Registration No. 333-46323
ICA No. 811-08655
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES |X|
ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT |X|
COMPANY ACT OF 1940
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 |X|
(Check Appropriate Box or Boxes)
QUESTAR FUNDS,INC.
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(Exact Name of Registrant as Specified in Charter)
The Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11788
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(Address of Principal Executive Offices)(Zip Code)
(516) 951-0500
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(Registrant's Telephone Number, Including Area Code)
Michael Miola
Questar Funds, Inc.
The Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11788
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(Name and Address of Agent For Service)
With a copy to:
Thomas R. Westle, Esq.
Spitzer & Feldman P.C.
405 Park Avenue
New York, NY 10022
As soon as practicable after the effective date
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(Approximate Date of Proposed Public Offering)
Shares of Common Stock
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(Title of Securities Being Registered)
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It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b).
[ ] on (date) pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(1).
|X| 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
THE REGISTRANT DECLARES THAT AN INDEFINITE AMOUNT OF ITS SHARES OF
COMMON STOCK IS BEING REGISTERED BY THE REGISTRATION STATEMENT PURSUANT TO
SECTION 24(F) UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND RULE
24F-2 THEREUNDER.
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QUESTAR FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
ITEM NO. CAPTION IN PROSPECTUS
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1 Front and Back Cover Pages
2 Investment Objectives and Policies
3 Transaction and Operating Expense Table
4 Investment Objectives and Policies
5 Dividends and Distributions; Performance Comparisons
6 Management
7 How to Purchase Shares; How to Redeem Shares;
Shareholder Services; Dividends and Distributions; Valuation of
Shares; Tax Status and General Information
8 Not Applicable
9 Not Applicable
CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
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10 Cover Page and Table of Contents
11 Investment Objectives, Policies and Restrictions
12 Directors and Executive Officers
13 Ownership of Common Stock
14 Investment Advisory and Other Services
15 Portfolio Transactions and Allocation of Brokerage
16 Ownership of Common Stock
17 Net Asset Value and Public Offering Price; Redemption of Shares
18 Taxation
19 Investment Advisory and Other Services
20 Performance Comparisons
21 Financial Statements
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QUESTAR FUNDS, INC.
AII AGGRESSIVE TRADING FUND
PROSPECTUS
__________________, 1999
THE AiiAGGRESSIVE TRADING FUND SEEKS TO PROVIDE INVESTORS WITH CAPITAL
APPRECIATION THROUGH AN AGGRESSIVE AND SPECULATIVE TRADING STRATEGY EMPHASIZING
RAPID RESPONSE TO CHANGING MARKET CONDITIONS, AND INVESTING IN A DIVERSIFIED
PORTFOLIO OF SECURITIES, INCLUDING SHARES OF EQUITY AND FIXED INCOME MUTUAL
FUNDS, EQUITY SECURITIES TRADED IN U.S. MARKETS, AND MONEY MARKET FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE FUND
Aii Aggressive Trading Fund
Ticker Symbol: _________
INVESTMENT OBJECTIVE AND STRATEGIES
The Fund seeks to provide investors with capital appreciation through an
aggressive and speculative trading strategy emphasizing rapid response to
changing market conditions, and investing in a diversified portfolio of
securities, including shares of equity and fixed income mutual funds, equity
securities traded in U.S. markets, and money market funds The Fund's portfolio
may, from time to time, include shares of mutual funds, common stock of U.S.
companies, and securities representing groups of common stocks, (such as the Dow
Jones Industrials and S&P 500 Depositary Receipts), money market instruments and
money market funds, as well as American Depositary Receipts ("ADRs"). A portion
of the Fund's net assets may be invested in (i) fixed income mutual funds that
invest primarily in high yield, high risk, non-investment grade debt securities
of domestic issuers, commonly referred to as "junk bonds" or that invest
primarily in municipal bonds or (ii) "specialty equity mutual funds" that
concentrate in certain industries or groupings of stocks, or in certain
commodities such as gold and other precious metals or the securities of
companies in industries related to such areas. For liquidity purposes or pending
the purchase of investments in accordance with its policies, the Fund may, from
time to time, invest a large portion, such as half or more, of the Fund's assets
in money market funds or money market instruments. The Fund is limited in its
investment in shares of other mutual funds to the extent that it may not
purchase more than 3% of the outstanding common stock of any particular fund.
Further, the Fund will invest no more than 5% of its total assets in shares of
foreign issuers or mutual funds which are not publicly traded in the United
States.
Aii Inc., the Fund's Adviser (the "Adviser"), will implement a variety of
aggressive investment strategies that will focus on speculative trading rather
than long-term participation in the economic growth and earnings of issuers.
Speculative trading seeks to profit from short-term changes in market price and
is dependent upon the occurrence of price trends amenable to the Adviser's
strategies. Contrary to most other mutual funds, the Fund is not likely to
exhibit a high correlation with traditional holdings in long-term equity
investments. This is due to the emphasis on rapid response to market conditions,
and to use of short selling. The Fund may engage in a variety of investment
techniques to enhance Fund performance including short sales, options and
futures transactions.
The Fund will invest in securities based primarily on appreciable price
movements rather than capitalization, industry or financial market. The Adviser
may select from a wide variety of instruments in order to exploit these price
movements or to hedge the Fund's risk exposure. Accordingly, the Fund may at
times be less than fully invested in equity securities. For example, at some
times, the Fund may hold short positions in securities traded in the U.S.
markets whose aggregate market value, together with the market value of any
stock index puts, and the market value
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of any stock indexes on which short positions in futures contracts are held,
approximates the value of the Fund's net assets, or which is substantially less
than the value of the Fund's net assets, with any balance of the Fund's assets
held in some combination of money market instruments or money market funds. At
other times, the Fund may hold long-term equity positions by purchasing shares
of other equity mutual funds and securities traded in U.S. markets, for example,
whose aggregate market value approximates the Fund's net assets, or which is
substantially less than the value of the Fund's net assets, with the balance of
the Fund's assets invested in fixed income mutual funds, money market
instruments and "boxed positions" in which a short position and a long position
in the same security offset each other, thereby eliminating market risk for
those positions. At still other times, the Fund may hold some long positions and
some short positions, but the aggregate market value of these securities will
typically not exceed the value of the Fund's net assets. Under these
circumstances, the balance of the Fund's assets may be invested in some
combination of money market instruments or money market funds. The Fund is
limited in its investment in futures contracts to the extent that the aggregate
initial futures margin and premiums may not exceed 10% of the value of the
Fund's net assets.
Additional information concerning the investment strategies of the Fund can
be found in the Statement of Additional Information ("SAI").
MAIN RISKS
The investment strategy of the Fund is aggressive and speculative, and is
dependent upon the Adviser's ability to (i) trade on price fluctuations rather
than participate in long-term earnings and growth; and (ii) combine multiple
trading strategies. The failure of the Adviser to effectively implement these
strategies could result in the loss of a portion of your investment. The Fund
has no operating history and the Adviser has no prior experience in acting as an
investment adviser to a mutual fund. The Fund cannot give any assurance that its
investment objective will be achieved.
The Adviser will aggressively trade shares of common stocks, including
shares of other mutual funds, based primarily on changes in the market price.
The Fund's profitability is directly tied to the Adviser's ability to identify
and exploit opportunities that arise from the price movements of target
securities. There is no assurance that the Adviser's method will be effective in
a generally unpredictable market.
The success of the Adviser's strategy is also dependent upon the
occurrence of price trends of a type on which the Adviser is able to capitalize.
The markets in which the Adviser trades, may be subject to sustained periods in
which such trends as there are do not lend themselves to the Adviser's methods.
Since the Adviser anticipates that a substantial percentage (perhaps over 50%)
of its trades may be unprofitable in any case, net profitability may be
dependent on substantial gains being recognized on a limited number of trades.
Due to the general unpredictability of market prices, and the possibility of
periods in which trends as to market prices do not lend themselves to the
Adviser's
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methods, there is a risk that the market will move contrary to the Adviser's
predictions and that an investor will lose a portion of his or her investment.
As a result of the Fund's emphasis on aggressive trading and rapid response
to market conditions, the Fund's portfolio turnover rate is expected to be
significantly higher than that of most other mutual funds. The strategies of the
Adviser contemplate frequent trading and will, in all likelihood, result in a
complete turnover of the Fund's positions over eighty times per year. Such
frequent portfolio turnover may involve significant expenses and costs for the
Fund, including brokerage commissions, dealer markups and other transaction
costs on the sale of securities and reinvestment in other securities. These
transactions may also result in realization of taxable capital gains, much or
all of which will be short-term capital gains subject to federal and state
taxation as ordinary income and not eligible for favored long term capital gains
tax treatment.
As the Fund will invest in equity securities without primary regard to
capitalization of the issuer, the Fund may be subject to the additional risks
associated with investment in companies with small or mid-sized capital
structures (generally a market cap of $5 billion or less). The market prices of
the securities of such companies tend to be more volatile than those of larger
companies. Further, these securities tend to trade at a lower volume than those
of larger more established companies. If the Fund is heavily invested in these
securities, the net asset value of the Fund will be more susceptible to sudden
and significant losses if the value of these securities decline.
The ability of the Adviser to utilize mutual funds as a vehicle for
profitable investment depends on the policies of the mutual funds and brokerage
houses through which it invests, as to such matters as permissibility of
frequent exchanges among mutual funds. Many mutual funds have adopted policies
to limit investments by market timers such as the Fund. Further, such mutual
funds may reserve the right to decline to execute exchange instructions under
certain circumstances. These factors are beyond the control of the Adviser, and
could result in an inability to carry out the strategies of the Adviser for a
period of time, resulting in actual market loss or lost profit opportunities.
As a portion of the Fund's assets may be invested in mutual funds which
primarily invest in high yield, high risk non-investment grade securities, the
Fund may be susceptible to additional risks associated with such investments.
Non-investment grade securities (i.e., "junk bonds") tend to be highly
susceptible to volatile fluctuations in market price. Unanticipated changes in
interest rates could lead to significant devaluations of the fixed income
securities held by the mutual funds and, therefore, the mutual funds themselves
in which the Fund invests. This would have a negative impact on the net asset
value of the Fund and your investment.
The Fund may also invest a portion of its net assets in mutual funds which
concentrate in municipal bonds, including both general and revenue obligations.
Unanticipated changes in interest rates or the overall condition of the city,
state, or public authority issuing the municipal bonds could lead to significant
devaluations of the fixed income securities held by the mutual funds in which
the
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Fund invests, which, in turn, will have a negative impact on the net asset value
of the Fund and your investment.
The Fund may also invest in specialty mutual funds that concentrate in
certain commodities such as gold and other precious metals of companies and/or
securities related to such commodities. Unanticipated changes in the market
prices of the underlying commodities can adversely affect the value of the
specialty funds in which the Fund invests, which, in turn, would have a negative
impact on the net asset value of the Fund and on your investment.
The Fund will not generally utilize leverage to fund the Fund's activities
or to achieve higher returns in the Fund. The Fund may borrow money from banks
for temporary or emergency purposes in order to meet redemption requests. To
reduce its indebtedness, the Fund may have to sell a portion of its investments
at a time when it may be disadvantageous to do so. In addition, interest paid by
the Fund on borrowed funds would decrease the net earnings of both the Fund and
your investment.
The Fund may engage in futures and options transactions for hedging
purposes and for non- hedging purposes, such as to adjust its exposure to
relevant markets or as a substitute for direct investment. The use of futures
and options involves certain special risks due to the possibility of imperfect
correlations among movements in the prices of options purchased or sold by the
Fund and, in the case of hedging transactions, of the securities that are the
subject of the hedge. A more detailed explanation of options transactions,
including the risks associated with them, is included in the SAI.
Certain of the instruments in which the Fund may invest, such as futures
and options, are considered to be "derivatives." Derivatives are financial
instruments whose value is derived from the value of an underlying asset, such
as a security or an index. Further information about these instruments and the
risks involved in their use is included in the SAI.
The Fund may lend securities to broker-dealers, by entering into repurchase
agreements, amounting to not more than 25% of its assets. These transactions
will be fully collateralized at all times with cash and/or short-term debt
obligations. These transactions involve some risk to the Fund if the other party
should default on its obligation and the Fund is delayed or prevented from
recovering the collateral. In the event the original seller defaults on its
obligation to repurchase, the Fund will seek to sell the collateral, which could
involve costs or delays. To the extent proceeds from the sale of collateral are
less than the repurchase price, the Fund would suffer a loss.
