SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss. 240.14a-11(c) orss. 240.14a-12
THE AVALON FUND OF MARYLAND, INC.
(Name of Registrant as Specified in Its Charter)
Not Applicable
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
3) Filing Party:
----------------------------------------------------------------------
4) Date Filed:
----------------------------------------------------------------------
<PAGE>
THE AVALON FUND OF MARYLAND, INC.
655 FAIRFIELD COURT, SUITE 200
ANN ARBOR, MI 48108
1-877-228-2566
January ___, 2001
Dear Avalon Capital Appreciation Fund Shareholder:
Enclosed is a notice of a Special Meeting of Shareholders of the Avalon
Capital Appreciation Fund (the "Fund"), a series of The Avalon Fund of Maryland,
Inc. ("Avalon"), to be held on January 30, 2001, together with a Proxy Statement
and Form of Proxy relating to the business to be transacted at the meeting.
The Special Meeting of Shareholders is being called for the following
purposes:
1. To consider approval of a new Advisory Agreement (the "New Advisory
Agreement") between Avalon (on behalf of the Fund) and Questar Capital
Corporation ("Questar"), the current investment adviser and
distributor and administrator for the Fund;
2. To consider the approval of a new Sub-Advisory Agreement (the "New
Subadvisory Agreement") between Questar and Navellier Management, Inc.
("Navellier"), the current subadviser of the Fund; and
3. To elect five Directors of Avalon.
Approval of the New Advisory and Sub-Advisory Agreements is necessary
because the current Advisory and Sub-Advisory Agreements will terminate
automatically as a result of a pending restructuring of the ownership of
Questar. Questar's shareholder and Directors have determined to reorganize into
a holding company format designed to facilitate more efficient operation of
Questar's business. In the restructuring, Questar's sole shareholder will sell
his stock in Questar to Yorktown Financial Companies, Inc. ("Yorktown"), a
holding company owned by officers and employees of Questar. Yorktown presently
serves as an outsourcing service provider for much of the business and services
conducted and provided by Questar, including many administrative services that
Questar provides to the Fund. Provisions of federal securities laws provide for
the automatic termination of investment advisory agreements, such as the Fund's
current Advisory and Sub-Advisory Agreements, in connection with change-in-
control transactions that affect a mutual fund's investment adviser. In order
for Questar and Navellier to continue serving as adviser and subadviser,
respectively, to the Fund following this transaction, shareholders of the Fund
first must approve the New Advisory and Sub-Advisory Agreements.
<PAGE>
THE TERMS OF THE NEW ADVISORY AND SUB-ADVISORY AGREEMENTS, INCLUDING THE
SERVICES TO BE PROVIDED AND THE RELATED FEES, ARE SUBSTANTIVELY IDENTICAL TO
THOSE OF THE CURRENT ADVISORY AND SUB-ADVISORY AGREEMENTS. UNDER THESE NEW
AGREEMENTS, QUESTAR WILL CONTINUE AS THE ADVISER FOR THE FUND AND NAVELLIER WILL
CONTINUE AS SUBADVISER. THEY WILL CONTINUE TO MANAGE THE ASSETS OF THE AVALON
CAPITAL APPRECIATION FUND PURSUANT TO THE SAME INVESTMENT OBJECTIVES AND
POLICIES PRESENTLY IN EFFECT FOR THE FUND, AND THE TEAM OF INVESTMENT
PROFESSIONALS AND ANALYSTS AT NAVELLIER HEADED BY THE CURRENT PORTFOLIO MANAGER
WILL CONTINUE TO BE RESPONSIBLE FOR MAKING INVESTMENT DECISIONS FOR THE FUND.
The Board of Directors has unanimously approved the New Advisory Agreement
and the New Sub-Advisory Agreement and recommends that the shareholders of the
Avalon Capital Appreciation Fund do likewise. Questar will bear all costs of
this proxy solicitation and any costs related to the Special Meeting of
Shareholders. The Fund will not be responsible for any of these costs.
In addition to the approval of the New Advisory Agreement and the New
Sub-Advisory Agreement, Shareholders will be asked to elect Directors. Nominees
for five positions will stand for election, including four presently serving
Directors. Mr. John H. Gakenheimer, a vice president and the sole shareholder of
Questar, who presently serves as the fifth Director, will resign as a Director.
The Board has nominated Mr. Terence Smith for election to the vacancy being
created with Mr. Gakenheimer's resignation. Mr. Smith is the Chief Executive
Officer of Declaration Holdings, Inc., which, through its affiliate, Declaration
Service Company, provides pricing, fund accounting, transfer and dividend
disbursing agent, shareholder servicing and related administrative services to
the Fund. Mr. Smith has over 20 years of experience in the mutual fund industry.
The Avalon Board believes Mr. Smith's background and experience will be a
valuable resource for the Board in carrying out its responsibilities to the Fund
and its shareholders.
Thank you for your continued confidence in The Avalon Fund of Maryland,
Inc. Your cooperation and participation in completing and returning the enclosed
proxy will ensure that your vote is counted.
Very truly yours,
THE AVALON FUND OF MARYLAND, INC.
Robert E. Boone
President
<PAGE>
THE AVALON FUND OF MARYLAND
THE AVALON CAPITAL APPRECIATION FUND
655 FAIRFIELD COURT, SUITE 200
ANN ARBOR, MI 48108
1-877-228-2566
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON JANUARY 30, 2001
TO SHAREHOLDERS OF AVALON CAPITAL APPRECIATION FUND:
A Special Meeting of Shareholders of the Avalon Capital Appreciation Fund
(the "Fund") of The Avalon Fund of Maryland, Inc. ("Avalon") will be held on
January 30, 2001 at __________local time, at the offices of Questar Capital
Corporation, 655 Fairfield Court, Suite 200, Ann Arbor, Michigan, for the
following purposes:
1. To approve, with respect to the Fund, a new Advisory Agreement between
Avalon, on behalf of the Fund, and Questar Capital Corporation
("Questar"), the Fund's current investment adviser, pursuant to which
Questar will continue to serve as investment adviser to the Fund on
terms substantively identical to the terms of the existing Advisory
Agreement between those parties. A copy of the Advisory Agreement is
attached as Appendix A to the enclosed Proxy Statement;
2. To approve, with respect to the Fund, a new Sub-Advisory Agreement
between Questar and Navellier Management, Inc. ("Navellier"), pursuant
to which Navellier will continue to serve as subadviser with respect
to the assets of the Fund on terms substantively identical to the
terms of the existing Sub-Advisory Agreement between those two parties
with respect to the Fund. A copy of the proposed new Sub-Advisory
Agreement is attached as Appendix B to the enclosed Proxy Statement;
3. To vote on the election as Directors of four persons presently serving
as Directors and a fifth individual nominated by the Board of
Directors to fill a vacancy; and
4. To transact such other business as properly may come before the
meeting or an adjournment thereof.
<PAGE>
The Board of Directors has fixed the close of business on December 22, 2000
as the record date for determining shareholders entitled to notice of, and to
vote at, the Special Meeting and any adjournment thereof. Only shareholders of
record at the close of business on that date will be entitled to vote.
Your attention is invited to the Proxy Statement accompanying this notice
for more complete information regarding the matters to be acted upon at the
Special Meeting.
By Order of the Board of Directors
JOHN H. GAKENHEIMER
Secretary
Ann Arbor, Michigan
January ___, 2001
YOUR VOTE IS IMPORTANT. IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF A SECOND
SOLICITATION, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
PROXY STATEMENT
THE AVALON FUND OF MARYLAND, INC.
AVALON CAPITAL APPRECIATION FUND
655 Fairfield Court, Suite 200
Ann Arbor, MI 48108
(877) 228-2566
SOLICITATION, PURPOSE AND VOTING
SOLICITATION
The enclosed Proxy is being solicited by the Board of Directors of The
Avalon Fund of Maryland, Inc. ("Avalon") in connection with the Special Meeting
of Shareholders of the Avalon Capital Appreciation Fund (the "Fund") to be held
on January 30, 2001 at _____, local time, at the offices of Questar Capital
Corporation, 655 Fairfield Court, Suite 200, Ann Arbor, Michigan, or any
adjournment thereof (the "Special Meeting"). We encourage you to read this Proxy
Statement carefully and mark and return the accompanying proxy.
PROPOSAL 1 - APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
At the Special Meeting shareholders will be asked to consider and vote upon
a proposal to approve a new Advisory Agreement (the "New Advisory Agreement")
between Avalon (on behalf of the Fund) and Questar Capital Corporation
("Questar"). Questar presently serves as investment adviser to the Fund pursuant
to an existing Advisory Agreement by and between Avalon and Questar. The
existing Advisory Agreement automatically will terminate as a result of a
pending holding company restructuring transaction that will cause a change in
control of Questar. Under provisions of the Investment Company Act of 1940 (the
"1940 Act"), Questar can continue serving as investment adviser to the Fund
after this restructuring transaction only if the shareholders of the Fund
approve the New Advisory Agreement. The proposed New Advisory Agreement is
substantively identical to the existing Advisory Agreement by and between Avalon
and Questar, including with respect to the services to be provided by Questar
and the fees to be paid by the Fund for those services. A copy of the proposed
New Advisory Agreement is attached as Appendix A to this Proxy Statement. See
"Proposal 1 - Approval of New Advisory Agreement" below.
<PAGE>
PROPOSAL 2
At the Special Meeting, shareholders also will be asked to consider and
vote upon a proposal to approve a new Sub-Advisory Agreement (the "New
Sub-Advisory Agreement") between Questar and Navellier Management, Inc.
