Reg. ICA No. 811-9068
File No. 33-94412
As filed via EDGAR with the Securities and Exchange
Commission on December 20, 1996
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. 4 |X|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 4 |X|
TRANS ADVISER FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
P.O. Box 90001
Bowling Green, Kentucky 42102-9001
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (502) 781-5000
Copy to:
Thomas A. Trantum Carl Frischling, Esq.
Mastrapasqua & Associates Kramer, Levin, Naftalis & Frankel
1801 West End Avenue, 18th Floor 919 Third Avenue
Nashville, Tennessee 37203 New York, New York 10022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
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<CAPTION>
<S> <C> <C> <C>
|_| immediately upon filing pursuant to |X| on January 1, 1997 pursuant to
paragraph (b) paragraph (b)
|_| 60 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(1) paragraph (a)(1)
|_| 75 days after filing pursuant to |_| on ( ) pursuant to
paragraph (a)(2) paragraph (a)(2) rule 485.
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If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Accordingly, no fee is payable herewith. A Rule
24f-2 Notice for the Registrant's fiscal year ending August 31, 1996 was filed
with the Commission on October 29, 1996.
<PAGE>
CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in each form of Prospectus of
the responses to the Items in Part A and location in each form of Prospectus and
the Statement of Additional Information of the responses to the Items in Part B
of Form N-1A).
Item Number
Form N-1A,
Part A Prospectus Caption
------ ------------------
1 Front Cover Page
2(a) Fee Table
(b) Not Applicable
3(a) Financial Highlights
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
4(a) Investment Objectives and Policies
(c) Investment Objectives and Policies;
Risks Factors
5(a) Management of Trans Adviser
Funds
(b) Management of Trans Adviser
Funds
(c) Management of Trans Adviser
Funds
(d) Management of Trans Adviser
Funds
(e) Management Trans Adviser of
Funds
<PAGE>
Item Number
Form N-1A,
Part A Prospectus Caption
------ ------------------
(f) Management of Trans Adviser
Funds
(g) Management of Trans Adviser
Funds
5A Not Applicable
6(a) General Information
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Cover Page
(f) Dividends and Taxes
(g) Dividends and Taxes
(h) Not Applicable
7(a) How to Invest
(b) Valuation of Shares; How to
Redeem Shares
(c) How to Invest; How to Redeem
Shares
(d) How to Invest
(e) Not Applicable
(f) Management of Trans Advisor
Funds
8(a) How to Redeem Shares
(b) How to Redeem Shares
(c) How to Redeem Shares
(d) How to Redeem Shares
9 Not Applicable
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<PAGE>
Item Number Statement of Additional
Part B Information Caption
------ -------------------
10 Front Cover Page
11 Table of Contents
12 Trans Adviser Funds
13 Investment Objectives and Policies
14 Management of the Company
15(a) Additional Information
(b) Additional Information
(c) Additional Information
16(a) Management of the Company
(b) Management of the Company
(c) Management of the Company
(d) Management of the Company
(e) Management of the Company
(f) Management of the Company
(g) Not Applicable
(h) Management of the Company
(i) Not Applicable
17 Management of the Company
18 Additional Information
19(a) Additional Purchase and Redemption
Information
(b) Valuation
(c) Not Applicable
20 Additional Purchase and Redemption
Information
21(a) Management of the Company
(b) Not Applicable
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<PAGE>
Item Number
Form N-1A, Statement of Additional
Part B Information Caption
------ -------------------
(c) Not Applicable
22 Performance Information
23 Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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<PAGE>
For Fund information, call (800) 308-TRAN or
contact us by E-mail at [email protected]
Trans Adviser Funds, Inc. (the "Company") is an open-end management investment
company incorporated under the laws of the State of Maryland. The Company
currently consists of six separate non-diversified investment funds, the
Growth/Value Fund, the Aggressive Growth Fund, the Intermediate Bond Fund, the
Kentucky Tax-Free Fund, the Tennessee Tax-Free Fund and the Money Market Fund.
This prospectus relates to the Growth/Value Fund, Aggressive Growth Fund,
Intermediate Bond Fund, Kentucky Tax-Free Fund and Money Market Fund only
(collectively, the "Funds"). Each of the Funds has a different investment
objective and the net asset value per share of each of the Funds (except the
Money Market Fund) will fluctuate as the value of its investment portfolio
changes in response to changing market conditions and other factors. The Money
Market Fund seeks to maintain a constant net asset value of $1.00 per share, but
there can be no assurance that net asset value will not vary.
Additional information about the Funds, contained in a Statement of
Additional Information dated January 1, 1997, has been filed with the Securities
and Exchange Commission and is available upon request without charge by writing
to the Company at its address or by calling the Company at the telephone number
(E-mail address) shown above. The Statement of Additional Information bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY TRANS FINANCIAL BANK, N.A., ANY OF ITS AFFILIATES, OR
ANY OTHER BANK. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR BY ANY
OTHER AGENCY. AN INVESTMENT IN THE COMPANY'S SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("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.
The date of this Prospectus is January 1, 1997
<PAGE>
HIGHLIGHTS
Summary. The Trans Adviser Family of Funds consists of a Growth/Value Fund,
Aggressive Growth Fund, Intermediate Bond Fund, Kentucky Tax-Free Fund,
Tennessee Tax-Free Fund and a Money Market Fund. Trans Financial Bank, N.A.,
headquartered in Bowling Green, Kentucky, is the Adviser and as such provides
the overall management necessary for the Funds' operations and oversees the
investment of their assets. The Adviser is a subsidiary of Trans Financial, Inc.
which is a full service financial services company with approximately $725
million in assets under management as of December 31, 1996. Mastrapasqua &
Associates, Inc. ("M&A"), located in Nashville, TN, is the sub-adviser of the
Funds and in this capacity will directly manage the Growth/Value and Aggressive
Growth Funds as well as provide an economic and strategic overview that will be
utilized by the entire Family of Funds.
Investment Style. The Fixed Income Funds will be actively managed using a
disciplined, relative-value investment style. Return enhancement and risk
control will be managed through interest rate and duration analysis, term
structure, and issue selection. The Growth Funds interrelate economic and
monetary factors such as liquidity, interest rates with sector analysis,
capitalization cycles and individual company fundamentals. In selecting
investments for the Growth Funds, M&A will purchase securities with a view
towards potential appreciation within a 36-month period.
Compensation. The Adviser receives monthly compensation from each Fund based on
the amount of assets under management. The Adviser, not the Funds, compensates
M&A pursuant to a sub-advisory agreement. See "Management of Trans Adviser
Funds."
How to Invest and Redeem Shares. Shares can be purchased or redeemed through
Forum Financial Services, Inc. ("Forum"), the principal distributor, at (800)
811-8258 or broker-dealers that have entered into a dealer agreement with Forum.
See: "How to Invest."
Investor Services and Privileges. Free telephone exchange and automatic
investment plan. See: "How to Invest" and "How to Redeem Shares."
Dividends. Growth Funds: declare and pay dividends at least annually from net
investment income; Fixed Income Funds: declare dividends daily and pay dividends
monthly from net investment income; election for automatic reinvestment or cash
receipt. See "Dividends and Taxes."
Risk Factors and Special Considerations. The Funds are non-diversified funds
(however, the Money Market Fund intends to comply with the diversification
requirements of Rule 2a-7 of the Investment Company Act of 1940) and all Funds
will comply with the diversification requirements of Section 851(6) of the
Internal Revenue Doce of 1986, as amended (the "Code"). Non-diversified Funds
may be invested in a limited number of issues; thus, there may be greater risk
in an investment in these Funds than in diversified investment companies.
Moreover, there are potential risks associated with certain of the Funds'
investments and additional risk considerations that may be associated with
certain techniques and strategies employed by the Funds, including those
relating to futures and options transactions. Such risks may not be incurred by
other investment companies which have similar investment objectives, but which
do not use these techniques and strategies. See "Risk Factors."
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<PAGE>
FEE TABLE
For a better understanding of the expenses you will incur when investing in a
Fund offered pursuant to this Prospectus, a summary of estimated expenses is set
forth below.
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Growth/ Aggressive Intermediate Kentucky Money
Value Growth Bond Tax-Free Market
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Commission Imposed
on Purchases (as a percentage of
offering price) 4.50% 4.50% 4.50% 4.50% NONE
Maximum Sales Commission Imposed
on Reinvested Dividends (as a
percentage of offering price) NONE NONE NONE NONE NONE
Maximum Contingent Deferred
Sales Commission (as a percentage
of original purchase price or
redemption proceeds, as applicable) NONE NONE NONE NONE NONE
Redemption Fees (as a percentage of
amount redeemed, if applicable) NONE NONE NONE NONE NONE
Exchange Fee NONE NONE NONE NONE NONE
Annual Fund Operating Expenses
(as a percentage of net assets)
Advisory Fees .58% .00% .00% .00% .01%
12b-1 Fees NONE NONE NONE NONE NONE
Shareholder Servicing .24% .24% .25% .18% .25%
Other Expenses 1.13% 1.71% .43% .64% .39%
Total Fund Operating Expenses 1.95%* 1.95%* .68%* .82%* .65%*
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Example:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return , (2) reinvestment of all dividends and distributions and (3)
redemption at the end of each time period:
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<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth/Value Fund $64 $103 $145 $262
Aggressive Growth Fund $64 $103 $145 $262
Intermediate Bond Fund $52 $ 66 $ 81 $126
Kentucky Tax-Free Fund $53 $ 70 $ 88 $142
Money Market Fund $ 7 $ 21 $ 36 $ 81
</TABLE>
The purpose of the table above is to assist an investor in the Funds in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. See "Management of Trans Adviser Funds" for a more
complete discussion of annual operating expenses of the Funds. The foregoing
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
* Total Fund Operating Expenses reflect the voluntary waiver of Advisory Fees,
Shareholder Servicing Fees and certain other expenses and the reimbursement
of certain expenses. Absent such voluntary waiver and expense reimbursement,
Advisory Fees, Shareholder Servicing Fees, Other Expenses and Total Fund
Operating Expenses, for each fund would be: Growth/Value Fund: 1.00%, .25%,
1.58% and
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<PAGE>
2.83%, respectively; Aggressive Growth Fund: 1.00%, .25%, 3.80% and 5.05%,
respectively; Intermediate Bond Fund: .40%, .25%, 1.39% and 2.04%,
respectively; Kentucky Tax-Free Fund: .40%, .25%, 1.00% and 1.65%,
respectively; and Money Market Fund: .20%,.25%, .54% and .99%,
respectively.
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
financial highlights for the Funds for the fiscal period ended August 31, 1996.
The information below has been audited by KPMG Peat Marwick LLP, independent
auditors for the Company, whose report thereon, together with the financial
statements of the Funds, is incorporated by reference into the Statement of
Additional Information.
SELECTED PER SHARE DATA AND
RATIOS FOR A SHARE
OUTSTANDING THROUGHOUT
THE PERIOD ENDED
AUGUST 31, 1996
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<CAPTION>
AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
GROWTH/VALUE GROWTH BOND TAX-FREE MARKET
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value Per Share. $10.00 $10.00 $10.00 $10.00 $1.00
------ ------ ------ ------ -----
Net Investment Income/(Loss)(c).... (0.06) (0.11) 0.57 0.51 0.05
Net Realized and Unrealized Gain (Loss)
on Investments................... 1.24 1.06 (0.25) 0.06 -
------ ------ ------- ------ ------
Distributions from Net Investment Income - - (0.57) (0.51) (0.05)
------ ------ ------- ------ ------
Ending Net Asset Value Per Share.... $11.18 $10.95 $9.75 $10.06 $1.00
------- ------ ------ ------- ------
Ratios to Average Net Assets:
Expenses(b) (e)................ 1.95% 1.95% 0.68% 0.82% 0.65%
Net Investment Income (Loss)(e).. (0 .62)% (1.26)% 6.31% 5.30% 4.94%
Total Return (f).................... 11.80% 9.50% 3.23% 5 .80% 4.70%
Portfolio Turnover Rate............. 21.12% 15.70% 12.38% 145.12% N/A
Average Commission Rate............ 0.07(d) 0.08(d) N/A N/A N/A
Net Assets at End of Period (000's
omitted)......................... $15,108 $6,550 $13,357 $15,840 $76,363
(a) Date of commencement of operations:
9/29/95 9/29/95 10/3/95 9/27/95 9/29/95
(b) During the period, various fees and expenses were waived and reimbursed.
Had such waiver and reimbursement not occurred, the ratio of expenses to
average net assets would have been:
2.83%(e) 5.05%(e) 2.04%(e) 1.65%(e) 0.99%
</TABLE>
(c) Calculated using weighted average shares outstanding for the period.
(d) Amount represents the average commission per share paid to brokers on
the purchase or sale of equity securities
(e) Annualized.
(f) Excludes applicable sales charge.
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Fund are described below.
Specific investment techniques that may be employed by the Funds are described
in a separate section of this Prospectus and in the Statement of Additional
Information. While each Fund's objective is fundamental and can only be changed
by vote of the majority of the outstanding shares of a particular Fund, the
Board of Directors of the Company reserves the right to change any of the
investment policies, strategies or practices of any of the Funds without
shareholder approval, except in those instances where shareholder approval is
expressly required.
The Growth/Value Fund seeks long-term capital appreciation primarily
through equity investments in companies whose valuation may not yet reflect the
prospect for accelerating earnings/cash flow growth. The Fund seeks to achieve
its objective by investing primarily in common stocks but also in preferred
stocks, convertible bonds and warrants of companies which, in the opinion of the
Fund's investment adviser, are expected to achieve growth of investment
principal over time. The investment style is to focus on companies that have a
demonstrated record of achievement with excellent prospects for earnings and/or
cash flow growth over a 3 to 5 year period. It is anticipated that the average
stock holding period will be within an 18 to 36 month time frame. Of course,
changes in fundamental outlook and market conditions can alter these time
horizons materially.
It is anticipated that common stocks will be the principal form of
investment by the Fund. The Fund's portfolio is comprised of securities of two
basic categories of companies: (1) "core" companies, which Fund management
considers to have experienced above-average and consistent long- term growth in
earnings/cash flow and to have excellent prospects for outstanding future
growth, and (2) "earnings/cash flow acceleration" companies, which Fund
management believes are either currently enjoying or are projected to enjoy a
dramatic increase in earnings and/or cash flow. Investments will largely be made
in companies of greater than $750 million capitalization. The Fund will invest
no more than 10% of its assets in companies with market capitalization of less
than $750 million at the time of purchase.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes. The Fund seeks to achieve its objective by investing
primarily in common stocks but also in preferred stocks, convertible bonds,
options and warrants of companies which in the opinion of the Fund's investment
adviser are expected to achieve growth of investment principal over time. Many
of these companies are in the small to medium-sized category (companies with
market capitalizations of less than $750 million at the time of purchase). In
addition, up to 15% of the Fund's assets may be invested in illiquid investments
or in private companies whose common shares are not actively traded on any
national or regional exchange.
The investment style is to focus on companies that have an excellent
prospect for earnings cash flow growth over a 3 to 5 year period. Of course,
changes in fundamental outlook and market conditions can alter potential returns
substantially. It is intended that the Aggressive Growth Fund will assume a more
expanded risk profile than will be the case with the Growth/Value Fund. While
this could result in above-average appreciation, there is no assurance that this
will in fact be the case and the potential exists for above-average
depreciation.
It is anticipated that common stocks will be the principal form of
investment by the Fund. The Fund's portfolio is comprised of securities of two
basic categories of companies: (1) "core" companies, which Fund management
considers to have experienced above-average and consistent long-term growth in
earnings/cash flow and to have excellent prospects for future growth, and (2)
"earnings/cash flow acceleration" companies, which Fund management believes are
either currently enjoying or are projected
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<PAGE>
to enjoy a dramatic increase in earnings and/or cash flow. Investments will
largely be made in companies of varying sizes, even those with less than $750
million capitalization.
Additionally, the Aggressive Growth Fund may invest a maximum of 20% of its
assets, and the Growth/Value Fund may invest a maximum of 30% of its assets, in
fixed-income securities rated Baa3 or better by Moody's Investors Service, Inc.
("Moody's") or BBB or better by Standard & Poor's Corporation ("S&P") or, if
unrated, deemed to be of comparable quality by M&A. The fixed income securities
in which such Funds may invest include U.S. Government obligations,
mortgage-backed securities, asset-backed securities, bank obligations, corporate
debt obligations and unrated obligations, including those of foreign issuers.
M&A will be particularly interested in growth companies that are likely to
benefit from new or innovative products, services or processes that should
enhance such companies' prospects for future growth in earnings/cash flow. As a
result of this policy, the market prices of many of the securities purchased and
held by the Growth/Value and Aggressive Growth Funds (the "Growth Funds") may
fluctuate widely. Any income received from securities held by the Growth Funds
will be incidental, and an investor should not consider a purchase of shares of
the Growth Funds as equivalent to a complete investment program.
The Intermediate Bond Fund seeks to provide as high a level of current
income as is consistent with the preservation of capital. The Fund invests
substantially all of its assets in marketable corporate debt securities, U.S.
Government securities, mortgage-related securities, other asset-backed
securities and cash or money market instruments. Normally, at least 65% of the
Fund's assets will be invested in bonds (debt securities of the types listed
below).
At least 60% of the value of the Intermediate Bond Fund's assets, measured
at the time of any purchase, must be invested in the following categories of
securities:
o marketable corporate debt securities, such as bonds, rated at the time of
purchase within the three highest investment grade ratings (A or better)
assigned by Moody's or S&P (all ratings discussed below refer to those assigned
by these two rating agencies) or, if not rated by either of these rating
agencies, determined by the Fund's investment adviser as being of investment
quality equivalent to securities rated A or better;
o U.S. Government securities including (1) direct obligations of the U.S.
Treasury (such as Treasury bills, notes and bonds), (2) obligations guaranteed
as to principal and interest by the U.S. Treasury such as Government National
Mortgage Association certificates (described below) and Federal Housing
Administration debentures, and (3) securities issued by U.S. Government
instrumentalities and certain Federal agencies that are neither direct
obligations of, nor guaranteed by, the U.S. Treasury;
o mortgage-related securities rated A or better, or unrated securities that
are determined to be of equivalent quality of (1) governmental issuers,
including Government National Mortgage Association certificates, which are
securities representing part ownership of a pool of mortgage loans on which
timely payment of interest and principal is guaranteed by the U.S. Government,
and securities issued and guaranteed as to the payment of interest and principal
by the Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation (but not backed by the U.S. Government); (2) private issuers,
including mortgage pass-through certificates or mortgage-backed bonds; and (3)
the governmental issuers mentioned above or private issuers, including
collateralized mortgage obligations and real estate mortgage investment conduits
which are issued in portions or tranches with varying maturities and
characteristics; some tranches may only receive the interest paid on the
underlying mortgages (IOs) and others may only receive the principal payments
(POs); the values of IOs and POs are extremely sensitive to interest rate
fluctuations and prepayment rates, and IOs are also subject to the
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<PAGE>
risk of early prepayment of the underlying mortgages which will substantially
reduce or eliminate interest payments (see the Statement of Additional
Information for more about these securities);
o other asset-backed securities rated A or better or unrated securities
that are determined by the Adviser to be of equivalent quality (unrelated to
mortgage loans) such as securities whose assets consist of a pool of motor
vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts or a pool of credit card loan receivables (see
the Statement of Additional Information for more about these securities); and
o cash or money market instruments, including commercial bank obligations
(certificates of deposit, which are interest-bearing time deposits; bankers'
acceptances, which are time drafts on a commercial bank where the bank accepts
an irrevocable obligation to pay at maturity and demand or time deposits) and
commercial paper (short-term notes with maturities of up to nine months issued
by corporations or government bodies).
The remaining 40% of the Intermediate Bond Fund's assets, measured at the
time of purchase, may be invested in debt securities rated below A or unrated
securities that are determined to be of equivalent quality, including marketable
corporate debt securities, mortgage-related securities and other asset-backed
securities. Securities rated within the fourth highest category (BBB, Baa) may
have speculative characteristics and display a weakened ability to pay interest
and repay principal under adverse economic conditions or changing circumstances.
However, securities rated lower than Baa or BBB or unrated securities that are
determined to be of equivalent quality (commonly known as "junk" or "high-yield,
high-risk" bonds) will represent less than 20% of the Fund's net assets and are
subject to independent investment analysis by the Adviser before purchase. The
Fund may from time to time invest in fixed-income securities of corporations
outside the U.S. or governmental entities, and the Fund may purchase or sell
various currencies on either a spot or forward basis in connection with these
investments.
Maturity. The maturity composition of the Intermediate Bond Fund's portfolio of
fixed-income securities will be adjusted in response to market conditions and
expectations. There are no restrictions on the maturity composition of the
portfolio, although it is anticipated that the Fund normally will be invested
substantially in intermediate-term (3 to 10 years to maturity) and long-term
(over 10 years to maturity) securities and have a dollar-weighted average
portfolio maturity between 3 and 10 years.
Loan Participations. The Intermediate Bond Fund may invest, subject to an
overall 10% limit on loans, in loan participations, typically made by a
syndicate of banks to U.S. and non-U.S. corporate or governmental borrowers for
a variety of purposes. The underlying loans may be secured or unsecured, and
will vary in term and legal structure. When purchasing such instruments the Fund
may assume the credit risks associated with the original bank lender as well as
the credit risks associated with the borrower. Investments in loan
participations present the possibility that the Fund could be held liable as a
co-lender under emerging legal theories of lender liability. In addition, if the
loan is foreclosed, the Fund could be part owner of any collateral, and could
bear the costs and liabilities of owning and disposing of the collateral. Loan
participations are generally not rated by major rating agencies and may not be
protected by the securities laws. Also, loan participations are generally
considered to be illiquid and are therefore subject to the Fund's overall 15%
limitation on illiquid securities.
The Kentucky Tax-Free Fund seeks to provide as high a level of current
income exempt from Kentucky and Federal income taxes as is consistent with
preservation of capital by investing in municipal obligations which pay interest
exempt from Kentucky State and Federal income taxes. These municipal obligations
must, at the time of purchase, either be rated within the four highest credit
ratings (considered as investment grade) assigned by Moody's or S&P, or, if
unrated, be determined to be of comparable
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<PAGE>
quality by the Fund's Adviser. The Fund's shares are designed to be a suitable
investment for investors who seek income exempt from Kentucky State and regular
Federal income taxes.
Municipal Obligations. The Kentucky Tax-Free Fund (the "Tax-Free Fund") invests
in municipal obligations. Municipal obligations are issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities to obtain funds for various public
purposes. The two principal classifications of municipal obligations are "notes"
and "bonds." Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less while municipal
bonds have extended maturities. Municipal notes include: project notes, which
sometimes carry a U.S. Government guarantee; tax anticipation notes; revenue
anticipation notes; bond anticipation notes; construction loan notes; and
floating and variable rate demand notes. Municipal obligations also include
short-term debt, often issued for general purposes, known as "municipal
commercial paper." Municipal obligations include municipal lease/purchase
agreements which are similar to installment purchase contracts for property or
equipment. The purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities such as airports,
highways, bridges, schools, hospitals, housing, mass transportation, streets and
water and sewer works. Other public purposes for which municipal obligations may
be issued include the refunding of outstanding obligations, the obtaining of
funds for general operating expenses and the obtaining of funds to lend to other
public institutions and facilities.
In general, there are nine separate ratings, ranging from the highest to
the lowest quality standards for municipal obligations. So that the Tax-Free
Fund will have a portfolio of quality oriented (investment grade) securities,
the municipal obligations which the Fund will purchase must, at the time of
purchase, either (i) be rated within the four highest credit ratings assigned by
Moody's or S&P; or (ii) if unrated, be determined to be of comparable quality to
municipal obligations so rated by the Adviser, subject to the direction and
control of the Company's Board of Directors. Municipal obligations rated in the
fourth highest credit rating are considered by such rating agencies to be of
medium quality and thus may present investment risks not present in more highly
rated obligations. Such bonds lack outstanding investment characteristics and
may in fact have speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case for higher grade bonds.
If after purchase, the rating of any rated municipal obligation is downgraded
such that it could not then be purchased by the Tax-Free Fund, or, in the case
of an unrated municipal obligation, if the Adviser determines that the unrated
obligation is no longer of comparable quality to those rated obligations which
the Fund may purchase, it is the current policy of the Fund to cause any such
obligation to be sold as promptly thereafter as the Adviser in its discretion
determines to be consistent with the Fund's objectives; such obligation remains
in the Fund's portfolio until it is sold. In addition, because a downgrade often
results in a reduction in the market price of a downgraded obligation, sale of
such an obligation may result in a loss. See Appendix A to the Statement of
Additional Information for further information as to these ratings.
In seeking its objective of providing as high a level of current income
which is exempt from both Kentucky State and regular Federal income taxes as is
consistent with the preservation of capital, the Tax-Free Fund will invest in
Kentucky Obligations (as defined below). There is no assurance that the Fund
will achieve its objective.
As used in this Prospectus and the Statement of Additional Information,
the term "Kentucky Obligations" means obligations, including those of certain
non-Kentucky issuers, of any maturity which pay interest which, in the opinion
of bond counsel or other appropriate counsel, is exempt from regular Federal
income taxes and Kentucky income taxes. Although exempt from regular Federal
income tax, interest paid on certain types of Kentucky Obligations and dividends
which the Fund might pay from this
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interest are preference items as to the Federal alternative minimum tax; for
further information, see "Dividends and Taxes." As a fundamental policy, at
least 80% of the Fund's net assets will be invested in Kentucky Obligations the
income paid upon which will not be subject to the alternative minimum tax;
accordingly, the Fund can invest up to 20% of its net assets in obligations
which are subject to the Federal alternative minimum tax. The Fund may refrain
entirely from purchasing these types of Kentucky Obligations.
The non-Kentucky bonds or other obligations the interest on which is
exempt under present law from regular Federal and Kentucky income taxes are the
bonds or other obligations issued by or under the authority of Guam, the
Northern Mariana Islands, Puerto Rico and the Virgin Islands. As a
Kentucky-oriented fund, at least 65% of the Fund's total assets will be invested
in Kentucky Obligations of Kentucky issuers. The Fund invests in futures and
options on futures (see below) for protective (hedging) purposes. The Fund can
purchase industrial development bonds only if they meet the definition of
Kentucky Obligations, i.e., the interest on them is exempt from Kentucky State
and regular Federal income taxes.
Certain Stabilizing Measures
In attempting to protect against declines in the value of its investments and
other market risks, the Tax-Free Fund will employ such traditional measures as
varying maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash and cash
equivalents. Although the Fund has no current intention of using futures or
options, to the limited degree described below, these may be used to attempt to
hedge against changes in the market price of the Fund's municipal obligations
caused by interest rate fluctuations. Futures and options also may provide a
hedge against increases in the cost of securities the Fund intends to purchase.
Although it does not currently do so, the Tax-Free Fund may buy and sell
futures contracts relating to indices on municipal bonds ("municipal bond index
futures") and to U.S. Government securities ("U.S. Government securities
futures"); both kinds of futures contracts are "futures." The Fund may also
write and purchase put and call options on futures. As a matter of fundamental
policy,the Tax-Free Fund will not buy or sell a future or an option on a future
if thereafter more than 5% of the Fund's total assets would be in initial or
variation margin on such futures and options on them, and in premiums on such
options. (See the Statement of Additional Information).
Participation Interests
The Tax-Free Fund may purchase from financial institutions participation
interests in municipal obligations (such as industrial development bonds and
municipal lease/purchase agreements). A participation interest gives the Fund an
undivided interest in the underlying municipal obligations in the proportion
that the Fund's participation interest bears to the total amount of the
underlying municipal obligations. All such participation interests must meet the
Fund's credit requirements. Municipal lease obligations are issued by a state or
local government or authority to acquire land and a wide variety of equipment
and facilities. These obligations typically are not fully backed by the
municipality's credit, and their interest may become taxable if the lease is
assigned. If the funds are not available for the following year's lease
payments, the lease may terminate, with the possibility of default on the lease
obligation and significant loss to the Fund. Certificates of participation in
municipal lease obligations or installment sales contracts entitle the holder to
a proportionate interest in the lease-purchase payments made. The Tax-Free Fund
may invest up to 10% of its assets in participation interests.
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Current Policy as to Certain Obligations
The Tax-Free Fund will not invest more than 25% of its total assets in (i)
municipal obligations the interest on which is paid from revenues of similar
type projects or (ii) industrial development bonds, unless this Prospectus
and/or the Statement of Additional Information are supplemented to reflect the
change and to give additional information.
Kentucky. Kentucky's economy in many ways resembles a scaled-down version of the
U.S. economy in its diversity. The Kentucky economy, once dominated by coal,
horses, bourbon and tobacco has become a diversified modern economy including
manufacturing of industrial machinery, automobiles and automobile parts,
consumer appliances, and nondurable goods such as apparel. In addition,
Kentucky's nonmanufacturing industries have grown considerably in recent years,
with strong gains in air transportation, health and business services, and
retail trade. Kentucky's parks, horsebreeding and racing industry, symbolized by
the Kentucky Derby, play an important role in expanding the tourism industry in
Kentucky.
The Money Market Fund seeks current income with liquidity and stability of
principal. The Money Market Fund seeks to achieve this objective by investing in
a portfolio of high-quality, U.S. dollar-denominated money market instruments.
All securities in which the Money Market Fund invests have remaining maturities
of 397 days or less. The dollar-weighted average maturity of the securities will
not exceed 90 days. The Fund invests in:
o obligations of domestic financial institutions including certificates of
deposit, bankers' acceptances and time deposits.
o obligations of foreign branches of U.S. banks (Eurodollars) consisting of
certificates of deposit, bankers' acceptances and time deposits.
o obligations of the U.S. Government or any of its agencies or
instrumentalities which may be backed by the credit-worthiness of the issuing
agency.
o short-term corporate obligations, consisting of commercial paper, notes,
and bonds, with remaining maturities of 397 days or less.
o repurchase agreements with member banks of the Federal Reserve System and
primary dealers in U.S. Government securities with respect to any security in
which the Fund is authorized to invest.
o other short-term debt obligations of domestic issuers discussed in this
Prospectus.
The Money Market Fund may invest in obligations of foreign branches of U.S.
banks (Eurodollars). Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of portfolio securities may be held outside of the U.S. and the Fund
may be subject to the risks associated with the holding of such property
overseas. Various provisions of Federal law governing the establishment and
operation of domestic branches do not apply to foreign branches of domestic
banks. The Adviser, subject to the overall supervision of the Company's Board of
Directors, carefully considers these factors when making investments. The Fund
does not limit the amount of its assets which can be invested in any one type of
instrument or in any foreign country in which a branch of a U.S. bank or the
parent of a U.S. branch is located. Investments in obligations of foreign banks
are subject to the overall limit of 25% of total assets which may be invested in
a single industry.
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Available cash invested in the Money Market Fund earns income at current
money market rates while remaining conveniently liquid. In order to provide full
liquidity, the Fund will seek to maintain a stable $1.00 share price; limit
portfolio average maturity to 90 days or less; buy U.S. dollar-denominated
securities which mature in 397 days or less; and buy only high quality
securities with minimal credit risks. As required by Rule 2a-7 under the
Investment Company Act of 1940, as amended ("Rule 2a-7"), the Company's Board of
Directors will monitor the quality of the Fund's investments.
Of course, a $1.00 share price cannot be guaranteed, but these practices
help to minimize any price fluctuations that might result from rising or
declining interest rates. Accordingly, while the Fund invests in high quality
securities, investors should be aware that an investment is not without risk
even if all securities are paid in full at maturity. All money market
instruments, including U.S. government securities, can change in value when
interest rates change or an issuer's creditworthiness changes.
Limiting Investment Risks
The Money Market Fund follows specific guidelines in buying portfolio
securities:
The Fund will only purchase obligations that (i) are rated high quality by
two of the following four nationally recognized rating services: Duff & Phelps
Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), Moody's, and S&P, if
rated by two or more services; (ii) are rated high quality if rated by only one
rating service; or (iii) if unrated, are determined to be of equivalent quality
pursuant to procedures reviewed by the Board of Directors. Obligations that are
not rated are not necessarily of lower quality than those which are rated, but
may be less marketable and therefore may provide higher yields.
Currently, only obligations in the top two categories are considered to be
rated high quality for commercial paper. The two highest rating categories of
Duff, Fitch, Moody's and S&P are Duff 1 and Duff 2, Fitch-1 and Fitch-2, Prime-1
and Prime-2, and A-1 and A-2, respectively. Under Rule 2a-7, the Fund is not
permitted to invest more than 5% of its total assets in securities that would be
considered to be in the second highest rating category, and, subject to this
limitation, the Fund may not invest more than the greater of 1% of its total
assets or $1 million in such securities of any one issuer. The Fund may purchase
an instrument rated below highest quality by a rating service if two other
services have given that instrument a highest quality rating ("split rated"
obligation), and if the Adviser considers that the instrument is of highest
quality and presents minimal credit risks.
For other corporate obligations, the two highest rating categories are AAA
and AA by Duff, AAA and AA by Fitch, Aaa and Aa by Moody's and AAA and AA by
S&P. For a more complete description of these ratings see the Appendix to the
Statement of Additional Information.
The Money Market Fund will commit no more than 10% of its net assets to
illiquid securities, including repurchase agreements maturing in more than seven
days.
In addition, the Money Market Fund has certain other limitations. As a
matter of nonfundamental policy, the Fund will limit the percentage allocation
of its investments so as to comply with Rule 2a-7, which generally limits to 5%
of total assets the amount which may be invested in the securities of any one
issuer and to no more than 25% of total assets the amount which would be
invested in a particular industry, except that the Fund may invest more than 25%
of total assets in the securities of banks.
Currently, the Commission defines the term "bank" to include U.S. banks and
their foreign branches if, in the case of foreign branches, the parent U.S. bank
is unconditionally liable for such obligations. These limitations do not apply
to obligations of the U.S. Government or any of its agencies or
instrumentalities. The Money Market Fund does not consider utilities or
companies engaged in finance generally to be one industry. Finance companies
will be considered a part of the industry they finance
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(e.g., GMAC auto; VISA credit cards). Utilities will be divided according to the
types of services they provide; for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
The Money Market Fund may borrow money from banks or from other lenders,
but not in an amount equal to or exceeding 33 1/3% of the current value of its
total assets.
As a matter of operating policy, the Money Market Fund does not intend to
purchase securities for investment during periods when the sum of temporary bank
borrowings entered into to facilitate redemptions exceeds 5% of its total
assets. This operating policy is not fundamental and may be changed without
shareholder notification.
Other Investment Practices
Securities lending. In order to generate additional income, the Funds may, from
time to time, lend their portfolio securities to broker-dealers, banks or
institutional borrowers of securities. While the lending of securities may
subject the Fund to certain risks, such as delays or the inability to regain the
securities in the event the borrower were to default on its lending agreement or
enter into bankruptcy, the Funds will receive at least 100% collateral in the
form of cash or U.S. Government securities. This collateral will be valued daily
by the Adviser (M&A) and should the market value of the loaned securities
increase, the borrower will furnish additional collateral to the Funds. During
the time portfolio securities are on loan, the borrower pays the Funds any
dividends or interest paid on such securities. Loans are subject to termination
by the Funds or the borrower at any time. While the Funds do not have the right
to vote securities on loan, the Funds intend to terminate the loan and regain
the right to vote if that is considered important with respect to the
investment. The Funds will only enter into loan arrangements with
broker-dealers, banks or other institutions which the Adviser (M&A) has
determined are creditworthy under guidelines established by the Company's Board
of Directors.Borrowing. The Funds may borrow money from banks (including their
custodian bank) or from other lenders to the extent permitted under applicable
law, for temporary or emergency purposes and to meet redemptions and may pledge
their assets to secure such borrowings. Additionally, the Aggressive Growth Fund
may borrow for purposes of leveraging. Borrowing for investment increases both
investment opportunity and investment risk. Such borrowings in no way affect the
Federal tax status of the Funds or their dividends. If the investment income on
securities purchased with borrowed money exceeds the interest paid on the
borrowing, the net asset value of the Aggressive Growth Fund's shares will rise
faster than would otherwise be the case. On the other hand, if the investment
income fails to cover the Aggressive Growth Fund's costs, including the interest
on borrowings or if there are losses, the net asset value of such Fund's shares
will decrease faster than would otherwise be the case. This is the speculative
factor known as leverage.
The Investment Company Act of 1940, as amended (the "1940 Act") requires
the Funds to maintain asset coverage of at least 300% for all such borrowings,
and should such asset coverage at any time fall below 300%, the Funds would be
required to reduce their borrowings within three days to the extent necessary to
meet the requirements of the 1940 Act. To reduce their borrowings, the Funds
might be required to sell securities at a time when it would be disadvantageous
to do so.
In addition, because interest on money borrowed is a Fund expense that it
would not otherwise incur, the Funds may have less net investment income during
periods when its borrowings are substantial. The interest paid by the Funds on
borrowings may be more or less than the yield on the securities purchased with
borrowed funds, depending on prevailing market conditions.
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Short-term Trading. The Aggressive Growth Fund may engage in the technique of
short-term trading. Such trading involves the selling of securities held for a
short time, ranging from several months to less than a day. The object of such
short-term trading is to increase the potential for capital appreciation and/or
income of the Aggressive Growth Fund in order to take advantage of what M&A
believes are changes in market, industry or individual company conditions or
outlook. Any such trading would increase the turnover rate of the Aggressive
Growth Fund and its transaction costs.
When-issued Securities. Each of the Funds may also purchase securities on a
"when-issued" basis. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than that available in the market when delivery takes place. The Funds will
generally not pay for such securities or start earning interest on them until
they are received. When a Fund agrees to purchase securities on a "when-issued"
basis, the Company's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a segregated account.
Securities purchased on a "when-issued" basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. Each of the Funds expects that commitments to purchase "when-issued"
securities will not exceed 25% of the value of its total assets under normal
market conditions and that a commitment to purchase "when-issued" securities
will not exceed 60 days. In the event its commitment to purchase "when-issued"
securities ever exceeded 25% of the value of its assets, a Fund's liquidity and
the investment advisor's ability to manage it might be adversely affected. The
Funds do not intend to purchase "when-issued" securities for speculative
purposes, but only for the purpose of acquiring portfolio securities.
Variable and Floating Rate Securities. Each of the Funds may acquire variable
and floating rate securities, subject to each Fund's investment objectives,
policies and restrictions. A variable rate security is one whose terms provide
for the readjustment of its interest rate on set dates and which, upon such
readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate security is one whose terms provide
for the readjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value.
Repurchase Agreements. The Money Market Fund, the Intermediate Bond Fund and the
Aggressive Growth Fund may enter into repurchase agreements. Under a repurchase
agreement, a Fund acquires a debt instrument for a relatively short period
(usually not more than one week), subject to the obligation of the seller to
repurchase and the Fund to resell such debt instrument at a fixed price. The
resale price is in excess of the purchase price in that it reflects an
agreed-upon market interest rate effective for the period of time during which
the Fund's money is invested. Each Fund's repurchase agreements will at all
times be fully collateralized in an amount at least equal to 100% of the
purchase price including accrued interest earned on the underlying securities.
The instruments held as collateral are valued daily by the Adviser (M&A) and as
the value of instruments declines, the Funds will require additional collateral.
If the seller defaults and the value of the collateral securing the repurchase
agreement declines, a Fund may incur a loss. If such a defaulting seller were to
become insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, disposition of the underlying securities could involve
certain costs or delays pending court action. Finally, it is not certain whether
the Funds would be entitled, as against a claim of the seller or its receiver,
trustee in bankruptcy or creditors, to retain the underlying securities.
Repurchase agreements are considered by the staff of the Commission to be loans
by the Funds.
Reverse Repurchase Agreements. The Aggressive Growth Fund may borrow funds for
temporary purposes by entering into reverse repurchase agreements. Pursuant to
such agreements, the Fund sells portfolio securities to financial institutions
such as banks and broker-dealers, and agrees to repurchase them at a mutually
agreed-upon date and price. At the time the Fund enters into a reverse
repurchase
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<PAGE>
agreement, it must place in a segregated custodial account cash and liquid,
high-grade debt securities having a value equal to the repurchase price
(including accrued interest); the collateral will be marked to market on a daily
basis, and will be continuously monitored to ensure that such equivalent value
is maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Fund may decline below the price at which
the Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act.
Convertible Securities. The Growth Funds may invest in all types of common
stocks and equivalents (such as convertible debt securities and warrants) and
preferred stocks. The Funds may invest in convertible securities which may offer
higher income than the common stocks into which they are convertible. The
convertible securities in which the Funds may invest consist of bonds, notes,
debentures and preferred stocks which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. The Funds
may be required to permit the issuer of a convertible security to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Thus, the Funds may not be able to control whether the issuer of a
convertible security chooses to convert that security. If the issuer chooses to
do so, this action could have an adverse effect on a Fund's ability to achieve
its investment objectives.
Convertible securities are bonds, debentures, notes, preferred stock or
other securities which may be converted or exchanged by the holder into shares
of the underlying common stock at a stated exchange ratio. A convertible
security may also be subject to redemption by the issuer, but only after a date
and under certain circumstances (including a specified price) established on
issue. Adjustable rate preferred stocks are preferred stocks which adjust their
dividend rates quarterly based on specified relationships to certain indices of
U.S. Treasury securities. A Fund may continue to hold securities obtained as a
result of the conversion of convertible securities held by the Fund when M&A
believes retaining such securities is consistent with the Fund's investment
objectives.
Lower-rated Securities. The Aggressive Growth Fund may invest up to 20% of its
assets, the Growth/Value Fund may invest up to 10% of its assets and the
Intermediate Bond Fund may invest up to 30% of its assets in higher yielding
(and, therefore, higher risk), lower rated fixed-income securities, including
debt securities, convertible securities and preferred stocks and unrated fixed-
income securities. Lower rated fixed-income securities, commonly referred to as
"junk bonds", are considered speculative and involve greater risk of default or
price changes due to changes in the issuer's creditworthiness than higher rated
fixed-income securities. See "Risk Factors Lower Rated Fixed-Income Securities"
below for a discussion of certain risks.
Differing yields on fixed-income securities of the same maturity are a
function of several factors, including the relative financial strength of the
issuers. Higher yields are generally available from securities in the lower
categories of recognized rating agencies, i.e., Ba or lower by Moody's or BB or
lower by S&P. The Funds may invest in any security which is rated by Moody's or
by S&P, or in any unrated security which the Adviser (M&A) determines is of
suitable quality. Securities in the rating categories below Baa as determined by
Moody's and BBB as determined by S&P are considered to be of poor standing and
predominantly speculative. The rating services descriptions of these rating
categories, including the speculative characteristics of the lower categories,
are set forth in Appendix A of the Statement of Additional Information.
Securities ratings are based largely on the issuer's historical financial
information and the rating agencies' investment analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. Although the Adviser (M&A) will consider
security ratings when making investment decisions in the high yield market, it
will perform its own investment analysis and will not rely principally on the
ratings assigned by the rating services. The Adviser's (M&A's) analysis
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generally may include, among other things, consideration of the issuer's
experience and managerial strength, changing financial conditions, borrowing
requirements or debt maturity schedules, and its responsiveness to changes in
business conditions and interest rates. It also considers relative values based
on anticipated cash flow, interest or dividend coverage, asset coverage and
earnings prospects.
ADRs. The Growth Funds may invest in foreign securities through the purchase of
American Depositary Receipts but will not do so if immediately after a purchase
and as a result of the purchase the total value of such foreign securities owned
by a Fund would exceed 10% of the value of the total assets of the Fund.
Investment in foreign securities is subject to special risks, such as future
adverse political and economic developments, possible seizure, nationalization,
or expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source and
the adoption of other foreign governmental restrictions. Additional risks
include less publicly available information, the risk that companies may not be
subject to the accounting, auditing and financial reporting standards and
requirements of U.S. companies, the risk that foreign securities markets may
have less volume and therefore less liquidity and greater price volatility than
U.S. securities, and the risk that custodian and brokerage costs may be higher.
Options. The Aggressive Growth Fund may engage in writing put and call options
from time to time as M&A deems to be appropriate. Such options must be listed on
a national securities exchange and issued by the Options Clearing Corporation.
In order to close out a written call option position, the Fund will enter into a
"closing purchase transaction" the purchase of a call option on the same
security with the same exercise price and expiration date as any call option
which it may previously have written on any particular securities. When the
portfolio security is sold, the Fund effects a closing purchase transaction so
as to close out any existing call option on that security. If the Fund is unable
to effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the underlying
security upon exercise. When writing a covered call option, the Fund, in return
for the premium, gives up the opportunity for profit from a price increase in
the underlying security above the exercise price, but retains the risk of loss
should the price of the security decline. The Fund seeks to terminate its
position in a put option it writes before exercise by closing out the option in
the secondary market at its current price. If the secondary market is not liquid
for a put option the Fund has written, however, the Fund must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes and must continue to set aside assets to cover its position.
The Aggressive Growth Fund may purchase put options from time to time as
M&A deems to be appropriate. A put is a right to sell a specified security (or
securities) within a specified period of time at a specified exercise price. The
Fund has no intention of investing more than 5% of its assets in put options.
Warrants. The Growth Funds may invest in warrants which entitle the holder to
buy equity securities at a specific price for a specific period of time.
Warrants may be considered more speculative than certain other types of
investments because they do not entitle a holder to dividends or voting rights
with respect to the securities which may be purchased, nor do they represent any
rights in the assets of the issuing company. The value of a warrant may be more
volatile than the value of the securities underlying the warrants. Also, the
value of the warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exercised
prior to the expiration date.
Short-Term Obligations. With respect to each Fund there may be times when, in
the opinion of the Adviser (M&A), adverse market conditions exist, including any
period during which it believes that the return on certain money market type
instruments would be more favorable than that obtainable through a Fund's normal
investment programs. Accordingly, for temporary defensive purposes, each Fund
may hold up to 100% of its total assets in cash and/or short-term obligations.
To the extent that a Fund's assets are so invested, they will not be invested so
as to meet its investment objective. The instruments
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may include high grade liquid debt securities such as variable amount master
demand notes, commercial paper, certificates of deposit, bankers' acceptances,
repurchase agreements which mature in less than seven days and obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities.
Bankers' acceptances are instruments of United States banks which are drafts or
bills of exchange "accepted" by a bank or trust company as an obligation to pay
on maturity.
Futures Contracts. The Aggressive Growth Fund and the Tax-Free Fund may also
enter into contracts for the future delivery of securities and futures contracts
based on a specific security, class of securities or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
The Funds may enter into futures contracts in an effort to hedge against
market risks and in anticipation of future purchases or sales of securities. For
example, when interest rates are expected to rise or market values of portfolio
securities are expected to fall, a Fund can seek to offset a decline in the
value of its portfolio securities by entering into futures contract
transactions. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices than might later be available in the market
when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will give a
Fund the right (but not the obligation), for a specified price, to sell or to
repurchase the underlying futures contract, upon exercise of the option, at any
time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed 5% of a Fund's total assets (other than in
connection with bona fide hedging purposes), and the value of securities that
are the subject of such futures and options (both for receipt and delivery) may
not exceed one-third of the market value of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to
segregate assets to cover contracts that would require it to purchase
securities. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of the Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
Zero Coupon Bonds. The Growth/Value Fund, the Intermediate Bond Fund and the
Tax-Free Fund are permitted to purchase zero coupon securities ("zero coupon
bonds"). Zero coupon bonds are purchased at a discount from the face amount
because the buyer receives only the right to receive a fixed payment on a
certain date in the future and does not receive any periodic interest payments.
The effect of owning instruments which do not make current interest payments is
that a fixed yield is earned not only on the original investment but also, in
effect, on all discount accretion during the life of the obligations. This
implicit reinvestment of earnings at the same rate eliminates the risk of being
unable to reinvest distributions at a rate as high as the implicit yields on the
zero coupon bond, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, zero coupon bonds are
subject to substantially greater price fluctuations during periods of changing
market interest rates than are comparable securities which pay interest
currently, which fluctuation increases the longer
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<PAGE>
the period to maturity. Although zero coupon bonds do not pay interest to
holders prior to maturity, Federal income tax law requires a Fund to recognize
as interest income a portion of the bond's discount each year and this income
must then be distributed to shareholders along with other income earned by the
Fund. To the extent that any shareholders in a Fund elect to receive their
dividends in cash rather than reinvest such dividends in additional shares, cash
to make these distributions will have to be provided from the assets of the Fund
or other sources such as proceeds of sales of Fund shares and/or sales of
portfolio securities. In such cases, the Fund will not be able to purchase
additional income-producing securities with cash used to make such distributions
and its current income may ultimately be reduced as a result.
Receipts. The Growth/Value Fund and the Intermediate Bond Fund may also purchase
separately traded interest and principal component parts of such obligations
that are transferable through the Federal book entry system, known as Separately
Traded Registered Interest and Principal Securities ("STRIPS") and Coupon Under
Book Entry Safekeeping ("CUBES"). These instruments are issued by banks and
brokerage firms and are created by depositing Treasury notes and Treasury bonds
into a special account at a custodian bank; the custodian holds the interest and
principal payments for the benefit of the registered owner of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and
Certificates of Accrual on Treasury Securities ("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities,
which means that they are sold at a substantial discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. This discount is amortized over the life of the security, and such
amortization will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, these securities may be
subject to greater interest rate volatility than interest-paying U.S. Treasury
obligations. Each Fund will limit its investment in such instruments to 20% of
its total assets.
Investment Company Securities. Each Fund may invest in the securities of other
investment companies to the extent permissible under the applicable regulations
and interpretations of the 1940 Act or an exemptive order.
Illiquid Investments and Restricted Securities. Each Fund may invest up to 15%
(but, as a non-fundamental policy, the Money Market Fund may invest up to 10%)
of its assets in illiquid investments (investments that cannot be readily sold
within seven days), including restricted securities which do not meet the
criteria for liquidity established by the Company's Board of Directors. The
Adviser, under the supervision of the Company's Board of Directors, and M&A,
under the supervision of the Company's Board of Directors and the Adviser,
determine the liquidity of a Fund's investments. The absence of a trading market
can make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation and
legal expenses. Restricted Securities are securities which cannot be sold to the
public without registration under the Securities Act of 1933. Unless registered
for sale, these securities can only be sold in privately negotiated transactions
or pursuant to an exemption from registration.
Private Placement Investments. The Aggressive Growth Fund and the Money Market
Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under Federal securities
laws and is generally sold to institutional investors who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) commercial paper is normally resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
make a market in Section
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<PAGE>
4(2) commercial paper, thus providing liquidity. The Company believes that
Section 4(2) commercial paper and possibly certain other restricted securities
which meet the criteria for liquidity established by the directors are quite
liquid. The Company intends therefore, to treat the restricted securities which
meet the criteria for liquidity established by the directors, including Section
4(2) commercial paper, as determined by the Adviser (M&A), as liquid and not
subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the Company does not
intend to subject such paper to the limitation applicable to restricted
securities.
The ability of the Board of Directors to determine the liquidity of certain
restricted securities is permitted under a position of the staff of the
Commission set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a nonexclusive safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under Federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under Rule 144A. The
staff of the Commission has left the question of determining the liquidity of
all restricted securities to the directors. The directors consider the following
criteria in determining the liquidity of certain restricted securities
(including Section 4(2) commercial paper): the frequency of trades and quotes
for the security; the number of dealers willing to purchase or sell the security
and the number of other potential buyers; dealer undertakings to make a market
in the security; and the nature of the security and the nature of the
marketplace trades. The directors have delegated to the Adviser (M&A) the daily
function of determining and monitoring the liquidity of restricted securities
pursuant to the above criteria and guidelines adopted by the Board of Directors.
The directors will continue to monitor and periodically review the Adviser's
(M&A's) selection of Rule 144A and Section 4(2) commercial paper as well as any
determinations as to their liquidity.
RISK FACTORS
Lower Rated Fixed-Income Securities. Lower quality fixed-income securities
generally produce a higher current yield than do fixed-income securities of
higher ratings. However, these fixed-income securities are considered
speculative because they involve greater price volatility and risk than do
higher rated fixed-income securities and yields on these fixed-income securities
will tend to fluctuate over time. Although the market value of all fixed-income
securities varies as a result of changes in prevailing interest rates (e.g.,
when interest rates rise, the market value of fixed-income securities can be
expected to decline), values of lower rated fixed-income securities tend to
react differently than the values of higher rated fixed-income securities. The
prices of lower rated fixed-income securities are less sensitive to changes in
interest rates than higher rated fixed-income securities. Conversely, lower
rated fixed-income securities also involve a greater risk of default by the
issuer in the payment of principal and income and are more sensitive to economic
downturns and recessions than higher rated fixed-income securities. The
financial stress resulting from an economic downturn could have a greater
negative effect on the ability of issuers of lower rated fixed-income securities
to service their principal and interest payments, to meet projected business
goals and to obtain additional financing than on more creditworthy issuers. In
the event of an issuer's default in payment of principal or interest on such
securities, or any other fixed-income securities in a Fund's portfolio, the net
asset value of the Fund will be negatively affected. Moreover, as the market for
lower rated fixed-income securities is a relatively new one, a severe economic
downturn might increase the number of defaults, thereby adversely affecting the
value of all outstanding lower rated fixed-income securities and disrupting the
market for such securities. Fixed-income securities purchased by a Fund as part
of an initial underwriting present an additional risk due to their lack of
market history. These risks are exacerbated with respect to fixed-income
securities rated Caa or lower by Moody's or CCC or lower by S&P. Unrated
fixed-income securities generally carry the same risks as do lower rated
fixed-income securities.
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<PAGE>
Lower rated fixed-income securities are typically traded among a smaller
number of broker-dealers rather than in a broad secondary market. Purchasers of
lower rated fixed-income securities tend to be institutions, rather than
individuals, a factor that further limits the secondary market. To the extent
that no established retail secondary market exists, many lower rated
fixed-income securities may not be as liquid as Treasury and investment grade
bonds. The ability of a Fund to sell lower rated fixed-income securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. Moreover, the ability of a Fund to value lower rated fixed-income
securities becomes more difficult, and judgment plays a greater role in
valuation, as there is less reliable, objective data available with respect to
such securities that are thinly traded or illiquid.
Because investors may perceive that there are greater risks associated with
the lower rated fixed-income securities of the type in which a Fund may invest,
the yields and prices of such securities may tend to fluctuate more than those
for fixed-income securities with a higher rating. Changes in perception of
issuer's creditworthiness tend to occur more frequently and in a more pronounced
manner in the lower quality segments of the fixed-income securities market than
do changes in higher quality segments of the fixed-income securities market,
resulting in greater yield and price volatility. The speculative characteristics
of lower rated fixed-income securities are set forth in Appendix A of the
Statement of Additional Information.
The Adviser (M&A) believes that the risks of investing in such high
yielding, fixed-income securities may be minimized through careful analysis of
prospective issuers. Although the opinion of ratings services such as Moody's
and S&P is considered in selecting portfolio securities, they evaluate the
safety of the principal and the interest payments of the security, not their
market value risk. Additionally, credit rating agencies may experience slight
delays in updating ratings to reflect current events. The Adviser (M&A) relies,
primarily, on its own credit analysis. This may suggest, however, that the
achievement of a Fund's investment objective is more dependent on the Adviser's
(M&A's) proprietary credit analysis, than is otherwise the case for a fund that
invests exclusively in higher quality fixed-income securities.
Once the rating of a portfolio security or the quality determination
ascribed by the Adviser (M&A) to an unrated fixed-income security has been
downgraded, the Adviser (M&A) will consider all circumstances deemed relevant in
determining whether to continue to hold the security, but in no event will a
Fund retain such securities if it would cause the Fund to have 35% or more of
the value of its net assets invested in fixed-income securities rated lower than
Baa by Moody's or BBB by S&P, or if unrated, are judged by the Adviser (M&A) to
be of comparable quality.
The Funds may also invest in unrated fixed-income securities. Unrated
fixed-income securities are not necessarily of lower quality than rated
fixed-income securities, but they may not be attractive to as many buyers.
There is no minimum rating standard for a Fund's investments in the high
yield market; therefore, a Fund may at times invest in fixed-income securities
not currently paying interest or in default. The Funds will invest in such
fixed-income securities where the Adviser (M&A) perceives a substantial
opportunity to realize a Fund's objective based on its analysis of the
underlying financial condition of the issuer. It is not, however, the current
intention of any Fund to make such investments.
These limitations and the policies discussed in this Prospectus are
considered and applied by the Adviser (M&A) at the time of purchase of an
investment; the sale of securities by a Fund is not required in the event of a
subsequent change in circumstances.
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<PAGE>
Other Risk Factors
The portfolio turnover of each Fund may vary greatly from year to year as well
as within a particular year. High turnover rates will generally result in higher
transaction costs and higher levels of taxable realized gains to the Fund's
shareholders. For the fiscal period ended August 31, 1996, the portfolio
turnover rates for the Funds were: Growth/Value Fund: 21.12%; Aggressive Growth
Fund: 15.70%; Intermediate Bond Fund: 12.38%; and Kentucky Tax-Free Fund:
145.12%. (See "Additional Tax Information" in the Statement of Additional
Information.)
Particular portfolio securities and yields will differ due to differences
in the types of investments permitted, cash flow, and the availability of
particular portfolio investments. Market conditions and interest rates may
affect the types and yields of securities held in each Fund. The investment
objectives of the Funds are fundamental and may be changed only by a vote of a
majority of the outstanding shares of that Fund (as defined below under "General
Information Miscellaneous"). There can be, of course, no assurance that a Fund
will achieve its investment objective. Changes in prevailing interest rates may
affect the yield, and possibly the net asset value, of a Fund.
Each Fund is classified as a "non-diversified" investment company under the
1940 Act. Each Fund also intends to qualify as a "regulated investment company"
under the Code. One of the tests for such qualification under the Code is, in
general, that at the end of each fiscal quarter of each Fund, at least 50% of
its assets must consist of (i) cash and U.S. Government securities and (ii)
securities which, as to any one issuer, do not exceed 5% of the value of the
Fund's assets. If a Fund had elected to register under the 1940 Act as a
"diversified" investment company, it would have to meet the same test as to 75%
of its assets. Each Fund may therefore not have as much diversification among
securities, and thus diversification of risk, as if it had made this election
under the 1940 Act. In general, the more a Fund invests in the securities of
specific issuers, the more that Fund is exposed to risks associated with
investments in those issuers.
VALUATION OF SHARES
The net asset value per share of each Fund for purposes of pricing purchase and
redemption orders is determined as of the close of regular trading of the New
York Stock Exchange (the "Exchange") on each Business Day of the Fund. Fund
Business Days do not include the following holidays observed by the Exchange:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed). Days on which the Federal Reserve Wire Transfer Service is closed
(which include: Martin Luther King Day, Columbus Day and Veterans' Day), in
addition to Exchange holidays, are not Business Days for the Money Market Fund.
Net asset value per share for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets belonging to
a Fund, less the liabilities charged to that Fund, by the number of the
outstanding shares of that Fund.
The securities in each Fund except the Money Market Fund will be valued at
market value. If market quotations are not available, the securities will be
valued by a method which the Board of Directors of the Company believes
accurately reflects fair value. Investments in debt securities with remaining
maturities of 60 days or less will be valued based upon the amortized cost
method. For further information about valuation of investments in the Funds, see
the Statement of Additional Information.
The assets in the Money Market Fund are valued based upon the amortized
cost method. Pursuant to rules and regulations of the Commission regarding the
use of the amortized cost method, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less. Although the
Company seeks to maintain the Money Market Fund's net asset value per share at
$1.00, there can be no assurance that net asset value will not vary.
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<PAGE>
PURCHASES AND REDEMPTIONS OF SHARES
Shares of each Fund are sold and redeemed on all Fund Business Days at their net
asset value, plus a sales charge where applicable, next determined after receipt
of an order in proper form.
HOW TO INVEST
General Information. Investments in a Fund may be made by an investor directly
or through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through the Transfer
Agent, which accepts orders for purchases and redemptions from shareholders of
record and new investors. Shareholders of record will receive from the Company
periodic statements listing all account activity during the statement period.
The Company reserves the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders and to charge a
fee for certain shareholder services, although no such fees are currently
contemplated.
Minimum Investment Required. The minimum initial investment in a Fund is $1,000.
There is no minimum subsequent investment. The Company and Forum Financial Corp.
("FFC") each reserves the right to waive the minimum investment requirement.
Purchases By Mail. To purchase shares of a Fund by mail, simply send a completed
Account Registration Form obtainable from the Fund, to Trans Adviser Funds,
Inc., P.O. Box 446, Portland, Maine 04112, together with a check payable to the
Trans Adviser Funds in payment for the shares. If you need assistance in
completing the Account Registration Form call (800) 811-8258.
All purchases must be made in United States dollars and checks must be
drawn on a United States bank. Payment for shares may not be made by third party
checks, however, second party checks are acceptable when properly endorsed. The
Company reserves the right to limit the number of checks from one account
processed at one time. If your check does not clear, your purchase will be
canceled and you could be responsible for any losses or fees incurred. Payments
transmitted by check are subject to collection at full face amount.
Purchases By Wire. To purchase shares of the Funds by federal reserve wire, call
FFC at (800) 811-8258 by 12:00 noon (Eastern time) for the Money Market Fund and
by 4:00 p.m. (Eastern time) for each of the other Funds to place an order. If
FFC receives an order in proper form prior to 12:00 noon for the Money Market
Fund and prior to 4:00 p.m. (Eastern time) for each of the other Funds and
federal funds are received by the custodian by 12:00 noon (Eastern time) for the
Money Market Fund and by 4:00 p.m. for each of the other Funds that same day,
purchases of shares of the Funds will become effective on that Fund Business Day
and purchases of shares of the Money Market Fund will begin to earn dividends on
that Fund Business Day. Orders received after 12:00 noon for the Money Market
Fund and after 4:00 p.m. (Eastern time) for each of the other Funds will become
effective on the next Fund Business Day upon receipt of federal funds. The
Company reserves the right to close early and advance the time by which the
Money Market Fund must receive purchase or redemption orders and payments on
days that the New York Stock Exchange closes early, the public Securities
Association recommends that the government securities markets close early or due
to other circumstances which may effect a Fund's trading hours.
If an investor does not remit federal funds, such payment must be converted
into federal funds. Prior to receipt of federal funds, the investor's monies
will not be invested.
The following procedure will help insure prompt receipt of your federal
funds wire:
A. Telephone FFC toll free at (800) 811-8258 and provide the following
information:
Your name
Address
Telephone number
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<PAGE>
Taxpayer ID number
The amount being wired
The identity of the bank wiring funds
You will then be provided with a wire control number as well as a Fund
account number. (Investors with existing accounts must also notify the Company
prior to wiring funds.)
B. Instruct your bank to wire the specified amount to the Funds' custodian:
First National Bank of Boston
Boston, Massachusetts
ABA # 011 000 390
For Credit To: Forum Financial Corp.
Account Number: 541-54171
Trans Adviser Funds (Name of Fund)
Account Number:
Account Name:
An investor may open an account when placing an initial order by telephone,
provided the investor thereafter submits an Account Registration Form by mail.
An Account Registration Form may be obtained from the Funds.
If you own securities meeting the criteria for investment by the Fund in
which you want to invest, you may exchange such securities for shares of such
Fund. All such exchanges are discretionary with the Fund. If you desire to make
such an exchange, you should contact the Fund prior to delivering any securities
in order to establish that the securities are acceptable for exchange, to
determine what transaction charges, if any, may be imposed and to obtain
delivery instructions for such securities. The value of the securities being
exchanged will be determined in the same manner as the value of such Fund's
portfolio securities is determined (see "Valuation of Shares"); the specific
method of determining the value will be provided to you on request. A Fund
reserves the right to refuse any such exchange, even if the securities offered
by an investor meet the general investment criteria of the Fund. A capital gain
or loss for Federal income tax purposes may be realized by the investor
following the exchange. Maturing bonds or detached coupons submitted within five
(5) business days of the payment date are credited on the payment date.
The Company and FFC each reserves the right to reject any purchase order
for any reason.
Share Certificates. FFC maintains a share account for each shareholder. No share
certificates will be issued for shares unless requested in writing. In order to
facilitate redemptions and transfers, most shareholders elect not to receive
certificates. Shares are held in unissued form by FFC. Shares for which
certificates have been issued cannot be redeemed unless the certificates are
received together with the redemption request in proper form. Share certificates
are not issued for fractional shares.
Sales Charges. The public offering price of a share of a Fund equals the Fund's
net asset value per share plus a sales charge (except the Money Market Fund,
shares of which are sold at net asset value), set forth below as a percentage of
the Fund's average daily net assets. The Distributor receives this sales charge,
and may reallow all of it as dealer discounts and brokerage commissions. From
time to time, dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers. A broker or dealer who
receives reallowances in excess of 90% of the sales charge may be deemed to be
an
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<PAGE>
"underwriter" for purposes of the Securities Act of 1933. The Funds have a
reinstatement policy which allows an investor who redeems his/her shares to
reinvest within 90 days without incurring a sales charge.
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of:
Dealer Reallowance
Amount of Purchase Offering Price Amount Invested of Offering Price
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 to $99,999 4.00% 4.17% 3.50%
$100,000 to $249,999 3.50% 3.63% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 1.00% 1.01% .90%
$1,000,000 and over .25% .25% .25%
</TABLE>
The Distributor, at its expense, may also provide additional cash
compensation to dealers in connection with sales of shares of the Funds. The
maximum cash compensation payable by the Distributor is 90% of the sales charge
as a percent of the offering price. In addition, the Distributor will, from time
to time and at its own expense, provide compensation, including financial
assistance, to dealers in connection with conferences, sales or training
programs for their employees, seminars for the public, advertising campaigns
regarding one or more Funds and/or other dealer-sponsored special events
including payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Compensation will include the following types of
non-cash compensation offered through sales contests: (1) vacation trips
including the provision of travel arrangements and lodging; (2) tickets for
entertainment events (such as concerts, cruises and sporting events) and (3)
merchandise (such as clothing, trophies, clocks and pens). Dealers may not use
sales of a Fund's shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Fund or its shareholders.
