PROSPECTUS
January 12, 2000
MACROTRENDS FUND
A diversified mutual fund that seeks to
invest in companies positioned for growth
in light of global economic and social
changes.
Shares of the Fund are offered to investors
without any sales charges.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS PAGE
RISK/RETURN SUMMARY...........................................................1
Investment Objective..........................................................1
Principal Investment Strategy.................................................1
Principal Risks of Investing in the Fund......................................1
Who May Want to Invest in the Fund............................................2
PERFORMANCE...................................................................2
FEE TABLES....................................................................3
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RISKS..........................4
MANAGEMENT....................................................................7
YOUR ACCOUNT..................................................................9
How to Contact the Fund.......................................................9
General Information...........................................................9
When and How NAV is Determined................................................9
Types of Accounts............................................................10
How to Open an Account and Buy Shares of the Fund............................11
Investment Minimums..........................................................13
How to Sell (Redeem) Shares of the Fund......................................13
OTHER INFORMATION............................................................16
Distributions................................................................16
Taxes........................................................................16
ORGANIZATION.................................................................17
FOR MORE INFORMATION.........................................................18
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RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE. The MacroTrends Fund's (the "Fund") investment goal is
capital appreciation.
PRINCIPAL INVESTMENT STRATEGY. The Fund invests primarily in common stocks of
domestic and foreign companies. The investment advisor to the Fund, YaleFunds
Management and Research Co. (the "Advisor"), applies a proprietary selection
process, known as "Total Growth" investing, to select the Fund's investments.
The Advisor begins its stock selection process by seeking to identify trends in
society and the world's economies. Next, the Advisor identifies industries that
will play leading roles in these macro-trends, and searches for companies with
quality management, vision and solid financial indicators (such as price and
earnings histories and balance sheet characteristics) necessary for long-term
success within these industries. The Fund may invest in companies of any size or
market capitalization.
PRINCIPAL RISKS OF INVESTING IN THE FUND. The Fund is subject to the following
principal investment risks:
-- STOCK MARKET VOLATILITY. Stock markets can be volatile. In other words, the
prices of stocks can rise or fall rapidly in response to developments
affecting a specific company or industry, or to changing economic,
political or market conditions. The Fund is subject to the general risk
that the value of the Fund's investments may decline if the stock markets
perform poorly. There is a risk that the Fund's investments will
underperform either the securities markets generally or particular segments
of the securities markets.
-- ISSUER SPECIFIC CHANGES. The value of an individual security can be more
volatile, and can perform differently, than the market as a whole. The
price of an individual issuer's securities can rise or fall dramatically in
response to such things as better or worse than expected earnings reports,
news about the development of a promising product, or the loss of key
management personnel. There is also the risk that the Advisor's assessment
of the growth potential of a specific security may prove incorrect. The
Fund may invest in companies of all sizes or market capitalizations. To the
extent the Fund invests in smaller companies these risks are magnified.
Small companies may have thinly traded securities, may offer only a single
product line or have only products under development or, and may have
persistent losses during a new product's transition from development to
production or erratic revenue patterns. Moreover, stock prices of small
companies may be very volatile.
-- "GROWTH INVESTING." "Growth" stocks can perform differently and be more
volatile than the market as a whole and other types of stocks.
-- FOREIGN EXPOSURE. Foreign securities may be riskier than U.S. investments
because of various political, economic or regulatory conditions in foreign
countries. These risks include fluctuations in foreign currencies;
withholding or other taxes; trading, settlement, custodial and other
operational risks; and the less stringent investor protection and
disclosure standards of some foreign markets. For example, many foreign
countries are less prepared than the United States to properly process and
calculate information related to dates from and after January 1, 2000,
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which could result in difficulty pricing foreign investments and failure by
foreign issuers to pay timely dividends, interest, or principal. All of
these factors can make foreign investments, especially those in emerging
markets, more volatile and potentially less liquid than U.S. investments.
In addition, foreign markets can perform differently from the U.S. market.
-- EMERGING MARKETS. Investing in emerging markets can involve risks in
addition to and greater than those generally associated with investing in
more developed foreign markets. The extent of economic development;
political stability; market depth, infrastructure and capitalization; and
regulatory oversight can be less than in more developed markets. Emerging
market economies can be subject to greater social, economic, regulatory and
political uncertainties. All of these factors can make emerging market
securities more volatile and potentially less liquid than securities issued
in more developed markets.
-- INEXPERIENCE OF PORTFOLIO MANAGER. Although the portfolio manager has
extensive business and investment experience, he has no previous experience
managing a mutual fund. As with all mutual funds, there is also the risk
that the portfolio manager's assessment of the growth potential within
certain segments of the economy or the value of a specific security may
prove incorrect.
You could lose money on your investment in the Fund, or the Fund may not perform
as well as other possible investments. The Fund does not constitute a balanced
or complete investment program and the net asset value of its shares will
fluctuate based on the value of the securities held by the Fund.
WHO MAY WANT TO INVEST IN THE FUND
You may want to purchase shares of the Fund if:
-- You are willing to tolerate significant changes in the value of your
investment
-- You are pursuing a long-term goal
-- You are willing to accept higher short-term risk for potential long-term
returns
The Fund may NOT be suitable for you if:
-- You need regular income or stability of principal
-- You are pursuing a short-term goal or investing emergency reserves
PERFORMANCE
No information regarding the Fund is included because, as of the date of this
Prospectus, the Fund had not commenced operations.
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FEE TABLES
The following tables describe the various fees and expenses that you will bear
if you invest in the Fund.
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SHAREHOLDER TRANSACTION FEES (PAID None
DIRECTLY FROM YOUR INVESTMENTS):
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ESTIMATED ANNUAL FUND OPERATING EXPENSES:
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS,
AS A PERCENTAGE OF NET ASSETS)
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Management Fees(1) 1.25%
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Distribution and/or Service (Rule 12b-1) Fees 0.30%
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Other Expenses (2, 3) 0.95%
--------------------------------------------------------------------------------
Total Fund Operating Expenses(3) 2.50%
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EXAMPLE:
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME
PERIODS INDICATED AND THEN REDEEM ALL OF YOUR SHARES AT THE END OF THESE
PERIODS. THE EXAMPLE ALSO ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
AND THAT THE FUND'S OPERATING EXPENSES REMAIN THE SAME. ALTHOUGH THE FUND'S
ACTUAL RETURNS AND COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR
COST WOULD BE:
1 YEAR $ 253 3 YEARS $ 779
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1 The Advisor may, in its discretion, waive some or all of its advisory
fees.
2 Other Expenses include, but are not limited to, administrative,
custody, transfer agency and shareholder servicing fees.
3 Other Expenses and Total Fund Operating Expenses are estimated.
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INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The investment objective of the Fund is capital appreciation. Investments will
be made based upon their potential for capital growth. There is no assurance
that the Fund will achieve its investment objective. The Fund's investment
objective is fundamental and may not be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
The Fund expects that for most periods a substantial portion, but no less than
65% of its assets will be invested in accordance with the Advisor's "Total
Growth" investment selection process in a diversified portfolio of domestic and
foreign common stocks.
The Advisor begins it proprietary "Total Growth" process by studying and
identifying structural shifts, or "macro-trends," in global society and economy
such as the demands of an aging population for health care or financial
planning, or increasing use of the global communications network and the
technology supporting it. The Advisor then attempts to identify the industries
that will play leading roles in these macro-trends.
After the Advisor has identified these industries, it searches for companies
with the management, vision, and strong financial fundamentals that are
necessary for long-term success over 5, 10 or 20 years. In general, these
companies will have the following characteristics:
-- The ability to define and lead growing industries
-- The ability to thrive in rapidly changing economic and market conditions
-- A history of increasing market share and revenue growth in the past and the
potential to continue to do so
-- The capability to deliver popular products and services to the mass
population
-- Innovative business models and management teams who are highly motivated
and rewarded by their success
-- Strong earnings and price histories and balance sheet characteristics
After the Advisor has selected a potential company for investment by the Fund,
it analyzes the movement of the company's stock price. Typically, the Advisor
follows the stock price trend by examining daily, weekly and monthly price
charts, and invests in a company when its stock price shows a clear upward
trend. When a company's stock price decreases or increases dramatically and
without relation to the historical price movements of the company's stock, the
Advisor will buy (if the stock price drops) or sell (if the price increases
dramatically) the company's stock, or use options strategies to the same end.
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Once the Fund has invested in a company, the Advisor usually will retain the
stock in the Fund's portfolio unless (1) the economic environment or the
industry in which the company competes no longer exhibits growth
characteristics, (2) the competitive dynamics of the industry become unfavorable
for the company's continued growth, or (3) the company no longer appears capable
of executing its business strategy. In most cases, the Advisor does not consider
short-term changes in a company's credit rating or earnings projections as a
basis for selling securities in the Fund's portfolio.
OTHER INVESTMENTS AND RISKS
FUTURES AND OPTIONS. The Fund may purchase or write (sell) put and call options
on securities and financial indices. These are derivative instruments that give
the Fund the right (where the Fund purchases the option), or the obligation
(where the Fund writes the option) to buy or sell a particular security, such as
a stock or group of stocks in the future at a pre-determined price. The Fund may
also invest in futures on financial indices, another derivative instrument. The
Advisor may use these options strategies for a variety of reasons: to hedge
against the risk of fluctuations in the prices of securities that a Fund holds
or may purchase; as an efficient means to adjust a Fund's overall exposure to
certain markets; in an effort to enhance income; as a cash management tool.
>> RISKS. Futures contracts and options are not always successful
hedges. The Fund's ability to use these instruments
successfully will depend on the Advisor's ability to predict
accurately movements in the prices of securities, interest
rates and the securities markets. The prices of options can be
very volatile. Investing for hedging purposes may result in
certain transaction costs, which may reduce the Fund's total
return.
CASH POSITIONS AND DEFENSIVE STRATEGIES. The Fund may maintain a cash position
to retain flexibility in meeting redemptions and paying expenses. In addition,
pending investment (for example, if the Advisor is unable to find investments
selling at a discount to their intrinsic value), a significant portion of the
Fund's assets may be invested in money market mutual funds and cash or cash
equivalents such as high quality money market instruments.
The Fund may also employ temporary defensive strategies in response to
unfavorable economic, market, political or other conditions. At such times, the
Fund may increase its cash reserves without limit by holding high quality,
short-term debt securities and money market instruments and by entering into
repurchase agreements.
>> RISKS. Large cash positions and defensive strategies are
inconsistent with the Fund's primary investment strategies. Thus, if and
when the Fund employs a temporary defensive strategy, it may not achieve
its objective.
SHORT SALES "AGAINST THE BOX." The Fund may make short sales of securities
"against the box." In a short sale against the box, the Fund sells but does not
deliver securities that it owns, or has the right to acquire at no additional
cost. The Fund receives the proceeds from the sale when it does deliver the
securities. A short sale against the box allows the Fund to lock in gains on the
securities it has sold short and protect against a decline in the value of the
security.
