[GRAPHIC]
PROSPECTUS April 29, 1999
THE DESSAUER GLOBAL EQUITY FUND
The Securities and Exchange Commission has not approved nor disapproved the
shares of the Fund as an investment. The Securities and Exchange Commission also
has not determined whether this prospectus is accurate or complete. Any person
who tells you that the Securities and Exchange Commission has made such an
approval or determination is committing a crime.
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Table of Contents
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Page
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Risk/Return Summary: Investments, Risks, and Performance
- Investment Objectives/Goals
- Principle Investment Strategies of the Fund
- Principle Risks of Investing in the Fund
- Risk/Return Bar Chart and Performance Table
Investment Objective, Principal Strategies and Related Risks
- Risks
Risks of Investing in Mutual Funds
Risks of Investing In Foreign Securities
Risks of Investing in Hong Kong
Risks of Investing in Europe
Risks of Investing in Debt Securities
Investment Adviser and Investment Advisory Agreement
Administrator
Shareholder Servicing Plan
Shareholder Guide - Your Account with The Dessauer Global Equity Fund
Investment Minimums
Net Asset Value
How to Purchase, Exchange and Sell Shares
- Mail
- Wire
- Auto-Buy
- Subsequent Investments
- Third Party Check or Starter Check
- Purchase Order Cut-Off
How to Redeem Shares
- Mail
- Telephone
- Wire
- Systematic Withdrawal Plan
- Signature Guarantee
Redemption Issues
- Redemption Fee
- Redemption by Corporations
- Redemption in Kind
- Small Accounts
- Check Clearance
Dividends and Capital Gains Distributions
Buying Before a Dividend
Tax Issues
Financial Highlights
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The Dessauer Global Equity Fund
Risk/Return Summary: Investments, Risks, and Performance
Investment Objectives/Goals.
The Dessauer Global Equity Fund (the "Fund") is a no-load mutual fund with the
investment objective of long-term capital appreciation.
Principle Investment Strategies of the Fund.
The Fund seeks to achieve its investment objective by investing primarily in the
securities of issuers in established markets that it believes are positioned to
benefit from growth in the global economy. The Fund invests in value oriented
securities by focusing on fundamentals, business trends, and management of the
companies and their financial strength. In selecting investments, the Fund may
take into consideration a company's sector or industry in order to avoid
concentrating in any one economic sector or industry. Generally, the companies
in which the Fund invests are traded in the markets of, or will derive a
substantial portion of their revenues from business activities within, North
America (the U.S. and Canada), Western Europe (which includes Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom), Hong Kong and
Japan (collectively, the "Major Markets"). Under normal market conditions, the
Fund invests at least 65% of its total assets in a portfolio of equity
securities of companies located in at least three different countries.
Principle Risks of Investing in the Fund.
The Fund is subject to the risks common to all mutual funds that invest in
equity and foreign securities. You may lose money by investing in this Fund if
any of the following occur:
o the stock markets of the United States, Canada, Western Europe, Hong Kong
or Japan go down;
o a stock or stocks in the Fund's portfolio do not perform as well as
expected;
o the value of a foreign currency declines relative to the U.S. dollar;
o a foreign government expropriates the Fund's assets; or
o political, social or economic instability in a foreign country causes the
value of the Fund's investments to decline.
In addition, the Fund is non-diversified, which means that the Fund may have a
portfolio with as few as twelve issuers. To the extent that the Fund invests in
a small number of issuers, an investment in the Fund may involve greater risk
than an investment in a diversified fund.
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Risk/Return Bar Chart and Performance Table
The following chart demonstrates the risks of investing in the Fund by showing
changes in the Fund's performance from January 1, 1998 through December 31,
1998. Past performance is not an indication of future performance.
During this period, the Fund's best performance for a quarter was 31.8% (for the
quarter ended December 31, 1998). The Fund's worst performance was -21.83% (for
the quarter ended September 30, 1998).
These risks are also demonstrated by the table below which shows how the Fund's
average annual returns compare with those of the Morgan Stanley Capital
International World Index.
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Average Annual Returns as of
12/31/98 1 Year Since Inception
(May 30, 1997)
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The Dessauer Global Equity Fund 26.27% 12.89%
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Morgan Stanley Capital International 22.77% 16.98%
World Index
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Fee Table
This table describes 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 Imposed on Purchases None
Maximum Sales Charge Imposed on Reinvested Dividends Cash None
60- Day Redemption Fee (as a percentage of amount redeemed) 1.00%
Annual Fund Operating Expenses (expenses that are deducted from the
Fund's assets)
(as a % of average net assets)
Management Fees 0.75%
Shareholder Service Plan 1 0.25%
Administrative Fee 0.10%
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1 Until April 23, 1999 the Fund operated as a registered closed-end investment
company. As a closed-end fund, the Fund did not have a Shareholder Service Plan.
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Other Expenses 0.45%
Total Annual Expenses 1.55%
Example of Expenses
This example is to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses have remained the same. Although your
actual costs may be higher or lower, based on these assumptions, the cost would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$158 $490 $845 $1,845
Investment Objective, Principal Strategies and Related Risks
Investment Objective. The Fund's investment objective is long-term capital
appreciation. The Fund's investment objective and strategies may be changed
without shareholder approval.
Generally, the Fund stays fully invested and deals with market turmoil by being
extremely selective and extensively researching the companies in which it
invests. At times, it may become necessary for the Fund to take a temporary
defensive position inconsistent with its principal investment strategies. At
that time, the Fund may invest up to 100% of its assets in cash, cash
equivalents or high-quality short-term money market instruments.
Risks. As with all mutual funds, investing in the Fund involves certain risks.
We cannot guarantee that the Fund will meet its investment objective or that the
Fund will perform as it has in the past. You may lose money if you invest in the
Fund.
The Fund may use various investment techniques, some of which involve greater
amounts of risk. These investment techniques are discussed in detail in the
Statement of Additional Information. To reduce risk, the Fund is subject to
certain limitations and restrictions. The Fund intends to
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comply with the diversification requirements of federal tax law as necessary to
qualify as a regulated investment company.
Risks of Investing in Mutual Funds
The following risks are common to all mutual funds and therefore apply
to the Fund:
o Market Risk. The market value of a security may go up or down, sometimes
rapidly and unpredictably. These fluctuations may cause a security to be
worth more or less than it was at the time of purchase. Market risk applies
to individual securities, a particular sector, or the entire economy.
o Manager Risk. Fund management affects Fund performance. A Fund may lose
money if the Fund manager's investment strategy does not achieve the Fund's
objective or the manager does not implement the strategy properly.
o Year 2000 Risk. The operations of the Fund, its ability to use services
provided by third parties, or its portfolio investments could be disrupted
by problems related to the failure of computer systems to properly process
and calculate date-related information starting on January 1, 2000. The
Fund or its service providers could have problems performing various
functions such as calculating net asset value, redeeming shares, delivering
account statements and providing other information to shareholders.
Risks of Investing in Foreign Securities
The following risks are common to mutual funds that invest in foreign securities
and therefore apply to the Fund:
o Legal System and Regulation Risk. Foreign countries have different legal
systems and different regulations concerning financial disclosure,
accounting and auditing standards. Corporate financial information that
would be disclosed under U.S. law may not be available. Foreign accounting
and auditing standards may render a foreign corporate balance sheet more
difficult to understand and interpret than one subject to U.S. laws and
standards. Additionally, government oversight of foreign stock exchanges
and brokerage industries may be less stringent than in the U.S.
o Currency Risk. Most foreign stocks are denominated in the currency of the
stock exchange where they are traded. The Fund's net asset value is
denominated in U.S. Dollars. The exchange rate between the U.S. Dollar and
most foreign currencies fluctuates; therefore the net asset value of the
Fund will be affected by a change in the exchange rate between the U.S.
