AMBAC U.S. Treasury Money Market Fund
AMBAC U.S. Government Money Market Fund
AMBAC Short-Term U.S. Government Income Fund
(Series of AMBAC Treasurers Trust)
300 Nyala Farms Road
Westport, Connecticut 06880
Statement of Additional Information dated November 1, 1995 as
supplemented May 10, 1996
AMBAC Treasurers Trust (the "Trust") is a diversified, open-end,
management investment company. AMBAC U.S. Treasury Money Market
Fund (the "Treasury Money Fund"), AMBAC U.S. Government Money
Market Fund (the "Government Money Fund"), and AMBAC Short-Term
U.S. Government Income Fund (the "Government Income Fund") (each a
"Fund" and, collectively, the "Funds") are the three initial
series of the Trust. Treasury Money Fund and Government Money
Fund are money market funds which seek to maintain stable net
asset values of $1.00 per share. Each of these Funds seeks high
current income, consistent with preservation of capital and
maintenance of liquidity. The investment objective of Government
Income Fund is to seek high current income, consistent with
preservation of capital. Government Income Fund maintains a
dollar-weighted average portfolio maturity of three years or less.
See "Investment Policies and Practices." AMBAC Investment
Management, Inc. (the "Investment Adviser") serves as the
investment adviser of the Funds. See "Investment Advisory
Arrangements." First Data Investor Services Group, Inc. serves as
the administrator of the Funds (the "Administrator").
Shares of the Trust are offered for sale on a no-load basis to
states and municipalities, and their sub-divisions and agencies,
as well as to other institutional investors. No sales commissions
or other charges are imposed upon the purchase or redemption of
shares. The minimum initial investment is $2,000,000 in
Government Money Fund, $1,000,000 in Government Income Fund and
$100,000 in Treasury Money Fund. See "Purchasing Shares." Shares
of the Trust are not insured by AMBAC Indemnity Corporation.
Investments in the Funds are not insured or guaranteed by the U.S.
Government and there can be no assurance that either Treasury
Money Fund or Government Money Fund will be able to maintain a
stable net asset value of $1.00 per share. See "Determination of
Net Asset Value."
Information about the Funds is set forth in separate Prospectuses
dated November 1, 1995 as supplemented May 10, 1996 for each of
the Funds, which provide the basic information you should know
before investing. The Prospectuses may be obtained without charge
by writing to the Transfer Agent or by calling 1-800-311-AMBAC
(2622). This Statement of Additional Information is not a
prospectus, but contains information in addition to and more
detailed than that set forth in each Prospectus. It is intended
to provide you with additional information regarding the
activities and operations of the Funds and the Trust, and should
be read in conjunction with each Funds Prospectus.
TABLE OF CONTENTS Page
INVESTMENT POLICIES AND PRACTICES 3
INVESTMENT RESTRICTIONS 6
PORTFOLIO TRANSACTIONS AND BROKERAGE 8
PURCHASING SHARES 8
SHAREHOLDER ACCOUNTS 9
REDEEMING SHARES 10
EXCHANGE PRIVILEGE 11
DETERMINATION OF NET ASSET VALUE 11
TAXES 12
INVESTMENT ADVISORY ARRANGEMENTS 13
TRUSTEES AND OFFICERS 14
EXPENSES 17
PERFORMANCE INFORMATION 17
GENERAL INFORMATION 19
FINANCIAL STATEMENTS 22
INVESTMENT POLICIES AND PRACTICES
The sections below provide additional information regarding the types
of investments that may be made by the Funds and the investment
practices in which the Funds may engage. The investment objective and
general investment policies of each Fund are described in the Funds
Prospectuses.
Treasury, Government and Agency Securities. Treasury Money Fund
invests 100% of its assets in short-term debt securities that are
direct obligations of the U.S. Treasury ("Treasury Securities") and
repurchase agreements collateralized by Treasury Securities.
Government Money Fund invests 100% of its assets in short-term debt
securities (including Treasury Securities) issued or guaranteed by the
U.S. government or an agency or instrumentality of the U.S. government
("Government Securities"), and repurchase agreements collateralized by
Government Securities. Government Income Fund invests primarily in
Government Securities and repurchase agreements collateralized by
Government Securities.
Treasury Securities consist of obligations issued by the U.S.
Treasury, including Treasury bills, notes and bonds. These are direct
obligations of the U.S. government and differ primarily in their rates
of interest and the length of their original maturities. Treasury
Securities are backed by the full faith and credit of the U.S.
government. Government Securities include Treasury Securities as well
as securities issued or guaranteed by agencies and instrumentalities
of the U.S. government ("Agency Securities"). As described in the
Prospectuses of Government Money Fund and Government Income Fund,
Agency Securities are in some cases backed by the full faith and
credit of the U.S. government. In other cases, Agency Securities are
backed solely by the credit of the governmental issuer. Certain
issuers of Agency Securities have the right to borrow from the U.S.
Treasury, subject to certain conditions. Government Securities
purchased by the Funds may include variable and floating rate
securities, which are described in the Prospectuses. Government
Income Fund may also purchase stripped Government Securities and
certain mortgage-backed Government Securities.
Stripped Government Securities. (Government Income Fund only.)
Government Income Fund may invest in component parts of Government
Securities, which represent either the principal (corpus) of a
particular obligation or the right to interest payments on the
obligation (coupon). Investments of this type may include:
obligations from which the interest coupons have been stripped;
interest coupons that have been stripped; stripped obligations
maintained in Federal Reserve book-entry form; and receipts evidencing
the component parts of obligations (corpus or coupons) that have not
actually been stripped. Receipts of this type evidence ownership of
the component parts of particular Government Securities that are held
in physical or book-entry form by a major commercial bank or trust
company pursuant to the terms of a custody agreement. Under these
arrangements, the interests in Government Securities held by a Fund
continue to be backed by the issuers of those securities.
Repurchase Agreements. As discussed in the Prospectuses, the Funds
may each enter into repurchase agreements. A repurchase agreement,
which may be viewed as a type of secured lending by a Fund, involves
the acquisition by a Fund of a security from a selling financial
institution such as a bank or broker-dealer. The agreement provides
that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at
a specified price and at a fixed time in the future. The Fund will
receive interest from the institution until the time when the
repurchase is to occur. Although such date is deemed to be the
maturity date of a repurchase agreement, the maturities of securities
that are purchased by the Funds through repurchase agreements are not
subject to any limitation as to maturity. The Funds may enter into
repurchase agreements maturing in more than seven days. However, a
Fund may not enter into such a repurchase agreement if, as a result,
more than 10% of the value of its net assets (15% of net assets in the
case of Government Income Fund) would be invested in repurchase
agreements under which the Fund does not have the right to obtain
repayment in seven days or less.
