FOUNTAINHEAD
KALEIDOSCOPE FUND
PROSPECTUS
NOVEMBER 1, 1999
INVESTMENT OBJECTIVE:
Long-term capital growth
c/o Unified Fund Services, Inc.
431 N. Pennsylvania Street
Indianapolis, Indiana 46204
(800) 868-9535
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
ABOUT THE FUND.................................................................1
FEES AND EXPENSES OF INVESTING IN THE FUND.....................................3
HOW TO BUY SHARES..............................................................4
HOW TO REDEEM SHARES...........................................................5
DETERMINATION OF NET ASSET VALUE...............................................6
DIVIDENDS, DISTRIBUTIONS AND TAXES.............................................7
MANAGEMENT OF THE FUND.........................................................7
YEAR 2000 ISSUE................................................................7
FOR MORE INFORMATION...........................................................8
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ABOUT THE FUND
INVESTMENT OBJECTIVE
The investment objective of the Fountainhead Kaleidoscope Fund is
long-term capital growth.
PRINCIPAL STRATEGIES
The Fund invests primarily in common stocks of small capitalization
companies (those with a market capitalization, at the time of purchase, of up to
$1.8 billion). The Fund's investment advisor, King Investment Advisors, Inc.,
selects stocks that it believes are selling at attractive prices relative to
their intrinsic value, based on the advisor's "Business Valuation Approach".
This highly-disciplined approach seeks to identify attractive investment
opportunities, uncovering securities often overlooked by other investors. The
advisor believes value can be found in different types of securities at
different points in the economic cycle.
The buy criteria of the "Business Valuation Approach" consist of three
elements. The Fund will buy a stock trading at a discount to:
o its private-market value (based on projected levels of cash flow, balance
sheet characteristics, future earnings, and payments made for similar
companies in mergers and acquisitions),
o its five-year projected earnings growth rate (unlike many typical value
managers who buy only low P/E or low price/book stocks), or
o its seven-year historical valuation (based on its price/earnings,
price/book, price/cash flow, or price/sales ratios).
While it is anticipated that the Fund will diversify its investments
across a range of industries and sectors, certain industries are likely to be
overweighted compared to others because the advisor seeks the best investment
values regardless of industry. The industries in which the Fund may be
overweighted will vary at different points in the economic cycle.
The Fund may sell a stock if the Fund's adviser believes more
attractive alternatives are available or the company's underlying fundamentals
have deteriorated, or if the stock has met the price target set by the adviser.
PRINCIPAL RISKS OF INVESTING IN THE FUND
o SMALL COMPANY RISK. The risks associated with investing in smaller
companies include:
o The earnings and prospects of smaller companies are more volatile than
larger companies.
o Smaller companies may experience higher failure rates than do larger
companies.
o The trading volume of securities of smaller companies is normally less
than that of larger companies and, therefore, may disproportionately
affect their market price, tending to make them fall more in response
to selling pressure than is the case with larger companies.
o Smaller companies may have limited markets, product lines or financial
resources and may lack management experience.
o COMPANY RISK. The value of the Fund may decrease in response to the
activities and financial prospects of an individual company in the Fund's
portfolio. The value of an individual company can be more volatile than the
market as a whole.
o MARKET RISK. Overall stock market risks may also affect the value of the
Fund. Factors such as domestic economic growth and market conditions,
interest rate levels, and political events affect the securities markets
and could cause the Fund's share price to fall.
o INDUSTRY RISK. If the Fund's portfolio is overweighted in a certain
industry, any negative development affecting that industry will have a
greater impact on the Fund than a fund that is not overweighted in that
industry.
o An investment in the Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
o The Fund is not a complete investment program. As with any mutual fund
investment, the Fund's returns will vary and you could lose money.
IS THE FUND RIGHT FOR YOU?
The Fund may be suitable for:
o Long-term investors seeking a fund with a value investment strategy
o Investors willing to accept price fluctuations in their investment
o Investors who can tolerate the risks associated with common stock
investments
o Investors willing to accept the greater market price fluctuations of
smaller companies
GENERAL
The investment objective of the Fund may be changed without shareholder
approval.
From time to time, the Fund may take temporary defensive positions which
are inconsistent with the Fund's principal investment strategies, in attempting
to respond to adverse market, economic, political, or other conditions. For
example, the Fund may hold all or a portion of its assets in money market
instruments, securities of other no-load mutual funds or repurchase agreements.
If the Fund invests in shares of another mutual fund, the shareholders of the
Fund generally will be subject to duplicative management fees. As a result of
engaging in these temporary measures, the Fund may not achieve its investment
objective. The Fund may also invest in such instruments at any time to maintain
liquidity or pending selection of investments in accordance with its policies.
HOW THE FUND HAS PERFORMED
Although past performance of a fund is no guarantee of how it will
perform in the future, historical performance may give you some indication of
the risk of investing in the fund because it demonstrates how its returns have
varied over time. The Bar Chart and Performance Table that would otherwise
appear in this prospectus have been omitted because the Fund is recently
organized and has a limited performance history.
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FEES AND EXPENSES OF INVESTING IN THE FUND
The tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ...........................NONE
Maximum Deferred Sales Charge (Load)........................................NONE
Redemption Fee (as a percentage of amount redeemed, if applicable)1........1.00%
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Management Fees............................................................1.75%
Distribution (12b-1) Fees...................................................NONE
Other Expenses2............................................................0.00%
Total Annual Fund Operating Expenses.......................................1.75%
Fee Waiver3................................................................0.50%
Net Expenses...............................................................1.25%
1If you redeem your shares within 180 days of purchase you will be
charged a 1% redemption fee. However, if you redeem your shares after the 180
day period there is no redemption fee.
2"Other Expenses" are estimated to be less than 0.005% for the Fund's
first fiscal year.
3The Adviser has contractually agreed to waive fees by the amount shown
through February 28, 2000. The Adviser may not unilaterally change the contract
until March 1, 2000.
Example:
The example below is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example uses
the same assumptions as other mutual fund prospectuses: a $10,000 initial
investment for the time periods indicated, reinvestment of dividends and
distributions, 5% annual total return, constant operating expenses, and sale of
all shares at the end of each time period. Although your actual expenses may be
different, based on these assumptions your costs will be:
1 YEAR 3 YEARS
$128 $556
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HOW TO BUY SHARES
The minimum initial investment in the Fund is $5,000 ($2,000 for IRAs)
and minimum subsequent investments are $1,000. There is no minimum for separate
employee accounts of corporate retirement plans. If your investment is
aggregated into an omnibus account established by an investment advisor, broker
or other intermediary, the account minimums apply to the omnibus account, not to
your individual investment. If you purchase or redeem shares through a
broker/dealer or another intermediary, you may be charged a fee by that
intermediary.