The sales charges set forth in the above table are applicable to purchases
made at one time by any investor, which includes: (i) an individual, his or her
spouse and children under the age of 21; (ii) a trustee or other fiduciary of a
single trust estate or single fiduciary account; or (iii) any other organized
group of persons, whether incorporated or not, provided that such organization
has been in existence for at least six months and has some purpose other than
the purchase of redeemable securities of a registered investment company. In
order to qualify for a lower sales charge, all orders from an investor will have
to be placed through a single investment dealer and identified at the time of
purchase as originating from the same investor, although such orders may be
placed into more than one account which identifies the investor.
Sales Charge Waivers
The following classes of investors may purchase shares of the Funds at no sales
charge (which classes may be changed or eliminated at any time):
(1) Current or retired directors of the Trans Adviser Funds; employees,
directors, trustees, and their family members (i.e., an employee's, director's
or trustee's spouse, parents and children) of Trans Financial, Inc. or an
Affiliated Provider (Affiliated Providers refer to affiliates and subsidiaries
of Trans Financial, Inc. and service providers to the Trans Adviser Funds),
dealers having an agreement with the Distributor and any trade organization to
which Trans Financial Bank, N.A. or the Administrator belongs;
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<PAGE>
(2) Investors who purchase shares for trust, investment management or
certain other advisory accounts established with Trans Financial, Inc. or any of
its affiliates;
(3) Investors who purchase shares through a 401(k) plan sponsored by an
Affiliated Provider;
(4) Investors who reinvest assets received in a distribution from a
qualified, non-qualified or deferred compensation plan, agency, trust or custody
account that was either (a) maintained by Trans Financial, Inc. or an Affiliated
Provider, or (b) invested in a fund of the Trans Adviser Funds; and
(5) Investors who, within 90 days of redemption, use the proceeds from the
redemption of shares of another mutual fund complex for which they previously
paid a front end sales charge or sales charge upon redemption of shares.
Purchases may also be made at net asset value provided that such purchases
are placed through an institution that maintains an omnibus account with a Fund
and such purchases are made by the following: Investment advisers or financial
planners who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
and clients of such investment advisers or financial planners who place trades
for their own accounts if the accounts are linked to the master account of such
investment adviser or financial planner on the books and records of the broker
or agent; retirement and deferred compensation plans and trusts used to fund
those plans, including, but not limited to, those defined in Sections 401(a),
403(b) or 457 of the Code and "rabbi trusts." Investors may be charged a fee if
they effect transactions in Fund shares through a broker or agent.
Letter of Intent
Investors may also obtain reduced sales charges based on cumulative purchases by
means of a written Letter of Intent. A Letter of Intent states your intention to
purchase shares of a Fund at a total public offering price within a period of 13
months. Each purchase of shares under a Letter of Intent will be subject to the
sales charges that would have applied if you had purchased the dollar amount
specified in the Letter of Intent in a single transaction.
A Letter of Intent is not a binding obligation to purchase the full amount
indicated. The minimum initial investment under a Letter of Intent is 5% of the
indicated amount. Shares purchased with the first 5% of the amount indicated in
the Letter of Intent will be held subject to a registered pledge (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased within 13 months. Pledged shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the shares will be released from
pledge. Share certificates are not issued for shares purchased under a Letter of
Intent. Investors wishing to enter into a Letter of Intent can obtain a form of
Letter of Intent from their broker or financial institution or by contacting
FFC.
A Letter of Intent may include purchases of shares of any fund of the Trans
Adviser Funds to which a sales charge applies or applied made not more than 90
days prior to the date on which you sign a Letter of Intent; however, the 13-
month period during which the Letter of Intent is in effect will begin on the
date of the earliest purchase to be included. You may combine purchases that are
made in your individual capacity with (1) purchases that are made by members of
your immediate household and (2) purchases made by businesses that you own as
sole proprietorships, for purposes of obtaining reduced sales charges by means
of a written Letter of Intent. In order to accomplish this, however, you must
designate on the account application the accounts that are to be combined for
this purpose. You can only designate accounts that are open at the time the
Letter of Intent is executed.
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<PAGE>
If you qualify for a further reduced sales charge because you have either
purchased more than the dollar amount indicated on the Letter of Intent or have
entered into a Letter of Intent which includes shares purchased prior to the
date of the Letter of Intent, the difference in the sales charge will be used to
purchase additional shares of a Fund on your behalf; thus, the total purchases
(included in the Letter of Intent) will reflect the applicable reduced sales
charge of the Letter of Intent.
If you purchase more than the dollar amount indicated on the Letter of
Intent, or you enter into a Letter of Intent that includes shares purchased
prior to the date of the Letter of Intent and qualify for a reduced sales
charge, all such additional shares will be purchased immediately in the form of
additional shares, credited to your account at the then-current public offering
price applicable to a single purchase of the total amount of the purchases.
For further information about Letters of Intent, contact FFC at (800)
811-8258. This program, however, may be modified or eliminated at any time or
from time to time without notice.
Automatic Investment Plan
Investors may also purchase shares by arranging systematic monthly, bi-monthly
or quarterly investments into the Funds with the Company's Automatic Investment
Plan ("AIP"). The minimum initial investment is $250, the minimum investment
amounts are $50 per transfer and the maximum amount with respect to any transfer
is $100,000. After investors give the Company proper authorization, their bank
accounts, which must be with banks that are members of the Automated Clearing
House, will be debited accordingly to purchase shares. Investors will receive a
confirmation from the Company for every transaction, and a withdrawal will
appear on their bank statements.
To participate in AIP, investors must complete the appropriate sections of
the Account Registration Form or the Automatic Investment/Withdrawal Plan Form.
These forms may be obtained by calling the Company at (800) 811-8258. The amount
investors specify will automatically be invested in shares at the specified
Fund's net asset value per share next determined after payment is received by
the Company.
To change the frequency or amount invested, written instructions must be
received by the Company at least seven Business Days in advance of the next
transfer. If the bank or bank account number is changed, instructions must be
received by the Company at least 20 Business Days in advance. In order to change
a bank or bank account number, investors also must have their signature
guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an
"Eligible Guarantor Institution"). Signature guarantees are described more fully
under "HOW TO REDEEM SHARES" below. If there are insufficient funds in the
investor's designated bank account to cover the shares purchased using AIP, the
investor's bank may charge the investor a fee or may refuse to honor the
transfer instruction (in which case no Fund shares will be purchased).
Investors should check with their banks to determine whether they are
members of the Automatic Clearing House and whether their banks charge a fee for
transferring funds through the Automatic Clearing House. Expenses incurred by
the Funds related to AIP are borne by the Funds and therefore there is no direct
charge by the Funds to investors for use of these services.
Right of Accumulation and Concurrent Purchases
You may qualify for a reduced sales charge on purchases of a Fund's shares by
combining a current purchase with certain prior purchases of shares of any fund
of the Trans Adviser Funds. The applicable sales charge is based on the sum of
(i) your current purchase plus (ii) the current public offering price of
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your previous purchases of (a) all shares held by you in such Fund and (b) all
shares held by you in any other fund of the Trans Adviser Funds, except the
Money Market Fund.
To receive the applicable public offering price pursuant to the right of
accumulation, you must provide FFC with sufficient information at the time of
purchase to permit confirmation of qualification. Accumulation privileges may be
amended or terminated without notice at any time by the Distributor.
Individual Retirement Accounts
Shares of the Funds are available to shareholders on a tax-deferred basis
through the following retirement plans:
Individual Retirement Account ("IRA")
An IRA enables individuals, even if they participate in an employer- sponsored
retirement plan, to establish their own retirement program. IRA contributions
may be tax-deductible and earnings are tax-deferred. Under the Tax Reform Act of
1986, the tax deductibility of IRA contributions is restricted or eliminated for
individuals who participate in certain employer pension plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn income on a tax-deferred
basis.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established on a group basis by an employer who wishes to
sponsor a tax-sheltered retirement program by making contributions into IRAs on
behalf of all eligible employees.
The minimum initial investment for IRA and SEP/IRA accounts is $250. For
more information call (800) 308-TRAN. Shareholders are advised to consult a tax
adviser on IRA contribution and withdrawal requirements and restrictions.
Account Statements
Monthly account statements are sent to investors to report transactions such as
purchases and redemptions as well as dividends paid during the month.
HOW TO REDEEM SHARES
Redemption By Telephone. Redemption requests may be made by telephoning FFC at
(800) 811-8258. Shareholders must provide FFC with the shareholder's account
number, the exact name in which the shares are registered and some additional
form of identification such as a password. A redemption by telephone may be made
only if the telephone redemption privilege option has been elected on the
Account Registration Form. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, FFC will follow reasonable procedures to
confirm that such instructions are genuine. If such procedures are followed,
neither FFC, Forum nor the Company will be liable for any losses due to
unauthorized or fraudulent redemption requests. Redemptions for amounts of less
than $10,000 will be made by check. Redemptions of $10,000 or more may be wired
at the shareholder's request.
In times of drastic economic or market changes, it may be difficult to make
redemptions by telephone. If a shareholder cannot reach FFC by telephone,
redemption requests may be mailed or hand-delivered to FFC.
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<PAGE>
Written Requests. Redemption requests may be made by writing to Trans Adviser
Funds, Inc., P.O. Box 446, Portland, Maine 04112. Written requests must be in
proper form. The shareholder will need to provide the exact name in which the
shares are registered, the Fund name, account number, and the share or dollar
amount requested.
A signature guarantee is required for any written redemption request made
through FFC and for any instruction to change the shareholder's record name or
address, a designated bank account, the dividend election, or the telephone
redemption or other option elected on an account. Signature guarantees may be
provided by any eligible institution acceptable to FFC, including a bank, a
broker, a dealer, a national securities exchange, a credit union, or a savings
association which is authorized to guarantee signatures. Other procedures may be
implemented from time to time.
FFC may request additional documentation to establish that a redemption
request has been authorized properly. A redemption request will not be
considered to have been received in proper form until such additional
documentation has been submitted to FFC.
Due to the cost to the Company of maintaining smaller accounts, the Company
reserves the right to redeem, upon 60 days' written notice, all shares in an
account with an aggregate net asset value of less than $500 unless an investment
is made to restore the minimum value. The Company will not redeem accounts that
fall below this amount solely as a result of a reduction in the net asset value
of a Fund's shares.
Exchanges
Shareholders may exchange shares of a Fund for shares of any other Trans
Adviser Fund so long as they maintain the respective minimum account balance in
each Fund in which they own shares. Exchanges between each Fund, except for
exchanges from the Money Market Fund, are at net asset value. Exchanges into
another Trans Adviser Fund from the Money Market Fund will be effected at net
asset value plus any applicable sales charge.
An exchange is considered to be a sale of shares for Federal income tax
purposes on which a shareholder may realize a capital gain or loss.
An exchange may be made by calling FFC at (800) 811-8258 or by mailing
written instructions to Trans Adviser Funds, Inc., P.O. Box 446, Portland, Maine
04112. Exchange privileges may be exercised only in those states where shares of
the other Trans Adviser Fund may legally be sold, and may be amended or
terminated at any time upon sixty (60) days' notice.
Automatic Withdrawal Plan
The Automatic Withdrawal Plan enables shareholders of the Funds to make
regular monthly or quarterly redemptions of shares. With shareholder
authorization, FFC will automatically redeem such shares at net asset value and
have the amount specified transferred according to the written instructions of
the shareholder. Shareholders participating in this Plan must maintain a minimum
account balance of $1,000. The required minimum withdrawal is $250, monthly,
quarterly, semi-annually or annually.
The Automatic Withdrawal Plan may be modified or terminated without notice.
In addition, the Funds may suspend a shareholder's withdrawal plan without
notice if the account contains insufficient funds to effect a withdrawal or in
the event that the account balance is less than the minimum $1,000 amount.
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<PAGE>
To participate in the Automatic Withdrawal Plan, shareholders should call
(800) 811-8258 for more information. Purchases of additional shares concurrently
with withdrawals may be disadvantageous to certain shareholders because of tax
liabilities and sales charges. For a shareholder to change the Automatic
Withdrawal instructions, the request must be made in writing to the Distributor
and may take up to 15 days to implement.
Payments to Shareholders
Redemption orders are effected at the net asset value per share next
determined after the shares are properly tendered for redemption, as described
above. Payment to shareholders for shares redeemed will be made within seven
days after receipt by FFC of the request for redemption. However, with respect
to the Money Market Fund only, to the greatest extent possible, the Company will
attempt to honor requests from shareholders for same day payments upon
redemption of shares if the request for redemption is received by FFC before
12:00 noon, Eastern Time, on a Fund Business Day or, if the request for
redemption is received after 12:00 noon, Eastern Time, to honor requests for
payment on the next Fund Business Day, unless it would be disadvantageous to the
Company or the shareholders of the particular Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.
At various times, the Company may be requested to redeem shares for which
it has not yet received good payment. In such circumstances, the Company may
delay the forwarding of proceeds only until payment has been collected for the
purchase of such shares which may take up to 15 days or more. To avoid delay in
payment upon redemption shortly after purchasing shares, investors should
purchase shares by certified or bank check or by wire transfer. The Company
intends to pay cash for all shares redeemed, but under abnormal conditions which
make payment in cash unwise, the Company may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.
See "Additional Purchase and Redemption Information" and "Valuation of the
Funds" in the Statement of Additional Information for examples of when the
Company may suspend the right of redemption or redeem shares involuntarily if it
appears appropriate to do so in light of the Company's responsibilities under
the 1940 Act.
DIVIDENDS AND TAXES
Net income is declared daily for the Money Market Fund, the Tax-Free Fund and
the Intermediate Bond Fund, and annually for the Growth/Value Fund and the
Aggressive Growth Fund, as a dividend to the shareholders of the Fund at the
close of business on the day of declaration. Dividends will generally be paid
monthly for the Money Market Fund, the Tax-Free Fund and the Intermediate Bond
Fund and annually for the Growth/Value Fund and the Aggressive Growth Fund.
Distributable net realized capital gains, if any, are distributed at least
annually to shareholders of record. A shareholder will automatically receive all
income dividends and capital gains distributions in additional full and
fractional shares at net asset value as of the date of payment unless the
shareholder elects to receive such dividends or distributions in cash.
Such election, or any revocation thereof, must be made in writing to FFC at Two
Portland Square, Portland, Maine 04101, and will become effective with respect
to dividends and distributions having record dates after its receipt by FFC.
Dividends are paid in cash not later than seven Fund Business Days after a
shareholder's complete redemption of his or her shares.
Each Fund intends to qualify as a regulated investment company by
satisfying the requirements of Subchapter M of the Code, including the
requirements with respect to diversification of assets, distribution of income
and sources of income. It is each Fund's policy to distribute to shareholders
all of its investment income (net of expenses) and any capital gains (net of
capital losses) in accordance with the timing requirements imposed by the Code,
so that each Fund will not be subject to Federal income taxes or the 4% excise
tax on undistributed income.
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Distributions by a Fund of its net investment income and the excess, if
any, of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. Distributions by a Fund of the
excess, if any, of its net long-term capital gain over its net short-term
capital loss are designated as capital gain dividends and are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have held their shares.
Distributions by a Fund which are taxable to shareholders as ordinary
income are treated as dividends for Federal income tax purposes, but will not
qualify for the 70% dividends-received deduction for corporate shareholders.
Portions of a Fund's investment income may be subject to foreign income taxes
withheld at the source. If a Fund meets certain requirements, it may elect to
"pass-through" to shareholders any such foreign taxes, which may enable
shareholders to claim a foreign tax credit or a deduction with respect to their
share thereof.
If a Fund fails to satisfy any of the Code requirements for qualification
as a regulated investment company, it will be taxed at regular corporate tax
rates on all its taxable income (including capital gains) without any deduction
for distributions to shareholders, and distributions to shareholders will be
taxable as ordinary dividends (even if derived from a Fund's net long-term
capital gains) to the extent of the Fund's current and accumulated earnings and
profits.
Distributions to shareholders will be treated in the same manner for
Federal income tax purposes whether they elect to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, they are required to
treat certain distributions made during January as having been paid by the Fund
and received by them on December 31 of the preceding year. A statement setting
forth the Federal income tax status of all distributions made (or deemed made)
during the year, and any foreign taxes "passed-through" to shareholders, will be
sent to shareholders promptly after the end of each year.
If a shareholder is a non-resident alien or other foreign shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at the rate of 30% (or a lower rate under an
applicable treaty). Non-U.S. shareholders are urged to consult their own tax
advisers concerning the applicability of the United States withholding tax.
Under the back-up withholding rules of the Code, shareholders may be
subject to 31% withholding of Federal income tax on ordinary income dividends,
capital gain dividends and redemption payments made by a Fund. In order to avoid
this back-up withholding, shareholders must provide the Fund with a correct
taxpayer identification number (which for an individual is usually his/her
Social Security number) and certify that they are corporations or otherwise
exempt from or not subject to back-up withholding.
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<PAGE>
Kentucky Tax Information. Since the Kentucky Tax-Free Fund may, except as
indicated below, purchase only Kentucky Obligations (which, as defined, means
obligations, including those of non-Kentucky issuers, of any maturity which pay
interest that, in the opinion of bond counsel, excludable from gross income for
federal and Kentucky income tax purposes, all of the exempt-interest dividends
paid by the Fund will be excludable from the shareholders' gross income for
Kentucky income tax purposes. The Fund may also pay "short-term gains
distributions" and "long-term gains distributions," each as discussed under
"Dividends and Distributions" above. Under Kentucky income tax law, short-term
gains distributions to Kentucky residents and corporations domiciled in Kentucky
are generally not exempt from Kentucky income tax unless the statute authorizing
the issuance of the particular obligations involved expressly exempts such
gains. Kentucky taxes long-term gains distributions to Kentucky residents and
corporations domiciled in Kentucky at its ordinary individual and corporate
income tax rates. Any gains on futures and options (including gains imputed
under the Code) paid as part or all of a short-term gains distribution or a
long-term gains distribution will be taxed as indicated above. Under the laws of
Kentucky relating to ad valorem taxation of property, the shareholders (rather
than the Fund) are considered the owners of the Fund's assets. Each shareholder
will be deemed to be the owner of a pro-rata portion of the Fund. According to
the Kentucky Revenue Cabinet, to the extent that such portion consists of
Kentucky Obligations, it will be exempt from property taxes, but it will be
subject to Kentucky intangible property tax to the extent it consists of cash on
hand, cash in out-of-state banks, futures, options and other non-exempt assets.
In the opinion of special Kentucky tax counsel to the Tax-Free Fund,
shareholders of the Tax-Free Fund who are individuals residing in Kentucky or
corporations with their corporate domicile in Kentucky will not be subject to
Kentucky income tax on distributions with respect to their shares in the
Tax-Free Fund to the extent that such distributions are attributable to interest
on Kentucky Obligations. Depending on the level and nature of its activities
within Kentucky, a corporate shareholder of the Tax-Free Fund may have a portion
or all of its Tax-Free shares deemed to constitute capital employed in Kentucky
for purposes of the Kentucky corporate license tax. To the extent that the
Tax-Free Fund's holdings consist of obligations of the Commonwealth of Kentucky
or its political subdivisions or instrumentalities and the balance are
obligations of the United States, shares in the Kentucky Fund will be exempt
from the Kentucky intangible property tax. Shareholders who are residents of
Kentucky or who have their corporate domicile in Kentucky will be required to
include the entire amount of capital gain dividends in income to the same extent
for Kentucky income tax purposes as for Federal income tax purposes, unless the
statute authorizing the issuance of the particular obligations involved
specifically exempts profits from the sale of those obligations.
Many local governments in Kentucky, including Louisville, Jefferson County,
Lexington-Fayette County, Bowling Green and Covington, impose taxes on the net
profits of businesses operating (in any form, including sole proprietorships)
within the local jurisdiction.
Persons contemplating an investment in the Kentucky Tax-Free Fund are
encouraged to consult their own tax advisers regarding the potential impact, if
any, that a particular local tax may have in connection with such an investment.
Shareholders will be advised at least annually as to the character for
Federal income tax purposes of distributions made to them during the year.
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<PAGE>
MANAGEMENT OF TRANS ADVISER FUNDS
Directors of the Company
Overall responsibility for management of the Company rests with the Board of
Directors of the Company, who are elected by the shareholders of the Company.
The Adviser
Trans Financial Bank, N.A. (the "Adviser") provides the overall management
necessary for the Funds' operations and oversees the investment of their assets
pursuant to an advisory agreement dated September 8, 1995 (the "Advisory
Agreement"). Trans Financial Bank, N.A. is a subsidiary of Trans Financial, Inc.
which is a full service financial services provider with approximately $725
million in assets under management as of December 31, 1996.
The Advisory Agreement
In managing the Funds and overseeing the investment of their assets, the Adviser
is subject at all times to the supervision of the Company's Board of Directors.
The Adviser also furnishes or procures on behalf of the Funds all services
necessary for the proper conduct of the Funds' business and administration. In
addition to the foregoing, the Adviser selects, monitors and evaluates the
Funds' Sub-Adviser. The Adviser, through its Fixed-Income Investment Management
Group, has primary responsibility for managing the Tax- Free Funds, the
Intermediate Bond Fund and the Money Market Fund. Marshall Cox manages the
Kentucky Tax-Free Fund, the Money Market Fund and Intermediate Bond Fund. Mr.
Cox joined Trans Financial Trust and Investment Services as Manager of Taxable
Fixed Income Investments in September, 1995. Previously, he was Director of
Fixed Income at Bradford Investment Management.
Under the terms of the Advisory Agreement, the Funds pay all of their
expenses, including, but not limited to, the costs incurred in connection with
the registration and maintenance of registration of the Funds and their shares
with the Commission and various states and other jurisdictions, printing and
mailing prospectuses and statements of additional information to shareholders,
transfer taxes on the sales of portfolio securities, brokerage commissions,
custodial and transfer charges, legal and auditing expenses, certain insurance
premiums, out of pocket expenses of the Custodian, Transfer Agent and Fund
Accountants, preparation of shareholder reports, directors' fees and expenses of
director and shareholder meetings.
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<PAGE>
For the services it provides under the terms of the Advisory Agreement, the
Adviser receives a monthly fee of .20% per annum of the Money Market Fund's
average daily net assets, 1.00% per annum of each of the Growth/Value and
Aggressive Growth Fund's average daily net assets and .40% per annum of the
Intermediate Bond Fund's and each Tax-Free Fund's average daily net assets. The
Adviser may, from time to time, voluntarily agree to defer or waive fees or
absorb some or all of the expenses of the Funds. For the fiscal period ended
August 31, 1996, the advisory fees earned by the Adviser after voluntary fee
waivers were: Growth Value Fund: .58%; Aggressive Growth Fund: .00%;
Intermediate Bond Fund: .00%; Kentucky Tax-Free Fund: .00%; and Money Market
Fund: .01%.
The Sub-Adviser
The Adviser has retained Mastrapasqua & Associates, Inc., 1801 West End Avenue,
Nashville, Tennessee ("M&A") to provide sub-advisory services pursuant to a
Sub-Advisory Agreement dated September 8, 1995. M&A is a registered investment
adviser formed in March, 1993. Its core business is portfolio management for
institutions, individuals and business owners, including the Adviser. M&A
currently manages approximately $300 million in assets. M&A shares primary
responsibility for managing the Growth/Value and Aggressive Growth Funds with
the Adviser and provides the Adviser with economic forecasts and strategic
analysis for each of the other Funds. Frank Mastrapasqua, Ph.D., Chairman and
Chief Executive Officer of M&A, and Thomas A. Trantum, President of M&A,
co-manage the Growth/Value and Aggressive Growth Funds. Prior to forming M&A in
1993, Mr. Mastrapasqua was Partner, Director of Research and Chief Investment
Strategist, J.C. Bradford & Co. and Mr. Trantum was Partner and Senior Security
Analyst, J.C. Bradford & Co. Mr. Mastrapasqua also serves as a director of Trans
Financial, Inc. For its services, M&A is paid by the Adviser as follows: with
respect to the Aggressive Growth and the Growth/Value Funds, the Adviser (not
the Fund) pays to M&A an annual fee, calculated daily and paid monthly, of .50%
on the first $100 million of such Funds' combined average daily net assets plus
.25% of such Funds' combined average daily net assets in excess of $100 million
for its services, and, with respect to each other Trans Adviser Fund, the
Adviser (not the Fund) pays M&A an annual fee, calculated daily and paid
monthly, of .03% of average daily net assets for its services. For the fiscal
period ended August 31, 1996, the sub-advisory fees paid to M&A by the Adviser
were: Growth Value Fund: .___%; Aggressive Growth Fund: .___%; Intermediate Bond
Fund: .____%; Kentucky Tax-Free Fund: .___%; and Money Market Fund: .____%.
Administrator and Distributor
Forum Financial Services, Inc. ("Forum") supervises administration of the
Company and acts as distributor of the Funds' shares pursuant to separate
Administration and Distribution Agreements with the Company. Forum and Forum
Financial Corp., the Company's Transfer Agent, are members of the Forum
Financial Group of companies, and together provide a full range of services to
the investment company and financial services industry. As of the date of this
Prospectus, Forum acted as administrator and distributor of registered
investment companies with assets of approximately $___ billion. Forum, whose
address is Two Portland Square, Portland, Maine 04101, is a registered broker-
dealer and investment adviser and is a member of the National Association of
Securities Dealers, Inc. As of the date of this Prospectus, Forum and Forum
Financial Corp. are controlled by John Y. Keffer.
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<PAGE>
Under the Administration Agreement, Forum supervises the administration of
all aspects of the Company's operations, including the Company's receipt of
services for which the Company is obligated to pay, provides the Company with
general office facilities and provides, at the Company's expense, the services
of persons necessary to perform such supervisory, administrative and clerical
functions as are needed to effectively operate the Company. Those persons, as
well as certain employees and officers of the Company, may be directors,
officers or employees of (and persons providing services to the Company may
include) Forum and its affiliates. For these services and facilities, Forum
receives with respect to each Fund a fee computed and paid monthly at an annual
rate of 0.15% of the average daily net assets of the Fund, subject to an annual
minimum fee of $25,000 per Fund.
Under the Distribution Agreement, Forum acts as distributor of the Funds'
shares. Forum acts as the agent of the Company in connection with the offering
of shares of the Funds. Forum receives no compensation for its services under
the Distribution Agreement. Forum may enter into arrangements with banks,
broker-dealers or other financial institutions ("Selected Dealers") through
which investors may purchase or redeem shares. Forum may, at its own expense and
from its own resources, compensate certain persons who provide services in
connection with the sale or expected sale of shares of the Funds. Investors
purchasing shares of the Funds through another financial institution should read
any materials and information provided by the financial institution to acquaint
themselves with its procedures and any fees that it may charge.
Shareholder Servicing
Pursuant to the Shareholder Service Plan adopted by the Company, shareholder
services are provided to the Funds pursuant to agreements between Forum and
various shareholder servicing agents, including Trans Financial Bank, N.A. and
other financial institutions and securities brokers (each a "Shareholder
Servicing Agent"). Each Shareholder Servicing Agent generally will provide
support services to shareholders by establishing and maintaining accounts and
records, processing dividend and distribution payments, providing account
information, arranging for bank wires, responding to routine inquiries,
forwarding shareholder communications, assisting in the processing of purchase,
exchange and redemption requests, and assisting shareholders in changing
dividend options, account designations and addresses. For expenses incurred and
services provided as Shareholder Servicing Agent pursuant to its respective
Shareholder Servicing Agreement, a Fund pays Forum and Forum pays each
Shareholder Servicing Agent a fee computed daily and paid monthly, in amounts
aggregating not more than twenty-five one-hundredths of one percent (.25%) of
the average daily net assets of a Fund per year. A Shareholder Servicing Agent
may from time to time waive all or a portion of its respective shareholder
servicing fees with respect to a Fund.
Custodian
First National Bank of Boston, 150 Royall Street, Canton, MA 02021 serves as
Custodian for the Company.
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<PAGE>
Transfer Agent
FFC, a registered transfer agent, acts as the Company's Transfer Agent and
Dividend Disbursing Agent. FFC maintains an account for each shareholder of the
Fund (unless such accounts are maintained by sub-transfer agents or processing
agents) and performs other transfer agency and related functions. For these
services, FFC will receive an annual fee of $12,000 plus account and series
charges. The Company will also reimburse FFC for certain expenses incurred on
behalf of the Funds.
FFC is authorized to subcontract any or all of its functions to one or more
qualified sub-transfer agents, shareholder servicing agents, or processing
agents, who may be affiliates of FFC, and who agree to comply with the terms of
FFC's agreement with the Company. Among the services provided by such agents are
processing trades through automated interfaces with brokers and institutions;
answering customer inquiries regarding account matters; assisting shareholders
in designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Company, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Fund
shares held beneficially; and providing such other services as the Company or a
shareholder may request. The Fund will bear directly any fees or expenses
charged to FFC by such sub-transfer agents.
Expenses
The Adviser, M&A and Forum each bear all expenses in connection with the
performance of their services as Adviser, Sub-Adviser and
Administrator/Distributor, respectively, other than the cost of securities
(including brokerage commissions, if any) purchased for a Fund.
Banking Laws
The Adviser believes that it possesses the legal authority to perform the
advisory services for the Funds contemplated by its management agreement with
the Company and described in this Prospectus without violation of applicable
banking laws and regulations. Future changes in Federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which Trans Financial Bank, N.A. could
continue to perform such services for the Company. See "Management of the
Company Glass-Steagall Act" in the Statement of Additional Information for
further discussion of applicable banking laws and regulations.
GENERAL INFORMATION
Description of the Company and Its Shares
The Company was organized as a Maryland corporation on June 20, 1995. The
Company is authorized to issue shares of common stock, par value $.001 per
share, which may, without shareholder approval, be divided into an unlimited
number of series or classes of such shares, and which are presently divided into
seven series of shares, one for each of the following Funds: the Money Market
Fund, the Growth/Value Fund, the Aggressive Growth Fund, the Intermediate Bond
Fund, the Kentucky Tax-Free Fund, the Tennessee Tax-Free Fund and the
International Fund (which is not currently offered). Each share represents an
equal proportionate interest in a Fund with other shares of the same series, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the directors
(see "Miscellaneous" below).
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Shareholders are entitled to one vote per share (with proportional voting
for fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote as a single class except (i) when required by the 1940 Act,
shares shall be voted by individual series and (ii) when the directors have
determined that the matter affects only the interests of one or more series,
then only shareholders of such series shall be entitled to vote thereon. The
Company will not hold annual meetings, however, shareholders with beneficial
ownership of 10% or more of the Company's shares have the right to call a
meeting for the purpose of voting upon the removal of a director or directors.
Overall responsibility for the management of the Company is vested in the
Board of Directors. See "Management of Trans Adviser Funds Directors of the
Company." Individual directors are elected by the shareholders and may be
removed by the Board of Directors or shareholders at a meeting held for such
purpose in accordance with the provisions of the Articles of Incorporation and
the By-laws of the Company and Maryland law. See "Additional Information
Miscellaneous" in the Statement of Additional Information for further
information.
Performance Information
From time to time performance information for a Fund showing its total return,
distribution rate and/or yield may be presented in advertisements and sales
literature. Average annual total return will be calculated for the past year and
the period since the establishment of the Fund. Total return is measured by
comparing the value of an investment in the Fund at the beginning of the
relevant period to the redemption value of the investment at the end of the
period (assuming the investor paid the maximum sales load on the investment and
assuming immediate reinvestment of any dividends or capital gains
distributions). Yield will be computed by dividing the Fund's net investment
income per share earned during a recent one-month period by the Fund's per share
net asset value (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last day of the period and analyzing the result.
In addition, the Tax-Free Fund may present tax-equivalent yield in
advertisements and sales literature.
The Funds may also publish a distribution rate in investor communications
preceded or accompanied by a copy of the current Prospectus. The current
distribution rate for a Fund will be calculated by dividing the maximum offering
price per share into the annualization of the total distributions made by the
Fund during the same thirty-day period. The current distribution rate may differ
from current yield because the distribution rate may contain items of capital
gain and other items of income, while yield reflects only earned interest and
dividend items of income. In each case, the yield, distribution rates and total
return figures will reflect all recurring charges against Fund income and will
assume the payment of the maximum sales load.
Investors may also judge the performance of each Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices or
rankings and data published by various services such as that provided by Lipper
Analytical Services, Inc. Comparisons and references may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Institutional Investor,
Pensions and Investments, U.S.A. Today, Fortune, CDA/Wiesenberger, Ibbotson
Associates, Inc., MorningStar and local newspapers and periodicals. In addition
to performance information, general information about these Funds that appears
in a publication such as those mentioned above may be included in
advertisements, sales literature and in reports to shareholders.
Information about the performance of a Fund is based on a Fund's record up
to a certain date and is not intended to indicate future performance. Total
return, yield and distribution rate are functions of the type and quality of
instruments held in a Fund, operating expenses, and marketing conditions. Any
fees
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charged by Trans Financial Bank or any of its affiliates or a broker-dealer with
respect to customer accounts investing in shares of a Fund will not be included
in performance calculations.
Miscellaneous
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Company may be directed in writing to the Company
at P.O. Box 90001, Bowling Green, KY 42102-9001, or by calling toll free (800)
308-TRAN.
Principal Holders of Securities
As of December 1, 1996, the Adviser owned ____% of the Kentucky Tax-Free Fund.
So long as the Adviser owns more than 25% of the outstanding shares of the Fund
it will be presumed to be in control (as that term is defined in the 1940 Act)
of the Fund.
TRANS ADVISER FUNDS
P.O. Box 90001
Bowling Green, KY 42102-9001
ADVISER
Trans Financial Bank
P.O. Box 90001
Bowling Green, KY 42102-9001
SUB-ADVISER
Mastrapasqua & Associates, Inc.
814 Church Street
Nashville, TN 37203
ADMINISTRATOR/DISTRIBUTOR
Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
TRANSFER AGENT
Forum Financial Corp.
Two Portland Square
Portland, ME 04101
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
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<PAGE>
Table of Contents
Page
Highlights.................................................................. 2
Fee Table................................................................... 3
Financial Highlights........................................................ 4
Investment Objectives and Policies.......................................... 5
Risk Factors................................................................ 19
Valuation of Shares......................................................... 21
Purchases and Redemptions of Shares......................................... 21
How to Invest............................................................... 21
How to Redeem Shares........................................................ 26
Dividends and Taxes......................................................... 28
Management of Trans Adviser Funds........................................... 31
General Information......................................................... 34
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or Forum. This Prospectus does not constitute an offering by the Company or by
Forum in any jurisdiction in which such offering may not lawfully be made.
Growth/Value Fund
Aggressive Growth Fund
Intermediate Bond Fund
Kentucky Tax-Free Fund
Money Market Fund
PROSPECTUS
dated
January 1, 1997
Not FDIC Insured
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<PAGE>
For Fund information, call (800) 308-TRAN or
contact us by E-mail at [email protected]
Trans Adviser Funds, Inc. (the "Company") is an open-end management
investment company incorporated under the laws of the State of Maryland. The
Company currently consists of six separate non-diversified investment funds, the
Growth/Value Fund, the Aggressive Growth Fund, the Intermediate Bond Fund, the
Kentucky Tax-Free Fund, the Tennessee Tax-Free Fund and the Money Market Fund.
This prospectus relates to the Tennessee Tax-Free Fund only (the "Fund").
Additional information about the Fund, contained in a Statement of
Additional Information dated January 1, 1997, has been filed with the Securities
and Exchange Commission and is available upon request without charge by writing
to the Company at its address or by calling the Company at the telephone number
(E-mail address) shown above. The Statement of Additional Information bears the
same date as this Prospectus and is incorporated by reference in its entirety
into this Prospectus.
This Prospectus sets forth concisely the information about the Fund that
a prospective investor ought to know before investing. Investors should read
this Prospectus and retain it for future reference.
THE COMPANY'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY TRANS FINANCIAL BANK, N.A., ANY OF ITS AFFILIATES, OR
ANY OTHER BANK. THE COMPANY'S SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR BY ANY
OTHER AGENCY. AN INVESTMENT IN THE COMPANY'S SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("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.
The date of this Prospectus is January 1, 1997
<PAGE>
HIGHLIGHTS
Summary. The Trans Adviser Family of Funds consists of Growth/Value Fund,
Aggressive Growth Fund, Intermediate Bond Fund, Kentucky Tax-Free Fund,
Tennessee Tax-Free Fund and Money Market Fund. This prospectus relates to the
Tennessee Tax-Free Fund only. Trans Financial Bank, N.A., headquartered in
Bowling Green, Kentucky, is the Adviser and as such provides the overall
management necessary for the Fund's operations and oversees the investment of
its assets. The Adviser is a subsidiary of Trans Financial, Inc. which is a full
service financial services company with approximately $725 million in assets
under management as of December 31, 1996. Mastrapasqua & Associates, Inc.
("M&A"), located in Nashville, TN, is the sub-adviser of the Tennessee Tax-Free
Fund and in this capacity provides an economic and strategic overview that is
utilized by the Fund.
Investment Style. The Fund will be actively managed using a disciplined,
relative-value investment style. Return enhancement and risk control will be
managed through interest rate and duration analysis, term structure, and issue
selection.
Compensation. The Adviser receives monthly compensation from the Fund based on
the amount of assets under management. The Adviser, not the Fund, compensates
M&A pursuant to a sub-advisory agreement. See "Management of Trans Adviser
Funds."
How to Invest and Redeem Shares. Shares can be purchased or redeemed through
Forum Financial Services, Inc. ("Forum"), the principal distributor, at (800)
811-8258 or broker-dealers that have entered into a dealer agreement with Forum.
See: "How to Invest."
Investor Services and Privileges. Free telephone exchange and automatic
investment plan. See: "How to Invest" and "How to Redeem Shares."
Dividends. The Fund declares dividends daily and pays dividends monthly from net
investment income; election for automatic reinvestment or cash receipt. See
"Dividends and Taxes."
Risk Factors and Special Considerations. The Fund is non-diversified.
Non-diversified funds may be invested in a limited number of issues; thus, there
may be greater risk in an investment in these funds than in diversified
investment companies. Moreover, there are potential risks associated with
certain of the Funds' investments and additional risk considerations that may be
associated with certain techniques and strategies employed by the Fund,
including those relating to futures and options transactions. Such risks may not
be incurred by other investment companies which have similar investment
objectives, but which do not use these techniques and strategies. See "Risk
Factors."
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<PAGE>
FEE TABLE
For a better understanding of the expenses you will incur when investing in the
Fund offered pursuant to this Prospectus, a summary of estimated expenses is set
forth below.
Tennessee
Tax-Free
Fund
Shareholder Transaction Expenses
Maximum Sales Commission Imposed on Purchases (as a
percentage of offering price) 4.50%
Maximum Sales Commission Imposed on Reinvested Dividends
(as a percentage of offering price) NONE
Maximum Contingent Deferred Sales Commission (as a
percentage of original purchase price or redemption proceeds, as NONE
applicable)
Redemption Fees (as a percentage of amount redeemed, if
applicable) NONE
Exchange Fee NONE
Annual Fund Operating Expenses (as a percentage of net
assets)
Advisory Fees .40%
12b-1 Fees NONE
Shareholder Servicing .25%
Other Expenses .20%
Total Fund Operating Expenses .85%
Example:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Tennessee Tax-Free Fund $53 $71 $90 $145
The purpose of the table above is to assist an investor in the Fund in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. See "Management of Trans Adviser Funds" for a more
complete discussion of annual operating expenses of the Fund. The foregoing
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described below. Specific
investment techniques that may be employed by the Fund are described in a
separate section of this Prospectus and in the Statement of Additional
Information. While the Fund's objective is fundamental and can only be changed
by vote of the majority of the outstanding shares of the Fund, the Board of
Directors of the Company reserves the right to change any of the investment
policies, strategies or practices of the Fund without shareholder approval,
except in those instances where shareholder approval is expressly required.
The Fund seeks to provide as high a level of current income exempt from
Tennessee and Federal income taxes as is consistent with preservation of capital
by investing in municipal obligations which pay interest exempt from Tennessee
State and Federal income taxes. These municipal obligations must, at the time of
purchase, either be rated within the four highest credit ratings (considered as
investment grade) assigned by Moody's or S&P, or, if unrated, be determined to
be of comparable quality by the Fund's Adviser. The Fund's shares are designed
to be a suitable investment for investors who seek income exempt from Tennessee
State and regular Federal income taxes.
Municipal Obligations. The Fund invests in municipal obligations. Municipal
obligations are issued by or on behalf of states, territories and possessions of
the United States and their political subdivisions, agencies and
instrumentalities to obtain funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds." Municipal
notes are generally used to provide for short-term capital needs and generally
have maturities of one year or less while municipal bonds have extended
maturities. Municipal notes include: project notes, which sometimes carry a U.S.
Government guarantee; tax anticipation notes; revenue anticipation notes; bond
anticipation notes; construction loan notes; and floating and variable rate
demand notes. Municipal obligations also include short-term debt, often issued
for general purposes, known as "municipal commercial paper." Municipal
obligations include municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The purposes for which
municipal obligations such as bonds are issued include the construction of a
wide range of public facilities such as airports, highways, bridges, schools,
hospitals, housing, mass transportation, streets and water and sewer works.
Other public purposes for which municipal obligations may be issued include the
refunding of outstanding obligations, the obtaining of funds for general
operating expenses and the obtaining of funds to lend to other public
institutions and facilities.
In general, there are nine separate ratings, ranging from the highest to
the lowest quality standards for municipal obligations. So that the Fund will
have a portfolio of quality oriented (investment grade) securities, the
municipal obligations which each Fund will purchase must, at the time of
purchase, either (i) be rated within the four highest credit ratings assigned by
Moody's or S&P; or (ii) if unrated, be determined to be of comparable quality to
municipal obligations so rated by the Adviser, subject to the direction and
control of the Company's Board of Directors. Municipal obligations rated in the
fourth highest credit rating are considered by such rating agencies to be of
medium quality and thus may present investment risks not present in more highly
rated obligations. Such bonds lack outstanding investment characteristics and
may in fact have speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case for higher grade bonds.
If after purchase, the rating of any rated municipal obligation is downgraded
such that it could not then be purchased by the Fund, or, in the case of an
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<PAGE>
unrated municipal obligation, if the Adviser determines that the unrated
obligation is no longer of comparable quality to those rated obligations which
the Fund may purchase, it is the current policy of the Fund to cause any such
obligation to be sold as promptly thereafter as the Adviser in its discretion
determines to be consistent with the Fund's objectives; such obligation remains
in the Fund's portfolio until it is sold. In addition, because a downgrade often
results in a reduction in the market price of a downgraded obligation, sale of
such an obligation may result in a loss. See Appendix A to the Statement of
Additional Information for further information as to these ratings.
In seeking its objective of providing as high a level of current income
which is exempt from both Tennessee State and regular Federal income taxes as is
consistent with the preservation of capital, the Fund will invest in Tennessee
Obligations (as defined below). There is no assurance that the Fund will achieve
its objective, which is a fundamental policy of the Fund.
As used in this Prospectus and the Statement of Additional Information,
the term "Tennessee Obligations" means obligations of any maturity which pay
interest which, in the opinion of bond counsel or other appropriate counsel, is
exempt from regular Federal income taxes and Tennessee income taxes. Although
exempt from regular Federal income tax, interest paid on certain types of
Tennessee Obligations and dividends which the Fund might pay from this interest
are preference items as to the Federal alternative minimum tax; for further
information, see the "Statement of Additional Information." As a fundamental
policy, at least 80% of the Fund's net assets will be invested in Tennessee
Obligations the income paid upon which will not be subject to the alternative
minimum tax; accordingly, the Fund can invest up to 20% of its net assets in
obligations which are subject to the Federal alternative minimum tax. The Fund
may refrain entirely from purchasing these types of Tennessee Obligations.
As a Tennessee-oriented fund, at least 65% of the Fund's total assets
will be invested in Tennessee Obligations of Tennessee issuers. The Fund invests
in futures and options on futures (see below) for protective (hedging) purposes.
The Fund can purchase industrial development bonds only if they meet the
definition of Tennessee Obligations, i.e., the interest on them is exempt from
Tennessee State and regular Federal income taxes.
Certain Stabilizing Measures
In attempting to protect against declines in the value of its investments and
other market risks, the Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases, broadening
diversification and increasing its position in cash and cash equivalents.
Although the Fund has no current intention of using futures or options, to the
limited degree described below, these may be used to attempt to hedge against
changes in the market price of the Fund's municipal obligations caused by
interest rate fluctuations. Futures and options also may provide a hedge against
increases in the cost of securities the Fund intends to purchase.
Although it does not currently do so, the Fund may buy and sell futures
contracts relating to indices on municipal bonds ("municipal bond index
futures") and to U.S. Government securities ("U.S. Government securities
futures"); both kinds of futures contracts are "futures." The Fund may also
write and purchase put and call options on futures. As a matter of fundamental
policy, the Fund will not buy or sell a future or an option on a future if
thereafter more than 5% of the Fund's total assets would be in initial or
variation margin on such futures and options on them, and in premiums on such
options. (See the Statement of Additional Information).
Participation Interests
The Fund may purchase from financial institutions participation interests in
municipal obligations (such as industrial development bonds and municipal
lease/purchase agreements). A participation interest gives
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<PAGE>
the Fund an undivided interest in the underlying municipal obligations in the
proportion that the Fund's participation interest bears to the total amount of
the underlying municipal obligations. All such participation interests must meet
the Fund's credit requirements. Municipal lease obligations are issued by a
state or local government or authority to acquire land and a wide variety of
equipment and facilities. These obligations typically are not fully backed by
the municipality's credit, and their interest may become taxable if the lease is
assigned. If the funds are not available for the following year's lease
payments, the lease may terminate, with the possibility of default on the lease
obligation and significant loss to the Fund. Certificates of participation in
municipal lease obligations or installment sales contracts entitle the holder to
a proportionate interest in the lease-purchase payments made. The Fund may
invest up to 10% of its assets in participation interests.
Current Policy as to Certain Obligations
The Fund will not invest more than 25% of its total assets in (i) municipal
obligations the interest on which is paid from revenues of similar type projects
or (ii) industrial development bonds, unless this Prospectus and/or the
Statement of Additional Information are supplemented to reflect the change and
to give additional information.
Tennessee. Historically, the Tennessee economy has been characterized by a
greater concentration in manufacturing employment than the U.S. as a whole. The
economy is, however, undergoing a structural change through the increase in
service sector employment.
Tennessee's financial operations are considerably different than most
other states because there is no state payroll income tax. This factor, together
with the State's reliance on the sales tax for approximately 55% of General Fund
receipts, exposes total State tax collections to considerably more volatility
than would otherwise be the case and, in the event of an economic downswing,
could affect the State's ability to pay principal and interest in a timely
manner.
Other Investment Practices
Securities lending. In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities to broker-dealers, banks or
institutional borrowers of securities. While the lending of securities may
subject the Fund to certain risks, such as delays or the inability to regain the
securities in the event the borrower were to default on its lending agreement or
enter into bankruptcy, the Fund will receive at least 100% collateral in the
form of cash or U.S. Government securities. This collateral will be valued daily
by the Adviser and should the market value of the loaned securities increase,
the borrower will furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination by the Fund
or the borrower at any time. While the Fund does not have the right to vote
securities on loan, the Fund intends to terminate the loan and regain the right
to vote if that is considered important with respect to the investment. The Fund
will only enter into loan arrangements with broker-dealers, banks or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Company's Board of Directors.
Borrowing. The Fund may borrow money from banks (including its custodian bank)
or from other lenders to the extent permitted under applicable law, for
temporary or emergency purposes and to meet redemptions and may pledge their
assets to secure such borrowings.
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<PAGE>
The Investment Company Act of 1940, as amended (the "1940 Act") requires
the Fund to maintain asset coverage of at least 300% for all such borrowings,
and should such asset coverage at any time fall below 300%, the Fund would be
required to reduce its borrowings within three days to the extent necessary to
meet the requirements of the 1940 Act. To reduce its borrowings, the Fund might
be required to sell securities at a time when it would be disadvantageous to do
so.
In addition, because interest on money borrowed is the Fund expense that
it would not otherwise incur, the Fund may have less net investment income
during periods when its borrowings are substantial. The interest paid by the
Fund on borrowings may be more or less than the yield on the securities
purchased with borrowed funds, depending on prevailing market conditions.
When-issued Securities. The Fund may also purchase securities on a "when-issued"
basis. When-issued securities are securities purchased for delivery beyond the
normal settlement date at a stated price and yield and thereby involve a risk
that the yield obtained in the transaction will be less than that available in
the market when delivery takes place. The Fund will generally not pay for such
securities or start earning interest on them until they are received. When the
Fund agrees to purchase securities on a "when-issued" basis, the Company's
custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a segregated account. Securities purchased on a
"when-issued" basis are recorded as an asset and are subject to changes in value
based upon changes in the general level of interest rates. The Fund expects that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of its total assets under normal market conditions and that a commitment
to purchase "when-issued" securities will not exceed 60 days. In the event its
commitment to purchase "when-issued" securities ever exceeded 25% of the value
of its assets, the Fund's liquidity and the investment advisor's ability to
manage it might be adversely affected. The Fund does not intend to purchase
"when-issued" securities for speculative purposes, but only for the purpose of
acquiring portfolio securities.
Variable and Floating Rate Securities. The Fund may acquire variable and
floating rate securities, subject to its investment objectives, policies and
restrictions. A variable rate security is one whose terms provide for the
readjustment of its interest rate on set dates and which, upon such
readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate security is one whose terms provide
for the readjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value.
Short-Term Obligations. There may be times when, in the opinion of the Adviser,
adverse market conditions exist, including any period during which it believes
that the return on certain money market type instruments would be more favorable
than that obtainable through the Fund's normal investment programs. Accordingly,
for temporary defensive purposes, the Fund may hold up to 100% of its total
assets in cash and/or short-term obligations. To the extent that the Fund's
assets are so invested, they will not be invested so as to meet its investment
objective. The instruments may include high grade liquid debt securities such as
variable amount master demand notes, commercial paper, certificates of deposit,
bankers' acceptances, repurchase agreements which mature in less than seven days
and obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. Bankers' acceptances are instruments of United States banks
which are drafts or bills of exchange "accepted" by a bank or trust company as
an obligation to pay on maturity.
Futures Contracts. The Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities or an index, purchase or sell options on
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<PAGE>
any such futures contracts and engage in related closing transactions. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index.
The Fund may enter into futures contracts in an effort to hedge against
market risks and in anticipation of future purchases or sales of securities. For
example, when interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek to offset a decline in the
value of its portfolio securities by entering into futures contract
transactions. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices than might later be available in the market
when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will give
the Fund the right (but not the obligation), for a specified price, to sell or
to repurchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of the Fund's total assets (other
than in connection with bona fide hedging purposes), and the value of securities
that are the subject of such futures and options (both for receipt and delivery)
may not exceed one-third of the market value of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase
securities. The Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of the Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
Zero Coupon Bonds. The Fund is permitted to purchase zero coupon securities
("zero coupon bonds"). Zero coupon bonds are purchased at a discount from the
face amount because the buyer receives only the right to receive a fixed payment
on a certain date in the future and does not receive any periodic interest
payments. The effect of owning instruments which do not make current interest
payments is that a fixed yield is earned not only on the original investment but
also, in effect, on all discount accretion during the life of the obligations.
This implicit reinvestment of earnings at the same rate eliminates the risk of
being unable to reinvest distributions at a rate as high as the implicit yields
on the zero coupon bond, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, zero coupon bonds are
subject to substantially greater price fluctuations during periods of changing
market interest rates than are comparable securities which pay interest
currently, which fluctuation increases the longer the period to maturity.
Although zero coupon bonds do not pay interest to holders prior to maturity,
Federal income tax law requires the Fund to recognize as interest income a
portion of the bond's discount each year and this income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any shareholders in the Fund elect to receive their dividends in
cash rather than reinvest such dividends in additional shares, cash to make
these distributions will have to be provided from the assets of the Fund or
other sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
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<PAGE>
Investment Company Securities. The Fund may invest in the securities of other
investment companies to the extent permissible under the applicable regulations
and interpretations of the 1940 Act or an exemptive order.
Illiquid Investments and Restricted Securities. The Fund may invest up to 15% of
its assets in illiquid investments (investments that cannot be readily sold
within seven days), including restricted securities which do not meet the
criteria for liquidity established by the Company's Board of Directors. The
Adviser, under the supervision of the Company's Board of Directors, determines
the liquidity of the Fund's investments. The absence of a trading market can
make it difficult to ascertain a market value for illiquid investments.
Disposing of illiquid investments may involve time-consuming negotiation and
legal expenses. Restricted Securities are securities which cannot be sold to the
public without registration under the Securities Act of 1933. Unless registered
for sale, these securities can only be sold in privately negotiated transactions
or pursuant to an exemption from registration.
These limitations and the policies discussed in this Prospectus are
considered and applied by the Adviser at the time of purchase of an investment;
the sale of securities by the Fund is not required in the event of a subsequent
change in circumstances.
RISK FACTORS
The portfolio turnover of the Fund may vary greatly from year to year as well as
within a particular year. High turnover rates will generally result in higher
transaction costs and higher levels of taxable realized gains to the Fund's
shareholders.
Particular portfolio securities and yields will differ due to
differences in the types of investments permitted, cash flow, and the
availability of particular portfolio investments. Market conditions and interest
rates may affect the types and yields of securities held in each Fund. The
investment objectives of the Funds are fundamental and may be changed only by a
vote of a majority of the outstanding shares of that Fund (as defined below
under "General Information Miscellaneous"). There can be, of course, no
assurance that the Fund will achieve its investment objective. Changes in
prevailing interest rates may affect the yield, and possibly the net asset
value, of the Fund.
The Fund is classified as a "non-diversified" investment company under
the 1940 Act. The Fund also intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). One
of the tests for such qualification under the Code is, in general, that at the
end of each fiscal quarter of the Fund, at least 50% of its assets must consist
of (i) cash and U.S. Government securities and (ii) securities which, as to any
one issuer, do not exceed 5% of the value of the Fund's assets. If the Fund had
elected to register under the 1940 Act as a "diversified" investment company, it
would have to meet the same test as to 75% of its assets. The Fund may therefore
not have as much diversification among securities, and thus diversification of
risk, as if it had made this election under the 1940 Act. In general, the more
the Fund invests in the securities of specific issuers, the more the Fund is
exposed to risks associated with investments in those issuers.
VALUATION OF SHARES
The net asset value per share of the Fund for purposes of pricing purchase and
redemption orders is determined as of the close of regular trading of the New
York Stock Exchange (the "Exchange") on each Business Day of the Fund. Fund
Business Days do not include the following holidays observed by the Exchange:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed). Days on which the Federal Reserve Wire Transfer Service is closed
(which include: Martin Luther King Day, Columbus Day and Veterans' Day), in
addition to Exchange holidays, are not Business Days for the Money Market Fund.
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<PAGE>
Net asset value per share for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets belonging to
the Fund, less the liabilities charged to that Fund, by the number of the
outstanding shares of that Fund.
The securities in the Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Directors of the Company believes accurately reflects fair value.
Investments in debt securities with remaining maturities of 60 days or less will
be valued based upon the amortized cost method. For further information about
valuation of investments in the Fund, see the Statement of Additional
Information.
PURCHASES AND REDEMPTIONS OF SHARES
Shares of the Fund are sold and redeemed on all Fund Business Days at their net
asset value, plus a sales charge where applicable, next determined after receipt
of an order in proper form.
HOW TO INVEST
General Information. Investments in the Fund may be made by an investor directly
or through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through the Transfer
Agent, which accepts orders for purchases and redemptions from shareholders of
record and new investors. Shareholders of record will receive from the Company
periodic statements listing all account activity during the statement period.
The Company reserves the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders and to charge a
fee for certain shareholder services, although no such fees are currently
contemplated.
Minimum Investment Required. The minimum initial investment in the Fund is
$1,000. There is no minimum subsequent investment. The Company and Forum
Financial Corp. ("FFC") each reserves the right to waive the minimum investment
requirement.
Purchases By Mail. To purchase shares of the Fund by mail, simply send a
completed Account Registration Form obtainable from the Fund, to Trans Adviser
Funds, Inc., P.O. Box 446, Portland, Maine 04112, together with a check payable
to the Trans Adviser Funds in payment for the shares. If you need assistance in
completing the Account Registration Form call (800) 811-8258.
All purchases must be made in United States dollars and checks must be
drawn on a United States bank. Payment for shares may not be made by third party
checks, however, second party checks are acceptable when properly endorsed. The
Company reserves the right to limit the number of checks from one account
processed at one time. If your check does not clear, your purchase will be
canceled and you could be responsible for any losses or fees incurred. Payments
transmitted by check are subject to collection at full face amount.
Purchases By Wire. To purchase shares of the Fund by federal reserve wire, call
FFC at (800) 811-8258 by 4:00 p.m. (Eastern time) to place an order. If FFC
receives an order in proper form prior to 4:00 p.m. (Eastern time) and federal
funds are received by the custodian by 4:00 p.m. that same day, purchases of
shares of the Fund will become effective on that Fund Business Day . Orders
received after 4:00 p.m. (Eastern time) will become effective on the next Fund
Business Day upon receipt of federal funds. The Company reserves the right to
close early and advance the time by which the Money Market Fund must receive
purchase or redemption orders and payments on days that the New York Stock
Exchange closes early, the Public Securities Association recommends that the
government securities markets close early or due to other circumstances which
may affect a Fund's trading hours.
If an investor does not remit federal funds, such payment must be
converted into federal funds. Prior to receipt of federal funds, the investor's
monies will not be invested.
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<PAGE>
The following procedure will help insure prompt receipt of your federal
funds wire:
A. Telephone FFC toll free at (800) 811-8258 and provide the following
information:
Your name
Address
Telephone number
Taxpayer ID number
The amount being wired
The identity of the bank wiring funds
You will then be provided with a wire control number as well as a Fund
account number. (Investors with existing accounts must also notify the Company
prior to wiring funds.)
B. Instruct your bank to wire the specified amount to the Fund's
custodian:
First National Bank of Boston
Boston, Massachusetts
ABA # 011 000 390
For Credit To: Forum Financial Corp.
Account Number: 541-54171
Trans Adviser Funds - Tennessee Tax-Free Fund
Account Number:
Account Name:
An investor may open an account when placing an initial order by
telephone, provided the investor thereafter submits an Account Registration Form
by mail. An Account Registration Form may be obtained from the Fund.
If you own securities meeting the criteria for investment by the Fund in
which you want to invest, you may exchange such securities for shares of the
Fund. All such exchanges are discretionary with the Fund. If you desire to make
such an exchange, you should contact the Fund prior to delivering any securities
in order to establish that the securities are acceptable for exchange, to
determine what transaction charges, if any, may be imposed and to obtain
delivery instructions for such securities. The value of the securities being
exchanged will be determined in the same manner as the value of the Fund's
portfolio securities is determined (see "Valuation of Shares"); the specific
method of determining the value will be provided to you on request. The Fund
reserves the right to refuse any such exchange, even if the securities offered
by an investor meet the general investment criteria of the Fund. A capital gain
or loss for Federal income tax purposes may be realized by the investor
following the exchange. Maturing bonds or detached coupons submitted within five
(5) business days of the payment date are credited on the payment date.
The Company and FFC each reserves the right to reject any purchase order
for any reason.
Share Certificates. FFC maintains a share account for each shareholder. No share
certificates will be issued for shares unless requested in writing. In order to
facilitate redemptions and transfers, most shareholders elect not to receive
certificates. Shares are held in unissued form by FFC. Shares for which
certificates have been issued cannot be redeemed unless the certificates are
received together with the redemption request in proper form. Share certificates
are not issued for fractional shares.
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<PAGE>
Sales Charges. The public offering price of a share of the Fund equals its net
asset value per share plus a sales charge, set forth below as a percentage of
the Fund's average daily net assets. The Distributor receives this sales charge,
and may reallow all of it as dealer discounts and brokerage commissions. From
time to time, dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers. A broker or dealer who
receives reallowances in excess of 90% of the sales charge may be deemed to be
an "underwriter" for purposes of the Securities Act of 1933. The Fund has a
reinstatement policy which allows an investor who redeems his/her shares to
reinvest within 90 days without incurring a sales charge.
Sales Charge as a Percentage of:
Dealer Reallowance of
Amount of Purchase Offering Price Amount Invested Offering Price
Less than $50,000 4.50% 4.71% 4.00%
$50,000 to $99,999 4.00% 4.17% 3.50%
$100,000 to $249,999 3.50% 3.63% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 1.00% 1.01% .90%
$1,000,000 and over .25% .25% .25%
The Distributor, at its expense, may also provide additional cash
compensation to dealers in connection with sales of shares of the Fund. The
maximum cash compensation payable by the Distributor is 90% of the sales charge
as a percent of the offering price. In addition, the Distributor will, from time
to time and at its own expense, provide compensation, including financial
assistance, to dealers in connection with conferences, sales or training
programs for their employees, seminars for the public, advertising campaigns
regarding one or more Funds and/or other dealer-sponsored special events
including payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Compensation will include the following types of
non-cash compensation offered through sales contests: (1) vacation trips
including the provision of travel arrangements and lodging; (2) tickets for
entertainment events (such as concerts, cruises and sporting events) and (3)
merchandise (such as clothing, trophies, clocks and pens). Dealers may not use
sales of
the Fund's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Fund or its shareholders.
The sales charges set forth in the above table are applicable to
purchases made at one time by any investor, which includes: (i) an individual,
his or her spouse and children under the age of 21; (ii) a trustee or other
fiduciary of a single trust estate or single fiduciary account; or (iii) any
other organized group of persons, whether incorporated or not, provided that
such organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company. In order to qualify for a lower sales charge, all orders
from an investor will have to be placed through a single investment dealer and
identified at the time of purchase as originating from the same investor,
although such orders may be placed into more than one account which identifies
the investor.
Sales Charge Waivers
The following classes of investors may purchase shares of the Fund at no sales
charge (which classes may be changed or eliminated at any time):
(1) Current or retired directors of the Trans Adviser Funds; employees,
directors, trustees, and their family members (i.e., an employee's, director's
or trustee's spouse, parents and children) of Trans
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<PAGE>
Financial, Inc. or an Affiliated Provider (Affiliated Providers refer to
affiliates and subsidiaries of Trans Financial, Inc. and service providers to
the Trans Adviser Funds), dealers having an agreement with the Distributor and
any trade organization to which Trans Financial Bank, N.A. or the Administrator
belongs;
(2) Investors who purchase shares for trust, investment management or
certain other advisory accounts established with Trans Financial, Inc. or any of
its affiliates;
(3) Investors who purchase shares through a 401(k) plan sponsored by an
Affiliated Provider;
(4) Investors who reinvest assets received in a distribution from a
qualified, non-qualified or deferred compensation plan, agency, trust or custody
account that was either (a) maintained by Trans Financial, Inc. or an Affiliated
Provider, or (b) invested in a fund of the Trans Adviser Funds; and
(5) Investors who, within 90 days of redemption, use the proceeds from
the redemption of shares of another mutual fund complex for which they
previously paid a front end sales charge or sales charge upon redemption of
shares.
Purchases may also be made at net asset value provided that such
purchases are placed through an institution that maintains an omnibus account
with the Fund and such purchases are made by the following: Investment advisers
or financial planners who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services; and clients of such investment advisers or financial planners who
place trades for their own accounts if the accounts are linked to the master
account of such investment adviser or financial planner on the books and records
of the broker or agent; retirement and deferred compensation plans and trusts
used to fund those plans, including, but not limited to, those defined in
Sections 401(a), 403(b) or 457 of the Code and "rabbi trusts." Investors may be
charged a fee if they effect transactions in Fund shares through a broker or
agent.
Letter of Intent
Investors may also obtain reduced sales charges based on cumulative purchases by
means of a written Letter of Intent. A Letter of Intent states your intention to
purchase shares of the Fund at a total public offering price within a period of
13 months. Each purchase of shares under a Letter of Intent will be subject to
the sales charges that would have applied if you had purchased the dollar amount
specified in the Letter of Intent in a single transaction.
A Letter of Intent is not a binding obligation to purchase the full
amount indicated. The minimum initial investment under a Letter of Intent is 5%
of the indicated amount. Shares purchased with the first 5% of the amount
indicated in the Letter of Intent will be held subject to a registered pledge
(while remaining registered in the name of the investor) to secure payment of
the higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased within 13 months. Pledged shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the shares will be released from
pledge. Share certificates are not issued for shares purchased under a Letter of
Intent. Investors wishing to enter into a Letter of Intent can obtain a form of
Letter of Intent from their broker or financial institution or by contacting
FFC.
A Letter of Intent may include purchases of shares of any fund of the
Trans Adviser Funds to which a sales charge applies or applied made not more
than 90 days prior to the date on which you sign a Letter of Intent; however,
the 13- month period during which the Letter of Intent is in effect will begin
on the date of the earliest purchase to be included. You may combine purchases
that are made in your individual capacity with (1) purchases that are made by
members of your immediate household and (2) purchases made by businesses that
you own as sole proprietorships, for purposes of obtaining reduced sales charges
by means of a written Letter of Intent. In order to accomplish this, however,
you must
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<PAGE>
designate on the account application the accounts that are to be combined for
this purpose. You can only designate accounts that are open at the time the
Letter of Intent is executed.
