STATEMENT OF ADDITIONAL INFORMATION
GRAND PRIX FUNDS, INC.
GRAND PRIX FUND
Wilton Executive Campus
15 River Road, Suite 220
Wilton Connecticut 06897
Telephone: 1-800-432-4741
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the
Prospectus of the Grand Prix Fund ("Fund"), dated
December 31, 1997. The Prospectus, which may be
revised from time to time, is available without charge
upon request to the above-noted address or telephone
number.
This Statement of Additional Information is dated December
31, 1997,
as supplemented January 13, 1998.
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CONTENTS
INVESTMENT OBJECTIVE AND RESTRICTIONS 3
INVESTMENT POLICIES AND TECHNIQUES 5
DIRECTORS AND OFFICERS 8
PRINCIPAL SHAREHOLDERS 10
INVESTMENT ADVISOR 10
FUND TRANSACTIONS AND BROKERAGE 11
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT 13
PLAN OF DISTRIBUTION 13
TAXES 15
DETERMINATION OF NET ASSET VALUE 15
REDEMPTION IN KIND 15
SHAREHOLDER MEETINGS 16
PERFORMANCE INFORMATION 16
INDEPENDENT AUDITORS 18
FINANCIAL STATEMENTS 18
No person has been authorized to give any
information or to make any representations other than
those contained in this Statement of Additional
Information ("SAI") and the Prospectus dated December
31, 1997, and if given or made, such information or
representations may not be relied upon as having been
authorized by the Fund. This SAI does not constitute
an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be
made.
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INVESTMENT OBJECTIVE AND RESTRICTIONS
The Fund's investment objective is capital
appreciation. The Fund's investment objective and
policies are described in detail in the Prospectus
under the captions "Investment Objective and
Restrictions" and "Implementation of Policies and
Risks." The following are the Fund's fundamental
investment restrictions which cannot be changed without
shareholder approval.
The Fund:
1. May not issue senior securities, except as
permitted under the Investment Company Act of
1940, as amended (the "1940 Act");
2. May not act as an underwriter of another company's
securities, except to the extent that the Fund may
be deemed to be an underwriter within the meaning
of the Securities Act of 1933, as amended, in
connection with the purchase and sale of portfolio
securities;
3. May not purchase or sell physical commodities
unless acquired as a result of ownership of
securities or other instruments (but this shall
not prevent the Fund from purchasing or selling
options, futures contracts, or other derivative
instruments, or from investing in securities or
other instruments backed by physical commodities);
4. May not make loans if, as a result, more than 33
1/3% of the Fund's assets would be lent to other
persons, except through purchases of debt
securities or other debt instruments or engaging
in repurchase agreements;
5. May not invest more than 25% of its assets in
securities of companies in any one industry;
6. May not purchase or sell real estate unless
acquired as a result of ownership of securities or
other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or
other instruments backed by real estate or of
issuers engaged in real estate activities);
7. May (i) borrow money from banks for temporary or
emergency purposes (but not for leverage or the
purchase of investments), and (ii) make other
investments or engage in other transactions
permissible under the 1940 Act, which may involve
a borrowing, provided that the combination of (i)
and (ii) shall not exceed 33 1/3% of the value of
the Fund's total assets (including the amount
borrowed), less the Fund's liabilities (other than
borrowings). The Fund may also borrow money from
other persons to the extent permitted by
applicable law;
8. Notwithstanding any other fundamental investment
policy or restriction, may invest all of its
assets in the securities of a single open-end
management investment company with substantially
the same fundamental investment objective,
policies, and restrictions.
The following non-fundamental operating policies
may be changed by the Board of Directors without
shareholder approval.
The Fund may not:
1. Sell securities short, unless the Fund owns or has
the right to obtain securities equivalent in kind
and amount to the securities sold short, or unless
it covers such short sale as required by the
current rules and positions of the Securities and
Exchange Commission ("SEC") or its staff, and
provided that transactions in options, futures
contracts, options on futures contracts, or other
derivative instruments are not deemed to
constitute selling securities short.
2. Purchase securities on margin, except that the
Fund may obtain such short-term credits as are
necessary for the clearance of transactions; and
provided that margin deposits in connection with
futures contracts, options on futures contracts,
or other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of
such investment, more than 5% of its net assets
would be invested in illiquid securities.
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4. Purchase securities of other investment companies
except in compliance with the 1940 Act.
5. Engage in futures or options on futures
transactions which are impermissible pursuant to
Rule 4.5 under the Commodity Exchange Act ("CEA")
and, in accordance with Rule 4.5, will use futures
or options on futures transactions solely for bona
fide hedging transactions (within the meaning of
the CEA); provided, however, that the Fund may,
in addition to bona fide hedging transactions, use
futures and options on futures transactions if the
aggregate initial margin and premiums required to
establish such positions, less the amount by which
any such options positions are in the money
(within the meaning of the CEA), do not exceed 5%
of the Fund's net assets.