INITIAL PURCHASE
BY MAIL- To be in proper form, your initial purchase request must
include: o a completed and signed investment application form (which accompanies
this Prospectus); and o a check (subject to the minimum amounts) made payable to
the Fund.
Mail the application and check to:
U.S. Mail: Overnight:
Fountainhead Kaleidoscope Fund Fountainhead Kaleidoscope Fund
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
BY WIRE- You may also purchase shares of the Fund by wiring federal
funds from your bank, which may charge you a fee for doing so. To wire money,
you must call Unified Fund Services, Inc. the Fund's transfer agent at (800)
868-9535 to set up your account and obtain an account number. You should be
prepared at that time to provide the information on the application. Then,
provide your bank with the following information for purposes of wiring your
investment:
Firstar Bank, N.A.
ABA #0420-0001-3
Attn: Fountainhead Kaleidoscope Fund
Account Name _________________(write in shareholder name) For the
Account # ______________(write in account number) D.D.A.#483885570
You must mail a signed application to Firstar Bank, N.A, the Fund's
custodian, at the above address in order to complete your initial wire purchase.
Wire orders will be accepted only on a day on which the Fund, custodian and
transfer agent are open for business. A wire purchase will not be considered
made until the wired money is received and the purchase is accepted by the Fund.
Any delays which may occur in wiring money, including delays which may occur in
processing by the banks, are not the responsibility of the Fund or the transfer
agent. There is presently no fee for the receipt of wired funds, but the Fund
may charge shareholders for this service in the future.
ADDITIONAL INVESTMENTS
You may purchase additional shares of the Fund at any time (subject to
minimum investment requirements) by mail, wire, or automatic investment. Each
additional mail purchase request must contain:
-your name -the name of your account(s)
-your account number(s) -a check made payable to Fountainhead
Kaleidoscope Fund
Checks should be sent to the Fountainhead Kaleidoscope Fund at the address
listed above. A bank wire should be sent as outlined above.
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TAX SHELTERED RETIREMENT PLANS
Since the Fund is oriented to longer-term investments, the Fund may be
an appropriate investment medium for tax-sheltered retirement plans, including:
individual retirement plans (IRAs); simplified employee pensions (SEPs); 401(k)
plans; qualified corporate pension and profit-sharing plans (for employees); tax
deferred investment plans (for employees of public school systems and certain
types of charitable organizations); and other qualified retirement plans. You
should contact the Fund's transfer agent for the procedure to open an IRA or SEP
plan, as well as more specific information regarding these retirement plan
options. Please consult with an attorney or tax advisor regarding these plans.
You must pay custodial fees for your IRA by redemption of sufficient shares of
the Fund from the IRA unless you pay the fees directly to the IRA custodian.
Call the Fund's transfer agent about the IRA custodial fees.
OTHER PURCHASE INFORMATION
The Fund may limit the amount of purchases and refuse to sell to any
person. If your check or wire does not clear, you will be responsible for any
loss incurred by the Fund. If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the Fund as reimbursement for
any loss incurred.
You may be prohibited or restricted from making future purchases in the Fund.
HOW TO REDEEM SHARES
You may receive redemption payments by check or federal wire transfer.
The proceeds may be more or less than the purchase price of your shares,
depending on the market value of the Fund's securities at the time of your
redemption. Presently there is no charge for wire redemptions; however, the Fund
may charge for this service in the future. Any charges for wire redemptions will
be deducted from your Fund account by redemption of shares. If you redeem your
shares through a broker/dealer or other institution, you may be charged a fee by
that institution.
BY MAIL - You may redeem any part of your account in the Fund at no
charge by mail. Your request should be addressed to:
U.S. Mail: Overnight:
Fountainhead Kaleidoscope Fund Fountainhead Kaleidoscope Fund
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 North Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
To be in proper form, your request for a redemption must include your
letter of instruction, including the Fund name, account number, account name(s),
the address, and the dollar amount or number of shares you wish to redeem. This
request must be signed by all registered share owner(s) in the exact name(s) and
any special capacity in which they are registered. The Fund may require that
signatures be guaranteed by a bank or member firm of a national securities
exchange. Signature guarantees are for the protection of shareholders. At the
discretion of the Fund or the Fund's transfer agent, a shareholder, prior to
redemption, may be required to furnish additional legal documents to insure
proper authorization.
BY TELEPHONE - You may redeem any part of your account in the Fund by
calling the Fund's transfer agent at (800) 868-9535. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the transfer agent and the custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The Fund or the transfer agent may terminate the telephone redemption
and exchange procedures at any time. During periods of extreme market activity,
it is possible that shareholders may encounter some difficulty in telephoning
the Fund, although neither the Fund nor the transfer agent has ever experienced
difficulties in receiving and in a timely fashion responding to telephone
requests for redemptions or exchanges. If you are unable to reach the Fund by
telephone, you may request a redemption or exchange by mail.
EARLY REDEMPTION FEE - The Fund charges a redemption fee of 1% of the
current net asset value of shares redeemed if the shares are owned less than 180
days. The fee is charged for the benefit of remaining shareholders to defray
Fund portfolio transaction expenses and facilitate portfolio management. This
fee applies to shares being redeemed in the order in which they are purchased.
The Fund reserves the right to modify the terms of or terminate the fee at any
time. The fee is waived for:
(a) an account registered as either an Individual Retirement Account or a
tax-qualified retirement plan on the books of the Fund's transfer agent, or
on the books of certain other third parties that are authorized agents of
the Fund; and
(b) shares purchased with reinvested capital gain or dividend distributions.
If you purchase shares through a broker-dealer or other financial
intermediary who maintains your individual account on its books and an omnibus
account with the Fund's transfer agent, your recordkeeper may not be able to
apply the fee waiver in all of the circumstances discussed above. Before
purchasing shares, please check with the Fund to determine if the fee waiver is
available.
ADDITIONAL INFORMATION - If you are not certain of the requirements for
a redemption please call the Fund's transfer agent at (800) 868-9535.