If you qualify for a further reduced sales charge because you have
either purchased more than the dollar amount indicated on the Letter of Intent
or have entered into a Letter of Intent which includes shares purchased prior to
the date of the Letter of Intent, the difference in the sales charge will be
used to purchase additional shares of the Fund on your behalf; thus, the total
purchases (included in the Letter of Intent) will reflect the applicable reduced
sales charge of the Letter of Intent.
If you purchase more than the dollar amount indicated on the Letter of
Intent, or you enter into a Letter of Intent that includes shares purchased
prior to the date of the Letter of Intent and qualify for a reduced sales
charge, all such additional shares will be purchased immediately in the form of
additional shares, credited to your account at the then-current public offering
price applicable to a single purchase of the total amount of the purchases.
For further information about Letters of Intent, contact FFC at (800)
811-8258. This program, however, may be modified or eliminated at any time or
from time to time without notice.
Automatic Investment Plan
Investors may also purchase shares by arranging systematic monthly, bi-monthly
or quarterly investments into the Fund with the Company's Automatic Investment
Plan ("AIP"). The minimum initial investment is $250, the minimum investment
amounts are $50 per transfer and the maximum amount with respect to any transfer
is $100,000. After investors give the Company proper authorization, their bank
accounts, which must be with banks that are members of the Automated Clearing
House, will be debited accordingly to purchase shares. Investors will receive a
confirmation from the Company for every transaction, and a withdrawal will
appear on their bank statements.
To participate in AIP, investors must complete the appropriate sections
of the Account Registration Form or the Automatic Investment/Withdrawal Plan
Form. These forms may be obtained by calling the Company at (800) 811-8258. The
amount investors specify will automatically be invested in shares at the
specified Fund's net asset value per share next determined after payment is
received by the Company.
To change the frequency or amount invested, written instructions must be
received by the Company at least seven Business Days in advance of the next
transfer. If the bank or bank account number is changed, instructions must be
received by the Company at least 20 Business Days in advance. In order to change
a bank or bank account number, investors also must have their signature
guaranteed by a bank, broker, dealer, credit union, securities exchange,
securities association, clearing agency or savings association, as those terms
are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an
"Eligible Guarantor Institution"). Signature guarantees are described more fully
under "HOW TO REDEEM SHARES" below. If there are insufficient funds in the
investor's designated bank account to cover the shares purchased using AIP, the
investor's bank may charge the investor a fee or may refuse to honor the
transfer instruction (in which case no Fund shares will be purchased).
Investors should check with their banks to determine whether they are
members of the Automatic Clearing House and whether their banks charge a fee for
transferring funds through the Automatic Clearing House. Expenses incurred by
the Fund related to AIP are borne by the Fund and therefore there is no direct
charge by the Fund to investors for use of these services.
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<PAGE>
Right of Accumulation and Concurrent Purchases
You may qualify for a reduced sales charge on purchases of the Fund's shares by
combining a current purchase with certain prior purchases of shares of any fund
of the Trans Adviser Funds. The applicable sales charge is based on the sum of
(i) your current purchase plus (ii) the current public offering price of your
previous purchases of (a) all shares held by you in such Fund and (b) all shares
held by you in any other fund of the Trans Adviser Funds, except the Money
Market Fund.
To receive the applicable public offering price pursuant to the right of
accumulation, you must provide FFC with sufficient information at the time of
purchase to permit confirmation of qualification. Accumulation privileges may be
amended or terminated without notice at any time by the Distributor.
Individual Retirement Accounts
Shares of the Fund are available to shareholders on a tax-deferred basis through
the following retirement plans:
Individual Retirement Account ("IRA")
An IRA enables individuals, even if they participate in an employer- sponsored
retirement plan, to establish their own retirement program. IRA contributions
may be tax-deductible and earnings are tax-deferred. Under the Tax Reform Act of
1986, the tax deductibility of IRA contributions is restricted or eliminated for
individuals who participate in certain employer pension plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn income on a tax-deferred
basis.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established on a group basis by an employer who wishes to
sponsor a tax-sheltered retirement program by making contributions into IRAs on
behalf of all eligible employees.
The minimum initial investment for IRA and SEP/IRA accounts is $250. For
more information call (800) 308-TRAN. Shareholders are advised to consult a tax
adviser on IRA contribution and withdrawal requirements and restrictions.
Account Statements
Monthly account statements are sent to investors to report transactions such as
purchases and redemptions as well as dividends paid during the month.
HOW TO REDEEM SHARES
Redemption By Telephone. Redemption requests may be made by telephoning FFC at
(800) 811-8258. Shareholders must provide FFC with the shareholder's account
number, the exact name in which the shares are registered and some additional
form of identification such as a password. A redemption by telephone may be made
only if the telephone redemption privilege option has been elected on the
Account Registration Form. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, FFC will follow reasonable procedures to
confirm that such instructions are genuine. If such procedures are followed,
neither FFC, Forum nor the Company will be liable for any losses due to
unauthorized or fraudulent redemption requests. Redemptions for amounts of less
than $10,000 will be made by check. Redemptions of $10,000 or more may be wired
at the shareholder's request.
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<PAGE>
In times of drastic economic or market changes, it may be difficult to
make redemptions by telephone. If a shareholder cannot reach FFC by telephone,
redemption requests may be mailed or hand-delivered to FFC.
Written Requests. Redemption requests may be made by writing to Trans Adviser
Funds, Inc., P.O. Box 446, Portland, Maine 04112. Written requests must be in
proper form. The shareholder will need to provide the exact name in which the
shares are registered, the Fund name, account number, and the share or dollar
amount requested.
A signature guarantee is required for any written redemption request
made through FFC and for any instruction to change the shareholder's record name
or address, a designated bank account, the dividend election, or the telephone
redemption or other option elected on an account. Signature guarantees may be
provided by any eligible institution acceptable to FFC, including a bank, a
broker, a dealer, a national securities exchange, a credit union, or a savings
association which is authorized to guarantee signatures. Other procedures may be
implemented from time to time.
FFC may request additional documentation to establish that a redemption
request has been authorized properly. A redemption request will not be
considered to have been received in proper form until such additional
documentation has been submitted to FFC.
Due to the cost to the Company of maintaining smaller accounts, the
Company reserves the right to redeem, upon 60 days' written notice, all shares
in an account with an aggregate net asset value of less than $500 unless an
investment is made to restore the minimum value. The Company will not redeem
accounts that fall below this amount solely as a result of a reduction in the
net asset value of the Fund's shares.
Exchanges
Shareholders may exchange shares of the Fund for shares of any other Trans
Adviser Fund so long as they maintain the respective minimum account balance in
each Fund in which they own shares. Exchanges between each Fund, except for
exchanges from the Money Market Fund, are at net asset value. Exchanges into
another Trans Adviser Fund from the Money Market Fund will be effected at net
asset value plus any applicable sales charge.
An exchange is considered to be a sale of shares for Federal income tax
purposes on which a shareholder may realize a capital gain or loss.
An exchange may be made by calling FFC at (800) 811-8258 or by mailing
written instructions to Trans Adviser Funds, Inc., P.O. Box 446, Portland, Maine
04112. Exchange privileges may be exercised only in those states where shares of
the other Trans Adviser Fund may legally be sold, and may be amended or
terminated at any time upon sixty (60) days' notice.
Automatic Withdrawal Plan
The Automatic Withdrawal Plan enables shareholders of the Fund to make regular
monthly or quarterly redemptions of shares. With shareholder authorization, FFC
will automatically redeem such shares at net asset value and have the amount
specified transferred according to the written instructions of the shareholder.
Shareholders participating in this Plan must maintain a minimum account balance
of $1,000. The required minimum withdrawal is $250, monthly, quarterly,
semi-annually or annually.
The Automatic Withdrawal Plan may be modified or terminated without
notice. In addition, the Fund may suspend a shareholder's withdrawal plan
without notice if the account contains insufficient
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<PAGE>
funds to effect a withdrawal or in the event that the account balance is less
than the minimum $1,000 amount.
To participate in the Automatic Withdrawal Plan, shareholders should
call (800) 811-8258 for more information. Purchases of additional shares
concurrently with withdrawals may be disadvantageous to certain shareholders
because of tax liabilities and sales charges. For a shareholder to change the
Automatic Withdrawal instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
Payments to Shareholders
Redemption orders are effected at the net asset value per share next determined
after the shares are properly tendered for redemption, as described above.
Payment to shareholders for shares redeemed will be made within seven days after
receipt by FFC of the request for redemption.
At various times, the Company may be requested to redeem shares for
which it has not yet received good payment. In such circumstances, the Company
may delay the forwarding of proceeds only until payment has been collected for
the purchase of such shares which may take up to 15 days or more. To avoid delay
in payment upon redemption shortly after purchasing shares, investors should
purchase shares by certified or bank check or by wire transfer. The Company
intends to pay cash for all shares redeemed, but under abnormal conditions which
make payment in cash unwise, the Company may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.
See "Additional Purchase and Redemption Information" and "Valuation of
the Fund" in the Statement of Additional Information for examples of when the
Company may suspend the right of redemption or redeem shares involuntarily if it
appears appropriate to do so in light of the Company's responsibilities under
the 1940 Act.
DIVIDENDS AND TAXES
Net income is declared daily as a dividend to the shareholders of the Fund at
the close of business on the day of declaration. Dividends will generally be
paid monthly. Distributable net realized capital gains, if any, are distributed
at least annually to shareholders of record. A shareholder will automatically
receive all income dividends and capital gains distributions in additional full
and fractional shares at net asset value as of the date of payment unless the
shareholder elects to receive such dividends or distributions in cash. Such
election, or any revocation thereof, must be made in writing to FFC at Two
Portland Square, Portland, Maine 04101, and will become effective with respect
to dividends and distributions having record dates after its receipt by FFC.
Dividends are paid in cash not later than seven Fund Business Days after a
shareholder's complete redemption of his or her shares.
The Fund intends to qualify as a regulated investment company by
satisfying the requirements of Subchapter M of the Code, including the
requirements with respect to diversification of assets, distribution of income
and sources of income. It is the Fund's policy to distribute to shareholders all
of its investment income (net of expenses) and any capital gains (net of capital
losses) in accordance with the timing requirements imposed by the Code, so that
the Fund will not be subject to Federal income taxes or the 4% excise tax on
undistributed income.
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<PAGE>
Distributions by the Fund of its net investment income and the excess,
if any, of its net short-term capital gain over its net long-term capital loss
are taxable to shareholders as ordinary income. Distributions by the Fund of the
excess, if any, of its net long-term capital gain over its net short-term
capital loss are designated as capital gain dividends and are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have held their shares.
Distributions by the Fund which are taxable to shareholders as ordinary
income are treated as dividends for Federal income tax purposes, but will not
qualify for the 70% dividends-received deduction for corporate shareholders.
Portions of the Fund's investment income may be subject to foreign income taxes
withheld at the source. If the Fund meets certain requirements, it may elect to
"pass-through" to shareholders any such foreign taxes, which may enable
shareholders to claim a foreign tax credit or a deduction with respect to their
share thereof.
If the Fund fails to satisfy any of the Code requirements for
qualification as a regulated investment company, it will be taxed at regular
corporate tax rates on all its taxable income (including capital gains) without
any deduction for distributions to shareholders, and distributions to
shareholders will be taxable as ordinary dividends (even if derived from the
Fund's net long-term capital gains) to the extent of the Fund's current and
accumulated earnings and profits.
Distributions to shareholders will be treated in the same manner for
Federal income tax purposes whether they elect to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, they are required to
treat certain distributions made during January as having been paid by the Fund
and received by them on December 31 of the preceding year. A statement setting
forth the Federal income tax status of all distributions made (or deemed made)
during the year, and any foreign taxes "passed-through" to shareholders, will be
sent to shareholders promptly after the end of each year.
If a shareholder is a non-resident alien or other foreign shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at the rate of 30% (or a lower rate under an
applicable treaty). Non-U.S. shareholders are urged to consult their own tax
advisers concerning the applicability of the United States withholding tax.
Under the back-up withholding rules of the Code, shareholders may be
subject to 31% withholding of Federal income tax on ordinary income dividends,
(other than tax-exempt dividends) capital gain dividends and redemption payments
made by a Fund. In order to avoid this back-up withholding, shareholders must
provide the Fund with a correct taxpayer identification number (which for an
individual is usually his/her Social Security number) and certify that they are
corporations or otherwise exempt from or not subject to back-up withholding.
Tennessee Taxes. Tennessee imposes a limited personal income tax, applicable
only to dividends from stock and interest on bonds ("Tennessee Income Tax").
Under Tennessee law, dividends received from a qualified regulated investment
company are exempt from the Tennessee Income Tax provided that the investments
of the investment company are in bonds or securities of the U.S. Government or
any agency or instrumentality thereof or in bonds of the State of Tennessee, or
any county or any municipality or political subdivision thereof, including any
agency, board, authority or commission of any of the above. If less than all of
the investments of the qualified regulated investment company are in such
securities and bonds, only that portion of the investments attributable to the
above described securities and bonds will be exempted.
In the opinion of special Tennessee tax counsel, shareholders of the
Fund who otherwise would be subject to the Tennessee Income Tax will not be
subject to the tax on distributions received from
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<PAGE>
the Fund to the extent such distributions are attributable to interest the Fund
receives on bonds or securities of the U.S. Government or any agency or
instrumentality thereof or in bonds of the State of Tennessee, of any county or
any municipality or political subdivision thereof, including any agency, board,
authority or commission of any of the above. To the extent such distributions
are received by corporations doing business in Tennessee, the distributions
would be included in the determination of the amount of net earnings earned by
the corporation, which is the tax base for the determination of Tennessee Excise
Tax and could as a result be subject to that tax. In addition, the amount of
such distributions received by corporations doing business in Tennessee could
also be included in the tax base for the calculation of Tennessee Franchise Tax.
Shareholders will be advised at least annually as to the character for
Federal income tax purposes of distributions made to them during the year.
MANAGEMENT OF TRANS ADVISER FUNDS
Directors of the Company
Overall responsibility for management of the Company rests with the Board of
Directors of the Company, who are elected by the shareholders of the Company.
The Adviser
Trans Financial Bank, N.A. (the "Adviser") provides the overall management
necessary for the Funds' operations and oversees the investment of their assets
pursuant to an advisory agreement dated September 8, 1995 (the "Advisory
Agreement"). Trans Financial Bank, N.A. is a subsidiary of Trans Financial, Inc.
which is a full service financial services provider with approximately $725
million in assets under management as of December 31, 1996.
The Advisory Agreement
In managing the Fund and overseeing the investment of its assets, the Adviser is
subject at all times to the supervision of the Company's Board of Directors. The
Adviser also furnishes or procures on behalf of the Fund all services necessary
for the proper conduct of the Fund's business and administration. In addition to
the foregoing, the Adviser selects, monitors and evaluates the Fund's
Sub-Adviser. The Adviser, through its Fixed-Income Investment Management Group,
has primary responsibility for managing the Fund. [ Marshall Cox] manages the
Fund. Mr. Cox joined Trans Financial Trust and Investment Services as Manager of
Taxable Fixed Income Investments in September, 1995. Previously, he was Director
of Fixed Income at Bradford Investment Management.
Under the terms of the Advisory Agreement, the Fund pays all of its
expenses, including, but not limited to, the costs incurred in connection with
the registration and maintenance of registration of the
Fund and its shares with the Commission and various states and other
jurisdictions, printing and mailing prospectuses and statements of additional
information to shareholders, transfer taxes on the sales of portfolio
securities, brokerage commissions, custodial and transfer charges, legal and
auditing expenses, certain insurance premiums, out of pocket expenses of the
Custodian, Transfer Agent and Fund Accountants, preparation of shareholder
reports, directors' fees and expenses of director and shareholder meetings.
For the services it provides under the terms of the Advisory Agreement,
the Adviser receives a monthly fee of .40% per annum of the Fund's average daily
net assets. The Adviser may, from time to time, voluntarily agree to defer or
waive fees or absorb some or all of the expenses of the Fund.
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<PAGE>
The Sub-Adviser
The Adviser has retained Mastrapasqua & Associates, Inc., 1801 West End Avenue,
Nashville, Tennessee ("M&A") to provide sub-advisory services pursuant to a
Sub-Advisory Agreement dated September 8, 1995. M&A is a registered investment
adviser formed in March, 1993. Its core business is portfolio management for
institutions, individuals and business owners, including the Adviser. M&A
currently manages approximately $300 million in assets. M&A provides the Adviser
with economic forecasts and strategic analysis for the Fund. Frank Mastrapasqua,
Ph.D., Chairman and Chief Executive Officer of M&A also serves as a director of
Trans Financial, Inc. For its services, M&A is paid by the Adviser an annual
fee, calculated daily and paid monthly, of .03% of average daily net assets of
the Fund for its services.
Administrator and Distributor
Forum Financial Services, Inc. ("Forum") supervises administration of the
Company and acts as distributor of the Fund's shares pursuant to separate
Administration and Distribution Agreements with the Company. Forum and Forum
Financial Corp., the Company's Transfer Agent, are members of the Forum
Financial Group of companies, and together provide a full range of services to
the investment company and financial services industry. As of the date of this
Prospectus, Forum acted as administrator and distributor of registered
investment companies with assets of approximately $22 billion. Forum, whose
address is Two Portland Square, Portland, Maine 04101, is a registered broker-
dealer and investment adviser and is a member of the National Association of
Securities Dealers, Inc. As of the date of this Prospectus, Forum and Forum
Financial Corp. are controlled by John Y. Keffer.
Under the Administration Agreement, Forum supervises the administration
of all aspects of the Company's operations, including the Company's receipt of
services for which the Company is obligated to pay, provides the Company with
general office facilities and provides, at the Company's expense, the services
of persons necessary to perform such supervisory, administrative and clerical
functions as are needed to effectively operate the Company. Those persons, as
well as certain employees and officers of the Company, may be directors,
officers or employees of (and persons providing services to the Company may
include) Forum and its affiliates. For these services and facilities, Forum
receives with respect to the Fund a fee computed and paid monthly at an annual
rate of 0.15% of the average daily net assets of the Fund, subject to an annual
minimum fee of $25,000 per Fund.
Under the Distribution Agreement, Forum acts as distributor of the
Fund's shares. Forum acts as the agent of the Company in connection with the
offering of shares of the Funds. Forum receives no compensation for its services
under the Distribution Agreement. Forum may enter into arrangements with banks,
broker-dealers or other financial institutions ("Selected Dealers") through
which investors may purchase or redeem shares. Forum may, at its own expense and
from its own resources, compensate certain persons who provide services in
connection with the sale or expected sale of shares of the Fund. Investors
purchasing shares of the Fund through another financial institution should read
any materials and information provided by the financial institution to acquaint
themselves with its procedures and any fees that it may charge.
Shareholder Servicing
Purusuant to the Shareholder Service Plan adopted by the Company, shareholder
services are provided to the Funds pursuant to agreements between Forum and
various shareholder servicing agents, including Trans Financial Bank, N.A. and
other financial institutions and securities brokers (each a "Shareholder
Servicing Agent"). Each Shareholder Servicing Agent generally will provide
support services to shareholders by establishing and maintaining accounts and
records, processing dividend and distribution payments, providing account
information, arranging for bank wires, responding to routine inquiries,
forwarding shareholder communications, assisting in the processing of
- 20 -
<PAGE>
purchase, exchange and redemption requests, and assisting shareholders in
changing dividend options, account designations and addresses. For expenses
incurred and services provided as Shareholder Servicing Agent pursuant to its
respective Shareholder Servicing Agreement, the Fund pays Forum and Forum pays
each Shareholder Servicing Agent a fee computed daily and paid monthly, in
amounts aggregating not more than twenty-five one-hundredths of one percent
(.25%) of the average daily net assets of the Fund per year. A Shareholder
Servicing Agent may from time to time waive all or a portion of its shareholder
servicing fees .
Custodian
First National Bank of Boston, 150 Royall Street, Canton, MA 02021 serves as
Custodian for the Company.
Transfer Agent
FFC, a registered transfer agent, acts as the Company's Transfer Agent and
Dividend Disbursing Agent. FFC maintains an account for each shareholder of the
Fund (unless such accounts are maintained by sub-transfer agents or processing
agents) and performs other transfer agency and related functions. For these
services, FFC will receive an annual fee of $12,000 plus account and series
charges. The Company will also reimburse FFC for certain expenses incurred on
behalf of the Funds.
FFC is authorized to subcontract any or all of its functions to one or
more qualified sub-transfer agents, shareholder servicing agents, or processing
agents, who may be affiliates of FFC, and who agree to comply with the terms of
FFC's agreement with the Company. Among the services provided by such agents are
processing trades through automated interfaces with brokers and institutions;
answering customer inquiries regarding account matters; assisting shareholders
in designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Company, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Fund
shares held beneficially; and providing such other services as the Company or a
shareholder may request. The Fund will bear directly any fees or expenses
charged to FFC by such sub-transfer agents.
Expenses
The Adviser, M&A and Forum each bear all expenses in connection with the
performance of their services as Adviser, Sub-Adviser and
Administrator/Distributor, respectively, other than the cost of securities
(including brokerage commissions, if any) purchased for the Fund.
Banking Laws
The Adviser believes that it possesses the legal authority to perform the
advisory services for the Fund contemplated by its management agreement with the
Company and described in this Prospectus without violation of applicable banking
laws and regulations. Future changes in Federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which Trans Financial Bank, N.A. could
continue to perform such services for the Company. See "Management of the
Company Glass-Steagall Act" in the Statement of Additional Information for
further discussion of applicable banking laws and regulations.
- 21 -
<PAGE>
GENERAL INFORMATION
Description of the Company and Its Shares
The Company was organized as a Maryland corporation on June 20, 1995. The
Company is authorized to issue shares of common stock, par value $.001 per
share, which may, without shareholder approval, be divided into an unlimited
number of series or classes of such shares, and which are presently divided into
seven series of shares, one for each of the following Funds: the Money Market
Fund, the Growth/Value Fund, the Aggressive Growth Fund, the Intermediate Bond
Fund, the Kentucky Tax-Free Fund, the Tennessee Tax-Free Fund and the
International Fund (which is not currently offered). Each share represents an
equal proportionate interest in a Fund with other shares of the same series, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the directors
(see "Miscellaneous" below).
Shareholders are entitled to one vote per share (with proportional
voting for fractional shares) on such matters as shareholders are entitled to
vote. Shareholders vote as a single class except (i) when required by the 1940
Act, shares shall be voted by individual series and (ii) when the directors have
determined that the matter affects only the interests of one or more series,
then only shareholders of such series shall be entitled to vote thereon. The
Company will not hold annual meetings, however, shareholders with beneficial
ownership of 10% or more of the Company's shares have the right to call a
meeting for the purpose of voting upon the removal of a director or directors.
Overall responsibility for the management of the Company is vested in
the Board of Directors. See "Management of Trans Adviser Funds Directors of the
Company." Individual directors are elected by the shareholders and may be
removed by the Board of Directors or shareholders at a meeting held for such
purpose in accordance with the provisions of the Articles of Incorporation and
the By-laws of the Company and Maryland law. See "Additional Information
Miscellaneous" in the Statement of Additional Information for further
information.
Performance Information
From time to time performance information for the Fund showing its total return,
distribution rate and/or yield may be presented in advertisements and sales
literature. Average annual total return will be calculated for the past year and
the period since the establishment of the Fund. Total return is measured by
comparing the value of an investment in the Fund at the beginning of the
relevant period to the redemption value of the investment at the end of the
period (assuming the investor paid the maximum sales load on the investment and
assuming immediate reinvestment of any dividends or capital gains
distributions). Yield will be computed by dividing the Fund's net investment
income per share earned during a recent one-month period by the Fund's per share
net asset value (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last day of the period and analyzing the result.
In addition, the Fund may present tax-equivalent yield in advertisements and
sales literature.
The Fund may also publish a distribution rate in investor communications
preceded or accompanied by a copy of the current Prospectus. The current
distribution rate for the Fund will be calculated by dividing the maximum
offering price per share into the annualization of the total distributions made
by the Fund during the same thirty-day period. The current distribution rate may
differ from current yield because the distribution rate may contain items of
capital gain and other items of income, while yield reflects only earned
interest and dividend items of income. In each case, the yield, distribution
rates and total return figures will reflect all recurring charges against Fund
income and will assume the payment of the maximum sales load.
- 22 -
<PAGE>
Investors may also judge the performance of the Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices or
rankings and data published by various services such as that provided by Lipper
Analytical Services, Inc. Comparisons and references may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Institutional Investor,
Pensions and Investments, U.S.A. Today, Fortune, CDA/Wiesenberger, Ibbotson
Associates, Inc., MorningStar and local newspapers and periodicals. In addition
to performance information, general information about these Funds that appears
in a publication such as those mentioned above may be included in
advertisements, sales literature and in reports to shareholders.
Information about the performance of the Fund is based on the Fund's
record up to a certain date and is not intended to indicate future performance.
Total return, yield and distribution rate are functions of the type and quality
of instruments held in the Fund, operating expenses, and marketing conditions.
Any fees charged by Trans Financial Bank or any of its affiliates or a
broker-dealer with respect to customer accounts investing in shares of the Fund
will not be included in performance calculations.
Miscellaneous
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Company may be directed in writing to the
Company at P.O. Box 90001, Bowling Green, KY 42102-9001, or by calling toll free
(800) 308-TRAN.
TRANS ADVISER FUNDS
P.O. Box 90001
Bowling Green, KY 42102-9001
ADVISER
Trans Financial Bank
P.O. Box 90001
Bowling Green, KY 42102-9001
SUB-ADVISER
Mastrapasqua & Associates, Inc.
814 Church Street
Nashville, TN 37203
ADMINISTRATOR/DISTRIBUTOR
Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
TRANSFER AGENT
Forum Financial Corp.
Two Portland Square
Portland, ME 04101
- 23 -
<PAGE>
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
- 24 -
<PAGE>
Table of Contents
Page
Highlights....................................................... 2
Fee Table......................................................... 3
Financial Highlights.............................................. 4
Investment Objective and Policies................................ 5
Risk Factors...................................................... 19
Valuation of Shares............................................... 21
Purchases and Redemptions of Shares............................... 21
How to Invest..................................................... 21
How to Redeem Shares.............................................. 26
Dividends and Taxes............................................... 28
Management of Trans Adviser Funds................................. 31
General Information............................................... 34
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or Forum. This Prospectus does not constitute an offering by the Company or by
Forum in any jurisdiction in which such offering may not lawfully be made.
Tennessee Tax-Free Fund
PROSPECTUS
dated
January 1, 1997
Not FDIC Insured
- 25 -
<PAGE>
TRANS ADVISER FUNDS
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
INTERMEDIATE BOND FUND
KENTUCKY TAX-FREE FUND
MONEY MARKET FUND
Statement of Additional Information
January 1, 1997
---------------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of Trans Adviser Funds dated the same date
hereof (the "Prospectus"). This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectus. Copies of the
Prospectus may be obtained by writing Trans Adviser Funds at P.O. Box 90001,
Bowling Green, KY 42102-9001, or by telephoning toll free (800) 308-TRAN.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES........................................... 1
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS....................... 1
WHEN-ISSUED SECURITIES......................................... 1
VARIABLE AND FLOATING RATE SECURITIES.......................... 1
PARTICIPATION INTERESTS........................................ 2
REPURCHASE AGREEMENTS.......................................... 2
U.S. GOVERNMENT OBLIGATIONS.................................... 2
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT............... 2
COMMERCIAL PAPER............................................... 3
VARIABLE AMOUNT MASTER DEMAND NOTES............................ 3
FOREIGN INVESTMENT............................................. 3
REVERSE REPURCHASE AGREEMENTS.................................. 4
CALLS.......................................................... 4
PUTS........................................................... 5
FUTURES CONTRACTS.............................................. 6
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS................... 8
RISK FACTORS IN FUTURES TRANSACTIONS........................... 9
AMERICAN DEPOSITORY RECEIPTS (ADRs)............................ 9
LOWER-RATED DEBT SECURITIES.................................... 9
ILLIQUID INVESTMENTS........................................... 10
LOANS AND OTHER DIRECT DEBT INSTRUMENTS........................ 10
RESTRICTED SECURITIES.......................................... 11
WARRANTS....................................................... 11
SECURITIES LENDING............................................. 11
OTHER INVESTMENT COMPANIES..................................... 11
FUTURE DEVELOPMENTS............................................ 11
INVESTMENT RESTRICTIONS............................................... 12
PORTFOLIO TURNOVER.................................................... 13
RISKS AND SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN KENTUCKY
OBLIGATIONS .......................................................... 14
FISCAL YEAR 1995 (UNAUDITED).......................................... 14
VALUATION.................................................................... 16
VALUATION OF THE MONEY MARKET FUND.................................... 16
VALUATION OF THE FUNDS (OTHER THAN THE MONEY MARKET FUND)............. 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................... 17
PURCHASE OF SHARES.................................................... 17
MATTERS AFFECTING REDEMPTION.......................................... 17
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<PAGE>
REDEMPTION IN KIND................................................... 17
ADDITIONAL TAX INFORMATION.................................................. 18
QUALIFICATION AS A REGULATED INVESTMENT COMPANY...................... 18
ADDITIONAL TAX INFORMATION CONCERNING THE TAX-FREE FUND ............ 20
EXCISE TAX ON REGULATED INVESTMENT COMPANIES......................... 21
ADDITIONAL TAX INFORMATION CONCERNING OTHER FUNDS.................... 21
SALE OR REDEMPTION OF SHARES ....................................... 22
FOREIGN SHAREHOLDERS................................................. 22
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS............... 23
MANAGEMENT OF THE COMPANY................................................... 23
DIRECTORS............................................................ 23
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS............. 24
OFFICERS............................................................. 25
ADVISER AND SUB-ADVISER.................................................
THE ADVISER................................................................. 26
THE ADVISORY AGREEMENT............................................... 26
THE SUB-ADVISER...................................................... 27
PORTFOLIO TRANSACTIONS............................................... 27
GLASS-STEAGALL ACT................................................... 28
ADMINISTRATOR........................................................ 29
EXPENSES............................................................. 29
DISTRIBUTOR.......................................................... 29
CUSTODIAN............................................................ 30
TRANSFER AGENT....................................................... 30
PORTFOLIO ACCOUNTING................................................. 31
INDEPENDENT AUDITORS................................................. 31
LEGAL COUNSEL ....................................................... 31
FINANCIAL REPORTS ............................................................
PERFORMANCE INFORMATION..................................................... 31
YIELD OF THE MONEY MARKET FUND....................................... 31
YIELD OF THE FUNDS (OTHER THAN THE MONEY MARKET FUND) ............... 32
CALCULATION OF TOTAL RETURN.......................................... 32
CALCULATION OF DISTRIBUTION RATE.................................... 32
PERFORMANCE COMPARISONS.............................................. 33
YIELD AND TOTAL RETURN............................................... 33
ALL FUNDS............................................................ 33
ADDITIONAL INFORMATION...................................................... 34
ORGANIZATION AND DESCRIPTION OF SHARES............................... 34
MISCELLANEOUS........................................................ 34
APPENDIX A................................................................. A-1
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TRANS ADVISER FUNDS
Trans Adviser Funds, Inc. (the "Company") is a non-diversified, open-end
management investment company. The Company consists of six separate investment
portfolios: the Growth/Value Fund, the Aggressive Growth Fund, the Intermediate
Bond Fund, the Kentucky Tax-Free Fund, the Tennessee Tax-Free Fund and the Money
Market Fund. This Statement of Additional Information relates to each Fund
except the Tennessee Tax-Free Fund (collectively, the "Funds"). Much of the
information contained in this Statement of Additional Information expands on
subjects discussed in the Prospectus. Capitalized terms not defined herein are
defined in the Prospectus. No investment in shares of a Fund should be made
without first reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives and policies
of each Fund as set forth in the Prospectus.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, each of the
Funds may purchase securities on a when-issued basis (i.e., for delivery beyond
the normal settlement date at a stated price and yield). When the Funds agree to
purchase securities on a when-issued basis, the Funds' custodian will set aside
cash or liquid portfolio securities equal to the amount of the commitment in a
separate account. Normally, the custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, the Funds may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Funds'
commitment. It may be expected that the Funds' net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because the Funds will
set aside cash or liquid portfolio securities to satisfy their purchase
commitments in the manner described above, the Funds' liquidity and the ability
of the Adviser (M&A) to manage them might be affected in the event their
commitment to purchase when-issued securities ever exceeded 25% of the value of
their assets.
When the Funds engage in when-issued transactions, they rely on the
seller to consummate the trade. Failure of the seller to do so may result in the
Funds incurring a loss or missing the opportunity to obtain a price considered
to be advantageous. The Funds do not intend to purchase when-issued securities
for speculative purposes but only in furtherance of their investment objectives,
the achievement of which is not dependent upon when-issued securities.
VARIABLE AND FLOATING RATE SECURITIES. Each Fund may acquire variable
and floating rate securities, subject to the relevant Fund's investment
objectives, policies and restrictions. A variable rate security is one whose
terms provide for the readjustment of its interest rate on set dates and which,
upon such readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate security is one whose terms provide
for the readjustment of its interest rate whenever a specified interest rate
changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Such securities are frequently not rated
by credit rating agencies; however, unrated variable and floating rate
securities determined by the Adviser (M&A) under guidelines established by the
Company's Board of Directors to be of comparable quality at the time of purchase
to rated instruments eligible for purchase under a Fund's investment policies
may be purchased by a Fund. In making such determinations, the Adviser (M&A)
will consider the earning power, cash flow and other liquidity ratios of the
issuers of such securities (such issuers include financial, merchandising, bank
holding and other companies) and will continuously monitor their financial
condition. Although there may be no active secondary market with respect to a
particular variable or
<PAGE>
floating rate security purchased by a Fund, a Fund may resell the security at
any time to a third party. The absence of an active secondary market, however,
could make it difficult for a Fund to dispose of a variable or floating rate
security in the event the issuer of the security defaulted on its payment
obligations and the Fund could, as a result or for other reasons, suffer a loss
to the extent of the default. Variable or floating rate securities may be
secured by bank letters of credit.
PARTICIPATION INTERESTS. The Kentucky Tax-Free Fund may purchase
participation interests in loans to municipal issuers, which are made available
through a commercial bank that arranges the tax-exempt loan. Participation
interests are frequently backed by an irrevocable bank letter of credit or a
guarantee by a financial institution and give the Fund the right to demand, on
short notice (usually not more than seven days), payment of all or any part of
the principal amount and accrued interest. Banks retain fees for their role in
an amount equal to the excess of the interest paid on the municipal securities
over the negotiated yield at which the participation interests were purchased.
In the event that the participation interest that the Fund acquires includes the
right to demand payment of principal and accrued interest from the issuer of the
participation interest pursuant to a letter of credit or other commitment, the
maturity will be deemed to be equal to the time remaining until the principal
amount can be recovered from the issuer through demand, although the stated
maturity may be in excess of one year. To the extent that variable rate
instruments and loan participations may lack liquidity (unless payable on demand
or within seven days), they are subject to the restriction on illiquid
securities, described herein under the caption "Investment Restrictions". See
"Illiquid Investments" below for an explanation of how liquidity is determined.
REPURCHASE AGREEMENTS. Securities held by the Money Market Fund, the
Intermediate Bond Fund and the Aggressive Growth Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation with capital, surplus, and undivided profits of not less than
$100,000,000 (as of the date of their most recently published financial
statements) and from registered broker-dealers which the Adviser (M&A) deems
creditworthy under guidelines approved by the Board of Directors, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest) and the Adviser (M&A) will monitor the collateral's
value to ensure that it equals or exceeds the repurchase price (including
accrued interest). In addition, securities subject to repurchase agreements will
be held in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund, as the holder of such obligation,
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by the Fund
were delayed pending court action. Finally, it is not certain whether a Fund
would be entitled, as against a claim of the seller or its receiver, trustee in
bankruptcy or creditors, to retain the underlying securities. Securities subject
to repurchase agreements will be held by the Company's custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered by the staff of the Securities and Exchange
Commission (the "Commission") to be loans by a Fund.
U.S. GOVERNMENT OBLIGATIONS. The Funds may invest in bills, notes and
bonds issued by the U.S. Treasury. Such obligations are supported by the full
faith and credit of the U.S. Government.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. The Funds (other than
the Kentucky Tax-Free Fund) may invest in bankers' acceptances, certificates of
deposit, and demand and time deposits. Bankers' acceptances are negotiable
drafts or bills of exchange typically drawn by an importer or exporter to pay
for specific merchandise, which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on
maturity. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
- 2 -
<PAGE>
Bankers' acceptances will be those guaranteed by domestic and foreign
banks, if at the time of purchase, such banks have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements). Certificates of deposit and demand and
time deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of purchase they have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements) or (b) the principal amount of the
instrument is insured in full by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. The Funds (other than the Tax-Free Fund) may invest in
commercial paper. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper normally have maturities of less
than nine months and fixed rates of return. The Funds (other than the Kentucky
Tax-Free and Money Market Funds) may invest in (i) Canadian Commercial Paper,
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and (ii) Europaper, which is U.S.
dollar-denominated commercial paper of an issue located in Europe.
The Kentucky Tax-Free Fund may invest in municipal obligations issued at
a discount, frequently referred to as municipal commercial paper, which are
likely to be issued to meet seasonal working capital needs of a municipality or
to provide interim construction financing and are to be paid from general
revenues of the municipality or refinanced with long-term debt. In most cases,
municipal commercial paper is backed by letters of credit, lending agreements,
note repurchase agreements, or other credit facility agreements offered by banks
or other institutions. The Kentucky Tax-Free Fund would be able to draw on these
agreements on a default under the terms of the documents of the security.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which a Fund may invest, are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. They are also referred
to as variable rate demand notes. Because these notes are direct lending
arrangements between the Fund and the issuer, they are not normally traded.
Although there may be no secondary market in the notes, the Fund may demand
payment of principal and accrued interest at any time or during specified
periods not exceeding one year, depending upon the instrument involved, and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Fund to dispose of a
variable amount master demand note if the issuer defaulted on its payment
obligations or during periods when the Fund is not entitled to exercise their
demand rights, and the Fund could, for this or other reasons, suffer a loss to
the extent of the default. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes must satisfy the
same criteria as set forth above for commercial paper. The Adviser (M&A) will
consider the earning power, cash flow, and other liquidity ratios of the issuers
of such notes and will continuously monitor their financial status and ability
to meet payment on demand. Where necessary to ensure that a note is of "high
quality," the Fund will require that the issuer's obligation to pay the
principal of the note be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. In determining dollar-weighted average
portfolio maturity, a variable amount master demand note will be deemed to have
a maturity equal to the period of time remaining until the principal amount can
be recovered from the issuer through demand.
FOREIGN INVESTMENT. The Growth Funds may, subject to their investment
objectives and policies, invest in certain obligations or securities of foreign
issuers. Permissible investments include Eurodollar Certificates of Deposit
("ECDs") which are U.S. dollar denominated certificates of deposit issued by
branches of foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank, and
Canadian Time Deposits ("CTDs") which are U.S. dollar denominated certificates
of deposit issued by Canadian offices of major Canadian Banks. Investments in
securities issued by foreign branches of U.S. banks, foreign banks, or other
foreign issuers, including American Depository Receipts ("ADRs") and securities
purchased on foreign securities exchanges and over-the-counter, may subject the
Growth Funds to investment risks that differ in some respects from those related
to investment
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in obligations of U.S. domestic issuers or in U.S. securities markets. Such
risks include future adverse political and economic developments, possible
seizure, nationalization or expropriation of foreign investments, less stringent
disclosure requirements, the possible establishment of exchange controls or
taxation at the source, and the adoption of other foreign governmental
restrictions. Additional risks include less publicly available information, the
risk that companies may not be subject to the accounting, auditing and financial
reporting standards and requirements of U.S. companies, the risk that foreign
securities markets may have less volume and therefore many securities traded in
these markets may be less liquid and their prices more volatile than U.S.
securities, and the risk that custodian and brokerage costs may be higher.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks. The Growth Funds will
acquire such securities only when M&A believes the risk associated with such
investments are minimal.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, the
Aggressive Growth Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the Fund's investment
restrictions. Pursuant to such agreements, the Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase the securities at a mutually agreed-upon date and price. The Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. Such assets will include U.S. Government
securities or other liquid, high-grade debt securities. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings by
the Fund under the 1940 Act.
CALLS. The Aggressive Growth Fund may write (sell) "covered" call
options and purchase options to close out options previously written by it. Such
options must be listed on a National Securities Exchange and issued by the
Options Clearing Corporation. The purpose of writing covered call options is to
generate additional premium income for the Fund. This premium income will serve
to enhance the Fund's total return and will reduce the effect of any price
decline of the security involved in the option. Covered call options will
generally be written on securities which, in M&A's opinion, are not expected to
make any major price moves in the near future but which, over the long term, are
deemed to be attractive investments for the Fund. A call option gives the holder
(buyer) the "right to purchase" a security at a specified price (the exercise
price) at any time until a certain date (the expiration date). So long as the
obligation of the writer of a call option continues, the writer may be assigned
an exercise notice by the broker-dealer through whom such option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing purchase
transaction by repurchasing an option identical to that previously sold. To
secure the writer's obligation to deliver the underlying security in the case of
a call option, a writer is required to deposit in escrow the underlying security
or other assets in accordance with the rules of the Options Clearing
Corporation. The Aggressive Growth Fund will write only covered call options.
This means that the Aggressive Growth Fund will only write a call option on a
security which it already owns. (In order to comply with the requirements of the
securities laws in several states the Fund will not write a covered call option
if, as a result, the aggregate market value of all portfolio securities covering
call options or subject to put options exceeds 25% of the market value of its
total assets.)
Aggressive Growth Fund securities on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Fund's investment objectives. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered call options, which the Aggressive
Growth Fund will not do), but capable of enhancing the Fund's total return. When
writing a covered call option, the Fund, in return for the premium,
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gives up the opportunity for profit from a price increase in the underlying
security above the exercise price, but retains the risk of loss should the price
of the security decline. Unlike an owner of securities not subject to an option,
the Aggressive Growth Fund will not have any control over when it may be
required to sell the underlying securities, since it may be assigned an exercise
notice at any time prior to the expiration of its obligation as a writer. If a
call option which the Fund has written expires, the Fund will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security during the option period. If the call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of the Fund's custodian. The Aggressive Growth Fund will not
consider a security covered by a call to be "pledged" as that term is used in
its policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium the
Aggressive Growth Fund will receive from writing a call option will reflect,
among other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security, and the length of the option period. Once
the decision to write a call option has been made, the Adviser, in determining
whether a particular call option should be written on a particular security,
will consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for those options. The premium
received by the Fund for writing covered call options will be recorded as a
liability in the Fund's statement of assets and liabilities. This liability will
be adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The liability will be extinguished upon expiration
of the option, the purchase of an identical option in the closing transaction,
or delivery of the underlying security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit the Aggressive Growth Fund to write another call option
on the underlying security with either a different exercise price or expiration
date or both. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security.
There is, of course, no assurance that the Fund will be able to effect such
closing transactions at a favorable price. If the Fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk in the security. This
could result in higher transaction costs. The Fund will pay transaction costs in
connection with the writing of options to close out previously written options.
Such transaction costs are normally higher than those applicable to purchases
and sales of portfolio securities.
Call options written by the Aggressive Growth Fund will normally have
expiration dates of less than nine months from the date written. The exercise
price of the options may be below, equal to, or above the current market values
of the underlying securities at the time the options are written. From time to
time, the Fund may purchase an underlying security for delivery in accordance
with an exercise notice of a call option assigned to it, rather than delivering
such security from its portfolio. In such cases, additional costs will be
incurred.
The Aggressive Growth Fund will realize a profit or loss from a closing
purchase transaction if the cost of the 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, any loss resulting from the repurchase of a call option
is likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
PUTS. When the Fund writes a put option, it takes the opposite side of
the transaction from the option's purchaser. In return for receipt of the
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract the Fund will be
required to make margin payments to a futures commission merchant for futures
contracts. The Fund may seek to terminate its position in a put option it writes
before
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exercise by closing out the option in the secondary market at its current price.
If the secondary market is not liquid for a put option the Fund has written,
however, the Fund must continue to be prepared to pay the strike price while the
option is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline. The Aggressive Growth Fund may acquire "puts" with
respect to securities held in its portfolio. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. The Fund may sell, transfer, or assign a put only in
conjunction with the sale, transfer, or assignment of the underlying security or
securities.
The amount payable to the Aggressive Growth Fund upon its exercise of a
"put" is normally (i) the Fund's acquisition cost of the securities subject to
the put (excluding any accrued interest which the Fund paid on the acquisition),
less any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
Puts may be acquired by the Aggressive Growth Fund to facilitate the
liquidity of portfolio assets. Puts may also be used to facilitate the
reinvestment of assets at a rate of return more favorable than that of the
underlying security.
FUTURES CONTRACTS. The Aggressive Growth Fund may enter into futures
contracts and options on futures contracts for the purposes of remaining fully
invested and reducing transaction costs. Futures contracts provide for the
future sale by one party and purchase by another party of a specified amount of
a specific security, class of securities, or an index at a specified future time
and at a specified price. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contracts and the price at
which the futures contract is originally struck. Futures contracts which are
standardized as to maturity date and underlying financial instrument are traded
on national futures exchanges. Futures exchanges and trading are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC"),
a U.S. Government Agency.
The Kentucky Tax-Free Fund is permitted to buy and sell futures
contracts relating to municipal bond indices ("Municipal Bond Index Futures")
and to U.S. Government securities ("U.S. Government Securities Futures,"
together referred to as "Futures"), and exchange traded options based on Futures
as a possible means to protect the asset value of the Fund during periods of
changing interest rates, although in fact the Funds may never do so.
Municipal Bond Index Futures currently are based on a long-term
municipal bond index developed by the Chicago Board of Trade ("CBT") and The
Bond Buyer (the "Municipal Bond Index"). Financial futures contracts based on
the Municipal Bond Index began trading on June 11, 1985. The Municipal Bond
Index is comprised of 40 tax-exempt municipal revenue and general obligation
bonds. Each bond included in the Municipal Bond Index must be rated A or higher
by Moody's or S&P and must have a remaining maturity of 19 years or more. Twice
a month new issues satisfying the eligibility requirements are added to, and an
equal number of old issues are deleted from, the Municipal Bond Index. The value
of the Municipal Bond Index is computed daily according to a formula based on
the price of each bond in the Municipal Bond Index, as evaluated by six
dealer-to-dealer brokers.
The Municipal Bond Index futures contract is traded only on the CBT.
Like other contract markets, the CBT assures performance under futures contracts
through a clearing corporation, a nonprofit organization
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managed by the exchange membership which is also responsible for handling daily
accounting of deposits or withdrawals of margin.
There are at present U.S. Government financial futures contracts based
on long-term Treasury bonds, Treasury notes, GNMA Certificates and three-month
Treasury bills. U.S. Government Securities Futures have traded longer than
Municipal Bond Index Futures, and the depth and liquidity available in the
trading markets for them are in general greater.
Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Funds the right (but not the obligation) for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash
or government securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.
After a futures contract position is opened, the value of the contract
is marked-to-market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on their margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Funds may use futures contracts for
hedging purposes only.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Funds can seek through the sale of futures
contracts to offset a decline in the value of their portfolio securities. When
interest rates are expected to fall or market values are expected to rise, a
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Fund, than might later be available in the market when it
effects anticipated purchases.
Regulations of the CFTC require that a Fund enters into transactions in
futures contracts and options thereon for hedging purposes only, in order to
assure that it is not deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations require that all short futures positions be entered
into for the purpose of hedging the value of securities held in a Fund's
portfolio, and that all long futures positions either constitute bona fide
hedging transactions, as defined in such regulations, or have a total value not
in excess of an amount determined by reference to certain cash and securities
positions maintained for the Fund, and accrued
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profits on such positions. In addition, the Fund may not purchase or sell such
instruments if, immediately thereafter, the sum of the amount of initial margin
deposits on its existing futures positions and premiums paid for options on
futures contracts would exceed 5% of the market value of the Fund's total
assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with the Fund's custodian so that the amount so segregated, plus the
initial deposit and variation margin held in the account of its broker, will at
all times equal the value of the futures contract, thereby insuring that the use
of such futures is unleveraged.
The Funds will only sell futures contracts to protect securities they
own against price declines or purchase contracts to protect against an increase
in the price of securities they intend to purchase. As evidence of this hedging
interest, the Funds expect that approximately 75% of their futures contract
purchases will be "completed," that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Funds upon sale of open
futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Funds' exposure to market fluctuations,
the use of futures contracts may be a more effective means of hedging this
exposure. While the Funds will incur commission expenses in both opening and
closing out futures positions, these costs are lower than transactions costs
incurred in the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. A Fund will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of a Fund's total assets. In addition, a Fund will not enter into futures
contracts to the extent that the value of the futures contracts held would
exceed 10% of the Fund's total assets. Futures transactions will be limited to
the extent necessary to maintain a Fund's qualification as a regulated
investment company.
Each Fund has undertaken to restrict its futures contract trading as
follows: first, the Funds will not engage in transactions in futures contracts
for speculative purposes; second, a Fund will not market itself to the public as
a commodity pool or otherwise as a vehicle for trading in the commodities
futures or commodity options markets; third, each Fund will disclose to all
prospective shareholders the purpose of and limitations on its commodity futures
trading; fourth, each Fund will submit to the CFTC special calls for
information. Accordingly, registration as a commodities pool operator with the
CFTC is not required.
In addition to the margin restrictions discussed above, transactions in
futures contracts may involve the segregation of funds pursuant to requirements
imposed by the SEC. Under those requirements, where a Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by a Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if a Fund "covers" a long position. For example, instead of
segregating assets, a Fund, when holding a long position in a futures contract,
could purchase a put option on the same futures contract with a strike price as
high or higher than the price of the contract held by the Fund. In addition,
where a Fund takes short positions, or engages in sales of call options, it need
not segregate assets if it "covers" these positions. For example, where a Fund
holds a short position in a futures contract, it may cover by owning the
instruments underlying the contract. A Fund may also cover such a position by
holding a call option permitting it to purchase the same futures contract at a
price no higher than the price at which the short position was established.
Where a Fund sells a call option on a futures contract, it may cover either by
entering into a long position in the same contract at a price no higher than the
strike price of the call option or by owning the instruments underlying the
futures contract. A Fund
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could also cover this position by holding a separate call option permitting it
to purchase the same futures contract at a price no higher than the strike price
of the call option sold by the Fund.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may
be closed out only on an exchange that provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, a Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge them. A Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts that are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. A Fund would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker
with whom a Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of future positions and subjecting some
futures traders to substantial losses.
AMERICAN DEPOSITORY RECEIPTS (ADRs) are certificates evidencing
ownership of shares of a foreign-based issuer held in trust by a bank or similar
financial institution. The Growth Funds may purchase ADRs. Designed for use in
U.S. markets, ADRs are alternatives to the purchase of the underlying securities
in their national markets and currencies. ADRs may be sponsored or unsponsored;
there is less publicly available information with respect to unsponsored ADRs.
It is anticipated that ADRs will not be relied upon to achieve the Growth Funds'
objectives.
LOWER-RATED DEBT SECURITIES. The Growth Funds and the Intermediate Bond
Fund may purchase lower-rated debt securities commonly referred to as "junk
bonds" (those rated Ba to C by Moody's or BB to C by S&P) that have poor
protection with respect to the payment of interest and repayment of principal,
or may be in default. These securities are often considered to be speculative
and involve greater risk of loss or
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price changes due to changes in the issuer's capacity to pay. The market prices
of lower-rated debt securities may fluctuate more than those of higher-rated
debt securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.
While the market for high-yield corporate debt securities has been in
existence for many years and has weathered previous economic downturns, the
1980s brought a dramatic increase in the use of such securities to fund highly
leveraged corporate acquisitions and restructuring. Past experience may not
provide an accurate indication of future performance of the high yield bond
market, especially during periods of economic recession.
The market for lower-rated securities may be thinner and less active
than that for higher-rated debt securities, which can adversely affect the
prices at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Directors, including the use of outside pricing
services. Judgment plays a greater role in valuing high-yield corporate debt
securities than is the case for securities for which more external sources for
quotations and last-sale information are available. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
to value lower-rated debt securities and a Fund's ability to sell these
securities.
Since the risk of default is higher for lower-rated debt securities, the
Adviser's (M&A's) research and credit analysis are an especially important part
of managing securities of this type held by a Fund. In considering investments
for a Fund, the Adviser (M&A) will attempt to identify those issuers of
high-yielding debt securities whose financial condition is adequate to meet
future obligations, has improved, or is expected to improve in the future. The
Adviser's (M&A's) analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as security holder to seek to
protect the interests of security holders if it determines this to be in the
best interest of the Fund's shareholders.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of
in the ordinary course of business, within seven days, at approximately the
prices at which they are valued. Each of the Funds may purchase illiquid
investments. Under the supervision of the Board Directors, the Adviser (M&A)
determines the liquidity of each Fund's investments and, through reports from
the Adviser (M&A), the Board monitors investments in illiquid instruments. In
determining the liquidity of a Fund's investments, the Adviser (M&A) may
consider various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset a Fund's rights and obligations
relating to the investment). Investments currently considered by a Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. Also, the Adviser (M&A), may determine
some over-the-counter options, restricted securities and loans and other direct
debt instruments, and swap agreements to be illiquid. However, with respect to
over-the-counter options the Aggressive Growth Fund writes, all or a portion of
the value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the
Aggressive Growth Fund may have to close out the option before expiration. In
the absence of market quotations, illiquid investments are priced at fair value
as determined in good faith by a committee appointed by the Board of Directors.
If through a change in values, net assets, or other circumstances, the
Aggressive Growth Fund were in a position where more than 10% of its net assets
were invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by
a corporate, governmental, or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participation), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve a risk of
loss in case of default or insolvency
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<PAGE>
of the borrower and may offer less legal protection to a Fund in the event of
fraud or misrepresentation. In addition, loan participations involve a risk of
insolvency of the lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that obligate a Fund
to supply additional cash to the borrower on demand.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
a Fund may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to seek registration of the shares. However, in general, the Funds
anticipate holding restricted securities to maturity or selling them in an
exempt transaction.
WARRANTS. Warrants are securities that give the Aggressive Growth Fund
the right to purchase equity securities from the issuer at a specific price (the
strike price) for a limited period of time. The strike price of warrants
typically is much lower than the current market price of the underlying
securities, yet they are subject to greater price fluctuations. As a result,
warrants may be more volatile investments than the underlying securities and may
offer greater potential for capital appreciation as well as capital
depreciation.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date. These
factors can make warrants more speculative than other types of investments.
SECURITIES LENDING. The Funds may lend their portfolio securities to
broker-dealers, banks or institutional borrowers of securities. A Fund must
receive a minimum of 100% collateral, plus any interest due in the form of cash
or U.S. Government securities. This collateral must be valued daily and should
the market value of the loaned securities increase, the borrower must furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower will pay the Fund any dividends or interest paid on such
securities plus any interest negotiated between the parties to the lending
agreement. Loans will be subject to termination by the Fund or the borrower at
any time. While the Funds will not have the right to vote securities on loan,
each Fund intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. A Fund will only enter into
loan arrangements with broker-dealers, banks or other institutions which the
Adviser (M&A) has determined are creditworthy under guidelines established by
the Company's Board of Directors.
OTHER INVESTMENT COMPANIES. A Fund may invest in the securities of other
investment companies to the extent permissible under the applicable regulations
and interpretations of the 1940 Act or an exemptive order. It is anticipated
that investment in other investment companies will not be relied upon to achieve
the Growth Funds' objectives.
FUTURE DEVELOPMENTS. As discussed in the Prospectus, a Fund may take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and are legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described in the Prospectus and Statement of
Additional Information. Prior to commencing any new investment practice, each
Fund will notify shareholders by means of a prospectus supplement.
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<PAGE>
INVESTMENT RESTRICTIONS
The following fundamental investment limitations cannot be changed
without approval by a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of a Fund.
A Fund may not (unless otherwise indicated):
(1) issue any senior security (as defined in the 1940 Act), except that
(a) a Fund may engage in transactions which may result in the issuance of senior
securities to the extent permitted under applicable regulations and
interpretation of the 1940 Act or an exemptive order; (b) a Fund may acquire
other securities that may be deemed senior securities to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act;
(2) borrow money, except that (a) a Fund may enter into commitments to
purchase securities in accordance with its investment program, including
delayed-delivery and when-issued securities and reverse repurchase agreements,
provided that the total amount of any such borrowing does not exceed 33 1/3% of
the Fund's total assets; and (b) a Fund may borrow money for temporary or
emergency purposes in an amount not exceeding 5% of the value of its total
assets at the time when the loan is made (the Aggressive Growth Fund is not
subject to this 5% limitation and may borrow money for purposes of leveraging).
(3) underwrite securities issued by others, except to the extent that a
Fund may be considered an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of a Fund's total assets would
be invested in the securities of companies whose principal business activities
are in the same industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a Fund
from purchasing or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities); or
(7) lend any security or make any other loan if, as a result, more than
33 1/3% of a Fund's total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
The following investment limitations are nonfundamental and may be
changed without shareholder approval:
(i) Each Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures contracts
and options are not deemed to constitute selling securities short.
(ii) Each Fund does not currently intend to purchase securities on
margin, except that a Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
(iii) Each Fund does not currently intend to purchase any security if,
as a result, more than 15% (10% with respect to the Money Market Fund) of its
net assets would be invested in securities that are deemed
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to be illiquid because they are subject to legal or contractual restrictions on
resale or because they cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued.
(iv) The Money Market Fund does not currently intend to invest in
securities of real estate investment trusts that are not readily marketable, or
to invest in securities of real estate limited partnerships that are not listed
on the New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(v) Each Fund does not currently intend to make loans, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(vi) Each Fund shall not invest in the securities of other investment
companies, except that a Fund may invest in the securities of other investment
companies that are not "affiliated persons" of the Fund (unless permitted by SEC
regulations or exemptive relief) to the extent permissible under the applicable
regulations and interpretations of the 1940 Act or an exemptive order. M&A
and/or the Adviser will waive the portion of its fee attributable to the assets
of a Fund invested in such investment companies to the extent required by the
laws of any jurisdiction in which shares of the Fund are registered for sale.
(vii) The Money Market Fund will not purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government or any
of its agencies or instrumentalities) if, as a result, (a) more than 5% of the
Fund's total assets would be invested in the securities of that issuer, or (b)
the Fund would hold more than 10% of the outstanding voting securities of that
issuer.
In addition to the above, at the close of each quarter of its taxable
year, at least 50% of the value of each Fund's assets must consist of cash and
cash items, U.S. Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which a Fund has not invested
more than 5% of the value of the Fund's total assets in securities of any such
issuer and does not hold more than 10% of its outstanding voting securities),
and no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which a Fund controls and which are engaged in the same or similar trades or
businesses.
As a condition to registration of their shares in the State of Arkansas,
the Intermediate Bond Fund, the Aggressive Growth Fund, the Growth/Value Fund
and the Money Market Fund will not (a) purchase securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years, and equity securities of issuers which are not readily
marketable if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of a Fund's total assets or (b) invest in
interests in oil, gas or other mineral exploration or development programs; a
Fund may, however, purchase and sell securities engaged in the exploration,
development, production, refining, transporting and marketing of oil, gas or
minerals.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose maturities at the time of acquisition
were one year or less. Portfolio turnover with respect to the Money Market Fund
is expected to be zero percent for regulatory purposes. The portfolio turnover
rate with respect to a Fund may vary greatly from year to year as well as within
a particular year, and may also be affected by cash requirements for redemptions
of shares. A higher portfolio turnover rate may lead to increased taxes and
transaction costs. Portfolio turnover will not be a limiting factor in making
investment decisions. The portfolio turnover rates for the period ended August
31, 1996 were as follows: Growth/Value Fund: 21.12%; Aggressive Growth Fund:
15.70%; Intermediate Bond Fund: 12.38% and Kentucky Tax-Free Fund: 145.12%.
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RISKS AND SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN KENTUCKY OBLIGATIONS
[To be revised]
The following is a discussion of the general factors that might
influence the ability of Kentucky issuers to repay principal and interest when
due on the Kentucky Obligations contained in the portfolio of the Kentucky Tax-
Free Fund. Such information is derived from sources that are generally available
to investors and is believed by the Kentucky Tax-Free Fund to be accurate, but
has not been independently verified and may not be complete.
Economic problems include a continuing high unemployment rate in the
non-urbanized area of the State. The Coal Severance Tax is a significant revenue
producer for the State and its political subdivisions, and any substantial
decrease in the amount of coal or other minerals produced could result in
revenue shortfalls. Additionally, any Federal legislation adversely affecting
the domestic and export tobacco and/or cigarette industry would have a negative
impact on Kentucky's economy. Although revenue obligations of the State or its
political subdivisions may be payable from a specific project, there can be no
assurances that further economic difficulties and the resulting impact on State
and local government finances will not adversely affect the market value of the
bonds issued by Kentucky municipalities or political subdivisions or the ability
of the respective entities to pay debt service. Major legislative initiatives in
the areas of education reform and medicaid expenses are having an impact on the
Commonwealth's financial profile.
The Commonwealth of Kentucky relies primarily upon sales and use tax,
individual income tax, property tax, corporate income tax, insurance premium
tax, alcohol beverage tax, corporate license tax, cigarette tax, and horse
racing tax for its revenue. The cities, counties and other local governments are
essentially limited to property taxes, occupational license taxes, transit and
restaurant meal taxes and various license fees for their revenue. Obligations of
non-Kentucky issuers are subject to the risks of general economic and other
factors affecting those issuers.
Because of constitutional limitations, the Commonwealth of Kentucky
cannot enter into a financial obligation of more than two years' duration, and
no other municipal issuer within the Commonwealth can enter into a financial
obligation of more than one year's duration. As a consequence, the payment and
security arrangements applicable to Kentucky revenue bonds differ significantly
from those generally applicable to municipal revenue bonds in other states.
FISCAL YEAR 1995 (UNAUDITED)
The Commonwealth of Kentucky continues to achieve structural balance in
its budget through consensus forecasting of state revenue and measures of fiscal
constraint. The General Fund ended the fiscal year with a budget surplus of $134
million. The surplus was comprised of excess revenues of $84 million above the
original estimate of $5.07 billion and expenditure reductions of $50 million.
Additionally, individual tax refunds for the second consecutive year were paid
prior to July 1.
An additional $10 million was deposited to the Budget Reserve Trust
Fund, on July 1, 1995, bringing the balance to the targeted level of $100
million. The Budget Reserve Trust Fund is a line item in the Commonwealth's
biennial budget.
On July 31, 1995, a special session of the Kentucky General Assembly
convened to address court ordered legislative redistricting, adding $100 million
to the Budget Reserve Trust Fund, and approval of $50 million in secondary road
improvements to be funded from excess Road Fund Revenues. The General Assembly
adopted each of the referenced items and adjourned August 4, 1995. However, the
legislative redistricting plan adopted for the House of Representatives was
vetoed by Governor Jones and will have to be addressed in the next regular or
special session of the General Assembly.
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<PAGE>
VALUATION
As indicated in the Prospectus, the net asset value per share ("NAV") of
each Fund for purposes of pricing purchase and redemption orders is determined
as of the close of regular trading of the New York Stock Exchange (the "NYSE"))
on each Business Day of the Fund. Fund Business Days do not include the
following observed by the NYSE: New Year's Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day (observed), Labor Day, Thanksgiving
Day and Christmas Day (observed). Days on which the Federal Reserve Wire
Transfer Service is closed (which include: Martin Luther King Day, Columbus Day
and Veterans Day), in addition to NYSE holidays, are not Business Days for the
Money Market Fund. Net asset value per share for purposes of pricing sales and
redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund, less the liabilities charged to that Fund, by the
number of the outstanding shares of that Fund.
VALUATION OF THE MONEY MARKET FUND
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. The value of
securities in the Fund can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per share, provided that the Fund will not
purchase any security with a remaining maturity of more than 397 days nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days. The
Company's Board of Directors has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
Fund's investment objective, to stabilize the net asset value per share of the
Fund for purposes of sales and redemptions at $1.00. These procedures include
review by the Directors, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per share of the Fund
calculated by using available market quotations deviates from $1.00 per share.
In the event such deviation exceeds one-half of one percent, Rule 2a-7 requires
that the Board of Directors promptly consider what action, if any, should be
initiated. If the Directors believe that the extent of any deviation from the
Fund's $1.00 amortized cost price per share may result in material dilution or
other unfair results to new or existing investors, they will take such steps as
they consider appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include selling
portfolio instruments prior to maturity, shortening the dollar-weighted average
portfolio maturity, withholding or reducing dividends, reducing the number of
the Fund's outstanding shares without monetary consideration, or utilizing a net
asset value per share determined by using available market quotations.
VALUATION OF THE FUNDS (OTHER THAN THE MONEY MARKET FUND)
The value of the portfolio securities held by the Funds (other than the
Money Market Fund) for purposes of determining a Fund's net asset value per
share will be established on the basis of current valuations provided by Muller
Data Corporation or Kenny S&P Evaluation Services, whose procedures shall be
monitored by the Adviser and the Administrator, and which valuations shall be
the fair value of such securities. Investments in debt securities with remaining
maturities of 60 days or less will be valued based upon the amortized cost
method.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Forum Financial Services, Inc. (the "Distributor") acts as distributor
of the Funds' shares. (See "Management of the Company - Distributor"). In
addition to purchasing shares directly from the Distributor, shares may be
purchased through arrangements established by the Distributor with banks,
broker-dealers or
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<PAGE>
other financial institutions. Customers purchasing shares of the Company may
include officers, directors, or employees of the Adviser or M&A.