Dollar and the currencies in which the Fund's stocks are denominated. The
Fund may also incur transaction costs associated with exchanging foreign
currencies into U.S. Dollars.
o Stock Exchange and Market Risk. Foreign stock exchanges generally have less
volume than U.S. stock exchanges. Therefore, it may be more difficult to
buy or sell shares of
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foreign securities, which increases the volatility of share prices on such
markets. Additionally, trading on foreign stock markets may involve longer
settlement periods and higher transaction costs.
o Market Concentration. Many foreign stock markets are more concentrated than
the U.S. stock market since a smaller number of companies make up a larger
percentage of the market. Therefore, the performance of a single company or
group of companies could have a much greater impact on a foreign stock
market than performance of a single company or group of companies would
have on the U.S. stock market.
o Expropriation Risk. Foreign governments may expropriate the Fund's
investments either directly by restricting the Fund's ability to sell a
security or by imposing exchange controls that restrict the sale of a
currency, or indirectly by taxing the Fund's investments at such high
levels as to constitute confiscation of the security. There may be
limitations on the ability of the Fund to pursue and collect a legal
judgment against a foreign government.
Risks of Investing in Hong Kong
The following risks are common to all mutual funds that invest in Hong Kong and
therefore apply to the Fund to the extent that it invests in Hong Kong.
o Political Risks. In 1984 China and Britain signed the Joint Declaration
which allowed for the termination of British rule in Hong Kong on June 30,
1997, but which maintains the previously existing capitalist economic and
social system of Hong Kong for 50 years beyond that date. Although China
has committed itself by treaty to preserve the economic and social freedoms
enjoyed in Hong Kong, the continuation of these freedoms is dependent on
the government of China. Also, a small number of companies represent a
large percentage of the Hong Kong market, which may lead to greater
volatility in this market than in less concentrated markets. The following
risks should be considered when considering investing in the Fund:
1. political instability may arise as a result of indecisive leadership;
2. hard line Communists might regain the political initiative;
3. social tensions caused by widely differing levels of economic
prosperity within Chinese society may create unrest.
Risks of Investing in Europe
The following risks are common to all mutual funds that invest in Europe and
therefore apply to the Fund to the extent that it invests in debt securities.
o The Euro. The recent conversion of the currency of certain European
countries to the common currency called the "Euro" may subject the Fund to
additional risks to the
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extent the Fund invests in these countries. The Euro could fail as a new
currency, forcing participating countries to return to their original
currency which could result in increased trade costs, decreased corporate
profits or other adverse effects. The profit margins of companies in which
the Fund invests may decrease due to the competitive impact of the Euro,
failure to modify information technology systems to accommodate the Euro,
or increased currency exchange costs. In addition, the Fund's service
providers could fail to make appropriate systems modifications to
accommodate the conversion to the Euro.
o Privatization Risk. Many European countries are privatizing state operated
and/or owned companies. There is the risk that this could cause labor
unrest and political instability or that those privatization efforts could
fail.
Risks of Investing in Debt Securities
The following risks are common to all mutual funds that invest in debt
securities and therefore apply to the portion of the Fund that is invested in
such debt to the extent that the Fund invests in securities that give rise to
such risks:
o Interest Rate Risk. The value of a debt security typically decreases when
interest rates rise. In general, debt securities with longer maturities are
more sensitive to changes in interest rates.
o Inflation Risk. A debt security may lose value if the rate of inflation
increases. Fixed debt securities are more susceptible to this risk than
floating debt securities.
o Reinvestment Risk. A fund may obtain a lower rate of return when
reinvesting investment income or sale proceeds.
o Credit Risk. The issuer of a debt security may be unable to make timely
payments of principal or interest, or may default on the debt.
Investment Adviser and Investment Advisory Agreement
Dessauer & McIntyre Asset Management, Inc., 4 Main Street, Orleans, MA
02653 is the investment adviser of the Fund (the "Adviser"). The Adviser, an
investment adviser registered with the SEC, was founded in 1986 and as of
February 28, 1999 managed $418 million in both U.S. and international assets.
o Advisory Services. The Adviser provides the Fund with investment management
and financial advisory services, including purchasing and selling the
securities in the Fund's portfolio, at all times subject to the policies
set forth by the Board of Trustees. The Adviser identifies and analyzes
possible investments for the Fund, determines the amount and timing of such
investments, and determines the forms of investments. The Adviser also
monitors and reviews the Fund's portfolio. For the months of June through
December, 1997, the Fund paid a monthly advisory fee calculated at an
annual rate of
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1% of the Fund's average weekly net assets. During the remainder of the
fiscal year ending March 31, 1998, the Fund paid a monthly advisory fee
calculated at an annual rate of .60%. On June 27, 1998, shareholders
approved amendments to the Fund's Investment Advisory Agreement to reflect
the resignation of Guinness Flight Investment Management, Ltd. as
co-manager of the Fund. In addition, shareholders approved a change in the
advisory fees from 1.00% to .75%.
o Management of the Adviser. John P. Dessauer and Thomas P. McIntyre together
own 100% of the Adviser.
o Mr. McIntyre is the manager of the Fund's portfolio. He joined the Adviser
in 1989 and became President in 1992. Mr. McIntyre has served as President
and portfolio manager of the Fund since its inception. For two years prior
to joining the Adviser, he served as an assistant treasurer for the
National Association of Securities Dealers, Inc. and was responsible for
their $84 million fixed-income portfolio. He previously served as Vice
President and Controller of a closed-end equity fund with assets of $140
million. Mr. McIntyre graduated from Notre Dame University (with high
honors) in 1977 with a degree in economics and went on to earn an M.B.A.
from Notre Dame in 1979. Mr. McIntyre is a Certified Public Accountant and
a Chartered Financial Analyst with over 20 years experience in financial
analysis and portfolio management.
Administrator
The Fund has entered into an administration agreement with Investment
Company Administration, L.L.C. ("ICA"). Under the administration agreement, ICA
will supervise the administration of all aspects of the Fund's operations,
including paying for certain outside services provided to the Fund, providing
the Fund with general office facilities, and providing, at the Fund's expense,
the services of persons necessary to perform such supervisory, administrative,
and clerical functions as are needed to operate the Fund effectively. For these
services and facilities, the Fund has agreed to pay ICA a monthly fee at an
annual rate of .10% of its average weekly net assets.
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Shareholder Servicing Plan
The Fund has adopted a Shareholder Servicing Plan whereby it pays the
Adviser or other financial institutions for shareholder services and account
maintenance, including responding to shareholder inquiries and direct
shareholder communications.
Shareholder Guide: Your Account with The Dessauer Global Equity Fund
Regular-(these accounts are taxable) Retirement-(these accounts are
generally nontaxable)
o Individual o Roth IRA
o Joint Tenant o Regular IRA
o UGMA/UTMA o Rollover IRA
o Trust o Roth Conversion
o Corporate o SIMPLE IRA
o SEP IRA
o 401(k)
o 403 (b)
Investment Minimums. The minimum initial investments are:
Regular (New Investor) $1,000
Additional Investment (Current Fund Shareholders) $100
Retirement (Roth and Regular) $1,000
Educational IRA $500
Gift $250
Pre-authorized Investment Plan (Initial and Installment payments) $100
Additional Investments $250
The Fund may reduce or waive the minimum investment requirements in some cases.
Net Asset Value. The net asset value ("NAV") per share of the Fund is determined
as of 4:00 p.m. Eastern Standard Time on each day the New York Stock Exchange is
open for business. The NAV is calculated by subtracting the Fund's liabilities
from its assets and then dividing that number by the total number of outstanding
shares. This procedure is in accordance with Generally Accepted Accounting
Principles as well as federal securities laws and regulations. Securities
without a readily available price quotation may be priced at fair value. Fair
value is determined in good faith by or under the supervision of the Fund's
officers under methods authorized by the Board of Trustees.
