Securities Act File No. 333-29253
Investment Company Act File No. 811-8253
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
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Post-Effective Amendment No. 3
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 5
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(Check appropriate box or boxes)
BOYAR VALUE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
590 Madison Avenue
New York, New York 10022
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (212) 409-2000
Mr. Jay R. Petschek
Boyar Value Fund, Inc.
590 Madison Avenue
New York, New York 10022
(Name and Address of Agent for Service)
Copies to:
Wade Bridge, Esq.
Integrated Fund Services, Inc
312 Walnut Street
Cincinnati, Ohio 45202
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / days after filing pursuant to paragraph (a)
/ / on May 1, 2000 pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1999 was
filed with the Commission on March 27, 2000.
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BOYAR
VALUE FUND
PROSPECTUS
MAY 1, 2000
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
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PROSPECTUS
May 1, 2000
BOYAR VALUE FUND, INC.
590 Madison Avenue, New York, NY 10022
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The Boyar Value Fund seeks long-term capital appreciation, which it pursues by
investing primarily in equity securities of companies that are believed by the
Fund's investment adviser to be intrinsically undervalued.
Investment advisory services for the Fund are provided by Boyar Asset
Management, Inc. (the "Adviser") and the Fund is managed by Ladenburg Thalmann
Fund Management Inc. (the "Manager").
This Prospectus has information you should know before you invest. Please read
it carefully and retain it with your investment records.
TABLE OF CONTENTS
Risk/Return Summary.......................................................
Expense Information.......................................................
Investment Objective, Principal Investment Strategies
and Principal Risk Considerations......................................
Management of the Fund....................................................
Sales Charges.............................................................
How to Purchase Shares....................................................
How to Redeem Shares......................................................
Shareholder Services......................................................
Dividends and Distributions...............................................
Taxes.....................................................................
Calculation of Share Price................................................
Financial Highlights......................................................
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FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
(Toll-Free) 1-800-266-5566
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RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is long-term capital appreciation.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
Under normal market conditions, the Fund invests primarily in equity securities
which are believed by the Adviser to be intrinsically undervalued. Intrinsic
value, as the Adviser defines it, is the estimated current worth that would
accrue to the stockholders of a company, either through liquidation of corporate
assets upon termination of operations, or through the sale or merger of the
entire enterprise as a continuing business.
The Adviser believes that stock market prices often fail to accurately reflect
the underlying intrinsic value of companies. To find undervalued stocks, the
Adviser evaluates a company and its assets as any acquisition-minded business
executive would. The Adviser takes the company's balance sheet, tears it apart,
and reconstructs it in accordance with economic reality -- as opposed to
generally accepted accounting principles. Economic reality, according to the
Adviser is the result when you tear a company's balance sheet apart and find
hidden and undervalued assets. If the Adviser determines that he would purchase
the assets of a company at a significant discount to intrinsic value, the
Adviser believes that after a reasonable period of time, either the stock market
will accurately reflect those values, or the assets of the company will be
acquired by a third party. The Adviser will invest the Fund's assets primarily
in small and mid-capitalization companies. These companies, according to the
Adviser, may provide greater opportunity for capital appreciation.
The Adviser utilizes a "Buy and Hold" investment strategy which reflects the
determination to grow capital and maintain purchasing power by holding stocks
for the long term. A long-term orientation may seem stodgy, but this approach is
as important to investment success as picking the right stocks at the right
price and at the right time. Holding the equity of good companies purchased at
bargain prices provides the opportunity for appreciation without the
return-eroding effects of commissions and capital gains taxes. The Adviser
employs a variety of different investment strategies and techniques to uncover
opportunities for the Fund.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Adviser. As a result, there is a risk
that you could lose money by investing in the Fund.
Further risks associated with an investment in the Fund may arise from the
Fund's investment in the securities of small and medium-sized companies. Small
and mid-capitalization stocks are more likely to experience higher price
volatility and may have limited liquidity (which means that the Fund might have
difficulty selling them at an acceptable price when it wants to).
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PERFORMANCE SUMMARY
The following bar chart and table indicate the risks and variability of
investing in the Fund by showing:
o how the Fund performed in the first full calendar year (average annual
return) and the Fund's best and worst quarters since inception, and
o how the Fund's average annual total returns compare to other recognized
indexes below (based on a calendar year)
1999 14.24%
Best and Worst Quarterly Performance
Best Quarter: 7.56% (June 30, 1999)
Worst Quarter: -5.95% (September 30, 1999)
Average Annual Total Returns (as of December 31, 1999)
Since Inception
1 Year (May 5, 1998)
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Boyar Value Fund 8.53% 3.49%
Russell 2000 Index(1) 21.26% 7.02%
Russell 2000 Value Index(2) -1.49% -15.37%
Russell 2000 Midcap Value Index(3) -0.11% -4.14%
The 5% sales charge is not reflected in the bar chart; if reflected, returns
would be lower than those shown.
This table illustrates total returns from a hypothetical investment in the Fund.
These shares are compared to the indexes for the same periods. The performance
of the Fund reflects a 5.00% sales charge. However, there have been no
adjustments for taxes paid by an investor on reinvested income.
1) Russell 2000 Index, prepared by the Frank Russell Company, tracks the
return of the common stocks of the 2,000 smallest out of the 3,000 largest
publicly traded U.S. domiciled companies by market capitalization. The
Russell 2000 tracks the return based on price appreciation or depreciation
and includes dividends. Unlike the fund, the indices are not managed and do
not incur expenses.
2) Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and higher forecasted growth
values.
3) Russell 2000 Midcap Value Index measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted
growth values.
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EXPENSE INFORMATION
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Load Imposed on Purchases(a) 5.00%
(as a percentage of offering price)
Maximum Deferred Sales Load
(as a percentage of original purchase price)(b) None
Maximum Sales Load Imposed on Reinvested Dividends None
Redemption Fee(c) None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Management 1.00%
Distribution and/or Services (12b-1) Fees .25%
Other Expenses 4.03%
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Total Annual Fund Operating Expenses(d) 5.28%
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(a) This charge may be reduced depending on your total investment in the Fund.
(b) Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of 1% if a redemption occurred
within 12 months of purchase and a commission was paid by the Distributor
to a participating unaffiliated dealer.
(c) A wire transfer fee is charged by the Fund's custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently
$9.
(d) The Manager and the Adviser are voluntarily absorbing certain expenses
(excluding litigation, indemnification, taxes and other extraordinary
expenses) that would cause the Fund's total annual operating expenses to
exceed 1.75%. It is anticipated that this arrangement will continue until
further notice to shareholders; however, the Manager and the Adviser
reserve the right to discontinue the voluntary wiavers and reimbursements
of certain expenses at any time.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. It 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
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operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year* 3 Year* 5 Year* 10 Year*
- ------- ------- ------- --------
$1,001 $1,998 $2,991 $5,446
* Includes a 5.00% sales charge.
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISK
CONSIDERATIONS
IN GENERAL
The investment objective of the Fund is long-term capital appreciation, which it
pursues by investing primarily in equity securities which are believed by the
Adviser to be intrinsically undervalued. The Fund seeks to achieve its
investment objective by investing substantially all, but under normal market
conditions no less than 65%, of its total assets in equity securities, including
common stock, preferred stock or securities convertible into or exchangeable for
common stock. The Fund will typically invest in equity securities traded on
domestic securities exchanges and in the over-the-counter markets. The Fund is
not intended to be a complete investment program, and there is no assurance that
its investment objective can be achieved. The Fund's investment objective is
fundamental and as such may not be changed without the affirmative vote of the
holders of a majority of its outstanding shares. Unless otherwise indicated, all
investment practices and limitations of the Fund are nonfundamental policies
which may be changed by the Board of Directors without shareholder approval.
Because the Fund invests primarily in equity securities, it will be subject to
general conditions prevailing in securities markets and the net asset value of
the Fund's shares will fluctuate with changes in the market prices of its
portfolio securities.
PRINCIPAL INVESTMENT STRATEGIES
The Adviser seeks out intrinsically undervalued companies and purchases their
shares at low prices relative to their perceived inherent worth. This can lead
to the potential for significant capital appreciation. The intrinsic value of a
company is the estimated current worth that would accrue to the stockholders of
the company, either through liquidation of corporate assets upon termination of
operations, or through the sale or merger of the entire enterprise as a
continuing business. In the Adviser's opinion, within an investment time horizon
of three to five years, typically either the stock market will accurately
reflect a company's intrinsic value or the assets of the company will be
acquired by a third party. From 1975 through May 1, 2000, approximately 47.4% of
the companies that the chief investment officer of the Adviser, Mark A. Boyar,
has extensively researched have been acquired or liquidated (i.e., the assets
were sold to a third party and the proceeds of the sale were distributed to the
shareholders) at a premium to the price of the company shares at the time the
initial research report appeared in ASSET ANALYSIS FOCUS. Of the companies which
were acquired or liquidated, the average time period from the date of the
initial research report was issued until a transaction actually ocurred was
approximately 5.9 years.
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This "buy and hold" investment strategy reflects the determination to grow
capital and maintain purchasing power by holding stocks for the long term. A
long-term orientation may sound stodgy, but this approach is as important to
investment success as picking the right stocks at the right price and at the
right time. Holding the equity of good companies purchased at bargain prices
allows compounding to work without the return-eroding effects of commissions and
capital gains taxes. Buying and holding stocks not only postpones the payment of
capital gains taxes but there are also added positive effects on the compounding
rate. The Adviser believes that by reducing the number of transactions generated
by profit taking, all the money invested is still working for a better return
until future tax liability is incurred.
There is an advantage to the "buy and hold" investment strategy assuming various
rates of return. Frequent securities trading may increase the tax liabilities of
investors and reduce investors' after tax return by not taking advantage of
lower capital gains rates and the advantage of deferring payment of federal tax
liabilities. Under a "buy and hold" strategy, tax liabilities may be deferred to
the future and, when paid, may be paid at capital gains rates that may be lower
than ordinary tax rates. There is no guarantee that federal capital gains rates
will remain lower than federal ordinary income tax rates.
To hasten the recognition factor of an intrinsically undervalued company's
shares in the marketplace, the Adviser also looks for companies that have some
type of catalyst or trigger, for example: a company that has undergone, or is
about to undergo, an asset redeployment program, resulting in potentially
greater return on assets; a company whose chief operating officer and major
stockholder is relatively old and has no heir to take over the company upon his
death or retirement; or a company that is engaged in more than one business,
with the possibility that the second business might be spun off to the existing
shareholders. The Adviser generally will invest in companies whose shares:
- are not widely held by institutions; or
- are not closely followed by investment analysts; or
- may have plummeted in value because they failed to meet analysts'
earnings expectations
because the Adviser believes that the likelihood of a significant disparity
between stock market value and intrinsic value is likely.
At the time of investment in a company, the Adviser determines the value of all
of the assets and liabilities of the company and thereby establishes a potential
selling price for the company's common stock. The Adviser reviews the company's
asset base from time to time (especially when the common stock of a company
nears its selling price target), to carefully determine if something has changed
to alter the Adviser's opinion - if not, the security is sold
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when it meets its fully valued price.
The Adviser employs a variety of different investment strategies to uncover
investment opportunities for the Fund, including the following:
1. Hidden Assets
"Hidden" assets are assets whose current values are undervalued on a
company's financial statements - a situation which may lead to a disparity
between market value and intrinsic worth. Hidden assets include real estate
(buildings and undeveloped acreage), reserves of natural resources (coal,
gas, oil and timber), cellular or cable franchises, and inventory reserves
resulting from the last-in, first-out method of inventory accounting. The
Adviser adjusts the value of these assets to their current market value to
calculate the intrinsic worth of the company, which may be much higher than
the value the stock market accords them.
2. Underpriced Businesses
Excessive pessimism about a particular industry or a specific company may
result in extreme disparities between the stock market value of the company
and the price that would be placed upon the company if the entire
enterprise were acquired by a knowledgeable private investor. When
employing this method of valuation, the Adviser considers the subject
company's historical earning power, present product mix and financial
strength as well as the prices at which similar companies have been
acquired in the recent past. The Adviser's findings help place an
appropriate value on the shares of the subject company.
3. Undervalued Franchises
A number of companies have, over time, created valuable consumer
franchises. Their products are recognized easily by consumers around the
world. Such franchises are virtually impossible for a potential competitor
to duplicate. These "franchise" companies often can raise prices or even
charge a premium for their products or services without losing market
share. The value of this competitive advantage may not be adequately
reflected in the price of the company's shares.
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4. Selling For Less Than Net Working Capital
The minimum liquidation value of a company is, in most instances, its net
working capital value. This amount is determined by subtracting from
current assets all liabilities senior to the common stock, including
current liabilities, long term debt, preferred stock, capitalized lease
obligations and certain pension liabilities. The stock market will, at
pessimistic extremes, value individual securities at a discount to their
net working capital on a per share basis. Investments made at these levels
provide an opportunity to purchase securities below their liquidating value
and acquire the pro-rata value of property, plant and equipment at zero
cost.
5. "Fallen Angels"
Well known companies, that were once the "darlings" of Wall Street, may
fall out of favor with the investment community, causing their stock prices
to plummet to unrealistically low levels. The Adviser may purchase shares
of such companies if it determines that the fundamentals of such a concern
are not permanently impaired.
6. Restructuring Plays, Breakups and Spin-offs
A company interested in enhancing shareholder value may spin off a portion
of its assets to current stockholders through the creation of a new public
entity. The common stock of the newly spun-off company may trade
temporarily at a substantial discount to its underlying net asset value.
This is in part because this new entity is not immediately followed by Wall
Street analysts. However, the newly focused "pure play" companies often
perform well and soon receive more coverage than they ever would have as
one ungainly and difficult to analyze conglomerate.
7. Bankruptcies
An over-leveraged company that declares bankruptcy can purge itself of
excess debt and then emerge as a more competitive enterprise. The stigma of
bankruptcy, however, can sometimes depress the stock prices of those
companies to bargain levels.
8. Under-Followed Companies
The Adviser normally invests in the equity of companies not widely held by
institutions or closely followed by other investment analysts. The Adviser
believes that this is the area where the stock market is most inefficient
in providing investors the opportunity to find unrecognized values.
High-profile, popular companies are monitored carefully and consistently by
portfolio managers and investment analysts. The likelihood of a profitable
disparity developing between the stock market values and the intrinsic
values of these businesses is remote.
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9. Low Price-to-Earnings Ratios
The Adviser believes that the risk inherent in the stock selection process
can be reduced by purchasing common stock at price-to-earnings ratios that
are low relative to those that prevail in the general stock market.
Earnings disappointments rarely hurt low price-to-earnings common stocks
for long periods of time. On the other hand, positive earnings surprises
usually result in an increase of the price to earnings ratio.
10. Large Free Cash Flows
The Adviser favors companies that generate significantly more cash than
they need to finance day-to-day operations. Such companies can use this
excess cash to repurchase their own shares, increase dividends or make
acquisitions.
11. Insider Ownership
The Adviser will take positions in the common equity of companies whose
executives buy and hold large amounts of the company's stock. Significant
insider ownership of a company's shares often indicates that the interests
of the executives and managers who own those shares are aligned with the
interests of other shareholders and they have a powerful incentive to work
for the company's long-term success. On the other hand, insignificant
insider ownership can depress the shares of an otherwise good company
because its managers own too little equity in the business to care much
about maximizing shareholder value. The Adviser evaluates investments in
companies with extreme positions of insider ownership - significant or
insignificant - to aid in determining a company's intrinsic value.
Excessive non-stock and non-performance related compensation for a
company's top officers can also depress the shares of an otherwise good
company.
In making investment selections, the Fund also focuses on certain fundamental
financial characteristics of a company, including debt-to-capital ratios and the
market capitalization of small-, medium- and large-sized companies. The Fund has
no policy regarding the minimum or maximum market capitalization of companies in
which it may invest.
