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File Pursuant to Rule 497(c)
Registration Nos.: 333-39133
811-8461
STATEMENT OF ADDITIONAL INFORMATION
GRAND PRIX FUNDS, INC.
GRAND PRIX FUND
Wilton Executive Campus
15 River Road, Suite 220
Wilton, Connecticut 06897
1-800-307-4880 (Fund Information)
1-800-432-4741 (Account Information)
Website: www.grandprixfund.com
Fund Symbol: GPFFX
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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 January 31, 2000. The Fund is a series of Grand Prix Funds, Inc. (the
"Corporation").
The Fund's audited financial statements for the year ended October 31,
1999, are incorporated herein by reference to the Fund's Annual Report.
A copy of the Prospectus is available without charge upon request to
the above-noted address, toll-free telephone number or website.
This Statement of Additional Information is dated January 31, 2000.
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TABLE OF CONTENTS
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FUND ORGANIZATION.................................................................................................4
INVESTMENT RESTRICTIONS...........................................................................................4
IMPLEMENTATION OF INVESTMENT OBJECTIVE............................................................................5
Depositary Receipts............................................................................................5
Convertible Securities.........................................................................................6
Non-Diversification and Sector Concentration...................................................................6
Leveraging Strategies..........................................................................................7
Temporary Strategies...........................................................................................7
Illiquid Securities............................................................................................7
DIRECTORS AND OFFICERS............................................................................................8
PRINCIPAL SHAREHOLDERS............................................................................................9
INVESTMENT ADVISOR...............................................................................................10
FUND TRANSACTIONS AND BROKERAGE..................................................................................10
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT..........................................................12
ADMINISTRATOR....................................................................................................12
DISTRIBUTOR......................................................................................................12
PLAN OF DISTRIBUTION.............................................................................................13
Distribution and Shareholder Servicing Plans..................................................................13
Interests of Certain Persons..................................................................................14
Anticipated Benefits to the Fund..............................................................................14
Amounts Expensed Under the Plans..............................................................................15
PURCHASE, REDEMPTION AND PRICING OF SHARES.......................................................................15
Financial Intermediaries......................................................................................15
Sales Charge Reductions for Class A Shares....................................................................15
Letter of Intent for Class A Shares...........................................................................15
Right of Accumulation for Class A Shares......................................................................16
</TABLE>
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<TABLE>
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Automatic Investment Plan.....................................................................................16
Individual Retirement Accounts................................................................................17
Redemptions for Corporate Accounts............................................................................18
Systematic Withdrawal Plan....................................................................................18
Pricing of Shares.............................................................................................18
REDEMPTION IN KIND...............................................................................................19
TAXATION OF THE FUND.............................................................................................19
PERFORMANCE INFORMATION..........................................................................................19
Total Return..................................................................................................20
Comparisons...................................................................................................20
INDEPENDENT AUDITORS.............................................................................................21
FINANCIAL STATEMENTS.............................................................................................21
</TABLE>
In deciding whether to invest in the Fund, you should rely on
information in this Statement of Additional Information ("SAI") and related
Prospectus. The Fund has not authorized others to provide additional
information. The Fund has not authorized the use of this SAI in any state or
jurisdiction in which such offering may not lawfully be made.
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FUND ORGANIZATION
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The Corporation is an open-end management investment company, commonly
referred to as a mutual fund. The Fund is a series of common stock of the
Corporation, a Maryland corporation incorporated on October 30, 1997. The
Corporation is authorized to issue shares of common stock in series and classes.
The Corporation currently offers one series of shares: the Grand Prix Fund. The
shares of common stock of the Fund are further divided into two classes: Class A
and Class C. Each share of common stock of each class is entitled to one vote,
and each share is entitled to participate equally in dividends and capital gains
distributions by the respective class of shares and in the residual assets of
the respective class in the event of liquidation. However, each class of shares
bears its own expenses, is subject to its own sales charges and has exclusive
voting rights on matters pertaining to the Rule 12b-1 distribution and
shareholder servicing plan as it relates to that class.
No certificates will be issued for shares held in your account. You
will, however, have full shareholder rights. Generally, the Fund will not hold
annual shareholders' meetings unless required by the Investment Company Act of
1940, as amended (the "1940 Act") or Maryland law.
INVESTMENT RESTRICTIONS
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The Fund's investment objective is capital appreciation. The following
are the Fund's fundamental investment restrictions which cannot be changed
without the approval of a majority of the Fund's outstanding voting securities.
A "majority of the Fund's outstanding voting securities" means the lesser of (i)
67% of the shares of common stock of the Fund represented at a meeting at which
more than 50% of the outstanding shares are present, or (ii) more than 50% of
the outstanding shares of common stock of the Fund.
The Fund:
1. May not issue senior securities, except as permitted under 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 (the "1933 Act"),
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
total 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 total 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, 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;
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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.
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.
Except for the fundamental investment restrictions listed above and the
Fund's investment objective, the Fund's other investment policies are not
fundamental and may be changed with approval of the Corporation'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.
IMPLEMENTATION OF INVESTMENT OBJECTIVE
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The following information supplements the discussion of the Fund's
investment objective and strategy described in the Prospectus under the captions
"Investment Objective," and "Implementation of Investment Objective."
