1933 Act Registration No. 811-08773
1940 Act Registration No. 333-52243
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [1]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [4]
THE AVALON FUND OF ANN ARBOR, INC.
(Exact name of registrant as specified in Charter)
1350 Highland Drive, Suite A
Ann Arbor, MI 48108
(Address of Principle Executive Offices and Zip Code)
(800) 355-3553 #112
(Registrant's Telephone Number including Area Code)
Terence P. Smith
The Declaration Group
555 North Lane, Suite 6160
Conshohocken, PA 19428
(Name and Address of Agent for Service)
Please send copy of communications to:
DAVID D. JONES, ESQUIRE
518 Kimberton Road, # 134
Phoenixville, Pennsylvania 19460
610-718-5381
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Approximate Date of Proposed Public Offering:
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As soon as practicable following effective date.
It is proposed that this filing will become effective (check appropriate box):
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/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(3)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant declares hereby that an indefinite number or amount of its securities
has been registered by this Registration Statement.
TOTAL NUMBER OF PAGES _____
EXHIBIT INDEX BEGINS
ON PAGE _____
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Part A
THE AVALON CAPITAL APPRECIATION FUND
(the "Fund")
A Series of The Avalon Fund of Ann Arbor, Inc.
1350 Highland Drive, Suite A
Ann Arbor, MI 48108
1-877-228-2566
PROSPECTUS
AUGUST 23, 1999
The Fund's primary investment objective is growth of capital. The Fund attempts
to achieve its investment objective by investing primarily in a diversified
portfolio of common stocks and securities convertible into common stocks.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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<PAGE>
TABLE OF CONTENTS
Risk/Return Summary
Fees And Expenses.
Financial Highlights
Investment Objectives and Policies.
Investment Adviser.
Investing In The Fund
How To Sell (Redeem) Shares
Dividends and Distributions
Principal Underwriter
Tax Considerations
General Information
Distribution Fee
<PAGE>
RISK/RETURN SUMARY
Investment Objectives and Goals
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The Fund's primary investment objective is to achieve growth of capital.
Principal Investment Strategies
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The Fund attempts to achieve its investment objective by investing at least 65%
of its assets in a diversified portfolio of common stocks and securities
convertible into common stocks. Under normal circumstances, the Fund
concentrates its investments in Small-Cap stocks. Small-Cap companies are
companies with total market capitalization of less than $1 billion. The Fund's
Adviser believes that the common stock and securities convertible into common
stock of Small-Cap companies offer the greatest long-term potential for capital
growth, due to the various dynamics that influence the growth potential of those
types of companies.
To achieve its investment objective of capital growth, the Fund seeks to invest
in companies that have an above-average potential for future earnings growth.
The Fund's portfolio manager, under the Adviser's supervision, will choose what
it considers to be the most promising investments for the Fund from those
companies identified as having the following four characteristics:
(1) A low price-to-earnings ratio based upon the trailing twelve months
earnings. The P/E ratio must be lower than average P/E ratio of the
Standard and Poors 500 Index;
(2) A strong balance sheet;
(3) A solid business which can be understood by the portfolio manager; and
(4) A catalyst event which will, in the portfolio manager's opinion, increase
the value of the shares.
In seeking to maximize the Fund's growth potential, the Fund's portfolio manager
may also sell securities short when it feels that a particular security is
vulnerable to a sudden price decline. The Fund may also invest in options
contracts when the portfolio manager's proprietary research indicates that the
Fund will benefit from such investments.
The portfolio manager will also consider industry diversification as an
important factor, and the portfolio manager's investments in certain industries
are likely to be adjusted from time to time due to the outlook for earnings in
certain sectors.
Short Sales
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The Fund may attempt to limit its exposure to possible declines in the market
value of portfolio securities through short sales of securities. The Fund also
may use short sales in an attempt to realize gain. To effect a short sale, the
Fund sells a security it does not own and simultaneously borrows the security,
usually from a brokerage firm, to make delivery to the buyer. The Fund then is
obligated to replace the borrowed security by purchasing it at the market price
at some future date. Until the security is replaced, the Fund is required to pay
the lender any accrued interest or dividends and may be required to pay a
premium.
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
The Fund will incur a loss if the price of the security increases between those
dates. The amount of any gain will be decreased, and the
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amount of any loss increased, by the amount of any premium or interest the Fund
may be required to pay in connection with a short sale. A short position may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
No short sale will be effected which will, at the time of its making, cause the
aggregate market value of all securities sold short to exceed 25% of the value
of the Fund's net assets. To secure the Fund's obligation to replace any
borrowed security, the Fund will place in a segregated account, an amount of
cash or liquid securities, at such a level that (i) the amount deposited in the
account plus the amount deposited with the broker as collateral will equal the
current value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time it was sold short;
or otherwise cover its short position in accordance with positions taken by the
SEC.
In addition to the short sales discussed above, the Fund may also make short
sales "against the box", i.e., short sales made when the Fund owns securities
identical to those sold short. The Fund may only engage in short sale
transactions in securities listed on one or more national securities exchange or
on NASDAQ.
In addition to common stock, the Fund may invest in foreign equity securities
when, in the Adviser's opinion, such investments would be advantageous to the
Fund and help the Fund to achieve its investment objective.
The Fund may also, from time to time, invest a portion of its assets in other
securities, such as corporate notes, United States Government bonds, bills, and
notes; money market instruments, repurchase agreements, and options on equities.
The Fund may also hold a portion of its assets in cash.
Principal Risks of Investing in the Fund
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Stock Market Risk. The principal risk of investing in the Fund is the risk of
losses due to declines in the prices of the common stocks held by the Fund. The
Fund invests primarily in common stock, so the Fund will be subject to the risks
associated with common stocks, including price volatility and the
creditworthiness of the issuing company. The stock market trades in cyclical
price patterns, with prices generally rising or falling over time. These
cyclical periods may last for a significant period of time.
Short Selling. The principle risks of selling short are the risk of losses due
to increases in the price of the stock sold short, losses resulting from
borrowing costs, and opportunity cost resulting from "locking in" a profit or
loss on stocks shorted "against the box".
Small-Cap Company Risk. The Fund invests in companies that are considered to be
smaller companies. Companies with small market capitalizations can be riskier
investments than larger capitalized companies, due to their lack of experience,
product diversification, cash reserves and lack of management depth.
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<PAGE>
Year 2000 Risks: As with other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers don't properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000" or "Y2K" problem. The Adviser is taking steps to address the Y2K problem
with respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Fund's other major service providers. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund.
General Risks. You may lose money by investing in the Fund. Your risk of loss is
greater if you hold your investment for shorter time periods. The Fund may be
appropriate for long-term investors who understand the potential risks and
rewards of investing in common stocks. The value of the Fund's investments will
vary from day-to-day, reflecting changes in market conditions, interest rates
and other company, political, and economic news. The Fund has a limited
operating history, and this may pose additional risks. When you sell your Fund
shares, they may be worth more or less than what you paid for them. There is no
assurance that the Fund can achieve its investment objective, since all
investments are inherently subject to market risk.
Because the Fund has not completed its first full year of operations, a
performance bar chart and table describing the Fund's annual performance and
comparing that performance to appropriate indices is not yet available. Annual
performance information will be included in the Fund's first Annual Report,
which will be issued after the end of the Fund's fiscal year, September 30,
1999. Performance information concerning the Fund's first six months of
operations is contained in the "Financial Highlights" Section of this Prospectus
and in the Fund's Semi-Annual Report, dated March 31, 1999.
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
Shareholder Fees:
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(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases 4.75%
(as a percentage of offering price)
Redemption Fees None1
(as a percentage of amount redeemed, if applicable)
Annual Fund Operating Expenses:
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(expenses that are deducted from Fund assets)
Management Fees2 1.95%
Distribution (12b-1) Fees3 1.00%
Other Expenses4 0.05%
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Total Annual Fund Operating Expenses5 3.00%
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1. The Fund will charge you an account closing fee of $10.00. This is a flat
charge that does not vary with the size of your investment. If charged,
this fee would increase your costs. This fee is not a fee to finance sales
or sales promotion expenses, but is imposed to discourage short-term
trading of Fund shares. Furthermore, such fees, when imposed, are credited
directly to the assets of the Fund to help defray the expense to the Fund
of such short-term trading activities.
2. Management fees include a fee of 0.50% for investment advisory services and
1.45% for administrative and other services. Both fees are paid to the
Fund's Adviser.
3. Because 12b-1 fees are paid out of the assets of the Fund on an ongoing
basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
4. Because the Fund has not yet completed its first full year of operations,
these expenses are estimates.
