QUESTAR FUNDS, INC.
IMPERIAL BANKFUND
Imperial BankFund (the "Fund") is a series of Questar Funds, Inc. (the
"Company"), a Maryland corporation. The investment objectives of the Fund are to
provide shareholders with long-term capital appreciation with income as a
secondary objective by investing in a portfolio consisting primarily of equity
securities of regional banks, lending institutions and financial services
companies.
The Fund is sold subject to an initial sales load of up to 4.75% and has
adopted a distribution and service plan under which it pays distribution fees
equal to 0.50% of its average daily net assets and shareholder servicing fees
equal to 0.25% of its average daily net assets.
This Prospectus, dated February 10, 1999, concisely describes the
information about the Fund that you ought to know before investing. Please read
it carefully before investing and retain it for future reference.
A Statement of Additional Information ("SAI") about the Fund, dated February 10,
1999, is available free of charge. The address of the Company is Questar Funds,
Inc., The Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, New York
11788 or telephone (877) 732-7696. The SAI has been filed with the Securities
and Exchange Commission and is incorporated in its entirety by reference in this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INTRODUCTION
THE INVESTMENT ADVISER
The Fund is managed by Retirement Planning Company of New England, Inc.
(the "Adviser"). The Fund will pay the Adviser, on a monthly basis, an annual
fee for managing its investment portfolio equal to 1.00% of its average daily
net assets. The Adviser may voluntarily waive some or all of its fees. See
"Management-Investment Adviser."
THE DISTRIBUTOR
ADS Distributors, Inc. (the "Distributor"), an affiliate of American Data
Services, Inc. ("ADS"), the Fund's Administrator, serves as Distributor of the
Fund's shares. See "Distribution of Fund Shares."
OFFERING PRICE
Shares of the Fund are sold at the net asset value per share next
determined, plus any applicable sales load of up to 4.75%. See "How to Purchase
Shares."
MINIMUM INVESTMENTS
The minimum initial investment for the Fund is $2,000. The minimum initial
investment for retirement accounts and for automatic investment plans for
non-retirement accounts is $1,000. See "How to Purchase Shares."
REDEMPTION PRICE
Shares of the Fund may be redeemed at any time at the net asset value next
determined after a redemption request is received in "good order" by the
Transfer Agent. The Fund reserves the right, upon 30 days' written notice, to
redeem your account if the net asset value of the shares in your Fund account
falls below $1,000, except for retirement accounts which may be redeemed if the
net asset value of such account falls below $500.00. See "How to Redeem Shares."
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CERTAIN RISK FACTORS TO CONSIDER
There can be no assurance that the Fund will achieve its investment
objectives. As set forth in detail under "Investment Objectives and Policies,"
an investment in the Fund is subject to certain risks, such as its net asset
value per share can be expected to fluctuate and the Fund will concentrate its
investments in the banking industry by acquiring the equity securities of banks
and, as a result, is designed for investors who are interested in actively
monitoring the progress of, and are willing to accept the risks of, bank
industry-focused investing. The Fund may also engage in the use of certain
specified investment policies and techniques which involve certain special
risks.
SHAREHOLDER INQUIRIES
Any questions or communications regarding the Fund or a shareholder
account should be directed to the Fund c/o ADS, P.O. Box 5536, Hauppauge, New
York 11788-0132; or by calling the Fund toll free at (877) 732-7696.
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TRANSACTION AND OPERATING EXPENSE TABLE
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
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SHAREHOLDER TRANSACTION FEES
(PAID DIRECTLY FROM YOUR INVESTMENTS):
- --------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of the offering price) 4.75%
- --------------------------------------------------------------------------------
ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS,
AS A PERCENTAGE OF NET ASSETS)
- --------------------------------------------------------------------------------
Advisory Fees (1) 1.00%
- --------------------------------------------------------------------------------
Rule 12b-1 Fees 0.50%
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Other Expenses (2)(3) 1.25%
=====
- --------------------------------------------------------------------------------
Total Estimated Fund Operating Expenses (3) 2.75%
- --------------------------------------------------------------------------------
</TABLE>
EXAMPLE:
You would pay the following expenses 1 year - $ 74.00
on a $1,000 investment, assuming a 5% 3 years - $129.00
annual return and redemption at the end
of each time period:
THE PURPOSE OF THE ABOVE TABLE IS TO HELP YOU UNDERSTAND THE VARIOUS COSTS AND
EXPENSES THAT YOU, AS A SHAREHOLDER, WILL BEAR DIRECTLY OR INDIRECTLY IN
CONNECTION WITH AN INVESTMENT IN EACH FUND OFFERED BY THIS PROSPECTUS. THE
EXAMPLE SET FORTH ABOVE ASSUMES REINVESTMENT OF ALL DIVIDENDS AND USES A 5%
ANNUAL RATE OF RETURN AS REQUIRED BY SEC REGULATIONS.
NEITHER THE 5% RATE OF RETURN NOR THE EXPENSES SHOWN ABOVE SHOULD BE CONSIDERED
INDICATIONS OF PAST OR FUTURE RETURNS AND EXPENSES. ACTUAL RETURNS AND EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ---------------------------
(1) 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 $10 million in the Fund.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives are fundamental and may not be changed
without shareholder approval. The investment policies employed by the Adviser to
achieve the Fund's objectives are not fundamental and may be changed or
eliminated by the Company's Board of Directors, without shareholder approval.
The Fund has also adopted investment restrictions, some of which are fundamental
and may not be changed without shareholder approval, and some of which are not
fundamental and, therefore, may be changed by the Company's Board of Directors.
See "Investment Objectives, Policies and Restrictions" in the SAI.
