ALPHA ANALYTICS INVESTMENT TRUST
PROSPECTUS DATED NOVEMBER 15, 2000
ALPHA ANALYTICS VALUE FUND
ALPHA ANALYTICS DIGITAL FUTURE FUND
1901 Avenue of the Stars, Suite 1100
Los Angeles, CA 90067
For Information
Shareholder Services and Requests:
Toll Free: 877-ALPHA40 (877) 257-4240
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
ALPHA ANALYTICS VALUE FUND...................................................
ALPHA ANALYTICS DIGITAL FUTURE FUND..........................................
COSTS OF INVESTING IN THE FUNDS..............................................
HOW TO BUY SHARES............................................................
HOW TO SELL SHARES...........................................................
HOW TO EXCHANGE SHARES.......................................................
THE PRICE OF SHARES..........................................................
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................
MANAGEMENT OF THE FUNDS......................................................
HISTORICAL PERFORMANCE OF SUB-ADVISER TO VALUE FUND..........................
INFORMATION ABOUT INVESTMENTS................................................
FINANCIAL STATEMENTS.........................................................
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ALPHA ANALYTICS VALUE FUND
INVESTMENT OBJECTIVE
The investment objective of the Value Fund is long term capital appreciation.
PRINCIPAL STRATEGIES
The Fund pursues a value philosophy, investing in stocks of quality companies
that are attractively priced relative to the market. The Fund invests primarily
in common stocks of well established, relatively large U.S. companies (those
with a market capitalization above $1 billion). The Fund's sub-adviser looks for
financially strong companies:
o Experiencing positive developments that the market has not yet recognized
o Selling at historically low prices
o Having seasoned management
o Enjoying product or market advantages
While it is anticipated that the Fund will diversify its investments across a
range of industry sectors, certain sectors are likely to be overweighted
compared to others because the Fund's advisor seeks the best investment
opportunities regardless of sector. The Fund may, for example, be overweighted
at times in the technology sector or telecommunications sector or both. The
sectors in which the Fund may be overweighted will vary at different points in
the economic cycle.
SOCIAL LIMITATIONS ON COMPANIES INVESTED IN
The Fund will not invest in companies
o that obtain more than 4% of their gross revenues from the manufacture of
tobacco products, or
o companies that own directly more than a 4% interest in or operate nuclear
power plants.
PRINCIPAL RISKS OF INVESTING IN THE FUND
o MANAGEMENT RISK. The sub-adviser's value-oriented approach may fail to
produce the intended results.
o COMPANY RISK. The value of the Fund may decrease in response to the
activities and financial prospects of an individual company in the Fund's
portfolio. The value of an individual company can be more volatile than the
market as a whole.
o MARKET RISK. Overall stock market risks may also affect the value of the
Fund. Factors such as domestic economic growth and market conditions,
interest rate levels, and political events affect the securities markets.
o VOLATILITY RISK. Common stocks tend to be more volatile than other
investment choices. The value of an individual company can be more volatile
than the market as a whole. This volatility affects the value of the Fund's
shares.
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o SECTOR RISK. If the Fund's portfolio is overweighted in a certain sector,
any negative development affecting that sector will have a greater impact
on the Fund than a Fund that is not overweighted in that sector. For
example, the Fund may have a greater concentration in technology companies
and/or telecommunications companies, and significant weakness in either
sector could result in significant losses to the Fund. Technology and
telecommunications companies may be significantly affected by falling
prices and profits and intense competition, and their products may be
subject to rapid obsolescence. Changes in governmental policies, such as
telephone and cable regulations and anti-trust enforcement, may have a
material effect on the products and services of these companies. In
addition, the rate of technological change often requires extensive and
sustained investment in research and development. It is likely that some of
today's public companies that are benefiting from the growth of the
Internet and other new technologies will not exist in the future. The price
of many of these stocks has risen based on projections of future earnings
and company growth. If a company does not perform as expected, the price of
the stock could decline significantly. Many companies that seek to benefit
from the new economy are currently operating at a loss and may never be
profitable.
o PORTFOLIO TURNOVER RISK. The Fund does not intend to purchase or sell
securities for short term trading purposes. However, if the objectives of
the Fund would be better served, short term profits or losses may be
realized from time to time. To the extent the Fund has high portfolio
turnover, it will generally incur higher brokerage commissions than those
incurred by a fund with a lower portfolio turnover rate, and the higher
turnover rate may result in the realization for federal tax purposes of
more net capital gains, which may be ordinary income.
o The Fund is not a complete investment program. As with any mutual fund
investment, the Fund's returns will vary and you could lose money.