("Navellier"), the current subadviser for the Fund. As subadviser, Navellier
presently manages the assets of the Fund on a day-to-day basis, subject to the
oversight of Questar and Avalon's Board of Directors. Navellier's services as
subadviser are governed by the terms of an existing Sub-Advisory Agreement by
and between Questar and Navellier. Like the existing Advisory Agreement, the
existing Sub-Advisory Agreement automatically will terminate upon completion of
the pending restructuring Transaction affecting Questar. The Fund's shareholders
are being asked to approve the New Sub-Advisory Agreement, so that Navellier can
continue to serve as subadviser to the Fund following completion of that
restructuring Transaction. The terms of the New Sub-Advisory Agreement are
substantively identical to the terms of the existing Sub-Advisory Agreement,
including the services to be provided by Navellier and the fees that Questar
will pay Navellier for those services. A copy of the New Sub-Advisory Agreement
is attached as Appendix B to this Proxy Statement. See "Proposal 2 - Approval of
New Sub-Advisory Agreement" below.
PROPOSAL 3
At the Special Meeting, shareholders will be asked to elect Directors to
the Board of Directors. Four current Directors will stand for election, and the
Board has nominated a fifth individual for election to the Board to fill the
vacancy being created by the resignation of Mr. John H. Gakenheimer as a
Director. See "Proposal 3 - Election of Directors" below.
QUORUM AND VOTING
Shares represented by properly executed proxies received by Avalon will be
voted at the Special Meeting and any adjournment thereof in accordance with the
terms of such proxies. However, if no instructions are specified, shares will be
voted "FOR" approval of the New Advisory Agreement under Proposal 1, "FOR"
approval of the New Sub-Advisory Agreement under Proposal 2, and "FOR" all give
nominees to the Board of Directors under Proposal 3. Proxies will be voted in
the discretion of the persons named in the proxy on any other proposals properly
brought before the meeting. Management presently does not anticipate that any
other matters will be considered at the meeting.
A shareholder may revoke his or her proxy at any time prior to the voting
thereof by filing a written notice of revocation with the Secretary of Avalon,
by delivering a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting his or her shares in person.
The presence at the meeting, in person or by proxy, of shareholders
representing a majority of all shares of the Fund outstanding and entitled to
vote on a matter constitutes a quorum for the transaction of business. In
tabulating votes on any matter, abstentions and broker non-votes (i.e., proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote shares
as to
2
<PAGE>
a matter with respect to which the brokers or nominees do not have discretionary
power to vote) will be treated as present for purposes of determining the
presence or absence of a quorum.
Approval of each of the New Advisory and Sub-Advisory Agreements (Proposals
1 and 2, respectively) requires the affirmative vote of "a majority of the
outstanding voting securities" of the Fund, which is defined under the 1940 Act
to mean at least a majority of the outstanding voting shares of the Fund or, if
less, 67% of the voting shares represented at a meeting at which the holders of
50% or more of the outstanding voting shares of the Fund are present or
represented by proxy. Accordingly, abstentions and broker non-votes will have
the same effect as votes cast against approval of the New Advisory and
Sub-Advisory Agreements.
In order for a nominee to be elected as a Director under Proposal 3, the
nominee must receive a "majority" of the votes cast by holders of shares of the
Fund represented in person or by proxy and entitled to vote at the special
meeting, assuming a quorum. Votes attempted to be cast against a Director
nominee are not given legal effect and are not counted as votes cast in the
election of Directors.
Shareholders of record of The Avalon Capital Appreciation Fund at the close
of business on Friday, December 22, 2000 will be entitled to one vote on each
matter presented for each share so held. At that date, there were _______ shares
of the Fund outstanding.
UPON REQUEST AND AT NO COST TO A REQUESTING SHAREHOLDER, THE FUND WILL
MAIL, BY FIRST-CLASS MAIL, COPIES OF ITS ANNUAL REPORT TO SHAREHOLDERS FOR THE
YEAR ENDED SEPTEMBER 30, 2000. REQUESTS SHOULD BE DIRECTED TO THE ATTENTION OF
MR. ROBERT BOONE, PRESIDENT OF THE AVALON FUND OF MARYLAND, INC., 655 FAIRVIEW
COURT, SUITE 200, ANN ARBOR, MICHIGAN, 48108, TELEPHONE: (877) 228-2566.
This proxy material is being mailed to shareholders on or about January
___, 2001.
3
<PAGE>
PROPOSAL 1 - APPROVAL OF NEW ADVISORY AGREEMENT
BACKGROUND
Questar presently serves as investment adviser to the Fund pursuant to the
terms of an Advisory Agreement between Avalon, on behalf of the Fund, and
Questar, dated September 27, 1998, as amended April 17, 2000 (the "Existing
Advisory Agreement"). All of the outstanding capital stock of Questar presently
is owned by Mr. John H. Gakenheimer. Mr. Gakenheimer has entered into a Stock
Purchase Agreement with Yorktown Financial Companies, Inc. ("Yorktown"),
pursuant to which Mr. Gakenheimer has agreed to sell all of his shares of stock
in Questar to Yorktown for cash (the "Transaction"). The Transaction will result
in a change in control of Questar because, following the Transaction, Mr.
Gakenheimer no longer will have majority control of either Questar or Yorktown.
This change-in-control Transaction constitutes an "assignment" of the Current
Advisory Agreement. Provisions of the 1940 Act and of the Existing Advisory
Agreement provide for its automatic termination upon assignment.
In order for Questar to continue serving as investment adviser to the Fund
following the Transaction, Avalon (on behalf of the Fund) must enter into a New
Advisory Agreement with Questar. Provisions of the 1940 Act require that the New
Advisory Agreement must be approved by the shareholders of the Fund.
Accordingly, shareholders are being asked to approve the New Advisory Agreement
at the Special Meeting.
DESCRIPTION OF THE TRANSACTION
Yorktown is a financial services company that provides employee,
administrative and other operational support services to Questar under the terms
of an operating agreement. Yorktown is owned by members of its board of
directors and its officers and employees. Mr. John H. Gakenheimer, the sole
shareholder of Questar, owns a minority interest in Yorktown.
Mr. Gakenheimer and the Board of Directors of Questar have determined that
Questar's business plans and goals can better be achieved through a holding
company structure, in which Questar would become a wholly-owned subsidiary of
Yorktown. As a regulated investment adviser and broker/dealer, Questar's
business operations and finances are highly regulated. Management of Questar and
Yorktown believe that the flexibility of less regulated business operations and
broader financing opportunities associated with a financial holding company will
enhance Questar's ability to expand its current and future lines of business and
operate more efficiently.
To this end, Mr. Gakenheimer and Yorktown have entered into a Stock
Purchase Agreement pursuant to which Yorktown has agreed to purchase from Mr.
Gakenheimer all of the outstanding shares of common stock of Questar for cash in
the amount of $127,000. The parties have received required approval from the
National Association of Securities Dealers, Inc. for Yorktown's proposed
acquisition of Questar, and presently anticipate that the
4
<PAGE>
Transaction will close on or about January 31, 2001, subject to approval of the
New Advisory and Sub-Advisory Agreements by shareholders of the Fund.
CONSEQUENCES OF THE TRANSACTION
Except for the change in ownership of Questar, management of Questar has
represented to Avalon's Board of Directors that the Transaction will have no
impact on the manner or scope of services that Questar provides to the Fund or
the personnel that provide those services. No changes are anticipated in the
members of the Board of Directors or of the executive officers of Questar.
Questar will continue to conduct its business as an NASD member broker/dealer
and a federally registered investment adviser, including without limitation the
distribution and administrative support services it presently provides to the
Fund. The Transaction will not affect the investment objective, policies or
programs of the Fund, and, subject to approval of the New Advisory and
Sub-Advisory Agreements by shareholders of the Fund, Navellier will continue to
manage the day-to-day investment of the Fund's assets following the transaction
in accordance with those same investment objectives, policies and programs (see
Proposal 2 below).
DESCRIPTION OF CURRENT ADVISORY AGREEMENT
Questar, 655 Fairfield Court, Suite 200, Ann Arbor, MI 48108, presently
serves as investment adviser for the Fund. Under the Existing Advisory
Agreement, the fee payable by the Fund to Questar, which is calculated daily and
paid monthly, is at the annual rate of 0.5 of 1% of the Fund's average daily net
assets. As described below (see Proposal 2 - Approval of New Sub-Advisory
Agreement), Questar has retained Navellier as subadviser to attend to the
day-to-day management of the Fund's portfolio securities and other assets.
Unless earlier terminated as described below, the terms of the Existing
Advisory Agreement remain in effect from year to year only so long as such
continuance is specifically approved at least annually in the manner required
under the 1940 Act. The 1940 Act provides that the requisite approval shall be
deemed to have been obtained only if the Existing Advisory Agreement is
specifically approved at least annually: (i) by the vote of a majority of the
Directors who are not parties to the Existing Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party cast in person at a
meeting called for the purpose of voting on such approval; and (ii) either by
the vote of a majority of the entire Board of Directors or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Fund. The Existing Advisory Agreement was last approved for
annual renewal by the Board of Directors on April 17, 2000.
The Existing Advisory Agreement further provides that it may be terminated
by Questar at any time without penalty upon giving Avalon sixty (60) days prior
written notice, and can be terminated by Avalon at any time without penalty upon
giving Questar sixty (60) days prior written notice. In addition, the Existing
Advisory Agreement automatically terminates in the event of its "assignment" (as
defined in the 1940 Act), including assignment in connection with a
change-of-control of Questar, such as in connection with the Transaction.