6. Make any loans other than loans of portfolio
securities, except through purchases of debt
securities or other debt instruments or engaging
in repurchase agreements with respect to portfolio
securities.
7. Borrow money except from banks or through reverse
repurchase agreements or mortgage dollar rolls,
and will not purchase securities when bank
borrowings exceed 5% of its assets.
Except for the fundamental investment restrictions
listed above and the Fund's investment objective, the
other investment policies described in the Prospectus
and this SAI are not fundamental and may be changed
with approval of the Fund's Board of Directors. Unless
noted otherwise, if a percentage restriction is adhered
to at the time of investment, a later increase or
decrease in percentage resulting from a change in the
Fund's assets (i.e., due to cash inflows or
redemptions) or in market value of the investment or
the Fund's assets will not constitute a violation of
that restriction.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the
discussion of the Fund's investment objective,
strategy, and policies that are described in the
Prospectus under the captions "Investment Strategy,"
"Implementation of Policies and Risks," and "Investment
Objective and Restrictions."
Depositary Receipts
The Fund may invest in foreign securities by
purchasing depositary receipts, including American
Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs") or other securities convertible into
securities of companies based in foreign countries.
These securities may not necessarily be denominated in
the same currency as the securities into which they may
be converted. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in
the U.S. securities markets, while EDRs, in bearer
form, may be denominated in other currencies and are
designed for use in European securities markets. ADRs
are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a
similar arrangement. For purposes of the Fund's
investment policies, ADRs and EDRs are deemed to have
the same classification as the underlying securities
they represent. Thus, an ADR or EDR representing
ownership of common stock will be treated as common
stock.
ADR facilities may be established as either
"unsponsored" or "sponsored." While ADRs issued under
these two types of facilities are in some respects
similar, there are distinctions between them relating
to the rights and obligations of ADR holders and the
practices of market participants. For example, a non-
sponsored depositary may not provide the same
shareholder information that a sponsored depositary is
required to provide under its contractual arrangements
with the issuer, including reliable financial
statements. Under the terms of most sponsored
arrangements, depositaries agree to distribute notices
of shareholder meetings and voting instructions, and to
provide shareholder communications and other
information to the ADR holders at the request of the
issuer of the deposited securities.
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Convertible Securities
The Fund may invest in convertible securities,
which are bonds, debentures, notes, preferred stocks,
or other securities that may be converted into or
exchanged for a specified amount of common stock or
warrants of the same or a different company within a
particular period of time at a specified price or
formula. A convertible security entitles the holder to
receive interest normally paid or accrued on debt or
the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted,
or exchanged. Convertible securities have unique
investment characteristics in that they generally (i)
have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (ii) are
less subject to fluctuation in value than the
underlying stock (or warrant) since they have fixed
income characteristics, and (iii) provide the potential
for capital appreciation if the market price of the
underlying common stock (or warrant) increases. A
convertible security may be subject to redemption at
the option of the issuer at a price established in the
convertible security's governing instrument. If a
convertible security held by the Fund is called for
redemption, the Fund will be required to permit the
issuer to redeem the security, convert it into the
underlying common stock (or warrant), or sell it to a
third party.
Non-diversification and Sector Concentration
While the Fund is "non-diversified," which means
that it is permitted to invest its assets in a more
limited number of issuers than other investment
companies, the Fund intends to diversify its assets to
qualify for tax treatment as a regulated investment
company under the Internal Revenue Code of 1986, as
amended ("Code"). To so qualify (i) not more than 25%
of the total value of the Fund's assets may be invested
in securities of any one issuer (other than U.S.
Government securities and the securities of other
regulated investment companies under the Code) or of
any two or more issuers controlled by the Fund, which,
pursuant to the regulations under the Code, may be
deemed to be engaged in the same, similar, or related
trades or businesses, and (ii) with respect to 50% of
the total value of the Fund's assets (a) not more than
5% of its total assets may be invested in the
securities of any one issuer (other than U.S.
Government securities and the securities of other
regulated investment companies under the Code) and (b)
the Fund may not own more than 10% of the outstanding
voting securities of any one issuer (other than U.S.
Government securities and the securities of other
regulated investment companies under the Code).
In addition, the Fund has adopted a fundamental
investment restriction which prohibits the Fund from
investing more than 25% of its assets in securities of
companies in any one industry. An industry is defined
as a business-line subsector of a stock-market sector.
While the Fund may be heavily invested in one single
market sector like technology or health care, for
example, it will not invest more than 25% of its assets
in securities of companies in any one industry. While
the Fund may be heavily invested in technology or any
other market sector from time to time, rotation in
asset management may be experienced.
