, NY 10169 Administrator she was an Attorney at the U.S.
(39) Securities and Exchange Commission, Division of
Investment Management, from 1986 to 1991.
- -------------------
* "Interested person" of the Fund, as defined in the Investment Company
Act.
-11-
<PAGE>
SHERYL HIRSCHFELD Ms. Hirschfeld is Assistant Secretary of the Fund.
Furman Selz LLC She is also a Director of the Administrator since
230 Park Avenue 1994. Prior to joining the Administrator, she was
New York, NY 10169 an employee of the Dreyfus Corporation from 1982 to
(35) 1994.
JOHN J. PILEGGI Mr. Pileggi is Assistant Treasurer to the Fund. He
Furman Selz LLC is also a Senior Managing Director of the
230 Park Avenue Administrator since 1992. Prior to that, he was a
New York, NY 10169 Managing Director of the Administrator.
(37)
GORDON M. FORRESTER Mr. Forrester is Assistant Treasurer to the Fund.
Furman Selz LLC He is also a Managing Director of the Administrator
230 Park Avenue since 1995. Prior to that, he was an Associate
New York, NY 10169 Director of the Administrator.
(35)
COMPENSATION TABLE
(For the year ended December 31, 1995)
<TABLE>
<CAPTION>
========================================================================================================================
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Fund and
Name of Person Position Compensation from Accrued as Part of Benefits upon Fund Complex
Fund Fund Expenses Retirement Paid To Directors
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLAY MANSFIELD None None None None
Director
- ------------------------------------------------------------------------------------------------------------------------
TIMOTHY CUNNINGHAM None None None None
Director
- ------------------------------------------------------------------------------------------------------------------------
FREDERIK FAZER $1,000 None None $1,000
Director
- ------------------------------------------------------------------------------------------------------------------------
THOMAS FLANIGAN $1,000 None None $1,000
Director
- ------------------------------------------------------------------------------------------------------------------------
ROBERT STRANIERE $1,000 None None $1,000
Director
========================================================================================================================
</TABLE>
Each Director who is not an interested person of the Fund
receives a base annual fee of $4,000 which is paid by the Fund.
INVESTMENT ADVISER
Benson White & Company, a registered investment adviser, is a
Delaware corporation founded by Clay B. Mansfield and Timothy W. Cunningham,
with offices located at 656 East Swedesford Road, Suite 322, Wayne, Pennsylvania
19087. Benson White & Company has been employed by the Board of Directors as the
investment adviser (the "Adviser") for each Portfolio of the Fund pursuant to an
Investment Advisory Agreement entered into by the Fund on behalf of each
Portfolio. The Adviser supervises all aspects of the Fund's operations and
provides investment advice and portfolio management services to the Fund.
Pursuant to the Advisory Agreements and subject to the supervision of the Fund's
Board of Directors, the Adviser makes the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments.
The Adviser provides persons satisfactory to the Board of
Directors of the Fund to serve as officers of the Fund. Such officers, as well
as certain other employees and directors of the Fund, may be directors, officers
or employees of the Adviser or its affiliates.
-12-
<PAGE>
The Adviser also provides the Fund with supervisory personnel
who will be responsible for supervising the performance of administrative
services, accounting and related services, net asset value and yield
calculation, reports to and filings with regulatory authorities, and services
relating to such functions. However, the Administrator will provide personnel
who will be responsible for performing the operational components of such
services. The personnel rendering such supervisory services may be employees of
the Adviser, of its affiliates or of other organizations. The Advisory
Agreements for each Portfolio were most recently approved, on July 31, 1995 by
the Board of Directors, including a majority of the directors who are not
interested persons (as defined in the Investment Company Act of 1940) of the
Fund or the Adviser.
The Advisory Agreements have a term which extends to July 31,
1997, and may be continued in force thereafter for successive twelve-month
periods beginning each August 1, provided that such continuance is specifically
approved annually by majority vote of the respective Portfolio's outstanding
voting securities or by the Fund's Board of Directors, and in either case by a
majority of the directors who are not parties to the Advisory Agreement or
interested persons of any such party, by votes cast in person at a meeting
called for the purpose of voting on such matter.
The Advisory Agreements are terminable without penalty by the
Portfolio on sixty days' written notice when authorized either by majority vote
of the outstanding voting shares of the Portfolio or by a vote of a majority of
the Fund's Board of Directors, or by the Adviser on sixty days' written notice,
and will automatically terminate in the event of an assignment. The Advisory
Agreements provide that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Adviser, or of reckless disregard of its
obligations thereunder, the Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.
ADVISER'S FEES
Pursuant to the terms of the Advisory Agreements, each
Portfolio will pay monthly advisory fees equal to 0.75% of such Portfolio's
average daily net asset per annum. This fee is higher than the fee paid by most
other mutual funds because of the provision of the individualized asset
allocation, risk management and reporting services offered through the Life
Cycle Program. Such other services include individualized age-based annual asset
allocation, the application of hurdle rate risk management, and preparation and
annual dissemination of an individualized Life Cycle Program participant account
statement. Any portion of the advisory fees received by the Adviser may be used
by the Adviser to provide investor and administrative services and for
distribution of Fund shares. The Adviser reserves the right to assess an
administrative account charge in connection with the Life Cycle Program
participants. The Adviser may voluntarily waive a portion of its fee or assume
certain expenses of any Portfolio of the Fund. This would have the effect of
lowering the overall expense ratio of the Portfolio and of increasing yield to
investors in that Portfolio. See "Expense Limitation" below.
EXPENSE LIMITATION
The Adviser has agreed to reimburse each Portfolio for its
expenses (exclusive of interest, taxes, brokerage, and extraordinary expenses)
which in any year exceed the limits on investment company expenses prescribed by
any state in which the Portfolio's shares are qualified for sale. For the
purpose of this obligation to reimburse expenses, the Portfolio's annual
expenses are estimated and accrued daily, and any appropriate estimated payments
are made to it on a monthly basis. From time to time, the Adviser may
voluntarily assume certain expenses of any Portfolio of the Fund. This would
have the effect of lowering the overall expense ratio of that Portfolio and of
increasing yield to investors in that Portfolio. Subject to the obligations of
the Adviser to reimburse a Portfolio for its excess expenses as described above,
the Portfolios have, under the respective Advisory Agreements, confirmed their
obligation for payment of all their other expenses, including without
limitation: fees payable to the Adviser, Administrator, Custodian, Transfer
Agent and Dividend Agent; brokerage and commission expenses; federal, state or
local taxes, including issuance and transfer taxes incurred by or levied on
them; commitment fees, certain insurance premiums and membership fees and dues
in investment company organizations; interest charges on borrowings;
telecommunications expenses; recurring and non-recurring legal and accounting
expenses; costs of organizing and maintaining the Fund's existence as a
corporation; compensation, including directors' fees, of any directors, officers
or employees who are not also officers of the Adviser or its affiliates and
costs of other personnel providing administrative and clerical services; costs
of stockholders' services and costs of stockholders' reports, proxy
solicitations, and corporate meetings; fees and expenses of registering their
shares under the appropriate Federal securities laws and of qualifying their
shares under applicable state securities laws, including expenses attendant upon
the initial registration and qualification of these shares and attendant upon
renewals of, or amendments to, those registrations and qualifications; and
expenses of preparing, printing and delivering the Prospectus to existing
shareholders and of printing shareholder application forms for shareholder
accounts.
-13-
<PAGE>
The Fund may from time to time hire its own employees or
contract to have management services performed by third parties, and the
management of the Fund intends to do so whenever it appears advantageous to the
Fund. The Fund's expenses for employees and for such services are among the
expenses subject to the expense limitation described above.
ADMINISTRATOR
The Administrator for the Fund is Furman Selz LLC (the
"Administrator"), which has its principal office at 230 Park Avenue, New York,
New York 10169, and is primarily an institutional brokerage firm with membership
on the New York, American, Boston, Midwest, Pacific and Philadelphia Stock
Exchanges.
The Administrator serves as a investment adviser to numerous
individual and institutional accounts. The Administrator also serves as
administrator and distributor of other mutual funds. The Portfolios may invest
in these funds or in any other fund which may in the future be affiliated with
the Administrator or any of its affiliates.
Pursuant to an Administrative Services Agreement with the
Fund, on behalf of each of the Portfolios, the Administrator provides all
administrative services necessary for the Fund, other than those provided by the
Adviser, subject to the supervision of the Fund's Board of Directors. The
Adviser and the Administrator will provide persons to serve as officers of the
Fund. Such officers may be directors, officers or employees of the Adviser or
the Administrator or their affiliates.
Each of the Advisory Agreements and the Administrative
Services Agreement is terminable by the Board of Directors of the Fund or the
Adviser or the Administrator, respectively, on sixty days' written notice and
terminate automatically in the event of an "assignment" as defined by the 1940
Act. Each Agreement shall remain in effect for two years from the date of its
initial approval, and subject to annual approval of the Fund's Board of
Directors for one-year periods thereafter. Each Agreement provides that in the
absence of willful misfeasance, bad faith or gross negligence on the part of the
Adviser or the Administrator, respectively, or reckless disregard of its
obligations thereunder, the Adviser or the Administrator shall not be liable for
any action or failure to act in accordance with its duties thereunder.
Under the Administrative Services Agreement with each
Portfolio, the Administrator provides all administrative services, including,
without limitation: (i) provides services of persons competent to perform such
administrative and clerical functions as are necessary to provide effective
administration of the Fund, including maintaining certain books and records
described in Rule 31a-1 under the 1940 Act, and reconciling account information
and balances among the Fund's Custodian and Adviser; (ii) oversees the
performance of administrative and professional services to the Fund by others,
including the Fund's Custodian; (iii) prepares, but does not pay for, the
periodic updating of the Fund's Registration Statement, Prospectus and Statement
of Additional Information in conjunction with Fund counsel, including the
printing of such documents for the purpose of filings with the Securities and
Exchange Commission and state securities administrators, prepares the Fund's tax
returns, and prepares reports to the Fund's shareholders and the Securities and
Exchange Commission; (iv) prepares in conjunction with Fund counsel, but does
not pay for, all filings under the securities or "Blue Sky" laws of such states
or countries as are designated by the Distributor, which may be required to
register or qualify, or continue the registration or qualification, of the Fund
and/or its shares under such laws; (v) prepares notices and agendas for meetings
of the Fund's Board of Directors and minutes of such meetings in all matters
required by the 1940 Act to be acted upon by the Board; (vi) monitors daily and
periodic compliance with respect to all requirements and restrictions of the
Investment Company Act, the Internal Revenue Code and the Prospectus; and (vii)
monitors and evaluates daily income and expense accruals, and sales and
redemptions of shares of the Portfolios.
The Administrator also provides the Fund with all accounting
services, including (i) daily computation of net asset value for each Portfolio;
(ii) maintenance of security ledgers and books and records as required by the
Investment Company Act; (iii) production of the Portfolio and general ledger
reports; (iv) reconciliation of accounting records; and (v) calculation of yield
and average maturity for each Portfolio.
The Administrative Services Agreements are terminable at any
time, without the payment of any penalty, by a vote of the majority of the
relevant Portfolio's shareholders, by the Fund on behalf of the Portfolio or the
Administrator on sixty days' written notice and automatically in the event of an
"assignment" as defined by the 1940 Act. The Administrative Services Agreements
shall remain in effect for the same periods as the Advisory Agreements subject
to annual approval by the Fund's Board of Directors. The Administrative Services
Agreements provide that in
-14-
<PAGE>
the absence of willful misfeasance, bad faith or gross negligence on the part of
the Administrator, or reckless disregard of its obligations thereunder, the
Administrator shall not be liable for any action or failure to act in accordance
with its duties thereunder.