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
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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.
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 the extent necessary 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) 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) 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).
In addition, the Fund has adopted a fundamental investment restriction
which prohibits the Fund from investing more than 25% of its total 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 total assets in securities of
companies in any one industry. 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.
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LEVERAGING STRATEGIES
The Fund may borrow up to 33 1/3% of the value of its total assets for
any purpose including to leverage its portfolio. Borrowing may exaggerate
changes in the net asset value of the Fund's shares and in the return on the
Fund's portfolio. Although the principal of any borrowing will be fixed, the
Fund's assets may change in value during the time the borrowing is outstanding.
The Fund may be required to liquidate securities at a time when it would be
disadvantageous to do so in order to make payments with respect to an
outstanding borrowing. In addition, the Fund may be required to segregate liquid
assets in an amount sufficient to meet its obligations in connection with such
borrowings.
TEMPORARY STRATEGIES
Prior to investing proceeds from sales of Fund shares, to meet ordinary
daily cash needs, and to retain the flexibility to respond promptly to adverse
changes in market, economic, political and other 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
$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");
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; and
REPURCHASE AGREEMENTS. Repurchase agreements with respect to
obligations of the U.S. government, its agencies or instrumentalities.
ILLIQUID SECURITIES
The Fund may invest up to 5% of its net assets in illiquid securities
(i.e., securities that are not readily marketable). For purposes of this
restriction, illiquid securities include, but are not limited to, restricted
securities (securities the disposition of which is restricted under the federal
securities laws), repurchase agreements with maturities in excess of seven days
and other securities that are not readily marketable. The Board of Directors of
the
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Corporation, or its delegate, has the ultimate authority to determine, to the
extent permissible under the federal securities laws, which securities are
liquid or illiquid for purposes of this 5% limitation. Certain securities exempt
from registration or issued in transactions exempt from registration under the
1933 Act, such as securities that may be resold to institutional investors under
Rule 144A under the 1933 Act, may be considered liquid under guidelines adopted
by the Board of Directors.
DIRECTORS AND OFFICERS
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Under the laws of the State of Maryland, the Board of Directors of the
Corporation is responsible for managing its business and affairs. The directors
and officers of the Corporation, together with information as to their principal
business occupations during the last five years, and other information, are
shown below. Each director 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, with the exception of Ms. Romstad, have served as
such since December 10, 1997. Ms. Romstad has served as an officer of the
Corporation since October 2, 1998.
*ROBERT ZUCCARO, President and a Director of the Corporation.
Mr. Zuccaro, 57 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, Inc.
("Advisor") in 1983, Mr. Zuccaro spent six years with Axe-Houghton, where he was
President and a Director of Axe-Houghton Stock Fund and Vice President and
Director of Portfolio Management of E.W. Axe & Co. Mr. Zuccaro is the President
of the Advisor and is a Chartered Financial Analyst.
Mr. Zuccaro'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, 54 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.
EDWARD F. RONAN, JR., a Director of the Corporation.
Mr. Ronan, 47 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 served as a director of Q.E.P.
Co., Inc., a flooring tool manufacturer and distributor, from 1993 to 1998.
Mr. Ronan's address is 30 Main Street, Danbury, Connecticut 06810.
DENNIS K. WALDMAN, a Director of the Corporation.
Mr. Waldman, 44 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
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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.
ANDREA ROMSTAD, Vice-President and Secretary of the Corporation.
Ms. Romstad, 37 years old, received a Bachelor's of Business
Administration in marketing management from Bernard M. Baruch College of the
City University of New York in 1985. Prior to joining Advisor as an analyst in
1993, Ms. Romstad was a credit assistant at Skandinaviska Enskilda Banken
Corporation and a financial assistant at Finansskandic Corporation.
Ms. Romstad's address is 15 River Road, Suite 220, Wilton, Connecticut
06897.
As of December 31, 1999, officers and directors of the Corporation
beneficially owned 244,412.249 shares of common stock, or 4.89%, of the Fund's
then outstanding Class A shares (including 142,586.305 shares owned by the
Advisor, which is controlled by Mr. Zuccaro, and 99,347.598 shares owned by Marc
Zuccaro - UTMA for which Mr. Zuccaro is the custodian). 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. Accordingly, Mr. Zuccaro, Ms. Boyle and Ms. Romstad do
not receive any remuneration from the Fund for their services as directors and
officers. The following table provides information relating to compensation paid
to disinterested directors of the Corporation for their services as such for
fiscal 1999:
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Name Cash Compensation Other Compensation Total
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Edward F. Ronan, Jr. $500 $0 $500
Dennis K. Waldman $500 $0 $500
</TABLE>
Each director who is not deemed an "interested person" of the Fund, as
defined in the 1940 Act, received $125 per meeting attended and reimbursement of
reasonable expenses. The Board held four meetings during fiscal 1999. For fiscal
2000, disinterested directors will receive $300 per meeting attended.
Disinterested directors may elect to receive their compensation in the form of
cash, shares of the Fund, or both.