IS THIS FUND RIGHT FOR YOU?
The Fund may be suitable for:
Long term investors seeking a fund with a value investment strategy o Investors
willing to accept price fluctuations in their investment o Investors who can
tolerate the risks associated with common stock investments
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HOW THE FUND HAS PERFORMED
The bar chart below shows the Fund's total return for calendar year 1999. The
performance table below shows how the Fund's average annual total returns
compare over time to those of a broad-based securities market index. Of course,
the Fund's past performance is not necessarily an indication of its future
performance.
[insert bar chart reflecting 46.73%]
*The Fund's year-to-date return as of September 30, 2000 was 8.91%.
During the period shown, the highest return for a quarter was 29.96% (4th
quarter, 1999); and the lowest return was -7.00% (3rd quarter, 1999).
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 12/31/99:
ONE YEAR SINCE INCEPTION(1)
-------- ------------------
The Fund 46.73% 46.73%
S&P 500 Index 21.04% 21.04%
--------
(1) January 1, 1999
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ALPHA ANALYTICS DIGITAL FUTURE FUND
INVESTMENT OBJECTIVE
The investment objective of the Digital Future Fund is long term capital
appreciation.
PRINCIPAL STRATEGIES
The Fund invests primarily in stocks of information technology companies. This
industry sector includes any company involved in creating, using, processing,
storing, and transmitting digital information. At present, the sector includes
the following industry segments: cable television, computers, computer
peripherals, digital television, fiberoptics, internet content providers,
internet services, mass storage devices, networking equipment, semiconductors,
software and telecommunications. In the future, as new technologies develop,
other industry segments could become part of the sector. The Fund will normally
invest at least 65% of its assets in information technology companies (each of
which has at least 50% of its assets or gross income derived from or committed
to information technology businesses).
The Fund's adviser looks for companies that have some or all of the following
characteristics: o A vision of the future, and the management and resources to
accomplish it o A demonstrated track record o A good business model o
Significant new technologies, or an innovative use of technology
In addition the Fund's adviser uses a proprietary computer-driven investment
model developed by Alpha Analytics Investment Group to evaluate stocks in the
information technology sector, and to rank them in expected order of future
price appreciation. This model includes quantitative characteristics such as:
o Earnings Growth
o Sales growth
o Recent and long term price appreciation
o Price/Earnings and other characteristics
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The Fund will purchase companies that score well in both the fundamental
analysis and quantitative screens.
SOCIAL LIMITATIONS ON COMPANIES INVESTED IN
The Fund will not invest in companies
o that obtain more than 4% of their gross revenues from the manufacture of
tobacco products, or
o companies that own directly more than a 4% interest in or operate nuclear
power plants.
PRINCIPAL RISKS OF INVESTING IN THE FUND
o MANAGEMENT RISK. As of the date of this Prospectus, the Fund has a limited
operating history and the adviser has limited experience managing a
portfolio of technology stock. The adviser's strategy may fail to produce
the intended results.
o SMALL COMPANY RISK. Some of the companies the Fund will invest in are small
companies. The risks associated with investing in smaller companies
include:
o The earnings and prospects of smaller companies are more volatile than
larger companies.
o Smaller companies may experience higher failure rates than do larger
companies.
o The trading volume of securities of smaller companies is normally less
than that of larger companies and, therefore, may disproportionately
affect their market price, tending to make them fall more in response
to selling pressure than is the case with larger companies.
o Smaller companies may have limited markets, product lines or financial
resources and may lack management depth.
o COMPANY RISK. The value of the Fund may decrease in response to the
activities and financial prospects of an individual company in the Fund's
portfolio. The value of an individual company can be more volatile than the
market as a whole.
o MARKET RISK. Overall stock market risks may also affect the value of the
Fund. Factors such as domestic economic growth and market conditions,
interest rate levels, and political events affect the securities markets.
o VOLATILITY RISK. Common stocks tend to be more volatile than other
investment choices. The value of an individual company can be more volatile
than the market as a whole. This volatility affects the value of the Fund's
shares.
o HIGH VOLATILITY. Many of the companies the Fund will invest in are
classified as aggressive growth stocks. These stocks experience much higher
volatility than the market as a whole.