ADMINISTRATOR'S FEES
For the services rendered to the Fund by the Administrator,
the Fund pays the Administrator an annual fee paid monthly equal to 0.20% of the
Fund's aggregate average daily net assets up to $100 million, 0.15% of the
Fund's aggregate average daily net assets between $100 and $400 million, and
0.10% of the Fund's aggregate average daily net assets over $500 million.
In return for providing the Fund with all accounting related
services, the Fund pays the Administrator $30,000 per year plus out-of-pocket
expenses for such services.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
The Bank of New York serves as custodian for each Portfolio's
cash and securities. Pursuant to a Custodian Agreement with the Fund, it is
responsible for maintaining the books and records of the Fund's portfolio
securities and cash. The Custodian does not assist in, and is not responsible
for, investment decisions involving assets of the Fund. Furman Selz
Incorporated, the Fund's Administrator, also acts as each Portfolio's transfer
and dividend agent.
TAXES
The Fund has qualified and intends to continue to qualify
under the Internal Revenue Code of 1986, as amended ("Code"), as a regulated
investment company. As a regulated investment company, the Fund is not subject
to federal income taxes on its investment company taxable income and its
long-term capital gains that it distributes to its shareholders, provided that
at least 90% of its investment company taxable income and at least 90% of its
tax exempt net interest income for the taxable year is distributed and numerous
other requirements concerning regulated investment companies are satisfied. The
Fund's policy is to distribute as dividends each year 100% (and in no event less
than 90%) of its investment company taxable income and tax exempt net interest
income. Each Portfolio will be treated as a separate corporation and generally
will have to comply with the qualifications and other requirements applicable to
regulated investment companies without regard to other Portfolios. If for any
taxable year a Portfolio does not qualify as a regulated investment company, all
of its taxable income would be taxable at corporate rates and no distributions
would qualify as tax exempt.
The Fund has adopted a policy of declaring dividends monthly,
except for the Equity Fund which declares dividends quarterly, in an amount
based on its net investment income. The amount of each dividend may differ from
actual net investment income calculated in accordance with federal income tax
principles. Dividend distributions will be made on the twentieth day of each
month. Dividends paid from taxable income, if any, and distributions of any
realized short term capital gains (whether from tax exempt or taxable
obligations) are taxable to shareholders as ordinary income, whether received in
cash or reinvested in additional shares of the Fund. Distributions of net
realized capital gains after utilization of capital loss carryforwards, if any,
are made annually to meet applicable distribution and excise tax requirements.
Distributions paid by the Portfolios may result in a liability (or increased
liability) under the alternative minimum tax.
The Fund may be subject to state or local tax in jurisdictions
in which the Fund is organized or may be deemed to be doing business. However,
Maryland taxes regulated investment companies in a manner that is generally
similar to the federal income tax rules described herein.
Distributions may be subject to state and local income taxes.
In addition, the treatment of the Fund and its shareholders in those states that
have income tax laws might differ from their treatment under the federal income
tax laws. Some states exempt from state personal income tax distributions
received from the Fund only to the extent such distributions are derived from
interest on obligations issued by such state or its municipalities or political
subdivisions. Shareholders should consult with their own tax advisors with
respect to any state or local taxes. In addition, shareholders should review
with their tax advisors the state and local income tax consequences of the
Fund's investing in
-15-
<PAGE>
certain investments issued by agencies and instrumentalities of the U.S.
Government and in repurchase and reverse repurchase agreements and of the Fund's
engaging in securities loans.
If the Fund acquires debt instruments that were originally
issued at a discount, e.g., zero coupon bonds, it will be required to include
annually in gross income or, in the case of tax-exempt instruments issued at a
discount, in tax-exempt income, a portion of the "original issue discount" that
accrues over the term of the obligation regardless of whether the income is
received by the Fund, and to make distributions accordingly. To insure that the
Fund has sufficient cash to meet this distribution requirement, the Fund may
borrow funds on a short-term basis or sell certain investments. Since a
substantial percentage of the Fund's dividends are expected to be reinvested and
dividends that are declared and automatically reinvested satisfy the
distribution requirement, the Fund expects to satisfy the distribution
requirement even if it owns obligations with original issue discount.
Shareholders will realize taxable income on the automatic reinvestment of
dividends that are attributable to original issue discount on taxable
obligations.
The Code imposes a nondeductible 4% excise tax on a Portfolio
unless it meets certain requirements with respect to distributions of ordinary
income and capital gain net income. The formula requires payment to shareholders
during a calendar year of distributions representing at least 98% of each
Portfolio's ordinary income for the calendar year, plus at least 98% of the
excess of its capital gains over its capital losses realized during the one-year
period ending October 31 during such year, which shall be reduced (but not below
net capital gain) by the amount of the Portfolio's net ordinary loss for the
year. It is anticipated that this provision will not have any material impact on
any Portfolio.
Dividends and interest paid by foreign issuers may be subject
to withholding and other foreign taxes, which may decrease the net return on
foreign investments as compared to dividends and interest paid by domestic
issuers. The Fund does not expect that any Portfolio will qualify to elect to
pass through to its shareholders the right to take a foreign tax credit for
foreign taxes withheld from dividends and interest payments.
For federal income tax purposes, distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
loss), if any, are taxable as net capital gains regardless of the length of time
shareholders have owned their shares. Although the Tax Reform Act of 1986
eliminated the preferential treatment previously available for net capital
gains, the preferential treatment for net capital gains was restored, to some
extent, by the Revenue Reconciliation Act of 1990, which, in limited
circumstances, places a 28% ceiling on the marginal rate applicable to net
capital gains realized by individuals. Distributions attributable to short-term
capital gains (whether from tax exempt or taxable obligations) are taxable as
ordinary income for federal income tax purposes. Generally, on the sale or
exchange of obligations held for more than one year, gain realized by a
Portfolio that is not attributable to original issue discount or certain market
discount will be long-term capital gain. Such capital gain, if any, will be
distributed as capital gain dividends. Gain on the disposition of a tax-exempt
bond purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market discount.
Capital gain dividends, designated as such in a written notice to investors
mailed not later than 60 days after a Portfolio taxable year closes, will be
taxed as long-term capital gain. However, if an investor receives a capital gain
dividend and sells shares after holding them for six months or less (not
including periods during which the shareholder holds an offsetting position),
then any loss realized on the sale will be treated as long-term capital loss to
the extent of such capital gain dividend. If any net capital gains are retained
by a Portfolio for reinvestment, requiring federal income taxes to be paid
thereon by such Portfolio, the Portfolio will elect to treat such capital gains
as having been distributed to shareholders. As a result, shareholders will
report such capital gains as net capital gains, will be able to claim their
share of federal income taxes paid by the Portfolio on such gains as a credit
against their own federal income tax liability, and will be entitled to increase
the adjusted tax basis of their Portfolio shares by 65% of their share of the
undistributed gain. Distributions of net capital gains are not eligible for the
dividends received deduction.
All taxable dividends from investment company taxable income
are taxable as ordinary income. It is not expected that any income distributions
from the Portfolios will qualify for the dividends received deduction for
corporations.
Distributions of investment company taxable income and net
realized capital gains will be taxable as described above, whether received in
shares or in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the value of a share on the reinvestment date.
-16-
<PAGE>
Redemptions of shares, including exchanges for shares of
another Portfolio, may result in tax consequences (gain or loss) to shareholders
and are also subject to reporting requirements.
The Tax Reform Act of 1986 contained a provision limiting
miscellaneous itemized deductions for individuals and certain other
shareholders, such as estates and trusts, to the extent such miscellaneous
itemized deductions do not exceed 2% of adjusted gross income for a taxable
year. However, the Revenue Reconciliation Act of 1989 provided an exemption from
the limitation for publicly-offered regulated investment companies.
Interest incurred or continued to purchase shares of the other
Portfolios is generally treated as investment interest, and in the case of
non-corporate taxpayers is deductible only to the extent of net investment
income. Under rules used by the Internal Revenue Service to determine when
borrowed funds are used for the purpose of purchasing or carrying particular
assets, the purchase of shares may be considered to have been made with borrowed
funds even though the borrowed funds are not directly traceable to the purchase
of shares.
Under the federal income tax law, the Portfolios will be
required to report to the Internal Revenue Service all distributions of taxable
income and capital gains as well as gross proceeds from the redemption or
exchange of Portfolio shares, except in the case of exempt shareholders, which
include most corporations. Under the backup withholding provisions of Section
3406 of the Code, distributions of taxable income and capital gains and proceeds
from the redemption or exchange of the shares of a regulated investment company
may be subject to withholding of federal income tax at the rate of 31% in the
case of non-exempt shareholders who fail to furnish the investment company with
their taxpayer identification numbers and their required certifications
regarding their status under the federal income tax law. If the withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld. Corporate shareholders should provide the Portfolios with their
taxpayer identification numbers and certify their exempt status in order to
avoid possible erroneous application of backup withholding.
The foregoing discussion of U.S. federal income tax law
relates solely to the application of that law to U.S. persons, i.e., U.S.
citizens and residents and U.S. domestic corporations, partnerships, trusts and
estates. Each shareholder who is not a U.S. person should consider the U.S. and
foreign tax consequences of ownership of shares of a Portfolio, including the
possibility that such a shareholder may be subject to a U.S. withholding tax at
a rate of 30% (or at a lower rate under an applicable income tax treaty) on
amounts constituting ordinary income received by such person, where such amounts
are treated as income from U.S. sources under the Code.
The federal, state and local income tax rules that apply to
the Fund and its shareholders have changed extensively in recent years, and
investors should recognize that additional changes may be made in the future,
some of which could have an adverse affect on the Fund and its investors for
federal and/or state and local tax purposes. Shareholders should consult their
tax advisors about the application of the provisions of tax law described in
this statement of additional information in light of their particular federal
and state tax situations.
PURCHASE, REDEMPTION AND EXCHANGE
Life Cycle Mutual Funds Distributors, Inc., an affiliate of
the Administrator, serves as the exclusive distributor of the shares of each
Portfolio pursuant to its Distribution Agreement with the Fund. Investors may
open accounts in the Portfolios in the Fund only through the exclusive
Distributor for the Fund. Under the Distribution Agreement, the Distributor, for
nominal consideration and as agent for the Fund, will solicit orders for the
purchase of Fund shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal. The material
relating to the purchase, redemption and exchange of Portfolio shares in the
Prospectus is incorporated herein by reference and investors should refer to the
Prospectus for information relating to these areas.
DIVIDENDS AND DISTRIBUTIONS
Net investment income is declared as dividends and paid
monthly, except for the Equity Fund, which declares and pays dividends
quarterly; if an investor's shares are redeemed during a month or quarter,
depending on the Portfolio, accrued but unpaid dividends are paid with the
redemption proceeds. Substantially all the realized net capital
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gains for the Portfolios, if any, are declared and paid on an annual basis.
Dividends are payable to shareholders of record at the time of declaration.
Dividends of each Portfolio are automatically reinvested in
additional Portfolio shares unless the shareholder has elected to have them paid
in cash.
The net investment income of the Fund for each business day is
determined immediately prior to the determination of net asset value. Net
investment income for other days is determined at the time net asset value is
determined on the prior business day. See "Purchase of Shares" and "Redemption
of Shares" in the Prospectus.
NET ASSET VALUE
Net asset value per share for each of the Portfolios is
determined by subtracting from the value of the Portfolio's total assets the
amount of its liabilities and dividing the remainder by the number of its
outstanding shares. The value of each security for which readily available
market quotations exist is based on a decision as to the broadest and most
representative market for the security; the value is based either on the last
sale price on a national securities exchange, or, in the absence of recorded
sales, at the readily available closing bid price on such exchanges, or at the
quoted bid price in the over-the-counter market. Assets for which market
quotations are not readily available are valued in accordance with procedures
established by the Fund's Board of Directors, including use of an independent
pricing service or services which use prices based on yields or prices of
comparable Government obligations, indications as to values from dealers and
general market conditions.