Because repurchase agreements involve certain risks not associated
with direct investment in securities, the Trust follows procedures
designed to minimize these risks. These procedures include
requirements that the Investment Adviser effect repurchase
transactions only with banks or primary dealers designated as such by
the Federal Reserve Bank of New York, and that the bank or dealer has
been determined by the Investment Adviser to present minimal credit
risk in accordance with guidelines established and monitored by the
Board of Trustees of the Trust. In addition, the collateral
underlying a repurchase agreement is required to be held by the
Trust's custodian in a segregated account on behalf of the Fund which
entered into the transaction. The collateral is marked to market
daily and required to be maintained in an amount at least equal to the
repurchase price plus accrued interest. In the event of a default or
bankruptcy by a selling financial institution, the Trust will seek to
liquidate the collateral. However, the exercise of the Trusts right
to liquidate collateral could involve certain costs or delays and, to
the extent that proceeds from any sale upon a default of the
obligation to repurchase are less than the repurchase price, the Fund
which entered into the transaction will suffer a loss.
When-Issued and Delayed Delivery Securities. As noted in each Funds
Prospectus, the Funds may purchase and sell securities on a when-
issued or delayed delivery basis. These transactions arise when a
Fund purchases or sells a security, with payment and delivery taking
place in the future beyond the normal settlement period. A
transaction of this type will be effected in order to secure for a
Fund an attractive price or yield at the time of entering into the
transaction. When purchasing securities on a when-issued or delayed
delivery basis, a Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. Because a Fund is
not required to pay for securities until the delivery date, these
risks are in addition to the risks associated with the Funds other
investments. If a Fund remains fully invested at a time during which
when-issued or delayed delivery purchases are outstanding, such
purchases will result in a form of leverage. When a Fund enters into
purchase transactions of this type, the Trusts custodian maintains,
in a segregated account for the Fund, cash and other debt obligations
held by the Fund and having a value equal to or greater than the
Funds purchase commitments. When a Fund has sold a security on a
when-issued or delayed delivery basis, the Fund does not participate
in further gains or losses with respect to the security. If the
counterparty fails to deliver or pay for the securities, the Fund
could miss a favorable price or yield opportunity, or could suffer a
loss. When a Fund enters into a sales transaction of this type, the
Trusts custodian segregates the securities sold on a delayed delivery
basis to cover the Funds settlement obligations.
Interest Rate Futures Contracts. (Government Income Fund only.)
Government Income Fund may purchase and sell U.S. exchange-traded
interest rate futures contracts. Currently, there are futures
contracts based on U.S. Treasury bonds, U.S. Treasury notes, three-
month U.S. Treasury bills and GNMA certificates. A clearing
corporation associated with the commodities exchange on which a
futures contract trades assumes responsibility for the completion of
transactions and guarantees that futures contracts will be performed.
Although futures contracts call for actual delivery or acceptance of
debt securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Government Income Fund does not pay or receive money upon the purchase
or sale of a futures contract. Instead, when the Fund enters into a
futures contract, it is initially required to deposit with its
custodian for the benefit of the broker (the futures commission
merchant) an amount of initial margin in cash or U.S. Treasury bills,
currently equal to approximately 1 1/2 to 2% of the contract amount for
futures on Treasury bonds and notes and approximately 1/10 of 1% of
the contract amount for futures on Treasury bills. Initial margin in
futures transactions is different from margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the customer to finance the transactions.
Rather, initial margin is in the nature of a good faith deposit on the
contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the futures
commission merchant are made on a daily basis as the market price of
the futures contract fluctuates. This process is known as "marking to
market." At any time prior to expiration of the futures contract, the
Fund may elect to close the position by taking an offsetting position
which will operate to terminate the Funds position in the futures
contract. While interest rate futures contracts provide for the
delivery and acceptance of securities, most futures contracts are
terminated by entering into offsetting transactions.
Certain of the considerations associated with the use of futures
contracts are discussed in the Prospectus of Government Income Fund.
Successful use of futures contracts by the Fund is also subject to the
ability of the Investment Adviser to predict correctly movements in
the direction of interest rates and other factors affecting markets
for securities. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would adversely
affect the price of securities in its portfolio and the price of such
securities increases instead, the Fund will lose part or all of the
benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash to meet daily variation
margin requirements, it may have to sell securities to meet such
requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market,
and the Fund may have to sell securities at a time when it is
disadvantageous to do so.
The hours of trading futures contracts on U.S. government securities
may not conform to the hours during which Government Income Fund may
trade such securities. To the extent that the futures markets close
before or after the Government Securities markets, significant
variations can occur in one market that cannot be reflected in the
other market.
The skills needed to trade futures contracts are different than those
needed to invest in securities. However, personnel of the Investment
Adviser have experience in managing securities portfolios which use
futures strategies similar to those used by Government Income Fund.
The Government Income Fund will maintain in a segregated account with
the Trusts custodian cash and Government Securities to cover the
Government Income Funds obligations on futures contracts.
Investment Characteristics. In managing the Funds, the Investment
Adviser attempts to balance the Funds goals of seeking high income
with their goals of seeking to preserve capital. For this reason, the
Funds do not necessarily invest in securities offering the highest
available yields. The maturities of the securities purchased by the
Funds and the Funds average portfolio maturities will vary from time
to time as the Investment Adviser deems consistent with the Funds
investment objectives and the Investment Advisers assessment of
risks, subject to applicable limitations on the maturities of
investments and dollar-weighted average portfolio maturity.
When market rates of interest increase, the market value of debt
obligations held by the Funds will decline. Conversely, when market
rates of interest decrease, the market value of obligations held by
the Funds will increase. Debt obligations having longer maturities
generally pay higher rates of interest, but the market values of
longer term obligations can be expected to be subject to greater
fluctuations from general changes in interest rates than shorter term
obligations. These changes will cause fluctuations in the amount of
daily dividends of the Funds and changes in the net asset value per
share of Government Income Fund. In extreme cases, changes in
interest rates could cause the net asset values per share of Treasury
Money Fund and Government Money Fund to decline. See "Determination
of Net Asset Value." In the event of unusually large redemption
demands, securities may have to be sold at a loss prior to maturity or
the Funds may have to borrow money and incur interest expense. The
Investment Adviser seeks to manage investment risk by purchasing and
selling investments for the Funds consistent with its best judgment
and expectations regarding anticipated changes in interest rates.
However, there can be no assurance that the Funds will achieve their
investment objectives.
INVESTMENT RESTRICTIONS
Each of the Funds is subject to a variety of investment restrictions.
Certain of these restrictions are deemed fundamental, and may not be
changed without the approval of the holders of a majority of a Fund's
outstanding voting securities. A "majority of the outstanding voting
securities" of a Fund for this purpose means the lesser of (i) 67% of
the shares of the Fund represented at a meeting at which holders of
more than 50% of the outstanding shares are present in person or
represented by proxy or (ii) more than 50% of the outstanding shares
of the Fund. As fundamental investment restrictions, a Fund may not:
(1) Purchase a security, other than a Government Security, if as a result of
such purchase more
than 5% of the value of the Funds assets would be invested in the securities
of any one issuer, or the
Fund would own more than 10% of the voting securities, or of any class of
securities, of any one issuer.
(For purposes of this restriction, all outstanding indebtedness of an issuer
is deemed to be a single class.)
(2) Purchase a security, other than a Government Security, if as a result of
such purchase 25% or
more of the value of the Funds total assets would be invested in the
securities of issuers engaged in any
one industry.