Redemptions specifying a certain date or share price cannot be accepted and will
be returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has been collected, which
normally may take up to fifteen calendar days. Also, when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closing, or under any emergency circumstances (as
determined by the Securities and Exchange Commission) the Fund may suspend
redemptions or postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund may require you to redeem all of your shares in the Fund on
30 days' written notice if the value of your shares in the Fund is less than
$2,000 due to redemption, or such other minimum amount as the Fund may determine
from time to time. An involuntary redemption constitutes a sale. You should
consult your tax advisor concerning the tax consequences of involuntary
redemptions. You may increase the value of your shares in the Fund to the
minimum amount within the 30-day period. Your shares are subject to redemption
at any time if the Board of Trustees determines in its sole discretion that
failure to so redeem may have materially adverse consequences to all or any of
the shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
The price you pay for your shares is based on the Fund's net asset
value per share (NAV). The NAV is calculated at the close of trading (normally
4:00 p.m. Eastern time) on each day the New York Stock Exchange is open for
business (the Stock Exchange is closed on weekends, Federal holidays and Good
Friday). The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding. Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
The Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund typically distributes
substantially all of its net investment income in the form of dividends and
taxable capital gains to its shareholders. These distributions are automatically
reinvested in the Fund unless you request cash distributions on your application
or through a written request. The Fund expects that its distributions will
consist primarily of both short-term and long-term capital gains. However, the
Fund's advisor will attempt to maximize the pay out of long-term capital gains
versus short-term capital gains.
TAXES. In general, selling shares of the Fund and receiving
distributions (whether reinvested or taken in cash) are taxable events.
Depending on the purchase price and the sale price, you may have a gain or a
loss on any shares sold. Any tax liabilities generated by your transactions or
by receiving distributions are your responsibility. Because distributions of
long-term capital gains are subject to capital gains taxes, regardless of how
long you have owned your shares, you may want to avoid making a substantial
investment when a Fund is about to make a long-term capital gains distribution.
Early each year, the Fund will mail to you a statement setting forth
the federal income tax information for all distributions made during the
previous year. If you do not provide your taxpayer identification number, your
account will be subject to backup withholding.
The tax considerations described in this section do not apply to
tax-deferred accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax advisor about your
investment.
MANAGEMENT OF THE FUND
King Investment Advisors, Inc., 1980 Post Oak Boulevard, Suite 2400,
Houston, Texas 77056-3898, serves as investment advisor to the Fund. The advisor
provides value-oriented equity and balanced management for both taxable and
tax-exempt clients, and currently manages approximately $750 million in assets.
The Fund is authorized to pay the advisor a fee equal to an annual average rate
of 1.75% of its average daily net assets.
Roger E. King has been primarily responsible for the day-to-day management
of the Fund's portfolio since its inception. Mr. King co-founded the firm in
1981and is the majority shareholder. He has served as the firm's president since
1986 and as chairman since 1993. Mr. King has also served as the portfolio
manager to the Fountainhead Special Value Fund since 1995.
YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund's advisor or the Fund's various service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Issue."
The Fund's advisor has taken steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to its computer systems.
The Fund's administrator has obtained reasonable assurances from each of the
Funds' major service providers that they have taken comparable steps with
respect to the computer systems used to service the Fund. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund. In addition, the Fund's advisor cannot make any
assurances that the Year 2000 Issue will not affect the companies in which the
Fund invests or worldwide markets and economies.
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FOR MORE INFORMATION
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated into this prospectus by
reference, contains detailed information on Fund policies and operations.
Shareholder reports contain management's discussion of market conditions,
investment strategies and performance results as of the Fund's latest
semi-annual or annual fiscal year end.
Call the Funds at 800-868-9535 to request free copies of the SAI and
the Fund's annual and semi-annual reports, to request other information about
the Fund and to make shareholder inquiries.
You may review and copy information about the Funds (including the SAI
and other reports) at the Securities and Exchange Commission Public Reference
Room in Washington, D.C. Call the SEC at 800-SEC-0330 for room hours and
operation. You may also obtain reports and other information about the Fund on
the SEC's Internet site at http.//www.sec.gov, and copies of this information
may be obtained by sending a written request and duplicating fee to the Public
Reference Section of the SEC, Washington, D.C. 20549-6609.
Investment Company Act #811-9096
FOUNTAINHEAD KALEIDOSCOPE FUND
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1999
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of Fountainhead Kaleidoscope Fund
dated November 1, 1999. A free copy of the Prospectus can be obtained by writing
the Transfer Agent at 431 North Pennsylvania Street, Indianapolis, Indiana
46204, or by calling 1-800-868-9535.
TABLE OF CONTENTS PAGE
DESCRIPTION OF THE TRUST AND THE FUND..........................................1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS.................................................................2
INVESTMENT LIMITATIONS.........................................................9
THE INVESTMENT ADVISOR........................................................11
TRUSTEES AND OFFICERS.........................................................12
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................13
DETERMINATION OF SHARE PRICE..................................................14
INVESTMENT PERFORMANCE........................................................14
CUSTODIAN.....................................................................16
TRANSFER AGENT................................................................16
ACCOUNTANTS...................................................................16
DISTRIBUTOR...................................................................16
ADMINISTRATOR.................................................................16
<PAGE>
DESCRIPTION OF THE TRUST AND THE FUND
Fountainhead Kaleidoscope Fund (the "Fund") was organized as a
diversified series of AmeriPrime Funds (the "Trust") on September 29, 1999. The
Trust is an open-end investment company established under the laws of Ohio by an
Agreement and Declaration of Trust dated August 8, 1995 (the "Trust Agreement").
The Trust Agreement permits the Trustees to issue an unlimited number of shares
of beneficial interest of separate series without par value. The Fund is one of
a series of funds currently authorized by the Trustees. The investment advisor
to the Fund is King Investment Advisors, Inc. (the "Advisor").
Each share of a series represents an equal proportionate interest in
the assets and liabilities belonging to that series with each other share of
that series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will been titled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
Prior to the public offering of the Fund, AmeriPrime Financial
Securities, Inc. (the Fund's distributor), 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092, purchased all of the outstanding shares of the Fund and
may be deemed to control the Fund. After the public offering commences, it is
anticipated that AmeriPrime Financial Securities, Inc. will no longer control
the Fund. As the controlling shareholder, AmeriPrime Financial Securities, Inc.
would control the outcome of any proposal submitted to the shareholders for
approval, including changes to the Fund's fundamental policies or the terms of
the management agreement with the Fund's advisor.