Each of the Portfolios computes its net asset value once daily
on Monday through Friday, except that the net asset value is not computed for a
Portfolio on the holidays listed herein. The Fund does not determine net asset
value per share on the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The Portfolios compute net asset value at 4:00 p.m. New York
Time. The days on which a Fund's net asset value is determined are its business
days.
COMPUTATION OF YIELD
All the Portfolios compute yield based on a 30-day (or one
month) period ended on the date of the most recent balance sheet included in the
registration statement, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period, according to the following formula:
YIELD = 6
2 [ ( a-b + 1) - 1 ]
----
cd
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 dividends.
d = the maximum offering price per share on the last day
of the period.
For the 30 day period ended January 31, 1996, the annualized
yields for the Bond Fund, the Retirement Income Fund and the Harvest Fund were
2.86%, 3.04% and 2.51%, respectively.
Future yields will depend on the type, quality, and maturities
of the investments held by the Portfolios, changes in interest rates on
investments, and the Portfolios' expenses during the period.
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COMPUTATION OF TOTAL RETURN
The total return must be displayed in any advertisement
containing the yield of any of these Portfolios. Total return is the average
annual total return for the 1-, 5- and 10-year period ended on the date of the
most recent balance sheet included in the Statement of Additional Information,
computed by finding the average annual compounded rates of return over 1-, 5-
and 10-year periods that would equate the initial amount invested to the ending
redeemable value according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000
payment made at the beginning of the 1-, 5- or
10-year periods at the end of the 1-, 5- or 10-year
periods (or fractions thereof).
Because the Portfolios have not had a registration in effect for 1, 5 or 10
years the period during which the registration has been effective shall be
substituted.
For the period from September 11, 1995 (commencement of
operations) through January 31, 1996, the total returns for the Bond Fund, the
Retirement Income Fund, the Harvest Fund and the Equity Fund were 1.37%, 1.59%,
0.85% and 6.65%, respectively.
Yield information may be useful for reviewing the performance
of the Portfolio and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which pay a
fixed yield for a stated period of time, the Portfolios' yield does fluctuate,
and this should be considered when reviewing performance or making comparisons.
From time to time evaluations of performance of the Portfolios
made by independent sources may be used in advertisements concerning the
Portfolios. These sources may include Lipper Analytical Services, Wiesenberger
Investment Company Service, Donoghue's Money Fund Report, Barron's, Business
Week, Changing Times, Financial World, Forbes, Fortune, Money, Personal
Investor, Bank Rate Monitor, and The Wall Street Journal.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on June 23. The
authorized capital stock of the Fund consists of 20 billion shares of stock
having a par value of one-tenth of one cent ($.001) per share. The Fund's Board
of Directors is authorized to divide the unissued shares into separate series of
stock, each series representing a separate, additional investment portfolio. The
Board currently has authorized the division of the unissued shares into four
series, one for each of the Portfolios. Shares of all series will have identical
voting rights, except where, by law, certain matters must be approved by a
majority of the shares of the affected series. Each share of any series of
shares when issued has equal dividend, distribution, liquidation and voting
rights within the series for which it was issued, and each fractional share has
those rights in proportion to the percentage that the fractional share
represents of a whole share. Shares will be voted in the aggregate. There are no
conversion or preemptive rights in connection with any shares of the Fund. All
shares, when issued in accordance with the terms of the offering, will be fully
paid and non-assessable. Shares are redeemable at net asset value, at the option
of the investor.
The shares of the Fund have non-cumulative voting rights,
which means that the holders of more than 50% of the shares outstanding voting
for the election of directors can elect 100% of the directors if the holders
choose to do so, and, in that event, the holders of the remaining shares will
not be able to elect any person or persons to the Board
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of Directors. Unless specifically requested by an investor who is a investor of
record, the Fund does not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other
meetings of the Funds' shareholders. This is because the By-laws of the Fund
provide for annual meetings only (a) for the election of directors, (b) for
approval of the Fund's revised investment advisory agreement with respect to a
particular class or series of stock, (c) for approval of revisions to the Fund's
distribution agreement with respect to a particular class or series of stock,
and (d) upon the written request of holders of shares entitled to cast not less
than twenty-five percent of all the votes entitled to be cast at such meeting.
Annual and other meetings may be required with respect to such additional
matters relating to the Fund as may be required by the Investment Company Act of
1940 (the "Act") including the removal of Fund directors and communication among
shareholders, any registration of the Fund with the Securities and Exchange
Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of shareholders called
for the purpose of considering the election or reelection of such Director or of
a successor to such Director, and until the election and qualification of his or
her successor, elected at such meeting, or until such Director sooner dies,
resigns, retires or is removed by the vote of the shareholders.
Rule 18f-2 under the Act provides that any matter required to
be submitted by the provisions of the Act or applicable state law, or otherwise,
to the holders of the outstanding voting securities of an investment company
such as the Fund shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter, i.e., by a majority of the outstanding shares of
each Portfolio. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless it is clear that the interests of each
class or series in the matter are substantially identical or that the matter
does not affect any interest of such class or series. However, the Rule exempts
the selection of independent public accountants, the approval of principal
distribution contracts and the election of directors from the separate voting
requirements of the Rule.
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
The Fund, on behalf of each of the Portfolios, has adopted a
distribution and service plan, pursuant to Rule 12b-1 under the Act (the
"Rule"). The Rule provides that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Plan provides that each Portfolio may bear
certain expenses and costs which in the aggregate are subject to a maximum of
0.75% per annum of such Portfolio's average daily net assets. Life Cycle Mutual
Funds Distributors, Inc. serves as distributor of the shares of the Fund and is
an affiliate of the Administrator. Pursuant to the Plan, each Portfolio entered
into a Distribution Agreement with the Distributor and each Portfolio also
entered into a Shareholder Servicing Agreement with the Adviser. For its
services under the Distributor Agreement, the Distributor will receive
compensatory payments from the Portfolio of 0.50% per annum of the average daily
net assets of each Portfolio to permit it to make payments to broker-dealers and
other financial institutions with which it has written agreements and whose
clients are Fund shareholders (each a "Broker-Dealer") for providing
distribution assistance and to be used to provide distribution assistance and
promotional support to the Fund. For its service under the Shareholder Servicing
Agreement, the Adviser will receive a service fee from each Portfolio equal to
.25% per annum of each Portfolio's average daily net assets to compensate it for
providing shareholder services to Fund shareholders and compensate parties with
which it has written agreements and whose clients are Fund shareholder for
providing servicing to their clients ("Shareholder Servicing").
Each Shareholder Servicing Agent and Broker-Dealer will, as
agent for its customers, among other things; answer customer inquiries regarding
account status and history, the manner in which purchases and redemptions of
shares of each Portfolio may be effected and certain other matters pertaining to
the Fund; assist shareholders in designating and changing dividend options,
account designations and addresses; provide necessary personnel and facilities
to establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder by the Portfolios) monthly and year-end statements and
confirmations of purchases and redemptions, as required by Rule 10b-10 under the
Securities Exchange Act of 1934; transmit, on behalf of each Portfolio, proxy
statements, annual reports, updating prospectuses and other communications from
each Portfolio to shareholders;
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receive, tabulate and transmit to the each Portfolio, proxies executed by
shareholders with respect to meeting of shareholders of the Fund; and provide
such other related services as the Fund or a shareholder may request.
The Plan, the Shareholder Servicing Agreements and the
Distribution Agreement each provide that the Adviser and the Distributor may
make payments from time to time from their own resources which may include the
advisory fee and the asset based sales changes and past profits for the
following purposes: to defray the costs of and to compensate others, including
financial intermediaries with whom the Distributor or Adviser has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of each Portfolio; to compensate certain
financial intermediaries for providing assistance in distributing each
Portfolio's shares; to pay the costs of printing and distributing the
Portfolio's prospectus to prospective investors; and to defray the cost of the
preparation and printing of brochures and other promotional materials, mailings
to prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Portfolio's shares. Further, it provides that the
Adviser may use its service fee for the purposes enumerated in (i) above. The
Distributor or the Adviser, as the case may be, in their sole discretion, will
determine the amount of such payments made pursuant to the Plan with the
Shareholder Servicing Agents and Broker-Dealers they have contracted with,
provided that such payments made pursuant to the Plan will not increase the
amount which a Portfolio is required to pay to the Distributor or the Adviser
for any fiscal year under the Shareholder Servicing Agreements or otherwise.
Shareholder Servicing Agents and Broker-Dealers may charge
investors a fee in connection with their use of specialized purchase and
redemption procedures offered to investors by the Shareholder Servicing Agents
and Broker-Dealers. In addition, Shareholder Servicing Agents and Broker-Dealers
offering purchase and redemption procedures similar to those offered to
shareholders who invest in a Portfolio directly may impose charges, limitations,
minimums and restrictions in addition to or different from those applicable to
shareholders who invest in a Portfolio directly. Accordingly, the net yield to
investors who invest through Shareholder Servicing Agents and Broker-Dealers may
be less than by investing in the Portfolio directly. An investor should read the
Prospectus in conjunction with the materials provided by the Shareholder
Servicing Agent and Broker-Dealer describing the procedures under which
Portfolio shares may be purchased and redeemed through the Shareholder Servicing
Agent and Broker-Dealer.
The Glass-Steagell Act limits the ability of a depository
institution to become an underwriter or distributor of securities. However, it
is the Fund's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Distributor for providing such services. However, this is an unsettled area of
the law and if a determination contrary to the Fund's position is made by a bank
regulatory agency or court concerning shareholder servicing and administration
payments to banks from the Distributor, any such payments will be terminated and
any shares registered in the banks' names, for their underlying customers, will
be re-registered in the name of the customers at no cost to each Portfolio or
its shareholders. In addition, state securities laws on this issue may differ
from the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
In accordance with the Rule, the Plan provides that all
written agreements relating to the Plan entered into by the Fund, on behalf of a
Portfolio, the Distributor or the Adviser, and the Shareholder Servicing Agents,
Broker- Dealers, or other organizations must be in a form satisfactory to the
Fund's Board of Directors. In addition, the Plan requires the Fund and the
Distributor to prepare, at least quarterly, written reports setting forth all
amounts expended for distribution purposes by the Fund and the Distributor
pursuant to the Plan and identifying the distribution activities for which those
expenditures were made.
BROKERAGE AND PORTFOLIO TURNOVER
BROKERAGE
The Adviser makes the Portfolio's portfolio decisions and
determines the broker to be used in each specific transaction with the objective
of negotiating a combination of the most favorable commission and the best price
obtainable on each transaction (generally defined as best execution). When
consistent with the objective of obtaining best execution, brokerage may be
directed to persons or firms supplying investment information to the Adviser or
portfolio transactions may be effected by the Adviser. Neither the Portfolio nor
the Adviser has entered into agreements or
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understandings with any brokers regarding the placement of securities
transactions because of research services they provide. To the extent that such
persons or firms supply investment information to the Adviser for use in
rendering investment advice to the Portfolio, such information may be supplied
at no cost to the Adviser and, therefore, may have the effect of reducing the
expenses of the Adviser in rendering advice to the Portfolio. While it is
impossible to place an actual dollar value on such investment information, its
receipt by the Adviser probably does not reduce the overall expenses of the
Adviser to any material extent. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
best execution, the Adviser may consider sales of shares of the Portfolio as a
factor in the selection of brokers to execute portfolio transactions for the
Portfolio.