PURCHASE OF SHARES
As stated in the Prospectus, the public offering price of shares of each
Fund is its net asset value, plus a sales charge where applicable, next
determined after receipt of an order in proper form.
MATTERS AFFECTING REDEMPTION
The Company may suspend the right of redemption or postpone the date of
payment for shares during any period when (a) trading on the NYSE is restricted
by applicable rules and regulations of the Commission, (b) the NYSE is closed
for other than customary weekend and holiday closings, (c) the Commission has by
order permitted such suspension, or (d) an emergency exists as determined by the
Commission.
The Company may redeem shares involuntarily if redemption appears
appropriate in light of the Company's responsibilities under the 1940 Act. See
"Valuation" above.
REDEMPTION IN KIND
Although each Fund intends to redeem shares in cash, each Fund reserves
the right under certain circumstances to pay the redemption price in whole or in
part by a distribution of securities from a Fund. To the extent available, such
securities will be readily marketable. Redemption in kind will be made in
conformity with applicable Commission rules, taking such securities at the same
value employed in determining NAV and selecting the securities in a manner the
Directors determine to be fair and equitable.
The Funds have elected to be governed by Rule 18f-1 of the 1940 Act
under which each Fund is obligated to redeem shares for any one shareholder in
cash only up to the lesser of $250,000 or 1% of a Fund's net asset value during
any 90-day period.
ADDITIONAL TAX INFORMATION
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Funds or their shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As regulated investment companies, the Funds are not subject to Federal
income tax on the portion of their net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses,
including foreign currency gains and loss) and capital gain net income (i.e.,
the excess of capital gains over capital losses) that they distribute to
shareholders, provided that they distribute at least 90% of their investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfy certain other requirements of the
Code that are described below. Distributions by the Funds made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
for the taxable year and will therefore satisfy the Distribution Requirement.
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<PAGE>
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). For purposes of these calculations,
gross income includes tax-exempt income. However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, a Fund may have to limit
the sale of appreciated securities that it held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by a Fund at maturity or upon the
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of a security within the
meaning of the Short-Short Gain Test. However, income attributable to realized
market appreciation will be treated as gross income from such sale or other
disposition for that purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by a Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued while the Fund held the debt obligation. In addition, under the rules of
Code Section 988, gain or loss recognized on a disposition of a debt obligation
denominated in a foreign currency or an option with respect thereto (but only to
the extent attributable to changes in foreign currency exchange rates), and gain
or loss recognized on the disposition of a forward foreign currency contract,
futures contract, option or similar financial instrument, or of foreign currency
itself, except for regulated futures contracts or non-equity options subject to
Section 1256, will generally be treated as ordinary income or loss.
Generally, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected (as applicable, depending on the
type of the Fund) if (i) the asset is used to close a "short sale" (which
includes for certain purposes the acquisition of a put option) or is
substantially identical to another asset so used, or (ii) the asset is otherwise
held by a Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the- money) with respect
thereto, or (iii) the asset is stock and the Fund grants an in-the-money
qualified covered call option with respect thereto. However, for purposes of the
Short-Short Gain Test, the holding period of the asset disposed of may be
reduced only in the case of clause (i) above. In addition, a Fund may be
required to defer the recognition of a loss on the disposition of an asset held
as part of a straddle to the extent of any unrecognized gain on the offsetting
position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by a Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability to write options which expire within three months or
enter into closing transactions at a gain within three months of the writing of
options.
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<PAGE>
Certain transactions that may be engaged in by the Aggressive Growth
Fund (such as futures contracts and options on stock indexes and futures
contracts) will be subject to special tax treatment as "Section 1256 contracts."
Section 1256 contracts are treated as if they are sold for their fair market
value on the last business day of the taxable year, even though a taxpayer's
obligations (or rights) under such contract have not terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end deemed disposition of
Section 1256 contracts is combined with any other gain or loss that was
previously recognized upon the termination of actual Section 1256 contracts
during the taxable year. The net amount of such gain or loss for the entire year
(including any deemed gain or loss) is generally treated as 60% long-term and
40% short-term capital gain or loss. A Fund, however, may elect not to have this
special tax treatment apply to Section 1256 Contracts that are part of a "mixed
shaddle" with other investments of the Fund that are not Section 1256 Contracts.
The Internal Revenue Service has held in several private rulings (and Treasury
Regulations now provide) that deemed gains arising under Code Section 1256 will
be treated for purposes of the Short-Short Gain Test as derived from securities
held for not less than three months.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, or any net long-term capital loss incurred after October 31 as if
it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Funds
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of its taxable
year, at least 50% of the value of each Fund's assets must consist of cash and
cash items, U.S. Government securities, securities of other regulated investment
companies, and securities of other issuers (as to each of which a Fund has not
invested more than 5% of the value of the Fund's total assets in securities of
any such issuer and does not hold more than 10% of its outstanding voting
securities), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses. If for any taxable year a Fund does not qualify as
a regulated investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
ADDITIONAL TAX INFORMATION CONCERNING THE TAX-FREE FUND
As indicated in the Prospectus, the Tax-Free Fund is designed to provide
shareholders with current interest income free from Federal income taxation and
the Kentucky personal income tax. The Tax-Free Fund is not intended to
constitute a balanced investment program and is not designed for investors
seeking capital appreciation. Shares of the Tax-Free Fund would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, so-called Keogh or H.R. 10 plans, and
individual retirement accounts. Such plans and accounts are generally tax-exempt
and, therefore, would not benefit from the fact that dividends from the Tax-Free
Fund are tax-exempt; moreover, such dividends would be ultimately taxable to the
beneficiaries when distributed to them. In addition, shareholders who under Code
section 147(a) are "substantial users" or "related persons" to substantial users
with respect to facilities financed through any tax-exempt obligations held by
the Tax-Free Fund should consult a tax adviser whether exempt-interest dividends
would remain excludable from gross income in their hands for federal tax
purposes under Section 103 of the Code.
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<PAGE>
The Code permits a regulated investment company that invests at least
50% of its assets in tax-exempt Municipal Securities (for these purposes,
Kentucky Tax-Exempt Obligations are functionally equivalent to Municipal
Securities) to pass through to its investors, on a tax-exempt basis, net
Municipal Securities interest income. The policy of the Tax-Free Fund is to pay
each year as dividends substantially all of their Municipal Securities interest
income net of certain deductions, but not to exceed in the aggregate the net
exempt-interest income received by each Fund during the taxable year. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by the Tax-Free Fund and designated as an exempt-interest
dividend in a written notice mailed to shareholders after the close of the
Fund's taxable year. The percentage of the total dividends paid for any taxable
year which qualifies as Federal exempt-interest dividends will be the same for
all shareholders receiving dividends from the Tax-Free Fund during such year,
regardless of the period for which the shares were held.
The Tax-Free Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Fund's
taxable year at least 50% of the Fund's assets consists of tax-exempt municipal
obligations. Distributions from the Fund will constitute exempt-interest
dividends to the extent of the Fund's tax-exempt interest income (net of
expenses and amortized bond premium). Exempt- interest dividends distributed to
shareholders of the Fund are excluded from income for federal income tax
purposes. However, shareholders required to file a federal income tax return
will be required to report the receipt of exempt-interest dividends on their
returns. Such dividends may also have to be included in the alternative minimum
income and may have other consequences as described below.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for non-corporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount.
Exempt-interest dividends derived from certain "private activity" municipal
obligations issued after August 7, 1986 will generally constitute an item of tax
preference includable in AMTI for both corporate and non-corporate taxpayers. In
addition, exempt-interest dividends derived from all municipal obligations,
regardless of the date of issue, must be included in adjusted current earnings,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includable in AMTI.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income and subject to federal
income tax. Further, a shareholder of the Tax-Free Fund is denied a deduction
for interest on indebtedness incurred or continued to purchase or carry shares
of the Tax-Free Fund. Moreover, a shareholder who is (or is related to) a
"substantial user" of a facility financed by industrial development bonds held
by the Tax-Free Fund will likely be subject to tax on dividends paid by the
Tax-Free Fund which are derived from interest on such bonds. Receipt of
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies, and foreign corporations engaged in a trade or
business in the United States. Prospective investors should consult their own
advisers as to such consequences.
While the Tax-Free Fund does not expect to realize any significant
amount of long-term capital gains, any net realized capital gains (the excess,
if any, of net long-term capital gains over net short-term capital losses) will
be distributed annually. Distributions of net capital gain will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held the Fund's shares. If a shareholder disposes of shares of the Fund, at
a loss, before holding such shares longer than 6 months, the loss will be
treated as a long-term capital loss (unless disallowed as specified in the next
sentence) to the extent that the shareholder has received a capital gain
dividend on the shares. In addition, if a shareholder receives any
exempt-interest dividends with respect to any shares held for 6 months or less,
any loss on the sale or exchange of such shares will be disallowed to the extent
of the amount of such dividends.
While the Tax-Free Fund does not expect to earn a significant amount of
taxable investment income or short-term gains, such income or short-term gains
earned by it will be distributed to shareholders and will be taxable to them as
ordinary income (whether paid in cash or in additional shares).
- 19 -
<PAGE>
Although the Tax-Free Fund expects to qualify as a regulated investment
company and to be relieved of all or substantially all Federal income taxes, the
Fund may be subject to the tax laws of states or localities in which its offices
are maintained, in which its agents or independent contractors are located, or
in which it is otherwise deemed to be conducting business, depending upon the
extent of its activities in such states and localities. In addition, if for any
taxable year the Tax-Free Fund does not qualify for the special Federal tax
treatment afforded regulated investment companies, all of its taxable income
will be subject to Federal income tax at the Fund level at regular corporate
rates (without any deduction for distributions to shareholders). When
distributed, such income, as well as the Fund's Municipal Securities interest
income, would be taxable to shareholders as an ordinary dividend.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
its ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in the calendar year.
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Funds may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
ADDITIONAL TAX INFORMATION CONCERNING OTHER FUNDS
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for Federal income
tax purposes. Distributions from the Growth-Value Fund and the Aggressive Growth
Fund may qualify for the 70% dividends-received deduction for corporations as
discussed below. Distributions received from the other funds will not qualify
for the dividends received deduction.
Ordinary income dividends paid by the Growth-Value Fund and the
Aggressive Growth Fund with respect to a taxable year will qualify for the 70%
dividends-received deduction generally available to corporations (other than
corporations, such as S corporations, which are not eligible for the deduction
because of their special characteristics and other than for purposes of special
taxes such as the accumulated earnings tax and the personal holding company tax)
to the extent of the amount of qualifying dividends received by the Funds from
domestic corporations for the taxable year. Dividends received by the Funds will
not be treated as qualifying dividends (1) if they have been received with
respect to any share of stock that a Fund has held for less than 46 days (91
days in the case of certain preferred stock), excluding for this purpose under
the rules of Code Section 246(c)(3) and (4): (i) any day more than 45 days (or
90 days in the case of certain preferred stock) after the date on which the
stock becomes ex-dividend and (ii) any period during which the Fund has an
option to sell, is under a contractual obligation to sell, has made and not
closed a short sale of, is the grantor of a deep-in-the-money or otherwise
nonqualified option to buy, or has otherwise diminished its risk of loss by
holding other positions with respect to, such (or substantially identical)
stock; (2) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (3) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced (1) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund or
(2) by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain other
items).
- 20 -
<PAGE>
For purposes of the corporate AMT, the corporate dividends received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMTI.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from the Funds into account (without a
dividends-received deduction) in determining their adjusted current earnings.
Each Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. Each Fund currently intends to distribute
any such amounts. Net capital gain that is distributed and designated as a
capital gain dividend will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by a Fund prior to the date on which the shareholder
acquired his shares.
Investment income that may be received by a Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle such Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known.
If more than 50% of the value of a Fund's total assets at the close of its
taxable year consists of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, its pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid its pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against Federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income its pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions.
Distributions by the Funds that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of such shares, as discussed
below.
Distributions by the Funds will be treated in the manner described above
regardless of whether they are paid in cash or reinvested in additional shares
of a Fund (or of another fund). Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects undistributed net investment
income, recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which they are made. However, dividends declared in
October, November or December of any year and payable to shareholders of record
on a specified date in such a month will be deemed to have been received by the
shareholders (and made by the Fund) on December 31 of such calendar year if such
dividends are actually paid by January 31 of the following year. Shareholders
will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
The Funds will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Funds that it is not subject to backup withholding or that it is an "exempt
recipient" (such as a corporation).
- 21 -
<PAGE>
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
generally will apply in determining the holding period of shares. Long-term
capital gains of noncorporate taxpayers are currently taxed at a maximum rate
11.6% lower than the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of a Fund,
(2) disposes of such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right acquired in connection with the acquisition of the shares
disposed of, then the sales load on the shares disposed of (to the extent of the
reduction in the sales load on the shares subsequently acquired) shall not be
taken into account in determining gain or loss on such shares but shall be
treated as incurred on the acquisition of the subsequently acquired shares.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend (including any adjustment on
account of a Fund's election to treat foreign taxes paid by it as paid by its
shareholders). Such a foreign shareholder would generally be exempt from U.S.
Federal income tax on gains realized on the sale or redemption of shares of a
Fund and capital gain dividends, exempt-interest dividends and amounts retained
by a Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of a Fund
will be subject to U.S. Federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of a foreign noncorporate shareholder, a Fund may be
required to withhold U.S. Federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding (or taxable at a reduced treaty rate)
unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Funds, including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. Federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative,
administrative changes or court decisions may significantly affect the
conclusions expressed herein, perhaps with retroactive effect.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. Federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investments in the Funds.
- 22 -
<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS
The directors of the Company, their addresses, ages and principal
occupations during the past five years are as follows:
Name, Address Position(s) Held Principal Occupation During Past
With the Company 5 Years
Gordon B. Davidson, 69* Chairman and Chairman of Executive
Wyatt, Tarrant & Combs Director Committee, and Senior Counsel,
Citizens Plaza Wyatt, Tarrant & Combs (a law
Louisville, KY 40202 firm); Director, Duff & Phelps
Utilities Income, Inc.; Alliant
Healthcare System, Inc.; (Ret)
Director, BellSouth Corp.;
Director, Kentucky Center for the
Arts Foundation, Inc.; Trustee,
Center College.
Jerry E. Baker, 64* Director Chairman of the Board, Mid
P.O. Box 1117 America Airgas, Inc. (a
Bowling Green, KY 42102 subsidiary of Airgas, Inc.);
President, Mid America Airgas,
Inc., July 1986-May 1995.
Kevin P. Lavender Director [To be supplied]
Symmetry Health Partners
3100 West End Avenue,
Suite 1230
Nashville, TN 37203
William H. Lomicka, 58 Director President, Mayfair Capital;
Mayfair Capital Director, Advocat Inc., Cinemas,
Providian Center Inc., Vencor, Inc., Automated
Regal 400 West Market, Healthcare, Dynamic Health,
Suite 2510 Health Directions, Medecon,
Louisville, KY 40202
Regent Communications, Spectra
Care and Sabratek; Member,
Board of Advisors, the Tiber
Group.
Charles K. McClure, III, 52 Director Retired and working on several
1442 Cherokee Road not-for-profit and community
Louisville, KY 40204 projects, January 1995-present;
Executive Director, Isaac W.
Bernheim Foundation, April
1971-January 1995.
- ---------------------
* Interested Person
The Board of Directors has appointed an audit committee, a valuation
committee, and a nominating committee. The members of each committee are William
H. Lomicka and Charles K. McClure, III. The function of the audit committee is
to recommend independent auditors and review and report on accounting and
- 23 -
<PAGE>
financial matters. The function of the valuation committee is to determine and
monitor the value of the Funds' assets. The function of the nominating committee
is to nominate persons to serve as disinterested directors and directors to
serve on committees of the Board.
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
Each director receives a fee of $500 for each meeting attended plus
expenses.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Position Aggregate Pension or Estimated Total Compensation
Compensation Retirement Benefits Annual From Registrant and
from Registrant Accrued as Part of Benefits Upon Fund Complex
Fund Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
Gordon B. Davidson, $1,500 -0- -0- $1,500
Director
Jeffrey E. Baker, 1,500 -0- -0- 1,500
Director
Kevin P. Lavender, -0- -0- -0- -0-
Director*
William H. Lomicka, 2,000 -0- -0- 2,000
Director
Charles K. McClure, 1,500 -0- -0- 1,500
Director
Aubrey B. Preston, 1,500 -0- -0- 1,500
Director**
</TABLE>
* Mr. Lavender became a Director on _______, 1996.
** Resigned.
OFFICERS
The officers of each Fund of the Company and their principal
occupations during the past five years are as follows (if no address is listed,
the address is Trans Adviser Funds, Inc., P.O. Box 90001, Bowling Green,
Kentucky 42101-9001):
Name, Address Position(s) Held Principal Occupation During Past
With the Company 5 Years
Thomas A. Trantum, 51 President President, Mastrapasqua &
Associates, Inc.; Secretary,
Management Plus Associates;
director, Phonex Ventures; Adjunct
Professor, Massey Graduate School
of Business
- 24 -
<PAGE>
Michael D. Martins, 29 Treasurer Director of Fund Accounting, Forum
Two Portland Square Portland, Financial Services, Inc.,
Maine 04101 with which he has been associated
since June, 1995. Prior thereto,
Mr. Martins was associated with the
public accounting firm of Deloitte &
Touche, LLP, most recently as an
accounting Manager.
Max Berueffy, 43 Vice President Counsel, Forum Financial Services,
Two Portland Square and Secretary Inc., with Portland, which he has
Maine 04101 been associated since 1994. Prior
thereto, Mr. Berueffy was on the
staff of the U.S. Securities and
Exchange Commission for seven years,
first in the appellate branch of
the Office of the General Counsel,
then as a counsel to Commissioner
Grundfest and finally as a senior
special counsel in the Division of
Investment Management.
David L. Goldstein, 34 Vice President Counsel, Forum Financial with
Two Portland Square and Assistant which he has been associated since
Portland, Maine 04101 Secretary 1991. Prior thereto, Mr. Goldstein
was associated with the law firm of
Kirkpatrick & Lockhart. Mr.
Goldstein is also an officer of
various registered investment
companies for which Forum
Financial Services, Inc. serves as
manager, administrator and/or
distributor.
Michael J. McKeen, 24 Assistant Fund Accounting Manager, forum
Two Portland Square Treasurer Financial Forum Services, Inc.,
Portland, Maine 04101 which he has been associated since
1993. Prior thereto, Mr. McKeen
attended the University of Maine.
The officers of the Company receive no compensation directly from the
Company performing the duties of their offices.
ADVISER AND SUB-ADVISER
THE ADVISER
Trans Financial Bank, N.A. (the "Adviser"), provides the overall
management necessary for each Fund's operations and oversees the investment of
their assets pursuant to an advisory agreement dated September 8, 1995 (the
"Advisory Agreement"). Trans Financial Bank, N.A., is a subsidiary of Trans
Financial, Inc. which is a full service financial services provider with
approximately $725 million in assets under management as of December 31, 1996.
- 25 -
<PAGE>
THE ADVISORY AGREEMENT
In managing the Funds and overseeing the investment of their assets,
the Adviser is subject at all times to the supervision of the Company's
Directors. The Adviser also furnishes or procures on behalf of the Funds all
services necessary for the proper conduct of the Funds' business and
administration. In addition to the foregoing, the Adviser selects, monitors and
evaluates the Funds' Sub-Adviser. Trans Financial Bank, N.A., through its
Fixed-Income Investment Management Group, has primary responsibility for
managing the Tax-Free Fund, the Intermediate Bond Fund and the Money Market
Fund.
Under the terms of the Advisory Agreement, the Funds pay all of their
expenses, including, but not limited to, the costs incurred in connection with
the registration and maintenance of registration of the Funds and their shares
with the SEC and various states and other jurisdictions, printing and mailing
prospectuses and statements of additional information to shareholders, transfer
taxes on the sales of portfolio securities, brokerage commissions, custodial and
transfer charges, legal and auditing expenses, certain insurance premiums, out
of pocket expenses of the Custodian, Transfer Agent and Fund Accountants,
preparation of shareholder reports, directors' fees and expenses of director and
shareholder meetings.
For the services it provides under the terms of the Advisory
Agreement, the Adviser receives a monthly fee of .20% per annum of the Money
Market Fund's average daily net assets, 1.00% per annum of each of the
Growth/Value and Aggressive Growth Fund's average daily net assets and .40% per
annum of the Intermediate Bond Fund's average daily net assets and of the
Tax-Free Fund's average daily net assets. The Adviser may, from time to time,
voluntarily agree to defer or waive fees or absorb some or all of the expenses
of the Funds. For the fiscal period ended August 31, 1996, the Adviser earned
fees as follows: Growth/Value Fund: $81,961, of which $34,323 was voluntarily
waived; Aggressive Growth Fund: $31,177, all of which was voluntarily waived;
Intermediate Bond Fund: $38,478, all of which was voluntarily waived; Kentucky
Tax-Free Fund: $63,051, all of which was voluntarily waived; and Money Market
Fund: $99,711, of which $93,026 was voluntarily waived.
THE SUB-ADVISER
The Adviser has retained Mastrapasqua & Associates, Inc., West End
Avenue, Nashville, Tennessee ("M&A") to provide sub-advisory services pursuant
to a Sub-Advisory Agreement dated September 8, 1995. M&A is a registered
investment adviser incorporated in March, 1993. Its core business is portfolio
management for institutions, individuals and business owners. M&A currently
manages approximately $___ million in assets. M&A shares primary responsibility
for managing the Growth/Value and Aggressive Growth Funds with the Adviser and
provides economic forecasts and strategic analysis for each of the other Funds.
For its services, M&A is paid by the Adviser as follows: with respect to the
Aggressive Growth and he Growth/Value Funds, the Adviser (not the Fund) pays to
M&A an annual fee, calculated daily, and paid monthly, of .50% on the first $100
million of such Funds' combined average daily net assets, plus .25% of such
Funds' combined average daily net assets in excess of $100 million for its
services, and, with respect to each other Trans Adviser Fund, the Adviser (not
the Fund) pays M&A an annual fee, calculated daily, and paid monthly, of .03% of
average daily net assets for its services. For the fiscal period ended August
31, 1996, the Adviser paid M&A sub-advisory fees of $___, $___, $___, $___ and
$____, respectively, for the Growth/Value Fund, Aggressive Growth Fund,
Intermediate Bond Fund, Kentucky Tax-Free Fund and Money Market Fund,
respectively.
PORTFOLIO TRANSACTIONS
Pursuant to an Advisory Agreement entered into with each Fund (the
"Advisory Agreement"), the Adviser determines, subject to the overall
supervision of the Board of Directors of the Company and in accordance with each
Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Money Market Fund, the Intermediate Bond Fund and the
Tax-Free Funds, and which brokers are to be eligible to execute such Funds'
portfolio transactions. Pursuant to a Sub-Advisory Agreement entered into with
the Adviser on behalf of the Funds (the "Sub-Advisory Agreement"), M&A
determines, subject to review by
- 26 -
<PAGE>
the Adviser and the overall supervision of the Board of Directors of the Company
and in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by the Growth Funds, and which brokers
are to be eligible to execute such Funds' portfolio transactions. Purchases and
sales of government securities and debt securities usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. 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 may include the spread between the bid and asked prices.
Transactions on stock exchanges involve the payment of a negotiated brokerage
commissions. Transactions in the over-the-counter market are generally principal
transactions with dealers. With respect to over-the-counter market, the Company,
where possible, will deal directly with dealers who make a market in the
securities involved except in those circumstances where better price and
execution are available elsewhere. While the Adviser (M&A) generally seeks
competitive spreads or commissions, the Company may not necessarily pay the
lowest spread or commission available on each transaction, for reasons discussed
below.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser (M&A) in its best judgment and in a manner
deemed fair and reasonable to shareholders. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price. Subject
to this consideration, dealers who provide supplemental investment research to
the Adviser (M&A) may receive orders for transactions on behalf of the Company.
Information so received is in addition to and not in lieu of services required
to be performed by the Adviser (M&A) and does not reduce the advisory fees
payable to the Adviser (M&A). Such information may be useful to the Adviser in
serving both the Company and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to the Adviser in carrying out its obligations to the Company.
The Adviser (M&A) is authorized, subject to best price and execution,
to place portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the Fund and is authorized to use
the Distributor or an affiliated broker-dealer on an agency basis, to effect a
substantial amount of the portfolio transactions which are executed on the New
York or American Stock Exchanges, Regional Exchanges where relevant, or which
are traded in the Over-the-Counter market. The Advisory and Sub-Advisory
Agreements do not provide for any reduction in the management fee as a result of
profits resulting from brokerage commissions effected through an affiliated
broker-dealer.
The Directors have adopted certain procedures incorporating the
standards of Rule 17e-1 issued under the 1940 Act which requires that the
commissions paid the Distributor or an affiliated broker-dealer must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
The Rule and the procedures also contain review requirements and require the
Adviser (M&A) to furnish reports to the Directors and to maintain records in
connection with such views.
Investment decisions for each Fund of the Company are made
independently from those for another Fund or any other investment company or
account managed by the Adviser (M&A). Any such other investment company or
account may also invest in the same securities as the Company. When a purchase
or sale of the same security is made at substantially the same time on behalf of
a Fund and another Fund, investment company or account, the transaction will be
averaged as to price and available investments will be allocated as to amount in
a manner which the Adviser (M&A) believes to be equitable to the Fund(s) and
such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained by a Fund. To the extent permitted by law, the Adviser
(M&A) may aggregate the securities to be sold or purchased for a Fund with those
to be sold or purchased for the other Fund or for other investment companies or
accounts in order to obtain best execution.
- 27 -
<PAGE>
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the Glass-
Steagall Act prohibits a national bank from operating a mutual fund for the
collective investment of managing agency accounts. Subsequently, the Board of
Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform
the services for each Fund contemplated by the Advisory Agreement regarding that
Fund and described in the Prospectus of that Fund and this Statement of
Additional Information. Future changes in either Federal or state statutes and
regulations relating to the permissible activities of banks or bank holding
companies and the subsidiaries or affiliates of those entities, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent or restrict the Adviser from
continuing to perform such services for the Company. Depending upon the nature
of any changes in the services which could be provided by the Adviser, the Board
of Directors of the Company would review the Company's relationship with the
Adviser and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of the Adviser in connection with
customer purchases of shares of the Company, the Adviser might be required to
alter materially or discontinue the services offered to its customers. It is not
anticipated, however, that any change in the Company's method of operations
would affect its net asset value per share or result in financial losses to any
customer.
ADMINISTRATOR
Forum Financial Services, Inc. ("Forum") acts as administrator to the
Company and its Funds pursuant to an Administration Agreement. As administrator,
Forum provides certain management and administrative services necessary to the
operation of the Company (which include, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of the Company), and provides the Company with general office
facilities. The Administration Agreement will remain in effect for a period of
twelve months and thereafter is automatically renewed each year for an
additional term of one year.
The Administration Agreement terminates automatically if it is
assigned and may be terminated without penalty with respect to a Fund by vote of
the Fund's shareholders or by either party on not more than 60 days' written
notice. The Administration Agreement also provides that Forum shall not be
liable for any error of judgment or mistake of law or for any act or omission in
the administration or management of the Company, except for willful misfeasance,
bad faith or gross negligence in the performance of Forum's duties or by reason
of reckless disregard of its obligations and duties under the Administration
Agreement.
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<PAGE>
EXPENSES
Each Fund bears the following expenses relating to its operations:
taxes, interest, any brokerage fees and commissions, fees of the Directors of
the Company, Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to current shareholders, outside auditing and legal expenses, management and
administration fees, fees and out-of-pocket expenses of the Custodian and the
Transfer Agent, dividend disbursing agents fees, fees and out-of-pocket expenses
for fund accounting services, expenses incurred for pricing securities owned by
it, certain insurance premiums, costs of maintenance of its existence, costs of
shareholders' and Directors' reports and meetings, and any extraordinary
expenses incurred in its operation.
DISTRIBUTOR
Forum is also the Company's distributor and acts as the agent of the
Company in connection with the offering of shares of the Fund pursuant to a
Distribution Agreement. The Distribution Agreement will continue in effect for
twelve months and will continue in effect thereafter only if its continuance is
specifically approved at least annually by the Board or by vote of the
shareholders entitled to vote thereon, and in either case, by a majority of the
Directors who (i) are not parties to the Distribution Agreement, (ii) are not
interested persons of any such party or of the Company and (iii) with respect to
any class for which the Company has adopted a distribution plan, have no direct
or indirect financial interest in the operation of that distribution plan or in
the Distribution Agreement, at a meeting called for the purpose of voting on the
Distribution Agreement. All subscriptions for shares obtained by Forum are
directed to the Company for acceptance and are not binding on the Company until
accepted by it. Forum receives no compensation or reimbursement of expenses for
the distribution services provided pursuant to the Distribution Agreement and is
under no obligation to sell any specific amount of Fund shares.
The Distribution Agreement provides that Forum shall not be liable
for any error of judgment or mistake of law or in any event whatsoever, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's duties or by reason of reckless disregard of its obligations and duties
under the Distribution Agreement.
The Distribution Agreement is terminable with respect to a Fund
without penalty by the Company on 60 days' written notice when authorized either
by vote of the Fund's shareholders or by a vote of a majority of the Board, or
by Forum on 60 days' written notice. The Distribution Agreement will
automatically terminate in the event of its assignment.
Forum may enter into agreements with selected broker-dealers, banks,
or other financial institutions for distribution of shares of the Funds. These
financial institutions may charge a fee for their services and may receive
shareholders service fees even though shares of a Fund are sold at net asset
value. These financial institutions may otherwise act as processing agents, and
will be responsible for promptly transmitting purchase, redemption and other
requests to a Fund.
Investors who purchase shares in this manner will be subject to the
procedures of the institution through whom they purchase shares, which may
include charges, investment minimums, cutoff times and other restrictions in
addition to, or different from, those listed herein. Information concerning any
charges or services will be provided to customers by the financial institution.
Investors purchasing shares of the Funds in this manner should acquaint
themselves with their institution's procedures and should read this Prospectus
in conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
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<PAGE>
CUSTODIAN
First National Bank of Boston, 150 Royall Street, Canton, MA 02021
(the "Custodian") serves as custodian to each Fund of the Company pursuant to a
Custodial Services Agreement with the Company. The Custodian's responsibilities
include safeguarding and controlling the Company's cash and securities, handling
the receipt and delivery of securities, and collecting interest and dividends on
the Company's investments.
TRANSFER AGENT
Forum Financial Corp. ("FFC") acts as Transfer Agent and Dividend
Disbursing Agent for the Company pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will remain in effect for a period of twelve months
and thereafter is automatically renewed each year for an additional term of one
year.
Among the responsibilities of FFC as agent for the Company are, with
respect to shareholders of record: (1) answering shareholder inquiries regarding
account status and history, the manner in which purchases and redemptions of
shares of a Fund may be effected and certain other matters pertaining to the
Fund; (2) assisting shareholders in initiating and changing account designations
and addresses; (3) providing necessary personnel and facilities to establish and
maintain shareholder accounts and records, assisting in processing purchase and
redemption transactions and receiving wired funds; (4) transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
(5) verifying shareholder signatures in connection with changes in the
registration of shareholder accounts; (6) furnishing periodic statements and
confirmations of purchases and redemptions; (7) arranging for the transmission
of proxy statements, annual reports, prospectuses and other communications from
the Company to its shareholders; (8) arranging for the receipt, tabulation and
transmission to the Company of proxies executed by shareholders with respect to
meetings of shareholders of the Company; and (9) providing such other related
services as the Company or a shareholder may reasonably request.
[For these services, FFC will receive a fee of $12,000 per year and
annual account fees of $25.00 per shareholder account. The Company will also
reimburse FFC for certain expenses incurred on behalf of the Funds. These fees
are fixed through December 31, 1996 and are subject to adjustment thereafter.]
FFC or any sub-transfer agent or processing agent may also act and
receive compensation for acting as custodian, investment manager, nominee, agent
or fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Portfolio. FFC or any sub-transfer agent or
other processing agent may elect to credit against the fees payable to it by its
clients or customers all or a portion of any fee received from the Company or
from FFC with respect to assets of those customers or clients invested in the
Funds. The sub-transfer agents or processing agents retained by FFC may be
affiliated persons of FFC or Forum.
PORTFOLIO ACCOUNTING
FFC performs portfolio accounting services for each Fund pursuant to
a Fund Accounting Agreement with the Company. Under its Agreement, FFC prepares
and maintains books and records of each Fund on behalf of the Company as
required under the 1940 Act, calculates the net asset value per share of each
Fund and dividends and capital gain distributions and prepares periodic reports
to shareholders and the Securities and Exchange Commission. For its services,
FFC receives from the Company with respect to each Fund a fee of $36,000 per
year plus surchages of $6,000 to $24,000 for specified asset levels. FFC is paid
additional surchages of $12,000 per year for tax-free money market funds and for
each of the following: a portfolio with more than a specified number of
securities positions and/or international positions; investments in derivative
instruments; percentages of assets invested in asset backed securities; and a
monthly portfolio turnover rate of 10% or greater. FFC is required to use its
best judgment and efforts in rendering fund accounting services and is not
liable to the Company for any action or inaction in the absence of bad faith,
willful misconduct or gross negligence. FFC is not responsible or liable for any
failure or delay in performance of its fund accounting obligations arising out
of or caused, directly or indirectly, by circumstances beyond its reasonable
control and the Company has agreed to indemnify and hold harmless FFC, its
employees, agents, officers and directors against and from any and all claims,
demands, actions, suits, judgments, liabilities, losses,
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damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way related to FFC's actions taken or failure
to act with respect to a Fund or based, if applicable, upon information,
instructions or requests with respect to a Fund given or made to FFC by an
officer of the Company duly authorized. This indemnification does not apply to
FFC's actions taken or failure to act in cases of FFC's own bad faith, willful
misconduct or gross negligence.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts, 02110
serves as independent auditors to the Company.
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New
York 10022 are counsel to the Company.
FINANCIAL REPORTS
The audited financial statements for the fiscal period ended August
31, 1996 have been audited by KPMG Peat Marwick LLP as set forth in their report
incorporated by reference herein, in reliance upon such report and on the
authority of said firm as experts in auditing and accounting.
PERFORMANCE INFORMATION
YIELD OF THE MONEY MARKET FUND
As summarized in the Prospectus under the heading "General
Information - Performance Information," the "yield" of the Money Market Fund for
a seven-day period (a "base period") will be computed return by 365/7 with the
resulting yield figure carried to the nearest hundredth of one percent. Net
changes in value of a hypothetical account will include the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, but will not include
realized gains or losses or unrealized appreciation or depreciation on portfolio
investments. Yield may also be calculated on a compound basis (the "effective
yield") which assumes that net income is reinvested in Fund shares at the same
rate as net income is earned for the base period. For the seven days ended
August 31 , 1996, the Money Market Fund's yield and effective yield were ____%
and ____%, respectively.
YIELD OF THE FUNDS (OTHER THAN THE MONEY MARKET FUND)
As summarized in the Prospectus under the heading "General
Information - Performance Information," yield of the Funds (other than the Money
Market Fund) will be computed by analyzing net investment income per share for a
recent 30-day period and dividing that amount by the maximum offering price per
share (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed-income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. The yield of the Funds will vary from time
to time depending upon market conditions, the composition of the Fund's
portfolio and operating expenses of the Company allocated to the Fund. These
factors and possible differences in the methods used in calculating yield should
be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's shares and to the
relative risks associated with the investment objectives and policies of the
Fund. For the 30-day period ended August 31, 1996, the Funds' yields were as
follows: Intermediate Bond Fund: ____% and Kentucky Tax-Free Fund: ____%.
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<PAGE>
Each Tax-Free Fund's tax-equivalent yield is the rate an investor
would have to earn from a fully taxable investment after taxes to equal a Tax-
Free Fund's tax-free yield. Tax-equivalent yields are calculated by dividing a
Tax-Free Fund's yield by the result of one minus a stated combined Federal and
state tax rate. (If only a portion of a Tax-Free Fund's yield was tax-exempt,
only that portion is adjusted in the calculation.) For the 30-day period ended
August 31, 1996, the tax-equivalent yield for the Kentucky Tax-Free Fund was
____%.
At any time in the future, yield and total return may be higher or
lower than past yields and there can be no assurance that any historical results
will continue.
Investors in the Funds are specifically advised that share prices,
expressed as the net asset values per share, will vary just as yield will vary.
CALCULATION OF TOTAL RETURN
Total Return is a measure of the change in value of an investment in
a Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and analyzing the result
for periods of less than one year. For the period ended August 31, 1996, the
Funds' total returns were as follows: Growth/Value Fund: 11.80%; Aggressive
Growth Fund: 9.50%; Intermediate Bond Fund: 3.23% and Kentucky Tax-Free Fund:
5.80%.
CALCULATION OF DISTRIBUTION RATE
The Funds may also publish a distribution rate in investor
communications preceded or accompanied by a copy of the current Prospectus. The
current distribution rate for a Fund will be calculated by dividing the maximum
offering price per share into the annualization of the total distributions made
by the Fund during the same thirty-day period. The current distribution rate may
differ from current yield because the distribution rate may contain items of
capital gain and other items of income, while yield reflects only earned
interest and dividend items of income. In each case, the yield, distribution
rates and total return figures will reflect all recurring charges against Fund
income and will assume the payment of the maximum sales load. For the 30-day
period ended August 31, 1996, the Funds' distribution rates were as follows:
Intermediate Bond Fund: ____% and Kentucky Tax-Free Fund: ____%.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. from time to time, performance information
for the Funds showing their average annual total return and/or yield may be
included in advertisements or in information furnished to present or prospective
shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives may be included in advertisements.
Total return and/or yield may also be used to compare the performance
of the Funds against certain widely acknowledged standards or indices for stock
and bond market performance. The Standard & Poor's Composite Index of 500 Stocks
(the "S&P 500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 Stocks relative to the base period
1941-43. The S&P 500 is composed almost entirely of common stocks of companies
listed on the New York Stock Exchange, although the
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<PAGE>
common stocks of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market value-
weighted and unmanaged index showing the changes in the aggregate market value
of approximately 3,500 stocks relative to the base measure of 100.00 on February
5, 1971. The NASDAQ Index is composed entirely of common stocks of companies
traded over-the-counter and often through the National Association of Securities
Dealers Automated Quotations ("NASDAQ") system. Only those over-the-counter
stocks having only one market maker or traded on exchanges are excluded.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all quasi-
federal corporations; and all corporate debt guaranteed by the U.S. Government.
Mortgage backed securities, flower bonds and foreign targeted issues are not
included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized
statistical rating agency.
ALL FUNDS. Current yields or performance will fluctuate from time to
time and are not necessarily representative of future results. Accordingly, a
Fund's yield or performance may not provide for comparison with bank deposits or
other investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to a Fund.
ADDITIONAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Company was incorporated under the laws of the State of Maryland
on June 20, 1995. A copy of the company's Charter is on file with the Department
of Assessments and Taxation of the State of Maryland. The Charter authorizes the
Board of Directors to issue shares of common stock, par value $.001 per share.
The Company presently has seven series of shares which represent interests in
the Growth/Value Fund, the Aggressive Growth Fund, the Fixed Income Fund
(presently being marketed as the Intermediate Bond Fund), the Kentucky Tax-Free
Fund, the Tennessee Tax-Free Fund, the Money Market Fund and the International
Fund (the Tennessee Tax-Free Fund and the International Fund are not currently
offered). The Company's Articles of Incorporation authorize the Board of
Directors to classify or reclassify any unissued shares of the Company into one
or more additional series.
Shares have no subscription, preemptive, conversion or exchange
rights. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the Company,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
As described in the text of the Prospectus following the caption
"GENERAL INFORMATION --Description of the Company and its Shares," shares of the
Company are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote as a single class on all matters except (i) when required by
the 1940 Act, shares shall be voted by individual
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series, and (ii) when the Directors have determined that the matter affects only
the interests of one or more series, then only shareholders of such series shall
be entitled to vote thereon. There will normally be no meetings of shareholders
for the purposes of electing Directors unless and until such time as less than a
majority of the Directors have been elected by the shareholders, at which time
the Directors then in office will call a shareholders' meeting for the election
of Directors. If requested to do so by the holders of at least 10% of the
Company's outstanding shares, a shareholder meeting will be called for the
purpose of voting upon the removal of a director or directors. Except as set
forth above, the Directors shall continue to hold office and may appoint their
successors.
MISCELLANEOUS
The Company may include information in its Annual Reports and
Semi-Annual Reports to shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for
one or more of the Funds within the Company, or (4) describes investment
management strategies for such Funds. Such information is provided to inform
shareholders of the activities of the Company for the most recent fiscal year or
half-year and to provide the views of the Adviser and M&A regarding expected
trends and strategies.
The Company is registered with the Commission as a non-diversified
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Company.
As used in the Prospectus and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
the Company upon the issuance or sale of shares in that Fund, together with all
income, earnings, profits and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund by the Company's
Board of Directors. The Board of Directors may allocate such general assets in
any manner it deems fair and equitable. It is anticipated that the factor that
will be used by the Board of Directors in making allocations of general assets
to particular Funds will be the relative net assets of the respective Funds at
the time of allocation. Assets belonging to a particular Fund are charged with
the direct liabilities and expenses in respect of that Fund, and with a share of
the general liabilities and expenses of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net assets of the respective Funds at the time of allocation. The
timing of allocations of general assets and general liabilities and expenses of
the Company to particular Funds will be determined by the Board of Directors of
the Company and will be in accordance with generally accepted accounting
principles. Determinations by the Board of Directors of the Company as to the
timing of the allocation of general liabilities and expenses and as to the
timing and allocable portion of any general assets with respect to a particular
Fund are conclusive.
As used in the Prospectus and in this Statement of Additional
Information, a "vote of a majority of the outstanding shares" of the Company or
a particular Fund means the affirmative vote, at a meeting of shareholders duly
called, of the lesser of (a) 67% or more of the votes of shareholders of the
Company or such Fund present at such meeting at which the holders of more than
50% of the votes attributable to the shareholders of record of the Company or
such Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of shareholders of the Company or such Fund.
The Code of Ethics of the Funds prohibits all affiliated personnel
from engaging in personal investment activities which compete with or attempt to
take advantage of the Funds' planned portfolio transactions. The objective of
the Code of Ethics of the Funds is that their operations be carried out for the
exclusive benefit of the Funds' shareholders. The Funds maintain careful
monitoring of compliance with the Code of Ethics.
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<PAGE>
[As of December __, 1996 the directors and officers of the company,
as a group, owned less than 1% of the outstanding shares of any Fund.]
The Prospectus of the Funds and this Statement of Additional
Information omit certain of the information contained in the Registration
Statement filed with the Commission. Copies of such information may be obtained
from the Commission upon payment of the prescribed fee.
The Prospectus of the Funds and this Statement of Additional
Information are not an offering of the securities herein described in any state
in which such offering may not lawfully be made. No salesman, dealer, or other
person is authorized to give any information or make any representation other
than those contained in the Prospectus of the Funds and this Statement of
Additional Information.
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APPENDIX A
CORPORATE DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
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 the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present 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
characterize bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP (S&P)
AAA: Debt rated AAA has the highest rating assigned by the S & P. Capacity to
pay interest and repay principal is extremely strong.
A-1
<PAGE>
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only to a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy has been filed but debt service payments
are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition of debt service payments are jeopardized.
NOTE: Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
S&P applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa, A or Baa. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier
A-2
<PAGE>
2 indicates a mid- range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
PREFERRED STOCK RATINGS
The following summarizes the three highest ratings used by Moody's
for preferred stock:
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a highgrade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
"a" An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
The following summarizes the three highest ratings used by S &P for
preferred stock:
"AAA" This is the highest rating that may be assigned by S &P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations. "
AA" A preferred stock issue rated "AA" also qualifies as a high-
quality fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA".
"A" An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Adviser with regard to
portfolio investments for the Money Market Fund are Moody's, S&P, Duff & Phelps,
Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by the Adviser and the description
of each NRSRO's ratings is as of the date of this Statement of Additional
Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate
and municipal bonds)
Description of the five highest long-term debt ratings by Moody's
(Moody's applies numerical modifiers (E.G., 1, 2, and 3) in each rating category
to indicate the security's ranking within the category):
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 edged." 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 the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
A-3
<PAGE>
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time 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 in the future. Uncertainty of
position characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P
may apply a plus (+) or minus (-) to a particular rating classification to show
relative standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA. Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-. High credit quality protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A,A-. Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch
(plus or minus signs are used with a rating symbol to indicate the relative
position of the credit within the rating category):
A-4
<PAGE>
AAA. Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is generally rated "[-]+."
A. Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA. Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
AA. Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic, or financial conditions may
increase investment risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial
paper, master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-5
<PAGE>
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have extremely strong
safety characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+. Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1. Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1-. High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small.
Duff 2. Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3. Satisfactory liquidity and other protection factors qualify
issue as to investment grade.
Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+. Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ or F-1 ratings.
F-3. Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade.
A-6
<PAGE>
IBCA's description of its three highest short-term debt ratings:
A+. Obligations supported by the highest capacity for timely
repayment.
A1. Obligations supported by a very strong capacity for timely
repayment.
A2. Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note
ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1. Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative
and quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that
have a maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a timely basis.
TBW-2. The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".
TBW-3. The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
A-7
<PAGE>
TBW-4. The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
COMMERCIAL PAPER
DESCRIPTION OF STANDARD AND POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
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 are denoted with a plus (+) sign
designation.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
The term "commercial paper" as used by Moody's means promissory obligations not
having an original maturity in excess of nine months. Moody's commercial paper
ratings are opinions of the ability of issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
employs the following designation, judged to be investment grade, to indicate
the relative repayment capacity for rated issuers.
PRIME-1 - Highest commercial paper rating assigned by Moody's. Issuers rated
Prime-1 (or related supporting institutions) are deemed to have a superior
capacity for repayment of short term promissory obligations. Repayment capacity
of Prime-1 issuers is normally evidenced by the following characteristics:
1) Leading market positions in well-established industries;
2) High rates of return on funds employed;
3) Conservative capitalization structures with moderate reliance on
debt and ample asset protection;
4) Broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) Well-established access to a range of financial markets and
assured sources of alternative liquidity.
In assigning ratings to issuers whose commercial paper obligations are supported
by the credit of another entity or entities, Moody's evaluates the financial
strength of the affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
A-8
<PAGE>
DESCRIPTION OF DUFF & PHELPS, INC.'S COMMERCIAL PAPER RATINGS:
DUFF-1 -- Very high certainty of timely payment. Liquidity factors are excellent
and supported by strong fundamental protection factors. Risk factors are minor.
DUFF-2 -- Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
BONDS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S HIGH-GRADE CORPORATE BOND
RATINGS:
AAA -- Debt rated `AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest and repay
principal and differs from highest rated debt issues only in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S HIGH-GRADE 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 the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protections may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest may be present which suggest a susceptibility to
impairment sometime in the future.
DESCRIPTION OF DUFF AND PHELPS INC.'S HIGH-GRADE 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+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
A-9
<PAGE>
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S HIGH-GRADE CORPORATE BOND
RATINGS:
AAA -- rated bonds are considered to be investment grade and are of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by foreseeable events.
AA -- rated bonds are considered to be investment grade and of high quality. The
obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to change over the
term of the issue.
A-10
<PAGE>
TRANS ADVISER FUNDS
TENNESSEE TAX-FREE FUND
Statement of Additional Information
January 1, 1997
---------------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of Trans Adviser Funds dated the same date
hereof (the "Prospectus"). This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectus. Copies of the
Prospectus may be obtained by writing Trans Adviser Funds at P.O. Box 90001,
Bowling Green, KY 42102-9001, or by telephoning toll free (800) 308-TRAN.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES.............................................1
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS....................... 1
WHEN-ISSUED SECURITIES......................................... 1
VARIABLE AND FLOATING RATE SECURITIES.......................... 1
PARTICIPATION INTERESTS........................................ 2
REPURCHASE AGREEMENTS.......................................... 2
U.S. GOVERNMENT OBLIGATIONS.................................... 2
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT............... 2
COMMERCIAL PAPER............................................... 3
VARIABLE AMOUNT MASTER DEMAND NOTES............................ 3
FOREIGN INVESTMENT............................................. 3
REVERSE REPURCHASE AGREEMENTS.................................. 4
CALLS.......................................................... 4
PUTS........................................................... 5
FUTURES CONTRACTS.............................................. 6
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS................... 8
RISK FACTORS IN FUTURES TRANSACTIONS........................... 9
AMERICAN DEPOSITORY RECEIPTS (ADRs)............................ 9
LOWER-RATED DEBT SECURITIES.................................... 9
ILLIQUID INVESTMENTS........................................... 10
LOANS AND OTHER DIRECT DEBT INSTRUMENTS........................ 10
RESTRICTED SECURITIES.......................................... 11
WARRANTS....................................................... 11
SECURITIES LENDING............................................. 11
OTHER INVESTMENT COMPANIES..................................... 11
FUTURE DEVELOPMENTS............................................ 11
INVESTMENT RESTRICTIONS.............................................12
PORTFOLIO TURNOVER..................................................13
RISKS AND SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN
TENNESSEE OBLIGATIONS..........................................15
VALUATION............................................................ 16
VALUATION OF THE FUND........................................ 17
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................... 17
PURCHASE OF SHARES............................................ 17
MATTERS AFFECTING REDEMPTION.................................. 17
REDEMPTION IN KIND............................................ 17
- i -
<PAGE>
ADDITIONAL TAX INFORMATION........................................... 18
QUALIFICATION AS A REGULATED INVESTMENT COMPANY............... 18
ADDITIONAL TAX INFORMATION CONCERNING THE TAX-FREE FUNDS ..... 20
EXCISE TAX ON REGULATED INVESTMENT COMPANIES.................. 21
ADDITIONAL TAX INFORMATION CONCERNING OTHER FUNDS............. 21
SALE OR REDEMPTION OF SHARES ................................ 22
FOREIGN SHAREHOLDERS.......................................... 22
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS........ 23
MANAGEMENT OF THE COMPANY............................................ 23
DIRECTORS..................................................... 23
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS...... 24
OFFICERS............................................... 25
ADVISER AND SUB-ADVISER.........................................
THE ADVISER.......................................................... 26
THE ADVISORY AGREEMENT........................................ 26
THE SUB-ADVISER............................................... 27
PORTFOLIO TRANSACTIONS........................................ 27
GLASS-STEAGALL ACT............................................ 28
ADMINISTRATOR................................................. 29
EXPENSES...................................................... 29
DISTRIBUTOR................................................... 29
CUSTODIAN..................................................... 30
TRANSFER AGENT................................................ 30
PORTFOLIO ACCOUNTING.......................................... 31
INDEPENDENT AUDITORS.......................................... 31
LEGAL COUNSEL ................................................ 31
FINANCIAL REPORTS ......................................................
PERFORMANCE INFORMATION.............................................. 31
YIELD OF THE MONEY MARKET FUND................................ 31
YIELD OF THE FUNDS (OTHER THAN THE MONEY MARKET FUND) ........ 32
CALCULATION OF TOTAL RETURN................................... 32
CALCULATION OF DISTRIBUTION RATE............................. 32
PERFORMANCE COMPARISONS....................................... 33
YIELD AND TOTAL RETURN........................................ 33
ALL FUNDS..................................................... 33
ADDITIONAL INFORMATION............................................... 34
ORGANIZATION AND DESCRIPTION OF SHARES........................ 34
MISCELLANEOUS................................................. 34
APPENDIX A.................................................................. A-1
- ii -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TRANS ADVISER FUNDS
Trans Adviser Funds, Inc. (the "Company") is a non-diversified, openend
management investment company. The Company consists of six separate investment
portfolios: the Growth/Value Fund, the Aggressive Growth Fund, the Intermediate
Bond Fund, the Kentucky Tax-Free Fund, the Tennessee Tax-Free Fund and the Money
Market Fund (collectively, the "Funds"). This Statement of Additional
Information relates to the Tennessee Tax-Free Fund only. Much of the information
contained in this Statement of Additional Information expands on subjects
discussed in the Prospectus. Capitalized terms not defined herein are defined in
the Prospectus. No investment in shares of the Fund should be made without first
reading the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives and policies
of the Fund as set forth in the Prospectus.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, the Fund may
purchase securities on a when-issued basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When the Fund agrees to purchase
securities on a when-issued basis, the Fund's custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because the Fund will set
aside cash or liquid portfolio securities to satisfy their purchase commitments
in the manner described above, the Fund's liquidity and the ability of the
Adviser to manage them might be affected in the event its commitment to purchase
when-issued securities ever exceeded 25% of the value of its assets.
When the Fund engages in when-issued transactions, it rely on the seller
to consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Fund does not intend to purchase when-issued securities for
speculative purposes but only in furtherance of its investment objectives, the
achievement of which is not dependent upon when-issued securities.
VARIABLE AND FLOATING RATE SECURITIES. The Fund may acquire variable and
floating rate securities, subject to the Fund's investment objectives, policies
and restrictions. A variable rate security is one whose terms provide for the
readjustment of its interest rate on set dates and which, upon such adjustment,
can reasonably be expected to have a market value that approximates its par
value. A floating rate security is one whose terms provide for the readjustment
of its interest rate whenever a specified interest rate changes and which, at
any time, can reasonably be expected to have a market value that approximates
its par value. Such securities are frequently not rated by credit rating
agencies; however, unrated variable and floating rate securities determined by
the Adviser under guidelines established by the Company's Board of Directors to
be of comparable quality at the time of purchase to rated instruments eligible
for purchase under the Fund's investment policies may be purchased by the Fund.
In making such determinations, the Adviser will consider the earning power, cash
flow and other liquidity ratios of the issuers of such securities (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate security
purchased by the Fund, the Fund may resell the security at any time to a third
party.
<PAGE>
The absence of an active secondary market, however, could make it difficult for
a Fund to dispose of a variable or floating rate security in the event the
issuer of the security defaulted on its payment obligations and the Fund could,
as a result or for other reasons, suffer a loss to the extent of the default.
Variable or floating rate securities may be secured by bank letters of credit.
PARTICIPATION INTERESTS. The Fund may purchase participation interests
in loans to municipal issuers, which are made available through a commercial
bank that arranges the tax-exempt loan. Participation interests are frequently
backed by an irrevocable bank letter of credit or a guarantee by a financial
institution and give the Fund the right to demand, on short notice (usually not
more than seven days), payment of all or any part of the principal amount and
accrued interest. Banks retain fees for their role in an amount equal to the
excess of the interest paid on the municipal securities over the negotiated
yield at which the participation interests were purchased. In the event that the
participation interest that the Fund acquires includes the right to demand
payment of principal and accrued interest from the issuer of the participation
interest pursuant to a letter of credit or other commitment, the maturity will
be deemed to be equal to the time remaining until the principal amount can be
recovered from the issuer through demand, although the stated maturity may be in
excess of one year. To the extent that variable rate instruments and loan
participations may lack liquidity (unless payable on demand or within seven
days), they are subject to the restriction on illiquid securities, described
herein under the caption "Investment Restrictions". See "Illiquid Investments"
below for an explanation of how liquidity is determined.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in bills, notes and
bonds issued by the U.S. Treasury. Such obligations are supported by the full
faith and credit of the U.S. Government.
COMMERCIAL PAPER. The Fund may invest in municipal obligations issued
at a discount, frequently referred to as municipal commercial paper, which are
likely to be issued to meet seasonal working capital needs of a municipality or
to provide interim construction financing and are to be paid from general
revenues of the municipality or refinanced with long-term debt. In most cases,
municipal commercial paper is backed by letters of credit, lending agreements,
note repurchase agreements, or other credit facility agreements offered by banks
or other institutions. The Fund would be able to draw on these agreements on a
default under the terms of the documents of the security.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Fund may invest, are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. They are also referred
to as variable rate demand notes. Because these notes are direct lending
arrangements between the Fund and the issuer, they are not normally traded.
Although there may be no secondary market in the notes, the Fund may demand
payment of principal and accrued interest at any time or during specified
periods not exceeding one year, depending upon the instrument involved, and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Fund to dispose of a
variable amount master demand note if the issuer defaulted on its payment
obligations or during periods when the Fund is not entitled to exercise their
demand rights, and the Fund could, for this or other reasons, suffer a loss to
the extent of the default. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes must satisfy the
same criteria as set forth above for commercial paper. The Adviser will consider
the earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. Where necessary to ensure that a note is of "high quality,"
the Fund will require that the issuer's obligation to pay the principal of the
note be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. In determining dollar-weighted average portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand.
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FUTURES CONTRACTS. The Fund is permitted to buy and sell futures
contracts relating to municipal bond indices ("Municipal Bond Index Futures")
and to U.S. Government securities ("U.S. Government Securities Futures,"
together referred to as "Futures"), and exchange traded options based on Futures
as a possible means to protect the asset value of the Fund during periods of
changing interest rates, although in fact the Fund may never do so.
Municipal Bond Index Futures currently are based on a long-term
municipal bond index developed by the Chicago Board of Trade ("CBT") and The
Bond Buyer (the "Municipal Bond Index"). Financial futures contracts based on
the Municipal Bond Index began trading on June 11, 1985. The Municipal Bond
Index is comprised of 40 tax-exempt municipal revenue and general obligation
bonds. Each bond included in the Municipal Bond Index must be rated A or higher
by Moody's or S&P and must have a remaining maturity of 19 years or more. Twice
a month new issues satisfying the eligibility requirements are added to, and an
equal number of old issues are deleted from, the Municipal Bond Index. The value
of the Municipal Bond Index is computed daily according to a formula based on
the price of each bond in the Municipal Bond Index, as evaluated by six
dealer-to-dealer brokers.
The Municipal Bond Index futures contract is traded only on the CBT.
Like other contract markets, the CBT assures performance under futures contracts
through a clearing corporation, a nonprofit organization managed by the exchange
membership which is also responsible for handling daily accounting of deposits
or withdrawals of margin.
There are at present U.S. Government financial futures contracts based
on long-term Treasury bonds, Treasury notes, GNMA Certificates and three-month
Treasury bills. U.S. Government Securities Futures have traded longer than
Municipal Bond Index Futures, and the depth and liquidity available in the
trading markets for them are in general greater.
Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Funds the right (but not the obligation) for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash
or government securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.
After a futures contract position is opened, the value of the contract
is marked-to-market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on their margin deposits.
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Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Fund may use futures contracts for
hedging purposes only.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek through the sale of futures
contracts to offset a decline in the value of their portfolio securities.
When interest rates are expected to fall or market values are expected
to rise, a Fund, through the purchase of such contracts, can attempt to secure
better rates or prices for the Fund, than might later be available in the market
when it effects anticipated purchases.
Regulations of the CFTC require that the Fund enters into transactions
in futures contracts and options thereon for hedging purposes only, in order to
assure that it is not deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations require that all short futures positions be entered
into for the purpose of hedging the value of securities held in the Fund's
portfolio, and that all long futures positions either constitute bona fide
hedging transactions, as defined in such regulations, or have a total value not
in excess of an amount determined by reference to certain cash and securities
positions maintained for the Fund, and accrued profits on such positions. In
addition, the Fund may not purchase or sell such instruments if, immediately
thereafter, the sum of the amount of initial margin deposits on its existing
futures positions and premiums paid for options on futures contracts would
exceed 5% of the market value of the Fund's total assets.
When the Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be deposited in a segregated
account with the Fund's custodian so that the amount so segregated, plus the
initial deposit and variation margin held in the account of its broker, will at
all times equal the value of the futures contract, thereby insuring that the use
of such futures is unleveraged.
The Fund will only sell futures contracts to protect securities they own
against price declines or purchase contracts to protect against an increase in
the price of securities they intend to purchase. As evidence of this hedging
interest, the Fund expects that approximately 75% of their futures contract
purchases will be "completed," that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Fund upon sale of open
futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of hedging this
exposure. While the Funds will incur commission expenses in both opening and
closing out futures positions, these costs are lower than transactions costs
incurred in the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Fund will not enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of its total assets. In addition, the Fund will not enter into
futures contracts to the extent that the value of the futures contracts held
would exceed 10% of the Fund's total assets. Futures transactions will be
limited to the extent necessary to maintain the Fund's qualification as a
regulated investment company.
The Fund has undertaken to restrict its futures contract trading as
follows: first, the Fund will not engage in transactions in futures contracts
for speculative purposes; second, the Fund will not market itself to the public
as a commodity pool or otherwise as a vehicle for trading in the commodities
futures or commodity options markets; third, the Fund will disclose to all
prospective shareholders the purpose of and limitations on its commodity futures
trading; fourth, the Fund will submit to the CFTC special calls for information.
Accordingly, registration as a commodities pool operator with the CFTC is not
required.
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In addition to the margin restrictions discussed above, transactions in
futures contracts may involve the segregation of funds pursuant to requirements
imposed by the SEC. Under those requirements, where the Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by the Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if the Fund "covers" a long position. For example, instead of
segregating assets, the Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund. In
addition, where the Fund takes short positions, or engages in sales of call
options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures contract, it may
cover by owning the instruments underlying the contract. The Fund may also cover
such a position by holding a call option permitting it to purchase the same
futures contract at a price no higher than the price at which the short position
was established. Where the Fund sells a call option on a futures contract, it
may cover either by entering into a long position in the same contract at a
price no higher than the strike price of the call option or by owning the
instruments underlying the futures contract. The Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures contract at a price no higher than the strike price of the call option
sold by the Fund.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may
be closed out only on an exchange that provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge them. The Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts that are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. The Fund would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.
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Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of future positions and subjecting some
futures traders to substantial losses.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of
in the ordinary course of business, within seven days, at approximately the
prices at which they are valued. The Fund may purchase illiquid investments.
Under the supervision of the Board Directors, the Adviser determines the
liquidity of the Fund's investments and, through reports from the Adviser, the
Board monitors investments in illiquid instruments. In determining the liquidity
of the Fund's investments, the Adviser may consider various factors, including
(1) the frequency of trades and quotations, (2) the number of dealers and
prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender
features), and (5) the nature of the marketplace for trades (including the
ability to assign or offset a Fund's rights and obligations relating to the
investment). Investments currently considered by the Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days. Also, the Adviser, may determine some
over-the-counter options, restricted securities and loans and other direct debt
instruments, and swap agreements to be illiquid.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by
a corporate, governmental, or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participation), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve a risk of
loss in case of default or insolvency of the borrower and may offer less legal
protection to the Fund in the event of fraud or misrepresentation. In addition,
loan participations involve a risk of insolvency of the lending bank or other
financial intermediary. Direct debt instruments may also include standby
financing commitments that obligate the Fund to supply additional cash to the
borrower on demand.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Fund may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to seek registration of the shares. However, in general, the Fund
anticipates holding restricted securities to maturity or selling them in an
exempt transaction.
SECURITIES LENDING. The Fund may lend its portfolio securities to
broker-dealers, banks or institutional borrowers of securities. The Fund must
receive a minimum of 100% collateral, plus any interest due in the form of cash
or U.S. Government securities. This collateral must be valued daily and should
the market value of the loaned securities increase, the borrower must furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower will pay the Fund any dividends or interest paid on such
securities plus any interest negotiated between the parties to the lending
agreement. Loans will be subject to termination by the Fund or the borrower at
any time. While the Fund will not have the right to vote securities on loan, the
Fund intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. The Fund will only enter
into loan arrangements with
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broker-dealers, banks or other institutions which the Adviser has determined are
creditworthy under guidelines established by the Company's Board of Directors.
OTHER INVESTMENT COMPANIES. The Fund may invest in the securities of
other investment companies to the extent permissible under the applicable
regulations and interpretations of the 1940 Act or an exemptive order.
FUTURE DEVELOPMENTS. As discussed in the Prospectus, the Fund may take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and are legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described in the Prospectus and Statement of
Additional Information. Prior to commencing any new investment practice, the
Fund will notify shareholders by means of a prospectus supplement.
INVESTMENT RESTRICTIONS
The following fundamental investment limitations cannot be changed
without approval by a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Fund.
The Fund may not (unless otherwise indicated):
(1) issue any senior security (as defined in the 1940 Act), except that
(a) the Fund may engage in transactions which may result in the issuance of
senior securities to the extent permitted under applicable regulations and
interpretation of the 1940 Act or an exemptive order; (b) the Fund may acquire
other securities that may be deemed senior securities to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act;
(2) borrow money, except that (a) the Fund may enter into commitments to
purchase securities in accordance with its investment program, including
delayed-delivery and when-issued securities and reverse repurchase agreements,
provided that the total amount of any such borrowing does not exceed 33 1/3% of
the Fund's total assets; and (b) the Fund may borrow money for temporary or
emergency purposes in an amount not exceeding 5% of the value of its total
assets at the time when the loan is made.
(3) underwrite securities issued by others, except to the extent that
the Fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
would be invested in the securities of companies whose principal business
activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities); or
(7) lend any security or make any other loan if, as a result, more than
33 1/3% of the Fund's total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
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The following investment limitations are nonfundamental and may be
changed without shareholder approval:
(i) The Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures contracts
and options are not deemed to constitute selling securities short.