INVESTMENT OBJECTIVES
The Fund seeks to provide investors with long-term capital appreciation
with income as a secondary objective. The Fund is not intended to be a complete
investment program, and there is no assurance it will achieve its objectives.
INVESTMENT POLICIES
The Fund seeks to achieve its objective by investing at least 65% of its
total assets in equity securities of banks, believed by the Adviser to offer
superior prospects for long term growth. The Fund may invest the remaining 35%
of its total assets in the equity securities of lending institutions, insurance
companies and financial services companies, to the extent that the Adviser
determines such investments will enhance the performance of the Fund. The
Adviser expects to select stocks of banks with long histories of profitability
located in stable communities with growth potential, as well as banks that have
exhibited low price to earnings ratios and minimal loan losses.
Commercial banks, generally, range in size from small banks under $10
million in total assets to the largest bank holding companies with assets well
over $100 billion. They can be classified into three general categories: "Money
Center Banks", a bank or bank holding company that is typically located in an
international financial center and has a strong international business with a
significant percentage of its assets outside the United States; "Regional
Banks", banks and bank holding companies which provide full service banking,
often operating in two or more states in the same geographic area, and whose
assets are primarily related to domestic business; and "Community Banks", banks
usually serving a county, rural or suburban geographic area, rather than a
regional or wider area.
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Under normal circumstances, the Fund will invest at least 65% of its
total assets in equity securities (common stock, preferred stock and securities
convertible into common stock) of banks which may include regional, money center
and community banks, bank holding companies, savings banks and commercial and
industrial banks. The Fund may invest in banks that are not members of the
Federal Reserve System or whose deposits are not insured by the Federal Deposit
Insurance Corporation. Although the Adviser primarily seeks opportunities for
capital appreciation, some of the securities of the banks in which the Fund may
invest pay regular dividends. Accordingly, the Fund expects to receive moderate
income in the form of cash or stock dividends. The remaining portion of the
Fund's assets in excess of 65%, may be invested in the equity securities of
other lending institutions, such as savings and loan associations, insurance
companies and financial services companies. The Fund may also invest up to 5% of
its assets in equity securities of foreign banks.
Convertible preferred stock is preferred stock that can be converted into
common stock pursuant to its terms. Convertible debentures are debt instruments
that can be converted into common stock pursuant to their terms. The Adviser
intends to invest only in convertible debentures rated A or higher by Standard &
Poor's Corporation ("S&P") or by Moody's Investors Services, Inc. ("Moody's").
The Fund may hold warrants and rights issued in conjunction with common stock,
but in general will sell any such warrants or rights as soon as practicable
after they are received. Warrants are options to purchase equity securities at a
specified price valid for a specific time period. Rights are similar to
warrants, but normally have a short duration and are distributed by the issuer
to its shareholders.
Although the Fund will invest primarily in equity securities of banks,
other lending institutions and financial services companies, the Fund may invest
in equity securities of companies outside the banking industry and, for
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temporary defensive purposes under abnormal market or economic conditions, may
hold all or a portion of its assets in money market instruments (high quality
income securities with maturities of less than one year), securities of money
market funds or U.S. Government repurchase agreements. The Fund may also invest
in such investments at any time to maintain liquidity or pending selection of
investments in accordance with its policies. If the Fund acquires securities of
money market funds, the shareholders of the Fund will be subject to duplicative
management fees.
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RISK CONSIDERATIONS
The concentration of the Fund's investments in the banking industry will
subject the Fund to risks in addition to those that apply to the general equity
market. Economic, legislative or regulatory developments may occur which
significantly affect the entire banking industry and thus may subject the Fund
to greater market fluctuations than a fund that does not concentrate in a
particular industry. Banks and other lending institutions are subject to
extensive governmental regulation which may limit both the amounts and types of
loans and other financial commitments they can make, and the interest rates and
fees they can charge. Profitability is largely dependent on the availability and
cost of capital funds, and can fluctuate significantly when interest rates
change. Credit losses resulting from financial difficulties of borrowers can
negatively impact the industry. Thus, a number of factors, in addition to
general economic conditions, can adversely affect the financial performance and
condition of the institutions in which the Fund invests.
Commercial banks, savings and loan institutions and their holding
companies are especially influenced by adverse effects of volatile interest
rates, portfolio concentrations in loans to particular businesses, such as real
estate and energy, and competition from new entrants in their areas of business.
These institutions are subject to extensive federal regulation and, in some
cases, to state regulation as well. However, neither federal insurance of
deposits nor regulation of the bank and savings and loan industries ensures the
solvency or profitability of commercial banks or savings and loan institutions
or their holding companies, or insures against the risk of investing in the
equity securities issued by these institutions.
In addition, as many community banks and other lending institutions are
smaller capitalization companies, the Fund may be subject to the risks
associated with such companies. The trading volume of securities of smaller
capitalization companies is normally less than that of larger capitalization
companies and, therefore, may disproportionately affect their market price,
tending to make them rise more in response to buying demand and fall more in
response to selling pressure than is the case with larger capitalization
companies.
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OPTIONS PORTFOLIO STRATEGIES
The Fund may, as an alternative to purchasing or selling index futures,
buy and sell covered call and put options on stock indexes. 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, commonly known as a put option, may be sold,
transferred or assigned only with the underlying security. The Fund may engage
in such 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 options involves certain special risks. Options
transactions also involve costs and may result in losses. Certain risks arise
from 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. The successful use of the
strategies described above further depends on the Adviser's ability to forecast
market movements correctly.
The Fund's ability to engage in options transactions and to sell related
securities may be limited by tax considerations and by certain regulatory
requirements.