The investment information provided to the Adviser is of the
type described in Section 28(e) of the Securities Exchange Act of 1934 and is
designed to augment the Advisor's own internal research and investment strategy
capabilities. Research services furnished by brokers through which the Portfolio
effects securities transactions are used by the Adviser in carrying out its
investment management responsibilities with respect to all its clients'
accounts. There may be occasions where the transaction cost charged by a broker
may be greater than that which another broker may charge if the Adviser
determines in good faith that the amount of such transaction cost is reasonable
in relation to the value of brokerage and research services provided by the
executing broker. The Adviser may consider the sale of shares of the Portfolio
by brokers including the Distributor as a factor in its selection of brokers of
Portfolio transactions.
The Portfolio may deal in some instances in securities which
may not be included presently in the Standard & Poor's 500 Index. When
transactions are executed in such securities, the Portfolio will seek to obtain
best execution.
The Fund may also purchase and sell portfolio securities which
constitute principal transactions. Debt instruments are normally purchased
directly from the issuer, from banks and financial institutions or from an
underwriter or market maker for the securities. There usually are not brokerage
commissions paid for such purchases. Any transactions involving such securities
for which the Fund pays a brokerage commission will be effected at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund may purchase Government
obligations with a demand feature from banks or other financial institutions at
a negotiated yield to the Fund based on the applicable interest rate adjustment
index for the security. The interest received by the Fund is net of a fee
charged by the issuing institution for servicing the underlying obligation and
issuing the participation certificate, letter of credit, guarantee or insurance
and providing the demand repurchase feature.
Allocation of transactions, including their frequency, to
various dealers is determined by the Adviser in its best judgment and in a
manner deemed in the best interest of shareholders of the Fund rather than by a
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.
Investment decisions for the Fund will be made independently
from those for any other investment companies or accounts that may become
managed by the Adviser or its affiliates. If, however, the Fund and other
investment companies or accounts managed by the Adviser are simultaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by the Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for the Fund and for other investment companies
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantage available to large
denomination purchasers or sellers.
PORTFOLIO TURNOVER
Each Portfolio's average annual portfolio turnover rate, i.e.,
the ratio of the lesser of sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less) is
expected to be high. Purchases and sales are made for each Portfolio whenever
necessary in the Adviser's opinion, to meet the Portfolio's objective. In order
to qualify as a regulated investment company, less than 30% of each Portfolio's
gross income (including tax exempt income) must be derived from the sale or
other disposition of stock, securities or certain investments held for less than
three months. Although increased Portfolio turnover may increase the likelihood
of additional capital gains for the Portfolios, the Portfolios expect to satisfy
the 30% income test.
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COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of
common stock of the Fund are passed upon by Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022. Coopers & Lybrand L.L.P., 2400 Eleven Penn
Center, Philadelphia, PA 19103. Independent certified public accountants, have
been selected as auditors for the Fund.
RATINGS OF CORPORATE OBLIGATIONS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with 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 fluctuations 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 which are rated A posses 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 which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's ratings for short-term loans are designated Moody's
Investment Grade (MIG). This distinction is in recognition of the differences
between short-term and long-term credit risk. Loans bearing the designation MIG
1 are of the best quality, enjoying strong protection by establishing cash flow
of funds for their servicing or by established and broad-based access to the
market for refinancing, or both. Loans bearing the designation MIG 2 are of high
quality, with margins of protection ample although not so large as in the
preceding group. A short-term issue having a demand feature (i.e., payment
relying on external liquidity and usually payable on demand rather than fixed
maturity dates) is differentiated by Moody's with the use of the Symbol VMIG,
instead of MIG.
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Moody's also provides credit ratings for tax exempt commercial
paper. These are promissory obligations (1) not having an original maturity in
excess of nine months, and (2) backed by commercial banks. Notes bearing the
designation P-1 have a superior capacity for repayment. Notes bearing the
designation P-2 have a strong capacity for repayment.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Bonds rated AAA have the highest rating assigned by S&P
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in
small degree.
A - Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in the
highest rated categories.
BBB - Bonds rated BBB are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic condition or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CC, CCC - Bonds rated BB, B, CC, CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lower degree of speculation and CCC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are income bonds on which no interest is
being paid.
D - Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
UNRATED BONDS
Bonds which are unrated expose the investor to risks with
respect to the issuer's capacity to pay interest and principal which are similar
to the risks of lower-rated obligations. The safety of an investment in an
unrated obligation, therefore, is more reliant as a general proposition on an
investment advisor's judgment, analysis and experience than an investment in a
higher rated obligation.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA - Securities in this category are 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 - Securities in this category are considered to be
investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is very strong although not quite as strong as
securities rated "AAA." As securities 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 - Securities in this category are 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
securities with higher ratings.
BBB - Securities in this category are considered to be
investment grade and of satisfactory 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 adverse
impact on these bonds, and therefore, impair timely payment.
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<PAGE>
Plus (+) or Minus (-) - The ratings from AA to C (i.e. five
categories below BBB) may be modified by the addition of a plus or minus sign to
indicate the relative position of a credit within the rating category.
NR - Indicates that Fitch does not rate the specific issue.
Conditional - A conditional rating is premised on the
successful completion of a project or the occurrence of a specific event.
DESCRIPTION OF DUFF & PHELPS CREDIT RATING CO.'S CORPORATE BOND RATINGS:
AAA - Highest credit quality. The risk factors are negligible,
being only slightly more than for risk- free U.S. Treasury debt.
AA - High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A - Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB - Below-average protection factors but within the
definition of investment grade securities but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
Plus (+) Minus (-) - The ratings from AA to C (i.e. five
categories below BBB) may be modified by the addition of a plus or minus sign to
indicate the relative position of a credit within the rating category.
COMMERCIAL PAPER RATINGS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S TWO HIGHEST COMMERCIAL PAPER
RATINGS:
A - Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be denoted with a
plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST COMMERCIAL PAPER
RATINGS:
Moody's employs the following designations, both judged to be
investment grade, to indicate the relative repayment capacity of rated issues:
Prime-1, highest quality; Prime-2, higher quality.
MONEY MARKET FUND RATINGS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S TWO HIGHEST MONEY MARKET FUND
RATINGS:
AAAm - Safety is excellent. Superior capacity to maintain
principal value and limit exposure to loss.
AAm - Safety is very good. Strong capacity to maintain
principal value and limit exposure to loss.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST MONEY MARKET FUND
RATINGS:
Aaa - Money Market Funds rated Aaa have superior quality
assets and management.
Aa - Money Market Funds rated Aa have strong quality assets
and management.
-25-
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND
a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Life Cycle Mutual Funds, Inc.
We have audited the accompanying Statement of Assets and Liabilities of Life
Cycle Mutual Funds, Inc. (comprised of the Life Cycle Bond Fund, the Life Cycle
Harvest Fund, the Life Cycle Equity Fund, and the Life Cycle Retirement Income
Fund) as of August 16, 1995. This financial statement is the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Life Cycle Mutual Funds, Inc.
as of August 16, 1995 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 18, 1995
1
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
as of August 16, 1995
LIFE CYCLE
` LIFE CYCLE LIFE CYCLE LIFE CYCLE RETIREMENT
BOND HARVEST EQUITY INCOME
FUND FUND FUND FUND
ASSETS:
Cash ..................... $25,000 $25,000 $25,000 $25,000
Deferred Organizational
Expenses ............... 33,623 33,623 33,623 33,623
------- ------- ------- -------
Total Assets ............. 58,623 58,623 58,623 58,623
------- ------- ------- -------
LIABILITIES:
Organizational expense
Payable ................ 33,623 33,623 33,623 33,623
------- ------- ------- -------
Commitments
(Notes 1 and 2)
Total Liabilities ........ 33,623 33,623 33,623 33,623
------- ------- ------- -------
NET ASSETS ................. $25,000 $25,000 $25,000 $25,000
======= ======= ======= =======
Capital Stock--$.001 par value;
20 billion shares authorized
Share Outstanding .......... 2,500 2,500 2,500 2,500
------- ------- ------- -------
Net Asset Value per share .. $10.00 $10.00 $10.00 $10.00
======= ======= ======= =======
The Accompanying Notes are an integral part of this Financial Statement.
2
<PAGE>
LIFE CYCLE MUTUAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1
The Life Cycle Mutual Funds, Inc. (the "Company") was incorporated in
Maryland on June 23, 1995. The Company has had no operations other than those
relating to organizational matters and the issuance to Benson White & Company of
shares as shown in the Statement of Assets and Liabilities. The Company, which
currently comprises four portfolios (the "Funds"), is registered under the
Investment Company Act of 1940, as amended (the "1940 Act") as an open-ended
management investment company. Each Fund operates as a diversified fund.
NOTE 2
The Company has entered into an investment advisory agreement (the
"Advisory Agreement") with Benson White & Company (the "Adviser"). The Advisory
Agreement provides for the Adviser to be paid a fee calculated and accrued daily
and paid monthly at the annual rates of 0.75% for each Fund. Bank of New York is
the custodian for the Funds.
Furman Selz will provide the Funds with administrative, fund accounting,
dividend disbursing and transfer agency services pursuant to an administrative
agreement (the "Administrative Services Contract"). The services under the
Administrative Services Contract are subject to the supervision of the Company's
Board of Directors and officers and include day-to-day administration of matters
related to the corporate existence of the Company, maintenance of its records,
preparation of reports, supervision of the Fund's arrangement with its custodian
and assistance in the preparation of the Company's Registration Statement under
federal and state laws. Pursuant to the Administrative Services Contract, the
Funds will accrue daily and pay Furman Selz a monthly fee for its services
which, on an annualized basis, will not exceed 0.20% up to $100 million of the
average daily net assets of the Funds. This fee will be allocated among the
Funds on the basis of their relative net assets. Pursuant to Services Agreement,
Furman Selz will provide the Funds with transfer and dividend disbursing agent
services, for which it receives a fee of $15.00 per account per year. Pursuant
to a Fund Accounting Agreement between the Funds and Furman Selz, Furman Selz
assists the Funds in calculating net asset values and provides certain other
accounting services for each Fund described therein, for an annual fee of
$30,000 per Fund plus out-of-pocket expenses. The total fees payable to Furman
Selz, under the aforementioned agreements, will be not less than $250,000 in any
year.
The Company has entered into a distribution agreement (the "Distribution
Plan") with Life Cycle Mutual Funds Distributors, Inc. (the "Distributor").
Under the Distribution Plan, the Distributor, as agent of the Funds, agrees to
use its best efforts as sole distributor of the Funds' shares. The Distributor
does not receive compensation under the Distribution Plan. Under the
Distribution Plan, the Funds will pay the Distributor a fee at an annual rate of
0.75% each of the value of average daily net assets in return for financing
certain distribution and shareholder servicing activities.
NOTE 3
Costs incurred in connection with the organization and initial registration
of the Fund have been deferred and are being amortized on a straightline basis
over sixty months beginning with each Funds' commencement of operations. In the
event any of the initial shares of the Funds are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of any unamortized organization expenses in the proportion as the number
of shares being redeemed bears to the number of initial shares outstanding at
the time of redemption.