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o IPO RISK. The Fund may purchase shares in initial public offerings (IPOs).
Companies going public for the first time frequently are companies with
limited operating histories, and many of these companies have unproven
business models. Primarily for these reasons, investments in IPO offerings
can introduce additional volatility and risks to the Fund. IPO shares may
be overvalued and are also frequently volatile in price. Accordingly, the
Fund may hold IPO shares for a very short period of time. This may increase
the turnover of the Fund's portfolio and may lead to increased expenses to
the Fund, such as commissions and transactions costs.
o TECHNOLOGY RISK. As the Fund is concentrated in the technology sector,
significant weakness in this sector could result in significant losses to
the Fund. Technology companies may be significantly affected by falling
prices and profits and intense competition, and their products may be
subject to rapid obsolescence. Changes in governmental policies, such as
telephone and cable regulations and anti-trust enforcement, may have a
material effect on the products and services of these companies. In
addition, the rate of technological change often requires extensive and
sustained investment in research and development. It is likely that some of
today's public companies that are benefiting from the growth of the
Internet and other new technologies will not exist in the future. The price
of many of these stocks has risen based on projections of future earnings
and company growth. If a company does not perform as expected, the price of
the stock could decline significantly. Many companies that seek to benefit
from the new economy are currently operating at a loss and may never be
profitable.
o The Fund is not a complete investment program. As with any mutual fund
investment, the Fund's returns will vary and you could lose money.
IS THIS FUND RIGHT FOR YOU?
The Fund may be suitable for:
o Long term investors seeking a fund with an aggressive growth investment
strategy focusing on information technology stocks
o Investors willing to accept price fluctuations in their investment
o Investors who can tolerate the risks associated with common stock
investments
o Investors willing to accept the greater market price fluctuations of
smaller companies and technology companies
HOW THE FUND HAS PERFORMED
Although past performance of a fund is no guarantee of how it will perform in
the future, historical performance may give you some indication of the risk of
investing in the fund because it demonstrates how its returns have varied over
time. The past performance information that would otherwise appear in this
prospectus has been omitted because the Fund is recently organized and has a
limited performance history.
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COSTS OF INVESTING IN THE FUNDS
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Funds.
<TABLE>
<CAPTION>
--------------------------------------------------- --------------------- --------------------
Alpha Analytics Alpha Analytics
Value Fund Digital Future Fund
--------------------------------------------------- --------------------- --------------------
Shareholder Transaction Expenses (fees paid
directly from your investment)
---------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases None None
(as a percentage of offering price)
---------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested None None
Dividends and Other Distributions
---------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a None None
percentage of original purchase price or
redemption proceeds, whichever is less)
---------------------------------------------------
Redemption Fees 2.00% 2.00%
(as a % of the amount redeemed)1
---------------------------------------------------
Exchange Fees None None
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Annual Fund Operating Expenses (expenses that are
deducted from Fund assets)
---------------------------------------------------
Management Fees 1.50% 1.50%
---------------------------------------------------
Distribution (12b-1) Fees None None
---------------------------------------------------
Other Expenses 0.28% 0.62%
----- -----
---------------------------------------------------
Total Fund Operating Expenses 1.78% 2.12%
---------------------------------------------------
Fee Waiver and Expense Reimbursement2 (0.48%) (0.82%)
------- -------
---------------------------------------------------
Net Expenses 1.30% 1.30%
===== =====
--------------------------------------------------- --------------------- --------------------
<FN>
(1) Each Fund charges a redemption fee of 2% on shares redeemed less than 90
days from the date of purchase. This redemption fee does not go to the
Fund's adviser, but to the Fund itself for the benefit of the remaining
shareholders. This helps defray the transaction costs and other adverse
impacts of short term investment on the Fund's performance.
(2) Through November 30, 2001, the adviser has agreed to waive 0.20% of average
net assets from its fees, so that the management fee of each Fund will be
1.30% of average daily net assets, and has agreed to pay the fees and
expenses of the trustees who are not "interested persons" as defined by the
Investment Company Act.
