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DESSAUER & MCINTYRE
ASSET MANAGEMENT, INC.
THE DESSAUER
GLOBAL EQUITY FUND
a no-load growth fund
Prospectus
July 27, 2000
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
Page
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Risk/Return Summary: Investments, Risks, and Performance
- Investment Objective/Goals
- Principal Investment Strategies of the Fund
- Principal Risks of Investing in the Fund
- Risk/Return
- Fee Table
- Example of Expenses
Investment Objective, Principal Strategies and Related Risks
Investment Adviser and Investment Advisory Agreement
Administrator
Shareholder Servicing Plan
Shareholder Guide - Your Account with The Dessauer Global Equity Fund
Type of Accounts
Net Asset Value
How to Purchase Shares
How to Redeem Shares
Redemption Information
Dividends and Capital Gains Distributions
Buying Before a Dividend
Tax Issues
Financial Highlights
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Risk/Return Summary: Investments, Risks, and Performance
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Investment Objective/Goals
The Dessauer Global Equity Fund (the "Fund") is a no-load mutual fund with the
investment objective of long-term capital appreciation.
Principal 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.
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Principal 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
The bar chart demonstrates the risks of investing in the Fund by showing changes
in the Fund's performance from January 1, 1998 through December 31, 1999. Past
performance is not an indication of future performance.
[GRAPHIC - Risk/Return Bar Chart
During this period, the Fund's best performance for a quarter was 31.80% (for
the quarter ended December 31, 1998). The Fund's worst performance was -21.83%
(for the quarter ended September 30, 1998).(1)
GRAPHIC - BAR CHART
Showing Year ended 12/31/98 at 26.27%
Year ended 12/31/99 at 33.01%]
These risks are also demonstrated by the table below which shows how the Fund's
average annual returns compare with those of the Lipper Global Fund Index and
the Morgan Stanley Capital International World Index.
Risk/Return Performance Table
Average Annual Returns as of 1 Year Since Inception
12/31/99 (May 30, 1997)
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The Dessauer Global Equity Fund 33.01% 20.27%
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Lipper Global Fund Index 22.59% 15.99%
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Morgan Stanley Capital International
World Index 11.03% 13.37%
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(1) For the fiscal year ended March 31, 2000, the Fund's total return was
58.18%. The Fund's year-to-date return as of June 30, 2000 is 19.47%.
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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 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%
Other Expenses(1) 1.51%
Total Annual Fund Operating Expenses 2.26%
Expenses Reimbursed to the Fund(2) (0.47%)
Net Annual Fund Operating Expenses(3) 1.79%
(expenses actually incurred by the Fund)
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:
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(1) Includes 0.25% Shareholder Service Plan expense.
(2) The Fund has entered into an expense reimbursement agreement with the
Adviser under which the Adviser has agreed to limit the Fund's total operating
expenses, excluding interest and taxes, to not more than 1.75% of average daily
net assets. Under this expense reimbursement agreement, the Adviser may request
reimbursement of previously absorbed expenses at any time before the end of the
third fiscal year after the fiscal year in which the expenses were absorbed. To
request reimbursement, the Fund's current aggregate operating expenses must be
below the applicable limitation. The Board of Trustees of the Fund must review
and approve the proposed reimbursement.
(3) Includes 0.04% interest expense.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
$181 $562 $967 $2,097
Investment Objective, Principal Strategies and Related Risks
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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.
Investment Strategies. 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 comply with the
diversification requirements of federal tax law as necessary to qualify as a
regulated investment company.
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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.
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.
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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 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.
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Risks of Investing in Asia
The following risks are common to all mutual funds that invest in Asia, and
therefore apply to the Fund to the extent that it invests in U.S. and European
companies that do business in Asia:
o Political Instability. The economic reforms that certain Asian nations
are instituting under the guidelines of the International Monetary Fund
(IMF) could cause higher interest rates and higher unemployment. This
could, in turn, cause political instability as people in these nations
feel the effects of higher interest rates and higher unemployment,
which could cause some Asian nations to abandon economic reform or
could result in the election or installation of new governments.
o Hong Kong. On June 30, 1997, British rule in Hong Kong terminated and
the governance of Hong Kong was returned to China. China is obligated
to maintain the previously existing capitalist economic and social
system of Hong Kong through June 30, 2047. Although China has committed
itself by treaty to preserve the economic and social freedoms enjoyed
in Hong Kong, the continuation of these freedoms depends upon the
government of China. Also, a
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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.
o Currency Devaluation. During 1997 and 1998, the values of many Asian
currencies declined because corporations in these Asian countries had
to purchase U.S. Dollars to repay large U.S. Dollar denominated debts.