Other risks arise from the potential inability to close out options
positions. There can be no assurance that a liquid secondary market will exist
for any option at any particular time. The Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would fail to meet their obligations
to the Fund. Certain provisions of the Internal Revenue Code and certain
regulatory requirements may limit the use of options transactions. A more
detailed explanation of options transactions, including the risks associated
with them, is included in the SAI.
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. As a result of the Fund's
investment policies, under certain market conditions, particularly in periods of
volatile markets, its portfolio turnover rate may be higher than that of other
mutual funds. In general, however, the Fund's portfolio turnover rate is
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expected to range from 50% to 150%. Portfolio turnover generally involves some
expense, including brokerage commissions or 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 may be short-term capital gains not eligible for favored tax
treatment.
DIVERSIFICATION
The Fund is a "diversified" investment company under the Investment
Company Act of 1940 (the "1940 Act"). This means that with respect to 75% of its
total assets, (a) the Fund may not invest more than 5% of its total assets in
the securities of any one issuer (except U.S. Government securities) and (b) the
Fund may not own more than 10% of the outstanding voting securities of any one
issuer. The remaining 25% of its total assets is not subject to this
restriction. Because the Fund will be "concentrated" in the banking industry,
I.E., it will invest a significant portion of its total assets in the equity
securities of banks, it will be subject to an increased risk of loss if the
market value of securities in the banking industry decline.
DERIVATIVES
Certain of the instruments in which the Fund may invest, such as options
are considered to be "derivatives." Derivatives are financial instruments whose
value depends upon, or 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 elsewhere in this prospectus and in the
SAI.
OTHER INVESTMENT PRACTICES
SECURITIES LENDING. The Fund may lend portfolio securities, including
------------------
entering into repurchase agreements, amounting to not more than 25% of its
assets to broker-dealers. These transactions must be fully collateralized at all
times with cash and 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.
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REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
---------------------
collateralized by the securities in which it may invest. A repurchase agreement
involves the purchase by the Fund of securities with the condition that the
original seller (a bank or broker-dealer) will buy back the same securities
("collateral") at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in securities. 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.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
-------------------
illiquid securities which may include Restricted Securities. Illiquid securities
may offer a higher yield than securities which are more readily marketable, but
they may not always be marketable on advantageous terms. The sale of illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets.
"Restricted securities" are securities which were originally sold in
private placements and which have not been registered under the Securities Act
of 1933. Such securities generally have been considered illiquid, since they may
be resold only subject to statutory restrictions and delays or if registered.
Restricted securities are no longer necessarily illiquid. The Fund may therefore
invest in Rule 144A securities and treat them as liquid when they have been
determined to be liquid by the Board of Directors of the Company.
BORROWING. 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 its net earnings.
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MANAGEMENT
BOARD OF DIRECTORS
The Company's Board of Directors has the primary responsibility for
overseeing the overall management of the Company and electing its officers.
INVESTMENT ADVISER
Retirement Planning Company of New England, 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.
Messrs. David W. Allaire and Michael R. Laliberte will be responsible for the
overall management of the Fund's portfolio.
The Adviser engages in the financial services business, focusing on
providing investment advisory services. The Adviser currently manages over 110
private investment accounts for individual investors, trusts, profit sharing and
retirement plans, companies and non-profit institutions. Since 1996, the Adviser
has been engaged in the business of researching, buying, holding and selling
shares of equity securities. Additionally, the Adviser offers as a service to
some of its clients and others, a newsletter titled "The Imperial Stock Review".
This newsletter is dedicated to the fundamental analysis and research of
selected equity securities. As a result of research performed, the Adviser
invests a substantial portion of clients' portfolios in banks, brokerage firms,
mutual fund companies, insurance companies and other financial services
companies. The Adviser, based in Providence, RI, is registered as an investment
adviser with the Securities and Exchange Commission.
David W. Allaire is President and Managing Director of the Adviser and
has been a Senior Portfolio Manager with the Adviser since April of 1996. He is
also the Editor and Senior Security analyst of the "The Imperial Stock Review"
newsletter. Mr. Allaire has been employed in the financial services industry
since 1989 and currently holds the following NASD licenses: Series 6, 63, 65, 7
and 24. Additionally, he is licensed to offer various insurance products. He is
currently enrolled in the CFA program and is a Level II CFA candidate. Mr.
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Allaire is also Co-host of a daily financial talk show called "Money Matters".
The show is an in- depth financial talk show which dedicates a majority of its
time to the valuation and research of equity securities, as well as the
financial markets in general. Mr. Allaire earned a Bachelor of Science Business
Administration with a concentration in Finance from the University of Rhode
Island in 1988.
Michael R. Laliberte is the Executive Vice President and Managing Director
of the Adviser and has been a Senior Portfolio Manager with the Adviser since
April 1996. He is also the Publisher and a Security Analyst for the "The
Imperial Stock Review" newsletter. Mr. Laliberte has been employed in the
financial services industry since 1990 and currently holds the following
licenses: Series 6, 63, 65 and 7. Additionally, he is licensed to offer various
insurance products. Mr. Laliberte is currently a Professor of Investments at
Johnson & Wales University and has been so since 1996. Mr. Laliberte is also
co-host of a daily financial talk show called "Money Matters". Mr. Laliberte
earned a Bachelor of Science in management with a concentration in Finance from
Johnson & Wales University in 1989.
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 portfolio 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.
Under the Investment Advisory Agreement, the Fund pays the Adviser a
monthly advisory fee equal, on an annual basis, to 1.00% of its average daily
net assets. The Adviser may, from time to time, voluntarily waive a portion of
its fees.