(ii) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
(iii) Each Fund does not currently intend to purchase any security if,
as a result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
(iv) The Fund does not currently intend to make loans, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(v) The Fund shall not invest in the securities of other investment
companies, except that the Fund may invest in the securities of other investment
companies that are not "affiliated persons" of the Fund (unless permitted by SEC
regulations or exemptive relief) to the extent permissible under the applicable
regulations and interpretations of the 1940 Act or an exemptive order. [The
Adviser will waive the portion of its fee attributable to the assets of a Fund
invested in such investment companies to the extent required by the laws of any
jurisdiction in which shares of the Fund are registered for sale.]
In addition to the above, at the close of each quarter of its taxable
year, at least 50% of the value of the Fund's assets must consist of cash and
cash items, U.S. Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which a Fund has not invested
more than 5% of the value of the Fund's total assets in securities of any such
issuer and does not hold more than 10% of its outstanding voting securities),
and no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose maturities at the time of acquisition were one year or
less. The portfolio turnover rate with respect to the Fund may vary greatly from
year to year as well as within a particular year, and may also be affected by
cash requirements for redemptions of shares. A higher portfolio turnover rate
may lead to increased taxes and transaction costs. Portfolio turnover will not
be a limiting factor in making investment decisions.
RISKS AND SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN TENNESSEE OBLIGATIONS
[To be revised]
The Constitution of the State of Tennessee forbids the expenditure of
the proceeds of any debt obligation for a purpose other than the purpose for
which it was authorized by statute. Under Tennessee law,
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the term of the State's bonds cannot exceed the life of the projects being
financed. Furthermore, the amount of debt obligations of the State of Tennessee
cannot exceed the amount authorized by the Tennessee General Assembly. The
procedure for funding State of Tennessee debt is provided by Chapter 9 of Title
9, Tennessee Code Annotated. The Funding Board of the State of Tennessee is the
entity authorized to issue general obligation indebtedness of the State of
Tennessee. Pursuant to Section 9-9-106, Tennessee Code Annotated, the Funding
Board of the State of Tennessee has a lien on the taxes, fees and revenues from
certain designated revenue sources for the full amount required to service the
State's general obligation indebtedness. Certain other agencies and authorities
in Tennessee issue obligations, payable solely from specific non-tax enterprise
fund revenues and which are not debts or liabilities of the State of Tennessee
nor is the full faith and credit pledged to the payment thereof.
Under current state statutes, the State of Tennessee's general
obligation bonded debt issuances are subject to an annual legal debt service
limitation based on a pledged portion of certain current year revenues. As of
June 30, 1994, the State of Tennessee's annual legal debt service limit of $351
million was well above the debt service required of $102 million, with a legal
debt service margin of $249 million. Debt per capita equaled $123, and the ratio
of net general long-term bonded debt to assessed property valuation was 1.32
percent.
The Constitution of the State of Tennessee requires a balanced budget.
As required by law, the legislature enacted a balanced budget for fiscal year
1994-95. Beginning January 1, 1994 the State of Tennessee received a waiver from
the federal government to replace Medicaid with the new program, TennCare.
TennCare was implemented to help control the sky-rocketing cost of health care
and to provide insurance coverage not only to previous Medicaid eligible
individuals but also to uninsured Tennesseans. Due principally to inaccurate
funding assumptions with respect to the TennCare program, the budget for the
year ending June 30, 1995 projected a shortfall of $126 million.
Despite the budgetary concerns caused by the costs associated with
implementing TennCare, the economic outlook for Tennessee remains favorable. The
State's economic diversity has improved substantially over the last eleven
years. Investments announced in new and expanding business exceeded one billion
dollars in each of those years and exceeded two billion in the last two years.
The $3.2 billion in announced capital investments in 1989 was the single largest
year and exceeded the $2.78 billion in 1985 when Saturn Corporation chose
Tennessee for its plan site. This growth created 23,800 new jobs in Tennessee
for the year ended June 1994.
The Tennessee General Assembly enacted a balanced budget for fiscal year
1994-95. The budget included a two percent salary increase for State employees,
public higher education employees and teachers in the public school system
effective on July 1, 1994, and another two percent salary increase effective on
October 1, 1994. The revenue estimates were officially revised at March 1 when
the budget document for the fiscal year 1995-96 was presented to the General
Assembly. The revised revenue estimates for fiscal year 1994-95 and projections
for fiscal year 1995-96 are within the consensus estimates developed by the
State Funding Board in compliance with TCA Section 9-6-202(e).
Actual revenue collections for fiscal year 1994-95 through January 1995
reflected increases of 9.68 percent for the sales tax and 17.45 percent for the
combined excise tax and franchise tax. Total growth in collections, excluding
the health services tax, is 9.07 percent. Expenditures for TennCare the housing
of state prisoners, institutional operating costs in prisons, the children's
plan and some other services were in excess of the original budgeted amounts for
fiscal year 1994-95. Supplemental appropriations were accommodated within the
revised revenue estimates and a proposal to use one-time reserves. The
recommended budget for fiscal year 1995-96 continues the funding of improvements
in the Basic Education Program for public schools and begins funding teacher
salary equalization. It funds TennCare and the Administration's proposed crime
legislation. The revenue estimates for fiscal year 1995-96 assume a 6.3 percent
growth in the sales tax, and a 5.0 percent growth in the excise and franchise
taxes. The assumed growth in all collections by the Department of Revenue is
5.08 percent. The Revenue Fluctuation Reserve was reduced to $101.4 million at
June 30, 1994 due to
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accrued liabilities in the children's plan and other programs. The new budget
maintains the reserve at $101.4 million for fiscal years 1994-95 and 1995-96.
On March 22, 1993 the Tennessee Supreme Court affirmed a lower court
decision that funding for the public school system in Tennessee is
unconstitutional because citizens in more affluent school districts receive
greater educational funding. The case was remanded to the trial court for
further proceedings with respect to the State's providing additional funding to
less affluent school systems. After substantial subsequent litigation, the
Tennessee Supreme Court issued on February 16, 1995, an opinion approving the
State's plan set forth in the Educational Improvement Act of 1992 with the
modification that the plan should also include a provision to equalize teachers'
salaries in the same way that other expenditures were to be equalized under the
program. The result of this decision may be that the State must provide
additional funding to less affluent school systems.
TennCare, the managed care program, is the subject of litigation. In
Tennessee Medical Association v. Manning (Davidson County Chancery Court No.
93-3839-1), plaintiffs challenged the State's Administrative Procedure Act
requirements. The Chancery Court concluded that the court had no jurisdiction,
the plaintiffs had no private cause of action against the State, and the
plaintiffs had no injuries and granted the State's motion for summary judgment.
The plaintiffs have appealed this ruling.
On December 19, 1994, the Health Care Financing Administration ("HCFA")
notified the State that the State's inclusion of amounts received from its
nursing home bed tax and services tax in computing the amount of federal
financial participation in TennCare was under review and was possibly
inconsistent with federal methodology for such computation. At this time, the
State has received no notice of disallowance of federal funds and is vigorously
disputing HCFA's assertion of possible improper computation of the amount of
federal financial participation. If HCFA were to find that the State's use of
the amounts received from these taxes was inconsistent with federal methodology
for such computation, then HCFA would offset disallowed amounts against future
federal participation in TennCare.
VALUATION
As indicated in the Prospectus, the net asset value per share ("NAV") of
the Fund for purposes of pricing purchase and redemption orders is determined as
of the close of regular trading of the New York Stock Exchange (the "NYSE")) on
each Business Day of the Fund. Fund Business Days do not include the following
observed by the NYSE: New Year's Day, Presidents' Day, Good Friday, Memorial Day
(observed), Independence Day (observed), Labor Day, Thanksgiving Day and
Christmas Day (observed). Days on which the Federal Reserve Wire Transfer
Service is closed (which include: Martin Luther King Day, Columbus Day and
Veterans Day), in addition to NYSE holidays, are not Business Days for the Money
Market Fund. Net asset value per share for purposes of pricing sales and
redemptions is calculated by dividing the value of all securities and other
assets belonging to the Fund, less the liabilities charged to the Fund, by the
number of the outstanding shares of the Fund.
VALUATION OF THE FUND
The value of the portfolio securities held by the Fund for purposes of
determining the Fund's net asset value per share will be established on the
basis of current valuations provided by Muller Data Corporation or Kenny S&P
Evaluation Services, whose procedures shall be monitored by the Adviser and the
Administrator, and which valuations shall be the fair value of such securities.
Investments in debt securities with remaining maturities of 60 days or less will
be valued based upon the amortized cost method.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Forum Financial Services, Inc. (the "Distributor") acts as distributor
of the Fund's shares. (See "Management of the Company - Distributor"). In
addition to purchasing shares directly from the Distributor, shares may be
purchased through arrangements established by the Distributor with banks,
broker-dealers or
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other financial institutions. Customers purchasing shares of the Company may
include officers, directors, or employees of the Adviser or M&A.
PURCHASE OF SHARES
As stated in the Prospectus, the public offering price of shares of the
Fund is its net asset value, plus a sales charge where applicable, next
determined after receipt of an order in proper form.
MATTERS AFFECTING REDEMPTION
The Company may suspend the right of redemption or postpone the date of
payment for shares during any period when (a) trading on the NYSE is restricted
by applicable rules and regulations of the Commission, (b) the NYSE is closed
for other than customary weekend and holiday closings, (c) the Commission has by
order permitted such suspension, or (d) an emergency exists as determined by the
Commission.
The Company may redeem shares involuntarily if redemption appears
appropriate in light of the Company's responsibilities under the 1940 Act. See
"Valuation" above.
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, the Fund reserves
the right under certain circumstances to pay the redemption price in whole or in
part by a distribution of securities from the Fund. To the extent available,
such securities will be readily marketable. Redemption in kind will be made in
conformity with applicable Commission rules, taking such securities at the same
value employed in determining NAV and selecting the securities in a manner the
Directors determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the 1940 Act under
which the Fund is obligated to redeem shares for any one shareholder in cash
only up to the lesser of $250,000 or 1% of the Fund's net asset value during any
90-day period.
ADDITIONAL TAX INFORMATION
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to Federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses, including foreign currency gains
and loss) and capital gain net income (i.e., the excess of capital gains over
capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year (the "Distribution Requirement"),
and satisfy certain other requirements of the Code that are described below.
Distributions by the Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains for the taxable year and will
therefore satisfy the Distribution Requirement.
- 11 -
<PAGE>
In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). For purposes of these calculations,
gross income includes tax-exempt income. However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of a security
within the meaning of the Short-Short Gain Test. However, income attributable to
realized market appreciation will be treated as gross income from such sale or
disposition for that purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued while the Fund held the debt obligation. In addition, under the rules of
Code Section 988, gain or loss recognized on a disposition of a debt obligation
denominated in a foreign currency or an option with respect thereto (but only to
the extent attributable to changes in foreign currency exchange rates), and gain
or loss recognized on the disposition of a forward foreign currency contract,
futures contract, option or similar financial instrument, or of foreign currency
itself, except for regulated futures contracts or non-equity options subject to
Section 1256, will generally be treated as ordinary income or loss.
Generally, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (i) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, or (ii) the asset is otherwise held by the Fund as part of a "straddle".
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
- 12 -
<PAGE>
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
or enter into closing transactions at a gain within three months of the writing
of options.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, or any net long-term capital loss incurred after October 31 as if
it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of its taxable
year, at least 50% of the value of the Fund's assets must consist of cash and
cash items, U.S. Government securities, securities of other regulated investment
companies, and securities of other issuers (as to each of which the Fund has not
invested more than 5% of the value of the Fund's total assets in securities of
any such issuer and does not hold more than 10% of its outstanding voting
securities), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses. If for any taxable year the Fund does not qualify
as a regulated investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
ADDITIONAL TAX INFORMATION CONCERNING THE FUND
As indicated in the Prospectus, the Fund is designed to provide
shareholders with current interest income free from Federal income taxation and,
in the case of the Fund, also the Tennessee personal income tax. The Fund is not
intended to constitute balanced investment program and is not designed for
investors seeking capital appreciation. Shares of the Fund would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, so-called Keogh or H.R. 10 plans, and
individual retirement accounts. Such plans and accounts are generally tax-exempt
and, therefore, would not benefit from the fact that dividends from the Fund are
tax-exempt; moreover, such dividends would be ultimately taxable to the
beneficiaries when distributed to them. In addition, shareholders who under Code
section 147(a) are "substantial users" or "related persons" to substantial users
with respect to facilities financed through any tax-exempt obligations held by
the Fund should consult a tax adviser whether exempt-interest dividends would
remain excludable from gross income in their hands for federal tax purposes
under Section 103 of the Code.
The Code permits a regulated investment company that invests at least
50% of its assets in tax-exempt Municipal Securities (for these purposes,
Tennessee Tax-Exempt Obligations are functionally equivalent to Municipal
Securities) to pass through to its investors, on a tax-exempt basis, net
Municipal Securities interest income. The policy of the Fund is to pay each year
as dividends substantially all of their Municipal Securities interest income net
of certain deductions, but not to exceed in the aggregate the net
exempt-interest income received by the Fund during the taxable year. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by the Fund and designated as an exempt-interest dividend in
a written notice mailed to shareholders after the close of the Fund's taxable
year. The percentage of the total dividends paid for any taxable year which
qualifies as Federal exempt-interest dividends will be the same for all
shareholders receiving dividends from the Fund during such year, regardless of
the period for which the shares were held.
- 13 -
<PAGE>
The Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the Fund's
taxable year at least 50% of the Fund's assets consists of tax-exempt municipal
obligations. Distributions from the Fund will constitute exempt-interest
dividends to the extent of the Fund's tax-exempt interest income (net of
expenses and amortized bond premium). Exempt-interest dividends distributed to
shareholders of the Fund are excluded from income for federal income tax
purposes. However, shareholders required to file a federal income tax return
will be required to report the receipt of exempt-interest dividends on their
returns. Such dividends may also have to be included in the alternative minimum
income and may have other consequences as described below.
AMT is imposed in addition to, but only to the extent it exceeds, the
regular tax and is computed at a maximum marginal rate of 28% for non-corporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount.
Exempt-interest dividends derived from certain "private activity" municipal
obligations issued after August 7, 1986 will generally constitute an item of tax
preference includable in AMTI for both corporate and non-corporate taxpayers. In
addition, exempt-interest dividends derived from all municipal obligations,
regardless of the date of issue, must be included in adjusted current earnings,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includable in AMTI. For purposes of the corporate AMT, the corporate
dividends received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's AMTI. However, corporate shareholders will generally be required
to take the full amount of any dividend received from the Fund into account
(without a dividends-received deduction) in determining their adjusted current
earnings.
Exempt-interest dividends must be taken into account in computing the
portion, if any, of social security or railroad retirement benefits that must be
included in an individual shareholder's gross income and subject to federal
income tax. Further, a shareholder of the Fund is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry shares of
the Fund. Moreover, a shareholder who is (or is related to) a "substantial user"
of a facility financed by industrial development bonds held by the Fund will
likely be subject to tax on dividends paid by the Fund which are derived from
interest on such bonds. Receipt of exempt-interest dividends may result in other
collateral federal income tax consequences to certain taxpayers, including
financial institutions, property and casualty insurance companies, and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own advisers as to such consequences.
While the Fund does not expect to realize any significant amount of
long-term capital gains, any net realized capital gains (the excess, if any, of
net long-term capital gains over net short-term capital losses) will be
distributed annually. Distributions of net capital gain will be taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held the Fund's shares. If a shareholder disposes of shares of the Fund, at
a loss, before holding such shares longer than 6 months, the loss will be
treated as a long-term capital loss (unless disallowed as specified in the next
sentence) to the extent that the shareholder has received a capital gain
dividend on the shares. In addition, if a shareholder receives any
exempt-interest dividends with respect to any shares held for 6 months or less,
any loss on the sale or exchange of such shares will be disallowed to the extent
of the amount of such dividends.
While the Fund does not expect to earn a significant amount of taxable
investment income or short-term gains, such income or short-term gains earned by
them will be distributed to shareholders and will be taxable to them as ordinary
income (whether paid in cash or in additional shares).
Although the Fund expects to qualify as a regulated investment company
and to be relieved of all or substantially all Federal income taxes, the Fund
may be subject to the tax laws of states or localities in which their offices
are maintained, in which their agents or independent contractors are located, or
in which they are otherwise deemed to be conducting business, depending upon the
extent of their activities in such states and localities. In addition, if for
any taxable year the Fund does not qualify for the special Federal tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to Federal income tax at the Fund level at regular corporate rates
(without any deduction for distributions to shareholders). When distributed,
such income, as well as the Fund's Municipal Securities interest income, would
be taxable to shareholders as an ordinary dividend.
- 14 -
<PAGE>
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
its ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax.)
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in the calendar year.
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Funds may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
ADDITIONAL TAX INFORMATION
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. To the extent such distributions
do not constitute exempt-interest dividends, they will be taxable to
shareholders as ordinary income and treated as dividends for Federal income tax
purposes, but they will not qualify for the 70% dividends-received deduction for
corporations.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. Net capital gain is distributed and designated as a capital gain
dividend and will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, its pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid its pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against Federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income its pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions.
Distributions by the Fund that do not constitute exempt-interest
dividends, ordinary income dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his shares; any excess will be treated as gain from the sale of
such shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether they are paid in cash or reinvested in additional shares
of the Fund (or of another fund). Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of the Fund reflects undistributed net investment
income, recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
- 15 -
<PAGE>
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which they are made. However, dividends declared in
October, November or December of any year and payable to shareholders of record
on a specified date in such a month will be deemed to have been received by the
shareholders (and made by the Fund) on December 31 of such calendar year if such
dividends are actually paid by January 31 of the following year. Shareholders
will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is an "exempt
recipient" such as a corporation).
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
generally will apply in determining the holding period of shares. Long-term
capital gains of noncorporate taxpayers are currently taxed at a maximum rate
11.6% lower than the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of the
Fund, (2) disposes of such shares less than 91 days after they are acquired and
(3) subsequently acquires shares of the Fund or another fund at a reduced sales
load pursuant to a right acquired in connection with the acquisition of the
shares disposed of, then the sales load on the shares disposed of (to the extent
of the reduction in the sales load on the shares subsequently acquired) shall
not be taken into account in determining gain or loss on such shares but shall
be treated as incurred on the acquisition of the subsequently acquired shares.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
will be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend (including any adjustment on
account of the Fund's election to treat foreign taxes paid by it as paid by its
shareholders). Such a foreign shareholder would generally be exempt from U.S.
Federal income tax on gains realized on the sale or redemption of shares of the
Fund, capital gain dividends, exempt interest dividends and amounts retained by
the Fund that are designated as undistributed capital gains.
- 16 -
<PAGE>
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. Federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of a foreign noncorporate shareholder, the Fund may be
required to withhold U.S. Federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding (or taxable at a reduced treaty rate)
unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. Federal income tax consequences
is based on the Code and the Treasury Regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative,
administrative changes or court decisions may significantly affect the
conclusions expressed herein, perhaps with retroactive effect.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. Federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other state
and local tax rules affecting investments in the Fund.
MANAGEMENT OF THE COMPANY
DIRECTORS
The directors of the Company, their addresses, ages and principal
occupations during the past five years are as follows:
Name, Address Position(s) Held With the Principal Occupation During
Company Past 5 Years
Gordon B. Davidson, 69* Chairman and Director Chairman of Executive
Wyatt, Tarrant & Combs Committee, and Senior
Citizens Plaza Counsel, Wyatt, Tarrant &
Louisville, KY 40202 Combs(a law firm); Director,
Duff & Phelps Utilities
Income, Inc.; Alliant
Healthcare System, Inc.;
(Ret) Director, BellSouth
Corp.; Director, Kentucky
Center for the Arts
Foundation, Inc.; Trustee,
Center College.
Jerry E. Baker, 64* Director Chairman of the Board, Mid
P.O. Box 1117 America Airgas, Inc. (a
Bowling Green, KY 42102 subsidiary of Airgas, Inc.);
President, Mid America
Airgas, Inc., July 1986-May
1995.
Kevin P. Lavender Director [To be supplied]
Symmetry Health
Partners
3100 West End Avenue,
Suite 1230
Nashville, TN 37203
William H. Lomicka, 58 Director President, Mayfair Capital;
Mayfair Capital Director, Advocat Inc.,
Providian Center Cinemas, Inc., Vencor, Inc.,
Regal 400 West Market, Automated Healthcare,
Suite 2510 Dynamic Health, Health
Louisville, KY 40202 Directions, Medecon, Regent
Communications, Spectra
Care and Sabratek; Member,
Board of Advisors, the
Tiber Group.
Charles K. McClure, Director Retired and working on several
III, 52 not-for-profit and community
1442 Cherokee Road projects, January 1995-
Louisville, KY 40204 present; Executive Director,
Isaac W. Bernheim
Foundation, April 1971-
January 1995.
- ---------------------
* Interested Person
- 17 -
<PAGE>
The Board of Directors has appointed an audit committee, a valuation
committee, and a nominating committee. The members of each committee are William
H. Lomicka and Charles K. McClure, III. The function of the audit committee is
to recommend independent auditors and review and report on accounting and
financial matters. The function of the valuation committee is to determine and
monitor the value of the Funds' assets. The function of the nominating committee
is to nominate persons to serve as disinterested directors and directors to
serve on committees of the Board.
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
Each director receives a fee of $500 for each meeting attended plus
expenses.
<TABLE>
COMPENSATION TABLE
<CAPTION>
Name and Position Aggregate Pension or Estimated Total Compensation
Compensation Retirement Benefits Annual From Registrant and
from Registrant Accrued as Part of Benefits Upon Fund Complex
Fund Expenses Retirement Paid to Directors
<S> <C> <C> <C> <C>
Gordon B. Davidson, $1,500 -0- -0- $1,500
Director
Jeffrey E. Baker, 1,500 -0- -0- 1,500
Director
Kevin P. Lavender, -0- -0- -0- -0-
Director*
William H. Lomicka, 2,000 -0- -0- 2,000
Director
Charles K. McClure, 1,500 -0- -0- 1,500
Director
Aubrey B. Preston, 1,500 -0- -0- 1,500
Director**
</TABLE>
* Mr. Lavender became a Director on _______, 1996.
** Resigned
OFFICERS
The officers of the Fund and their principal occupations during the
past five years are as follows (if no address is listed, the address is Trans
Adviser Funds, Inc., P.O. Box 90001, Bowling Green, Kentucky 42101-9001):
Name, Address Position(s) Held With the Principal Occupation During
Company Past 5 Years
Thomas A. Trantum, 51 President President, Mastrapasqua &
Associates, Inc.; Secretary,
Management Plus Associates;
director, Phonex Ventures;
Adjunct Professor, Massey
Graduate School of Business
Richard Butt Treasurer Director of Fund Accounting,
Two Portland Square Forum Portland, Financial
Maine 04101 Services, Inc., with which
he has been associated
since June, 1995. Prior
thereto, Mr. Martins was
associated with the public
accounting firm of Deloitte
& Touche, LLP, most
recently as an accounting
Manager.
- 18 -
<PAGE>
Max Berueffy, 43 Vice President and Counsel, Forum Financial
Two Portland Square Secretary Services, Inc., with
Maine 04101 Portland, which he has been
associated since 1994. Prior
thereto, Mr. Berueffy was on
the staff of the U.S.
Securities anD Exchange
Commission for seven years,
first in the appellate
branch of the Office of the
General Counsel, then as a
counsel to Commissioner
Grundfest and finally as a
senior special counsel in
the Division of Investment
Management.
David L. Goldstein, 34 Vice President and Counsel, Forum Financial
Two Portland Square Assistant Secretary with which he has been
Portland, Maine 04101 associated since 1991.
Prior thereto, Mr. Goldstein
was associated with the law
firm of Kirkpatrick &
Lockhart. Mr. Goldstein
is also an officer of
various registered
investment companies for
which Forum Financial
Services, Inc. serves as
manager, administrator and/
or distributor.
Michael J. McKeen, 24 Assistant Treasurer Fund Accounting Manager,
Two Portland Square Forum Financial Forum
Portland, Maine 04101 Services, Inc., which he has
been associated since 1993.
Prior thereto, Mr. McKeen
attended the University of
Maine.
The officers of the Company receive no compensation directly from the
Company performing the duties of their offices.
ADVISER AND SUB-ADVISER THE ADVISER
Trans Financial Bank, N.A. (the "Adviser"), provides the overall
management necessary for each Fund's operations and oversees the investment of
their assets pursuant to an advisory agreement dated September 8, 1995 (the
"Advisory Agreement"). Trans Financial Bank, N.A., is a subsidiary of Trans
Financial, Inc. which is a full service financial services provider with
approximately $725 million in assets under management as of December 31, 1996.
THE ADVISORY AGREEMENT
In managing the Fund and overseeing the investment of its assets, the
Adviser is subject at all times to the supervision of the Company's Directors.
The Adviser also furnishes or procures on behalf of the Fund all services
necessary for the proper conduct of the Fund's business and administration. In
addition to the foregoing, the Adviser selects, monitors and evaluates the
Funds' Sub-Adviser. Trans Financial Bank, N.A., through its Fixed-Income
Investment Management Group, has primary responsibility for managing the Fund.
- 19 -
<PAGE>
Under the terms of the Advisory Agreement, the Fund pays all of its
expenses, including, but not limited to, the costs incurred in connection with
the registration and maintenance of registration of the Fund and its shares with
the SEC and various states and other jurisdictions, printing and mailing
prospectuses and statements of additional information to shareholders, transfer
taxes on the sales of portfolio securities, brokerage commissions, custodial and
transfer charges, legal and auditing expenses, certain insurance premiums, out
of pocket expenses of the Custodian, Transfer Agent and Fund Accountants,
preparation of shareholder reports, directors' fees and expenses of director and
shareholder meetings.
For the services it provides under the terms of the Advisory
Agreement, the Adviser receives a monthly fee of .40% per annum of the Fund's
average daily net assets. The Adviser may, from time to time, voluntarily agree
to defer or waive fees or absorb some or all of the expenses of the Fund.
THE SUB-ADVISER
The Adviser has retained Mastrapasqua & Associates, Inc., West End
Avenue, Nashville, Tennessee ("M&A") to provide sub-advisory services pursuant
to a Sub-Advisory Agreement dated September 8, 1995. M&A is a registered
investment adviser incorporated in March, 1993. Its core business is portfolio
management for institutions, individuals and business owners. M&A currently
manages approximately $___ million in assets. M&A provides economic forecasts
and strategic analysis for the Fund. For its services, M&A is paid by the
Adviser an annual fee, calculated daily, and paid monthly, of .03% of average
daily net assets for its services.
PORTFOLIO TRANSACTIONS
Pursuant to an Advisory Agreement entered into with the Fund (the
"Advisory Agreement"), the Adviser determines, subject to the overall
supervision of the Board of Directors of the Company and in accordance with the
Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be eligible to execute
such Funds' portfolio transactions. Purchases and sales of government securities
and debt securities usually are principal transactions in which portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. 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 may include
the spread between the bid and asked prices. Transactions on stock exchanges
involve the payment of a negotiated brokerage commissions. Transactions in the
over-the-counter market are generally principal transactions with dealers. With
respect to over-the-counter market, the Company, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
While the Adviser generally seeks competitive spreads or commissions, the
Company may not necessarily pay the lowest spread or commission available on
each transaction, for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price. Subject
to this consideration, dealers who provide supplemental investment research to
the Adviser may receive orders for transactions on behalf of the Company.
Information so received is in addition to and not in lieu of services required
to be performed by the Adviser and does not reduce the advisory fees payable to
the Adviser. Such information may be useful to the Adviser in serving both the
Company and other clients and, conversely, supplemental information obtained by
the placement of business of other clients may be useful to the Adviser in
carrying out its obligations to the Company.
The Adviser is authorized, subject to best price and execution, to
place portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the Fund and is authorized to use the
Distributor or an affiliated broker-dealer on an agency basis, to effect a
substantial amount of the portfolio transactions which are executed on the New
York or American Stock Exchanges, Regional Exchanges where
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relevant, or which are traded in the Over-the-Counter market. The Advisory and
Sub-Advisory Agreements do not provide for any reduction in the management fee
as a result of profits resulting from brokerage commissions effected through an
affiliated broker-dealer.
The Directors have adopted certain procedures incorporating the
standards of Rule 17e-1 issued under the 1940 Act which requires that the
commissions paid the Distributor or an affiliated broker-dealer must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
The Rule and the procedures also contain review requirements and require the
Adviser (M&A) to furnish reports to the Directors and to maintain records in
connection with such views.
Investment decisions for the Fund of the Company are made
independently from those for another fund or any other investment company or
account managed by the Adviser. Any such other investment company or account may
also invest in the same securities as the Company. When a purchase or sale of
the same security is made at substantially the same time on behalf of the Fund
and another fund, investment company or account, the transaction will be
averaged as to price and available investments will be allocated as to amount in
a manner which the Adviser believes to be equitable to the Fund and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtained by the Fund. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for the other fund or for other investment companies or
accounts in order to obtain best execution.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform
the services for the Fund contemplated by the Advisory Agreement and described
in the Prospectus and this Statement of Additional Information. Future changes
in either Federal or state statutes and regulations relating to the permissible
activities of banks or bank holding companies and the subsidiaries or affiliates
of those entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict the Adviser from continuing to perform such services for the Company.
Depending upon the nature of any changes in the services which could be provided
by the Adviser, the Board of Directors of the Company would review the Company's
relationship with the Adviser and consider taking all action necessary in the
circumstances.
Should future legislative, judicial, or administrative action
prohibit or restrict the proposed activities of the Adviser in connection with
customer purchases of shares of the Company, the Adviser might be required
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to alter materially or discontinue the services offered to its customers. It is
not anticipated, however, that any change in the Company's method of operations
would affect its net asset value per share or result in financial losses to any
customer.
ADMINISTRATOR
Forum Financial Services, Inc. ("Forum") acts as administrator to the
Company and the Fund pursuant to an Administration Agreement. As administrator,
Forum provides certain management and administrative services necessary to the
operation of the Company (which include, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of the Company), and provides the Company with general office
facilities. The Administration Agreement will remain in effect for a period of
twelve months and thereafter is automatically renewed each year for an
additional term of one year.
The Administration Agreement terminates automatically if it is
assigned and may be terminated without penalty with respect to the Fund by vote
of the Fund's shareholders or by either party on not more than 60 days' written
notice. The Administration Agreement also provides that Forum shall not be
liable for any error of judgment or mistake of law or for any act or omission in
the administration or management of the Company, except for willful misfeasance,
bad faith or gross negligence in the performance of Forum's duties or by reason
of reckless disregard of its obligations and duties under the Administration
Agreement.
EXPENSES
The Fund bears the following expenses relating to its operations:
taxes, interest, any brokerage fees and commissions, fees of the Directors of
the Company, Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to current shareholders, outside auditing and legal expenses, management and
administration fees, fees and out-of-pocket expenses of the Custodian and the
Transfer Agent, dividend disbursing agents fees, fees and out-of-pocket expenses
for fund accounting services, expenses incurred for pricing securities owned by
it, certain insurance premiums, costs of maintenance of its existence, costs of
shareholders' and Directors' reports and meetings, and any extraordinary
expenses incurred in its operation.
DISTRIBUTOR
Forum is also the Company's distributor and acts as the agent of the
Company in connection with the offering of shares of the Fund pursuant to a
Distribution Agreement. The Distribution Agreement will continue in effect for
twelve months and will continue in effect thereafter only if its continuance is
specifically approved at least annually by the Board or by vote of the
shareholders entitled to vote thereon, and in either case, by a majority of the
Directors who (i) are not parties to the Distribution Agreement, (ii) are not
interested persons of any such party or of the Company and (iii) with respect to
any class for which the Company has adopted a distribution plan, have no direct
or indirect financial interest in the operation of that distribution plan or in
the Distribution Agreement, at a meeting called for the purpose of voting on the
Distribution Agreement. All subscriptions for shares obtained by Forum are
directed to the Company for acceptance and are not binding on the Company until
accepted by it. Forum receives no compensation or reimbursement of expenses for
the distribution services provided pursuant to the Distribution Agreement and is
under no obligation to sell any specific amount of Fund shares.
The Distribution Agreement provides that Forum shall not be liable
for any error of judgment or mistake of law or in any event whatsoever, except
for willful misfeasance, bad faith or gross negligence in the performance of
Forum's duties or by reason of reckless disregard of its obligations and duties
under the Distribution Agreement.
The Distribution Agreement is terminable with respect to the Fund
without penalty by the Company on 60 days' written notice when authorized either
by vote of the Fund's shareholders or by a vote of a
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majority of the Board, or by Forum on 60 days' written notice. The Distribution
Agreement will automatically terminate in the event of its assignment.
Forum may enter into agreements with selected broker-dealers, banks,
or other financial institutions for distribution of shares of the Fund. These
financial institutions may charge a fee for their services and may receive
shareholders service fees even though shares of the Fund are sold at net asset
value. These financial institutions may otherwise act as processing agents, and
will be responsible for promptly transmitting purchase, redemption and other
requests to the Fund.
Investors who purchase shares in this manner will be subject to the
procedures of the institution through whom they purchase shares, which may
include charges, investment minimums, cutoff times and other restrictions in
addition to, or different from, those listed herein. Information concerning any
charges or services will be provided to customers by the financial institution.
Investors purchasing shares of the Fund in this manner should acquaint
themselves with their institution's procedures and should read this Prospectus
in conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
CUSTODIAN
First National Bank of Boston, 150 Royall Street, Canton, MA 02021
(the "Custodian") serves as custodian to each Fund of the Company pursuant to a
Custodial Services Agreement with the Company. The Custodian's responsibilities
include safeguarding and controlling the Company's cash and securities, handling
the receipt and delivery of securities, and collecting interest and dividends on
the Company's investments.
TRANSFER AGENT
Forum Financial Corp. ("FFC") acts as Transfer Agent and Dividend
Disbursing Agent for the Company pursuant to a Transfer Agency Agreement. The
Transfer Agency Agreement will remain in effect for a period of twelve months
and thereafter is automatically renewed each year for an additional term of one
year.
Among the responsibilities of FFC as agent for the Company are, with
respect to shareholders of record: (1) answering shareholder inquiries regarding
account status and history, the manner in which purchases and redemptions of
shares of the Fund may be effected and certain other matters pertaining to the
Fund; (2) assisting shareholders in initiating and changing account designations
and addresses; (3) providing necessary personnel and facilities to establish and
maintain shareholder accounts and records, assisting in processing purchase and
redemption transactions and receiving wired funds; (4) transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
(5) verifying shareholder signatures in connection with changes in the
registration of shareholder accounts; (6) furnishing periodic statements and
confirmations of purchases and redemptions; (7) arranging for the transmission
of proxy statements, annual reports, prospectuses and other communications from
the Company to its shareholders; (8) arranging for the receipt, tabulation and
transmission to the Company of proxies executed by shareholders with respect to
meetings of shareholders of the Company; and (9) providing such other related
services as the Company or a shareholder may reasonably request.
[For these services, FFC will receive a fee of $12,000 per year and
annual account fees of $25.00 per shareholder account. The Company will also
reimburse FFC for certain expenses incurred on behalf of the Funds. These fees
are fixed through December 31, 1996 and are subject to adjustment thereafter.]
FFC or any sub-transfer agent or processing agent may also act and
receive compensation for acting as custodian, investment manager, nominee, agent
or fiduciary for its customers or clients who are shareholders of the Fund with
respect to assets invested in the Fund. FFC or any sub-transfer agent or other
processing agent may elect to credit against the fees payable to it by its
clients or customers all or a portion of any fee received from the Company or
from FFC with respect to assets of those customers or clients
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<PAGE>
invested in the Fund. The sub-transfer agents or processing agents retained by
FFC may be affiliated persons of FFC or Forum.
PORTFOLIO ACCOUNTING
FFC performs portfolio accounting services for the Fund pursuant to a
Fund Accounting Agreement with the Company. Under its Agreement, FFC prepares
and maintains books and records of the Fund on behalf of the Company as required
under the 1940 Act, calculates the net asset value per share of the Fund and
dividends and capital gain distributions and prepares periodic reports to
shareholders and the Securities and Exchange Commission. For its services, FFC
receives from the Company with respect to the Fund a fee of $36,000 per year
plus surchages of $6,000 to $24,000 for specified asset levels. FFC is paid
additional surchages of $12,000 per year for tax-free money market funds and for
each of the following: a portfolio with more than a specified number of
securities positions and/or international positions; investments in derivative
instruments; percentages of assets invested in asset backed securities; and a
monthly portfolio turnover rate of 10% or greater. FFC is required to use its
best judgment and efforts in rendering fund accounting services and is not
liable to the Company for any action or inaction in the absence of bad faith,
willful misconduct or gross negligence. FFC is not responsible or liable for any
failure or delay in performance of its fund accounting obligations arising out
of or caused, directly or indirectly, by circumstances beyond its reasonable
control and the Company has agreed to indemnify and hold harmless FFC, its
employees, agents, officers and directors against and from any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character arising
out of or in any way related to FFC's actions taken or failure to act with
respect to the Fund or based, if applicable, upon information, instructions or
requests with respect to a Fund given or made to FFC by an officer of the
Company duly authorized. This indemnification does not apply to FFC's actions
taken or failure to act in cases of FFC's own bad faith, willful misconduct or
gross negligence.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts, 02110
serves as independent auditors to the Company.
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New
York 10022 are counsel to the Company.
FINANCIAL REPORTS
The statements of assets and liabilities as of September 11, 1995
have been audited by KPMG Peat Marwick LLP as set forth in their report included
herein in reliance upon such report and on the authority of said firm as experts
in auditing and accounting.
PERFORMANCE INFORMATION
YIELD OF THE FUND
As summarized in the Prospectus under the heading "General
Information - Performance Information," yield of the Fund will be computed by
analyzing net investment income per share for a recent 30-day period and
dividing that amount by the maximum offering price per share (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed-income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities. The yield of the Fund will vary from time to time
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depending upon market conditions, the composition of the Fund's portfolio and
operating expenses of the Company allocated to the Fund. These factors and
possible differences in the methods used in calculating yield should be
considered when comparing the Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Fund's shares and to the
relative risks associated with the investment objectives and policies of the
Fund.
The Fund's tax-equivalent yield is the rate an investor would have
to earn from a fully taxable investment after taxes to equal the Fund's tax-free
yield. Tax-equivalent yields are calculated by dividing the Fund's yield by the
result of one minus a stated combined Federal and state tax rate. (If only a
portion of the Fund's yield was tax-exempt, only that portion is adjusted in the
calculation.)
At any time in the future, yield and total return may be higher or
lower than past yields and there can be no assurance that any historical results
will continue.
Investors in the Fund are specifically advised that share prices,
expressed as the net asset values per share, will vary just as yield will vary.
CALCULATION OF TOTAL RETURN
Total Return is a measure of the change in value of an investment in
the Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all dividends and distributions paid or distributed during the
period had been immediately reinvested; (2) calculating the value of the
hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of shares owned at the end of the period by the net
asset value per share on the last trading day of the period; (3) assuming
redemption at the end of the period; and (4) dividing this account value for the
hypothetical investor by the initial $1,000 investment and analyzing the result
for periods of less than one year.
CALCULATION OF DISTRIBUTION RATE
The Fund may also publish a distribution rate in investor
communications preceded or accompanied by a copy of the current Prospectus. The
current distribution rate for the Fund will be calculated by dividing the
maximum offering price per share into the annualization of the total
distributions made by the Fund during the same thirty-day period. The current
distribution rate may differ from current yield because the distribution rate
may contain items of capital gain and other items of income, while yield
reflects only earned interest and dividend items of income. In each case, the
yield, distribution rates and total return figures will reflect all recurring
charges against Fund income and will assume the payment of the maximum sales
load.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. From time to time, performance information
for the Fund showing its average annual total return and/or yield may be
included in advertisements or in information furnished to present or prospective
shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives may be included in advertisements.
Total return and/or yield may also be used to compare the performance
of the Fund against certain widely acknowledged standards or indices for stock
and bond market performance. The Standard & Poor's Composite Index of 500 Stocks
(the "S&P 500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 Stocks relative to the base period
1941-43. The S&P
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500 is composed almost entirely of common stocks of companies listed on the New
York Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 80% of the market value of all
issues traded on the New York Stock Exchange.
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market value-
weighted and unmanaged index showing the changes in the aggregate market value
of approximately 3,500 stocks relative to the base measure of 100.00 on February
5, 1971. The NASDAQ Index is composed entirely of common stocks of companies
traded over-the-counter and often through the National Association of Securities
Dealers Automated Quotations ("NASDAQ") system. Only those over-the-counter
stocks having only one market maker or traded on exchanges are excluded.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all quasi-
federal corporations; and all corporate debt guaranteed by the U.S. Government.
Mortgage backed securities, flower bonds and foreign targeted issues are not
included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized
statistical rating agency.
ALL FUNDS. Current yields or performance will fluctuate from time to
time and are not necessarily representative of future results. Accordingly, the
Fund's yield or performance may not provide for comparison with bank deposits or
other investments that pay a fixed return for a stated period of time. Yield and
performance are functions of quality, composition, and maturity, as well as
expenses allocated to the Fund.
ADDITIONAL INFORMATION
ORGANIZATION AND DESCRIPTION OF SHARES
The Company was incorporated under the laws of the State of Maryland
on June 20, 1995. A copy of the company's Charter is on file with the Department
of Assessments and Taxation of the State of Maryland. The Charter authorizes the
Board of Directors to issue shares of common stock, par value $.001 per share.
The Company presently has seven series of shares which represent interests in
the Growth/Value Fund, the Aggressive Growth Fund, the Fixed Income Fund
(presently being marketed as the Intermediate Bond Fund), the Kentucky Tax-Free
Fund, the Tennessee Tax-Free Fund, the Money Market Fund and the International
Fund (the Tennessee Tax-Free Fund and the International Fund are not currently
offered). The Company's Articles of Incorporation authorize the Board of
Directors to classify or reclassify any unissued shares of the Company into one
or more additional series.
Shares have no subscription, preemptive, conversion or exchange
rights. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the shares will be fully paid and non-
assessable. In the event of a liquidation or dissolution of the Company,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
As described in the text of the Prospectus following the caption
"GENERAL INFORMATION --Description of the Company and its Shares," shares of the
Company are entitled to one vote per share (with
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proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (i)
when required by the 1940 Act, shares shall be voted by individual series, and
(ii) when the Directors have determined that the matter affects only the
interests of one or more series, then only shareholders of such series shall be
entitled to vote thereon. There will normally be no meetings of shareholders for
the purposes of electing Directors unless and until such time as less than a
majority of the Directors have been elected by the shareholders, at which time
the Directors then in office will call a shareholders' meeting for the election
of Directors. If requested to do so by the holders of at least 10% of the
Company's outstanding shares, a shareholder meeting will be called for the
purpose of voting upon the removal of a director or directors. Except as set
forth above, the Directors shall continue to hold office and may appoint their
successors.
MISCELLANEOUS
The Company may include information in its Annual Reports and
Semi-Annual Reports to shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for
one or more of the Funds within the Company, or (4) describes investment
management strategies for such Funds. Such information is provided to inform
shareholders of the activities of the Company for the most recent fiscal year or
half-year and to provide the views of the Adviser and M&A regarding expected
trends and strategies.
The Company is registered with the Commission as a non-diversified
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Company.
As used in the Prospectus and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
the Company upon the issuance or sale of shares in that Fund, together with all
income, earnings, profits and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or payments derived from any reinvestment of such
proceeds, and any general assets of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund by the Company's
Board of Directors. The Board of Directors may allocate such general assets in
any manner it deems fair and equitable. It is anticipated that the factor that
will be used by the Board of Directors in making allocations of general assets
to particular Funds will be the relative net assets of the respective Funds at
the time of allocation. Assets belonging to a particular Fund are charged with
the direct liabilities and expenses in respect of that Fund, and with a share of
the general liabilities and expenses of the Company not readily identified as
belonging to a particular Fund that are allocated to that Fund in proportion to
the relative net assets of the respective Funds at the time of allocation. The
timing of allocations of general assets and general liabilities and expenses of
the Company to particular Funds will be determined by the Board of Directors of
the Company and will be in accordance with generally accepted accounting
principles. Determinations by the Board of Directors of the Company as to the
timing of the allocation of general liabilities and expenses and as to the
timing and allocable portion of any general assets with respect to a particular
Fund are conclusive.
As used in the Prospectus and in this Statement of Additional
Information, a "vote of a majority of the outstanding shares" of the Company or
a particular Fund means the affirmative vote, at a meeting of shareholders duly
called, of the lesser of (a) 67% or more of the votes of shareholders of the
Company or such Fund present at such meeting at which the holders of more than
50% of the votes attributable to the shareholders of record of the Company or
such Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of shareholders of the Company or such Fund.
The Code of Ethics of the Funds prohibits all affiliated personnel
from engaging in personal investment activities which compete with or attempt to
take advantage of the Funds' planned portfolio transactions. The objective of
the Code of Ethics of the Funds is that their operations be carried out for the
exclusive benefit of the Funds' shareholders. The Funds maintain careful
monitoring of compliance with the Code of Ethics.
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[As of December __, 1996 the directors and officers of the company,
as a group, owned less than 1% of the outstanding shares of any Fund.]
The Prospectus of the Funds and this Statement of Additional
Information omit certain of the information contained in the Registration
Statement filed with the Commission. Copies of such information may be obtained
from the Commission upon payment of the prescribed fee.
The Prospectus of the Fund and this Statement of Additional
Information are not an offering of the securities herein described in any state
in which such offering may not lawfully be made. No salesman, dealer, or other
person is authorized to give any information or make any representation other
than those contained in the Prospectus of the Fund and this Statement of
Additional Information.
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APPENDIX A
CORPORATE DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
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 the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present 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
characterize bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS GROUP (S&P)
AAA: Debt rated AAA has the highest rating assigned by the S & P. Capacity to
pay interest and repay principal is extremely strong.
A-1
<PAGE>
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only to a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default and is
dependent upon favorable business, financial, or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt that
is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy has been filed but debt service payments
are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition of debt service payments are jeopardized.
NOTE: Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
S&P applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa, A or Baa. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier
A-2
<PAGE>
2 indicates a mid- range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category.
PREFERRED STOCK RATINGS
The following summarizes the three highest ratings used by Moody's
for preferred stock:
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a highgrade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
"a" An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
The following summarizes the three highest ratings used by S &P for
preferred stock:
"AAA" This is the highest rating that may be assigned by S &P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations. "
AA" A preferred stock issue rated "AA" also qualifies as a high-
quality fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA".
"A" An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Adviser with regard to
portfolio investments for the Money Market Fund are Moody's, S&P, Duff & Phelps,
Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by the Adviser and the description
of each NRSRO's ratings is as of the date of this Statement of Additional
Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate
and municipal bonds)
Description of the five highest long-term debt ratings by Moody's
(Moody's applies numerical modifiers (E.G., 1, 2, and 3) in each rating category
to indicate the security's ranking within the category):
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 edged." 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 the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
A-3
<PAGE>
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time 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 in the future. Uncertainty of
position characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P
may apply a plus (+) or minus (-) to a particular rating classification to show
relative standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA. Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-. High credit quality protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A,A-. Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch
(plus or minus signs are used with a rating symbol to indicate the relative
position of the credit within the rating category):
A-4
<PAGE>
AAA. Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is generally rated "[-]+."
A. Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA. Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
AA. Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic, or financial conditions may
increase investment risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial
paper, master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-5
<PAGE>
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have extremely strong
safety characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+. Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1. Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1-. High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small.
Duff 2. Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3. Satisfactory liquidity and other protection factors qualify
issue as to investment grade.
Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+. Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned F-1+ or F-1 ratings.
F-3. Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near-term adverse changes could cause these securities to be
rated below investment grade.
A-6
<PAGE>
IBCA's description of its three highest short-term debt ratings:
A+. Obligations supported by the highest capacity for timely
repayment.
A1. Obligations supported by a very strong capacity for timely
repayment.
A2. Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note
ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1. Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative
and quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell
securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that
have a maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a timely basis.
TBW-2. The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".
TBW-3. The lowest investment grade category; indicates that while
more susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
A-7
<PAGE>
TBW-4. The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
COMMERCIAL PAPER
DESCRIPTION OF STANDARD AND POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
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 are denoted with a plus (+) sign
designation.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
The term "commercial paper" as used by Moody's means promissory obligations not
having an original maturity in excess of nine months. Moody's commercial paper
ratings are opinions of the ability of issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
employs the following designation, judged to be investment grade, to indicate
the relative repayment capacity for rated issuers.
PRIME-1 - Highest commercial paper rating assigned by Moody's. Issuers rated
Prime-1 (or related supporting institutions) are deemed to have a superior
capacity for repayment of short term promissory obligations. Repayment capacity
of Prime-1 issuers is normally evidenced by the following characteristics:
1) Leading market positions in well-established industries;
2) High rates of return on funds employed;
3) Conservative capitalization structures with moderate reliance on
debt and ample asset protection;
4) Broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) Well-established access to a range of financial markets and
assured sources of alternative liquidity.
In assigning ratings to issuers whose commercial paper obligations are supported
by the credit of another entity or entities, Moody's evaluates the financial
strength of the affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
A-8
<PAGE>
DESCRIPTION OF DUFF & PHELPS, INC.'S COMMERCIAL PAPER RATINGS:
DUFF-1 -- Very high certainty of timely payment. Liquidity factors are excellent
and supported by strong fundamental protection factors. Risk factors are minor.
DUFF-2 -- Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing internal funds needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
BONDS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S HIGH-GRADE CORPORATE BOND
RATINGS:
AAA -- Debt rated `AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated `AA' has a very strong capacity to pay interest and repay
principal and differs from highest rated debt issues only in small degree.
A -- Debt rated `A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S HIGH-GRADE 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 the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protections may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest may be present which suggest a susceptibility to
impairment sometime in the future.
DESCRIPTION OF DUFF AND PHELPS INC.'S HIGH-GRADE 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+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
A-9
<PAGE>
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S HIGH-GRADE CORPORATE BOND
RATINGS:
AAA -- rated bonds are considered to be investment grade and are of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by foreseeable events.
AA -- rated bonds are considered to be investment grade and of high quality. The
obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to change over the
term of the issue.
A-10
<PAGE>
APPENDIX B
FINANCIAL STATEMENTS
TRANS ADVISER FUNDS, INC.
Statements of Assets and Liabilities
September 11, 1995
<TABLE>
<CAPTION>
Kentucky Tennessee Money
Tax-Free Tax-Free Market
-------- -------- ------
<S> <C> <C> <C>
Assets:
Cash $ 1,000 1,000 100,000
Deferred organization costs 26,465 26,465 26,465
------ ------ -------
Total 27,465 27,465 126,465
------ ------ -------
Liabilities:
Accrued organization costs 26,465 26,465 26,465
------ ------ ------
Net assets $ 1,000 1,000 100,000
======= ====== =======
Shares outstanding 100 100 100,000
======= ====== =======
Net asset value per share $ 10.00 10.00 1.00
======= ===== ========
See notes to statements of assets and liabilities. (Continued)
</TABLE>
B-1
<PAGE>
FINANCIAL STATEMENTS
TRANS ADVISER FUNDS, INC.
Statements of Assets and Liabilities (continued)
September 11, 1995
<TABLE>
<CAPTION>
Growth/ Aggressive Intermediate
Value Growth Bond
----- ------ ----
<S> <C> <C> <C>
Assets:
Cash $ 1,000 1,000 1,000
Deferred organization costs 26,465 26,465 26,465
------ ------ ------
Total 27,465 27,465 27,465
------ ------ ------
Liabilities:
Accrued organization costs 26,465 26,465 26,465
------ ------ ------
Net assets $ 1,000 1,000 1,000
======= ====== =====
Shares outstanding 100 100 100
======= ======= ======
Net asset value per share $10.00 10.00 10.00
======= ===== =====
See notes to statements of assets and liabilities. (Continued)
</TABLE>
B-2
<PAGE>
TRANS ADVISER FUNDS, INC.
Notes to Statements of Assets and Liabilities
September 11, 1995
(1) GENERAL
(a) GENERAL
TransAdviser Funds, Inc. (the Company) was incorporated on June 20, 1995, in
the State of Maryland and is registered as a open-ended management
investment company under the Investment Company Act of 1940, as amended.
The Company currently consists of six separate investment funds,
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund,
Kentucky Tax-Free Fund, Tennessee Tax-Free Fund and Money Market Fund
(each a "Fund"). As of September 11, 1995, the Company and each Fund has
had no operations other than organizational matters and the issuance of
100 shares of each Funds' common stock for $1,000 (100,000 shares for
$100,000 in Money Market Fund) to Forum Financial Corp. The Company's
financial statements are prepared in accordance with generally accepted
accounting principles.
(b) ORGANIZATION COSTS
Costs incurred by the Company in connection with its organization, and the
organization of the Funds, have been deferred and will be amortized on a
straight-line basis from the date on which each Fund commences operation
of its investment activities over a five-year period. The accrued
organization costs are payable to Forum Financial Services, Inc.
("Forum"). If any of the initial shares of the Company are redeemed by
any shareholder thereof during the period of amortization of organization
costs, the redemption proceeds will be reduced by the pro-rate 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 Company is Trans Financial Bank, N.A. (the
"Adviser"). Pursuant to an Investment Advisory Agreement, the Adviser
receives a monthly advisory fee of .20% per annum of the Money Market
Fund's average daily assets, 1.00% per annum of each of the Growth/Value
and Aggressive Growth Fund's average daily net assets and .40% per annum
of the Intermediate Bond Fund's average daily net assets and of Kentucky
Tax-Free Fund's and Tennessee Tax Free Fund's average daily assets.
Forum serves as the Company's administrator and is compensated for those
services at an annual rate of .15% of the average daily net assets of the
Fund, subject to an annual minimum fee of $25,000 per Fund. Forum also
acts as the Company's distributor pursuant to a separate Distribution
Agreement with the Company. Forum receives no compensation under that
agreement.
Forum Financial Corp. serves as the Company's transfer agent and dividend
disbursing agent and is compensated for those services by each Fund in the
amount of $12,000 per year, plus certain shareholder account fees. Forum
Financial Corp. also performs portfolio accounting for the Company and is
compensated for those services in the amount of $36,000 per year, plus
certain amounts based upon the number and types of portfolio transactions.
Forum Financial Corp. and Forum are affiliated companies.
B-3
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Trans Adviser Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Kentucky Tax-
Free Fund, Tennessee Tax-Free Fund and Money Market Fund, portfolios of Trans
Adviser Funds, Inc. (the Company) as of September 11, 1995. These financial
statements are the responsibility of the Company'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. Our procedures included
confirmation of cash in bank by correspondence with the custodian. 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
presents fairly, in all material respects, the financial position of
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Kentucky Tax-
Free Fund, Tennessee Tax-Free Fund and Money Market Fund, at September 11, 1995,
in conformity with generally accepted accounting principles.
/s/ KMPG Peat Marwick LLP
-------------------------
Boston, Massachusetts
September 11, 1995
B-4
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements.
In Part A:
In Prospectus of Growth/Value Fund, Aggressive Growth Fund,
Intermediate Bond Fund, Kentucky Tax-Free Fund and Money Market
Fund: Financial Highlights for the period ended August 31, 1996.
In Part B:
In Statement of Additional Information of Tennessee Tax-Free
Fund: Statements of Assets and Liabilities as of September 11,
1995; Notes to Statements of Assets and Liabilities; Independent
Auditors' Report.
Incorporated by reference into the Statement of Additional
Information of Growth/Value Fund, Aggressive Growth Fund,
Intermediate Bond Fund, Kentucky Tax-Free Fund and Money Market
Fund: Audited Financial Statements as of and for the period ended
August 31, 1996
In Part C:
Audited Financial Statements as of and for the period ended
August 31, 1996.
(b) Exhibits
EX-99.B1(a) Articles of Incorporation of Registrant
are incorporated herein by reference to
Exhibit 1 to the Registrant's
Registration Statement on Form N-1A
filed on July 7, 1995.
EX-99.B1(b) Articles of Amendment and Restatement
are incorporated herein by reference to
Exhibit 1(b) to Pre-Effective Amendment
No. 2 to Registrant's Registration
Statement on Form N-1A filed on
September 18, 1995.
EX-99.B2 Amended By-laws are incorporated herein
by reference to Exhibit 2 to
Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on
Form N-1A filed on August 25, 1995.
EX-99.B3 None.
EX-99.B4 Form of Stock Certificate is
incorporated herein by reference to
Exhibit 4 to Pre-Effective Amendment No.
2 to Registrant's Registration Statement
on Form N-1A filed on September 18,
1995.
EX-99.B5(a)(i) Advisory Agreement between the
Registrant and Trans Financial Bank,
N.A. *
EX-99.B5(a)(ii) Sub-Advisory Agreement between Trans
Financial Bank, N.A. and Mastrapasqua &
Associates, Inc. *
EX-99.B6 Distribution Agreement between the
Registrant and Forum Financial Services,
Inc. *
EX-99.B7 None.
EX-99.B8 Custodial Services Agreement between the
Registrant and First National Bank of
Boston.*
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<PAGE>
EX-99.B9(a) Administration Agreement between the
Registrant and Forum Financial Services,
Inc. *
EX-99.B9(b)(i) Shareholder Service Plan .*
EX-99.B9(b)(ii) Form of Shareholder Services Agreement
is incorporated herein by reference to
Exhibit 9(b)(ii) to Pre-Effective
Amendment No. 2 to Registrant's
Registration Statement on Form N-1A
filed on September 18, 1995.
EX-99.B9(c) Transfer Agency Agreement between the
Registrant and Forum Financial Corp. *
EX-99.B9(d) Fund Accounting Agreement between the
Registrant and Forum Financial Corp. *
EX-99.B10 None.
EX-99.B11(a) Consent of Kramer, Levin, Naftalis &
Frankel .*
EX-99.B11(b) Consent of KPMG Peat Marwick LLP .*
EX-99.B12 Annual Report for the period ended
August 31, 1996.*
EX-99.B13 Investment Letters are incorporated
herein by reference to Exhibit 13 to
Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on
Form N-1A filed on September 18, 1995.
EX-99.B14 None.
EX-99.B15 None.
EX-99.B16 Forms of performance computation are
incorporated herein by reference to
Exhibit 16 to Pre-Effective Amendment
No. 2 to Registrant's Registration
Statement on Form N-1A filed on
September 18, 1995.
EX-99.B19 Powers of Attorney.
EX-27 Financial Data Schedules.*
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class; Shares Number of Record Holders
($0.001 par value) as of December 12, 1996
-------------------------
Money Market Fund 131
Growth/Value Fund 67
Aggressive Growth Fund 55
Intermediate Bond Fund 8
Kentucky Tax-Free Fund 21
Tennessee Tax-Free Fund 0
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<PAGE>
ITEM 27. INDEMNIFICATION
(1) Under the terms of the Registrant's Articles of Incorporation, to
the fullest extent that limitations on the liability of directors and officers
are permitted by the Maryland General Corporation Law, no director or officer of
the corporation or its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
(2) The corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The corporation shall indemnify and advance expenses to its officers to the
same extent as its directors and to such further extent as is consistent with
law. The Board of Directors may, through a by-law, resolution or agreement, make
further provisions for indemnification of directors, officers, employees and
agents to the fullest extent permitted by the Maryland General Corporation Law.
(3) No provision of this Article SEVENTH shall be effective (i) to
require a waiver of compliance with any provision of the Securities Act of 1933,
or of the Investment Company Act of 1940, or of any valid rule, regulation or
order of the Securities and Exchange Commission thereunder or (ii) to protect or
purport to protect any director or officer of the corporation against any
liability to the corporation or its stockholders 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.
(4) References to the Maryland General Corporation Law in this Article
SEVENTH are to the law as from time to time amended. No amendment to the
Articles of Incorporation of the corporation shall affect any right of any
person under this Article SEVENTH based on any event, omission or proceeding
prior to such amendment.
(5) Under the terms of the Registrant's By-Laws, the corporation shall
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the law. The corporation shall indemnify its officers to the
same extent as its directors and to such further extent as is consistent with
law. The corporation shall indemnify its directors and officers who while
serving as directors or officers also serve at the request of the corporation as
a director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the same extent as its directors and, in the case of officers,
to such further extent as is consistent with law. The indemnification and other
rights provided by this Article shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner, or trustee.
Trans Financial Bank and Mastrapasqua & Associates provide advisory
services to the Registrant and its series. The directors and officers of Trans
Financial Bank and Mastrapasqua & Associates have held the following positions
of a substantial nature:
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<PAGE>
TRANS FINANCIAL BANK
<TABLE>
<CAPTION>
<S> <C> <C>
Name Position with Adviser Other Business
Floyd H. Ellis Director Director, Trans Financial, Inc.; President,
Warren Rural Electric Co-op Corporation;
Farmer
Barry D. Bray Director, Executive Vice Executive Vice President; Chief Credit
President, and Chief Credit Officer, Trans Financial Inc.; Chief Credit
Officer Officer, Trans Financial Bank, F.S.B. and
Chief Credit Officer, Trans Financial Bank
Tennessee, N.A.
Mary D. Cohron Director Director, Trans Financial, Inc.; Owner,
Greencastle Farms, Inc.
David B. Garvin Director Director, Trans Financial Inc.; Chairman
of the Board, Camping World, Inc.; and
Owner, Ironwood Farms
Wayne Gaunce Director Director, Trans Financial Inc.; President,
Guance Management, Inc., Caveland, Inc.;
Director, Papa John's International, Inc.
C.C. Howard Gray Director Director, Trans Financial, Inc.; President,
James N. Gray Construction Co., Inc.
Charles A. Hardcastle Director Director, Trans Financial, Inc.; President,
B.G. Chemicals, Inc., B.G. Paper
Company, Consolidated Sanitary Supply;
Owner, Hardcastle Company, Southland;
Manufacturing, Ashley Center, Inc.,
Shoppers Warehouse, Inc. and KY Wood
Products
Carrol Knicely Director Director, Trans Financial. Inc.; President
Associated Publications, Inc.; Chairman,
Western Kentucky Corporation; Real Estate
Developer
C. Cecil Martin Director Director, Trans Financial, Inc.; President,
Center of Insurance, Inc.
Harold T. Matthews Director and Regional None
President, (Glassgow, Region)
James D. Scott Director Director, Trans Financial, Inc.; Owner,
Scotty's Contracting and Stone Co., Inc.
William B. Van Meter Director Director, Trans Financial, Inc.; Chairman,
Van Meter Insurance Agency, Inc.; Owner
Van Meter Investments
Thomas R. Wallingford Director and Chairman of the Acting Chairman of the Board, Trans
Board Financial, Inc.
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<PAGE>
Vince A. Berta Director and Executive Vice Acting President and Chief Executive
President Officer, Trans Financial Inc.; Director,
Trans Financial Mortgage Company
Tommy Cole Executive Vice President - None
Corporate Lending
Peggy Loafman Executive Vice President - None
Retail Banking
Ron Szejner Executive Vice President and Executive Vice President and Chief Trust
Chief Trust Officer Officer Trans Financial, Inc.; President,
Trans Financial Investment Services, Inc.
Jay B. Simmons Senior Vice President and Senior Vice President and Secretary, Trans
Assistant Secretary Financial, Inc.; Senior Vice President,
Trans Financial Bank Tennessee, N.A. and
Trans Financial Bank, F.S.B.; Director,
Trans Financial Mortgage Company and
Trans Financial Investment Services, Inc.
Bob Canada Region President None
(Maysville Region)
Dan Stratton Regional President None
(Pikeville Region)
Denise Kelley Vice President Vice President, Trans Financial Mortgage
Company
Micheal Norris Vice President Director and Vice President, Trans
Financial Mortgage Company
James K. Oliver Vice President Executive Vice President, Trans Financial
Mortgage Company
Edward R. Matthews Chief Financial Officer Chief Financial Officer, Trans Financial,
Inc.; Trans Financial Bank Tennessee,
N.A., and Trans Financial Bank, F.S.B.
Ron Pigeon Controller Controller, Trans Financial, Inc., Trans
Financial Bank Tennessee, N.A. and Trans
Financial Bank, F.S.B.; Director,
Treasurer and Secretary, Trans Financial
Investment Services, Inc.
Kim Witherspoon Secretary and Executive Assistance Secretary and Executive
Administrative Officer Administrative Officer, Trans Financial,
Inc.
Bill Wright Accounting Officer Accounting Officer, Trans Financial Bank
Tennessee, N.A. and Trans Financial
Bank, F.S.B.
Frank Mastrapasqua Director Director, Trans Financial, Inc.; President,
Mastrapasqua & Associates, Inc.
James G. Campbell Director, President and Chief Executive Vice President and General Sales
Executive Officer Manager, Trans Financial, Inc.
C-5
<PAGE>
Pat Jones Vice President Vice President, Trans Financial Mortgage
Company
Lynette Weaver Vice President Vice President, Trans Financial Mortgage
Company
Charlene Ray Vice President Vice President, Trans Financial Mortgage
Company
Dean Jordan Treasurer and Investment Treasurer, Trans Financial, Inc.
Officer
Gary Carlton Trust Officer None
Marshall E. Cox, Jr. Trust Officer None
Joseph Marabeti Trust Officer Marketing Representative, Waller Equity
Management - Former Employer
Brent Mason Trust Officer None
Runelle Jackson Trust Officer None
Dan Manley Trust Officer None
Janice Matthews Trust Officer None
Charlotte K. Poe Trust Officer None
Llyod Schiltz Trust Officer None
Addison B. Scoville Trust Officer None
Janice K. Smith Trust Officer None
E. Kirk Tolle Trust Officer None
Delia Henderson Trust Officer None
Greg Bolden Security Officer None
Paul Kinley Bank Secretary Act Officer None
Sheri Dornon Assistant Secretary None
MASTRAPASQUA & ASSOCIATES, INC.