The fact that the Adviser is also compensated through a performance-based
fulcrum fee may create, to some extent, a conflict of interest encouraging the
Adviser to assume excessive trading risks which it might not otherwise do, to
maximize the profit potential of the Fund.
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FEES AND EXPENSES OF THE FUND
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER TRANSACTION FEES (PAID None DIRECTLY FROM YOUR INVESTMENTS):
ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS, AS A PERCENTAGE OF NET ASSETS)
Management Fees 1.00%(1)
Distribution and/or Service (Rule 12b-1) Fees 0.25%
Other Expenses 2 3 %
Total Estimated Fund Operating Expenses (3) ____%
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EXAMPLE:
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME
PERIODS INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THESE
PERIODS. THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
AND THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. NEITHER THE 5% RATE OF
RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED INDICATIONS OF PAST OR
FUTURE RETURNS AND EXPENSES. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COST WOULD BE:
1 YEAR $____________ 3 YEARS $____________
YOU WOULD PAY THE FOLLOWING EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
1 YEAR $____________ 3 YEARS $____________
THE EXAMPLE DOES NOT REFLECT SALES CHARGES (LOADS) ON REINVESTED DIVIDENDS
(AND OTHER DISTRIBUTIONS). IF THESE SALES CHARGES (LOADS) WERE INCLUDED, YOUR
COSTS WOULD BE HIGHER.
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(1) The Adviser will also be entitled to a performance-based fulcrum fee, only
if the performance of the Fund, after all costs and expenses, meets certain
criteria. If the Fund's net performance exceeds the annualized rate of return on
Treasury bills by 5%, the Adviser will be entitled to a fee equal to 2% of the
net assets of the Fund. The Adviser's fee will be adjusted upward or downward by
an amount equal to 20% of the amount by which the Fund's net performance exceeds
or falls short of that benchmark. The Adviser may, in its discretion, waive some
or all of its advisory fees.
(2) Other Expenses include, among other expenses, administrative, custody,
transfer agency and shareholder servicing fees.
(3) Other Expenses and Total Estimated Fund Operating Expenses are based on
estimated amounts assuming net assets of $5 million in the Fund.
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MANAGEMENT ORGANIZATION AND CAPITAL STRUCTURE
INVESTMENT ADVISER
Aii Inc. (the "Adviser") has been retained under an Investment Advisory
Agreement with the Company to act as the Fund's investment adviser subject to
the authority of the Board of Directors. The Adviser is registered as an
investment adviser with the Securities and Exchange Commission and has its
principal office at 930 Tahoe Boulevard, #802-269, Incline Village, Nevada
89451. The Adviser can also be contacted by telephone at (775) 832-0111.
The Adviser has not served as an investment adviser to any mutual fund
prior to the Fund; The Adviser, however, is currently the investment adviser to
various private investors and, as of December 31, 1998, had $10 million in
assets under management. These private accounts are advised by the Adviser using
in excess of the same investment strategies as those proposed to be used by the
Adviser for the Fund.
The Adviser furnishes the Fund with investment advice and supervises the
Fund's management and investment programs. The Adviser furnishes at its own
expense all necessary administrative services, office space, equipment and
clerical personnel for servicing the investments of the Fund. The Adviser also
provides investment advisory facilities and executive and supervisory personnel
for managing the investments and effecting the Fund transactions of the Fund. In
addition, the Adviser pays the salaries and fees of all officers of the Company
who are affiliated with the Adviser.
PORTFOLIO MANAGER
George Crawford is the founder, President and Managing Director of the
Adviser and has specialized in the development and management of alternative
investment strategies in securities trading since 1995. Mr. Crawford is also,
since 1990, an active limited partner and investor principal in Managers' Funds
L.P., Norwalk, Connecticut, a mutual fund management company with over $1.5
billion in fund assets currently under management. Mr. Crawford also serves as a
consulting professor at Stanford University in Palo Alto, California since 1993,
teaching courses on quantitative investment methodology involving hedging and
investing with derivatives, and also at the Law School on fiduciary and venture
investing. Formerly, Mr. Crawford was a Partner and the Chair of the Private
Capital Section at the law firm of Jones Day Reavis & Pogue in Los Angeles,
California and remained Of Counsel to Jones Day until 1993 when he retired from
the practice of law to devote his time to managing, teaching, and writing in the
investment field.
Kenneth Brandau is a Managing Director of the Adviser since he became
affiliated with the company in April 1998. Formerly, Mr. Brandau spent six years
from 1992 to 1998 as founder and sole head of WorldWide Money Management where
he conducted research, development and trading of stocks, mutual funds and
futures programs.
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ANNUAL ADVISORY FEE
Under the Investment Advisory Agreement, the Fund will pay the Adviser
monthly in arrears an annual investment management fee equal to 1% of the Fund's
average daily net assets.
FULCRUM FEE
The Adviser will also be entitled to receive a type of
performance-based fee commonly referred to as a fulcrum fee. By definition, this
arrangement provides for a fee averaged over a specified period of time that
increases or decreases proportionately with the investment performance of the
Fund in relation to the investment record of an appropriate securities index or
measure. Pursuant to the Investment Advisory Agreement, the Adviser, in addition
to the 1% Investment Advisory fee described above, will be entitled to a
performance-based fee which will be calculated on a daily basis after the
determination of the Fund's net asset value on each day that the New York Stock
Exchange is open. The Adviser has identified the daily U.S. Treasury Bill Rate
plus 5% (annualized) as the appropriate benchmark of the Fund's performance. If
the Fund's daily net performance (after taking into consideration all accrued
costs and expenses) equals the benchmark when calculated for such day, the
Adviser will be entitled to a fee equal to 2% of the net assets of the Fund. If
the Fund's daily net performance exceeds or falls short of the daily benchmark,
the Adviser's annual performance fee accrued is either increased or reduced by
20% of the difference. If the amount of the debit would cause the accrual to be
a negative number, the Adviser will not be required to pay in that negative
amount. However, no fees will be credited to the Adviser's accrual of its
performance fee until the amount of fees which would otherwise have been
credited to the Adviser is sufficient to extinguish any negative balance. The
Fund will pay the Adviser any accrual of its performance fee at the end of each
month.
OTHER EXPENSES
The Fund pays certain operating expenses directly, including, but not
limited to custodian, audit, and legal fees; fees of the independent directors;
costs of printing and mailing prospectuses, statements of additional
information, proxy statements, notices, and reports to shareholders; insurance
expenses; and costs of registering its shares for sale under federal and state
securities laws. See the SAI for a more detailed discussion of independent
director compensation.
ADMINISTRATOR
The Fund's Administrator is American Data Services, Inc. ("ADS" or the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788, and is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds with approximately $6 billion
of total assets through its offices in New York, Denver, Tampa and Los Angeles.
ADS provides all administrative services necessary for the Fund,
subject to the supervision of the Company's Board of Directors.
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For the services rendered to the Fund by the Administrator, the Fund
pays the Administrator monthly an annual monthly fee equal to __% of the daily
average net assets of the Fund. The Fund also pays the Administrator for any
out-of-pocket expenses. In addition, the Administrator serves as the Fund's
transfer agent and performs fund accounting services for which it is paid
separately. For additional information, see "Custodian, Transfer Agent and
Dividend Agent."
DISTRIBUTOR
ADS Distributors, Inc. ("the Distributor"), an affiliate of the
Administrator, has entered into a distribution agreement with the Company to
serve as distributor for the Fund's shares. In exchange for an annual
distribution fee equal to $____________, the Distributor will be responsible for
the promotional and advertising expenses related to the distribution of the
Fund's shares and for the printing of all Fund prospectuses used in connection
with the distribution and sale of the Fund's shares. The Distributor will use
its annual fee, together with the Fund's distribution and service plan fees to
pay these expenses and compensate financial intermediaries for providing
distribution assistance with respect to the sale of the Fund's shares. See
"Management of Fund" in the SAI.
VALUATION OF SHARES
The Fund computes its net asset value (or price per share) on each day
the NYSE is open for business. The calculation is made as of the regular close
of the NYSE (currently 4:00 p.m., New York time).
Fund securities for which market quotations are readily available are
valued at market value. Fund securities for which market quotations are not
considered readily available, are stated at fair value on the basis of
valuations furnished by a pricing service approved by the Board of Directors
which determines valuations for normal, institutional-size trading units of such
securities using methods based on market transactions for comparable securities
and various relationships between securities which are generally recognized by
institutional traders.
Short-term investments held by the Fund that mature in 60 days or less
are valued at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Board of Directors.
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HOW TO PURCHASE SHARES
GENERAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis. The minimum initial
investment in the Fund is $___________. The Fund may waive or reduce such
minimum initial investment from time to time. If funds are received after the
close of business, the purchase will become effective on the next business day.
The purchase price paid for Fund shares is the next determined net asset value
of the shares after the order is placed. See "Net Asset Value" herein.
Additional investments of $_____ or more may be made at any time by
purchasing shares of the Fund at its next determined net asset value by mailing
a check to the Fund at the address noted under "Purchases by Mail" or by wiring
monies to the clearing bank as outlined below with which the shareholder has an
account and which is a member of the Federal Reserve system with instructions to
transmit Federal funds by wire to the Fund.
PURCHASES BY TELEPHONE
To open an account by telephone, call (877)732-7696 to obtain an
account number and instructions. Information, including the appropriate federal
tax identification number, concerning the account will be taken over the phone.
Subject to acceptance by the Distributor, shares of the Fund may be purchased by
wiring immediately available federal funds (subject to the minimum investment)
to The Chase Manhattan Bank from your bank which may charge a fee for doing so
(see instructions below). You should provide your bank with the following
information for purposes of wiring your investment:
The Chase Manhattan Bank
Huntington, New York
ABA# 021000021
Account# _______________
F/B/O Aii Aggressive Trading Fund
Shareholder Acct. No.
You are required to mail a signed application to the Transfer Agent at
the address listed below in order to complete your initial wire purchase. Wire
orders will be accepted only on a day on which the Fund, the Custodian and the
Transfer Agent are open for business. A wire purchase will not be considered
made until the wired money is received by the Fund. There is presently no fee
for the receipt of wired funds, but the Fund reserves the right to charge
shareholders for this service.
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PURCHASES BY MAIL
Subject to acceptance by the Fund's Distributor, an account may be
opened by completing and signing an account application and mailing it to the
Fund at the address noted below, together with a check (subject to the Fund's
minimum investment) payable to:
Aii Aggressive Trading Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Payment for the purchase of shares received by mail will be credited to
your account at the net asset value per share next determined after receipt.
Such payment need not be converted into federal funds (monies credited to the
Fund's custodian bank by a Federal Reserve Bank) before acceptance by the Fund's
Distributor. In the event that there are insufficient funds to cover a check,
such prospective investor will be assessed a $15.00 charge.
All purchases of the Fund's shares will be made in full and fractional
shares calculated to three decimal places. The Fund will not issue stock
certificates evidencing ownership of Fund shares.
HOW TO REDEEM SHARES
GENERAL REDEMPTION INFORMATION
Your shares will be redeemed at the net asset value next determined
after receipt of your instructions in "good order" as explained below. The
Fund's net asset value will fluctuate on a daily basis.
To redeem your shares, you may either contact the Distributor or your
broker-dealer or financial institution with an oral request or send a written
request directly to the Transfer Agent. This request should contain: the dollar
amount or number of shares to be redeemed, your Fund account number and either a
social security or tax identification number (as applicable). You should sign
your request in exactly the same way the account is registered. If there is more
than one owner of the shares, all owners must sign. A signature guarantee is
required for redemptions over $5,000. Please contact the Transfer Agent or refer
to the SAI for more details.
Shares of the Fund may be redeemed by mail, or, if authorized, by
telephone. The value of shares redeemed may be more or less than the purchase
price, depending on the market value of the investment securities held by the
Fund.
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BY MAIL
The Fund will redeem its shares at the net asset value next determined
after the request is received in "good order." Requests should be addressed to:
Questar Funds, Inc./Imperial BankFund, c/o American Data Services, Inc., P.O.
Box 5536, Hauppauge, N.Y. 11788-0132.
Requests in "good order" must include the following documentation:
(a) a letter of instruction specifying the number of shares or
dollar amount to be redeemed, signed by all registered owners
of the shares in the exact names in which they are registered;
(b) any required signature guarantees (see "Signature Guarantees"
below); and
(c) other supporting legal documents, if required, in the case of
estates, trusts, guardianships, custodianships, corporations,
pension and profit sharing plans and other organizations.