CODE OF ETHICS
The Company and the Adviser have adopted a Code of Ethics, which
restricts personal investing practices by employees of the Adviser and its
affiliates. Among other provisions, the Code of Ethics requires that employees
with access to information about the purchase or sale of securities in the
Fund's portfolio obtain preclearance before executing personal trades. With
respect to Messrs. Allaire and Laliberte and other investment personnel, the
Code of Ethics prohibits acquisition of securities in an initial public
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offering, as well as profits derived from the purchase and sale of the same
security within 60 calendar days. These provisions are designed to ensure that
the interests of the Fund and its shareholders come before the interests of the
people who manage the Fund. The Board of Directors of the Fund will approve the
Fund's Code of Ethics initially and will, from year to year thereafter,
reapprove such Code after consideration of any appropriate revisions.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Portfolio transactions for the Fund will generally be executed with
broker-dealers on an agency basis. The Adviser will be responsible for placing
all orders for purchases and sales of the Fund's securities. In selecting
broker-dealers, the Adviser may consider research and brokerage services
furnished to the Fund as well as to the Adviser and its affiliates. Subject to
seeking the most favorable price and execution available, the Adviser may
consider sales of shares of the Fund's shares (and of other future series of the
Company) as a factor in the selection of broker-dealers. In addition, any
portfolio transactions for the Fund that are executed on an agency basis may be
effected through the Distributor. For more information, see "Portfolio
Transactions and Allocation of Brokerage" in the SAI.
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 $3 billion
of total assets through its offices in New York, Denver, Tampa 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 Company's Board of Directors.
For the services rendered to the Fund by the Administrator, the Fund pays
the Administrator a monthly fee which is based on its average net assets. If the
Fund's average net assets are: less than $5 million, the Administrator's fee is
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$1,500 per month; between $5 and $10 million, the Administrator's fee is $1,750
per month; between $10 and $20 million, the Administrator's fee is $2,000 per
month and in excess of $20 million, the Administrator receives $2,500 per month
or 0.15% of the Fund's average daily net assets, whichever is greater. 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."
Both the Investment Advisory Agreement and the Administrative Service
Agreement are terminable by the Board of Directors of the Company, the Adviser
or the Administrator, respectively, on sixty days' written notice. The
Investment Advisory Agreement will terminate automatically in the event of an
"assignment" as defined by the Investment Company Act. The Administrative
Service Agreement, however, may be assigned provided the non-assigning party
provides prior written consent. Each 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. Each Agreement provides
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of the Adviser or the Administrator, respectively, or reckless disregard of
its obligations thereunder, the Adviser or the Administrator shall not be liable
for any action or failure to act in accordance with its duties thereunder.
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. The Distributor will be entitled to
receive a distribution fee equal to 0.50% of the Fund's average daily net assets
under the terms of the Fund's Distribution and Service Plan. The Distributor
will pay 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. It is expected
that the Distributor will use a portion of the distribution fee to compensate
financial intermediaries for providing distribution assistance with respect to
the sale of the Fund's shares. See "Management of Fund" in the SAI.
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The Adviser and the Distributor may, out of their own assets, pay for
certain expenses incurred in connection with the distribution of Fund shares. In
particular, the Distributor may make payments out of its own assets to sales
representatives and other broker dealers in connection with their sales of Fund
shares. See "How to Purchase Shares - Purchase Price." Further information
regarding the Distribution and Service Plan is contained in the SAI.
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.
HOW TO PURCHASE SHARES
GENERAL PURCHASE INFORMATION
The minimum initial investment in the Fund is $2,000. The minimum initial
investment for certain retirement and employee savings plans or custodial
accounts for the benefit of minors is $1,000. The Fund may waive or reduce such
minimum initial investments from time to time. The Fund's shares may be
purchased at its public offering price, which is the Fund's net asset value,
plus any applicable sales load (see below) from the Distributor, from other
broker-dealers who are members of the NASD and certain financial institutions
each of which have entered into selling agreements with the Distributor.
When orders are placed for shares of the Fund, the public offering price
used for the purchase will be the net asset value per share next determined,
plus any applicable sales load. If an order is placed with a broker-dealer, or
other financial institution, the broker-dealer or other financial institution is
responsible for promptly transmitting the order to the Fund.
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Shares of the Fund may be purchased by opening an account either directly
by mail or by phone using federal funds wire. Shares are deemed to be purchased
as of the time of determination of the Fund's net asset value on the day the
purchase order for the purchase of its shares is received in good form by the
Fund's Transfer Agent.
Investors may make systematic investments in fixed amounts automatically
on a monthly basis through the Fund's Automatic Investment Plan. Additional
information is available from the Transfer Agent.
PURCHASES BY TELEPHONE
To open an account by telephone, you must first 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 Transfer Agent, shares of the
Fund may be purchased by wiring immediately available federal funds (subject to
the minimum investment) to Star Bank, N.A. 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:
Star Bank, N.A. Cinti/Trust
ABA# 0420-0001-3
Account# _______________
F/B/O Imperial BankFund
F/F/C:
Shareholder Acct. No.
(write in account number)
Shareholder Acct. Name___________________
(write in account name)
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. Any delays which may occur
in wiring money, including delays which may occur in processing by the banks,
are not the responsibility of the Fund or the Transfer Agent. 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 Transfer Agent, 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:
Imperial BankFund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, N.Y. 11788-0132
Payment for the purchase of shares received by mail will be credited to a
shareholder's account at the net asset value per share next determined, plus any
applicable sales load, after receipt. In the event that there are insufficient
funds to cover a check, such prospective investor will be assessed a $15.00
charge.
ADDITIONAL INVESTMENTS
Additional investments of $100 or more may be made at any time by
purchasing shares of the Fund at net asset value, plus any applicable sales
load, by mailing a check to the Fund at the address noted under "Purchases by
Mail" or by wiring monies to the Custodian bank as outlined above from a bank or
other financial institution 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.
