As filed with the Securities and Exchange Commission on January 31, 2000
1933 Act Registration No. 333-52243
1940 Act File No. 811-08773
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Post-Effective Amendment No. 2
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 5
--
(Check appropriate box or boxes)
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THE AVALON FUND OF MARYLAND, INC.
(Exact name of registrant as specified in charter)
1350 HIGHLAND DRIVE, SUITE A
ANN ARBOR, MICHIGAN 48108
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 355-3553 #112
TERENCE P. SMITH
THE DECLARATION GROUP
555 NORTH LANE, SUITE 6160
CONSHOHOCKEN, PENNSYLVANIA 19428
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
___ immediately upon filing pursuant to paragraph (b)
_x_ on February 1, 2000 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (Date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2) of rule 485.
___ on (Date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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<PAGE>
THE AVALON CAPITAL APPRECIATION FUND
(the "Fund")
A Series of The Avalon Fund of Maryland, Inc.
1350 Highland Drive, Suite A
Ann Arbor, MI 48108
1-877-228-2566
PROSPECTUS
FEBRUARY 1, 2000
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.
<PAGE>
TABLE OF CONTENTS
PAGE
----
RISK/RETURN SUMMARY............................................................1
PERFORMANCE INFORMATION........................................................3
FEES AND EXPENSES..............................................................5
INVESTMENT OBJECTIVES AND POLICIES.............................................6
INVESTMENT ADVISER.............................................................8
INVESTING IN THE FUND.........................................................10
HOW TO SELL (REDEEM) YOUR SHARES..............................................16
DIVIDENDS AND DISTRIBUTIONS...................................................19
PRINCIPAL UNDERWRITER.........................................................19
TAX CONSIDERATIONS............................................................19
GENERAL INFORMATION...........................................................21
DISTRIBUTION FEES.............................................................21
FINANCIAL HIGHLIGHTS..........................................................23
<PAGE>
RISK/RETURN SUMMARY
Investment Objective
- --------------------
The Fund's primary investment objective is to achieve growth of capital.
Principal Investment Strategies
- -------------------------------
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 and Mid- Cap stocks. Small and Mid-Cap
companies are companies with total market capitalization of less than $5
billion. The Fund's Adviser believes that the common stock and securities
convertible into common stock of Small and Mid-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 using
a proprietary quantitative analytical model.
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
- -----------
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.
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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 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
- ----------------------------------------
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.
2
<PAGE>
Short Selling. The principal 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.
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.
PERFORMANCE INFORMATION
The bar chart and table below provide you with information regarding the
Fund's annual return. You should bear in mind that past performance is not an
indication of future results.
The bar chart shows the total return that the Fund achieved for calendar
year 1999. The front-end sales charge (or load) that you pay when you purchase
shares of the Fund is not reflected in the bar chart. If the sales charge was
reflected, the return shown in the bar chart would be lower. Also, the Adviser
reimbursed expenses and/or waived fees that the Fund otherwise would have paid
for the year presented. If the Adviser had not taken those actions, the return
shown in the bart chart would have been lower.
3
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[GRAPHIC OMITTED] -------------------------
Highest Quarterly Return:
62.33% 45.64%, 4th Quarter, 1999
1999 Lowest Quarterly Return:
-2.14%, 1st Quarter, 1999
-------------------------
- -----------------------------------
* As a percent of average net assets
The following table compares the average annual return on shares of the
Fund with that of a broad measure of market performance over the periods
indicated. The Fund's performance presented in the table reflects the effects of
the maximum applicable sales charge and the Fund's operating expenses. No
comparable reductions have been made in the performance presented for the Index.
FOR THE PERIOD FROM
OCTOBER 2, 1998
(COMMENCEMENT OF
AVERAGE ANNUAL YEAR ENDED OPERATIONS) THROUGH
TOTAL RETURN DECEMBER 31, 1999 DECEMBER 31, 1999
- ------------ ----------------- -----------------
The Avalon Capital Appreciation Fund 62.33% 50.67%
Russell 2000 Index* 19.62% 34.04%
- ---------------------------
* The Russell 2000 Index is a broad stock index made up of 2,000 small market
capitalization companies. The Index tracks the general stock market
performance of these 2,000 companies.
4
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES:
- -----------------
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases 4.75%
(as a percentage of offering price)
Redemption Fees None(1)
(as a percentage of amount redeemed, if applicable)
ANNUAL FUND OPERATING EXPENSES:
- ------------------------------
(expenses that are deducted from Fund assets)
Management Fees(2) 1.95%
Distribution (12b-1) Fees(3) 1.00%
Other Expenses 0%
-----
Total Annual Fund Operating Expenses(4) 2.95%
=====
- ---------------------------------
(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.