For temporary defensive purposes, the Fund may from time to time have a
significant portion, and possibly all, of its assets in U.S. Government
obligations, corporate bonds rated at least Baa by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group ("S&P"), or money
market instruments. "U.S. Government obligations" include securities which are
issued or guaranteed by the United States Treasury, by various agencies of the
United States Government, and by various instrumentalities which have been
established or sponsored by the United States Government. Bonds rated Baa by
Moody's or BBB by S&P, while considered
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"investment grade" obligations, may have speculative characteristics. The money
market instruments which the Fund may own from time to time include U.S.
Government obligations having a maturity of less than one year, commercial paper
rated at least A-2 by S&P or Prime-2 by Moody's, repurchase agreements, bank
debt instruments (certificates of deposit, time deposits and bankers'
acceptances) and other short-term instruments issued by domestic branches of
U.S. financial institutions that are insured by the Federal Deposit Insurance
Corporation and have assets exceeding $10 billion. When the Fund invests in U.S.
Government obligations, corporate bonds or money market instruments for
temporary defensive purposes, it may not achieve its investment objective. The
Fund may also invest in money markets in order to maintain sufficient liquidity
to cover redemptions and as a means of maximizing the Fund's performance while
the Adviser is determining where to invest new money.
PRINCIPAL RISK CONSIDERATIONS
PRICE FLUCTUATION. Because the major portion of the Fund's portfolio consists of
common stocks, it may be expected that its net asset value will be subject to
greater fluctuation than a portfolio containing mostly fixed income securities.
SMALL- AND MEDIUM-SIZED COMPANIES. There is no minimum or maximum market
capitalization of the companies in which the Fund may invest. Investing in
securities of small- and medium-sized companies may involve greater risks since
these securities may have limited marketability and, thus, their market prices
may be more volatile than securities of larger, more established companies or
the market in general. Because small- and medium-sized companies normally have
fewer shares outstanding than larger companies, it may be more difficult for the
Fund to buy or sell significant amounts of these shares without an unfavorable
impact on prevailing prices. Small-sized companies may have limited product
lines, markets or financial resources and may lack management depth. In
addition, small- and medium-sized companies are typically subject to a greater
degree of changes in earnings and business prospects than are larger, more
established companies. There is typically less publicly available information
concerning small- and medium-sized companies than for larger, more established
ones. Although investing in securities of small- and medium-sized companies
offers potential for above-average returns if the companies are successful, the
risk exists that such companies will not succeed and the prices of their shares
could significantly decline in value.
RELATED TRANSACTIONS. The Fund may purchase securities that have been researched
by Asset Analysis Focus (the research service affiliated with the Adviser).
However, the Fund will acquire new recommendations made by Asset Analysis Focus
no earlier than five business days after publication of Asset Analysis Focus.
The Fund may also purchase shares in combination with other accounts managed by
the Adviser. These practices may have an impact on the price and availability of
the securities to be purchased by the Fund.
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MANAGEMENT OF THE FUND
The Fund is an open-end, diversified management investment company organized as
a Maryland corporation. The Board of Directors supervises the business
activities of the Fund. Like other mutual funds, various organizations are
retained to perform specialized services for the Fund.
MANAGER
Pursuant to a Management Agreement with the Fund, the Manager oversees the daily
operations of the Fund and supervises the performance of administrative and
professional services provided by others, including the Adviser. As compensation
for its services and the related expenses borne by the Manager, the Fund pays
the Manager a fee, computed daily and payable monthly, at the annual rate of
.50% of the Fund's average daily net assets. The Manager may voluntarily waive
all or a portion of its fees from time to time and in its discretion reimburse
expenses to be paid by the Fund.
The Manager is located at 590 Madison Avenue, New York, New York 10022.
Ladenburg Thalmann Asset Management Inc. owns 50% of the outstanding securities
of the Manager. Ladenburg Thalmann Asset Management Inc. is a wholly-owned
subsidiary of Ladenburg Thalmann & Co. Inc. ("LTCI"), a registered broker-dealer
and a member of the New York Stock Exchange since 1876. Ebbets Field Association
LLC, an entity controlled by Mark A. Boyar, holds the other 50% of the
outstanding voting securities of the Manager.
INVESTMENT ADVISER
The Adviser is an affiliate of Mark Boyar & Company, Inc. ("Mark Boyar & Co."),
a registered broker-dealer. The Adviser's principal business address is 35 East
21st Street, New York, New York 10010.
Pursuant to the Investment Advisory Agreement among the Manager, the Adviser and
the Fund, the Adviser furnishes continuous investment advisory services to the
Fund. Subject to the supervision and direction of the Manager and the Board of
Directors, the Adviser manages the Fund's portfolio in accordance with the
stated policies of the Fund. The Adviser makes investment decisions for the Fund
and places orders for the purchase and sale of portfolio
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securities. For the services provided pursuant to the Investment Advisory
Agreement, the Fund pays the Adviser a fee, computed daily and payable monthly,
at the annual rate of .50% of the Fund's average daily net assets. The Adviser
may voluntarily waive all or a portion of its fees from time to time and in its
discretion reimburse expenses to be paid by the Fund.
Mark A. Boyar is the chief investment officer of the Fund, and is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Boyar,
the President of Mark Boyar & Co., has also been the President of the Adviser
since 1983. Mark Boyar & Co. publishes Asset Analysis Focus, an
institutionally-oriented research service that focuses on uncovering
intrinsically undervalued companies for investment and merger and acquisition
activity.
DISTRIBUTOR
Ladenburg Thalmann & Co. Inc., ("LTCI") 590 Madison Avenue, New York, New York
10022, serves as the primary agent for the distribution of shares of the Fund.
LTCI is a member of the New York Stock Exchange, the American Stock Exchange and
other principal national securities exchanges.
LTCI is paid monthly fees by the Fund in connection with the servicing of
shareholder accounts. A monthly service fee, authorized pursuant to a
Shareholder Servicing and Distribution Plan (the "Plan") adopted by the Fund
pursuant to Rule 12b-1 under the 1940 Act, is calculated at the annual rate of
.25% of the value of the average daily net assets of the Fund and is used by
LTCI to provide compensation for ongoing servicing and/or maintenance of
shareholder accounts with the Fund. Compensation is paid by LTCI to persons,
including employees of LTCI, who respond to inquiries of shareholders of the
Fund regarding their ownership of shares or their accounts with the Fund or who
provide other similar services not otherwise required to be provided by other
agents of the Fund. Because these fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Payments under the Plan are not tied exclusively to the service expenses
actually incurred by LTCI, and the payments may exceed expenses actually
incurred by LTCI. The Board of Directors evaluates the appropriateness of the
Plan and its payment terms on a continuing basis and in doing so considers all
relevant factors, including expenses borne by LTCI and amounts it receives under
the Plan.
SALES CHARGES
When you purchase Fund shares, you pay a 5.00% sales charge on the first
$50,000 of your total investment and less on investments after the first
$50,000. You do not pay a sales charge when you reinvest dividends or
distributions paid by the Fund. Shares of the Fund are sold at the public
offering price, unless you qualify to purchase shares at net asset value. The
Public Offering Price is the next determined net asset value ("NAV") per share
plus a sales load as shown in the following table.
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Sales Load as % of:
Public Net Dealer Reallowance
Offering Amount as % of Public
Amount of Investment Price Invested Offering Price
- -------------------- ----- -------- --------------
Less than $50,000 5.00% 5.25% 4.75%
$50,000 but less than $100,000 4.50% 4.72% 4.25%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.95% 3.04% 2.70%
$500,000 but less than $1,000,000 2.25% 2.31% 2.00%
$1,000,000 or more None* None*
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* There is no front-end sales load on purchases of $1 million or more but a
contingent deferred sales load of 1% may apply if a commission was paid to a
participating unaffiliated dealer and the shares are redeemed within 12
months from the date of purchase.
Under certain circumstances, the Distributor may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Distributor
retains the entire sales load on all direct initial investments in the Fund and
on all investments in accounts with no designated dealer of record.
Please direct inquiries concerning the services described in this section to the
Transfer Agent at the address or numbers listed within.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the
cost or current NAV (whichever is higher) of your existing Fund shares with the
amount of your current purchases in order to take advantage of the reduced sales
loads set forth in the table above. Purchases made pursuant to a Letter of
Intent may also be eligible for the reduced sales loads. The minimum initial
investment under a Letter of Intent is $10,000. Completing a Letter of Intent
does not obligate you to purchase additional shares, but if you do not buy
enough shares to qualify for the projected level of sales charges by the end of
a specified period of time (or when you sell your shares, if earlier), the
Distributor will recalculate your sales charge. You must pay the additional
sales charge within 20 days after you are notified of the recalculation or it
will be deducted from your account (or your sale proceeds). You should contact
the Transfer Agent for information about the Right of Accumulation and Letter of
Intent.
-14-
<PAGE>
PURCHASES AT NET ASSET VALUE. Investors whose accounts were opened prior to
May 1, 2000 are not subject to any sales charge on subsequent investments.
Shares of the Fund may be purchased at NAV by pension and profit sharing plans,
pension funds and other company-sponsored benefit plans that (1) have plan
assets of $500,000 or more, or (2) have, at the time of purchase, 100 or more
eligible participants, or (3) certify that they project to have annual plan
purchases of $200,000 or more, or (4) are provided administrative services by
certain third-party administrators that have entered into a special service
arrangement with the Adviser relating to such plan.
Banks, bank trust departments and savings and loan associations, in their
fiduciary capacity or for their own accounts, may also purchase shares of the
Fund at NAV. To the extent permitted by regulatory authorities, a bank trust
department may charge fees to clients for whose account it purchases shares at
NAV. Federal and state credit unions may also purchase shares at NAV.
In addition, shares of the Fund may be purchased at NAV by broker-dealers
who have a sales agreement with the Distributor, and their registered personnel
and employees, including members of the immediate families of such registered
personnel and employees.
Clients of investment advisers may also purchase shares of the Fund at NAV
if their investment adviser or broker-dealer has made arrangements to permit
them to do so with the Fund and the Distributor. The investment adviser must
notify the Transfer Agent that an investment qualifies as a purchase at NAV.
Associations and affinity groups and their members may purchase shares of
the Fund at NAV provided that management of these groups or their financial
adviser has made arrangements to permit them to do so with the Fund. Investors
or their financial adviser must notify the Transfer Agent that an investment
qualifies as a purchase at NAV.
Employees, officers and directors of the Fund or any affiliated company,
including members of the immediate family of such individuals and employee
benefit plans established by such entities, may also purchase shares of the Fund
at NAV. Investors must notify the Transfer Agent that an investment qualifies as
a purchase at NAV.
Employees, officers, directors and clients of the Adviser, Manager,
Distributor or the Fund or any affiliated company, including members of the
immediate family of such individuals and employee benefit plans established by
such entities, may also purchase shares of the Fund at NAV. Investors must
notify the Transfer Agent that an investment qualifies as a purchase at NAV.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES. A contingent
deferred sales load is imposed upon certain redemptions of shares of the Fund
purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Distributor and the shares are
redeemed within 12 months from the date of purchase. The contingent deferred
sales load will be paid to the Distributor and will be equal to 1% of the NAV at
the time of purchase of the shares being redeemed. In determining whether the
contingent deferred sales load is payable, it is assumed that shares not subject
to the contingent deferred sales load are the first redeemed followed by other
shares held for the longest period of time. The contingent deferred sales load
will not be imposed upon shares representing reinvested dividends or capital
gains distributions, or upon amounts representing share appreciation. If your
purchase is subject to the contingent deferred sales load, you will be notified
on the confirmation for your purchase.
-15-
<PAGE>
Redemptions of such shares of the Fund held for at least 12 months will not
be subject to the contingent deferred sales load. The contingent deferred sales
load is currently waived for any partial or complete redemption following death
or disability (as defined in the Internal Revenue Code) of a shareholder
(including one who owns the shares with his or her spouse as a joint tenant with
rights of survivorship) from an account in which the deceased or disabled is
named. The Fund may require documentation prior to waiver of the charge,
including death certificates, physicians' certificates, etc.
HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least $5,000
($2,500 for tax-deferred retirement plans). You may open an account and make an
initial investment through securities dealers having a sales agreement with the
Fund's principal underwriter (the "Distributor"). You may also make a direct
initial investment by sending a check and a completed account application form
to Boyar Value Fund, P.O. Box 5354, Cincinnati, Ohio 45201-5354. Be sure and
make your check payable to the "Boyar Value Fund." An account application is
included with this Prospectus.
Shares of the Fund are sold on a continuous basis at the public offering
price next determined after receipt of a purchase order by the Fund. Your
purchase order must be received by the Fund's transfer agent ("Transfer Agent")
prior to the close of regular trading on the New York Stock Exchange ("NYSE")
(generally 4:00 p.m., Eastern time). If you purchase shares through a broker-
dealer it is the broker-dealers responsibility to transmit your order in a
timely manner to the Distributor in order for your account to receive that day's
public offering price. Dealers may charge a fee for effecting purchase orders.
Direct investments received by the Transfer Agent after the close of NYSE are
confirmed at the public offering price next determined on the following business
day.
REGULAR MAIL ORDERS. Please complete and sign the Account Application form
accompanying this Prospectus and send it with your check, made payable to Boyar
Value Fund, Inc., to:
Boyar Value Fund, Inc.
c/o Shareholder Services
P.O. Box 5354
Cincinnati, Ohio 45201-5354
BANK WIRE ORDERS. Provided the Transfer Agent has received a completed Account
Application, investments can be made directly by bank wire. To establish a new
account or add to an existing account by wire, please call the Fund at
1-800-266-5566 for instructions. Your bank may impose a charge for sending your
wire. There is presently no fee for receipt of wired funds, but the Transfer
Agent reserves the right to charge shareholders for this service upon thirty
days' notice to shareholders.
It is important that the wire contain all the information and that the Fund
receives prior telephone notification to ensure proper credit. To make your
initial wire purchase, you must mail a completed Account Application to the
Transfer Agent.
ADDITIONAL INVESTMENTS. You may purchase additional shares of the Fund by mail
or wire (minimum additional investment of $1,000) at any time at the then
current public offering price as aforementioned. Before making additional
investments by bank wire, please call the Transfer Agent at 1-800-266-5566.
Please follow the wire instructions provided by the Transfer Agent. When calling
for any reason, please have your account number ready, if known. Mail orders
should include, when possible, the "Invest by Mail" stub which is attached to
your Fund confirmation statement. Otherwise, be sure to identify your account
number in your letter.
EMPLOYEES AND AFFILIATES OF THE FUND. The minimum purchase requirement is not
applicable to accounts of Directors, officers or employees of the Fund or
certain parties related thereto. The minimum initial investment for such
accounts is $1,000.
STOCK CERTIFICATES. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
which will show the number of shares owned.
-16-
<PAGE>
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Fund is open for business
by sending a written request to the Transfer Agent. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Fund's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
If the name(s) or the address on your account has been changed within 30 days of
your redemption request, you will be required to request the redemption in
writing with your signature guaranteed, regardless of the value of the shares
being redeemed.
A contingent deferred sales load (charge) may apply to a redemption of Fund
shares purchased at net asset value, excluding accounts opened prior May 1,
2000. Please refer to "How to Purchase Shares" for more information.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States
as designated on your application. The Fund's custodian currently charges a $9
fee for processing wire redemptions. The Fund reserves the right, upon thirty
days' written notice, to change the processing fee. All charges will be deducted
from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You will receive the net asset value per share next determined after receipt by
the Transfer Agent (or other agents of the Fund) of your redemption request in
the form described above. Payment is normally made within three business days
after tender in such form, provided that payment in redemption of shares
purchased by check will be effected only after the check has been collected,
which may take up to fifteen days from the purchase date. To eliminate this
delay, you may purchase shares of the Fund by certified check or wire.
You may also redeem your shares through a brokerage firm or financial
institution that has been
-17-
<PAGE>
authorized to accept orders on behalf of the Fund at the Fund's net asset value
next determined after your order is received by such organization in proper form
before 4:00 p.m., Eastern time, or such earlier time as may be required by such
organization. These organizations may be authorized to designate other
intermediaries to act in this capacity. Such an organization may charge you
transaction fees on redemptions of Fund shares and may impose other charges or
restrictions or account options that differ from those applicable to
shareholders who redeem shares directly through the Transfer Agent.