For information concerning the purchase and redemption of shares of the
Fund, see "How to Buy Shares" and "How to Redeem Shares" in the Fund's
Prospectus. For a description of the methods used to determine the share price
and value of the Fund's assets, see "Determination of Net Asset Value" in the
Funds' Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the
investments the Fund may make and some of the techniques it may use, as
described in the Prospectus (see "Investment Objectives and Strategies" and
"Investment Policies and Techniques and Risk Considerations").
A. Equity Securities. Equity securities include common stock, preferred
stock and common stock equivalents (such as convertible preferred stock, rights
and warrants). Convertible preferred stock is preferred stock that can be
converted into common stock pursuant to its terms. Warrants are options to
purchase equity securities at a specified price valid for a specific time
period. Rights are similar to warrants, but normally have a short duration and
are distributed by the issuer to its shareholders. The Fund may invest up to 5%
of its net assets at the time of purchase in rights or warrants.
B. Fixed Income Securities. The Fund may invest in fixed income
securities. Fixed income securities include corporate debt securities, U.S.
government securities, and participation interests in such securities. Fixed
income securities are generally considered to be interest rate sensitive, which
means that their value will generally decrease when interest rates rise and
increase when interest rates fall. Securities with shorter maturities, while
offering lower yields, generally provide greater price stability than
longer-term securities and are less affected by changes in interest rates.
Corporate debt securities are long-term and short-term debt obligations
issued by companies (such as publicly issued and privately placed bonds, notes,
and commercial paper). The advisor considers corporate debt securities to be of
investment grade quality if they are rated BBB or higher by Standard & Poor's
Corporation ("S&P"), or Baa or higher by Moody's Investors Services, Inc.
("Moody's"), or if unrated, determined by the advisor to be of comparable
quality. Investment grade debt securities generally have adequate to strong
protection of principal and interest payments. In the lower end of this
category, credit quality may be more susceptible to potential future changes in
circumstances, and the securities have speculative elements. The Fund will not
invest more than 5% of the value of its net assets in securities that are below
investment grade, and will not purchase debt securities below B by S&P or
Moody's (or unrated securities determined by the advisor to be of inferior
quality to securities so rated).
U.S. government obligations may be backed by the credit of the
government as a whole or only by the issuing agency. U.S. Treasury bonds, notes,
and bills, and some agency securities, such as those issued by the Federal
Housing Administration and the Government National Mortgage Association (GNMA),
are backed by the full faith and credit of the U.S. government as to payment of
principal and interest and are the highest quality government securities. Other
securities issued by U.S. government agencies or instrumentalities, such as
securities issued by the Federal Home Loan Banks and the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the issuing agency,
and not by the U.S. government. Securities issued by the Federal Farm Credit
System, the Federal Land Banks, and the Federal National Mortgage Association
(FNMA) are supported by the agency's right to borrow money from the U.S.
Treasury under certain circumstances, but are not backed by the full faith and
credit of the U.S. government.
The Fund may buy and sell securities on a when issued or
delayed-delivery basis, with payment and delivery taking place at a future date.
The price and interest rate that will be received on the securities are each
fixed at the time the buyer enters into the commitment. The Fund may enter into
such forward commitments if they hold, and maintain until the settlement date in
a separate account at the Fund's Custodian, cash, or U.S. government securities
in an amount sufficient to meet the purchase price. The Fund will not invest
more than 25% of its total assets in forward commitments. Forward commitments
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date. Any change in value could increase fluctuations in
the Fund's share price and yield. Although the Fund will generally enter into
forward commitments with the intention of acquiring securities for its
portfolio, the Fund may dispose of a commitment prior to the settlement if the
Advisor deems it appropriate.
C. Repurchase Agreements. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a U.S.
Government obligation (which may be of any maturity) and the seller agrees to
repurchase the obligation at a future time at a set price, thereby determining
the yield during the purchaser's holding period (usually not more than seven
days from the date of purchase). Any repurchase transaction in which the Fund
engages will require full collateralization of the seller's obligation during
the entire term of the repurchase agreement. In the event of a bankruptcy or
other default of the seller, the Fund could experience both delays in
liquidating the underlying security and losses in value. However, the Fund
intends to enter into repurchase agreements only with the Custodian, other banks
with assets of $1 billion or more and registered securities dealers determined
by the Advisor (subject to review by the Board of Trustees) to be creditworthy.
The Advisor monitors the creditworthiness of the banks and securities dealers
with which the Fund engages in repurchase transactions, and the Fund will not
invest more than 5% of its net assets in repurchase agreements.
D. Reverse Repurchase Agreements. Reverse repurchase agreements involve
sales of portfolio securities by the Fund to member banks of the Federal Reserve
System or recognized securities dealers, concurrently with an agreement by the
Fund to repurchase the same securities at a later date at a fixed price, which
is generally equal to the original sales price plus interest. The Fund retains
record ownership and the right to receive interest and principal payments on the
portfolio security involved. The Fund's objective in such a transaction would be
to obtain funds to pursue additional investment opportunities whose yield would
exceed the cost of the reverse repurchase transaction. Generally, the use of
reverse repurchase agreements should reduce portfolio turnover and increase
yield.
In connection with each reverse repurchase agreement, the Fund will
direct its Custodian to place cash or U.S. government obligations in a separate
account in an amount equal to the repurchase price. In the event of bankruptcy
or other default by the purchaser, the Fund could experience both delays in
repurchasing the portfolio securities and losses. The Fund will not invest more
than 5% of its net assets in reverse repurchase agreements.
E. Illiquid Securities. The portfolio of the Fund may contain illiquid
securities. Illiquid securities generally include securities which cannot be
disposed of promptly and in the ordinary course of business without taking a
reduced price. Securities may be illiquid due to contractual or legal
restrictions on resale or lack of a ready market. The following securities are
considered to be illiquid: repurchase agreements and reverse repurchase
agreements maturing in more than seven days, nonpublicly offered securities and
restricted securities. Restricted securities are securities the resale of which
is subject to legal or contractual restrictions. Restricted securities may be
sold only in privately negotiated transactions, in a public offering with
respect to which a registration statement is in effect under the Securities Act
of 1933 or pursuant to Rule 144 or Rule 144A promulgated under such Act. 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 of
the decision to sell and the time such security may be sold 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 the price it could
have obtained when it decided to sell. The Fund will not invest more than 15% of
its net assets in illiquid securities.