</FN>
</TABLE>
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EXPENSE EXAMPLE
The example below is intended to help you compare the cost of investing
in the Alpha Analytic Funds with the cost of investing in other mutual funds.
The example uses the same assumptions as other mutual fund prospectuses: a
$10,000 initial investment for the time periods indicated, reinvestment of
dividends and distributions, 5% annual total return, constant operating
expenses, and sale of all shares at the end of each time period. Although your
actual expenses may be different, based on these assumptions your costs will be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Value Fund $132 $514 $920 $2055
Digital Future Fund $132 $585 $1064 $2387
HOW TO BUY, SELL OR EXCHANGE SHARES IN THE ALPHA ANALYTICS FUNDS
The Funds and their transfer agent, American Data Services can be contacted at
the same mailing address and telephone numbers. If you need additional
information on how to buy, sell or exchange shares in the Funds, please contact:
Mail: Phone:
Alpha Analytics Funds 877-257-4240
c/o American Data Services, Inc.
Hauppauge Corporate Center
150 Motor Parkway
Hauppauge, New York 11788-0132
YOU MAY ALSO BUY OR SELL SHARES THROUGH A RETIREMENT ACCOUNT OR AN INVESTMENT
PROFESSIONAL. FUND SHARES ARE AVAILABLE THROUGH CHARLES SCHWAB MUTUAL FUND ONE
SOURCE(R) AND OTHER INTERMEDIARIES. IF YOU INVEST THROUGH A RETIREMENT ACCOUNT,
OR AN INVESTMENT PROFESSIONAL OR OTHER INTERMEDIARY, THE PROCEDURES FOR BUYING
AND SELLING SHARES OF THE FUNDS MAY DIFFER. ADDITIONAL FEES MAY ALSO APPLY TO
YOUR INVESTMENT IN THE FUND, INCLUDING A TRANSACTION FEE IF YOU BUY OR SELL
SHARES OF THE FUND THROUGH A BROKER-DEALER, INVESTMENT PROFESSIONAL OR OTHER
INTERMEDIARY. THERE ARE NO TRANSACTION FEES FOR SHARES PURCHASED THROUGH CHARLES
SCHWAB MUTUAL FUND ONE SOURCE(R).
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HOW TO BUY SHARES
INITIAL PURCHASE. The minimum initial investment for each Fund is $2,500 ($2,000
for an IRA or other tax sheltered retirement plan; $1,000 if you elect to use
the Automatic Investment Plan (see below)). The minimum subsequent investment is
$250 ($100 for the Automatic Investment Plan). These minimums may be waived or
reduced by the Funds' adviser for accounts participating in an automatic
investment program, or for other reasons. Investors choosing to purchase or
redeem their shares through a broker/dealer or other institution may be charged
a fee by that institution. Investors choosing to purchase or redeem shares
directly from a Fund will not incur charges on purchases or redemptions, except
as described below under "How To Redeem Shares - Redemption Fee".
BY MAIL. You may make a direct initial investment by following these steps:
o Complete and sign the investment application form which accompanies
this prospectus (subject to the minimum amounts);
o Draft a check made payable to the appropriate fund;
o Mail the application, check and any letter of instruction to the
Fund's transfer agent at the P. O. Box listed below. If you prefer
overnight delivery, use the overnight address listed below.
Mail: Alpha Analytics Funds Overnight: Alpha Analytics Funds
American Data Services, Inc. American Data Services, Inc.
P.O. Box 5536 Hauppauge Corporate Center
Hauppauge, New York 11788-0132 150 Motor Parkway
Hauppauge, New York 11788-5108
Your purchase of shares of a Fund will be effected at the next share price
calculated after receipt of your investment.