5
<PAGE>
DESCRIPTION OF NEW ADVISORY AGREEMENT
The New Advisory Agreement differs from the Existing Advisory Agreement
only with respect to the effective date and termination date. In all other
respects, the New Advisory Agreement and the Existing Advisory Agreement are
identical, including with respect to the services to be provided by Questar and
the fees to be paid by the Fund to Questar for those service. Subject to
approval by the shareholders, the New Advisory Agreement will take effect
concurrently with the completion of the Transaction, will expire two years after
its effective date, unless approved for annual continuance prior to that time in
accordance with the procedures described above for the Existing Advisory
Agreement.
The New Advisory Agreement, like the Existing Advisory Agreement, provides
that the officers, directors, agents, employees, controlling persons,
shareholders and any other person or entity affiliated with Questar (including
Yorktown and its officers, directors and share holders) shall not be liable to
Avalon, the Fund or the Fund's shareholders for any loss suffered as a
consequence of any act or omission of Questar or any of the foregoing related
parties or entities in connection with the New Advisory Agreement, except by
reason of that party's willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
under the New Advisory Agreement.
APPROVAL REQUIRED
In order to be approved, the New Advisory Agreement must receive the
affirmative vote of at least a majority of the outstanding shares of the Fund,
or if less, 67% of the shares represented at a meeting of shareholders at which
the holders of 50% or more of the outstanding shares of the Fund are present or
represented by proxy. See "Solicitation, Purpose and Voting - Quorum and Voting"
above.
COMPLIANCE WITH SECTION 15(F) OF THE 1940 ACT
Section 15(f) of the 1940 Act permits Questar or any of its affiliates to
receive any compensation or benefit in connection with a change-in-control
transaction, only if two conditions are satisfied.
First, no unfair burden may be imposed on the Fund as a result of the
transaction or any expressed or implied terms, conditions or understandings,
applicable thereto. The term "unfair burden," as defined in the 1940 Act,
includes any arrangement during the two-year period after the transaction
whereby Questar (or any predecessor or successor adviser), or any interested
person of Questar or of such predecessor or successor adviser, receives or is
entitled to receive any compensation, directly or indirectly from the Fund or
its security holders (other than fees for bona fide sub-advisory or other
services) or from any person in connection with the purchase or sale of
securities or any property to, from, or on behalf of the Fund (other than fees
for bona fide principal underwriting services). No such compensation
arrangements are associated with the Transaction.
6
<PAGE>
The second condition is that, during the three-year period immediately
following consummation of the Transaction, at least 75% of Avalon's Board of
Directors must not be "interested persons" (as that term is defined in the 1940
Act) of Yorktown. Presently Mr. Robert E. Boone and Mr. John H. Gakenheimer (who
are shareholders, officers and directors of Yorktown) are the only members of
Avalon's Board of Directors who are "interested persons" of Yorktown. In
connection with the Transaction, Mr. Gakenheimer is resigning from his position
as a Director of Avalon, and the Board has nominated Mr. Terence P. Smith for
election to fill this vacancy. Subject to the shareholders electing the slate of
Directors nominated for election to Avalon's Board of Directors, following the
Transaction, Mr. Boone will be the only one of the five Directors who will be an
"interested person" of Yorktown.
DIRECTORS' CONSIDERATIONS AND RECOMMENDATION
In considering the New Advisory Agreement, the Board of Directors carefully
evaluated a number of relevant factors, including but not limited to: (1) the
fees and expense ratios (including advisory fees) of the Fund; (2) the
historical performance of the Fund; (3) the nature and quality of the services
that have been rendered by Questar and are expected to be rendered to the Fund
by Questar in the future; (4) the distinct investment objectives and policies of
the Fund; (5) the fact that the compensation payable to Questar under the New
Advisory Agreement is at the same rate as the compensation payable to Questar
under the New Advisory Agreement; (6) the fact that the other terms of the New
Advisory Agreement are identical, in all material respects, to those of the
Existing Advisory Agreement; (7) the absence of any special or inappropriate
benefits that would be obtained by Yorktown and its affiliates (including
Questar) from the relationship, including the absence of any soft dollar
arrangement; and (8) other factors deemed relevant by the Board. The Board of
Directors has been advised that the management, operations and personnel of
Questar currently responsible for providing services to the Fund will not change
as a result of the Transaction, and the services Questar renders to the Fund are
not expected to be affected.
Based upon these considerations, the Board unanimously determined that it
would be in the best interests of the Fund to have Questar continue serving as
the Fund's investment adviser following the Transaction. The Board of Directors
has further unanimously determined that the terms of the New Advisory Agreement
are fair to, and in the best interests of, the Fund and its shareholders.
Avalon, on behalf of the Fund, expects to enter into the New Advisory Agreement
concurrently with completion of the Transaction, subject to shareholder
approval.
ACCORDINGLY, THE BOARD OF DIRECTORS, INCLUDING ALL OF THE DIRECTORS WHO ARE
NOT "INTERESTED PERSONS" OF QUESTAR OR YORKTOWN, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" APPROVAL OF THE NEW ADVISORY AGREEMENT.
7
<PAGE>
PROPOSAL 2 - APPROVAL OF NEW SUB-ADVISORY AGREEMENT
BACKGROUND
Navellier, One East Liberty Street, Reno, Nevada 89501, presently serves as
subadviser for the Fund pursuant to terms of a Sub-Advisory Agreement, dated
June 1, 1999, as amended April 17, 2000, by and between Navellier and Questar
(the "Existing Sub-Advisory Agreement"). As subadviser, Navellier manages the
day-to day investment decisions with respect to the Fund's portfolio securities
in accordance with the investment objective, policies and programs described in
the Fund's current prospectus. Questar pays Navellier's fees out of the
investment advisory fee that the Fund pays to Questar. The Fund, therefore pays
no fees directly to Navellier for its services as subadviser.
Provisions of the 1940 Act and of Existing Sub-Advisory Agreement provide
for the automatic termination of the Existing Sub-Advisory Agreement upon
completion of the change-in-control Transaction affecting Questar. In order for
Navellier to continue serving as subadviser to the Fund following the
Transaction, other provisions of the 1940 Act provide that the shareholders of
the Fund first must approve the New Sub-Advisory Agreement. Accordingly,
shareholders of the Fund are being asked to approve the New Sub-Advisory
Agreement at the Special Meeting.
DESCRIPTION OF EXISTING SUB-ADVISORY AGREEMENT
Under the terms of the Existing Sub-Advisory Agreement, Navellier, subject
to the oversight of Questar and the Board of Directors of Avalon, determines the
securities that are purchased or sold by the Fund, arranges for their purchase
and sale and renders other assistance to Questar in formulating and implementing
the investment program of the Fund. Navellier furnishes or pays for all
facilities, equipment and supplies required for it to carry out its duties under
the Existing Sub-Advisory Agreement, including, but not limited to, office
space, office equipment, furnishings and personnel. Under the Existing
Sub-Advisory Agreement, Navellier receives a fee, calculated daily and paid
monthly out of the fee paid to Questar under the Existing Advisory Agreement, at
an annual rate of 0.50 of 1% of the Fund's average daily net assets. The
Existing Sub-Advisory Agreement was approved by shareholders of the Fund at a
special meeting held on July 26, 1999, and was last approved for annual renewal
by the Board of Directors on April 17, 2000.
Unless earlier terminated as described below, the Existing Sub-Advisory
remains in effect for two (2) years. The Existing Sub-Advisory Agreement further
provides that it may be terminated by Navellier at any time without penalty upon
giving Avalon and Questar sixty (60) days' prior written notice, and could be
terminated by Avalon or Questar at any time without penalty upon giving
Navellier sixty (60) days' prior written notice, provided that such termination
by Avalon is directed or approved by the vote of a majority of all of its
Directors in office at the time or by the vote of the holders of a "majority"
(as defined in the 1940 Act) of the voting securities of the Fund. In addition,
the Existing Sub-Advisory Agreement also terminates automatically in the event
that the Existing Advisory Agreement is terminated.
8
<PAGE>
DESCRIPTION OF NEW SUB-ADVISORY AGREEMENT
The New Sub-Advisory Agreement differs from the Existing Sub-Advisory
Agreement only with respect to the effective date and termination date. In all
other respects, the New Sub-Advisory Agreement and the Existing Sub-Advisory
Agreement are identical, including with respect to the services to be provided
by Navellier thereunder and the amount and source of fees it will receive for
those services.
The New Sub-Advisory Agreement, like the Existing Sub-Advisory Agreement,
provides that Navellier (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity affiliated with
Navellier) shall not be liable to Avalon or its shareholders for any loss
suffered as a consequence of any act or omission of Navellier or any of the
foregoing related parties or entities in connection with the New Sub-Advisory
Agreement except by reason of its willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations under the New Sub-Advisory Agreement.
If approved by shareholders of the Fund, the parties will execute and
deliver the New Sub-Advisory Agreement to one another and the New Sub-Advisory
Agreement will become effective concurrent with the completion of the
Transaction. The Transaction and New Sub-Advisory Agreement will not affect the
objective, investment policies or investment program of the Fund as described in
its current prospectus, nor will there be any change in the personnel or the
manner in which Navellier manages the assets of the Fund.
APPROVAL REQUIRED
In order to be approved, the New Sub-Advisory Agreement must receive the
affirmative vote of at least a majority of the outstanding shares of the Fund,
or if less, 67% of the shares represented at a meeting of shareholders at which
the holders of 50% or more of the outstanding shares of the Fund are present or
represented by proxy. See "Solicitation, Purpose and Voting - Quorum and Voting"
above.