At the discretion of the Fund or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Fund reserves the
right to require you to close your account if at any time the value of your
shares is less than $5,000 (based on actual amounts invested, unaffected by
market fluctuations), or such other minimum amount as the Fund may determine
from time to time. After notification to you of the Fund's intention to close
your account, you will be given sixty days to increase the value of your account
to the minimum amount.
The Fund reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Directors deems it appropriate, the
Fund may make payment for shares redeemed in portfolio securities of the Fund
taken at current value.
SHAREHOLDER SERVICES
Contact the Transfer Agent (nationwide call toll-free 800-266-5566) for
additional information about the shareholder services described below.
Automatic Withdrawal Plan
- -------------------------
If the shares in your account have a value of at least $25,000, you may elect to
receive, or may designate another person to receive, monthly or quarterly
payments in a specified amount of not less than $100 each. There is no charge
for this service.
Tax-Deferred Retirement Plans
- -----------------------------
Shares of the Fund are available for purchase in connection with the following
tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code
Direct Deposit Plans
- --------------------
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable you to have all or
a portion of your payroll or social security checks transferred automatically to
purchase shares of the Fund.
Automatic Investment Plan
- -------------------------
You may make automatic monthly investments in the Fund from your bank, savings
and loan or other depository institution account. The minimum investment must be
$100 under the plan. The Transfer Agent pays the costs associated with these
transfers, but reserves the right, upon thirty days' written notice, to charge a
reasonable fee for this service. Your depository institution may impose its own
charge for debiting your account which would reduce your return from an
investment in the Fund.
Delivery of Prospectus and Shareholder Reports
- ----------------------------------------------
Subject to your express or implied consent upon notice by the Transfer Agent,
the Fund may elect to send prospectuses and shareholder reports on a "household"
basis. This means the Fund may send only one copy of a prospectus or annual
report and semiannual report to a household that has multiple Fund accounts. You
may revoke your consent by contacting the Transfer Agent in writing, at the
address listed in the "How to Purchase Fund Shares" section. The Transfer Agent
will begin sending you individual copies of the Fund's prospectus and
shareholder reports it delivers 30 days after receiving your revocation.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment income
and net realized capital gains, if any, on an annual basis. Distributions are
paid according to one of the following options:
Share Option - income distributions and capital gains distributions
reinvested in additional shares.
Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option - income distributions and capital gains distributions paid
in cash.
-18-
<PAGE>
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date. No sales charge is imposed on any reinvestment of
distributions and dividends in additional shares of the Fund.
If you select the Income Option or the Cash Option and the U.S. Postal Service
cannot deliver your checks or if your checks remain uncashed for six months,
your dividends may be reinvested in your account at the then current net asset
value and your account will be converted to the Share Option. No interest will
accrue on amount represented by uncashed distribution checks.
TAXES
The Fund has qualified and intends to continue to qualify for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. The Fund intends to distribute
annually substantially all of its net investment income and any net realized
capital gains to its shareholders. Distributions of net investment income as
well as net realized short-term capital gains, if any, are taxable as ordinary
income. Dividends distributed by the Fund from net investment income may be
eligible, in whole or in part, for the dividends received deduction available to
corporations.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) by the Fund are taxable to you as
capital gains, without regard to the length of time you have held your Fund
shares. Capital gains distributions may be taxable at different rates depending
on the length of time the Fund holds its assets. Redemptions of shares of the
Fund are taxable events on which you may realize a gain or loss. Due to the
investment strategies used by the Fund, distributions are generally expected to
consist of net capital gains; however, the nature of the Fund's distributions
could vary in any given year.
The Fund will mail a statement to you annually indicating the amount and federal
income tax status of all distributions made during the year. The Fund's
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.
CALCULATION OF SHARE PRICE
On each day that the Fund is open for business, the public offering price (net
asset value plus applicable sales load) of Fund shares is determined as of the
close of the regular session of trading on the New York Stock Exchange
(generally 4:00 p.m., Eastern time). The Fund is open for business on each day
the New York Stock Exchange is open for regular trading. The net asset value per
share of the Fund is calculated by dividing the sum of the value of the
securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent. The price at which a purchase or
redemption of Fund shares is effected is based on the next
-19-
<PAGE>
calculation of net asset value after the order is placed.
The Fund's investments will be priced at their market value when market
quotations are readily available. When these quotations are not readily
available, investments will be priced at their fair value, calculated according
to the procedures adopted by the Fund's Board of Directors.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance. Certain information reflects financial results for a
single Fund share. 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). This information has been
audited by Ernst & Young, LLP, whose report, along with the Fund's financial
statements, are included in the Statement of Additional Information, which is
available upon request.
Selected Per Share Data and Ratios for a Share
Outstanding Throughout Each Period
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended
December 31, December 31,
1999 1998 (a)
------------ ------------
<S> <C> <C>
Net asset value at beginning of period $ 9.72 $ 10.00
------------ ------------
Income/(loss) from investment operations:
Net investment income 0.01 0.03
Net realized and unrealized gains/(losses) on investments 1.37 (0.28)
------------ ------------
Total income/(loss) from investment operations 1.38 (0.25)
------------ ------------
Less distributions:
From net investment income (0.01) (0.03)
------------ ------------
Net asset value at end of period $ 11.09 $ 9.72
============ ============
Total return 14.24% (2.46%)
============ ============
Net assets at end of period $ 4,134,644 $ 1,415,827
============ ============
Ratio of net expenses to average net assets (b) 1.75% 1.75%(c)
Ratio of net investment income to average net assets 0.15% 0.66%(c)
Portfolio turnover rate 8% 0%
</TABLE>
(a) Represents the period from the commencement of operations (May 5, 1998)
through December 31, 1998.
(b) Absent fees waived and expenses reimbursed, the ratio of expenses to
average net assets would have been 5.28% (c) and 13.19% (c) for the periods
ended December 31, 1999 and December 31, 1998, respectively.
(c) Annualized.
-20-
<PAGE>
BOYAR VALUE FUND, INC.
INVESTMENT ADVISER
Boyar Asset Management, Inc.
35 East 21st Street
New York, New York 10010
FUND MANAGER
Ladenburg Thalmann Fund Management, Inc.
590 Madison Avenue
New York, New York 10022
DISTRIBUTOR
Ladenburg Thalmann & Co. Inc.
590 Madison Avenue
New York, New York 10022
ADMINISTRATOR
Integrated Fund Services, Inc.
312 Walnut Street
P.O. Box 5354
Cincinnati, Ohio 45201-5354
CUSTODIAN
Firstar Bank, N.A.
425 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
Ernst & Young LLP
1300 Chiquita Center
Cincinnati, Ohio 45202
BOARD OF DIRECTORS
Henry A. Alpert
Mark A. Boyar
Richard Finkelstein
A.F. Petrocelli
Jay R. Petschek
Jeffrey S. Silverman
<PAGE>
Additional information about the Fund is included in the Statement of Additional
Information, which is incorporated by reference in its entirety. Additional
information about the Fund's investments is available in the Fund's annual and
semiannual reports to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and strategies that significantly affected
the Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make inquiries about the Fund, please call
1-800-266-5566.
Information about the Fund, including the SAI, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
Information about the operation of the public reference room can be obtained by
calling the Commission at 1-202-942-8090. Reports and other information about
the Fund are available on the Commission's Internet site at http://www.sec.gov.
Copies of information on the Commission's Internet site may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing to: Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-0102.
Investment Company Act File No. 811-8253
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
BOYAR VALUE FUND, INC.
590 MADISON AVENUE, NEW YORK, NEW YORK 10022
For information, call 800-266-5566
TABLE OF CONTENTS
-----------------
Page
----
THE FUND....................................................................
INVESTMENT OBJECTIVE AND POLICIES...........................................
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS.....................
INVESTMENT LIMITATIONS......................................................
DIRECTORS AND OFFICERS......................................................
THE MANAGER.................................................................
THE INVESTMENT ADVISER......................................................
THE DISTRIBUTOR.............................................................
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN.................................
SECURITIES TRANSACTIONS.....................................................
CODE OF ETHICS..............................................................
PORTFOLIO TURNOVER..........................................................
CALCULATION OF SHARE PRICE..................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................
TAXES.......................................................................
HISTORICAL PERFORMANCE INFORMATION..........................................
PRINCIPAL SECURITY HOLDERS..................................................
CUSTODIAN...................................................................
AUDITORS AND COUNSEL........................................................
INTEGRATED FUND SERVICES, INC..............................................
ANNUAL REPORT...............................................................
This Statement of Additional Information is meant to be read in conjunction
with the Prospectus for Boyar Value Fund, Inc. (the "Fund") dated May 1, 2000,
as amended or supplemented from time to time, and is incorporated by reference
in its entirety into that Prospectus. Because this Statement of Additional
Information is not itself a prospectus, no investment in shares of the Fund
should be made solely upon the information contained herein. Copies of the
Fund's Prospectus may be obtained by calling the Fund at 800-266-5566.
<PAGE>
THE FUND
The Fund was incorporated on February 28, 1997 under the laws of the State
of Maryland under the name "Boyar Value Fund, Inc." The Fund's charter
authorizes the Board to issue one billion (1,000,000,000) shares of common
stock, $.001 par value per share (the "Shares").
All shareholders of the Fund, upon liquidation, will participate ratably in
the Fund's net assets. Shares do not have cumulative voting rights, which means
that holders of more than 50% of the Shares voting for the election of Directors
can elect all Directors. Shares are transferable but have no preemptive,
conversion or subscription rights.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation.
The following policies supplement the descriptions of the Fund's investment
objective and policies in the Prospectus.
Stock Options and Currency Exchange Transactions
- ------------------------------------------------
STOCK OPTIONS. When the Adviser believes that individual portfolio
securities are approaching the top of the Adviser's growth and price
expectations, the Fund may write covered call options against such securities.
The Fund may also purchase put options. The value of the underlying securities
on which covered call and put options will be written or purchased,
respectively, at any one time by the Fund is not anticipated to exceed 5% of the
Fund's total assets. The Fund writes and purchases options only for hedging
purposes and not for speculation.
The Fund realizes fees (referred to as "premiums") for granting the rights
evidenced by the options it has written. A call option embodies the right of its
purchaser to compel the writer of the option to sell to the option holder an
underlying security at a specified price for a specified time period or at a
specified time. A put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an underlying security
at a specified price for a specified period or at a specified time.
The principal reason for writing covered call options on a security is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the securities alone. In return for a premium, the Fund as the
writer of a covered call option forfeits the right to any appreciation in the
value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the Fund as a call writer retains the risk of a decline in the price of the
underlying security. The size of the premiums that the Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
In the case of options written by the Fund that are deemed covered by
virtue of the Fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain physical
delivery of the underlying common stock with respect to which the Fund has
written options may exceed the time within which the Fund must make delivery in
accordance with an exercise notice. In these instances, the Fund may purchase or
temporarily borrow the underlying securities for purposes of physical delivery.
By so doing, the Fund will not bear any market risk, since the Fund will have
the absolute right to receive from the issuer of the underlying security an
equal number of shares to replace the borrowed securities, but the Fund may
incur additional transaction costs or interest expenses in connection with any
such purchase or borrowing.
<PAGE>
Options written by the Fund will normally have expiration dates between one
and nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
times the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. The Fund may write (i) in-the-money call options when the Adviser
expects that the price of the underlying security will remain flat or decline
moderately during the option period, (ii) at-the-money call options when the
Adviser expects that the price of the underlying security will remain flat or
advance moderately during the option period and (iii) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the preceding situations, if the market
price of the underlying security declines and the security is sold at this lower
price, the amount of any realized loss will be offset wholly or in part by the
premium received. To secure its obligation to deliver the underlying security
when it writes a call option, the Fund will be required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation (the "Clearing Corporation") and of the securities exchange
on which the option is written.
Prior to their expirations, call options may be sold in closing sale or
purchase transactions (sales or purchases by the Fund prior to the exercise of
options that it has purchased or written, respectively, of options of the same
series) in which the Fund may realize a profit or loss from the sale. An option
position may be closed out only where there exists a secondary market for an
option of the same series on a recognized securities exchange or in the
over-the-counter market. When the Fund has purchased a put option and engages in
a closing sale transaction, whether the Fund realizes a profit or loss will
depend upon whether the amount received in the closing sale transaction is more
or less than the premium the Fund initially paid for the original option plus
the related transaction costs. Similarly, in cases where the Fund has written a
call option, it will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the original option
and will incur a loss if the cost of the closing purchase transaction exceeds
the premium received upon writing the original option. The Fund may engage in a
closing purchase transaction to realize a profit, to prevent an underlying
security with respect to which it has written an option from being called or, in
the case of a call option, to unfreeze an underlying security (thereby
permitting its sale or the writing of a new option on the security prior to the
outstanding option's expiration). The obligation of the Fund under an option it
has written would be terminated by a closing purchase transaction, but the Fund
would not be deemed to own an option as a result of the transaction. So long as
the obligation of the Fund as the writer of an option continues, the Fund may be
assigned an exercise notice by the broker-dealer through which the option was
sold, requiring the Fund to deliver the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can no longer effect a
closing purchase transaction with respect to an option once it has been assigned
an exercise notice.
-3-
<PAGE>
There is no assurance that sufficient trading interest will exist to
create a liquid secondary market on a securities exchange for any particular
option or at any particular time, and for some options no such secondary market
may exist. A liquid secondary market in an option may cease to exist for a
variety of reasons. In the past, for example, higher than anticipated trading
activity or order flow or other unforeseen events have at times rendered certain
of the facilities of the Clearing Corporation and various securities exchanges
inadequate and resulted in the institution of special procedures, such as
trading rotations, restrictions on certain types of orders or trading halts or
suspensions in one or more options. There can be no assurance that similar
events, or events that may otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. Moreover, the Fund's ability
to terminate options positions established in the over-the-counter market may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in over-the-counter transactions would fail to
meet their obligations to the Fund. The Fund, however, intends to purchase
over-the-counter options only from dealers whose debt securities, as determined
by the Adviser, are considered to be investment grade. If, as a covered call
option writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. In either
case, the Fund would continue to be at market risk on the security and could
face higher transaction costs, including brokerage commissions.
Securities exchanges generally have established limitations governing the
maximum number of calls of each class which may be held or written, or exercised
within certain time periods by an investor or group of investors acting in
concert (regardless of whether the options are written on the same or different
securities exchanges or are held, written or exercised in one or more accounts
or through one or more brokers). It is possible that the Fund and other clients
of the Adviser may be considered to be such a group. A securities exchange may
order the liquidation of positions found to be in violation of these limits and
it may impose certain other sanctions. These limits may restrict the number of
options the Fund will be able to purchase on a particular security.
CURRENCY EXCHANGE TRANSACTIONS. The value in U.S. dollars of the assets of
the Fund that are invested in foreign securities may be affected favorably or
unfavorably by changes in exchange control regulations, and the Fund may incur
costs in connection with conversion between various currencies. Currency
exchange transactions may be from any non-U.S. currency into U.S. dollars or
into other appropriate currencies. The Fund will conduct its currency exchange
transactions (i) on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market, (ii) through entering into forward contracts to
purchase or sell currency or (iii) by purchasing exchange-traded currency
options.
FOREIGN INVESTMENTS. Investors should recognize that investing in foreign
companies involves certain risks, including those discussed below, which are not
typically associated with investing in U.S. issuers. Since the Fund may invest
in securities denominated in currencies other than the U.S. dollar, and since
the Fund may temporarily hold funds in bank deposits or other money market
investments denominated in foreign currencies, the Fund may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Fund's assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time from the
interaction of many factors directly or indirectly affecting economic and
political conditions in the United States and a particular foreign country,
including economic and political developments in other countries. Of particular
importance are rates of inflation, interest rate levels, the balance of payments
and the extent of government surpluses or deficits in the United States and the
particular foreign country, all of which are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of the United States and
foreign countries important to international trade and finance. Governmental
intervention may also play a significant role. National governments rarely
voluntarily allow their currencies to float freely in response to economic
forces. Sovereign governments use a variety of techniques, such as intervention
by a country's central bank or imposition of regulatory controls or taxes, to
affect the exchange rates of their currencies.