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<PAGE>
(4) 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 of 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. An account closing fee
of $10.00 and the maximum sales charge of 4.75% is included in these
calculations. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
One Year Three Years
-------- -----------
$759 $1,344
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 and Mid- 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 $8 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.
6
<PAGE>
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.
RISKS ASSOCIATED WITH OPTIONS. 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 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.
7
<PAGE>
INVESTMENT ADVISER
Questar Capital Corporation (the "Adviser"), 1350 Highland Drive, Suite A,
Ann Arbor, Michigan 48108, under an Investment Advisory Agreement with the Fund,
furnishes investment advisory services to the Fund. The Advisor is a Michigan
corporation and is 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, or arranges for
the management of, 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 is responsible to
manage the investment operations of the Fund in accordance with the Fund's
investment policies and restrictions. The Adviser is responsible to furnish an
investment program for the Fund, determine what investments should be purchased,
sold and held, and make 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. The fee is computed daily based upon the net asset
value of the Fund.
The Adviser may, with the Fund's approval, retain a sub-adviser to assist
in performing the various investment management services required by the Fund.
The Adviser is responsible for compensating such sub-adviser(s).
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;
o Accounting
o Administrative
o Legal (Except Litigation)
o Dividend Disbursing and Transfer Agent
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<PAGE>
o Registrar
o Custodial
o Fund Share Distribution
o Shareholder Reporting
o Sub-accounting; and
o Record Keeping Services
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 by 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"). Under this sub-advisory agreement, Navellier
provides day-to-day portfolio management for the Fund, including the selection
of investments, 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 $4.0 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. He serves as
portfolio manager to the Fund. Mr. Navellier has over fourteen years of
experience as an investment manager. He is a graduate of California State
University, Hayward 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 series of no-load mutual funds, as well as a no- load annuity product.
9
<PAGE>
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. This action had the
effect of lowering the Fund's expense ratio and increasing the Fund's total
return 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.
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.
10
<PAGE>
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 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 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.
11
<PAGE>
o Shareholders who have at least $5 million invested in funds of
the Avalon Fund of Maryland, Inc.
o Purchases made with dividend or capital gain distributions from
the load shares of another fund in the Avalon Fund of Maryland,
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
Distributor 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
Maryland, 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 $ 100
IRAs $ 500 $ 50
AUTOMATIC INVESTMENT PLANS
- --------------------------
Regular Accounts $1,000 $ 50 per month minimum
IRAs $ 500 $ 50 per month minimum
12
<PAGE>
HOW TO INVEST TO OPEN AN ACCOUNT TO ADD TO ACCOUNT
- ------------- ------------------ -----------------
By Mail Complete an Account Registra- Make your check payable to The
tion Form, make a check payable Avalon Capital Appreciation Fund
to The Avalon Capital and mail it to the address at left.
Appreciation Fund and mail the
Form and check to The Avalon Please include your account
Fund of Maryland Inc., c/o number on your check. Or use
Declaration Service Company, the convenient form attached to
555 North Lane, Suite 6160, your regular Fund statement.
Conshohocken, PA 19428.
By Wire Ask your bank to wire funds to Ask your bank to wire immedi-
Account of First Union National ately available funds to the loca-
Bank, NA, ABA #:____________ tion described at the left, except
that the wire should purchase
Credit: Avalon Fund of Maryland, rather than to open a new ac-
Inc., Acct. #:_______ count.
Further credit: The Avalon Capital Include your name and Fund
Appreciation Fund. account number.
The wire should state that the
purchase is to be in your name(s).
The wire should state that you
are opening a new Fund account.
Include your name(s), address
and taxpayer identification num-
ber 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.
By Telephone: Telephone transactions may not Call 1-877-228-2566 to make
be used for initial purchases. If your purchase.
you want to make subsequent
transactions via telephone, please
select this service on your
account Registration Form.
</TABLE>
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<PAGE>
The Avalon Fund of Maryland, 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 Semi-annually - 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 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
14
<PAGE>
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.
15
<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.
16
<PAGE>
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.
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
17
<PAGE>
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.
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.
18
<PAGE>
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.
19
<PAGE>
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.
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.
20
<PAGE>
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 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 shareholder services at an annual
rate of 0.25% of the Fund's average daily net assets, and a monthly fee for
distribution 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.
21
<PAGE>
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.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance over the period for which it has been in operation.
Certain information reflects financial results for a single share of the Fund
calculated based on the average daily number of shares outstanding throughout
the period reported. The total return in the table represents the rate that an
investor would have earned on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
McCurdy & Associates CPA's, Inc., whose report, along with the Fund's financial
statements and related footnotes, is included in the Fund's Annual Report to
Shareholders for the fiscal year ended September 30, 1999. The Annual Report is
available from the Distributor upon request.