Name Position with Sub-Adviser Other Business
Frank Mastrapasqua Chairman and Chief Director, Trans Financial, Inc.; Vice President,
Executive Officer Management Plus Associates, Inc.; Affiliated with
M&M Partners, Inc.
Thomas A. Trantum President Secretary, Management Plus Associates, Inc.;
Director, Phoenix Ventures; Adjunct Professor,
Massey Graduate School of Business
</TABLE>
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<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Forum Financial Services, Inc., the Registrant's underwriter,
serves as underwriter to Norwest Funds, Norwest Select Funds, Schroder Capital
Funds, Inc., Forum Funds, Sound Shore Fund, Inc., The Milestone Funds, Monarch
Funds and The Cutler Trust.
(b) John Y. Keffer is President and Secretary of Forum Financial
Services, Inc. David R. Keffer is Vice President and Treasurer of Forum
Financial Services, Inc. Their business addresses are Two Portland Square,
Portland, Maine 04101.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 (the "1940
Act") and the Rules thereunder are maintained at the offices of Forum Financial
Services, Inc. and Forum Financial Corp., Two Portland Square, Portland, Maine
04101. The records required to be maintained under Rule 31a-1(b)(1) with respect
to journals of receipts and deliveries of securities and receipts and
disbursements of cash are maintained at the offices of the Registrant's
custodian, as listed under "Management of the Company - Custodian" in Part B to
this Registration Statement.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) None.
(b) Registrant undertakes that, if requested to do so by the holders
of at least 10% of the Registrant's outstanding shares, a shareholder meeting
will be called for the purpose of voting upon the removal of a director or
directors and that communications with other shareholders will be assisted as
provided by Section 16(c) of the 1940 Act.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered, a copy of the Fund's latest annual report to shareholders which
will include the information required by Item 5A, upon request and without
charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Louisville, and the State
of Kentucky on this 18th day of December, 1996.
TRANS ADVISER FUNDS, INC.
By:/s/ Thomas A. Trantum
------------------------
Thomas A. Trantum
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following persons
in the capacities indicated on the 18th day of December, 1996.
/s/ Thomas A. Trantum President and Director
- -------------------------
Thomas A. Trantum
/s/Michael D. Martins Treasurer
- -------------------------
Michael D. Martins
(1) Chairman of the Board and Director
- -------------------------
Gordon B. Davidson
(2) Director
- -------------------------
Jerry E. Baker
(1) Director
- -------------------------
William H. Lomicka
(1) Director
- -------------------------
Charles K. McClure, III
_________________________
Kevin P. Lavender Director
(1)(2) By:/s/Joanne Doldo
- -------------------------
Power of Attorney
(1) Attorney-in-fact pursuant to powers of attorney, dated September 8,
1995 and September 12, 1995 filed with Post-Effective Amendment No. 2
to Registrant's Registration Statement on December 8, 1995.
(2) Attorney-in-fact pursuant to powers of attorney dated October 24,
1996, filed with Post-Effective Amendment no. 4 to Registration
Statement on December 20, 1996.
C-8
<PAGE>
EXHIBIT INDEX
EX-99.B5(a)(i) Advisory Agreement.
EX-99.B5(a)(ii) Sub-Advisory Agreement.
EX-99.B6 Distribution Agreement.
EX-99.B8 Custodial Services Agreement.
EX-99.B9(a) Administration Agreement.
EX-99.B9(b)(i) Shareholder Service Plan.
EX-99.B9(c) Transfer Agency Agreement.
EX-99.B9(d) Fund Accounting Agreement.
EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel.
EX-99.B11(b) Consent of KPMG Peat Marwick LLP.
EX-99.B12 Annual Report for the period ended August 31, 1996.
EX-99.B19 Powers of Attorney.
EX-27 Financial Data Schedules.
ADVISORY AGREEMENT
THIS AGREEMENT is made this 8th day of September, 1995 by and between
TRANS ADVISER FUNDS, INC., a Maryland corporation (the "Company"), and TRANS
FINANCIAL BANK, N.A., a national banking association organized under the laws of
the United States (the "Adviser"), with respect to the following recital of
fact:
R E C I T A L
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, the Company and the Adviser desire to enter into an agreement
to provide management and investment advisory services for the funds listed on
Schedule A (individually a "Fund" and collectively, the "Funds") on the terms
and conditions hereinafter set forth; and
WHEREAS, Mastrapasqua & Associates, Inc. (the "Sub-Adviser") will serve
as sub-adviser to the Company and its Funds pursuant to a Sub-Advisory Agreement
between the Adviser and the Sub-Adviser of even date herewith;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Management. The Adviser shall manage the Company's affairs,
and shall provide or arrange for all necessary services except as otherwise set
forth herein, including the investment and reinvestment of the cash, securities
or other properties comprising the Funds' assets, subject at all times to the
policies and control of the Company's Board of Directors. The Adviser shall give
the Company the benefit of its best judgment, efforts and facilities in
rendering its services as adviser.
2. Management Duties. In carrying out its obligations the Adviser
shall:
(a) supervise and manage all aspects of the Company's
operations;
(b) provide the Company with such executive, administrative
and clerical services as are deemed advisable by the Company's
Board of Directors;
(c) arrange, but not pay for, the periodic updating of
prospectuses, statements of additional information and
supplements thereto, proxy material, tax returns, reports to each
Fund's shareholders and reports to and filings with the
Securities and Exchange Commission and state Blue Sky
authorities;
(d) provide the Company with, or obtain for it, adequate
office space and all necessary equipment and services, including
telephone service, heat, utilities, stationery supplies and
similar items for the Company's principal office;
(e) provide the Board of Directors of the Company on a
regular basis with financial reports and analyses of each Fund's
operations and the operations of comparable investment companies;
(f) formulate and implement continuing programs for the
investment and reinvestment of each Fund's cash, securities or
other properties and regularly report thereon to the Company's
Board of Directors; and
<PAGE>
(g) take, on behalf of the Company and its Funds, all
actions which appear to the Company necessary to effect such
purchase and sale programs and supervisory functions as
aforesaid, including the placing of orders for the purchase and
sale of portfolio instruments.
3. (i) Appointment. The Company hereby appoints the Adviser to
act as investment adviser to the Company and its Funds for the period and on the
terms set forth in this Agreement. The Adviser accepts such appointment and
agrees to render the services herein set forth for the compensation herein
provided.
(ii) Investment Advisory Services. The Adviser agrees that
it will:
(a) obtain and evaluate information the Adviser considers
pertinent concerning: (i) significant developments and economic,
statistical and financial data, domestic, foreign or otherwise,
whether affecting the economy generally or a Fund; (ii) the
individual issuers whose securities are included in a Fund's
portfolio or the activities in which they engage; or (iii)
securities which the Adviser or any Sub-Adviser considers
desirable for inclusion in a Fund's portfolio;
(b) determine which issuers and securities shall be
represented in a Fund's portfolio or supervise the activities of
any Sub-Adviser responsible to determine which issuers and
securities shall be represented in a Fund's portfolio;
(c) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers.
(d) take, on behalf of the Company and its Funds, all
actions which appear to the Company necessary to carry into
effect such purchase and sale programs as aforesaid; and
(e) furnish the Company's Board of Directors with such
periodic and special reports as the Board of Directors may
reasonably request.
4. Broker-Dealer Relationships. The Adviser is responsible for
decisions to buy and sell portfolio instruments for the Company's Intermediate
Bond Fund, Kentucky Tax-Free Fund, Tennessee Tax-Free Fund and Money Market Fund
(the "Fixed Income Funds"), selection of broker-dealers to effect such
transactions, and negotiation of brokerage commission rates, if any, with
respect to such transactions. The Adviser's primary consideration in effecting a
security transaction will be execution at the most favorable price. The Company
understands that most of the Company's fixed income transactions will be
transacted with issuers or primary market makers acting as principal on a net
basis, with no brokerage commissions being paid by a Fund. Such principal
transactions may, however, result in a profit to the market makers. In certain
instances the Adviser may make purchases of underwritten issues at prices which
include underwriting fees. In selecting a broker-dealer to execute each
particular transaction, the Adviser will take the following into consideration:
the best net price available; the reliability, integrity and financial condition
of the broker-dealer; the size of and difficulty in executing the order; and the
value of the expected contribution of the broker-dealer to the investment
performance of a Fund on a continuing basis. Accordingly, the price to a Fund in
any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Directors may determine, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused a Fund to pay a broker or dealer that
provides brokerage and research services to the Adviser an amount of commission
for effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
a Fund. The Adviser is further authorized to allocate the orders placed by it on
behalf of a Fund to such brokers and dealers who also provide research or
statistical material, or other services to the Company, the Adviser or the
Sub-Adviser. Such allocation shall be in such amounts and proportions as the
Adviser shall determine and
-2-
<PAGE>
the Adviser will report on said allocations regularly to the Board of Directors
of the Company indicating the brokers to whom such allocations have been made
and the basis therefor.
5. Control by Board of Directors. Any management or supervisory
activities undertaken by the Adviser pursuant to this Agreement, as well as any
other activities undertaken by the Adviser on behalf of the Company and its
Funds pursuant thereto, shall at all times be subject to any directives of the
Board of Directors of the Company.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Adviser shall at all times conform to:
(a) all applicable provisions of the Investment Company Act
of 1940, as amended, and any rules and regulations adopted
thereunder;
(b) the provisions of the Registration Statement of the
Company under the Securities Act of 1933 and the Investment
Company Act of 1940, as amended;
(c) the provisions of the Articles of Amendment and
Restatement of the Company;
(d) the provisions of the By-laws of the Company, as
amended; and
(e) any other applicable provisions of state and federal
law.
7. Expenses. The expenses connected with the Company shall be
allocable between the Company and the Adviser as follows:
(a) The Adviser shall furnish, at its expense and without
cost to the Company, the services of personnel, office space and
equipment to the extent that such services are required to carry
out its obligations under this Agreement.
(b) The Adviser shall furnish, at its expense and without
cost to the Company, the services of a President, Secretary and
one or more Vice Presidents of the Company, to the extent that
such additional officers may be required by the Company for the
proper conduct of its affairs.
(c) The Adviser shall maintain at its expense and without
cost to the Company, a trading function in order to carry out its
obligations under subparagraph (g) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio instruments for the
Company's Fixed Income Funds.
(d) The Company assumes and shall pay or cause to be paid
all other expenses of the Funds, including, without limitation:
the charges and expenses of any registrar, any custodian or
depository appointed by the Company for the safekeeping of the
Funds' cash, portfolio securities and other property, and any
stock transfer, dividend or accounting agent or agents appointed
by the Company; brokers' commissions chargeable to a Fund in
connection with portfolio securities transactions to which the
Fund is a party; all taxes, including securities issuance and
transfer taxes, and corporate fees payable by the Company to
federal, state or other governmental agencies; the costs and
expenses of engraving or printing of stock certificates
representing shares of the Company; all costs and expenses in
connection with the registration and maintenance of registration
of the Company and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including
filing and legal fees and disbursements of counsel); the costs
and expenses of preparing (including typesetting) prospectuses
and statements of additional information (including supplements
thereto) of the Company, proxy statements and reports to
shareholders, and of printing and distributing such items to
shareholders of the Funds; all expenses of shareholders'
meetings; all expenses incident to the payment of any
-3-
<PAGE>
dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service
used for pricing of the Company's shares; charges and expenses of
legal counsel, including counsel to the directors of the Company
who are not "interested persons"(as defined in the Investment
Company Act of 1940, as amended) of the Company, and of
independent accountants, in connection with any matter relating
to the Company and its Funds; interest payable on a Fund's
borrowings; postage; insurance premiums on property or personnel
(including officers and directors) of the Company which inure to
its benefit; extraordinary expenses (including but not limited
to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs
of the Company's operation unless otherwise explicitly provided
herein.
8. Delegation of Responsibilities. The Adviser may, but should be
under no duty to, perform services on behalf of the Company which are not
required by this Agreement upon the request of the Company's Board of Directors.
Such services will be performed on behalf of the Company and the Adviser's
charge in rendering such services may be billed monthly to the Company, subject
to examination by the Company's independent accountants. Payment or assumption
by the Adviser of any Company expense that the Adviser is not required to pay or
assume under this Agreement shall not relieve the Adviser of any of its
obligations to the Company nor obligate the Adviser to pay or assume any similar
Company expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by the Adviser, each Fund shall pay to the Adviser the annual fee,
payable monthly, set forth opposite its name on Schedule A annexed to this
Agreement. Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Subject to the provisions of Paragraph 10 hereof, payment of the
Adviser's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by Paragraph 10
hereof.
10. Expense Limitation. In the event the operating expenses of a
Fund, including all investment advisory and management fees, for any fiscal year
ending on a date on which this Agreement is in effect exceed the expense
limitations applicable to the Fund imposed by the securities laws or regulations
thereunder of any state in which the Fund's shares are qualified for sale, as
such limitations may be raised or lowered from time to time, the Adviser shall
reduce its management fee to the extent of its share of such excess expenses
and, if required, pursuant to any such laws or regulations, will reimburse the
Fund for any annual operating expenses (after reductions of all investment
advisory and management fees) in excess of any expense limitation that may be
applicable; provided, however, there shall be excluded from such expenses the
amount of any interest, taxes, brokerage commissions, and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto) paid or payable by the Fund. Such
reduction, if any, shall be computed and accrued daily, shall be settled on a
monthly basis and shall be based upon the expense limitation applicable to the
Fund as at the end of the last business day of the month. Should two or more
such expense limitations be applicable as at the end of the last business day of
the month, that expense limitation which results in the largest reduction in the
Adviser's fee shall be applicable. For the purposes of this Paragraph, the
Adviser's share of any excess expenses shall be computed by multiplying such
excess expenses by a fraction, the numerator of which is the amount of the
management fee which would otherwise be payable to the Adviser for such fiscal
year were it not for this Paragraph 10 and the denominator of which is the sum
of all advisory and management fees which would otherwise be payable by a Fund
were it not for the expense limitation provisions of any advisory or management
agreement to which the Company is a party.
11. Non-Exclusivity. The services of the Adviser to the Company
are not to be deemed exclusive and the Adviser shall be free to render
investment management and corporate administrative or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers and directors of the Adviser are not
prohibited from engaging in any other business activity or from rendering
services to any other
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<PAGE>
person, or from serving as partners, officers or directors of any other firm or
corporation, including other investment companies.
12. Term and Approval. This Agreement shall become effective at
the close of business on the date hereof and, unless earlier terminated as
provided in Paragraph 13 hereof, shall remain in force and effect for a period
of two years from the date hereof. The Agreement shall thereafter continue in
force and effect from year to year, provided that such continuance is
specifically approved at least annually:
(a) (i) by the Company's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as
defined in Section 2(a)(42) of the Investment Company Act of
1940, as amended), and
(b) by the affirmative vote of a majority of the directors
who are not parties to this Agreement or interested persons of a
party to this Agreement (other than as Company directors), by
votes cast in person at a meeting specifically called for such
purpose.
13. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Company's Board of Directors
or by vote of a majority of a Fund's outstanding voting securities (as defined
in Section 2(a)(42) of the Investment Company Act of 1940, as amended), or by
the Adviser, on sixty (60) days' written notice to the other party. The notice
provided for herein may be waived by either party. This Agreement shall
automatically terminate in the event of its assignment, the term "assignment"
for the purpose having the meaning defined in Section 2(a)(4) of the Investment
Company Act of 1940, as amended.
14. Liability of the Adviser. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Adviser or its
officers, directors or employees, or reckless disregard by the Adviser of its
duties under this Agreement, the Adviser shall not be liable to the Company or
to any shareholder of the Company for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of both
the Company and the Adviser shall be 540 East Main Street, Bowling Green,
Kentucky 42101.
16. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Investment Company Act of 1940, as
amended, shall be resolved by reference to such term or provision of the Act and
to interpretations thereof, if any, by the United States Courts or in the
absence of any controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is revised by
rule, regulation or order of the Securities and Exchange Commission, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
17. Non-Exclusive Use of the Name "Trans Adviser". The Company
acknowledges that it adopted its name through the permission of the Adviser. The
Adviser hereby consents to the non-exclusive use by the Company of the name
"Trans Adviser" only so long as the Adviser serves as the Funds' adviser. The
Company covenants and agrees to protect, exonerate, defend, indemnify and hold
harmless the Adviser, its shareholders, officers, directors, agents and
employees from and against any and all costs, losses, claims, damages or
liabilities, joint or several, including all legal expenses, which may arise or
have arisen out of the Company's use or misuse of the name "Trans Adviser", or
out of any breach of or failure to comply with this Section 17.
If the Adviser or any successor to its business shall cease to
furnish services to the Funds under this Agreement or similar contractual
arrangement, the Company:
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<PAGE>
(a) as promptly as practicable, will take all necessary
action to cause its Articles of Amendment and Restatement to be
amended to accomplish a change of name; and
(b) within 90 days after the termination of this Agreement
or such similar contractual arrangement, shall cease to use in
any other manner, including but not limited to use in any
prospectus, sales literature or promotional material, the name
"Trans Adviser" or any name, mark or logotype derived from it or
similar to it or indicating that the Funds are managed by or
otherwise associated with the Adviser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
TRANS ADVISER FUNDS, INC.
By:/s/ Thomas A. Trantum
---------------------
Thomas A. Trantum, President
Attest:
/s/ Frank Mastrapasqua
- ----------------------
TRANS FINANCIAL BANK, N.A.
By:/s/Douglas M. Lester
--------------------
Douglas M. Lester, President
Attest:
/s/ Ron Szejner
- ---------------
-6-
<PAGE>
SCHEDULE A
Name of Fund Annual Fee*
------------ -----------
1. Growth/Value Fund 1.00%
2. Aggressive Growth Fund 1.00%
3. Intermediate Bond Fund .40%
4. Kentucky Tax-Free Fund .40%
5. Tennessee Tax-Free Fund .40%
6. Money Market Fund .20%
* As a percentage of average daily net assets.
-7-
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 8th day of September, 1995 by and between
TRANS FINANCIAL BANK, N.A., a national banking association organized under the
laws of the United States (the "Adviser"), and MASTRAPASQUA & ASSOCIATES, INC.,
a Tennessee corporation (the "Sub-Adviser"), on behalf of Trans Adviser Funds,
Inc. (the "Company"), with respect to the following recital of fact:
R E C I T A L
WHEREAS, the Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended; and
WHEREAS, the Sub-Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and engages in the business of
acting as investment adviser; and
WHEREAS, the Adviser serves as Adviser to the Company pursuant to an
Advisory Agreement between the Adviser and the Company of even date herewith
(the "Advisory Agreement"); and
WHEREAS, the Adviser and the Sub-Adviser desire to enter into an
agreement to provide investment advisory services with respect to the funds
listed on Schedule A (the "Funds") on the terms and conditions hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Adviser hereby appoints the Sub-Adviser to act as
investment adviser to the Company for the period and on the terms set forth in
this Agreement. The Sub-Adviser accepts such appointment and agrees to render
the services herein set forth for the compensation herein provided.
2. Investment Sub-Advisory Services. The Sub-Adviser agrees that it
will:
(i) (a) with respect to the Company's Growth/Value Fund and
Aggressive Growth Fund (collectively, the "Equity Funds"), obtain
and evaluate information the Sub-Adviser considers pertinent
concerning: (i) significant developments and economic,
statistical and financial data, domestic, foreign or otherwise,
whether affecting the economy generally or a portfolio of one of
the Equity Funds; (ii) the individual issuers whose securities
are included in a portfolio of one of the Equity Funds or the
activities in which they engage; or (iii) securities which the
Sub- Adviser considers desirable for inclusion in a portfolio of
one of the Equity Funds;
(b) determine which issuers and securities shall be represented
in a portfolio of one of the Equity Funds;
(c) formulate and implement continuing programs for the purchases
and sales of the securities of such issuers;
(d) take, on behalf of the Company and its Equity Funds, all
actions which appear to the Company and the Adviser necessary to
carry into effect such purchase and sale programs as aforesaid;
(e) consult with the Adviser as necessary concerning the
Company's investable cash and furnish the Adviser with reports of
purchases and sales of portfolio securities for the Equity Funds
in order for the Adviser to fulfill its responsibilities under
the Advisory Agreement; and
<PAGE>
(f) furnish the Company's Board of Directors and the Adviser with
such periodic and special reports as the Board of Directors or
the Adviser may reasonably request.
(ii) (a) with respect to the Company's Intermediate Bond Fund,
Kentucky Tax-Free Fund, Tennessee Tax-Free Fund and Money Market
Fund (collectively, the "Fixed Income Funds"), provide, obtain
and evaluate information the Adviser considers pertinent
concerning significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether affecting
the economy generally or a portfolio of one of the Fixed Income
Funds;
(b) furnish the Company's Board of Directors and the Adviser with
such periodic and special reports as the Board of Directors or
the Adviser may reasonably request.
3. Broker-Dealer Relationships. The Sub-Adviser is responsible for
decisions to buy and sell securities for the Equity Funds, broker-dealer
selection, and negotiation of brokerage commission rates for such Funds. The
Sub-Adviser's primary consideration in effecting a security transaction will be
execution at the most favorable price. The Company understands that most of the
Company's fixed income transactions will be transacted with issuers or primary
market makers acting as principal on a net basis, with no brokerage commissions
being paid by a Fund. Such principal transactions may, however, result in a
profit to the market makers. In certain instances the Sub-Adviser may make
purchases of underwritten issues at prices which include underwriting fees. In
selecting a broker-dealer to execute each particular transaction, the
Sub-Adviser will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the
broker-dealer; the size of and difficulty in executing the order; and the value
of the expected contribution of the broker-dealer to the investment performance
of a Fund on a continuing basis. Accordingly, the price to a Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Board of Directors
may determine, the Sub-Adviser shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused a Fund to pay a broker or dealer that provides
brokerage and research services to the Sub-Adviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Sub-Adviser's overall responsibilities with
respect to a Fund. The Sub-Adviser is further authorized to allocate the orders
placed by it on behalf of a Fund to such brokers and dealers who also provide
research or statistical material, or other services to the Company, the Adviser
or the Sub-Adviser. Such allocation shall be in such amounts and proportions as
the Sub-Adviser shall determine and the Sub-Adviser will report on said
allocations regularly to the Board of Directors of the Company indicating the
brokers to whom such allocations have been made and the basis therefor.
4. Control by Board of Directors. Any activities undertaken by the
Sub-Adviser pursuant to this Agreement shall at all times be subject to any
directives of the Board of Directors of the Company.
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Sub-Adviser shall at all times conform to:
(a) all applicable provisions of the Investment Company Act of
1940, as amended, and any rules and regulations adopted
thereunder;
(b) the provisions of the Registration Statement of the Company
under the Securities Act of 1933 and the Investment Company Act
of 1940, as amended;
(c) the provisions of the Articles of Amendment and Restatement;
(d) the provisions of the By-laws of the Company, as amended; and
-2-
<PAGE>
(e) any other applicable provisions of state and federal law.
6. Expenses.
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commissions) purchased
for the Company, including the expense of maintaining a trading function in
order to carry out its obligations under subparagraph (d) of paragraph 2 hereof
to place orders for the purchase and sale of portfolio instruments for the
Company's Equity Funds.
7. Delegation of Responsibilities. Upon the request of the Company's
Board of Directors or the Adviser, the Sub-Adviser may, but should be under no
duty to, perform services on behalf of the Company which are not required by
this Agreement. Such services will be performed on behalf of the Company and the
Sub-Adviser's cost in rendering such services may be billed monthly to the
Adviser. Payment or assumption by the Sub-Adviser of any such expense that the
Sub-Adviser is not required to pay or assume under this Agreement shall not
relieve the Sub-Adviser of any of its obligations to the Adviser or the Company
nor obligate the Sub-Adviser to pay or assume any similar expense on any
subsequent occasions.
8. Compensation. For the services to be rendered and the expenses
assumed by the Sub-Adviser, the Adviser shall pay to the Sub-Adviser the annual
fee, payable monthly, set forth opposite each Fund's name on Schedule A annexed
to this Agreement. Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Sub-Adviser's compensation for the preceding month shall
be made as promptly as possible after completion of the computations.
9. Expense Limitation; Fee Waivers. Reductions of advisory fees by the
Adviser as a result of any applicable expense limitation or fee waiver will not
reduce any sub-advisory fee due the Sub-Adviser under this Agreement.
10. Non-Exclusivity. The services of the Sub-Adviser to the Company are
not to be deemed to be exclusive, and the Sub-Adviser shall be free to render
investment advisory and management services to others (including other
investment companies) and to engage in other activities, so long as its services
under this Agreement are not impaired thereby. It is understood and agreed that
the officers and directors of the Sub-Adviser are not prohibited from engaging
in any other business activity or from rendering services to any other person,
or from serving as partners, officers or directors of any other firm or
corporation, including other investment companies.
11. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect,
subject to Paragraph 12 hereof, for a period of two years from the date hereof.
The Agreement shall thereafter continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Company's Board of Directors or (ii) by the vote
of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the Investment Company Act of 1940, as
amended), and
(b) by the affirmative vote of a majority of the directors who
are not parties to this Agreement or "interested persons" of a
party to this Agreement (other than as Company directors), by
votes cast in person at a meeting specifically called for such
purpose.
12. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by vote of the Company's Board of Directors or by
vote of a majority of a Fund's outstanding voting securities (as defined in the
Investment Company Act of 1940, as amended), by the Adviser or by the
Sub-Adviser, on sixty (60)
-3-
<PAGE>
days' written notice to the other party. The notice provided for herein may be
waived by either party. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" for the purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940, as
amended.
13. Limitation of Liability of Sub-Adviser. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser or its
officers, directors or employees, or reckless disregard by the Sub-Adviser of
its duties under this Agreement, the Sub-Adviser shall not be liable to the
Adviser, the Company or to any shareholder of the Company for any act or
omission in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of both the
Adviser and the Sub-Adviser shall be 540 East Main Street, Bowling Green,
Kentucky 42101.
15. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the Investment Company Act of 1940, as amended,
shall be resolved by reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Investment Company Act of
1940, as amended, reflected in any provision of this Agreement is revised by
rule, regulation or order of the Securities and Exchange Commission, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
TRANS FINANCIAL BANK, N.A.
By /s/ Douglas M. Lester
----------------------------
Douglas M. Lester, President
Attest:
/s/ Ron Sjezner
- ---------------
MASTRAPASQUA & ASSOCIATES, INC.
By /s/ Frank Mastrapasqua
-----------------------------
Frank Mastrapasqua, President
Attest:
/s/ Thomas A. Trantum
- ---------------------
-5-
<PAGE>
SCHEDULE A
NAME OF FUND ANNUAL FEE
The Adviser shall pay to
the Sub-Adviser:
1. Equity Funds: .50% on the first $100 million of the Equity Funds'
combined average daily net assets plus .25% of the
Equity Funds' combined average daily net assets in
excess of $100 million.
2. Fixed Income Funds: .03% of each Fixed Income Fund's average daily net
assets.
-6-
TRANS ADVISER FUNDS, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made the 4th day of November 1996, between Trans Adviser
Funds, Inc. (the "Corporation"), a corporation organized under the laws of the
State of Maryland with its principal place of business at 500 East Main Street,
Bowling Green, Kentucky 42102, and Forum Financial Services, Inc. (the
"Distributor"), a corporation organized under the laws of the State of Delaware
with its principal place of business at Two Portland Square, Portland, Maine
04101.
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "1940 Act") as an open-end management investment
company and may issue its shares of common stock, no par value (the "Shares"),
in separate series and classes; and
WHEREAS, the Corporation desires that the Distributor, as principal
underwriter, offer the Shares of the Corporation representing interests in each
of the classes now existing or in the future created in each of the separate
investment portfolios of the Corporation as listed from time to time on Schedule
A hereto (each a "Fund" and, collectively, the "Funds") and the Distributor is
willing to act as principal underwriter on the terms and conditions set forth in
this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and the Distributor do hereby agree
as follows:
SECTION 1. APPOINTMENT
The Corporation hereby appoints the Distributor, and the Distributor
hereby agrees, to act as distributor of the Shares for the period and on the
terms set forth in this Agreement. In connection therewith, the Corporation has
delivered to the Distributor copies of its Articles of Incorporation and Bylaws,
the Corporation's Registration Statement and all amendments thereto filed
pursuant to the Securities Act of 1933, as amended (the "Securities Act") or the
1940 Act (the "Registration Statement") and the current Prospectus and Statement
of Additional Information of each Fund (collectively, as currently in effect and
as amended or supplemented, the "Prospectus") and shall promptly furnish the
Distributor with all amendments of or supplements to the foregoing.
SECTION 2. DISTRIBUTION SERVICES
Subject to the direction and control of the Corporation's Board of
Directors (the "Board"), the Distributor shall serve as distributor of the
Shares.
(a) As agent of and distributor for the Corporation, the Distributor
shall offer, and solicit offers to subscribe to, the unsold balance of Shares as
shall then be effectively registered under the Securities Act and applicable
state securities laws. All subscriptions for Shares obtained by the Distributor
shall be directed to the Corporation for acceptance and shall not be binding on
the Corporation until accepted by it. The Distributor shall have no authority to
make
<PAGE>
binding subscriptions on behalf of the Corporation. The Corporation reserves the
right to sell Shares directly to investors through subscriptions received by the
Corporation. The Distributor's rights hereunder shall not apply to Shares issued
in connection with (i) the merger or consolidation of the Corporation or its
series or classes with any other investment company or series or class thereof,
(ii) the Corporation's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment company, or
(iii) the reinvestment in Shares by the Corporation's shareholders of dividends
or other distributions or any other offering by the Corporation of securities to
its shareholders.
(b) The Distributor shall use its best efforts to obtain subscriptions
to Shares upon the terms and conditions contained herein and in the Prospectus,
including the offering price. The Distributor shall send to the Corporation
promptly all subscriptions placed with the Distributor. The Corporation shall
advise the Distributor in its capacity as distributor of the approximate net
asset value per Share at any time requested by the Distributor which is a net
asset value determination time as disclosed in the Prospectus and at such other
times as it shall have been determined. The Corporation shall furnish to the
Distributor from time to time, for use in connection with the offering of
Shares, such other information with respect to the Corporation and Shares as the
Distributor may reasonably request. The Corporation shall supply the Distributor
with such copies of the Prospectus as the Distributor may request. The
Distributor may use its employees, agents and other persons who need not be its
employees, at its cost and expense, to assist it in carrying out its obligations
hereunder, but no such employee, agent or other person shall be deemed to be an
agent of the Corporation or have any rights under this Agreement.
(c) The Corporation reserves the right to suspend the offering of Shares
at any time, in the absolute discretion of the Board, and upon notice of such
suspension the Distributor shall cease to offer Shares.
(d) The Corporation and the Distributor will cooperate with each other
in taking such action as may be necessary to qualify Shares for sale under the
securities laws of such states as the Corporation may designate, provided that
the Distributor shall not be required to register as a broker-dealer or file a
consent to service of process in any such state. The Corporation shall pay all
fees and expenses of registering Shares under the Securities Act and of
registering or qualifying Shares and the Corporation's qualification under
applicable state securities laws. The Distributor shall pay all expenses
relating to its broker-dealer qualification.
(e) The Corporation represents that its Registration Statement and
Prospectus under the Securities Act have been or will be, as the case may be,
carefully prepared in conformity with the requirements of the Securities Act and
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder. The Corporation represents and warrants that its
Registration Statement and Prospectus contain or will contain all statements
required to be stated therein in accordance with the Securities Act and the
rules and regulations of the Commission thereunder, and that all statements of
fact contained or to be contained therein are or will be true and correct at the
time indicated or on the effective date as the case may be; and that the
Corporation's Registration Statement and Prospectus, when they shall become
effective or be authorized for use, will not include an untrue statement of a
material fact
- 2 -
<PAGE>
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. The
Corporation will from time to time file such amendment or amendments to its
Registration Statement and Prospectus as, in the light of future developments,
shall, in the opinion of the Corporation's counsel, be necessary in order to
have such Registration Statement and Prospectus at all times contain all
material facts required to be stated therein or necessary to make any statements
therein not misleading to a purchaser of Shares, but, if the Corporation shall
not file such amendment or amendments within fifteen days after receipt of a
written request from the Distributor to do so, the Distributor may, at its
option, terminate this Agreement immediately. The Corporation shall not file any
amendment to its Registration Statement and Prospectus without giving the
Distributor reasonable notice thereof in advance; provided, however, that
nothing in this Agreement contained shall in any way limit the Corporation's
right to file at any time such amendments to its Registration Statement and
Prospectus, of whatever character, as it deems advisable, such right being in
all respects absolute and unconditional. The Corporation represents and warrants
that any amendment to its Registration Statement and Prospectus hereafter filed
will, when it becomes effective, contain all statements required to be stated
therein in accordance with the 1940 Act and the rules and regulations of the
Commission 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 will 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.
(f) The Corporation will indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the Securities Act (collectively, the
"Distributor Indemnitees"), 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 any Distributor Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Corporation's Registration Statement and Prospectus under the Securities Act or
arising out of or based upon any alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon, and in
comformity with, information furnished to the Corporation in connection
therewith by or on behalf of the Distributor; provided, however, that in no
event shall anything contained in this paragraph (f) be so construed as to
protect the Distributor against any liability to the Corporation or its security
holders to which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and duties under this
Section 2. This agreement to indemnify the Distributor Indemnitees is expressly
conditioned upon the Corporation being notified of any action brought against
any Distributor Indemnitee, such notification to be given by letter, facsimile
transmission or telegram to the Corporation and referring to the person against
whom such action is brought within ten days after the summons or other first
legal process shall have been served on such person. The failure so to notify
the Corporation of any such action shall not relieve the Corporation from any
liability which it may have to any Distributor Indemnitee otherwise than on
account of the indemnification provided for in this
- 3 -
<PAGE>
paragraph (f). The Corporation 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 it and approved by the Distributor, which approval shall not be
withheld unreasonably. In the event the Corporation elects to assume the defense
of any such suit and retain counsel of good standing approved by the
Distributor, the defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them. In the event the Corporation does
not elect to assume the defense of any such suit, or in case the Distributor
does not approve of counsel chosen by the Corporation or has been advised that
it may have available defenses or claims which are not available to or conflict
with those available to the Corporation, the Corporation will reimburse any
Distributor Indemnitee named as defendant in such suit for the reasonable fees
and expenses of any counsel retained by any such person. The indemnification
provisions contained in this paragraph (f) and the Corporation's representations
and warranties in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Distributor
Indemnitee and shall survive the sale of any Shares made pursuant to
subscriptions obtained by the Distributor. The indemnification provisions of
this paragraph (f) will inure exclusively to the benefit of the Distributor
Indemnitees and their respective successors and assigns. The Corporation agrees
promptly to notify the Distributor of the commencement of any litigation or
proceeding against the Corporation or any of its Directors or officers in
connection with the issue or sale of Shares.
(g) The Distributor agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who controls the
Corporation within the meaning of Section 15 of the Securities Act
(collectively, the "Corporation Indemnitees"), 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 any Corporation
Indemnitee may incur under the Securities Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Corporation Indemnitees resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor in its capacity as
distributor to the Corporation for use in the Corporation's Registration
Statement or Prospectus under the Securities Act, 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. The Distributor's agreement
to indemnify the Corporation Indemnitees is expressly conditioned upon the
Distributor being notified of any action brought against a Corporation
Indemnitee, such notification to be given by letter, facsimile transmission or
telegram addressed and referring to the person against whom such action is
brought within ten days after the summons or other first legal process shall
have been served on such person. The Distributor shall have a right to control
the defense of such action, with counsel of its own choosing, satisfactory to
the Corporation, if such action is based solely upon such alleged misstatement
or omission on the Distributor's part, and in any other event the Distributor
and the Corporation Indemnitees named shall each have the right to participate
in the defense or preparation of the defense of any such action. The failure so
to notify the Distributor of any such action shall not relieve the Distributor
from any liability which it may have to any Corporation Indemnitee otherwise
than on account of the indemnification provisions in this paragraph (g).
- 4 -
<PAGE>
(h) The Corporation shall advise the Distributor immediately: (i) of any
request by the Commission for amendments to the Corporation's Registration
Statement or Prospectus or for additional information; (ii) in the event of the
issuance by the Commission of any stop order suspending the effectiveness of the
Corporation's Registration Statement or Prospectus or the initiation of any
proceedings for that purpose; (iii) of the happening of any material event which
makes untrue any statement made in the Corporation's Registration Statement or
Prospectus or which requires the making of a change in either thereof in order
to make the statements therein not misleading; and (iv) of all action of the
Commission with respect to any amendments to the Corporation's Registration
Statement or Prospectus which may from time to time be filed with the Commission
under the 1940 Act or the Securities Act.
SECTION 3. STANDARD OF CARE
The Distributor shall use its best judgment and efforts in rendering
services to the Corporation under this Agreement. The Distributor shall not be
liable to the Corporation for any error of judgment or mistake of law, for any
loss arising out of any investment, or for any action or inaction of the
Distributor in the absence of bad faith, willful misconduct or gross negligence
or based upon information, instructions or requests with respect to a Fund made
to the Distributor by an officer of the Corporation duly authorized. The
Distributor shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement caused by circumstances
beyond its reasonable control.
SECTION 4. EXPENSES
Subject to any expense reimbursement arrangements between the
Distributor or others and the Corporation, the Corporation shall be responsible
and assumes the obligation for payment of all its expenses.
SECTION 5. COMPENSATION
(a) The Distributor shall be entitled to no compensation or
reimbursement of expenses for the distribution and service activities provided
by the Distributor pursuant to this Agreement, except to the extent such
compensation or reimbursement is provided, with respect to any Fund or any class
of a Fund, pursuant to a plan of distribution adopted under Rule 12b-1 under the
1940 Act.
(b) Notwithstanding anything in this Agreement to the contrary, the
Distributor and its affiliated persons may receive compensation or reimbursement
from the Corporation with respect to (i) the provision of distribution and
service activities on behalf of the Funds in accordance with any distribution
plan adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act, (ii)
the provision of shareholder support or other services, (iii) the provision of
management services or (iv) service as a Director or officer of the Corporation.
- 5 -
<PAGE>
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each Fund on
the date on which the Corporation's Registration Statement relating to the
shares of the Funds becomes effective and shall relate to every other Fund as of
the date on which the Corporation's Registration Statement relating to the
shares of such Fund becomes effective.
(b) This Agreement shall continue in effect for twenty-four months as it
pertains to a Fund and, thereafter, with respect to such Fund, shall continue in
effect for successive twelve-month periods, provided that such continuance is
specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund and (ii) by a vote of
a majority of Directors of the Corporation (A) who are not parties to this
Agreement or interested persons of any such party and (B) with respect to each
class of a Fund, who do not have any direct or indirect financial interest in
any plan of distribution adopted under Rule 12b-1 under the 1940 Act applicable
to the class or in any agreements related to such plan, cast in person at a
meeting called for the purpose of voting on such approval. If the continuation
of this Agreement is not approved, the Distributor may continue to render the
services described herein in the manner and to the extent permitted by the 1940
Act.
(c) This Agreement may be terminated at any time with respect to a Fund,
without the payment of any penalty, (i) by the Board or by a vote of a majority
of the outstanding voting securities of the Fund or, with respect to each class
of a Fund for which there is an effective plan of distribution adopted under
Rule 12b-1 under the 1940 Act, a majority of Directors of the Corporation who do
not have any direct or indirect financial interest in any such plan or in any
agreements related to such plan, on 60 days' written notice to the Distributor
or (ii) by the Distributor on 60 days' written notice to the Corporation. This
Agreement shall automatically terminate in the event of its assignment.
SECTION 7. ACTIVITIES OF DISTRIBUTOR
Except to the extent necessary to perform its obligations under this
Agreement, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of its officers, directors or employees (whether or
not they are a director, officer, employee or other affiliated person of the
Corporation) 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 any other company,
corporation, firm, individual or association.
SECTION 8. CONFIDENTIALITY
The Distributor agrees to treat all records and other information
related to the Corporation as proprietary information of the Corporation and, on
behalf of itself and its employees, to keep confidential all such information,
except that the Distributor may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the Securities and Exchange
Commission;
- 6 -
<PAGE>
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information as approved in writing by the
Corporation, which approval shall not be unreasonably withheld and may not be
withheld where the Distributor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities or when so requested by the Corporation.
SECTION 9. MISCELLANEOUS
(a) Except for Schedule A, no provisions of this Agreement may be
amended or modified in any manner except by a written agreement properly
authorized and executed by both parties hereto and, if required by the 1940 Act,
by a vote of a majority of the outstanding voting securities of a Fund.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
(d) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(e) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York.
- 7 -
<PAGE>
(f) The terms "vote of a majority of the outstanding voting securities,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
TRANS ADVISER FUNDS, INC.
/s/ Thomas A. Trantum
------------------------------
Thomas A. Trantum
President
FORUM FINANCIAL SERVICES, INC.
/s/ John Y. Keffer
------------------------------
John Y. Keffer
President
- 8 -
<PAGE>
TRANS ADVISER FUNDS, INC.
DISTRIBUTION AGREEMENT
Schedule A
FUNDS OF
TRANS ADVISER FUNDS, INC.
as of November 4, 1996
Growth/Value Fund
Aggressive Growth Fund
Intermediate Bond Fund
Kentucky Tax-Free Fund
Tennessee Tax-Free Fund
Money Market Fund
CUSTODIAN AGREEMENT
THIS AGREEMENT made as of this 7th day of May 1996 between Trans
Adviser Fund, Inc., on behalf of each of its separate portfolios listed in
Exhibit A hereto, a Maryland corporation, with its principal place of business
at P.O. Box 90001, Bowling Green, KY 42102 (hereinafter called the "Fund"), and
The First National Bank of Boston, a national banking association with its
principal place of business in Boston, Massachusetts (hereinafter called the
"Custodian").
WHEREAS, the Fund desires that its Securities and cash shall be
hereafter held and administered by Custodian as the Fund's agent pursuant to the
terms of this Agreement; and
WHEREAS, the Custodian provides services in the ordinary course of its
business which will meet the Fund's needs as provided for hereinafter,
NOW, THEREFORE, in consideration of the mutual promises herein made,
the Fund and the Custodian agree as follows:
Section 1. Definitions.
"Bank" shall mean a bank as defined in Sec. 2(a)5 of the Investment Company Act
of 1940.
"Securities" shall mean and include stocks, shares, bonds, debentures, notes,
money market instruments or other obligations and any certificates, receipts,
warrants or other instruments representing rights to receive, purchase, or
subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets. Unless otherwise indicated
herein, "Securities" shall mean both U.S. and "foreign securities", as that term
is defined in Sec. 17(f) of the Investment Company Act of 1940.
"Officers' Certificate" shall mean a request or directions in writing or
confirmation of oral requests or directions in writing signed in the name of the
Fund by any two of the Chairman of the Executive Committee, the President, a
Vice President, the Secretary, the Clerk or the Treasurer of the Corporation or
any other persons duly authorized to sign by the Board of Trustees or the
Executive Committee of the Fund.
Section 2. Custodian as Agent.
The Custodian is authorized to act under the terms of this Agreement as the
Fund's agent and shall be representing the Fund whenever acting within the scope
of the Agreement.
Section 3. Names, Titles and Signature of Fund's Officers.
An Officer of the Fund will certify to the Custodian the names, titles, and
signatures of those persons authorized to sign the Officers' Certificates, as
well as names of the Board of Trustees and the Executive Committee. Said
Officer, or his or her successor, will provide the Custodian with any changes
which may occur from time to time.
<PAGE>
The Custodian is authorized to rely and act upon written and manually signed
instructions of any person or persons (if more than one, so indicated) named in
a separate list listing separately those persons who may authorize the
withdrawal of any portion of the cash or Securities which will be furnished from
time to time signed by Officers of Fund and certified by its Secretary or an
Assistant Secretary, ("Authorized Persons"). The Fund will provide the Custodian
with authenticated specimen signatures of Authorized Persons.
The Custodian is further authorized to rely upon any instructions received by
any other means and identified as having been given or authorized by any
Authorized Person; regardless of whether such instructions shall in fact have
been authorized or given by any such persons; provided, that,
(a) the Custodian and the Fund shall have previously agreed in
writing upon the means of transmission and the method of
identification for such instructions;
(b) the Custodian has not been notified by the Fund to cease to
recognize such means and methods, and
(c) such means and methods have in fact been used.
If the Fund should so choose to have dial-up or other means of direct access to
the Custodian's accounting system for Securities in custodial accounts, the
Custodian is also authorized to rely and act upon any instructions received by
the Custodian through the terminal device, regardless of whether such
instructions shall in fact have been given or authorized by the Fund provided
that such instructions are accompanied by passwords which have been mutually
agreed to in writing by the Custodian and the Fund and the Custodian has not
been notified by the Corporation to cease recognizing such passwords.
Where dial-up or other direct means of access to the Custodian's accounting
system for cash or Securities is utilized, the Fund agrees to indemnify the
Custodian and hold it harmless from and against any and all liabilities, losses,
damages, costs, reasonable counsel fees, and other reasonable expenses of every
nature suffered or incurred by the Custodian by reason of or in connection with
the improper use, unauthorized use and misuse by the Fund or its employees of
any terminal device with access to the Custodian's accounting system for
Securities in Custodial Accounts, unless such losses, damages, etc., result from
grossly negligent or wrongful acts of the Custodian, its employees or agents.
Section 4. Receipt and Disbursement of Money.
A. The Custodian shall open and maintain the Account, subject to
debit only by a draft or order by the Custodian acting
pursuant to the terms of this Agreement. The Custodian shall
hold in the Account, subject to the provisions hereof, all
cash received by it from or for the account of the Fund.
- 2 -
<PAGE>
1. The Custodian shall make payment of cash to the Account or
shall debit the Account only
(a) for the purchase of Securities for the portfolio
of the Fund upon the delivery of such Securities
to the Custodian, registered in the name of the
Fund or of the nominee of the Custodian referred
to in Section 8 below;
(b) for payments in connection with the conversion,
exchange or surrender of Securities owned or
subscribed to by the Fund held by or to be
delivered to the Custodian;
(c) for payments in connection with the return of the
cash collateral received in connection with
Securities loaned by the Fund;
(d) for payments in connection with futures contracts
positions held by the Fund;
(e) for payments of interest, dividends, taxes and in
connection with rights offerings; or
(f) for other proper Fund purposes.
All Securities accepted in connection with the
purchase of such Securities, if (a) usual in the
course of local market practice or (b)
specifically required in instructions from the
Fund, shall be accompanied by payment of, or a
"due bill" for, any dividends, interest or other
distributions of the issue due the purchaser.
2. Except as hereinafter provided, the Custodian shall make any
payment for which it receives direction from an Authorized
Person so long as such direction (i) is (a) in writing (or
is a facsimile transmission of a written direction), (b)
electronically transmitted to the Custodian as provided in
Section 3 or (c) when written or electronic directions
cannot reasonably be given within the relevant time period,
orally when the person giving such direction assures the
Custodian that the directions will be confirmed in writing
by an Authorized Persons within twenty-four (24) hours and
(ii) states that such payment is for a purpose permitted
under the terms of this subsection
3. All funds received by the Custodian in connection with the
sale, transfer, exchange or loan of Securities will be
credited to the Account in immediately available funds as
soon as reasonably possible on the date such received funds
are immediately available. Payments for purchase of
Securities for the Account made in immediately available
funds will be charged against the Account on the day of
delivery of such Securities and all other payments will be
charged on the business day after the day of delivery.
- 3 -
<PAGE>
A. The Custodian is hereby authorized and required to
(a) collect on a timely basis all income and other
payments with respect to Securities held hereunder
to which the Fund shall be entitled either by law
or pursuant to custom in the securities business,
and to credit such income to the Account, (b)
detach and present for payment all coupons and
other income items requiring presentation as and
when they become due, (c) collect interest when
due on Securities held hereunder, and (d) endorse
and collect all checks, drafts or other orders for
the payment of money received by the Custodian for
the account of the Fund.
B. If the Custodian agrees to advance cash or
Securities of the Custodian for delivery on behalf
of the Fund to a third party, any property
received by the Custodian on behalf of the Fund in
respect of such delivery shall serve as security
for the Fund's obligation to repay such advance
until such time as such advance is repaid, and, in
the case where such advance is extended for the
purchase of Securities which constitute "margin
stock" under Regulation U of the Board of
Governors of the Federal Reserve System, such
additional Securities of the Fund, as shall be
necessary for the Custodian, in the Custodian's
reasonable determination, to be in compliance with
such Regulation U also shall constitute security
for the Fund's obligation to repay such advance.
The Fund hereby grants the Custodian a security
interest in such property of the Fund to secure
such advance and agrees to repay such advance
promptly without demand from the Custodian (and in
any event, as soon as reasonably practicable
following any demand by the Custodian), unless
otherwise agreed by both parties. Should the Fund
fail to repay such advance as required, the
Custodian shall be entitled immediately to apply
such security to the extent necessary to obtain
repayment of the advance, subject, in the case of
Fund failure to make prompt repayment without
demand, to prior notice to the Fund.
Section 5. Receipt of Securities.
----------------------
The Custodian shall hold in the Account, segregated at all times from those of
any other persons, firms or corporations, pursuant to the provisions hereof, all
Securities received by it from or for the account of the Fund. All such
Securities are to be held or disposed of by the Custodian for, and subject at
all times to the instructions of, the Fund pursuant to the terms of this
Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any of the Securities and cash,
except pursuant to the directive of the Fund and only for the account of the
Fund as set forth in Section 7 of this Agreement.
The Custodian and its agents (including foreign subcustodians) may make
arrangements with Depository Trust Fund ("DTC") and other foreign or domestic
depositories or clearing agencies, including the Federal Reserve Bank and any
foreign depository or clearing agency, whereby certain Securities may be
deposited for the purpose of allowing transactions to be made by bookkeeping
entry without physical delivery of such Securities, subject to such restrictions
as
- 4 -
<PAGE>
may be agreed upon by the Custodian and the Fund. The Custodian shall
immediately commence procedures to replace Securities lost due to robbery,
burglary or theft while such Securities are within its control or that of its
agents or employees upon discovery of such loss.
Section 6. Foreign Subcustodians and Other Agents.
---------------------------------------
(a) In the event the Custodian places Securities, pursuant to
this Agreement, with any foreign subcustodian, the Custodian
agrees that it shall place such Securities only with those
foreign subcustodians which either satisfy the requirements
of "eligible foreign custodian" under Section 17(f) of the
U. S. Investment Company Act of 1940, or with respect to
which exemptive relief has been granted by the U. S.
Securities and Exchange Commission from the requirements of
Section 17(f).
The Custodian agrees further that in placing Securities with
any such foreign subcustodian, it will enter into a written
subcustodian agreement which shall provide that: (i) the
Custodian will be adequately indemnified and the Securities
so placed adequately insured in the event of loss, as
provided in part (b) of this section; (ii) the Securities
will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign
subcustodian or its creditors (except any claim for payment
for the services provided by such subcustodian and any
related expenses; provided, however that the Custodian shall
use its best efforts promptly to release any such right,
charge, security interest, lien or claim on the assets,
except to the extent such right, charge, security interest,
lien or claim arises with respect to a special request or
requirement by the Fund for services the cost of which and
the expenses incurred in connection with which the Fund has
not paid or has declined to pay, it being agreed and
understood that, in the ordinary course, all payments for
usual and routine services rendered and expenses incurred by
a subcustodian shall be the obligation of the Custodian);
(iii) beneficial ownership of the Securities will be freely
transferable without payment of money or value other than
for safe custody or administration; (iv) adequate records
will be maintained identifying the Securities as belonging
to the Fund; (v) he Custodian's independent public
accountants will be given access to those records or the
confirmation of the contents of those records; and (vi) the
Custodian will receive periodic reports with respect to the
safekeeping of the Securities, including, but not
necessarily limited to, notification of any transfer to or
from the Account.
(b) In addition to the indemnities included in Section 13
hereof, the Custodian agrees to indemnify and hold harmless
the Fund from any and all loss or damage incurred or
suffered by the Fund as a result of placement by the
Custodian of Securities with a foreign subcustodian
hereunder, to the extent the Custodian receives
indemnification from such foreign subcustodian pursuant to
part (a)(i) of this section.
(c) With respect to any Securities to be placed with foreign
subcustodians pursuant to this section, the Custodian
represents and warrants that during the term of this
- 5 -
<PAGE>
Agreement it will carry Bankers Blanket Bond or similar
insurance for losses incurred as a result of such
sub-custodial arrangements.
(d) The Fund authorizes the Custodian to release any and all
information regarding Securities placed with foreign
subcustodians hereunder as may be required by court order of
a court of competent jurisdiction.
Section 7. Transfer, Exchange and Securities.
----------------------------------
The Custodian (or a subcustodian or any other agent of the Custodian) shall have
sole power to release or deliver any Securities of the Fund held by the
Custodian (or such subcustodian or agent) pursuant to this Agreement. The
Custodian agrees (and will obtain an undertaking from each subcustodian or other
agent) that Securities held by the Custodian (or by a subcustodian or other
agent of the Custodian) will be transferred, exchanged or delivered only
(a) for sales of Securities for the account of the Fund in
accordance with (i) "New York Street Practice", (ii)
predominant established practice in the relevant local
market, or (iii) specific instructions from the Fund; or
(b) when Securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such Securities in
accordance with "street delivery" custom or other relevant
local market practice;
(d) in exchange for or upon conversion into other Securities
whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such Securities pursuant to their terms
into other Securities;
(f) upon exercise of subscription, purchase or other similar
rights represented by such Securities pursuant to their
terms;
(g) for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;
(h) for the purpose of tendering Securities;
(i) for the purpose of delivering Securities lent by the Fund;
(j) for purposes of delivering collateral upon redelivery of
Securities lent or for purposes of delivering excess
collateral; or
(k) for other proper Fund purposes.
- 6 -
<PAGE>
As to any deliveries made by Custodian pursuant to items (b), (d), (e), (f),
(g), (i), 0) and (k), Securities in exchange therefor shall be deliverable to
the Custodian (or a subcustodian or other agent of the Custodian). The Custodian
may rely upon any written, electronic or oral instructions or an Officers'
Certificate relating thereto as provided for in Sections 3 and 4 above.
Section 8. The Custodian's Acts Without Instructions.
------------------------------------------
Unless and until the Custodian receives instructions to the contrary, the
Custodian (or a subcustodian or other agent of the Custodian) shall:
(a) present for payment all coupons and other income items held
by it for the account of the Fund which call for payment
upon presentation and hold the cash received by it upon such
payment in the Account;
(b) collect interest and cash dividends and other distributions,
provide notice to the Fund of receipts, and deposit to the
Account;
(c) hold for the account of the Fund all stock dividends, rights
and similar Securities issued with respect to any Securities
held by the Custodian under the terms of this Agreement;
(d) execute as agent on behalf of the Fund all necessary
ownership certificates required by the Internal Revenue Code
or the Income Tax Regulations of the United States Treasury
Department, the laws of any State or territory of the United
States, or, in the case of Securities held through foreign
subcustodians, the laws of the jurisdiction in which such
Securities are held, now or hereafter in effect, inserting
the Fund's name on such certificates as the owner of the
Securities covered thereby, to the extent it may lawfully do
so;
(e) use its best efforts, in cooperation with the Fund, to file
such forms, certificates and other documents as may be
required to comply with all applicable laws and regulations
relating to withholding taxation applicable to the
Securities; and
(f) use its best efforts to assist the Fund in obtaining any
refund of local taxes to which the Fund may have a
reasonable claim.
The Fund agrees to furnish to the Custodian such information and to execute such
forms and other documents as the Custodian may reasonably request or as
otherwise may be reasonably necessary in connection with the Custodian's
performance of 'Its obligations under clauses (e) and (f).
- 7 -
<PAGE>
Section 9. Registration of Securities.
---------------------------
Except as otherwise directed by an Officers' Certificate, the Custodian shall
register all Securities, except such as are in bearer form, in the name of the
Fund or a registered nominee of the Fund or a registered nominee of the
Custodian or a subcustodian. Securities deposited with DTC or a foreign
securities depository permitted under Section 5 may be registered in the nominee
name of DTC or such foreign securities depository. The Custodian shall execute
and deliver all such certificates in connection therewith as may be required by
the applicable provisions of the Internal Revenue Code, the laws of any State or
territory of the United States, or, in the case of Securities placed with
foreign subcustodians, the laws of the jurisdiction in which such Securities are
held. The Custodian shall maintain such books and records as may be necessary to
identify the specific Securities held by it hereunder at all times.
The Fund shall from time to time furnish the Custodian appropriate instruments
to enable the Custodian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Securities which it may hold
for the account of the Fund and which may from time to time be registered in the
name of the Fund.
Section 10. Voting and Other Action.
------------------------
Neither the Custodian nor any nominee of the Custodian or of DTC shall vote any
of the Securities held hereunder by or for the account of the Fund except in
accordance with the instructions contained in an Officers' Certificate.
The Custodian shall deliver or have delivered to the Fund all notices, proxies
and proxy soliciting materials with relation to such Securities, such proxies to
be executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
With respect to Securities deposited with DTC or any other depository, including
a foreign subcustodian, as provided for in Section 6 hereof, where such
Securities may be registered in the nominee name of DTC, or other such
depository the Custodian shall request that the nominee shall not vote any of
such deposited Securities or execute any proxy to vote thereon or give any
consent or take any other action with respect thereto unless instructed to do so
by the Custodian following receipt by the Custodian of an Officers' Certificate.
Section 11. Transfer Tax and Other Disbursements.
-------------------------------------
The Fund shall pay or reimburse the Custodian from time to time for any transfer
taxes payable upon transfers of Securities made hereunder and for all other
necessary and proper disbursements and expenses made or incurred by the
Custodian in the performance of this Agreement, as required by U.S. law or the
laws of the jurisdiction in which the Securities are held, as the case may be.
- 8 -
<PAGE>
The Custodian shall execute and deliver such certificates in connection with
Securities delivered to it or by it under this Agreement as may be required
under the laws of any jurisdiction to exempt from taxation any exemptible
transfers and/or deliveries of any such Securities.
Section 12. Compensation and the Custodian's Expenses.
------------------------------------------
The Custodian shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in writing
between the two parties.
Section 13. Indemnification.
----------------
The Fund agrees to indemnify and hold harmless the Custodian and its employees,
agents and nominee from all taxes, charges, expenses, assessments, claims and
liabilities (including attorneys' fees) incurred or assessed against them in
connection with the performance of the Agreement, except such as may arise from
their own grossly negligent action, negligent failure to act or willful
misconduct. The Custodian agrees to indemnify and hold harmless the Fund and its
trustees, officers, employees, and agents from all taxes, charges, expenses,
assessments, claims and liabilities (including attorneys fees) incurred or
assessed against the Fund in connection with the performance of the Agreement,
which may arise from grossly negligent action, grossly negligent failure to act
or willful misconduct on the part of the Custodian. In the event of any advance
of cash for any purpose made by the Custodian resulting from orders or
instructions of the Fund, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement, except such as
may arise from its or its nominee's own grossly negligent action, grossly
negligent failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor.
Within a reasonable time after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, notify in writing the
indemnifying party of the commencement thereof, and the omission so to notify
the indemnifying party will not relieve it from any liability hereunder as to
the particular item for which indemnification is then being sought, unless such
omission is a result of the failure to exercise reasonable care on the part of
the indemnified party. In case any such action is brought against an indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to assume the
defense thereof, with counsel who shall be to the reasonable satisfaction of
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
- 9 -
<PAGE>
Section 14. Reports by the Custodian.
-------------------------
The Custodian shall furnish the Fund daily with a statement of all transactions
and entries for the Account of the Fund. The Custodian shall furnish the Fund
with such reports covering Securities held by it or under its control as may be
agreed upon from time to time. The books and records of the Custodian pertaining
to its actions under this Agreement shall be open to inspection and audit at
reasonable times and upon reasonable notice to the Fund. All such books and
records shall be the property of the Fund (and such other persons as the Fund
may designate from time to time) and the Custodian shall forthwith upon the
Fund's request, turn over to the Fund and cease to retain in its files, records
and documents created and maintained by the Custodian pursuant to this
Agreement, which are no longer needed by the Custodian in performance of its
services or for its protection.
Section 15. Termination and Assignment.
---------------------------
This agreement may be terminated by the Fund or the Custodian, immediately upon
written notice from the Fund or the Custodian, as applicable, to the other
party, if the other party fails materially to perform its obligations hereunder,
and may otherwise be terminated by the Fund or by the Custodian on ninety (90)
days' notice, given in writing and sent by registered mail to the Custodian or
the Fund as the case may be. Upon termination of this Agreement, the Custodian
shall deliver the Securities and cash in the account of the Fund to such entity
as is designated in writing by the Fund and in the absence of such a designation
may, but shall not be obligated to, deliver them to a bank or trust company of
the Custodian's own selection having an aggregate capital, surplus and undivided
profits as shown by its last published report of not less than 50 million
dollars ($50,000,000), the Securities and cash to be held by such bank or trust
company for the benefit of the Fund under terms similar to those of this
Agreement and the Fund to be obligated to pay to such transferee the then
current rates of such transferee for services rendered by it; provided, however,
that the Custodian may decline to transfer such amount of such Securities
equivalent to all fees and other sums owing by the Fund to the Custodian, and
the Custodian shall have a charge against and security interest in such amount
until all monies owing to it have been paid, or escrowed to its satisfaction.
This Agreement may not be assigned by the Custodian without the consent of the
Fund, authorized or approved by a resolution of the Fund's Board of Trustees.
Section 16. Force Majeure.
--------------
The Custodian shall not be liable or accountable for any loss or damage
resulting from any condition or event beyond its reasonable control; provided,
however, that the Custodian shall promptly use its best efforts to mitigate any
such loss or damage to the Fund as a result of any such condition or event. For
the purposes of the foregoing, the actions or inactions of the Custodian's
subcustodians and other agents shall not be deemed to be beyond the reasonable
control of the Custodian. In connection with the foregoing, the Custodian agrees
(and agrees that it will use its best efforts to obtain the undertaking of its
subcustodians and other agents to
- 10 -
<PAGE>
the effect) that the Custodian (and/or such subcustodian or agent) shall
maintain such alternate power sources for computer and related systems and
alternate channels for electronic communication with such computers and related
systems that the failure of the primary power source and/or communications
channel of the Custodian (and/or its subcustodians or other agents) will not
foreseeable result in any loss or damage to the Fund.
Section 17. Third Parties.
--------------
This Agreement shall be binding upon and the benefits hereof shall insure to the
parties hereto and their respective successors and assigns. However, nothing in
this Agreement shall give or be construed to give or confer upon any third party
any rights hereunder.
Section 18. Amendments.
-----------
The terms of this Agreement shall not be waived, altered, modified, amended,
supplemented or terminated in any manner whatsoever, except by written
instrument signed by both of the parties hereto.
Section 19. Governing Law.
--------------
This Agreement shall be governed and construed in accordance with the laws of
The Commonwealth of Massachusetts.
Section 20. Counterparts.
-------------
This agreement may be executed in several counterparts, each of which is an
original.
Section 21. Notices.
--------
All notices provided for herein shall be in writing and shall become effective
when deposited in the United States mail, postage prepaid and certified,
addressed
(a) if to the Custodian, at 150 Royal Street
Canton, MA 02021
Attention: Worldwide
Custody -
MS: 45-02-16
(b) if to the Fund, at Two Portland Square
Portland, ME 04101
Attention: Max Beruertay
or to such other address as either party may notify the other in writing.
- 11 -
<PAGE>
A copy of the Declaration of Trust of the Fund is on file with the Maryland
Secretary of State, and notice is hereby given that this instrument is executed
on behalf of the Trustees of the Fund as Trustees, and the obligations of this
instrument are not binding upon any of the Trustees, officers, or shareholders
of the Fund individually but binding only upon assets and property of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
TRANS ADVISER FUND, INC.
By: /S/ Thomas A. Trantum
----------------------
Name: Thomas A. Trantum
Title: President
THE FIRST NATIONAL BANK OF BOSTON
By: /S/ Janice Charbonnier
-----------------------
Name: Janice Charbonnier
Title: Senior Manager
- 12 -
<PAGE>
EXHIBIT A
TO
CUSTODY AGREEMENT DATED
1. Trans Adviser Fund, Inc. Money Market
2. Trans Adviser Fund, Inc. Intermediate Bond
3. Trans Adviser Fund, Inc. Kentucky Tax-free
4. Trans Adviser Fund, Inc. Tennessee Tax-free
5. Trans Adviser Fund, Inc. Aggressive Growth
6. Trans Adviser Fund, Inc. Growth Value
- 13 -
<PAGE>
BANK OF BOSTON
PROPOSED FEE SCHEDULE
CUSTODY
FOR
FORUM FINANCIAL GROUP
IN CONNECTION WITH
TRANS ADVISOR MUTUAL FUNDS
AUGUST 29,1995
Asset Custody
The asset custody charge will be charged by the following
basis point structure on the total assets of the six
portfolios:
<TABLE>
<CAPTION>
Annual Fee
<S> <C>
First $1 00 million of net assets .00015
Second $1 00 million of net assets .0001
Net assets over $200 million .00005
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Transaction Fees - Domestic Non-Automated Automated
DTC $ 12.00 $8.00
Fed Book-Entry (Repurchase Agreement) $ 10.00 $8.00
(per collateral transaction)
Physical-New York City Settlements $ 20.00 N/A
PTC $ 12.00 $8.00
P&I Paydowns $ 3.00 N/A
Options/Futures $ 20.00 N/A
BKB Sweep Transactions $ 3.00 N/A
Commercial Paper $ 15.00 N/A
Transaction Fees - Global
Available upon request
Wire Charges-Custody
Wires In/Out $ 3.50
Wires Charges-DDA
SubscriptionsIRedemptions
In $ 5.00
Out $ 5.00
Out-of-Pockets
Postage, Insurance, Courier, etc.