BY WIRE. You may purchase shares of a Fund by wiring federal funds from
your bank, which may charge you a fee for doing so. To wire money, you must call
the Fund's transfer agent at 877-257-4240 to set up your account and obtain an
account number. You should be prepared at that time to provide the information
on the application. Then, provide your bank with the following information for
purposes of wiring you investment:
Firstar Bank, N.A. Cinti/Trust for: ALPHA ANALYTICS VALUE FUND
ABA #0420-0001-3 D.D.A.#488-922-568
Attn: Mutual Fund
Account Name ___________ ALPHA ANALYTICS DIGITAL FUTURE FUND
(write in shareholder name) D.D.A. #821-637-741
For the Account #___________
(write in account number)
You must mail a completed application to the transfer agent after opening an
account by wire transfer. Wire orders will be accepted only on a day on which
the Funds and the custodian bank are open for business. A wire purchase will not
be considered made until the wired money is received and the purchase is
accepted by the Fund. Any delays that may occur in wiring money, including
delays that may occur in processing by the banks, are not the responsibility of
the Funds or the custodian bank. There is presently no fee for the receipt of
wired funds, but the Funds may charge a fee in the future.
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ADDITIONAL INVESTMENTS
You may purchase additional shares of a Fund at any time (minimum of $250) by
mail, wire, or automatic investment. Each additional purchase request must
contain:
o Your name;
o Name of your account(s);
o Account number(s);
o Name of the Fund(s) in which you wish to invest.
Checks should be made payable to the appropriate Fund and sent to the addresses
listed above. A bank wire should be sent as outlined above. ACH (Automatic
Clearing House) transactions should be established in advance by contacting the
Transfer Agent.
AUTOMATIC INVESTMENT OPTION
You may make regular investments in a Fund with an Automatic Investment Plan by
completing the appropriate section of the account application and attaching a
voided personal check. Investments may be made monthly or bimonthly to allow
dollar-cost averaging by automatically deducting $100 or more from your bank
checking account. You may change the amount of your monthly purchase or
terminate this automatic investment program at any time.
TAX SHELTERED RETIREMENT PLANS
Since each Fund is oriented to longer term investments, shares of the Funds may
be an appropriate investment medium for tax sheltered retirement plans,
including:
o Individual retirement plans (IRAs);
o Simplified employee pensions (SEPs);
o SIMPLE plans;
o 401(k) plans;
o Qualified corporate pension and profit sharing plans (for employees);
o Tax deferred investment plans (for employees of public school systems and
certain types of charitable organizations);
o Other qualified retirement plans.
You should contact the Funds' transfer agent for the procedure to open an IRA or
SEP plan, as well as more specific information regarding these retirement plan
options. Consultation with an attorney or tax adviser regarding these plans is
advisable. You must pay custodial fees for your IRA by redemption of sufficient
shares of the Funds from the IRA unless you pay the fees directly to the IRA
custodian. Call the Funds' transfer agent about the IRA custodial fees.
OTHER PURCHASE INFORMATION
The Funds may limit the amount of purchases and refuse to sell to any person. If
your check or wire does not clear, you will be responsible for any loss incurred
by the Funds. If you are already a shareholder, the Funds can redeem shares from
any identically registered account in the Funds as reimbursement for any loss
incurred. You may be prohibited or restricted from making future purchases in
the Funds.
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HOW TO SELL SHARES
You may sell shares in a Fund by mail or telephone. The proceeds of the sale may
be more or less than the purchase price of your shares, depending on the market
value of the Fund's securities at the time of your sale. You may receive the
proceeds from the sale in the form of a check or federal wire transfer.
For sales in excess of $50,000, the Funds may require that signatures be
guaranteed by a bank or member firm of a national securities exchange. Signature
guarantees are for the protection of shareholders. At the discretion of any
Fund, a shareholder may be required to furnish additional legal documents to
insure proper authorization.
BY MAIL. Your request for a sale should be addressed to the Alpha Analytics
Funds and must include:
o Your letter of instruction;
o The Fund name;
o Account number(s);
o Account name(s);
o The dollar amount or the number of shares you wish to sell.
All registered share owner(s) must sign this request in the exact name(s) and
any special capacity in which they are registered. For joint accounts with right
of survivorship, only one signature is required for withdrawal.
BY TELEPHONE. To redeem or exchange shares by phone, you must first complete the
normal telephone redemption and exchange section of the investment application.
You may sell shares on any business day the New York Stock Exchange is open by
calling the Funds' transfer agent at 877-257-4240 before 4:00 p.m. Eastern Time.
The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures will include requiring a
form of personal identification from the caller. Sale proceeds will be mailed or
wired at the shareholder's direction to the designated account. The minimum
amount that may be wired is $1,000. Wire charges of $10 will be deducted from
sales proceeds.