FOR THE YEAR ENDED
SEPTEMBER 30, 1999(1)
---------------------
Net Asset Value, Beginning of Period $ 10.00
Investment Operations:
Net investment loss (0.17)
Net realized and unrealized gain on investments 2.20
---------
Total from investment operations 2.03
---------
Net Asset Value, End of Period $ 12.03
=========
Total Return 20.30%
Ratios/Supplemental Data
Net assets, end of period (in 000's) $ 1,126
Ratio of expenses to average net assets:
Before expense reimbursement 2.95%(2)
After expense reimbursement 2.54%(2)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement (1.94%)(2)
After expense reimbursement (1.53%)(2)
Portfolio turnover rate 183.71%
- ------------------------------------
(1) The Avalon Capital Appreciation Fund commenced operations on October 2,
1998.
(2) Annualized
23
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund is available in the Fund's Annual
Report to Shareholders for the fiscal year ended September 30, 1999 and the
Fund's Statement of Additional Information ("SAI"). In the Fund's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its first fiscal year
of operations.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
AND ANNUAL REPORT BY MAIL:
The SAI and Annual Report contain more The Avalon Fund of Maryland, Inc.
detailed Information on all aspects of the c/o Declaration Service Company
Fund. A current SAI, dated February 1, 555 North Lane, Suite 6160
2000, and Annual Report have been filed Conshohocken, PA 19428
with the SEC and are incorporated by
reference into (are legally a part of) this
prospectus.
BY PHONE: 1-877-228-2566
To request a free copy of the SAI, or the Or you may view or obtain these
Fund's latest Annual Report, please contact documents from the SEC. the Fund.
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
Investment Company Act No.
811-08773
24
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 2000
THE AVALON FUND OF MARYLAND, 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 February 1, 2000. You may obtain a copy of the Prospectus, free of charge,
by writing to The Avalon Fund of Maryland, Inc, c/o The Declaration Group, 555
North Lane, Suite 6160, Conshohocken, PA 19428 or by calling 1-877-228-2566.
TABLE OF CONTENTS
PAGE
----
MANAGEMENT OF THE FUND.........................................................2
INVESTMENT POLICIES............................................................2
INVESTMENT RESTRICTIONS........................................................5
INVESTMENT ADVISER AND SUB-ADVISER.............................................7
DIRECTORS AND OFFICERS.........................................................9
PERFORMANCE INFORMATION.......................................................13
PURCHASING AND REDEEMING SHARES...............................................14
TAX INFORMATION...............................................................14
PORTFOLIO TRANSACTIONS........................................................16
CUSTODIAN.....................................................................17
TRANSFER AGENT................................................................17
ADMINISTRATION................................................................17
DISTRIBUTOR...................................................................18
DISTRIBUTION PLAN.............................................................18
INDEPENDENT ACCOUNTANTS.......................................................19
LEGAL COUNSEL.................................................................20
FINANCIAL STATEMENTS..........................................................20
<PAGE>
MANAGEMENT OF THE FUND
The Avalon Fund of Maryland, 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 100,000,000 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
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 following 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.
2
<PAGE>
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 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.
3
<PAGE>
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.
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.
4
<PAGE>
PORTFOLIO TURNOVER. For the fiscal year ended September 30, 1999, the
Fund's portfolio turnover rate was 183.7%. Higher portfolio turnover rates
(those in excess of 100%) may result in higher rates of net realized capital
gains to the Fund, causing the portion of the Fund's distributions constituting
taxable gains to 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 300%.
INVESTMENT RESTRICTIONS
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.
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.
5
<PAGE>
(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.
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 manage-
ment
(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.
6
<PAGE>
(14) Invest in foreign securities, except that the Fund may invest in
American Depository Receipts, ("ADRs"), traded on an American
exchange.
(15) Invest more than 15% 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 AND SUB-ADVISER
QUESTAR CAPITAL CORPORATION. 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. The
Adviser is registered as an investment adviser and a broker/dealer 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.
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).
7
<PAGE>
In addition to serving as Adviser, Questar Capital Corporation also serves
as the Fund's principal underwriter (or distributor) pursuant to the terms of a
distribution agreement with the Fund, and provides (or arranges for the
provision of) administrative services to the Fund pursuant to an operating
services agreement. As a part of the administrative services that Questar
Capital Corporation provides to the Fund, it arranges for the provision of
custodial services, transfer agent services, portfolio securities pricing
services, portfolio accounting services and other administrative services needed
by the Fund, and pays the fees charged by the firms providing those services out
of the administrative service fee that the Fund pays to Questar Capital
Corporation. The table below shows the total amount of fees accrued as payables
by the Fund to Questar Capital Corporation for services provided under and
pursuant to these various agreements, and also shows the total amount of such
fees actually paid by the Fund to Questar Capital Corporation after fee waivers
and expense reimbursements voluntarily made by Questar Capital Corporation.