5. The Adviser has voluntarily agreed to waive receipt of its fees and/or
assume certain expenses of the Fund, if it becomes necessary, to help
ensure that the Fund's Total Annual Operating Expenses do not exceed 3.00%
annually. The Adviser may amend or terminate this agreement at any time,
but will notify you in writing at least 30 days in advance of any change.
Example: This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
One Year Three Years
-------- -----------
$ 132 $ 412
An account closing fee of $10.00 and the maximum sales charge of 4.75% is
included in these calculations.
FINANCIAL HIGHLIGHTS
The financial highlights table below is intended to help you understand the
Fund's financial performance since its inception on September 30, 1998. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has not been audited. These Financial
Highlights, along with other information concerning the Fund are included in the
Fund's semi-annual report, which is available without charge upon request.
4
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THE AVALON CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
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Per Share Data (For a Share Outstanding from
November 2, 1998* through March 31, 1999)
For the Period
Ended
March 31, 1999
(Unaudited)
--------------
Net Asset Value, Beginning of Period $ 10.00
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Investment Operations:
Net investment income 0.03
Net realized and unrealized gain on 0.03
investments
Total from investment operations 0.03
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Net Asset Value, End of Period $ 10.06
Total Return 0.60%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $ 447
Ratio of expenses to average net assets
Before Expense Reimbursement 2.71%(1)
After Expense Reimbursement 1.00%(1)
Ratio of net investment income (loss) to
average net assets
Before Expense Reimbursement (0.55)%(1)
After Expense Reimbursement 1.16%(1)
Portfolio turnover rate 8.71%
(1) Annualized
* The Avalon Capital Appreciation Fund commenced operations on November 2, 1998.
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a diversified mutual fund whose primary investment objective is
growth of capital. The Fund seeks to achieve its objective by investing
primarily in a diversified portfolio of common stock and securities convertible
into common stock of Small-Cap companies. There can be no assurance that the
Fund's investment objective will be achieved.
Described below are the primary types of securities in which the Fund may
invest. A full listing of the Fund's investment restrictions and limitations,
including those that may be changed only by vote of the Fund's shareholders, can
be found in the Fund's Statement of Additional Information ("SAI").
COMMON STOCKS. The Fund will ordinarily invest at least 65% of its assets in
common stock or securities convertible into common stock of companies with
market capitalization of less than $1 billion. The market value of common stock
can fluctuate significantly, reflecting the business performance of the issuing
company, investor perceptions and general economic or financial market
movements. Smaller companies are especially sensitive to these factors.
OPTIONS ON EQUITIES. The Fund may invest in options contracts to decrease its
exposure to the effects of changes in security prices, to hedge securities held,
to maintain cash reserves while remaining fully invested, to facilitate trading,
to reduce transaction costs, or to seek higher investment returns when an
options contract is priced more attractively than the underlying security or
index.
The Fund may write (i.e. sell) covered call options, and may purchase put and
call options, on equity securities traded on a United States exchange or
properly regulated over-the-counter market. The Fund may also enter into such
transactions on Indexes. Options contracts can include long-term options with
durations of up to three years.
The Fund may enter into these transactions so long as the value of the
underlying securities on which options contracts may be written at any one time
does not exceed 100% of the net assets of the Fund, and so long as the initial
margin required to enter into such contracts does not exceed five percent (5%)
of the Fund's total net assets. When writing covered call options, to minimize
the risks of entering into these transactions, the Fund will maintain a
segregated account with its Custodian consisting of the underlying securities
upon which the option was written, cash, cash equivalents, U.S. Government
Securities or other high-grade liquid debt securities, denominated in U.S.
dollars or non-U.S. currencies, in an amount equal to the aggregate fair market
value of its commitments to such transactions.
Risk Factors. The primary risks associated with the use of options are; (1)
imperfect correlation between a change in the value of the underlying security
or index and a change in the price of the
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<PAGE>
option or futures contract, and (2) the possible lack of a liquid secondary
market for an options or futures contract and the resulting inability of the
Fund to close out the position prior to the maturity date. Investing only in
those contracts whose price fluctuations are expected to resemble those of the
Fund's underlying securities will minimize the risk of imperfect correlation.
Entering into such transactions only on national exchanges and over-the-counter
markets with an active and liquid secondary market will minimize the risk that
the Fund will be unable to close out a position.
CASH RESERVES. The Fund may hold up to 100% of its net assets in cash to
maintain liquidity and for temporary defensive purposes.
The Fund may take a temporary defensive position when, in the Adviser's opinion,
market conditions are such that investing according to the Fund's normal
investment objectives would place the Fund in imminent risk of loss. In such an
event, the Adviser could temporarily convert some or all of the Fund's
investments to cash. Such actions are subject to the supervision of the Board of
Directors. You should be aware that any time the Fund is assuming a temporary
defensive position, the Fund will not be invested according to its investment
objectives, and its performance will vary, perhaps significantly, from its norm.
INVESTMENT ADVISER
Questar Capital Corporation (the "Adviser"), 1350 Highland Drive, Suite A, Ann
Arbor, MI 48108, under an Investment Advisory Agreement with the Fund, furnishes
investment advisory services to the Fund. The Advisor is a Michigan corporation
and has been registered as an investment adviser with the Securities and
Exchange Commission and the State of Michigan. The Adviser has been investment
adviser to the Fund since its inception. The Adviser manages the investment
portfolio and business affairs of the Fund under an Investment Advisory
Agreement with the Fund, and manages, or arranges to manage, the daily
operations of the Fund under an Operating Services Agreement.
Investment Advisory Agreement.
- ------------------------------
Under the terms of the Advisory Agreement, the Adviser manages the investment
operations of the Fund in accordance with the Fund's investment policies and
restrictions. The Adviser furnishes an investment program for the Fund,
determines what investments should be purchased, sold and held, and makes
changes on behalf of the Company in the investments of the Fund. At all times
the Adviser's actions on behalf of the Fund are subject to the overall
supervision and review of the Board of Directors of the Company,
For its investment advisory services to the Fund, the Company pays to the
Adviser, on the last day of each month, a fee equal to 0.50% of average net
asset value of the Fund, such fee to be computed daily based upon the net asset
value of the Fund.
Operating Services Agreement.
- -----------------------------
Under the terms of the Operating Services Agreement, the Adviser provides, OR
ARRANGES TO PROVIDE, day-to-day operational services to the Fund including, but
not limited to;
1. accounting 6. custodial
2. administrative 7. fund share distribution
3. legal (except litigation) 8. shareholder reporting
4. dividend disbursing and transfer agent 9. sub-accounting, and
5. registrar 10. record keeping services
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For its services to the Fund under this Agreement, the Fund pays to the Adviser,
on the last day of each month, a fee equal to 1.45% of average net asset value
of the Fund, such fee to be computed daily based upon the net asset value of the
Fund.
The Adviser may, with the Fund's permission, employ third parties to assist it
in performing the various services required of the Fund. The Adviser is
responsible for compensating such parties.
Portfolio Manager
- -----------------
The Adviser has entered into a sub-advisory agreement with Navellier Management,
Inc. ("Navellier") where Navellier will provide day-to-day portfolio management
for the Fund. Under the sub-advisory agreement, Navellier will chose the
investments for the Fund, subject to the overall supervision of the Adviser.
Navellier was founded in 1993 as an investment advisory firm whose principal
business is providing financial management services to individuals, pension
funds and institutional portfolios. Navellier presently manages approximately $2
billion in client assets.
Mr. Louis G. Navellier is the founder and President of Navellier and has been
its chief investment officer since the firm's inception. Mr. Navellier acts as
portfolio manager to the Fund. Mr. Navellier has accumulated over thirteen years
experience as an investment manager. He is a graduate of California State
university with an MBA in Finance. In 1980, Mr. Navellier began publishing the
MPT Review, a stock advisory newsletter. Since 1985, Mr. Navellier has been
actively managing investment portfolios through his company, Navellier &
Associates, Inc. In 1993, Mr. Navellier founded Navellier Management Inc. In
addition to the Fund, Navellier Management, Inc. also manages a no-load annuity
product and publishes the Blue Chip Growth newsletter.
In order to assist the Fund to grow and prosper in its first year of
development, the Adviser has voluntarily agreed to waive receipt of its fees
and/ or voluntarily assume certain Fund expenses, to cap the Fund's Total Annual
Expenses at not greater than 3.00% of average net assets. If the Adviser waives
fees and/or absorbs expenses of the Fund, such an action would have the effect
of lowering the Fund's expense ratio and increasing yield to investors during
the time such amounts are waived or assumed. The Fund will not be required to
pay the Adviser for any amounts voluntarily waived or assumed, nor will the Fund
be required to reimburse the Adviser for any amounts waived or assumed during a
prior fiscal year. The Adviser's commitment to waive fees and/or assume expenses
is entirely voluntary, and may be amended or terminated at any time upon notice
to the Board of Directors. However, should the Adviser amend or terminate its
commitment, it will notify you in writing at least 30 days prior to any change.