(3) Issue senior securities as defined by the Investment Company Act of 1940
(the "1940 Act") or
borrow money, except that each Fund may borrow from banks for temporary
extraordinary or emergency
purposes (but not for investment) in an amount up to one-third of the value
of its total assets (calculated
at the time of the borrowing). A Fund may not make additional investments
while it has any borrowings
outstanding. This restriction shall not be deemed to prohibit a Fund from
purchasing or selling
securities on a when-issued or delayed delivery basis, or entering into
repurchase agreements.
(4) Purchase or sell commodities or commodity contracts, or real estate or
interests in real estate
(including limited partnership interests), except that each Fund, to the
extent not prohibited by other
investment policies, may purchase and sell securities of issuers engaged in
real estate activities and may
purchase and sell securities secured by real estate or interests therein,
and in the case of Government Income Fund, may purchase and sell interest
rate futures contracts.
(5) Underwrite the securities of other issuers, except to the extent that,
in connection with the
disposition of securities, the Fund may be deemed to be an underwriter under
the Securities Act of 1933.
(6) Make loans of money or securities, except through the purchase of
permitted investments,
including repurchase agreements.
(7) Make short sales of securities or purchase securities on margin, except
for such short-term
credits as may be necessary for the clearance of transactions.
(8) Pledge, hypothecate, mortgage or otherwise encumber the Funds assets,
except as may be
necessary to secure permitted borrowings. (Collateral and other arrangements
incident to permissible
investment practices are not deemed to be subject to this restriction.)
The Funds have the following additional investment
restrictions which are not fundamental and may be changed by the Board
of Trustees, without a vote of shareholders. Under these
restrictions, a Fund may not:
(1) Make investments for the purpose of exercising control or management of
another company.
(2) Participate on a joint or joint and several basis in any trading account
in securities.
(3) Purchase any illiquid securities, except that each Fund may invest in
repurchase agreements
maturing in more than seven days provided that a Fund may not enter into
such a repurchase agreement
if more than 10% of the value of the Funds net assets (15% in the case of
Government Income Fund)
would, as a result, be invested in repurchase agreements under which the
Fund does not have the right to
obtain repayment in seven days or less. The Funds are authorized to invest
in restricted securities which
can be sold in transactions pursuant to Rule 144A under the Securities Act
of 1933 and which have been
determined to be liquid under procedures adopted by the Board of Trustees.
However, the Funds do not
intend to invest in any such restricted securities during the coming year.
(4) Invest in oil, gas or other mineral leases, rights, royalty contracts,
or exploration or
development programs.
(5) Invest in warrants or rights.
(6) Purchase the securities of another investment company, except in connection
with a merger,
consolidation, reorganization or acquisition of assets.
All percentage and other restrictions, requirements and limitations on
investments set forth in this Statement of Additional Information, and
those set forth in each Funds Prospectus, apply immediately after
purchase of an investment, and subsequent changes and events do not
constitute a violation or require the sale of any investment by a Fund
unless otherwise specified.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees of the
Trust, the Investment Adviser is responsible for decisions to buy and
sell securities for the Funds and for the selection of dealers to
effect those transactions. Purchases of securities for each Fund will
be made from issuers, underwriters and dealers. Sales of securities
will be made to dealers and issuers. The Funds do not normally incur
brokerage commissions on transactions in the types of securities in
which they invest. These transactions are generally traded on a "net"
basis, with dealers acting as principal in such transactions.
However, the price at which securities are purchased from and sold to
dealers will usually include a spread which represents a profit to the
dealer. Securities purchased in underwritten offerings include a
fixed amount of compensation to the underwriter (an underwriting
concession). Government Income Fund will incur commissions in
connection with its transactions in futures contracts.
In placing orders for the purchase and sale of investments for the
Funds, the Investment Adviser gives primary consideration to the
ability of dealers to provide the most favorable prices and efficient
executions on transactions. If such price and execution are
obtainable from more than one dealer, transactions may be placed with
dealers who also furnish research services to the Trust or the
Investment Adviser. Such services may include, but are not limited
to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or
factual information or opinions pertaining to investments; wire
services; and appraisals or evaluations of securities. These research
services may be of benefit to the Investment Adviser or its affiliates
in the management of accounts of other clients, or the accounts of the
Investment Adviser and its affiliated companies, and may not in all
cases benefit a particular Fund. While such services are useful and
important in supplementing the Investment Advisers own research and
facilities, the Investment Adviser believes the value of such services
is not determinable and does not significantly reduce its expenses.
The Investment Adviser may serve as the investment adviser to other
clients, including other investment companies, and will follow a
policy of allocating investment opportunities and purchase and sale
transactions equitably among its clients. In making such allocations,
the primary factors considered are the respective investment
objectives, the relative size of portfolio holdings of the same or
comparable securities, and the availability of cash for investment.
This procedure may have an adverse effect on a client, including one
or more of the Funds, in a particular transaction, but is expected to
benefit all clients on a general basis.
PURCHASING SHARES
As described under "Purchasing Shares" in each Funds Prospectus,
shares of each Fund are offered for sale, without a sales charge, at
their respective net asset values per share next computed after
receipt of a purchase order by 440 Financial Distributors, Inc., as
distributor of the Funds shares (the "Distributor"). Net asset value
is computed once daily as of 4:00 p.m. (Eastern time) for each Fund,
on each day on which both the New York Stock Exchange is open for
trading and the Federal Reserve Bank of New York is open (each, a
"Business Day"). See "Determination of Net Asset Value." The
following shows the calculation of the offering prices of shares of
the Funds as of the date of this Statement of Additional Information,
as supplemented:
Shares
Net Assets Outstanding Offering Price
Treasury Money Fund $25,554,954 25,554,954 $1.00
Government Money Fund $34,057,685 34,057,685 $1.00
Government Income Fund $33,330.00 3,333 $10.00
Distribution Arrangements. The Distributor has the exclusive right,
pursuant to a distribution agreement with the Trust dated as of
November 1, 1995 (the "Distribution Agreement"), to purchase shares of
the Funds for distribution and to enter into agreements with brokers
and dealers for the distribution of shares. Currently, shares of the
Funds are available for purchase solely from the Distributor.
The Board of Trustees, including a majority of the Trustees who are
not parties to the Distribution Agreement or "interested persons" of
the Investment Adviser or the Distributor, as defined by the 1940 Act
(the "Independent Trustees"), approved the Distribution Agreement at a
meeting held in person on October 9, 1995. The Distribution Agreement
will remain in effect until October 31, 1997, and may be continued in
effect from year to year thereafter if approved annually by the Board
of Trustees, including a majority of the Independent Trustees, by vote
cast in person at a meeting called for such purpose. The Distribution
Agreement may be terminated at any time, without penalty, by either
party upon 60 days' written notice and terminates automatically in the
event of an "assignment" as defined by the 1940 Act and the rules
thereunder. Under the Distribution Agreement, the Distributor is
required to bear all of the costs associated with distribution of
shares of the Funds, including the incremental cost of printing
prospectuses, annual reports and other periodic reports for
distribution to prospective investors and the costs of preparing,
distributing and publishing sales literature and advertising
materials. Unlike many other mutual funds, the Funds do not bear
expenses relating to the distribution of shares, and thus, do not make
any payments pursuant to a Rule 12b-1 plan or a services plan. In the
Distribution Agreement, the Trust has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act of 1933, as amended.