DIRECTORS' CONSIDERATIONS AND RECOMMENDATION
In considering the New Sub-Advisory Agreement, the Board of Directors
carefully evaluated a number of relevant factors, including but no limited to:
(1) the fees and expense ratios (including advisory fees) of the Fund; (2) the
historical performance of the Fund, including the Fund's performance during the
time Navellier has served as its subadviser; (3) the nature and quality of the
services that have been rendered and are expected to be rendered to the Fund in
the future by Navellier; (4) the distinct investment objectives and policies of
the Fund; (5) the fact that the compensation payable to Navellier under the
Existing Sub-Advisory Agreement; (6) the fact that the terms of the New
Sub-Advisory Agreement are identical to those of the Existing Sub-Advisory
Agreement; (7) the history, reputation, qualification and background of
Navellier, as well as the qualifications of its personnel; (8) the portfolio
manager's investment performance record; (9) the fact that the Transaction does
not involve or affect Navellier; and (10) other factors deemed relevant by the
Board.
9
<PAGE>
Based upon these considerations, the Board unanimously determined that it
would be in the best interests of the Fund to have Navellier continue to serve
as the Fund's subadviser following the Transaction. The Board of Directors has
further unanimously determined that the terms of the New Sub-Advisory Agreement
are fair to, and in the best interests of, the Fund and its shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS, NONE OF WHOM IS AN "INTERESTED PERSON"
OF NAVELLIER, UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE FUND VOTE "FOR"
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
PROPOSAL 3 - ELECTION OF DIRECTORS
The Board of Directors of Avalon presently consists of five members, two of
whom are affiliated with Questar, the Fund's investment adviser and distributor,
and three of whom are not "interested persons" of Avalon, the Fund, or Questar.
The Board of Directors has determined that it would be beneficial to the
Fund and its shareholders if Mr. Terence P. Smith were added as a member of the
Board of Directors. Mr. Smith has over 20 years of experience in the mutual fund
industry. He is a principal with Declaration Holdings, Inc., a financial
services company which, together with its affiliates, provides various
administrative and distribution services to mutual funds. Declaration Service
Company, a subsidiary of Declaration Holdings, Inc., provides pricing, fund
accounting, transfer and dividend disbursing agent, shareholder servicing agent
and other administrative services to the Fund.
Because of the business relationship between Declaration Service Company
and the Fund, the Board of Directors of Avalon has determined to consider Mr.
Smith an "interested person" of the Fund. In order to assure a majority of
Avalon's Board of Directors continues to be persons who are not "interested
persons" of Avalon, the Fund or Questar, Mr. Gakenheimer has agreed, effective
as of the date of the Special Meeting of Shareholders, to resign from his
position as a Director of Avalon. The Board of Directors has nominated Mr. Smith
for election to the vacancy being created with Mr. Gakenheimer's resignation.
The table below provides information about the nominees for election to
Avalon's Board of Directors and of the presently serving Directors. Should any
of these nominees become unable or unwilling to accept nomination or election, a
circumstance that is not anticipated, the persons named in the proxy will
exercise their voting power in favor of such other person or persons as the
Board of Directors may recommend.
10
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE POSITION WITH FUND FOR THE LAST FIVE YEARS
--------- ------------------ -----------------------
<S> <C> <C>
Robert E. Boone*, 67 President, Director Chief Executive Officer of Yorktown
Financial Companies, Inc., a financial
services company which is the parent of
Questar; President and Director of
Questar Capital Corporation, an
investment 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.
George A. Van Niel, 66 Director Owner, SpecCon (construction
consultants), Columbus, Ohio, 1990 to
present; Principal Director of Technical
Services, Richard Trott and Partners
(architects), Columbus, Ohio, from 1987
to 1990. Frequent lecturer and speaker.
Frederick H. Hoops, 35 Director Attorney, Clark Hill, Detroit, Michigan
(law firm) from 1999 to present; prior
thereto, Attorney, Hoops, Hoops, &
Hoops, P.L.C., Farmington, Michigan (law
firm), 1994 to 1999.
Lee E. Benz, 55 Director President, Benz Insurance Agency, Inc.,
Ann Arbor, Michigan, since
________________; Director, Republic
Bank, a subsidiary bank of Republic
Bancorp, a publicly traded bank holding
company headquartered in Ann Arbor,
Michigan, since ________________.
11
<PAGE>
PRINCIPAL OCCUPATION
NAME, AGE POSITION WITH FUND FOR THE LAST FIVE YEARS
--------- ------------------ -----------------------
Terence P. Smith,* 54 Director Nominee Chief Executive Officer, Declaration
Holdings, Inc., Conshohocken,
Pennsylvania (mutual fund servicing and
distribution), since 1987; Trustee and
President of Declaration Fund (1940 Act
registered mutual fund), since 1998;
Trustee and Secretary of Pauze' Funds
(1940 Act registered mutual fund
family), from 1996 to 1999.
</TABLE>
The Board of Directors held three meetings during 2000. Each Director
attended all of the meetings, with exception of Mr. Boone who was absent from
one meeting. The Board of Directors has a standing audit committee and
nominating committee, which consists of the presently serving Directors who are
not "interested persons" of Avalon, the Fund or Questar. The audit committee and
nominating committee each held one meeting during 2000, which was held in
conjunction with a regularly scheduled meeting of the full Board of Directors.
Each of the members of those committees attended each of the committee meetings.
No policy or procedure has been established as to the recommendation of director
nominees by shareholders, except that nomination of the Directors who are not
"interested persons" must be made and approved by a majority of the nominating
committee.
Pursuant to its Operating Services Agreement with Avalon, Questar is
responsible to pay the fees and expenses of Avalon's Directors. Under this
arrangement, Questar paid each Director who is not an "interested person" of
Avalon or of Questar a fee in the amount of $2,000 for such person's services as
a Director during calendar 2000. Questar also reimbursed travel and other
out-of-pocket expenses incurred by such independent Directors in connection with
their attendance at meetings of the Board of Directors. No such fees or expenses
were paid by the Fund.
OTHER BUSINESS
Management of Avalon is not aware of any other matters that will come
before the Special Meeting. However, if an other business should come before the
Special Meeting, your proxy, if signed and returned, will give discretionary
authority to the persons designated in it to vote according to their best
judgment on such matters.
12
<PAGE>
ADDITIONAL INFORMATION
ADDITIONAL INFORMATION ABOUT QUESTAR AND YORKTOWN
Questar, a Michigan corporation, is registered as an investment adviser and
a broker/dealer with the Securities and Exchange Commission. Questar manages the
investment portfolio and the general business affairs of the Fund, and also
serves as the distributor of the Fund's shares. During the fiscal year ended
September 30, 2000, the Fund paid to Questar advisory fees totaling $22,420.
Questar also received commissions on sales of Fund shares totaling $236,529, and
the Fund paid fees to Questar under the Fund's Rule 12b-1 Plan in the total
amount of $44,841.
Robert Boone, the President and a Director of the Fund, and John
Gakenheimer, Vice President and Secretary/Treasurer and a resigning Director of
the Fund, are both officers of Questar. Accordingly, each of those persons is
considered to be an "affiliated person," as that term is defined in the 1940
Act. Terence Smith, who has been nominated to fill the vacancy created by John
Gakenheimer's resignation from Directorship, is a principal with Declaration
Service Company, which acts as servicing agent to the Fund. Because of Terence
Smith's position with the Declaration Service Company, he also may be deemed an
"affiliated person" under the 1940 Act.
The name and principal occupation of the principal executive officer and of
each director of the investment adviser are shown in the table below. Each
person's address is the same as Questar's.
NAME AND ADDRESS POSITION WITH QUESTAR PRINCIPAL OCCUPATION
---------------- --------------------- --------------------
Robert E. Boone Chief Executive Officer and Chief Executive Officer,
Director Questar Capital Corporation
John H. Gakenheimer Vice President, Secretary/ Vice President,
Chief Operating Officer, Secretary/Treasurer, Questar
Treasurer Capital Corporation.
Presently, all of the issued and outstanding capital stock of Questar is
owned by Mr. John H. Gakenheimer. Mr. Gakenheimer has entered into a Stock
Purchase Agreement, dated September 27, 1998, as amended on April 17, 2000, with
Yorktown Financial Companies, Inc. ("Yorktown"), a financial services company.
Under that Agreement, Mr. Gakenheimer will sell to Yorktown, for a cash purchase
price of $127,000, all of his shares of Questar stock. As a result, Questar will
become a wholly owned subsidiary of Yorktown. Subject to approval of the New
Advisory and Sub-Advisory Agreements by shareholders of the Fund, the parties
anticipate that Yorktown's acquisition of the stock of Questar will be completed
on January 31, 2001.
13
<PAGE>
Yorktown is a financial services company organized for the purpose of
acquiring ownership of Questar. Yorktown presently provides employee,
administrative and support services to Questar. Yorktown's principal business
address is 655 Fairfield Court, Suite 200, Ann Arbor, Michigan 48108. It's
outstanding shares of stock are owned by its directors, officers and employees.
Mr. Robert E. Boone and Mr. John H. Gakenheimer presently own respectively 12%
and 19% of the outstanding capital stock of Yorktown. Mr. Scott Chimner, who
also is an officer of Questar, owns another 19% of the outstanding capital stock
of Yorktown.
ADMINISTRATOR AND DISTRIBUTOR
In addition to serving as investment adviser for the Fund, Questar Capital
Corporation serves as the distributor for the shares of the Fund pursuant to a
Distribution Agreement. Pursuant to the terms of an Operating Services
Agreement, Questar also has agreed to provide or arrange for the provision of
numerous other services to the Fund, including custodial services for portfolio
securities and other Fund assets, transfer and dividend disbursing agent
services, fund accounting and pricing services, shareholder services, and other
administrative services. Questar is registered with the Securities and Exchange
Commission as a securities broker-dealer and is a member of the National
Association of Securities Dealers, Inc.