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Pre-Authorized Investment Plan. With a pre-authorized investment plan, your
personal bank account is automatically debited on a monthly or quarterly basis
to purchase shares of the Fund. You will receive the NAV as of the date the
debit is made.
How to Purchase, Exchange and Sell Shares. National Financial Data Services Inc.
("NFDS"), the Fund's transfer agent, is open from 9 a.m. to 6 p.m. Eastern
Standard Time for purchase, redemption and exchange orders. NFDS must receive
your request by 4 p.m. Eastern Standard Time on a day the New York Stock
Exchange is open for business to receive the NAV of that day. If your request is
received after 4 p.m. it will be processed the next business day. The phone
number you should call for account transaction requests is (800) 560-0086.
You may purchase shares of the Fund by mail, wire or auto-buy. You may be able
to invest in and redeem shares of the Fund through a broker or dealer if the
broker has made arrangements with First Fund Distributors, Inc. the Fund's
distributor. The broker-dealer is authorized to designate intermediaries to
accept orders on the Fund's behalf. Your broker-dealer may place an order for
you with the Fund; the Fund will be deemed to have received the order when the
broker-dealer accepts the order. A broker-dealer or other agent may charge you a
fee for placing either an investment or redemption order, but you can avoid
paying such a fee by sending an Application Form and payment directly to the
Fund. The broker-dealer may also hold shares you purchase in an omnibus account
in its name rather than in your name on the records of the Fund's transfer
agent. The Fund may reimburse the broker-dealer or other agent for maintaining
records of your account as well as for other services provided to you. If you
wish to add any account feature after your account is established, you must have
the instructions signature guaranteed.
Mail (graphic): To purchase by mail, you should:
o Complete and sign the account application
o To open a regular account, write a check payable to "The Dessauer Global
Equity Fund"
o To open a retirement account, write a check payable to the custodian or
trustee
o Send your account application and check or exchange request, to one of the
following addresses:
For a return envelope:
The Dessauer Global Equity Fund
P.O. Box 419227
Kansas City, MO 64141-6227
For an overnight delivery:
National Financial Data Services
ATTN: The Dessauer Global Equity Fund
330 West Ninth Street
Kansas City, MO 64105
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Wire (graphic): To purchase by wire, call NFDS at (800) 560-0086 between 9 a.m.
and 6 p.m. Eastern Standard Time on a business day to get an account number and
detailed instructions. You must then provide NFDS with a signed application
within 10 business days of the initial purchase. Instruct your bank to send the
wire to:
Investors Fiduciary Trust Company
ABA #101003621
Shareholder and Custody Services
The Dessauer Global Equity Fund
DDA #7561016
ATTN: [Account Registration]
[Your A/C #]
Auto-Buy. You may purchase additional shares of the Fund by ACH (Automated
Clearing House) after you elect the Auto-Buy option on your account. To elect
the Auto-Buy option, call NFDS and request an optional shareholder services
form. ACH is similar to the pre-authorized investment plan, except that you may
choose the date on which you want to make the purchase.
NFDS must receive a voided check or bank deposit slip before you may purchase
by ACH.
Subsequent Investments. If you are making an additional investment in the Fund,
you should include either the stub from a previous confirmation statement or a
letter to NFDS providing your name and account number to ensure that the money
is invested in your existing account.
Third Party Check or Starter Check. No third party checks, or starter checks or
non-pre- printed checks will be accepted for initial or subsequent investments.
Purchase Order Cut-Off. The Fund, at the direction of the Board of Trustees, may
cease taking purchase orders at any time when it believes that it is in the best
interest of current shareholders.
How to Redeem Shares. You may redeem shares by mail or telephone. Your request
must be received at NFDS by 4 p.m. Eastern Standard Time on a day the New York
Stock Exchange is open for business in order to receive the NAV for that day.
Since some portfolio securities are listed primarily on foreign exchanges, the
Fund's net asset value may change on a day when you will not be able to purchase
or redeem Fund shares. If you redeem through a broker, the broker may charge you
a transaction fee. You may receive the proceeds of redemption by wire or through
a systematic withdrawal plan as described below. There is a $10 fee for
redemption by wire and a maximum of $50,000 which can be redeemed daily.
Mail. To redeem by mail, please:
o Provide your name and account number
o Specify the number of shares or dollar amount to be redeemed
o Sign the redemption request (the signature must be the same as the one on
your account application). Make sure all parties required to sign the
request have done so.
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o Send your request to the appropriate address (shown above under "Purchasing
by Mail")
Telephone. You may redeem your shares by telephone if you authorized telephone
redemption on your account application. To redeem by telephone, call NFDS at
(800) 560-0086 between the hours of 9 a.m. and 6 p.m. Eastern Standard Time on a
day the New York Stock Exchange is open for business. If your redemption request
is received by 4 p.m. Eastern Standard Time you will receive the NAV for that
day. For your protection against fraudulent telephone transactions, NFDS will
use reasonable procedures to verify your identity. As long as NFDS follows these
procedures it will not be liable for any loss or cost to you if it acts on
instructions reasonably believed to be authorized by you. You will be notified
if NFDS refuses any telephone redemption. Telephone redemptions may be difficult
during periods of extreme market or economic conditions. If you are unable to
redeem by telephone, please send your redemption request by mail or overnight
courier.
Wire. You may have the proceeds of your redemption request wired to your bank
account for redemptions of $500 or more. To have your proceeds wired, please
provide the name, location, ABA or bank routing number of your bank and your
bank account number. Payment will be made within three business days after NFDS
receives your written or telephone redemption request.
Systematic Withdrawal Plan. You may establish a systematic withdrawal plan which
allows you to have regular monthly or quarterly payments redeemed from your
account and sent to either you or a third party you designate. Payments must be
at least $100 and your account must have an account value of at least $10,000.
You will receive the NAV on the date of the scheduled withdrawal. You may
realize either a capital gain or loss on the withdrawals that must be reported
for tax purposes. You may purchase additional shares of the Fund under this plan
as long as the additional purchases are equal to at least one year's scheduled
withdrawals.
Signature Guarantee. The following redemption requests require a signature
guarantee:
o Redemptions by corporations, partnerships, trusts or other fiduciary
accounts
o Redemptions from an account with a value of at least $50,000 if you are
making the request in writing (if you have authorized telephone redemption
on your account, you may redeem by telephone without a signature guarantee)
o Redemption of an account where proceeds are to be paid to someone other
than the record owner
o Redemption of an account where the proceeds are to be sent to an address
other than the record address
You can get a signature guarantee from certain banks, brokers, dealers, credit
unions, securities exchanges, clearing agencies and savings associations. A
notarization and acknowledgment by a notary public is not a signature guarantee.
Redemption Issues
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o Redemption Fee. There is a redemption fee of 1% of the value of the shares
being redeemed from the Fund if the shares are redeemed within 60 days of
purchase. There is no redemption fee if the shares were acquired though
reinvestment of distributions. Redemptions are made on a first-in,
first-out basis.
o Redemption by Corporations. All redemptions by corporations need to have a
certified copy of the resolution attached to the request.
o Redemption in Kind. The Fund reserves the right to redeem your shares "in
kind". For example, if you redeem a large number of shares and the Fund is
unable to sell securities to raise cash, the Fund may send you a
combination of cash and shares of the Fund's securities.
o Small Accounts. To reduce Fund expenses, we may redeem an account if the
total value of the account falls below $1,000 due to redemptions. You will
be given 30 days prior written notice of this redemption. During that
period you may purchase additional shares to avoid the redemption.
o Check Clearance. The proceeds from a redemption request will be delayed
until the purchase check clears, which may be up to 15 calendar days. If
the check does not clear, the shareholder will be responsible for the loss.
This delay can be avoided by purchasing shares by wire or certified bank
checks.
Dividends and Capital Gains Distributions. The Fund intends to distribute all or
most of its net investment income and net capital gains to shareholders
annually.