</TABLE>
- 14 -
TRANS ADVISER FUNDS, INC.
ADMINISTRATION AGREEMENT
AGREEMENT made the 24th day of October, 1996, between Trans Adviser
Funds, Inc. (the "Corporation"), a corporation organized under the laws of the
State of Maryland with its principal place of business at 500 East Main Street,
Bowling Green, Kentucky 42102, and Forum Administrative Services, LLC (the
"Administrator"), a corporation organized under the laws of the State of
Delaware with its principal place of business at Two Portland Square, Portland,
Maine 04101.
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "Act") as an open-end management investment company and
may issue its shares of common stock, no par value (the "Shares"), in separate
series and classes; and
WHEREAS, the Corporation desires that the Administrator perform
administrative services for series of the Corporation now existing or that in
the future may be created, and for classes that may in the future be created in
each of the separate investment portfolios of the Corporation as listed on
Schedule A hereto, as it may be amended from time to time (each a "Fund" and,
collectively, the "Funds") and the Administrator is willing to provide those
services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and the Administrator do hereby
agree as follows:
SECTION 1. APPOINTMENT
The Corporation hereby appoints the Administrator, and the Administrator
hereby agrees, to act as administrator of the Corporation for the period and on
the terms set forth in this Agreement. In connection therewith, the Corporation
has delivered to the Administrator copies of its Articles of Incorporation and
Bylaws, the Corporation's Registration Statement and all amendments thereto
filed pursuant to the Securities Act of 1933, as amended (the "Securities Act")
or the Act (the "Registration Statement") and the current Prospectus and
Statement of Additional Information of each Fund (collectively, as currently in
effect and as amended or supplemented, the "Prospectus") and shall promptly
furnish the Administrator with all amendments of or supplements to the
foregoing.
(a) Subject to the direction and control of the Board, the Administrator
shall manage all aspects of the Corporation's operations with respect to the
Funds except those which are the responsibility of the investment adviser or
advisers to the Fund or Funds (the "Adviser"), all in such manner and to such
extent as may be authorized by the Board.
(b) With respect to the Corporation or each Fund, as applicable, the
Administrator shall:
<PAGE>
(i) oversee (A) the preparation and maintenance by the Adviser and
the Corporation's custodian, transfer agent, dividend disbursing
agent and fund accountant (or if appropriate, prepare and
maintain) in such form, for such periods and in such locations as
may be required by applicable law, of all documents and records
relating to the operation of the Corporation required to be
prepared or maintained by the Corporation or its agents pursuant
to applicable law; (B) the reconciliation of account information
and balances among the Adviser and the Corporation's custodian,
transfer agent, dividend disbursing agent and fund accountant;
(C) the transmission of purchase and redemption orders for
Shares; (D) the notification to the Adviser of available funds
for investment; and (E) the performance of fund accounting,
including the calculation of the net asset value of the Shares;
(ii) oversee the performance of administrative and professional
services rendered to the Corporation by others, including its
custodian, transfer agent and dividend disbursing agent as well
as legal, auditing and shareholder servicing and other services
performed for the Funds;
(iii) be responsible for the preparation and the printing of the
periodic updating of the Registration Statement and Prospectus,
tax returns, and reports to shareholders, the Securities and
Exchange Commission and state securities commissions;
(iv) be responsible for the preparation of proxy and information
statements and any other communications to shareholders;
(v) at the request of the Board, provide the Corporation with
adequate general office space and facilities and provide persons
suitable to the Board to serve as officers of the Corporation;
(vi) provide the Corporation, at the Corporation's expense, with the
services of persons, who may be officers of the Corporation,
competent to perform such supervisory, administrative and
clerical functions as are necessary to provide effective
operations of the Corporation;
(vii) prepare, file and maintain the Corporation's governing
documents, including the Articles of Incorporation, the Bylaws
and minutes of meetings of Directors and shareholders;
(viii) with the approval of the Corporation's counsel and cooperation
from the Adviser and other relevant parties, prepare and
disseminate materials for meetings of the Board of Directors;
(ix) monitor sales of Shares and ensure that such Shares are properly
and duly registered with the Securities and Exchange Commission
and applicable state securities commissions;
- 2 -
<PAGE>
(x) oversee the calculation of performance data for dissemination to
information services covering the investment company industry,
for sales literature of the Corporation and other appropriate
purposes;
(xi) oversee the determination of the amount of and supervise the
declaration of dividends and other distributions to shareholders
as necessary to, among other things, maintain the qualification
of each Fund as a regulated investment company under the Internal
Revenue Code of 1986, as amended, and prepare and distribute to
appropriate parties notices announcing the declaration of
dividends and other distributions to shareholders; and
(xii) advise the Corporation and its Board of Directors on matters
concerning the Corporation and its affairs.
(c) The books and records pertaining to the Corporation which are in
possession of the Administrator shall be the property of the Corporation. The
Corporation, or the Corporation's authorized representatives, shall have access
to such books and records at all times during the Administrator's normal
business hours. Upon the reasonable request of the Corporation, copies of any
such books and records shall be provided promptly by the Administrator to the
Corporation or the Corporation's authorized representatives. In the event the
Corporation designates a successor to any of the Administrator's obligations
hereunder, the Administrator shall, at the expense and direction of the
Corporation, transfer to such successor all relevant books, records and other
data established or maintained by the Administrator under this Agreement.
SECTION 3. STANDARD OF CARE; LIMITATION OF LIABILITY
(a) The Administrator shall use its best judgment and efforts in
rendering the services described in this Agreement. The Administrator shall not
be liable to the Corporation for any action or inaction of the Administrator in
the absence of bad faith, willful misconduct or gross negligence or based upon
information, instructions or requests with respect to a Fund made to the
Administrator by an officer of the Corporation duly authorized. The
Administrator shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement caused by circumstances
beyond its reasonable control.
(b) The Corporation agrees to indemnify and hold harmless the
Administrator, its employees, agents, officers and trustees against and from any
and all claims, judgments, losses, charges (including attorneys' fees) and other
reasonable expenses arising out of the Administrator's actions or omissions that
are consistent with the standard of care set forth in paragraph (a) of this
section.
(c) The Administrator agrees to indemnify and hold harmless the
Corporation, its employees, agents, officers and trustees against and from any
and all claims, judgments, losses, charges (including attorneys' fees) and other
reasonable expenses arising out of the Administrator's actions or omissions that
are not consistent with the standard of care set forth in paragraph (a) of this
section.
- 3 -
<PAGE>
(d) Neither party shall be required to indemnify the other if, prior to
confessing any claim against it which may be subject to indemnification, the
indemnified party does not give the indemnifying party written notice of, and
reasonable opportunity to defend against, the claim.
SECTION 4. EXPENSES
Subject to any agreement by the Adviser or other person to reimburse any
expenses of the Corporation that relate to the Funds, the Corporation shall be
responsible for and assumes the obligation for payment of all of its reasonable
expenses, including: (a) the fee payable under Section 5 hereof; (b) the fees
payable to the Adviser under an agreement between the Adviser and the
Corporation; (c) expenses of issue, repurchase and redemption of Shares; (d)
interest charges, taxes and brokerage fees and commissions, including the fees
and commissions of introducing brokers; (e) premiums of insurance for the
Corporation, its Directors and officers and fidelity bond premiums; (f) fees,
interest charges and expenses of third parties, including the Corporation's
custodian, transfer agent, dividend disbursing agent and fund accountant; (g)
fees of pricing, interest, dividend, credit and other reporting services; (h)
costs of membership in trade associations; (i) telecommunications expenses; (j)
funds transmission expenses; (k) auditing, legal and compliance expenses; (l)
costs of forming the Corporation and maintaining its existence; (m) costs of
preparing and printing Corporation's Prospectuses, subscription application
forms and shareholder reports and delivering them to existing shareholders; (n)
expenses of meetings of shareholders and proxy solicitations therefor; (o) costs
of maintaining books of original entry for portfolio and fund accounting and
other required books and accounts, of calculating the net asset value of Shares
of the Corporation and of preparing tax returns; (p) costs of reproduction,
stationery and supplies; (q) fees and expenses of the Corporation's Directors;
(r) compensation of the Corporation's officers and employees who are not
employees of the Adviser or the Administrator or their respective affiliated
persons and costs of other personnel (who may be employees of the Adviser, Forum
or their respective affiliated persons) performing services for the Corporation;
(s) costs of Director meetings; (t) Securities and Exchange Commission
registration fees and related expenses; (u) state or foreign securities laws
registration fees and related expenses; and (v) all fees and expenses paid by
the Corporation in accordance with any distribution plan adopted pursuant to
Rule 12b-1 under the Act or under any shareholder service plan or agreement.
SECTION 5. COMPENSATION
(a) For the administrative services provided by the Administrator
pursuant to this Agreement, the Corporation shall pay the Administrator, with
respect to each of the Funds, a fee at an annual rate equal to the amount set
forth in Schedule B hereto. Such fees shall be accrued by the Corporation daily
and shall be payable monthly in arrears on the first day of each calendar month
for services performed under this Agreement during the prior calendar month.
Upon the termination of this Agreement, the Corporation shall pay to the
Administrator such compensation as shall be payable prior to the effective date
of such termination.
(b) Notwithstanding anything in this Agreement to the contrary, the
Administrator and its affiliated persons may receive compensation or
reimbursement from the Corporation with respect to (i) the provision of services
on behalf of the Funds in accordance with any distribution
- 4 -
<PAGE>
plan adopted by the Corporation pursuant to Rule 12b-1 under the Act, (ii) the
provision of shareholder support or other services or (iii) service as a
Director or officer of the Corporation.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date on which the
Corporation's Registration Statement becomes effective, and shall relate to
every Fund of the Corporation as of the date on which the Corporation's
Registration Statement relating to the Shares of such Fund becomes effective.
(b) This Agreement shall continue in effect for twelve months as it
pertains to a Fund and, thereafter, shall be automatically renewed each year for
an additional term of one year with respect to such Fund.
(c) This Agreement may be terminated with respect to a Fund at any time,
without the payment of any penalty, (i) by the Board on 60 days' written notice
to the Administrator or (ii) by the Administrator on 60 days' written notice to
the Corporation.
SECTION 7. ACTIVITIES OF ADMINISTRATOR
Except to the extent necessary to perform its obligations under this
Agreement, nothing herein shall be deemed to limit or restrict the
Administrator's right, or the right of any of its officers, directors or
employees (whether or not they are a Director, officer, employee or other
affiliated person of the Corporation) to engage in any other business or to
devote time and attention to the administration or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other corporation, company, firm, individual or association.
SECTION 8. CONFIDENTIALITY
The Administrator agrees to treat all records and other information
related to the Corporation as proprietary information of the Corporation and, on
behalf of itself and its employees, to keep confidential all such information,
except that the Administrator may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the Securities and Exchange
Commission;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information as approved in writing by the
Corporation, which approval shall not be unreasonably withheld and may not be
withheld where the Administrator may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities or when so requested by the Corporation.
- 5 -
<PAGE>
SECTION 9. MISCELLANEOUS
(a) Except for the Schedules, no provisions of this Agreement may be
amended or modified in any manner except by a written agreement properly
authorized and executed by both parties hereto and, if required by the Act, by a
vote of a majority of the outstanding voting securities of a Fund.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
(d) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(e) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York.
(f) The terms "vote of a majority of the outstanding voting securities,"
"interested person," and "affiliated person" shall have the meanings ascribed
thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
TRANS ADVISER FUNDS, INC.
/s/ Thomas A. Trantum
----------------------------------
Thomas A. Trantum
President
FORUM ADMINISTRATIVE SERVICES, LLC
/s/ John Y. Keffer
----------------------------------
John Y. Keffer
President
- 6 -
<PAGE>
TRANS ADVISER FUNDS, INC.
ADMINISTRATION AGREEMENT
Schedule A
FUNDS OF
TRANS ADVISER FUNDS, INC.
as of October 24, 1996
Growth/Value Fund
Aggressive Growth Fund
Intermediate Bond Fund
Kentucky Tax-Free Fund
Tennessee Tax-Free Fund
Money Market Fund
Schedule B
ADMINISTRATION FEES
An annual fee equal to the greater of $25,000 or 0.15% of
the annual average daily net assets of each Fund
TRANS ADVISER FUNDS, INC.
SHAREHOLDER SERVICE PLAN
July 18, 1996
This Shareholder Service Plan (the "Plan") is adopted by Trans Adviser
Funds, Inc. (the "Corporation") with respect to shares of common stock of each
of the Funds identified in Appendix A (individually a "Fund" and collectively
the "Funds").
SECTION 1. ADMINISTRATOR
The Corporation has entered into an Administration Agreement (the
"Agreement") with Forum Financial Services, Inc. ("Forum") whereby Forum
provides certain administrative services for the Corporation and for each Fund.
SECTION 2. SERVICE AGREEMENTS; PAYMENTS
(a) Forum is authorized to enter into Shareholder Service Agreements
(the "Agreements"), the form of which shall be approved by the Board of
Directors of the Corporation (the "Board"), with financial institutions and
other persons, including Trans Financial Bank, N.A., and Mastrapasqua &
Associates, the investment advisers to the Corporation, who provide services for
and maintain shareholder accounts ("Service Providers") as set forth in this
Plan.
(b) Pursuant to the Agreements, as compensation for the services
described in Section 4 below, Forum may pay each Service Provider, on behalf of
the Corporation, a fee at an annual rate of up to 0.25% of the average daily net
assets of each Fund represented by the shareholder accounts for which the
Service Provider maintains a service relationship; provided, however, that no
Fund shall directly or indirectly pay any amounts, whether Payments or
otherwise, that exceed any applicable limits imposed by law or the National
Association of Securities Dealers, Inc.
(c) Each Agreement shall contain a representation by the Service
Provider that any compensation payable to the Service Provider in connection
with an investment in any Fund of the assets of its customers will (i) be
disclosed by the Service Provider to its customers, (ii) be authorized by its
customers, and (iii) not result in an excessive fee to the Service Provider.
SECTION 3. SHAREHOLDER SERVICE FEE.
Pursuant to this Plan, the Corporation shall daily accrue and monthly
pay Forum a Shareholder Service Fee for each Fund equal to 0.25% of the average
daily net assets of each Fund. Such payments shall be accrued daily and paid
monthly or at such other interval as the Corporation and Forum shall agree.
<PAGE>
SECTION 4. SERVICE ACTIVITIES
Service activities include (a) establishing and maintaining accounts and
records relating to clients of Service Provider; (b) answering shareholder
inquiries regarding the manner in which purchases, exchanges and redemptions of
shares of the Corporation may be effected and other matters pertaining to the
Corporation's services; (c) providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; (d) assisting
shareholders in arranging for processing purchase, exchange and redemption
transactions; (e) arranging for the wiring of funds; (f) guaranteeing
shareholder signatures in connection with redemption orders and transfers and
changes in shareholder-designated accounts; (g) integrating periodic statements
with other shareholder transactions; and (h) providing such other related
services as the shareholder may request.
SECTION 5. AMENDMENT AND TERMINATION
(a) Any material amendment to the Plan shall be effective only upon
approval of the Board, including a majority of the Directors who are not
interested persons of the Corporation as defined in the Investment Company Act
of 1940 (the "Disinterested Directors"), pursuant to a vote cast in person at a
meeting called for the purpose of voting on the amendment to the Plan.
(b) The Plan may be terminated without penalty at any time by a vote of
a majority of the Disinterested Directors.
- 2 -
<PAGE>
TRANS ADVISER FUNDS, INC.
SHAREHOLDER SERVICE PLAN
Appendix A:
Funds to which Shareholder Service Plan Applies
July 18, 1995
Money Market Fund
Intermediate Bond Fund
Kentucky Tax-Free Fund
Tennessee Tax-Free Fund
Growth/Value Fund
Aggressive Growth Fund
TRANS ADVISER FUNDS, INC.
TRANSFER AGENCY AGREEMENT
AGREEMENT made the 22nd day of September 1995, between Trans Adviser
Funds, Inc. (the "Corporation"), a corporation organized under the laws of the
State of Maryland with its principal place of business at 500 East Main Street,
Bowling Green, Kentucky 42102, and Forum Financial Corp. ("FFC"), a corporation
organized under the laws of the State of Delaware with its principal place of
business at Two Portland Square, Portland, Maine 04101.
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940 as an open-end management investment company and may issue its shares of
common stock, no par value, in separate series and classes; and
WHEREAS, the Corporation desires that FFC perform certain transfer
agency and related services for each series of the Corporation, and class
thereof, that currently exists or in the future may be created, and FFC is
willing to perform those services on the terms and conditions set forth in this
Agreement; and
WHEREAS, FFC has agreed to act as transfer agent for the purpose of
recording the transfer, issuance and redemption of Shares of the Corporation,
transferring the Shares of the Corporation, disbursing dividends and other
distributions to Shareholders, filing various tax forms, mailing shareholder
information and receiving and responding to various shareholder inquiries;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and FFC do hereby agree as follows:
SECTION 1. APPOINTMENT
The Corporation hereby appoints FFC as its transfer agent and FFC
agrees to act in such capacity upon the terms set forth in this Agreement.
SECTION 2. DEFINITIONS
Whenever used in this Agreement, the following terms shall have the
meanings specified, insofar as the context will allow:
(a) Act: The term "Act" shall mean the Investment Company Act of 1940,
as amended from time to time.
(b) Board: The term "Board" shall mean the Board of Directors of the
Corporation.
<PAGE>
(c) Class: The term "Class" shall mean any future classes of each
Series listed in Appendix A or any class of any Series that the Corporation
shall subsequently establish.
(d) Custodian; Custodian Agreement: The term "Custodian" shall mean The
First National Bank of Boston, or any successor or other custodian acting as
such for any current or future Series of the Corporation. The term "Custodian
Agreement" shall mean the agreement or agreements between the Corporation and
the Custodian or Custodians providing for custodial services to the Corporation.
(e) Corporation: The term "Corporation" shall mean Trans Adviser Funds,
Inc.
(f) Fund Accountant: The term "Fund Accountant" shall mean FFC or any
successor thereto that is responsible for calculating each Funds' net asset
value and maintaining its accounting books and records.
(g) Fund Business Day: The term "Fund Business Day" shall mean each day
that a Fund is open for trading as defined in a Fund's then current prospectus.
(h) Oral Instruction: The term "Oral Instruction" shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to FFC in person or by telephone, vocal telegram or other
electronic means, by a person or persons reasonably believed in good faith by
FFC to be a person or persons authorized by a resolution of the Board of
Directors of the Corporation to give Oral Instructions on behalf of the
Corporation. Each Oral Instruction shall specify whether it is applicable to all
of the Corporation or to a specific Series or Class.
(i) Prospectus: The term "Prospectus" shall mean the then-current
prospectus forming a part of an effective Registration Statement of the
Corporation under the Securities Act of 1933, as amended, and the Act covering
the Shares of a Series or Class as the case may be, as the same may be amended
or supplemented from time to time.
(j) Series: The term "Series" shall mean each series listed in Appendix
A or any series that the Corporation shall subsequently establish.
(k) Share Certificates: The term "Share Certificates" shall mean the
certificates evidencing ownership of Shares of a series or class.
(l) Shareholders: The term "Shareholders" shall mean the registered
owners from time to time of the Shares, as reflected on the share registry
records of the Corporation.
(m) Shares: The term "Shares" shall mean the issued and outstanding
shares of common stock of the Corporation, or any series or class of the
Corporation, including any fractions thereof.
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(n) Valuation Time: The term "Valuation Time" shall mean, with respect
to each Series, the time at which the Series' net asset value is calculated, as
disclosed in the Series' Prospectus.
(o) Written Instructions: The term "Written Instructions" shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to FFC in original writing containing original signatures, or a
copy of such document transmitted by facsimile, including transmission of such
signature, or other mechanical or documentary means at the request of a person
or persons reasonably believed in good faith by FFC to be a person or persons
authorized by a resolution of the Board to give Written Instructions on behalf
of the Corporation. Each Written Instruction shall specify whether it is
applicable to all of the Corporation or a specific Series or Class.
SECTION 3. SHARE CERTIFICATES
The Corporation shall furnish to FFC a supply of blank Share
Certificates of each Class of each Series and, from time to time, will renew
such supply upon FFC's request. Blank Share Certificates shall be signed
manually or by facsimile signatures of officers of the Corporation authorized to
sign by the by-laws of the Corporation and, if required by FFC, shall bear the
Corporation's seal or a facsimile thereof.
SECTION 4. ISSUANCE OF SHARES
FFC shall make original issues of Shares of each Class of each Series
in accordance with Section 11, and the Corporation's then current Prospectus,
upon receipt of (i) Written Instructions requesting the issuance, (ii) a
certified copy of a resolution of the Board authorizing the issuance, (iii)
necessary funds for the payment of any original issue tax applicable to such
Shares, and (iv) an opinion of the Corporation's counsel as to the legality and
validity of the issuance, which opinion may provide that it is contingent upon
the filing by the Corporation of an appropriate notice with the Securities and
Exchange Commission, as required by Rule 24f-2 under the Act. If the opinion
described in (iv) above is contingent upon a filing under Rule 24f- 2, the
Corporation shall fully indemnify FFC for any liability arising from the failure
of the Corporation to comply with that rule.
SECTION 5. TRANSFER OF SHARES
Transfers of Shares of each Class of each Series shall be registered on
the Shareholder records maintained by FFC. In registering transfers of Shares,
FFC may rely upon the Uniform Commercial Code as in effect in the State of
Maryland or any other statutes that, in the opinion of FFC's counsel, protect
FFC and the Corporation from liability arising from (i) not requiring complete
documentation, (ii) registering a transfer without an adverse claim inquiry,
(iii) delaying registration for purposes of such inquiry or (iv) refusing
registration whenever an adverse claim requires such refusal. As Transfer Agent,
FFC will be responsible for delivery
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to the transferor and transferee of such documentation as is required by the
Uniform Commercial Code or any other statutes.
SECTION 6. ISSUANCE AND TRANSFER OF SHARE CERTIFICATES
Subject to the provisions of Section 8, new Share Certificates shall be
issued by FFC upon surrender of outstanding Share Certificates in the form
deemed by FFC to be properly endorsed for transfer and satisfactory evidence of
compliance with all applicable laws relating to the payment or collection of
taxes. FFC shall forward Share Certificates in "non-negotiable" form by
first-class or registered mail, or by whatever means FFC deems equally reliable
and expeditious. While in transit to the addressee, all deliveries of Share
Certificates shall be insured as FFC deems appropriate. FFC shall not mail Share
Certificates in "negotiable" form unless requested in writing by the Corporation
and fully indemnified by the Corporation to FFC's satisfaction. FFC may issue
new Share Certificates in place of those lost, destroyed or stolen, upon
receiving indemnity satisfactory to FFC, and may issue new Share Certificates in
exchange for, and upon surrender of, mutilated Share Certificates as FFC deems
appropriate. Unless otherwise directed by the Corporation, FFC may issue or
register Share Certificates reflecting the signature, or facsimile thereof, of
an officer who has died, resigned or been removed by the Corporation. The
Corporation shall file promptly with FFC approval, adoption or ratification of
such action as may be required by law or FFC. All share certificates submitted
for transfer or replacement shall be marked "canceled" or destroyed by FFC
following the issuance in lieu of the Share Certificate of a new or replacement
Share Certificate or shares not evidenced by a Share Certificate.
SECTION 7. MAINTENANCE OF STOCK RECORDS
FFC shall maintain customary stock registry records for each Class of
each Series, noting the issuance, transfer or redemption of Shares and the
issuance and transfer of Share Certificates. FFC will also maintain for each
Class of each Series an account entitled "Unissued Certificate Account" (or
similar name) in which it will record the Shares issued and outstanding from
time to time for which issuance of Share Certificates has not been requested.
FFC is authorized to keep records for each Class of each Series, containing the
names and addresses of record of Shareholders, and the number of Shares from
time to time owned by them for which no Share Certificates are outstanding. Each
Shareholder account will be assigned a single account number for each Class of
each Series, even though Shares for which Certificates have been issued will be
accounted for separately.
SECTION 8. RECORDS REFLECTING ISSUANCES AND REDEMPTIONS
FFC shall issue Share Certificates for Shares only upon receipt of a
written request from a Shareholder. If Shares are purchased without such
request, FFC shall merely note on its stock registry records the issuance of the
Shares and credit the Unissued Certificate Account and the respective
Shareholders' accounts with the Shares. Whenever Shares owned by Shareholders
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are surrendered for redemption, FFC shall make appropriate entries in the stock
transfer records and debit the Unissued Certificate Account, if appropriate, and
the record of issued Shares outstanding; and shall cancel any Share Certificate
surrendered for redemption.
SECTION 9. RELIANCE BY FFC
In performing its duties hereunder, FFC may rely conclusively and act
without further investigation upon any list, instruction, certification,
authorization, Share Certificate or other instrument or paper reasonably
believed by it in good faith to be genuine and unaltered, and to have been
signed, countersigned or executed or authorized by a duly-authorized person or
persons, or by the Corporation, or upon the advice of counsel for the
Corporation or for FFC. FFC may record any transfer of Share Certificates which
it reasonably believes in good faith to have been duly-authorized, or may refuse
to record any transfer of Share Certificates if, in good faith, it deems such
refusal necessary in order to avoid any liability on the part of either the
Corporation or FFC. The Corporation agrees to indemnify and hold harmless FFC
from and against any and all losses, claims, damages, liabilities or expenses
that it may suffer or incur by reason of such good faith reliance, action or
failure to act.
SECTION 10. INSPECTION OF RECORDS
FFC shall notify the Corporation of any request or demand for the
inspection of the Corporation's share records. FFC shall abide by the
Corporation's instructions for granting or denying the inspection; provided,
however, that FFC may grant the inspection without such instructions if it is
advised by counsel to FFC that failure to do so will result in liability to FFC.
SECTION 11. SHARE PURCHASES; ELIGIBILITY TO RECEIVE DISTRIBUTIONS
(a) Shares shall be issued to investors at the net asset value next
determined after FFC receives a completed purchase order.
(b) A purchase order shall be complete when FFC receives:
(i) an instruction directing investment in a Series or
Class of a Series of the Corporation;
(ii) a check or wire in the amount designated in the
instruction; and,
(iii) in the case of an initial purchase, a completed
account application; or,
(iv) the information required for purchases pursuant to a
selected dealer agreement, processing organization
agreement, or a similar contract with a financial
intermediary.
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(c) Shares issued after receipt of a completed purchase order shall be
eligible to receive dividend and capital gain distributions:
(i) in the case of Series that do not declare dividends
daily, on the next Fund Business Day after FFC receives
the completed purchase order;
(ii) in the case of Series that are money market funds, on
the same Fund Business Day as FFC receives Federal Funds;
and,
(iii) in the case of Series, other than money market
funds, that declare dividends daily, on the next Fund
Business Day after FFC receives Federal Funds.
(d) Shareholder payments shall be considered Federal Funds no later
than on the day indicated below unless such other times shall be noted in a
Prospectus:
(i) for a wire received, at the time of the receipt of
the wire;
(ii) for a check drawn on a member bank of the Federal
Reserve System and received prior to 4:00 p.m.(Eastern
Time) on a Fund Business Day, on the Fund Business Day
following receipt;
(iii) for a check drawn on a member bank of the Federal
Reserve System and received at or after 4:00 p.m. (Eastern
time) on a Fund Business Day, on the second Fund Business
Day following receipt; and
(iv) for a check drawn on an institution that is not a
member of the Federal Reserve System, at such time as the
Transfer Agent actually receives Federal funds in respect
of that check.
SECTION 12. COMPUTATION OF NET ASSET VALUE; CONFIRMATIONS
(a) On each Fund Business Day, as soon as possible after each Valuation
Time for a Series, FFC shall obtain from the Fund Accountant a quotation (on
which it may conclusively rely) of the net asset value for each Class of the
Series as of that Valuation Time. FFC shall use the net asset value determined
as of the Valuation Time to compute the number of Shares of each Class of a
Series to be purchased and the aggregate purchase proceeds to be deposited with
the Custodian based on the completed purchase orders received by FFC on that day
prior to the Valuation Time for the Series. FFC shall thereupon pay the
Custodian the aggregate net asset value of shares of each Class of the Series
purchased for which payment has been received by FFC.
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(b) As necessary but no more frequently than once daily (unless a more
frequent basis is agreed to by FFC), FFC shall issue the proper number of Shares
to be purchased pursuant to subsection (a) above. Promptly thereafter FFC shall
send written confirmation of such purchase to the Custodian and the Corporation
or Fund Accountant.
(c) FFC shall also credit each Shareholder's separate account with the
number of Shares purchased by such Shareholder. FFC shall promptly thereafter
mail written confirmation of the purchase to each Shareholder and to the
Corporation if requested. Each confirmation shall indicate the prior Share
balance, the new Share balance, the amount invested and the price paid for the
newly-purchased Shares.
SECTION 13. SHARE REDEMPTIONS
Prior to each Valuation Time for a Series on each Fund Business Day, as
specified in accordance with Section 12, FFC shall process all requests to
redeem Shares of each Series or Class of the Series in accordance with Section
8. Upon confirmation of the net asset value by the Fund Accountant, FFC shall
notify the Corporation and the Custodian of the redemption amount, apply the
redemption proceeds in accordance with Section 14 and the Prospectus, record the
redemption in the stock registry books, and debit the redeemed Shares from the
Unissued Certificates Account, if appropriate, and the account of the
Shareholder, and mark "canceled" or destroy any Share Certificates evidencing
the redeemed shares.
In lieu of carrying out the redemption procedures described in the
preceding paragraph, FFC may, at the request of the Corporation, sell Shares of
each class of each Series to the Corporation as repurchases from Shareholders,
provided that the sale price is not less than the applicable redemption price.
The redemption procedures shall then be appropriately modified. The Corporation
may authorize FFC by Written Instruction to effect any redemptions upon
provision of an indemnity satisfactory in form to FFC.
SECTION 14. REDEMPTION PROCEEDS
The proceeds of redemption shall be remitted by FFC in accordance with
the Prospectus as follows:
(a) By check mailed to the Shareholder at the Shareholder's address of
record. The redemption request and Share Certificates, if any, for Shares being
redeemed must reflect a guarantee of the owner's signature as described in
Section 24; or
(b) By other procedures commonly followed by mutual funds, as set forth
in the Prospectus and in a Written Instruction from the Corporation and mutually
agreed upon by the Corporation and FFC. For purposes of redemption of shares of
any Class of any Series that have been purchased by check within fifteen (15)
days prior to receipt of the redemption request, the Corporation shall provide
FFC with Written Instructions concerning the time within which
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such requests may be honored. The authority of FFC to perform its
responsibilities under Sections 12 and 13 shall be suspended if FFC receives
notice of the suspension of the determination of the net asset value of any
series of the Corporation.
SECTION 15. DIVIDENDS
Upon the declaration with respect to a Series or Class of a Series of
each dividend and capital gain distribution by the Board, the Corporation shall
notify FFC of the date of such declaration, the amount payable per Share, the
record date for determining the Shareholders entitled to payment, and the
payment and reinvestment date. On or before each payment date the Corporation
will transfer, or cause the Custodian to transfer, to FFC the total amount of
the dividend or distribution currently payable. FFC will, as of the ex-dividend
date, reinvest all dividends and distributions in additional Shares of the same
Series or Class of a Series and promptly mail to each Shareholder at his address
of record, a statement showing the number of Shares (rounded to three decimal
places) of that Class then owned by the Shareholder and the net asset value of
such Shares, or transmit such information in accordance with any arrangement
between the Shareholder and FFC; provided, however, that if a Shareholder elects
to receive dividends and distributions in cash, FFC shall prepare a check in the
appropriate amount and mail it to the Shareholder at the Shareholder's address
of record within five (5) Fund Business Days after the designated payment date
or transmit the appropriate amount in Federal Funds in accordance with any
arrangement between the Shareholder and FFC.
SECTION 16. BOOKS AND RECORDS
(a) The Corporation shall deliver or cause to be delivered over to FFC
(i) an accurate list of Shareholders of the Corporation, showing each
Shareholder's address of record, number of Shares owned and whether such Shares
are represented by outstanding Share Certificates or by non-certificated Share
accounts and (ii) all Shareholder records, files, and other materials necessary
or appropriate for proper performance of the functions assumed by FFC under this
Agreement (collectively referred to as the "Materials"). The Corporation shall
indemnify and hold harmless FFC from and against any and all losses, claims,
damages, liabilities or expenses arising out of or in connection with any error,
omission, inaccuracy or other deficiency of the Materials, or out of the failure
of the Corporation to provide any portion of the Materials or to provide any
information in the Corporation's possession needed by FFC to knowledgeably
perform its functions.
(b) FFC shall prepare and maintain or cause to be prepared and
maintained records in such form for such periods and in such locations as may be
required by applicable regulations, all documents and records relating to the
services provided to the Corporation pursuant to this Agreement required to be
maintained pursuant to the Act, rules and regulations of the Securities and
Exchange Commission, the Internal Revenue Service and any other national, state
or local government entity with jurisdiction over the Corporation. The books and
records pertaining to the Corporation which are in possession of FFC shall be
the property of
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the Corporation. The Corporation, or the Corporation's authorized
representatives, shall have access to such books and records at all times during
FFC's normal business hours. Upon the reasonable request of the Corporation,
copies of any such books and records shall be provided promptly to the
Corporation or the Corporation's authorized representatives. In the event the
Corporation designates a successor to any of FFC's obligations hereunder, FFC
shall, in good faith and at the expense and direction of the Corporation,
transfer to such successor all relevant books, records and other data
established or maintained by FFC under this Agreement.
SECTION 17. COOPERATION WITH INDEPENDENT ACCOUNTANTS
FFC shall cooperate with the Corporation's independent public
accountants and shall take reasonable action to make all necessary information
available to such accountants for the performance of their duties.
SECTION 18. OTHER SERVICES
In addition to the services described above, FFC will perform other
services for the Corporation as mutually agreed upon in writing from time to
time, including but not limited to preparing and filing federal tax forms with
the Internal Revenue Service, mailing federal tax information to Shareholders,
mailing Shareholder reports, preparing the annual list of Shareholders, mailing
notices of Shareholders' meetings, proxies and proxy statements and tabulating
proxies. FFC shall answer certain Shareholder inquiries related to their share
accounts and other correspondence requiring an answer from the Corporation.
SECTION 19. SERVICE DAYS
Nothing contained in this Agreement is intended to or shall require
FFC, in any capacity hereunder, to perform any functions or duties on any day
other than a Fund Business Day. Functions or duties normally scheduled to be
performed on any day which is not a Fund Business Day shall be performed on, and
as of, the next Fund Business Day, unless otherwise required by law.
SECTION 20. DELEGATION OF DUTIES TO SUB-TRANSFER AGENTS
FFC may subcontract any or all of its duties under this agreement to
one or more qualified sub-transfer agents, shareholder servicing agents, or
processing agents, who agree to comply with the terms of FFC's agreement with
the Corporation. Among the services provided by such agents may be: processing
trades through automated interfaces with brokers and institutions; answering
customer inquiries regarding account matters; assisting shareholders in
designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Corporation, proxy
statements, prospectuses and shareholder reports to shareholders and tabulating
proxies; processing dividend payments and providing subaccounting
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services for Fund shares held beneficially; and providing such other services as
the Corporation or a shareholder may request. Such sub-transfer agents,
shareholder servicing agents, or processing agents may be affiliates of FFC. The
Fund will bear any fees or expenses charged to FFC by such sub-transfer agents.
SECTION 21. COMPENSATION
(a) The Corporation agrees to pay to FFC compensation for its services
as set forth in Appendix B attached hereto, or as shall be set forth in written
amendments to Appendix B approved by the Corporation and FFC from time to time.
These fees shall be paid monthly in advance. Fees will begin to accrue for each
Series on the latter of the effective date of this Agreement or the date of
commencement of operations of such Series.
(b) FFC shall be reimbursed for its reasonable out of pocket and
ancillary costs incurred in providing any transfer agency services hereunder,
including the cost of (or appropriate share of the cost of): (i) any and all
forms and stationery used or specially prepared for the purpose; (ii) postage;
(iii) telephone services; (iv) bank fees, including wire charges,
telecommunications equipment, DDA account and transaction charges; (v)
electronic or facsimile transmission; (vi) any fees or expenses charged to FFC
by sub-transfer agents as provided in Section 20 of the Agreement; and, (vii)
any items the Corporation is responsible for as described in the Corporation's
agreements with Trans Financial Trust and Investment Services, Inc.,
Mastrapasqua & Associates, FFC, or Forum Financial Services, Inc. The
Corporation shall reimburse FFC for all reasonable expenses and employee time
attributable to any review of the Corporation's accounts and records by the
Corporation's independent public accountants or any regulatory body outside of
routine and normal periodic reviews. In the event that this agreement is
terminated and a successor transfer agent is appointed, FFC shall be reimbursed
for reasonable charges and disbursements associated with promptly transferring
to the successor transfer agent the original or copies of all books and records
maintained by FFC hereunder, and cooperating with, and providing reasonable
assistance to, the successor transfer agent in the establishment of the books
and records necessary to carry out the successor transfer agent's
responsibilities.
(c) FFC may, with the consent of the Corporation, which consent shall
not be withheld unreasonably, subcontract the performance of all, or any portion
of, the services to be provided hereunder with respect to any Shareholder or
group of Shareholders to any Processing Organization or agent of FFC and may
reimburse any such Processing Organization or agent for the services it
performs; provided that no such reimbursement will increase the amount payable
by the Corporation pursuant to this Agreement.
(d) Except as permitted by this Agreement with regard to indemnity, the
foregoing shall be full and complete compensation and reimbursement for all
FFC's expenses incurred in connection with the services contemplated by this
Agreement, and FFC shall be entitled to no additional expense reimbursement or
other payments of any nature.
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SECTION 22. TAXES
FFC shall not be liable for any taxes, assessments or governmental
charges that may be levied or assessed on any basis whatsoever in connection
with the Corporation or any Shareholder, excluding taxes assessed against FFC
for compensation received by it hereunder.
SECTION 23. STANDARD OF CARE; LIMITATION OF LIABILITY; INDEMNIFICATION
(a) FFC shall use its best judgment and efforts in rendering the
services described in this agreement. FFC shall not be liable to the Corporation
for any action or inaction of FFC in the absence of bad faith, willful
misconduct or gross negligence or based upon information, instructions or
requests with respect to a Fund made to FFC by an officer of the Corporation
duly authorized. FFC shall not be responsible or liable for any failure or delay
in performance of its obligations under this Agreement caused by circumstances
beyond its reasonable control.
(b) The Corporation agrees to indemnify and hold harmless FFC, its
employees, agents, officers and trustees against and from any and all claims,
judgments, losses, charges (including attorneys' fees) and other reasonable
expenses arising out of FFC's actions or omissions that are consistent with the
standard of care set forth in paragraph (a) of this section.
(c) FFC agrees to indemnify and hold harmless the Corporation, its
employees, agents, officers and trustees against and from any and all claims,
judgments, losses, charges (including attorneys' fees) and other reasonable
expenses arising out of FFC's actions or omissions that are inconsistent with
the standard of care set forth in paragraph (a) of this section.
(d) Neither party shall be required to indemnify the other if, prior to
confessing any claim against it which may be subject to indemnification, the
indemnified party does not give the indemnifying party written notice of, and
reasonable opportunity to defend against, the claim.
SECTION 24. SIGNATURE GUARANTEES
Upon receipt of Written Instructions, FFC is authorized to make payment
upon redemption of Shares or otherwise effect any transaction or class of
transaction without a signature guarantee, and the Corporation hereby agrees to
indemnify and hold FFC harmless from any and all expenses, damages, claims,
suits, liabilities, actions, demands or losses whatsoever arising out of or in
connection with such payment or transactions if made in accordance with such
Written Instructions. Signature guarantees may be provided by any eligible
institution, as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, that is authorized to guarantee signatures, and is acceptable to FFC.
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SECTION 25. ADOPTION OF PROCEDURES
The parties hereto may adopt procedures as may be appropriate or
practical under the circumstances, and FFC may conclusively rely on the
determination of the Corporation that any procedure that has been approved by
the Corporation does not conflict with or violate any requirement of its
Articles of Incorporation, Bylaws or Registration Statement, or any rule,
regulation or requirement of any appropriate regulatory body.
SECTION 26. BOARD RESOLUTIONS
The Corporation shall file with FFC a certified copy of the operative
resolution of the Board authorizing the execution of Written Instructions or the
transmittal of Oral Instructions.
SECTION 27. RETURNED CHECKS
In the event that any check or other order for the payment of money is
returned unpaid for any reason, FFC shall promptly notify the Corporation of the
non-payment.
SECTION 28. NOTICES
Any notice or other communication required by or permitted to be given
in connection with this Agreement shall be in writing and shall be delivered in
person, or by first-class mail, postage prepaid, or by overnight or two-day
private mail service to the respective party. Notice to the Corporation shall be
given as follows until further notice:
Trans Adviser Funds, Inc.
500 East Main Street
Bowling Green, Kentucky 42102
Notice to FFC shall be given as follows until further notice:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
SECTION 29. REPRESENTATIONS AND WARRANTIES
The Corporation represents and warrants to FFC that the execution and
delivery of this Agreement by the undersigned officer of the Corporation has
been duly and validly authorized by resolution of the Board. FFC represents and
warrants to the Corporation that the execution and delivery of this Agreement by
the undersigned officer of FFC has also been duly and validly authorized.
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SECTION 30. EFFECTIVENESS, DURATION AND TERMINATION
(a) Effectiveness. This Agreement shall become effective as of the date
first above written with respect to existing series of the Corporation, and
shall relate to every other Series as of the date on which the Corporation's
Registration Statement relating to the shares of such Series becomes effective.
(b) Duration. This Agreement shall remain in effect indefinitely.
(c) Termination. This Agreement may be terminated with respect to any
Series, or Class thereof, without the payment of any penalty, (i) by a vote of a
majority of the Corporation's Board on 60 days' written notice to FFC or (ii) by
FFC on not less than 60 days' written notice to the Corporation. Such
termination shall be effective as of the date specified in the notice. Upon
receiving notice of termination by FFC, the Corporation shall use its best
efforts to obtain a successor transfer agent. Upon receipt of written notice
from the Corporation of the appointment of the successor transfer agent and Oral
or Written Instructions, and upon payment to FFC of all fees owed through the
effective termination date, and reimbursement for reasonable charges and
disbursements (as described in Section 19), FFC shall promptly transfer to the
successor transfer agent the original or copies of all books and records
maintained by FFC hereunder including, in the case of records maintained on
computer systems, copies of such records in machine-readable form, and shall
cooperate with, and provide reasonable assistance to, the successor transfer
agent in the establishment of the books and records necessary to carry out the
successor transfer agent's responsibilities. For so long as FFC continues to
perform any of the services contemplated by this Agreement after termination of
this Agreement (as agreed to by the Corporation and FFC), the provisions of
Sections 19 and 21 hereof shall continue in full force and effect.
SECTION 31. CONFIDENTIALITY
FFC agrees to treat all records and other information related to the
Corporation as proprietary information of the Corporation and, on behalf of
itself and its employees, to keep confidential all such information, except that
FFC may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the Securities and Exchange
Commission;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information when approved in writing by the
Corporation, which approval shall not be unreasonably withheld and may not be
withheld where FFC may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to
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divulge such information by duly constituted authorities or when so requested by
the Corporation.
SECTION 32. MISCELLANEOUS
(a) Modifications And Amendments. No provisions of this Agreement may
be amended or modified in any manner except by a written agreement properly
authorized and executed by both parties hereto.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument.
(c) Construction If Provision Deemed Illegal Or Invalid. If any part,
term or provision of this Agreement is held to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations of the parties
shall be construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid.
(d) Section And Paragraph Headings. Section and Paragraph headings in
this Agreement are included for convenience only and are not to be used to
construe or interpret this Agreement.
(e) Notices. Notices, requests, instructions and communications
received by the parties at their respective principal addresses, or at such
other address as a party may have designated in writing, shall be deemed to have
been properly given.
(f) Successors And Assigns. This Agreement shall extend to and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the
Corporation without the written consent of FFC, or by FFC, without the written
consent of the Corporation authorized or approved by a resolution of the Board.
(g) Governing Law. This Agreement shall be governed by the laws of the
State of Maryland.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
TRANS ADVISER FUNDS, INC.
------------------------
/s/ Thomas A. Trantum
Thomas A. Trantum
President
FORUM FINANCIAL CORP.
/s/ John Y. Keffer
------------------------
John Y. Keffer
President
- 15 -
<PAGE>
TRANS ADVISER FUNDS, INC.
TRANSFER AGENCY AGREEMENT
Appendix A
SERIES OF
TRANS ADVISER FUNDS, INC.
as of September 22, 1995
Growth/Value Fund
Aggressive Growth Fund
Intermediate Bond Fund
Kentucky Tax-Free Fund
Tennessee Tax-Free Fund
Money Market Fund
<PAGE>
TRANS ADVISER FUNDS, INC.
TRANSFER AGENCY AGREEMENT
Appendix B
FEES
For its services hereunder, FFC will receive fees calculated as follows:
(i) a fee of $12,000 per year with respect to each series, such amounts to be
computed and paid monthly in advance by the Corporation; (ii) Annual Shareholder
Account Fees of $25.00 per shareholder account; such fees to be paid monthly and
computed as of the last business day of the prior month; (iii) for series with
multiple share classes, an additional fee of $12,000 per additional class per
year; and (iv) out-of-pocket expenses billed at cost.
The rates set forth above shall remain fixed through December 31, 1996.
TRANS ADVISER FUNDS, INC.
FUND ACCOUNTING AGREEMENT
AGREEMENT made the 22nd day of September 1995, between Trans Adviser
Funds, Inc. (the "Corporation"), a corporation organized under the laws of the
State of Maryland with its principal place of business at 500 East Main Street,
Bowling Green, Kentucky 42102, and Forum Financial Corp. ("FFC"), a corporation
organized under the laws of the State of Delaware with its principal place of
business at Two Portland Square, Portland, Maine 04101.
WHEREAS, the Corporation is registered under the Investment Company Act
of 1940, as amended (the "Act") as an open-end management investment company and
may issue its shares of common stock, no par value (the "Shares"), in separate
series and classes; and
WHEREAS, the Corporation desires that FFC perform certain fund
accounting services for each series of the Corporation now existing or that in
the future may be created, and for classes that may in the future be created in
each of the separate investment portfolios of the Corporation as listed on
Schedule A hereto, as it may be amended from time to time (each a "Fund" and,
collectively, the "Funds") and FFC is willing to provide those services on the
terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Corporation and FFC do hereby agree as follows:
SECTION 1. SERVICES TO BE PERFORMED
For each Fund, FFC shall perform the services listed in this Section.
FFC and the Corporation's Administrator, Forum Financial Services, Inc.
("Forum") may from time to time adopt such procedures as they agree upon to
implement the terms of this Section.
(a) Books and Records. FFC shall prepare and maintain on behalf of the
Corporation the following books and records of each Fund, and each class
thereof, pursuant to Rule 31a-1 under the Act (the "Rule"):
(i) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements
of cash and all other debits and credits, as required by
sub-section (b)(1) of the Rule;
(ii) Journals and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, as required by
subsection (b)(2) of the Rule (but not including the ledgers
required by subsection (b)(2)(iv);
<PAGE>
(iii) A record of each brokerage order given by or on behalf of the
Corporation for, or in connection with, the purchase or sale of
securities, and all other portfolio purchases or sales, as
required by sub-sections (b)(5) and (b)(6) of the Rule;
(iv) A record of all options, if any, in which the Corporation has any
direct or indirect interest or which the Corporation has granted
or guaranteed and a record of any contractual commitments to
purchase, sell, receive or deliver any property as required by
subsection (b)(7) of the Rule;
(v) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by sub-section (b)(8) of the
Rule; and
(vi) Other records required by the Rule or any successor rule or
pursuant to interpretations thereof to be kept by open-end
management investment companies, but limited to these provisions
of the Rule applicable to portfolio transactions and as agreed
upon between the parties hereto.
The forgoing books and records shall be prepared and maintained in such
form, for such periods and in such locations as may be required by applicable
regulation and shall be the property of the Corporation. FFC agrees to make such
books and records available for inspection by the Corporation or by the
Securities and Exchange Commission at reasonable times and as otherwise directed
by Forum.
(b) Accounting Services. FFC shall:
(i) Calculate the net asset value per share with the frequency
prescribed in each Fund's then-current Prospectus;
(ii) Calculate dividends and capital gain distributions, if any, as
required by the Corporation;
(iii)Calculate the yield, effective yield, tax equivalent yield and
total return for each Fund, and each class thereof, as
applicable, and such other measure of performance as may be
agreed upon between the parties hereto;
(iv) Provide the Corporation and such other persons as Forum may
direct with the following reports:
(A) a current securities position report,
(B) a summary report of transactions and pending maturities
(including the principal, cost, and accrued interest on each
portfolio security in maturity date order), and
- 2 -
<PAGE>
(C) a current cash position and projection report;
(v) Prepare and record, as of each time when the net asset value of a
Fund is calculated or as otherwise directed by Forum, either
(A) a valuation of the assets in the Fund (based upon the use of
outside services normally used and contracted for this
purpose by FFC in the case of securities for which
information and market price or yield quotations are readily
available and based upon evaluations conducted in accordance
with Forum's instructions in the case of all other assets)
or
(B) a calculation confirming that the market value of the Fund's
assets does not deviate from the amortized cost value of
those assets by more than a specified percentage agreed to
from time to time by FFC and Forum;
(vi) Make such adjustments over such periods as FFC deems necessary to
reflect over-accruals or under-accruals of estimated expenses or
income; and
(vii)Obtain necessary information from Forum and the Corporation's
transfer agent in order to prepare, and prepare, the
Corporation's Form N-SAR.
(c) Other Services. FFC shall:
(i) Assist the Corporation's independent accountants and, upon
approval of the Corporation or Forum, any regulatory body in any
requested review of the Corporation's books and records
maintained by FFC; and
(ii) Prepare periodic reports to shareholders and the Securities and
Exchange Commission and such other reports as may be agreed to
from time to time and provide information typically supplied in
the investment company industry to companies that track or report
price, performance or other information with respect to
investment companies.
SECTION 2. COMPENSATION
(a) Fee. For the services provided by FFC pursuant to this Agreement,
the Corporation shall pay to FFC a fee with respect to each Fund, as calculated
in accordance with Schedule B hereto. These fees shall be paid monthly in
advance. Fees will begin to accrue for each Fund on the latter of the effective
date of this Agreement or the date of commencement of operations of the Fund.
(b) Reimbursement of Expenses. The Corporation shall reimburse FFC for
all of FFC's reasonable out-of-pocket expenses incurred in the performance of
its duties hereunder.
- 3 -
<PAGE>
The Corporation also shall reimburse FFC for all reasonable expenses and
employee time attributable to any review of the Corporation's accounts and
records by the Corporation's independent accountants or any regulatory body
outside of routine and normal periodic reviews and for all reasonable expenses
for services in connection with FFC's activities in effecting any termination of
this Agreement (except the termination of FFC for cause), including reasonable
expenses incurred by FFC to deliver the Corporation's property in FFC's
possession to the Corporation or other persons.
SECTION 3. TERM
This Agreement shall become effective as of the date first above
written and shall remain in effect for 12 months. Thereafter, this Agreement
shall remain in effect indefinitely. This Agreement may be terminated with
respect to any Fund, or class thereof, without the payment of any penalty, (i)
by a vote of a majority of the Corporation's Board of Directors on 60 days'
written notice to FFC or (ii) by FFC on 60 days' written notice to the
Corporation. For so long as FFC continues to perform any of the services
contemplated by this Agreement after termination of this Agreement (as agreed to
by the Corporation and FFC), the provisions of Sections 2 and 4 hereof shall
continue in full force and effect.
SECTION 4. STANDARD OF CARE; LIMITATION OF LIABILITY
(a) FFC shall use its best judgment and efforts in rendering the
services described in this Agreement. FFC shall not be liable to the Corporation
for any action or inaction of FFC in the absence of bad faith, willful
misconduct or gross negligence or based upon information, instructions or
requests with respect to a Fund made to FFC by an officer of the Corporation
duly authorized. FFC shall not be responsible or liable for any failure or delay
in performance of its obligations under this Agreement caused by circumstances
beyond its reasonable control.
(b) The Corporation agrees to indemnify and hold harmless FFC, its
employees, agents, officers and trustees against and from any and all claims,
judgments, losses, charges (including attorneys' fees) and other reasonable
expenses arising out of FFC's actions taken or failures to act under the
circumstances described in paragraph (a) of this section.
(c) FFC agrees to indemnify and hold harmless the Corporation, its
employees, agents, officers and trustees against and from any and all claims,
judgments, losses, charges (including attorneys' fees) and other reasonable
expenses arising out of FFC's actions taken or failures to act with respect to a
Fund in cases of FFC's own bad faith, willful misconduct or gross negligence.
(d) Neither party shall be required to indemnify the other if, prior to
confessing any claim against it which may be subject to indemnification, the
indemnified party does not give the indemnifying party written notice of, and
reasonable opportunity to defend against, the claim.
- 4 -
<PAGE>
SECTION 5. ASSIGNMENT
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. All terms and provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto.
SECTION 6. CONFIDENTIALITY
FFC agrees to treat all records and other information related to the
Corporation as proprietary information of the Corporation and, on behalf of
itself and its employees, to keep confidential all such information, except that
FFC may
(a) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the Securities and Exchange
Commission;
(b) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(c) release such other information as approved in writing by the
Corporation, which approval shall not be unreasonably withheld and may not be
withheld where FFC may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities or when so requested by the Corporation.
SECTION 7. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto.
(b) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(c) Section and Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
(d) Notices, requests, instructions and communications received by the
parties at their respective principal addresses, or at such other address as a
party may have designated in writing, shall be deemed to have been properly
given.
- 5 -
<PAGE>
(e) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
TRANS ADVISER FUNDS, INC.
/s/ Thomas A. Tranton
-------------------------
Thomas A. Trantum
President
FORUM FINANCIAL CORP.
/s/ John Y. Keffer
--------------------------
John Y. Keffer
President
- 6 -
<PAGE>
TRANS ADVISER FUNDS, INC.
FUND ACCOUNTING AGREEMENT
Schedule A
FUNDS OF
TRANS ADVISER FUNDS, INC.
as of September 22, 1995
Growth Value Fund
Aggressive Growth Fund
Intermediate Bond Fund
Kentucky Tax-Free Fund
Tennessee Tax-Free Fund
Money Market Fund
<PAGE>
TRANS ADVISER FUNDS, INC.
FUND ACCOUNTING AGREEMENT
Schedule B
FEES
Standard Fee per Series with one class $36,000/year
Fee for each additional class $12,000/year
Plus additional surcharges for each of:
Funds with asset levels exceeding:
$100 million $6,000/year
$250 million $6,000/year
$500 million $6,000/year
$1 billion $6,000/year
Funds requiring international custody, or holding futures,
options, forward contracts, foreign currencies, or other hedge
instruments $12,000/year
Funds with more than 30 international positions $12,000/year
Tax Free Money Market Funds $12,000/year
Series with more than 25% of net assets invested in asset
backed securities $12,000/year
Series with more than 50% of net assets invested in asset
backed securities $12,000/year
Series with more than 100 security positions $12,000/year
Series with a monthly portfolio turnover rate of 10%
or greater $12,000/year
Surcharges are paid on a monthly basis, and are determined based upon
the total assets or security positions as of the end of the prior month and on
the portfolio turnover rate for the prior month. Portfolio turnover rate shall
have the meaning ascribed thereto in Securities and Exchange Commission Form
N-1A.
The rates set forth above shall remain fixed through December 31, 1996.
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
Arthur H. Aufses III Richard Marlin Sherwin Kamin
Thomas D. Balliett Thomas E. Molner Arthur B. Kramer
Jay G. Baris Thomas H. Moreland Maurice N. Nessen
Saul E. Burian Ellen R. Nadler Founding Partners
Barry Michael Cass Gary P. Naftalis Counsel
Thomas E. Constance Michael J. Nassau --------
Michael J. Dell Michael S. Nelson Martin Balsam
Kenneth H. Eckstein Jay A. Neveloff Joshua M. Berman
Charlotte M. Fischman Michael S.oberman Jules Buchwald
David S. Frankel Paul S. Pearlman Rudolph De Winter
Marvin E. Frankel Susan J. Penry-williams Meyer Eisenberg
Alan R. Friedman Bruce Rabb Arthur D. Emil
Carl Frischling Allan E. Reznick Maxwell M. Rabb
Mark J. Headley Scott S. Rosenblum James Schreiber
Robert M. Heller Michele D. Ross Counsel
Philip S. Kaufman Max J. Schwartz -------
Peter S. Kolevzon Mark B. Segall M. Frances Buchinsky
Kenneth P. Kopelman Judith Singer Debora K. Grobman
Michael Paul Korotkin Howard A. Sobel Christian S. Herzeca
Kevin B. Leblang Steven C. Todrys Pinchas Mendelson
David P. Levin Jeffrey S. Trachtman Lynn R. Saidenberg
Ezra G. Levin D. Grant Vingoe Jonathan M. Wagner
Larry M. Loeb Harold P. Weinberger Special Counsel
Monica C. Lord E. Lisk Wyckoff, Jr. -------
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
New York, New York
December 18, 1996
Trans Adviser Funds, Inc.
P.O. Box 90001
Bowling Green, Kentucky 42102-9001
Re: Trans Adviser Funds, Inc.
------------------------
Gentlemen:
We hereby consent to the reference of our firm as counsel in this
Post-Effective Amendment No. 4 to Registration Statement on Form N-1A.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
Consent of Independent Auditors
The Board of Directors
Trans Adviser Funds, Inc.:
We consent to the use of our report dated September 11, 1995 included in the
Tennessee Tax-Free Statement of Additional Information and to the use of our
report dated October 18, 1996 incorporated by reference herein and to the
references to our Firm under the headings "Financial Highlights" in the
Growth/Value, Aggressive Growth, Intermediate Bond, Kentucky Tax-Free and Money
Market Funds' Prospectus and "Independent Auditors" and "Financial Reports" in
the Statements of Additional Information.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
December 20, 1996
[LOGO]
Growth/Value Fund Shareholder Inquiries:
Aggressive Growth Fund Forum Financial Corp.
Intermediate Bond Fund P.O. Box 446
Kentucky Tax-Free Fund Portland, Maine 04112
Money Market Fund 207-879-0001
800-811-8258
- -------------------------------------------------------------------------------
October 17, 1996
Dear Shareholder:
We are pleased to present the August 31, 1996 annual report for the Trans
Adviser Funds. This report includes the five funds: Growth/Value, Aggressive
Growth, Intermediate Bond, Money Market and Kentucky Tax-Free Funds.
The stock market, as measured by the Standard & Poor's 500 Index, performed well
over our first fiscal year, but masked several inconsistent counter-trends. The
technology sector reached a peak in the final three months of 1995 and
subsequently entered into a six-month down-draft period. The good news is that,
for Growth/Value and Aggressive Growth Funds, this afforded us the opportunity
of building our technology positions at valuations that were substantially
discounted from 1995 highs. The bad news, however, is many of these technology
issues either stayed depressed or got even cheaper during this interval.
Happily, trends in the past three to four months are much improved and appear to
validate our decision to maintain a meaningful presence in the growth-oriented
technology sector. The second observation is that smaller stock indices such as
the Russell 2000 Index and the Wilshire Small Cap Index, significantly trailed
the S&P 500 as well as the Dow Jones Industrial Average. We take some comfort
that the performance of Growth/Value and Aggressive Growth was positive in
comparison to these other indices.
The municipal market experienced significant volatility during the Funds' fiscal
year. First, the market experienced a wide rate swing (120 basis points plus a
zigzag movement); second, there was much talk of a flat tax; and third, the lack
of supply, then the tremendous supply, and again the lack of supply within the
municipal market. Most of the year, however, the municipal market's performance
was better than that of the taxable market, especially on the shorter
maturities. For example, rates on the 30-year Government bond first fell by more
than 50 basis points, then rose by more than 100 basis points to 6.95%, before
finally settling to 7.12% at the end of the period. Intermediate Bond, Money
Market, and Kentucky Tax-Free Funds performed in line with representative
benchmarks and are described in more detail later in this report.
We take great pride in the Trans Adviser Funds' first year of operations. In a
short period of one year, we have grown to the $130 million level, confirming
our original vision that there is a broad-based appeal for funds managed locally
that employ our investment style and experience. We are further encouraged that
the Funds will enjoy continued growth as a broader network of investors become
informed about our investment approach and capabilities.
If you have any questions or would like additional information about the Trans
Adviser Funds, please call 800-811-8258. Thank you for choosing to invest with
the Trans Adviser Funds.
/s/GORDON B. DAVIDSON /s/THOMAS A. TRANTUM
- --------------------- --------------------
GORDON B. DAVIDSON THOMAS A. TRANTUM
Chairman of the Board President
<PAGE>
GROWTH/VALUE FUND MANAGED BY: FRANK MASTRAPASQUA AND THOMAS A. TRANTUM
From inception of the Trans Adviser Growth/Value Equity Fund on September 29,
1995 through August 31, 1996, the Net Asset Value before any applicable sales
charges rose 11.8% compared with the S&P 500 gain of 13.9%. Including all sales
charges, the Fund rose just 6.8%. The positive but somewhat disappointing
relative performance should be viewed from the following three perspectives.
First, the mainstay focus of the Fund throughout the period was in the health
care, medical and drug sectors. This focus provided the Fund with good earnings
visibility, growth characteristics, and reasonable stock valuations. These three
related sectors had a combined concentration level of between 25% and 30% of the
entire portfolio throughout the period.
Second, excessive valuations and less confidence in underlying demand caused a
retrenchment in the technology sector during the final three months of 1995. As
we entered the opening months of 1996, your Fund managers began to accumulate
what they believed to be quality, high growth technology shares at prices that
were significantly off their high points reached in 1995. Unfortunately, the
technology recession extended not only through the spring of 1996, but lasted
well into the summer months before confidence in these issues began to return.
Within our normal three to five year investment timeframe, we remain confident
that our participation in the technology sector will prove to be "well worth the
weight." In fact, we have already witnessed the return to popularity of many
issues we purchased earlier this year.
Third, in the second half of the fiscal year, we have focused on building up
meaningful positions in the oil service sector, which we feel is being
stimulated by new discovery technologies, limited capacity, continuing good
demand, and recent price increases that have been holding well above levels
assumed in consensus earnings models. We also believe the oil service sector may
provide above average potential returns in the next several years while
continuing to exhibit desirable defensive characteristics.
In summary, core holdings in medical/health care have provided good current risk
adjusted valuation performance, while technology and, to a lesser extent, the
oil service sector have represented a bit of a drag on near term performance. In
recent months, however, the oil service sector seems to be reaching the
performance levels that we initially envisioned.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER GROWTH/VALUE FUND VS. STANDARD & POOR'S 500 INDEX
- --------------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER GROWTH/VALUE STANDARD & POOR'S 500 INDEX
<S> <C> <C>
09/29/95 $9,550 $10,000
10/31/95 $9,388 $9,964
11/30/95 $9,971 $10,401
12/31/95 $10,047 $10,602
01/31/96 $10,410 $10,963
02/29/96 $10,831 $11,065
03/31/96 $10,936 $11,171
04/30/96 $11,327 $11,335
05/31/96 $11,413 $11,626
06/30/96 $11,041 $11,671
07/31/96 $10,220 $11,156
08/31/96 $10,677 $11,391
Value on 8/31/96
Trans Advise Growth/Value Fund $10,677
Standard & Poor...s 500 Index $11,391
Average Annual Total Return
Since Inception on 9/29/95
Trans Advise Growth/Value Fund 6.77%
Standard & Poor...s 500 Index 13.91%
</TABLE>
2 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND MANAGED BY: FRANK MASTRAPASQUA AND THOMAS A. TRANTUM
From inception of the Trans Adviser Aggressive Growth Fund on September 29, 1995
through August 31, 1996, the Net Asset Value before any applicable sales charges
rose 9.5% compared with the NASDAQ Composite Index gain of 9.8%. Including all
sales charges, the Fund rose just 4.6%. A couple of factors should be noted in
this record.
First, while the overall sector strategy pursued in Aggressive Growth Fund was
similar to the strategy employed with the Growth/Value Fund, the technology
sector was given a greater weighting in Aggressive Fund than was the
medical/health care area. Since technology underwent a deeper-than-anticipated
market disfavor, Aggressive Fund's performance lagged that of both the market as
well as Growth/Value Fund.