To the extent that a relatively high percentage of
the Fund's assets may be invested in the securities of
a limited number of companies, the Fund's portfolio
securities may be more susceptible to any single
economic, political, or regulatory occurrence than the
portfolio securities of a diversified investment
company.
Temporary Strategies
As described in the Prospectus under the heading
"Implementation of Policies and Risks," prior to
investing proceeds from sales of Fund shares, to meet
ordinary daily cash needs, and to retain the
flexibility to respond promptly to changes in market
and economic conditions, the Fund may hold cash and/or
invest up to 35% of its total assets in money market
instruments. The money market instruments which the
Fund may purchase include U.S. Government securities,
bank obligations, obligations of savings institutions,
fully insured certificates of deposit, commercial
paper, and securities issued by registered investment
companies holding themselves out as money market funds.
Such securities include:
U.S. Government Securities. Obligations issued or
guaranteed as to principal and interest by the United
States or its agencies (such as the Export-Import Bank
of the United States, Federal Housing Administration
and Government National Mortgage Association) or its
instrumentalities (such as the Federal Home Loan Bank),
including Treasury bills, notes, and bonds;
Bank Obligations. Obligations (including
certificates of deposit, bankers' acceptances,
commercial paper (see below) and other debt
obligations) of banks subject to regulation by the U.S.
Government and having total assets of
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$1 billion or
more, and instruments secured by such obligations, not
including obligations of foreign branches of domestic
banks;
Obligations of Savings Institutions. Certificates
of deposit of savings banks and savings and loan
associations, having total assets of $1 billion or
more;
Fully Insured Certificates of Deposit.
Certificates of deposit of banks and savings
institutions, having total assets of less than $1
billion, if the principal amount of the obligation is
insured by the Bank Insurance Fund or the Savings
Association Insurance Fund (each of which is
administered by the Federal Deposit Insurance
Corporation), limited to $100,000 principal amount per
certificate and to 5% or less of the Fund's total
assets in all such obligations and in all illiquid
assets, in the aggregate;
Commercial Paper. Commercial paper rated Prime-1
or better by Moody's Investors Service, Inc.
("Moody's"), A-1 or better by Standard & Poor's
Corporation ("S&P"), Duff 2 or higher by Duff & Phelps,
Inc. ("D&P"), or Fitch 2 or higher by Fitch Investor
Services, Inc. ("Fitch"); and
Money Market Funds. Securities issued by
registered investment companies holding themselves out
as money market funds which attempt to maintain a
stable net asset value of $1.00 per share.
DIRECTORS AND OFFICERS
The directors and officers of Grand Prix Funds,
Inc. ("Corporation"), of which the Fund is a series,
together with information as to their principal
business occupations during the last five years, and
other information, are shown below. Each director and
officer who is deemed an "interested person" as defined
in the 1940 Act is indicated by an asterisk. Mr.
Zuccaro has served as a director and officer of the
Corporation since its inception on October 30, 1997.
The other directors and officers have served as such
since December 10, 1997.
*Robert Zuccaro, President and a Director of the
Corporation.
Mr. Zuccaro, 55 years old, received a Bachelor's
Degree from the University of Bridgeport in 1965 and a
Master's Degree in Business Administration from Pace
University in 1968. Prior to founding what is now
Target Holdings Corporation, doing business as Target
Investors ("Advisor") in 1983, Mr. Zuccaro spent six
years with Axe-Houghton, where he was President and
Director of Axe-Houghton Stock Fund and Vice President
and Director of portfolio management of E.W. Axe & Co.
Mr. Zuccaro is a Chartered Financial Analyst.
Mr. Zuccaro's address is 15 River Road, Suite 220,
Wilton, Connecticut 06897.
*Phillipp Villhauer, Vice-President, Secretary and
a Director of the Corporation.
Mr. Villhauer, 32 years old, earned a Master's
Degree in Business Administration from Fordham
University in 1994. Prior to joining Advisor as a
portfolio manager/analyst in 1993, Mr. Villhauer was a
trader at Brown Brothers Harriman & Company and an
Assistant Vice-President Trader/Analyst at Gabelli &
Company, Inc.
Mr. Villhauer's address is 15 River Road, Suite
220, Wilton, Connecticut 06897.
*Mary Jane Boyle, Vice-President, Treasurer and a
Director of the Corporation.
Ms. Boyle, 52 years old, earned a Master's Degree
from the University of Bridgeport in 1971. Prior to co-
founding Advisor in 1983, where she serves as Vice-
President, Client Service, Ms. Boyle was a Regional
Sales Director with Mondessa Enterprises, Inc.
Ms. Boyle's address is 15 River Road, Suite 220,
Wilton, Connecticut 06897.