-4-
<PAGE>
Individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency, and balance of
payments positions. The Fund may invest in securities of foreign governments (or
agencies or instrumentalities thereof), and many, if not all, of the foregoing
considerations apply to such investments as well.
Securities of some foreign companies are less liquid and their prices are
more volatile than securities of comparable U.S. companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. Due to the increased exposure of the Fund
to market and foreign exchange fluctuations brought about by such delays, and
due to the corresponding negative impact on Fund liquidity, the Fund will avoid
investing in countries which are known to experience settlement delays which may
expose the Fund to unreasonable risk of loss.
U.S. GOVERNMENT SECURITIES. The Fund may invest in debt obligations of
varying maturities issued or guaranteed by the United States government, its
agencies or instrumentalities ("U.S. Government securities"). Direct obligations
of the U.S. Treasury include a variety of securities that differ in their
interest rates, maturities and dates of issuance. U.S. Government securities
also include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Loan Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, General Services Administration, Central Bank for Cooperatives,
Federal Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Federal
National Mortgage Association, Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board and Student Loan Marketing
Association. The Fund may also invest in instruments that are supported by the
right of the issuer to borrow from the U.S. Treasury and instruments that are
supported by the credit of the instrumentality. Because the U.S. Government is
not obligated by law to provide support to an instrumentality it sponsors, the
Fund will invest in obligations issued by such an instrumentality only if the
Adviser determines that the credit risk with respect to the instrumentality does
not make its securities unsuitable for investment by the Fund.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend portfolio securities to
brokers, dealers and other financial organizations that meet capital and other
credit requirements or other criteria established by the Fund's Board of
Directors (the "Board"). These loans, if and when made, may not exceed 33 1/3%
of the Fund's total assets taken at current value. The Fund will not lend
portfolio securities to affiliates of the Adviser unless it has applied for and
received specific authority to do so from the SEC. Loans of portfolio securities
will be collateralized by cash, letters of credit or U.S. Government securities,
which are maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Fund. From time to time, the Fund may return a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by continuing
to receive interest and any dividends on the loaned securities as well as by
either investing the collateral received for securities loaned in short-term
instruments or obtaining yield in the form of interest paid by the borrower when
-5-
<PAGE>
U.S. Government securities are used as collateral. Although the generation of
income is not an investment objective of the Fund, income received could be used
to pay the Fund's expenses and would increase an investor's total return. The
Fund will adhere to the following conditions whenever its portfolio securities
are loaned: (i) the Fund must receive at least 100% cash collateral or
equivalent securities of the type discussed in the preceding paragraph from the
borrower; (ii) the borrower must increase such collateral whenever the market
value of the securities rises above the level of such collateral; (iii) the Fund
must be able to terminate the loan at any time; (iv) the Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities and any increase in market value; (v) the
Fund may pay only reasonable custodian fees in connection with the loan; and
(vi) voting rights on the loaned securities may pass to the borrower, provided,
however, that if a material event adversely affecting the investment occurs, the
Board must terminate the loan and regain the right to vote the securities. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon the Fund's ability to
recover the loaned securities or dispose of the collateral for the loan.
AMERICAN, EUROPEAN AND CONTINENTAL DEPOSITARY RECEIPTS. The assets of the
Fund may be invested in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-U.S. banks and trust companies that evidence ownership of
either foreign or domestic securities. Generally, ADRs in registered form are
designed for use in U.S. securities markets and EDRs and CDRs in bearer form are
designed for use in European securities markets.
In a "sponsored" ADR, the Foreign issuer typically bears certain expenses
of maintaining the ADR facility. While "unsponsored" ADRs may be created without
the participation of the foreign issuer. Holders of unsponsored ADRs generally
bear all costs of the ADR facility. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
that may be converted at either a stated price or stated rate into underlying
shares of common stock. Because of this conversion feature, convertible
securities enable an investor to benefit from increases in the market price of
the underlying common stock while permitting the investor to obtain a yield that
is generally greater than that obtainable from the underlying common stock. In
addition, convertible securities generally offer greater stability of price than
the underlying common stock during declining market periods. The value of
convertible securities fluctuates in relation to changes in interest rates and,
in addition, also fluctuates in relation to the underlying common stock. The
Adviser may make modifications of its investment strategy for the Fund as it
deems advisable in light of its experience in managing the Fund or in response
to changing market or economic conditions.
WARRANTS. The Fund may purchase warrants issued by domestic and foreign
companies to purchase newly created equity securities consisting of common and
preferred stock. The equity security underlying a warrant is outstanding at the
time the warrant is issued or is issued together with the warrant.
-6-
<PAGE>
Investing in warrants can provide a greater potential for profit or loss
than an equivalent investment in the underlying security, and, thus, can be a
speculative investment. The value of a warrant may decline because of a decline
in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the company whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Warrants generally pay no
dividends and confer no voting or other rights other than to purchase the
underlying security.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to two hundred seventy days) unsecured promissory notes issued by corporations
in order to finance their current operations. The Fund will only invest in
commercial paper rated at least A-2 by Standard & Poor's Ratings Group
("Standard & Poor's") or Prime-2 by Moody's Investors Service, Inc. ("Moody's")
or unrated paper of issuers who have outstanding unsecured debt rated AA or
better by Standard & Poor's or Aa or better by Moody's. Certain notes may have
floating or variable rates. Variable and floating rate notes with a demand
notice period exceeding seven days will be subject to the Fund's policy with
respect to illiquid investments (see "Investment Limitations") unless, in the
judgment of the Adviser, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the parent company and the relationships which exist with the
issuer; and recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
commercial paper is rated Prime-1 or Prime-2. Commercial paper rated A (highest
quality) by Standard & Poor's has the following characteristics: liquidity
ratios are adequate to meet cash requirements; long-term senior debt is rated
"A" or better, although in some cases "BBB" credits may be allowed; the issuer
has access to at least two additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances;
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1 or A-2.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or by banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from fourteen days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. The Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.
-7-
<PAGE>
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York. At the time the Fund enters
into a repurchase agreement, the value of the collateral, including accrued
interest, will equal at least 102% of the value of the repurchase agreement and,
in the case of a repurchase agreement exceeding one day, the seller agrees to
maintain sufficient collateral so that the value of the collateral, including
accrued interest, will at all times equal at least 102% of the value of the
repurchase agreement. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Fund's Custodian at the Federal
Reserve Bank. The Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the Fund's investment criteria for portfolio
securities and will be held by the Custodian or in the Federal Reserve Book
Entry System.
For purposes of the Investment Company Act of 1940, a repurchase agreement
is deemed to be a loan from the Fund to the seller subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the security. If a court characterized the transaction as a loan and
the Fund has not perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security, in which case the Fund may
incur a loss if the proceeds to the Fund of the sale of the security to a third
party are less than the repurchase price. However, if the market value of the
securities subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the security to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
-8-
<PAGE>
ILLIQUID SECURITIES. The Fund may not invest more than 15% of its net
assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market, time deposits maturing in more
than seven days and repurchase agreements which have a maturity of longer than
seven days. Securities that have legal or contractual restrictions on resale but
have a readily available market are not considered illiquid for purposes of this
limitation. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. The Fund's investment in illiquid
securities is subject to the risk that, should the Fund desire to sell any of
these securities when a ready buyer is not available at a price that is deemed
to be representative of their value, the value of the Fund's net assets could be
adversely affected.
BORROWING. The Fund may borrow, temporarily, up to 33 1/3% of its total
assets for extraordinary purposes or to meet redemption requests which might
otherwise require untimely disposition of portfolio holdings. To the extent the
Fund borrows for these purposes, the effects of market price fluctuations on
portfolio net asset value will be exaggerated. If, while such borrowing is in
effect, the value of the Fund's assets declines, the Fund could be forced to
liquidate portfolio securities when it is disadvantageous to do so. The Fund
would incur interest and other transaction costs in connection with borrowing.
The Fund will borrow only from a bank.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
THE RATINGS OF MOODY'S INVESTORS SERVICE, INC. AND STANDARD & POOR'S
RATINGS GROUP FOR CORPORATE BONDS IN WHICH THE FUND MAY INVEST ARE AS FOLLOWS:
Moody's Investors Service, Inc.
-------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are
-9-
<PAGE>
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Ratings Group
-------------------------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
THE RATINGS OF MOODY'S INVESTORS SERVICE, INC. AND STANDARD & POOR'S
RATINGS GROUP FOR PREFERRED STOCKS IN WHICH THE FUND MAY INVEST ARE AS FOLLOWS:
Moody's Investors Service, Inc.
-------------------------------
aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
-10-
<PAGE>
Standard & Poor's Ratings Group
-------------------------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT LIMITATIONS
The investment limitations numbered 1 through 10 may not be changed without
the affirmative vote of the holders of a majority of the Fund's outstanding
shares. Such majority is defined as the lesser of (i) 67% or more of the shares
present at the 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. Investment limitations 11 through 13 may be changed by a
vote of the Board at any time.
The Fund may not:
1. Borrow money except that the Fund may borrow from banks for temporary or
emergency purposes in an amount that may not exceed 33 1/3% of the value of the
Fund's total assets at the time of such borrowing. For purposes of this
restriction, short sales, the entry into currency transactions, options, and
forward commitment transactions that are not accounted for as financings (and
the segregation of assets in connection with any of the foregoing) shall not
constitute borrowing.
2. Make loans, except that the Fund may purchase or hold fixed-income
securities, lend portfolio securities up to 33 1/3% of the Fund's total assets
and enter into repurchase agreements in accordance with its investment
objective, policies and limitations.
3. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same industry;
provided that there shall be no limit on the purchase of U.S. Government
Securities.
4. Purchase the securities of any issuer if as a result (a) more than 5% of
the value of the Fund's total assets would be invested in the securities of such
issuer or (b) the Fund would acquire 10% or more of the voting securities of
such issuer, except that these limitations do not apply to U.S. Government
Securities and repurchase agreements collateralized by U.S. Government
Securities and except that up to 25% of the value of the Fund's total assets may
be invested without regard to these limitations.
-11-
<PAGE>
5. Underwrite any securities issued by others except to the extent that the
investment in restricted securities and the sale of securities or the purchase
of securities directly from the issuer in accordance with the Fund's investment
objective, policies and limitations may be deemed to be underwriting.
6. Purchase or sell real estate, except that the Fund may invest in
securities (a) secured by real estate, mortgages or interests therein, (b)
issued by companies which invest in real estate or interests therein or (c) hold
and sell real estate acquired by the Fund as the result of the ownership of
securities.
7. Make short sales of securities or maintain a short position, except that
the Fund may maintain short positions in currencies, securities and stock
indexes, futures contracts and options on futures contracts and enter into short
sales or short sales "against the box" in accordance with the Fund's investment
objective, policies and limitations.
8. Purchase securities on margin, except that the Fund may obtain any
short-term credits necessary for the clearance of purchases and sales of
securities. For purposes of this restriction, the deposit or payment of initial
or variation margin in connection with transactions in currencies, options,
futures contracts or related options will not be deemed to be a purchase of
securities on margin.
9. Invest in commodities, except that the Fund may (a) purchase and sell
futures contracts, including those relating to securities, currencies and
indexes, and options on futures contracts, securities, currencies or indexes,
(b) purchase and sell currencies on a forward commitment or delayed-delivery
basis and (c) enter into stand-by commitments.
10. Pledge, mortgage or hypothecate its assets, or otherwise issue senior
securities, except (a) to the extent necessary to secure permitted borrowings
and (b) to the extent related to the deposit of assets in escrow in connection
with the purchase of securities on a forward commitment or delayed-delivery
basis and collateral and initial or variation margin arrangements with respect
to currency transactions, options, futures contracts, and options on futures
contracts.
11. Invest more than 15% of the Fund's net assets in securities which may
be illiquid because of legal or contractual restrictions on resale or securities
for which there are no readily available market quotations. For purposes of this
limitation, repurchase agreements with maturities greater than seven days shall
be considered illiquid securities.
12. Make additional investments if the Fund's borrowings exceed 5% of its
total assets.
13. Purchase securities of other investment companies except in connection
with a merger, consolidation, acquisition, reorganization or offer of exchange,
or as otherwise permitted under the 1940 Act.
Notwithstanding paragraphs numbered 1, 7, 8, 9 and 10, the Fund has no
present intention of engaging in transactions involving futures contracts and
options on futures contracts or of entering into short sales and short sales
"against the box," and will not do so until approved by the Fund's Board and
upon appropriate notice to investors.
If a percentage restriction (other than the percentage limitation set forth
in No. 1 above) is adhered to at the time of an investment, a later increase or
decrease in the percentage of assets resulting from a change in the values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
-12-
<PAGE>
DIRECTORS AND OFFICERS
The names (and ages) of the Fund's Directors and officers, their addresses,
present positions and principal occupations during the past five years and other
affiliations are set forth below. The Board of Directors is responsible for
managing the business affairs of the Fund.
<TABLE>
<CAPTION>
NAME, ADDRESS, AGE POSITION(S) HELD OCCUPATIONS DURING THE PAST FIVE YEARS
- ------------------ ---------------- --------------------------------------
<S> <C> <C>
Mark A. Boyar (55)* Chairman and President and Director of Boyar Asset
35 East 21 Street Chief Executive Officer Management, Inc.; President of Mark
New York, New York 10010 Boyar & Company, Inc.; Manager and
Member of Ebbets Field Association LLC;
Chairman and General Partner of Boyar
Partners L.P.; Chairman of N.R.M.B.
Management, Inc.
Jay R. Petschek (41)* President, Treasurer, President of LTFM; President and
590 Madison Avenue and Director Director Chief Financial Officer of
New York, New York 10012 Ladenburg Thalmann Asset Management
Inc.; Senior Managing Director, Director
of Investment Policy and Director of
Ladenburg Thalmann & Co., Inc.;
President of Corsair Management Company
Inc.; General Partner of Corsair Capital
Partners L.P.
Henry A. Alpert (52) Director President of Spartan Petroleum Corp.;
1158 Broadway Director of Griffon Corp.
Hewlett, New York 10010
A.F. Petrocelli (56) Director Chairman, President, CEO and Director of
United Capital Corp. United Capital Corp.; Director of
9 Park Place, 4th Floor Philips International Realty Corp.;
Great Neck, New York 11021 Director of Nathan's Famous, Inc.;
Director of Prime Hospitality Corp.;
Director of Metex Corporation; Director
of Dorne & Margolin, Inc.
Jeffrey S. Silverman (55) Director Chairman of LTS Capital Partners;
777 Third Avenue Chairman and CEO of Ply Gem Industries,
New York, New York 10017 Inc.; Director of Catalina Lighting
since June 1997; Director of Realco.
Richard Finkelstein (50) Director Vice President of Kenco Management, Inc.
1000 Clint Moore Road, & Affiliates.
Suite 110
Boca Raton, Florida 33487
Tina D. Hosking (31) Secretary Vice President and Associate
312 Walnut Street General Counsel of Integrated Fund
Cincinnati, Ohio 45202 Services, Inc. and IFS Fund Distributors,
Inc. She is also Secretary of The New
York State Opportunity Funds, the
Atalanta/Sosnoff Investment Trust and
Albemarle Investment Trust, and the
Assistant Secretary of The Gannett Welsh &
Kotler Funds, The Westport Funds, Wells
Family of Real Estate Funds, UC
Investment Trust, The James Advantage
Funds, Lake Shore Family of Funds and
the Bjurman Funds.
