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THE MILLENNIUM RHIM FUNDS, INC.
THE MILLENNIUM GROWTH FUND
THE MILLENNIUM GROWTH & INCOME FUND
This Prospectus sets forth basic information about each of The Millennium Growth
Fund and The Millennium Growth & Income Fund that prospective investors should
know before investing. It should be read and retained for future reference. Each
Fund is a separate series of The Millennium RHIM Funds, Inc., an open-end
registered management investment company incorporated under the laws of the
State of Maryland. A Statement of Additional Information ("SAI") dated June 17,
1998, as may be amended from time to time, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. This Statement
of Additional Information is available without charge upon request by calling
the Fund at (800) 535-9169. The SEC maintains an Internet site
(http://www.sec.gov) that contains the SAI, other material incorporated by
reference and other information about companies that file electronically with
the SEC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus
June 17, 1998
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TABLE OF CONTENTS
Expense Table ....................................................... 3
Financial Highlights................................................. 5
Investment Objective and Policies ....................................6
Other Investment Techniques.......................................... 7
Management of the Funds...............................................9
Investor Guide ......................................................10
How to Purchase Shares of Each Fund..................................11
Services Available to Shareholders...................................13
How to Redeem Your Shares............................................14
Distributions and Taxes..............................................16
General Information..................................................17
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The Millennium RHIM Funds, Inc.
303 Twin Dolphin Drive, Suite 530
Redwood Shores, CA 94065
Fund Literature and
Shareholder Services (800) 535-9169
The Millennium Growth Fund (the "Growth Fund") is a mutual fund with the
investment objective of growth of capital. The Millennium Growth & Income Fund
(the "Growth & Income Fund") is a mutual fund with the investment objective of
growth of capital and dividend income. Each Fund attempts to achieve its
objective by investing in equity securities. See "Investment Objective and
Policies." There can be no assurance that either Fund will achieve its
investment objective.
EXPENSE TABLE
Expenses are one of several factors to consider when investing in a Fund. There
are two types of expenses involved: shareholder transaction expenses, such as
sales loads, and annual operating expenses, such as investment advisory fees.
Each Fund is a no-load mutual fund and has no shareholder transaction expenses.
Annual Operating Expenses Growth &
(As a percentage of average Growth Income
net assets) Fund Fund*
---- -----
Investment Advisory Fees 0.95% 0.95%
Other Expenses (after expense
reimbursement) 0.50% 0.50%
----- -----
Total Fund Operating Expenses (after expense
reimbursement) 1.45% 1.45%
===== =====
The purpose of the above fee table is to provide an understanding of the various
annual operating expenses which may be borne directly or indirectly by an
investment in each Fund. Actual expenses may be more or less than those shown.
Each Fund's total operating expenses are not expected to exceed 1.45% of average
net assets annually, but in the event that they do, the Advisor has agreed to
reduce
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*Estimated
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its fees to insure that the expenses for a Fund will not exceed 1.45%. "Other
Expenses" in the above table have been estimated for the first fiscal year of
the Growth & Income Fund. If the Advisor did not limit a Fund's expenses, it is
expected that "Other Expenses" in the above table would be 1.45% and "Total
Operating Expenses" would be 2.40%. If the Advisor does waive any of its fees,
each Fund may reimburse the Advisor in future years. See "Management of the
Funds."
Example
This table illustrates the net operating expenses that would be incurred by an
investment in each Fund over different time periods assuming a $1,000
investment, a 5% annual return, and redemption at the end of each time period.
Growth Fund Growth & Income Fund
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1 Year $15 $15
3 Years $46 $46
The Example shown above should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. In
addition, federal regulations require the Example to assume a 5% annual return,
but a Fund's actual return may be higher or lower. See "Management of the
Funds."
The minimum initial investment in each Fund is $2,500, with subsequent minimum
investments of $100 or more ($1,000 and $100, respectively, for retirement
plans). Shares will be redeemed at their net asset value.
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FINANCIAL HIGHLIGHTS
The Millennium Growth Fund
The following financial information is provided solely with respect to The
Millennium Growth Fund, is based upon financial information contained in the
Semi-Annual Report to Shareholders (Unaudited) and relates solely to the
Ridgeway Helms Millennium Fund, the predecessor fund to the Growth Fund, which
was reorganized into the Growth Fund on June 17, 1998.
For a capital share outstanding throughout the period (Unaudited)
July 16, 1997* through December 31, 1997
Net asset value, beginning of period $10.00
Loss from investment operations:
Net investment loss (0.04)
Net realized and unrealized gain
on investments (1.02)
Total from investment operations (1.06)
Net asset value, end of period $ 8.94
Total Return (10.60%)**
Ratios/supplemental data:
Net assets, end of period (thousands) $6,439
Ratio of expenses to average net assets:
Before expense reimbursement 2.73%***
After expense reimbursement 1.45%***
Ratio of net investment loss to average net assets:
Before expense reimbursement (2.07%)***
After expense reimbursement (0.78%)***
Portfolio turnover rate 70.13%
Average commission rate paid per share $0.0285
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* Commencement of operations.
** Not Annualized.
***Annualized.
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INVESTMENT OBJECTIVE AND POLICIES
The Millennium Growth Fund
What is the Growth Fund's investment objective? The investment objective of the
Growth Fund is to seek growth of capital. There can be no assurance that the
Growth Fund will achieve its objective.
How does the Growth Fund seek to achieve its objective? Millennium Capital
Advisors, Inc. (the "Advisor") selects equity securities for the Growth Fund's
portfolio that it believes are experiencing, or have the potential to
experience, growth in earnings that exceed the average growth rate of companies
within the Standard & Poor's 500 Composite Stock Price Index. The Advisor will
also consider the relationship between the price/earnings ratio of the security
and its expected growth rate.
The Millennium Growth & Income Fund
What is the Growth & Income Fund's investment objective? The investment
objective of the Growth & Income Fund is to seek growth of capital and dividend
income. There can be no assurance that the Growth & Income Fund will achieve its
objective.
How does the Growth & Income Fund seek to achieve its objective? The Advisor
selects equity securities for the Growth & Income Fund's portfolio that it
believes are experiencing, or have the potential to experience, growth in
earnings that exceed the average growth rate of companies within the Standard &
Poor's 500 Composite Stock Price Index and that will provide dividend income.
The Advisor will consider the relationship between the price/ earnings ratio of
the security and its expected growth rate.
What are the investment policies of each Fund? In seeking investments for each
Fund, the Advisor's primary emphasis is on evaluating a company's management,
growth prospects, business operations, competitive forces, revenues, earnings,
cash flow and balance sheet in relation to its share price. The Advisor may
select stocks which it believes offer substantial growth in any or all of the
above criteria and/or stocks which it believes are undervalued relative to its
current price.
Each Fund will invest in small, medium and large companies; the minimum market
capitalization of a portfolio security is expected to be $25 million. A small
company is considered to be one which has a market capitalization of less than
$500 million at the time of investment. Currently, the Advisor expects
approximately 20% of the Growth Fund's portfolio to be invested in small
companies, but the Advisor could invest up to two-thirds of such Fund's assets
in stocks of small companies. The Advisor expects that no more than 20% of the
Growth & Income Fund's portfolio will be invested in small companies. To the
extent that either Fund does invest in small capitalization stocks, there is the
risk that its portfolio will be less marketable and may be subject to greater
fluctuations in price than a
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portfolio holding stocks of larger issuers. Small capitalization stocks often
pay no dividends, but contrary to the investment goal of the Growth & Income
Fund, income is not a primary goal of the Growth Fund. The Advisor does not
expect either Fund's annual turnover rate to exceed 100%.
There is, of course, no assurance that each Fund's objective will be achieved.
Because prices of common stocks and other securities fluctuate, the value of an
investment in each Fund will vary as the market value of its investment
portfolio changes.
Other securities a Fund might purchase. Under normal market conditions, each
Fund will invest at least 85% of its total assets in equity securities,
consisting of common stocks and securities having the characteristics of common
stocks, such as convertible securities, rights and warrants. If the Advisor
believes that market conditions warrant a temporary defensive posture, each Fund
may invest without limit in high quality, short-term debt securities and money
market instruments. These short-term debt securities and money market
instruments include commercial paper, certificates of deposit, bankers'
acceptances, U.S. Government securities and repurchase agreements. More
information about these investments is contained in the SAI.
OTHER INVESTMENT TECHNIQUES
Options on Securities and Securities Indices. Each Fund may buy call options on
securities in order to fix the cost of a future purchase or to attempt to
enhance return. Each Fund may buy put options on securities to hedge against a
decline in the value of securities it owns. Each Fund may also write (sell) put
and covered call options on securities in which it is authorized to invest. Each
Fund may also purchase and write options on U.S. securities indices. Options
transactions will be entered into for hedging purposes and not for speculation.
A Fund's ability to use these instruments successfully will depend on an
investment manager's ability to predict accurately movements in the prices of
securities, interest rates and the securities markets. There is no assurance
that liquid secondary markets for options will always exist, and the correlation
between hedging instruments and the securities or sectors being hedged may be
imperfect. The requirement to cover obligations may impede portfolio management
or the ability to meet redemption requests.