F. Mortgage-Related Securities. Mortgage-related securities include
securities representing interests in a pool of mortgages. These securities,
including securities issued by FNMA, GNMA and the Federal Home Loan Mortgage
Corporation, provide investors with payments consisting of both interest and
principal as the mortgages in the underlying mortgage pools are repaid. The Fund
will only invest in pools of mortgage loans assembled for sale to investors by
agencies or instrumentalities of the U.S. government and will limit its
investment to 5% of its net assets. Unscheduled or early payments on the
underlying mortgages may shorten the securities' effective maturities.
Other types of securities representing interests in a pool of
mortgage loans are known as collateralized mortgage obligations (CMOs) and real
estate mortgage investment conduits (REMICs) and multi-class pass-throughs. CMOs
and REMICs are debt instruments collateralized by pools of mortgage loans or
other mortgage-backed securities. Multi-class pass-through securities are equity
interests in a trust composed of mortgage loans or other mortgage-backed
securities. Payments of principal and interest on underlying collateral provides
the funds to pay debt service on the CMO or REMIC or make scheduled
distributions on the multi-class pass-through securities. The Fund will only
invest in CMOs, REMICs and multi-class pass-through securities (collectively
"CMOs" unless the context indicates otherwise) issued by agencies or
instrumentalities of the U.S. government (such as the Federal Home Loan Mortgage
Corporation). Neither Fund will invest in "stripped" CMOs, which represent only
the income portion or the principal portion of the CMO.
CMOs are issued with a variety of classes or "tranches," which have
different maturities and are often retired in sequence. One or more tranches of
a CMO may have coupon rates which reset periodically at a specified increment
over an index such as the London Interbank Offered Rate ("LIBOR"). These
"floating rate CMOs," typically are issued with lifetime "caps" on their coupon
rate, which means that there is a ceiling beyond which the coupon rate may not
be increased. The yield of some floating rate CMOs varies in excess of the
change in the index, which would cause the value of such CMOs to fluctuate
significantly once rates reach the cap.
REMICs, which have elected to be treated as such under the Internal
Revenue Code, are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are similar to
CMOs in that they issue multiple classes of securities. As with other CMOs, the
mortgages which collateralize the REMICs in which a Fund may invest include
mortgages backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
The average life of securities representing interests in pools of
mortgage loans is likely to be substantially less than the original maturity of
the mortgage pools as a result of prepayments or foreclosures of such mortgages.
Prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest, and have the effect of reducing future
payments. To the extent the mortgages underlying a security representing an
interest in a pool of mortgages are prepaid, the Fund may experience a loss (if
the price at which the respective security was acquired by the Fund was at a
premium over par, which represents the price at which the security will be
redeemed upon prepayment). In addition, prepayments of such securities held by
the Fund will reduce the share price of the Fund to the extent the market value
of the securities at the time of prepayment exceeds their par value.
Furthermore, the prices of mortgage-related securities can be significantly
affected by changes in interest rates. Prepayments may occur with greater
frequency in periods of declining mortgage rates because, among other reasons,
it may be possible for mortgagors to refinance their outstanding mortgages at
lower interest rates. In such periods, it is likely that any prepayment proceeds
would be reinvested by the Fund at lower rates of return.
G. Foreign Securities. While the Fund ordinarily will invest in common
stocks of U.S. companies, it may invest in foreign companies through the
purchase of American Depository Receipts (ADRs). ADRs are dollar-denominated
receipts generally issued in registered form by domestic banks, and represent
the deposit with the bank of a security of a foreign issuer. To the extent that
the Fund does invest in foreign securities, such investments may be subject to
special risks, such as changes in restrictions on foreign currency transactions
and rates of exchange, and changes in the administrations or economic and
monetary policies of foreign governments. The Fund may also invest up to 5% of
its net assets at the time of purchase in foreign equity securities including
common stock, preferred stock and common stock equivalents issued by foreign
companies, and foreign fixed income securities. Foreign fixed income securities
include corporate debt obligations issued by foreign companies and debt
obligations of foreign governments or international organizations. This category
may include floating rate obligations, variable rate obligations, Yankee dollar
obligations (U.S. dollar denominated obligations issued by foreign companies and
traded on U.S. markets) and Eurodollar obligations (U.S. dollar denominated
obligations issued by foreign companies and traded on foreign markets). The Fund
has no present intention to invest in unsponsored ADRs.
Foreign government obligations generally consist of debt securities
supported by national, state or provincial governments or similar political
units or governmental agencies. Such obligations may or may not be backed by the
national government's full faith and credit and general taxing powers.
Investments in foreign securities also include obligations issued by
international organizations. International organizations include entities
designated or supported by governmental entities to promote economic
reconstruction or development as well as international banking institutions and
related government agencies. Examples are the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank. In
addition, investments in foreign securities may include debt securities
denominated in multinational currency units of an issuer (including
international issuers). An example of a multinational currency unit is the
European Currency Unit. A European Currency Unit represents specified amounts of
the currencies of certain member states of the European Economic Community, more
commonly known as the Common Market.
Purchases of foreign securities are usually made in foreign currencies
and, as a result, the Fund may incur currency conversion costs and may be
affected favorably or unfavorably by changes in the value of foreign currencies
against the U.S. dollar. In addition, there may be less information publicly
available about a foreign company then about a U.S. company, and foreign
companies are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the U.S. Other risks
associated with investments in foreign securities include changes in
restrictions on foreign currency transactions and rates of exchanges, changes in
the administrations or economic and monetary policies of foreign governments,
the imposition of exchange control regulations, the possibility of expropriation
decrees and other adverse foreign governmental action, the imposition of foreign
taxes, less liquid markets, less government supervision of exchanges, brokers
and issuers, difficulty in enforcing contractual obligations, delays in
settlement of securities transactions and greater price volatility. In addition,
investing in foreign securities will generally result in higher commissions than
investing in similar domestic securities.