PRINCIPAL SHAREHOLDERS
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As of December 31, 1999, the following person owned of record or was
known by the Fund to own of record or beneficially 5% or more of the outstanding
Class A shares of the Fund:
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<CAPTION>
Name and Address No. Shares Percentage
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<S> <C> <C>
Charles Schwab & Co., Inc. 573,220.032 11.48%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
As of December 31, 1999 no person owned of record or was known by the Fund to
own of record or beneficially 5% or more of the outstanding Class C shares of
the Fund. Accordingly, as of December 31, 1999, no person owned a controlling
interest in the Fund.
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INVESTMENT ADVISOR
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Target Holdings Corporation, d.b.a. Target Investors, Inc. ("Advisor")
is the investment advisor to the Fund. The Advisor is controlled by Robert
Zuccaro.
The investment advisory agreement between the Corporation and the
Advisor dated as of December 31, 1997 ("Advisory Agreement") had an initial term
of two years and now 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. 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
initially 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. Most recently, the Advisory Agreement was approved by the
Board of Directors, including a majority of the disinterested directors on
December 9, 1999. 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 $79,558.
Pursuant to an expense cap agreement, the Advisor agreed to limit the
total operating expenses of the Fund to an annual rate of 1.72% of the Fund's
average net assets attributable to the Class A shares and 2.47% of the Fund's
average net assets attributable to the Class C shares until February 29, 2000.
From February 29, 2000 until February 28, 2002, the Advisor has contractually
agreed to limit the Class A total operating expenses to an annual rate of 1.75%
and the Class C total operating expenses to an annual rate of 2.50%. 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 reimburse certain Fund
expenses. Any waiver of fees or reimbursement of expenses will be made on a
monthly basis and, with respect to the latter, will be paid to the Fund by
reduction of the Advisor's fee. For the fiscal period ended October 31, 1998,
the Fund did not pay an advisory fee to the Advisor because the Advisor waived
its entire advisory fee. If the Advisor had not agreed to waive the advisory fee
for the fiscal period ended October 31, 1998, the Advisor would have received
$10,435 for its investment advisory services. For the fiscal year ended October
31, 1999, the Fund paid the Advisor $185,201 for its investment advisory
services. If the Advisor had not agreed to waive a portion of its advisory fee
during the same time period, the Advisor would have received an additional
$204,561 from the Fund for its investment advisory services.
FUND TRANSACTIONS AND BROKERAGE
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Under the Advisory Agreement, the 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. Remuneration for trades may include commissions, dealer
spreads, mark-ups, and mark-downs. 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
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competitive commission rates, the Fund does not necessarily pay the lowest
available commission. Brokerage may 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, the 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 the Advisor determines in good faith that the amount of such
commissions is reasonable in relation to the value of the research information
and brokerage services provided by such broker or dealer to the Fund. The
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) the
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 the 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 the Advisor, the total commissions paid by the
Fund will be reasonable in relation to the benefits to the Fund over the long
term.
The aggregate amount of brokerage commissions paid by the Fund for the
fiscal year ended October 31, 1999 and the fiscal period ended October 31, 1998
was $278,022 and $10,048, respectively. The aggregate dollar amount of brokerage
commissions paid by the Fund in fiscal 1998 differed materially from the amount
paid during fiscal 1999 due to the vast increase in the asset size of the Fund
from fiscal 1998 to fiscal 1999. For the fiscal year ended October 31, 1999, the
Fund paid $43,875 in brokerage commissions with respect to $691,697,576 in
transactions for which research services were provided. During fiscal 1999, the
Fund did not acquire any stock of its regular brokers or dealers.
The 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 the Advisor in servicing
all of its accounts; not all of such services may be used by the Advisor in
connection with the Fund. The 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, the Advisor believes such costs to the
Fund will not be disproportionate to the benefits received by the Fund on a
continuing basis. The 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 the 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.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
- --------------------------------------------------------------------------------
As custodian of the Fund's assets, Firstar Bank, N.A., 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202, has custody of all securities and
cash of the Fund, delivers and receives payment for portfolio securities sold,
11
<PAGE> 12
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. Firstar Mutual Fund Services, LLC ("Firstar"), Third Floor,
615 East Michigan Street, Milwaukee, Wisconsin 53202, acts as transfer agent and
dividend-disbursing agent for the Fund.
ADMINISTRATOR
- --------------------------------------------------------------------------------
Pursuant to a Fund Administration Servicing Agreement and a Fund
Accounting Servicing Agreement, Firstar also performs certain administrative and
tax reporting functions for the Fund, including preparing and filing federal and
state tax returns, preparing and filing securities registration compliance
filings with various states, compiling data for and preparing notices to the
SEC, preparing financial statements for the annual and semi-annual reports to
the SEC and current investors, monitoring the Fund's expense accruals and
performing securities valuations and, from time to time, monitoring the Fund's
compliance with the Fund's investment objective and restrictions. Pursuant to
the Fund Administration Servicing Agreement, Firstar is entitled to receive from
the Fund a fee, computed daily and payable monthly, based on the Fund's average
net assets: at an annual rate of .07 of 1% on the first $200 million, .06 of 1%
on the next $500 million and .04 of 1% on average net assets in excess of $700
million, subject to an annual minimum fee of $40,000, plus out-of-pocket
expenses. There is also a 20% additional charge for each additional class.