Lending Securities. To increase its income, each Fund may lend securities from
its portfolio to brokers, dealers and other financial institutions. No more than
one-third of a Fund's total assets may be loaned. Each Fund's loans of portfolio
securities will be collateralized at all times by high quality liquid
securities. Under the present regulatory requirements which govern loans of
portfolio securities, the loan collateral must, on each business day, at least
equal the value of the loaned securities and must consist of cash, letters of
credit of domestic banks or domestic branches of foreign banks, or securities of
the U.S. Government or its agencies. To be acceptable as collateral, letters of
credit must obligate a bank to pay amounts demanded by a Fund if the demand
meets the terms of the letter. Such terms and the issuing bank would have to be
satisfactory to each Fund. Any loan might be secured by any one or more of the
three types of collateral. The terms of each Fund's loans must permit the Fund
to reacquire loaned securities on five days' notice or in time to vote on any
serious matter and must meet certain tests under the Internal Revenue Code of
1986 (the "Code").
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Selling Short. Each Fund may sell securities short by borrowing securities it
does not own and selling them. A Fund is then obligated to replace the
securities borrowed by purchasing them at the market price at the time of
replacement. If the securities sold short increase in value between the time of
sale and the time a Fund purchases them, the Fund will incur a loss. On the
other hand, if the securities decline in value, a Fund may repurchase them at a
lower price and realize a profit. There are limits on the extent to which each
Fund may engage in short sales, as described in the SAI.
Borrowing Money. Each Fund may borrow money from banks for leverage, up to
one-third of its total assets. The use of borrowing by a Fund involves special
risk considerations that may not be associated with other funds having similar
objectives and policies. Since substantially all of each Fund's assets fluctuate
in value, whereas the interest obligation resulting from a borrowing will be
fixed by the terms of the Fund's agreement with its lender, the asset value per
share of each Fund will tend to increase more when its portfolio assets decrease
in value than would otherwise be the case if the Fund did not borrow funds. In
addition, interest costs on borrowings may fluctuate with changing market rates
of interest and may partially offset or exceed the return earned on borrowed
funds. Under adverse market conditions, a Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales. Each Fund is required to
segregate high quality liquid assets with its custodian equal to the amount it
has borrowed.
Investment restrictions. Each Fund has adopted certain investment restrictions,
which are described fully in the SAI. Like each Fund's investment objective,
certain of these restrictions are fundamental and may be changed only by a
majority vote of such Fund's outstanding shares. As a fundamental policy, each
Fund is a non-diversified fund, which may involve greater risks and volatility
than would be found in a diversified fund.
MANAGEMENT OF THE FUNDS
The Board of Directors of the Company establishes each Fund's policies and
supervises and reviews the management of each Fund.
The Advisor. Millennium Capital Advisors, Inc. (the "Advisor"), 303 Twin Dolphin
Drive, Suite 530, Redwood Shores, California 94065, was organized under the laws
of the State of California and registered as an investment advisor with the
Securities and Exchange Commission in 1995 to provide advice to affiliated
mutual funds and similar investment products. The Advisor, acting through its
advisory affiliate, Ridgeway Helms Securities Corporation, has provided asset
management services to individuals and institutional investors since June, 1995.
Robert A. Dowlett and N. Joseph Nahas are principally responsible for the
management of each Fund's portfolio. Mr. Dowlett (who controls the Advisor) is
the President of the Advisor and has been active in the investment field
professionally for the past five years. Prior to founding the Advisor, he was a
financial consultant and guided portfolio manager with Smith Barney Inc. Mr.
Nahas has also been active professionally in the investment field for the past
five years. Prior to joining the Advisor
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as First Vice President in August, 1996, he was First Vice President -
Investments of Round Hill Securities (since November, 1994) and prior to that a
financial consultant and guided portfolio manager with Smith Barney Inc.
The Advisor provides each Fund with advice on buying and selling securities,
manages the investments of each Fund, furnishes the Funds with office space and
certain administrative services, and provides most of the personnel needed by
each Fund. As compensation, each Fund pays the Advisor a monthly management fee
based upon the average daily net assets of such Fund at the annual rate of
0.95%.
The Administrator. American Data Services, Inc. (the "Administrator") prepares
various federal and state regulatory filings, reports and returns for each Fund,
prepares reports and materials to be supplied to the directors, monitors the
activities of the Funds' custodian, shareholder servicing agent and accountants,
and coordinates the preparation and payment of Fund expenses and reviews each
Fund's expense accruals. For its services, the Administrator receives a monthly
fee from each Fund at the annual rate of 0.35% based upon the average daily net
assets of each Fund.
Other operating expenses. Each Fund is responsible for its own operating
expenses, including but not limited to, the advisory and administration fees;
custody, record keeping and shareholder servicing agent fees; legal and auditing
expenses; federal and state registration fees; and fees to the Company's
disinterested directors. The Advisor may reduce its fees or reimburse a Fund for
expenses at any time in order to reduce the Fund's expenses. Reductions made by
the Advisor in its fees or payments or reimbursements of expenses that are a
Fund's obligation are subject to reimbursement by the Fund provided the Fund is
able to do so and remain in compliance with any applicable expense limitations.
Brokerage transactions. The Advisor considers a number of factors in determining
which brokers or dealers to use for each Fund's portfolio transactions. While
these are more fully discussed in the SAI, the factors include, but are not
limited to, the reasonableness of commissions, quality of services and
execution, and the availability of research which the Advisor may lawfully and
appropriately use in its investment advisory capacities. Provided a Fund
receives prompt execution at competitive prices, the Advisor may also consider
the sale of Fund shares as a factor in selecting broker-dealers for each Fund's
portfolio transactions. Subject to overall requirements of obtaining the best
combination of price and execution on a particular transaction, each Fund may
place portfolio transactions through Ridgeway Helms Securities Corporation, an
affiliate of the Advisor, in accordance with procedures adopted by the Board of
Directors.
INVESTOR GUIDE
How to purchase shares of each Fund. There are several ways to purchase shares
of a Fund. An Application Form, which accompanies this Prospectus, is used if
you send money directly to the Fund by mail or by wire. If you have questions
about how to invest, or about how to complete the Application Form, please call
an account representative at (800) 535-9169. Ridgeway Helms Securities
Corporation, 303 Twin Dolphin Drive, Redwood Shores, California 94065, an
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affiliate of the Advisor, is the principal underwriter ("Distributor") of each
Fund's shares.
You may send money to each Fund by mail. If you wish to invest by mail, simply
complete the Application Form and mail it with a check (made payable to The
Millennium (insert name) Fund) to the Fund's Shareholder Servicing Agent,
American Data Services, Inc. at the following address:
The Millennium (insert name) Fund
P.O. Box 640947
Cincinnati, OH 45264-0947
You may wire money to a Fund. Before sending a wire, you should call the
appropriate Fund you wish to purchase at (800) 535-9169 between 9:00 a.m. and
5:00 p.m., Eastern time, on a day when the New York Stock Exchange ("NYSE") is
open for trading, in order to receive an account number. It is important to call
and receive this account number, because if your wire is sent without it or
without the name of the appropriate Fund, there may be a delay in investing the
money you wire. You should then ask your bank to wire money to:
Star Bank, N.A. Cinti/Trust
ABA # 0420-0001-3
for credit to The Millennium (insert name) Fund
DDA # 486479777 for
further credit to [your name and account number]
Each Fund will charge you a $10.00 wire fee. In addition, your bank may charge
you a fee for sending a wire to a Fund.
You may purchase shares through an investment dealer. You may be able to invest
in shares of a Fund through an investment dealer, if the dealer has made
arrangements with the Distributor. The dealer may place an order for you with
each Fund; the price you will pay will be the net asset value which is next
calculated after receipt of the order from the dealer. It is the responsibility
of the dealer to place your order promptly. A dealer may charge you a fee for
placing your order, but you could avoid paying such a fee by sending an
Application Form and payment directly to the appropriate Fund. The dealer may
also hold the shares you purchase in its omnibus account rather than in your
name in the records of each Fund's transfer agent. Each Fund may reimburse the
dealer for maintaining records of your account as well as for other services
provided to you.
Your dealer is responsible for sending your money to each Fund promptly after
placing the order to purchase shares, and the Fund may cancel the order if
payment is not received from the dealer promptly.
Minimum investments. The minimum initial investment in each Fund is $2,500. The
minimum subsequent investment is $100. However, if you are investing in an
Individual Retirement Account ("IRA"), or you are starting an Automatic
Investment Plan (see below), the minimum initial and
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subsequent investments are $1,000 and $100, respectively.
Subsequent investments. You may purchase additional shares of a Fund by sending
a check, with the stub from an account statement, to the appropriate Fund at the
address above. Please also write your account number on the check. (If you do
not have a stub from an account statement, you can write your name, address and
account number on a separate piece of paper and enclose it with your check.) If
you want to send additional money for investment by wire, it is important for
you to call the Fund at (800) 535-9169. You may also make additional purchases
through an investment dealer, as described above.