Questar and Avalon (on behalf of the Fund) have entered into an Investment
Company Services Agreement with Declaration Service Company ("Declaration"),
pursuant to which Declaration provides to the Fund, on Questar's behalf,
transfer and dividend disbursing agent services, shareholder servicing agent
services, fund accounting and pricing services and other administrative
services. Questar pays the fees of Declaration for providing these services out
of the fee that the Fund pays to Questar under the Operating Services Agreement.
Declaration's principal business address is 555 North Lane, Suite 6160,
Conshohocken, Pennsylvania 19428.
ADDITIONAL INFORMATION ABOUT NAVELLIER
Navellier Management, Inc., One East Liberty Street, Reno, Nevada 89501, is
the subadviser for the Fund. Navellier is registered with the Securities and
Exchange Commission as an investment adviser. Navellier acts as an investment
adviser with respect to the following funds that have investment objectives
similar to the Fund:
FUND NAME SIZE OF THE FUND RATE OF COMPENSATION PAID TO NAVELLIER
--------- ---------------- --------------------------------------
[Add footnote to any fund for which investment adviser has waived, reduced
or otherwise agreed to reduce its compensation under any applicable contract]
14
<PAGE>
Mr. Louis G. Navellier is the founder and President of Navellier, and has
been chief investment officer since the firms' inception. Mr. Navellier serves
as portfolio manager to the Fund.
Mr. Navellier has accumulated over fourteen years of experience as an
investment manager. He graduated from California State University with an MBA in
Finance. In 1980, Mr. Navellier began publishing the MPT Review, a stock
advisory newsletter. Since 1985, Mr. Navellier has been actively managing
investment portfolios through his company, Navellier & Associates, Inc. In 1993,
Mr. Navellier founded Navellier Management, Inc. In addition to the Fund,
Navellier Management, Inc. also manages a no-load annuity product and publishes
the Blue Chip Growth newsletter.
The Officer and Director of Navellier is shown in the following table. His
address is the same as Navellier Management, Inc.'s.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH NAVELLIER PRINCIPAL OCCUPATION
---------------- ----------------------- --------------------
<S> <C> <C>
Louis G. Navellier Chief Executive Officer, Chief Executive Officer and President of
President, Treasurer and Navellier and Associates, Inc., an
Secretary of Navellier investment management company
Management, Inc. 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>
AUDITORS
The firm of McCurdy & Associates CPA's Inc. has served as independent
accountants and auditors since the Fund's inception. McCurdy & Associates CPA's
Inc. has no direct or indirect financial interest in Avalon or the Fund except
as auditors and independent public accountants. No representatives of McCurdy &
Associates CPA's Inc. is expected to be present at the Special Meeting.
PRINCIPAL SHAREHOLDER AND CERTAIN BENEFICIAL OWNERS
As of December 22, 2000, the following persons owned, of record or
beneficially, five percent (5%) or more of the outstanding shares of the Fund:
15
<PAGE>
NAME OF NUMBER OF PERCENTAGE OF
ADDRESS OF SHAREHOLDER FUND SHARES OWNED FUND TOTAL NET ASSETS
---------------------- ----------------- ---------------------
16
<PAGE>
The following table shows shares of the Fund beneficially owned by each
Director and Director nominee, and the group consisting of all Directors,
Director nominees and Officers of Avalon, as of December 22, 2000.
NAME AND POSITION(S) WITH AVALON NUMBER OF SHARES OF THE FUND(1)
-------------------------------- ----------------------------
Robert E. Boone; President and Director(2) _____
John H. Gakenheimer; Secretary/
Treasurer and Director(2) _____
Frederick H. Hoops, III; Director _____
George A. Van Niel; Director _____(3)
Lee E. Benz, Director _____
Terence P. Smith; Director Nominee(2) _____(4)
--------------------
All directors, director nominees and officers as a group (5 persons)
(1) These figures are based on information furnished by the respective
individuals and by Declaration Service Company, the Fund's transfer agent.
Certain of the individuals listed share voting and investment power with
his spouse with respect to some or all of the shares listed opposite his
name. Except for Mr. Boone [AND ANY OTHERS?], each individual Director or
executive officer beneficially owns less than 1% of the shares of the Fund.
(2) Is an "interested person" (as defined in the 1940 Act) of Avalon as a
result of his affiliation(s) with Avalon or Questar.
(3) Held in a Roth IRA.
(4) Mr. Smith is prohibited from owning shares of the Fund by provisions of
Declaration Service Company's code of ethics.
COST OF SOLICITATION
In addition to this solicitation of proxies by mail, proxies may be
solicited by officers of Avalon and by officers and employees of Avalon or
Questar, personally or by telephone or telegraph, without special compensation.
Proxies may also be solicited by a professional proxy solicitation service
should management of Avalon determine that solicitation by such means is
advisable. The cost of preparing and mailing proxy materials, of the Special
Meeting, and of soliciting proxies will be borne by Questar. No such costs will
be borne by the Fund.
17
<PAGE>
ADJOURNMENT
In the event that sufficient votes in favor of the proposal set forth in
the Notice of Special Meeting which accompanies this Proxy Statement are not
received by the time scheduled for the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special meeting to permit
further solicitation of proxies with respect to such proposal. Any such
adjournment will require the affirmative vote of a majority of the votes cast on
the question in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxy will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of such proposal. They
will vote against any such adjournment those proxies required to be voted
against any such proposal. The costs of any such additional solicitation and of
any adjourned session will be borne by Questar or an affiliate of Questar, or
some combination.
SHAREHOLDER MEETINGS
Avalon is organized as a Maryland corporation, and as such is not required
to hold annual meetings of shareholders. Avalon's Bylaws provide that Avalon is
not required to hold annual meetings of shareholders in any year in which the
election of Directors, approval of an investment advisory agreement (or any
sub-advisory agreement) or ratification of the selection of independent public
accountants is not required to be acted upon by shareholders of Avalon or of any
of its portfolio series, including the Fund, under the 1940 Act. Meetings of
shareholders of the Fund will be held when and as determined necessary by the
Board of Directors of Avalon and in accordance with the 1940 Act. However,
shareholders of any portfolio series wishing to submit proposals for inclusion
in a proxy statement for any future shareholder meetings should send their
written proposals to the Secretary of Avalon at 655 Fairfield Court, Suite 200,
Ann Arbor, Michigan 48108.
18
<PAGE>
THE AVALON FUND OF MARYLAND, INC.
Special Meeting of Shareholders of Avalon Capital Appreciation Fund
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert E. Boone and John H. Gakenheimer, or
either of them, proxy, with full power of substitution, to represent and vote,
as designated below, all shares of stock the undersigned is entitled to vote at
the Special Meeting of Shareholders of the Avalon Capital Appreciation Fund of
The Avalon Fund of Maryland, Inc., to be held at the offices of Questar Capital
Corporation, 655 Fairfield Court, Suite 200, Ann Arbor, Michigan, beginning at
____ _.m., local time, on January 30, 2001, or at any adjournment thereof, with
respect to the matters set forth below and described in the accompanying Notice
of Special Meeting and Proxy Statement, receipt of which is hereby acknowledged.
DATED:_________________________________, 2001
---------------------------------------------
(Please sign exactly as name appears at left)
---------------------------------------------
(If stock is owned by more than one person,
all owners should sign. Persons signing as
executors, administrators, trustees or in
similar capacities should so indicate.)
* * * * *
Please place an "X" on the desired blank for each Item. Shares represented by
this proxy will be voted as directed by the shareholder. IF NO DIRECTION IS
SUPPLIED, THE PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
<PAGE>
1. Proposal to approve the proposed New Advisory Agreement between The Avalon
Fund of Maryland (on behalf of the Avalon Capital Appreciation Fund) and
Questar Capital Corporation.
__ FOR __ AGAINST __ ABSTAIN
2. Proposal to approve the proposed New Sub-Advisory Agreement between Questar
Capital Corporation and Navellier Management, Inc., with respect to the
Avalon Capital Appreciation Fund.
__ FOR __ AGAINST __ ABSTAIN
3. Proposal to elect five nominees to serve on the Board of Directors of The
Avalon Fund of Maryland, Inc., four of whom presently are serving as
Directors, Robert E. Boone, George A. Van Niel, Frederick H. Hoops, and Lee
E. Benz, and the fifth of whom is a new nominee, Terence P. Smith.
__ FOR __ FOR, except vote __ WITHHELD
withheld from from all
the following candidates
candidate(s):
----------------
----------------
4. In their discretion on such other matters as may properly come before the
meeting or any adjournment thereof.
<PAGE>
APPENDIX A
----------
INVESTMENT ADVISORY AGREEMENT
This Agreement is made and entered into as of the 1st day of February,
2001, by and between The Avalon Fund of Maryland, Inc., a Maryland corporation
(the "Fund"), and Questar Capital Corporation, a Michigan corporation
(hereinafter referred to as "Questar).
WHEREAS, the Fund is a diversified, open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "Act"), and
presently authorized to issue shares representing interests in a single series
known as the Avalon Capital Appreciation Fund (the "Portfolio"); and
WHEREAS, Questar is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of asset
management; and
WHEREAS, the Fund desires to retain Questar to render certain investment
management services to the Fund and Questar is willing to render such services;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows;
1. OBLIGATIONS OF INVESTMENT ADVISER
(A) SERVICES. Questar agrees to perform the following services (the
"Services") for the Fund:
(1) manage the investment and reinvestment of the Portfolio's
assets;
(2) continuously review, supervise, and administer the investment
program of the Portfolio;
(3) determine, in its discretion, the securities to be purchased,
retained or sold (and implement those decisions);
(4) provide the Fund with records concerning Questar's activities
which the Fund is required to maintain; and
(5) render regular reports to the Fund's officers and directors
concerning Questar's discharge of the foregoing responsibilities.