Pursuant to the Fund Accounting Servicing Agreement, Firstar is entitled to
receive a fee of $22,000 for the first $40 million of average net assets, .01 of
1% on the next $200 million on average net assets and .005 of 1% on average net
assets in excess of $240 million, plus out-of-pocket expenses. There is a 25%
charge for each additional class. For the fiscal period ended October 31, 1998,
Sunstone Financial Group, Inc. ("Sunstone"), the Fund's prior administrator,
received $54,139 under an Administration and Fund Accounting Agreement between
the Fund and Sunstone. For fiscal 1999, Sunstone received $52,819 from the Fund
under the Administration and Fund Accounting Agreement, and Firstar received
$15,071 from the Fund under the Fund Administration Servicing Agreement and
$10,201 from the Fund under the Fund Accounting Servicing Agreement.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Under a Distribution Agreement dated July 13, 1999, (the "Distribution
Agreement"), T. O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington,
Connecticut 06032-2256, acts as the principal distributor of the Fund's shares
("Distributor"). The Distribution Agreement provides that the Distributor will
use its best efforts to distribute the Fund's shares. The Fund's shares are
offered for sale continuously at (i) net asset value per share plus a maximum
initial sales charge of 5.25% of the offering price, in the case of Class A
shares, and (ii) net asset value per share plus an initial sales charge of 1.00%
of the offering price, in the case of Class C shares. Existing Class A
shareholders as of November 30, 1998, are not subject to the sales charge on
additional purchases of Class A shares. To encourage ownership of Fund shares,
directors, officers and full-time employees of the Corporation and the Advisor
and spouses and family members of such persons are not subject to the Class A
sales charge. In addition, no sales charge is imposed on the reinvestment of
dividends or capital gains with respect to Class A and Class C shares. Certain
other exceptions to the imposition of the sales charge apply in the case of
Class A shares, as discussed more fully in the Prospectus under the caption
"Opening an Account." The Distribution Agreement is subject to the same
termination and renewal provisions as are described above with respect to the
Advisory Agreement, except that the Distribution Agreement need not be approved
by the Fund's shareholders.
With respect to Class A shares, the Distributor may pay a portion of
the applicable initial sales charge due upon the purchase of such shares to the
broker, if any, involved in the trade, as follows:
<TABLE>
<CAPTION>
Dollar Amount of Initial Sales Portion of Initial Sales Charge
Shares Purchased Charge (1) Paid to Broker-Dealers (1)(2)
---------------- ------------- ----------------------------------
<S> <C> <C>
Less than $50,000 5.25% 5.00%
$50,000 but less than $100,000 4.50% 4.50%
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C>
$100,000 but less than $250,000 3.50% 3.50%
$250,000 but less than $500,000 2.50% 2.50%
$500,000 but less than $1,000,000 2.00% 2.00%
$1,000,000 or more 1.00% 1.00%
</TABLE>
- -----------------
(1) Reflected as a percentage of the offering price of Class A shares.
The offering price is the sum of the net asset value per share
plus the initial sales charge indicated in the table (the
"Offering Price").
(2) All sales charges may at times be paid to the broker-dealer
involved in the trade, if any. A broker-dealer paid all or
substantially all of the sales charge may be deemed an
"underwriter" under the 1933 Act.
With respect to Class C shares, the Distributor may pay all of the
initial sales charge due upon the purchase of such shares to the broker, if any,
involved in the trade. A broker-dealer paid all or substantially all of the
sales charge may be deemed an "underwriter" under the 1933 Act.
As compensation for its services under the Distribution Agreement, the
Distributor may retain all or a portion of (i) the initial sales charge from
purchases of Fund shares and (ii) the Rule 12b-1 fees payable with respect to
Fund shares (as described under "Distribution and Shareholder Servicing Plans,"
below). For the fiscal year ended October 31, 1999, the aggregate dollar amount
of initial sales charges imposed on purchases of Class A and Class C shares was
$823,416. The Distributor did not retain any amounts from Class A and Class C
sales charges. For the fiscal year ended October 31, 1999, the aggregate dollar
amount of Rule 12b-1 fees payable with respect to Class A and Class C shares was
$95,437 and $8,019, respectively. Of this $103,456, the Distributor retained
$6,450 from Class A and Class C Rule 12b-1 fees.
PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
The Corporation, on behalf of each class of shares, 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 Class A Plan,
the Class A shares may be required to pay the Recipients a fee of up to 0.25% of
the average daily net assets attributable to the Class A shares to finance
activities primarily intended to result in the sale of Class A shares. The Class
A Plan is a "reimbursement" plan, which means that the fees paid by the Fund
under the Class A 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 the Class A
Plan, the unpaid amount is carried forward from period to period while the Class
A 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.
The Class C Plan provides that the Class C shares are required to pay
the Recipients (i) a distribution fee of 0.75% of the average daily net assets
attributable to the Class C shares and (ii) a shareholder servicing fee of 0.25%
of the average daily net assets attributable to the Class C shares. Payments
under the Class C Plan are based upon a percentage of average daily net assets
attributable to the Class C shares regardless of amounts actually paid or
expenses actually incurred by the Recipients, however, in no event, may such
payments exceed the maximum allowable fee. It is, therefore, possible that the
Recipients may realize a profit in a particular year as a result of these
payments. Each Plan has the effect of increasing the applicable class's expenses
from what they would otherwise be. The Board of
13
<PAGE> 14
Directors reviews each class's distribution and shareholder servicing fee
payments in connection with its determination as to continuance of each Plan.