H. Option Transactions. Up to 5% of the Fund's net assets may be
invested in option transactions involving individual securities and market
indices. An option involves either (a) the right or the obligation to buy or
sell a specific instrument at a specific price until the expiration date of the
option, or (b) the right to receive payments or the obligation to make payments
representing the difference between the closing price of a market index and the
exercise price of the option expressed in dollars times a specified multiple
until the expiration date of the option. Options are sold (written) on
securities and market indices. The purchaser of an option on a security pays the
seller (the writer) a premium for the right granted but is not obligated to buy
or sell the underlying security. The purchaser of an option on a market index
pays the seller a premium for the right granted, and in return the seller of
such an option is obligated to make the payment. A writer of an option may
terminate the obligation prior to expiration of the option by making an
offsetting purchase of an identical option. Options are traded on organized
exchanges and in the over-the-counter market. Options on securities which the
Fund sells (writes) will be covered or secured, which means that it will own the
underlying security (for a call option); will segregate with the Custodian high
quality liquid debt obligations equal to the option exercise price (for a put
option); or (for an option on a stock index) will hold a portfolio of securities
substantially replicating the movement of the index (or, to the extent it does
not hold such a portfolio, will maintain a segregated account with the Custodian
of high quality liquid debt obligations equal to the market value of the option,
marked to market daily). When the Fund writes options, it may be required to
maintain a margin account, to pledge the underlying securities or U.S.
government obligations or to deposit liquid high quality debt obligations in a
separate account with the Custodian.
The purchase and writing of options involves certain risks; for
example, the possible inability to effect closing transactions at favorable
prices and an appreciation limit on the securities set aside for settlement, as
well as (in the case of options on a stock index) exposure to an indeterminate
liability. The purchase of options limits the Fund's potential loss to the
amount of the premium paid and can afford the Fund the opportunity to profit
from favorable movements in the price of an underlying security to a greater
extent than if transactions were effected in the security directly. However, the
purchase of an option could result in the Fund losing a greater percentage of
its investment than if the transaction were effected directly. When the Fund
writes a covered call option, it will receive a premium, but it will give up the
opportunity to profit from a price increase in the underlying security above the
exercise price as long as its obligation as a writer continues, and it will
retain the risk of loss should the price of the security decline. When the Fund
writes a covered put option, it will receive a premium, but it will assume the
risk of loss should the price of the underlying security fall below the exercise
price. When the Fund writes a covered put option on a stock index, it will
assume the risk that the price of the index will fall below the exercise price,
in which case the Fund may be required to enter into a closing transaction at a
loss. An analogous risk would apply if the Fund writes a call option on a stock
index and the price of the index rises above the exercise price.
I. Hedging Transactions. The Fund may hedge all or a portion of its
portfolio investments through the use of options and futures contracts. The
objective of the hedging program is to protect a profit or offset a loss in a
portfolio security from future price erosion or to assure a definite price for a
security by acquiring the right or option to purchase or to sell a fixed amount
of the security at a future date. For example, in order to hedge against the
risk that the value of the Fund's portfolio securities may decline, the fund
might sell futures contracts on stock indices. When hedging of this character is
successful, any depreciation in the value of the hedged portfolio securities
will be substantially offset by an increase in the Fund's equity in the stock
index futures position. When hedging of this character is unsuccessful, the Fund
could lose more money than it originally invested in the hedged portfolio
security.
There is no assurance that the objective of the hedging program will be
achieved, since the success of the program will depend on the Advisor's ability
to predict the future direction of the relevant security or stock index, and
incorrect predictions by the Advisor may have an adverse effect on the Fund. In
this regard, skills and techniques necessary to arrive at such predictions are
different from those needed to predict price changes in individual stocks.
A stock index futures contract is a binding contractual commitment
which involves the payment or receipt of payments representing, respectively,
the loss or gain of a specified market index. Ordinarily, the Fund would enter
into stock index futures contracts to hedge its investments in common stocks.
Futures contracts are traded on exchanges licensed and regulated by the
Commodity Futures Trading Commission. The Fund will be subject to any
limitations imposed by the exchanges with respect to futures contracts trading
and positions. A clearing corporation associated with the particular exchange
assumes responsibility for all purchases and sales and guarantees delivery and
payment on the contracts. Although most futures contracts call for actual
delivery or acceptance of the underlying securities or currency, in most cases
the contracts are closed out before settlement date without the making or taking
of delivery. Closing out is accomplished by entering into an offsetting
transaction, which may result in a profit or a loss. There is no assurance that
the Fund will be able to close out a particular futures contract.
A hedging strategy involving options and futures contracts entails some
risks. For example, the total premium paid for an option may be lost if the Fund
does not exercise the option or futures contract, or the writer does not perform
his obligations. It is also possible that the futures contracts selected by the
Fund will not follow the price movement of the underlying stock index. If this
occurs, the hedging strategy may not be successful. Further, if the Fund sells a
stock index futures contract and is required to pay an amount measured by any
increase in the market index, it will be exposed to an indeterminate liability.
In addition, a liquid secondary market may not exist for any particular option
or futures contract at any specific time.
The Fund will incur transactional costs in connection with the hedging
program. When the Fund purchases or sells a futures contract, an amount of cash
and liquid assets will be deposited in a segregated account with the Trust's
Custodian to guarantee performance of the futures contract. The amount of such
deposits will depend upon the requirements of each exchange and broker and will
vary with each futures contract. Because open futures contract positions are
marked to market and gains and losses are settled on a daily basis, the Fund may
be required to deposit additional funds in such a segregated account if it has
incurred a net loss on its open futures contract positions on any day.
The Trust has filed a supplemental notice of eligibility with the
Commodity Futures Trading Commission ("CFTC") to claim relief from regulation as
a commodity "pool" within the meaning of the CFTC's regulations. In its filing,
the Trust has represented that the Fund's transactions in futures contracts will
constitute bona fide hedging transactions within the meaning of such regulations
and that the Fund will enter into commitments which require as deposits for
initial margin for futures contracts no more than 5% of the fair market value of
its assets.
J. Short Sales. The Fund may sell a security short in anticipation of a
decline in the market value of the security. When the Fund engages in a short
sale, it sells a security which it does not own. To complete the transaction,
the Fund must borrow the security in order to deliver it to the buyer. The Fund
must replace the borrowed security by purchasing it at the market price at the
time of replacement, which may be more or less than the price at which the Fund
sold the security. The Fund will incur a loss as a result of the short sale if
the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. The Fund will realize a
profit if the security declines in price between those dates.
In connection with its short sales, the Fund will be required to
maintain a segregated account with its Custodian of cash or high grade liquid
assets equal to the market value of the securities sold less any collateral
deposited with its broker. The Fund will limit its short sales so that no more
than 5% of its net assets (less all its liabilities other than obligations under
the short sales) will be deposited as collateral and allocated to the segregated
account. However, the segregated account and deposits will not necessarily limit
the Fund's potential loss on a short sale, which is unlimited. The Fund's policy
with respect to short sales is non-fundamental, and may be changed by the Board
of Trustees without the vote of the Fund's shareholders.