The Distributor is a wholly-owned subsidiary of First Data Investor
Services Group, Inc., which serves as the Trusts administrator. The
Distributors address is 4400 Computer Drive, Westbourgh,
Massachusetts 01581.
SHAREHOLDER ACCOUNTS
First Data Investor Services Group, Inc., as transfer agent (the
"Transfer Agent"), maintains one or more accounts for each shareholder
reflecting full and fractional shares of each Fund the shareholder
owns. Shareholders are sent confirmations of each account
transaction, and monthly statements showing account balances. The
Trust does not issue certificates for shares of the Funds.
Sub-account Services. Special procedures have been designed for
investors wishing to open multiple accounts. A single master account
may be opened by filing an application form with the Distributor,
signed by personnel authorized to act for the institution. Individual
sub-accounts may be opened at the time the master account is opened by
listing them, or they may be added at a later date by written advice
or by filing forms supplied by the Transfer Agent. Procedures are
available to identify sub-accounts by name and number within the
master account name. The investment minimums applicable to initial
and subsequent purchases of shares of the Funds, and the minimum
account balance requirement discussed below, apply to the aggregate
amounts invested by a shareholder for the master account (including
all sub-accounts) and not to the amount invested for individual sub-
accounts.
When sub-accounts have been established, the Transfer Agent provides
written confirmations of transactions in sub-accounts. The Transfer
Agent also provides monthly statements setting forth the share balance
of and the dividends and other distributions paid to the master
account, and monthly statements for each sub-account setting forth
transactions in the sub-account for the year-to-date, the total number
of shares owned and the dividends paid for the current month, as well
as for the year-to-date.
Further information on this service is available from the Transfer
Agent.
Minimum Account Balance. In order to avoid costs that are associated
with maintaining small accounts, shareholders should maintain account
balances of not less than $100,000 in any Fund. If an account balance
in Government Money Fund or Government Income Fund falls below
$100,000 as a result of share redemptions, the Trust has the right to
redeem all shares held in the account. There is no minimum account
balance for Treasury Money Fund; however, an in-active account with no
balance for a period of six months may be closed at the discretion of
the Trust. The applicable procedures are described in the Funds
Prospectuses. The Trust is under no obligation to compel the
redemption of any account.
REDEEMING SHARES
Redemption proceeds are normally paid as described in the
Prospectuses. However, the payment of redemption proceeds may be
postponed for more than seven days or the right of redemption
suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on the
New York Stock Exchange is restricted, (c) when an emergency exists as
a result of which disposal by a Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for a Fund
to determine fairly the value of its net assets, or (d) during any
other period when the Securities and Exchange Commission (the "SEC"),
by order, so permits for the protection of shareholders. Applicable
rules and regulations of the SEC will govern as to whether the
conditions described in (b) or (c) exist. In addition, in the event
that the Board of Trustees of the Trust determines that it would be
detrimental to the best interests of remaining shareholders of a Fund
to pay any redemption or redemptions in cash, a redemption payment may
be made in whole or in part by a distribution in kind of portfolio
securities held by the Fund, subject to applicable rules of the SEC.
Any securities distributed in kind will be readily marketable and will
be valued, for purposes of the redemption, in the same manner as such
securities are normally valued by the Fund in computing net asset
value per share. In the unlikely event that shares are redeemed in
kind, the redeeming shareholder would incur transaction costs in
converting the distributed securities to cash. The Trust has elected
to be governed by Rule 18f-1 under the 1940 Act and is therefore
obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of a Fund during any 90 day period for
any one shareholder.
EXCHANGE PRIVILEGE
As described under "Exchange Privilege" in each Funds Prospectus,
shareholders may exchange shares of one of the Funds for shares of any
of the other Funds based upon the relative net asset values per share
of the Funds at the time the exchange is effected. None of the Funds
currently impose any limitation on the frequency of exchanges, but may
impose such limitations upon notice to shareholders.
DETERMINATION OF NET ASSET VALUE
Each Funds Prospectus describes the days on which the net asset value
per share of the Fund is computed for purposes of purchases and
redemptions of shares by investors, and also sets forth the times as
of which such computations are made. Net asset value is computed once
each day on which both the New York Stock Exchange is open for trading
and the Federal Reserve Bank of New York is open. The New York Stock
Exchange currently observes the following holidays: New Year's Day;
Presidents' Day (third Monday in February); Good Friday (Friday before
Easter); Memorial Day (last Monday in May); Independence Day; Labor
Day (first Monday in September); Thanksgiving Day (fourth Thursday in
November); and Christmas Day. The Federal Reserve Bank of New York
currently observes all the holidays listed above except Good Friday,
in addition to Martin Luther Kings Birthday (third Monday in
January), Columbus Day (second Monday in October) and Veterans Day.
Treasury Money Fund and Government Money Fund. In accordance with
rules adopted by the SEC, the amortized cost method of valuation is
used to determine the value of the investments held by Treasury Money
Fund and Government Money Fund. This method of valuation is used by
the Funds in seeking to maintain stable net asset values of $1.00 per
share. However, no assurance can be given that the Funds will be able
to maintain stable share prices.
Amortized cost involves valuing a security at its cost and amortizing
any discount or premium over the period remaining until the maturity
of the security. This method of valuation does not take into account
unrealized capital gains and losses resulting from changes in the
market values of the securities. The market values of debt securities
purchased by the Funds will generally fluctuate as a result of changes
in prevailing interest rate level and other factors.
In order to use the amortized cost method of valuation, Treasury Money
Fund and Government Money Fund are each required to maintain a dollar-
weighted average maturity of 90 days or less, to purchase securities
with remaining maturities of 397 days or less and to invest only in
securities which have been determined by the Investment Adviser, under
procedures adopted by the Board of Trustees, to present minimal credit
risks and to be of eligible credit quality under applicable
regulations. In addition, procedures have been adopted by the Board
of Trustees which are designed to stabilize, to the extent reasonably
possible, the prices of shares of the Funds as computed for purposes
of sales and redemptions at $1.00. These procedures include review by
the Board of Trustees, at such intervals as it deems appropriate, to
determine whether the net asset value per share calculated by using
available market quotations deviates from the net asset value per
share of $1.00 computed by using the amortized cost method. If such
deviation exceeds of 1%, the Board will promptly consider what
action, if any, should be taken. The Trustees will take such action
as they deem appropriate to eliminate or to reduce, to the extent
reasonably practicable, any material dilution or other unfair results
which might arise from differences between the two valuation methods.
Such action may include selling instruments prior to maturity to
realize capital gains or losses or to shorten average maturity,
redeeming shares in kind, withholding dividends, paying distributions
from capital gains, or utilizing a net asset value per share based
upon available market quotations.
Government Income Fund. Portfolio securities held by Government
Income Fund are generally valued on the basis of bid quotations
obtained from principal market makers. If market quotations are not
readily available, portfolio securities are valued at their fair value
as determined under procedures adopted by the Board of Trustees of the
Trust. A pricing service may be used to value the Funds portfolio
securities. Such a service may use prices based on yields or prices
of securities of comparable quality, coupon, maturity and type,
indications as to value from dealers and general market conditions.