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>> RISKS. Selling a security short against the box means that the Fund
will not profit from any additional increase in the price of the security.
YEAR 2000. The Fund's operations depend on the uninterrupted functioning of
computer systems in the financial service industry, including those of the
Advisor, Administrator, Custodian, Distributor, Transfer Agent, and other
service providers. In the past, certain computer systems were programmed to use
just two digits to identify a year. For example, the year "1995," would be
identified as "95." If these programs are not changed, they could misinterpret
dates occurring after December 31, 1999. This could adversely affect the Fund's
operations, including pricing of the Fund's shares, the Fund's portfolio trades
and services offered to shareholders.
As of the date of this Prospectus, there have been no computer or system
malfunctions resulting from the Year 2000 issue. The Fund's Advisor and
Administrator have addressed this Year 2000 issue and its possible impact on
their systems. The Fund's other service providers have informed the Fund that
they are taking similar measures. There is no assurance, however, that a systems
failure will not occur in the future, adversely affecting the Fund.
In addition, the issuers of securities that the Fund owns could have Year 2000
computer problems. These problems could negatively affect the value of their
securities, which in turn could have an effect on the Fund's performance. An
issuer's Year 2000 readiness is only one of many factors the Advisor may
consider when making investment decisions, and other factors may receive greater
weight.
MANAGEMENT
BOARD OF DIRECTORS
The business of the Fund is managed under the direction of the Board of
Directors (the "Board"). The Board formulates the general policies of the Fund
and meets periodically to review the Fund's performance, monitor investment
activities and practices, and discuss other matters affecting the Fund.
THE ADVISOR
YaleFunds Management and Research Co., 3980 Howard Hughes Parkway, Suite 400,
Las Vegas, NV 89109, serves as investment advisor to the Fund. Subject to the
general control of the Board, the Advisor makes investment decisions for the
Fund. The Advisor is a privately held corporation organized under the laws of
the State of Nevada in May 18, 1999, and is registered as an investment advisor
with the U.S. Securities & Exchange Commission.
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Under the terms of its investment advisory agreement with the Fund, the Advisor
is responsible for formulating the Fund's investment programs and for making
day-to-day investment decisions and engaging in portfolio transactions. The
Advisor also furnishes corporate officers, provides office space, services and
equipment and supervises all matters relating to the Fund's operations. For its
services, the Advisor receives an advisory fee at an annual rate of 1.25% of the
average daily net assets of the Fund.
PORTFOLIO MANAGER
The portfolio manager of the Fund is Y. Yale Wang. Mr. Wang is responsible for
the day-to-day investment policy, portfolio management and investment research
for the Fund. He received his B.A. in Science from Northwestern University in
Xian, Shaanxi, China in 1986, and his Master of Architecture from The University
of New Mexico, emphasizing in Professional Practice, in 1995. Mr. Wang founded
YaleFunds Management and Research Co. in 1999. From 1995 to 1999, Mr. Wang was a
registered representative and investment executive with broker-dealers including
American Fronteer Financial Corp., Presidential Brokerage, Inc. and Olde
Discount Corp. Mr. Wang has worked in Asia, Europe and the United States as an
architect, city planner, real estate developer and entrepreneur.
ADMINISTRATOR
American Data Services, Inc. ("ADS"), The Hauppauge Corporate Center, 150 Motor
Parkway, Hauppauge, New York 11788, provides various services to the Fund. As of
the date of this Prospectus, ADS provided administrative, fund accounting and
stock transfer services to retail and institutional mutual funds with
approximately $6 billion of total assets through its offices in New York,
Denver, and Los Angeles.
ADS provides all administrative services necessary for the Fund, subject to the
supervision of the Board.
DISTRIBUTOR
AmeriMutual Fund Distributors, Inc. ("the Distributor"), an affiliate of ADS, is
a registered broker-dealer and member of the National Association of Securities
Dealers, Inc. Under its Distribution Agreement with the Fund, the Distributor
acts as the Fund's agent in connection with the offering of its shares. The
Distributor may enter into arrangements with banks, broker-dealers or other
financial institutions through which investors may purchase or redeem shares and
may, at its own expense, compensate persons who provide services in connection
with the sale or expected sale of shares of the Fund.
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EXPENSES OF DISTRIBUTION
The Board has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. Under the Plan, the Fund may use a
portion of its assets for the sale and distribution of its shares, including
advertising, marketing and other promotional activities. Under the Plan, the
Fund pays the Distributor an amount equal to 0.30% of the average daily net
assets of the Fund on an annualized basis. Under the Plan, the Distributor is
responsible for the promotional and advertising expenses related to the
distribution of the Fund's shares and for the printing of all Fund prospectuses
used in connection with the distribution and sale of the Fund's shares. The
Distributor may use fees paid under the Distribution Agreement and the Plan to
pay these expenses and compensate financial intermediaries for providing
distribution assistance with respect to the sale of the Fund's shares.
BECAUSE THESE DISTRIBUTION FEES ARE PAID OUT OF THE FUND'S ASSETS ON AN ONGOING
BASIS, THE FEES MAY, OVER TIME, INCREASE THE COST OF INVESTING IN A FUND AND
COST INVESTORS MORE THAN OTHER TYPES OF SALES LOADS.
OTHER FUND EXPENSES
The Fund pays for all of its expenses. The Advisor or other service providers
may voluntarily waive all or any portion of their fees. Any waiver of these fees
would improve the Fund's performance for the period during which the waiver was
in effect.
YOUR ACCOUNT
HOW TO CONTACT THE FUND
For more information about the Fund or your account, you may write to us at:
MacroTrends Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Or you may call us toll free at (877) 881-2746
GENERAL INFORMATION
You pay no sales charge to buy or sell (redeem) shares of the Fund. You may buy
or redeem shares at the net asset value per share, or NAV, next calculated after
the Transfer Agent receives your request in proper form. For instance, if the
Transfer Agent receives your purchase request in proper form before 4 p.m., your
transaction will be priced at that day's NAV. If the Transfer Agent receives
your purchase request after 4 p.m., your transaction will be priced at the next
day's NAV. The Fund will not accept orders that request a particular day or
price for the transaction or any other special conditions.
The Fund does not issue share certificates.
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You will receive quarterly statements and a confirmation of each transaction.
You should verify the accuracy of all transactions in your account as soon as
you receive your confirmation.
During unusual market conditions, the Fund may temporarily suspend or
discontinue any service or privilege.
WHEN AND HOW NAV IS DETERMINED
The value of a single share of the Fund is known as its "net asset value per
share" or "NAV." The Fund's NAV is normally calculated as of the close of the
regular session of trading on the New York Stock Exchange ("NYSE") (normally
4:00 p.m., Eastern time) on each weekday except days when the NYSE is closed.
The Fund's NAV may be calculated earlier, however, if trading on the NYSE is
restricted or as permitted by the Securities and Exchange Commission (SEC).
If a security or securities that the Fund owns are traded when the NYSE is
closed (for example, on a foreign exchange or in an after-hours market) the
value of the Fund's assets may be affected on days when the Fund is not open for
business. In addition, trading in some of the Fund's assets may not occur on
days when the Fund is open for business.
The Fund's NAV is determined by taking the market value of all securities owned
by the Fund (plus all other assets such as cash), subtracting all liabilities
and then dividing the result (net assets) by the number of shares outstanding.
The Fund's securities are valued primarily on the basis of market quotations.
Certain short-term securities are valued on the basis of amortized cost. If
market quotations are not readily available for a security or if a security's
value has been materially affected by events occurring after the close of the
exchange or market on which the security is principally traded (for example, a
foreign exchange or market), that security may be valued by another method that
the Board of Directors believes accurately reflects fair value. A security's
valuation may differ depending on the method used for determining value.
TYPES OF ACCOUNTS
If you are making an initial investment in the Fund, you will need to open one
of the following types of accounts.
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS. Individual and sole
proprietorship accounts are owned by one person; joint accounts can have two or
more owners. All owners of the joint account must sign written instructions to
purchase or redeem shares or to change account information exactly as their
names appear on the account. If you elect telephone privileges, however,
redemption requests by telephone may be made by any one of the joint account
owners.
UNIFORM GIFT OR TRANSFER TO MINOR ACCOUNTS (UGMA, UTMA). Depending on the laws
of your state, you can set up a custodial account under the Uniform Gift (or
Transfers) to Minors Act. These custodial accounts provide a way to give money
to a child and obtain tax benefits. To open a UGAM or UTMA account, you must
include the minor's social security number on the application and the custodian,
or trustee, of the UGMA or UTMA must sign instructions in a manner indicating
trustee capacity.
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CORPORATE AND PARTNERSHIP ACCOUNTS. To open a corporate or partnership account,
or to send instructions to the Fund, the following documents are required:
-- For corporations, a corporate resolution signed by an authorized
person with a signature guarantee.
-- For partnerships, a certification for a partnership agreement, or the
pages from the partnership agreement that identify the general
partners.
An authorized officer of the corporation or other legal entity must sign the
application.
TRUST ACCOUNTS. The trust must be established before you can open a trust
account. To open the account you must include the name of each trustee, the name
of the trust and provide a certification for trust, or the pages from the trust
document that identify the trustees.
RETIREMENT ACCOUNTS. The Fund offers IRA accounts, including traditional IRA,
Roth IRA, Rollover IRA, SEP-IRA, SIMPLE IRA and Keogh accounts. Fund shares may
also be an appropriate investment for other retirement plans. Before investing
in any IRA or other retirement plan, you should consult your tax advisor.
Whenever making an investment in an IRA be sure to indicate the year in which
the contribution is made.
HOW TO OPEN AN ACCOUNT AND BUY SHARES OF THE FUND
BY TELEPHONE
To open an account by telephone, call (877)881-2746 to obtain an account number
and instructions. We will take information necessary to open your account,
including social security or tax identification number, over the phone.
After you have obtained an account number, you may purchase shares of the Fund
by wiring federal funds. Your bank may charge a fee for doing this. You should
instruct your bank to wire funds to:
Union Bank of California
ABA # 122000496
Attention: DOMESTIC CUSTODY
Account # 280023590
F/B/O Shareholder Account No. ___________________
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You will then need to mail a signed account application to:
MacroTrends Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
BY MAIL
You may also open an account by mailing a completed and signed account
application, together with a check, to:
MacroTrends Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
AUTOMATIC INVESTMENT PLANS
You may invest a specified amount of money in the Fund once or twice a month on
specified dates. These payments are taken from your bank account by automated
clearinghouse ("ACH") payment.
To open an Automatic Investment Plan account ("AIP"), call or write to us to
request and "Automatic Investment" form. Complete and sign the form, and return
it to us along with a voided check for the bank account from which payments will
be made.
TRANSACTIONS THROUGH THIRD PARTIES
If you invest through a broker or other financial institution, the policies and
fees charged by that institution may be different than those of the Fund. Banks,
brokers, retirement plans and financial advisors may charge transaction fees and
may set different minimum investments or limitations on buying or selling
shares. Consult a representative of your financial institution or retirement
plan for further information.