OTHER PURCHASE INFORMATION
Investors should be aware that the Fund's account application contains
provisions in favor of the Company, the Fund, the Transfer Agent, the
Distributor and certain of their affiliates, excluding such entities from
certain liabilities (including, among others, losses resulting from unauthorized
shareholder transactions) relating to the various services (for example,
telephone exchanges) available to investors.
The purchase price paid for Fund shares is the current public offering
price, that is, the next determined net asset value of the shares after the
order is placed plus any applicable sales load. See "Net Asset Value" herein.
18
<PAGE>
The sales load is a one-time charge paid at the time of purchase of shares, most
of which ordinarily goes to the investor's broker-dealer as compensation for the
services provided the investor. Shares of the Fund are sold on a continuous
basis at the public offering price which includes a maximum front-end sales
charge of 4.75% being added to the net asset value per share. Volume discounts
are provided for both initial purchase and for additional purchases. See
"Reduction or Elimination of Sales Loads" herein. The Fund reserves the right to
reject any subscription for shares.
The Fund must receive an order by the close of any business day for the
purchase to be effective. If funds are received after the close of business, the
purchase will become effective on the next business day.
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.
Shares of the Fund may also be sold at the current net asset value to
corporations or other institutions such as trusts, foundations or broker-dealers
purchasing for the accounts of others ("shareholder organizations"). Investors
purchasing and redeeming Fund shares through a shareholder organization may be
charged a transaction-based fee or other fee by such organization for the
services of such organization. Each shareholder organization is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Customers of shareholder organizations should read this Prospectus
in light of the terms governing accounts with their organization. The Fund does
not pay to or receive compensation from shareholder organizations for the sale
of its shares.
19
<PAGE>
REDUCTION OR ELIMINATION OF SALES LOADS
VOLUME DISCOUNTS
Volume discounts are provided if the total amount being invested in
shares of the Fund reach the levels indicated in the sales load schedule
provided below. The applicable volume discount available to investors is
determined by aggregating all share purchases of the Fund. Volume discounts are
also available to investors making sufficient additional purchases of Fund
shares. The applicable sales charge may be determined by adding to the total
current value of shares already owned in the Fund, the value of new purchases
computed at the offering price on the day the additional purchase is made. For
example, if an investor previously purchased, and still holds, shares worth
$70,000 at the current offering price and purchases an additional $30,000 worth
of shares, the sales charge applicable to the new purchase would be that
applicable to the $100,000 to $249,000 bracket in the sales load schedule
provided below.
<TABLE>
<CAPTION>
AMOUNT OF SALES
SALES CHARGE CHARGE REALLOWED
AS OF A % TO DEALERS AS A
%OF NET PERCENT OF
AMOUNT OF PURCHASE SALES CHARGE AMOUNT OFFERING PRICE
INVESTED
- ------------------ ------------ -------- ---------------
<S> <C> <C> <C>
$0 to $49,999 4.75% 4.99% 4.50%
$50,000 to $99,999 4.25% 4.44% 4.00%
$100,000 to $249,999 3.75% 3.90% 3.50%
$250,000 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 2.00% 2.04% 1.75%
In excess of $1 million 0 0 0
</TABLE>
LETTER OF INTENT
Any investor may sign a Letter of Intent, available from the Fund,
stating an intention to make purchases of Fund shares totaling a specified
amount on an aggregate basis within a period of thirteen months from the date of
20
<PAGE>
the initial purchase. Purchases within the thirteen-month period can be made at
the reduced sales load applicable to the total amount of the intended purchase
noted in the Letter of Intent. If a larger purchase is actually made during the
period, then a downward adjustment will be made to the sales charge based on the
actual aggregate amount purchased. Any shares purchased within 90 days preceding
the actual signing of the Letter of Intent are eligible for the reduced sales
charge and the appropriate price adjustment will be made on those share
purchases based on the current offering price. A number of shares equal to 5% of
the dollar amount of intended purchases specified in the Letter of Intent is
held in escrow by the Transfer Agent until the purchases are completed.
Dividends and distributions on the escrowed Fund shares are paid to the
investor. If the intended purchases are not completed during the Letter of
Intent period, the investor is required to pay the Fund an amount equal to the
difference between the regular sales load applicable to a single purchase of the
number of Fund shares actually purchased and the sales load actually paid. If
such payment is not made within 20 days after written request by the Fund, then
the Fund has the right to redeem a sufficient number of escrowed shares to
effect payment of the amount due. Any remaining escrowed shares are released to
the investor's account. Agreeing to a Letter of Intent does not obligate you to
buy, or the Fund to sell, the indicated amount of shares. You should read the
Letter of Intent carefully before signing.
PURCHASES AT NET VALUE
There is no initial sales charge for "Qualified Persons." "Qualified
Persons" is defined to include persons who are active or retired Trustees,
Directors, officers, partners, employees, clients, independent professional
contractors, shareholders or registered representatives (including their spouses
and children) of the Adviser, Distributor or any affiliates or subsidiaries
thereof (the Directors, officers or employees of which shall also include their
parents and siblings for all purchases of Fund shares) or any Director, officer,
partner, employee or registered representative (including their spouses and
children) of any Broker-Dealer or any registered investment adviser who has
executed a valid and currently active selling agreement with the Distributor.
21
<PAGE>
Banks and other lending institutions, in their fiduciary capacity or for
their own accounts, may purchase and redeem shares of the Fund without paying a
sales charge. To the extent permitted by regulatory authorities, a bank trust
department may charge fees to clients for whose account it purchases shares at
net asset value. Employees, officers and directors of these financial
institutions, including members of the immediate family, may also purchase and
redeem shares without paying a sales charge.