Your dividends and/or capital gains distributions will be automatically
reinvested on the ex- dividend date when there is a distribution, unless you
elect otherwise, so that you will be buying more of both full and fractional
shares of the Fund. You will be buying those new shares at the NAV per share on
the ex-dividend date. You may choose to have dividends and capital gains
distributions paid to you in cash. You may authorize this option by calling NFDS
at (800) 560- 0086 and requesting this change. You must complete the form and
return it to NFDS before the record date in order for the change to be effective
for that dividend or capital gains distribution.
Buying Before a Dividend. If you buy shares of the Fund just before a
distribution (on or before the record date), you will pay the full price for the
shares and receive a portion of the purchase price back as a taxable
distribution. This is called "buying before a dividend." For example, if you
bought shares on or before the record date and paid $10.00 per share, and,
shortly thereafter, the Fund paid you a dividend of $1.00 per share, then your
shares would now be worth $9.00 per share. Unless your account is a tax-deferred
account, dividends paid to you would be included in your gross income for tax
purposes even though you may not have participated in the increase of the NAV of
the Fund, regardless of whether you reinvested the dividends.
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Tax Issues. The Fund has elected, and intends to continue to qualify, to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), by distributing substantially all
of its net investment income and net capital gains to its shareholders and
meeting other requirements of the Code relating to the sources of its income and
diversification of assets. Accordingly, the Fund generally will not be liable
for federal income tax or excise tax based on net income except to the extent
its earnings are not distributed or are distributed in a manner that does not
satisfy the requirements of the Code. If the Fund is unable to meet certain Code
requirements, it may be subject to taxation as a corporation.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase fund shares) receive from the Fund are considered ordinary
income. Part of the distributions paid by the Fund may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of the Fund are treated by shareholders as
long-term capital gains regardless of the length of time the Fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Fund.
Part of the Fund's investment income may be subject to foreign income taxes that
are withheld at the source. If the Fund meets certain requirements under the
Code, it may pass through these foreign taxes to shareholders, who may then
claim a credit or deduction against their own taxes for their share of foreign
taxes paid.
The Fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Fund. Additional information on tax matters
relating to the Fund and its shareholders is included in the Statement of
Additional Information.
Financial Highlights
This financial highlights table is intended to help you understand the Fund's
financial performance for the period since its inception on May 30, 1997.
Certain information reflects financial results for a single share of the Fund.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the Fund assuming reinvestment of all
dividends and distributions. Ernst & Young LLP has audited this information.
Ernst & Young's report along with further detail on the Fund's financial
statements are included in the annual report which is available upon request.
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For a capital share outstanding throughout the period
May 30, 1997*
through
March 31, 1998
--------------
Net asset value, beginning of period $ 11.88
-----
Income (loss) from investment operations:
Net investment income 0.10
Net realized and unrealized gain (loss) on investments 1.90**
------
Total from investment operations 2.00
----
Less distributions:
Dividends from net investment income (0.06)
Distributions from net capital gains (0.13)
------
Total distributions: (0.19)
------
Net asset value, end of period $ 13.69
------
Total return 17.27%+
Net assets, end of period (thousands) $82,807
Ratios/supplemental data:
Ratio of expenses to average net assets: 1.54%++
Ratio of net investment income to average net assets 0.99%++
- 14 -
<PAGE>
Portfolio turnover rate 74.47%+
* Commencement of the Fund.
** Includes the impact of a $330,000 ($0.06 per share) charge for offering
expenses paid pursuant to the terms of the Prospectus dated May 30,
1997.
+ Not Annualized.
++ Annualized.
- 15 -
<PAGE>
[back cover page]
Statement of Additional Information. The Statement of Additional Information
provides a more complete discussion about the Fund and is incorporated by
reference into this prospectus, which means that it is considered a part of this
prospectus.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about the Fund's investments,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To Review or Obtain this Information: The Statement of Additional Information
and annual and semi-annual reports are available without charge upon your
request by calling the Fund at (800) 560-0086 or by calling or writing a
broker-dealer or other financial intermediary that sells the Fund. This
information may be reviewed at the Public Reference Room of the Securities and
Exchange Commission or by visiting the SEC's World Wide Web site at
http:\\www.sec.gov. In addition, this information may be obtained for a fee by
writing or calling the Public Reference Room of the Securities and Exchange
Commission, Washington, D.C. 20549-6009, telephone (800) SEC-0330.
File No.: 811-7691
- 16 -
<PAGE>
PURCHASE APPLICATION
TO BE ADDED
- 17 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE DESSAUER GLOBAL EQUITY FUND
4 MAIN STREET
ORLEANS, MASSACHUSETTS 02653
April 29, 1999
This Statement is not a prospectus but should be read in conjunction with the
current Prospectus dated April 2_, 1999 (the "Prospectus"), pursuant to which
the Fund is offered. Please retain this document for future reference.
To obtain the Prospectus please call the FUND at 1-800-560-0086
<PAGE>
TABLE OF CONTENTS
Page
Organization of The Dessauer Global Equity Fund........................... 1
Management of the Fund.................................................... 1
Board of Trustees..................................................... 1
Investment Adviser and Investment Advisory Agreement...................... 2
Advisory Agreement.................................................... 2
Management of the Adviser............................................. 2
Principal Shareholders................................................ 2
Service Providers......................................................... 3
Investment Practices and Policies......................................... 3
Investment Practices.................................................. 3
Investment Policies................................................... 3
Investment Restrictions................................................... 4
Risk Factors.............................................................. 5
Economic and Political Factors Affecting Foreign Countries............ 5
Foreign Currency Considerations....................................... 5
Trading Markets in Foreign Countries.................................. 6
Repatriation; Investment Controls..................................... 6
Foreign Taxation...................................................... 7
Portfolio Turnover Risk............................................... 7
Portfolio Transactions and Brokerage...................................... 7
Allocation of Investments................................................. 7
Computation of Net Asset Value............................................ 8
Purchasing Assets......................................................... 8
Redeeming Shares........................................................... 9
Shares of Beneficial Interest in the Fund.................................. 9
Additional Purchase and Redemption Information............................. 9
Tax Matters................................................................ 9
Qualification as a Regulated Investment Company........................ 9
Excise Tax on Regulated Investment Companies.......................... 12
Fund Distributions.................................................... 12
Sale or Redemption of Shares.......................................... 14
Foreign Shareholders.................................................. 15
Effect of Future Legislation; Local Tax Considerations................ 15
Performance Information................................................... 15
Financial Statements...................................................... 17
-i-
<PAGE>
Adviser
- -------
Dessauer & McIntyre Asset Management, Inc.
Administrator
- -------------
Investment Company Administration, L.L.C.
Distributor
- -----------
First Fund Distributors, Inc.
Custodian
- ---------
Investors Bank and Trust Company
Transfer Agent and Dividend Paying Agent
- ----------------------------------------
National Financial Data Services
Counsel
- -------
Kramer Levin Naftalis & Frankel LLP
Independent Accountants
- -----------------------
Ernst & Young LLP
-ii-
<PAGE>
ORGANIZATION OF THE DESSAUER GLOBAL EQUITY FUND
The Dessauer Global Equity Fund (the "Fund") is a non-diversified
open-end management investment company commonly known as a mutual fund. The Fund
was organized in Delaware on June 27, 1986 as a closed-end fund with an
Automatic Conversion Provision and commenced offering its shares as an open-end
fund on April 29, 1999.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The overall management of the business and affairs of the Fund is vested in the
Board of Trustees. The Board of Trustees approves all significant agreements
between the Fund and persons or companies furnishing services to the Fund,
including the Fund's investment advisory agreements with Dessauer & McIntyre
Asset Management, Inc. (the "Adviser"), the agreement with Investors Bank and
Trust Company ("IB&T") as the custodian, the agreement with National Financial
Data Services as transfer agent, the agreement with Investment Company
Administration, L.L.C. ("ICA") as the administrator. The day-to-day operations
of the Fund are delegated to the officers, subject to the investment objective
and policies of the Fund and to the general supervision of the Board of
Trustees.