HOW TO PAY FOR YOUR PURCHASE OF SHARES
You may purchase shares of the Fund by check, automated clearinghouse payment,
or wire. All payments must be in U.S. dollars.
CHECKS. All checks must be drawn on U.S. banks and made payable to "MacroTrends
Fund." No other method of check payment is acceptable (for instance, you may not
pay by travelers check).
ACH PAYMENTS. Instruct your financial institution to make an ACH (automated
clearinghouse) payment to us. These payments typically take two days. Your
financial institution may charge you a fee for this service.
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WIRES. Instruct your financial institution to make a Federal funds wire payment
to us. Your financial institution may charge you a fee for this service.
INVESTMENT MINIMUMS
The Fund accepts investments in the following minimum amounts:
---------------------------------------- ------------- -------------
Individual, Sole proprietorship or
Joint accounts $5000 $100
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Corporate, partnership or trust
accounts $5000 $100
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Uniform Gift or Transfer to a Minor
Accounts (ugma, utma) $500 $50
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Individual Retirement Accounts (IRA)
$1,000 $100
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LIMITATIONS ON PURCHASES
The Fund reserves the right to refuse any purchase request, particularly
requests that could adversely affect the Fund or its operations. This includes
those from any individual or group who, in the Fund's view, is likely to engage
in excessive trading (usually defined as more than four exchanges out of the
Fund within a calendar year).
CANCELED OR FAILED PAYMENTS
The Fund accepts checks and ACH transfers at full value subject to collection.
If your payment for shares is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You will be
responsible for any losses or expenses incurred by the Fund or the Transfer
Agent, and the Fund may redeem other shares you own in the account as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase, exchange, or redemption due to nonpayment.
HOW TO SELL (REDEEM) SHARES OF THE FUND
The Fund processes redemption orders promptly. Your shares will be redeemed at
the NAV next determined after we receive your redemption request in good order.
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You will generally receive redemption proceeds within a week. During unusual
market conditions, the Fund may suspend redemptions or postpone the payment of
redemption proceeds, to the extent permitted under the Federal securities laws.
Delays may occur in cases of very large redemptions, excessive trading or during
unusual market conditions. If you purchase your shares by check, the Fund may
delay sending the proceeds from your redemption request until your check has
cleared. This could take up to 15 calendar days.
BY MAIL
To redeem shares by mail, prepare a written request including:
-- Your name(s) and signature(s)
-- The name of the Fund, and your account number
-- The dollar amount or number of shares you want to redeem
-- How and where to send your proceeds
-- A signature guarantee, if required (see "Signature Guarantee
Requirements" below)
-- Any other legal documents required for redemption requests by
corporations, partnerships or trusts.
Mail your request and documentation to:
MacroTrends Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
BY WIRE
You may only request payment of your redemption proceeds by wire if you have
previously elected wire redemption privileges on your account application or a
separate form.
Wire requests are only available if your redemption is for $10,000 or more.
To request a wire redemption, mail or call us with your request (See "By Mail").
If you wish to make your wire request by telephone, however, you must have
previously elected telephone redemption privileges.
BY TELEPHONE
We accept redemption requests by telephone only if you have elected telephone
redemption privileges on your account application or a separate form.
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To redeem shares by telephone, call us with your request. You will need to
provide your account number and the exact name(s) in which the account is
registered. We may also require a password or additional forms of
identification.
Your proceeds will be mailed to you or wired to you (if you have elected wire
redemption privileges - See "By Wire" above)
Telephone redemptions are easy and convenient, but this account option involves
a risk of loss from unauthorized or fraudulent transactions. We will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and by reviewing immediately
any account statement and transaction confirmations that you receive. Neither
the Fund nor the Transfer Agent will be responsible for any losses due to
telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity.
AUTOMATIC REDEMPTION
If you own shares of the Fund with an aggregated value of at least $10,000, you
may request a specified amount of money from your account once a month or once a
quarter on a specified date. These payments are sent from your account to a
designated bank account by ACH payment. Automatic requests must be for at least
$100.
To set up periodic redemptions automatically, call or write us for an "Automatic
Redemption" form. You should complete the form and mail it to us with a voided
check for the account into which you would like the redemption proceeds
deposited.
SIGNATURE GUARANTEE REQUIREMENTS
To protect you and the Fund against fraud, signatures on certain requests must
have a "signature guarantee." For requests made in writing a signature guarantee
is required for any of the following:
-- Redemption of over $5,000 worth of shares
-- Changes to a record name or address of an account
-- Redemption from an account for which the address or account
registration has changed within the last 30 days
-- Sending proceeds to any person, address, brokerage firm or bank
account not on record
-- Sending proceeds to an account with a different registration (name or
ownership) from yours
-- Changes to automatic investment or redemption programs, distribution
options, telephone or wire redemption privileges, any other election
in connection with your account. A signature guarantee verifies the
authenticity of your signature. You can obtain one from most banking
institutions or securities brokers, but not from a notary public.
-14-
<PAGE>
SMALL ACCOUNTS
If the value of your account falls below $2,000 ($500 for UGMA and IRA
accounts), the Fund may ask you to increase your balance. If the account value
is still below $2,000 after 30 days, the Fund may close your account and send
you the proceeds. The Fund will not close your account if it falls below $2000
solely as a result of a reduction in your account's market value.
REDEMPTION IN KIND
The Fund reserves the right to make redemptions "in kind" -- payment of
redemption proceeds in portfolio securities rather than cash -- if the amount
requested is large enough to affect Fund operations (for example, if the amount
of the redemption is the greater of $250,000 or 1% of the Fund's net assets).
LOST ACCOUNTS
The Transfer Agent will consider your account "lost" if correspondence to your
address of record is returned as undeliverable, unless the Transfer Agent
determines your new address. When an account is "lost," all distributions on the
account will be reinvested in additional shares of the Fund. In addition, the
amount of any outstanding (unpaid for six months or more) checks for
distributions that have been returned to the Transfer Agent will be reinvested
and the checks will be canceled.
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income, if any, semi-annually. Any net
capital gain realized by the Fund will be distributed at least annually. All
distributions are reinvested in additional shares, unless you elect to receive
distributions in cash. For Federal income tax purposes, distributions are
treated the same whether they are received in cash or reinvested. Shares become
entitled to receive distributions on the day after the shares are issued.
TAXES
TAXES ON DISTRIBUTIONS. The Fund operates in a manner such that it will not be
liable for Federal income or excise tax. Distributions of net investment income
or short-term capital gain are taxable to you as ordinary income. Distributions
of long-term capital gain are taxable to you as long-term capital gain,
regardless of how long you have held your shares. Distributions may also be
subject to state and local taxes.
The Fund will mail reports containing information about the Fund's distributions
during the year to you after December 31 of each year. Consult your tax advisor
about the Federal, state and local tax consequences in your particular
circumstances.
-15-
<PAGE>
TAXES ON REDEMPTIONS OF SHARES. The sale of Fund shares is a taxable transaction
for Federal income tax purposes. Your taxable gain or loss is computed by
subtracting your tax basis in the shares from the redemption proceeds. Because
your tax basis depends on the original purchase price and on the price at which
any dividends may have been reinvested, you should keep your account statement
so that you or your tax preparer will be able to determine whether a sale will
result in a taxable gain or loss.
"BUYING A DIVIDEND." All distributions reduce the net asset value of the Fund's
shares by the amount of the distribution. Unless your investment is in a
tax-deferred account, you may wish to avoid buying shares of the Fund shortly
before a distribution. If you do, you will pay the full pre-distribution price
for your shares and then receive part of your investment back as a taxable
distribution.
TAX WITHHOLDING. The Fund may be required to withhold U.S. federal income tax at
the rate of 31 percent from all taxable distributions and form proceeds from
certain sales payable to shareholders who fail to provide the Fund with their
correct taxpayers identification number or to make required certifications, or
who have been notified by the IRS that they are subject to backup withholding.
Any such withheld amounts may be credited against the shareholder's U.S. federal
income tax liability.
ORGANIZATION
The MacroTrends Fund is a series of Questar Funds, Inc., a Maryland corporation
that is registered with the SEC as an open-end, management investment company (a
"mutual fund"). It is not intended that meetings of shareholders be held except
when required by Federal or Maryland law and all shareholders of the Fund are
entitled to vote at shareholders' meetings. From time to time, large
shareholders may control the Fund.
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<PAGE>
FOR MORE INFORMATION
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments is available in the Fund's annual and semi-annual reports
to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI"). The SAI provides more
detailed information about the Fund and is incorporated by reference
into this Prospectus.
You may obtain free copies of both reports and the SAI, request other
information and discuss your questions about the Fund by contacting the Fund at:
MACROTRENDS FUND
C/O AMERICAN DATA SERVICES, INC.
P.O. BOX 5536
HAUPPAUGE, NEW YORK 11788-0132
1-877-881-2746
You can also review the Fund's reports and SAI by visiting the Public Reference
Room of the Securities and Exchange Commission at 450 Fifth Street, NW,
Washington, DC 20549. Please call 800-SEC-0330 to learn the Public Reference
Room's business hours. You may request copies of the Fund's reports and SAI, for
a fee, by writing to the Public Reference Room at this address, or by e-mailing
your request to [email protected]. You may also download a free, text-only
version from the Commission's Internet website at www.sec.gov.
The Fund's Investment Company Act File number is 811-08655
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<PAGE>
MACROTRENDS FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 12, 2000
AS SUPPLEMENTED APRIL 12, 2000
TABLE OF CONTENTS
PAGE
General Information and History.............................................
Investment Objective, Policies and Restrictions............................ 2
Directors and Executive Officers...........................................15
Investment Advisory and Other Services.....................................16
Shareholder Servicing & Distribution Plan..................................18
Expenses of the Company....................................................21
Portfolio Transactions and Allocation of Brokerage.........................21
Taxation...................................................................23
Ownership of Shares........................................................24
Purchase of Shares.........................................................24
Dividends and Distributions................................................24
Net Asset Value ...........................................................24
Performance Comparisons....................................................24
Redemption of Shares.......................................................26
Counsel and Independent Auditors...........................................27
Other Information..........................................................27
Appendix...................................................................28
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the MacroTrend Fund's (hereinafter the "Fund") Prospectus
dated January 12, 2000. 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 (800) 551-1980.
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"ADS" means American Data Services, Inc., the administrator, fund accountant,
transfer agent and distribution disbursing agent of the Fund.
"Adviser" means YaleFunds Management and Research Co.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Questar Funds, Inc., a Maryland Corporation is registered with
the SEC as an open-end, management Investment Company, commonly referred to as a
"mutual fund".
"Custodian" means the custodian of the Fund's assets.
"Fitch" means Fitch IBCA, Inc.