SIGNATURE GUARANTEES
To protect your account, the Fund and its Transfer Agent from fraud,
signature guarantees are required to enable the Fund to verify the identity of
the person who has authorized a redemption of $5,000 or more from an account.
Signature guarantees are required for (1) redemptions where the proceeds are to
be sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Signature guarantees may be obtained
from certain eligible financial institutions, including but not limited to, the
following: banks, trust companies, credit unions, securities brokers and
dealers, savings and loan associations and participants in the Securities
Transfer Association Medallion Program ("STAMP"), the Stock Exchange Medallion
Program ("SEMP") or the New York Stock Exchange Medallion Signature Program
("MSP"). Shareholders may contact the Fund at (877) 732-7696 for further
details.
BY TELEPHONE
Provided the Telephone Redemption Option has been authorized, you may
redeem your shares by calling the Fund and requesting that the redemption
proceeds be mailed to the primary registration address or wired per the
authorized instructions. Provided that the Transfer Agent employs reasonable
procedures to confirm that the instructions are genuine, you bear the risk of
loss in the event of unauthorized instructions reasonably believed by the Fund
or its Transfer Agent to be genuine. The procedures employed by the Fund in
connection with transactions initiated by telephone may include tape recording
of telephone instructions and requiring some form of personal identification
prior to acting upon instructions received by telephone.
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PAYMENT OF REDEMPTION PROCEEDS
After your shares have been redeemed, proceeds will normally be mailed
within three business days. In no event will payment be made more than seven
days after receipt of your order in good form, except that payment may be
postponed or the right of redemption suspended for more than seven days under
unusual circumstances, such as when trading is not taking place on the NYSE.
Payment of redemption proceeds may also be delayed if the shares to be redeemed
were purchased by a check drawn on a bank which is not a member of the Federal
Reserve System, until such check has cleared the banking system (normally up to
15 days from the purchase date).
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make a payment
wholly or partly in cash, the Fund may pay the redemption proceeds in whole or
in part by a distribution in-kind of readily marketable securities held by the
Fund in lieu of cash in conformity with applicable rules of the SEC. Investors
generally will incur brokerage charges on the sale of Fund securities so
received in payment of redemptions.
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem your account at any time the net
asset value of the account falls below $__________ as the result of a redemption
or exchange request. You will be notified in writing prior to any such
redemption and will be allowed 30 days to make additional investments before the
redemption is processed.
SHAREHOLDER SERVICES
We offer several shareholder service options to make your account
easier to manage which are listed on the account application. Please make note
of these options and select the ones that are appropriate for you.
AUTOMATIC INVESTMENT PROGRAM
You may arrange to make additional automated purchases of Fund shares.
You can automatically transfer $100 or more per month from your bank, savings
and loan or other financial institution to purchase additional shares. You
should contact the Distributor, or your broker-dealer, financial institution or
the Transfer Agent to obtain authorization forms or for additional information.
TAX-QUALIFIED RETIREMENT PLANS
The Fund is available for your tax-deferred retirement plan. Call or
write us and request the appropriate forms for:
[ ] Individual Retirement Accounts ("IRAs"), Simple IRAs and Roth IRAs;
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[ ] 403(b) plans for employees of public school systems and non-profit
organizations; or o 401(k) Plans;
[ ] Profit-sharing plans and pension plans for corporations and other
employees.
You can also transfer your tax-deferred plan to us from another company
or custodian. Call or write us for a "Request to Transfer" form.
CONFIRMATION OF TRANSACTIONS AND REPORTING OF OTHER INFORMATION
The Fund will mail you confirmations of all of your purchases or
redemptions of Fund shares. In addition, you will also receive account
statements on a quarterly basis. This information will be provided to you from
either the Distributor, your broker-dealer, financial institution or the
Transfer Agent. You will also receive various IRS forms after the first of each
year detailing important tax information and the Fund is required to supply
annual and semi-annual reports that list securities held by the Fund and include
its then current financial statements.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute its net investment income, if any, and net
realized capital gains, if any, annually. Distributions from capital gains are
made after applying any available capital loss carry-overs.
As a shareholder in the Fund, you can choose from three distribution
options:
-- Reinvest all distributions in additional shares;
-- Receive distributions from net investment income in cash while
reinvesting capital gains distributions, if any, in additional shares;
or
-- Receive all distributions in cash.
You can change your distribution option by notifying the Fund in writing.
If you do not select an option when you open your account, all distributions
will be reinvested in additional shares of the Fund at net asset value. You will
receive a statement confirming reinvestment of distributions in additional
shares promptly following the end of each calendar year.
If a check representing a distribution is not cashed within a specified
period, the Transfer Agent will notify you that you have the option of
requesting another check or reinvesting the distribution in the Fund. If the
Transfer Agent does not receive your election, the distribution will be
reinvested in the Fund at the then-current net asset value per share. Similarly,
if correspondence sent by the Fund or the Transfer Agent is returned as
"undeliverable," all Fund distributions will automatically be reinvested in the
Fund.
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DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a Distribution and Service Plan (the "Plan"),
pursuant to Rule 12b-1 under the Act (the "Rule"). The Rule provides that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Plan provides that the Fund will compensate the Distributor by paying the
Distributor a monthly fee equal to 0.25% of its average daily net assets, on an
annual basis, to enable it to provide marketing and promotional support to the
Fund, shareholder servicing and maintaining shareholder accounts and to make
payments to broker-dealers and other financial institutions with which it has
written agreements and whose clients are Fund shareholders for providing
distribution assistance. Fees paid under the Plan may not be waived for
individual shareholders. For further information regarding the Plan, see
"Shareholder Servicing and Distribution Plan" in the SAI.
TAX STATUS
The Fund is treated as a corporation for federal income tax purposes under
the Internal Revenue Code of 1986, as amended (the "Code"). The Fund intends to
qualify and to elect to be treated as a regulated investment company. If so
qualified, the Fund will not be liable for federal income taxes to the extent it
distributes its taxable income to shareholders.
Distributions by the Fund are generally taxable to shareholders as
ordinary income. Interest income from direct investment by noncorporate
taxpayers in United States Government obligations (but not repurchase
agreements) generally is not subject to state taxation. However, some states may
tax mutual fund dividends attributable to such income.
Any redemption of Fund shares is a taxable event that may result in a
capital gain or loss.
For a more detailed discussion of the federal income tax consequences of
investing in shares of the Fund, see "Taxation" in the SAI. Before investing in
the Fund, you should consult your tax adviser regarding the consequences of your
local and state tax laws.
PERFORMANCE INFORMATION
The Fund's investment performance may from time to time be included in
advertisements about the Fund. "Total Return" for the one (1), five (5) and ten
(10) year periods (or for the life of the Fund, if shorter) through the most
recent quarter represents the average annual compounded rate of return on an
investment of $1,000 in the Fund invested at the public offering price. Total
return may also be presented for other periods.
All performance data is based on the Fund's past investment results and
does not predict future performance. Investment performance, which will vary, is
based on many factors,
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including market conditions, the composition of the Fund's portfolio and the
Fund's operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Quotation of investment
performance for any period when a fee waiver or expense limitation was in effect
will be greater than if the waiver or limitation had not been in effect. The
Fund's performance may be compared to other mutual funds, relevant indices and
rankings prepared by independent services. See the SAI.
GENERAL INFORMATION
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Adviser is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Adviser does not expect that the Fund will incur significant
operating expenses or be required to incur materials costs to be year 2000
compliant. Although the Adviser does not anticipate that the year 2000 issue
will have a material impact on the Fund's ability to provide service at current
levels, there can be no assurance that steps taken in preparation for the year
2000 will be sufficient to avoid any adverse impact on the Fund.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Star Bank, N.A. serves as custodian for the Fund's cash and securities.
The Custodian does not assist in, and is not responsible for, investment
decisions involving assets of the Fund. American Data Services, Inc., the Fund's
Administrator, also acts as the Fund's transfer and dividend agent. The Fund
pays the Administrator the greater of $900 per month or $9.00 per year per
account, plus out-of-pocket expenses, for rendering such transfer and dividend
agency services.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of common stock of
the Fund are passed upon by Spitzer & Feldman P.C., 405 Park Avenue, New York,
New York 10022. McCurdy & Associates, CPAs, Inc., 27955 Clemens Road, Westlake,
Ohio 44145, have been selected as independent accountants for the Fund.
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FOR MORE INFORMATION
QUESTAR FUNDS, INC.
Aii AGGRESSIVE TRADING FUND
SEC FILE NUMBER 811-08655
More Information on this Fund is available free upon request, including
the following:
ANNUAL AND SEMIANNUAL REPORTS
Describes the Fund's performance, lists the Fund's holdings and contains a
letter from the Fund's Investment Adviser discussing recent market conditions,
economic trends and Fund strategies that significantly affect the Fund's
performance.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about the Fund and its policies. A current SAI is on
file with the Securities and Exchange Commission (SEC) and is incorporated by
reference herein (and is legally considered part of this prospectus).
TO OBTAIN INFORMATION:
By Telephone: By E-Mail:
------------- ----------
Call 1-877-732-7696 Send your request to
______________.com
By Mail:
--------
Aii Aggressive Trading Fund
c/o American Distribution Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11588
On the Internet:
----------------
Text only versions of Fund documents can be viewed online or downloaded
from
Securities and Exchange Commission: http://www.sec.gov
---------------------------------- -----------
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington D.C. (phone at 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington D.C.
20549-6009.
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<PAGE>
QUESTAR FUNDS, INC.
Aii AGGRESSIVE TRADING FUND
STATEMENT OF ADDITIONAL INFORMATION
_____________, 1999
TABLE OF CONTENTS
PAGE
----
Investment Objectives, Policies and Restrictions...............................2
Directors and Executive Officers..............................................19
Investment Advisory and Other Services........................................21
Shareholder Servicing & Distribution Plan.....................................24
Portfolio Transactions and Allocation of Brokerage............................26
Taxation......................................................................28
Ownership of Shares...........................................................29
Purchase of Shares............................................................30
Dividends and Distributions...................................................30
Net Asset Value ..............................................................30
Performance Comparisons.......................................................30
Redemption of Shares..........................................................32
Counsel and Independent Auditors..............................................33
Other Information.............................................................33
This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the Fund's Prospectus dated ________, 1999. A copy
of the Prospectus may be obtained from the Fund at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788 or telephone (516)
951-0500.
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INVESTMENT OBJECTIVES, POLICIES, AND RESTRICTIONS
The Fund's investment objective is to provide investors with capital
appreciation by following an aggressive and speculative trading strategy while
investing in a diversified portfolio of shares of other equity and fixed income
mutual funds, the common stock of listed U.S. companies, money market
instruments, and/or money market funds. A summary of the Fund's investment
policies are set forth in the Prospectus. Additional information regarding the
Fund's investment policies and restrictions is set forth below.
INVESTMENT POLICIES AND ASSOCIATED RISKS
----------------------------------------
The following paragraphs provide a more detailed description of the
investment policies and their associated risks identified in the Prospectus.
Unless otherwise noted, the policies described in this Statement of Additional
Information are not fundamental and may be changed by the Board of Directors.
MUTUAL FUNDS AS PART OF AN INVESTMENT PROGRAM. The Fund does not
constitute a balanced or complete investment program and the net asset value of
its shares will fluctuate based on the value of the securities held by the Fund.
The Fund is subject to the general risks and considerations associated with
equity investing as well as additional risks and restrictions discussed herein.
EQUITY INVESTING. An investment in the Fund should be made with an
understanding of the risks inherent in an investment in equity securities,
including the risk that the general condition of the stock market may
deteriorate. Common stocks are susceptible to general stock market fluctuations
and to volatile increases and decreases in value according to various
unpredictable factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction and global or regional political, economic and banking crises.
While the investment strategy of the Adviser will generally preclude long-term
investment in any particular equity security thus reducing the potential
negative influence of any one of the above listed factors on securities held by
the Fund, there can be no assurances that the Adviser's method will accurately
predict, accommodate or be able to absorb (without significant loss of a portion
of your investment), the potentially negative effects of such market decline.