From time to time, the Recipients may engage in activities which
jointly promote the sales of both classes of shares, the cost of which may not
be readily identifiable or related to any one class. Generally, the distribution
expenses attributable to such joint distribution activities will be allocated
among each class of shares on the basis of its respective net assets, although
the Board of Directors may allocate such expenses in any other manner it deems
fair and equitable.
The Plans, including a form of the Rule 12b-1 Related Agreement, have
been unanimously approved by the Board of Directors of the Corporation,
including all of the members of the Board who are not "interested persons" of
the Corporation as defined in the 1940 Act and who have no direct or indirect
financial interest in the operation of the Plans or any Rule 12b-1 Related
Agreement ("Disinterested Directors") voting separately.
The Plans, and any Rule 12b-1 Related Agreement which is entered into,
will continue in effect for a period of more than one year only so long as their
continuance is specifically approved at least annually by a vote of a majority
of the Corporation's Board of Directors, and of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting on the Plans, or
the Rule 12b-1 Related Agreements, as applicable. In addition, a Plan, and any
Rule 12b-1 Related Agreement, may be terminated without penalty, by vote of a
majority of the respective class's outstanding voting securities, or by vote of
a majority of Disinterested Directors (on not more than 60 days' written notice
in the case of the Rule 12b-1 Related Agreement only). Payment of the
distribution and shareholder servicing fees is to be made monthly, within 30
days after the month for which the fee is payable.
INTERESTS OF CERTAIN PERSONS
With the exception of the Advisor and the Distributor, no "interested
person" of the Fund, as defined in the 1940 Act, and no Disinterested Director
has or had a direct or indirect financial interest in the Plans or any Rule
12b-1 Related Agreement.
ANTICIPATED BENEFITS TO THE FUND
The Board of Directors of the Corporation considered various factors in
connection with its decision to continue the Class A and Class C Plans,
including: (a) the nature and causes of the circumstances which make
continuation of the Plans necessary and appropriate; (b) the way in which the
Plans 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 Plans 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 each Plan was reasonably likely to benefit the
respective class 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 Plans 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 continuation of the Plans
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
Plans.
14
<PAGE> 15
AMOUNTS EXPENSED UNDER THE PLANS
For the fiscal year ended October 31, 1999, the Class A shares paid
$95,437 under the Class A Plan and the Class C shares paid $8,019 under the
Class C Plan. Of the $103,456 expensed under the Class A and Class C Plans,
$6,331 was spent on printing and mailing prospectuses to other than current
shareholders, $7,556 was spent on advertising and $73,352 was spent on dealer
compensation. The Distributor retained $6,450 of the amount expensed under the
Class A and Class C Plans.
PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
FINANCIAL INTERMEDIARIES
Broker-dealers, financial institutions and other financial
intermediaries that have entered into agreements with the Advisor and/or
Distributor on behalf of the Fund may enter purchase or redemption orders on
behalf of their customers. If you purchase or redeem shares of the Fund through
a financial intermediary, certain features of the Fund may not be available or
may be modified in accordance with the terms of the intermediaries' agreement
with the Advisor and/or Distributor. In addition, certain operational policies
of the Fund, including those relating to settlement and dividend accrual, may
vary from those applicable to direct shareholders of the Fund and may vary among
intermediaries. We urge you to consult your financial intermediary for more
information regarding these matters. In addition, the Fund may pay, directly or
indirectly, amounts to financial intermediaries that provide transfer agent
and/or other administrative services relating to their customers provided,
however, that the Fund will not pay more for these services through intermediary
relationships than it would if the intermediaries' customers were direct
shareholders in the Fund. Certain financial intermediaries may charge a
commission or other transaction fee for their services.
SALES CHARGE REDUCTIONS FOR CLASS A SHARES
The sales charge for Class A shares will be reduced to 1% for sponsored
arrangements with organizations that make recommendations to or permit group
solicitations of the organization's employees, members or participants. The Fund
may, at its discretion, name a single registered representative as servicing
agent for the organization.
The sales charge for Class A shares will be reduced to 1% for those
persons who adopt the Automatic Investment Plan ("AIP"). The sales charge for
Class A shares will also be reduced to 1% for those persons who sell shares of a
mutual fund, other than the Fund, and use any amount of the proceeds to purchase
Fund shares within 90 days of such sale. A qualification form must be completed
and included with the required account application(s) for initial purchases, and
must accompany or precede subsequent purchase orders, including orders submitted
electronically.
LETTER OF INTENT FOR CLASS A SHARES
The Fund's Letter of Intent ("LOI") allows for reduction of the initial
sales charge for Class A shares when multiple purchases of Class A shares are
combined by taking advantage of the breakpoints in the sales charge schedule. By
completing the LOI application, you express an intention to invest during the
next 10-month period a specified amount (minimum of at least $50,000) which, if
made at one time, would qualify for a reduced sales charge.