8
<PAGE>
INVESTING IN THE FUND
Determination of Share Price
- ----------------------------
Shares of the Fund are offered at each share's public offering price, which is
the Fund's per share net asset value ("NAV") plus the applicable sales charge.
NAV per share is calculated by adding the value of Fund investments, cash and
other assets, subtracting Fund liabilities, and then dividing the result by the
number of shares outstanding. The Fund generally determines the total value of
its shares by using market prices for the securities comprising its portfolio.
Securities for which quotations are not available and any other assets are
valued at a fair market value as determined in good faith by the Adviser,
subject to the review and supervision of the Board Of Directors.
The Fund's per share NAV is computed on all days on which the New York Stock
Exchange is open for business at the close of regular trading hours on the
Exchange, currently 4:00 p.m. East Coast time.
Sales Charges
- -------------
Shares of the Fund are subject to a maximum initial sales charge of 4.75%. This
means that when you purchase your shares, not all of your money will be
immediately invested in the Fund. Part of your purchase price will go to pay the
sales charge. You will not pay a sales charge when you redeem your shares.
You may pay a reduced sales charge, or no sales charge at all, under certain
conditions. You may pay a reduced sales charge for larger investments. The
following sales charges apply to different investment amounts:
As a Percentage As a Percentage
Amount of Purchase of Offering Price of Net Asset Value
- ------------------ ----------------- ------------------
Up to $100,000 4.75% 5.00%
$100,001 to $250,000 3.50% 3.63%
$250,001 to $500,000 2.60% 2.67%
$500,000 to $1 million 2.00% 2.04%
Over $1 million 0.00% 0.00%
Questar Capital Corporation, the Fund's principal underwriter, will pay a dealer
concession of a portion of the applicable sales charge to brokers, dealers, and
other authorized financial professionals who sell shares of the Fund. From time
to time, the Fund's principal underwriter may reallow up to 100% of the sales
charge to participating brokers and dealers. Such reallowances may based on
attainment of certain sales levels. Dealers will be notified in advance
concerning any additional reallowance program, as well as any conditions
attaching thereto. During periods when 90% or more of the sales charge is
reallowed, such dealers may be deemed to be underwriters as that term is defined
in the Securities Act of 1933.
You may purchase Class A shares at net asset value without the imposition of a
sales charge if you purchase at least $1 million in shares, in the aggregate,
within a thirteen month period. You must sign a letter of intent to accumulate
purchases at the time of your initial purchase in order to avoid
9
<PAGE>
the sales charge. If you do not complete your accumulated purchase commitment
within thirteen months, your shares will be charged the sales charge applicable
to the actually invested amount.
Sales charges do not apply to:
o Current or retired board members, officers or employees of the Fund, the
Company, the Distributor, the Transfer Agent, or their subsidiaries,
spouses and unmarried children under 21.
o Current or retired employees of the Adviser and Sub-Adviser, or their
spouses and unmarried children under 21.
o Shareholders who have at least $5 million invested in funds of the Avalon
Fund of Ann Arbor, Inc.
o Purchases made with dividend or capital gain distributions from the load
shares of another fund in the Avalon Fund of Ann Arbor, Inc.
o Current employees, officers and directors of registered brokers, dealers,
investment advisors and other companies that have in effect at the time of
purchase a selling agreement with the Company for the distribution of Fund
shares.
o Purchases of Fund shares made with the proceeds of redemptions of shares of
mutual funds not included in the Avalon Fund of Ann Arbor, Inc.
Opening and Adding To Your Account
- ----------------------------------
You can invest directly in the Fund in a number of ways. Simply choose the one
that is most convenient for you. Any questions you may have can be answered by
calling 1-877-228-2566.
Payments for Fund shares must be in U.S. dollars, and in order to avoid fees and
delays, should be drawn on a U.S. bank. Please remember that Fund management
reserves the right to reject any purchase order for Fund shares if, in the
Fund's opinion, such an order would cause a material detriment to existing
shareholders. Your purchase of Fund shares is subject to the following minimum
investment amounts:
<TABLE>
<CAPTION>
MINIMUM
INVESTMENT TO OPEN ACCOUNT TO ADD TO AN ACCOUNT
- ---------- --------------- --------------------
<S> <C> <C>
Regular Account $1,000 $500
IRAs $1,000 $ 50
10
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AUTOMATIC
INVESTMENT
PLANS
- ----------
Regular Accounts $1000 $100 per month minimum
IRAs $1000 $ 50 per month minimum
HOW TO INVEST TO OPEN AN ACCOUNT TO ADD TO ACCOUNT
- ------------- ------------------ -----------------
By Mail Complete an Account Make your check payable to
Registration Form, make The Avalon Capital Appreciation Fund
a check payable to The Avalon and mail it to the address at left.
Capital Appreciation Fund
and mail the Form and check
to The Avalon Fund of Ann Arbor Please include your account
Inc., c/o Declaration Service number on your check.
Company, 555 North Lane, Or use the convenient form
Suite 6160, Conshohocken attached to your regular
PA 19428. Fund statement.
By Wire Ask your bank to wire funds Ask your bank to wire
to Account of immediately available funds to
First Union National Bank, the location described at the
NA, ABA #: ______________ left, except that the wire should
Credit: Avalon Fund of Ann purchase rather than to open
Arbor, Inc., Acct. #: __________ a new account.
Further credit: The Avalon Capital
Appreciation Fund.
The wire should state that the Include your name and
Fund purchase is to be in your account number.
name(s).
The wire should state that you
are opening a new Fund account.
Include your name(s), address
and taxpayer identification number
or Social Security number and
the name of the Fund in which you
are purchasing shares.
Call 1-877-228-2566 to inform us
that a wire is being sent.
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By Telephone transactions may Call 1-877-228-2566 to make
Tele- not be used for initial purchases your purchase.
Phone. If you want to make
subsequent transactions via
telephone, please select
this service on your account
Registration Form.
</TABLE>
The Avalon Fund of Ann Arbor, Inc. (the "Company") wants you to be kept current
regarding the status of your account in the Fund. To assist you, the following
statements and reports will be sent to you:
Confirmation Statements After every transaction that affects your account
balance or your account registration.
Financial Reports Quarterly -- to reduce Fund expenses, only one copy of
the financial report will be mailed to each taxpayer
identification number even if you have more than one
account in the Fund.
Purchase By Mail
- ----------------
Your purchase order, if accompanied by payment, will be processed upon receipt
by Declaration Service Company, the Fund's Transfer Agent. If the Transfer Agent
receives your order and payment by the close of regular trading on the Exchange
(currently 4:00 p.m. East Coast time), your shares will be purchased at the
Fund's net asset value calculated at the close of regular trading on that day.
Otherwise, your shares will be purchased at the net asset value determined as of
the close of regular trading on the next business day.
The Company does not consider the U.S. Postal Service or any other independent
delivery service to be its agent. Therefore, deposit in the mail or with such
services, or receipt at Declaration Service Company's Post Office Box, of
purchase applications or redemption requests does not constitute receipt by the
Custodian or the Fund. Do not mail letters by overnight courier to the post
office box address. Correspondence mailed by overnight courier should be sent to
the Fund at:
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
All applications to purchase shares of the Fund are subject to acceptance or
rejection by authorized officers of the Company and are not binding until
accepted. Applications will not be accepted unless they are accompanied by
payment in U.S. funds. Payment must be made by check or money order drawn on a
U.S. bank, savings & loan or credit union. The Custodian will charge a $20.00
fee against your account, in addition to any loss sustained by the Fund, for any
payment check returned to the Custodian for insufficient funds. The Company
reserves the right to refuse to accept applications under circumstances or in
amounts considered disadvantageous to shareholders. If you
12
<PAGE>
place an order for Fund shares through a securities broker, and you place your
order in proper form before 4:00 p.m. East Coast time on any business day in
accordance with their procedures, your purchase will be processed at the public
offering price calculated at 4:00 p.m. on that day, if the securities broker
then transmits your order to the Transfer Agent before the end of its business
day (which is usually 5:00 p.m. East Coast time). The securities broker must
send to the Transfer Agent immediately available funds in the amount of the
purchase price within three business days for the order.