FOR FISCAL YEAR ENDED
SEPTEMBER 30, 1999
------------------
Fees Accrued:
Advisory $ 2,589
Commissions on Sales of Fund Shares (all of $35,411
which were retained by the Distributor)
Rule 12b-1 Fees (all of which were retained
by the Distributor)
Distribution $ 3,883
Service $ 1,294
Administrative Service Fee $ 7,507
-------
TOTAL ACCRUED FEES $50,684
=======
Fee Waivers and Expense Reimbursements Volun- $ 2,109
tarily Made By Adviser -------
TOTAL FEES PAID $48,575
=======
8
<PAGE>
NAVELLIER MANAGEMENT, INC. Information on the Fund's Sub-Adviser, Navellier
Management, Inc., is set forth in the Prospectus. This Section contains
additional information concerning the Sub-Adviser.
The Adviser and the Fund have retained the services of Navellier
Management, Inc. as "Sub-Adviser" to the Fund pursuant to the terms of a
Sub-Advisory Agreement. The Sub-Adviser is registered as an investment adviser
with the Securities and Exchange Commission. The Sub-Adviser, under the
direction and supervision of the Adviser and the Fund's Board of Directors,
provides day-to-day management of the Fund's investment portfolio, including the
purchase and sale of portfolio securities.
The Sub-Advisory Agreement provides that the Sub-Adviser shall not be
liable for any loss suffered by the Fund or its shareholders as a consequence or
any act or omission in connection with services provided by the Sub-Adviser
under the Sub-Advisory Agreement, except by reason of the Sub-Adviser's willful
misfeasance, bad faith, negligence, or reckless disregard of its obligations and
duties of the Sub-Advisory Agreement. The Sub-Advisory 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 in the same manner as described for the Advisory
Agreement with Questar Capital Corporation. The Sub-Advisory Agreement will
terminate automatically in the event of its assignment (as defined in the 1940
Act).
For its services provided under the Sub-Advisory Agreement, the Sub-Adviser
is entitled to a fee in an amount equal to 0.50% of the Fund's average net
assets. The Adviser pays this fee out of the advisory fee that it receives from
the Fund. For the Fund's fiscal year ended September 30, 1999, this fee amounted
to $2,589.
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
9
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE POSITION WITH FUND FOR THE LAST FIVE YEARS
- --------- ------------------ -----------------------
<S> <C> <C>
Robert E. Boone*, 65 President, Director Questar Capital Corp., an invest-
ment advisory firm and registered
broker/dealer, from July, 1997 to
present; Partner, Director and
Shareholder in Mariner Financial
Services, a registered broker/dealer,
from 1980 to 1994. 37-year career
as representative and principal
engaged in selling securities and
insurance products. BS Degree,
Bowling Green State University
John H. Gakenheimer*, 44 Director Vice President, Questar Capital
Corporation (March, 1997 to
present); President, Twenty-First
Century Asset Mgmt, Inc., financial
planning services firm, from July,
1997 to present; Co-Founder,
Twenty-First Century Advisors,
L.L.C., 1996 to present, investment
advisor to hedge funds; President,
Money Concepts Financial
Planning Center, financial planning
services, 1982 to 1996; Certified
Financial Planner, Registered
Options Principal, Registered
Investment Advisor, Municipal
Securities Principal. BA Degree,
Loyola College.
Richard G. Gerepka*, 37 Director Branch Manager, Questar Capital
Corp., July, 1997 to present;
American Express Financial Advi
sors, 1990 to 1997. Registered
representative and financial plan
ner. Certified Financial Planner,
Registered Principal, BS Degree,
New York University.
10
<PAGE>
PRINCIPAL OCCUPATION
NAME, AGE POSITION WITH FUND FOR THE LAST FIVE YEARS
- --------- ------------------ -----------------------
George A. Van Niel, 64 Director SpecCon, Owner - Construction
consultants. 1990 to present.
Richard Trott and Partners,
Architects, Columbus, Ohio;
Principal/Director of Technical
Services. 1987 to 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 Architec-
ture, Ohio State University, 1961.
Frederick H. Hoops, 33 Director Hoops, Hoops, & Hoops, P.L.C.,
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.
</TABLE>
- -------------------
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
11
<PAGE>
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 ended
September 30, 1999.