Any Class A shares you own on the date you execute the LOI may be used
as a credit toward the completion of the LOI. However, the reduced sales charge
will only be applied to new purchases. Any redemptions made during the 10-month
period will be subtracted from the amount of the purchases for purposes of
determining whether the terms of the LOI have been satisfied. If, at the end of
the 10-month period covered by
15
<PAGE> 16
the LOI, the total amount of purchases (less redemptions) does not equal the
amount indicated, you will be required to pay the difference between the sales
charge paid at the reduced rate and the sales charge applicable to the purchases
actually made. Shares equal to 5% of the amount specified in the LOI will be
held in escrow during the 10-month period and are subject to involuntary
redemption to assure any payment of a higher applicable sales charge.
By signing the LOI application, you grant to the Distributor a security
interest in the reserved shares and appoint the Distributor as attorney-in-fact
to sell any or all of the reserved shares to cover any additional sales charges
if you do not fulfill your undertaking. Signing the LOI application does not
bind you to purchase the full amount indicated, but you must complete the
intended purchase in accordance with the terms of the LOI to obtain the reduced
sales charge. For more information on the LOI, please contact your investment
professional, the Distributor or Firstar.
RIGHT OF ACCUMULATION FOR CLASS A SHARES
The Fund's Right of Accumulation ("ROA") program also allows for
reduction of the Fund's initial sales charge for Class A shares when multiple
purchases of Class A shares are combined by taking advantage of the breakpoints
in the sales charge schedule. Using the ROA, you may purchase Class A shares at
the sales charge applicable to the sum of (i) the dollar amount then being
purchased, plus (ii) the current market value (calculated at the maximum
Offering Price) of all Class A shares already held by you, your spouse and your
minor children or you and members of a "qualified group." A "qualified group" is
one that was formed at least one year prior to the ROA purchase, has a purpose
other than buying Class A shares at a discount, has more than 10 members, can
arrange meetings between the Distributor and group members, agrees to include
Fund literature in mailings to its members, agrees to arrange for payroll
deductions or other bulk transmissions of investment to the Fund and meets other
uniform criteria that allow the Distributor to achieve cost savings in
distributing Class A shares of the Fund. To receive the ROA, at the time of
purchase, you must give your investment professional, the Distributor or
Firstar, the Fund's transfer agent, sufficient information to determine whether
the purchase will qualify for a reduced sales charge.
AUTOMATIC INVESTMENT PLAN
You may make purchases of shares of the Fund automatically on a regular
basis provided you invest at least $250 per transaction. You must meet the
Fund's minimum initial investment of $5,000 before the AIP may be established.
Under the AIP, your designated bank or other financial institution debits a
preauthorized amount from your account each designated period and applies the
amount to the purchase of Fund shares. The Fund requires 13 business days after
receipt of your request to initiate the AIP to verify your account information.
Generally, the AIP will begin on the next transaction date scheduled by the Fund
for the AIP following this 13 business day period. AIP transactions may be
scheduled for any day. If the purchase date is a weekend or a holiday, the
purchase will be made on the next business day. The AIP can be implemented with
any financial institution that is a member of the Automated Clearing House. No
service fee is currently charged by the Fund for participation in the AIP. You
will receive a statement on a quarterly basis showing the purchases made under
the AIP. A $25 fee will be imposed by the Fund if for any reason the transaction
cannot be completed. You may also be responsible for any losses suffered by the
Fund as a result. If you make a purchase pursuant to the AIP, and request a
redemption of such shares shortly thereafter, the Fund may delay payment of the
redemption proceeds until the Fund verifies that the proceeds used to purchase
the shares were properly debited from your designated bank or other financial
institution. You may adopt the AIP when you open an account by completing the
appropriate section of the Purchase Application. The sales charge will be
reduced to 1% for those persons who adopt the AIP. You may obtain an application
to establish the AIP after an account is opened by calling the Fund at
1-800-307-4880. A signature guarantee is required. Changes to bank information
must be made in writing and signed by all registered holders of the account with
the signatures guaranteed by a commercial bank or trust company in the United
States, a member firm of the NASD or other eligible guarantor institution. A
Notary Public is not an acceptable guarantor.
16
<PAGE> 17
INDIVIDUAL RETIREMENT ACCOUNTS
In addition to purchasing Fund shares as described in the Prospectus
under "Opening an Account," individuals may establish their own tax-sheltered
individual retirement accounts ("IRAs"). The Fund offers two types of IRAs, a
Traditional IRA and a Roth IRA.
TRADITIONAL IRA. In a Traditional IRA, amounts contributed to the IRA
may be tax deductible at the time of contribution depending on whether the
investor is an "active participant" in an employer-sponsored retirement plan and
the investor's income. Distributions from a Traditional IRA will be taxed at
distribution except to the extent that the distribution represents a return of
the investor's own contributions for which the investor did not claim (or was
not eligible to claim) a deduction. Distributions prior to age 59-1/2 may be
subject to an additional 10% tax applicable to certain premature distributions.
Distributions must commence by April 1 following the calendar year in which the
investor attains age 70-1/2. Failure to begin distributions by this date (or
distributions that do not equal certain minimum thresholds) may result in
adverse tax consequences.