When is money invested in a Fund? Any money received for investment in a Fund
from an investor, whether sent by check or by wire, is invested at the net asset
value of the Fund which is next calculated after the money is received (assuming
the check or wire correctly identifies the appropriate Fund and account). Orders
received from dealers are invested at the net asset value next calculated after
the order is received. The net asset value is calculated at the close of regular
trading of the NYSE, currently 4:00 p.m., Eastern time. A check or wire received
after the NYSE closes is invested as of the next calculation of each Fund's net
asset value.
What is the net asset value of a Fund? Each Fund's net asset value per share is
calculated by dividing the value of the Fund's total assets, less its
liabilities, by the number of its shares outstanding. In calculating the net
asset value, portfolio securities are valued using current market values, if
available. Securities for which market quotations are not readily available are
valued at fair values determined in good faith by or under the supervision of
the Board of Directors of the Company. The fair value of short-term obligations
with remaining maturities of 60 days or less is considered to be their amortized
cost.
Other information. The Distributor may waive the minimum investment requirements
for purchases by certain group or retirement plans. All checks must be drawn on
U.S. banks. Third party checks will not be accepted. A charge may be imposed if
a check used to make an investment does not clear. Each Fund and the Distributor
reserve the right to reject any investment, in whole or in part. Federal tax law
requires that investors provide a certified taxpayer identification number and
other certifications on opening an account in order to avoid backup withholding
of taxes. See the Application Form for more information about backup
withholding. A Fund is not required to issue share certificates; all shares are
normally held in non-certificated form on the books of the Fund, for the account
of the shareholder. Each Fund may, under certain circumstances, accept
investments of securities appropriate for the Fund's portfolio, in lieu of cash.
Prior to making such a purchase, you should call the Advisor to determine if
such an investment may be made.
Special Purchase Privilege (Growth & Income Fund only).
Commencing with the date of this prospectus and extending for a period not to
exceed 30 days thereafter, investors may be permitted to transfer the shares
that they own of the common stocks of certain registered companies determined to
be appropriate to be held in the portfolio of the Growth & Income Fund (such
determination to be in the absolute and sole discretion
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of the Advisor) in exchange for shares of the Fund. Internal Revenue Code
Section 351(a) provides the circumstances under which such an exchange will
result in a non-taxable transaction for an investor. The Advisor will endeavor
to ensure that favorable tax treatment will be passed on to investors purchasing
shares of the Fund by means of such an exchange of common stocks; however, the
Advisor does not guarantee that each of the conditions in Section 351(a) will be
necessarily met. If shares of common stock are transferred to the Growth &
Income Fund to purchase shares of the Fund without gain or loss recognition to
the investor, the investor's basis and holding period in the common stocks
carries over to the Fund and, as a result, subsequent investors purchasing
shares of the Fund, after the completion of such exchange transactions, will be
purchasing Fund shares at a public purchase price that includes unrealized gain
or loss in the Fund's net asset value.
SERVICES AVAILABLE TO SHAREHOLDERS
Retirement Plans. You may obtain a prototype IRA plan from the Funds. Shares of
each Fund are also eligible investments for other types of retirement plans.
Automatic investing by check. You may make regular monthly investments in each
Fund using the "Automatic Investment Plan." A check is automatically drawn on
your personal checking account each month for a predetermined amount (but not
less than $100), as if you had written it directly. Upon receipt of the
withdrawn funds, the Fund automatically invests the money in additional shares
of the Fund at the current net asset value. Applications for this service are
available from each Fund. There is no charge by a Fund for this service. Each
Fund may terminate or modify this privilege at any time, and shareholders may
terminate their participation by notifying the Shareholder Servicing Agent in
writing, sufficiently in advance of the next withdrawal.
Automatic withdrawals. Each Fund offers a Systematic Withdrawal Program whereby
shareholders may request that a check drawn in a predetermined amount be sent to
them each month or calendar quarter. To start this Program, your account must
have Fund shares with a value of at least $10,000, and the minimum amount that
may be withdrawn each month or quarter is $50. This Program may be terminated or
modified by a shareholder or a Fund at any time without charge or penalty. A
withdrawal under the Systematic Withdrawal Program involves a redemption of
shares of a Fund, and may result in a gain or loss for federal income tax
purposes. In addition, if the amount withdrawn exceeds the dividends credited to
your account, the account ultimately may be depleted.
Exchange Privilege. You may exchange your shares of the Growth Fund or the
Growth & Income Fund (in amounts of $1,000 or more) for shares of the other Fund
or shares of RNC Liquid Assets Fund, Inc. ("RNC Fund"), a money market fund not
affiliated with the Funds or the Advisor, if shares of RNC Fund are offered in
the state where you live. Prior to making an exchange, you should obtain and
read carefully the prospectus of RNC Fund. The exchange privilege is not an
offering or recommendation of RNC Fund by the Funds or the Advisor. For more
information, call the Shareholder Servicing Agent at (800) 535-9169.
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How to Redeem Your Shares
You have the right to redeem all or any portion of your shares of each Fund at
its net asset value on each day the NYSE is open for trading.
Redemption in writing. You may redeem your shares by simply sending a written
request to the appropriate Fund. You should give your account number and state
whether you want all or part of your shares redeemed. The letter should be
signed by all of the shareholders whose names appear in the account
registration. You should send your redemption request to:
The Millennium (insert name) Fund
c/o American Data Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway, Suite 109
Hauppauge, NY 11788-0132
Signature guarantee. If the value of the shares you wish to redeem exceeds
$5,000, the signatures on the redemption request must be guaranteed by an
"eligible guarantor institution." These institutions include banks,
broker-dealers, credit unions and savings institutions. A broker-dealer
guaranteeing a signature must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. A
notary public is not an acceptable guarantor.
Redemption by telephone. If you complete the Redemption by Telephone portion of
each Fund's Application Form, you may redeem shares on any business day the NYSE
is open by calling the Fund's Shareholder Servicing Agent at (800) 535-9169
before 4:00 p.m. Eastern time. Redemption proceeds will be mailed or wired, at
your direction, on the next business day to the bank account you designated on
the Application Form. The minimum amount that may be wired is $1,000 (wire
charges, if any, will be deducted from redemption proceeds). Telephone
redemptions cannot be made for IRA accounts.
By establishing telephone redemption privileges, you authorize each Fund and its
Shareholder Servicing Agent to act upon the instruction of any person who makes
the telephone call to redeem shares from your account and transfer the proceeds
to the bank account designated in the Application Form. Each Fund and the
Shareholder Servicing Agent will use procedures to confirm that redemption
instructions received by telephone are genuine, including recording of telephone
instructions and requiring a form of personal identification before acting on
these instructions. If these normal identification procedures are followed,
neither a Fund nor the Shareholder Servicing Agent will be liable for any loss,
liability, or cost which results from acting upon instructions of a person
believed to be a shareholder with respect to the telephone redemption privilege.
Each Fund may change, modify, or terminate these privileges at any time upon at
least 60-days' notice to shareholders.
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You may request telephone redemption privileges after your account is opened;
however, the authorization form will require a separate signature guarantee.
Shareholders may experience delays in exercising telephone redemption privileges
during periods of abnormal market activity.
What price is used for a redemption? The redemption price is the net asset value
of each Fund's shares, next determined after shares are validly tendered for
redemption. All signatures of account holders must be included in the request,
and a signature guarantee, if required, must also be included for the request to
be valid.
When are redemption payments made? As noted above, redemption payments for
telephone redemptions are sent on the day after the telephone call is received.
Payments for redemptions sent in writing are normally made promptly, but no
later than seven days after the receipt of a request that meets requirements
described above. However, a Fund may suspend the right of redemption under
certain extraordinary circumstances in accordance with rules of the Securities
and Exchange Commission.
If shares were purchased by wire, they cannot be redeemed until the day after
the Application Form is received. If shares were purchased by check and then
redeemed shortly after the check is received, each Fund may delay sending the
redemption proceeds until it has been notified that the check used to purchase
the shares has been collected, a process which may take up to 15 days. This
delay may be avoided by investing by wire or by using a certified or official
bank check to make the purchase.
Redemptions through dealers. If you hold shares through an investment dealer,
you will have to redeem your shares through that investment dealer. The net
asset value you receive will be the next calculated after receipt of the order
from the dealer. The dealer is responsible for forwarding any documents required
in connection with a redemption, including a signature guarantee, promptly, and
a Fund may cancel the order if these documents are not received promptly.
Other information about redemptions. A redemption may result in recognition of a
gain or loss for federal income tax purposes. Due to the relatively high cost of
maintaining smaller accounts, the shares in your account (unless it is a
retirement plan or Uniform Gifts or Transfers to Minors Act account) may be
redeemed by a Fund if, due to redemptions you have made, the total value of your
account is reduced to less than $500. If a Fund determines to make such an
involuntary redemption, you will first be notified that the value of your
account is less than $500, and you will be allowed 30 days to make an additional
investment to bring the value of your account to at least $500 before the Fund
takes any action.
DISTRIBUTIONS AND TAXES
Dividends and other distributions. Dividends from net investment income, if any,
are normally declared and paid by each Fund in December. Capital gains
distributions, if any, are also normally made in December, but a Fund may make
an additional payment of dividends or distributions if it deems it desirable at
another time during any year.