<PAGE>
Edward F. Ronan, Jr., a Director of the
Corporation.
Mr. Ronan, 45 years old, earned a B.S. in
accounting from the University of Bridgeport in 1977.
Mr. Ronan is a C.P.A. and a member of Actis-Grande,
Ronan, Carbone & Company, LLC, a certified public
accounting firm and has been with the firm since 1984.
Mr. Ronan has also served as a director of 2.E.P. Co.,
Inc., a flooring tool manufacturer and distributor,
since 1993.
Mr. Ronan's address is 30 Main Street, Danbury,
Connecticut 06810.
Dennis K. Waldman, a Director of the Corporation.
Mr. Waldman, 43 years old, graduated from the
Massachusetts Institute of Technology in 1976 with a
Bachelor's of Science degree in aeronautical and
astronautical engineering and in electrical engineering
and in 1978 with a Master's of Science degree in
aeronautical and astronautical engineering. Since
1994, Mr. Waldman has served as Vice-President of Sales
for Strategic Information Associates, prior to which
time, Mr. Waldman worked at ITS as Vice-President of
Sales. From 1992 to 1994, Mr. Waldman was a sales
representative at Tartan where he was involved in
engineering sales.
Mr. Waldman's address is 62 Windsor Road, Waban,
Massachusetts 02168.
As of December 23, 1997, officers and directors of
the Corporation did not beneficially own any of the
shares of common stock of the Fund's then outstanding
shares; however, Target Capital Management, Ltd., which
is an affiliate of the Advisor and controlled by Mr.
Zuccaro, owned 100% of such shares. Directors and
officers of the Corporation who are also officers,
directors, employees, or shareholders of Advisor do not
receive any remuneration from the Fund for serving as
directors or officers.
The following table provides information relating
to annual compensation to be paid to directors of the
Corporation for their services as such:
Name Cash Other Total
Compensation Compensation
Robert Zuccaro $0 $0 $0
Phillipp Villhauer $0 $0 $0
Mary Jane Boyle $0 $0 $0
Edward F. Ronan, Jr. $500 $0 $500
Dennis K. Waldman $500 $0 $500
PRINCIPAL SHAREHOLDERS
As of December 23, 1997, the following persons
owned of record or are known by the Fund to own of
record or beneficially 5% or more of the outstanding
shares of the Fund:
Name and Address No. Shares Percentage
Target Capital Management, Ltd. 10,000 100%
15 River Road, Suite 200
Wilton, Connecticut 06897
Based on the foregoing, as of December 23, 1997,
Target Capital Management, Ltd. owned a controlling
interest in the Fund. Shareholders with a controlling
interest could effect the outcome of proxy voting or
the direction of management of the Fund.
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INVESTMENT ADVISOR
Target Holdings Corporation, d.b.a. Target
Investors ("Advisor") is the investment advisor to the
Fund. The Advisor is controlled by Robert Zuccaro who
owns 80% of the Advisor.
The investment advisory agreement between the
Corporation and the Advisor dated as of December 31,
1997 ("Advisory Agreement") has an initial term of two
years and thereafter is required to be approved
annually by the Board of Directors of the Corporation
or by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). Each
annual renewal must also be approved by the vote of a
majority of the Corporation's directors who are not
parties to the Advisory Agreement or interested persons
of any such party, cast in person at a meeting called
for the purpose of voting on such approval. The
Advisory Agreement was approved by the Board of
Directors, including a majority of the disinterested
directors on December 10, 1997, and by the initial
shareholder on December 23, 1997. The Advisory
Agreement is terminable without penalty on 60 days'
written notice by the Board of Directors, by vote of a
majority of the Fund's outstanding voting securities,
or by the Advisor, and will terminate automatically in
the event of its assignment.
Under the terms of the Advisory Agreement, the
Advisor manages the Fund's investments and business
affairs, subject to the supervision of the Board of
Directors. At its expense, the Advisor provides office
space and all necessary office facilities, equipment,
and personnel for managing the investments of the Fund.
As compensation for its services, the Corporation pays
the Advisor an annual management fee of 1.00% of the
Fund's average daily net assets. The advisory fee is
accrued daily and paid monthly. The organizational
expenses of the Fund were advanced by the Advisor and
will be reimbursed by the Fund over a period of not
more than 60 months. The organizational expenses were
approximately $80,750.
The Advisor has agreed to limit the total
operating expenses of the Fund (excluding interest,
taxes, brokerage and extraordinary expenses) to an
annual rate of 1.65% of the Fund's average net assets
until December 31, 1998. After such date, the Advisor
may from time to time voluntarily (but is not required
or obligated to) waive all or a portion of its fee
and/or absorb certain Fund expenses. Any waiver of
fees or absorption of expenses will be made on a
monthly basis and, with respect to the latter, will be
paid to the Fund by reduction of Advisor's fee.