HOW TO REDEEM SHARES
GENERAL REDEMPTION INFORMATION
You may redeem all or a portion of your shares on any day that the Fund
values its shares (please refer to "Valuation of Shares" below for more
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 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.
BY MAIL
The Fund will redeem its shares at the net asset value next determined
after the request is received in "good order." The net asset value per share of
the Fund is determined as of 4:15 p.m., New York time, on each day that the New
York Stock Exchange, Inc. (the "NYSE"), the Fund and the Transfer Agent are open
for business. Requests should be addressed to: Imperial BankFund, c/o American
Data Services, Inc., P.O. Box 5536, Hauppauge, N.Y. 11788-0132.
<PAGE>
BY TELEPHONE
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 shareholder accounts, 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 also 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.
23
<PAGE>
Provided the Telephone Redemption Option has been authorized, a redemption
of shares may be requested by calling the Fund and requesting that the
redemption proceeds be mailed to the primary registration address or wired per
the authorized instructions. If the Telephone Redemption Option is authorized,
the Fund and its Transfer Agent may act on telephone instructions from any
person representing himself or herself to be the shareholder and believed by the
Fund or its Transfer Agent to be genuine. The Transfer Agent's records of such
instructions are binding and each shareholder, and not the Fund or its Transfer
Agent, bears the risk of loss in the event of unauthorized instructions
reasonably believed by the Fund or its Transfer Agent to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated are
genuine and, if it does not, it may be liable for any losses due to unauthorized
or fraudulent instructions. 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.
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 portfolio securities so
received in payment of redemptions.
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, or until such check has cleared the banking system (normally up
to 15 days from the purchase date).
24
<PAGE>
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem your account at any time the net
asset value of the account falls below $1,000 ($500 for retirement accounts) as
the result of a redemption 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.
25
<PAGE>
SHAREHOLDER SERVICES
The Fund offers 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 by
completing the required section of the account application included with this
prospectus. 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 your broker-dealer, financial institution or the
Transfer Agent to obtain additional application forms or for additional
information.
TELEPHONE TRANSACTION PRIVILEGES
If you hold your shares in an account with the Transfer Agent, you may
authorize telephone privileges by completing the required section of the account
application included with this prospectus. Please contact the Transfer Agent for
an additional application or for more details. It may be difficult to reach the
Fund by telephone during periods when market or economic conditions lead to an
unusually large volume of telephone activity. If you cannot reach the Fund by
telephone, you should contact your broker-dealer, financial institution or issue
written instructions to the Transfer Agent at the address set forth herein. See
"Management - Transfer Agent, Dividend Disbursing Agent and Custodian." The Fund
reserves the right to modify, suspend or terminate their telephone services at
any time without notice.
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;
|_| 403(b) plans for employees of public school systems and non-profit
organizations; or
|_| 401(k) Plans;
|_| Profit-sharing plans and pension plans for corporations and other
employees.
26
<PAGE>
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 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 carryovers.
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.
27
<PAGE>
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.
VALUATION OF SHARES
The Fund computes its net asset value (or price per share) on each day
the NYSE is open for business as of the regular close of the Exchange.
Portfolio securities for which market quotations are readily available are
valued at market value. Portfolio 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.
28
<PAGE>
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 0.50% 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.
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 return to investors who invest through
shareholder servicing agents and broker-dealers may be less than 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.
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.
29
<PAGE>
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.
30
<PAGE>
PERFORMANCE COMPARISONS
Advertisements and other sales literature may refer to the Fund's total
return. The total return for the one, five and ten-year periods (or for the life
of the Fund until the Fund is in existence for such longer periods) through the
most recent calendar quarter represents the average annual compounded rate of
return on an investment of $1,000 in the Fund invested at the public offering
price, plus any applicable sales load. Total return may also be presented for
other periods.
All data are based on past investment results and do not predict future
performance. Investment performance, which will vary, is based on many factors,
including market conditions, portfolio composition and Fund 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 with those of other mutual funds and
other investment vehicles.
Quotations of investment performance for any period when an expense
limitation is in effect will be greater than if the limitation had not been in
effect. Fund performance may be compared to that of various indexes.
For additional information regarding comparative performance information
and the calculation of total return see "Performance Comparisons" in 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.
31
<PAGE>
GENERAL
The Company is a diversified, open-end management investment company which
was incorporated under the laws of the State of Maryland on February 13, 1998.
The Company's business and affairs are managed by its officers under the
direction of its Board of Directors. The Company currently offers its shares in
one series, the Imperial BankFund, which is being offered for sale in this
prospectus. The Board of Directors is authorized under the Company's Articles of
Incorporation to issue additional series of the Company's common stock (" the
shares") without shareholder approval in order to create additional funds. In
addition, the Board of Directors may, without shareholder approval, create and
issue one or more classes of shares within each series.
All shares of the Fund, when issued, will be fully paid and nonassessable
and will be redeemable. They can be issued as full or fractional shares. A
fractional share has, pro rata, the same rights and privileges as a full share.
The shares possess no preemptive or conversion rights. The shares of the Fund
will share ratably in the dividends of the Fund, if any, as may be declared by
the Board of Directors, and in the distribution of any net assets in liquidation
of the Fund, after the payment of all debts and liabilities of the Fund.
Each share of the Fund has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset values of the Fund's
shares. On some issues, such as the election of directors, all shares of the
Company vote together as one series. On an issue affecting only a particular
fund, the shares of the affected fund vote separately. Cumulative voting is not
authorized. This means that the holders of more than 50% of the shares voting
for the election of the Board of Directors can elect all of the directors if
they choose to do so, and, in such event, the holders of the remaining shares
will be unable to elect any directors.