By Financial Service Organization
- ---------------------------------
If you are a client of a securities broker or other financial organization, you
should note that such organizations may charge a separate fee for administrative
services in connection with investments in Fund shares and may impose account
minimums and other requirements. These fees and requirements would be in
addition to those imposed by the Fund. If you are investing through a securities
broker or other financial organization, please refer to its program materials
for any additional special provisions or conditions that may be different from
those described in this Prospectus (for example, some or all of the services and
privileges described may not be available to you). Securities brokers and other
financial organizations have the responsibility of transmitting purchase orders
and funds, and of crediting their customers' accounts following redemptions, in
a timely manner in accordance with their customer agreements and this
Prospectus.
Telephone Purchases
- -------------------
In order to be able to purchase shares by telephone, your account authorizing
such purchases must have been established prior to your call. Your initial
purchase of shares may not be made by telephone. Shares purchased by telephone
will be purchased at the per share net asset value determined at the close of
business on the day that the transfer agent receives payment through the
Automatic Clearing House. Call the Transfer Agent for details.
You may make purchases by telephone only if you have an account at a bank that
is a member of the Automated Clearing House. Most transfers are completed within
three business days of your call. To preserve flexibility, the Company may
revise or eliminate the ability to purchase Fund shares by phone, or may charge
a fee for such service, although the Company does not currently expect to charge
such a fee.
Declaration Service Company, the Fund's transfer agent, employs certain
procedures designed to confirm that instructions communicated by telephone are
genuine. Such procedures may include, but are not limited to, requiring some
form of personal identification prior to acting upon telephonic instructions,
providing written confirmations of all such transactions, and/or tape recording
all telephonic instructions. Assuming procedures such as the above have been
followed, neither the Transfer Agent nor the Fund will be liable for any loss,
cost, or expense for acting upon telephone instructions that are believed to be
genuine. The Company shall have authority, as your agent, to redeem shares in
your account to cover any such loss. As a result of this policy, you will bear
the risk of any loss unless the Fund has failed to follow procedures such as the
above. However, if the Fund fails to follow such procedures, it may be liable
for such losses.
13
<PAGE>
Wire Purchases
- --------------
If you purchase Fund shares by wire, you must complete and file an Account
Registration Form with the Transfer Agent before any of the shares purchased can
be redeemed. You should contact your bank (which will need to be a commercial
bank that is a member of the Federal Reserve System) for information on sending
funds by wire, including any charges that your bank may make for these services.
Miscellaneous Purchase Information
- ----------------------------------
Federal regulations require that you provide a certified taxpayer identification
number whenever you open or reopen an account. Congress has mandated that if any
shareholder fails to provide and certify to the accuracy of the shareholder's
social security number or other taxpayer identification number, the Company will
be required to withhold a percentage, currently 31%, of all dividends,
distributions and payments, including redemption proceeds, to such shareholder
as a backup withholding procedure.
For economy and convenience, share certificates will not be issued.
HOW TO SELL (REDEEM) YOUR SHARES
You may sell (redeem) your shares at any time. You may request the sale of your
shares either by mail, by telephone or by wire.
By Mail
- -------
Sale requests should be mailed via U.S. mail or overnight courier service to:
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
The selling price of the shares being redeemed will be the Fund's per share net
asset value next calculated after receipt of all required documents in Good
Order. Payment of redemption proceeds will be made no later than the third
business day after the valuation date unless otherwise expressly agreed by the
parties at the time of the transaction.
Good Order means that the request must include:
1. Your account number.
2. The number of shares to be sold (redeemed) or the dollar value of the
amount to be redeemed.
3. The signatures of all account owners exactly as they are registered on the
account.
4. Any required signature guarantees.
5. Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships and certain other types of accounts.
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<PAGE>
Signature Guarantees --
- -----------------------
A signature guarantee of each owner is required to redeem shares in the
following situations, for all size transactions:
(i) if you change the ownership on your account;
(ii) when you want the redemption proceeds sent to a different address than is
registered on the account;
(iii) if the proceeds are to be made payable to someone other than the account's
owner(s);
(iv) any redemption transmitted by federal wire transfer to your bank; and
(v) if a change of address request has been received by the Company or
Declaration Service Company within 15 days previous to the request for
redemption.
In addition, signature guarantees are required for all redemptions of $10,000 or
more from any Fund shareholder account. A redemption will not be processed until
the signature guarantee, if required, is received in Good Order.
Signature guarantees are designed to protect both you and the Fund from fraud.
To obtain a signature guarantee, you should visit a bank, trust company, member
of a national securities exchange or other broker-dealer, or other eligible
guarantor institution. (Notaries public cannot provide signature guarantees.)
Guarantees must be signed by an authorized person at one of these institutions,
and be accompanied by the words "Signature Guarantee."
By Telephone
- ------------
You may redeem your shares in the Fund by calling the Transfer Agent at
1-877-228-2566 if you elected to use telephone redemption on your account
application when you initially purchased shares. Redemption proceeds must be
transmitted directly to you or to your pre-designated account at a domestic
bank. You may not redeem by telephone if a change of address request has been
received by the Company or the Transfer Agent within 15 days previous to the
request for redemption. During periods of substantial economic or market
changes, telephone redemptions may be difficult to implement. If you are unable
to contact the Transfer Agent by telephone, shares may be redeemed by delivering
the redemption request in person or by mail. You should understand that with the
telephone redemption option, you may be giving up a measure of security that you
might otherwise have had were you to redeem your shares in writing. In addition,
interruptions in telephone service may mean that you will be unable to effect a
redemption by telephone if desired.
Shares purchased by check for which a redemption request has been received will
not be redeemed until the check or payment received for investment has cleared.
By Wire
- -------
You may request the redemption proceeds be wired to your designated bank if it
is a member bank or a correspondent of a member bank of the Federal Reserve
System. The Custodian charges a $10 fee for outgoing wires.
15
<PAGE>
Redemption At The Option Of The Fund
- ------------------------------------
If the value of the shares in your account falls to less than $1000, the Company
may notify you that, unless your account is increased to $1000 in value, it will
redeem all your shares and close the account by paying you the redemption
proceeds and any dividends and distributions declared and unpaid at the date of
redemption. You will have thirty days after notice to bring the account up to
$1000 before any action is taken. This minimum balance requirement does not
apply to IRAs and other tax-sheltered investment accounts. This right of
redemption shall not apply if the value of your account drops below $1000 as the
result of market action. The Company reserves this right because of the expense
to the Fund of maintaining very small accounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends paid by the Fund are derived from its net investment income. Net
investment income will be distributed at least annually. The Fund's net
investment income is made up of dividends received from the stocks it holds, as
well as interest accrued and paid on any other obligations that might be held in
its portfolio.
The Fund realizes capital gains when it sells a security for more than it paid
for it. The Fund may make distributions of its net realized capital gains (after
any reductions for capital loss carry forwards), generally, once a year.
Unless you elect to have your distributions paid in cash, your distributions
will be reinvested in additional shares of the Fund. You may change the manner
in which your dividends are paid at any time by writing to Declaration Service
Company, 555 North Lane, Suite 6160, Conshohocken, PA 19428.
PRINCIPAL UNDERWRITER
Questar Capital Corporation, 1350 Highland Drive, Suite A, Ann Arbor MI 48108.
("Questar") acts as principal underwriter for the Company. The purpose of acting
as an underwriter is to facilitate the registration of the Funds' shares under
state securities laws and to assist in the sale of shares. Questar also acts as
the investment adviser to the Fund. Questar is compensated for its services to
the Fund by receiving 12b-1 fees and by retaining a portion of the sales charge
on shares sold. Questar provides services to the Fund under a written agreement
for such services.
TAX CONSIDERATIONS
The Fund intends to qualify as a regulated investment company under Sub Chapter
M of the Internal Revenue Code so as to be relieved of federal income tax on its
capital gains and net investment income currently distributed to its
shareholders. To qualify as a regulated investment company, the Fund must, among
other things, derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or other income derived with respect to its
business of investing in such stock or securities, and distribute substantially
all of such income to its shareholders at least annually.
16
<PAGE>
The Fund intends to distribute to shareholders, at least annually, usually in
December, substantially all net investment income and any net capital gains
realized from sales of the Fund's portfolio securities. Dividends from net
investment income and distributions from any net realized capital gains are
reinvested in additional shares of the Fund unless the shareholder has requested
in writing to have them paid by check.
Dividends from investment income and net short-term capital gains are generally
taxable to you as ordinary income. Distributions of long-term capital gains are
taxable as long-term capital gains regardless of the length of time shares in
the Fund have been held. Distributions are taxable, whether received in cash or
reinvested in shares of the Fund.
You will be advised annually of the source of distributions for federal income
tax purposes.
If you fail to furnish your social security or other tax identification number
or to certify properly that it is correct, the Fund may be required to withhold
federal income tax at the rate of 31% (backup withholding) from your dividend,
capital gain and redemption payments. Dividend and capital gain payments may
also be subject to backup withholding if you fail to certify properly that you
are not subject to backup withholding due to the under-reporting of certain
income.