Securities with remaining maturities of less than 60 days are valued
at amortized cost unless the use of such valuation is determined not
to reflect fair value.
TAXES
It is the policy of the Trust to distribute each fiscal year
substantially all of the net investment income and net realized
capital gains, if any, of each Fund to shareholders. The Trust
intends that each Fund will qualify as a regulated investment company
under the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"). If so qualified, a Fund will not be subject to federal
income tax on that part of its net investment income and net realized
capital gains which it distributes to its shareholders. To qualify
for such tax treatment, a Fund must generally, among other things: (a)
derive at least 90% of its gross income from dividends, interest,
payments received with respect to loans of stock and securities, and
gains from the sale or other disposition of stock or securities and
certain related income; (b) derive less than 30% of its gross income
from the sale or other disposition of stock or securities or options,
forwards or futures thereon held less than three months; and (c)
diversify its holdings so that at the end of each fiscal quarter (i)
50% of the market value of the Fund's assets is represented by cash,
Government Securities and other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the Fund's assets or
10% of the voting securities of any issuer, and (ii) not more than 25%
of the value of its assets is invested in the securities of any one
issuer (other than Government Securities).
The Code requires regulated investment companies to pay a
nondeductible 4% excise tax to the extent they do not distribute 98%
of their ordinary income, determined on a calendar year basis, and 98%
of their capital gains, determined on an October 31 year end. The
Trust intends to distribute the income and capital gains of each Fund,
in the manner necessary, to avoid imposition of the 4% excise tax by
the end of each calendar year.
Fund dividends declared in October, November or December and paid the
following January will be taxable to shareholders as if received on
December 31 of the year in which they are declared.
In general, any gain or loss realized on a taxable disposition of
shares of a Fund by a shareholder that holds such shares as a capital
asset will be treated as long-term capital gain or loss if the shares
have been held for more than twelve months and otherwise as a short-
term capital gain or loss. However, any loss realized upon a
redemption of shares in a Fund held for six months or less will be
treated as a long-term capital loss to the extent of any distributions
of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under the
rules of Section 1091 of the Code relating to "wash sales" (i.e.,
purchase of substantially identical securities within a 61-day period
beginning 30 days before such disposition).
Futures Contracts. (Government Income Fund only.) Accounting for
futures contracts will be in accordance with generally accepted
accounting principles. Initial margin deposits made by Government
Income Fund upon entering into futures contracts will be recognized as
assets. During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses
by "marking to market" on a daily basis to reflect the market value of
the contract at the end of each days trading. Maintenance margin
payments are made or received, depending upon whether gains or losses
are incurred. Futures contracts held by Government Income Fund at the
end of each fiscal year may be required to be "marked to market" for
federal income tax purposes; that is, treated as having been sold at
market value. The straddle rules of Section 1092 of the Code may
require the Fund to defer losses incurred in certain transactions
involving securities and futures and may affect the Funds holding
period in the asset offsetting the futures contract. The Funds
ability to engage in futures transactions may be limited by these
rules.
The Funds transactions in futures contracts will be subject to
special tax rules that may affect the amount, timing and character of
Fund income and distributions to shareholders. For example, certain
exchange-traded futures contracts held by the Fund at the end of the
Funds taxable year will be treated as having been sold for their fair
market value on the last day of such taxable year, and gain or loss
will be taken into account for such year. Such gain or loss generally
will be treated as short-term capital gain or loss to the extent of
40% of such gain or loss, and long-term capital gain or loss to the
extent of 60% of such gain or loss. Certain positions held by the
Fund that substantially diminish its risk of loss with respect to
other positions in its portfolio may constitute "straddles," and may
be subject to special tax rules that would cause deferral of
recognition of losses by the Fund and adjustments to the holding
periods of securities held by the Fund. Certain tax elections exist
for straddles that may alter the effects of these rules. The Fund
will monitor its activities in futures contracts to ensure that they
do not affect its qualification as a regulated investment company.
INVESTMENT ADVISORY ARRANGEMENTS
The Investment Adviser, a Delaware corporation, with offices at 300
Nyala Farms Road, Westport, Connecticut 06880, is a wholly-owned
subsidiary of AMBAC Capital Corporation which, in turn, is a wholly-
owned subsidiary of AMBAC Inc. Through its subsidiaries, AMBAC Inc.
is a leading insurer of municipal and structured finance obligations
and a provider of investment contracts and interest rate swaps to
states, municipalities, and municipal authorities. AMBAC Inc. is a
publicly held company whose shares are traded on the New York Stock
Exchange.
Pursuant to an Investment Advisory Agreement with the Trust dated
November 1, 1995 (the "Agreement"), the Investment Adviser manages the
investment of each Funds assets and places orders for the purchase
and sale of investments for each Fund. The Investment Adviser is also
responsible under the Agreement for monitoring services provided by
the Administrator, the Transfer Agent and the Trust's custodian. The
Investment Adviser provides such additional management and
administrative services as the Trust or the Fund may require beyond
those furnished by the Administrator and furnishes, at its own
expense, such office space, facilities, equipment, clerical help, and
other personnel and services as may reasonably be necessary to render
the services under the Agreement. In addition, the Investment Adviser
pays the salaries of officers of the Trust and any fees and expenses
of Trustees of the Trust who are also officers, directors or employees
of the Investment Adviser, or, who are officers or employees of any
company affiliated with the Investment Adviser, and bears the cost of
telephone service, heat, light, power and other utilities associated
with the services it provides. As compensation for services rendered
and expenses assumed by the Investment Adviser, the Agreement provides
for the payment by each Fund of a monthly fee to the Investment
Adviser, which fee is calculated daily and computed at the annual rate
of .15% of the net assets of each of Treasury Money Fund and
Government Money Fund, and .35% of the net assets of Government Income
Fund.
Under the Agreement, total operating expenses of the Trust are subject
to applicable limitations under rules and regulations of states in
which shares of the Fund are sold. Therefore, operating expenses are
effectively subject to the most restrictive of such limitations as the
same may be amended from time to time. Presently, the most
restrictive limitation requires that if, in any fiscal year, a Funds
total operating expenses, exclusive of taxes, interest, brokerage
fees, distribution fees and extraordinary expenses (to the extent
permitted by applicable state securities laws and regulations), exceed
2 1/2% of the first $30,000,000 of average daily net assets, 2% of the
next $70,000,000 and 1 1/2% of any excess over $100,000,000, the
Investment Adviser will reimburse the Fund for the amount of such
excess. Such amount, if any, will be calculated daily and credited on
a monthly basis.
The Agreement provides that in the absence of willful misfeasance, bad
faith, negligence or reckless disregard of its obligations thereunder,
the Investment Adviser is not liable to the Trust or any of its
shareholders for any act or omission by the Investment Adviser or for
any losses sustained by the Trust or its shareholders. The Agreement
in no way restricts the Investment Adviser from acting as investment
adviser to others.