-14-
<PAGE>
Dividends and capital gain distributions (net of any required tax withholding)
are automatically reinvested in additional shares of each Fund at the net asset
value per share on the reinvestment date unless you have previously requested in
writing to the Shareholder Servicing Agent that payment be made in cash.
Any dividend or distribution paid by a Fund has the effect of reducing the net
asset value per share on the record date by the amount of the dividend or
distribution. You should note that a dividend or distribution paid on shares
purchased shortly before that dividend or distribution was declared will be
subject to income taxes even though the dividend or distribution represents, in
substance, a partial return of capital to you.
Taxes. Each Fund intends to qualify and elect to be treated as a regulated
investment company under Subchapter M of the Code. As long as a Fund continues
to qualify, and as long as a Fund distributes all of its income each year to the
shareholders, the Fund will not be subject to any federal income or excise
taxes. Distributions made by a Fund will be taxable to shareholders whether
received in shares (through dividend reinvestment) or in cash. Distributions
derived from net investment income, including net short-term capital gains, are
taxable to shareholders as ordinary income. A portion of these distributions may
qualify for the intercorporate dividends-received deduction. Distributions
designated as capital gains dividends are taxable as long-term capital gains
regardless of the length of time shares of a Fund have been held. Although
distributions are generally taxable when received, certain distributions made in
January are taxable as if received the prior December. You will be informed
annually of the amount and nature of each Fund's distributions. Additional
information about taxes is set forth in the SAI. You should consult your own
advisors concerning federal, state and local taxation of distributions from each
Fund.
GENERAL INFORMATION
The Company. The Company was incorporated under the laws of the State of
Maryland on February 20, 1998. The Ridgeway Helms Millennium Fund, the
predecessor fund to the Growth Fund, was originally a series of the Advisers
Series Trust (organized as a Delaware business trust on October 3, 1996). Such
Fund was reorganized as a series of the Company on June 17, 1998, upon the
approval of the majority of the then-current shareholders of such Fund. The
Articles of Incorporation permit the Company to issue its shares of common stock
in any number of series. Currently, the Growth Fund and the Growth & Income Fund
are the only series of the Company. The Board of Directors may, from time to
time, issue other series, the assets and liabilities of which will be separate
and distinct from any other series.
Shareholder Rights. Shares issued by each Fund have no preemptive, conversion,
or subscription rights. Shareholders have equal and exclusive rights as to
dividends and distributions as declared by a Fund and to the net assets of the
Fund upon liquidation or dissolution. Each Fund, as a separate series of the
Company, votes separately on matters affecting only the Fund (e.g., approval of
the Investment Advisory Agreement); all series of the Company vote as a single
class on matters affecting all series jointly or the Company as a whole (e.g.,
election or removal of Directors). Voting rights are
-15-
<PAGE>
not cumulative, so that the holders of more than 50% of the shares voting in any
election of Directors can, if they so choose, elect all of the Directors. While
the Company is not required and does not intend to hold annual meetings of
shareholders, such meetings may be called by the Directors in their discretion,
or upon demand by the holders of 10% or more of the outstanding shares of the
Company for the purpose of removing Directors.
Performance Information. From time to time, each Fund may publish its total
return in advertisements and communications to investors. Total return
information will include each Fund's average annual compounded rate of return
over the most recent four calendar quarters and over the period from the Fund's
inception of operations. Each Fund may also advertise aggregate and average
total return information over different periods of time. Each Fund's total
return will be based upon the value of the shares acquired through a
hypothetical $1,000 investment at the beginning of the specified period and the
net asset value of those shares at the end of the period, assuming reinvestment
of all distributions. Total return figures will reflect all recurring charges
against a Fund's income. You should note that the investment results of a Fund
will fluctuate over time, and any presentation of a Fund's total return for any
prior period should not be considered as a representation of what an investor's
total return may be in any future period.
Shareholder Inquiries. Shareholder inquiries should be directed to the
Shareholder Servicing Agent at (800) 535-9169.
Year 2000 Compliance. As the year 2000 approaches, an issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Failure to adequately address this issue could have
potentially serious repercussions. The Advisor is in the process of working with
each Fund's service providers to prepare for the year 2000. Based on information
currently available, the Advisor does not expect that the Funds will incur
significant operating expenses or be required to incur materials costs to be
year 2000 compliant. Although the Advisor does not anticipate that the year 2000
issue will have a material impact on a Fund's ability to provide service at
current levels, there can be no assurance that steps taken in preparation for
the year 2000 will be sufficient to avoid any adverse impact on each Fund.
-16-
<PAGE>
ADVISOR
Millennium Capital Advisors, Inc.
303 Twin Dolphin Drive, Suite 530
Redwood Shores, CA 94065
DISTRIBUTOR
Ridgeway Helms Securities Corporation
303 Twin Dolphin Drive, Suite 530
Redwood Shores, California 94065
CUSTODIAN
Star Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
ADMINISTRATOR & TRANSFER AGENT
American Data Services, Inc.
The Hauppauge Corporate Center
150 Motor Parkway, Suite 109
Hauppauge, NY 11788-0132
AUDITORS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017
LEGAL COUNSEL
Spitzer & Feldman P.C.
405 Park Avenue
New York, N.Y. 10022
-17-
<PAGE>
THE MILLENNIUM RHIM FUNDS, INC.
THE MILLENNIUM GROWTH FUND
THE MILLENNIUM GROWTH & INCOME FUND
Statement of Additional Information
Dated June 17, 1998
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus dated June 17, 1998, as may be amended
from time to time, of The Millennium Growth Fund (the "Growth Fund") and The
Millennium Growth & Income Fund (the "Growth & Income Fund", and individually or
collectively, a "Fund" or the "Funds"), each a series of The Millennium RHIM
Funds, Inc. (the "Company"). On June 17, 1998, the shareholders of the Ridgeway
Helms Millennium Fund, a series of Advisors Series Trust, approved the
reorganization of such fund into the Growth Fund. Millennium Capital Advisors,
Inc. (the "Advisor") is the Advisor to each Fund. A copy of the prospectus may
be obtained from each Fund at 303 Twin Dolphin Drive, Suite 530, Redwood Shores,
CA 94104; telephone (800) 535-9169.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference to sections
Page in the prospectus
---- -----------------
<S> <C> <C>
Investment Objective and Policies.................... B-2 Investment Objective and
Policies Management.................................. B-10 Management of the Funds
Portfolio Transactions and Brokerage
Management of the Fund......................... B-12
Net Asset Value...................................... B-13 Investor Guide
Taxation
Distributions and Taxes........................ B-14
Performance Information.............................. B-16 General Information
General Information.................................. B-19 General Information
Financial Statements................................. B-19 Not Applicable
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Appendix............................................. B-18 Not Applicable
</TABLE>
B-2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Growth Fund is growth of capital. The
investment objective of the Growth & Income Fund is growth of capital and
dividend income. There is no assurance that either Fund will achieve its
objective. The discussion below supplements information contained in the
prospectus as to investment policies of each Fund.
Convertible Securities and Warrants
Each Fund may invest in convertible securities and warrants. A convertible
security is a fixed income security (a debt instrument or a preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in an issuer's capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also gives an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation of the issuing company depending upon a market price advance in the
convertible security's underlying common stock.
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).
Short-Term Investments
Each Fund may invest in any of the following securities and instruments:
Bank Certificates or Deposit, Bankers' Acceptances and Time Deposits.
A 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 a Fund will be
dollar-denominated obligations of domestic or foreign 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. If a Fund holds instruments of foreign banks or financial
institutions, it may be subject to additional investment risks that are
different in some respects from those incurred by a fund which invests only
B-3
<PAGE>
in debt obligations of U.S. domestic issuers. See "Foreign Investments" below.
Such risks include future political and economic developments, the possible
imposition of withholding taxes by the particular country in which the issuer is
located on interest income payable on the securities, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities.
Domestic banks and foreign 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. However, such laws and
regulations do not necessarily apply to foreign bank obligations that a Fund may
acquire.
In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under its investment objective and policies
stated above and in its prospectus, each Fund may make interest-bearing time or
other interest-bearing deposits in commercial or savings banks. Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings Association Obligations. Each Fund may invest in certificates of
deposit (interest-bearing time deposits) issued by savings banks or savings and
loan associations that have capital, surplus and undivided profits in excess of
$100 million, based on latest published reports, or less than $100 million if
the principal amount of such obligations is fully insured by the U.S.
Government.
Commercial Paper, Short-Term Notes and Other Corporate Obligations. Each
Fund may invest a portion of its assets in commercial paper and short-term
notes. Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper and short-term notes will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's, or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Advisor to be of comparable quality.
These rating symbols are described in the Appendix attached hereto.
Corporate obligations include bonds and notes issued by corporations
to finance longer-term credit needs than supported by commercial paper. While
B-4
<PAGE>
such obligations generally have maturities of ten years or more, a Fund may
purchase corporate obligations which have remaining maturities of one year or
less from the date of purchase and which are rated "AA" or higher by S&P or "Aa"
or higher by Moody's.