By using the telephone redemption and exchange privileges, a shareholder
authorizes the Funds to act upon the instruction of any person by telephone they
believe to be the shareholder. By telephone, the shareholder may sell shares
from the account and transfer the proceeds to the address of record or the bank
account designated or may exchange into another Fund. The Funds and the transfer
agent are not liable for following instructions communicated by telephone that
they reasonably believe to be genuine. However, if they do not employ reasonable
procedures to confirm that telephone instructions are genuine, they may be
liable for any losses due to unauthorized or fraudulent instructions. The Funds
may change, modify or terminate the telephone redemption or exchange privilege
at any time.
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EARLY REDEMPTION FEE. If you are selling shares held less than 90 days, the Fund
may deduct a 2% redemption fee. This redemption fee does not go to the Fund's
investment adviser, but to the Fund itself for the benefit of the remaining
shareholders. This helps defray the transaction costs and other adverse impacts
of short term investment on the Fund's performance.
A redemption fee will not be charged when shares of a Fund are exchanged for
another Alpha Analytics Investment Trust mutual fund; however, the 90-day
holding period of the exchanged shares will be calculated from the exchange
date. Solely for purposes of calculating the 90-day holding period, each Fund
uses the "first-in, first out" (FIFO) method. That is, the date of any
redemption or exchange will be compared to the earliest purchase date. If this
holding period is less than 90 days, the applicable fee will be assessed. The
fee will be prorated if a portion of the shares being redeemed or exchanged has
been held for more than 90 days. The fee is waived for:
(a) an account registered as either an Individual Retirement Account or a
tax-qualified retirement plan on the books of a Fund's transfer agent,
or on the books of certain other third parties that are authorized
agents of a Fund; and
(b) shares purchased with reinvested capital gain or dividend
distributions.
ADDITIONAL INFORMATION. If you are not certain of the requirements for
redemption please call the Funds' transfer agent at 877-257-4240. Sale requests
specifying a certain date or share price cannot be accepted and will be
returned. If you invest by wire, you may sell your shares on the first business
day following such purchase. However, if you invest by a personal, corporate,
cashier's or government check, the sales proceeds will not be paid until your
investment has cleared the bank, which normally may take up to 15 calendar days.
Exchanges into another Fund are, however, permitted without the ten day waiting
period. If the Fund has not yet collected payment for the shares you are
selling, it may delay sending proceeds for up to eight business days or until it
has collected payment.
When the New York Stock Exchange is closed (or when trading is restricted) for
any reason other than its customary weekend or holiday closing or under any
emergency circumstances, as determined by the Securities and Exchange
Commission, we may suspend sales of Fund shares or postpone payment dates. If
you are unable to accomplish your transaction by telephone (for example, during
times of unusual market activity), consider sending your order by express mail
to the Funds.
Because the Funds incur certain fixed costs in maintaining shareholder accounts,
the Funds may ask you to increase your balance if your account falls below
$2,500. If it is still below $2,500 after 30 days, each Fund may close your
account and send you the proceeds. An involuntary sale will create a capital
gain or a capital loss, which may have tax consequences about which you should
consult your tax adviser. You may increase the value of your shares in the Fund
to the minimum amount within the 30 day period.
Your shares are subject to a sale at any time if the Board of Trustees
determines in its sole discretion that failure to sell may have materially
adverse consequences to all or any of the shareholders of the Trust or any Fund
of the Trust.
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HOW TO EXCHANGE SHARES
As a shareholder in any Fund, you may exchange shares valued at $1,000 or more
for shares of any other Alpha Analytics Funds. You may make an exchange by
telephone or by written request.
You may call the Funds' transfer agent to exchange shares. An exchange may also
be made by written request signed by all registered owners of the account mailed
to the transfer agent.
An exchange is made by selling shares of one Fund and using the proceeds to buy
shares of another Fund, with the net asset value per share (NAV) for the sale
and the purchase calculated on the same day. An exchange results in a sale of
shares for federal income tax purposes. If you make use of the exchange
privilege, you may realize either a long term or short term capital gain or loss
on the shares sold.