SPECULATIVE TRADING. The Fund's investment strategy focuses on speculative
trading rather than long term participation in the economic growth and earnings
of issuers. Speculative trading seeks to profit from short-term changes in
market price and the Adviser's ability to predict and exploit these
opportunities as they occur. The Fund, therefore, contrary to most other equity
mutual funds, is not likely to exhibit a high correlation with traditional
holdings in long-term equity investments; the selection of investments will be
governed more by the price of the instrument than by the quality or performance
history of the issuer. In light of this price-intensive approach and the general
unpredictability of market prices, there is a risk that the market will move
contrary to the Adviser's predictions and that an investor will lose a portion
of his or her investment.
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<PAGE>
Additionally, as a result of the Fund's emphasis on market price, under
certain market conditions, particularly in periods of sustained market
volatility, the Fund's portfolio turnover rate may be significantly higher than
that of other equity mutual funds. The strategies of the Adviser require
frequent trading and will, in all likelihood, result in a complete turnover of
the Fund over eighty times per year. Such frequent portfolio turnover may
involve significant expenses and costs for the Fund, including higher brokerage
commissions, dealer markups and other transaction costs on the sale of
securities and reinvestment in other securities. These transactions may also
result in realization of taxable capital gains, some or all of which will be
short-term capital gains subject to federal and state taxation as ordinary
income and not eligible for favored capital gains tax treatment.
INVESTING BASED ON SHARE PRICE. As stated in the Prospectus, the Fund will
invest in securities based primarily on appreciable price changes in the market
rather than on the capitalization of a particular issuer. Accordingly, the Fund
may purchase securities of companies with market capitalization as low as $25
million. This strategy may subject the Fund to additional risks associated with
investing in companies with small or mid-sized capital structures. In many
instances the securities of smaller companies are traded only over-the-counter
or on a regional securities exchange, and the frequency and volume of their
trading is substantially less than is typical of larger companies. Therefore,
the securities of smaller companies may be subject to greater and more abrupt
price fluctuations. When making large sales, the Fund may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of small
sales over an extended period of time due to the trading volume of smaller
company securities. Investors should be aware that, based on the foregoing
factors, an investment in the Fund may be subject to greater price fluctuations
than an investment in a fund that invests exclusively in larger, more
established companies. The Adviser's research efforts may also play a greater
role in selecting securities for the Fund than in a fund that invests in larger
more established companies.
SHORT SALES. The Fund is authorized to make short sales of securities it
owns or has the right to acquire at no added cost through conversion or exchange
of other securities it owns (referred to as short sales "against the box") and
to make short sales of securities which it does not own or have the right to
acquire.
In a short sale that is not "against the box," the Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security (generally
from the broker through which the short sale is made) in order to make delivery
to the buyer. The Fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is said
to have a "short position" in the securities sold until it delivers them to the
broker. The period during which the Fund has a short position can range from one
day to more than a year. Until the security is replaced, the proceeds of the
short sale are retained by the broker, and the Fund is required to pay to the
broker a negotiated portion of any dividends or interest which accrue during the
period of the loan. To meet current margin requirements, the Fund is also
required to deposit with the broker additional cash or securities so that the
total deposit with the broker is maintained daily at 150% of the current market
value of the securities sold short (100% of the current market value if a
security is held in the account that is convertible or exchangeable into the
security sold short within 90 days without restriction other than the payment of
money).
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<PAGE>
Short sales by the Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Fund's net asset value per share will tend to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Furthermore, under adverse market conditions,
the Fund might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
If the Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. To secure its obligation to deliver securities sold short, the Fund
will deposit in escrow in a separate account with the Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
The Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Adviser believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund or a security convertible into or exchangeable for such security. In
such case, any future losses in the Fund's long position would be reduced by a
gain in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of securities sold short
relative to the amount of the securities the Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the investment values or conversion premiums of such securities.
Short sales transactions may sometimes be executed by borrowing securities
from margin accounts established by the Adviser for this purpose. Some interest
may be charged within these margin accounts as a result of price fluctuations of
boxed positions, even though no leverage is employed, since the offsetting long
and short positions within that boxed position will generally offset each
other's market risk.
OTHER MUTUAL FUNDS. The Fund may invest a portion of its net assets in
fixed income mutual funds and specialty equity mutual funds, as set forth below.
FIXED INCOME MUTUAL FUNDS. The Fund may invest in fixed income mutual
funds which invest primarily in high yield, high risk, non-investment grade
securities. Non-investment grade
4
<PAGE>
securities (i.e., "junk bonds") tend to be highly susceptible to volatile
fluctuations in market price. For example, as interest rates increase, the value
of these fixed income securities tend to decrease. There can be no assurance
that changes in interest rates will be accurately predicted by either the
Adviser or the mutual funds in which the Fund has invested that hold these
securities. Unanticipated changes in interest rates could lead to significant
devaluations of the fixed income securities held by the mutual funds and,
therefore, the mutual funds themselves, in which the Fund invests. This would
have a negative impact on the net asset value of the Fund and your investment.
MUNICIPAL BOND MUTUAL FUNDS. The Fund may also invest in mutual funds
which concentrate in municipal bonds, including both general and revenue
obligations. General obligation securities involve a pledge of the credit of an
issuer possessing taxing power and are payable from the issuer's unrestricted
revenues. Revenue obligation securities are payable only from the revenues
derived from a particular facility or class of facilities, or a specific revenue
source, and generally not from the unrestricted revenues of the issuer. Changes
in interest rates may adversely affect the value of the municipal bonds held by
the mutual funds and, therefore, the mutual funds themselves in which the Fund
is invested. In addition, the value of municipal obligations can be adversely
affected by political and economic factors affecting the municipal issuer.
Unanticipated changes in interest rates or the overall condition of the city,
state, or public authority issuing the municipal bonds could lead to significant
devaluations of the fixed income securities held by the mutual funds in which
the Fund invests, which, in turn, will have a negative impact on the net asset
value of the Fund and your investment.
SPECIALTY EQUITY MUTUAL FUNDS. The Fund may also invest in specialty
equity mutual funds- funds that invest in the securities of companies engaged
primarily in commodity-related (i.e., gold and other precious metals)
activities. Investments related to certain commodities (such as gold and other
precious metals) are considered speculative and are affected by a variety of
world-wide financial, economic and political factors. Prices of commodities and
the securities of companies in the commodity industry may fluctuate sharply over
short periods of time due to actual or expected changes in inflation in various
countries, the availability of the supply of those commodities, changes in
industrial and commercial demand, market activity on commodity-based exchanges,
investment speculation, and government policies. Unanticipated changes in the
market prices of the underlying commodities can adversely affect the value of
the specialty equity funds in which the Fund invests and can have a negative
impact on the net asset value of the Fund and on your investment.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in convertible
securities and warrants. A convertible security is a fixed income security (a
debt instrument or a preferred stock) which may be converted at a stated price
within a specified period of time into a certain quantity of the common stock of
the same or a different issuer. Convertible securities are senior to common
stocks in an issuer's capital structure, but are usually subordinated to similar
non-convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than that
afforded by a similar nonconvertible security), a convertible security also
gives an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the issuing company depending upon a
market price advance in the convertible security's underlying common stock.
5
<PAGE>
A warrant gives the holder a right to purchase at any time during a
specified period a predetermined number of shares of common stock at a fixed
price. Unlike convertible debt securities or preferred stock, warrants do not
pay a fixed dividend. Investments in warrants involve certain risks, including
the possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of the
Fund's entire investment therein).
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS") AND DIAMONDS.
The Fund may invest in Standard & Poor's Depositary Receipts ("SPDRs").
SPDRs are units of beneficial interest in an investment trust sponsored by a
wholly-owned subsidiary of the American Stock Exchange, Inc. which represent
proportionate undivided interests in a portfolio of securities consisting of
substantially all of the common stocks, in substantially the same weighting, as
the component common stocks of the Standard & Poor's 500 Stock Index (the "S&P
500 Index"). SPDRs are listed on the American Stock Exchange (the "Exchange")
and traded in the secondary market on a per-SPDR basis.
The Fund may also invest in DIAMONDS. DIAMONDS are units of beneficial
interest in an investment trust representing proportionate undivided interests
in a portfolio of securities consisting of all the component common stocks of
the Dow Jones Industrial Average (the "DJIA"). DIAMONDS are listed on the
Exchange and may be traded in the secondary market on a per- DIAMONDS basis.
SPDRs are designed to provide investment results that generally correspond
to the price and yield performance of the component common stocks of the S&P 500
Index. DIAMONDS are designed to provide investors with investment results that
generally correspond to the price and yield performance of the component common
stocks of the DJIA. The value of both SPDRs and DIAMONDS are subject to change
as the values of their respective component common stocks fluctuate according to
the volatility of the market. Investments in SPDRs and DIAMONDS involve certain
inherent risks generally associated with investments in a broadly based
portfolio of common stocks, including the risk that the general level of stock
prices may decline, thereby adversely affecting the value of each unit of SPDRs
and/or DIAMONDS invested in by the Fund. Moreover, the Fund's investment in
SPDRs and DIAMONDS may not exactly match the performance of a direct investment
in the respective indices to which they are intended to correspond. For example,
replicating and maintaining price and yield performance of an index may be
problematic for the Fund due to transaction costs and other trust expenses.
Additionally, the respective investment trusts may not fully replicate the
performance of their respective benchmark indices due to the temporary
unavailability of certain index securities in the secondary market or due to
other extraordinary circumstances such as discrepancies between the Fund and the
indices with respect to the weighting of securities or the number of, for
example, larger capitalized stocks held by an index and the Fund. Under these
type circumstances, the value of the SPDRs or DIAMONDS held by the Fund will
have a negative impact on the net asset value of the Fund.
6
<PAGE>
DEPOSITARY RECEIPTS. The Fund may invest in Depositary Receipts ("DRs"),
including American Depositary Receipts ("ADRs") or other forms of depositary
receipts. DRs are receipts typically issued in connection with a U.S. or foreign
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. Investments in these types of foreign securities
involve certain inherent risks generally associated with investments in foreign
securities, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. A change in the value of any foreign currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a DR's underlying portfolio securities denominated in that currency.
Such changes will affect the Fund to the extent that the Fund is invested in
DR's comprised of foreign securities.
TAXES. The interest and dividends payable on certain foreign securities
comprising a DR may be subject to foreign withholding taxes, thus reducing the
net amount of income to be paid to the Fund and that may, ultimately, be
available for distribution to the Fund's shareholders.
SHORT-TERM INVESTMENTS. While seeking desirable equity mutual fund
investments or common stocks whose price history and expected performance lend
themselves to the Adviser's method for investment or for temporary defensive
purposes, the Fund may invest in money market funds and/or money market
instruments consisting of the following:
BANK CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. The Fund may
acquire certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Fund will be
dollar-denominated obligations of domestic banks or financial institutions which
at the time of purchase have capital, surplus and undivided profits in excess of
$100 million (including assets of both domestic and foreign branches), based on
latest published reports, or less than $100 million if the principal amount of
such bank obligations are fully insured by the U.S. Government.
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Domestic banks are subject to different governmental regulations with
respect to the amount and types of loans which may be made and interest rates
which may be charged. In addition, the profitability of the banking industry
depends largely upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operations of
the banking industry.
As a result of federal and state laws and regulations, domestic banks are,
among other things, required to maintain specified levels of reserves, limited
in the amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness.
GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. Government
obligations. Such obligations include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association.
Certain of these obligations, such as those of the GNMA, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
PUTS. To help assure appropriate liquidity, the Fund may acquire
securities which provide for the right to resell them to the issuer, a bank or a
broker-dealer at a specified price within a specified period of time prior to
the maturity date of such obligation. Such a right to resell, which is commonly
known as a "put," may be sold, transferred or assigned only with the underlying
security or securities.
If an issuer, bank or broker-dealer should default on its obligation to
repurchase a security, the Fund might be unable to recover all or a portion of
any loss sustained from having to sell the security elsewhere. It will be the
Fund's policy to enter into puts only with issuers, banks or broker-dealers that
are determined by the Adviser to present minimal credit risks.
WRITING COVERED OPTIONS ON SECURITIES. The Fund may write covered call
options and covered put options on optionable securities held in its portfolio,
when in the opinion of the Adviser such transactions are consistent with the
Fund's investment objective and policies. Call options written by the Fund give
the purchaser the right to buy the underlying securities from the Fund at a
stated exercise price; put options give the purchaser the right to sell the
underlying securities to the Fund at a stated price.