</TABLE>
- -------------------------
* Indicates an "interested person" of the Fund under Section 2(a)(19) of the
1940 Act.
-13-
<PAGE>
No employee of the Manager, the Adviser or any of their respective
affiliates will receive any compensation from the Fund for acting as an officer
or director of the Fund. Each other Director will receive an annual fee of
$3,000, and $500 for each meeting of the Board attended by him for his services
as Director and will be reimbursed for expenses incurred in connection with his
attendance at Board meetings.
DIRECTORS' COMPENSATION
- -----------------------
Name of Director Total Compensation from Fund+
- ---------------- ----------------------------
Mark A. Boyar None
Jay R. Petschek None
Jeffrey S. Silverman $4,500
Henry A. Alpert $4,500
A.F. Petrocelli $4,500
Richard Finkelstein $4,500
+ Amounts shown are payments made in the fiscal year ending December 31,
1999. All of the Directors have elected to receive their payment in shares
of the Fund. The Fund does not pay any retirement benefits to the Directors
for their service.
THE MANAGER
Ladenburg Thalmann Fund Management Inc. (the "Manager") serves as manager
of the Fund pursuant to a Management Agreement. The services provided by, and
the fees payable by the Fund to, the Manager under the Management Agreement are
described in the Prospectus. The fees are calculated at an annual rate based on
a percentage of the Fund's average daily net assets. See "Management of the
Fund" in the Prospectus. For the fiscal periods ended December 31, 1998 and 1999
the Manager voluntarily waived its management fees of $3,741 and $16,780,
respectively and reimbursed the Fund for $78,578 and $85, 232, respectively of
other operating expenses.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including fees and expenses in connection with membership in investment
company organizations, brokerage fees and commission, legal, auditing and
accounting expenses, expenses of registering shares under federal and state
securities laws, insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Directors who are not
interested persons of the Fund, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, such as litigation to which the Fund may be
a party. The Fund may have an obligation to indemnify the Fund's officers and
Directors with respect to such litigation, except in instances of willful
misfeasance, bad faith, gross negligence or reckless
-14-
<PAGE>
disregard by such officers and Directors in the performance of their duties. The
Manager bears promotional expenses in connection with the distribution of the
Fund's shares to the extent that such expenses are not assumed by the Fund under
its 12b-1 Plan (see below). The compensation and expenses of any officer,
Director or employee of the Fund who is an officer, director or employee of the
Manager are paid by the Manager.
By its terms, the Fund's Management Agreement will remain in force from
year to year, subject to annual approval by (a) the Board of Directors or (b) a
vote of the majority of the Fund's outstanding voting securities; provided that
in either event continuance is also approved by a majority of the Directors who
are not interested persons of the Fund, by a vote cast in person at a meeting
called for the purpose of voting on such approval. The Fund's Management
Agreement may be terminated at any time, on sixty days' written notice, without
the payment of any penalty, by the Board of Directors, by a vote of the majority
of a Fund's outstanding voting securities, or by the Manager. The Management
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder.
Ladenburg Thalmann Asset Management, Inc. ("LTAM") owns 50% of the
outstanding securities of the Manager. LTAM is a wholly owned subsidiary of
Ladenburg Thalmann & Co. Inc., a registered broker-dealer which is a member of
all principal exchanges, including the NYSE since 1876. Ladenburg Thalmann & Co.
Inc. is a wholly owned subsidiary of Ladenburg Thalmann Group Inc. An entity
controlled by Mark A. Boyar, Ebbets Field Association LLC, holds the other 50%
of the outstanding voting securities of the Manager. The principal business
address of the Manager is 590 Madison Avenue, New York, New York 10022.
THE INVESTMENT ADVISER
Boyar Asset Management, Inc. (the "Adviser") serves as investment adviser
to the Fund pursuant to an Investment Advisory Agreement. The services provided
by, and the fees payable by the Fund to, the Adviser under the Investment
Advisory Agreement are described in the Prospectus. These fees are calculated at
an annual rate based on a percentage of the Fund's average daily net assets. See
"Management of the Fund" in the Prospectus. For the fiscal period ended December
31, 1998 and 1999, the Adviser voluntarily waived its investment advisory fees
of $3,741 and $16,780, respectively.
By its terms, the Fund's Advisory Agreement will remain in force from year
to year, subject to annual approval by (a) the Board of Directors or (b) a vote
of the majority of the Fund's outstanding voting securities; provided that in
either event continuance is also approved by a majority of the Directors who are
not interested persons of the Fund, by a vote cast in person at a meeting called
for the purpose of voting on such approval. The Fund's Advisory Agreement may be
terminated at any time, on sixty days' written notice, without the payment of
any penalty, by the Board of Directors, by a vote of the majority of a Fund's
outstanding voting securities, or by the Adviser. The Advisory Agreement
automatically terminates in the event of its assignment, as defined by the 1940
Act and the rules thereunder.
The name "Boyar" is a property right of the Adviser. The Adviser may use
the name "Boyar" in other connections and for other purposes, including in the
name of other investment companies. The Fund has agreed to discontinue any use
of the name "Boyar" if the Adviser ceases to be employed as the Fund's
investment adviser.
-15-
<PAGE>
The Adviser is an affiliate of Mark Boyar & Co., a broker-dealer registered
with the SEC. The Adviser's principal business address is 35 East 21st Street,
New York, New York 10010. Mark A. Boyar, Chairman and Chief Executive Officer of
the Fund, is a controlling person of the Adviser and Mark Boyar & Co.
THE DISTRIBUTOR
Ladenburg Thalmann & Co. Inc. (the "Distributor"), an affiliate of the
Manager, is the principal underwriter of the Fund as, as such, the exclusive
agent for distribution of shares of the Fund. The Distributor is obligated to
sell the shares on a best efforts basis only against purchase orders for the
shares. Shares of the Fund are offered to the public on a continuous basis.
The Distributor may compensate dealers based on the average balance of all
accounts in the Fund for which the dealer is designated as the party responsible
for the account. See "Distribution and Shareholder Servicing Plan" below. For
the fiscal period ended December 31, 1998, the Distributor received and waived
fees of $1,871 pursuant to the Plan and for the fiscal year ended December 31,
1999, the Fund incurred and subsequently waived $8,360 of distribution expenses
under the Plan.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Fund has entered into a Shareholder Servicing and Distribution Plan
(the "12b-1 Plan"), pursuant to Rule 12b-1 under the 1940 Act, pursuant to which
the Fund will pay the Distributor, a fee calculated at an annual rate of .25% of
the average daily net assets of the Fund. Services performed by the Distributor
include (i) ongoing servicing and/or maintenance of the accounts of shareholders
of the Fund, as set forth in the 12b-1 Plan ("Shareholder Services"), and (ii)
sub-transfer agency services, subaccounting services or administrative services
related to the sale of Shares, as set forth in the 12b-1 Plan ("Administrative
Services" and collectively with Shareholder Services, "Services") including,
without limitation, (a) payments reflecting an allocation of overhead and other
office expenses of the Distributor related to providing Services; (b) payments
made to, and reimbursement of expenses of, persons who provide support services
in connection with the distribution of Shares including, but not limited to,
office space and equipment, telephone facilities, answering routine inquiries
regarding the Fund, and providing any other Shareholder Services; (c) payments
made to compensate selected dealers or other authorized persons for providing
any Services; (d) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective shareholders of
the Fund; and (e) costs involved in obtaining whatever information, analyses and
reports with respect to service activities that the Fund may, from time to time,
deem advisable.
For the fiscal period ended December 31, 1998, the Distributor received and
subsequently waived fees of $1,871 pursuant to the 12b-1 Plan. For the fiscal
year ended December 31, 1999, the Distributor received and subsequently waived
fees of $8,360 pursuant to the 12b-1 Plan. Under the 12b-1 Plan, the Distributor
is compensated regardless of whether it incurs any distribution expenses on
behalf of the Fund.
Pursuant to the 12b-1 Plan, the Distributor provides the Board, at least
quarterly, with reports of amounts expended under the 12b-1 Plan and the purpose
for which the expenditures were made. The 12b-1 Plan will continue in effect for
so long as their continuance is specifically approved at least annually by the
Board, including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the 12b-1 Plan ("Independent Directors"). Any material amendment of the 12b-1
Plan would require the approval of the Board in the manner described above. The
12b-1 Plan may not be amended to increase materially the amount to be
-16-
<PAGE>
spent thereunder without shareholder approval. The 12b-1 Plan may be terminated
at any time, without penalty, by vote of a majority of the Independent Directors
or by a vote of a majority of the outstanding voting securities of the Fund.
SECURITIES TRANSACTIONS
The Adviser is responsible for establishing, reviewing and, where
necessary, modifying the Fund's investment program to achieve its investment
objective. Purchases and sales of newly issued portfolio securities are usually
principal transactions without brokerage commissions effected directly with the
issuer or with an underwriter acting as principal. Other purchases and sales may
be effected on a securities exchange or over-the-counter, depending on where it
appears that the best price or execution will be obtained. The purchase price
paid by the Fund to underwriters of newly issued securities usually includes a
concession paid by the issuer to the underwriter, and purchases of securities
from dealers, acting as either principals or agents in the after market, are
normally executed at a price between the bid and asked price, which includes a
dealer's mark-up or mark-down. Transactions on U.S. stock exchanges and some
foreign stock exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of transactions may
vary among different brokers. On most foreign exchanges, commissions are
generally fixed. There is generally no stated commission in the case of
securities traded in domestic or foreign over-the-counter markets, but the price
of securities traded in over-the-counter markets includes an undisclosed
commission or mark-up. U.S. government securities are generally purchased from
underwriters or dealers, although certain newly issued U.S. government
securities may be purchased directly from the U.S. Treasury or from the issuing
agency or instrumentality.
The Adviser will select specific portfolio investments and effect
transactions for the Fund and in doing so seeks to obtain the overall best
execution of portfolio transactions. In evaluating prices and executions, the
Adviser will consider the factors it deems relevant, which may include the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of a broker or dealer and the reasonableness
of the commission, if any, for the specific transaction and on a continuing
basis. All orders for transactions in securities and options on behalf of the
Fund are placed with broker-dealers selected by the Adviser. Affiliates of the
Manager or the Adviser may serve as the Fund's broker in effecting portfolio
transactions on national securities exchanges and retain commissions in
accordance with certain regulations of the SEC.
The Adviser may, in its discretion, effect transactions in portfolio
securities with dealers (other than the Adviser, the Manager and their
affiliates) who provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the Fund
and/or other accounts over which the Adviser exercises investment discretion.
The Adviser may place portfolio transactions with a broker or dealer with whom
it has negotiated a commission that is in excess of the commission another
broker or dealer would have charged for effecting the transaction if the Adviser
determines in good faith that such amount of commission was reasonable in
relation to the value of such brokerage and research services provided by such
broker or dealer viewed in terms of either that particular transaction or of the
overall responsibilities of the Adviser. Research and other services received
may be useful to the Adviser in serving both the Fund and its other clients and,
conversely, research or other services obtained by the placement of business of
other clients may be useful to the Adviser in carrying out its obligations to
the Fund. Research may include furnishing advice, either directly or through
publications or writings, as to the value of securities, the advisability of
purchasing or selling specific securities and the availability of securities or
purchasers or sellers of securities; furnishing seminars, information, analyses
and reports concerning issuers, industries, securities, trading
-17-
<PAGE>
markets and methods, legislative developments, changes in accounting practices,
economic factors and trends and portfolio strategy; access to research analysts,
corporate management personnel, industry experts and economists; comparative
performance evaluation and technical measurement services and quotation
services; and products and other services (such as third party publications,
reports and analyses, and computer and electronic access, equipment, software,
information and accessories that deliver, process or otherwise utilize
information, including the research described above) that assist the Adviser in
carrying out its responsibilities. Research received from brokers or dealers is
supplemental to the Adviser's own research program. The fees to the Adviser
under its advisory agreement with the Fund are not reduced by reason of its
receiving any brokerage and research services. Since the Adviser and the Manager
are obligated to provide management, which includes elements of research and
related skills, such research and related skills will not be used by the Adviser
or the Manager (or their affiliates) for negotiating commissions at a rate
higher than that determined in accordance with the above criteria.
Investment decisions for the Fund concerning specific portfolio securities
are made independently from those for other clients advised by the Adviser. Such
other investment clients may invest in the same securities as the Fund. When
purchases or sales of the same security are made at substantially the same time
on behalf of such other clients, transactions are averaged as to price and
available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to each client, including the Fund. In some instances,
this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold for the Fund. To the extent
permitted by law, securities to be sold or purchased for the Fund may be
aggregated with those to be sold or purchased for such other investment clients
in order to obtain best execution.
During the fiscal period ended December 31, 1998, the Fund paid brokerage
commissions of $5,095. For the fiscal year ended December 31, 1999, the Fund
paid brokerage commissions of $4,892.
Any portfolio transaction for the Fund on a securities exchange may be
executed through the Distributor or Mark Boyar & Company, Inc. ("Mark Boyar &
Co."), an affiliate of the Adviser, if, in the Adviser's judgment, the use of
the Distributor or an affiliate of the Adviser is likely to result in price and
execution at least as favorable as those of other qualified brokers, and if, in
the transaction, the Distributor or an affiliate of the Adviser charges the Fund
a commission rate consistent with those charged by the Distributor or an
affiliate of the Adviser to comparable unaffiliated customers in similar
transactions. All transactions with affiliated brokers will comply with Rule
17e-1 under the 1940 Act. During the fiscal period ended December 31, 1998, the
Distributor executed 100% of the Fund's portfolio transactions, for which the
Distributor received aggregate commissions of $5,095. For the fiscal period
ended December 31, 1999, the Distributor executed 100% of the Fund's portfolio
transaction, for the which the Distributor received aggregate commissions of
$4,892.
In no instance will portfolio securities be purchased from or sold to the
Manager, the Adviser or the Distributor or any affiliated person of such
companies. In addition, the Fund will not give preference to any institutions
with whom the Fund enters into distribution or shareholder servicing agreements
concerning the provision of distribution services or support services.
Transactions for the Fund may be effected on foreign securities exchanges.
In transactions for securities not actively traded on a foreign securities
exchange, the Fund will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and do
not normally involve brokerage commissions. Securities firms may receive
brokerage commissions on certain portfolio transactions, including options,
futures and
-18-
<PAGE>
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options.
The Fund may participate, if and when practicable, in bidding for the
purchase of securities for the Fund's portfolio directly from an issuer in order
to take advantage of the lower purchase price available to members of such a
group. The Fund will engage in this practice, however, only when the Adviser, in
its sole discretion, believes such practice to be otherwise in the Fund's
interest.
CODE OF ETHICS
The Fund and the Adviser have each adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act of 1940. The Code significantly restricts
the personal investing activities of all employees of the Adviser and, as
described below, imposes additional, more onerous, restrictions on investment
personnel of the Adviser. The Code requires that all employees of the Adviser
preclear any personal securities transactions (with limited exceptions, such as
U.S. Government obligations). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition or limitation
applicable to the proposed investment. In addition, no employee may purchase or
sell any security which, at that time, is being purchased or sold (as the case
may be), or to the knowledge of the employee is being considered for purchase or
sale, by the Fund. The substantive restrictions applicable to investment
personnel of the Adviser include a ban on acquiring any securities in an initial
public offering. Furthermore, the Code provides for trading "blackout periods"
which prohibit trading by investment personnel of the Adviser within periods of
trading by the Fund in the same (or equivalent) security.
The Manager and the Underwriter have each adopted a Code of Ethics, under
the Investment Company Act of 1940, which restricts the trading activities of
all access persons and investment personnel. The Code recognizes that neither
the Manager nor the Underwriter will exercise any authority over specific
investment decisions made on behalf of the Fund and, under normal circumstances,
will not obtain current information regarding the purchase or sale of a security
by the Fund or recommendations made to the Fund concerning the purchase or sale
of a security. The Code requires each access person to arrange for the
Compliance Officer to receive directly from the broker-dealer effecting a
transaction in any security in which such access person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership interest,
duplicate copies of each confirmation for each securities transaction and
periodic account statements for each brokerage account in which such access
person has any beneficial ownership interest. The Code prohibits an access
person from purchasing or selling a security if it is known that the Fund is
considering purchasing or selling the security. In addition, investment
personnel shall not purchase during the underwriting of a security which, due to
its public demand, is considered a "hot issue." Furthermore, investment
personnel must receive prior authorization from the Compliance Officer before
acquiring a security in a private placement.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. The Adviser anticipates that the portfolio turnover rate for the Fund
normally will not exceed 50%. A 100% turnover rate would occur if all of the
Fund's portfolio securities were replaced once within a one year period.