Government Obligations
Each Fund may make short-term investments 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.
Each of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
The Fund may invest in sovereign debt obligations of foreign countries. A
sovereign debtor's willingness or ability to repay principal and interest in a
timely manner may be affected by a number of factors, including its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which it may be
subject. Emerging market governments could default on their sovereign debt. Such
sovereign debtors also may be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities abroad to reduce principal
and interest arrearages on their debt. The commitments on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a sovereign debtor's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to meet
such conditions could result in the cancellation of such third parties'
commitments to lend funds to the sovereign debtor, which may further impair such
debtor's ability or willingness to service its debt in a timely manner.
Foreign Investments and Currencies
Each Fund may invest in securities of foreign issuers, provided that they
are publicly traded in the United States.
Depositary Receipts. Depositary Receipts ("DRs") include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
B-5
<PAGE>
Depositary Receipts ("GDRs") or other forms of depositary receipts. DRs are
receipts typically issued in connection with a U.S. or foreign bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation.
Risks of Investing in Foreign Securities. Investments in foreign
securities involve certain inherent risks, including the following:
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
Currency Fluctuations. Each Fund may invest in securities denominated in
foreign currencies. Accordingly, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of a Fund's assets denominated in that currency. Such changes will also
affect a Fund's income. The value of a Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
Taxes. The interest and dividends payable on certain of a Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
Options on Securities
Purchasing Put and Call Options. Each Fund may purchase covered "put" and
"call" options with respect to securities which are otherwise eligible for
purchase by the Fund subject to certain restrictions. Each Fund will engage in
trading of such derivative securities exclusively for hedging purposes.
If a Fund purchases a put option, the Fund acquires the right to sell the
underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Advisor perceives significant short-term risk but
substantial long-term appreciation for the underlying security. The put option
acts as an insurance policy, as it protects against significant downward price
movement while it allows full participation in any upward movement. If a Fund is
holding a security which it feels has strong fundamentals, but for some reason
may be weak in the near term, the Fund may purchase a put option on such
security, thereby giving itself the right to sell such security at a certain
strike price throughout the term of the
B-6
<PAGE>
option. Consequently, a Fund will exercise the put only if the price of such
security falls below the strike price of the put. The difference between the
put's strike price and the market price of the underlying security on the date a
Fund exercises the put, less transaction costs, will be the amount by which the
Fund will be able to hedge against a decline in the underlying security. If
during the period of the option the market price for the underlying security
remains at or above the put's strike price, the put will expire worthless,
representing a loss of the price the Fund paid for the put, plus transaction
costs. If the price of the underlying security increases, the profit a Fund
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount for which the put may be sold.
If a Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. Each Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If the call option has been
purchased to hedge a short position of a Fund in the underlying security and the
price of the underlying security thereafter falls, the profit the Fund realizes
on the cover of the short position in the security will be reduced by the
premium paid for the call option less any amount for which such option may be
sold.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. Each Fund generally will purchase only those options for which the
Advisor believes there is an active secondary market to facilitate closing
transactions.
Writing Call Options. Each Fund may write covered call options. A call
option is "covered" if a Fund owns the security underlying the call or has an
absolute right to acquire the security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as are held in a segregated account by the Custodian). The writer of
a call option receives a premium and gives the purchaser the right to buy the
security underlying the option at the exercise price. The writer has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. If the writer of
an exchange-traded option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. A writer may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction will permit the cash or proceeds from the
B-7
<PAGE>
concurrent sale of any securities subject to the option to be used for other
investments of a Fund. If a Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction prior to or concurrent with the sale of the security.
A Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option or
if the proceeds from the closing transaction are more than the premium paid to
purchase the option. A Fund will realize a loss from a closing transaction if
the cost of the closing transaction is more than the premium received from
writing the option or if the proceeds from the closing transaction are less than
the premium paid to purchase the option. However, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss to a Fund resulting from the
repurchase of a call option is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
Risks Of Investing in Options. There are several risks associated with
transactions in options on securities. Options may be more volatile than the
underlying securities and, therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying securities themselves. There are also significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its objective.
In addition, a liquid secondary market for particular options may be absent for
reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options of underlying securities; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or
clearing corporation may not at all times be adequate to handle current trading
volume; or one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options 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.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
Dealer Options. Each Fund will engage in transactions involving dealer
options as well as exchange-traded options. Certain additional risks are
specific to dealer options. While a Fund might look to a clearing corporation to
exercise exchange-traded options, if the Fund were to purchase a dealer option
it would need to rely on the dealer from which it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by a Fund as well as loss of the expected
benefit of the transaction.
B-8
<PAGE>
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, a Fund may generally be able to realize
the value of a dealer option it has purchased only by exercising or reselling
the option to the dealer who issued it. Similarly, when a Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Fund originally wrote the option. While each Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that a Fund will at any time be able to liquidate a dealer option
at a favorable price at any time prior to expiration. Unless a Fund, as a
covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) used
as cover until the option expires or is exercised. In the event of insolvency of
the other party, a Fund may be unable to liquidate a dealer option. With respect
to options written by a Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example, because a Fund must
maintain a secured position with respect to any call option on a security it
writes, the Fund may not sell the assets which it has segregated to secure the
position while it is obligated under the option. This requirement may impair a
Fund's ability to sell portfolio securities at a time when such sale might be
advantageous.
The Staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased dealer options are illiquid securities. Each
Fund may treat the cover used for written dealer options as liquid if the dealer
agrees that the Fund may repurchase the dealer option it has written for a
maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, each Fund will treat dealer options as subject to the Fund's
limitation on illiquid securities. If the Commission changes its position on the
liquidity of dealer options, each Fund will change its treatment of such
instruments accordingly.
Spread Transactions. Each Fund may purchase covered spread options from
securities dealers. These covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives a Fund
the right to put securities that it owns at a fixed dollar spread or fixed yield
spread in relationship to another security that the Fund does not own, but which
is used as a benchmark. The risk to a Fund, in addition to the risks of dealer
options described above, is the cost of the premium paid as well as any
transaction costs. The purchase of spread options will be used to protect a Fund
against adverse changes in prevailing credit quality spreads, i.e., the yield
spread between high quality and lower quality securities. This protection is
provided only during the life of the spread options.
Repurchase Agreements
Each Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, a Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Advisor, subject to the seller's agreement to
B-9
<PAGE>
repurchase and the Fund's agreement to resell such securities at a mutually
agreed upon date and price. The repurchase price generally equals the price paid
by a Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio security).
Securities subject to repurchase agreements will be held by the Custodian or in
the Federal Reserve/Treasury Book-Entry System or an equivalent foreign system.
The seller under a repurchase agreement will be required to maintain the value
of the underlying securities at not less than 102% of the repurchase price under
the agreement. If the seller defaults on its repurchase obligation, a Fund will
suffer a loss to the extent that the proceeds from a sale of the underlying
securities are less than the repurchase price under the agreement. Bankruptcy or
insolvency of such a defaulting seller may cause a Fund's rights with respect to
such securities to be delayed or limited. Repurchase agreements are considered
to be loans under the 1940 Act.
When-Issued Securities, Forward Commitments and Delayed Settlements
Each Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, a Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash.
Each Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of its investment objective. Because a Fund
will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, the Fund's liquidity and the ability of the
Advisor to manage it may be affected in the event the Fund's forward
commitments, commitments to purchase when-issued securities and delayed
settlements ever exceeded 15% of the value of its net assets.
Each Fund will purchase securities on a when-issued, forward commitment or
delayed settlement basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases a Fund may realize a taxable
capital gain or loss. When a Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. A Fund does not earn interest on the securities
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<PAGE>
it has committed to purchase until they are paid for and delivered on the
settlement date.
Short Sales
Each Fund is authorized to make short sales of securities it owns or has
the right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box") and to make
short sales of securities which it does not own or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, a Fund must borrow the security (generally from
the broker through which the short sale is made) in order to make delivery to
the buyer. The Fund is then obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is said
to have a "short position" in the securities sold until it delivers them to the
broker. The period during which a Fund has a short position can range from one
day to more than a year. Until the security is replaced, the proceeds of the
short sale are retained by the broker, and the Fund is required to pay to the
broker a negotiated portion of any dividends or interest which accrue during the
period of the loan. To meet current margin requirements, each Fund is also
required to deposit with the broker additional cash or securities so that the
total deposit with the broker is maintained daily at 150% of the current market
value of the securities sold short (100% of the current market value if a
security is held in the account that is convertible or exchangeable into the
security sold short within 90 days without restriction other than the payment of
money).
Short sales by a Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since a Fund in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Fund's net asset value per share will tend to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest a Fund may be required to pay
in connection with the short sale. Furthermore, under adverse market conditions,
a Fund might have difficulty purchasing securities to meet its short sale
delivery obligations, and might have to sell portfolio securities to raise the
capital necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
If a 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, a Fund will
deposit in escrow in a separate account with the Custodian an equal amount of
the securities sold short or securities convertible into
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<PAGE>
or exchangeable for such securities. A 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.