FUND TRANSACTIONS AND BROKERAGE
Under the Advisory Agreement, Advisor, in its
capacity as portfolio manager, is responsible for
decisions to buy and sell securities for the Fund and
for the placement of the Fund's securities business,
the negotiation of the commissions to be paid on such
transactions, and the allocation of portfolio brokerage
business. The Fund has no obligation to deal with any
particular broker or dealer; in executing transactions,
the Advisor seeks to obtain the best execution at the
best security price available with respect to each
transaction. The best price to the Fund means the best
net price without regard to the mix between purchase or
sale price and commission, if any. While the Advisor
seeks reasonably competitive commission rates, the Fund
does not necessarily pay the lowest available
commission. Brokerage will not be allocated based on
the sale of the Fund's shares.
Section 28(e) of the Securities Exchange Act of
1934, as amended ("Section 28(e)"), permits an
investment advisor, under certain circumstances, to
cause an account to pay a broker or dealer who supplies
brokerage and research services a commission for
effecting a transaction in excess of the amount of
commission another broker or dealer would have charged
for effecting the transaction. Brokerage and research
services include (a) furnishing advice as to the value
of securities, the advisability of investing,
purchasing, or selling securities, and the availability
of securities or purchasers or sellers of securities;
(b) furnishing analyses and reports concerning issuers,
industries, sectors, securities, economic factors and
trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and
performing functions incidental thereto (such as
clearance, settlement, and custody).
In selecting brokers or dealers, Advisor considers
investment and market information and other research,
such as economic, securities, and performance
measurement research provided by such brokers or
dealers and the quality and reliability of brokerage
services, including execution capability, performance,
and financial responsibility. Accordingly, the
commissions charged by any such broker or dealer may be
greater than the amount another firm might charge if
Advisor determines in good faith that the amount of
such commissions is reasonable in relation to the value
of
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the research information and brokerage services
provided by such broker or dealer to the Fund. Advisor
believes that the research information received in this
manner provides the Fund with benefits by supplementing
the research otherwise available to the Fund. Such
higher commissions will not be paid by the Fund unless
(a) Advisor determines in good faith that the amount is
reasonable in relation to the services in terms of the
particular transaction or in terms of Advisor's overall
responsibilities with respect to the accounts,
including the Fund, as to which it exercises investment
discretion; (b) such payment is made in compliance with
the provisions of Section 28(e) and other applicable
state and federal laws; and (c) in the opinion of
Advisor, the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over
the long term.
Advisor places portfolio transactions for other
advisory accounts in addition to the Fund. Research
services furnished by firms through which the Fund
effects its securities transactions may be used by
Advisor in servicing all of its accounts; not all of
such services may be used by Advisor in connection with
the Fund. Advisor believes it is not possible to
measure separately the benefits from research services
to each of the accounts (including the Fund) managed by
it. Because the volume and nature of the trading
activities of the accounts are not uniform, the amount
of commissions in excess of those charged by another
broker or dealer paid by each account for brokerage and
research services will vary. However, Advisor believes
such costs to the Fund will not be disproportionate to
the benefits received by the Fund on a continuing
basis. Advisor seeks to allocate portfolio
transactions equitably whenever concurrent decisions
are made to purchase or sell securities by the Fund and
another advisory account. In some cases, this
procedure could have an adverse effect on the price or
the amount of securities available to the Fund. There
can be no assurance that a particular purchase or sale
opportunity will be allocated to the Fund. In making
such allocations between the Fund and other advisory
accounts, certain factors considered by Advisor are the
respective investment objectives, the relative size of
portfolio holdings of the same or comparable
securities, the availability of cash for investment,
and the size of investment commitments generally held.
The Fund anticipates that its annual portfolio
turnover rate will be between 400 and 800% or higher
but generally will not exceed 1,500%. The annual
portfolio turnover rate indicates changes in the Fund's
securities holdings; for instance, a rate of 100% would
result if all the securities in a portfolio (excluding
securities whose maturities at acquisition were one
year or less) at the beginning of an annual period had
been replaced by the end of the period. The turnover
rate may vary from year to year, as well as within a
year, and may be affected by portfolio sales necessary
to meet cash requirements for redemptions of the Fund's
shares.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
As custodian of the Fund's assets, Fifth Third
Bank ("Fifth Third"), 38 Fountain Square Plaza,
Cincinnati, Ohio 45263, has custody of all securities
and cash of the Fund, delivers and receives payment for
portfolio securities sold, receives and pays for
portfolio securities purchased, collects income from
investments, if any, and performs other duties, all as
directed by the officers of the Corporation. Sunstone
Investor Services, LLC ("Sunstone"), 207 East Buffalo
Street, Suite 315, Milwaukee, Wisconsin 53202-5712,
acts as transfer agent and dividend-disbursing agent
for the Fund.