"Fund" means MacroTrends Fund, a separate series of the Company.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
GENERAL INFORMATION AND HISTORY
The Company is an open-end management investment company, commonly known as
"mutual fund," and sells and redeems shares every day that it is open for
business. The Trust was organized as a Maryland corporation on October 13, 1998
and is registered with the Securities and Exchange Commission (the "SEC") under
the Investment Company Act of 1940 (the "1940 Act").
The Company currently consists of three portfolios: Imperial Financial Services
Fund, Pheonix Management Fund and the Fund (individually a "Fund" and
collectively the "Funds"). Each Fund represents a separate series of common
stock in the Company having different investment objectives, investment
programs, policies and restrictions.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's investment objective is is capital appreciation. The Fund will see to
achieve this objective by investing primarily in common stocks of domestic and
foreign companies. It may also invest in options, warrants and stock rights. The
investment adviser to the Fund, YaleFunds Management and Research Co. (the
"Adviser"), applies a proprietary selection process, known as "Total Growth"
investing, to select the Fund's investments. The Adviser begins its stock
selection process by seeking to identify trends in society and the world's
economies. Next, the Adviser identifies industries that will play leading roles
in these MacroTrends, and searches for companies with quality management, vision
and strong financial fundamentals necessary for long-term success within these
industries.
The Fund's investment techniques, strategies and risks are discussed in the
Prospectus. Additional information regarding the types of investments that the
Fund makes, the risks associated with those investments, and Fund's restrictions
is set forth below. This discussion supplements the disclosure in the
prospectus.
The Fund is designed for investment of that portion of an investor's funds,
which can appropriately bear the special risks associated with certain types of
investments (e.g., investments in smaller capitalization companies). Unless
otherwise noted, the policies described in this Statement of Additional
Information are not fundamental and may be changed by the Board of Directors.
INVESTMENTS AND ASSOCIATED RISKS
1. EQUITY SECURITIES
RISKS IN GENERAL. An investment in the Fund should be made with an understanding
of the risks inherent in an investment in equity securities, including the risk
that the general condition of the stock market may deteriorate. Common stocks
are susceptible to general stock market fluctuations and to volatile increases
and decreases in value according to various unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction and global or
regional political, economic and banking crises. In addition to the general
risks and considerations of equity investing, the Fund is subject to the
specific risks associated with the specific investments discussed below.
COMMON AND PREFERRED STOCK. Common stock represents an equity (ownership)
interest in a company, and usually possesses voting rights and earns dividends.
Dividends on common stock are not fixed but are declared at the discretion of
the issuer. Common stock generally represents the riskiest investment in a
company. In addition, common stock generally has the greatest appreciation and
depreciation potential because increases and decreases in earnings are usually
reflected in a company's stock price.
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
<PAGE>
The fundamental risk of investing in common and preferred stock is the risk that
the value of the stock might decrease. Stock values fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than preferred stocks,
fixed-income and money market investments. The market value of all securities,
including common and preferred stocks, is based upon the market's perception of
value and not necessarily the book value of an issuer or other objective
measures of a company's worth. If you invest in a Fund, you should be willing to
accept the risks of the stock market and should consider an investment in the
Fund only as a part of your overall investment portfolio.
CONVERTIBLE SECURITIES. Convertible securities include debt securities,
preferred stock or other securities that may be converted into or exchanged for
a given amount of common stock of the same or a different issuer during a
specified period and at a specified price in the future. A convertible security
entitles the holder to receive interest on debt or the dividend on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Convertible securities rank senior to common stock in a company's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities have unique investment characteristics in
that they generally: (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities; (2) are less subject to fluctuation
in value than the underlying stocks since they have fixed income
characteristics; and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases. A convertible security
may be subject to redemption at the option of the issuer at a price established
in the convertible security's governing instrument. If a convertible security is
called for redemption, a Fund will be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS") AND DIAMONDS. The Fund may
invest in Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs are units of
beneficial interest in an investment Company sponsored by a wholly-owned
subsidiary of the American Stock Exchange, Inc. which represent proportionate
undivided interests in a portfolio of securities consisting of substantially all
of the common stocks, in substantially the same weighting, as the component
common stocks of the Standard & Poor's 500 Stock Index (the "S&P 500 Index").
SPDRs are listed on the American Stock Exchange (the "Exchange") and traded in
the secondary market on a per-SPDR basis.
The Fund may also invest in DIAMONDS. DIAMONDS are units of beneficial interest
in an investment Company representing proportionate undivided interests in a
portfolio of securities consisting of all the component common stocks of the Dow
Jones Industrial Average (the "DJIA"). DIAMONDS are listed on the Exchange and
may be traded in the secondary market on a per-DIAMONDS basis.
SPDRs are designed to provide investment results that generally correspond to
the price and yield performance of the component common stocks of the S&P 500
Index. DIAMONDS are designed to provide investors with investment results that
generally correspond to the price and yield performance of the component common
stocks of the DJIA. The value of both SPDRs and DIAMONDS are subject to change
as the values of their respective component common stocks fluctuate according to
the volatility of the market. Investments in SPDRs and DIAMONDS involve certain
inherent risks generally associated with investments in a broadly based
portfolio of common stocks, including the risk that the general level of stock
prices may decline, thereby adversely affecting the value of each unit of SPDRs
and/or DIAMONDS invested in by the Fund. Moreover, the Fund's investment in
SPDRs and DIAMONDS may not exactly match the performance of a direct investment
in the respective indices to which they are intended to correspond. For example,
replicating and maintaining price and yield performance of an index may be
problematic for the Fund due to transaction costs and other expenses.
<PAGE>
Additionally, the respective investment company's may not fully replicate the
performance of their respective benchmark indices due to the temporary
unavailability of certain index securities in the secondary market or due to
other extraordinary circumstances such as discrepancies between the investment
Company and the indices with respect to the weighting of securities or the
number of, for example, larger capitalized stocks held by an index and the
investment Company. Under these type circumstances, the value of the SPDRs or
DIAMONDS held by the Fund will have a negative impact on the net asset value of
the Fund.
2. FOREIGN SECURITIES
DEPOSITARY RECEIPTS. The Fund may invest in American Depositary Receipts
("ADRs") or other forms of depositary receipts. ADRs are receipts typically
issued in connection with a U.S. or foreign bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. Investments
in these types of foreign securities involve certain inherent risks generally
associated with investments in foreign securities, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, and resource self-sufficiency, diversification and balance of
payments position. The internal politics of certain foreign countries may not be
as stable as those of the United States. Governments in certain foreign
countries also continue to participate to a significant degree, through
ownership interest or regulation, in their respective economies. Action by these
governments could include restrictions on foreign investment, nationalization,
expropriation of goods or imposition of taxes, and could have a significant
effect on market prices of securities and payment of interest. The economies of
many foreign countries are heavily dependent upon international trade and are
accordingly affected by the trade policies and economic conditions of their
trading partners. Enactment by these trading partners of protectionist trade
legislation could have a significant adverse effect upon the securities markets
of such countries.
CURRENCY FLUCTUATIONS. A change in the value of any foreign currency against the
U.S. dollar will result in a corresponding change in the U.S. dollar value of an
ADR's underlying portfolio securities denominated in that currency. Such changes
will affect the Fund to the extent that the Fund is invested in ADR's comprised
of foreign securities.
TAXES. The interest and dividends payable on certain foreign securities
comprising an ADR may be subject to foreign withholding taxes, thus reducing the
net amount of income to be paid to the Fund and that may, ultimately, be
available for distribution to the Fund's shareholders.
3. FIXED INCOME INVESTMENTS.
During normal market conditions, the Fund may invest up to 10% of its total
assets in all types of fixed income securities and up to 5% of its total assets
in high-yield bonds and mortgage and asset backed securities.
Yields on fixed income securities are dependent on a variety of factors,
including the general conditions of the money market and other fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. An investment in the Fund that invests
in fixed income securities is subject to risk even if all fixed income
securities in the Fund's portfolio are paid in full at maturity. All fixed
income securities, including U.S. Government Securities, can change in value
when there is a change in interest rates or the issuer's actual or perceived
creditworthiness or ability to meet its obligations.
<PAGE>
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
The longer the remaining maturity (and duration) of a security, the greater will
be the effect of interest rate changes on the market value of that security.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of the debt securities of that issuer. Obligations of issuers
of fixed income securities (including municipal securities) are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of municipal issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. The
possibility exists, therefore, that, the ability of any issuer to pay, when due,
the principal of and interest on its debt securities may become impaired.
The corporate debt securities in which the Fund may invest include corporate
bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliate's current obligations and is
frequently unsecured. Variable and floating rate demand notes are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to a direct arrangement with the issuer of
the instrument. The issuer of these obligations often has the right, after a
given period, to prepay the outstanding principal amount of the obligations upon
a specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7-day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
4. SHORT-TERM INVESTMENTS AND TEMPORARY DEFENSIVE POSITIONS.
While seeking desirable equity or other investments for the Fund, or for
temporary defensive purposes during periods of market instability, the Fund may
invest without limit in money market mutual funds, commercial paper and other
money market instruments that are of prime quality. Prime quality instruments
are those instruments that are rated in one of the two highest short-term rating
categories by an NRSRO or, if not rated, determined by the Adviser to be of
comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include U.S. Government Securities, time deposits, banker's acceptances and
certificates of deposit of depository institutions (such as banks), corporate
notes and short-term bonds and money market mutual Fund.
BANK CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. The Fund may acquire
certificates of deposit, bankers' acceptances and time deposits. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning in effect that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit and bankers'
acceptances acquired by the Fund will be dollar-denominated obligations of
domestic banks or financial institutions which at the time of purchase have
capital, surplus and undivided profits in excess of $100 million (including
assets of both domestic and foreign branches), based on latest published
reports, or less than $100 million if the principal amount of such bank
obligations are fully insured by the U.S. Government.
<PAGE>
Domestic banks are subject to different governmental regulations with respect to
the amount and types of loans, which may be made, and interest rates, which may
be charged. In addition, the profitability of the banking industry depends
largely upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of the
banking industry.
As a result of federal and state laws and regulations, domestic banks are, among
other things, required to maintain specified levels of reserves, limited in the
amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness.
GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. Government obligations. Such
obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association ("GNMA"), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, and the Student
Loan Marketing Association.
Certain of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it were not obligated to do so
by law.
MASTER DEMAND NOTES. The money market instruments in which the Fund may invest
may have variable or floating rates of interest. These obligations include
master demand notes that permit investment of fluctuating amounts at varying
rates of interest pursuant to direct arrangement with the issuer of the
instrument. The issuer of these obligations often has the right, after a given
period, to prepay the outstanding principal amount of the obligations upon a
specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7-day or shorter demand feature and
there is no readily available market for the obligation, it mistreated as an
illiquid security.
5. SHORT SALES.
The Fund is authorized to make short sales of securities it owns or has the
right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box"). The Fund may
not make short sales of securities, which it does not currently own, or have the
right to acquire (I.E., short sales that are not "against the box").