The Agreement was approved by the Board of Trustees of the Trust,
including a majority of the Trustees who are not parties to the
Agreement or "interested persons" of the Investment Adviser or the
Distributor, as defined in the 1940 Act (the "Independent Trustees"),
at a meeting held in person on October 9, 1995. The Agreement was
also approved on that date by the Investment Adviser, as the then sole
shareholder of the Trust. The Agreement will continue in effect until
September 30, 1997, and may be continued in effect from year to year
thereafter upon the approval of the Trust's shareholders or the Board
of Trustees. Each annual continuance also requires approval by a vote
of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such continuance. The Agreement
may be terminated at any time, as to any Fund, without penalty, on
sixty days written notice by the Board of Trustees of the Trust, by
vote of the holders of a majority (as defined in the 1940 Act) of the
outstanding shares of such Fund, or by the Investment Adviser. The
Agreement will automatically terminate in the event of its assignment
(as defined in the 1940 Act and the rules thereunder).
The Trust has acknowledged that the name "AMBAC" is a property right
of AMBAC Inc., and has agreed that AMBAC Inc. and its affiliated
companies may use and permit others to use that name. The Trust has
also agreed that, in the event the Agreement is terminated, the Trust
will eliminate the name "AMBAC" from its name, unless otherwise
consented to by AMBAC Inc. or any successor to its interest in such
name.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust has the overall responsibility for
monitoring the operations of the Trust and each Fund and supervising
the services provided by the Investment Adviser and other
organizations. The officers of the Trust are responsible for managing
the day-to-day operations of the Trust and each Fund.
Set forth below is information with respect to each of the Trustees
and officers of the Trust, including their principal occupations
during the past five years.
Name, Position with Trust, Age
and Address Principal Occupations
During Last Five Years
*W. Dayle Nattress
Trustee, President and Chief
Executive Officer, 47
* Chief Investment Officer,
AMBAC Inc. and AMBAC
Indemnity Corporation;
President and Chief
Executive Officer, AMBAC
Capital Management, Inc.;
formerly, from 1990 to 1991,
Senior Vice President,
Corporate Finance, Dean
Witter Reynolds Inc.
David E. A. Carson
Trustee, 61
17 Beacon Street
Bridgeport, Connecticut 06605
Chairman, President and
Chief Executive Officer,
Peoples Bank; President and
Chief Executive Officer,
Peoples Mutual Holdings
(bank holding company);
Director, United
Illuminating (electric
utility), CMIA Investments
and CT Mutual Financial
Services Series Fund, Inc.
(mutual funds and variable
annuities); Trustee,
American Skandia Trust
(variable annuities)
Donald W. Green
Trustee, 52
305 Hartford Road
South Orange, New Jersey 07079
Chief Financial Officer,
Managing Director and
Director, PlanEcon, Inc.
(economic consulting and
publications); formerly,
from 1988 to 1991, Executive
Vice President and Director,
The Mercator Corporation
(financial advisory and
merchant banking)
*C. Roderick ONeil
Trustee, 65
375 Park Avenue
Suite 2602
New York, New York 10152
Chairman, ONeil Associates
(investment and financial
consulting firm); Director,
AMBAC Inc., AMBAC Indemnity
Corporation, Fort Dearborn
Income Securities, Inc. and
Beckman Instruments, Inc.;
Trustee, Memorial Drive
Trust (finance)
Thomas J. Gandolfo
Treasurer, 35
Vice President and
Controller of AMBAC Capital
Management, Inc.;
Treasurer, AMBAC Investment
Management, Inc.; formerly,
from 1986 to 1994, Senior
Manager, Price Waterhouse
L.L.P.
Richard B. Gross
Secretary, 48
One State Street Plaza
New York, New York 10004
Senior Vice President,
General Counsel and
Secretary, AMBAC Inc.;
Senior Vice President, AMBAC
Indemnity Corporation;
Secretary, AMBAC Investment
Management, Inc.; formerly,
from 1990 to 1991, Senior
Vice President and General
Counsel of Citicorp
Insurance Group, Inc.
Anne G. Gill
Assistant Secretary, 33
One State Street Plaza
New York, New York 10004
Vice President and Counsel,
AMBAC Inc. and AMBAC
Indemnity Corporation and
Assistant Secretary, AMBAC
Indemnity Corporation;
formerly, from 1988 to 1993,
Associate, Hughes Hubbard &
Reed
Name, Position with Trust, Age
and Address Principal Occupations
During Last Five Years
Patricia L. Bickimer
Assistant Secretary, 43
One Exchange Place
Boston, Massachusetts 02109
Vice President and Associate
General Counsel, First Data
Investor Services Group,
Inc.; Chief Legal Officer of
440 Financial Distributors,
Inc.; formerly, from 1984 to
1994, Associate General
Counsel, The Boston Company
Advisors, Inc.
Gail A. Hanson
Assistant Secretary, 54
One Exchange Place
Boston, Massachusetts 02109
Counsel, First Data Investor
Services Group, Inc.;
formerly, from 1988 to 1994,
Associate, Bingham, Dana &
Gould
Therese M. Hogan
Assistant Secretary, 34
One Exchange Place
Boston, Massachusetts 02109
Manager, State Regulation,
First Data Investor Services
Group, Inc.; formerly, from
1992 to 1994, Senior Legal
Assistant, Palmer & Dodge;
prior thereto, from 1984 to
1992, Blue Sky Paralegal,
Robinson & Cole
Kevin Morrissey
Assistant Treasurer, 51
4400 Computer Drive
Westbourgh, Massachusetts 01581
Vice President, Financial
Administrator, First Data
Investor Services Group,
Inc.; formerly, from 1980 to
April, 1996, Vice President
and Treasurer, Keystone
Investments, Inc.
Except as otherwise indicated above, the address of each Trustee and
officer of the Trust is 300 Nyala Farms Road, Westport, Connecticut
06880. Mr. Nattress and Mr. ONeil are Trustees who are "interested
persons" of the Trust, as defined in the 1940 Act, by virtue of their
affiliations with the Investment Adviser and/or companies affiliated
with the Investment Adviser.
Trustees who are not employees of the Investment Adviser, or its
affiliated companies, are each paid an annual retainer of $5,000 and
receive an attendance fee of $750 for each meeting of the Board of
Trustees they attend. Members of the Audit Committee, of which each
of the Independent Trustees is a member, receive an attendance fee of
$750 for each Audit Committee meeting they attend. The Chairman of
the Audit Committee receives an additional $1,000 annual fee.
Officers of the Trust receive no compensation from the Trust. As of
the date of this Statement of Additional Information, the Trustees and
officers of the Trust, as a group, owned less than 1% of the
outstanding shares of the Trust and each Fund.