A Fund's decision to make a short sale "against the box" may be a
technique to hedge against market risks when the Advisor 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 a 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.
Illiquid Securities
Each 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 Advisor will monitor the amount of
illiquid securities in each Fund's portfolio, under the supervision of the
Company's Board of Directors, to ensure compliance with the Fund's investment
restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
which are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a 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. A 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
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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.
Risks of Investing in Small Companies
As stated in the prospectus, each Fund may purchase securities of
companies with market capitalization as low as $25 million. Additional risks of
such investments include the markets on which such securities are frequently
traded. In many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
greater and more abrupt price fluctuations. When making large sales, a Fund may
have to sell portfolio holdings at discounts from quoted prices or may have to
make a series of small sales over an extended period of time due to the trading
volume of smaller company securities. Investors should be aware that, based on
the foregoing factors, an investment in each Fund may be subject to greater
price fluctuations than an investment in a fund that invests exclusively in
larger, more established companies. The Advisor's research efforts may also play
a greater role in selecting securities for each Fund than in a fund that invests
in larger, more established companies.
Investment Restrictions
The Company (on behalf of each Fund) has adopted the following
restrictions as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the 1940 Act, of
the outstanding voting securities of a Fund. Under the 1940 Act, the "vote of
the holders of a majority of the outstanding voting securities" means the vote
of the holders of the lesser of (i) 67% of the shares of a Fund represented at a
meeting at which the holders of more than 50% of its outstanding shares are
represented or (ii) more than 50% of the outstanding shares of a Fund.
As a matter of fundamental policy, each Fund is non-diversified. Each
Fund's investment objective is also fundamental.
In addition, each Fund may not:
1. Issue senior securities, borrow money or pledge its assets, except that
(i) a Fund may borrow from banks in amounts not exceeding one-third of its total
assets (including the amount borrowed); and (ii) this restriction shall not
prohibit a Fund from engaging in options transactions or short sales;
2. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions and except that a Fund may borrow
money from banks to purchase securities;
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<PAGE>
3. Act as underwriter (except to the extent a Fund may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);
4. Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than U.S.
Government securities);
5. Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although a Fund may purchase and sell securities which are
secured by real estate and securities of companies which invest or deal in real
estate);
6. Purchase or sell commodities or commodity futures contracts, except
that a Fund may purchase and sell foreign currency contracts in accordance with
any rules of the Commodity Futures Trading Commission;
7. Make loans of money (except for purchases of debt securities consistent
with the investment policies of a Fund and except for repurchase agreements); or
8. Make investments for the purpose of exercising control or management.
Each Fund also observes the following restrictions as a matter of
operating but not fundamental policy, pursuant to positions taken by federal
regulatory authorities:
Each Fund may not:
1. Invest in the securities of other investment companies or purchase any
other investment company's voting securities or make any other investment in
other investment companies except to the extent permitted by federal law; or
2. Invest more than 15% of its assets in securities which are restricted
as to disposition or otherwise are illiquid or have no readily available market
(except for securities which are determined by the Board of Directors to be
liquid).
MANAGEMENT
The overall management of the business and affairs of the Company is
vested with its Board of Directors. The Board approves all significant
agreements between the Company and persons or companies furnishing services to
it, including the agreements with the Advisor, Administrator, Custodian and
Transfer Agent. The day to day operations of the Company are delegated to its
officers, subject to each Fund's investment objective and policies and to
general supervision by the Board of Directors.
The Directors and officers of the Company their ages and positions with
the Company, their business addresses and principal occupations during the past
five years are:
Name, address and age Position
Principal Occupation During Past Five Years
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Robert A. Dowlett* Director President, Millennium Capital Advisors,
303 Twin Dolphin Drive Inc. since 1995. Prior thereto,
Suite 530 financial consultant and guided
Redwood Shores, CA 94065 portfolio manager with Smith Barney Inc.
Age 30
N. Joseph Nahas* Director First Vice President, Millennium Capital
303 Twin Dolphin Drive Advisors, Inc. since August 1996. Prior
Suite 530 thereto, First Vice President-
Redwood Shores, CA 94065 Investments of Round Hill Securities
Age 30 (since November 1994) and President-
prior thereto, a financial consultant
and guided portfolio manager with Smith
Barney Inc.
D. Ian Hopper Director Chief Software Architect, Northern
930 East Evelyn Avenue Telecom since 1982.
Sunnyvale, CA 94086
Age 38
Peter B. Oberto Director Independent Consultant since 1995; prior
408 Greenbrier Road thereto Manager of Compensation,
Half Moon Bay, CA 94019 Americas, Hewlett Packard since 1979.
Age 41
OFFICERS OF THE COMPANY.
Robert A. Dowlett Chairman of the Board, Chief Executive Officer and
President
N. Joseph Nahas Vice President, Chief Financial Officer and
Secretary
Michael Miola Treasurer
Michael Wagner Assistant Secretary
- ----------
*Denotes a Director who is an "interested person" of the Corporation under the
1940 Act.
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<PAGE>
COMPENSATION OF DISINTERESTED DIRECTORS
Name and Position Aggregate Compensation from The Company**
D. Ian Hopper, Director Retainer - $1,000; Meeting Fee - $100 plus
expenses
Peter B. Oberto, Director Retainer - $1,000; Meeting Fee - $100 plus
expenses
The Advisor
Subject to the supervision of the Board of Directors, investment
management and related services for each Fund are provided by the Advisor,
pursuant to an Investment Advisory Agreement (the "Advisory Agreement") entered
into between the Advisor and the Company, on behalf of each Fund.
Under each Advisory Agreement, the Advisor agrees to invest the assets
of each Fund in accordance with the investment objective, policies and
restrictions of such Fund as set forth in the Fund's and Company's governing
documents, including, without limitation, the Company's Article of Incorporation
and By-Laws; each Fund's prospectus, statement of additional information, and
undertakings; and such other limitations, policies and procedures as the
Directors of the Company may impose from time to time in writing to the Advisor.
In providing such services, the Advisor shall at all times adhere to the
provisions and restrictions contained in the federal securities laws, applicable
state securities laws, the Code, and other applicable law.
Without limiting the generality of the foregoing, the Advisor has
agreed to (i) furnish each Fund with advice and recommendations with respect to
the investment of the Fund's assets, (ii) effect the purchase and sale of
portfolio securities; (iii) manage and oversee the investments of each Fund,
subject to the ultimate supervision and direction of the Company's Board of
Directors; (iv) vote proxies and take other actions with respect to each Fund's
securities; (v) maintain the books and records required to be maintained with
respect to the securities in each Fund's portfolio; (vi) furnish reports,
statements and other data on securities, economic conditions and other matters
related to the investment of each Fund's assets which the Directors or the
officers of the Company may reasonably request; and (vi) render to the Company's
Board of Directors such periodic and special reports as the Board may reasonably
request. The Advisor has also agreed, at its own expense, to maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary to the performance of its
obligations under each Advisory Agreement. Personnel of the Advisor may serve as
officers of the Company provided they do so without compensation from the
Company. Without limiting the generality of the foregoing, the staff and
personnel of the Advisor shall be deemed to include persons employed or retained
by the Advisor to furnish statistical information, research, and other factual
information, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other information,
advice and assistance
- ----------
**Estimated for the current fiscal year. The company has no pension or
retirement plan. No other entity affiliated with the Company pays any
compensation to the Directors.
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<PAGE>
as the Advisor or the Company's Board of Directors may desire and reasonably
request. With respect to the operation of each Fund, the Advisor has agreed to
be responsible for the expenses of printing and distributing extra copies of the
Fund's prospectus, statement of additional information, and sales and
advertising materials (but not the legal, auditing or accounting fees attendant
thereto) to prospective investors (but not to existing shareholders); and the
costs of any special Board of Directors meetings or shareholder meetings
convened for the primary benefit of the Advisor.
As compensation for the Advisor's services, each Fund pays it an
advisory fee at the rate specified in the prospectus. In addition to the fees
payable to the Advisor and the Administrator, the Company is responsible for its
operating expenses, including: fees and expenses incurred in connection with the
issuance, registration and transfer of its shares; brokerage and commission
expenses; all expenses of transfer, receipt, safekeeping, servicing and
accounting for the cash, securities and other property of the Company for the
benefit of each Fund including all fees and expenses of its custodian,
shareholder services agent and accounting services agent; interest charges on
any borrowings; costs and expenses of pricing and calculating its daily net
asset value and of maintaining its books of account required under the 1940 Act;
taxes, if any; a pro rata portion of expenditures in connection with meetings of
each Fund's shareholders and the Company's Board of Directors that are properly
payable by a Fund; salaries and expenses of officers and fees and expenses of
members of the Company's Board of Directors or members of any advisory board or
committee who are not members of, affiliated with or interested persons of the
Advisor or Administrator; insurance premiums on property or personnel of each
Fund which inure to its benefit, including liability and fidelity bond
insurance; the cost of preparing and printing reports, proxy statements,
prospectuses and statements of additional information of each Fund or other
communications for distribution to existing shareholders; legal, auditing and
accounting fees; trade association dues; fees and expenses (including legal
fees) of registering and maintaining registration of its shares for sale under
federal and applicable state and foreign securities laws; all expenses of
maintaining and servicing shareholder accounts, including all charges for
transfer, shareholder recordkeeping, dividend disbursing, redemption, and other
agents for the benefit of each Fund, if any; and all other charges and costs of
its operation plus any extraordinary and non-recurring expenses, except as
otherwise prescribed in each Advisory Agreement.