The decline in the value of the currencies triggered a loss of investor
confidence that resulted in a decline in the value of the stock markets
of the effected countries. Similar devaluations could occur in
countries that have not yet experienced currency devaluation to date or
could continue to occur in countries that have already experienced such
devaluations.
o Foreign Trade. Asian nations tend to be very export-oriented. Countries
that receive large amounts of Asian exports could enact protectionist
trade barriers in response to cheaper Asian exports, which would hurt
the profits of Asian exporters
Risks of Investing in Europe
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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 conversion of the currency of certain European countries
to the common currency called the "Euro" may subject the Fund to
additional risks to the 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.
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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
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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 June
30, 2000 managed approximately $470 million in both U.S. and international
assets.
o Advisory Services. The Adviser serves the Fund under an Investment
Advisory Agreement, which provides that the Adviser supervises and
assists in the overall management of the Fund's affairs subject to the
authority of Board of Trustees. 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 fiscal year ending March 31, 2000, the Fund
paid a monthly advisory fee calculated at an annual rate of 0.75% of
the Fund's average weekly net assets.
On May 14, 1999, the prior investment advisory agreement between the
Fund and the Investment Adviser automatically terminated in accordance with the
Investment Company Act of 1940, as amended (the "1940 Act"), when Mr. John P.
Dessauer ceased to be a controlling shareholder and officer of the Investment
Adviser. Mr. Dessauer informed the Fund's Trustees that his withdrawal from the
Investment Adviser was based on personal and business reasons and was unrelated
to the Fund's activities. Mr. Dessauer, the Investment Adviser and Mr. McIntyre
continue to litigate various issues relating to the Investment Adviser including
its use of the name "Dessauer." The Fund uses the name "Dessauer" pursuant to a
provision in the Investment Advisory Agreement. Mr. Dessauer's resignation has
not affected the Fund's investment objective or policies or the way the Fund is
managed.
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o Management of the Adviser. Thomas P. McIntyre controls the Adviser and
is the portfolio manager of the Fund's portfolio. He joined the Adviser
in 1989 and became President in 1992. Mr. McIntyre 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.
Robert E. Flynn, an Equity Research Analyst at the Adviser, serves as a
Vice President of the Fund. Mr. Flynn earned a B.B. A from Notre Dame
in 1996 and is a candidate for the designation of Chartered Financial
Analyst.
Administrator
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The Fund has entered into an administration agreement with Investment
Company Administration, L.L.C. ("ICA"). Under the administration agreement, ICA
supervises 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 pays ICA a monthly fee at an annual rate of
.10% of its average weekly net assets.
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
Type of Accounts
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)
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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 calculated
each business day at the close of trading on the New York Stock Exchange, which
is normally 4:00 p.m. Eastern Standard Time. You may buy and sell shares on any
business day at the next NAV calculation after you place your order. Shares will
not be priced on the days on which the New York Stock Exchange is closed for
trading. 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.
Purchasing & Selling
How to Purchase 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 purchases and redemptions. 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.
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How to Purchase Shares. You may purchase shares of the Fund by mail, wire or
through the automatic investment plan. 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
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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: To purchase by mail, you should:
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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
c/o National Financial Data Services
P.O. Box. 219227
Kansas City, MO 64121-9227
For an overnight delivery:
National Financial Data Services
ATTN: The Dessauer Global Equity Fund
330 West Ninth Street
Kansas City, MO 64105
Wire: 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:
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Investors Fiduciary Trust Company
ABA #101003621
Shareholder and Custody Services
The Dessauer Global Equity Fund
DDA #7561016
ATTN: [Account Registration]
[Your A/C #]
Automatic Investment Plan. After your account is set up, you may purchase
additional shares of the Fund by Automated Clearing House (ACH), after you elect
the Automatic Investment Plan on your account. Only domestic member banks may be
used, and it takes about 15 days to set up an ACH account. ACH is similar to the
pre-authorized investment plan, except that you may choose the date on which you
want to make the purchase. To elect the Automatic Investment Plan option, call
NFDS and request an optional shareholder services form. NFDS must receive a
voided check or bank deposit slip before you may purchase by ACH.
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Pre-Authorized Investment Plan. With a pre-authorized or automatic 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.
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.
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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.
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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 on which 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.
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Mail. To redeem by mail, please:
o Provide your name and account number to be redeemed
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. [GRAPHIC]
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. [GRAPHIC]
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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.