PLAN OF DISTRIBUTION
Distribution and Shareholder Servicing Plan
As described more fully in the Prospectus under
the heading "Distribution and Shareholder Servicing
Plan," the Fund has adopted a plan pursuant to Rule 12b-
1 under the 1940 Act ("Plan") with respect to which
certain distribution and shareholder servicing fees may
be paid to registered securities dealers, financial
institutions, or other persons ("Recipients") who
render assistance in distributing or promoting the sale
of Fund shares, or who provide certain shareholder
services to Fund shareholders, pursuant to a written
agreement ("Rule 12b-1 Related Agreement"). Under the
terms of the Plan, the Fund may be required to pay the
Recipients a fee of up to 0.25% of the average daily
net assets to finance activities primarily intended to
result in the sale of Fund shares. The Plan is a
"reimbursement" plan, which means that the fees paid by
the Fund under the Plan are intended as reimbursement
for services rendered and commission fees borne up to
the maximum allowable distribution and shareholder
servicing fees. If more money for services rendered
and commission fees is due than is immediately payable
because of the expense limitation under
<PAGE>
the Plan, the
unpaid amount is carried forward from period to period
while the Plan is in effect until such time as it may
be paid. No interest, carrying, or other finance
charges will be borne by the Fund with respect to
unpaid amounts carried forward.
Anticipated Benefits to the Fund
The Board of Directors of the Corporation
considered various factors in connection with its
decision to approve the Plan, including: (a) the
nature and causes of the circumstances which make
implementation of the Plan necessary and appropriate;
(b) the way in which the Plan would address those
circumstances, including the nature and potential
amount of expenditures; (c) the nature of the
anticipated benefits; (d) the merits of possible
alternative plans or pricing structures; and (e) the
possible benefits of the Plan to any other person
relative to those of the Fund.
Based upon its review of the foregoing factors and
the material presented to it, and in light of its
fiduciary duties under relevant state law and the 1940
Act, the Board of Directors determined, in the exercise
of its business judgment, that the Plan was reasonably
likely to benefit the Fund and its shareholders in at
least one or several potential ways. Specifically, the
Board concluded that any Recipients operating under
Rule 12b-1 Related Agreements would have little or no
incentive to incur promotional expenses on behalf of
the Fund if a Rule 12b-1 plan were not in place to
reimburse them, thus making the adoption of the Plan
important to the initial success and thereafter,
continued viability of the Fund. In addition, the
Board determined that the payment of Rule 12b-1 fees to
these persons should motivate them to provide an
enhanced level of service to Fund shareholders, which
would, of course, benefit such shareholders. Finally,
the adoption of the Plan would help to increase net
assets under management in a relatively short amount of
time, given the marketing efforts on the part of the
Recipients to sell Fund shares, which should result in
certain economies of scale.
While there is no assurance that the expenditure
of Fund assets to finance distribution of Fund shares
will have the anticipated results, the Board of
Directors believes there is a reasonable likelihood
that one or more of such benefits will result, and
since the Board will be in a position to monitor the
distribution and shareholder servicing expenses of the
Fund, it will be able to evaluate the benefit of such
expenditures in deciding whether to continue the Plan.
TAXES
As indicated under "Dividends, Capital Gain
Distributions and Tax Treatment" in the Prospectus, the
Fund intends to qualify annually as a "regulated
investment company" under the Code. This qualification
does not require government supervision of the Fund's
management practices or policies.
A dividend or capital gains distribution received
shortly after the purchase of shares reduces the net
asset value of shares by the amount of the dividend or
distribution and, although in effect a return of
capital, will be subject to income taxes. Net gains on
sales of securities when realized and distributed are
taxable as capital gains. If the net asset value of
shares were reduced below a shareholder's cost by
distribution of gains realized on sales of securities,
such distribution would be a return of investment
although taxable as indicated above.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the same
heading, the Fund's net asset value will be determined
as of the close of trading on each day the New York
Stock Exchange ("NYSE") is open for trading. The Fund
does not determine net asset value on days the NYSE is
closed and at other times described in the Prospectus.
The NYSE is closed on New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the NYSE
will not be open for trading on the preceding Friday
and when such holiday falls on a Sunday, the NYSE will
not be open for trading on the succeeding Monday,
unless unusual business conditions exist, such as the
ending of a monthly or the yearly accounting period.