K. Loans of Portfolio Securities. The Fund may make loans of its
portfolio securities. Under the lending policy authorized by the Board of
Trustees and implemented by the Advisor in response to requests of
broker-dealers or institutional investors which the Advisor deems qualified, the
borrower must agree to maintain collateral, in the form of cash or U.S.
government obligations, with the Fund on a daily mark-to-market basis in an
amount at least equal to 102% of the value of the loaned securities. The Fund
will continue to receive dividends or interest on the loaned securities, and it
may terminate such loans at any time or reacquire such securities in time to
vote on any matter which the Board of Trustees determines to be serious. With
respect to loans of securities, there is the risk that the borrower may fail to
return the loaned securities or that the borrower may not be able to provide
additional collateral.
L.. Borrowing. The Fund may borrow up to one third of the value of its
total assets as a temporary measure for extraordinary or emergency purposes
(including borrowing to meet redemption requests). Because the Fund's
investments will fluctuate in value, whereas the interest obligations on
borrowed funds may be fixed, during times of borrowing, the Funds' net asset
value may tend to increase more when its investments increase in value, and
decrease more when its investments decrease in value. In addition, interest
costs on borrowings may fluctuate with changing market interest rates and may
partially offset or exceed the return earned on the borrowed funds. Also, during
times of borrowing under adverse market conditions, the Fund might have to sell
portfolio securities to meet interest or principal payments at a time when
fundamental investment considerations would not favor such sales. The Fund will
not purchase any securities while borrowings representing more than 5% of its
assets are outstanding.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been
adopted by the Trust with respect to the Fund and are fundamental
("Fundamental"), i.e., they may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. As used in the Prospectus and
the Statement of Additional Information, the term "majority" of the outstanding
shares of the Fund means the lesser of (1) 67% or more of the outstanding shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting; or
(2) more than 50% of the outstanding shares of the Fund. Other investment
practices which may be changed by the Board of Trustees without the approval of
shareholders to the extent permitted by applicable law, regulation or regulatory
policy are considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. Underwriting. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. Commodities. The Fund will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total
assets in a particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment
company, whether organized as a trust, association or corporation, or a personal
holding company, may be merged or consolidated with or acquired by the Trust,
provided that if such merger, consolidation or acquisition results in an
investment in the securities of any issuer prohibited by said paragraphs, the
Trust shall, within ninety days after the consummation of such merger,
consolidation or acquisition, dispose of all of the securities of such issuer so
acquired or such portion thereof as shall bring the total investment therein
within the limitations imposed by said paragraphs above as of the date of
consummation.
Non-Fundamental. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions"
above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will generally borrow only for liquidity
purposes. The Fund will not purchase any security while borrowings (including
reverse repurchase agreements) representing more than 5% of its total assets are
outstanding. The Fund will not invest more then 5% of its net assets in reverse
repurchase agreements.
3. Margin Purchases. The Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. Options. The Fund will not purchase or sell puts, calls, options or
straddles, except as described in the Prospectus and the Statement of Additional
Information.
5. Illiquid Investments. The Fund may invest up to 15% of its net
assets in securities for which there are legal or contractual restrictions on
resale and other illiquid securities.
6. Repurchase Agreements. The Fund will not invest more than 5% of its net
assets in repurchase agreements.
- ---------------------
<PAGE>
THE INVESTMENT ADVISOR
The investment advisor to the Fountainhead Kaleidoscope Fund is King
Investment Advisors, Inc., 1980 Post Oak Boulevard, Suite 2400, Houston, Texas
77056-3898(the "Advisor"). Roger E. King may be deemed to be a controlling
person of the Advisor due to his ownership of a majority of its shares.
Under the terms of the management agreement (the "Agreement"), the
Advisor manages each Fund's investments subject to approval of the Board of
Trustees and pays all of the expenses of the Fund except brokerage, taxes,
borrowing costs (such as (a) interest and (b) dividend expenses on securities
sold short), fees and expenses of the non-interested person trustees and
extraordinary expenses. As compensation for its management services and
agreement to pay the Fund's expenses, the Fund is obligated to pay the Advisor a
fee (based on average daily net assets) computed and accrued daily and paid
monthly at the annual rate 1.75%.
The Advisor retains the right to use the names "Fountainhead,"
"Kaleidoscope" or any variation thereof in connection with another investment
company or business enterprise with which the Advisor is or may become
associated. The Trust's right to use the name "Fountainhead Kaleidoscope"
automatically ceases ninety days after termination of the Agreement and may be
withdrawn by the Advisor on ninety days written notice.
The Advisor may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Fund believes that
the Glass-Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. If a bank were prohibited
from continuing to perform all or a part of such services, management of the
Fund believes that there would be no material impact on the Fund or its
shareholders. Banks may charge their customers fees for offering these services
to the extent permitted by applicable regulatory authorities, and the overall
return to those shareholders availing themselves of the bank services will be
lower than to those shareholders who do not. The Fund may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Fund, no preference will be shown for such
securities.
TRUSTEES AND OFFICERS
The Board of Trustees supervises the business activities of the Trust.
The names of the Trustees and executive officers of the Trust are shown below.
Each Trustee who is an "interested person" of the Trust, as defined in the
Investment Company Act of 1940, is indicated by an asterisk.
<TABLE>
<S> <C> <C>
==================================== ---------------- ======================================================================
NAME, AGE AND ADDRESS POSITION PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
==================================== ---------------- ======================================================================
*Kenneth D. Trumpfheller President and President, Treasurer and Secretary of AmeriPrime Financial Services,
Age: 40 Trustee Inc., the Fund's administrator, and AmeriPrime Financial Securities,
1793 Kingswood Drive Inc., the Fund's distributor, since 1994. President and Trustee of
Suite 200 AmeriPrime Advisors Trust and AmeriPrime Insurance Trust; Prior to
Southlake, Texas 76092 December, 1994, a senior client executive with SEI Financial
Services.