32
<PAGE>
Except as may be required under the Investment Company Act, the Company
will not hold annual meetings of shareholders. As a result, shareholders may not
vote each year on the election of members of the Board of Directors or the
appointment of auditors. However, pursuant to the Company's Bylaws, the holders
of shares representing at least 10% of the Fund's total outstanding shares may
request that the Fund hold a special meeting of shareholders. The Company will
assist in the communication with other shareholders. In addition, the Investment
Company Act requires a shareholder vote for all amendments to the Fund's
fundamental investment objective and policies and investment restrictions and
for any amendments to investment advisory contracts.
The Company reserves the right to amend any of its non-fundamental
policies, practices and procedures described in this Prospectus, including the
SAI, without shareholder approval.
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.
33
<PAGE>
QUESTAR FUNDS, INC. PROSPECTUS
INVESTMENT ADVISER
RETIREMENT PLANNING COMPANY OF
NEW ENGLAND, INC.
ADMINISTRATOR, TRANSFER AGENT AND
SHAREHOLDER SERVICING AGENT
AMERICAN DATA SERVICES, INC.
DISTRIBUTOR
ADS DISTRIBUTORS, INC.
CUSTODIAN
STAR BANK, N.A.
INDEPENDENT ACCOUNTANTS
MCCURDY & ASSOCIATES, CPAS, INC.
LEGAL COUNSEL IMPERIAL BANKFUND
SPITZER & FELDMAN P.C.
TABLE OF CONTENTS PAGE
Introduction.......................................... 2
Transaction and Operating
Expense Table........................................ 4
Investment Objectives and
Policies............................................. 5
Management............................................10
How to Purchase Shares................................14
Reduction or Elimination of
Sale Loads...........................................17
How to Redeem Shares..................................20
Shareholder Services..................................23
Dividends and Distributions...........................24
Valuation of Shares...................................25
Distribution and Service Plan.........................25
Tax Status............................................26
Performance Comparisons...............................27
General Information...................................27 February 10, 1999
Custodian, Transfer Agent and
Dividend Agent.......................................29
Counsel and Independent Auditors......................29
<PAGE>
QUESTAR FUNDS, INC.
IMPERIAL BANKFUND
STATEMENT OF ADDITIONAL INFORMATION
February 10, 1999
TABLE OF CONTENTS
PAGE
Investment Objectives, Policies and Restrictions..............................2
Directors and Executive Officers.............................................11
Investment Advisory and Other Services.......................................13
Shareholder Servicing & Distribution Plan....................................17
Portfolio Transactions and Allocation of Brokerage...........................20
Taxation.....................................................................22
Ownership of Shares..........................................................24
Purchase of Shares...........................................................24
Dividends and Distributions..................................................25
Net Asset Value .............................................................25
Performance Comparisons......................................................25
Redemption of Shares.........................................................28
Counsel and Independent Auditors.............................................30
Other Information............................................................30
Financial Statements.........................................................30
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Fund's Prospectus dated February 10,
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
(877) 732-7696.
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Fund's investment objectives and a summary of its investment policies
are set forth in the Prospectus. Additional information regarding the Fund's
investment policies and restrictions is set forth below.
INVESTMENT POLICIES
-------------------
The following paragraphs provide a more detailed description of the
investment policies 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.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. A
---------------------
repurchase 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).
FOREIGN SECURITIES. Under its current policy, which may be changed without
------------------
shareholder approval, the Fund may invest up to 5% of its total assets in
securities principally traded in markets outside the United States. Eurodollar
certificates of deposit are excluded for purposes of this limitation. Since
foreign securities are normally denominated and traded in foreign currencies,
the value of the Fund's assets may be affected favorably or unfavorably by
changes in currency exchange rates, exchange control regulations, foreign
withholding taxes and restrictions or prohibitions on the repatriation of
3
<PAGE>
foreign currencies. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Fund's assets held abroad) and
expenses not present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability and diplomatic developments which
could affect the value of the Fund's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. The laws of some foreign countries may limit the
Fund's ability to invest in securities of certain issuers located in those
foreign countries. Special tax considerations apply to foreign securities.
The risks described above, including the risks of nationalization or
expropriation of assets, are typically increased to the extent that the Fund
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structures in many of these
countries may be in their infancy and developing rapidly, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of these countries have in the past failed to
recognize private property rights and have at times nationalized and
expropriated the assets of private companies. The Fund does not currently intend
to invest in the securities of less developed and developing nations.
4
<PAGE>
In addition, unanticipated political or social developments may affect the
value of the Fund's investments in these countries and the availability to the
Fund of additional investments in these countries. The small size, limited
trading volume and relative inexperience of the securities markets in these
countries may make the Fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and the Fund may be
required to establish special custodial or other arrangements before making
investments in these countries. There may be little financial or accounting
information available with respect to issuers located in these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.
PRIVATE PLACEMENTS. The Fund may invest in securities that are purchased
------------------
in private placements (primarily Rule 144A securities) and, accordingly, are
subject to restrictions on resale as a matter of contract or under Federal
securities laws. Because there may be relatively few potential purchasers for
such investments, especially under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the Fund
could find it more difficult to sell such securities when the Adviser believes
it advisable to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. At times, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Fund's net asset value.
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.
5
<PAGE>
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.
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.
6
<PAGE>
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.
7
<PAGE>
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
8
<PAGE>
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 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.
Foreign-traded options are subject to many of the same risks presented by
internationally-traded securities. In addition, because of time differences
between the United States and various foreign countries, and because different
holidays are observed in different countries, foreign options markets may be
open for trading during hours or on days when U.S. markets are closed. As a
result, option premiums may not reflect the current prices of the underlying
interest in the United States.
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.
9
<PAGE>
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.
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.