The Advisor may agree to waive certain of its fees or reimburse each
Fund for certain expenses, in order to limit the expense ratio of the Fund. In
that event, subject to approval by the Company's Board of Directors, each Fund
may reimburse the Advisor in subsequent years for fees waived and expenses
reimbursed, provided the expense ratio before reimbursement is less than the
expense limitation in effect at that time.
The Advisor is controlled by Robert A. Dowlett.
Under each Advisory Agreement, the Advisor will not be liable to the
Company or a Fund or any shareholder for any act or omission in the course of,
or connected with, rendering services or for any loss sustained by the Company
except in the case of a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages will
B-17
<PAGE>
be limited as provided in the 1940 Act) or of willful misfeasance, bad faith or
gross negligence, or reckless disregard of its obligations and duties under the
Agreement.
Each Advisory Agreement will initially remain in effect for a period
not to exceed two years. Thereafter, if not terminated, each Advisory Agreement
will continue automatically for successive annual periods, provided that such
continuance is specifically approved at least annually (i) by a majority vote of
the Independent Directors cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the Board of Directors or by vote of a
majority of the outstanding voting securities of each Fund.
Each Advisory Agreement is terminable by vote of the Board of Directors
or by the holders of a majority of the outstanding voting securities of a Fund
at any time without penalty, on 60 days written notice to the Advisor. Each
Advisory Agreement also may be terminated by the Advisor on 60 days written
notice to the Company. Each Advisory Agreement terminates automatically upon its
assignment (as defined in the 1940 Act).
The Administrator. The Administrator, American Data Services, Inc., has
agreed to be responsible for providing such services as the Directors may
reasonably request, including but not limited to (i) maintaining the Company's
books and records (other than financial or accounting books and records
maintained by any custodian, transfer agent or accounting services agent); (ii)
overseeing the Company's insurance relationships; (iii) preparing for the
Company (or assisting counsel and/or auditors in the preparation of) all
required tax returns, proxy statements and reports to the Company's shareholders
and Directors and reports to and other filings with the Commission and any other
governmental agency (the Company agreeing to supply or cause to be supplied to
the Administrator all necessary financial and other information in connection
with the foregoing); (iv) preparing such applications and reports as may be
necessary to permit the offer and sale of the shares of the Company under the
securities or "blue sky" laws of the various states selected by the Company (the
Company agreeing to pay all filing fees or other similar fees in connection
therewith); (v) responding to all inquiries or other communications of
shareholders, if any, which are directed to the Administrator, or if any such
inquiry or communication is more properly to be responded to by the Company's
custodian, transfer agent or accounting services agent, overseeing their
response thereto; (vi) overseeing all relationships between the Company and any
custodian(s), transfer agent(s) and accounting services agent(s), including the
negotiation of agreements and the supervision of the performance of such
agreements; and (vii) authorizing and directing any of the Administrator's
directors, officers and employees who may be elected as Directors or officers of
the Company to serve in the capacities in which they are elected. All services
to be furnished by the Administrator under this Agreement may be furnished
through the medium of any such directors, officers or employees of the
Administrator.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each Advisory Agreement states that the Advisor shall be responsible
for broker-dealer selection and for negotiation of brokerage commission rates,
provided that the Advisor shall not direct orders to an affiliated person of the
Advisor without general prior authorization to use such affiliated broker or
dealer by the Company's Board of Directors. The Advisor's primary consideration
in effecting a securities transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular transaction, the
Advisor may take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of each Fund on
a continuing basis. The price to a Fund in any transaction may be less favorable
than that available from another broker-dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Subject to such policies as the Advisor and the Board of Directors of
the Company may determine, the Advisor shall not be deemed to have acted
unlawfully or to have breached any duty created by an Advisory Agreement or
otherwise solely by reason of its having caused a Fund to pay a broker or dealer
that provides (directly or indirectly) brokerage or research services to the
Advisor an amount of commission for effecting a portfolio transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Advisor's overall responsibilities
with respect to a Fund. The Advisor is further authorized to allocate the orders
placed by it on behalf of a Fund to such brokers or dealers who also provide
research or statistical material, or other services, to the Company, the
Advisor, or any affiliate of either. Such allocation shall be in such amounts
and proportions as the Advisor shall determine, and the Advisor shall report on
such allocations regularly to the Board of Directors of the Company, indicating
the broker-dealers to whom such allocations have been made and the basis
therefor. The Advisor is also authorized to consider sales of shares of a Fund
as a factor in the selection of brokers or dealers to execute portfolio
transactions, subject to the requirements of best execution, i.e., that such
brokers or dealers are able to execute the order promptly and at the best
obtainable securities price.
On occasions when the Advisor deems the purchase or sale of a security
to be in the best interest of a Fund as well as other clients of the Advisor,
the Advisor, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and the most efficient execution.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to a Fund and to such other clients.
NET ASSET VALUE
The net asset value of each Fund's shares will fluctuate and is
determined as of the close of trading on the New York Stock Exchange (the
"NYSE") (currently 4:00 p.m. Eastern time) each business day. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open on the following
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days: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the NYSE may close on days not included in that
announcement.
The net asset value per share is computed by dividing the value of the
securities held by a Fund plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares in the Fund outstanding at such time.
Generally, each Fund's investments are valued at market value or, in
the absence of a market value, at fair value as determined in good faith by the
Advisor pursuant to procedures approved by or under the direction of the Board.
Each Fund's securities, including ADRs, EDRs and GDRs, which are traded
on securities exchanges are valued at the last sale price on the exchange on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any reported sales, at the mean between
the last available bid and asked price. Securities that are traded on more than
one exchange are valued on the exchange determined by the Advisor to be the
primary market. Securities traded in the over-the-counter market are valued at
the mean between the last available bid and asked price prior to the time of
valuation. Securities and assets for which market quotations are not readily
available (including restricted securities which are subject to limitations as
to their sale) are valued at fair value as determined in good faith by or under
the direction of the Board.
Short-term debt obligations with remaining maturities in excess of 60
days are valued at current market prices, as discussed above. Short-term
securities with 60 days or less remaining to maturity are, unless conditions
indicate otherwise, amortized to maturity based on their cost to each Fund if
acquired within 60 days of maturity or, if already held by the Fund on the 60th
day, based on the value determined on the 61st day.
An option that is written by a Fund is generally valued at the last
sale price or, in the absence of the last sale price, the last offer price. An
option that is purchased by a Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last bid price. If an options
exchange closes after the time at which a Fund's net asset value is calculated,
the last sale or last bid and asked prices as of that time will be used to
calculate the net asset value.
All other assets of a Fund are valued in such manner as the Board in
good faith deems appropriate to reflect their fair value.
TAXATION
Each Fund intends to qualify to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, a Fund must distribute to
shareholders at least 90% of its investment company taxable income (which
includes, among other items, dividends, taxable interest and the excess of net
short-term capital gains over net long-term capital losses), and meet certain
diversification of assets, source of income, and other requirements of the Code.
By meeting these requirements, a Fund generally will not be subject to Federal
income tax on its investment company taxable
B-20
<PAGE>
income and net capital gains (the excess of net long-term capital gains over net
short-term capital losses) designated by the Fund as capital gain dividends and
distributed to shareholders. If a Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation and its distributions
will be taxed to shareholders as ordinary income. In determining the amount of
capital gains to be distributed, any capital loss carryover from prior years
will be applied against capital gains to reduce the amount of distributions
paid. In addition, any losses incurred in the taxable year subsequent to October
31 will be deferred to the next taxable year and used to reduce distributions in
the subsequent year.
In order to qualify for treatment as a RIC, a Fund must distribute
annually to shareholders at least 90% of its investment company taxable income
and must meet several additional requirements. Among these requirements are, in
general, the following: (1) at least 90% of a Fund's gross income each taxable
year must be derived from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to its business of
investing in securities or currencies; (2) at the close of each quarter of a
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, limited in respect of any one issuer, to an
amount that does not exceed 5% of the value of the Fund's assets and that does
not represent more than 10% of the outstanding voting securities of such issuer;
and (3) at the close of each quarter of a Fund's taxable year, not more than 25%
of the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer.
Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement may be subject
to a nondeductible 4% excise tax. To prevent imposition of the excise tax, each
Fund must distribute for the calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3) all ordinary income and capital gain net income
(adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of a calendar year if it is declared by a Fund during October,
November or December of that year to shareholders of record on a 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 in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Distributions of investment company taxable income generally are
taxable to shareholders as ordinary income. Distributions may be eligible for
the dividends-received deduction available to corporations. To the extent
dividends received by a Fund are attributable to foreign corporations, a
corporation that owns shares in a Fund will not be entitled to the dividends
received deduction with respect to its pro rata portion of such dividends, since
the dividends-received deduction is generally available only with
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<PAGE>
respect to dividends paid by domestic corporations. In addition, the
dividends-received deduction will be disallowed for shareholders who do not hold
their shares in a Fund for at least 45 days during the 90 day period beginning
45 days before a share in the Fund becomes ex dividend with respect to such
dividend.