==================================== ---------------- ======================================================================
Paul S. Bellany Secretary, Secretary, Treasurer and Chief Financial Officer of AmeriPrime
Age: 40 Treasurer Financial Services, Inc. and AmeriPrime Financial Securities, Inc.;
1793 Kingswood Drive Secretary and Treasurer of AmeriPrime Advisors Trust and AmeriPrime
Suite 200 Insurance Trust; various positions with Fidelity Investments from
Southlake, Texas 76092 1987 to 1998; most recently Fund Reporting Unit Manager.
==================================== ---------------- ======================================================================
Steve L. Cobb Trustee President of Chandler Engineering Company, L.L.C., oil and gas
Age: 42 services company; various positions with Carbo Ceramics, Inc., oil
2001 N. Indianwood Ave. field manufacturing/supply company, from 1984 to 1997, most recently
Broken Arrow, OK 74012 Vice President of Marketing.
==================================== ================ ======================================================================
Gary E. Hippenstiel Trustee Director, Vice President and Chief Investment Officer of Legacy
Age: 52 Trust Company since 1992; President and Director of Heritage Trust
600 Jefferson Street Company from 1994-1996; Vice President and Manager of Investments of
Suite 350 Kanaly Trust Company from 1988 to 1992.
Houston, TX 77002
==================================== ================ ======================================================================
</TABLE>
The compensation paid to the Trustees of the Trust for the fiscal year
ended October 31, 1998 is set forth in the following table. Trustee fees are
Trust expenses and each series of the Trust pays a portion of the Trustee fees.
<TABLE>
<S> <C> <C>
==================================== ----------------------- ==================================
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST (THE TRUST IS
NAME FROM TRUST NOT IN A FUND COMPLEX)
==================================== ----------------------- ==================================
Kenneth D. Trumpfheller 0 0
==================================== ----------------------- ==================================
Steve L. Cobb $4,000 $4,000
==================================== ======================= ==================================
Gary E. Hippenstiel $4,000 $4,000
==================================== ======================= ==================================
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Advisor is responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing portfolio transactions, the
Advisor seeks the best qualitative execution for the Fund, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Advisor generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to its obligation of seeking best qualitative execution, the
Advisor may give consideration to sales of shares of the Trust as a factor in
the selection of brokers and dealers to execute portfolio transactions.
The Advisor is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Advisor exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Advisor determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Advisor's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Fund effect securities
transactions may also be used by the Advisor in servicing all of its accounts.
Similarly, research and information provided by brokers or dealers serving other
clients may be useful to the Advisor in connection with its services to the
Fund. Although research services and other information are useful to the Fund
and the Advisor, it is not possible to place a dollar value on the research and
other information received. It is the opinion of the Board of Trustees and the
Advisor that the review and study of the research and other information will not
reduce the overall cost to the Advisor of performing its duties to the Fund
under the Agreement.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.
To the extent that the Trust and another of the Advisor's clients seek
to acquire the same security at about the same time, the Trust may not be able
to acquire as large a position in such security as it desires or it may have to
pay a higher price for the security. Similarly, the Trust may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the other client desires to sell the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one client, the resulting
participation in volume transactions could produce better executions for the
Trust. In the event that more than one client wants to purchase or sell the same
security on a given date, the purchases and sales will normally be made by
random client selection.
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as
of 4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. For a description of the methods
used to determine the net asset value (share price), see "Determination of Net
Asset Value" in the Prospectus.
INVESTMENT PERFORMANCE
The Fund may periodically advertise "average annual total return."
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
applicable period of the hypothetical $1,000
investment made at the beginning of the
applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates that the maximum sales load is
deducted from the initial $1,000 and that a complete redemption occurs at the
end of the applicable period. If the Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated.
The Fund may also advertise performance information (a
"non-standardized quotation") which is calculated differently from average
annual total return. A non-standardized quotation of total return may be a
cumulative return which measures the percentage change in the value of an
account between the beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains distributions. A
non-standardized quotation may also be an average annual compounded rate of
return over a specified period, which may be a period different from those
specified for average annual total return. In addition, a non-standardized
quotation may be an indication of the value of a $10,000 investment (made on the
date of the initial public offering of the Fund's shares) as of the end of a
specified period. These non-standardized quotations do not include the effect of
the applicable sales load which, if included, would reduce the quoted
performance. A non-standardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index, the NASDAQ Composite Index, the Russell
2000 Index or the Dow Jones Industrial Average.
In addition, the performance of the Fund may be compared to other
mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds may not be the same as those of
the Fund. Performance rankings and ratings reported periodically in national
financial publications such as Barron's and Fortune also may be used.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is
Custodian of the Fund's investments. The Custodian acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Fund's request and
maintains records in connection with its duties.
TRANSFER AGENT
Unified Fund Services, Inc. ("Unified"), 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, acts as the Fund's transfer agent and, in such
capacity, maintains the records of each shareholder's account, answers
shareholder inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other accounting and shareholder service functions. In
addition, Unified provides the Fund with fund accounting services, which
includes certain monthly reports, record-keeping and other management-related
services. For its services as fund accountant, Unified receives an annual fee
from the Advisor equal to 0.0275% of the Fund's assets up to $100 million
(subject to various monthly minimum fees, the maximum being $2,000 per month for
assets of $20 to $100 million).
ACCOUNTANTS
The firm of McCurdy & Associates, CPA's, 27955 Clemens Road, Westlake,
Ohio 44145, has been selected as independent public accountants for the Trust
for the fiscal year ending October 31, 1999. McCurdy & Associates performs an
annual audit of the Fund's financial statements and provides financial, tax and
accounting consulting services as requested.
<PAGE>
DISTRIBUTOR
AmeriPrime Financial Securities, Inc., 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092, is the exclusive agent for distribution of shares of the
Fund. Kenneth D. Trumpfheller, a Trustee and officer of the Trust, is an
affiliate of the Distributor. The Distributor is obligated to sell the shares of
the Fund on a best efforts basis only against purchase orders for the shares.
Shares of the Fund are offered to the public on a continuous basis.
ADMINISTRATOR
The Fund retains AmeriPrime Financial Services, Inc. (the
"Administrator") to manage the Fund's business affairs and provide the Fund with
administrative services, including all regulatory reporting and necessary office
equipment, personnel and facilities. The Administrator receives a monthly fee
from the Adviser equal to an annual average rate of 0.10% of the Fund's average
daily net assets up to fifty million dollars, 0.075% of the Fund's average daily
net assets from fifty to one hundred million dollars and 0.050% of the fund's
average daily net assets over one hundred million dollars.