Trustee compensation from the Trust is as follows:
Compensation Table (Estimated)
Pensin or
Retirement Total
Aggregate Benefits Compensation
Compensation Accrued as Part from Trust
Name of Person from Trust of Fund Expenses paid to
Trustees
W. Dayle Nattress $0.00 $0.00 $0.00
David E. A. Carson $9,500 $0.00 $9,500
Donald W. Green $10,500 $0.00 $10,500
C. Roderick ONeil $8,000 $0.00 $8,000
EXPENSES
All expenses of the Trust and the Fund not expressly assumed by the
Investment Adviser, the Administrator or the Distributor, are paid by
the Trust. Expenses borne by the Trust include, but are not limited
to: fees paid to the Investment Adviser and the Administrator; the
fees and expenses of any registrar, custodian, accounting agent,
transfer agent or dividend disbursing agent; brokerage commissions;
taxes; registration costs of the Trust and its shares under federal
and state securities laws; the cost and expense of printing, including
typesetting, and distributing prospectuses and supplements thereto to
shareholders; all expenses of shareholders' and Trustees' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any
advisory board or committee who are not employees of the Investment
Adviser or any affiliate of the Investment Adviser; all expenses
incident to any dividend, withdrawal or redemption options; charges
and expenses of any outside service used for pricing shares of the
Trust; fees and expenses of legal counsel; fees and expenses of the
Trust's independent accountants; membership dues of industry
associations; interest on Trust borrowings; postage; insurance
premiums on property or personnel (including officers and Trustees) of
the Trust which inure to its benefit; and extraordinary expenses
(including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto). Certain
of the expenses of organizing the Trust and the Funds and of the
initial registration and qualification of shares of the Funds under
federal and state securities laws are being charged to each Funds
operations, as an expense, over a period not exceeding five years from
the date of commencement of the Trusts operations.
PERFORMANCE INFORMATION
Calculation of Yield. Treasury Money Fund and Government Money Fund
may publish quotations of "current yield" and "effective yield" in
advertisements, sales materials and shareholder reports. Current
yield is the simple annualized yield for an identified seven calendar
day period. This yield calculation is based on a hypothetical
account having a balance of exactly one share at the beginning of the
seven-day period. The base period return is the net change in the
value of the hypothetical account during the seven-day period,
including dividends declared on any shares purchased with dividends on
the shares but excluding any capital changes. Yield will vary as
interest rates and other conditions change. Yields also depend on the
quality, length of maturity and type of instruments held and operating
expenses of the Funds. Effective yield is computed by compounding the
unannualized seven-day period return as follows: by adding 1 to the
unannualized seven-day base period return, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result.
Effective yield = [(base period return + 1)365/7]-1
Government Income Fund may from time to time publish quotations of its
yield as calculated over a 30-day period in advertisements, sales
literature and shareholder reports. This yield will be computed by
dividing the Funds net investment income per share earned during a
specified 30-day period by the maximum offering price per share on the
last day of the period. Yield is calculated according to the
following formula:
YIELD = 2[( a-b + 1)6 - 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 receive dividends.
d = the maximum offering price per share on the last day of
the period.
Calculation of Total Return. Each Fund may also disseminate
quotations of its average annual total return and other total return
data from time to time. Average annual total return quotations for
the specified periods are computed by finding the average annual
compounded rates of return (based on net investment income and any
realized and unrealized capital gains or losses on investments over
such periods) that would equate the initial amount invested to the
redeemable value of such investment at the end of each period. In
making these computations, all dividends and distributions are assumed
to be reinvested and all applicable recurring and non-recurring
expenses are taken into account. The Funds also may quote annual,
average annual and annualized total return and aggregate total return
performance data, both as a percentage and as a dollar amount based on
a hypothetical investment amount, for various periods.
Total return quotations will be computed in accordance with the
following formula, except that as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than
average annual data, may be quoted:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 payment made
at the beginning of the period.
Actual annual or annualized total return data generally will be lower
than average annual total return data because the average rates of
return reflect compounding of return. Aggregate total return data,
which is calculated according to the following formula, generally will
be higher than average annual total return data because the aggregate
rates of return reflect compounding over longer periods of time:
ERV - P
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
Yield and total return quotations are based upon each Fund's
historical performance and are not intended to indicate future
performance. Each Fund's yield and total return fluctuate and will
depend upon not only changes in prevailing interest rates, but also
upon any realized gains and losses and changes in the Fund's expenses.
GENERAL INFORMATION
Description Of Shares. Interests in the Funds (presently, the only
three series of the Trust) are represented by shares of beneficial
interest, $.001 par value. The Trust is authorized to issue an
unlimited number of shares.
Each share of each Fund represents an equal proportionate interest in
that Fund with each other share of such Fund, without any priority or
preference over other shares. All consideration received for the
sales of shares of a particular Fund, all assets in which such
consideration is invested, and all income, earnings and profits
derived therefrom are allocated to and belong to that Fund. As such,
the interest of shareholders in each Fund are separate and distinct
from the interest of shareholders of the other Funds, and shares of a
Fund are entitled to dividends and distributions only out of the net
income and gains, if any, of that Fund as declared by the Board of
Trustees. The assets of each Fund are segregated on the Trust's books
and are charged with the expenses and liabilities of that Fund and
with a share of the general expenses and liabilities of the Trust not
attributable to any one Fund. The Board of Trustees determines those
expenses and liabilities deemed to be general, and these items are
allocated among the Funds as deemed fair and equitable by the Board of
Trustees in its sole discretion.
Control Persons and Holders of Securities. As of the date of this
Statement of Additional Information, as supplemented, the Investment
Adviser and its affiliates, AMBAC Inc. and AMBAC Indemnity Corporation
("AMBAC Indemnity"), each having its principal office at One State
Street Plaza, New York, New York, 10004, and AMBAC Financial Services
Holdings, Inc. ("AMBAC Holdings"), having its principal office at 300
Nyala Farms Road, Westport, Connecticut 06880, were the sole
shareholders of the Funds. By virtue of AMBAC Indemnity's ownership
of 90% of the outstanding shares of Treasury Money Fund and 74% of the
outstanding shares of Government Money Fund, together with holdings of
shares of such Funds by AMBAC Inc. (4% of Treasury Money Fund and 26%
of Government Money Fund), AMBAC Holdings (6% of Treasury Money Fund)
and the Investment Adviser (less than 1% of each of Treasury Money
Fund and Government Money Fund), AMBAC Indemnity and its parent, AMBAC
Inc., may be deemed to control those Funds and the Trust. By virtue
of the Investment Adviser's ownership of 100% of the outstanding
shares of Government Income Fund, the Investment Adviser and its
parents, AMBAC Capital Corporation ("AMBAC Capital"), 300 Nyala Farms
Road, Westport, Connecticut 06880, and AMBAC Inc., may be deemed to
control such Fund. These various control relationships over each Fund
(and the Trust) will continue to be deemed to exist until such time as
the above-described ownership of shares of a Fund (or the Trust) by
AMBAC Inc., AMBAC Indemnity and the Investment Adviser, as the case
may be, represents 25% or less of the outstanding shares of such Fund
(or the Trust). Through the exercise of voting rights with respect to
shares of the Funds, AMBAC Inc. and AMBAC Indemnity (in the case of
the Trust and Treasury Money Fund and Government Money Fund), and
AMBAC Inc., AMBAC Capital and the Investment Adviser (in the case of
Government Income Fund), would presently be able to determine the
outcome of shareholder voting on matters as to which the approval of
shareholders of those Funds (or the Trust) is required and, depending
upon the percentage of outstanding shares held in the future and the
number of shares voting on a matter, such companies may continue to
have such power even after they are no longer the sole shareholders of
the Funds.