If the Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. To secure its obligation to deliver securities sold short, the Fund will
deposit in escrow in a separate account with the Custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
<PAGE>
The Fund's decision to make a short sale "against the box" may be a technique to
hedge against market risks when the Adviser believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for such security. In such
case, any future losses in the Fund's long position would be reduced by a gain
in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of securities sold short
relative to the amount of the securities the Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the investment values or conversion premiums of such securities.
Short sales transactions may sometimes be executed by borrowing securities from
margin accounts established by the Adviser for this purpose. Some interest may
be charged within these margin accounts as a result of price fluctuations of
boxed positions, even though no leverage is employed, since the offsetting long
and short positions within that boxed position will generally offset each
other's market risk.
6. HEDGING AND OPTION INCOME STRATEGIES
The Fund may seek to hedge against a decline in the value of securities it owns
or an increase in the price of securities which it plans to purchase by
purchasing and writing (i.e., selling) covered options on securities in which it
has invested and on any securities index based in whole or in part on securities
in which that fund may invest. The Fund' options may be traded on an exchange or
in an over-the-counter market.
The Fund will not hedge more than 30% of the value of its total assets by buying
put options and writing call options.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency or an index of
securities).
An option is covered if, as long as the Fund is obligated under the option, it
owns an offsetting position in the underlying security or maintains cash, U.S.
Government Securities or other liquid, high-grade debt securities with a value
at all times sufficient to cover the Fund's obligation under the option.
IN GENERAL A call option is a contract pursuant to which the purchaser of the
call option, in return for a premium paid, has the right to buy the security (or
index) underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option, who receives the premium,
has the obligation upon exercise of the option to deliver the underlying
security (or a cash amount equal to the value of the index) against payment of
the exercise price during the option period.
A put option gives its purchaser, in return for a premium, the right to sell the
underlying security (or index) at a specified price during the term of the
option. The writer of the put option, who receives the premium, has the
obligation to buy the underlying security (or receive a cash amount equal to the
value of the index), upon exercise at the exercise price during the option
period.
The amount of premium received or paid for an option is based upon certain
factors, including the market price of the underlying security or index, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security or index, the option period and interest
rates.
There are a limited number of options contracts on securities indices and option
contracts may not be available on all securities that the Fund may own or seek
to own.
<PAGE>
RISKS. The Fund's use of options subjects the Fund to certain investment risks
and transaction costs to which it might not otherwise be subject. These risks
include: (1) dependence on the Adviser's ability to predict movements in the
prices of individual securities and fluctuations in the general securities
markets; (2) imperfect correlations between movements in the prices of options
and movements in the price of the securities (or indices) hedged or used for
cover which may cause a given hedge not to achieve its objective; (3) the fact
that the skills and techniques needed to trade these instruments are different
from those needed to select the securities in which the Fund invest; and (4)lack
of assurance that a liquid secondary market will exist for any particular
instrument at any particular time, which, among other things, may hinder the
Fund's ability to limit exposures by closing its positions.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund.
7. WARRANTS
The Fund may invest in warrants. A warrant gives the holder a right to purchase
at any time during a specified period a predetermined number of shares of common
stock at a fixed price. Unlike convertible debt securities or preferred stock,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of the Fund's entire investment therein).
8. FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the prospectus, the
Fund may invest without limit in futures contracts and related options for
hedging and non-hedging purposes, such as to manage the effective duration of
the Fund's portfolio or as a substitute for direct investment. A financial
futures contract sale creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified delivery month
for a stated price. A financial futures contract purchase creates an obligation
by the purchaser to take delivery of the type of financial instrument called for
in the contract in a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date are not
determined until on or near that date. The determination is made in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made. Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved for such
trading by the Commodity Futures Trading Commission (the "CFTC"), and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant contract market.
<PAGE>
Although futures contracts (other than index futures) by their terms call for
actual delivery or acceptance of commodities or securities, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.
Closing out a futures contract sale is affected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. If the Fund is unable to enter into a closing transaction, the amount of
the Fund's potential loss is unlimited. The closing out of a futures contract
purchase is affected by the purchaser's entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he realizes
a loss. In general, 40% of the gain or loss arising from the closing out of a
futures contract traded on an exchange approved by the CFTC is treated as
short-term gain or loss, and 60% is treated as long-term gain or loss.
Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract. Upon entering into
a contract, the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of liquid assets. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of Funds to finance the
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit, which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin," to and
from the broker (or the custodian) are made on a daily basis as the price of the
underlying security or commodity fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures contract on a
security and the price of the underlying security has risen, that position will
have increased in value and the Fund will receive from the broker a variation
margin payment based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the underlying security
has declined, the position would be less valuable and the Fund would be required
to make a variation margin payment to the broker.
The Fund may elect to close some or all of its futures positions at any time
prior to their expiration in order to reduce or eliminate a hedge position then
currently held by the Fund. The Fund may close its positions by taking opposite
positions, which will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to a Fund, and the Fund realizes a
loss or a gain. Such closing transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on futures contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The Fund may use
options on futures contracts in lieu of writing or buying options directly on
the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
portfolio securities, the Fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the Fund may
purchase call options or write put options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which the Fund expects to purchase. Such options
generally operate in the same manner as options purchased or written directly on
the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be affected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above in connection with the
discussion of futures contracts.
<PAGE>
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the Fund is subject to the Adviser's ability to predict
movements in various factors affecting securities markets, including interest
rates. Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss to the Fund
when the purchase or sale of a futures contract would not, such as when there is
no movement in the prices of the hedged investments. The writing of an option on
a futures contract involves risks similar to those risks relating to the sale of
futures contracts.
The use of options and futures strategies also involves the risk of imperfect
correlation among movements in the prices of the securities underlying the
futures and options purchased and sold by the Fund, of the options and futures
contracts themselves, and, in the case of hedging transactions, of the
securities which are the subject of a hedge. The successful use of these
strategies further depends on the ability of the Adviser to forecast interest
rates and market movements correctly.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution by exchanges of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a position held by the Fund, the Fund may seek to close
out such position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding contracts or
options on the exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in accordance
with their terms.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The Fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index futures
contracts.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In the case
of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value
of the S&P 500 Index were $150, one contract could be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no delivery of the actual
stocks making up the index will take place. Instead, settlement in cash must
occur upon the termination of the contract, with the settlement being the
difference between the contract price and the actual level of the stock index at
the expiration of the contract. For example, if the Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a specified future date
at a contract price of $150 and the S&P 500 Index is at $152 on that future
date, the Fund will lose $1,000 (500 units x loss of $2).
<PAGE>
There are several risks in connection with the use by the Fund of index futures.
One risk arises because of the imperfect correlation between movements in the
prices of the index futures and movements in the prices of securities, which are
the subject of the hedge. The Adviser will, however, attempt to reduce this risk
by buying or selling, to the extent possible, futures on indices the movements
of which will, in its judgment, have a significant correlation with movements in
the prices of the securities sought to be hedged.
Successful use of index futures by the Fund is also subject to the Adviser's
ability to predict movements in the direction of the market. For example, it is
possible that, where the Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written may advance
and the value of securities held in the Fund's portfolio may decline. If this
occurred, the Fund would lose money on the futures and also experience a decline
in value in its portfolio securities. It is also possible that, if the Fund has
hedged against the possibility of a decline in the market adversely affecting
securities held in its portfolio and securities prices increase instead, the
Fund will lose part or all of the benefit of the increased value of those
securities it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements at a
time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the portion of
the Fund's portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result the
futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
profitable position over a short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are similar to options
on securities except that options on index futures give the purchaser the right,
in return for the premium paid, to assume a position in an index futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index futures contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the index future. If an option is
exercised on the last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on
index futures, the Fund may purchase and sell call and put options on the
underlying indices themselves. Such options would be used in a manner identical
to the use of options on index futures.
<PAGE>
INDEX WARRANTS. The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If the Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant.
The Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of the Fund's use of index warrants are
generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Fund will normally
invest only in exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing agency. In
addition, the terms of index warrants may limit the Fund's ability to exercise
the warrants at such time, or in such quantities, as the Fund would otherwise
wish to do.
9. ILLIQUID AND RESTRICTED SECURITIES.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of the value of its
net assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Adviser will monitor the
amount of illiquid securities in the Fund's portfolio, under the supervision of
the Company's Board of Directors, to ensure compliance with the Fund's
investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
that are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Company's Board of Directors may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.
RESTRICTED SECURITIES. The SEC Staff currently takes the view that any
delegation by the Board of Directors of the authority to determine that a
restricted security is readily marketable (as described in the investment
restrictions of the Fund) must be pursuant to written procedures established by
the Board of Directors. It is the present intention of the Board of Directors
that, if the Board of Directors decides 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.
<PAGE>
DETERMINATION OF LIQUIDITY. The Board has the ultimate responsibility for
determining whether specific securities are liquid or illiquid and has delegated
the function of making determinations of liquidity to the Adviser, pursuant to
guidelines approved by the Board. The Adviser determines and monitors the
liquidity of the portfolio securities and reports periodically on its decisions
to the Board. The Adviser takes into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
and quotations for the security; (2) the number of dealers willing to purchase
or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
10. 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).
11. SECURITIES LOANS
The Fund may make secured loans of its portfolio securities, on either a
short-term or long-term basis, amounting to not more than 25% of its total
assets, thereby realizing additional income. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss rights in the collateral should the
borrower fail financially. As a matter of policy, securities loans are made to
broker-dealers pursuant to agreements requiring that the loans be continuously
secured by collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan, "marked-to-market"
daily. The borrower pays to the Fund an amount equal to any dividends or
interest received on securities lent. The Fund retains all or a portion of the
interest received on investment of the cash collateral or receives a fee from
the borrower. Although voting rights, or rights to consent, with respect to the
loaned securities may pass to the borrower, the Fund retains the right to call
the loans at any time on reasonable notice, and it will do so to enable the Fund
to exercise voting rights on any matters materially affecting the investment.
The Fund may also call such loans in order to sell the securities.
INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund cannot be changed without the affirmative vote
of the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented. A nonfundamental policy of the Fund may be changed by the Board
without shareholder approval.
<PAGE>
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following fundamental investment policies.
1. ISSUANCE OF SENIOR SECURITIES. The Fund may not issue senior
securities except pursuant to Section 18 of the 1940 Act and except
that the Fund may borrow money subject to its investment limitation on
borrowing.
2. BORROWING MONEY. A Fund may not borrow money if, as a result,
outstanding borrowings would exceed an amount equal to 33 1/3% of the
Fund's total assets.
3. UNDERWRITING ACTIVITIES. The Fund may not act as an underwriter of
securities of other issuers, except to the extent that, in connection
with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter for purpose of the 1933 Act.
4. CONCENTRATION. The Fund may not purchase the securities of issuers
(other than U.S. Government Securities) conducting their business
activity in the same industry if, immediately after such purchase, the
value of the Fund's investments in such industry would comprise 25% or
more of the value of its total assets.