<PAGE>
REDEMPTION IN KIND
The Fund has filed a Notification under Rule 18f-1
under the 1940 Act, pursuant to which it has undertaken
to pay in cash all requests for redemption by any
shareholder of record, limited in amount with respect
to each shareholder during any 90-day period to the
lesser amount of (i) $250,000, or (ii) 1% of the Fund's
net asset value being redeemed, valued at the beginning
of such election period. The Fund intends to also pay
redemption proceeds in excess of such lesser amount in
cash, but reserves the right to pay such excess amount
in kind, if it is deemed to be in the best interest of
the Fund to do so. In making a redemption in kind, the
Fund reserves the right to select from each securities
holding a number of shares which will reflect the
Fund's portfolio make-up and the value of which will
approximate as closely as possible the value of the
Fund shares being redeemed, or to select from one or
more securities holdings, shares equal in value to the
total value of the Fund shares being redeemed; any
shortfall will be made up in cash. Investors receiving
an in kind distribution are advised that they will
likely incur a brokerage charge on the disposition of
such securities through a securities dealer. The
values of securities distributed in kind will be the
values used for the purpose of calculating the per
share net asset value used in valuing the Fund shares
tendered for redemption.
SHAREHOLDER MEETINGS
Maryland law permits registered investment
companies, such as the Corporation, to operate without
an annual meeting of shareholders under specified
circumstances if an annual meeting is not required by
the 1940 Act. The Corporation has adopted the
appropriate provisions in its Bylaws and may, at its
discretion, not hold an annual meeting in any year in
which the election of directors is not required to be
acted on by shareholders under the 1940 Act.
PERFORMANCE INFORMATION
As described in the "Fund Performance" section of
the Fund's Prospectus, the Fund's historical
performance or return may be shown in the form of
various performance figures. The Fund's performance
figures are based upon historical results and are not
necessarily representative of future performance.
Factors affecting the Fund's performance include
general market conditions, operating expenses, and
investment management.
Total Return
The average annual total return of the Fund is
computed by finding the average annual compounded rates
of return over the periods that would equate the
initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
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 stated periods at
the end of the stated periods.
Performance for a specific period is calculated by
first taking an investment (assumed to be $1,000)
("initial investment") on the first day of the period
and computing the "ending value" of that investment at
the end of the period. The total return percentage is
then determined by subtracting the initial investment
from the ending value and dividing the remainder by the
initial investment and expressing the result as a
percentage. The calculation assumes that all income
and capital gains dividends paid by the Fund have been
reinvested at the Fund's net asset value on the
reinvestment dates during the period. Total return may
also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative total return represents the simple
change in value of an investment over a stated period
and may be quoted as a percentage or as a dollar
amount. Total returns may be broken down into their
components of income
<PAGE>
and capital (including capital
gains and changes in share price) in order to
illustrate the relationship between these factors and
their contributions to total return.
Comparisons
From time to time, in marketing and other Fund
literature, the Fund's performance may be compared to
the performance of other mutual funds in general or to
the performance of particular types of mutual funds
with similar investment goals, as tracked by
independent organizations. Among these organizations,
Lipper Analytical Services, Inc. ("Lipper"), a widely
used independent research firm which ranks mutual funds
by overall performance, investment objectives, and
assets, may be cited. Lipper performance figures are
based on changes in net asset value, with all income
and capital gains dividends reinvested. Such
calculations do not include the effect of any sales
charges imposed by other mutual funds. The Fund will
be compared to Lipper's appropriate fund category, that
is, by fund objective and portfolio holdings.
The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc.
("Morningstar"), which ranks funds on the basis of
historical risk and total return. Morningstar's
rankings range from five stars (highest) to one star
(lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a
weighted average for 3, 5, and 10 year periods.
Rankings are not absolute or necessarily predictive of
future performance.
Evaluations of the Fund's performance made by
independent sources may also be used in advertisements
concerning the Fund, including reprints of or
selections from, editorials or articles about the Fund.
Sources for Fund performance and articles about the
Fund may include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News
and World Report, the Wall Street Journal, Barron's,
and a variety of investment newsletters.
The Fund may compare its performance to a wide
variety of indices and measures of inflation. There
are differences and similarities between the
investments that the Fund may purchase and the
investments measured by these indices.
Investors may want to compare the Fund's
performance to that of certificates of deposit offered
by banks and other depository institutions.
Certificates of deposit may offer fixed or variable
interest rates and principal is guaranteed and may be
insured. Withdrawal of the deposits prior to maturity
normally will be subject to a penalty. Rates offered
by banks and other depository institutions are subject
to change at any time specified by the issuing
institution.
Investors may also want to compare the Fund's
performance to that of money market funds. Money
market fund yields will fluctuate and shares are not
insured, but share values usually remain stable.
INDEPENDENT AUDITORS
Ernst & Young LLP, 111 East Kilbourn Avenue,
Milwaukee, Wisconsin 53202, have been elected as the
independent auditors for the Fund.