<TABLE>
<CAPTION>
COMPENSATION PENSION TOTAL COMPENSATION
NAME OF DIRECTOR FROM CORPORATION BENEFITS ANNUAL BENEFITS PAID TO DIRECTOR
- ---------------- ---------------- -------- --------------- ----------------
<S> <C> <C> <C> <C>
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
</TABLE>
As of December 31, 1999, the following persons owned more than 5% of the
Fund's outstanding shares.
NAME & ADDRESS NUMBER OF FUND PERCENTAGE OF
OF SHAREHOLDER SHARES OWNED FUND TOTAL NET ASSETS
- -------------- ------------ ---------------------
Robert E. Boone, IRA 10,999 7.02%
1684 Park Side Court
Ann Arbor, MI 48108
Patricia L. Kaspar 9,470 6.04%
77 South Holman Way
Golden, CO 80401
Harold A. Wilson and 8,058 5.14%
Mary I Wilson Trust
797 Textile Road
Ann Arbor, MI 48108
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
12
<PAGE>
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
For the fiscal year ended September 30, 1999, the Fund's annual total
return computed in this fashion and reflecting the Fund's maximum sales charge
was 14.59%.
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 yield for the 30-day period ended September 30, 1999 was -2.55%.
13
<PAGE>
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.
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.
TAX INFORMATION
GENERAL. 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.
14
<PAGE>
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.
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
15
<PAGE>
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.
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 300% 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.
16
<PAGE>
Decisions to buy and sell securities for the Fund are made by the Adviser
and the Sub-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 and the Sub-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 is an 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 and the Sub-Adviser believe that better prices are
available from non-principal market makers who are paid commissions directly.
CUSTODIAN
First Union National Bank N.A.,530 Walnut 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.
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 pays
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:
17
<PAGE>
(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 rendered as Administrator, The Adviser pays 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.
DISTRIBUTION PLAN
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 Distributor, dealers and others, for providing services relating
to the servicing 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 Distributor for distribution. 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
18
<PAGE>
distribution or service fees paid to securities dealers or others who have
executed a dealer agreement with the underwriter. Any expense of distribution
and shareholder servicing in excess of 1.00% 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 National Association of Securities Dealers, Inc. Rule 2830.
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.
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
19
<PAGE>
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.
INDEPENDENT ACCOUNTANTS
McCurdy & Associates CPA's, Inc., Cincinnati, Ohio, serves as the Fund's
independent auditors. The audited financial statements of the Fund included and
incorporated by reference into the Prospectus and this Statement of Additional
Information have been audited by McCurdy & Associates CPA's, Inc., as indicated
in their report with respect thereto and incorporated by reference into the
Prospectus and this Statement of Additional Information and in reliance upon the
authority of said firm as experts in accounting and auditing in giving such
report.
LEGAL COUNSEL
David Jones & Assoc., P.C., 799 State Street, PMB 234, Pottstown, PA 19464,
has passed on certain matters relating to this Registration Statement. Quarles &
Brady LLP, Milwaukee, Wisconsin serves as legal counsel to the Company.
FINANCIAL STATEMENTS
The following financial statements and related footnotes of the Fund and
the Report of the Independent Public Accountants thereon are incorporated herein
by reference from the Fund's Annual Report to Shareholders for the fiscal year
ended September 30, 1999.
1. Statement of Assets and Liabilities as of September 30, 1999.
2. Statement of Operations for the fiscal year ended September 30, 1999.
3. Statement of Changes in Net Assets for the fiscal year ended September
30, 1999.
20
<PAGE>
A copy of the Annual Report to Shareholders may be obtained free of charge
by writing or calling The Avalon Fund of Maryland, Inc., c/o Declaration
Services Company, 555 North Lane, Suite 6160, Conshohocken, Pennsylvania 19428,
telephone: 1-877-228-2566.