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The Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to the price to be
paid if the option is exercised. In addition, the Fund will be considered to
have covered a put or call option if and to the extent that it holds an option
that offsets some or all of the risk of the option it has written. The Fund may
write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the exercise price and
the current market value of the underlying security, the volatility of the
underlying security, the amount of time remaining until expiration, current
interest rates, and the effect of supply and demand in the options market and in
the market for the underlying security. By writing a call option, the Fund
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option but continues to bear
the risk of a decline in the value of the underlying security. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then-current market
value, resulting in a potential capital loss unless the security subsequently
appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in which it
purchases an offsetting option. The Fund realizes a profit or loss from a
closing transaction if the cost of the transaction (option premium plus
transaction costs) is less or more than the premium received from writing the
option. If the Fund writes a call option but does not own the underlying
security, and when it writes a put option, the Fund may be required to deposit
cash or securities with its broker as "margin," or collateral, for its
obligation to buy or sell the underlying security. As the value of the
underlying security varies, the Fund may have to deposit additional margin with
the broker. Margin requirements are complex and are fixed by individual brokers,
subject to minimum requirements currently imposed by the Federal Reserve Board
and by stock exchanges and other self-regulatory organizations.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge
against an increase in the price of securities that the Fund wants ultimately to
buy. Such hedge protection is provided during the life of the call option since
the Fund, as holder of the call option, is able to buy the underlying security
at the exercise price regardless of any increase in the underlying security's
market price. In order for a call option to be profitable, the market price of
the underlying security must rise sufficiently above the exercise price to cover
the premium and transaction costs.
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RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's
options strategies depends on the ability of the Adviser to forecast correctly
interest rate and market movements. For example, if the Fund were to write a
call option based on the Adviser's expectation that the price of the underlying
security would fall, but the price were to rise instead, the Fund could be
required to sell the security upon exercise at a price below the current market
price. Similarly, if the Fund were to write a put option based on the Adviser's
expectation that the price of the underlying security would rise, but the price
were to fall instead, the Fund could be required to purchase the security upon
exercise at a price higher than the current market price.
When the Fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the
Fund exercises the option or enters into a closing sale transaction before the
option's expiration. If the price of the underlying security does not rise (in
the case of a call) or fall (in the case of a put) to an extent sufficient to
cover the option premium and transaction costs, the Fund will lose part or all
of its investment in the option. This contrasts with an investment by the Fund
in the underlying security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the Fund's ability to
terminate option positions at times when the Adviser deems it desirable to do
so. There is no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price.
If a secondary market in options were to become unavailable, the Fund
could no longer engage in closing transactions. Lack of investor interest might
adversely affect the liquidity of the market for particular options or series of
options. A market may discontinue trading of a particular option or options
generally. In addition, a market could become temporarily unavailable if unusual
events -- such as volume in excess of trading or clearing capability -- were to
interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening transactions. For
example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that
security will no longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options market were to
become unavailable, the Fund as a holder of an option would be able to realize
profits or limit losses only by exercising the option, and the Fund, as option
writer, would remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options purchased
or sold by the Fund could result in losses on the options. If trading is
interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, the Fund as purchaser or writer of an
option will be unable to close out its positions until options trading resumes,
and it may be faced with considerable losses if trading in the security reopens
at a substantially different price. In addition, the Options Clearing
Corporation or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option will be locked
into its position until one of the two restrictions has been lifted. If the
Options Clearing Corporation were to determine that
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the available supply of an underlying security appears insufficient to permit
delivery by the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund, as holder of
such a put option, could lose its entire investment if the prohibition remained
in effect until the put option's expiration.
Over-the-counter ("OTC") options purchased by the Fund and assets held to
cover OTC options written by the Fund may, under certain circumstances, be
considered illiquid securities for purposes of any limitation on the Fund's
ability to invest in illiquid securities.
FUTURES CONTRACTS AND RELATED OPTIONS. Subject to applicable law, and
unless otherwise specified in the prospectus, the Fund may invest without limit
in futures contracts and related options for hedging and non-hedging purposes,
such as to manage the effective duration of the Fund's portfolio or as a
substitute for direct investment. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial instrument called for
in the contract in a specified delivery month for a stated price. A financial
futures contract purchase creates an obligation by the purchaser to take
delivery of the type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific instruments delivered
or taken, respectively, at settlement date are not determined until on or near
that date. The determination is made in accordance with the rules of the
exchange on which the futures contract sale or purchase was made. Futures
contracts are traded in the United States only on commodity exchanges or boards
of trade -- known as "contract markets" -- approved for such trading by the
Commodity Futures Trading Commission (the "CFTC"), and must be executed through
a futures commission merchant or brokerage firm which is a member of the
relevant contract market.
Although futures contracts (other than index futures) by their terms call
for actual delivery or acceptance of commodities or securities, in most cases
the contracts are closed out before the settlement date without the making or
taking of delivery.
Closing out a futures contract sale is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument or commodity with the same delivery date. If the price of the initial
sale of the futures contract exceeds the price of the offsetting purchase, the
seller is paid the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale, the seller
realizes a loss. If the Fund is unable to enter into a closing transaction, the
amount of the Fund's potential loss is unlimited. The closing out of a futures
contract purchase is effected by the purchaser's entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain, and if the purchase price exceeds the offsetting sale
price, he realizes a loss. In general, 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved by the CFTC is
treated as short-term gain or loss, and 60% is treated as long-term gain or
loss.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a contract, the Fund is required to deposit with its custodian in
a segregated account in the name of the futures broker an amount of liquid
assets. This amount is known as "initial margin." The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin
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does not involve the borrowing of Funds to finance the transactions. Rather,
initial margin is similar to a performance bond or good faith deposit which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts also involve
brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin," to
and from the broker (or the custodian) are made on a daily basis as the price of
the underlying security or commodity fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
"marking to the market." For example, when the Fund has purchased a futures
contract on a security and the price of the underlying security has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment based on that increase in value. Conversely, when the
Fund has purchased a security futures contract and the price of the underlying
security has declined, the position would be less valuable and the Fund would be
required to make a variation margin payment to the broker.
The Fund may elect to close some or all of its futures positions at any
time prior to their expiration in order to reduce or eliminate a hedge position
then currently held by the Fund. The Fund may close its positions by taking
opposite positions which will operate to terminate the Fund's position in the
futures contracts. Final determinations of variation margin are then made,
additional cash is required to be paid by or released to a Fund, and the Fund
realizes a loss or a gain. Such closing transactions involve additional
commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on futures contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The Fund may use
options on futures contracts in lieu of writing or buying options directly on
the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
portfolio securities, the Fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the Fund may
purchase call options or write put options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which the Fund expects to purchase. Such options
generally operate in the same manner as options purchased or written directly on
the underlying investments.
As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an offsetting option. There is
no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin
with respect to put and call options on futures contracts written by it pursuant
to brokers' requirements similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful
use of futures contracts by the Fund is subject to the Adviser's ability to
predict movements in various factors
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affecting securities markets, including interest rates. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a
futures contract would result in a loss to the Fund when the purchase or sale of
a futures contract would not, such as when there is no movement in the prices of
the hedged investments. The writing of an option on a futures contract involves
risks similar to those risks relating to the sale of futures contracts.
The use of options and futures strategies also involves the risk of
imperfect correlation among movements in the prices of the securities underlying
the futures and options purchased and sold by the Fund, of the options and
futures contracts themselves, and, in the case of hedging transactions, of the
securities which are the subject of a hedge. The successful use of these
strategies further depends on the ability of the Adviser to forecast interest
rates and market movements correctly.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain market clearing
facilities inadequate, and thereby result in the institution by exchanges of
special procedures which may interfere with the timely execution of customer
orders.
To reduce or eliminate a position held by the Fund, the Fund may seek to
close out such position. The ability to establish and close out positions will
be subject to the development and maintenance of a liquid secondary market. It
is not certain that this market will develop or continue to exist for a
particular futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain contracts or options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of contracts or options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of contracts or options
(or a particular class or series of contracts or options), in which event the
secondary market on that exchange for such contracts or options (or in the class
or series of contracts or options) would cease to exist, although outstanding
contracts or options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or
sell units of an index at a specified future date at a price agreed upon when
the contract is made. Entering into a contract to buy units of an index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. A unit
is the current value of the index. The Fund may enter into stock index futures
contracts, debt index futures contracts, or other index futures contracts
appropriate to its objective. The Fund may also purchase and sell options on
index futures contracts.
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For example, the S&P 500 Index is composed of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The S&P 500 Index
assigns relative weightings to the common stocks included in the Index, and the
value fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if
the value of the S&P 500 Index were $150, one contract could be worth $75,000
(500 units x $150). The stock index futures contract specifies that no delivery
of the actual stocks making up the index will take place. Instead, settlement in
cash must occur upon the termination of the contract, with the settlement being
the difference between the contract price and the actual level of the stock
index at the expiration of the contract. For example, if the Fund enters into a
futures contract to buy 500 units of the S&P 500 Index at a specified future
date at a contract price of $150 and the S&P 500 Index is at $154 on that future
date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters
into a futures contract to sell 500 units of the stock index at a specified
future date at a contract price of $150 and the S&P 500 Index is at $152 on that
future date, the Fund will lose $1,000 (500 units x loss of $2).
There are several risks in connection with the use by the Fund of index
futures. One risk arises because of the imperfect correlation between movements
in the prices of the index futures and movements in the prices of securities
which are the subject of the hedge. The Adviser will, however, attempt to reduce
this risk by buying or selling, to the extent possible, futures on indices the
movements of which will, in its judgment, have a significant correlation with
movements in the prices of the securities sought to be hedged.
Successful use of index futures by the Fund is also subject to the
Adviser's ability to predict movements in the direction of the market. For
example, it is possible that, where the Fund has sold futures to hedge its
portfolio against a decline in the market, the index on which the futures are
written may advance and the value of securities held in the Fund's portfolio may
decline. If this occurred, the Fund would lose money on the futures and also
experience a decline in value in its portfolio securities. It is also possible
that, if the Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of those securities it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements at a time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the index futures and the portion
of the Fund's portfolio being hedged, the prices of index futures may not
correlate perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result the
futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between
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movements in the index and movements in the prices of index futures, even a
correct forecast of general market trends by the Adviser may still not result in
a profitable position over a short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are similar to
options on securities except that options on index futures give the purchaser
the right, in return for the premium paid, to assume a position in an index
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
index futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the index
future. If an option is exercised on the last trading day prior to its
expiration date, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and the closing level of the
index on which the future is based on the expiration date. Purchasers of options
who fail to exercise their options prior to the exercise date suffer a loss of
the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options
on index futures, the Fund may purchase and sell call and put options on the
underlying indices themselves. Such options would be used in a manner identical
to the use of options on index futures.
INDEX WARRANTS. The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If the Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant.
The Fund will normally use index warrants in a manner similar to its use
of options on securities indices. The risks of the Fund's use of index warrants
are generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Fund will normally
invest only in exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a
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recognized clearing agency. In addition, the terms of index warrants may limit
the Fund's ability to exercise the warrants at such time, or in such quantities,
as the Fund would otherwise wish to do.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of the value of
its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid. The Adviser will
monitor the amount of illiquid securities in the Fund's portfolio, under the
supervision of the Company's Board of Directors, to ensure compliance with the
Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Company's Board of Directors may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.
RESTRICTED SECURITIES. The SEC Staff currently takes the view that any
delegation by the Board of Directors of the authority to determine that a
restricted security is readily marketable (as described in the investment
restrictions of the Fund) must be pursuant to written procedures established by
the Board of Directors. It is the present intention of the Board of Directors
that, if the Board of Directors decide to delegate such determinations to the
Adviser or another person, they would do so pursuant to written procedures,
consistent with the Staff's position. Should the Staff modify its position in
the future, the Board of Directors would consider what action would be
appropriate in light of the Staff's position at that time.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. A
repurchase
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agreement involves the purchase by the Fund of the securities with the condition
that after a stated period of time the original seller will buy back the same
securities at a predetermined price or yield. The Fund's custodian will hold the
securities underlying any repurchase agreement or such securities will be part
of the Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the Fund's collateral falls below the repurchase
price of the repurchase agreement (including any accrued interest), the Fund
will promptly receive additional collateral (so the total collateral is an
amount at least equal to the repurchase price plus accrued interest).