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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 Information
Redemption Issues
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o Redemption Fee. If shares are redeemed within 60 days of purchase, a
1% fee will be charged and withheld from the proceeds of the
redemption. 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 a share of the Fund's securities.
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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.
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
13
<PAGE>
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
[GRAPHIC]
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 LLP's report along with further detail on the Fund's financial
statements are included in the annual report which is available upon request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
May 30, 1997A
Year Ended Year Ended through
March 31, 2000 March 31, 1999 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.97 $ 13.69 $ 11.88
Income (loss) from investment operations:
Net investment income (loss) (0.24) (0.05) 0.10
Net realized and unrealized gain on investments 8.92 1.35 1.90B
Total from investment operations 8.68 1.30 2.00
Less distributions
Dividends from net investment income 0.00 (0.02) (0.06)
Distributions from net realized gain (0.09) 0.00 (0.13)
Total distributions (0.09) (0.02) (0.19)
-------- --------- --------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended through
March 31, 2000 March 31, 1999 March 31, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Net asset value, end of period 23.56 $ 14.97 $ 13.69
======== ========= ========
Total return 58.18% C 9.54%C 17.27%D
Net assets, end of period (thousands) 81,174 $ 90,586 $ 82,807
Ratios/supplemental data:
Ratio of expenses to average net assets:
Before fees waived 2.26% 1.43% 1.54%E
After fees waived 1.79% N/A N/A
Ratio of net investment income (loss) to average net assets
Before fees waived (1.62%) (0.32%) 0.99%E
After fees waived (1.15%) N/A N/A
Portfolio turnover rate 9.63% 51.68% 74.47%D
</TABLE>
A Commencement of the Fund.
B 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.
C Based on net asset value per share and including the reinvestment of
dividends and distributions.
D Not Annualized.
E Annualized.
15
<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 request by
calling The Fund at (800) 560-0086 or by calling or writing a broker-dealer or
other financial intermediary that sells shares of the Fund. Information about
the Fund including the Statement of Additional Information may be reviewed at
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. (telephone: (202) 942-8090) or by visiting the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. In addition, this information
may be obtained for a fee by electronic request at the following e-mail address:
[email protected], or by writing the Public Reference Section of the Securities
and Exchange Commission, Washington, D.C. 20549-6009.
File No.: 811-7691
16
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
THE DESSAUER GLOBAL EQUITY FUND
4 MAIN STREET
ORLEANS, MASSACHUSETTS 02653
July 27, 2000
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus dated July 27, 2000 (the
"Prospectus"), pursuant to which shares of the Fund are offered. Please retain
this document for future reference.
This Statement of Additional Information is incorporated by reference in its
entirety into the Prospectus. To obtain a copy of the Prospectus, please call
the Fund toll-free at 1-800-560-0086.
<TABLE>
<CAPTION>
<S> <C>
Investment Adviser Custodian
Dessauer & McIntyre Asset Management, Inc. Investors Bank and Trust Company
Administrator Transfer Agent and Dividend Paying Agent
Investment Company Administration, L.L.C. National Financial Data Services
Distributor Counsel
First Fund Distributors, Inc. Kramer Levin Naftalis & Frankel LLP
Independent Accountants
Ernst & Young LLP
</TABLE>
<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............................................. 3
Principal Shareholders................................................ 4
Service Providers.......................................................... 4
Investment Practices and Policies.......................................... 5
Investment Practices.................................................. 5
Investment Policies................................................... 5
Investment Restrictions.................................................... 5
Codes of Ethics.............................................................6
Risk Factors............................................................... 7
Economic and Political Factors Affecting Foreign Countries............ 7
Foreign Currency Considerations....................................... 7
Trading Markets in Foreign Countries.................................. 8
Repatriation; Investment Controls..................................... 9
Foreign Taxation...................................................... 9
Portfolio Turnover Risk............................................... 9
Portfolio Transactions and Brokerage....................................... 9
Allocation of Investments..................................................10
Computation of Net Asset Value.............................................10
Purchasing Assets..........................................................11
Redeeming Shares...........................................................11
Shares of Beneficial Interest in the Fund..................................11
Additional Purchase and Redemption Information.............................12
Tax Matters................................................................12
Qualification as a Regulated Investment Company.......................12
Excise Tax on Regulated Investment Companies..........................13
Fund Distributions....................................................14
Sale or Redemption of Shares..........................................18
Foreign Shareholders..................................................18
Effect of Future Legislation; Local Tax Considerations................19
Performance Information....................................................19
<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 28, 1996 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 agreement 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> <C>
Thomas P. McIntyre, 43* Chairman and Trustee President, Dessauer & McIntyre Asset Management, Inc.