Taxable distributions generally are included in your gross income for the
taxable year in which they are received. However, dividends declared in October,
November and December and made payable to shareholders of record in such month
will be deemed to have been received on December 31st if paid by the Fund during
the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below your
cost basis, such distribution would be taxable to you as ordinary income or as a
long-term capital gain, even though, from an investment standpoint, it may
constitute a partial return of capital. In particular, you should be careful to
consider the tax implications of buying shares of the Fund just prior to a
distribution. The price of such shares include the amount of any forthcoming
distribution so that you may receive a return of investment upon distribution
which will, nevertheless, be taxable.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. You should consult a tax Adviser regarding the effect of
federal, state, local, and foreign taxes on an investment in the Fund.
GENERAL INFORMATION
The Fund will not issue stock certificates evidencing shares. Instead, your
account will be credited with the number of shares purchased, relieving you of
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. Written confirmations are issued for all purchases of shares.
In reports or other communications to investors, or in advertising material, the
Fund may describe general economic and market conditions affecting the Fund and
may compare its performance with other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar
17
<PAGE>
nationally recognized rating services and financial publications that monitor
mutual fund performance. The Fund may also, from time to time, compare its
performance to the S&P 500, or some other appropriate index.
According to the law of Maryland, under which the Company is incorporated, and
the Company's bylaws, the Company is not required to hold an annual meeting of
shareholders unless required to do so under the Investment Company Act of 1940.
Accordingly, the Company will not hold annual shareholder meetings unless
required to do so under the Act.
DISTRIBUTION FEES
The Fund has adopted a Distribution Plan (the "12B-1 Plan"), pursuant to which
the Fund pays Questar a monthly fee for distribution services at an annual rate
of 0.25% of the Fund's average daily net assets, and a monthly fee for
shareholder servicing expenses of 0.75% per annum of the Fund's average daily
net assets on all of its share classes. Questar may, in turn, pay some or all of
such fees to third parties for providing eligible services to the Fund.
The 12B-1 Plan provides that the Fund may finance activities which are primarily
intended to result in the sale of the Fund's shares. These services include,
among other things, processing new shareholder account applications, preparing
and transmitting to the Fund's Transfer Agent computer processable tapes of all
transactions by customers, and serving as the primary source of information to
customers in answering questions concerning the Fund and their transactions with
the Fund.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
and/or shareholder servicing expenses actually incurred by Questar, and such
payments may exceed the expenses actually incurred. The Company's Board of
Directors evaluates the Plan on a regular basis.
You should be aware that if you hold your shares for a substantial period of
time, you may indirectly pay more than the economic equivalent of the maximum
front-end sales charge allowed by the National Association of Securities Dealers
due to the recurring nature of Distribution (12b-1) fees.
18
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund is available in the Fund's semi-annual
report to shareholders. In the Fund's semi-annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its first six months of operations.
STATEMENT OF ADDITIONAL BY MAIL:
INFORMATION (SAI)
The SAI contains more detailed The Avalon Fund of Ann Arbor, Inc.
Information on all aspects of the c/o Declaration Service Company
Fund. A current SAI, dated August 16, 555 North Lane, Suite 6160
1999, has been filed with the SEC Conshohocken, PA 19428
and is incorporated by reference
into (is legally a part of) this BY PHONE: 1-877-228-2566
prospectus.
ON THE INTERNET:
www.______________.com
To request a free copy of the SAI,
or the Fund's latest semi-annual Or you may view or obtain these
Report, please contact the Fund. documents from the SEC.
IN PERSON: at the SEC's Public
Reference Room in Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section,
Securities and Exchange Commission,
Washington, D.C. 20549-6009
(duplicating fee required)
ON THE INTERNET: www.sec.gov
THE AVALON CAPITAL APPRECIATION FUND
c/o Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
1-877-228-2566
Investment Company Act No.
811-08773
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION
Dated August 23, 1999
THE AVALON FUND OF ANN ARBOR, INC.
1350 Highland Drive, Suite A
Ann Arbor, MI 48108
1-877-228-2566
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of The Avalon Capital Appreciation Fund,
dated August 23, 1999. You may obtain a copy of the Prospectus, free of charge,
by writing to The Avalon Funds of Ann Arbor, Inc, c/o The Declaration Group, 555
North Lane, Suite 6160, Conshohocken, PA 19428 or by calling 1-877-228-2566.
TABLE OF CONTENTS
Management of the Fund
Investment Policies and Restrictions
Investment Adviser
Directors and Officers
Performance Information
Purchasing and Redeeming Shares
Tax Information
Portfolio Transactions
Custodian
Transfer Agent
Administration
Distributor
Legal Counsel
Distribution Plan
Financial Statements
<PAGE>
MANAGEMENT OF THE FUND
The Avalon Fund of Ann Arbor, Inc. (the "Company"), is a corporation organized
under the laws of the State of Maryland and operates as an open-end, diversified
management company. The Affairs of the Company are managed by a Board of
Directors, which approves all significant agreements between the Company and the
persons and companies that furnish services to the Fund, including agreements
with the Fund's custodian, transfer agent, investment adviser and administrator.
All such agreements are subject to limitations imposed by state and/or federal
securities laws, and to the extent that any such contract may contradict such
statutes, the contract would be unenforceable. The day-to-day operations of the
Fund are delegated to the Adviser.
The Company's Articles of Incorporation permit the Board of Directors to issue
500,000,000 shares of common stock. The Board of Directors has the power to
designate one or more classes ("series") of shares of common stock and to
classify or reclassify any unissued shares with respect to such series.
Currently, the shares of the Fund are the only class of shares being offered by
the Company. Shareholders are entitled: (i) to one vote per full share; (ii) to
such distributions as may be declared by the Company's Board of Directors out of
funds legally available; and (iii) upon liquidation, to participate ratably in
the assets available for distribution. There are no conversion or sinking fund
provisions applicable to the shares, and the holders have no preemptive rights
and may not cumulate their votes in the election of directors. The shares are
redeemable and are fully transferable. All shares issued and sold by the Fund
will be fully paid and nonassessable.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objectives and the manner in which the Fund pursues its
investment objectives are generally discussed in the prospectus. This Section
provides additional information concerning the Fund's investments and its
investment restrictions.
The Fund is a diversified Fund, meaning that as to 75% of the Fund's assets
(valued at the time of investment), the Fund will not invest more than 5% of its
assets in securities of any one issuer, except in obligations of the United
States Government and its agencies and instrumentalities, thereby reducing the
risk of loss. The Fund normally will invest at least 65% of total assets in
common stock and securities convertible into common stock. The Fund may also
invest in a variety of other securities. The primary investments of the Fund are
listed in the Prospectus. The Fund may also invest in the follwoing securities.
PREFERRED STOCK. The Fund may invest, without limitation, in preferred stock.
Preferred stock generally pays dividends at a specified rate and generally has
preference over common stock in the payments of dividends and the liquidation of
the issuer's assets. Dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Accordingly, Shareholders may
suffer a loss of value if dividends are not paid. The market prices of preferred
stocks are also sensitive to changes in interest rates and in the issuer's
creditworthiness. Accordingly, shareholders may experience a loss of value due
to adverse interest rate movements or a decline in the issuer's credit rating.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real estate investment
trusts (REITs). Equity REITs invest directly in real
1
<PAGE>
property while mortgage REITs invest in mortgages on real property. REITs may be
subject to certain risks associated with the direct ownership of real estate,
including declines in the value of real estate, risks related to general and
local economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, and variations in rental income. REITs
pay dividends to their shareholders based upon available funds from operations.
It is quite common for these dividends to exceed the REITs taxable earnings and
profits resulting in the excess portion of such dividends being designated as a
return of capital. The Fund intends to include the gross dividends from such
REITs in its distribution to its shareholders and, accordingly, a portion of the
Fund's distributions may also be designated as a return of capital. The Fund
will not invest more than 10% of its assets in REITS.
DEBT SECURITIES. The Fund may invest in corporate or U.S. Government debt
securities including zero coupon bonds. Corporate debt securities may be
convertible into preferred or common stock. In selecting corporate debt
securities for the Fund, the Adviser reviews and monitors the creditworthiness
of each issuer and issue. U.S. Government securities include direct obligations
of the U.S. Government and obligations issued by U.S. Government agencies and
instrumentalities. The market value of such securities fluctuates in response to
interest rates and the creditworthiness of the issuer. In the case of securities
backed by the full faith and credit of the United States Government,
shareholders are only exposed to interest rate risk.
Zero coupon bonds do not provide for cash interest payments but instead are
issued at a discount from face value. Each year, a holder of such bonds must
accrue a portion of the discount as income. Because issuers of zero coupon bonds
do not make periodic interest payments, their prices tend to be more volatile
than other types of debt securities when market interest rates change.