21
<PAGE>
PART C
OTHER INFORMATION
ITEM 23 EXHIBITS
- ------- --------
(a) Articles of Incorporation - Incorporated by reference from
Pre-Effective Amendment No. 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)(1) Investment Advisory Agreement - Incorporated by reference from initial
Registration Statement, filed on May 8, 1998
(d)(2) Sub-Advisory Agreement with Navellier Management, Inc., filed herewith
(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
Amend ment No. 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
(i) Opinion of Counsel - Incorporated by reference from initial
Registration Statement, filed on May 8, 1998
(j) Accountant's Consent, filed herewith
(k) Omitted Financial Statements - None (Not Applicable)
(l) Initial Capital Agreements - Incorporated by reference from
Pre-Effective Amendment No. 2, filed on September 22, 1998
(m) Rule 12b-1 Plan - Incorporated by reference from Pre-Effective
Amendment No. 2, filed on August 22, 1998
(n) Financial Data Schedule - None (Not Applicable)
(o) Rule 18f-3 Plan - None (Not Applicable)
C-1
<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 specific
circumstances. Section 7 of Article VII of the bylaws of the
Registrant (Exhibit 2 to the Registra tion 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 by 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
(a) Questar Capital Corporation
Questar Capital Corporation serves as investment adviser to The
Avalon Capital Appreciation Fund. For information as to the
business, profes sion, vocation or employment of a substantial
nature of the Adviser, reference is made to Part A and Part B of
this Registration Statement and Form ADV filed under the
Investment Advisors Act of 1940 by the Adviser. Set forth below
is a list of the officers and directors of Questar Capital
Corporation as of December 31, 1999, together with information as
to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the
past two years:
C-2
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME QUESTAR CAPITAL MANAGEMENT BUSINESS AND OTHER CONNECTIONS
- ---- -------------------------- ------------------------------
<S> <C> <C>
Robert E. Boone President and Director None
John H. Gakenheimer Secretary/Treasurer and Director Co-Founder and Member, Twenty-
First Century Advisors, LLC
(Schaumburg, Illinois), investment
advisor to hedge funds, from June,
1996 to present; Pastor, Good
Shepherd Lutheran Church (Monroe,
Michigan), 1979 to present.
</TABLE>
(b) Navellier Management, Inc.
Navellier Management, Inc. serves as Sub-Adviser to The Avalon
Capital Appreciation Fund. For information as to the business,
profession, vocation or employment of a substantial nature of the
Sub-Adviser, reference is made to Part A and Part B of this
Registration Statement and Form ADV filed under the Investment
Advisors Act of 1940 by the Sub- Adviser. Set forth below is a
list of the officers and directors of Navellier Management, Inc.
as of December 31, 1999, together with information as to any
other business, profession, vocation or employment of a
substantial nature of those officers and directors during the
past two years:
<TABLE>
<CAPTION>
POSITION WITH
NAME NAVELLIER MANAGEMENT, INC. BUSINESS AND OTHER CONNECTIONS
- ---- -------------------------- ------------------------------
<S> <C> <C>
Louis Navellier Chief Executive Officer, President, Chief Executive Officer and
Treasurer and Secretary of Navellier President of Navellier & Associates
Management, Inc. Inc., an investment management
company headquartered in Reno,
Nevada, from 1988 to present; Chief
Executive Officer and President of
Navellier Securities Corp., a
broker dealer and mutual fund
distributor for various mutual
funds, from 1995 to present;
publisher and editor of MPT Review
from 1987 to present.
</TABLE>
C-3
<PAGE>
ITEM 27 PRINCIPAL UNDERWRITERS
(a) Not Applicable
(b) Questar Capital Corporation serves as principal underwriter for
shares of The Avalon Capital Appreciation Fund. Information with
respect to officers and directors of Questar Capital Corporation
is set forth above in response to Item 26(a). The address of each
officer and director of Questar Capital Corporation is 1350
Highland Drive, Suite A, Ann Arbor, Michigan 48108.
ITEM 28 LOCATION OF ACCOUNTS AND RECORDS
Declaration Services Company
555 North Lane, Suite 6160
Conshohocken, Pennsylvania
ITEM 29 MANAGEMENT SERVICES
Declaration Services Company
555 North Lane, Suite 6160
Conshohocken, Pennsylvania
ITEM 30 UNDERTAKINGS
None
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act 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(b) 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 28th day of January, 2000.
THE AVALON CAPITAL APPRECIATION FUND
By: /s/ Robert E. Boone
--------------------------------
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 indicated on this 28th day of January, 2000.
SIGNATURE TITLE
--------- -----
/s/ Robert E. Boone President, Director
- ------------------------------
Robert E. Boone
/s/ John H. Gakenheimer Secretary/Treasurer (Principal Accounting
- ------------------------------ Officer) and Director
John H. Gakenheimer
Richard G. Gerepka* Director
- ------------------------------
Richard G. Gerepka
George A. Van Niel* Director
- ------------------------------
George A. Van Niel
Frederick H. Hoops* Director
- ------------------------------
Frederick H. Hoops
*By: /s/ John H. Gakenheimer
-----------------------------------
John H. Gakenheimer, pursuant to Power
of Attorney dated September 25, 1998
C-5
<PAGE>
EXHIBITS
(d)(2) Sub-Advisory Agreement with Navellier Management, Inc.
(j) Accountant's Consent
C-6
EXHIBIT (D)(2)
--------------
SUB-ADVISORY AGREEMENT
WITH
NAVELLIER MANAGEMENT, INC.