ROTH IRA. In a Roth IRA, amounts contributed to the IRA are taxed at
the time of contribution, but distributions from the IRA are not subject to tax
if you have held the IRA for at least five years and the distributions are on
account of one of four specified events, i.e., attainment of age 59-1/2,
disability, the purchase of a first home or death. Investors whose income
exceeds certain limits are ineligible to contribute to a Roth IRA. Distributions
that do not satisfy the requirements for tax-free withdrawal are subject to
income taxes (and possibly penalty taxes) to the extent that the distribution
exceeds your contributions to the IRA. The minimum distribution rules applicable
to Traditional IRAs do not apply during the lifetime of the investor. Following
the death of the investor, certain minimum distribution rules apply.
SIMPLIFIED EMPLOYEE PENSION PLAN. A Traditional IRA may also be used in
conjunction with a Simplified Employee Pension Plan ("SEP-IRA"). A SEP-IRA is
established through execution of Form 5305-SEP together with a Traditional IRA
established for each eligible employee. Generally, a SEP-IRA allows an employer
(including a self-employed individual) to purchase shares with tax deductible
contributions not exceeding annually for any one participant 15% of compensation
(disregarding for this purpose compensation in excess of $170,000 per year). The
$170,000 compensation limit is adjusted periodically for cost of living
increases. A number of special rules apply to SEP Plans, including a requirement
that contributions generally be made on behalf of all employees of the employer
(including for this purpose a sole proprietorship or partnership) who satisfy
certain minimum participation requirements.
SIMPLE IRA. An IRA may also be used in connection with a SIMPLE Plan
established by the investor's employer (or by a self-employed individual). When
this is done, the IRA is known as a SIMPLE IRA, although it is similar to a
Traditional IRA with the exceptions described below. Under a SIMPLE Plan, the
investor may elect to have his or her employer make salary reduction
contributions of up to $6,000 per year to the SIMPLE IRA. The $6,000 limit is
adjusted periodically for cost of living increases. In addition, the employer
will contribute certain amounts to the investor's SIMPLE IRA, either as a
matching contribution to those participants who make salary reduction
contributions or as a non-elective contribution to all eligible participants
whether or not making salary reduction contributions. A number of special rules
apply to SIMPLE Plans, including (1) a SIMPLE Plan generally is available only
to employers with fewer than 100 employees; (2) contributions must be made on
behalf of all employees of the employer (other than bargaining unit employees)
who satisfy certain minimum participation requirements; (3) contributions are
made to a special SIMPLE IRA that is separate and apart from the other IRAs of
employees; (4) the distribution excise tax (if otherwise applicable) is
increased to 25% on withdrawals during the first two years of participation in a
SIMPLE IRA; and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into another SIMPLE IRA (and not
to a Traditional IRA or to a Roth IRA). A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for each eligible employee.
For Traditional and Roth IRAs, the maximum annual contribution
generally is equal to the lesser of $2,000 or 100% of your compensation (earned
income). You may also contribute to a Traditional IRA or Roth IRA on behalf of
your spouse provided that the individual has sufficient compensation (earned
income). Contributions to a Traditional
17
<PAGE> 18
IRA reduce the allowable contributions under a Roth IRA, and contributions to a
Roth IRA reduce the allowable contribution to a Traditional IRA.
Under current IRS regulations, all IRA applicants must be furnished a
disclosure statement containing information specified by the IRS. Applicants
generally have the right to revoke their account within seven days after
receiving the disclosure statement and obtain a full refund of their
contributions. The custodian may, in its discretion, hold the initial
contributions uninvested until the expiration of the seven-day revocation
period. The custodian does not anticipate that it will exercise its discretion
but reserves the right to do so.
REDEMPTIONS FOR CORPORATE ACCOUNTS
Any redemption or transfer of ownership request for corporate accounts
will require the following written documentation:
1. A written letter of instruction signed by the required number of
authorized officers, along with their respective positions.
2. A certified Corporate Resolution that states the date the
Resolution was adopted and who is empowered to act, transfer or
sell assets on behalf of the corporation.
3. If the Corporate Resolution is dated more than 60 days prior to
the date of the transaction request, a Certificate of Incumbency
from the Corporate Secretary which specifically states that the
officer or officers named in the resolutions have the authority
to act on the account. The Certificate of Incumbency must be
dated within 60 days of the requested transaction. If the
Corporate Resolution confers authority on officers by title and
not by name, the Certificate of Incumbency must name the
officer(s) and their title(s).
SYSTEMATIC WITHDRAWAL PLAN
You may set up automatic withdrawals from your Fund account at regular
intervals. To begin distributions, your account must have an initial balance of
$25,000 and at least $250 per payment must be withdrawn. To establish the
systematic withdrawal plan ("SWP"), the appropriate section in your Purchase
Application must be completed. Redemptions will take place on a monthly,
quarterly, semi-annual or annual basis (or the following business day) as
indicated on your Purchase Application. The amount or frequency of withdrawal
payments may be varied or temporarily discontinued by calling 1-800-432-4741.
Depending upon the size of the account and the withdrawals requested (and
fluctuations in the net asset value of the shares redeemed), redemptions for the
purpose of satisfying such withdrawals may reduce or even exhaust your account.
If the amount remaining in your account is not sufficient to meet a plan
payment, the remaining amount will be redeemed and the SWP will be terminated.