Questar shall discharge the foregoing responsibilities subject to the
control of the officers and the directors of the Fund and in compliance
with such policies as
1
<PAGE>
the directors may from time to time establish, and in compliance with the
objectives, policies, and limitations of the Portfolio set forth in the
Fund's prospectus, as amended from time to time, and with all applicable
laws and regulations. All Services to be furnished by Questar under this
Agreement may be furnished through the medium of any directors, officers or
employees of Questar or through such other parties as Questar may determine
from time to time.
Questar agrees, at its own expense or at the expense of one or more of
its affiliates, to render the Services and to provide the office space,
furnishings, equipment and personnel as may be reasonably required in the
judgment of the Board of Directors of the Fund to perform the Services on
the terms and for the compensation provided herein. Questar shall authorize
and permit any of its officers, directors and employees, who may be elected
as directors or officers of the Fund, to serve in the capacities in which
they are elected.
Except to the extent expressly assumed by Questar herein and except to
the extent required by law to be: paid by Questar, the Fund shall pay all
costs and expenses in connection with its operation and organization.
(B) BOOKS AND RECORDS. All books and records prepared and maintained
by Questar for the Fund under this Agreement shall be the property of the
Fund and, upon request therefor, Questar shall surrender to the Fund such
of the books. and records so requested.
2. PORTFOLIO TRANSACTIONS. Questar is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities for
the Portfolio and is directed to use its best efforts to obtain the best net
results as described in the Fund's prospectus from time to time. Questar may, in
its discretion, purchase and sell portfolio securities from and to brokers and
dealers who provide the Portfolio with research, analysis, advice and similar
services, and Questar may pay to these brokers and dealers, in return for
research and analysis, a higher commission or spread than may be charged by
other brokers and dealers, provided that Questar determines in good faith that
such commission is reasonable in terms either of that particular transaction or
of the overall responsibility of Questar to the Fund and its other clients and
that the total commission paid by the Fund will be reasonable in relation to the
benefits to the Portfolio over the long-term. Questar will promptly communicate
to the officers and the directors of the Fund such information relating to
portfolio transactions as they may reasonably request.
3. COMPENSATION OF QUESTAR. The Fund will pay to Questar on the last day of
each month an annual fee equal to .5 % of average net asset value of the
Portfolio, such fee to be computed daily based upon the net asset value of the
Portfolio as determined by a valuation made in accordance with the Fund's
procedure for calculating Portfolio net asset value as described in the Fund's
Prospectus and/or Statement of Additional Information. During any period when
the determination of a Portfolio's net asset value is suspended by the directors
of the Fund, the net asset value of a share of that Portfolio as of the last
business day prior to such suspension shall, for the purpose of this Paragraph
3, be deemed to be net asset value at the close of each succeeding business day
until it is again determined.
2
<PAGE>
4. STATUS OF INVESTMENT ADVISER. The services of Questar to the Fund are
not to be deemed exclusive, and Questar shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. Questar
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund. Nothing in this
Agreement shall limit or restrict the right of any director, officer or employee
of Questar, who may also be a director, officer, or employee of the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
nature or a dissimilar nature.
5. PERMISSIBLE INTERESTS. Directors, agents, and stockholders of the Fund
are or may be interested in Questar (or any successor thereof) as directors,
partners, officers, or stockholders, or otherwise; directors, partners,
officers, agents, and stockholders of Questar are or may be interested in the
Fund as directors, stockholders or otherwise; and Questar (or any successor) is
or may be interested in the Fund as a stockholder or otherwise.
6. LIABILITY OF INVESTMENT ADVISER. Questar assumes no responsibility under
this Agreement other than to render the services called for hereunder in good
faith. Questar shall not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
Investment Company Act of 1940) or a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of, or from
reckless disregard by it of its obligations and duties under, this Agreement.
7. USE OF NAME "QUESTAR." Questar hereby grants to the Fund the right to
use the name "Questar" in connection with the Fund in the United States as long
as Questar continues to serve as investment adviser to the Fund. If, for any
reason, Questar no longer serves as investment adviser to the Fund or if this
Agreement is terminated as provided in Section (8) below, Questar hereby
reserves the right, upon 30 days' written notice to the Fund, to terminate the
Fund's right to use the name "Questar." Upon such notification by Questar, the
Fund will immediately commence to take all appropriate steps to discontinue use
of the name "Questar" and shall take all steps necessary under applicable laws
to change the name of the Fund to a name not confusingly similar to "Questar."
If within a reasonable period of time, but in no event longer than four months,
after receiving notification from Questar as provided in this paragraph, the
Fund does not discontinue the use of the name "Questar," Questar may seek such
legal and equitable relief as it may deem appropriate. Questar hereby reserves
the right also to grant the right to use the name "Questar" to another
investment company, business or enterprise. The Fund hereby acknowledges and
agrees that the name "Questar" is a valuable asset of Questar and that Questar
has established a property right to its use.
8. TERM. This Agreement shall remain in effect for a period of two years
from the date hereof, and from year to year thereafter provided such continuance
is approved at least annually by the vote of a majority of the directors of the
Fund who are not parties to this Agreement or "interested persons" (as defined
in the Act) of any such party, which vote must be cast in person at meeting
called for the purpose of voting on such approval; provided, however, that;
3
<PAGE>
(a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon 60 days written notice to Questar;
(b) the Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Act and the Rules thereunder); and
(c) Questar may terminate this Agreement without payment of penalty on
60 days written notice to the Fund; and
(d) the terms of paragraph 6 and 7 of this Agreement shall survive the
termination of this Agreement.
9. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of the Fund's outstanding
voting securities.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and the year first written above.
THE AVALON FUND OF QUESTAR CAPITAL
MARYLAND, INC. CORPORATION
By: By:
--------------------- --------------------------
Title: President Title: Chief Executive Officer
------------------ -----------------------
ATTEST: ATTEST:
------------------------- ------------------------------
Secretary Secretary
[Corporate Seal] [Corporate Seal]
5
<PAGE>
APPENDIX B
----------
QUESTAR CAPITAL CORPORATION
SUBADVISORY AGREEMENT
Agreement made this 1st day of February, 2001, by and between Questar Capital
Corporation (hereinafter the "Adviser"), investment advisor for the Avalon
Capital Appreciation Fund (herein after the "Fund"), a series of The Avalon Fund
of Maryland, Inc., and Navellier Management, Inc., (hereinafter the
"Subadviser").
WHEREAS, the Adviser has been retained by the Fund, an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act") to provide investment advisory services to the
Fund pursuant to an Investment Advisory Agreement of even date herewith (
the"Investment Advisory Agreement"); and
WHEREAS, the directors of the Fund (the Directors), including a majority of the
Directors who are not "interested parties," as defined in the 1940 Act, and the
Fund's shareholders have approved the appointment of the Subadviser, to perform
certain investment advisory services for the Fund pursuant to this Subadvisory
Agreement,and the Subadviser is willing to perform such services for the Fund;
WHEREAS, the Subadviser is registered as an investment adviser under the
investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Adviser and the Subadviser as follows:
1. Appointment. The Adviser hereby appoints the Subadviser to perform advisory
services to the Fund for the periods and on the terms set forth in this
Subadvisory Agreement. The Subadviser accepts such appointment and agrees
to furnish the services herein set forth, for the compensation herein
provided.
2. Duties of a Subadviser. The Adviser hereby authorizes Subadviser to manage
the investment and reinvestment of cash and investments comprising those
assets of the Fund with power on behalf of and in the name of the Fund at
Subadviser's discretion; subject at all time to the supervision of the
Adviser and the Directors of the Fund:
a) to direct the purchase, subscription, or other acquisition of
investments and to the direct sale, redemption, and exchange of
investments, subject to the duty to render to the Directors of the
Fund, the Adviser and the Custodian written reports of the composition
of the portfolio of the Fund as often as the Directors shall
reasonably require.
b) to make all decisions relating to the manner, method, and timing of
investment transactions, to select brokers, dealers, and other
intermediaries by or through whom such transactions will be effected,
to engage such consultants, analysts and experts in connection
therewith as may be considered necessary or appropriate;
1
<PAGE>
c) to direct banks, brokers, or custodians, to disburse funds or assets
solely in order to execute investment transactions for the Fund,
provided that the Subadviser shall have no authority to direct the
transfer of the Fund's funds or assets to itself or other persons and
shall have no authority over the disbursement (as opposed to
investment decisions) of funds or assets nor any custody of any of the
Fund's funds or assets; and
d) to take all such other actions as may be considered necessary or
appropriate to discharge its duties hereunder;
provided that any specific or general directions which the Directors of the Fund
may give in writing to the Subadviser with regard to any of the forgoing powers
shall, unless the contrary is expressly stated herein, override the general
authority given by this provision to the extent that the Directors may, at any
time and from time to time, direct, either generally or to a limited extent and
either alone or in concert with the Adviser or the Subadviser (provided that
such directions would not cause the Subadviser to violate and fiduciary duties
or any laws with regard to the Subadviser's duties and responsibilities), all or
any of the same as they shall think fit, and in particular, the Adviser shall
have to right to direct that the Subadviser to place trades through brokers and
other agents of the Adviser's choice, subject to brokers or agents executing
such trades on a "best execution basis," i.e. at the best price and/or with
research or other services which render that broker's services to most
appropriate for the Subadviser's needs, and further that the Subadviser is
satisfied that the dealing and execution quality of such brokers are
satisfactory to the Subadviser, and provided further that nothing herein shall
be construed as giving the Subadviser power to manage the aforesaid cash and
investments in such a manner as would cause the Fund to be considered a "dealer"
in stocks, securities, or commodities for U.S. federal income tax purposes.