<PAGE>
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
SUB-ADVISORY AGREEMENT
AGREEMENT, made this 1st day of June, 1999, between the Avalon Fund of Ann
Arbor, Inc. (the "Company"), Questar Capital Corporation ("Questar") and
Navellier Management, Inc., (the "Sub-Advisor"), registered as an investment
Advisor under the Investment Advisors Act of 1940, as amended (the "Act").
BACKGROUND
WHEREAS, the Company is registered as a diversified, open-end management
investment company of the series type under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, Questar is a corporation duly organized under the laws of the
State of Michigan and is registered as an investment adviser with the Securities
and Exchange Commission, and
WHEREAS, Questar presently serves as investment adviser to the company
under a written agreement for such services, and
WHEREAS, the Sub-Adviser is a corporation duly organized under the laws of
the State of Michigan and is registered as an investment adviser with the
Securities and Exchange Commission, and WHEREAS, Questar desires to retain the
Sub-Adviser to furnish investment advisory services to the Avalon Capital
Appreciation Fund (the "Fund") series of the company pursuant to the terms and
conditions of this Agreement, the Sub-Adviser is willing to so furnish such
services, and the Company consents to the appointment of the Sub-Adviser;
NOW THEREFORE, in consideration of the foregoing and the agreements and
covenants herein contained, the parties hereto, intending to be legally bound,
agree as follows:
1. Appointment
-----------
Questar hereby appoints the Sub-Adviser, and the Company consents to
the appointment, to act as Investment Advisor to the Avalon Capital Appreciation
Fund (the "Fund") for the periods and on the terms set forth in this Agreement.
The Sub-Adviser accepts the appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
<PAGE>
2. Delivery of Documents
---------------------
The Company has furnished the Sub-Adviser with copies properly
certified or authenticated copies of each of the following:
a. The company's Articles of Incorporation, as filed with the State of
Maryland (such Articles, as presently in effect and as from time to
time amended, are herein called the "Articles");
b. The Company's by-laws (such by-laws, as presently in effect and as
they may be from time to time amended, are herein called the
"by-laws")
c. Resolutions of the Company's Board of Directors authorizing the
appointment of the Sub-Adviser and approving this Agreement;
d. The Company's Registration Statement on form N-1A promulgated under
the 1940 Act and under the Securities Act of 1933, as amended (the
"1933 Act"), relating to shares of beneficial interest of the Fund
(herein called the "Shares") as filed with the Securities and Exchange
Commission ("SEC") and all amendments thereto;
e. The Fund's Prospectus, Statement of Additional Information (such
Prospectus, together with the statement of Additional Information, as
presently in effect and all amendments and supplements thereto are
herein called the "Prospectus")
The Company will furnish the Sub-Adviser from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to
the foregoing at the same time as such documents are required to be filed
with the SEC.
3. Management
----------
Subject to the supervision of Questar and the Company's Board of
Directors, the Sub-Adviser will provide a continuous investment program for the
Fund, including investment research and management with respect to all
securities, investments, cash and cash equivalents in the Fund. The Sub-Adviser
will determine from time to time what securities and other investments will be
purchased, retained or sold by the Fund. The Sub-Adviser will provide the
services under this Agreement in accordance with the Fund's investment
objectives, policies and restrictions as such are set forth in the prospectus
from time to time. The Sub-Adviser further agrees that it:
(a) Will conform its activities to all applicable rules and Regulations of
the SEC and will, in addition, conduct its activities under this
agreement in accordance with the regulations of any other Federal and
State agencies which may now or in the future have jurisdiction over
its activities under this Agreement.
(b) Will place orders pursuant to its investment determinations for the
Fund either directly with the respective issuers or with any broker or
dealer. In placing orders with brokers or dealers, the Sub-Adviser
will attempt to obtain the best net price and the most favorable
execution of its orders. Consistent with this obligation, when the
Sub-Adviser believes two or more brokers or dealers are comparable in
price and execution, the Sub-Adviser may prefer: (i) brokers and
dealers who provide the Fund with research advice and other services,
or who recommend or sell Fund shares, and (ii) brokers who are
affiliated with the Fund or the Sub-Adviser; provided, however, that
in no instance will portfolio securities be purchased from or sold to
the Sub-Adviser in principal transactions;
<PAGE>
(c) Will provide, at its own cost, all office space, facilities and
equipment necessary for the conduct of its advisory activities on
behalf of the Fund.
4. Services not Exclusive
----------------------
The advisory services to be furnished by the Sub-Adviser hereunder are
not to be considered exclusive, and the Sub-Adviser shall be free to furnish
similar services to others so long as its services under this Agreement are not
impaired thereby; provided, however, that without the written consent of the
Directors of the Company, the Sub-Adviser will not serve as an investment
adviser to any other investment company having a similar investment objective to
that of the Fund.