Trustee and Officer Liability. Under the Trust's Declaration of Trust
and its By-Laws, and under Delaware law, the Trustees, officers,
employees and agents of the Trust are entitled to indemnification
under certain circumstances against liabilities, claims and expenses
arising from any threatened, pending or completed action, suit or
proceeding to which they are made parties by reason of the fact that
they are or were such Trustees, officers, employees or agents of the
Trust, subject to the limitations of the 1940 Act which prohibit
indemnification which would protect such persons against liabilities
to the Trust or its shareholders to which they would otherwise be
subject by reason of their own bad faith, willful misfeasance, gross
negligence or reckless disregard of duties.
Independent Public Accountants. KPMG Peat Marwick LLP, 99 High
Street, Boston, Massachusetts 02110, are the independent public
accountants of the Trust. The independent public accountants are
responsible for auditing the financial statements and prepare the tax
returns of the Funds. The selection of the independent public
accountants is approved annually by the Board of Trustees.
Custodian. Bankers Trust Company, 130 Liberty Street, New York, New
York 10006, serves as custodian of the Trust's assets and maintains
custody of each Funds cash and investments. Cash held by the
custodian, which may at times be substantial, is insured by the
Federal Deposit Insurance Corporation up to the amount of available
insurance coverage limits (presently, $100,000).
Shareholder Reports. Shareholders of the Trust will be kept fully
informed through annual and semi-annual reports showing
diversification of investments, securities owned and other information
regarding each Fund's activities. The financial statements of each
Fund are audited each year by the Trust's independent public
accountants.
Legal Counsel. Messrs. Cadwalader, Wickersham & Taft, New York, New
York, serve as counsel to the Trust.
Registration Statement. This Statement of Additional Information and
the Prospectus do not contain all of the information set forth in the
Registration Statement the Trust has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of
the fee prescribed by the rules and regulations of the SEC.
Use of Joint Statement of Additional Information. Each Fund
acknowledges that it is solely responsible for all information or lack
of information about the Fund in this Statement of Additional
Information, and no other Fund is responsible therefor. The Trustees
of the Trust have considered this factor in approving each Funds use
of this single combined Statement of Additional Information.
Financial Statements. The audited financial statements of each Fund
as of September 20, 1995 included in this Statement of Additional
Information have been audited by KPMG Peat Marwick LLP, independent
public accountants, as indicated in their report with respect thereto.
The financial statements are included herein in reliance upon the
authority of said firm as experts in accounting and auditing and
giving said report.
FINANCIAL STATEMENTS
Report of Independent Public Accountants
The Board of Trustees and Shareholder
AMBAC Treasurers Trust:
We have audited the accompanying statements of assets and liabilities
of AMBAC U.S. Treasury Money Market Fund, AMBAC U.S. Government Money
Market Fund and AMBAC Short-Term U.S. Government Income Fund,
portfolios of AMBAC Treasurers Trust (the Trust) as of September 20,
1995. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to
above present fairly, in all material respects, the financial position
of AMBAC U.S. Treasury Money Market Fund, AMBAC U.S. Government Money
Market Fund and AMBAC Short-Term U.S. Government Income Fund, as of
September 20, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
September 20, 1995
AMBAC TREASURERS TRUST
Statements of Assets and Liabilities
September 20, 1995
AMBAC
AMBAC AMBAC Short-Term
U.S. Treasury U.S. Government U.S.
Money Money Government
Market Fund Market Fund Income Fund
Assets:
Cash $ 33,335 33,335 33,330
Deferred organization costs 55,000 55,000 55,000
Prepaid registration fees 12,093 12,093 12,094
Total 100,428 100,428 100,424
Liabilities:
Accrued organizational and other
costs 67,093 67,093 67,094
Net assets $ 33,335 33,335 33,330
Shares outstanding 33,335 33,335 3,333
Net asset value per share $ 1.00 1.00 10.00
See notes to statements of assets and liabilities.
AMBAC TREASURERS TRUST
Notes to Statements of Assets and Liabilities
September 20, 1995
(1) General
(a) General
AMBAC Treasurers Trust (the Trust) was organized on June 27,
1995, as a Delaware business trust and is registered as an open-ended
management investment company under the Investment Company Act of
1940, as amended. The Trust currently consists of three separate
investment funds, AMBAC U.S. Treasury Money Market Fund, AMBAC U.S.
Government Money Market Fund and AMBAC Short-Term U.S. Government
Income Fund (each a "Fund"). As of September 20, 1995, the Trust and
each Fund has had no operations other than organizational matters and
the issuance of shares (33,335 of AMBAC U.S. Treasury Money Market
Fund, 33,335 of AMBAC U.S. Government Money Market Fund and 3,333
shares of AMBAC Short-Term U.S. Government Income Fund) to AMBAC
Investment Management, Inc. (AIMI), a wholly owned subsidiary of AMBAC
Inc. The Trust's financial statements are prepared in accordance with
generally accepted accounting principles.
(b) Organization Costs
Costs incurred by the Trust in connection with its organization,
and the organization of the Funds, have been deferred and will be
amortized on a straight-line basis over a five-year period from the
date on which each Fund commences operation of its investment
activities. The accrued organization costs are payable to AIMI. If
any of the initial shares of the Trust are redeemed by AIMI (or any
subsequent holder of such initial shares) during the period of
amortization of organization costs, the redemption proceeds will be
reduced by the pro-rata amount of unamortized organization costs based
on the number of initial shares being redeemed to the number of
initial shares outstanding at the time of the redemption.
(2) Investment Advisory, Administration and Other Services
The investment adviser to the Trust is AIMI (the "Adviser").
Pursuant to an Investment Advisory Agreement, the Adviser receives an
advisory fee computed daily and paid monthly at a rate of .15% per
annum of the net assets of the AMBAC U.S. Treasury Money Market Fund
and the AMBAC U.S. Government Money Market Fund and .35% of the net
assets of the AMBAC Short-Term U.S. Government Income Fund. The
Adviser has voluntarily agreed to waive its fee or absorb Fund
expenses to the extent necessary to assure that the ordinary operating
expenses do not exceed .20% of the average daily net assets of the
AMBAC U.S. Treasury Money Market Fund and AMBAC U.S. Government Money
Market Fund and .45% of the average daily net assets of the AMBAC
Short-Term U.S. Government Income Fund. The Adviser reserves the
right to modify or terminate at any time its agreement to waive fees
and absorb expenses.
First Data Investor Services Group, Inc. (First Data) serves as
the Trust's administrator and is compensated for those services at an
annual rate of .05% of the aggregate average daily net assets of the
Trust (lower rates apply at higher asset levels), subject to a minimum
monthly fee of $10,000. 440 Financial Distributors, Inc. ("440") acts
as the Trust's distributor pursuant to a separate Distribution
Agreement with the Trust. 440 receives no compensation under that
agreement. First Data and 440 are affiliated companies.
AMBAC TREASURERS TRUST
Notes to Statements of Assets and Liabilities, (Continued)
First Data also serves as the Trust's transfer agent and
dividend disbursing agent and is compensated for those services by
each Fund in the amount of $30,000 per year, plus certain shareholder
account fees. First Data also performs fund accounting for the Trust
and is compensated for those services, by each Fund, in the amount of
$36,000 per year (higher amounts apply at higher asset levels).
* Trustee who is an "interested person" of the Trust, as defined in the 1940
Act.
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