Distributions of net capital gains, if any, designated by a Fund as
capital gain dividends are taxable to shareholders as long-term or mid-term
capital gains, regardless of the length of time the Fund's shares have been held
by a shareholder. All distributions are taxable to the shareholder whether
reinvested in additional shares or received in cash Shareholders will be
notified annually as to the Federal tax status of distributions.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution by a Fund. Distributions by a Fund reduce
the net asset value of the Fund's shares. Should a distributions reduce the net
asset value below a stockholder's cost basis, such distribution, nevertheless,
would be taxable to the shareholder as ordinary income or capital gain as
described above, even though, from an investment standpoint, it may constitute a
partial return of capital. The price of shares purchased at that time includes
the amount of the forthcoming distribution.
Upon the taxable disposition (including a sale or redemption) of shares
of a Fund, a shareholder may realize a gain or loss depending upon his basis in
his shares. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands. Such gain or loss will be
long-term, mid-term, or short-term, generally depending upon the shareholder's
holding period for the shares. Noncorporate shareholders are subject to tax at a
minimum rate of 28% on capital gains resulting from the disposition of shares
held for more than 12 months but not more than 18 months, and at a maximum rate
of 20% on capital gains from the disposition of shares held for more than 18
months, (10% if the taxpayer is, and would be after accounting for such gains,
subject to the 15% tax bracket for ordinary income). However, a loss realized by
a shareholder on the disposition of Fund shares with respect to which capital
gain dividends have been paid will, to the extent of such capital gain
dividends, be treated as long-term capital loss if such shares have been held by
the shareholder for six months or less. Further, a loss realized on a
disposition will be disallowed to the extent the shares disposed of are replaced
(whether by reinvestment of distributions or otherwise) within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to reflect
the disallow loss. Shareholders receiving distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share received equal to the net asset value of a share of the Funds on the
reinvestment date.
Certain of the options, futures, contracts, and forward foreign
currency exchange contracts in which a Fund may invest are so-called "section
1256 contracts". With certain exceptions, realized gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by a Fund at
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the end of each taxable year (and, generally, for purposes of the 4% excise tax,
on October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as 60/40 gain or loss. Investors should
consult their own tax advisers in this regard.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on a position that is part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to a Fund of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to stockholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Fund that did not engage in such hedging transactions.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase, decrease, or eliminate the amount
of a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country.
Generally, a credit for foreign taxes is available but is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his total foreign source taxable income. For this purpose, if Fund
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qualifies as a regulated investment company, the source of the Fund's income
flows through to its shareholders. With respect to a Fund, gains from the sale
of securities will be treated as derived from U.S. sources and certain currency
fluctuation gains, including fluctuation gains from foreign currency-
denominated debt securities, receivables and payable, will be treated as
ordinary income derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit) including foreign source passive income of a
Fund. The foreign tax credit may offset only 90% of the alternative minimum tax
imposed on corporations and individuals, and foreign taxes generally may not be
deducted in computing alternative minimum taxable income.
Each Fund is required to report to the Internal Revenue Service ("IRS")
all distributions to shareholders except in the case of certain exempt
shareholders. All such distributions generally are subject to withholding of
Federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Fund with
and to certify the shareholder's correct taxpayer identification number or
social security number, (2) the IRS notifies the Fund or a shareholder that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions whether reinvest in addition shares or taken in cash, will be
reduced by the amounts required to be withheld.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by a Fund also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. and foreign tax
consequences of ownership of shares of a Fund, including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).
PERFORMANCE INFORMATION
Total Return
Average annual total return quotations used in each Fund's advertising
and promotional materials are calculated according to the following formula:
P(1 + T)n = ERV
where "P" equals a hypothetical initial payment of $1000; "T" equals average
annual total return; "n" equals the number of years; and "ERV" equals the ending
redeemable value at the end of the period of a hypothetical $1000 payment made
at the beginning of the period.
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Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication. Average
annual total return, or "T" in the above formula, is computed by finding the
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.
Yield
Annualized yield quotations used in each Fund's advertising and
promotional materials are calculated by dividing the Fund's investment income
for a specified thirty-day period, net of expenses, by the average number of
shares outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
6
YIELD = 2 [(a-b + 1) - 1]
cd
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and "d" equals the maximum offering price per share on the
last day of the period.
Except as noted below, in determining net investment income earned
during the period ("a" in the above formula), each Fund calculates interest
earned on each debt obligation held by it during the period by (1) computing the
obligation's yield to maturity, based on the market value of the obligation
(including actual accrued interest) on the last business day of the period or,
if the obligation was purchased during the period, the purchase price plus
accrued interest; (2) dividing the yield to maturity by 360 and multiplying the
resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by a Fund, net investment income is then determined by
totaling all such interest earned.
For purposes of these calculations, the maturity of an obligation with
one or more call provisions is assumed to be the next date on which the
obligation reasonably can be expected to be called or, if none, the maturity
date.
Other information
Performance data of a Fund quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount. In advertising and promotional materials each Fund
may compare its performance with data published by Lipper Analytical Services,
Inc. ("Lipper") or CDA Investment Technologies, Inc. ("CDA"). Each Fund also may
refer in such materials to mutual fund
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performance rankings and other data, such as comparative asset, expense and fee
levels, published by Lipper or CDA. Advertising and promotional materials also
may refer to discussions of a Fund and comparative mutual fund data and ratings
reported in independent periodicals including, but not limited to, The Wall
Street Journal, Money Magazine, Forbes, Business Week, Financial World and
Barron's.
GENERAL INFORMATION
The Company is a newly organized entity and has no prior business
history. The Articles of Incorporation permit the Directors to issue full and
fractional shares of common stock. Each share represents an interest in a Fund
proportionately equal to the interest of each other share. Upon the Fund's
liquidation, all shareholders would share pro rata in the net assets of the Fund
available for distribution to shareholders.
The By-Laws require the issuance of stock certificates, upon request
from a shareholder. If stock certificates are issued, they must be returned by
the registered owners prior to the transfer or redemption of shares represented
by such certificates.
If they deem it advisable and in the best interest of shareholders, the
Board of Directors may create additional series of shares. The Board of
Directors has currently created two series of shares and may create additional
series in the future, which have separate assets and liabilities. Income and
operating expenses not specifically attributable to a particular Fund are be
allocated fairly among the Funds by the Directors, generally on the basis of the
relative net assets of each Fund.
Rule 18f-2 under the Investment Company Act provides that as to any
investment company which has two or more series outstanding and as to any matter
required to be submitted to shareholder vote, such matter is not deemed to have
been effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Directors or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
The Funds' custodian, Star Bank, 425 Walnut Street, Cincinnati, Ohio
45202 is responsible for holding such Funds' assets. American Data Services,
Inc., The Hauppauge Corporate Center, 150 Motor Parkway, Suite 109, Hauppaugue,
NY 11788, acts as administrator and as each Fund's transfer agent, dividend
disbursing agent and accounting services agent. The Company's independent
accountants, McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, NY 10017,
assist in the preparation of certain reports to the Securities and Exchange
Commission and each Fund's tax returns. Spitzer & Feldman P.C., 405 Park Avenue,
New York, NY 10022 serves as counsel to the Funds.
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Shares of each Fund owned by the Directors and officers as a group were
less than 1% at June 17, 1998.
As of May 15, 1998, the following persons or entities owned of record
and/or beneficially 5% or more of the Ridgeway Helms Millennium Fund and,
therefore, as of June 18, 1998 (after the reorganization), 5% or more of the
Growth Fund's outstanding voting securities:
Esther F. Nagao, Trustee, 1 Metrotech Center North, Brooklyn, NY
11201-3859; 5.74%.
Renato Ghiozzi (IRA), 1 Metrotech Center North, Brooklyn, NY
11201-3859; 5.0%.
Hines, 1 Metrotech Center North, Brooklyn, NY 11201-3859; 8.93% record.
Middlemist, 1 Metrotech Center North, Brooklyn, NY 11201-3859; 8.24%
record.
FINANCIAL STATEMENTS
Shareholders will receive reports semi-annually showing the investments
of each Fund and other financial information. In addition, shareholders will
receive annual financial statements audited by the Fund's independent auditors.
The Semi-Annual Report to Shareholders dated December 31, 1997 for the Ridgeway
Helms Millennium Fund is incorporated herein by reference. Shareholder Reports
are available upon request at no charge.
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APPENDIX
Description of Ratings
MOODY'S INVESTORS SERVICE, INC.: CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. 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 risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa
and Aa rating classifications. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
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 period of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
STANDARD & POOR'S CORPORATION: CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are assessments of the issuer's
ability to repay punctually promissory obligations. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1--highest quality; Prime
2--higher quality; Prime 3--high quality.
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation "A-3" have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
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