Generally, the Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate. For the fiscal period ended December 31, 1998, the Fund's
portfolio turnover rate was 0%. For the fiscal year ended December 31, 1999, the
Fund's portfolio turnover rate was 8%.
CALCULATION OF SHARE PRICE
The public offering price (net asset value plus applicable sales load) of
the shares of the Fund is determined as of the close of the regular session of
trading on the New York Stock Exchange ("NYSE") (generally 4:00 p.m., Eastern
time) on each business day, except on days when the NYSE is closed. The NYSE is
currently scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively.
The Fund's portfolio securities are valued as follows: (1) securities which
are traded on stock exchanges or are quoted on the Nasdaq National Market are
valued at the last reported sale price as of the close of the regular session of
trading on the New York Stock Exchange on the day the securities are being
valued, or, if not traded on a particular day, at the closing bid price, (2)
securities traded in the over-the-counter market, and which are not quoted by
Nasdaq National Market, are valued at the last sale price (or, if the last sale
price is not readily available, at the last bid price as quoted by brokers that
make markets in the securities) as of the close of the regular session of
trading on the New York Stock Exchange on the day the securities are being
valued, (3) securities which are traded both in the over-the-counter market and
on a stock exchange are valued according to the broadest and most representative
market, and (4) securities (and other assets) for which market quotations are
not readily available are valued at their fair value as determined in good faith
in accordance with consistently applied procedures established by and under the
general supervision of the Board of Directors. The net asset value per share of
the Fund will fluctuate with the value of the securities it holds.
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<PAGE>
Trading in securities in certain foreign countries is completed at various
times prior to the close of business on each business day in New York (i.e., a
day on which the NYSE is open for trading). In addition, securities trading in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and days on which the Fund's net asset value
is not calculated. As a result, calculation of the Fund's net asset value may
not take place contemporaneously with the determination of the prices of certain
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined and
the close of regular trading on the NYSE will not be reflected in the Fund's
calculation of net asset value unless the Board or its delegates deems that the
particular event would materially affect net asset value, in which case an
adjustment may be made. All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the
prevailing rate as quoted by a pricing service. If such quotations are not
available, the rate of exchange will be determined in good faith pursuant to
consistently applied procedures established by the Board.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The public offering price of the Fund's shares is equal to the per share
net asset value of the shares plus the applicable sales load of the Fund.
Information on how to purchase and redeem Fund shares and how such shares are
priced is included in the Prospectus. The Prospectus describes generally how to
purchase shares of the Fund. Additional information with respect to certain
types of purchases of shares of the Fund is set forth below.
RIGHT OF ACCUMULATION. You have the right to combine the cost or current
net asset value (whichever is higher) of your existing shares of the Fund with
the amount of your current purchases in order to take advantage of the reduced
sales loads set forth in the tables in the Prospectus. You or your dealer must
notify the Transfer Agent that an investment qualifies for a reduced sales load.
The reduced sales load will be granted upon confirmation of the your holdings by
the Transfer Agent.
LETTER OF INTENT. If you submit a Letter of Intent to the Transfer Agent
you may be entitled to purchase Fund shares at a reduced sales load. The Letter
must state an intention to invest in the Fund within a thirteen month period a
specified amount which, if made at one time, would qualify for a reduced sales
load. A Letter of Intent may be submitted with a purchase at the beginning of
the thirteen month period or within ninety days of the first purchase under the
Letter of Intent. Upon acceptance of this Letter, the purchaser becomes eligible
for the reduced sales load applicable to the level of investment covered by such
Letter of Intent as if the entire amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Fund to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. The amount held in escrow will be invested in Fund shares. These
shares will be released upon the completion of the intended investment. If the
Letter of Intent is not completed during the thirteen month period, the
applicable sales load will be adjusted by the redemption of sufficient shares
held in escrow, depending upon the amount actually purchased during the period.
The minimum initial investment under a Letter of Intent is $10,000.
A ninety-day backdating period can be used to include earlier purchases at
the purchaser's cost (without a retroactive downward adjustment of the sales
load). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. You or your
dealer must notify the Transfer Agent that an investment is being made pursuant
to an executed Letter of Intent.
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<PAGE>
Other Information. The Fund does not impose a sales load or imposes a
reduced sales load in connection with purchases of shares of the Fund made under
the reinvestment privilege or the purchases described in the "Reduced Sales
Load" or "Purchases at Net Asset Value" sections in the Prospectus because such
purchases require minimal sales effort by the Underwriter. Purchases described
in the "Purchases at Net Asset Value" section may be made for investment only,
and the shares may not be resold except through redemption by or on behalf of
the Fund.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit.
If the Board determines that conditions exist which make payment of
redemption proceeds wholly in cash unwise or undesirable, the Fund may make
payment wholly or partly in securities or other investment instruments which may
not constitute securities as such term is defined in the applicable securities
laws. If a redemption is paid wholly or partly in securities or other property,
a shareholder would incur transaction costs in disposing of the redemption
proceeds.
TAXES
The following is a summary of the material federal income tax
considerations regarding the purchase, ownership and disposition of shares in
the Fund. Each prospective shareholder is urged to consult his own tax adviser
with respect to the specific federal, state, local and foreign tax consequences
of investing in the Fund. The summary is based on the laws in effect on the date
of this Statement of Additional Information, which are subject to change.
The Fund intends to qualify to be treated as a regulated investment company
each taxable year under the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, the Fund must, among other things: (a) derive at least
90% of its gross income in each taxable year from dividends, interest, payments
with respect to securities, loans and gains from the sale or other disposition
of stock or securities or foreign currencies, or 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 and
(b) diversify its holdings so that, at the end of each quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, securities of other regulated investment companies, United
States government securities and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
Fund's assets and not greater than 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its assets is invested in
the securities (other than United States government securities or securities of
other regulated investment companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to be engaged in the same or
similar trades or businesses or related trades or businesses. The Fund expects
that all of its foreign currency gains will be directly related to its principal
business of investing in stocks and securities.
As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its net realized long- and
short-term capital gains, if any, that it distributes to its shareholders,
provided that an
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<PAGE>
amount equal to at least 90% of the sum of its investment company taxable income
(i.e., 90% of its taxable income minus the excess, if any, of its net realized
long-term capital gains over its net realized short-term capital losses
(including any capital loss carryovers), plus or minus certain other adjustments
as specified in the Code) and its net tax-exempt income for the taxable year is
distributed, but will be subject to tax at regular corporate rates on any
taxable income or gains that it does not distribute. Furthermore, the Fund will
be subject to corporate income tax with respect to such distributed amounts in
any year that it fails to qualify as a regulated investment company or fails to
meet this distribution requirement. Any dividend declared by the Fund in
October, November or December of any calendar year and payable to shareholders
of record on a specified date in such a month shall be deemed to have been
received by each shareholder on December 31 of such calendar year and to have
been paid by the Fund not later than such December 31, provided that such
dividend is actually paid by the Fund during January of the following calendar
year.
The Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of the Fund
will determine annually whether to distribute any net realized long-term capital
gains in excess of net realized short-term capital losses (including any capital
loss carryovers). The Fund currently expects to distribute any excess annually
to its shareholders. However, if the Fund retains for investment an amount equal
to all or a portion of its net long-term capital gains in excess of its net
short-term capital losses and capital loss carryovers, it will be subject to a
corporate tax on the amount retained. In that event, the Fund will designate
such retained amounts as undistributed capital gains in a notice to its
shareholders who (a) will be required to include in income for federal income
tax purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate shares
of the tax paid by the Fund on the undistributed amount against their federal
income tax liabilities, if any, and to claim refunds to the extent their credits
exceed their liabilities, if any, and (c) will be entitled to increase their tax
basis, for federal income tax purposes, in their shares by an amount equal to
65% of the amount of undistributed capital gains included in the shareholder's
income. Organizations or persons not subject to federal income tax on such
capital gains will be entitled to a refund of their pro rata share of such taxes
paid by the Fund upon filing appropriate returns or claims for refund with the
Internal Revenue Service (the "IRS").
The Code imposes a 4% nondeductible excise tax on the Fund to the extent
the Fund does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its capital
gains (both long-and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any income or gain
retained by the Fund that is subject to corporate income tax will be considered
to have been distributed by year-end. In addition, the minimum amounts that must
be distributed in any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or overdistribution, as the case may
be, from the previous year. The Fund anticipates that it will pay such dividends
and will make such distributions as are necessary in order to avoid the
application of this tax.
With regard to the Fund's investments in foreign securities, exchange
control regulations may restrict repatriations of investment income and capital
or the proceeds of securities sales by foreign investors such as the Fund and
may limit the Fund's ability to pay sufficient dividends and to make sufficient
distributions to satisfy the 90% and excise tax distribution requirements.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or
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<PAGE>
accumulated earnings and profits would constitute dividends (eligible for the
corporate dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at least in
part) have been treated in the shareholders' hands as long-term capital gains.
If the Fund fails to qualify as a regulated investment company in any year, it
must pay out its earnings and profits accumulated in that year in order to
qualify again as a regulated investment company. In addition, if the Fund failed
to qualify as a regulated investment company for a period greater than one
taxable year, the Fund may be required to recognize any net built-in gains (the
excess of the aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
The Fund's short sales against the box, if any, and transactions in foreign
currencies, forward contracts, options and futures contracts (including options
and futures contracts on foreign currencies) will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and timing
of distributions to shareholders. These provisions also (a) will require the
Fund to mark-to-market certain types of the positions in its portfolio (i.e.,
treat them as if they were closed out) and (b) may cause the Funds to recognize
income without receiving cash with which to pay dividends or make distributions
in amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and
records when it acquires any foreign currency, forward contract, option, futures
contract or hedged investment in order to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
Passive Foreign Investment Companies. If the Fund purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to federal income tax on a portion of
any "excess distribution" or gain from the disposition of such shares even if
such income is distributed as a taxable dividend by the Fund to its
shareholders. Additional charges in the nature of interest may be imposed on the
Fund in respect of deferred taxes arising from such distributions or gains. Any
tax paid by the Fund as a result of its ownership of shares in a PFIC will not
give rise to any deduction or credit to the Fund or any shareholder. If the Fund
were to invest in a PFIC and elected to treat the PFIC as a "qualified electing
fund" under the Code, in lieu of the foregoing requirements, the Fund might be
required to include in income each year a portion of the ordinary earnings and
net capital gains of the qualified election fund, even if not distributed to the
Fund, and such amounts would be subject to the 90% and excise tax distribution
requirements described above. In order to make this election, the Fund would be
required to obtain certain annual information from the passive foreign
investment companies in which it invests, which may be difficult or not possible
to obtain.
Recently, legislation was enacted that provides a mark-to-market election
for regulated investment companies effective for taxable years beginning after
December 31, 1997. This election would result in the Fund being treated as if it
had sold and repurchased all of the PFIC stock at the end of each year. In this
case, the Fund would report gains as ordinary income and would deduct losses as
ordinary losses to the extent of previously recognized gains. The election, once
made, would be effective for all subsequent taxable years of the Fund, unless
revoked with the consent of the IRS. By making the election, the Fund could
potentially ameliorate the adverse tax consequences with respect to its
ownership of shares in a PFIC, but in any particular year may be required to
recognize income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock. The Fund may have to
distribute this "phantom" income and gain to satisfy its distribution
requirement and to avoid imposition of the 4% excise tax. The Fund will make the
appropriate tax elections, if possible, and take any additional steps that are
necessary to mitigate the effect of these rules.
-23-
<PAGE>
Dividends and Distributions. Dividends of net investment income and
distributions of net realized short-term capital gains are taxable to a United
States shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that the Fund designates
as capital gains dividends are taxable as long-term capital gains, whether paid
in cash or in shares and regardless of how long a shareholder has held shares of
the Fund. Dividends and distributions paid by the Fund (except for the portion
thereof, if any, attributable to dividends on stock of U.S. corporations
received by the Fund) will not qualify for the deduction for dividends received
by corporations. Distributions in excess of the Fund's current and accumulated
earnings and profits will, as to each shareholder, be treated as a tax-free
return of capital, to the extent of a shareholder's basis in his shares of the
Fund, and as a capital gain thereafter (if the shareholder holds his shares of
the Fund as capital assets).
Shareholders receiving dividends or distributions in the form of additional
shares should be treated for federal income tax purposes as receiving a
distribution in the amount equal to the amount of money that the shareholders
receiving cash dividends or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
such dividend or distribution may nevertheless be taxable to them.
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
Sales of Shares. Upon the sale of his shares, a shareholder will realize a
taxable gain or loss equal to the difference between the amount realized and his
basis in his shares. Such gain or loss will be treated as capital gain or loss,
if the shares are capital assets in the shareholder's hands, and will be
long-term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less. Any
loss realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced, including replacement through the reinvesting of
dividends and capital gains distributions in the Fund, within a 61-day period
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a shareholder on the sale of a Fund
share held by the shareholder for six months or less will be treated for federal
income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the
shareholder with respect to such share.
Foreign Taxes. Income received by the Fund from non-U.S. sources may be
subject to withholding and other taxes imposed by other countries. Because it is
not expected that more than 50 percent of the value of the Fund's total assets
at the close of its taxable year will consist of stock and securities of
non-U.S. corporations, it is not expected that the Fund will be eligible to
elect to "pass through" to the Fund's shareholders the amount of foreign income
and similar taxes paid by the Fund. In the absence of such an election, the
foreign taxes paid by the Fund will reduce its investment company taxable
income, and distributions of investment company taxable income received by the
Fund from non-U.S. sources will be treated as United States source income.
-24-
<PAGE>
Backup Withholding. The Fund may be required to withhold, for federal
income tax purposes, 31% of the dividends and distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be credited against a shareholder's
federal income tax liabilities.
Notices. Shareholders will be notified annually by the Fund as to the
federal income tax status of the dividends, distributions and deemed
distributions attributable to undistributed capital gains made by the Fund to
its shareholders. Furthermore, shareholders will also receive, if appropriate,
various written notices after the close of the Fund's taxable year regarding the
federal income tax status of certain dividends, distributions and deemed
distributions that were paid (or that are treated as having been paid) by the
Fund to its shareholders during the preceding taxable year.
Other Taxation. Distributions also may be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM
OF AN INVESTMENT IN THE FUND.
HISTORICAL PERFORMANCE INFORMATION
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, 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
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions. As of December 31, 1999, the Fund's average annual
one year return was 8.53% and average annual return for the Fund since inception
(May 5, 1998) was 3.49%.
The Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A nonstandardized quotation may
also
-25-
<PAGE>
indicate average annual compounded rates of return over periods other than those
specified for average annual total return. A non-standardized quotation of total
return will always be accompanied by the Fund's average annual total return as
described above. The Fund's total returns (excluding the effect of the
applicable sales load) for the periods ended December 31, 1999 are as follows:
one year 14.24%; since inception 6.73%.
From time to time, the Fund may advertise its yield. A yield quotation is
based on a 30-day (or one month) period and is 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/cd + 1) - 1]
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
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivables-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The performance quotations described above are based on historical earnings
and are not intended to indicate future performance.