3
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE EQUITY FUND(TM)
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JANUARY 31, 1996
SHARES COST VALUE
- -------------- ------------ ------------
COMMON STOCKS - 91.87%
AUTO RELATED - 5.19%
600 Dana Corp........................ $ 16,858 $ 19,725
400 Genuine Parts Co................. 16,070 17,800
--------- ---------
32,928 37,525
--------- ---------
BANKS - 12.01%
500 Banc One Corp.................... 18,314 18,937
300 Barnett Banks Inc................ 17,216 17,550
400 First Chicago NBD Bancorp........ 15,221 15,550
500 KeyCorp.......................... 17,713 18,375
500 National CityCorp................ 16,126 16,312
--------- ---------
84,590 86,724
--------- ---------
ELECTRONICS - 1.93%
400 National Service Industries, Inc. 12,521 13,950
--------- ---------
FINANCIAL SERVICES - 11.52%
400 Boatmen's Bancshares Inc......... 15,708 17,150
400 Corestates Financial Corp........ 14,896 16,000
300 First Union Corp................. 16,090 17,362
200 Morgan (J.P.) & Company, Inc..... 15,698 16,250
500 U.S. Bancorp..................... 16,026 16,438
--------- ---------
78,418 83,200
--------- ---------
FOOD PROCESSING - 2.14%
450 Heinz (H.J.) Co.................. 14,395 15,469
--------- ---------
FOREST PRODUCTS & PAPER - 2.55%
400 Weyerhaeuser Co.................. 17,520 18,450
--------- ---------
INSURANCE - 9.11%
500 American General Corp............ 17,339 18,875
300 Lincoln National Corp............ 14,152 15,862
200 Marsh & McLennan Cos., Inc....... 17,198 18,200
400 USLife Corp...................... 11,702 12,850
--------- ---------
60,391 65,787
--------- ---------
MANUFACTURING - 2.68%
300 Minnesota Mining & Manufacturing Co 18,240 19,350
--------- ---------
OIL / GAS - 12.62%
200 Amoco Corp....................... 13,135 14,075
400 Ashland Inc...................... 13,396 14,700
300 Chevron Corp..................... 15,216 15,562
200 Exxon Corp....................... 15,285 16,050
500 Panhandle Eastern Corp........... 13,588 14,438
500 Phillips Petroleum Co............ 16,301 16,313
--------- ---------
86,921 91,138
--------- ---------
See accompanying notes to financial statements.
4
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE EQUITY FUND(TM)
PORTFOLIO OF INVESTMENTS (CONTINUED) - JANUARY 31, 1996
SHARES COST VALUE
- -------------- ------------ ------------
COMMON STOCKS (CONTINUED)
PUBLISHING & PRINTING - 2.13%
700 Harland (John H.) Co............. $ 14,790 $ 15,400
--------- ---------
RESTAURANTS - 2.04%
700 Luby's Cafeterias Inc............ 15,331 14,700
--------- ---------
RETAIL - 5.06%
400 Penney (J.C.) Co................. 18,795 19,600
900 TJX Companies Inc................ 14,396 16,988
--------- ---------
33,191 36,588
--------- ---------
TELECOMMUNICATIONS - 4.72%
500 Alltel Corp...................... 14,938 15,688
400 GTE Corp......................... 16,845 18,400
--------- ---------
31,783 34,088
--------- ---------
TOBACCO - 2.53%
400 American Brands, Inc............. 17,207 18,250
--------- ---------
TOOLS - 2.14%
300 Stanley Works.................... 14,891 15,450
--------- ---------
UTILITIES - 13.50%
500 Baltimore Gas & Electric Co...... 13,346 14,375
500 Consolidated Edison of New York.. 14,988 16,875
300 Duke Power Co.................... 13,440 14,925
700 Nicor Inc........................ 18,644 19,075
600 Southern Co...................... 14,151 15,225
400 Union Electric Co................ 16,033 17,050
--------- ---------
90,602 97,525
--------- ---------
TOTAL INVESTMENTS - 91.87% $623,719 + 663,594
========
CASH AND OTHER ASSETS,
NET OF LIABILITIES - 8.13% 58,744
---------
NET ASSETS - 100.00% $ 722,338
=========
+ Cost for book and tax purposes is substantially the same.
See accompanying notes to financial statements.
5
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE BOND FUND(TM)
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JANUARY 31, 1996
PRINCIPAL COST VALUE
- -------------- ------------ -----------
U. S. TREASURY OBLIGATIONS - 34.71%
$20,000 Notes, 4.75%, 10/31/1998.............. $ 19,635 $ 19,846
20,000 Notes, 5.50%, 02/28/1999.............. 20,006 20,247
-------- --------
39,641 40,093
-------- --------
TOTAL INVESTMENTS - 34.71% $ 39,641 + 40,093
========
CASH AND OTHER ASSETS, NET OF LIABILITIES - 65.29% 75,426
---------
NET ASSETS - 100.00% $115,519
========
+ Cost for book and tax purposes is substantially the same.
See accompanying notes to financial statements.
6
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
THE LIFE CYCLE RETIREMENT INCOME FUND(TM)
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JANUARY 31, 1996
PRINCIPAL COST VALUE
- -------------- ------------ -----------
U. S. TREASURY OBLIGATIONS - 48.98%
$25,000 Notes, 5.125%, 11/30/1998............. $ 24,816 $ 25,047
25,000 Notes, 5.50%, 04/15/2000.............. 25,027 25,338
30,000 Notes, 5.75%, 10/31/2000.............. 30,203 30,601
-------- --------
80,046 80,986
-------- --------
TOTAL INVESTMENTS - 48.98% $ 80,046 + 80,986
========
CASH AND OTHER ASSETS,
NET OF LIABILITIES - 51.02% 84,350
--------
NET ASSETS - 100.00% $165,336
========
+ Cost for book and tax purposes is substantially the same.
See accompanying notes to financial statements.
7
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JANUARY 31, 1996
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (cost $623,719; $39,641;
$80,046; $0) ......................................... $ 663,594 $ 40,093 $ 80,986 $ 0
Cash .................................................... 14,882 45,317 54,525 977,557
Interest and dividends receivable ....................... 1,272 964 1,365 3,744
Receivable for Fund shares sold ......................... 9,701 0 0 0
Receivable from Adviser (Note 3) ........................ 25,274 23,668 23,012 19,533
Unamortized organization expense ........................ 31,372 31,409 31,409 31,408
---------- ---------- ---------- ----------
Total assets.................................. 746,095 141,451 191,297 1,032,242
---------- ---------- ---------- ----------
LIABILITIES
Income distribution payable ............................. 86 289 372 2,092
Organization expense payable ............................ 3,195 7,217 7,217 3,232
Accrued expenses......................................... 20,476 18,426 18,372 20,423
---------- ---------- ---------- ----------
Total liabilities............................. 23,757 25,932 25,961 25,747
---------- ---------- ---------- ----------
NET ASSETS .............................................. $ 722,338 $ 115,519 $ 165,336 $1,006,495
========== ========== ========== ==========
NET ASSETS CONSIST OF:
Capital Stock, $0.001 par value per share (20
billion shares authorized) ........................... $ 68 $ 12 $ 16 $ 101
Additional paid-in capital .............................. 682,805 115,055 164,380 1,006,394
Accumulated net realized loss on investments ............ (410) 0 0 0
Net unrealized appreciation on investments .............. 39,875 452 940 0
---------- ---------- ---------- ----------
NET ASSETS .............................................. $ 722,338 $ 115,519 $ 165,336 $1,006,495
========== ========== ========== ==========
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest outstanding ............... 68,004 11,519 16,451 100,649
========== ========== ========== ==========
Net Asset Value per share ............................... $ 10.62 $ 10.03 $ 10.05 $ 10.00
========== ========== ========== ==========
Maximum Offering Price per share ($10.62,
$10.03, $10.05, $10.00 / 0.9625,
respectively) ........................................ $ 11.03 $ 10.42 $ 10.44 $ 10.39
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
-------------------- -------------------- -------------------- -------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Interest income......................... $ 809 $ 1,241 $ 1,577 $ 15,097
Dividend income ........................ 4,351 0 0 0
-------- -------- -------- --------
Total income .......................... 5,160 1,241 1,577 15,097
-------- -------- -------- --------
EXPENSES
Administrative ......................... 20,833 20,833 20,833 20,833
Audit .................................. 4,000 4,000 4,000 4,000
Legal .................................. 3,750 3,750 3,750 3,750
Custodian .............................. 2,910 616 535 1,027
Printing ............................... 2,500 2,500 2,500 2,500
Amortization of organization
expenses ............................ 2,245 2,208 2,208 2,208
Registration ........................... 2,168 2,168 2,168 1,953
Trustees fees........................... 1,500 1,500 1,500 1,500
Advisory ............................... 1,045 184 229 2,500
12b-1 Distribution fees ................ 1,045 184 229 2,500
Transfer agent.......................... 1,018 948 520 536
Pricing ................................ 790 214 138 0
Miscellaneous .......................... 850 851 879 851
-------- -------- -------- --------
Total expenses before
waivers/reimbursements ......... 44,654 39,956 39,489 44,158
Less expenses waived/ reimbursed
by Adviser ..................... (41,944) (39,477) (38,894) (37,658)
-------- -------- -------- --------
Net expenses...................... 2,710 479 595 6,500
-------- -------- -------- --------
Net investment income .................. 2,450 762 982 8,597
-------- -------- -------- --------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Net realized loss on investments ....... (410) 0 0 0
Net change in unrealized appreciation
on investments ...................... 39,875 452 940 0
-------- -------- -------- --------
Net realized and unrealized gain
on investments ................. 39,465 452 940 0
-------- -------- -------- --------
Net increase in net assets resulting
from operations ..................... $ 41,915 $ 1,214 $ 1,922 $ 8,597
======== ======== ======== ========
* Commencement of operations..
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
-------------------- -------------------- -------------------- -------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income .................. $ 2,450 $ 762 $ 982 $ 8,597
Net realized loss on investments ....... (410) 0 0 0
Net change in unrealized appreciation on
investments ......................... 39,875 452 940 0
--------- --------- --------- ----------
Net increase in net assets resulting from
operations .......................... 41,915 1,214 1,922 8,597
--------- --------- --------- ----------
DIVIDENDS TO SHAREHOLDERS
From net investment income ............. (2,450) (762) (982) (8,597)
--------- --------- --------- ----------
CAPITAL SHARE TRANSACTIONS
Proceeds from sales of shares .......... 660,004 89,594 161,939 1,735,138
Net asset value of shares issued to
shareholders in reinvestment of
dividends ........................... 2,361 473 607 6,401
Net asset value of shares redeemed ..... (4,492) 0 (23,150) (760,044)
--------- --------- --------- ----------
Net increase in net assets from capital
share transactions .................. 657,873 90,067 139,396 981,495
--------- --------- --------- ----------
Total increase in net assets ........... 697,338 90,519 140,336 981,495
NET ASSETS
Beginning of period .................... 25,000 25,000 25,000 25,000
--------- --------- --------- ----------
End of period........................... $ 722,338 $ 115,519 $ 165,336 $ 1,006,495
========= ========= ========= ===========
</TABLE>
* Commencement of operations.
10
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - JANUARY 31, 1996
1. DESCRIPTION. Life Cycle Mutual Funds(TM), Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as an open
ended, management investment company and currently consists of four separate
investment portfolios (the "Portfolios"): the Life Cycle Equity Fund(TM) (the
"Equity Fund"), the Life Cycle Bond Fund(TM) (the "Bond Fund"), the Life Cycle
Retirement Income Fund(TM) (the "Retirement Income Fund"), and the Life Cycle
Harvest Fund(TM) (the "Harvest Fund"). The Portfolios are offered in connection
with an age-based asset allocation program (the "Life Cycle Program") which is
designed to meet the long-term retirement investment needs of individual
investors. The Life Cycle Program is intended to manage investors' retirement
assets by making disciplined age-based asset allocation decisions to achieve
this overall objective.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies followed by the Fund:
A. PORTFOLIO VALUATION. The net asset value per share of the Portfolios is
calculated as of 4:00 p.m. (Eastern Time). Securities listed on an exchange
are valued at the last sales price prior to the time the valuation is made.
If there has been no sale since the immediately previous valuation, then
current bid price is used. Quotations are taken from the exchange where the
security is primarily traded. Over-the-counter securities are valued on the
basis of the closing bid price. Assets for which market quotations are not
readily available are valued in accordance with procedures established by
the Fund's Board of Directors, including use of an independent pricing
service. Short-term securities with maturities of 60 days or less are
valued at amortized cost, if their terms to maturity at purchase were 60
days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity at purchase exceeded 60 days.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities transactions
are recorded on a trade date basis. Realized gains and losses from
securities transactions are recorded on the identified cost basis. Dividend
income is recognized on the ex-dividend date and interest income, including
amortization of premium and accretion of discount, is accrued daily.