The Trustees and principal executive officers of the Fund and their
principal occupations are noted below. The address of each individual is c/o
Dessauer & McIntyre Asset Management, Inc., 4 Main Street, Orleans,
Massachusetts 02653.
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATIONS
NAME AND AGE WITH REGISTRANT DURING PAST 5 YEARS
------------ --------------- -------------------
<S> <C> <C>
John P. Dessauer, 62 Chairman and Trustee Dessauer & McIntyre Asset
Management, Inc.
Thomas P. McIntyre, 42 President and Trustee President, Dessauer & McIntyre Asset
Management, Inc.
Max A. Fischer, 61 Trustee Independent Financial Consultant.
Ingrid R. Hendershot, 40 Trustee President, Hendershot Investments; Vice
President, Financial Analyst, Growth Stock
Outlook, Inc.
Kevin Melich, 57 Trustee Partner, Chartwell Investment Partners; Portfolio
Manager, Delaware Investment Advisers
J. Brooks Reece, 51 Trustee Vice President, Sales & Marketing, Adcole
Corporation; Trustee, Guinness Flight Investment
Funds
</TABLE>
-1-
<PAGE>
The annual compensation of the Trustees is noted below.
<TABLE>
<CAPTION>
NAME OF PERSON AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL FROM
FROM FUND PART OF THE FUND EXPENSES BENEFITS FUND AND FUND COMPLEX
UPON RETIREMENT PAID TO TRUSTEES
<S> <C> <C> <C> <C>
John P. Dessauer.... -- -- -- --
Thomas P. McIntyre.. -- -- -- --
Max A. Fischer...... $3,750 -- -- $3,750
Ingrid R. Hendershot $3,750 -- -- $3,750
Kevin Melich........ $3,750 -- -- $3,750
J. Brooks Reece..... $3,750 -- -- $3,750
</TABLE>
INVESTMENT ADVISER AND INVESTMENT ADVISORY AGREEMENT
ADVISORY AGREEMENT. Under the terms of its investment advisory agreement
(the "Advisory Agreement"), the Fund pays all of its expenses (other than those
expenses specifically assumed by the Adviser) including the costs incurred in
connection with its registration under the Securities Act and the 1940 Act;
printing of the prospectus distributed to shareholders; taxes or governmental
fees; brokerage commissions; custodial, transfer and shareholder servicing
agents; expenses of outside counsel and independent accountants; preparation of
shareholder reports; and expenses of Trustee meetings and (shareholder
meetings). The Adviser may from time to time, subject to the Board of Trustees
approval, contract with other service providers to perform support services that
aid in managing the assets of the Fund.
The Fund's Advisory Agreement was approved initially by the Board of
Trustees (including the affirmative vote of all the Trustees who were not
parties to the Agreement or interested persons of any such party) on May 23,
1997. The Advisory Agreement may be terminated without penalty on 60 days'
written notice by a vote of the majority of the Fund's Board of Trustees or by
the investment adviser or by holders of a majority of the Fund's outstanding
shares. The Advisory Agreement continues from year to year, provided it is
approved, at least annually, in the manner stipulated in the 1940 Act. The 1940
Act requires that the Advisory Agreement and any renewal thereof be approved by
a vote of the majority of the Fund's Trustees who are not parties thereto or
interested persons of any such party, cast in person at a meeting specifically
called for the purpose of voting on such approval.
Pursuant to the Advisory Agreement, the Fund pays the Adviser a monthly
fee calculated at an annual rate of .75% of the Fund's average daily net assets.
From time to time, the Adviser may voluntarily agree to defer or waive fees or
absorb some or all of the expenses of the Fund. To the extent it should do so,
it may seek reimbursement of such deferred fees and absorbed expenses after they
discontinue this practice. For the period ended September 30, 1998 the Fund paid
$267,594 dollars in advisory fees.
MANAGEMENT OF THE ADVISER. John P. Dessauer and Thomas P. McIntyre own
100% of the common stock of the Adviser and are therefore "Control Persons" as
defined in the 1940 Act.
PRINCIPAL SHAREHOLDERS. As of March 23, 1999, the Directors and Officers
of the Fund as a group owned 1.57% of the Fund's outstanding shares. As of March
23, 1999, to the knowledge of management, no person owned beneficially or of
record more than 5% of the outstanding shares of the Fund.
-2-
<PAGE>
SERVICE PROVIDERS
ICA acts as the Fund's administrator pursuant to an administration
agreement with the Fund. Under the administration agreement, ICA supervises the
administration of all aspects of the Fund's operations, including the Fund's
receipt of services for which the Fund is obligated to pay, provides the Fund
with general office facilities, and provides, at the Fund's expense, the
services of persons necessary to perform such supervisory, administrative, and
clerical functions as are needed to operate the Fund effectively. Those persons,
as well as certain employees and trustees of the Fund, may be directors,
officers, or employees of ICA and its affiliates. For these services and
facilities, the Fund pays ICA a monthly fee at an annual rate of .10% of the
average weekly net assets of the Fund.
First Fund Distributors, Inc. ("FFD") receives orders for the purchase
of the shares of the Fund and transmits such orders and funds received by it in
payment for such shares to the transfer agent or custodian, as appropriate, as
promptly as practicable. FFD also has the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of shares.
National Financial Data Services, 330 West Ninth Street, Kansas City, MO
64105, serves as the Transfer Agent of the Fund. The Transfer Agent provides
recordkeeping services for the Fund and its shareholders. Investors Bank and
Trust Company, 200 Clarendon Street, Boston, Massachusetts 02116, serves as the
custodian of the Fund. The custodian holds the securities, cash and other assets
of the Fund. Ernst & Young LLP, 5l5 South Flower Street, Los Angeles, CA 90071,
serves as the Fund's independent accountants. The independent accountants will
audit the financial statements and the financial highlights of the Fund, as well
as provide reports to the trustees. Kramer Levin Naftalis & Frankel LLP, 919
Third Avenue, New York, New York 10022, serves as counsel to the Fund.
INVESTMENT PRACTICES AND POLICIES
Investment Practices.
Although the Fund will not have a general limit as to the types of
securities which it can purchase, most of the Fund's investments will be in
marketable common stocks or marketable securities convertible into common
stocks. Such securities may be traded on an exchange or in the over-the-counter
market. Securities other than common stock or securities convertible into common
stock may be held from time to time, but the Fund normally will not invest in
fixed income securities except for defensive purposes or to temporarily employ
uncommitted cash balances.
Investment Policies.
In pursuing its investment objective, the Fund does not intend to lend
portfolio securities or invest in illiquid or restricted securities. In
addition, the Fund will observe a non-fundamental policy of not investing for
the purpose of exercising control over management, even though it may take
substantial positions in securities of small companies and in certain
circumstances this may result in the acquisition of such control. Such
circumstances could arise, for example, when existing controlling persons of an
issuer dispose of their holdings to larger groups or to the public or where an
issuer defaults to the Fund on its obligations pursuant to the provisions of a
purchase agreement or instrument governing the rights of a senior security held
by the Fund.
The Fund will not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for short-term
credits necessary for clearance of portfolio transactions. The Fund may,
-3-
<PAGE>
at such times as the Adviser deems appropriate and consistent with the Fund's
investment objective use options, futures contracts and related options. The
purpose of such transactions is to hedge against changes in the market value of
the Fund's portfolio securities caused by fluctuating interest rates,
fluctuating currency exchange rates and changing market conditions.
INVESTMENT RESTRICTIONS
Investment restrictions are fundamental policies and cannot be changed
without approval of the holders of a majority (as defined in the Investment
Company Act of 1940, as amended) 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, respectively, the vote
of the lesser of (i) 67% or more of the 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 by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The following are the Fund's investment restrictions set forth in
their entirety. The Fund may not:
1. (a) With respect to 50% of its assets, invest more than 5%
of its total assets, at market value, in the securities of
one issuer (except the securities of the United States
Government) and may not purchase more than 10% of the
outstanding voting securities of a single issuer.