5. PURCHASES AND SALES OF REAL ESTATE. The Fund not may purchase or sell
real estate or any interest therein, except that the Fund may invest
in securities issued or guaranteed by corporate or governmental
entities secured by real estate or interests therein, such as mortgage
pass-throughs and collateralized mortgage obligations, or issued by
companies that invest in real estate or interests therein.
6. PURCHASES AND SALES OF COMMODITIES. The Fund may not purchase or sell
physical commodities or contracts, options or options on contracts to
purchase or sell physical commodities.
7. MAKING LOANS. The Fund may not make loans to other persons except for
the purchase of debt securities that are otherwise permitted
investments or loans of portfolio securities through the use of
repurchase agreements.
8. DIVERSIFICATION. The Fund is "diversified" as that term is defined in
the 1940 Act. Accordingly, the Fund may not purchase a security if, as
a result: (1) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer; or (2) the Fund would
own more than 10% of the outstanding voting securities of a single
issuer. This limitation applies only with respect to 75% of the Fund's
total assets and does not apply to U.S. Government Securities.
<PAGE>
NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following nonfundamental investment policies. The Fund
may not:
1. PLEDGE, MORTGAGE & HYPOTHECATE. Pledge, mortgage or hypothecate its
assets, except to secure indebtedness permitted to be incurred by the
Fund. The deposit in escrow of securities in connection with the
writing of put and call options, collateralized loans of securities
and collateral arrangements with respect to margin for futures
contracts are not deemed to be pledges or hypothecations for this
purpose.
2. SHORT SALES. Make short sales of securities except short sales against
the box.
3. PURCHASES ON MARGIN. Purchase securities on margin except for the use
of short-term credit necessary for the clearance of purchases and
sales of portfolio securities, but the Fund may make margin deposits
in connection with permitted transactions in options.
4. ILLIQUID SECURITIES. Purchase a security if, as a result, more than
15% of its net assets would be invested in illiquid securities. If the
15% limit on illiquid securities is exceeded by virtue of other than a
change in market values, the condition will be reported by the Adviser
to the Board.
5. BORROWING. Purchase portfolio securities if its outstanding borrowings
exceed 5% of the value of its total assets or borrow for purposes
other than meeting redemptions in an amount exceeding 5% of the value
of its total assets at the time the borrowing is made.
6. HISTORY OF ISSUER. Invest more than 5% of its net assets in securities
(other than fully-collateralized debt obligations) issued by companies
that have conducted continuous operations for less than three years,
including the operations of predecessors, unless guaranteed as to
principal and interest by an issuer in whose securities the Fund could
invest.
7. OFFICERS' AND DIRECTORS' HOLDINGS. Invest in or hold securities of any
issuer if officers and Directors of the Company or the Adviser,
individually owning beneficially more than 1/2 of 1% of the securities
of the issuer, in the aggregate own more than 5% of the issuer's
securities.
8. OIL, GAS & MINERAL EXPLORATION. Invest in interests in oil or gas or
interests in other mineral exploration or development programs.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Fund is supervised by the Board of Directors of Questar Funds, Inc (the
"Company"). The Board of Directors consists of five individuals, four of whom
are not "interested persons" of the Fund as that term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The Directors are
fiduciaries for the Fund's shareholders and is governed by the laws of the State
of Maryland in this regard. They establish policies for the operation of the
Company and the Fund and appoint the officers who conduct the daily business of
the Fund. The Directors of the Fund are listed below with their addresses,
present positions with the Company and principal occupations over at least the
last five years. Directors who are interested persons, as defined by the 1940
Act, are indicated by asterisk.
<TABLE>
<CAPTION>
------------------------------------------ --------------------------------------------- ---------------------------
NAME (AGE) AND PRINCIPAL OCCUPATION AND OTHER
ADDRESS BUSINESS EXPERIENCE DURING THE POSITIONS HELD WITH THE
PAST FIVE (5) YEARS COMPANY
------------------------------------------ --------------------------------------------- ---------------------------
------------------------------------------ --------------------------------------------- ---------------------------
<S> <C>
DANIEL ABRAMSON (49) President and Chief Executive Officer, Director
c/o Dunhill Staffing Systems, Inc. Dunhill Staffing Systems, Inc.
150 Motor Parkway (1994-Present), having joined Dunhill in
Hauppauge, NY 11788 1986 as a franchise owner in Providence,
RI. He served as Franchise Advisory
Council President (1990-1992) and is a
member of the National Association of
Personnel Services, a trade organization.
------------------------------------------ --------------------------------------------- ---------------------------
------------------------------------------ --------------------------------------------- ---------------------------
PHILIP A. CAPALONGO (44) Managing Director in Capital Investments Director
211 Mill River Road Partners, an investment banking firm.
Oyster Bay, NY 11771 Prior thereto, he served in a number of
senior management positions at
TeleTechnologies, a technology company, and
Michaels, Edgar & Phillips, an investment
banking firm.
------------------------------------------ --------------------------------------------- ---------------------------
------------------------------------------ --------------------------------------------- ---------------------------
ANTHONY J. HERTL, (50) Colobaugh Pond Chief Financial and Administrative Officer Director
Road for Marymount College, Tarrytown, New York
Croton-on-Hudson, NY 10520 since 1996. Prior thereto, he served in a
number of senior management positions at
Prudential Securities Inc. from 1983-1996.
Mr. Hertl spent ten (10) years at Arthur
Andersen & Co. and is a Certified Public
Accountant.
------------------------------------------ --------------------------------------------- ---------------------------
------------------------------------------ --------------------------------------------- ---------------------------
*MICHAEL MIOLA (48) Chief Executive Officer of American Data Chief Executive Officer,
The Hauppauge Corporate Center Services, Inc. President and
150 Motor Parkway Director
Hauppauge, New York 11788
------------------------------------------ --------------------------------------------- ---------------------------
------------------------------------------ --------------------------------------------- ---------------------------
DONALD SMITH (52) President, Don Smith Realty (1971-1999). Director
Don Smith Realty Director of Avalon Capital, Inc., a
81 North Maple Avenue closed-end investment company.
Ridgewood, NJ 07450
------------------------------------------ --------------------------------------------- ---------------------------
</TABLE>
<PAGE>
In addition to Mr. Miola as Chief Executive Officer and President, the
other officers of the Corporation are Michael Wagner, Treasurer and James
Colantino, Secretary. Each of the officers is employed by the Administrator.
The members of the Audit Committee of the Board of Directors are Messrs.
Hertl, Smith and Abramson. 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
$1,000 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 compensation received by each Director
of the Company during the Fund's fiscal year ending November 30, 1999. Directors
who are interested persons of the Company, as defined by the 1940 Act, are
indicated by asterisk.
<TABLE>
<CAPTION>
---------------------------- --------------------- ------------------ -------------------- ---------------------
(1) (2) (3) (4) (5)
---------------------------- --------------------- ------------------ -------------------- ---------------------
---------------------------- --------------------- ------------------ -------------------- ---------------------
PENSION OR TOTAL COMPENSATION
RETIREMENT ESTIMATED ANNUAL FROM FUND AND FUND
NAME OF PERSON, POSITION AGGREGATE BENEFITS ACCRUED BENEFITS UPON COMPLEX PAID TO
COMPENSATION FROM AS PART OF FUND RETIREMENT DIRECTORS
THE FUND(1) EXPENSES
---------------------------- --------------------- ------------------ -------------------- ---------------------
---------------------------- --------------------- ------------------ -------------------- ---------------------
<S> <C> <C> <C> <C>
Daniel Abramson NONE NONE NONE NONE
Director
---------------------------- --------------------- ------------------ -------------------- ---------------------
---------------------------- --------------------- ------------------ -------------------- ---------------------
Philip A. Capalongo NONE NONE NONE NONE
Director
---------------------------- --------------------- ------------------ -------------------- ---------------------
---------------------------- --------------------- ------------------ -------------------- ---------------------
Anthony Hertl $1,500 NONE NONE $1,500
Director
---------------------------- --------------------- ------------------ -------------------- ---------------------
---------------------------- --------------------- ------------------ -------------------- ---------------------
Donald Smith NONE NONE NONE NONE
Director
---------------------------- --------------------- ------------------ -------------------- ---------------------
---------------------------- --------------------- ------------------ -------------------- ---------------------
*Michael Miola NONE NONE NONE NONE
Director
---------------------------- --------------------- ------------------ -------------------- ---------------------
<FN>
1. The Officers and Directors of the Fund as a group own less than 1%
of all of the Fund's equity securities.
</FN>
</TABLE>
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The investment adviser for the Fund is YaleFunds Management and Research Co. 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 3980 Howard Hughes Parkway, Suite 400, Las Vegas,
NV 89109, serves as investment. The Adviser can also be contacted by telephone
at (702) 307-9898.
CONTROL OF THE ADVISER . The stock of the Adviser is majority owned and
controlled by Mr. Yi Yale Wang.
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 Fund'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 Fund, 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 1.25% of its average daily
net assets. The Adviser may waive a portion of its fees from time to time.
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.
<PAGE>
ADMINISTRATOR
The Administrator for the Fund is American Data Services, Inc. (the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788, and is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York, Denver and Los Angeles.
ADMINISTRATIVE SERVICES. 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.
ADMINISTRATIVE SERVICE AGREEMENT. The Administrative Service Agreement is
terminable by the Board of Directors of the Company or the Administrator on
sixty days' written notice and may be assigned provided the non-assigning party
provides prior written consent. The Agreement shall remain in effect for two
years from the date of its initial approval, and subject to annual approval of
the Board of Directors for one-year periods thereafter. The Agreement provides
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of the Administrator or reckless disregard of its obligations thereunder,
the Administrator shall not be liable for any action or failure to act in
accordance with its duties thereunder.
Under the Administrative Service Agreement, the Administrator provides all
administrative services, including, without limitation: (i) provides services of
persons competent to perform such administrative and clerical functions as are
necessary to provide effective administration of the Fund; (ii) overseeing the
performance of administrative and professional services to the Fund by others,
including the Fund's Custodian; (iii) preparing, but not paying for, the
periodic updating of the Fund's Registration Statement, Prospectus and Statement
of Additional Information in conjunction with Fund counsel, including the
printing of such documents for the purpose of filings with the Securities and
Exchange Commission and state securities administrators, preparing the Fund's
tax returns, and preparing reports to the Fund's shareholders and the Securities
and Exchange Commission; (iv) preparing in conjunction with Fund counsel, but
not paying for, all filings under the securities or "Blue Sky" laws of such
states or countries as are designated by the Distributor, which may be required
to register or qualify, or continue the registration or qualification, of the
Fund and/or its shares under such laws; (v) preparing notices and agendas for
meetings of the Board of Directors and minutes of such meetings in all matters
required by the 1940 Act to be acted upon by the Board; and (vi) monitoring
daily and periodic compliance with respect to all requirements and restrictions
of the Investment Trust Act, the Internal Revenue Code and the Prospectus.
OTHER DUTIES OF ADMINISTRATOR. 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 Trust 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.