MONEY MARKET FUNDS. The Fund may invest in securities issued by other registered
investment companies that invest in short-term debt securities (i.e., money
market fund). As a shareholder of another registered investment company, the
Fund would bear its pro rata portion of that company's advisory fees and other
expenses. Such fees and expenses will be borne indirectly by the Fund's
shareholders. The Fund may invest in such instruments to the extent that such
investments do not exceed 10% of the Fund's net assets and/or 3% of any
investment company's outstanding securities.
REPURCHASE AGREEMENTS. The Fund may invest a portion of its assets in repurchase
agreements ("Repos") with broker-dealers, banks and other financial
institutions, provided that the Fund's custodian always has possession of the
securities serving as collateral for the Repos or has proper evidence of book
entry receipt of said securities. In a Repo, the Fund purchases securities
subject to the seller's simultaneous agreement to repurchase those securities
from the Fund at a specified time (usually one day) and price. The repurchase
price reflects an agreed-upon interest rate during the time of investment. All
Repos entered into by the Fund must be collateralized by U.S. Government
Securities, the market values of which equal or exceed 102% of the principal
amount of the money invested by the Fund. If an institution with whom the Fund
has entered into a Repo enters insolvency proceedings, the resulting delay, if
any, in the Fund's ability to liquidate the securities serving as collateral
could cause the Fund some loss if the securities declined in value prior to
liquidation. To minimize the risk of such loss, the Fund will enter into Repos
only with institutions and dealers considered creditworthy.
2
<PAGE>
CASH RESERVES.
- --------------
Although the Fund normally will invest its assets as described above, it may, to
meet liquidity needs or for temporary defensive purposes, ordinarily invest a
portion of its assets in cash, money market securities such as short term notes
issued by the United States Government, its agencies and/or instrumentalities,
and debentures, certificates of deposit or bankers acceptances. The Fund may
also enter into repurchase agreements. If, in the Adviser's opinion, it is
appropriate for the Fund to assume a temporary defensive posture, the Fund may
invest up to 100% of its assets in these instruments.
Restricted and Illiquid Securities.
- -----------------------------------
The Fund will not invest more than 15% of its net assets in securities that the
Adviser determines, under the supervision of the Board of Directors, to be
illiquid and/or restricted. Illiquid securities are securities that may be
difficult to sell promptly at an acceptable price because of lack of available
market and other factors. The sale of some illiquid and other types of
securities may be subject to legal restrictions. Because illiquid and restricted
securities may present a greater risk of loss than other types of securities,
the Fund will not invest in such securities in excess of the limits set forth
above.
When-Issued Securities and Delayed-Delivery Transactions.
- ---------------------------------------------------------
The Fund may purchase securities on a when-issued basis, and it may purchase or
sell securities for delayed-delivery. These transactions occur when securities
are purchased or sold by the Fund with payment and delivery taking place at some
future date. The Fund may enter into such transactions when, in the Adviser's
opinion, doing so may secure an advantageous yield and/or price to the Fund that
might otherwise be unavailable. The Fund has not established any limit on the
percentage of assets it may commit to such transactions, but to minimize the
risks of entering into these transactions, the Fund will maintain a segregated
account with its Custodian consisting of cash, cash equivalents, U.S. Government
Securities or other high-grade liquid debt securities, denominated in U.S.
dollars or non-U.S. currencies, in an amount equal to the aggregate fair market
value of its commitments to such transactions.
Portfolio Turnover.
- -------------------
The Fund has a limited operating history and therefore has no annual reportable
portfolio turnover. Higher portfolio turnover rates may result in higher rates
of net realized capital gains to the Fund, thus the portion of the Fund's
distributions constituting taxable gains may increase. In addition, higher
portfolio turnover activity can result in higher brokerage costs to the Fund.
The Fund anticipates that its annual portfolio turnover will be not greater than
50%.
The following investment restrictions are considered to be fundamental policies
of the Company and may not be changed without first obtaining the affirmative
vote of a majority of the outstanding voting securities of the Fund, which, as
used herein, means the lesser of: (1) 67% of the Fund's outstanding shares
present at a meeting at which more than 50% of the outstanding shares of the
Fund are represented either in person or by proxy, or (2) more than 50% of the
Fund's outstanding shares.
3
<PAGE>
The Fund may not:
(1) Issue senior securities.
(2) Borrow money, except that the Fund may borrow an amount representing not
greater than 5% of the total assets of the Fund from banks as a temporary
measure for emergency purposes.
(3) Underwrite the securities of other issuers.
(4) Purchase or sell real property, including limited partnership interests;
provided, however, that the Fund may purchase readily marketable interests
in real estate investment trusts or readily marketable securities of
companies, which invest in real estate.
(5) Engage in the purchase or sale of commodities or commodity contracts;
except that, in connection with the purchase of futures contracts or
options on futures contracts, the Fund may invest not more than 2.5% of the
Fund's assets as initial margin deposits or premiums for futures contracts.
Further, the Fund may enter into futures contracts and option transactions,
but only to the extent that obligations under such contracts or
transactions represent not more than 100% of the Fund's assets.
(6) Lend its assets, except that purchases of debt securities in furtherance of
the Fund's investment objectives will not constitute lending of assets and
except that the Fund may engage in repurchase agreements and may lend
portfolio securities with an aggregate market value of not more than 33
1/3% of the Fund's total net assets.(Accounts receivable for shares
purchased by telephone shall not be deemed loans.)
(7) Invest more than 25% of its total assets in securities of companies
principally engaged in any one industry, except that this restriction does
not apply to debt obligations of the United States Government which are
protected by the full faith and credit of the United States Government.
(8) Enter into short sales; provided however, that the Fund can enter into
short sales to the extent that the fair market value of such transactions
does not exceed 25% of the net assets of the Fund, and further provided
that the Fund segregate assets as described below, and only enter into such
transactions with parties from whom it has arranged a simultaneous
borrowing arrangement.
(9) (a) Invest more than 25% of the value of its total assets in securities of
any one issuer, except such limitation shall not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentality's, or
(b) acquire more than 10% of the voting securities of any one issuer.
4
<PAGE>
The following investment restrictions are not considered to be fundamental
policies of the Company and may be changed by the Board of Directors without a
shareholder vote.
The Fund may not:
(10) Invest in warrants to purchase common stock.
(11) Invest in companies for the purpose of exercising control or management
(12) Hypothecate, pledge, or mortgage any of its assets, except to secure loans
as a temporary measure for extraordinary purposes and except as may be
required to collateralize letters of credit to secure state surety bonds.
(13) Participate on a joint or joint and several basis in any trading account.
(14) Invest in any foreign securities.
(15) Invest more than 10% of its total net assets in illiquid securities.
(16) Invest in oil, gas or other mineral leases.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage, resulting from a change in values of fund
securities or amount of net assets, will not be considered a violation of any of
the foregoing restrictions.
INVESTMENT ADVISER
Information on the Fund's Investment Adviser, Questar Capital Corporation (the
"Adviser"), is set forth in the prospectus. This Section contains additional
information concerning the Adviser.
The Adviser is organized under the laws of the State of Michigan as an
investment advisory corporation and registered broker/dealer. The Adviser is
registered as an Investment Adviser with the Securities and Exchange Commission.
The Adviser manages the investment portfolio and the general business affairs of
the Fund pursuant to an investment services agreement with the Fund (the
"Agreement"). Messrs. Robert Boone and John Gakenheimer are officers of the
Adviser and Directors of the Company. Accordingly, each of those persons is
considered an "affiliated person", as that term is defined in the Investment
Company Act of 1940, as amended (the 1940 Act).
The Agreement provides that the Adviser shall not be liable for any loss
suffered by the Fund or its shareholders as a consequence of any act or omission
in connection with services under the Agreement, except by reason of the
Adviser's willful misfeasance, bad faith, negligence, or reckless disregard of
its obligations and duties under the Advisory Agreement.
5
<PAGE>
The Agreement has a term of two years, but may be continued from year to year so
long as its continuance is approved at least annually:
(a) by the vote of a majority of the Directors of the Fund who are not
"interested persons" of the Fund or the adviser cast in person at a meeting
called for the purpose of voting on such approval, and
(b) by the Board of Directors as a whole or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of the Fund.
The Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
DIRECTORS AND OFFICERS
The Board Of Directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Fund are managed by the Adviser,
subject to the bylaws of the Company and review by the Board of Directors. The
directors of the Company, including those directors who are also officers, are
listed below. The business address of each director is:
1350 Highland Drive, Suite A
Ann Arbor, Michigan 48108
Position Principal Occupation for
Name, Age with Fund The Last Five Years
- ----------------------------------------------------------------
Robert E. Boone* President, Questar Capital Corp., an investment
(65) Director advisory firm, from 7/97 to Present.