From time to time the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, FORTUNE or MORNINGSTAR MUTUAL FUND VALUES. The Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index, the Russell 2000 Index, the NASDAQ Composite Index and the Value
Line Composite Index. In connection with a ranking, the Funds may provide
additional information, such as the particular category of funds to which the
ranking relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of fee waivers and/or expense
reimbursements, if any. The Funds may also present their performance and other
investment characteristics, such as volatility or a temporary defensive posture,
in light of the Adviser's view of current or past market conditions or
historical trends.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of
-26-
<PAGE>
such averages may not be identical to the formula used by the Fund to calculate
its performance. In addition, there can be no assurance that the Fund will
continue this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
As of April 14, 2000, Weiss, Peck & Greer LLC, 1 New York Plaze, 31st
Floor, New York, New York 10004, owned of record 27.09% of the outstanding
shares of the Fund. Weiss, Peck & Greer LLC, a New York limited liability
company, may be deemed to control the Fund; Hallman & Lorber Assoc Inc Profit
Sharing Plan, Howard M. Lorber TTEE, 70 Sunrise Hwy, Valley Stream, New York
11581; and List Inc, 320 Northern Blvd Ste 14, Great Neck, New York 11021. For
purposes of voting on matters submitted to shareholders, any person who owns
more than 50% of the outstanding shares of the Fund would be able to cast the
deciding vote.
As of April 14, 2000, the Directors and officers of the Fund as a group
owned of record or beneficially 9.6345% of the outstanding shares of the Fund.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio, has been retained
to act as Custodian for the Fund's investments. Star Bank acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
AUDITORS AND COUNSEL
The firm of Ernst & Young LLP, with principal offices at 1300 Chiquita
Center, Cincinnati, Ohio, has been selected as independent public accountants
for the Fund for the fiscal year ending December 31, 1999. Ernst & Young
performs an annual audit of the Fund's financial statements and advised the Fund
as to certain accounting matters.
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, 02109, serves as
counsel for the Fund as well as counsel to the Manager and the Distributor.
INTEGRATED FUND SERVICES, INC.
The Fund's transfer agent, Integrated Fund Services, Inc. ("Integrated"),
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. Integrated is a wholly-owned subsidiary of
the Western and Southern Life Insurance Company. Integrated receives for its
services as transfer agent a fee payable monthly at an annual rate of $18 per
account from the Fund, provided, however, that the minimum fee is $1,200 per
month. In addition, the Fund pays out-of-pocket expenses, including but not
limited to, postage, envelopes, checks, drafts, forms, reports, record storage
and communication lines.
-27-
<PAGE>
Integrated also provides accounting and pricing services to the Fund. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable Integrated to perform its duties, the Fund
pays Integrated a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
------------------ -----------
$ 0 - $ 50,000,000 $2,000
50 - 100,000,000 2,500
100 - 200,000,000 3,000
200 - 300,000,000 4,000
Over 300,000,000 5,000
In addition, the Fund pays all costs of external pricing services.
In addition, Integrated is retained to provide administrative services to
the Fund. In this capacity, Integrated supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. Integrated supervises the preparation of
tax returns, reports to shareholders of the Fund, reports to and filings with
the Securities and Exchange Commission and state securities commissions, and
materials for meetings of the Board of Directors. For the performance of these
administrative services, the Fund pays Integrated a fee at the annual rate of
.15% of the average value of its daily net assets up to $50,000,000, .125% of
such assets from $50,000,000 to $100,000,000 and .10% of such assets in excess
of $100,000,000; provided, however, that the minimum fee is $1,000 per month.
For the fiscal period ended December 31, 1998, Integrated received fees of
$9,600, $16,000 and $8,000 for transfer agent services, accounting and pricing
services and administrative services, respectively. For the fiscal year ended
December 31, 1999, Integrated received fees of $14,400, $24,000 and $12,000 for
transfer agent services, accounting and pricing services and administrative
services, respectively
ANNUAL REPORT
The Fund's financial statements as of December 31, 1999 appear in the
Fund's annual report, which is attached to this Statement of Additional
Information.
-28-
<PAGE>
================================================================================
BOYAR VALUE FUND, INC.
----------------------
ANNUAL REPORT
December 31, 1999
FUND MANAGER
------------
LADENBURG THALMANN FUND MANAGEMENT INC.
590 Madison Avenue
New York, NY 10022
INVESTMENT ADVISER ADMINISTRATOR
------------------ -------------
BOYAR ASSET MANAGEMENT, INC. COUNTRYWIDE FUND SERVICES, INC.
35 East 21st Street 312 Walnut Street
New York, NY 10010 P.O. Box 5354
1.212.995.8300 Cincinnati, OH 45201-5354
1.800.266.5566
================================================================================
<PAGE>
[LOGO]
BOYAR
VALUE FUND
----------
1/27/00
Dear Shareholder:
A LOOK BACK AT 1999
- -------------------
o In my Shareholder Letter dated February 22, 1999 I pointed out that
investors would be wise to reduce their expectations when it comes to the
returns they might be anticipating from the stock market during the next
few years. I continued by saying that "the 20% returns captured by the
leading stock market indices during the past four years were clearly
unsustainable." ... Well it only took 10 months to be proven wrong. All of
the leading indices advanced by at least 20%, with the NASDAQ sprinting
ahead by a spectacular 85%, a record increase for a stock market index
during a one-year period.
o These advances, however, were not as democratic as they appear. For
example, technology stocks now comprise 30% of the S&P 500 weighting ...
back out the increase in the S&P 500 Technology sector and the S&P 500
would have returned money market rates during 1999. Approximately 50% of
the stocks that form the S&P 500 Index were down for the year. Furthermore,
although the NASDAQ Index advanced 85% during 1999, nearly half of all
NASDAQ stocks actually fell in price last year.
o In addition, within the technology area, Internet stocks were clearly the
stellar performers, accounting for a significant portion of that sector's
gain. In our opinion, the stock market has valued the vast majority of
Internet related businesses at levels that have discounted almost
everything, including the hereafter. Our hunch is that at some point in
time a great many individuals that have invested in this sector will lose a
large amount of money.
o The increase in stock market speculation during 1999 also became more
apparent and troublesome for us. Margin debt was up 46.3% year over year,
and advanced $21 billion or 13.2% during the month of November. The
supercharged NASDAQ is turning over its shares at more than three times the
pace of any major industrialized market in the world. The trading in its
shares amounted to more than twice its entire share base; the turnover was
88 percent in 1990.
o While the data does not address different industries, some of the NASDAQ
stocks most popular with online investors trade furiously. The entire share
base of double-click, which specializes in Internet advertising, turned
over 21 times last year. Investors traded shares equal to 16 times those
available in CMGI, an incubator for Internet companies, and more than 13
times the shares of Amazon, the online retailer. In the 50 NASDAQ stocks
with the heaviest trading, investors held their shares for just three
weeks, on average.
A LOOK AHEAD
- ------------
o Since 1957 the Standard & Poor's 500 has risen nine times out of ten during
the fourth year of the four-year presidential cycle, through 1996, with an
average return of 10.7%.
o Since 2000 is a presidential election year whatever rate hikes the Fed has
in mind will most probably occur in the early part of the year. George Bush
still partially blames the Federal Reserve's failure to ease monetary
policy early enough for his defeat in the last presidential election.
o Assuming our suspicion is correct and interest rates do stabilize we
believe financial stocks could be a very rewarding sector during the year
2000. Remember, financial service stocks had quite a flurry when lawmakers
agreed to overhaul the financial system, repealing Depression-Era laws that
have restricted the banking,
<PAGE>
o securities and insurance industries from expanding into one another's
business. Since then higher interest rates have derailed the move.
o It is our belief that what worked well in the U.S. stock market during 1999
will disappoint in 2000. Stock picking will be of paramount importance, as
the leading U.S. stock market indices play second fiddle to the average
stock, something that has not occurred for a number of years.
FUND'S PERFORMANCE
- ------------------
o For the calendar year ended December 31, 1999 the Boyar Value Fund returned
14.24%. The fund's return on equity (return on stocks, exclusive of cash)
was 20.3%. Listed below are the comparative results for calendar 1999:
CALENDAR 1999 COMPARATIVE RESULTS
---------------------------------
RUSSELL RUSSELL MIDCAP RUSSELL 2000
BOYAR VALUE FUND 2000 INDEX VALUE VALUE INDEX
---------------- ---------- ----- -----------
+14.24% +21.26% -0.11% -1.49%
o The Fund continues its endeavor to be a tax efficient fund. During 1999 the
Fund did not realize any securities gains. Consequently, no taxes were
incurred, and our after tax return was precisely the same as our pre-tax
return or 14.24%.
o A number of factors negatively impacted the Fund's performance last year.
LARGE CASH POSITION
- -------------------
o A substantial amount of new money (relative to the size of the Fund) was
invested in Boyar Value Fund last year. Fund inflows approximated $1.3
million. Since it takes a fair amount of time to invest the cash, the
Fund's large cash position was only able to return money market rates,
which negatively impacted the Fund's overall performance.
o During 1999 value investing played second fiddle to growth investing.
Technology stocks were in vogue throughout the year, and within that sector
Internet stocks were the rage. Boyar Value Fund had no investments in that
sector.
BOYAR VALUE FUND'S PHILOSOPHY AND GOALS:
- ----------------------------------------
o The Boyar Value fund tends to buy the common shares of publicly traded
businesses that are selling in the market place at significant discounts to
our estimate of their intrinsic or private market value.
o Furthermore, a substantial number of the businesses that we invest in are
either not widely followed by the majority of Wall Street brokerage houses
or may have plummeted in value because they failed to meet analysts
earnings expectations.
o Purchasing out of favor companies may inhibit short-term performance, since
it may take some time for these companies to right themselves. On the other
hand it does create a "margin of safety," since most of these companies
have plummeted in value by such a margin that most of the downside risk has
been eliminated.
o Over an investment time horizon of three to five years, these undervalued
corporations often will be re-evaluated upward by the stock market or the
assets of the businesses may be acquired by a third party.
o By utilizing this long-term "Buy and Hold" strategy it allows capital to
compound without the return-eroding effect of commissions and capital gains
taxes. Such an orientation may sound stodgy, but we firmly believe this
approach is as important to investment success as picking the right stocks
at the right price and at the right time.
<PAGE>
o Since Boyar Value Fund will buy equity positions in businesses regardless
of their market capitalization it will be very difficult to compare its
performance to a particular index. Our goal is to return to investors over
a complete market cycle an absolute rate of return that is superior to the
stock market's total return over the past 60 years which approximates
10.65%.
If you have any questions do not hesitate to call (212)-995-8300.
Very truly yours,
/s/ Mark A. Boyar
Mark A. Boyar
Chief Investment Officer
<PAGE>
Comparison of the Change in Value of a $10,000 Investment in the
Boyar Value Fund, Inc., the Russell 2000 Index, the Russell 2000
Value Index and the Russell Midcap Value Index
12/99
-----
Boyar Value Fund, Inc. $11,143
Russell 2000 Index $10,702
Russell 2000 Value Index $ 8,463
Russell Midcap Value Index $ 9,586
------------------------
Boyar Value Fund, Inc.
Average Annual Total Return
1 Year Since Inception*
14.24% 6.73%
------------------------
*Commencement of operations was May 5, 1998.
Past performance is not predictive of future performance.
<PAGE>
BOYAR VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investment securities:
At acquisition cost $ 3,670,966
============
At market value (Note 1) $ 4,030,655
Interest receivable 3,749
Dividends receivable 2,588
Receivable for capital shares sold 18,000
Receivable from Adviser (Note 3) 20,899
Organization expenses, net (Note 1) 59,268
Other assets 9,781
------------
TOTAL ASSETS 4,144,940
------------
LIABILITIES
Payable to affiliates (Note 3) 4,200
Other accrued expenses and liabilities 6,096
------------
TOTAL LIABILITIES 10,296
------------
NET ASSETS $ 4,134,644
============
NET ASSETS CONSIST OF:
Paid-in capital $ 3,800,682
Distributions in excess of net investment income (149)
Accumulated net realized losses from security transactions (25,578)
Net unrealized appreciation on investments 359,689
------------
NET ASSETS $ 4,134,644
============
Shares of beneficial interest outstanding
(1,000,000,000 shares authorized, $0.001 par value) 372,838
============
Net asset value, offering price, and
redemption price per share (Note 1) $ 11.09
============
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
INVESTMENT INCOME
Dividends $ 21,550
Interest 42,318
---------
63,868
---------
EXPENSES
Accounting services fees (Note 3) 24,000
Directors' fees and expenses 18,000
Amortization of organization expenses (Note 1) 17,781
Investment advisory fees (Note 3) 16,781
Management fees (Note 3) 16,780
Insurance expense 16,200
Transfer agent fees (Note 3) 14,400
Administrative services fees (Note 3) 12,000
Custodian fees 8,639
Professional fees 8,385
Distribution expenses (Note 3) 8,360
Registration fees 5,304
Shareholder report costs 4,849
Postage and supplies 4,274
Other expenses 687
---------
TOTAL EXPENSES 176,440
Fees waived and expenses reimbursed (Note 3) (117,708)
---------
NET EXPENSES 58,732
---------
NET INVESTMENT INCOME 5,136
---------
REALIZED AND UNREALIZED GAINS/LOSSES ON INVESTMENTS
Net realized losses from security transactions (25,578)
Net change in unrealized appreciation on investments 372,929
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 347,351
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 352,487
=========
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended
December 31, December 31,
1999 1998 (a)
----------- -----------
FROM OPERATIONS
<S> <C> <C>
Net investment income $ 5,136 $ 4,938
Net realized gains/(losses) from security transactions (25,578) --
Net change in unrealized appreciation/(depreciation) on investments 372,929 (13,240)
----------- -----------
Net increase/(decrease) in net assets from operations 352,487 (8,302)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (5,136) --
In excess of net investment income (149) (4,938)
----------- -----------
Total distributions (5,285) (4,938)
----------- -----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 2,466,134 1,324,959
Net asset value of shares issued in
reinvestment of distributions to shareholders 5,072 4,409
Payments for shares redeemed (99,591) (301)
----------- -----------
Net increase in net assets from capital share transactions 2,371,615 1,329,067
----------- -----------
TOTAL INCREASE IN NET ASSETS 2,718,817 1,315,827
NET ASSETS
Beginning of period (Note 1) 1,415,827 100,000
----------- -----------
End of period $ 4,134,644 $ 1,415,827
=========== ===========
CAPITAL SHARE ACTIVITY
Sold 236,006 135,214
Reinvested 464 453
Redeemed (9,266) (33)
----------- -----------
Net increase in shares outstanding 227,204 135,634
Shares outstanding, beginning of period (Note 1) 145,634 10,000
----------- -----------
Shares outstanding, end of period 372,838 145,634
=========== ===========
</TABLE>
(a) Represents the period from the commencement of operations (May 5, 1998)
through December 31, 1998.
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share
Outstanding Throughout Each Period
<TABLE>
<CAPTION>
For the Year For the Period
Ended Ended
December 31, December 31,
1999 1998 (a)
------------ ------------
<S> <C> <C>
Net asset value at beginning of period $ 9.72 $ 10.00
------------ ------------
Income/(loss) from investment operations:
Net investment income 0.01 0.03
Net realized and unrealized gains/(losses) on investments 1.37 (0.28)
------------ ------------
Total income/(loss) from investment operations 1.38 (0.25)
------------ ------------
Less distributions:
From net investment income (0.01) (0.03)
------------ ------------
Net asset value at end of period $ 11.09 $ 9.72
============ ============
Total return 14.24% (2.46%)
============ ============
Net assets at end of period $ 4,134,644 $ 1,415,827
============ ============
Ratio of net expenses to average net assets (b) 1.75% 1.75% (c)
Ratio of net investment income to average net assets 0.15% 0.66% (c)
Portfolio turnover rate 8% 0%
</TABLE>
(a) Represents the period from the commencement of operations (May 5, 1998)
through December 31, 1998.
(b) Absent fees waived and expenses reimbursed, the ratio of expenses to
average net assets would have been 5.28% (c) and 13.19% (c) for the periods
ended December 31, 1999 and December 31, 1998, respectively (Note 3).
(c) Annualized.