Ingrid R. Hendershot, 41 Trustee President, Hendershot Investments; Vice President,
Financial Analyst, Growth Stock Outlook, Inc.
J. Brooks Reece, 52 Trustee Vice President, Sales & Marketing, Adcole
Corporation; Trustee, Guinness Flight Investment Funds.
Peter M. Alessi, 56 Trustee Retired since March 1992; former Chief Operating
Officer, Thayer Pharmacies, Inc.
Robert E. Flynn, 27* Vice-President Equity Research Analyst, Dessauer & McIntyre Asset
Management, Inc. since 1996.
</TABLE>
Mr. McIntyre is deemed to be an "interested person" of the Trust under
the Investment Company Act of 1940, as amended (the "1940 Act") by reason of his
position as President of the Adviser and Chairman of the Fund. Mr. Flynn is also
an "interested person" of the Trust under the 1940 Act by reason of his position
with the Adviser.
<PAGE>
The annual compensation of the Trustees is noted below.
<TABLE>
<CAPTION>
Pension or Retirement Estimated Annual Total Compensation from
Aggregate Benefits Accrued as Benefits Upon Fund
Compensation from Part of the Fund Retirement and Fund Complex Paid
Name of Person Fund Expenses to Trustees
-------------- ---- -------- ---------- -----------
<S> <C> <C> <C> <C>
Thomas P. McIntyre -- -- -- --
Ingrid R. Hendershot $5,000 -- -- $5,000
J. Brooks Reece 5,000 -- -- 5,000
Peter M. Alessi* 1,250 ---- ---- 1,250
Kevin Melich+ 1,250 ---- ---- 1,250
Max A. Fischer+ 875 ---- ---- 875
</TABLE>
* Trustee since September 15, 1999.
+ Messrs. Melich and Fischer resigned as trustees effective May 20, 1999.
The Board currently has an Audit Committee. The members of the Audit
Committee are Messrs. Alessi and Reece and Ms. Hendershot. The function of the
Audit Committee is to recommend independent auditors and monitor accounting and
financial matters and to review compliance and contract matters.
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. From its inception until January 21, 1998, the Fund was co-managed by the
Adviser and Guinness Flight Investment Management, Ltd. Thereafter, on April 26,
1999, John P. Dessauer resigned from the Adviser. On May 20, 1999, the Board of
Trustees approved a new investment advisory agreement and on June 28, 1999,
shareholders approved this new investment advisory agreement, which is identical
to the prior agreement.
The Advisory Agreement provides that the Investment Adviser supervises
and assists in the overall management of the Fund's affairs subject to the
authority of Board of Trustees. 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 is valid for two years from
its first approval and then continues from year to year, provided it is
approved, at least annually, in the manner required by the
2
<PAGE>
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 0.75% 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, for a period of three fiscal years after the fiscal year in which such a
waiver is made, it may seek reimbursement of such deferred fees and absorbed
expenses after it discontinues this practice. For the periods indicated below,
the Fund paid the following advisory fees to its Adviser(s):
<TABLE>
<CAPTION>
May 30, 1997
Fees Paid To: Year ended Year ended through
March 31, 2000 March 31, 1999 March 31, 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dessauer & McIntyre 543,444 574,596 353,669
------------------------------------------------------------------------------------------------------------
Guinness Flight Investment Management, 0.00 0.00 178,760
Inc.(1)
------------------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT OF THE ADVISER. Thomas P. McIntyre controls the voting
common stock of the Adviser and is a "Control Person" as defined in the 1940
Act. The Adviser, Mr. McIntyre and Mr. Dessauer continue to litigate various
issues relating to the Adviser including its use of the name "Dessauer." The
Fund currently uses the name "Dessauer" pursuant to a provision in the
Investment Advisory Agreement.
Mr. McIntyre is the only trustee and senior officer of the Fund that is
affiliated with the Investment Adviser. Robert E. Flynn, an Equity Research
Analyst with the Adviser, is a Vice-President of the Fund.
--------------------
(1) From its inception until January 21, 1998, The Fund was co-managed by
Guinness Flight Investment Management, Ltd.
3
<PAGE>
PRINCIPAL SHAREHOLDERS. As a group, the Trustees and Officers of the
Fund hold less than 1.5% of the Fund's shares. As of July 11, 2000, the
following shareholders owned directly or indirectly, 5% or more of the Fund's
outstanding shares, which numbered 3,362,424.864:
--------------------------------------------------------------------------------
Number of
Name and Address of Owner(2) Shares Owned Percent of Fund
--------------------------------------------------------------------------------
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94101-4122 415,690.475 12.36%
--------------------------------------------------------------------------------
National Financial Services Corp.