The Adviser shall monitor and review the performance of the Subadviser under
this Agreement, including but not limited to the Subadviser's performance of the
duties delineated in subparagraphs (a)-(d) of this provision.
The Subadviser further agrees that in performing it's duties hereunder, it will
a) (i) comply with the 1940 Act and all rules and regulations thereunder,
the Adviser's Act, the Internal Revenue Code (the "Code") and all
other applicable federal and state laws and regulations, the
Prospectus and Statement of Additional Information for the Fund, and
with any applicable procedures adopted by the Directors in writing and
made available to Subadviser, (ii) manage the Fund in accordance with
the investment requirements regulated investment companies Subchapter
M of the Code and regulations issued thereunder, (iii) direct the
placement of orders pursuant to it's investment determinations for the
Fund directly with the issues, or with any broker or dealer, in
accordance with applicable policies expressed in the Fund's Prospectus
and/or Statement of Additional Information and in accordance with
applicable legal requirements.
b) furnish the Fund whatever non-proprietary reports it may reasonably
request with respect to the Assets and shall, on the Subadviser's own
initiative, furnish to the Fund from time to time whatever information
from the Subadviser believes appropriate for this purpose;
2
<PAGE>
c) make available to the Fund's administrator, Declaration Service
Company (the "Administrator"), the Adviser, and the Fund, promptly
upon their request such copies of its investment records and ledgers
with respect to the Assets as may be required to assist the Adviser,
the Administrator, and the Fund in their compliance with applicable
laws and regulations. The Subadviser will furnish the Directors with
such periodic and special reports regarding the Fund as they may
reasonably request;
d) immediately notify the Adviser and the Fund in the event that the
Subadviser or any of its affiliates: (i) becomes aware that it is
subject to a statutory disqualification that prevents the Subadviser
from serving as an investment adviser pursuant to this Subadvisory
Agreement; or (ii) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and
Exchange Commission "SEC") or other regulatory authority. The
Subadviser further agrees to notify the Fund and the Adviser
immediately of any material fact known to the Subadviser respecting or
relating to the Subadviser that is not contained in the Fund's
Registration Statement, or any amendment or supplement thereto, but
that is required to be disclosed therein, and of any statement
contained therein that becomes untrue in any material respect. The
Fund, Adviser, Administrator and their affiliates shall likewise
immediately notify the Subadviser if any of them become aware of any
regulatory action of the type described in this subparagraph 2(d).
3. Allocation of Charges and Expenses. The Subadviser shall pay all expenses
associated with the management of it's business operations in performing
it's responsibilities hereunder, including the cost of its own overhead,
research, and employee compensation, and other internal operating costs;
provided, however, that the Subadviser shall be entitled to reimbursement
on a monthly basis by the Adviser of all reasonable out-of-pocket expenses
properly incurred by it in connection with serving as a subadviser to the
Fund, including, without limitation, all travel, advertisement,
solicitation, and marketing costs related to the Fund. For the avoidance of
doubt, the Fund shall bear its own overhead and other internal operating
costs (whether incurred directly or by the Adviser or the Subadviser)
including, without limitation:
a) the costs incurred by the Fund in the preparation and printing of the
Prospectus or any offering literature (including any form of
advertisement or other solicitation materials calculated to lead to
investors subscribing for shares);
b) all fees and expenses on behalf of the Fund to the Transfer Agent and
the Custodian;
c) the reasonable fees and expenses of accountants, auditors, lawyers and
other professional advisors to the Fund;
d) any interest, fee or charge payable on or on account of any borrowing
by the Fund;
e) fiscal and governmental charges and duties relating to the purchase,
sale, issue or redemption of shares and increases in authorized share
capital of the Fund;
3
<PAGE>
f) the fees of any stock exchange or over-the-counter market on which the
shares may from time to time be listed, quoted or dealt in and the
expenses of obtaining any such listing, quotation or permission to
deal;
g) the fees and expenses (if any) payable to Directors;
h) brokerage, fiscal or governmental charges or duties in respect of or
in connection with the acquisition, holding or disposal of any of the
assets of the Fund or otherwise in connection with its business;
i) the expenses of publishing details and prices of shares in newspapers
and other publications;
j) all expenses incurred in the convening of meetings of shareholders or
in the preparation of agreements or other documents relating to the
Fund or in relation to the safe custody of the documents of title of
any investments;
k) all Directors communication costs; and
l) all premiums and costs for Fund insurance and blanket fidelity bonds.
4. Compensation. As compensation for the services provided by the Subadviser
under this agreement, the Adviser will pay the Subadviser, at the end of
each calendar month, an advisory fee computed daily at an annual rate equal
to the applicable percentage of the Fund's average daily net assets set
forth in the attached Fee Schedule. The "average daily net assets" of the
Fund shall mean the average of the values placed on the Fund's net assets
as of 4:00 p.m. (New York time) on each day on which the net asset value of
the Fund is determined consistent with the provisions of Rule 22c-1 under
the 1940 Act or, if the fund lawfully determines the value of its net
assets as of some other time on each business day, as of such other time.
The value of net assets of the Fund shall always be determined pursuant to
the applicable provisions of the Fund's Declaration of Fund and the
Registration Statement. If, pursuant to such provisions, the determination
of net asset value is suspended for any particular business day, then for
the purposes of this Section 4, the value of the net assets of the Fund as
last determined shall be deemed to be the value of its net assets as of the
close of regular trading on the New York Stock Exchange, or as of such
other time as the value of the net assets of the Fund's portfolio may
lawfully be determined, on that day. If the determination of the net asset
value of the shares of the Fund has been so suspended for a period
including any month end when the Subadviser's compensation payable at the
end of such month shall be computed on the basis of the value of the net
assets of the Fund as last determined (whether during or prior to such
month). If the Fund determines the value of its portfolio more than once on
any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of
this section 4.
5. Books and Records. The Subadviser agrees to maintain such books and records
with respect to its services to the Fund and the Fund as are required by
Section 31 under the 1940 Act, and rules adopted thereunder, and by other
applicable legal provisions, and to preserve such records
4
<PAGE>
for the periods and in the manner required by applicable laws or
regulations. The Subadviser also agrees that records it maintains and
preserves pursuant to rules 3la-2 under the 1940 Act (excluding trade
secrets or intellectual property rights) in connection with it's services
hereunder are the property of the Fund and will be surrendered promptly to
the Fund upon its request and the Subadviser further agrees that it will
furnish to regulatory authorities having the requisite authority any
information or reports in connection with its services hereunder which may
be requested in order to determine whether the operations of the Fund are
being conducted in accordance with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Subadviser shall exercise
its best judgement in rendering the services provided by it under this
Subadvisory Agreement. The Subadviser shall not be liable for any error
ofjudgement or mistake of law or for any loss suffered by the Fund or the
holders of the Fund's shares or by the Adviser in connection with the
matters to which this Subadvisory Agreement relates, provided that nothing
in this Subadvisory Agreement shall be deemed to protect or purport to
protect the subadviser against 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.
7. Services Not Exclusive. It is understood that the services of the
Subadviser are not exclusive, and that nothing in this Subadvisory
Agreement shall prevent the Subadviser, its affiliates or their officers,
directors and employees from providing similar services to other investment
companies (whether or not their investment objectives and policies are
similar to those of the Fund) or from engaging in other in other investment
advisory activities. When the Subadviser recommends the purchase or sale of
a security for other investment companies and other clients, and at the
same time the Subadviser recommends the purchase or sale of the same
security for the Fund, it is understood that in light of it's fiduciary
duty to the Fund, such transactions will be executed on a basis that is
fair and equitable to the Fund the same investments it recommends to its
other clients. In connection with purchases or sales or portfolio
securities for the account of the Fund, neither the Subadviser nor any of
its directors, officers or employees shall act as a principal or agent or
receive any commission. If the Subadviser provides any advice to its
clients concerning the shares of the Fund, the Subadviser shall act solely
as investment counsel for such clients and not in any way on behalf of the
Fund.
8. Duration and Termination. This Subadvisory Agreement shall continue in
effect for a period of two years unless sooner terminated as provided
herein. Notwithstanding the foregoing, this Subadvisory Agreement may be
terminated: (a) at any time without penalty by the Fund or Adviser upon the
vote of a majority of the Directors or by vote of the majority of the
Fund's outstanding voting securities, upon sixty (60) days' written notice
to the Subadviser, or (b) by the Subadviser without cause at any time
without penalty, upon sixty (60) days' written notice to the Fund and the
Adviser. This Subadvisory Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act) or the assignment
or termination of the Investment Advisory Agreement.
9. Amendments. No provision of this Subadvisory Agreement may be changed,
waived, discharged or terminated orally, but not only by an instrument in
writing signed by both parties, and no material amendment of this
Subadvisory Agreement shall be effective until approved by an affirmative
vote of (i) a majority of the outstanding voting securities of the Fund,
and (ii) a majority of the Directors of the Fund, including a majority of
the Directors who are not
5
<PAGE>
interested persons of any party to this Subadvisory Agreement, cast in
person at a meeting called for the purpose of voting on such approval, if
such approval is required by applicable law.