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1999
Market
Shares Value
------ -----
COMMON STOCKS - 73.8%
CONSUMER, CYCLICAL - 40.4%
1,800 CBS Corp. $ 115,087
3,060 Chris-Craft Industries, Inc. (a) 220,702
4,000 Dun & Bradstreet Corp. 118,000
15,000 Hanover Direct, Inc. 54,375
5,600 Hilton Hotels Corp. 53,900
200 IMS Health, Inc. 5,438
8,000 Mattel, Inc. 105,000
1,500 Meredith Corp. 62,531
2,100 Midas, Inc. 45,937
6,000 Mirage Resorts, Inc. (a) 91,875
4,000 Neiman Marcus Group, Inc. (The) 111,750
6,500 Olsten Corp. 73,531
1,300 Park Place Entertainment Corp. (a) 16,250
18,000 Pier 1 Imports, Inc. 114,750
2,400 Playboy Enterprises, Inc. - Class B (a) 58,350
1,100 Reader's Digest Association, Inc. (The) - Class A 32,175
17,100 Spiegel, Inc. (a) 120,234
2,000 Walt Disney Co. (The) 58,500
2,000 Time Warner, Inc. 144,875
4,600 Toys "R" Us, Inc. (a) 65,838
----------
1,669,098
----------
CONSUMER, NON-CYCLICAL - 8.5%
3,000 Avon Products, Inc 99,000
4,800 Cross (A.T.) Co. - Class A 21,600
3,000 Seagram Company Ltd. (The) 134,812
2,000 Tupperware Corp. 33,875
4,600 Whitman Corp. 61,813
----------
351,100
----------
FINANCIAL SERVICES - 19.2%
2,000 Bank One Corp. 64,125
500 Chase Manhattan Corp. (The) 38,844
3,450 Citigroup, Inc. 191,691
5,800 CoVest Bancshares, Inc. 77,213
1,900 Dow Jones & Company, Inc. 129,200
3,500 Lehman Brothers Holdings, Inc. 296,406
----------
797,479
----------
INDUSTRIAL - 2.3%
4,000 Diebold, Inc. 94,000
----------
<PAGE>
BOYAR VALUE FUND, INC.
PORTFOLIO OF INVESTMENTS
December 31, 1999
Market
Shares Value
------ -----
COMMON STOCKS - 73.8% (CONTINUED)
TECHNOLOGY - 3.4%
2,000 Boeing Co. (The) $ 83,125
2,500 Xerox Corp. 56,719
----------
139,844
----------
TOTAL COMMON STOCKS (Cost $2,691,832) $3,051,521
----------
MONEY MARKET FUND - 23.7%
979,134 Firstar Stellar Treasury Fund (Cost $979,134) $ 979,134
----------
TOTAL INVESTMENT SECURITIES - 97.5% (Cost $3,670,966) $4,030,655
OTHER ASSETS IN EXCESS OF LIABILITIES - 2.5% 103,989
----------
NET ASSETS - 100.0% $4,134,644
==========
(a) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
BOYAR VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
Boyar Value Fund, Inc. (the Fund), is registered as a no-load, open-end,
diversified management investment company under the Investment Company Act of
1940 (the 1940 Act), and was incorporated on February 28, 1997 under the laws of
the State of Maryland. The Fund was capitalized on November 19, 1997, when the
initial 10,000 shares of the Fund were purchased at $10.00 per share. Except for
the initial purchase of shares, the Fund had no operations prior to the
commencement of operations on May 5, 1998.
The Fund seeks to provide long-term capital appreciation through investment in
equity securities which are believed by the Adviser to be intrinsically
undervalued.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern Time). Securities traded on a national stock
exchange or quoted by NASDAQ are valued at their closing sales price on the
principal exchange where the security is traded or, if not traded on a
particular day, at their closing bid price. Securities for which market
quotations are not readily available are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Directors.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share.
Investment income and distributions to shareholders -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
Dividends arising from net investment income are declared and paid annually. Net
realized short-term capital gains, if any, may be distributed throughout the
year and net realized long-term capital gains, if any, are distributed at least
once each year. Income dividends and capital gain distributions are determined
in accordance with income tax regulations.
Organization expenses -- Expenses of organization have been capitalized and are
being amortized on a straight-line basis over five years.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
<PAGE>
BOYAR VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
As of December 31, 1999, based upon a federal income tax cost of portfolio
investments of $3,670,966, the Fund had net unrealized appreciation of $359,689,
consisting of $583,366 of gross unrealized appreciation and $223,677 of gross
unrealized depreciation.
As of December 31, 1999 the Boyar Value Fund had a capital loss carryforward for
federal income tax purposes of $25,578, which expires on December 31, 2007.
2. INVESTMENT TRANSACTIONS
For the period ended December 31, 1999, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$1,879,338 and $185,420, respectively.
3. TRANSACTIONS WITH AFFILIATES
The business activities of the Fund are supervised under the direction of the
Board of Directors, which is responsible for the overall management of the Fund.
Ladenburg Thalmann Fund Management Inc. (the Manager) is responsible for
managing the daily business operations of the Fund. Boyar Asset Management, Inc.
(the Adviser) provides continuous advisory services to the Fund and Ladenburg
Thalmann & Co. Inc. (LTCI) acts as distributor of the Fund's shares. The Fund
has employed Countrywide Fund Services, Inc. (CFS) to provide administration,
accounting and transfer agent services. Certain Directors and Officers of the
Fund are also Officers of the Manager, the Adviser, LTCI or CFS.
<PAGE>
BOYAR VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
MANAGEMENT AGREEMENT AND INVESTMENT ADVISORY AGREEMENT
Pursuant to a Management Agreement with the Fund, the Manager, under the
supervision of the Board of Directors, oversees the daily operations of the Fund
and supervises the performance of administrative and professional services
provided by others, including the Adviser. As compensation for its services and
the related expenses borne by the Manager, the Fund pays the Manager a
management fee, computed and accrued daily and paid monthly, at an annual rate
of 0.50% of its average daily net assets.
Pursuant to an Investment Advisory Agreement with the Manager, the Adviser and
the Fund, the Adviser agrees to furnish continuous investment advisory services
to the Fund. For these services, the Fund pays the Adviser an investment
advisory fee, which is computed and accrued daily and paid monthly, at an annual
rate of 0.50% of its average daily net assets.
The Manager currently intends to waive its management fees and reimburse other
operating expenses of the Fund, and the Adviser currently intends to waive its
investment advisory fees, to the extent necessary to limit the total operating
expenses of the Fund to 1.75% of average daily net assets. In accordance with
the above limitation, the Manager voluntarily waived its management fees of
$16,780 and reimbursed the Fund for $84,147 of other operating expenses, and the
Adviser voluntarily waived its investment advisory fees of $16,781 for the
period ended December 31, 1999.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement between the Fund and CFS, CFS
supplies non-investment related statistical and research data, internal
regulatory compliance services and executive and administrative services for the
Fund. CFS supervises the preparation of tax returns, reports to shareholders of
the Fund, reports to and filings with the Securities and Exchange Commission and
state securities commissions, and materials for meetings of the Board of
Directors. For these services, CFS receives a monthly fee at an annual rate of
0.15% of the Fund's average daily net assets up to $50 million; 0.125% of such
assets from $50 million to $100 million; and 0.10% of such assets in excess of
$100 million, subject to a monthly minimum fee of $1,000.
TRANSFER AGENT AGREEMENT
Under the terms of a Transfer Agent, Dividend Disbursing, Shareholder Service
and Plan Agency Agreement between the Fund and CFS, CFS maintains the records of
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee at an annual
rate of $18 per shareholder account, subject to a monthly minimum fee of $1,200.
In addition, the Fund pays CFS out-of-pocket expenses including, but not limited
to, postage and supplies.
<PAGE>
BOYAR VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement between the Fund and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of the Fund. For these services, CFS receives a monthly fee,
based on current net assets, of $2,000 from the Fund. In addition, the Fund pays
CFS certain out-of-pocket expenses incurred by CFS in obtaining valuations of
the Fund's portfolio securities.
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
The Fund has adopted a Shareholder Servicing and Distribution Plan (the Plan)
pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that a monthly
service fee is calculated by the Fund at an annual rate of 0.25% of its average
daily net assets and is paid to LTCI, as distributor, to provide compensation
for ongoing services and/or maintenance of the Fund's shareholder accounts, not
otherwise required to be provided by the Adviser or CFS. For the year ended
December 31, 1999, the Fund incurred and subsequently waived $8,360 of
distribution expenses under the Plan.
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors of
Boyar Value Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Boyar Value Fund, Inc. as of December 31, 1999,
the related statement of operations for the year then ended, and the statement
of changes in net assets and the financial highlights for the year ended
December 31, 1999 and for the period from May 5, 1998 to December 31, 1998.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Boyar
Value Fund, Inc. as of December 31, 1999, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for each of the periods indicated therein, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Cincinnati, Ohio
January 27, 2000
<PAGE>
BOYAR VALUE FUND, INC.
PART C. OTHER INFORMATION
-----------------
Item 23. Exhibits
- -------- --------
(a) Articles of Incorporation*
(b) Bylaws*
(c) Incorporated by reference to Articles of Incorporation and
Bylaws
(d) Investment Advisory Agreement*
(e)(i) Underwriting Agreement*
(ii) Dealer's Agreement*
(f) Inapplicable
(g) Custody Agreement*
(h)(i) Management Agreement*
(ii) Transfer, Dividend Disbursing, Shareholder Service and Plan
Agency Agreement*
(iii) Administration Agreement*
(iv) Accounting Services Agreement*
(v) Administrative Services Agreement*
(i)(i) Opinion and Consent of Counsel*
(ii) Opinion and Consent of Venable, Baetjer and Howard, LLP,
Maryland counsel to the Fund*
(j) Consent of Independent Auditors
(k) Inapplicable
(l) Purchase Agreement*
(m) Shareholder Servicing and Distribution Plan*
(n) Financial Data Schedule - Previously filed with Form N-SAR
(o) Inapplicable
(p) Code of Ethics*
- -----------------------------
* Incorporated by reference to Registration Statement on Form N-1A or
subsequently filed Pre-Effective Amendment.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
- ------- -------------------------------------------------------------
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 25. Indemnification
- -------- ---------------
Registrant, officers and directors of Ladenburg Thalmann Fund
Management Inc., Boyar Asset Management, Inc. and Ladenburg Thalmann &
Co. Inc. and of Registrant are covered by insurance policies
indemnifying them for liability incurred in connection with the
operation of Registrant. These policies provide insurance for any
"Wrongful Act" of an officer or director. Wrongful Act is defined as
breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by an officer,
director or trustee in connection with the operation of Registrant.
Insurance coverage does not extend to (a) conflicts of interest or
gain in fact any profit or advantage to which one is not legally
entitled, (b) intentional non-compliance with any statute or
regulation or (c) commission of dishonest, fraudulent acts or
omissions. Insofar as it relates to Registrant, the coverage is
limited in amount and, in certain circumstances, is subject to a
deductible.
Under Article VIII of the Articles of Incorporation (the "Articles"),
the Directors and Officers of Registrant shall not have any liability
to Registrant or its stockholders for money damages, to the fullest
extent permitted by Maryland law. This limitation on liability applies
to events occurring at the time a person serves as a Director or
officer or Registrant whether or not such person is a Director or
officer at the time of any proceeding in which liability is asserted.
No provision of Article VIII shall protect or purport to protect any
Director or officer of Registrant against any liability to Registrant
or its stockholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Registrant shall indemnify and advance expenses to its currently
acting and its former Directors to the fullest extent that
indemnification of Directors and advancement of expenses to Directors
is permitted by the Maryland General Corporation law.
Registrant shall indemnify and advance expenses to its officers to the
same extent as its Directors and to such further extent as is
consistent with such law. The Board of Directors may, through a
by-law, resolution or agreement, make further provisions for
indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation Law.
<PAGE>
Article VIII of the By-Laws further limits the liability of the
Directors by providing that any person who was or is a party or is
threatened to be made a party in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or
former director or officer of Registrant, or is or was serving while a
director or officer of Registrant at the request of Registrant as a
director, officer, partner, trustee, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust, enterprise or
employee benefit plan, shall be indemnified by Registrant against
judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person
in connection with such action, suit or proceeding to the fullest
extent permissible under the Maryland General Corporation Law, the
1933 Act and the 1940 Act, as such statutes are now or hereafter in
force, except that such indemnity shall not protect any such person
against any liability to Registrant or any stockholder thereof to
which such person would otherwise by subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Item 26. Business and Other Connections of the Investment Adviser
- ------- --------------------------------------------------------
Boyar Asset Management, Inc. is wholly owned by Mark A. Boyar and acts
as investment adviser to Registrant. Boyar Asset Management, Inc.
renders investment advice to a wide variety of individual and
institutional clients. The list required by this Item 26 of officers
and directors of Boyar Asset Management, Inc., together with
information as to their other business, profession, vocation or
employment of a substantial nature during the past two years, is
incorporated by reference to Schedules A and D of Form ADV filed by
Boyar Asset Management, Inc. (SEC File No. 801-19283).
Item 27. Principal Underwriters
- -------- ----------------------
(a) Ladenburg Thalmann & Co. Inc. acts as distributor for Registrant.
(b) For information relating to each director and officer of Ladenburg
Thalmann & Co. Inc., reference is made to Form BD (SEC File No.
8-16354) filed by Ladenburg Thalmann & Co. Inc. under the Securities
Exchange Act of 1934.
<PAGE>
Item 28. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant at its
offices located at 590 Madison Avenue, New York, New York 10022, at
the offices of Registrant's investment adviser located at 35 East 21st
Street, New York, New York 10010, at the offices of Registrant's
custodian located at 425 Walnut Street, Cincinnati, Ohio 45202, or at
the offices of the Registrant's transfer agent located at 312 Walnut
Street, Cincinnati, Ohio 45202.
Item 29. Management Services Not Discussed in Parts A or B
- ------- -------------------------------------------------
Inapplicable
Item 30. Undertakings
- -------- ------------
Inapplicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on the 1st day of
May, 2000.
BOYAR VALUE FUND, INC.
By: /s/ Mark A. Boyar
------------------------
Mark A. Boyar
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Mark A. Boyar Chairman and May 1, 2000
- ----------------------------- Chief Executive
Mark A. Boyar Officer
/s/ Jay R. Petschek President, May 1, 2000
- ----------------------------- Treasurer and
Jay R. Petschek Director
Director
- -----------------------------
Henry A. Alpert*
Director
- -----------------------------
A.F. Petrocelli* By: /s/ Tina D. Hosking
-------------------
Tina D. Hosking
Director Attorney-in-Fact*
- ----------------------------- May 1, 2000
Jeffrey S. Silverman*
Director
- -----------------------------
Richard Finkelstein*
<PAGE>
INDEX TO EXHIBITS
(a) Articles of Incorporation*
(b) Bylaws*
(c) Incorporated by reference to Articles of Incorporation and Bylaws
(d) Investment Advisory Agreement*
(e)(i) Underwriting Agreement*
(ii) Dealer's Agreement*
(f) Inapplicable
(g) Custody Agreement*
(h)(i) Management Agreement*
(ii) Transfer, Dividend Disbursing, Shareholder Service and Plan Agency
Agreement*
(iii) Administration Agreement*
(iv) Accounting Services Agreement*
(v) Administrative Services Agreement*
(i)(i) Opinion and Consent of Counsel*
(ii) Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland
counsel to the Fund*
(j) Consent of Independent Auditors
(k) Inapplicable
(l) Purchase Agreement*
(m) Shareholder Servicing and Distribution Plan*
(n) Financial Data Schedule - Previously filed with Form N-SAR
(o) Inapplicable
(p) Code of Ethics*
- --------------------------------------
* Incorporated by reference to Registration Statement on Form N-1A or
subsequently filed Pre-Effective Amendment.
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the prospectus and under the caption
"Auditors and Counsel" in the Statement of Additional Information, both included
in Post-Effective Amendment No. 3 to the Registration Statement (Form N-1A No.
333-29253) of Boyar Value Fund, Inc. and to the use of our report dated January
27, 2000, included therein.
ERNST & YOUNG LLP
Cincinnati, Ohio
April 26, 2000