SECURITIES LOANS. The Fund may make secured loans of its portfolio
securities, on either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional income. The risks in
lending portfolio securities, as with other extensions of credit, consist of
possible delay in recovery of the securities or possible loss rights in the
collateral should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to agreements requiring
that the loans be continuously secured by collateral consisting of cash or
short-term debt obligations at least equal at all times to the value of the
securities on loan, "marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities lent. The Fund
retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. Although voting rights, or
rights to consent, with respect to the loaned securities may pass to the
borrower, the Fund retains the right to call the loans at any time on reasonable
notice, and it will do so to enable the Fund to exercise voting rights on any
matters materially affecting the investment. The Fund may also call such loans
in order to sell the securities.
INVESTMENT RESTRICTIONS
- -----------------------
In addition to the investment objective and policies set forth in the
Prospectus and in this Statement of Additional Information, the Fund is subject
to certain fundamental and non- fundamental investment restrictions, as set
forth below. Fundamental investment restrictions may not be changed with respect
to the Fund individually, without the vote of a majority of the Fund's
outstanding shares. Non-fundamental investment restrictions of the Fund may be
changed by the Board of Directors.
As fundamental investment restrictions, the Fund will not:
1. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities), if, as a
result, as to 75% of the Fund's total assets, more than 5% of its net assets
would be invested in the securities of one issuer or the Fund would hold more
than 10% of the outstanding voting securities of any one issuer.
2. Issue any senior securities, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), other than in connection with short sales
as described above or as set forth in restriction number 4 below.
3. Borrow amounts in excess of 10% of the cost or 10% of the market value
of its total assets,
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whichever is less, and then only from a bank and as a temporary measure for
extraordinary or emergency purposes. To secure any such borrowing, the Fund may
pledge or hypothecate not in excess of 15% of the value of its total assets.
4. Act as an underwriter of securities of other issuers, except insofar
as the Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.
5. Purchase or sell real estate or commodities or commodity futures
contracts. This restriction shall nor preclude the Fund from investing in banks
or other financial institutions that have real estate or that buy and sell real
estate.
6. Will not make loans, in the aggregate, exceeding 33.33% of the Fund's
total assets.
7. Will not invest more than 5% of the value of its total assets in any
closed-end investment company and will not hold more than 3% of the outstanding
voting stock of any other mutual fund.
8. Will not change the nature of its business so as to cease to be an
investment company.
The Fund is also subject to the following restrictions that are not
fundamental and may therefore be changed by the Board of Directors without
shareholder approval.
The Fund will not:
1. Acquire securities for the purpose of exercising control over
management.
2. Invest more than 15% of its net assets in illiquid securities.
Unless otherwise indicated, percentage limitations included in the
restrictions apply at the time the Fund enters into a transaction. Accordingly,
any later increase or decrease beyond the specified limitation resulting from a
change in the Fund's net assets will not be considered in determining whether
its has complied with its investment restrictions.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information concerning the directors and
officers of Questar Funds, Inc., (the "Company"), and their principal
occupations during the past five years. Directors who are interested persons, as
defined by the 1940 Act, are indicated by asterisk.
POSITIONS HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE LAST FIVE YEARS
COMPANY
Dan Calabria (Age 62) Director Retired; currently serves as a
7068 So. Shore Drive So. disinterested trustee/director of
So. Pasadena, Florida 33707 The Idex Mutual Funds, the
Florida TaxFree Funds and
ASM Index 30 Fund and as an
arbitrator for the NASD and
NYSE. Mr. Calabria served as
Executive Vice President of
William R. Huff & Co. from
June 1993 to June 1995 and
was President, CEO and
Director of Templeton Funds
Management, Inc., Templeton
Funds Distributor, Inc. and
Templeton Funds Trust
Company from 1986 to 1992.
Mr. Calabria also served in
various capacities with
Lexington Management
Corporation (1979-1983) and
Oppenheimer Management
Corporation (1965-1975).
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Anthony J. Hertl (Age 48) Director Chief Financial and
Colobaugh Pond Road Administrative Officer for
Croton-on-Hudson, NY 10520 Marymount College,
Tarrytown, NY since 1996.
Prior thereto, he served in a
number of senior management
positions at Prudential
Securities Inc. from 1983-1996.
Mr. Hertl spent 10 years at
Arthur Andersen & Co. and is a
Certified Public Accountant.
*Michael Miola (Age 46) Director and Chief Executive Officer of
The Hauppauge Chief American Data Services, Inc.
Corporate Center Executive
150 Motor Parkway Officer
Hauppauge, NY 11788
In addition to Mr. Miola, the other executive officers of the Company
are:
Michael Wagner - Treasurer
James Colantino - Secretary
Michele Miola - Assistant Secretary
The members of the Audit Committee of the Board of Directors are Mr.
Calabria and Mr. Hertl. Mr. Hertl acts as the chairperson of such committee. The
Audit Committee oversees the Fund's financial reporting process, reviews audit
results and recommends annually to the Company a firm of independent certified
public accountants.
Those Directors who are officers or employees of the Administrator or its
affiliates receive no remuneration from the Fund. Each disinterested Director
receives a fee from the Fund for each regular quarterly and in-person special
meeting of the Board of Directors attended. Members of the Board who are not
affiliated with the Adviser or the Administrator receive an annual fee of $4,000
plus $500 for each Board meeting attended. The Fund will pay a pro rata portion
of the Directors' fees and expenses based on the net assets of the Fund and the
other series of the Company. In addition, each Director who is not affiliated
with the Adviser or the Administrator is reimbursed for expenses incurred in
connection with attending meetings.
The following table sets forth the estimated compensation expected to be
received by each Director from the Company during the fiscal year ending as of
November 30, 1999.
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AGGREGATE ANNUAL ESTIMATED
DIRECTOR COMPENSATION FROM THE COMPANY
- -------- -----------------------------
Dan Calabria $6,000
Anthony J. Hertl $6,000
Michael Miola $0
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is Aii, Inc., (the "Adviser"). The
Adviser will act as such pursuant to a written agreement which, after its
initial two-year period, must be annually re-approved by the Board of Directors.
The address of the Adviser is 930 Tahoe Boulevard, #802-269, Incline Village,
Nevada 89451. The Adviser can also be contacted by telephone at (775) 832-0111.
CONTROL OF THE ADVISER
The stock of the Adviser is wholly-owned by Mr. George Crawford. Mr.
Crawford is also the Chairman of its Board of Directors and its Chief Executive
Officer.
INVESTMENT ADVISORY AGREEMENT
The Adviser acts as the investment adviser of the Fund under an
Investment Advisory Agreement which has been approved by the Board of Directors
(including a majority of the Directors who are not parties to the agreement, or
interested persons of any such party).
The Investment Advisory Agreement will terminate automatically in the
event of its assignment. In addition, the agreement is terminable at any time,
without penalty, by the Board of Directors of the Company or by vote of a
majority of the Company's outstanding voting securities on not more than 60
days' written notice to the Adviser, and by the Adviser on 60 days' written
notice to the Company. Unless sooner terminated, the agreement shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors or by a vote of a majority of the outstanding shares of the Company,
provided that in either event such continuance is also approved by a vote of a
majority of the Directors who are not parties to such agreement, or interested
persons of such parties, cast in person at a meeting called for the purpose of
voting on such approval.
Pursuant to its Investment Advisory Agreement, the Fund will pay the
Adviser monthly an advisory fee equal, on an annual basis, to 1.00% of its
average daily net assets plus, to the extent earned, a performance-based fulcrum
fee, as described below. The Adviser may waive a portion of its fees from time
to time.
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Under the Investment Advisory Agreement, the Adviser provides the Fund
with advice and assistance in the selection and disposition of the Fund's
investments. All investment decisions are subject to review by the Board of
Directors of the Company. The Adviser is obligated to pay the salaries and fees
of any affiliates of the Adviser serving as officers of the Company or the Fund.
The same security may be suitable for the Fund or other private accounts
managed by the Adviser. If and when the Fund or two or more accounts
simultaneously purchase or sell the same security, the transactions will be
allocated as to price and amount in accordance with arrangements equitable to
the Fund or account. The simultaneous purchase or sale of the same securities by
the Fund and other accounts may have a detrimental effect on the Fund, as this
may affect the price paid or received by the Fund or the size of the position
obtainable or able to be sold by the Fund.
FULCRUM FEE ARRANGEMENT In addition to the 1% advisory fee, the Adviser
-----------------------
may be entitled to receive a performance-based fee pursuant to Section 205(b) of
the Investment Adviser's Act of 1940 (the "Adviser's Act").
Rule 205(b)(2) of the Adviser's Act permits an investment adviser to
charge a "fulcrum fee" when advising a registered investment company. Rule 205-3
provides for compensation to an adviser by a qualified investment company on the
basis of a share of capital gains upon or capital appreciation of the funds or
any portion of the funds of the client. Under this fee arrangement, an adviser's
compensation increases or decreases depending on how an account performs
relative to an appropriate index or other measure of performance over a
specified period. The rule specifically requires that the fees increase and
decrease proportionately with the investment performance of the client's account
over the specified period in relation to the designated market index. The point
from which such increases or decreases in compensation are measured is the fee
which is paid or earned when the client's investment performance is equivalent
to that of the index. Thus, performance fees permitted under the Adviser Act are
limited to those types of fees which (i) are earned only when a client's
portfolio has outperformed the market (whether the market has risen or fallen),
and (ii) discourage an adviser from taking substantial risks with a client's
funds, as the adviser in computing its fees is penalized for losses incurred by
a client which are greater than losses borne by the market.
The performance fee to which the Adviser is entitled complies with the
specifications of Section 205-3. Pursuant to the Investment Advisory Agreement,
the Adviser, in addition to the 1% Investment Advisory fee described above, will
be entitled to a performance-based fee which will be calculated on a daily basis
after the determination of the Fund's net asset value on each day that the New
York Stock Exchange is open. The Adviser has identified the daily U.S. Treasury
Bill Rate plus 5% (annualized) as the appropriate benchmark of the Fund's
performance. If the Fund's daily net performance (after taking into
consideration all accrued costs and expenses) equals the benchmark when
calculated for such day, the Adviser will be entitled to a fee equal to 2% of
the net assets of the Fund. If the Fund's daily net performance exceeds or falls
short of the daily benchmark, the Adviser's annual performance fee accrued is
either increased or reduced by 20% of the difference. If the amount of the debit
would cause the accrual to be a negative number, the Adviser will not be
required to pay in that negative amount. However, no fees will be credited to
the Adviser's accrual of its performance fee until the amount of fees which
would otherwise have been credited to the Adviser is sufficient to extinguish
any negative balance. The Fund will pay the Adviser any accrual of its
performance fee at the end of each month.
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<PAGE>
ADMINISTRATOR
The Administrator for the Fund is American Data Services, Inc. (the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788, and is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York, Denver and Los Angeles.
Pursuant to an Administrative Service Agreement with the Fund, the
Administrator provides all administrative services necessary for the Fund,
subject to the supervision of the Board of Directors. The Administrator will
provide persons to serve as officers of the Fund. Such officers may be
directors, officers or employees of the Administrator or its affiliates.
The Administrative Service Agreement is terminable by the Board of
Directors of the Fund or the Administrator on sixty days' written notice and may
be assigned provided the non-assigning party provides prior written consent. The
Agreement shall remain in effect for two years from the date of its initial
approval, and subject to annual approval of the Board of Directors for one-year
periods thereafter. The Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Administrator or
reckless disregard of its obligations thereunder, the Administrator shall not be
liable for any action or failure to act in accordance with its duties
thereunder.
Under the Administrative Service Agreement, the Administrator provides
all administrative services, including, without limitation: (i) provides
services of persons competent to perform such administrative and clerical
functions as are necessary to provide effective administration of the Fund; (ii)
overseeing the performance of administrative and professional services to the
Fund by others, including the Fund's Custodian; (iii) preparing, but not paying
for, the periodic updating of the Fund's Registration Statement, Prospectus and
Statement of Additional Information in conjunction with Fund counsel, including
the printing of such documents for the purpose of filings with the Securities
and Exchange Commission and state securities administrators, preparing the
Fund's tax returns, and preparing reports to the Fund's shareholders and the
Securities and Exchange Commission; (iv) preparing in conjunction with Fund
counsel, but not paying for, all filings under the securities or "Blue Sky" laws
of such states or countries as are designated by the Distributor, which may be
required to register or qualify, or continue the registration or qualification,
of the Fund and/or its shares under such laws; (v) preparing notices and agendas
for meetings of the Board of Directors and minutes of such meetings in all
matters required by the 1940 Act to be acted upon by the Board; and (vi)
monitoring daily and periodic compliance with respect to all requirements and
restrictions of the Investment Company Act, the Internal Revenue Code and the
Prospectus.