(b) With respect to the other 50% of its assets, invest
more than 25% of the market value of its total assets in a
single issuer.
These two restrictions, hypothetically, could give rise to
a portfolio with as few as 12 issuers. To the extent that the Fund's
assets are invested in a small number of issuers, there may be a greater
risk in an investment in the Fund than in a diversified investment
company. In addition, the Fund may not:
2. Borrow money or issue senior securities or pledge its
assets, except that the Fund may borrow up to 33 1/3% of
the value of its total assets from a bank (i) for
temporary or emergency purposes, including to meet
redemption requests if the Fund is operating as an
open-end investment company, (ii) for such short-term
credits necessary for the clearance or settlement of the
transactions, (iii) to finance repurchase of its Shares or
(iv) to pay dividends required to be distributed in order
for the Fund to maintain its qualification as a regulated
investment company under the Code or otherwise to avoid
taxation under the Code in amounts not exceeding 5% of its
total assets (including the amount borrowed and excluding
the liability for the borrowings).
3. Invest 25% or more of the total value of its assets in a
particular industry, except that this restriction shall
not apply to U.S. Government Securities.
4. Buy or sell commodities or commodity contracts or real
estate or interests in real estate (including real estate
limited partnerships), except that it may purchase and
sell futures contracts on stock indices, interest rate
instruments, and foreign currencies; securities which are
secured by real estate or commodities; and securities of
companies which invest or deal in real estate or
commodities.
5. Act as an underwriter except to the extent that, in
connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under applicable
securities laws.
-4-
<PAGE>
Changes in the market value of securities in the Fund's
portfolio generally will not cause the Fund to violate these investment
restrictions unless any failure to satisfy these restrictions exists
immediately after the acquisition of any security or other property and
is wholly or partly the result of such acquisition.
RISK FACTORS
The Fund should be considered as an investment for only a portion of an
investor's assets and not as a complete investment program. Investors should
carefully consider the following risk factors described below before investing
in the Fund:
Economic and Political Factors Affecting Foreign Countries
In the course of investment in foreign countries, the Fund may be
exposed to the direct or indirect consequences of political, social and economic
changes in one or more countries. The economies of individual foreign countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rate of inflation, currency appreciation or
depreciation, capital reinvestment, resource self-sufficiency and balance of
payments position. These economies may also be dependent upon international
trade and, as a result, have been and may continue to be adversely affected by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade.
The possibility exists in some, if not all, foreign countries of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) that could affect adversely the economies of those countries or the value
of the Fund's investments in the countries. It may be difficult for a company
operating in a foreign country to obtain and enforce a legal judgment outside of
the United States. In emerging countries in particular, there is increased risk
of hyperinflation, currency devaluation and government intervention in the
economy in general.
Foreign Currency Considerations
The Fund will invest in securities denominated or quoted in currencies
other than the U.S. dollar. As a result, changes in foreign currency exchange
rates will affect the value of securities in the Fund's portfolio and the
unrealized appreciation or depreciation of the Fund's investments. The Fund will
also incur costs in connection with conversions between various currencies.
Although the Fund is authorized to use various investment strategies to
hedge currency exchange rate risk, many of these strategies may not initially be
used by the Fund to a significant extent. The Fund will conduct its foreign
currency exchange transactions either on a spot (that is, cash) basis at the
spot rate prevailing in the foreign currency exchange market, or by entering
into forward, futures or options contracts to purchase or sell foreign
currencies. The use of forwards, futures and options contracts entails certain
special risks. The variable degree of correlation between exchange rate
movements of futures contracts and exchange rate movements of the related
portfolio position of the Fund, for example, could create the possibility that
losses on the hedging instrument would be greater than gains in the value of the
Fund's position. In addition, forwards, futures and options markets may not be
liquid in all circumstances and certain over-the-counter options may have no
markets. As a result, in certain markets, the Fund may not be able to close out
a transaction without incurring substantial losses. Although the use of
forwards, futures and options transactions for hedging would tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time it could limit any potential gains that might result from an increase
in value of the position. Finally, the daily variation margin requirements for
futures contracts create a
-5-
<PAGE>
greater ongoing potential financial risk than would purchases of options, in
which case the exposure is limited to the cost of the initial premium.
Some of the income received by the Fund may be in foreign currencies.
The Fund will, however, compute and distribute its income in U.S. dollars, and
the computation of income will be made on the date on which the income is earned
by the Fund at the foreign exchange rate in effect on that date. As a result, if
the value of the foreign currencies in which the Fund receives its income falls
relative to the U.S. dollar between the receipt of the income and the time at
which the Fund converts the foreign currencies to U.S. dollars, the Fund may be
required to liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. dollars to meet distribution requirements. The
liquidation of investments, if required, could have an adverse effect on the
Fund's performance.
Trading Markets in Foreign Countries
Trading volume in certain foreign country securities markets is
substantially less than that in the securities markets of the United States or
other developed countries. In addition, securities of some companies located in
foreign countries will be less liquid and more volatile than securities of
comparable U.S. companies. Commissions for trading on foreign country stock
exchanges are generally higher than commissions for trading on U.S. exchanges,
although the Fund will seek the most favorable net results on its portfolio
transactions and may, in certain instances, be able to purchase its portfolio
investments on stock exchanges on which commissions are negotiable. Further,
some foreign markets are subject to less government supervision and regulation
of the securities markets and their participants and have significantly smaller
capitalization as compared to the U.S. markets. Investments in certain foreign
markets are also likely to experience delays in settlement of securities
transactions. Clearing and registration of securities transactions in certain
countries are subject to significant risks not associated with investments in
the U.S. and other more developed markets.
Companies in certain foreign countries are not generally subject to
uniform accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently, less information about a foreign company may be available than
about a U.S. publicly-traded company. When a foreign issuer's financial
statements are not deemed to reflect accurately its financial situation, the
Adviser may take additional steps to evaluate the proposed investment. These
steps may include an on-site inspection of the company, interviews with its
management and consultations with accountants, bankers and other specialists. In
certain cases, financial statements must be developed or verified by these
specialists. In addition, government supervision and regulation of foreign stock
exchanges, brokers and listed companies is generally less than in the United
States.
Repatriation; Investment Controls
Foreign investment in certain countries may be restricted or controlled
to varying degrees by local or national governments. These restrictions or
controls at times may include the requirement of governmental approval for the
repatriation of investment income or the proceeds of sales of securities by
foreign investors. Certain countries may require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain countries may also
restrict investment opportunities in issuers in industries deemed important to
national interests. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for repatriation of
capital, as well as by the application to the Fund of any restrictions on
investments. Indirect foreign investment in the securities of companies listed
and traded on the stock exchanges in emerging countries may be permitted by
certain of these countries in certain instances through investment funds that
have been specifically authorized.
-6-
<PAGE>
Foreign Taxation
Dividends, interest and capital gains received by the Fund may be
subject to withholding and other taxes imposed by foreign countries, whose taxes
would reduce the return to the Fund on those securities; this reduction may not
be recoverable by the Fund or its shareholders. See "Tax Matters."
Portfolio Turnover Risk
The Fund may trade actively and frequently to achieve the Fund's goals.
This may result in higher income and capital gains distributions, which would
increase your tax liability. Frequent trading may also increase the Fund's costs
which would affect the Fund's performance over time.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Board of Trustees, decisions to buy
and sell securities for the Fund will be made by the Adviser. The Adviser is
authorized to allocate the orders placed by it on behalf of the Fund to such
brokers who also provide research or statistical material, or other services to
the Fund or the Adviser for the Fund's use. Such allocation shall be in such
amounts and proportions as the Adviser shall determine and the Advisers will
report on such allocations regularly to the Board of Trustees indicating the
brokers to whom such allocations have been made and the basis thereof. In
addition, the Adviser may consider sales of shares of the Fund as a factor in
the selection of unaffiliated brokers to execute portfolio transactions for the
Fund, subject to the requirements of best execution.