C. DISTRIBUTIONS TO SHAREHOLDERS. The Bond Fund, Retirement Income Fund,
and Harvest Fund declare dividends from net investment income daily and
distribute that income monthly. The Equity Fund declares and distributes
net investment income on a quarterly basis. Net realized capital gains will
be declared and distributed annually. Distributions are recorded on the
ex-dividend date.
D. FEDERAL INCOME TAX. It is the policy of each of the Portfolios to
qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. By so qualifying, the Portfolios
will not be subject to Federal income taxes to the extent that they
distribute all of their taxable income for the fiscal year. The Portfolios
also intend to meet the distribution requirements to avoid the payment of
an excise tax.
E. ORGANIZATION EXPENSES. Costs incurred in connection with the
organization and initial registration of the Fund have been deferred and
are being amortized on a straight-line basis over sixty months beginning
with each Portfolio's commencement of operations. In the event any of the
initial shares of any of the Portfolios are redeemed, the appropriate
Portfolio will be reimbursed for any unamortized organization expenses in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at time of redemption.
F. DETERMINATION OF NET ASSET VALUE AND CALCULATION OF EXPENSES. Expenses
directly attributable to a Portfolio are charged to that Portfolio. Other
expenses are allocated proportionately among each Portfolio within the Fund
in relation to the net assets of each Portfolio or on another reasonable
basis.
3. INVESTMENT ADVISORY, ADMINISTRATIVE AND OTHER TRANSACTIONS WITH
AFFILIATES. The Fund has entered into an investment advisory agreement (the
"Investment Advisory Agreement") with Benson White & Company (the "Adviser").
The Investment Advisory Agreement provides for the Adviser to supervise all
aspects of the Fund's operations and provide investment advice and portfolio
management services to the Fund. Subject to the supervision of the Fund's Board
of Directors, the Adviser makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the portfolio investments. The Adviser is also responsible for the
management and implementation of the Life Cycle Program. Pursuant to the terms
of the Investment Advisory Agreement, the Adviser is paid a monthly advisory fee
equal to 0.75% of each Portfolio's average daily net assets per annum. For the
11
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED) - JANUARY 31, 1996
period ended January 31, 1996, the Advisor earned fees of $1,045, $184, $229,
$2,500, for the Equity, Bond, Retirement Income, and Harvest Funds,
respectively. For the period ended January 31, 1996, the Advisor waived fees of
$1,045, $184, $229, $2,500, for the Equity, Bond, Retirement Income, and Harvest
Funds, respectively.
Furman Selz LLC ("Furman Selz") provides the Fund with administrative, fund
accounting, dividend disbursing and transfer agency services pursuant to an
administrative services agreement (the "Administrative Services Agreement").
Pursuant to the Administrative Services Agreement, Furman Selz receives a fee,
payable monthly, equal to 0.20% of the Fund's aggregate average net assets,
subject to a minimum of $250,000 per year. For the period ended January 31,
1996, Furman Selz earned $83,332 for services provided to the Fund, consisting
of $20,833 from each of the four individual portfolios.
The Adviser has voluntarily agreed to cap the expense ratios at 1.95% for each
Portfolio. In order to maintain that expense ratio, the Adviser has agreed to
reimburse expenses as follows: Equity Fund - $40,899; Bond Fund - $39,293;
Retirement Income Fund - $38,665; Harvest Fund - $35,158.
4. SECURITIES TRANSACTIONS.
A. PURCHASE AND SALE TRANSACTIONS. The aggregate amount of purchases and
sales of investment securities, other than short-term securities, for the
period ended January 31, 1996 were as follows:
<TABLE>
<CAPTION>
COMMON STOCKS U.S. GOVERNMENT OBLIGATIONS
------------------------ -------------------------------
PURCHASES SALES PURCHASES SALES
------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Equity Fund.............. 631,074 6,945 0 0
Bond Fund................ 0 0 39,641 0
Retirement Income Fund... 0 0 80,046 0
</TABLE>
B. FEDERAL INCOME TAX BASIS. Cost for book and Federal income tax purposes
were identical as of January 31, 1996. Gross unrealized appreciation and
depreciation of investment securities at January 31, 1996, based on cost
for Federal income tax purposes was as follow:
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
Equity Fund ............ $40,506 $ (631) $39,875
Bond Fund .............. 452 0 452
Retirement Income Fund.. 940 0 940
5. CAPITAL SHARE TRANSACTIONS. The Fund is authorized to issue 20
billion shares of beneficial interest with a par value of $0.001 each.
Transactions in shares of the Portfolios are as follows:
<TABLE>
<CAPTION>
RETIREMENT
EQUITY FUND BOND FUND INCOME FUND HARVEST FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Beginning balance................... 2,500 2,500 2,500 2,500
-------- -------- -------- --------
Shares sold......................... 65,713 8,971 16,205 173,512
Shares issued in reinvestment of
dividends ........................ 228 48 61 641
Shares redeemed..................... (437) 0 (2,315) (76,004)
-------- -------- -------- --------
Net increase in shares.............. 65,504 9,019 13,951 98,149
-------- -------- -------- --------
Ending Balance...................... 68,004 11,519 16,451 100,649
======== ======== ======== ========
</TABLE>
* Commencement of Operations.
12
<PAGE>
LIFE CYCLE MUTUAL FUNDS(TM), INC.
FINANCIAL HIGHLIGHTS + (UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
EQUITY BOND RETIREMENT HARVEST
FUND FUND INCOME FUND FUND
October 2, 1995* October 4, 1995* October 4, 1995* October 4, 1995*
through through through through
January 31, 1996 January 31, 1996 January 31, 1996 January 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income.................. 0.04 0.11 0.11 0.09
Net realized and unrealized gain
on investments....................... 0.62 0.03 0.05 0.00
------- ------- ------- -------
Total from Investment Operations 0.66 0.14 0.16 0.09
------- ------- ------- -------
Less Distributions:
Dividends from net investment
income............................... (0.04) (0.11) (0.11) (0.09)
------- ------- ------- -------
Net Asset Value, End of Period............... $ 10.62 $ 10.03 $ 10.05 $ 10.00
======= ======= ======= =======
Total Return................................. 6.20% 1.37% 1.59% 0.85%
Net Assets, End of Period (in thousands)..... $ 722 $ 116 $ 165 $ 1,006
Ratios to Average Net Assets of:
Net investment income**................ 1.76% 3.10% 3.21% 2.58%
Expenses before waivers/
reimbursements**..................... 32.13% 162.66% 129.41% 13.24%
Expenses net of waivers/
reimbursements**..................... 1.95% 1.95% 1.95% 1.95%
Portfolio Turnover Rate...................... 2% 0 0 0
</TABLE>
* Commencement of operations.
+ Per share amounts based on the average number of shares outstanding
during the period from commencement of operations to January 31, 1996.
** Annualized.
13
<PAGE>
PART C - OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Included in Prospectus:
(1) Expense Summary
(2) Selected Financial Information
Included in Statement of Additional Information:
(1) Report of Coopers & Lybrand, L.L.P., independent
accountants, dated August 18, 1995; and
(2) Statement of Net Assets (unaudited).
(B) EXHIBITS
*(1) Articles of Incorporation of the Registrant.
*(2) By-Laws of the Registrant.
(3) Not Applicable.
(4) Not Applicable.
*(5) Investment Advisory Agreements.
(6) Distribution Agreement.
(7) Not Applicable.
*(8) Custody Agreement.
*(9) Administrative Services Agreement.
*(10) Consent of Messrs. Battle Fowler LLP as to the
legality of the securities being registered,
including their consent to the filing thereof and as
to the use of their name under the heading "Counsel
and Independent Auditors" in the Prospectus and the
Statement of Additional Information.
(11) Consent of Independent Accountants.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Distribution and Services Agreement.
(16) Not Applicable.
(17) Not Applicable.
(18) Not Applicable.
*(19) Power of Attorney.
- ------------------------
* Filed with Pre-Effective Amendment No. 1 to said Registration Statement
on August 28, 1995, and is incorporated herein by reference.
-i-
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
TITLE OF CLASS as of March 15, 1996
--------------- ------------------------
Shares of Beneficial The Life Cycle Equity Fund 69
Interest The Life Cycle Bond Fund 45
The Life Cycle Retirment
Income Fund 11
The Life Cycle Harvest Fund 4
Item 27. INDEMNIFICATION.
(a) In accordance with Section 2-418 of the General Corporation
Law of the State of Maryland, Article NINTH of the Registrant's
Articles of Incorporation provides as follows:
"NINTH: (1) The Corporation shall indemnify (i) its
currently acting and former directors and officers, whether
serving the Corporation or at its request any other entity, to
the fullest extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest
extent permitted by law, and (ii) other employees and agents to
such extent as shall be authorized by the Board of Directors or
the By-Laws and as permitted by law. Nothing contained herein
shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
such by-laws, resolutions or contracts implementing such
provisions or such indemnification arrangements as may be
permitted by law. No amendment of the charter of the Corporation
or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, and the
Investment Company Act of 1940, no director or officer of the
Corporation shall be personally liable to the Corporation or its
stockholders for money damages; provided, however, that nothing
herein shall be construed to protect any director or officer of
the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment
or repeal."
(b) In Section nine of the Distribution Agreement relating to the
securities being offered hereby, the Registrant agrees to
indemnify and hold harmless any person who controls Furman Selz
Incorporated, within the meaning of the Securities Act of 1933,
against certain types of civil liabilities arising in connection
with the Registration Statement or Prospectus.
-ii-
<PAGE>
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The description of the Registrant's adviser, Benson White &
Company, under the caption "Management of the Fund" in the Prospectus and
"Management of the Fund" in the Statement of Additional Information constituting
parts A and B, respectively, of the Registration Statement are incorporated
herein by reference.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Life Cycle Mutual Funds Distributors, Inc., located at 230
Park Avenue, New York, New York 10169, is the Registrant's Distributor.
(b) The following are the directors and officers of Life Cycle
Mutual Funds Distributors, Inc. The principal business address of each of these
persons is 230 Park Avenue, New York, New York 10169:
Positions and Offices Positions and Offices
NAME With The Distributor With Registrant
- ---- --------------------- ---------------------
Edmund A. Hajim Chairman of the Board None
Roy L. Furman Director, President None
Bernard T. Selz Chairman of the None
Executive Committee
Michael C. Petrycki Director, Executive None
Vice President
Steven D. Blecher Executive Vice President None
and Secretary
Robert J. Miller Treasurer None
Elizabeth Q. Solazzo Director, Executive None
Vice President and
Assistant Secretary
Brian P. Friedman Executive Vice None
President
(c) There are no affiliated persons of the Underwriter who are
not affiliated with the Registrant.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at Benson
White & Company, 656 East Swedesford Road, Suite 322, Wayne, Pennsylvania 19087,
the Registrant's Manager; Furman Selz LLC, 230 Park Avenue, New York, New York
10169, the Registrant's transfer and accounting agent; and The Bank of New York,
90 Washington Street, 22nd Floor, New York, New York 10286, the custodian.
Item 31. MANAGEMENT SERVICES.
Not Applicable.
Item 32. UNDERTAKINGS.
(a) Not Applicable.
(b) The Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the registrants
latest annual report to shareholders, upon request and
without charge.
-iii-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it has met all
of the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, and State of New York, on the 25th day of March, 1996.
LIFE CYCLE MUTUAL FUNDS, INC.