The Administrator, pursuant to the Fund Accounting Service Agreement,
provides the Fund with all accounting services, including, without limitation:
(i) daily computation of net asset value; (ii) maintenance of security ledgers
and books and records as required by the Investment Company Act; (iii)
production of the Fund's listing of portfolio securities and general ledger
reports; (iv)
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<PAGE>
reconciliation of accounting records; (v) calculation of yield and total return
for the Fund; (vi) maintaining certain books and records described in Rule 31a-1
under the 1940 Act, and reconciling account information and balances among the
Fund's Custodian and Adviser; and (vii) monitoring and evaluating daily income
and expense accruals, and sales and redemptions of shares of the Fund.
ADMINISTRATOR'S FEES
For the services rendered to the Fund by the Administrator, the Fund pays
the Administrator a monthly fee based on the Fund's average net assets. The Fund
also pays the Administrator for any out-of-pocket expenses. These fees are set
forth in the Fund's Prospectus.
In return for providing the Fund with all accounting related services,
the Fund pays the Administrator a monthly fee based on the Fund's average net
assets, plus any out-of-pocket expenses for such services.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Star Bank, N.A. serves as custodian for the Fund's cash and securities
(the "Custodian"). Pursuant to a Custodian Agreement, it is responsible for
maintaining the books and records of the Fund's portfolio securities and cash.
The Custodian does not assist in, and is not responsible for, investment
decisions involving assets of the Fund. American Data Services, Inc., the
Administrator, also acts as the Fund's transfer and dividend agent.
DISTRIBUTION AGREEMENT
Pursuant to a Distribution Agreement, ADS Distributors, Inc. (the
"Distributor") has agreed to act as the principal underwriter for the Fund in
the sale and distribution to the public of shares of the Fund, either through
dealers or otherwise. The Distributor has agreed to offer such shares for sale
at all times when such shares are available for sale and may lawfully be offered
for sale and sold.
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
The Fund has adopted a Distribution and Service Plan (the "Plan"), which
was reviewed and approved by a majority of the disinterested directors of the
Fund, pursuant to Rule 12b-1 under the Act (the "Rule"). The Rule provides that
an investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Plan provides that the Fund will compensate the Distributor for certain expenses
and costs incurred in connection with providing marketing and promotional
support to the Fund, shareholder servicing and maintaining shareholder accounts,
to compensate parties with which it has written agreements and whose clients own
shares of the Fund for providing servicing to their clients ("shareholder
servicing") and financial institutions with which it has written agreements and
whose clients are Fund shareholders (each a "broker-dealer") for providing
distribution assistance and promotional support to the Fund, which is subject to
a maximum of 0.25% per annum of the Fund's average daily net assets. Fees paid
under the Plan may not be waived for individual shareholders.
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<PAGE>
Each shareholder servicing agent and broker-dealer will, as agent for its
customers, among other things: answer customer inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
the Fund may be effected and certain other matters pertaining to the Fund;
assist shareholders in designating and changing dividend options, account
designations and addresses; provide necessary personnel and facilities to
establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
furnish quarterly and year-end statements and confirmations within five business
days after activity in the account; transmit to shareholders of the Fund proxy
statements, annual reports, updated prospectuses and other communications;
receive, tabulate and transmit proxies executed by shareholders with respect to
meetings of shareholders of the Fund; and provide such other related services as
the Fund or a shareholder may request.
The Plan, the shareholder servicing agreements and the form of
distribution agreement each provide that the Adviser or the Distributor may make
payments from time to time from their own resources which may include the
advisory fee and the asset based sales charges and past profits for the
following purposes: (i) to defray the costs of and to compensate others,
including financial intermediaries with whom the Distributor has entered into
written agreements, for performing shareholder servicing and related
administrative functions of the Fund; to compensate certain financial
intermediaries for providing assistance in distributing Fund shares; (ii) to pay
the costs of printing and distributing the Fund's prospectus to prospective
investors; and (iii) to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
shares. The Distributor will determine the amount of such payments made pursuant
to the Plan with the shareholder servicing agents and broker-dealers with whom
it has contracted, provided that such payments made pursuant to the Plan will
not increase the amount which the Fund is required to pay the Distributor for
any fiscal year under the shareholder servicing agreements or otherwise.
Shareholder servicing agents and broker-dealers may charge investors a
fee in connection with their use of specialized purchase and redemption
procedures offered to investors by the shareholder servicing agents and
broker-dealers. In addition, shareholder servicing agents and broker-dealers
offering purchase and redemption procedures similar to those offered to
shareholders who invest in the fund directly may impose charges, limitations,
minimums and restrictions in addition to or different from those applicable to
shareholders who invest in the Fund directly. Accordingly, the net yield to
investors who invest through shareholder servicing agents and broker-dealers may
be less than realized by investing in the Fund directly. An investor should read
the Prospectus in conjunction with the materials provided by the shareholder
servicing agent and broker-dealer describing the procedures under which Fund
shares may be purchased and redeemed through the shareholder servicing agent and
broker-dealer.
The Glass-Steagall Act limits the ability of a depository institution to
become an underwriter or distributor of securities. It is the Fund's position,
however, that banks are not prohibited from
25
<PAGE>
acting in other capacities for investment companies, such as providing
administrative and shareholder account maintenance services and receiving
compensation from the distributor for providing such services. This is an
unsettled area of the law, however, and if a determination contrary to the
Fund's position concerning shareholder servicing and administration payments to
banks from the distributor is made by a bank regulatory agency or court, any
such payments will be terminated and any shares registered in the banks' names,
for their underlying customers, will be re-registered in the names of the
customers at no cost to the Fund or its shareholders. In addition, state
securities laws on this issue may differ from the interpretation of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
In accordance with the Rule, the Plan provides that all written
agreements relating to the Plan entered into by the Fund, the Distributor or the
Adviser, and the shareholder servicing agents, broker-dealers, or other
organizations, must be in a form satisfactory to the Board of Directors. In
addition, the Plan requires the Fund and the Distributor to prepare, at least
quarterly, written reports setting forth all amounts expended for distribution
purposes by the Fund and the Distributor pursuant to the Plan and identifying
the distribution activities for which those expenditures were made for review by
the Board of Directors.
OTHER EXPENSES
The Fund pays certain operating expenses that are not assumed by the
Adviser, the Administrator or any of their respective affiliates. These
expenses, together with fees paid to the Adviser, the Administrator, the
Distributor and the Transfer Agent, are deducted from income of the Fund before
dividends are paid. These expenses include, but are not limited to,
organizational costs, fees and expenses of officers and Directors who are not
affiliated with the Adviser, the Administrator or any of their respective
affiliates, taxes, interest, legal fees, custodian fees, audit fees, brokerage
fees and commissions, fees and expenses of registering and qualifying the Fund
and its shares for distribution under federal and state securities laws, the
expenses of reports to shareholders, shareholders' meetings and proxy
solicitations.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
The Fund's assets are invested by the Adviser in a manner consistent with
its investment objectives, policies, and restrictions and with any instructions
the Board of Directors may issue from time to time. Within this framework, the
Adviser is responsible for making all determinations as to the purchase and sale
of portfolio securities and for taking all steps necessary to implement
securities transactions on behalf of the Fund.
U.S. Government securities generally are traded in the over-the-counter
market through broker-dealers. A broker-dealer is a securities firm or bank that
makes a market for securities by offering to buy at one price and sell at a
slightly higher price. The difference between the prices is known as a spread.
In placing orders for the purchase and sale of portfolio securities for
the Fund, the Adviser will use its best efforts to obtain the best possible
price and execution and will otherwise place orders
26
<PAGE>
with broker-dealers subject to and in accordance with any instructions the Board
of Directors may issue from time to time. The Adviser will select broker-dealers
including, the Distributor, to execute portfolio transactions on behalf of the
Fund primarily on the basis of best price and execution.
When consistent with the objectives of prompt execution and favorable net
price, business may be placed with broker-dealers who furnish investment
research or services to the Adviser. Such research or services include advice,
both directly and in writing, as to the value of securities; the advisability of
investing in, purchasing or selling securities; and the availability of
securities, or purchasers or sellers of securities; as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. To the extent portfolio
transactions are effected with broker-dealers who furnish research services to
the Adviser, the Adviser receives a benefit, not capable of evaluation in dollar
amounts, without providing any direct monetary benefit to the Fund from these
transactions. The Adviser believes that most research services obtained by it
generally benefit several or all of the investment companies and private
accounts which it manages, as opposed to solely benefitting one specific managed
fund or account.
Transactions on U.S. stock exchanges, commodities markets and futures
markets and other agency transactions involve the payment by the Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the Adviser may receive brokerage and research services and other
similar services from many broker-dealers with which the Adviser may place the
Fund's portfolio transactions and from third parties with which these
broker-dealers have arrangements. These services include such matters as general
economic and market reviews, industry and company reviews, evaluations of
investments, recommendations as to the purchase and sale of investments,
newspapers, magazines, pricing services, quotation services, news services and
personal computers utilized by the Adviser. Where the services referred to above
are not used exclusively by the Adviser for research purposes, the Adviser,
based upon its own allocations of expected use, bears that portion of the cost
of these services which directly relates to their non-research use. Some of
these services are of value to the Adviser and its affiliates in advising
various of their clients (including the Fund), although not all of these
services are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because the Adviser and its
affiliates receive these services even though the Adviser might otherwise be
required to purchase some of these services for cash.
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As permitted by Section 28(e) of the 1934 Act, the Adviser may cause the
Fund to pay a broker-dealer which provides "brokerage and research services" (as
defined in the 1934 Act) to the Adviser an amount of disclosed commission for
effecting securities transactions on stock exchanges and other transactions for
the Fund on an agency basis in excess of the commission which another
broker-dealer would have charged for effecting that transaction. The Adviser's
authority to cause the Fund to pay any such greater commissions is also subject
to such policies as the Directors may adopt from time to time. The Adviser does
not currently intend to cause any Fund to make such payments. It is the position
of the staff of the Securities and Exchange Commission that Section 28(e) does
not apply to the payment of such greater commissions in "principal"
transactions. Accordingly, the Adviser will use its best effort to obtain the
most favorable price and execution available with respect to such transactions,
as described above.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
TAXATION
The Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). By so qualifying, the Fund will not incur federal income or state taxes
on its net investment income and on net realized capital gains to the extent
distributed as dividends to shareholders.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (a) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31st of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.
Under the Code, dividends derived from interest, and any short-term
capital gains, are taxable to shareholders as ordinary income for federal and
state tax purposes, regardless of whether such dividends are taken in cash or
reinvested in additional shares. Distributions made from the Fund's net realized
long-term capital gains (if any) and designated as capital gain dividends are
taxable to shareholders as long-term capital gains, regardless of the length of
time Fund shares are held. Corporate investors are not eligible for the
dividends-received deduction with respect to distributions derived from interest
on short-or long-term capital gains from the Fund but may be entitled to such a
deduction in respect to distributions attributable to dividends received by the
Fund. A distribution will be treated as paid on December 31st of a calendar year
if it is declared by the Fund in October, November or December of the year with
a record date in such a month and paid by the Fund during January of the
following year. Such distributions will be taxable to shareholders in the
calendar year the distributions are declared, rather than the calendar year in
which the distributions are received.
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Distributions paid by the Fund from net long-term capital gains (excess
of long-term capital gains over long-term capital losses), if any, whether
received in cash or reinvested in additional shares, are taxable as long-term
capital gains, regardless of the length of time you have owned shares in the
Fund. Distributions paid by the Fund from net short-term capital gains (excess
of short-term capital gains over short-term capital losses), if any, whether
received in cash or reinvested in additional shares are taxable as ordinary
income. Capital gains distributions are made when the Fund realizes net capital
gains on sales of portfolio securities during the year. Realized capital gains
are not expected to be a significant or predictable part of the Fund's
investment return.
Any redemption of the Fund shares is a taxable event and may result in a
capital gain or loss. A capital gain or loss may be realized from an ordinary
redemption of shares.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions and exchanges may also be subject to state and local
taxes.