In selecting a broker 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;
the size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of the Fund on a
continuing basis. Accordingly, the cost of the brokerage commissions to the Fund
in any transaction may be greater than that available from other brokers if the
difference is justified reasonably by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Board of
Trustees may determine, the Adviser shall not be deemed to have acted unlawfully
or to have breached any duty solely by reason of its having caused the Fund to
pay an unaffiliated broker that provides research services to the Adviser for
the Fund's use a commission for effecting a portfolio investment transaction in
excess of the commission another broker would have charged for effecting the
same transaction. The Adviser must determine in good faith, however, that the
commission was reasonable in relation to the value of the research service
provided by such broker with respect to the particular transaction or the
Adviser's ongoing responsibilities with respect to the Fund.
ALLOCATION OF INVESTMENTS
The Adviser has other advisory clients that have investment objectives
similar to the Fund's investment objective. As such, there will be times when
the Adviser may recommend purchases and/or sales of the same portfolio
securities for the Fund and their other clients. In such circumstances, it will
be the policy of the Adviser to allocate purchases and sales among the Fund and
their other clients in a manner which the Adviser deems equitable, taking into
consideration such factors as size of account, concentration of holdings,
investment objectives, tax status, cash availability, purchase cost, holding
period and other pertinent factors relative to each account. Simultaneous
transactions may have an adverse effect upon the price or amount of a security
purchased by the Fund.
-7-
<PAGE>
COMPUTATION OF NET ASSET VALUE
The net asset value of the Fund is determined at 4:00 p.m. New York
time, on each day that the New York Stock Exchange is open for business and on
such other days as there is sufficient trading in the Fund securities to affect
materially the net asset value per share of the Fund. The Fund will be closed on
New Years Day, Presidents' Day, Martin Luther King, Jr.'s Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
The Fund will invest in foreign securities, and as a result, the
calculation of the Fund's net asset value may not take place contemporaneously
with the determination of the prices of certain of the portfolio securities used
in the calculation. Occasionally, events which affect the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of the New York Stock Exchange and will therefore not
be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities may be valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Board of
Trustees. Portfolio securities of the Fund that are traded both on an exchange
and in the over-the-counter market will be valued according to the broadest and
most representative market. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. Dollar values at the mean
between the bid and offered quotations of the currencies against U.S. Dollars as
last quoted by any recognized dealer. When portfolio securities are traded, the
valuation will be the last reported sale price on the day of valuation. (For
securities traded on the New York Stock Exchange, the valuation will be the last
reported sales price as of the close of the Exchange's regular trading session,
currently 4:00 p.m. New York time.) If there is no such reported sale or the
valuation is based on the over-the-counter market, the securities will be valued
at the last available bid price or at the mean between the bid and asked prices,
as determined by the Board of Trustees. As of the date of this Statement of
Additional Information, such securities will be valued by the latter method.
Securities for which reliable quotations are not readily available and all other
assets will be valued at their respective fair market value as determined in
good faith by, or under procedures established by, the Board of Trustees of the
Fund.
Money market instruments with less than 60 days remaining to maturity
when acquired by the Fund will be valued on an amortized cost basis by the Fund,
excluding unrealized gains or losses thereon from the valuation. This is
accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If the Fund acquires a
money market instrument with more than sixty days remaining to its maturity, it
will be valued at current market value until the 60th day prior to maturity, and
will then be valued on an amortized cost basis based upon the value on such date
unless the Board of Trustees determines during such 60 day period that this
amortized cost value does not represent fair market value.
All liabilities incurred or accrued are deducted from the Fund's total
assets. The resulting net assets are divided by the number of shares of the Fund
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
PURCHASING SHARES
Investors will be permitted to purchase shares from the Fund's transfer
agent or from other selected securities brokers or dealers. A buyer whose
purchase order is received by the transfer agent before the close of trading on
the NYSE, currently 4:00 p.m. Eastern time, will acquire shares at the net asset
value determined as of that day. A buyer whose purchase order is received by the
transfer agent after the close of trading on the NYSE will acquire shares at the
net asset value set as of the next trading day. A broker may charge a
transaction fee for the purchase.
-8-
<PAGE>
The Fund may further reduce or waive the minimums for certain retirement
and other employee benefit plans; for the Adviser's employees, clients and their
affiliates; for advisers or financial institutions offering investors a program
of services; or any other person or organization deemed appropriate by the Fund.
REDEEMING SHARES
Investors are permitted to redeem shares through the transfer agent of
the Fund or from other selected securities brokers or dealers. A shareholder
whose redemption order is received by the Transfer Agent before the close of
trading on the NYSE, currently 4:00 p.m. Eastern time, will redeem shares at the
net asset value set as of that day. A shareholder whose redemption order is
received by the Transfer Agent after the close of trading on the NYSE will
redeem shares at the net asset value set as of the next trading day on the NYSE.
A broker may charge a transaction fee for the redemption.
SHARES OF BENEFICIAL INTEREST IN THE FUND
The Fund is authorized to issue 50 million shares of beneficial
interest, par value $.01 per share. Each share has equal voting, dividend,
distribution, and liquidation rights. The shares have no preemptive, conversion,
or cumulative voting rights.
Shares entitle the holders to one vote per share. The shareholders have
certain rights, as set forth in the Bylaws of the Fund, to call a meeting for
any purpose, including the purpose of voting on removal of one or more Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right to close an account that has dropped below
$1,000 in value for a period of three months or longer other than as a result of
a decline in the net asset value per share. Shareholders are notified at least
30 days prior to any proposed redemption and are invited to add to their account
if they wish to continue as a shareholder of the Fund, however, the Fund does
not presently contemplate making such redemptions and the Fund will not redeem
any shares held in tax-sheltered retirement plans.
TAX MATTERS
The following is only a summary of certain additional federal income 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
discussions here and in the Prospectus are not intended as substitutes 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) 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
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(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 satisfies 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 of the
taxable year and will therefore count toward satisfaction of the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must 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").
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
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 during the period of time the Fund held the debt
obligation. In addition, under the rules of Code section 988, gain or loss
recognized on the 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 foreign currency forward contract, futures contract, option
or similar financial instrument, or of foreign currency itself, except for
regulated futures contracts or non-equity options subject to Code Section 1256
(unless the Fund elects otherwise), will generally be treated as ordinary income
or loss.
In general, 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 (1) 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, (2) the asset is otherwise held by the 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 (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto. 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. 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.
Further, the Code also treats as ordinary income a portion of the
capital gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.
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Certain transactions that may be engaged in by the Fund (such as
regulated futures contracts, certain foreign currency 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 contracts 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 taken into account for
that year together with any other gain or loss that was previously recognized
upon the termination of Section 1256 contracts during the year. Any capital gain
or loss for the taxable year with respect to Section 1256 contracts (including
any capital gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is generally treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. The Fund, however, may elect not to have
this special tax treatment apply to Section 1256 contracts that are part of a
"mixed straddle" with other investments of the Fund that are not Section 1256
contracts.