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.
<PAGE>
CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Union Bank of California, N.A., serves as custodian for the Fund's cash and
securities (the "Custodian"). Pursuant to a Custodian Agreement, it is
responsible for maintaining the books and records of the Fund's portfolio
securities and cash. The Custodian does not assist in, and is not responsible
for, investment decisions involving assets of the Fund. American Data Services,
Inc., the Administrator, also acts as the Fund's transfer and dividend agent.
DISTRIBUTOR
Pursuant to a Distribution Agreement, AmeriMutual Funds 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
Company, pursuant to Rule 12b-1 under the Act (the "Rule"). The Rule provides
that an investment company which bears any direct or indirect expense of
distributing its shares must do so only in accordance with a plan permitted by
the Rule. The Plan provides that the Fund will compensate the Distributor for
certain expenses and costs incurred in connection with providing marketing and
promotional support to the Fund, shareholder servicing and maintaining
shareholder accounts, to compensate parties with which it has written agreements
and whose clients own shares of the Fund for providing servicing to their
clients ("shareholder servicing") and financial institutions with which it has
written agreements and whose clients are Fund shareholders (each a
"broker-dealer") for providing distribution assistance and promotional support
to the Fund, which is subject to a maximum of 0.25% per annum of the Fund's
average daily net assets. Fees paid under the Plan may not be waived for
individual shareholders.
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.
<PAGE>
The Plan, the shareholder servicing agreements and the form of distribution
agreement each provide that the Adviser or the Distributor may make payments
from time to time from their own resources which may include the advisory fee
and the asset based sales charges and past profits for the following purposes:
(i) to defray the costs of and to compensate others, including financial
intermediaries with whom the Distributor has entered into written agreements,
for performing shareholder servicing and related administrative functions of the
Fund; to compensate certain financial intermediaries for providing assistance in
distributing Fund shares; (ii) to pay the costs of printing and distributing the
Fund's prospectus to prospective investors; and (iii) to defray the cost of the
preparation and printing of brochures and other promotional materials, mailings
to prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's shares. The Distributor will determine the amount
of such payments made pursuant to the Plan with the shareholder servicing agents
and broker-dealers with whom it has contracted, provided that such payments made
pursuant to the Plan will not increase the amount which the Fund is required to
pay the Distributor for any fiscal year under the shareholder servicing
agreements or otherwise.
Shareholder servicing agents and broker-dealers may charge investors a fee in
connection with their use of specialized purchase and redemption procedures
offered to investors by the shareholder servicing agents and broker-dealers. In
addition, shareholder servicing agents and broker-dealers offering purchase and
redemption procedures similar to those offered to shareholders who invest in the
fund directly may impose charges, limitations, minimums and restrictions in
addition to or different from those applicable to shareholders who invest in the
Fund directly. Accordingly, the net yield to investors who invest through
shareholder servicing agents and broker-dealers may be less than realized by
investing in the Fund directly. An investor should read the Prospectus in
conjunction with the materials provided by the shareholder servicing agent and
broker-dealer describing the procedures under which Fund shares may be purchased
and redeemed through the shareholder servicing agent and broker-dealer.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. It is the Fund's position, however,
that banks are not prohibited from 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.
EXPENSES OF THE COMPANY
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.
<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
The Fund's assets are invested by the Adviser in a manner consistent with its
investment objective, 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.
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 benefiting one specific managed fund or account.
Transactions on U.S. stock exchanges, commodities markets and futures markets
and other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. A
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. Transactions in foreign investments
often involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price paid by
the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive brokerage and research services (as defined in the Securities Exchange
Act of 1934, as amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from third parties
with which such broker-dealers have arrangements. Consistent with this practice,
the Adviser may receive brokerage and research services and other similar
services from many broker-dealers with which the Adviser may place the Fund's
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by the Adviser. Where the services referred to above are not
used exclusively by the Adviser for research purposes, the Adviser, based upon
its own allocations of expected use, bears that portion of the cost of these
services which directly relates to their non-research use. Some of these
services are of value to the Adviser and its affiliates in advising several 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.
<PAGE>
As permitted by Section 28(e) of the 1934 Act, the Adviser may cause the Fund to
pay a broker-dealer which provides "brokerage and research services" (as defined
in the 1934 Act) to the Adviser an amount of disclosed commission for effecting
securities transactions on stock exchanges and other transactions for the Fund
on an agency basis in excess of the commission which another broker-dealer would
have charged for effecting that transaction. The Adviser's authority to cause
the Fund to pay any such greater commissions is also subject to such policies as
the Directors may adopt from time to time. The Adviser does not currently intend
to cause any Fund to make such payments. It is the position of the staff of the
Securities and Exchange Commission that Section 28(e) does not apply to the
payment of such greater commissions in "principal" transactions. Accordingly,
the Adviser will use its best effort to obtain the most favorable price and
execution available with respect to such transactions, as described above.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Directors may determine, the Adviser
may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
TAXATION
The Fund intends to qualify each year as a "Regulated Investment Company" under
Subchapter M of the 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.
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.
<PAGE>
Any redemption of the Fund shares is a taxable event and may result in a capital
gain or loss. A capital gain or loss may be realized from an ordinary redemption
of shares.
Dividend distributions, capital gains distributions, and capital gains or losses
from redemptions and exchanges may also be subject to state and local taxes.
Ordinarily, distributions and redemption proceeds paid to Fund shareholders are
not subject to withholding of federal income tax. However, 31% of the Fund's
distributions and redemption proceeds must be withheld if a Fund shareholder
fails to supply the Fund or its agent with such shareholder's taxpayer
identification number or if the Fund shareholder who is otherwise exempt from
withholding fails to properly document such shareholder's status as an exempt
recipient.
The information above is only a summary of some of the tax considerations
generally affecting the Fund and its shareholders. No attempt has been made to
discuss individual tax consequences. To determine whether the Fund is a suitable
investment based on his or her tax situation, a prospective investor may wish to
consult a tax advisor.
OWNERSHIP OF SHARES
Each share has one vote in the election of Directors. Cumulative voting is not
authorized. This means that the holders of more than 50% of the shares voting
for the election of Directors can elect 100% of the Directors if they choose to
do so, and, in that event, the holders of the remaining shares will be unable to
elect any Directors.
PURCHASE OF SHARES
Shares of the Fund may be purchased at the net asset value per share next
determined after receipt of an order by the Fund's Distributor in proper form
with accompanying check or other bank wire payment arrangements satisfactory to
the Fund. The Fund's minimum initial investment is $5,000 (except for Uniform
Gift or Trust to Minor Accounts ("UTMA and UGMA Accounts") for which the minimum
is $500 and individual retirement accounts for which the minimum initial
investment is $1,000) and the minimum subsequent investment is $100 (and $50 for
UGMA and UTMA accounts).
DIVIDENDS AND DISTRIBUTIONS
Net investment income, if any, is declared as dividends and paid annually.
Substantially all the realized net capital gains for the Fund, if any, are also
declared and paid on an annual basis. Dividends and distributions are payable to
shareholders of record at the time of declaration.
Distributions are automatically reinvested in additional Fund shares unless the
shareholder has elected to have them paid in cash.
The net investment income of the Fund for each business day is determined
immediately prior to the determination of net asset value. Net investment income
for other days is determined at the time net asset value is determined on the
prior business day. See "Purchase of Shares" and "Redemption of Shares" in the
Prospectus.
NET ASSET VALUE
The method for determining the Fund's net asset value is summarized in the
Prospectus in the text following the heading "Valuation of Shares." The net
asset value of the Fund's shares is determined on each day on which the New York
Stock Exchange is open, provided that the net asset value need not be determined
on days when no Fund shares are tendered for redemption and no order for Fund
shares is received. The New York Stock Exchange is not open for business on the
following holidays (or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
<PAGE>
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).
Because the Fund has not had a registration in effect for 1, 5 or 10 years, the
period during which the registration has been effective shall be substituted.
Average annual total return is calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period and then calculating the annual compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual total return of 7.18%, which is
the steady annual rate that would result in 100% growth on a compounded basis in
10 years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Performance information may be quoted numerically or in a table, graph,
or similar illustration.
The Fund's performance may be compared with the performance of other funds with
comparable investment objectives, tracked by fund rating services or with other
indexes of market performance. Sources of economic data that may be considered
in making such comparisons may include, but are not limited to, rankings of any
mutual fund or mutual fund category tracked by Lipper Analytical Services, Inc.
or Morningstar, Inc.; data provided by the Investment Company Institute; major
indexes of stock market performance; and indexes and historical data supplied by
major securities brokerage or investment advisory firms. The Fund may also
utilize reprints from newspapers and magazines furnished by third parties to
illustrate historical performance.
The agencies listed below measure performance based on their own criteria rather
than on the standardized performance measures described in the preceding
section.
<PAGE>
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's for periods such as year-to-date, 1-year, 3-year, 5-year and
10-year. Mutual funds are ranked in general categories (e.g., international
bond, international equity, municipal bond, and maximum capital gain).
Weisenberger rankings do not reflect deduction of sales charges or fees.
Independent publications may also evaluate the Fund's performance. The Fund may
from time to time refer to results published in various periodicals, including
Barrons, Financial World, Forbes, Fortune, Investor's Business Daily,
Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The
Wall Street Journal.
REDEMPTION OF SHARES
Redemption of shares, or payment for redemptions, may be suspended at times (a)
when the New York Stock Exchange is closed for other than customary weekend or
holiday closings, (b) when trading on said Exchange is restricted, (c) when an
emergency exists, as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable, or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.
Shareholders who purchased shares through a broker-dealer other than the
Distributor may also redeem such shares by written request to the Transfer Agent
which shares are held by the Transfer Agent at the address set forth in the
Prospectus. To be considered in "good order", written requests for redemption
should indicate the dollar amount or number of shares to be redeemed, refer to
the shareholder's Fund account number, including either the social security or
tax identification number. The request should be signed in exactly the same way
the account is registered. If there 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, Directors and custodians. Redemption requests given by
facsimile will not be accepted. Unless other instructions are given in proper
form, a check for the proceeds of the redemption will be sent to the
shareholder's address of record.
Share purchases and redemptions are governed by Maryland law.
<PAGE>
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 auditors for the Fund.
OTHER INFORMATION
The Adviser has been continuously registered with the Securities Exchange
Commission (SEC) under the 1940 Act since January 14, 2000. 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.
<PAGE>
C5
APPENDIX
SECURITY RATINGS
The following rating services describe rated securities as follows:
MOODY'S INVESTORS SERVICE, INC.
BONDS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds, which are rated B generally, lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
<PAGE>
STANDARD & POOR'S
BONDS
AAA--Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated 'A' has a strong capacity to pay interest and repay principal
although somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC-C--Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB--Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B--Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC--Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
<PAGE>
PART C
----------------- --------------------------------------------------------------
ITEM 23.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(a) Articles of Incorporation (See Note 1)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(b) Bylaws (See Note 1)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(c) Not Applicable.