Ordinarily, distributions and redemption proceeds paid to Fund
shareholders are not subject to withholding of federal income tax. However, 31%
of the Fund's distributions and redemption proceeds must be withheld if a Fund
shareholder fails to supply the Fund or its agent with such shareholder's
taxpayer identification number or if the Fund shareholder who is otherwise
exempt from withholding fails to properly document such shareholder's status as
an exempt recipient.
The information above is only a summary of some of the tax considerations
generally affecting the Fund and its shareholders. No attempt has been made to
discuss individual tax consequences. To determine whether the Fund is a suitable
investment based on his or her tax situation, a prospective investor may wish to
consult a tax advisor.
OWNERSHIP OF SHARES
Each share has one vote in the election of Directors. Cumulative voting
is not authorized. This means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the Directors if they
choose to do so, and, in that event, the holders of the remaining shares will be
unable to elect any Directors.
PURCHASE OF SHARES
Shares of the Fund may be purchased at the net asset value per share next
determined, plus any applicable sales load, after receipt of an order by the
Fund's Distributor in proper form with accompanying check or other bank wire
payment arrangements satisfactory to the Fund. Fund shares are sold subject to
an initial sales load of up to 1.5%. The Fund's minimum initial investment is
$2,000 (except for retirement accounts for which the minimum initial investment
is $1,000) and the minimum subsequent investment is $100.
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DIVIDENDS AND DISTRIBUTIONS
Net investment income, if any, is declared as dividends and paid
annually. Substantially all the realized net capital gains for the Fund, if any,
are also declared and paid on an annual basis. Dividends and distributions are
payable to shareholders of record at the time of declaration.
Distributions are automatically reinvested in additional Fund shares
unless the shareholder has elected to have them paid in cash.
The net investment income of the Fund for each business day is determined
immediately prior to the determination of net asset value. Net investment income
for other days is determined at the time net asset value is determined on the
prior business day. See "Purchase of Shares" and "Redemption of Shares" in the
Prospectus.
NET ASSET VALUE
The method for determining the Fund's net asset value is summarized in
the Prospectus in the text following the heading "Valuation of Shares." The net
asset value of the Fund's shares is determined on each day on which the New York
Stock Exchange is open, provided that the net asset value need not be determined
on days when no Fund shares are tendered for redemption and no order for Fund
shares is received. The New York Stock Exchange is not open for business on the
following holidays (or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
PERFORMANCE COMPARISONS
Total return quoted in advertising and sales literature reflects all
aspects of the Fund's return, including the effect of reinvesting dividends and
capital gain distributions and any change in the Fund's net asset value during
the period.
The Fund's total return must be displayed in any advertisement containing
the Fund's yield. Total return is the average annual total return for the 1-, 5-
and 10-year period ended on the date of the most recent balance sheet included
in the Statement of Additional Information, computed by finding the average
annual compounded rates of return over 1-, 5- and 10-year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
P(1 + T)n = ERV
Where:
P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1-, 5- or 10-year periods at the end of the
1-, 5-or 10-year periods (or fractions
thereof).
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Because the Fund has not had a registration in effect for 1, 5 or 10
years, the period during which the registration has been effective shall be
substituted.
Average annual total return is calculated by determining the growth or
decline in value of a hypothetical historical investment in the Fund over a
stated period and then calculating the annual compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant throughout the period. For example, a cumulative total return
of 100% over 10 years would produce an average annual total return of 7.18%,
which is the steady annual rate that would result in 100% growth on a compounded
basis in 10 years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that the Fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to actual
year-to-year performance.
In addition to average annual total returns, the Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments, or a series of redemptions over any
time period. Performance information may be quoted numerically or in a table,
graph, or similar illustration.
The Fund's performance may be compared with the performance of other
funds with comparable investment objectives, tracked by fund rating services or
with other indexes of market performance. Sources of economic data that may be
considered in making such comparisons may include, but are not limited to,
rankings of any mutual fund or mutual fund category tracked by Lipper Analytical
Services, Inc. or Morningstar, Inc.; data provided by the Investment Company
Institute; major indexes of stock market performance; and indexes and historical
data supplied by major securities brokerage or investment advisory firms. The
Fund may also utilize reprints from newspapers and magazines furnished by third
parties to illustrate historical performance.
The agencies listed below measure performance based on their own criteria
rather than on the standardized performance measures described in the preceding
section.
Lipper Analytical Services, Inc. distributes mutual fund rankings monthly.
The rankings are based on total return performance calculated by Lipper,
generally reflecting changes in net asset value adjusted for reinvestment
of capital gains and income dividends. They do not reflect deduction of
any sales charges. Lipper rankings cover a variety of performance
31
<PAGE>
periods, including year-to-date, 1-year, 5-year, and 10-year
performance. Lipper classifies mutual funds by investment objective and
asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral,
below average and lowest. They represent the fund's historical
risk/reward ratio relative to other funds in its broad investment class
as determined by Morningstar, Inc. Morningstar ratings cover a variety
of performance periods, including 1-year, 3-year, 5-year, 10-year and
overall performance. The performance factor for the overall rating is a
weighted-average assessment of the fund's 1-year, 3-year, 5-year, and
10-year total return performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The ratings are
derived from a purely quantitative system that does not utilize the
subjective criteria customarily employed by rating agencies such as
Standard & Poor's and Moody's Investor Service, Inc.
CDA/Weisenberger's Management Results publishes mutual fund rankings
and is distributed monthly. The rankings are based entirely on total
return calculated by Weisenberger for periods such as year-to-date,
1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general
categories (e.g., international bond, international equity, municipal
bond, and maximum capital gain). Weisenberger rankings do not reflect
deduction of sales charges or fees.
Independent publications may also evaluate the Fund's performance. The
Fund may from time to time refer to results published in various periodicals,
including Barrons, Financial World, Forbes, Fortune, Investor's Business Daily,
Kiplinger's Personal Finance Magazine, Money, U.S.
News and World Report and The Wall Street Journal.
REDEMPTION OF SHARES
Redemption of shares, or payment for redemptions, may be suspended at
times (a) when the New York Stock Exchange is closed for other than customary
weekend or holiday closings, (b) when trading on said Exchange is restricted,
(c) when an emergency exists, as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable, or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during any other period when the Securities and Exchange Commission, by order,
so permits, provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in (b)
or (c) exist.
Shareholders who purchased shares through a broker-dealer other than
the Distributor may also redeem such shares by written request to the Transfer
Agent which shares are held by the Transfer Agent at the address set forth in
the Prospectus. To be considered in "good order", written requests for
redemption should indicate the dollar amount or number of shares to be redeemed,
refer to the shareholder's Fund account number, including either the social
security or tax identification number. The request should be signed in exactly
the same way the account is registered. If there
32
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is more than one owner of the shares, all owners must sign. If shares to be
redeemed have a value of $5,000 or more or redemption proceeds are to be paid by
someone other than the shareholder at the shareholder's address of record, the
signature(s) must be guaranteed by an "eligible guarantor institution," which
includes a commercial bank that is a member of the Federal Deposit Insurance
Corporation, a trust company, a member firm of a domestic stock exchange, a
savings association or a credit union that is authorized by its charter to
provide a signature guarantee. The Transfer Agent may reject redemption
instructions if the guarantor is neither a member of nor a participant in a
signature guarantee program. Signature guarantees by notaries public are not
acceptable. The purpose of a signature guarantee is to protect shareholders
against the possibility of fraud. Further documentation will be requested from
corporations, administrators, executors, personal representatives, trustees and
custodians. Redemption requests given by facsimile will not be accepted. Unless
other instructions are given in proper form, a check for the proceeds of the
redemption will be sent to the shareholder's address of record.
Share purchases and redemptions are governed by Maryland law.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of shares of common stock
of the Fund are passed upon by Spitzer & Feldman P.C., 405 Park Avenue, New
York, New York 10022. McCurdy & Associates, CPAs, Inc., 27955 Clemens Road,
Westlake, Ohio 44145, have been selected as independent accountants for the
Fund.
OTHER INFORMATION
The Adviser has been continuously registered with the Securities
Exchange Commission (SEC) under the 1940 Act since _____________. The Company
has filed a registration statement under the Securities Act of 1933 and the 1940
Act with respect to the shares offered. Such registrations do not imply approval
or supervision of the Fund or the Adviser by the SEC.
For further information, please refer to the registration statement and
exhibits on file with the SEC in Washington, D.C. These documents are available
upon payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
33
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PART C
------
ITEM 23. EXHIBITS.
* (1) Articles of Incorporation;
* (2) Bylaws of the Company;
(3) Not Applicable.
***(4) Investment Advisory Agreement.
***(5) Distribution Agreement.
(6) Not Applicable.
***(7) Custody Agreement.
***(8.1) Administrative Service Agreement.
***(8.2) Transfer Agency Agreement.
*(9.1) Opinion of Spitzer & Feldman P.C. as to the legality
of the securities being registered, including their
consent to the filing thereof and as to the use of
their names in the Prospectus.
***(9.2) Consent of Spitzer & Feldman P.C.
*(10) Consent of McCurdy & Associates, CPAs, Inc.,
independent accountants.
(11) Not Applicable.
** (12) Subscription Letter.
(13) Not Applicable.
***(14) Financial Data Schedule.
***(15) Distribution Plan.
- ---------------------
* Filed with the Securities and Exchange Commission as an Exhibit to the
Registrant's Registration Statement (Reg. No. 333-46323) on February 13,
1998.
** Filed with the Securities and Exchange Commission as an Exhibit to
Pre-Effective Amendment No. 2 to the Registration Statement
(Reg. No. 333-46323) on January 25, 1999.
*** To be Filed.
C-i
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ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable
ITEM 25. INDEMNIFICATION.
(a) In accordance with Section 2-418 of the General Corporation
Law of the State of Maryland, Article NINTH of the Registrant's
Articles of Incorporation provides as follows:
"NINTH:(1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the
Corporation or at its request any other entity, to the fullest
extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the fullest extent permitted
by law, and (ii) other employees and agents to such extent as
shall be authorized by the Board of Directors or the By-Laws and
as permitted by law. Nothing contained herein shall be construed
to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The foregoing rights of
indemnification shall not be exclusive of any other rights to
which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such by-laws, resolutions or
contracts implementing such provisions or such indemnification
arrangements as may be permitted by law. No amendment of the
charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the right of indemnification provided
hereunder with respect to acts or omissions occurring prior to
such amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment
Company Act of 1940, no director or officer of the Corporation
shall be personally liable to the Corporation or its
stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. No amendment of the
charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the limitation of liability provided
to directors and officers hereunder with respect to any act or
omission occurring prior to such amendment or repeal."
C-ii
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ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Aii, Inc. serves as investment adviser to the Fund. Set forth below
are the names of the directors and officers of the Adviser:
George Crawford President, CEO, and Director
Kenneth Brandau CFO
ITEM 27. PRINCIPAL UNDERWRITER.
(a) The principal underwriter of the Company's shares currently acts
as a principal underwriter for other investment companies.
(b) The following table contains information with respect to each
director, officer or partner of each principal underwriter named
in the answer to Item 21:
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
----------------- ---------------- ---------------
Michael Miola Treasurer, Director President, CFO and
Chairman Director
*The Hauppauge
Corporate Center
150 Motor Parkway
Hauppauge, NY 11788
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Company required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are located,
in whole or in part, at the office of the Adviser at 930 Tahoe Boulevard,
#802-269, Incline Village, Nevada 89451. The Adviser can also be contacted by
telephone at (775) 832-0111; except transfer agency records which are maintained
at the offices of the Administrator, American Data Services, Inc., The Hauppauge
Corporate Center, 150 Motor Parkway, Hauppauge, New York 11788 and custodial
records which are maintained at the offices of the Custodian, Star Bank, N.A.,
425 Walnut Street, Cincinnati, Ohio 45202.
ITEM 29 MANAGEMENT SERVICES.
Not Applicable
ITEM 30. UNDERTAKINGS.
Not Applicable
C-iii
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hauppauge and State of New York, on the 18th day of
February, 1999.
QUESTAR FUNDS, INC.
By:/S/ MICHAEL MIOLA
-----------------------------
Michael Miola, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
/S/ MICHAEL MIOLA Director, Chairman of the February 18, 1999
- -------------------
Michael Miola Board and Chief Executive Officer
/S/ DAN CALABRIA Director February 18, 1999
- ----------------
Dan Calabria
/S/ ANTHONY HERTL Director February 18, 1999
- -----------------
Anthony Hertl
The above persons signing as Directors are all of the members of the
Company's Board of Directors.