5. Books and Records
-----------------
In compliance with Rule 31a-3 promulgated under the 1940 Act, that
Sub-Adviser hereby agrees that all records which it maintains for the benefit of
the Fund are the property of the Fund and further agrees to surrender promptly
to the Fund any of such records upon the Fund's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 promulgated under
the 1940 Act, the records required to be maintained by it pursuant to Rule 31a-1
promulgated under the 1940 Act that are not maintained by others on behalf of
the Fund.
6. Expenses
--------
During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it in connection with its investment advisory services
furnished to the Fund other than the costs of securities and other investments
(including brokerage commissions and other transaction charges) purchased or
sold for the Fund.
7. Compensation
------------
Questar will pay the Sub-Adviser, and the Sub-Adviser will accept as
full compensation for its services rendered hereunder, an investment advisory
fee, computed at the end of each month and payable quarterly, according to the
following schedule:
Accounts under $25,000,000- 0.50% per annum
Next $25,000,000- 0.45% per annum
Next $50,000,000- 0.40% per annum
Over $100,000,000- 0.35% per annum
The fee is computed and billed in arrears at the end of each quarter by applying
one-fourth the annual rate to the aggregate market value of all assets in the
portfolio at the end of the quarter. The valuation of the client's portfolio is
based on the closing prices on the last day of the quarterly period. In the
event of commencement of limitation of the Agreement during a quarterly period,
the mount of the fee payable shall be prorated as of the date of the
commencement or termination.
<PAGE>
8. Limitation of Liability
-----------------------
The Sub-Adviser shall not be liable for any error of judgement,
mistake of law or for any other loss suffered by the Fund in connection with the
performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful malfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations or duties under this Agreement.
9. Duration and Termination
------------------------
This Agreement shall become effective as of June 1, 1999 and, unless
sooner terminated as provided herein, shall continue in effect for two years.
Thereafter, this Agreement shall be renewable for successive periods of one year
each, provided such continuance is specifically approved annually:
(a) By the vote of a majority of those members of the Board of Directors
who are not parties to the Agreement or interested persons of any such
party (as that term is defined in the 1940 Act), cast in person at a
meeting called for the purpose of voting on such approval; and
(b) By vote of either the Board of Directors or a majority (as that term
is defined in the 1940 Act) of the outstanding voting securities of
the Fund.
Notwithstanding the foregoing, this Agreement may be terminated by the
Company, Questar or by the Sub-Adviser at any time upon sixty (60) days written
notice, without payment of any penalty. Provided that termination by the Company
must be authorized by vote of the Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund. This Agreement will automatically
terminate in the event of its assignment (as that term is defined in the 1940
Act).
10. Amendment of this Agreement
---------------------------
No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by a written instrument signed by the party against
which enforcement of the change, waiver, discharge or termination is sought. No
material amendment of this Agreement shall be effective until approved by vote
of the holders of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act).
11. Miscellaneous
-------------
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be affected thereby. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
hereto and their respective successors.
<PAGE>
12. Counterparts
------------
This Agreement may be executed in counterparts by the parties hereto,
each of which shall constitute and original, and all of which, together, shall
constitute one Agreement.
13. Governing Law
-------------
This Agreement shall be construed in accordance with, and governed by,
the laws of the State of Michigan.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and year first
written above.
Attest: AVALON FUND OF ANN ARBOR, INC.
By: By: /s/ Robert E. Boone
----------------------- --------------------------
Title: Title: President
Attest: QUESTAR CAPITAL CORPORATION
By: By: /s/ Robert E. Boone
----------------------- --------------------------
Title: Title: President
Attest: NAVELLIER MANAGEMENT INC.
By: By: /s/ Louis G. Navellier
----------------------- --------------------------
Title: Title: President
EXHIBIT (J)
-----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A of The Avalon Fund of
Maryland, Inc. (the "Company") (Registration #333-52243) of our report, dated
October 20, 1999, relating to the financial statements and financial highlights
of the Series of the Company known as the Avalon Capital Appreciation Fund (the
"Fund"), which financial statements and financial highlights also are
incorporated by reference into this amendment to the registration statement from
the Fund's annual report to shareholders for its fiscal year ended September 30,
1999. We also consent to the references to us under the heading "Financial
Highlights" in the prospectus and under the headings "Independent Accountants"
and "Financial Statements" in the Statement of Additional Information included
in this Post-Effective Amendment.
MCCURDY & ASSOCIATES CPA'S, INC.
Westlake, Ohio
January 22, 2000