The Fund may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If the Fund invests in a PFIC, it has three
separate options. First, it may elect to treat the PFIC as a qualifying electing
fund (a "QEF"), in which case it will each year have ordinary income equal to
its pro rata share of the PFIC's ordinary earnings for the year and long-term
capital gain equal to its pro rata share of the PFIC's net capital gain for the
year, regardless of whether the Fund receives distributions of any such ordinary
earnings or capital gains from the PFIC. Second, for tax years beginning after
December 31, 1997, the Fund may make a mark-to-market election with respect to
its PFIC stock. Pursuant to such an election, the Fund will include as ordinary
income any excess of the fair market value of such stock at the close of any
taxable year over its adjusted tax basis in the stock. If the adjusted tax basis
of the PFIC stock exceeds the fair market value of such stock at the end of a
given taxable year, such excess will be deductible as ordinary loss in the
amount equal to the lesser of the amount of such excess or the net
mark-to-market gains on the stock that the Fund included in income in previous
years. The Fund's holding period with respect to its PFIC stock subject to the
election will commence on the first day of the following taxable year. If the
Fund makes the mark-to-market election in the first taxable year it holds PFIC
stock, it will not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF and does
not make a mark-to-market election, then, in general, (1) any gain recognized by
the Fund upon a sale or other disposition of its interest in the PFIC or any
"excess distribution" (as defined) received by the Fund from the PFIC will be
allocated ratably over the Fund's holding period in the PFIC stock, (2) the
portion of such gain or excess distribution so allocated to the year in which
the gain is recognized or the excess distribution is received shall be included
in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
Fund level), (3) the Fund shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (i) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate, as
the case may be) in effect for such prior year, plus (ii) interest on the amount
determined under clause (i) for the period from the due date for filing a return
for such prior year until the date for filing a return for the year in which the
gain is recognized or the excess distribution is received, at the rates and
methods applicable to underpayments of tax for such period, and (4) the
distribution by the Fund to shareholders of the portions of such gain or excess
distribution so allocated to prior years (net of the tax payable by the Fund
thereon) will again be taxable to the shareholders as an ordinary income
dividend.
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 made a taxable year election for excise
tax purposes as discussed below) to treat all or any part of any net capital
loss, any net long-term capital loss or any net foreign currency loss
(including, to the extent provided in Treasury Regulations, losses recognized
pursuant to the PFIC mark-to-market election) incurred after October 31 as if it
had been incurred in the succeeding year.
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<PAGE>
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 the Fund's
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 its total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), 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. Generally, an option (a
call or a put) with respect to a security is treated as issued by the issuer of
the security not the issuer of the option.
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 to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions may be eligible for the
dividends-received deduction in the case of corporate shareholders.
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 its 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")). 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 such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses and ordinary gains or losses arising as a
result of a PFIC mark-to-market election (or upon an actual disposition of the
PFIC stock subject to such election) incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding 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 Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
Fund Distributions
The 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, but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
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 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 a shareholder has held his shares or whether such gain was
recognized by the Fund prior to the date on which the shareholder
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acquired his shares. The Code provides, however, that under certain conditions
only 50% (58% for alternative minimum tax purposes) of the capital gain
recognized upon the Fund's disposition of domestic "small business" stock will
be subject to tax.
Conversely, if the Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each such
shareholder received a distribution of his pro rata share of such gain, with the
result that each shareholder will be required to report his pro rata share of
such gain on his tax return as long-term capital gain, will receive a refundable
tax credit for his pro rata share of tax paid by the Fund on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
Ordinary income dividends paid by the 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 Fund from domestic corporations for the taxable year.
Generally, a dividend received by the Fund will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that the
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) 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 that the stock on which the dividend is paid is treated as
debt-financed under the rules of Code section 246A. The 46-day holding period
must be satisfied during the 90-day period beginning 45 days prior to each
applicable ex-dividend date; the 91-day holding period must be satisfied during
the 180-day period beginning 90 days before each applicable ex-dividend date.
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).
Alternative minimum tax ("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 noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. 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 generally will 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, 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.
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 consist 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
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gross income, even though not actually received, his pro rata share of the
foreign taxes paid by the Fund, but would be treated as having paid his 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 his 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. Each
shareholder should consult his own tax adviser regarding the potential
application of foreign tax credits.
Distributions by the Fund 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 realized from a sale of the shares, as
discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions 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 realized but
undistributed income or gain or unrealized appreciation in the value of assets
held by the Fund distributions of such amounts to the shareholder will be
taxable in the manner described above, although economically they constitute a
return of capital to the shareholder.
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 month will be deemed to have been received by the
shareholders (and made by the Fund) on December 31 of such calendar year
provided such dividends are actually paid in January 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 distributions and the proceeds of redemption of shares,
paid to any shareholder who (1) has failed to provide a correct taxpayer
identification number, (2) is subject to backup withholding for failure properly
to report the receipt of interest or dividend income, or (3) 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 a 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 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. 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.
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<PAGE>
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
paid to a foreign shareholder 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. Furthermore, such foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or lower applicable treaty rate) on the
gross income resulting from a Fund's election to treat any foreign taxes paid by
it as paid by its shareholders, but may not be allowed a deduction against this
gross income or a credit against this U.S. withholding tax for the foreign
shareholder's pro rata share of such foreign taxes which it is treated as having
paid. Such a foreign shareholder would generally be exempt from U.S. federal
income tax on gains realized on the sale of shares of a Fund, capital gain
dividends and amounts retained by the Fund that are designated as undistributed
capital gains.
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 and
capital gain dividends, and any gains realized upon a sale of shares of the Fund
will be subject to U.S. federal income tax at the rates applicable to U.S.
taxpayers.
In the case of a noncorporate foreign 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 subject to withholding 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 or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect.
Rules of state and local taxation of ordinary income and capital gain
dividends from regulated investment companies may 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 an investment in the Fund.
PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other mutual funds and to stock or other relevant indices in
advertisements or in reports to shareholders, performance will be stated both in
terms of total return and in terms of yield. The total return basis combines
principal and dividend income changes for the periods shown. Principal changes
are based on the difference between the beginning and closing net asset values
for the period and assume reinvestment of dividends and distributions paid by
the Fund. Dividends and distributions are comprised of net investment income and
net realized capital gains. Under the rules of the
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Commission, funds advertising performance must include total return quotes
calculated according to the following formula:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods or at the end of the 1, 5 or 10 year periods (or
fractional portion thereof)
In calculating the ending redeemable value, all dividends and
distributions by the Fund are assumed to have been reinvested at net asset value
as described in the prospectus on the reinvestment dates during the period.
Total return, or "T" in the formula above, is computed by finding the average
annual compounded rates of return over the 1, 5 and 10 year periods (or
fractional portion thereof) that would equate the initial amount invested to the
ending redeemable value.
The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc. or similar independent services or
financial publications, the Fund calculates its aggregate total return for the
specified periods of time by assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial net asset value of the investment from
the ending net asset value and by dividing the remainder by the beginning net
asset value. Such alternative total return information will be given no greater
prominence in such advertising than the information prescribed under the
Commission's rules.
In addition to the total return quotations discussed above, the Fund may
advertise its yield based on a 30day (or one month) period ended on the date of
the most recent balance sheet included in the Fund's Post-Effective Amendment to
its Registration Statement, computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
ab
YIELD = 2[(( +1)61]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
Under this formula, interest earned on debt obligations for purposes of
"a" above, is calculated by (1) computing the yield to maturity of each
obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest), (2) dividing that figure by 360
and multiplying the quotient by the market value of the obligation (including
actual accrued interest as referred to above) to determine the interest income
on the obligation for each day of the subsequent month that the obligation is in
the Fund's portfolio (assuming a month of 30 days) and (3) computing the total
of the interest earned
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on all debt obligations and all dividends accrued on all equity securities
during the 30day or one month period. In computing dividends accrued, dividend
income is recognized by accruing 1/360 of the stated dividend rate of a security
each day that the security is in the Fund's portfolio. For purposes of "b"
above, Rule 12b1 expenses are included among the expenses accrued for the
period. Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price
calculation required pursuant to "d" above.
Any quotation of performance stated in terms of yield will be given no
greater prominence than the information prescribed under the SEC's rules. In
addition, all advertisements containing performance data of any kind will
include a legend disclosing that such performance data represents past
performance and that the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
FINANCIAL STATEMENTS
The Financial Statements for the Fund for the fiscal year ended
_________, 1998 are incorporated by reference from the Annual Report to
shareholders dated ____________, 1998.
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