Partner, Director and Shareholder.
Partner in Mariner Financial Services, a
registered broker/dealer, from 1980-1994.
37-year career as representative and
principal engaged in selling securities
and insurance products. BS Degree, Bowling
Green State University
John H. Gakenheimer* Director President, Questar Planning Corp.,
(44) financial planning services firm, from
7/97 to Present. Twenty-First Century
Advisors, L.L.C., co-founder. 1996-7/97.
Investment advisors to hedge funds. Money
Concepts Financial Planning Center.
President. Financial Planning services.
1982-1996. Certified Financial Planner,
Registered Options Principal, Registered
Investment Advisor, BA Degree, Loyola
College.
6
<PAGE>
Richard G. Gerepka* Director Branch Manager, Questar Capital
(37) Corp., 7/97 to Present. American
Express Financial Advisors, 1990 to 1997.
Registered representative and financial
planner. Certified Financial Planner,
Registered Principal, BS Degree, New York
University.
George A. Van Niel Director SpecCon, Owner - Construction
(64) consultants. 1990 to present.
Richard Trott and Partners, Architects,
Columbus, Ohio. Principal/ Director of
Technical Services. 1987 - 1990. Frequent
lecturer and speaker. Distinguished
architectural and teaching career spanning
38 years. Registered professional
Architect, Certified Construction
Specifier, Fellow, Construction
Specifications Institute. BA degree in
Architecture, Ohio State University, 1961.
Frederick H. Hoops Director Hoops, Hoops, & Hoops, P.L.C.,
(33) Farmington, Michigan. Attorney &
Counselor at Law. 1994 to present.
Bachelor of Music Degree, University of
Michigan, 1988, Juris Doctor degree,
university of Miami School of Law, 1993.
L.L.M. in Estate Planning, University of
Miami, Ohio School of Law, 1994.
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
The table below sets forth the compensation anticipated to be paid by the
Company to each of the directors of the Company during the fiscal year ending
September 30, 1999.
7
<PAGE>
Name of Director Compensation Pension Annual Total Compensation
from Corp Benefits Benefits Paid to Director
- --------------------------------------------------------------------------------
Robert Boone $0.00 $0.00 $0.00 $0.00
President
John Gakenheimer $0.00 $0.00 $0.00 $0.00
Director
Richard G. Gerepka $0.00 $0.00 $0.00 $0.00
Director
George A. Van Niel $0.00 $0.00 $0.00 $0.00
Director
Frederick H. Hoops $0.00 $0.00 $0.00 $0.00
Director
As of March 31, 1999, the following persons owned more than 5% of the Fund's
outstanding shares.
Name & Address Number of Fund Shares Percentage of Fund
Of Shareholder Owned Total Net Assets
- --------------------------------------------------------------------------------
Aroys Flynn Hayden Trust 4,651 10.46%
FBO Bruce Hayden
120 Liberty Street, Suite 300
Ann Arbor, MI 48104
Aroys Flynn Hayden Trust 2,791 6.28%
FBO Barbara Lurkins
120 Liberty Street, Suite 300
Ann Arbor, MI 48104
Robert E. Boone, IRA 11,000 24.74%
1684 Park Side Court
Ann Arbor, MI 48108
Harold A. Wilson & 6,088 13.69%
Mary I. Wilson Trust
797 Textile Road
Ann Arbor, MI 48108
Olga Turner, IRA 7,418 16.68%
2180 Scofield-Carleton Road
Carleton, MI 48117-9593
8
<PAGE>
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Company's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
[n]
Average Annual Total Return is computed as follows: P(1+T) = ERV
Where: P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at the end of the period
Yield. The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
Yield = 2[(a-b/cd + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period
that they were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
The Fund's performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as that
shown above is useful in reviewing the Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods.
9
<PAGE>
In sales literature, the Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, the Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Redemptions will be made at net asset value. The Fund's net asset value is
determined on days on which the New York Stock Exchange is open for trading. For
purposes of computing the net asset value of a share of the Fund, securities
traded on security exchanges, or in the over-the-counter market in which
transaction prices are reported, are valued at the last sales price at the time
of valuation or, lacking any reported sales on that day, at the most recent bid
quotations. Securities for which quotations are not available and any other
assets are valued at a fair market value as determined in good faith by the
Adviser, subject to the review and supervision of the board of directors. The
price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order.
The Fund is open for business on each day that the New York Stock Exchange
("NYSE") is open. The Fund's share price or net asset value per share ("NAV") is
normally determined as of 4:00 p.m., New York time. The Fund's share price is
calculated by subtracting its liabilities from the closing fair market value of
its total assets and dividing the result by the total number of shares
outstanding on that day. Fund liabilities include accrued expenses and dividends
payable, and its total assets include the market value of the portfolio
securities as well as income accrued but not yet received. Since the Fund
generally does not charge sales or redemption fees, the NAV is the offering
price for shares of the Fund. For shares redeemed prior to being held for at
least six months, the redemption value is the NAV less a service fee equal to
0.50% of the NAV.
TAX INFORMATION
The Fund intends to qualify as a regulated investment company under SubChapter M
of the Internal Revenue Code so as to be relieved of federal income tax on its
capital gains and net investment income currently distributed to its
shareholders. To qualify as a regulated investment company, the Fund must, among
other things, derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or other income derived with respect to its
business of investing in such stock or securities.
If the Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
The Fund intends to distribute to shareholders, at least annually, substantially
all net investment income and any net capital gains realized from sales of the
Fund's portfolio securities. Dividends from net investment income and
distributions from any net realized capital gains are reinvested in additional
shares of the Fund unless the shareholder has requested in writing to have them
paid by check.
10
<PAGE>
Dividends from investment income and net short-term capital gains are generally
taxable to the shareholder as ordinary income. Distributions of long-term
capital gains are taxable as long-term capital gains regardless of the length of
time shares in the Fund have been held. Distributions are taxable, whether
received in cash or reinvested in shares of the Fund.
Each shareholder is advised annually of the source of distributions for federal
income tax purposes. A shareholder who is not subject to federal income tax will
not be required to pay tax on distributions received.
If shares are purchased shortly before a record date for a distribution, the
shareholder will, in effect, receive a return of a portion of his investment,
but the distribution will be taxable to him even if the net asset value of the
shares is reduced below the shareholder's cost. However, for federal income tax
purposes the original cost would continue as the tax basis.
If a shareholder fails to furnish his social security or other tax
identification number or to certify properly that it is correct, the Fund may be
required to withhold federal income tax at the rate of 31% (backup withholding)
from dividend, capital gain and redemption payments to him. Dividend and capital
gain payments may also be subject to backup withholding if the shareholder fails
to certify properly that he is not subject to backup withholding due to the
under-reporting of certain income.
Taxation of the Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Fund during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax Adviser regarding the
effect of federal, state, local, and foreign taxes on an investment in the Fund.
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
11
<PAGE>
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
Capital Gain Distribution. Long-term capital gains earned by the Fund from the
sale of securities and distributed to shareholders are federally taxable as
long-term capital gains, regardless of the length of time shareholders have held
their shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund, and such shares are held six months or less and are sold at
a loss, the portion of the loss equal to the amount of the long-term capital
gain distribution will be considered a long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to shareholders as
dividends, not as capital gains.
PORTFOLIO TRANSACTIONS
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, it can be expected that
the rate of portfolio turnover may be substantial. The Fund expects that its
annual portfolio turnover rate will not exceed 50% under normal conditions.
However, there can be no assurance that the Fund will not exceed this rate, and
the portfolio turnover rate may vary from year to year.
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Fund are made by the Adviser
subject to review by the Company's Board of Directors. In placing purchase and
sale orders for portfolio securities for the Fund, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser feels that better prices
are available from non-principal market makers who are paid commissions
directly.
CUSTODIAN
First Union National Bank, 1345 Chestnut Street, Philadelphia PA 19101, acts as
custodian for the Fund. As such, First Union holds all securities and cash of
the Fund, delivers and receives payment for securities sold, receives and pays
for securities purchased, collects income from investments and performs other
duties, all as directed by officers of the Company. First Union does not
exercise any supervisory function over management of the Fund, the purchase and
sale of securities or the payment of distributions to shareholders.
12
<PAGE>
TRANSFER AGENT
Declaration Services Company ("DSC") acts as transfer, dividend disbursing, and
shareholder servicing agent for the Fund pursuant to a written agreement with
the Company and the Adviser. Under the agreement, DSC is responsible for
administering and performing transfer agent functions, dividend distribution,
shareholder administration, and maintaining necessary records in accordance with
applicable rules and regulations.