FINANCIAL STATEMENTS
The following financial statements of the Fund are
contained herein:
(a) Report of Independent Auditors.
(b) Statement of Assets and Liabilities.
(c) Notes to Statement of Assets and
Liabilities.
<PAGE>
Report of Independent Auditors
To the Shareholder and
Board of Directors of
Grand Prix Funds, Inc.
We have audited the accompanying statement of assets
and liabilities of the Grand Prix Fund, comprising the
Grand Prix Funds, Inc. (the "Fund"), as of December 23,
1997. This statement of assets and liabilities is the
responsibility of the Fund's management. Our
responsibility is to express an opinion on this
statement of assets and liabilities based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement
of assets and liabilities. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall statement of assets and
liabilities presentation. We believe that our audit of
the statement of assets and liabilities provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material
respects, the financial position of the Grand Prix Fund
at December 23, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Milwaukee, Wisconsin
December 23, 1997
<PAGE>
Grand Prix Funds, Inc.
Grand Prix Fund
Statement of Assets and Liabilities
December 23, 1997
Assets:
Cash $100,000
Unamortized organization costs 80,750
Total assets 180,750
Liabilities:
Accrued organization costs $ 40,500
Payable to adviser 40,250
Total liabilities $ 80,750
Net assets $100,000
Represented by:
Capital stock, $0.01 par value
(500,000,000 shares authorized
and 10,000 shares outstanding) $ 100
Additional paid-in capital 99,900
Net Assets $100,000
Offering price, redemption price and
net asset value per share (based
on 10,000 shares of capital stock) $ 10.00
See accompanying notes to Statement of Assets and
Liabilities.
<PAGE>
Grand Prix Funds, Inc.
Notes to Statement of Assets and Liabilities
December 23, 1997
(1) Organization
Grand Prix Funds, Inc. ("Grand Prix") was organized
on October 29, 1997 as a Maryland Corporation and
is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end
investment company issuing its shares in series,
each series representing a distinct portfolio with
its own investment objectives and policies. The
only series presently authorized is the Grand Prix
Fund (the "Fund"). The Fund has had no operations
other than those relating to organizational
matters, including the sale of 10,000 shares to
capitalize the Fund for cash in the amount of
$100,000.
(2) Significant Accounting Policies
(a) Organization Costs
Costs incurred by the Fund in connection with
its organization, registration and the initial
public offering of shares have been deferred
and will be amortized over the period of
benefit, but not to exceed five years from the
date upon which the Fund commenced its
investment activities. If any of the original
shares of the Fund purchased by the initial
shareholder are redeemed by any holder thereof
prior to the end of the amortization period,
the redemption proceeds will be reduced by the
pro rata share of the unamortized costs as of
the date of redemption. The pro rata share by
which the proceeds are reduced will be derived
by dividing the number of original shares of
the Fund being redeemed by the total number of
original shares outstanding at the time of
redemption.
(b) Federal Income Taxes
The Fund intends to comply with the
requirements of the Internal Revenue Code
necessary to qualify as a regulated investment
company and to make the requisite distributions
of income to its shareholders which will be
sufficient to relieve it from all or
substantially all federal income taxes.
<PAGE>
(3) Investment Adviser
The Fund has an agreement with Target Holdings
Corporation d/b/a Target Investors (the "Adviser")
to furnish investment advisory services to the
Fund. Under the terms of this agreement, the
Adviser is compensated at 1.00% of average daily
net assets of the Fund. The Adviser has agreed to
reduce its fees and/or reimburse the Fund's
expenses (exclusive of brokerage, interest, taxes
and extraordinary expenses) that exceed the annual
expense limitation of 1.65% of average daily net
assets until December 31, 1998.
(4) Administrator
Sunstone Financial Group, Inc. (the
"Administrator") acts as Administrator for the
Fund. As compensation for its administrative
services and the assumption of certain
administrative expenses, the Administrator is
entitled to a fee computed daily and payable
monthly, at an annual rate of 0.20% and decreasing
as the assets of the Fund reach certain levels,
subject to an annual minimum of $65,000, plus out-
of-pocket expenses. The minimum annual fee is
subject to an automatic annual escalation of 6%.
The Administrator may periodically volunteer to
reduce all or a portion of its administrative fee
with respect to the Fund. These waivers may be
terminated at any time at the Administrator's
discretion. The Administrator may not seek
reimbursement of such voluntarily reduced fees at a
later date. The reduction of such fee will cause
the yield of the Fund to be higher than it would be
in the absence of such reduction.
(5) Capital Stock
Grand Prix is authorized to issue Five Hundred
Million (500,000,000) shares of common stock with a
par value of one cent ($0.01). The Board of
Directors is empowered to issue other series of
Grand Prix shares without shareholder approval.