ILLIQUID SECURITIES. As set forth in the Prospectus, the Fund may invest in
-------------------
Rule 144A securities and commercial paper issued pursuant to Rule 4(2) under the
Securities Act of 1933, and treat such securities as liquid when they have been
determined to be liquid by the Board of Directors or by the Adviser subject to
the oversight of and pursuant to procedures adopted by the Board of Directors.
Under these procedures, factors taken into account in determining the liquidity
of a security include (a) the frequency of trades and quotes for the security;
(b) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers; (c) dealer undertakings to make a market
in the security; and (d) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). With respect to Rule 144A
securities, investing in such securities could have the effect of increasing the
level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities.
10
<PAGE>
CONCENTRATION. The Fund, as a fundamental policy, will concentrate its
- -------------
investments by investing 25% or more of the value of its total assets in the
securities of issuers conducting their principal business activities in the
banking industry, in accordance with its investment objectives. The Fund may
also invest more than 25% of its assets in the securities of the U.S. Government
or its agencies and instrumentalities and repurchase agreements relating
thereto.
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 as set forth in restriction
number 4 below. Purchasing or selling securities on a when-issued or delayed
delivery basis shall not be deemed a senior security for purposes of this
restriction number 3.
11
<PAGE>
3. Borrow amounts in excess of 10% of the cost or 5% of the market value
of its total assets, 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. Purchase or sell real estate or commodities or commodity futures
contracts. This restriction shall not preclude the Fund from investing in banks
or other financial institutions that have real estate or that buy and sell real
estate.
5. 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.
6. Engage in any short-selling operations.
7. Lend money other than through the purchase of repurchase agreements
and debt securities in accordance with its investment policies.
8. Engage in margin transactions or in transactions involving puts,
calls, straddles, or spreads, except as permitted by the Fund under its
investment policies.
9. Acquire or retain more than 5% of the securities of any other
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.
12
<PAGE>
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.
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information concerning the directors and
officers of 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.
13
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD WITH THE PRINCIPAL OCCUPATION
NAME AND ADDRESS COMPANY LAST FIVE YEARS
<S> <C> <C>
Dan Calabria (Age 62) Director Retired; currently serves as a
7068 So. Shore Drive So. disinterested trustee/director of The
So. Pasadena, Florida 33707 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).
- --------------------------------------------- ----------------------------- ----------------------
- --------------------------------------------- ----------------------------- ----------------------
Anthony J. Hertl (Age 48) Director Chief Financial and Administrative
Colobaugh Pond Road Officer for Marymount College,
Croton-on-Hudson, NY 10520 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 Chief Executive Officer of American
The Hauppauge Executive Officer Data Services, Inc.
Corporate Center
150 Motor Parkway
Hauppauge, NY 11788
- ---------------------------------------------------------------------------------------------------
In addition to Mr. Miola, the other executive officers of the Company
are:
Michael Wagner - Treasurer
James Colantino - Secretary
Michelle Miola - Assistant Secretary
</TABLE>
14
<PAGE>
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 trustee from the Company during the fiscal year ended November
30, 1999.
- -------------------------------- ========================================
AGGREGATE ESTIMATED COMPENSATION
DIRECTOR FROM THE COMPANY
- -------------------------------- ========================================
- -------------------------------- ========================================
Dan Calabria $6,000.00
- -------------------------------- ========================================
- -------------------------------- ========================================
Anthony J. Hertl $6,000.00
- -------------------------------- ========================================
- -------------------------------- ========================================
Michael Miola $0.00
- -------------------------------- ========================================
15
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is Retirement Planning Company of New
England, 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 One Richmond Square,
Providence, RI 02906.
CONTROL OF THE ADVISER
The stock of the Adviser is owned equally by Messrs. David W. Allaire and
Michael R. Laliberte.
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. The Adviser may waive a portion of its fees from time
to time.
16
<PAGE>
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.
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.
17
<PAGE>
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) 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.
18
<PAGE>
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.
19
<PAGE>
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Star Bank, N.A. serves as custodian for the Fund's cash and securities.
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 0.50% per annum of the Fund's average daily net assets. Fees paid
under the Plan may not be waived for individual shareholders.
20
<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.
21
<PAGE>
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 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.
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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 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.
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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.
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<PAGE>
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.
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.
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<PAGE>
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.
26
<PAGE>
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.
27
<PAGE>
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.
On January 13, 1999, certain private investors, invested $100,000 in
shares of the Fund at $10.00 per share, as seed capital. These investors will
control the Fund until public shareholders come into the Fund.
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 Transfer Agent 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 4.75%. 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.
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.
28
<PAGE>
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, Martin Luther King 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).
29
<PAGE>
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.
30
<PAGE>
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 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.
31
<PAGE>
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.
Independent, unmanaged indexes, such as those listed below, may be used
to present a comparative benchmark of the Fund's performance. The performance
figures of an index reflect changes in market prices, reinvestment of all
dividend and interest payments and, where applicable, deduction of foreign
withholding taxes, and do not take into account brokerage commissions or other
costs. Because the Fund is a managed portfolio, the securities it owns will not
match those in an index. Securities in an index may change from time to time.
The Dow Jones Industrial Average is an index of 30 common stocks
frequently used as a general measure of stock market performance.
The NASDAQ Industrial Average is an index of stocks traded in The
Nasdaq Stock Market, Inc. National Market System.
Standard & Poor's 500 Composite Stock Price Index is an index of common
stocks frequently used as a general measure of stock market
performance.
The NASDAQ Combined Bank Index is an index of bank stocks.
The S&P Major Regional Bank Index is an index of major regional bank
stocks.
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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 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 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.
33
<PAGE>
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 Investment Advisers Act of 1940 since
October 13, 1998. 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.
34