By: /s/ TIMOTHY W. CUNNINGHAM
-------------------------------
Timothy W. Cunningham, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
(1) Principal Executive Officer:
By:/S/ TIMOTHY W. CUNNINGHAM President March 25, 1996
-------------------------
Timothy W. Cunningham
(2) Principal Financial and
Accounting Officer:
By:/S/ CLAY B. MANSFIELD Treasurer March 25, 1996
-----------------------
Clay B. Mansfield
(3) Majority of all Directors:
Frederik Fazer Director
Thomas Flanigan Director
Robert Straniere Director
By:/S/ TIMOTHY W. CUNNINGHAM March 25, 1996
-------------------------
Timothy W. Cunningham
As Attorney-in-Fact*
- ----------------
* An executed copy of the power of attorney was filed with Pre-Effective
Amendment No. 1 to said Registration Statement on August 28, 1995, as
Exhibit 19 and is incorporated herein by reference.
-iv-
<PAGE>
Exhibit Index
(6) Distribution Agreement.
(11) Consent of Independent Accountants.
(15) Distribution and Services Agreement.
(16) Schedule for Computation
(17) Financial Data Schedule
EXHIBIT 6
DISTRIBUTION AGREEMENT
LIFE CYCLE MUTUAL FUNDS, INC. (the "Fund")
Life Cycle Equity Fund
Life Cycle Bond Fund
Life Cycle Retirement Income Fund
Life Cycle Harvest Fund (the "Portfolios")
656 East Swedesford Road - Suite 322
Wayne, Pennsylvania 19087
February 29, 1996
Life Cycle Mutual Funds Distributors, Inc.
230 Park Avenue
New York, New York 10169
Gentlemen:
1. In consideration of the agreements on your part herein
contained and of the payment by us to you of compensatory asset-based sales
charges in an amount not to exceed 0.50% per annum of each Portfolio's average
daily net assets and on the terms and conditions set forth herein, we have
agreed that you shall be, for the period of this agreement, a distributor, as
our agent, for the unsold portion of each Portfolio of such number of shares of
our common stock, $.001 par value per share, as may be effectively registered
from time-to-time under the Securities Act of 1933, as amended (the "1933 Act").
This agreement is being entered into and the payment of the asset-based sales
charges are being made to you pursuant to the Distribution and Service Plan (the
"Plan") adopted by us on behalf of the Portfolios in accordance with Rule 12b-l
under the Investment Company Act of 1940, as amended (the "1940 Act").
2. You will make payments from time-to-time from your fees
payable hereunder and your own resources and past profits for the following
purposes:
(i) to compensate certain financial intermediaries with whom
you have written contracts for providing assistance in distributing the
Portfolios' shares;
(ii) to pay the costs of printing and distributing the
Portfolios' prospectus to prospective investors; and
(iii) to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other
<PAGE>
promotional activities, including salaries and/or commissions of sales
personnel in connection with the distribution of the Portfolios'
shares.
3. We hereby agree that you will act as our agent, and hereby
appoint you our agent, to offer, and to solicit offers to subscribe to, the
unsold balance of shares of each Portfolio of common stock represented by the
Fund as shall then be effectively registered under the 1933 Act. You shall have
the right, as principal, to purchase shares of common stock of each Portfolio
represented by the Fund at its respective net asset value and to sell such
shares to the public against orders therefor at the applicable public offering
price, as defined below. You shall also have the right, as principal, to sell
shares to dealers against orders therefor at the public offering price less a
concession determined in accordance with the terms of the Fund's current
prospectus. The public offering price shall be the net asset value of the
respective Portfolio's shares, plus any applicable sales charge, all as set
forth in the Fund's current Prospectus and Statement of Additional Information.
4. All subscriptions for shares of our common stock obtained
by you shall be directed to us for acceptance and shall not be binding on us
until accepted by us. You shall have no authority to make binding subscriptions
on our behalf. We reserve the right to sell shares of each series of our common
stock through other distributors or directly to investors through subscriptions
received by us at our principal office. The right given to you under this
agreement shall not apply to any shares of our common stock issued in connection
with (a) the merger or consolidation of any other investment company with us,
(b) our acquisition by purchase or otherwise of all or substantially all of the
assets or stock of any other investment company, or (c) the reinvestment in
shares of our common stock by our stockholders of dividends or other
distributions or any other offering by us of securities to our stockholders.
5. You will use your best efforts to obtain subscriptions to
shares of each series of our common stock upon the terms and conditions
contained herein and in our Prospectus, as in effect from time-to-time. You will
send to us promptly all subscriptions placed with you. We shall furnish you from
time-to-time, for use in connection with the offering of shares of our common
stock, such other information with respect to us and shares of our common stock
as you may reasonably request. We shall supply you with such copies of our
Registration Statement and Prospectus, as in effect from time-to-time, as you
may request. Except as we may authorize in advance and in writing, you are not
authorized to give any information or to make any representation that is not
contained in the Registration Statement or Prospectus, as then in effect. You
may use employees, agents and other persons, at your cost and expense, to assist
you in carrying out your obligations hereunder, but no such employee, agent or
other person shall be deemed to be our agent or have any rights under this
Agreement. You may sell our shares to or through qualified brokers, dealers and
financial institutions under selling and servicing agreements, provided that no
dealer, financial institution or other person shall be appointed or authorized
to act as our agent without our prior written consent. We acknowledge that you
as Distributor to each Portfolio, pursuant to the Distribution and Service Plan
with each Portfolio, may arrange for
-2-
<PAGE>
broker-dealers whose customers or clients are Fund shareholders (each a
"Broker-Dealer") to enter into agreements with you as the Distributor pursuant
to which the Broker-Dealers will be compensated directly by the Distributor for
functions not performed by the Adviser, the Adviser's Shareholder Servicing
Agents, the Distributor, the Administrator or the Transfer Agent. Such payments
will be made only pursuant to written agreements approved in form and substance
by our Board of Directors to be entered into by the Distributor and the Broker-
Dealers. It is recognized that we shall have no obligation or liability to you,
the people or entities with whom you contract or any Broker-Dealer for any such
payments under such agreements with Broker-Dealers. Our obligation is solely to
make payments to the Adviser under both the Advisory Agreements and the
Shareholder Servicing Agreement and to you, the Distributor, under this
Distribution Agreement. All sales of our shares effected through you will be
made in compliance with all applicable federal securities laws and regulations
and the Constitution, rules and regulations of the National Association of
Securities Dealers, Inc.
6. We reserve the right to suspend the offering of shares of
our common stock at any time, in the absolute discretion of our Board of
Directors, and upon notice of such suspension, you shall cease to offer shares
of our common stock hereunder.
7. Both of us will cooperate with each other in taking such
action as may be necessary to qualify shares of our common stock for sale under
the securities laws of such states as we may designate, provided, that you shall
not be required to register as a broker-dealer or file a consent to service of
process in any such state where you are not now so registered. Pursuant to the
Advisory Agreements dated July 31, 1995 between us and the Adviser, we will pay
all fees and expenses of registering shares of all series of our common stock
under the 1933 Act and of qualification of shares of all series of our common
stock, and to the extent necessary, our qualification under applicable state
securities laws. You will pay all expenses relating to your broker-dealer
qualification.
8. We represent to you that our Registration Statement and
Prospectus have been carefully prepared to date in conformity with the
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Securities and Exchange Commission (the "SEC") thereunder. We represent and
warrant to you, as of the date hereof, that our Registration Statement and
Prospectus contain all statements required to be stated therein in accordance
with the 1933 Act and the 1940 Act and the SEC's rules and regulations
thereunder; that all statements of fact contained therein are or will be true
and correct at the time indicated or the effective date, as the case may be; and
that neither our Registration Statement nor our Prospectus, when they shall
become effective or be authorized for use, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of shares
of our common stock. We will from time-to-time file such amendment or amendments
to our Registration Statement and Prospectus as, in the light of future
development, shall, in the opinion of our counsel, be necessary in order to have
our Registration Statement and Prospectus at all times contain all material
facts required to be
-3-
<PAGE>
stated therein or necessary to make any statements therein not misleading to a
purchaser of shares of our common stock. If we shall not file such amendment or
amendments within fifteen days after our receipt of a written request from you
to do so, you may, at your option, terminate this agreement immediately. We will
not file any amendment to our Registration Statement or Prospectus without
giving you reasonable notice thereof in advance; provided, however, that nothing
in this agreement shall in any way limit our right to file such amendments to
our Registration Statement or Prospectus, of whatever character, as we may deem
advisable, such right being in all respects absolute and unconditional. We
represent and warrant to you that any amendment to our Registration Statement or
Prospectus hereafter filed by us will be carefully prepared in conformity within
the requirements of the 1933 Act and the 1940 Act and the SEC's rules and
regulations thereunder and will, when it becomes effective, contain all
statements required to be stated therein in accordance with the 1933 Act and the
1940 Act and the SEC's rules and regulations thereunder; that all statements of
fact contained therein will, when the same shall become effective, be true and
correct; and that no such amendment, when it becomes effective, will include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading to
a purchaser of our shares.
9. We agree to indemnify, defend and hold you, and any person
who controls you within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which you or
any such controlling person may incur, under the 1933 Act or the 1940 Act, or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in our Registration Statement or
Prospectus in effect from time-to-time or arising out of or based upon any
alleged omission to state a material fact required to be stated in either of
them or necessary to make the statements in either of them not misleading,
provided, however, that in no event shall anything herein contained be so
construed as to protect you against any liability to us or our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of your, duties, or by reason of
your reckless disregard of your obligations and duties under this agreement. Our
agreement to indemnify you and any such controlling person is expressly
conditioned upon our being notified of any action brought against you or any
such controlling person, such notification to be given by letter or by telegram
addressed to us at our principal office and sent to us by the person against
whom such action is brought within ten days after the summons or other first
legal process shall have been served. The failure so to notify us of any such
action shall not relieve us from any liability which we may have to the person
against whom such action is brought other than on account of our indemnity
agreement contained in this paragraph 9. We will be entitled to assume the
defense of any suit brought to enforce any such claim, and to retain counsel of
good standing chosen by us and approved by you. In the event we do elect to
assume the defense of any such suit and retain counsel of good standing approved
by you, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case we do
not elect to assume the defense of any
-4-
<PAGE>
such suit, or in case you, in good faith, do not approve of counsel chosen by
us, we will reimburse you or the controlling person or persons named as
defendant or defendants in such suit, for the fees and expenses of any counsel
retained by you or them. Our indemnification agreement contained in this
paragraph 9 and our representations and warranties in this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of you or any controlling person and shall survive the sale of any shares
of our common stock made pursuant to subscriptions obtained by you. This
agreement of indemnity will inure exclusively to your benefit, to the benefit of
your successors and assigns, and to the benefit of any of your controlling
persons and their successors and assigns. We agree promptly to notify you of the
commencement of any litigation or proceeding against us in connection with the
issue and sale of any shares of our common stock.
10. You agree to indemnify, defend and hold us, our several
officers and directors, and any person who controls us within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which we, our officers or directors, or any
such controlling person may incur under the 1933 Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by us,
our officers or directors or such controlling person shall arise out of or be
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by you to us for use in our Registration
Statement or Prospectus as in effect from time-to-time, or shall arise out of or
be based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. Your agreement
to indemnify us, our officers and directors, and any such controlling person is
expressly conditioned upon your being notified of any action brought against us,
our officers or directors or any such controlling person, such notification to
be given by letter or telegram addressed to you at your principal office and
sent to you by the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been served. You shall
have a right to control the defense of such action, with counsel of your own
choosing, satisfactory to us, if such action is based solely upon such alleged
misstatement or omission on your part, and in any other event you and we, our
officers or directors or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any such action. The
failure so to notify you of any such action shall not relieve you from any
liability which you may have to us, to our officers or directors, or to such
controlling person other than on account of your indemnity agreement contained
in this paragraph 10.