200 Liberty Street
1 World Financial Center 258,900.440 7.70%
New York, NY 10281-1003
--------------------------------------------------------------------------------
A copy of the Fund's annual report for the fiscal year ended March 31, 2000 may
be received, free of charge, by calling the Fund, toll free, at 800-560-0086.
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. Pursuant to an agreement with
the Fund, the Administrator is compensated at a rate of 10% of average daily net
assets. For the periods May 30, 1997 to March 31, 1998, April 1, 1998 to March
31, 1999, and April 1, 1999 to March 31, 2000, the Fund paid ICA administrative
fees of $59,005, $80,565 and $72459 respectively.
First Fund Distributors, Inc. ("FFD"), an affiliate of ICA, serves as
the Fund's Distributor. FFD has the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of shares. FFD receives no compensation for its services.
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, 725 South Figueroa 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
-----------------
(2) These shareholders own shares in nominee accounts for many individual
shareholders. The Fund is not aware of the size or identity of the underlying
individual accounts held by Charles Schwab & Co. or National Financial Services
Corp. To the best of the Fund's knowledge, neither of these named shareholders
are beneficial owners of Fund shares.
4
<PAGE>
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, 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.
5
<PAGE>
(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.
2. The Fund may borrow money to the extent permitted
under the Investment Company Act of 1940.
3. The Fund may not issue any senior security (as
defined in the Investment Company Act of 1940),
except that the Fund may (a) engage in transactions
that result in the issuance of senior securities to
the extent permitted under applicable regulations and
interpretations of the Investment Company Act of
1940, an exemptive order or interpretation of the
staff of the Securities and Exchange Commission; (b)
acquire other securities, the acquisition of which
may result in the issuance of a senior security, to
the extent permitted under applicable regulations or
interpretations of the Investment Company Act of
1940; (c) issue multiple classes of shares in
accordance with the regulations of the Securities and
Exchange Commission; and (d) to the extent it might
be considered the issuance of a senior security,
borrow money as authorized by the Investment Company
Act of 1940.
In addition, the Fund may not:
4. 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.
5. 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.
6. 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.
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. At times, it may become necessary for the Fund to take a
temporary defensive position inconsistent with its principal investment
strategies. At such times, the Fund may invest up to 100% of its assets in cash,
cash equivalents or high-quality short-term money market instruments.
6
<PAGE>
CODE OF ETHICS
The Fund, the Adviser and the Distributor have each adopted a Code of
Ethics to which all investment personnel and all other "access persons" of the
Fund (as defined in Rule 17j-1 under the 1940 Act) must conform. Personnel
subject to the Codes must refrain from certain investment practices, but still
may be permitted to invest in securities, including securities that may be
purchased or held by the Fund. These individuals are required to report certain
personal investment transactions and holdings. Violations of a Code of Ethics
can result in penalties, suspension, or termination of employment.
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
7
<PAGE>
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
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,
8
<PAGE>
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.
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. Transactions in
portfolio securities are effected through various brokers and may include the
payment of brokerage commissions. 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
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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.
For the periods May 30, 1997 to March 31, 1998, April 1, 1998 to March
31, 1999 and April 1, 1999 to March 31, 2000, the Fund's brokerage fees were
$37,337, $171,851, and $92,081 respectively.
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 its other clients. In such circumstances, it will be
the policy of the Adviser to allocate purchases and sales among the Fund and its
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.
COMPUTATION OF NET ASSET VALUE
The Fund's NAV will not be determined on days when the NYSE is closed
for trading, including New Years Day, Presidents' Day, Martin Luther King, Jr.
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
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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.
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.
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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 (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").
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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, 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 to the extent attributable to changes in foreign currency exchange
rates.
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
realized return 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.
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
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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, 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 be taxable to the shareholders as an ordinary income dividend.
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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.
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).
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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
acquired his shares. The Code provides, however, that under certain conditions
only 50% 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
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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 income 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 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
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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 paid 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 to
report the receipt of interest or dividend income properly, 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) 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.
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
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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 Commission, funds advertising
performance must include total return quotes calculated according to the
following formula:
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
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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 30-day (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:
6
YIELD = 2[(a-b +1) -1]
----
cd
Where:
a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to 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 on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period.
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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 12b-1 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 March
31, 2000 from the Annual Report to shareholders dated April 26, 2000 are
incorporated by reference in their entirety into this Statement of Additional
Information.
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