10. Indemnification. a) The Adviser hereby agrees to indemnify the Subadviser
from and against all liabilities, losses, expenses, reasonable attorney's
fees and costs (other than attorney's fees and costs in relation to the
preparation of this Agreement; each party bearing responsibility for its
own such costs and fees) or damages (other than liabilities, losses,
expenses, attorney's fees and costs or damages arising from the Subadviser
failing to meet the standard of care required hereunder in the performance
by the Subadviser of, or its failure to perform, the services required
hereunder), arising from the Adviser's (its affiliates and their respective
agents and employees) failure to perform its duties or assume its
obligations hereunder, or from its wrongful actions or omissions, including
but not limited to any claims for non-payment of advisory fees; claims
asserted or threatened by any shareholder of the Fund, governmental or
regulatory agency, or any other person; claims arising from any wrongful
act by the Fund or any of their trustees, officers, employees, or
representatives, or by the Adviser, its officers, employees or
representatives, or from any actions by any representative of the Fund; any
action or claim against the Subadviser based on any alleged untrue
statement or misstatement of material fact in any registration statement,
prospectus, shareholder report or other information or materials covering
shares filed or made public by the Fund or any amendment thereof or
supplement thereto, or the failure or alleged failure to state therein a
material fact required to be stated in order that the statements therein
are not misleading, provided that such claim is not based upon information
provided to the Adviser by the Subadviser or approved by the Subadviser in
the manner provided in paragraph 12b) of this Agreement, or which facts or
information the Subadviser failed to provide or disclose. With respect to
any claim for which the Subadviser shall be entitled to indemnity
hereunder, the Adviser shall assume the reasonable expenses and costs
(including any reasonable attorney's fees and costs) of the Subadviser of
investigating and/or defending any claim asserted or threatened by any
party, subject always to the Adviser first receiving a written undertaking
from the Subadviser to repay any amounts paid on its behalf in the event
and to the extent of any subsequent determination that the Subadviser was
not entitled to indemnification hereunder in respect of such claim.
b) The Subadviser hereby agrees to indemnify the Adviser, its affiliates,
and the Fund from and against all liabilities, losses, expenses,
reasonable attorneys' fees and costs (other than attorneys' fees and
costs in relation to the preparation of this Subadvisory Agreement;
each party bearing responsibility for its own such costs and fees) or
damages (other than liabilities, losses, expenses, attorneys' fees and
costs or damages arising from the Adviser's failure to perform its
responsibilities hereunder or claims arising from its acts or failure
to act in performing this Subadvisory Agreement) arising from
Subadviser's (its affiliates, and their respective agents and
employees) failure to perform its duties and assume its obligations
hereunder, or from any wrongful act of Subadviser or its failure to
act in performing this Subadvisory Agreement including any action or
claim against the Adviser based on any alleged untrue statement or
misstatement of a material fact made or provided by and with the
consent of Subadviser contained in any registration statement,
prospectus, shareholder report or other information or materials
relating to the Fund and shares issued by the Fund or the failure or
alleged failure to state a material fact therein required to be stated
in order that the
6
<PAGE>
statement therein is not misleading, which fact should have been made
or provided by the Subadviser to the Adviser. With respect to any
claim for which the Adviser is entitled to indemnity hereunder, the
Subadviser shall assume the reasonable expenses and costs (including
any reasonable attorneys' fees and costs) of the Adviser of
investigating and/or defending any claim asserted or threatened by any
party, subject always to the Subadviser first receiving a written
undertaking from the Adviser to repay any amounts paid on its behalf
in the event and to the extent of any subsequent determination that
the Adviser was not entitled to indemnification hereunder in respect
of such claim.
c) In the event that the Subadviser or Adviser is or becomes a party to
any action or proceedings in respect of which indemnification may be
sought hereunder, the party seeking indemnification shall promptly
notify the other party thereof. After becoming notified of the same,
the party from whom indemnification is sought shall be entitled to
participate in any such action or proceeding and shall assume any
payment for the full defense thereof with counsel reasonably
satisfactory to the party seeking indemnification. After properly
assuming the defense thereof, the party from whom indemnification is
sought shall not be liable hereunder to the other party for any legal
or other expenses subsequently incurred by such party in connection
with the defense thereof, other than damages, if any, by way of
judgement, settlement, or otherwise pursuant to this provision. The
party from whom indemnification is sought shall not be liable
hereunder for any settlement of any action or claim effected without
its written consent which consent shall not be unreasonably withheld.
11. Independent Contractor. Subadviser shall for all purposes of this Agreement
be deemed to be an independent contractor and, except as otherwise
expressly provided herein, shall have no authority to act for, bind or
represent the Fund in any way or otherwise be deemed to be an agent of the
Fund. Likewise, the Fund, the Adviser, and their respective affiliates,
agents and employees shall not be deemed agents of the Subadviser and shall
have not authority to bind Subadviser.
12. Use of Name. a) The Fund may, subject to sub-clause (b) below, use the
name, "Navellier Fund Management, Inc." or any component, abbreviation or
other name derived therefrom for promotional purposes only for so long as
this Agreement (or any extension, renewal or amendment thereof) continues
in force, unless the Subadviser shall specifically consent in writing to
such continued use thereafter. Any permitted use by the Fund during the
term hereof of the name of the Subadviser, Navellier, or any derivative
thereof, shall in no way prevent the Subadviser or any of its shareholders
or any of their successors, from using or permitting the use of such name
(whether singly or in any combination with any other words) for, by or in
connecting with an entity or enterprise other than the Fund. The name and
right to the name Navellier Management, Inc. or any derivation of the name
of Navellier shall at all times be owned and be the sole and exclusive
property of Louis Navellier and his affiliated entities. Navellier
Management, Inc., by entering into this Agreement, is allowing the Fund to
use the name Navellier and/or derivatives thereof solely by or on behalf of
this Fund. At the conclusion of this Agreement or in the event of any
termination of this Agreement or if the Subadviser's services are
terminated for any reason, each of the authorized parties and their
respective
7
<PAGE>
employees, representatives, affiliates, and associates agree that they
shall immediately cease using the name and/or any derivatives of said name
for any purpose whatsoever.
b) The Adviser and its affiliates shall not publish or distribute, and
shall cause the Fund not to publish or distribute to Fund
shareholders, prospective investors, sales agents or members of the
public any disclosure document, offering literature (including any
form of advertisement or other solicitation materials calculated to
lead investors to subscribe for any purchase shares of the Fund) or
other document referring by name to the Subadviser, unless the
Subadviser shall have consented in writing to such references in the
form and context in which they appear; provided however, that where
the Fund timely seeks to obtain approval of disclosure contained in
any documents required to be filed by the Fund, and such approval is
not forthcoming on or before the date on which such documents are
required by law to be filed, the Subadviser shall be deemed have
consented to such disclosure.
13. Miscellaneous. a) This Subadvisory Agreement shall be governed by the laws
of the State of Michigan, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, the Advisers Act, or rules or
orders of the SEC thereunder. In the event of any litigation in which the
Adviser and the Subadviser are adverse parties and there are no other
parties to such litigation, such action shall be brought in the United
States District Court for the State of Michigan located in Detroit,
Michigan.
b) The captions of this Subadvisory Agreement are included for
convenience only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
c) This Agreement may be executed in one or more counterparts, all of
which taken together shall be deemed to constitute one and the same
instrument
14. Notices. Any notice, instruction or other instrument required or permitted
to be given hereunder may be delivered in person to the offices of the
parties as set forth therein during normal business hours, or delivered or
sent by prepaid registered mail, express mail or by facsimile to the
parties at such offices or such other address as may be notified by either
party from time to time. Such notice, instruction or other instrument shall
be deemed to have been served, in the case of a registered letter at the
expiration of seventy-two (72) hours after posting; in the case of express
mail, within twenty-four (24) hours after dispatch; and in the case of
facsimile, immediately on dispatch, and if delivered outside normal
business hours it shall be deemed to have been received at the next time
after delivery or transmission when normal business hours commence.
Evidence that the notice, instruction or other instrument was properly
addressed, stamped and put into the post shall be conclusive evidence of
posting.
15. Attorney's Fees. In the event of a material breach of this Agreement by any
party hereto, the prevailing party, as determined by the trier of fact,
shall be entitled to reasonable attorneys' fees and costs as determined by
the court in such action, in addition to any other damages awarded.
8
<PAGE>
16. Non-Solicitation. The Adviser, its affiliates and their respective agents
(including brokers engaged in marketing and selling shares of the Fund),
and each of their employees and affiliates agree not to knowingly solicit
to invest, or accept or retain as investors, in the Fund any persons or
entities who are clients of or investors in any fund or investment vehicle
managed by any entity owned by Louis Navellier.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of this 1st day of February,
2001.
QUESTAR CAPITAL CORPORATION NAVELLIER MANAGEMENT, INC.
__________________________________ __________________________________
By: Robert E. Boone By: Louis Navellier
Chairman and CEO President
10
<PAGE>
FEE SCHEDULE
------------
All assets, including common stock, preferred stock, securities convertible into
common stock, straight debt securities, and cash and cash equivalents, will be
computed at an annual rate of:
Accounts under $25,000,000
1/2% per year (.005)
Next $25,000,000
.45% per year (.0045)
Next $50,000,000
.4% per year (.004)
Over $100,000,000
.35% per year (.0035)
The fee is computed and billed in arrears at the end of each quarter by applying
one-fourth of 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 closing prices on the last day of the quarterly period. In the event of
commencement or limitation of the Agreement during a quarterly period, the
amount of fee payable shall be prorated as of the date of the commencement or
termination.
11