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(d)(1) Investment Advisory Agreement (Imperial Financial Services
Fund) (See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(d)(2) Form of Investment Advisory Agreement (Aii Aggressive Trading
Fund) (See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(d)(3) Form of Investment Advisory Agreement (MacroTrends Fund;
Pheonix Management Fund; and Kaminski Poland Fund)(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(e) Form of Distribution Agreement (See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(f) Not Applicable.
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(g) Form of Custody Agreement (See Note 4)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(h) Administrative Service Agreement (Imperial Financial Services
Fund) (Aii Aggressive Trading Fund (See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(h)(1) Form of Administrative Service Agreement (MacroTrends Fund;
Pheonix Management Fund; Kaminski Poland Fund) (See Note 4)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(h)(2) Form of Transfer Agency Agreement (See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(i) Opinion of Spitzer & Feldman P.C. as to the legality of the
securities being registered, including their consent to the
filing thereof and as to the use of their names in the
Prospectus (Imperial Financial Services Fund)(See Note 1)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(i)(1) Consent of Spitzer & Feldman P.C. (Aii Aggressive Trading
Fund)(See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(i)(2) Consent of Spitzer & Feldman P.C. (MacroTrends Fund)
(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(i)(3) Consent of Spitzer & Feldman P.C. (Pheonix Manqgement Fund)
(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(i)(4) Consent of Spitzer & Feldman P.C. (Kaminski Poland Fund)
(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(j) Consent of McCurdy & Associates, CPAs, Inc., independent
auditors (Imperial Financial Services Fund) (See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(j)(1) Consent of McCurdy & Associates (Aii Aggressive Trading Fund)
(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(j)(2) Consent of McCurdy & Associates (MacroTrends Fund)(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(j)(3) Consent of McCurdy & Associates (Pheonix Management Fund)
(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(j)(4) Consent of McCurdy & Associates (Kaminski Poland Fund)
(See Note 3)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(k) Not Applicable.
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(l) Subscription Letter (See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(m) Distribution (12b-1) Plan (Imperial Financial Services Fund)
(See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(m)(1) Distribution (12b-1) Plan ((Aii Agressive Trading Fund)
(See Note 2)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(m)(2) Distribution (12b-1) Plan (MacroTrends Fund; Pheonix
Management Fund; and Kaminski Poland Fund)(See Note 4)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(n) Not Applicable.
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
(n) Rule 18f-3 Plan (See Note 4)
----------------- --------------------------------------------------------------
----------------- --------------------------------------------------------------
Other Exhibits Not Applicable
----------------- --------------------------------------------------------------
<PAGE>
Notes to Exhibits:
(1) Filed with the Securities and Exchange Commission as an Exhibit to the
Registrant's Registration Statement (Reg. No. 333-46323) on February 13,
1998.
(2) Filed with the Securities and Exchange Commission as an Exhibit to
Pre-Effective Amendment No. 2 to the Registration Statement (Reg. No.
333-46323) on January 25, 1999.
(3) Filed with the Securities and Exchange Commission as an Exhibit to
Post-Effective Amendment No. 4 to the Registration Statement (Reg. No.
333-46323) on December 10, 1999.
(4) To Be Filed by Future Amendment
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable
ITEM 25. INDEMNIFICATION.
(a) In accordance with Section 2-418 of the General Corporation
Law of the State of Maryland, Article NINTH of the Registrant's
Articles of Incorporation provides as follows:
"NINTH:(1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the
Corporation or at its request any other entity, to the fullest
extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the fullest extent permitted
by law, and (ii) other employees and agents to such extent as
shall be authorized by the Board of Directors or the By-Laws and
as permitted by law. Nothing contained herein shall be construed
to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The foregoing rights of
indemnification shall not be exclusive of any other rights to
which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such by-laws, resolutions or
contracts implementing such provisions or such indemnification
arrangements as may be permitted by law. No amendment of the
charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the right of indemnification provided
hereunder with respect to acts or omissions occurring prior to
such amendment or repeal.
<PAGE>
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment
Company Act of 1940, no director or officer of the Corporation
shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that nothing herein shall
be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment
or repeal."
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
(a) Retirement Planning Company of New England, Inc. serves as investment
adviser to Imperial Financial Services Fund. The description of
Retirement Planning Company of New England, Inc., under the Caption
"Management - The Adviser" and "Management - The Adviser" in the
Prospectus and Statement of Additional Information, constituting
certain of Parts A and B, respectively, of this Registration
Statement, are incorporated by reference herein.
Retirement Planning Company of New England, Inc. is: One Richmond Square,
Providence, RI 02906. The following are the directors and officers of Retirement
Planning Company of New England, Inc., including any business connections of a
substantial nature that they have had in the past two years. Unless other
indicated, the address of any other business connection is also: One Richmond
Square, Providence, RI 02906. Set forth below are the names of the directors and
officers of the Adviser:
---------------------- ----------------------------- ---------------------------
NAME TITLE BUSINESS CONNECTION
---------------------- ----------------------------- ---------------------------
---------------------- ----------------------------- ---------------------------
David W. Allaire President, CEO, and Director
---------------------- ----------------------------- ---------------------------
---------------------- ----------------------------- ---------------------------
Michael R. Laliberte CFO and Director
---------------------- ----------------------------- ---------------------------
(b) Pheonix Investment Management, Inc. serves as investment adviser to
the Pheonix Management Fund. The description of Pheonix Investment
Management, Inc., under the Caption "Management - The Adviser" and
"Management - The Adviser" in the Prospectus and Statement of
Additional Information, constituting certain of Parts A and B,
respectively, of this Registration Statement, are incorporated by
reference herein.
The address of Pheonix Investment Management, Inc. is: 2090 Palm Beach
Lakes Blvd., Suite 700, West Palm Beach, FL 33409. The following are the
directors and officers of Pheonix Investment Management, Inc., including any
business connections of a substantial nature that they have had in the past two
years. Unless other indicated, the address of any other business connection is
also: 2090 Palm Beach Lakes Blvd., Suite 700, West Palm Beach, FL 33409. .
--------------------- -------------------------- -------------------------------
NAME TITLE BUSINESS CONNECTION
--------------------- -------------------------- -------------------------------
--------------------- -------------------------- -------------------------------
Michael W. Burnick President and CEO Pheonix Investments, Inc.
--------------------- -------------------------- -------------------------------
--------------------- -------------------------- -------------------------------
Michael S. Robinson Executive Vice-president Contractors Success Group,
Brentwood, TN ; Service
Experts, Inc., Brentwood, TN
--------------------- -------------------------- -------------------------------
--------------------- -------------------------- -------------------------------
Thomas D. Abrams Director Pheonix Investments, Inc.
(2/97 - Present); Capital
Research Corp. (2/97 - 6/98)
--------------------- -------------------------- -------------------------------
(c) Yale Research and Management Co., Inc., serves as investment adviser
to MacroTrends Funds. The description of Yale Research and Management
Co., Inc., under the Caption "Management - The Adviser" and
"Management - The Advisor" in the Prospectus and Statement of
additional Information, constituting certain of Parts A and B,
respectively, of this Registration Statement, are incorporated by
reference herein.
<PAGE>
The address of YaleFunds Management and Research Co. is 3980 Howard
Hughes Parkway, Suite 400, Las Vegas, NV 89109. The following are the directors
and officers YaleFunds Management and Research Co., including any business
connections of a substantial nature that they have had in the past two years.
Unless other indicated, the address of any other business connection is also
3980 Howard Hughes Parkway, Suite 400, Las Vegas, NV 89109.
----------------- ------------ --------------------------------------
NAME TITLE BUSINESS CONNECTION
----------------- ------------ --------------------------------------
----------------- ------------ --------------------------------------
Yi Yale Wang President American Fronteer Financial Corp.
3800 Paradise Road, Las Begas, NV
89109 (3/98 - 8/99);
Presidential Brokerage, Inc. 3753
Howard Hughes Pkwy, Las Vegas, NV
89109 (3/97 - 3/98)
----------------- ------------ --------------------------------------
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The principal underwriter of the Company's shares, AmeriMutual
Funds Distributors, Inc., currently acts as a principal underwriter,
depositor or investment adviser for the following other investment
companies:
iMillennium Capital Trust
AmeriMutual Funds Distributors, Inc., is registered with the Securities
and Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers. AmeriMutual Funds
Distributors, Inc., is an indirect wholly-owned subsidiary of Orbitex
Financial Services Group, Inc.
(b) The following table contains information with respect to each
director, officer or partner AmeriMutual Funds Distributors, Inc.:
<TABLE>
<CAPTION>
----------------------------- ---------------------------- --------------------------------
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
BUSINESS ADDRESS* UNDERWRITER REGISTRANT
---------------- ----------- ----------
----------------------------- ---------------------------- --------------------------------
----------------------------- ---------------------------- --------------------------------
<S> <C> <C>
Christopher Klutch Director, President, CEO None
----------------------------- ---------------------------- --------------------------------
----------------------------- ---------------------------- --------------------------------
Vali Nasr General Principal, Financial None
and Operations Principal
----------------------------- ---------------------------- --------------------------------
----------------------------- ---------------------------- --------------------------------
Nathan O'Steen Vice President, General None
Principal, Chief Compliance
Officer
----------------------------- ---------------------------- --------------------------------
----------------------------- ---------------------------- --------------------------------
Richard E. Stierwalt Director, Chief Operations None
Officer
----------------------------- ---------------------------- --------------------------------
<FN>
* Unless otherwise indicated, all addresses are: The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, NY 11788
</FN>
</TABLE>
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Company required to be maintained by Section
31(a) of the 1940 Act and the rules promulgated thereunder are located, in whole
or in part, at the office of the Administrator, American Data Services, Inc.,
The Hauppauge Corporate Center, 150 Motor Parkway, Hauppauge, New York 11788 and
custodial records which are maintained at the offices of the Custodian for the
Imperial Financial Services Fund at Firstar Bank, N.A. at 615 East Michigan
Street, Milwaukee, Wisconsin 53202 and at the offices of the Custodian for
MacroTrends Fund and Phoenix Management Fund at Union Bank of California, N.A.
at 350 California Street, San Francisco California 94104.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
<PAGE>
A- 7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Hauppauge and State of New York, on the 27th day of June, 2000.
QUESTAR FUNDS, INC.
By:/S/ MICHAEL MIOLA
-----------------
Michael Miola, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
/S/ MICHAEL MIOLA Director, Chairman of the June 27, 2000
----------------- Board and Chief Executive Officer
Michael Miola
/S/ DANIEL ABRAMSON Director June 27, 2000
-------------------
Daniel Abramson
/S/ PHILIP CAPALONGO Director June 27, 2000
--------------------
Philip Capalongo
/S/ ANTHONY HERTL Director June 27, 2000
-----------------
Anthony Hertl
/S/ DONALD SMITH Director June 27, 2000
----------------
Donald Smith
The above persons signing as Directors are all of the members of the Company's
Board of Directors.