For the services to be rendered as transfer agent, The Adviser shall pay
Declaration Service Company an annual fee, paid monthly, based on the average
net assets of the Fund, as determined by valuations made as of the close of each
business day of the month.
ADMINISTRATION
Declaration Services Company also acts as Administrator to the Fund pursuant to
a written agreement with the Company and Adviser. The Administrator supervises
all aspects of the operations of the Fund except those performed by the Fund's
investment Adviser under the Fund's investment advisory agreement. The
Administrator is responsible for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
For the services to be rendered as Administrator, The Adviser shall pay
Declaration Services Company an annual fee, paid monthly, based on the average
net assets of the Fund, as determined by valuations made as of the close of each
business day of the month.
DISTRIBUTOR
Questar Capital Corporation, 1350 Highland Drive, Suite A, Ann Arbor, MI 48108,
acts as the principal underwriter of the Fund's shares pursuant to a written
agreement with the Fund.
INDEPENDENT ACCOUNTANTS
McCurdy & Company, Cincinnati, Ohio will serve as the Company's independent
auditors for its first fiscal year.
13
<PAGE>
LEGAL COUNSEL
The Law Offices of David D. Jones, P.C., 518 Kimberton, # 134, Phoenixville, PA
19460, has passed on certain matters relating to this Registration Statement and
acts as counsel to the Company.
DISTRIBUTION PLAN
As noted in the Fund's Prospectus, the Fund has adopted a plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan") whereby the Fund pays 0.25% per annum of
the Fund's average daily net assets to the Adviser, Distributor, dealers and
others, for providing services relating to the distribution of the Fund's
shares, and up to a maximum of 0.75% per annum of the Fund's average daily net
assets to the Adviser, Distributor, dealers and others for personal services
and/or maintaining shareholder accounts. The fees are paid on a monthly basis,
based on the Fund's average daily net assets attributable to each class of
shares.
Pursuant to the Plan, the Adviser is entitled to a fee each month (up to the
maximum of 1.00% per annum of average net assets of each share class) for
expenses incurred in the distribution and promotion of the Fund's shares,
including but not limited to, printing of prospectuses and reports used for
sales purposes, preparation and printing of sales literature and related
expenses, advertisements, and other distribution-related expenses as well as any
distribution or service fees paid to securities dealers or others who have
executed a dealer agreement with the underwriter. Any expense of distribution in
excess of 0.25% per annum will be borne by the Adviser without any additional
payments by the Fund. You should be aware that it is possible that Plan accruals
will exceed the actual expenditures by the Adviser for eligible services.
Accordingly, such fees are not strictly tied to the provision of such services.
The Plans also provide that to the extent that the Fund, the Adviser, or other
parties on behalf of the Fund, or the Adviser make payments that are deemed to
be payments for the financing of any activity primarily intended to result in
the sale of shares issued by the Fund within the context of Rule 12b-1, such
payments shall be deemed to be made pursuant to the Plans. In no event shall the
payments made under the Plans, plus any other payments deemed to be made
pursuant to the Plans, exceed the amount permitted to be paid pursuant to the
Conduct Rules of the National Association of Securities Dealers, Inc., Article
III, Section 26(d)(4).
The Board of Directors has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities. The Board therefore believes that it will
likely benefit the Fund to have monies available for the direct distribution
activities of the Adviser in promoting the sale of the Fund's shares, and to
avoid any uncertainties as to whether other payments constitute distribution
expenses on behalf of the Fund. The Board of Directors, including the non-
interested Directors, has concluded that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plans will benefit the Fund and its shareholders.
14
<PAGE>
The Plans have been approved by the Funds' Board of Directors, including all of
the Directors who are non-interested persons as defined in the 1940 Act. The
Plans must be renewed annually by the Board of Directors, including a majority
of the Directors who are non-interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plans. The votes
must be cast in person at a meeting called for that purpose. It is also required
that the selection and nomination of such Directors be done by the
non-interested Directors. The Plans and any related agreements may be terminated
at any time, without any penalty: 1) by vote of a majority of the non-interested
Directors on not more than 60 days' written notice, 2) by the Adviser on not
more than 60 days' written notice, 3) by vote of a majority of the Fund's
outstanding shares, on 60 days' written notice, and 4) automatically by any act
that terminates the Advisory Agreement with the Adviser. The Adviser or any
dealer or other firm may also terminate their respective agreements at any time
upon written notice.
The Plans and any related agreement may not be amended to increase materially
the amounts to be spent for distribution expenses without approval by a majority
of the Fund's outstanding shares, and all material amendments to the Plans or
any related agreements shall be approved by a vote of the non-interested
Directors, cast in person at a meeting called for the purpose of voting on any
such amendment.
The Adviser is required to report in writing to the Board of Directors of the
Fund, at least quarterly, on the amounts and purpose of any payment made under
the Plans, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plans should be continued.
FINANCIAL STATEMENTS
The financial statements of the Fund are incorporated herein by reference to the
semi-annual report of the Fund, dated March 31, 1999.
15
<PAGE>
PART C
OTHER INFORMATION
Item 23 Exhibits
- ------- --------
(a) Articles of Incorporation -- Incorporated by reference from pre-effective
amendment # 2, filed on September 22, 1998
(b) Bylaws of Registrant -- Incorporated by reference from initial registration
statement, filed on May 8, 1998
(c) Instruments Defining Rights of Shareholders -- [Not Applicable]
(d) Investment Advisory Agreement -- Incorporated by reference from initial
registration statement, filed on May 8, 1998
(e) Underwriting Contracts -- Incorporated by reference from initial
registration statement, filed on May 8, 1998
(f) Bonus or Profit-Sharing Contracts -- None [Not Applicable]
(g) Custodian Agreement -- Incorporated by reference from pre-effective
amendment # 2, filed on September 22, 1998
(h) Other Material Contracts
(1) Operating Services Agreement -- Incorporated by reference from initial
registration statement, filed on May 8, 1998
(2) Investment Services Agreement -- Incorporated by reference from
initial registration statement, filed on May 8, 1998
(i) Opinion of Counsel -- Incorporated by reference from initial registration
statement, filed on May 8, 1998
(j) Other Opinions -- Incorporated by reference from pre-effective amendment #
2, filed on September 22, 1998
(k) Omitted Financial Statements -- None [Not Applicable]
(l) Initial Capital Agreements -- Incorporated by reference from pre-effective
amendment # 2, filed on September 22, 1998
(m) Rule 12b-1 Plan -- Incorporated by reference from pre-effective amendment #
2, filed on August 22, 1998
(n) Financial Data Schedule -- [Not Applicable]
(o) Rule 18f-3 Plan -- None [Not Applicable]
<PAGE>
Item 24 Persons Controlled by or under Common Control with Registrant.
- ------- --------------------------------------------------------------
No person is directly or indirectly controlled by, or under common control with
the Registrant.
Item 25 Indemnification.
- ------- ----------------
Section 2-418 of the General Corporation Law of Maryland authorizes the
registrant to indemnify its directors and officers under specified
circumstances. Section 7 of Article VII of the bylaws of the registrant (exhibit
2 to the registration statement, which is incorporated herein by reference)
provides in effect that the registrant shall provide certain indemnification to
its directors and officers. In accordance with section 17(h) of the Investment
Company Act, this provision of the bylaws shall not protect any person against
any liability to the registrant or its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Item 26 Business and Other Connections of Investment Adviser.
- ------- -----------------------------------------------------
The Adviser has no other business or other connections.
Item 27 Principal Underwriters.
- ------- -----------------------
Questar Capital Corporation, 1350 highland Drive, Suite A, Ann Arbor, MI 48108
will be the Fund's principal underwriter.
Item 28 Location of Accounts and Records.
- ------- ---------------------------------
Declaration Services Company.
555 North Lane, Suite 6160
Conshohocken, PA
Item 29 Management Services.
- ------- --------------------
Declaration Services Company.
555 North Lane, Suite 6160
Conshohocken, PA
Item 30 Undertakings.
- ------- -------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this registration Statement pursuant to Rule
485(a) under the Securities Act of 1933 and has duly caused this Registration to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Ann Arbor and State of Michigan on the 15th day of June, 1999.
The Avalon Fund of Ann Arbor, Inc.
(Registrant)
By: /s/ Robert E. Boone, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Name Title Date
- ---- ----- ----
/s/ Robert E. Boone President, Director June 15, 1999
/s/ John H. Gakenheimer Director June 15, 1999
/s/ Richard G. Gerepka Director June 15, 1999
/s/ George A. Van Niel Director June 15, 1999
/s/ Frederick H. Hoops Director June 15, 1999