11. We agree to advise you immediately:
(a) of any request by the SEC for amendments to our
Registration Statement or Prospectus or for additional information,
-5-
<PAGE>
(b) of the issuance by the SEC of any stop order
suspending the effectiveness of our Registration Statement or Prospectus or the
initiation of any proceedings for that purpose,
(c) of the happening of any material event which
makes untrue any statement made in our Registration Statement or Prospectus or
which requires the making of a change in either of them in order to make the
statements therein not misleading, and
(d) of all action of the SEC with respect to any
amendments to our Registration Statement or Prospectus.
12. This Agreement will become effective on the date hereof
and will remain in effect thereafter for successive twelve-month periods
(computed from each March 1), provided that such continuation is specifically
approved at least annually by vote of our Board of Directors and of a majority
of those of our directors who are not interested persons (as defined in the 1940
Act) and have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan, cast in person at a meeting
called for the purpose of voting on this Agreement. In the event that the
Distribution and Service Plan is either terminated or is no longer valid, this
Agreement automatically and immediately terminates. This Agreement may be
terminated at any time, without the payment of any penalty, by vote of a
majority of our entire Board of Directors and by a vote of a majority of our
Directors who are not interested persons (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreement related to the Plan, or by vote of a majority of our outstanding
voting securities, as defined in the Act, on sixty days' written notice to you,
or by you on sixty days' written notice to us.
13. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and in
applicable rules or regulations of the SEC thereunder.
14. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers, directors or employees who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to another
corporation, firm, individual or association.
-6-
<PAGE>
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
LIFE CYCLE MUTUAL FUNDS, INC.
Life Cycle Equity Fund
Life Cycle Bond Fund
Life Cycle Retirement Income Fund
Life Cycle Harvest Fund
By: ------------------------
Name:
Title:
Accepted:
February 29, 1996
Life Cycle Mutual Funds Distributors, Inc.
By: -------------------------
Name:
Title:
-7-
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 1 to the
Registration Statement under the Securities Act of 1933 on Form N-1A (File
No. 33-94022) of our report dated August 18, 1995 on our audit of the Statement
of Assets and Liabilities of Life Cycle Mutual Funds, Inc. (comprised of the
Life Cycle Bond Fund, the Life Cycle Harvest Fund, the Life Cycle Equity Fund,
and the Life Cycle Retirement Income Fund) as of August 16, 1995.
We also consent to the reference to our Firm under the heading "Counsel and
Independent Auditors" in the Prospectus and Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
--------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 25, 1996
EXHIBIT 15
LIFE CYCLE MUTUAL FUNDS, INC.
Life Cycle Equity Fund
Life Cycle Bond Fund
Life Cycle Retirement Income Fund
Life Cycle Harvest Fund
Distribution and Service Plan Pursuant to Rule
12b-l Under the Investment Company Act of 1940
The Plan is adopted by Life Cycle Mutual Funds, Inc. (the "Fund"),
on behalf of its series Life Cycle Equity Fund, Life Cycle Bond Fund, Life Cycle
Retirement Income Fund and Life Cycle Harvest Fund (the "Portfolios") in
accordance with the provisions of Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act").
THE PLAN
1. The Fund, on behalf of each Portfolio, has entered into a
Distribution Agreement with Life Cycle Mutual Funds Distributors, Inc. (the
"Distributor"), in a form satisfactory to the Fund's Board of Directors, under
which the Distributor will act as distributor of the Portfolios' shares.
Pursuant to the Distribution Agreement, the Distributor will receive
compensatory payments from each Portfolio in an amount as set forth in such
Agreement and as agent of the Portfolios, (i) will solicit orders for the
purchase of the Portfolios' shares, provided that any subscriptions and orders
for the purchase of the Portfolios' shares will not be binding on the Portfolios
until accepted by the Portfolios as principal, and (ii) will make payments to
broker-dealers ("Broker-Dealers") and other financial institutions with which it
has written agreements and whose clients are Fund shareholders, for providing
distribution assistance on behalf of each of the Portfolios.
2. The Fund, on behalf of each of the Portfolios, also has entered
into a Shareholder Servicing Agreement with Benson White & Company (the
"Adviser"), in a form satisfactory to the Fund's Board of Directors, which
provides that the Adviser will receive shareholder servicing fees from each
Portfolio in an amount as set forth in such Agreement for performing shareholder
servicing functions. The Adviser may use such fees to compensate other parties
(each a "Shareholder Servicing Agent") with which it has written agreements and
whose clients are Portfolio shareholders for performing shareholder servicing
functions on behalf of the Portfolios.
3. Additionally, the Adviser may make payments from time to time
from its own resources (which may include the advisory fees of the Adviser) and
past profits for the following purposes:
<PAGE>
(i) to defray the costs of, and to compensate others,
including financial intermediaries with whom the Adviser has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of the Portfolios;
(ii) to compensate certain financial intermediaries with whom
the Distributor has entered into written agreements for providing
assistance in distributing the Portfolios' shares;
(iii) to pay the costs of printing and distributing the
Portfolios' prospectus to prospective investors; and
(iv) to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including
salaries and/or commissions of sales personnel in connection with the
distribution of the Portfolios' shares.
The Distribution Agreement will further provide that the Distributor, in its
sole discretion, will determine the amount of the payments pursuant to the Plan
with the Broker-Dealers or other financial institutions it has contracted with,
provided, however, that the payments will not increase the amount the Fund is
otherwise required to pay to the Distributor during any fiscal year under the
Distribution Agreement. The Shareholder Servicing Agreement will further provide
that the Adviser, in its sole discretion, will determine the amount of the
payments made pursuant to the Plan with the Shareholder Servicing Agents it has
contracted with, provided that such payments will not increase the amount which
the Fund is otherwise required to pay to the Adviser during any fiscal year
under the Shareholder Servicing Agreement.
4. In addition, the Adviser may make payments from time to time
from its fees under the Shareholder Servicing Agreement to Shareholder Servicing
Agents for the purpose enumerated in paragraph 3(i) above and the Distributor
may make payments from time to time from its fees under the Distribution
Agreement to Broker-Dealers or other financial institutions for the purpose
enumerated in paragraphs 3(ii), (iii) and (iv).
5. Each Portfolio will pay for (i) telecommunications expenses,
including the cost of dedicated lines and CRT terminals, incurred by the
Distributor and the Adviser in carrying out their obligations under their
respective Distribution and Shareholder Servicing Agreements,and (ii)
typesetting, printing and delivering each Portfolio's prospectus to existing
shareholders and preparing and printing subscription application forms for
shareholder accounts.
6. Payments by the Distributor to Broker-Dealers or other
financial institutions and payments by the Adviser to Shareholder Servicing
Agents for the purpose of distributing each Portfolio's shares and providing
shareholder servicing are subject to
-2-
<PAGE>
compliance by the Distributor and the Adviser with the terms of written
agreements in a form satisfactory to the Fund's Board of Directors to be entered
into between the Distributor and the Broker-Dealers, and between the Adviser and
the Shareholder Servicing Agents.
7. The Fund and the Distributor will prepare and furnish to the
Fund's Board of Directors, at least quarterly, written reports setting forth all
amounts expended for these purposes by the Portfolio, the Distributor and the
Adviser, pursuant to the Plan and identifying the activities for which such
expenditures were made.
8. The Plan became effective upon approval by (i) a majority of
the outstanding voting securities of the Portfolio (as defined in the Act), and
(ii) a majority of the Board of Directors of the Fund, including a majority of
the Directors who are not interested persons (as defined in the Act) of each
Portfolio and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement entered into in connection with the Plan,
pursuant to a vote cast in person at a meeting called for the purpose of voting
on the approval of the Plan.
9. The Plan will remain in effect from year to year after its
adoption, unless earlier terminated in accordance with its terms, and thereafter
may continue in effect for successive annual periods if approved each year in
the manner described in clause (ii) of paragraph 8 hereof.
10. The Plan may be amended at any time with the approval of the
Board of Directors of each Portfolio, provided that (i) any material amendments
of the terms of the Plan will be effective only upon approval as provided in
clause (ii) of paragraph 8 hereof, and (ii) any amendment which increases
materially the amount which may be spent by each Portfolio pursuant to the Plan
will be effective only upon the additional approval as provided in clause (i) of
paragraph 8 hereof.
11. The Plan may be terminated without penalty at any time (i)
by a vote of the majority of the entire Board of Directors of the Fund and by a
vote of a majority of the Directors of the Fund who are not interested persons
(as defined in the Act) of each Portfolio and who have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan, or (ii) by a vote of a majority of the outstanding voting securities
of each Portfolio (as defined in the Act).
Dated: February 29, 1996
-3-
EXHIBIT 16
LIFE CYCLE MUTUAL FUNDS
TOTAL RETURN CALCULATION INFORMATION
EQUITY BOND INCOME HARVEST
------ ---- ------ -------
NAV-INCEPTION 10.00 10.00 10.00 10.00
OFFERING-INCEPTION 10.39 10.39 10.39 10.39
REINVEST FACTOR 0.0440 0.1061 0.1078 0.0851
NAV-1/31/96 10.62 10.03 10.05 10.00
OFFERING-1/31/96 11.03 10.42 10.44 10.39
NAV RETURN 6.64 1.36 1.58 0.85
OFFERING RETURN 6.58 1.31 1.52 0.82
SHARES O/S-INCEPTION 2,500 2,500 2,500 2,500
SHARES O/S-1/31/96 68,004 11,519 16,451 100,649
<PAGE>
LIFE CYCLE MUTUAL FUNDS
SEC YIELD CALCULATION INFORMATION
EQUITY BOND INCOME HARVEST
------ ---- ------ -------
TOTAL INCOME 5,160 1,241 1,577 15,097
NET EXPENSES 2,710 479 595 6,500
MONTHLY AVERAGE DAILY
SHARES OUTSTANDING 61,134 11,076 16,182 101,043
OFFER PRICE 11.03 10.42 10.44 10.39
SEC YIELD 1.85 2.67 2.84 2.45
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> LIFE CYCLE EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 624
<INVESTMENTS-AT-VALUE> 624
<RECEIVABLES> 36
<ASSETS-OTHER> 46
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 746
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 683
<SHARES-COMMON-STOCK> 68
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40
<NET-ASSETS> 722
<DIVIDEND-INCOME> 4
<INTEREST-INCOME> 1
<OTHER-INCOME> 0
<EXPENSES-NET> 3
<NET-INVESTMENT-INCOME> 2
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 40
<NET-CHANGE-FROM-OPS> 42
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 66
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 697
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45
<AVERAGE-NET-ASSETS> 609
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.62
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> LIFE CYCLE BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> OCT-04-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 40
<INVESTMENTS-AT-VALUE> 40
<RECEIVABLES> 25
<ASSETS-OTHER> 77
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 26
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115
<SHARES-COMMON-STOCK> 12
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 116
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 91
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 40
<AVERAGE-NET-ASSETS> 83
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> LIFE CYCLE RETIREMENT INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> OCT-04-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 80
<INVESTMENTS-AT-VALUE> 81
<RECEIVABLES> 24
<ASSETS-OTHER> 86
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 191
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 26
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 164
<SHARES-COMMON-STOCK> 16
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1
<NET-ASSETS> 165
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1
<NET-CHANGE-FROM-OPS> 2
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16
<NUMBER-OF-SHARES-REDEEMED> 2
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 140
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39
<AVERAGE-NET-ASSETS> 107
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> LIFE CYCLE HARVEST FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> OCT-04-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 23
<ASSETS-OTHER> 1009
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1032
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 26
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1006
<SHARES-COMMON-STOCK> 101
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1006
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15
<OTHER-INCOME> 0
<EXPENSES-NET> 6
<NET-INVESTMENT-INCOME> 9
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 174
<NUMBER-OF-SHARES-REDEEMED> 76
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 981
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2
<AVERAGE-NET-ASSETS> 1020
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