Second, Aggressive Growth by design is composed of smaller capitalization stocks
which can elevate the Fund's growth prospects but also can raise the Fund's risk
profile. During the period, smaller stock indices, such as the Russell 2000
Index and the Wilshire Small Cap Index, significantly trailed the S&P 500. We
remain confident that over the long term (three to five years) the higher risks
can be adequately rewarded through compensatory returns.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER AGGRESSIVE GROWTH FUND VS. NASDAQ INDEX
- --------------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER AGGRESSIVE GROWTH FUND NASDAQ INDEX
<S> <C> <C>
9/29/95 $9,550 $10,000
10/31/95 $9,044 $9,930
11/30/95 $9,578 $10,157
12/31/95 $9,502 $10,097
1/31/96 $9,473 $10,174
2/29/96 $10,065 $10,567
3/31/96 $10,352 $10,580
4/30/96 $11,394 $11,438
5/31/96 $11,365 $11,948
6/30/96 $10,706 $11,390
7/31/96 $9,808 $10,387
8/31/96 $10,457 $10,974
Value on 8/31/96
Trans Advise Aggressive Growth Fund $10,457
NASDAQ Index $10,976
Average Annual Total Return
Since Inception on 9/29/95
Trans Advise Aggressive Growth Fund 4.57%
NASDAQ Index 9.76%
</TABLE>
3 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND MANAGED BY: MARSHALL E. COX, JR.
From inception of the Intermediate Bond Fund on October 3, 1995 through August
31, 1996 the Net Asset Value before any applicable sales charges rose 3.2%
compared with the Lehman Brothers Intermediate Govt./Corp. Index gain of 3.7%.
Including all sales charges, the Fund lost 1.41%. The relative performance
should be viewed from the following perspectives.
The Fund's fiscal year witnessed huge volatility, as measured by the 30-year
Government bond. Rates on the 30-year Government bond first fell by more than 50
basis points, and then rose by more than 100 basis points to 6.95%, before
finally recovering to 7.12% at the end of the period.
The Fund continues to attract assets and remains well positioned to participate
in a rallying bond market with an average duration of 4.4 years and an average
maturity of 6.45 years, as of the end of the period. The Fund's securities
currently are of very high quality, being comprised of 42% US government
securities with only 11% of the Fund's securities rated BBB. The Fund also
remains well diversified among 46 issues with consumer and commercial finance,
banking, insurance, electric, telephone, natural gas and pipeline, retail and
industrial consumer, oil, metals and chemicals all represented.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER INTERMEDIATE BOND FUND VS. LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX
- --------------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER INTERMEDIATE BOND FUND LEHMAN INTERMEDIATE GOVT./CORP. INDEX
<S> <C> <C>
10/03/95 $9,550 $10,000
10/31/95 $9,599 $10,111
11/30/95 $9,701 $10,243
12/31/95 $9,782 $10,351
01/31/96 $9,873 $10,440
02/29/96 $9,779 $10,318
03/31/96 $9,756 $10,265
04/30/96 $9,709 $10,229
05/31/96 $9,725 $10,221
06/30/96 $9,842 $10,329
07/31/96 $9,865 $10,360
08/31/96 $9,859 $10,369
Value on 8/31/96
Trans Advise Intermediate Bond Fund
Lehman IntermediateGovt./Corp. Index
Average Annual Total Return
Since Inception on 10/3/95
Trans Advise Intermediate Bond Fund -1.41%
Lehman IntermediateGovt./Corp. Index 3.69%
</TABLE>
4 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND MANAGED BY: MARSHALL E. COX, JR.
From inception of the Kentucky Tax-Free Fund on September 27, 1995 through
August 31, 1996 the Net Asset Value before any applicable sales charges rose
5.8% compared with the Lehman Brothers Municipal Index gain of 4.6%. Including
all sales charges, the Fund rose just 1.0%. The relative performance should be
viewed from the following perspectives.
The municipal market in Kentucky experienced significant volatility during the
Fund's fiscal year. First, the market experienced a wide rate swing (120 basis
points plus a zigzag movement); second, there was much talk of a flat tax; and
third, the lack of supply, then the tremendous supply, and again the lack of
supply within the municipal market. Most of the year, however, the municipal
market's performance was better than that of the taxable market, as measured by
the 30-year Government bond.
Also contributing to the Fund's performance was the fact that the quality of the
Fund's securities is up significantly, with 91% of the securities rated A or
better. In addition, duration has been shortened substantially to 5.5 years,
with an average maturity of 7.9 years. This selective shortening of the duration
dramatically improved the convexity of the Fund (the concept that measures
sensitivity of the market price to changes in the interest rate levels). The
result is that in an improving municipal market, the Fund may perform well
without having a substantial number of bonds called away and in a deteriorating
market, the losses can be limited because of the much shorter duration and
maturity. We feel the limited duration and better convexity, along with the very
high quality of the Fund's securities, will position this Fund more
conservatively while not sacrificing yield.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER KENTUCKY TAX-FREE FUND VS. LEHMAN MUNICIPAL INDEX
- --------------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER KENTUCKY TAX-FREE FUND LEHMAN MUNICIPAL INDEX
<S> <C> <C>
9/27/95 $9,550 $10,000
10/31/95 $9,800 $10,145
11/30/95 $9,986 $10,313
12/31/95 $10,109 $10,412
1/31/96 $10,175 $10,492
2/29/96 $10,101 $10,420
3/31/96 $9,979 $10,287
4/30/96 $9,963 $10,258
5/31/96 $9,962 $10,254
6/30/96 $9,944 $10,366
7/31/96 $10,109 $10,459
8/31/96 $10,104 $10,457
Value on 8/31/96
Trans Advise Kentucky Tax-Free Fund $10,104
Lehman Municipal Index $10,457
Average Annual Total Return
Since Inception on 9/27/95
Trans Advise Kentucky Tax-Free Fund 1.04%
Lehman Municipal Index 4.57%
</TABLE>
5 TRANS ADVISER FUNDS, INC.
<PAGE>
GROWTH/VALUE FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- --------------------------------- -------------
<C> <S> <C>
COMMON STOCK (95.2%):
AMUSEMENT & RECREATION SERVICES (3.3%):
10,000 Harrah's Entertainment, Inc.*.... $ 190,000
10,000 Promus Hotel Corporation*........ 301,250
-------------
491,250
-------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (1.4%):
7,500 Autozone, Inc.*.................. 204,375
-------------
BUSINESS SERVICES (7.1%):
20,000 ADT Ltd.*........................ 392,500
6,000 Oracle Corporation*.............. 211,500
10,000 SCB Computer Technology, Inc.*... 192,500
5,000 Sun Microsystems, Inc.*.......... 271,875
-------------
1,068,375
-------------
CHEMICALS & ALLIED PRODUCTS (7.6%):
4,000 Bristol-Myers Squibb Company..... 351,000
6,000 Merck & Company, Inc. ........... 393,750
7,000 Schering-Plough Corporation...... 391,125
-------------
1,135,875
-------------
COMMUNICATIONS (1.0%):
10,000 Tele-Communications, Inc.*....... 148,750
-------------
DEPOSITORY INSTITUTIONS (4.9%):
10,000 Carolina First Corporation....... 188,750
10,000 MBNA Corporation................. 303,750
10,000 Signet Banking Corporation....... 241,250
-------------
733,750
-------------
EATING & DRINKING PLACES (3.5%):
7,500 McDonald's Corporation........... 347,812
20,000 Shoney's, Inc.*.................. 182,500
-------------
530,312
-------------
ELECTRIC, GAS, & SANITARY SERVICES (2.9%):
10,000 Sonat, Inc. ..................... 441,250
-------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER EQUIPMENT (1.2%):
5,000 Novellus Systems, Inc.*.......... 188,750
-------------
FOOD STORES (2.1%):
7,500 Kroger Company*.................. 317,813
-------------
FOOD & KINDRED PRODUCTS (0.4%):
15,000 Monterey Pasta Company*.......... 67,500
-------------
GENERAL MERCHANDISE STORES (1.8%):
6,000 Sears, Roebuck and Company....... 264,000
-------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- --------------------------------- -------------
<C> <S> <C>
HEALTH SERVICES (9.6%):
10,000 Beverly Enterprises*............. $ 102,500
5,000 Columbia HCA Healthcare
Corporation.................... 281,875
2,345 Healthsouth Rehabilitation
Corporation*................... 75,919
10,000 Living Centers of America,
Inc.*.......................... 267,500
1,000 Quorum Health Group, Inc.*....... 25,250
15,000 Tenet Healthcare Corporation*.... 315,000
12,000 Vencor, Inc.*.................... 376,500
-------------
1,444,544
-------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER
EQUIPMENT (13.4%):
10,000 Hewlett-Packard Company.......... 437,500
5,000 International Business Machines
Corporation.................... 571,875
10,000 Lam Research Corporation*........ 236,250
5,000 Seagate Technology, Inc.*........ 240,000
15,000 Western Digital Corporation*..... 526,875
-------------
2,012,500
-------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (1.8%):
10,000 Tech-Sym Corporation*............ 277,500
-------------
MISCELLANEOUS RETAIL (3.6%):
6,000 Friedman's, Inc. Class A*........ 126,000
10,000 Melville Corporation............. 422,500
-------------
548,500
-------------
MOTION PICTURES (0.8%):
2,000 The Walt Disney Company.......... 114,000
-------------
NONDEPOSITORY CREDIT INSTITUTIONS (3.5%):
5,000 American Express Company......... 218,750
10,000 Capital One Financial
Corporation.................... 301,250
-------------
520,000
-------------
OIL & GAS EXTRACTION (5.4%):
10,000 Nuevo Energy Company*............ 373,750
6,500 Pride Petroleum Services, Inc.*.. 93,438
4,000 Schlumberger, Ltd. .............. 337,500
-------------
804,688
-------------
PHARMACEUTICAL PREPARATIONS (3.2%):
8,000 American Home Products
Corporation.................... 474,000
-------------
</TABLE>
See notes to financial statements. 6 TRANS ADVISER FUNDS, INC.
<PAGE>
GROWTH/VALUE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- --------------------------------- -------------
<C> <S> <C>
TRANSPORTATION EQUIPMENT (1.5%):
2,500 Boeing Company................... $ 226,250
-------------
TRANSPORTATION SERVICES (1.3%):
15,000 United Transnet, Inc.*........... 195,000
-------------
TRANSPORTATION BY AIR (1.5%):
10,000 Southwest Airlines Company....... 228,750
-------------
WATER TRANSPORTATION (2.6%):
10,000 Tidewater, Inc. ................. 383,750
-------------
WHOLESALE TRADE--DURABLE GOODS (8.6%):
6,000 Arrow Electronics Inc.*.......... 273,750
4,000 Avnet, Inc. ..................... 187,000
5,000 Lockheed Martin Corporation...... 420,625
15,000 Sybron International
Corporation-Wisconsin*......... 412,500
-------------
1,293,875
-------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- --------------------------------- -------------
<C> <S> <C>
WHOLESALE TRADE--NONDURABLE GOODS (1.2%):
5,000 Safeway, Inc.*................... $ 181,250
-------------
Total Common Stock
(cost $14,053,526)......................... 14,296,607
-------------
SHORT-TERM HOLDINGS (4.8%):
16,152 1784 U.S. Treasury Money Market
Fund........................... 16,152
711,813 Forum Daily Assets Treasury
Fund........................... 711,813
-------------
Total Short-Term Holdings
(cost $727,965)............................ 727,965
-------------
Total Investments (100.0%)
(cost $14,781,491)......................... $ 15,024,572
-------------
-------------
</TABLE>
*Non-income producing security.
See notes to financial statements. 7 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ---------------------------------- ------------
<C> <S> <C>
COMMON STOCK (98.9%):
AMUSEMENT & RECREATION SERVICES (3.8%):
5,000 Harrah's Entertainment, Inc.*..... $ 95,000
5,000 Promus Hotel Corporation*......... 150,625
------------
245,625
------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE
STATIONS (1.9%):
10,000 Rush Enterprises, Inc.*........... 125,000
------------
BUSINESS SERVICES (12.1%):
10,000 ADT Ltd.*......................... 196,250
10,000 Cerplex Group*.................... 68,750
5,000 Oracle Corporation*............... 176,250
9,500 SCB Computer Technology, Inc.*.... 182,875
3,000 Sun Microsystems, Inc.*........... 163,125
------------
787,250
------------
CHEMICALS & ALLIED PRODUCTS (1.6%):
10,000 NABI, Inc.*....................... 106,250
------------
COMMUNICATIONS (1.1%):
5,000 Mobile Telecommunication Tech
Corp*........................... 69,375
------------
DEPOSITORY INSTITUTIONS (2.9%):
10,000 Carolina First Corporation........ 188,750
------------
EATING & DRINKING PLACES (4.9%):
6,000 Quality Dining, Inc.*............. 176,250
16,000 Shoney's, Inc.*................... 146,000
------------
322,250
------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER EQUIPMENT (2.3%):
4,000 Novellus Systems, Inc.*........... 151,000
------------
FOOD STORES (2.3%):
3,500 Kroger Company*................... 148,312
------------
FOOD & KINDRED PRODUCTS (0.7%):
10,000 Monterey Pasta Company*........... 45,000
------------
GENERAL MERCHANDISE STORES (1.2%):
2,000 Consolidated Stores
Corporation*.................... 76,000
------------
HEALTH SERVICES (11.9%):
7,500 Living Centers of America, Inc.*.. 200,625
2,000 Quorum Health Group, Inc.*........ 50,500
10,000 Tenet Healthcare Corporation*..... 210,000
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ---------------------------------- ------------
<C> <S> <C>
HEALTH SERVICES, CONTINUED:
10,000 Vencor, Inc.*..................... $ 313,750
------------
774,875
------------
HOLDING & OTHER INVESTMENT OFFICES (0.5%):
1,000 Felcor Suite Hotels, Inc. ........ 30,500
------------
HOME FURNITURE, FURNISHINGS, & EQUIPMENT
STORES (1.2%):
5,000 Movie Gallery, Inc.*.............. 76,250
------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER
EQUIPMENT (14.4%):
4,000 Hewlett-Packard Company........... 175,000
8,000 Lam Research Corporation*......... 189,000
15,000 Smart Modular Technologies*....... 225,000
10,000 Western Digital Corporation*...... 351,250
------------
940,250
------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (2.5%):
6,000 Tech-Sym Corporation*............. 166,500
------------
MISCELLANEOUS RETAIL (3.5%):
6,000 Friedman's, Inc. Class A*......... 126,000
2,500 Melville Corporation.............. 105,625
------------
231,625
------------
NONDEPOSITORY CREDIT INSTITUTIONS (4.6%):
6,000 Capital One Financial
Corporation..................... 180,750
5,000 Olympic Financial, Ltd.*.......... 122,500
------------
303,250
------------
OIL & GAS EXTRACTION (7.9%):
8,000 Nuevo Energy Company*............. 299,000
15,000 Pride Petroleum Services, Inc.*... 215,625
------------
514,625
------------
TRANSPORTATION SERVICES (5.1%):
10,000 Simon Transportation Services*.... 137,500
15,000 United Transnet, Inc.*............ 195,000
------------
332,500
------------
TRANSPORTATION BY AIR (2.5%):
5,000 Southwest Airlines Company........ 114,375
5,000 Western Pacific Airlines, Inc.*... 50,625
------------
165,000
------------
WATER TRANSPORTATION (3.5%):
6,000 Tidewater, Inc. .................. 230,250
------------
</TABLE>
See notes to financial statements. 8 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ---------------------------------- ------------
<C> <S> <C>
WHOLESALE TRADE--DURABLE GOODS (2.1%):
5,000 Sybron International
Corporation-Wisconsin*.......... $ 137,500
------------
WHOLESALE TRADE--NONDURABLE GOODS (4.4%):
7,500 AmeriSource Health Corporation*... 285,938
------------
Total Common Stock
(cost $6,393,306)........................... 6,453,875
------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- ---------- ---------------------------------- ------------
<C> <S> <C>
SHORT-TERM HOLDINGS (1.1%)
576 1784 U.S. Treasury Money Market
Fund............................ $ 576
72,947 Forum Daily Assets Treasury
Fund............................ 72,947
------------
Total Short-Term Holdings
(cost $73,523).............................. 73,523
------------
Total Investments (100.0%)
(cost $6,466,829)........................... $ 6,527,398
------------
------------
</TABLE>
*Non-income producing security.
See notes to financial statements. 9 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (7.9%):
$ 290,038 Federal Home Loan Mortgage
Corporation, Series 1072,
Class G, 7.00%, due
5/15/06...................... $ 289,228
800,000 Federal Home Loan Mortgage
Corporation, Series 1720,
Class E, 7.50% due
12/15/09..................... 797,647
-------------
Total Collateralized Mortgage Obligations
(cost $1,118,738).......................... 1,086,875
-------------
FIXED RATE BONDS--CORPORATE (55.4%):
686,000 Alabama Power Company, 8.30%,
due 7/1/22................... 684,720
400,000 Anheuser-Busch Companies,
7.00%, due 9/1/05............ 388,401
178,000 Anheuser-Busch Companies,
8.75%, due 12/1/99........... 187,100
169,000 Associates Corporation of North
America, 6.00%, due
3/15/00...................... 164,005
250,000 B.P. America, 6.50%, due
12/15/99..................... 245,774
50,000 Berkley W.R. Corporation,
9.875%, due 5/15/08.......... 57,698
190,000 The Chase Manhattan
Corporation, 8.00%, due
5/15/04...................... 191,230
115,000 Citicorp, 10.75%, due
12/15/15..................... 118,364
146,000 Citicorp, 10.50%, due 2/1/16... 149,355
140,000 Commonwealth Edison Company,
9.50%, due 5/1/16............ 146,775
160,000 Florida Power & Light Company,
8.00%, due 8/25/22........... 156,388
100,000 Ford Motor Credit Company,
5.83%, due 6/29/98........... 98,648
160,000 Ford Motor Credit Company,
7.50%, due 1/15/03........... 161,039
160,000 GTE of Southeast Corporation,
8.00%, due 12/1/01........... 160,812
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE BONDS--CORPORATE, CONTINUED:
$ 130,000 General Electric Capital
Corporation, 6.66%, due
5/1/18....................... $ 128,744
69,000 Georgia Power Company First
Mortgage Bonds, 7.95%, due
2/1/23....................... 67,860
250,000 Greyhound Financial
Corporation, 7.82%, due
1/27/03...................... 253,009
250,000 IBM Credit Corporation, 6.20%,
due 3/19/01.................. 239,773
300,000 Inco, Ltd., 9.60%, due
6/15/22...................... 317,897
120,000 Jersey Central Power & Light
Company, 9.20%, due 7/1/21... 128,346
46,000 Kaiser Permanente, 9.55%, due
7/15/05...................... 52,472
56,000 Kraft, Inc., 8.50%, due
2/15/17...................... 56,264
200,000 Michigan Bell Telephone
Company, 6.375%, due
2/1/05....................... 188,882
175,000 Pacific Gas & Electric Company,
6.625%, due 6/1/00........... 170,867
439,000 Pennsylvania Power & Light
Company, 9.25%, due
10/1/19...................... 468,786
120,000 Public Service Electric & Gas
Company, 8.75%, due
11/1/21...................... 128,669
165,000 Questar Pipeline, 9.375%, due
6/1/21....................... 180,413
70,000 Rohm & Haas Company, 9.80%, due
4/15/20...................... 83,520
50,000 Sara Lee Corporation, 8.75%,
due 5/15/16.................. 51,814
675,000 Shopko Stores, 9.25%, due
3/15/22...................... 693,309
200,000 Southern California Edison,
7.375%, due 12/15/03......... 203,407
85,000 Southwestern Public Service
Company, 8.20%, due
12/1/22...................... 86,728
</TABLE>
See notes to financial statements. 10 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE BONDS--CORPORATE, CONTINUED:
$ 199,000 TJX Companies, Inc., 9.50%, due
5/2/16....................... $ 206,408
68,000 U.S. Leasing International,
6.625%, due 5/15/03.......... 65,228
130,000 Union Electric Company, 8.00%,
due 12/15/22................. 128,740
500,000 Union Oil of California
Corporation, 6.70%, due
10/15/07..................... 463,422
250,000 Washington Gas Light Company,
6.50%, due 1/14/97........... 250,778
65,000 Wisconsin Electric Power,
7.75%, due 1/15/23........... 63,377
-------------
Total Fixed Rate Bonds--Corporate
(cost $7,817,554).......................... 7,589,022
-------------
FIXED RATE NOTES--AGENCY (7.1%):
500,000 Federal Home Loan Bank, 6.62%,
due 12/6/00.................. 487,668
150,000 Federal National Mortgage
Association, 6.17%, due
12/2/03...................... 141,364
265,000 Tennessee Valley Authority,
6.875%, due 1/15/02.......... 261,356
50,000 Tennessee Valley Authority,
6.875%, due 8/1/02........... 49,128
30,000 Tennessee Valley Authority,
8.05%, due 7/15/24........... 29,261
-------------
Total Fixed Rate Notes--Agency
(cost $998,362)............................ 968,777
-------------
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
REPURCHASE AGREEMENTS (15.3%):
$ 2,101,575 The First Boston Corporation,
5.30%, due 9/3/96, to be
repurchased at 2,102,813
(collateralized by
$16,050,000 Federal National
Mortgage Association, pool
#339017, 6.092%, due
12/1/35)..................... $ 2,101,575
-------------
Total Repurchase Agreements
(cost $2,101,575).......................... 2,101,575
-------------
TREASURY NOTES (14.2%):
2,000,000 U.S. Treasury Notes, 6.50%, due
8/15/05...................... 1,943,750
-------------
Total Treasury Notes
(cost $1,986,601).......................... 1,943,750
-------------
SHORT-TERM HOLDINGS (0.1%):
5,006 1784 U.S. Treasury Money Market
Fund......................... 5,006
-------------
Total Short-Term Holdings
(cost $5,006).............................. 5,006
-------------
Total Investments (100.0%)
(cost $14,027,836)......................... $ 13,695,005
-------------
-------------
</TABLE>
See notes to financial statements. 11 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
MUNICIPAL BONDS (100.0%):
AIRPORT REVENUE (5.0%):
$ 750,000 Kenton County, KY, Airport
Revenue Bonds, MBIA insured,
5.75%, due
3/1/13....................... $ 733,125
50,000 Lexington-Fayette Urban County
Airport Corporation, KY,
First Mortgage Revenue Bonds,
7.75%, due 4/1/08............ 53,937
-------------
787,062
-------------
ECONOMIC DEVELOPMENT REVENUE (15.3%):
100,000 Covington, KY, Municipal
Properties Corporation
Revenue Bonds, Series A,
8.25%, due 8/1/10,
prerefunded 8/1/98 at 103.... 109,875
490,000 Jefferson County, KY, Capital
Projects Corporation Revenue
Bonds, Series A, 5.65%, due
8/15/03...................... 508,987
100,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #26 Second
Series, 7.10%, due 12/1/97... 103,500
110,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #27, 7.10%,
due 5/1/06, prerefunded
11/1/96
at 102....................... 112,773
50,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #27, 7.10%,
due 5/1/08, prerefunded
11/1/96
at 102....................... 51,260
100,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #30 Fifth
Series, 7.00%, due 12/1/96... 100,792
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
ECONOMIC DEVELOPMENT REVENUE, CONTINUED:
$ 70,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #32 Third
Series, 6.50%, due 12/1/99... $ 73,762
65,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #51, escrowed
to maturity, 6.00%, due
8/1/97....................... 66,159
455,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #51, escrowed
to maturity, 6.30%, due
8/1/01....................... 482,869
100,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #52, 6.50%,
due 8/1/11, prerefunded
8/1/01 at 102................ 109,125
425,000 Kentucky State Turnpike
Authority, Economic
Development Revenue Bonds,
Revitalization Projects,
escrowed to maturity, 7.00%,
due 5/15/99.................. 452,094
200,000 Kentucky State Turnpike
Authority, Economic
Development Revenue Bonds,
7.25%, due 5/15/10,
prerefunded 5/15/00 at
101.50....................... 219,750
-------------
2,390,946
-------------
EDUCATION FACILITIES REVENUE (19.9%):
350,000 Fayette County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series C, 5.25%, due
10/1/09...................... 334,687
</TABLE>
See notes to financial statements. 12 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
EDUCATION FACILITIES REVENUE, CONTINUED:
$ 365,000 Fayette County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series C, 5.25%, due
10/1/10...................... $ 346,750
200,000 Hopkins County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, 5.70%, due 6/1/06..... 204,250
495,000 Jefferson County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series A, 4.875%, due
1/1/11....................... 449,831
750,000 Jefferson County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series A, MBIA
insured, 5.00%, due 2/1/07... 731,250
70,000 Lexington-Fayette Urban County
Government, KY, School
Building Revenue Bonds,
6.80%, due 10/1/01........... 76,300
770,000 Pendleton County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, 5.05%, due 12/1/15.... 685,300
200,000 University of Louisville, KY,
Revenue Bonds, Series H,
5.875%, due 5/1/12........... 201,750
70,000 University of Louisville, KY,
Revenue Bonds, Series G,
6.25%, due 5/1/99............ 72,103
-------------
3,102,221
-------------
GENERAL OBLIGATION (1.8%):
305,000 Fern Creek, KY, Fire Protection
District, Holding Company,
Inc., Revenue Bonds, Fire
Station #2, 5.75%, due
1/15/14...................... 286,319
-------------
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
HEALTH CARE REVENUE (13.2%):
$ 385,000 Jefferson County, KY, Hospital
Revenue Bonds, NKC Hospitals,
Inc. Project, MBIA insured,
7.75%, due 10/1/14,
prerefunded 10/01/97 at
102.......................... $ 407,492
1,225,000 Kentucky Economic Development
Finance Authority, Hospital
Facilities Revenue Bonds,
Society National Bank LOC,
5.75%, due 11/1/05........... 1,211,219
475,000 Kentucky Economic Development
Finance Authority, Hospital
Facilities Revenue Bonds,
Baptist Healthcare System
Project, MBIA insured, 5.00%,
due 8/15/24.................. 408,500
40,000 McCracken County, KY, Revenue
Bonds, Lourdes Hospital,
Inc., 6.00%, due 11/1/12,
prerefunded 11/1/96 at 100... 40,146
-------------
2,067,357
-------------
HOUSING REVENUE (6.6%):
725,000 Boone County, KY, Public
Properties Corporation
Revenue Bonds, Sewer System
Lease, 5.15%, due 12/1/12.... 667,000
270,000 Greater Kentucky Housing
Assistance Corporation,
Mortgage Revenue Bonds,
FHA/Section 8 Assisted
Project, Series A, MBIA/ FHA
insured, 6.25%, due 7/1/22... 270,337
100,000 Jefferson County, KY, Capital
Projects Corporation Revenue
Bonds, Series A, 0.00%
(5.747% effective yield), due
8/15/99...................... 86,750
-------------
1,024,087
-------------
</TABLE>
See notes to financial statements. 13 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
INDUSTRIAL DEVELOPMENT REVENUE (6.1%):
$ 750,000 Clark County, KY, Industrial
Building Revenue Bonds,
Southern Wood Project, 7.00%,
due 12/1/08+................. $ 746,250
200,000 Wickliffe, KY, Industrial
Building Revenue Bonds,
Westvaco Corporation Project,
7.00%, due 1/1/09............ 199,956
-------------
946,206
-------------
JAIL FACILITIES REVENUE (0.7%):
100,000 Kentucky Local Correctional
Facilities Construction
Authority Revenue Bonds,
7.00%, due 11/1/14,
prerefunded 11/1/97 at 102... 105,250
-------------
OTHER REVENUE (6.1%):
475,000 Kentucky Higher Education
Student Loan Corporation,
Insured Student Loan Revenue
Bonds, Series B, 6.40%, due
6/1/00....................... 503,500
300,000 Lexington-Fayette Urban County,
KY, Government Public
Facilities Corporation
Revenue Bonds, Recreation
Project, 7.90%, due 7/1/06,
prerefunded 7/1/97 at 102.... 315,480
120,000 Puerto Rico Public Buildings
Authority Guaranteed Revenue
Bonds, Series K, 6.875%, due
7/1/21, prerefunded 7/1/02 at
101.50....................... 134,400
-------------
953,380
-------------
POLLUTION CONTROL REVENUE (17.7%):
450,000 Ashland, KY, Pollution Control
Revenue Bonds, Ashland Oil,
7.375%, due 7/1/09........... 483,750
295,000 Ashland, KY, Solid Waste
Revenue Bonds, Ashland Oil,
Inc., Project, 7.20%, due
10/1/20...................... 310,488
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
POLLUTION CONTROL REVENUE, CONTINUED:
$ 235,000 Jefferson County, KY, Pollution
Control Revenue Bonds,
Louisville Gas & Electric
Company Project A, 7.45%, due
6/15/15...................... $ 255,269
100,000 Kentucky State Pollution
Abatement & Water Reserve
Finance Authority Revenue
Bonds, Series A, escrowed to
maturity, 7.40%, due
8/1/02....................... 112,875
50,000 Louisville & Jefferson County,
KY, Metropolitan Sewer
District, Sewer & Drain
System Revenue Bonds, Series
A, AMBAC insured, 6.50%, due
5/15/00...................... 52,938
455,000 Meade County, KY, Pollution
Control Revenue Bonds, Olin
Corporation Project, 6.00%,
due 7/1/07................... 457,707
385,000 Trimble County, KY, Pollution
Control Revenue Bonds, Series
A, 7.625%, due 11/1/20,
prerefunded 11/1/00 at 102... 430,719
600,000 Trimble County, KY, Pollution
Control Revenue Bonds, Series
A, 7.625%, due 11/1/20....... 659,250
-------------
2,762,996
-------------
TRANSPORTATION REVENUE (6.1%):
655,000 Kentucky State Turnpike
Authority Resource Recovery
Road Revenue Bonds, escrowed
to maturity, 6.125%, due
7/1/07....................... 674,650
275,000 Kentucky State Turnpike
Authority Resource Recovery
Road Revenue Bonds, Series A,
FGIC insured, 6.00%, due
7/1/09....................... 275,405
-------------
950,055
-------------
</TABLE>
See notes to financial statements. 14 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
UTILITIES REVENUE (1.5%):
$ 200,000 Owensboro, KY, Electric Light &
Power Revenue Bonds, Series
A, 10.25%, due 1/1/09,
prerefunded 1/1/00 at 102.... $ 232,250
-------------
Total Municipal Bonds
(cost $15,867,871)......................... 15,608,129
-------------
Total Investments (100.0%)
(cost $15,867,871)......................... $ 15,608,129
-------------
-------------
</TABLE>
+Securities that may be resold to
"qualified institutional buyers"
under rule 144a or securities offered
pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
These securities have been determined
to be liquid under guidelines
established by the Board of
Directors.
See notes to financial statements. 15 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
ASSET BACKED SECURITIES (0.4%):
$ 274,424 Federal Home Loan Mortgage
Corporation, 7.00%, due
4/1/97....................... $ 275,191
-------------
DISCOUNT NOTES--AGENCY (19.8%):
15,015,000 Federal Home Loan Mortgage
Corporation, 5.293% yield,
9/5/96....................... 15,010,662
-------------
FIXED RATE NOTES--AGENCY (4.2%):
100,000 Federal Home Loan Bank, 4.75%,
due 1/13/97.................. 99,641
100,000 Federal Home Loan Bank, 4.57%,
due 2/3/97................... 99,492
100,000 Federal Home Loan Bank, 4.80%,
due 7/24/97.................. 98,810
100,000 Federal Home Loan Mortgage
Corporation, 4.525%, due
1/27/97...................... 99,521
220,000 Federal Land Bank, 7.95%, due
10/21/96..................... 220,645
1,100,000 Federal National Mortgage
Association, 4.50%, due
11/1/96...................... 1,097,763
400,000 Tennessee Valley Authority,
8.25%, due 11/15/96.......... 401,897
230,000 Tennessee Valley Authority,
4.60%, due 12/15/96.......... 229,209
861,000 Tennessee Valley Authority,
6.00%, due 1/15/97........... 861,380
-------------
Total Fixed Rate Notes--Agency............... 3,208,358
-------------
FIXED RATE NOTES--CORPORATE (59.2%):
175,000 AT&T Capital Corporation,
7.66%, due 1/30/97........... 176,132
355,000 American Express Credit
Corporation, 7.875%, due
12/1/96...................... 356,681
1,128,000 American Express Credit
Corporation, 7.75%, due
3/1/97....................... 1,138,977
75,000 American General Finance
Corporation, 7.15%, due
5/15/97...................... 75,568
80,000 American Home Products
Corporation, 6.875%, due
4/15/97...................... 80,322
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 660,000 Associates Corporation of North
America, 7.50%, due
10/15/96..................... $ 661,211
215,000 Associates Corporation of North
America, 8.70%, due 1/1/97... 216,815
395,000 Associates Corporation of North
America, 6.875%, due
1/15/97...................... 396,372
50,000 Associates Corporation of North
America, 9.70%, due 5/1/97... 51,165
290,000 Associates Corporation of North
America, 8.625%, due
6/15/97...................... 295,124
1,520,000 Bankers Trust New York
Corporation, 7.25%, due
11/1/96...................... 1,523,248
190,000 Bausch & Lomb, Inc., 6.80%, due
12/12/96..................... 190,519
50,000 Baxter International, Inc.,
7.50%, due 5/1/97............ 50,470
985,000 CIGNA Corporation, 8.00%, due
9/1/96....................... 985,000
245,000 CIT Group Holdings, Inc.,
8.00%, due 1/13/97........... 246,744
90,000 CIT Group Holdings, Inc.,
8.75%, due 7/1/97............ 91,839
2,000,000 CSX Transportation, Inc.,
5.93%, due 6/1/97............ 1,999,743
75,000 Caterpillar Financial Services
Corporation, 9.125%, due
12/15/96..................... 75,642
230,000 The Chase Manhattan
Corporation, 7.875%, due
1/15/97...................... 231,566
150,000 Chrysler Financial Corporation,
4.99%, due 2/3/97............ 149,431
256,000 Citicorp, 8.75%, due 11/1/96... 257,153
450,000 Commercial Credit Company,
8.00%, due 9/1/96............ 450,000
250,000 Commercial Credit Company,
6.75%, due 1/15/97........... 250,765
500,000 Commercial Credit Company,
8.125%, due 3/1/97........... 506,313
</TABLE>
See notes to financial statements. 16 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 100,000 Discover Credit, 7.98%, due
4/7/97....................... $ 101,067
1,929,000 Dupont Corporation, 8.45%, due
10/15/96..................... 1,934,870
250,000 Fireman's Federal Mortgage,
8.25%, due 11/1/96........... 250,746
531,000 First Union Corporation,
8.125%, due 12/15/96......... 534,341
195,000 Ford Holdings, Inc., 9.25%, due
7/15/97...................... 199,794
503,000 Ford Motor Company, 7.875%, due
10/15/96..................... 504,104
1,007,000 Ford Motor Credit Company,
8.00%, due 10/1/96........... 1,008,560
324,000 Ford Motor Credit Company,
8.00%, due 12/1/96........... 325,584
450,000 Ford Motor Credit Company,
7.875%, due 1/15/97.......... 453,260
25,000 Ford Motor Credit Company,
5.625%, due 3/3/97........... 24,962
132,000 Ford Motor Credit Company,
6.80%, due 8/15/97........... 132,772
500,000 General Electric Capital
Corporation, 7.46%, due
9/30/96...................... 500,556
1,345,000 General Electric Capital
Corporation, 8.75%, due
11/26/96..................... 1,353,619
294,000 General Electric Capital
Corporation, 8.00%, due
2/1/97....................... 296,320
1,319,000 General Motors Acceptance
Corporation, 8.00%, due
10/1/96...................... 1,321,094
500,000 General Motors Acceptance
Corporation, 5.00%, due
1/27/97...................... 498,068
400,000 General Motors Acceptance
Corporation, 7.65%, due
2/4/97....................... 403,086
602,000 General Motors Corporation,
7.625%, due 2/15/97.......... 606,151
545,000 Hospital Corporation of
America, 9.00%, due
3/15/97...................... 553,258
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 130,000 Household Finance Corporation,
7.80%, due 11/1/96........... $ 130,423
70,000 ITT Corporation, 7.25%, due
11/15/96..................... 70,132
560,000 International Lease Finance
Corporation, 7.90%, due
10/1/96...................... 560,843
440,000 International Lease Finance
Corporation, 4.75%, due
1/15/97...................... 438,099
500,000 International Lease Finance
Corporation, 6.35%, due
1/15/97...................... 500,705
100,000 International Lease Finance
Corporation, 5.875%, due
2/1/97....................... 99,909
275,000 International Lease Finance
Corporation, 5.50%, due
4/1/97....................... 273,994
75,000 John Deere Capital, 4.625%, due
9/2/96....................... 75,000
90,000 Lehman Brothers Holdings, Inc.,
8.375%, due 4/1/97........... 91,155
247,000 MGM Grand Hotels Financial
Corporation, Defeased,
11.75%, due 5/1/97........... 260,637
200,000 MGM Grand Hotels Financial
Corporation, Defeased,
12.00%, due 5/1/97........... 217,831
45,000 Merck & Company, Inc., 6.00%,
due 1/15/97.................. 44,989
1,200,000 Morgan Stanley Group, Inc.,
7.32%, due 1/15/97........... 1,206,451
432,000 NationsBank Corporation, 8.50%
due 11/1/96.................. 433,784
250,000 New Zealand Government, 8.25%,
due 9/25/96.................. 250,355
100,000 Northern Illinois Gas, 5.50%,
due 2/1/97................... 99,836
700,000 Norwest Financial, Inc., 4.89%,
due 11/15/96................. 698,820
375,000 Norwest Financial, Inc., 7.10%,
due 11/15/96................. 375,857
130,000 Norwest Financial, Inc., 6.00%,
due 8/15/97.................. 129,701
</TABLE>
See notes to financial statements. 17 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 110,000 Oklahoma Gas & Electric
Company, 5.125%, due
1/1/97....................... $ 109,700
100,000 Paccar Financial Corporation,
5.12%, due 3/10/97........... 99,575
250,000 Pacific Gas & Electric Company,
4.87%, due 12/9/96........... 249,350
435,000 Pacific Northwest Bell
Telephone Company, 7.50%, due
12/1/96...................... 436,644
860,000 PepsiCo, Inc., 7.00%, due
11/15/96..................... 861,837
30,000 PepsiCo, Inc., 6.875%, due
5/15/97...................... 30,170
600,000 Pfizer, Inc., 7.125%, due
10/1/96...................... 600,583
834,000 Pfizer, Inc., 6.50%, due
2/1/97....................... 836,057
1,699,000 Philip Morris Companies, Inc.,
8.75%, due 12/1/96........... 1,710,606
1,335,000 Philip Morris Companies, Inc.,
7.50%, due 3/17/97........... 1,345,398
75,000 Philip Morris Companies, Inc.,
9.75%, due 5/1/97............ 76,750
260,000 Philip Morris Companies, Inc.,
8.75%, due 6/15/97........... 265,096
2,666,000 Public Service Electric & Gas
Company, 8.75%, due
11/1/96...................... 2,859,577
170,000 Public Service Electric & Gas
Company, 8.75%, due 2/1/97... 183,393
250,000 Quaker Oats Company, 8.85%, due
11/15/96..................... 251,257
660,000 Quebec Province, 8.74%, due
7/21/97...................... 673,232
300,000 Sara Lee Corporation, 5.05%,
due 2/18/97.................. 299,131
1,897,000 Sears Roebuck and Company,
9.00%, due 9/15/96........... 1,898,891
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 75,000 Security Pacific Corporation,
7.75%, due 12/1/96........... $ 75,310
50,000 Southern California Edison
Company, 5.90%, due
1/15/97...................... 50,042
100,000 Tambrands Inc., 4.65%, due
1/21/97...................... 99,479
325,000 Texaco Capital, 9.00%, due
11/15/96..................... 326,969
200,000 Travelers Group, Inc., 8.375%,
due 12/15/96................. 201,424
175,000 Travelers Group, Inc., 7.625%,
due 1/15/97.................. 175,983
2,160,000 U.S. West Capital Funding,
8.00%, due 10/15/96.......... 2,165,190
135,000 Union Electric Company, 5.50%,
due 3/1/97................... 134,794
365,000 Virginia Electric & Power
Company, 7.25%, due 3/1/97... 367,665
250,000 Wachovia Bank, 4.875%, due
2/18/97...................... 248,760
471,000 Wells Fargo & Company, 8.20%,
due 11/1/96.................. 472,623
445,000 World Book Financial, 8.125%,
due 9/1/96................... 445,000
-------------
Total Fixed Rate Notes--Corporate............ 44,968,019
-------------
REPURCHASE AGREEMENTS (16.4%):
12,472,423 The First Boston Corporation,
5.30%, due 9/3/96, to be
repurchased at 12,479,768
(collateralized by
$16,050,000 Federal National
Mortgage Association, pool
#339017, 6.092%, due
12/1/35)..................... 12,472,423
-------------
Total Repurchase Agreements.................. 12,472,423
-------------
Total Investments (100.0%)................... $ 75,934,653
-------------
-------------
</TABLE>
See notes to financial statements. 18 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
AGGRESSIVE BOND KENTUCKY MONEY MARKET
GROWTH/VALUE FUND GROWTH FUND FUND TAX-FREE FUND FUND
----------------- -------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value................... $ 15,024,572 $ 6,527,398 $ 13,695,005 $ 15,608,129 $ 75,934,653
Cash.................................... -- -- -- 1,798 --
Interest, dividends and other
receivables........................... 16,151 1,422 185,929 261,250 1,173,021
Receivable for fund shares issued....... 70,576 12,716 23,439 45,402 --
Organization costs, net of
amortization.......................... 25,935 25,935 25,935 25,935 25,935
----------------- -------------- --------------- ------------- -------------
Total assets.............................. 15,137,234 6,567,471 13,930,308 15,942,514 77,133,609
----------------- -------------- --------------- ------------- -------------
LIABILITIES:
Payable for securities purchased........ -- -- 487,264 -- 401,228
Payable for fund shares redeemed........ 1,515 1,165 7,000 -- --
Administration fee payable.............. 2,083 2,083 2,083 -- 9,429
Accrued expenses and other payables..... 25,971 14,309 7,064 23,251 49,226
Dividends payable....................... -- -- 70,005 78,774 310,879
----------------- -------------- --------------- ------------- -------------
Total liabilities......................... 29,569 17,557 573,416 102,025 770,762
----------------- -------------- --------------- ------------- -------------
NET ASSETS................................ $ 15,107,665 $ 6,549,914 $ 13,356,892 $ 15,840,489 $ 76,362,847
----------------- -------------- --------------- ------------- -------------
----------------- -------------- --------------- ------------- -------------
COMPONENTS OF NET ASSETS:
Capital paid in......................... $ 14,820,155 $ 6,473,696 $ 13,705,116 $ 16,217,070 $ 76,360,353
Undistributed net investment income
(distributions in excess)............. -- -- -- (114,051) --
Unrealized appreciation (depreciation).. 243,081 60,569 (332,831) (259,742) --
Accumulated net realized gain (loss).... 44,429 15,649 (15,393) (2,788) 2,494
----------------- -------------- --------------- ------------- -------------
NET ASSETS................................ $ 15,107,665 $ 6,549,914 $ 13,356,892 $ 15,840,489 $ 76,362,847
----------------- -------------- --------------- ------------- -------------
----------------- -------------- --------------- ------------- -------------
SHARES OUTSTANDING........................ 1,350,818 598,307 1,370,318 1,574,612 76,360,353
NET ASSET VALUE PER SHARE................. $ 11.18 $ 10.95 $ 9.75 $ 10.06 $ 1.00
OFFERING PRICE PER SHARE EXCEPT MONEY
MARKET FUND (NAV DIVIDED BY (1 -
4.50%))................................. $ 11.71 $ 11.47 $ 10.21 $ 10.53 $ 1.00
INVESTMENTS AT COST....................... $ 14,781,491 $ 6,466,829 $ 14,027,836 $ 15,867,871 $ 75,934,653
</TABLE>
See notes to financial statements. 19 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF OPERATIONS
PERIOD ENDED AUGUST 31, 1996 (1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
GROWTH/VALUE GROWTH BOND TAX-FREE MARKET
FUND FUND FUND FUND FUND
----------------- -------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................... $ 30,853 $ 13,762 $ 667,383 $ 843,000 $ 2,798,408
Dividend income........................... 78,497 7,604 -- -- --
----------------- -------------- --------------- ----------- ------------
Total income................................ 109,350 21,366 667,383 843,000 2,798,408
----------------- -------------- --------------- ----------- ------------
EXPENSES:
Advisory.................................. 81,961 31,177 38,478 63,051 99,711
Management................................ 22,916 22,917 22,917 23,644 74,783
Transfer agency........................... 28,121 27,644 25,552 33,235 23,393
Shareholder services...................... 20,490 7,794 24,049 39,407 124,638
Custody................................... 1,964 741 5,455 4,415 21,297
Accounting................................ 33,000 33,000 33,000 35,600 34,000
Legal..................................... 6,682 4,238 8,200 12,962 29,232
Registration.............................. 10,402 6,732 8,984 7,892 35,373
Audit..................................... 14,812 14,319 15,846 16,755 15,268
Amortization of organization costs........ 5,824 5,824 5,824 5,824 5,824
Trustees.................................. 716 196 1,251 1,532 5,351
Other..................................... 5,453 2,874 6,345 15,916 24,224
----------------- -------------- --------------- ----------- ------------
Total expenses.............................. 232,341 157,456 195,901 260,233 493,094
Expenses reimbursed and fees waived....... (72,244) (96,565) (130,304) (132,065) (168,154)
----------------- -------------- --------------- ----------- ------------
Net expenses................................ 160,097 60,891 65,597 128,168 324,940
----------------- -------------- --------------- ----------- ------------
NET INVESTMENT INCOME (LOSS).............. (50,747) (39,525) 601,786 714,832 2,473,468
----------------- -------------- --------------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS:
Net realized gain (loss) on investments... 89,352 43,284 (15,393) (2,788) 2,494
Net change in unrealized appreciation
(depreciation).......................... 243,081 60,569 (332,831) (259,742) --
----------------- -------------- --------------- ----------- ------------
Net realized and unrealized gain (loss) from
investments............................... 332,433 103,853 (348,224) (262,530) 2,494
----------------- -------------- --------------- ----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS...... $ 281,686 $ 64,328 $ 253,562 $ 452,302 $ 2,475,962
----------------- -------------- --------------- ----------- ------------
----------------- -------------- --------------- ----------- ------------
Sept. 27, Sept. 29,
Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 1995 1995
(1) Date of commencement of operations
</TABLE>
See notes to financial statements. 20 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD ENDED AUGUST 31, 1996 (1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
GROWTH/VALUE GROWTH BOND TAX-FREE MARKET
FUND FUND FUND FUND FUND
----------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NET ASSETS--September 1, 1995.......... -- -- -- -- --
----------------- -------------- --------------- -------------- ---------------
OPERATIONS:
Net investment income (loss)......... $ (50,747) $ (39,525) $ 601,786 $ 714,832 $ 2,473,468
Net realized gain (loss) on
investments........................ 89,352 43,284 (15,393) (2,788) 2,494
Net change in unrealized appreciation
(depreciation)..................... 243,081 60,569 (332,831) (259,742) --
----------------- -------------- --------------- -------------- ---------------
281,686 64,328 253,562 452,302 2,475,962
----------------- -------------- --------------- -------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................ -- -- (601,786) (828,883) (2,473,468)
----------------- -------------- --------------- -------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares....................... 15,471,301 7,269,024 14,919,014 28,751,437 446,620,681
Reinvested dividends................. -- -- 13,886 559,139 84,304
Cost of shares repurchased........... (645,322) (783,438) (1,227,784) (13,093,506) (370,344,632)
----------------- -------------- --------------- -------------- ---------------
14,825,979 6,485,586 13,705,116 16,217,070 76,360,353
----------------- -------------- --------------- -------------- ---------------
NET ASSETS--August 31, 1996............ $ 15,107,665 $ 6,549,914 $ 13,356,892 $ 15,840,489 $ 76,362,847
----------------- -------------- --------------- -------------- ---------------
----------------- -------------- --------------- -------------- ---------------
Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 Sept. 27, 1995 Sept. 29, 1995
(1) Date of commencement of operations
</TABLE>
See notes to financial statements. 21 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Trans Adviser Funds, Inc. (the "Company") is an open-end management investment
company incorporated under the laws of the State of Maryland. The Company
currently consists of five operational non-diversified investment portfolios,
the Growth/Value Fund, the Aggressive Growth Fund, the Intermediate Bond Fund,
the Kentucky Tax-Free Fund, and the Money Market Fund (each a "Fund" and
collectively the "Funds"). The Funds, except for Money Market Fund, are offered
at Net Asset Value ("NAV") plus a sales charge, currently 4.50% of NAV. The
Money Market Fund is offered at NAV. The Funds commenced investment operations
on the following dates:
<TABLE>
<S> <C>
Growth/Value Fund September 29, 1995
Aggressive Growth Fund September 29, 1995
Intermediate Bond Fund October 3, 1995
Kentucky Tax-Free Fund September 27, 1995
Money Market Fund September 29, 1995
</TABLE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates and are expected to be immaterial to the net assets of the Funds.
SECURITY VALUATION-All securities held by the Money Market Fund are valued
utilizing the amortized cost method, which approximates market value, in
accordance with Rule 2a-7 under the Investment Company Act of 1940. Securities,
other than short-term, held by the other Funds (the "Bond and Equity Funds") for
which market quotations are readily available are valued using the last reported
sales price provided by independent pricing services. If no sales are reported,
the mean of the last bid and ask price is used. In the absence of readily
available market quotations, securities are valued at fair value as determined
by the Board of Directors. Securities with a maturity of 60 days or less held by
the Bond and Equity Funds are valued at amortized cost.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION-In all Funds other than the Kentucky
Tax-Free Fund, if a fixed income investment is purchased at a premium, the
premium is not amortized. The Kentucky Tax-Free Fund amortizes premium on fixed
income investments to the maturity (or first call) date using the yield to
maturity method. If a fixed income investment is purchased at a discount (other
than original issue discount), the discount is not accreted. Original issue
discount on fixed income investments is accreted daily using the yield to
maturity method.
INTEREST AND DIVIDEND INCOME AND DISTRIBUTIONS TO SHAREHOLDERS-Interest income
is accrued as earned. Dividends on securities held by the Funds are recorded on
the ex-dividend date. Distributions of net investment income are declared daily
and paid monthly for Money Market Fund, Kentucky Tax-Free Fund, and Intermediate
Bond Fund, and declared and paid annually for Growth/Value Fund and Aggressive
Growth Fund. Net capital gain, if any, is distributed at least annually.
Distributions from net investment income and realized capital gains are based on
their tax basis. The significant difference between financial statement amounts
available for distribution and distributions made in accordance with income tax
regulations are primarily attributable to the deferral of post-October losses
and wash sales.
ORGANIZATION COSTS-The costs incurred by the Funds in connection with their
organization, in amounts of $31,759 for each Fund, have been capitalized and are
being amortized using the straight-line method over a five year period beginning
on the commencement of each Fund's investment operations. Certain of these costs
were paid by Forum Financial Services, Inc. and have been reimbursed by the
respective Funds. Organization expenses are being amortized to operations over a
five-year period on a straight-line basis. In the event any of the initial
shares are redeemed by any
22 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
holder thereof during the five-year amortization period, redemption proceeds
will be reduced by any unamortized organization expenses in the same proportion
as the number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of redemption.
FEDERAL INCOME TAX-Each Fund intends to qualify as a regulated investment
company and distribute all of its taxable income. Therefore, no Federal income
tax provision is required.
OTHER-Realized gains and losses on investments sold are recorded on the basis of
identified cost. Security transactions are accounted for on a trade date basis.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of the Funds is Trans Financial Bank, N.A. (the
"Adviser"). The Adviser receives an advisory fee from Growth/Value Fund and
Aggressive Growth Fund at an annual rate of 1.00% of the respective Fund's
average daily net assets. The Adviser receives an advisory fee from Intermediate
Bond Fund and Kentucky Tax-Free Fund at an annual rate of 0.40% of the
respective Fund's average daily net assets. The Adviser receives an advisory fee
from Money Market Fund at an annual rate of 0.20% of the Fund's average daily
net assets. Pursuant to an agreement between the Adviser and Mastrapasqua and
Associates, Inc. ("M&A") (the "Sub-Adviser"), the Adviser may delegate certain
of its advisory responsibilities to the Sub-Adviser. For its services, M&A is
paid by the Adviser as follows: with respect to the Aggressive Growth and the
Growth/Value Funds, the Adviser (not the Fund) pays to M&A an annual fee,
calculated daily and paid monthly, of .50% on the first $100 million of such
Funds' combined average daily net assets plus .25% of such Funds' combined
average daily net assets in excess of $100 million for its services, and, with
respect to each other Trans Adviser Fund, the Adviser (not the Fund) pays M&A an
annual fee, calculated daily and paid monthly, of .03% of average daily net
assets for its services.
The Adviser has agreed to reimburse each Fund for certain operating expenses
(exclusive of interest, taxes, brokerage fees, fees and other expenses paid
pursuant to any distribution plan and organization expenses, all to the extent
permitted by applicable state law or regulation) which in any year exceed the
limits prescribed by any state in which the Fund's shares are qualified for
sale. Each Fund's annual expenses are estimated and accrued daily, and any
related reimbursements are made monthly by the Adviser.
The administrator of the Company is Forum Financial Services, Inc. ("Forum"), a
registered broker-dealer and a member of the National Association of Securities
Dealers, Inc. For its administrative services Forum receives a fee for each Fund
equal to the greater of $25,000 per year or 0.15% of the annual average daily
net assets of each Fund. Forum also acts as the Company's distributor pursuant
to a separate Distribution Agreement with the Company. Forum receives no
compensation under that agreement. In addition, certain legal expenses were
charged to the Company by Forum amounting to $18,053.
Forum Financial Corp. ("FFC"), an affiliate of Forum, serves as the Company's
transfer agent and dividend disbursing agent, and for those services receives an
annual fee of $12,000 per year for each Fund, an annual shareholder account fee
of $25 per shareholder, additional class charges, and out of pocket expenses
billed at cost. The Company has adopted a shareholder service plan under which
the Company pays Forum a shareholder servicing fee at an annual rate of 0.25% of
the daily net assets of each Fund. Forum may pay any or all amounts of these
payments to various institutions which provide shareholder servicing to their
customers. FFC also serves as the Company's fund accountant and is compensated
for those services at an amount of $36,000 per year per Fund plus certain
amounts based upon the number and types of portfolio transactions within each
Fund.
23 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
For the period ended August 31, 1996, fees waived and expenses reimbursed were
as follows:
<TABLE>
<CAPTION>
EXPENSES EXPENSES EXPENSES
VOLUNTARILY VOLUNTARILY VOLUNTARILY
WAIVED BY WAIVED BY REIMBURSED BY
FORUM THE ADVISER THE ADVISER
----------- ----------- --------------
<S> <C> <C> <C>
Growth/Value Fund.......................................... $ 543 $ 34,323 $ 37,378
Aggressive Growth Fund..................................... 288 31,178 65,099
Intermediate Bond Fund..................................... 178 38,478 91,648
Kentucky Tax-Free Fund..................................... 11,185 63,051 57,829
Money Market Fund.......................................... 2,071 93,026 73,057
</TABLE>
NOTE 4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales (including maturities) of securities
(excluding short-term investments) during the period ended August 31, 1996 were
as follows:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
------------------ ---------------------
<S> <C> <C>
Growth/Value Fund......................................... $ 15,678,024 $ 1,713,849
Aggressive Growth Fund.................................... 6,815,109 465,088
Intermediate Bond Fund.................................... 12,911,112 965,841
Kentucky Tax-Free Fund.................................... 38,298,203 23,002,307
</TABLE>
The cost of investments for federal income tax purposes is the same as for
financial reporting purposes. Unrealized appreciation and depreciation as of
August 31, 1996 were as follows:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION UNREALIZED DEPRECIATION
----------------------- -----------------------
<S> <C> <C>
Growth/Value Fund.................................. $ 1,166,837 $ 923,756
Aggressive Growth Fund............................. 661,156 600,587
Intermediate Bond Fund............................. 13,166 345,997
Kentucky Tax-Free Fund............................. 25,840 285,582
</TABLE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions of Fund shares for the period ended August 31, 1996 are summarized
in the following table:
<TABLE>
<CAPTION>
GROWTH/VALUE AGGRESSIVE INTERMEDIATE KENTUCKY TAX- MONEY MARKET
FUND GROWTH FUND BOND FUND FREE FUND FUND
------------- ------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Sale of Shares......... 1,408,416 668,440 1,491,710 2,814,888 446,620,681
Shares Issued on
Reinvested
Dividends............. -- -- 1,404 57,538 84,304
Shares Repurchased..... 57,598 70,133 122,796 1,297,814 370,344,632
------------- ------------- ------------ -------------- --------------
Net Increase........... 1,350,818 598,307 1,370,318 1,574,612 76,360,353
------------- ------------- ------------ -------------- --------------
------------- ------------- ------------ -------------- --------------
</TABLE>
NOTE 6. CONCENTRATION OF CREDIT RISK
The Kentucky Tax-Free Fund invests substantially all of its assets in debt
obligations of issuers located in the state of Kentucky. The issuers' abilities
to meet their obligations may be affected by Kentucky economic or political
developments.
24 TRANS ADVISER FUNDS, INC.
<PAGE>
FINANCIAL HIGHLIGHTS
PERIOD ENDED AUGUST 31, 1996 (a)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA AND AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
RATIOS FOR A SHARE OUTSTANDING GROWTH/VALUE GROWTH BOND TAX-FREE MARKET
THROUGHOUT THE PERIOD FUND FUND FUND FUND FUND
----------------- --------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value Per
Share....................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
------- ------- ------- ------------ -----------
Net Investment Income
(Loss)(c)................... (0.06) (0.11) 0.57 0.51 0.05
Net Realized and Unrealized
Gain/(Loss) on
Investments................. 1.24 1.06 (0.25) 0.06 --
Distributions from Net
Investment Income........... -- -- (0.57) (0.51) (0.05)
------- ------- ------- ------------ -----------
Ending Net Asset Value Per
Share....................... $ 11.18 $ 10.95 $ 9.75 $ 10.06 $ 1.00
------- ------- ------- ------------ -----------
------- ------- ------- ------------ -----------
Ratios to Average Net Assets:
Expenses(b)(e).............. 1.95% 1.95% 0.68% 0.82% 0.65%
Net Investment Income
(Loss)(e)................. (0.62)% (1.26)% 6.31% 5.30% 4.94%
Total Return (f).............. 11.80% 9.50% 3.23% 5.80% 4.70%
Portfolio Turnover Rate....... 21.12% 15.70% 12.38% 145.12% N/A
Average Commission Rate....... 0.07(d) 0.08(d) N/A N/A N/A
Net Assets at End of Period
(000's omitted)............. $15,108 $6,550 $13,357 $15,840 $76,363
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) Date of commencement of Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 Sept. 27, 1995 Sept. 29, 1995
operations
</TABLE>
(b) During the period, various fees and expenses were waived and reimbursed. Had
such waiver and reimbursement not occurred, the ratio of expenses to average
net assets would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
2.83 % 5.05 % 2.04 % 1.65 % 0.99 %
</TABLE>
(c) Calculated using weighted average shares outstanding for the period.
(d) Amount represents the average commission per share paid to brokers on the
purchase or sale of equity securities.
(e) Annualized.
(f) Excludes applicable sales charge.
- --------------------------------------------------------------------------------
Federal Tax Status of Dividends Declared (unaudited)
None of the Funds paid long-term capital gain dividends during the period. All
dividends declared by the Funds were distributions of ordinary income. None of
these dividends qualify for the corporate dividend received deduction from
Federal income tax. The amount of the dividends per share declared by the
Kentucky Tax-Free Fund that is exempt from Federal taxes follows.
Sep-95 $0.0086
Oct-95 0.0430
Nov-95 0.0344
Dec-95 0.0430
Jan-96 0.0430
Feb-96 0.0344
Mar-96 0.0430
Apr-96 0.0344
May-96 0.0430
Jun-96 0.0344
Jul-96 0.0344
Aug-96 0.0430
------
$0.4386
------
------
See notes to financial statements. 25 TRANS ADVISER FUNDS, INC.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Trans Adviser Funds, Inc.
We have audited the accompanying statements of assets and liabilities of
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Kentucky
Tax-Free Fund, and Money Market Fund, portfolios of Trans Adviser Funds, Inc.
(the Funds), including the schedules of investments, as of August 31, 1996, and
the related statements of operations, statements of changes in net assets and
financial highlights for the periods presented on pages 20, 21 and 25,
respectively. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1996 by correspondence with the custodian and brokers. 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 financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Kentucky
Tax-Free Fund, and Money Market Fund, as of August 31, 1996, and the results of
their operations, the changes in their net assets and financial highlights for
the periods presented on pages 20, 21 and 25, respectively, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 18, 1996
<PAGE>
TRANS ADVISER FUNDS
P.O. Box 90001
Bowling Green, KY 42102-9001
ADVISER
Trans Financial Bank
P.O. Box 90001
Bowling Green, KY 42102-9001
SUB-ADVISER
Mastrapasqua & Associates, Inc.
1801 West End Avenue
Nashville, TN 37203
ADMINISTRATOR/DISTRIBUTOR
Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
TRANSFER AGENT
Forum Financial Corp.
Two Portland Square
Portland, ME 04101
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
A Message to Our Shareholders............... 1
Investment Adviser's Report and Performance
Data
Growth/Value Fund......................... 2
Aggressive Growth Fund.................... 3
Intermediate Bond Fund.................... 4
Kentucky Tax-Free Fund.................... 5
Schedule of Investments:
Growth/Value Fund......................... 6
Aggressive Growth Fund.................... 8
Intermediate Bond Fund.................... 10
Kentucky Tax-Free Fund.................... 12
Money Market Fund......................... 16
Statements of Assets and Liabilities........ 19
Statements of Operations.................... 20
Statements of Changes in Net Assets......... 21
Notes to Financial Statements............... 22
Financial Highlights........................ 25
Independent Auditors' Report................ 26
</TABLE>
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND TO OTHERS
WHO HAVE RECEIVED A COPY OF THE TRANS ADVISER FUNDS, INC. PROSPECTUS.
[LOGO]
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
INTERMEDIATE BOND FUND
KENTUCKY TAX-FREE FUND
MONEY MARKET FUND
ANNUAL REPORT
AUGUST 31, 1996
NOT FDIC INSURED
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Carl Frischling, Jules Buchwald or Joanne Doldo, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all his
capacities as a director of TRANS ADVISER FUNDS, INC., a Maryland corporation,
to sign on his or its behalf any and all Registration Statements (including any
pre-effective and post-effective amendments to Registration Statements) under
the Securities Act of 1933, the Investment Company Act of 1940 and any
amendments and supplements thereto, and other documents in connection
thereunder, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue hereof.
DATED this 24th day of October, 1996.
/s/ Jerry E. Baker
------------------
Jerry E. Baker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Carl Frischling, Jules Buchwald or Joanne Doldo, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all his
capacities as a director of TRANS ADVISER FUNDS, INC., a Maryland corporation,
to sign on his or its behalf any and all Registration Statements (including any
pre-effective and post-effective amendments to Registration Statements) under
the Securities Act of 1933, the Investment Company Act of 1940 and any
amendments and supplements thereto, and other documents in connection
thereunder, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue hereof.
DATED this 24th day of October, 1996.
/s/ Kevin P. Lavender
---------------------
Kevin P. Lavender
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TRANSADVISER FUNDS DATED 8/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH REPORT.
</LEGEND>
<CIK> 0000947789
<NAME> GROWTH VALUE FUND
<SERIES>
<NUMBER> 1
<NAME> 001
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 15024572
<INVESTMENTS-AT-VALUE> 15024572
<RECEIVABLES> 16151
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 96511
<TOTAL-ASSETS> 15137234
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29569
<TOTAL-LIABILITIES> 29569
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14825979
<SHARES-COMMON-STOCK> 14825979
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38605
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 243081
<NET-ASSETS> 15107665
<DIVIDEND-INCOME> 78497
<INTEREST-INCOME> 30853
<OTHER-INCOME> 0
<EXPENSES-NET> 160097
<NET-INVESTMENT-INCOME> (50747)
<REALIZED-GAINS-CURRENT> 89352
<APPREC-INCREASE-CURRENT> 243081
<NET-CHANGE-FROM-OPS> 281686
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15471301
<NUMBER-OF-SHARES-REDEEMED> (645322)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14825979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 81961
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 232341
<AVERAGE-NET-ASSETS> 8927884
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 1.24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.18
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TRANSADVISER FUNDS DATED 8/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000947789
<NAME> AGGRESSIVE GROWTH FUND
<SERIES>
<NUMBER> 2
<NAME> 002
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-29-1995
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 6527398
<INVESTMENTS-AT-VALUE> 6527398
<RECEIVABLES> 1422
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 38651
<TOTAL-ASSETS> 6567471
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17557
<TOTAL-LIABILITIES> 17557
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6485586
<SHARES-COMMON-STOCK> 6485586
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3759
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60569
<NET-ASSETS> 6549914
<DIVIDEND-INCOME> 7604
<INTEREST-INCOME> 13762
<OTHER-INCOME> 0
<EXPENSES-NET> 60891
<NET-INVESTMENT-INCOME> (39525)
<REALIZED-GAINS-CURRENT> 43284
<APPREC-INCREASE-CURRENT> 60569
<NET-CHANGE-FROM-OPS> 64328
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7269024
<NUMBER-OF-SHARES-REDEEMED> (783438)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6485586
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 157456
<AVERAGE-NET-ASSETS> 3396128
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.11)
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.95
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TRANSADVISER FUNDS DATED 8/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000947789
<NAME> INTERMEDIATE BOND FUND
<SERIES>
<NUMBER> 3
<NAME> 003
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> OCT-03-1995
<PERIOD-END> AUG-31-1996
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