PRICING OF SHARES
Shares of the Fund are offered and sold on a continuous basis at the
Offering Price, which is the sum of the net asset value per share (next computed
following receipt of a purchase request in good order by a dealer, the
Distributor or Firstar, the Fund's transfer agent, as the case may be) and the
applicable sales charge. The Class A sales charge may be waived for certain
investors. For more information, please see "Opening an Account" in the
Prospectus.
The net asset value per share for each class is determined as of the
close of regular trading (generally 4:00 p.m. Eastern Time) on each day the New
York Stock Exchange (the "Exchange") is open for business. Purchase orders and
redemption requests received in good order on a day the Exchange is open for
trading, prior to the close of trading on that day, will be valued as of the
close of trading on that day. Applications for purchase of shares and requests
for redemption of shares received after the close of trading on the Exchange
will be valued as of the close of trading on the next day the Exchange is open.
The Fund is not required to calculate its net asset value on days during which
the Fund receives no orders to purchase or redeem shares. Net asset value per
share for each class is calculated by taking the fair value of the total assets
per class, including interest or dividends accrued, but not yet collected, less
all
18
<PAGE> 19
liabilities, and dividing by the total number of shares outstanding in that
class. The result, rounded to the nearest cent, is the net asset value per
share.
In determining net asset value, expenses are accrued and applied daily.
Common stocks and other equity-type securities are valued at the last sales
price on the national securities exchange or Nasdaq on which such securities are
primarily traded; however, securities traded on a national securities exchange
or Nasdaq for which there were no transactions on a given day, and securities
not listed on a national securities exchange or Nasdaq, are valued at the
average of the most recent bid and asked prices. Any securities or other assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by the Board of Directors of the Corporation or its
delegate. The Board of Directors has approved the use of pricing services to
assist the Fund in the determination of net asset value. All money market
instruments with maturities less than 60 days will be valued on an amortized
cost basis.
REDEMPTION IN KIND
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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
net asset value of the class of shares of the Fund being redeemed, valued at the
beginning of such election period. The Fund intends to 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. If you receive an in kind distribution you will likely incur a brokerage
charge on the disposition of such securities through a securities dealer.
TAXATION OF THE FUND
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The Fund intends to qualify annually as a "regulated investment
company" under Subchapter M of the Code, and, if so qualified will not be liable
for federal income taxes to the extent earnings are distributed to shareholders
on a timely basis. In the event the Fund fails to qualify as a "regulated
investment company," it will be treated as a regular corporation for federal
income tax purposes. Accordingly, the Fund would be subject to federal income
taxes and any distributions that it makes would be taxable and non-deductible by
the Fund. This would increase the cost of investing in the Fund for shareholders
and would make it more economical for shareholders to invest directly in
securities held by the Fund instead of investing indirectly in such securities
through the Fund. The Fund's active trading approach may increase the amount of
capital gains tax paid by Fund shareholders.
PERFORMANCE INFORMATION
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The Fund's historical performance or return may be shown in the form of
various performance figures, including average annual total return, total
return, and cumulative total return. 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, investment management and the imposition of
sales charges. Any additional fees charged by a broker-dealer or other financial
intermediary would reduce the returns described in this section.
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TOTAL RETURN
Average annual total return and total return figures measure both the
net investment income generated by, and the effect of any realized and
unrealized appreciation or depreciation of, the underlying investments in a
class of shares over a specified period of time, assuming the reinvestment of
all dividends and distributions. Average annual total return figures are
annualized and therefore represent the average annual percentage change over the
specified period. Total return figures are not annualized and therefore
represent the aggregate percentage or dollar value change over the period.
The average annual total return of each class of shares 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") in a class of shares 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. This calculation
reflects the deduction of the maximum 5.25% initial sales charge applicable to
Class A shares and the 1.00% initial sales charge applicable to Class C shares.
In addition, this 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 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.
The average annual total returns for the Class A shares of the Fund for
the fiscal year ended October 31, 1999 and since inception (December 31, 1997)
were 131.51% and 93.04%, respectively. The total return for the Class C shares
of the Fund for the period from August 5, 1999 to October 31, 1999 was 37.08%.
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. 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
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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.
The Fund's performance may also be discussed during television
interviews of Advisor personnel conducted by news organizations to be broadcast
in the United States and elsewhere.
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
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Ernst & Young LLP, 111 East Kilbourn Avenue, Milwaukee, Wisconsin
53202, independent auditors for the Fund, audit and report on the Fund's
financial statements.
FINANCIAL STATEMENTS
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The following audited financial statements of the Fund are incorporated
herein by reference to the Fund's Annual Report for the year ended October 31,
1999, as filed with the Securities and Exchange Commission on January 3, 2000:
(a) Statement of Assets and Liabilities as of October 31, 1999.
(b) Statement of Operations for the year ended October 31, 1999.
(c) Statement of Cash Flows for the year ended October 31, 1999.
(d) Statement of Changes in Net Assets for the year ended October 31,
1999 and the period December 31, 1997 to October 31, 1998.
(e) Financial Highlights for the year ended October 31, 1999 and the
period December 31, 1997 to October 31, 1998 for Class A, and for
the period August 5, 1999 to October 31, 1999 for Class C.
(f) Schedule of Investments as of October 31, 1999.
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(g) Notes to the Financial Statements.
(h) Report of Independent Auditors dated November 19, 1999.
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