Before making an exchange, you should consider the investment objective of the
Fund to be purchased. If your exchange creates a new account, you must satisfy
the requirements of the Fund in which shares are being purchased. You may make
an exchange to a new account or an existing account; however, the account
ownership must be identical. Exchanges may be made only in states where an
exchange may legally be made. The Funds reserve the right to terminate or modify
the exchange privilege in the future upon 60 days prior notice to the
shareholders.
THE PRICE OF SHARES
The price you pay for your shares is based on the applicable Fund's net asset
value per share (NAV). The NAV is calculated at the close of trading (normally
4:00 p.m. Eastern time) on each day the New York Stock Exchange is open for
business (the Stock Exchange is closed on weekends, Federal holidays and Good
Friday). The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
Each Fund's assets are generally valued at their market value. If market prices
are not available, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value.
Requests to purchase, sell and exchange shares are processed at the NAV next
calculated after we receive your order in proper form.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Each Fund typically distributes substantially all
of its net investment income in the form of dividends and taxable capital gains
to its shareholders on an annual basis. These distributions are automatically
reinvested in the Fund unless you request cash distributions on your application
or through a written request. Each Fund expects that its distributions will
consist primarily of long term capital gains.
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TAXES. In general, selling shares of a Fund and receiving distributions (whether
reinvested or taken in cash) are taxable events. Depending on the purchase price
and the sale price, you may have a gain or a loss on any shares sold. Any tax
liabilities generated by your transactions or by receiving distributions are
your responsibility. Because distributions of long term capital gains are
subject to capital gains taxes, regardless of how long you have owned your
shares, you may want to avoid making a substantial investment when a Fund is
about to make a long term capital gain distribution.
After the close of the calendar year, each Fund will mail to you a statement
setting forth the federal income tax information for all distributions made
during the previous year. If you do not provide your taxpayer identification
number, your account will be subject to backup withholding.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax adviser about your
investment.
MANAGEMENT OF THE FUNDS
Alpha Analytics Investment Group, LLC, 1901 Avenue of the Stars, Suite 1100, Los
Angeles, CA 90067 serves as investment adviser to each Fund. The adviser was
established in July 1998 and is controlled by Robert E. Gipson. Mr. Gipson is an
attorney (of counsel at Gipson, Hoffman & Pancione), an officer of Corporate
Management Group, Inc. (a business and financial consulting company) and serves
as an officer or director of various public and non-public companies. A
committee of the adviser is primarily responsible for the day-to-day management
of the Digital Future Fund's portfolio.
The adviser has entered into a sub-advisory agreement with Cambiar Investors,
Inc., 8400 East Prentice Avenue, Suite 460, Englewood, CO 80111 ("Cambiar") to
serve as the sub-adviser of the Value Fund. Cambiar, a Colorado corporation, was
formed in 1973. It is a wholly-owned subsidiary of United Asset Management
Corporation, a holding company, which in turn is a wholly-owned subsidiary of
Old Mutual Plc. Cambiar provides investment management services to corporations,
foundations, endowments, pension and profit-sharing plans, trusts, estates and
other institutions and individuals. As of June 30, 2000, Cambiar had
approximately $2.17 billion in assets under management. A committee at Cambiar
makes the investment decisions of the Value Fund, which is primarily responsible
for the day-to-day management of the Value Fund's portfolio. The adviser has
agreed to pay Cambiar a sub-advisory fee equal to an annual average rate of
0.50% of the average daily net assets of the Value Fund.
Each Fund is authorized to pay the Fund's adviser a fee equal to an annual
average rate of 1.50% of the Fund's average daily net assets. Through November
30, 2001, the adviser has agreed to waive a portion of its fees so that the
total expenses of each Fund will be 1.30% of average daily net assets.
14
<PAGE>
HISTORICAL PERFORMANCE OF SUB-ADVISER TO VALUE FUND
The sub-adviser to the Value Fund manages separate accounts that have the same
investment objectives as the Value Fund. The sub-adviser manages these accounts
using techniques and strategies substantially similar, though not always
identical, to those used in managing the Value Fund. A composite of the
performance of these separate accounts is listed below. The performance data for
the managed accounts reflects deductions for all fees and expenses. All fees and
expenses of the separate accounts were less than the operating expenses of the
Value Fund. If the performance of the managed accounts were adjusted to reflect
fees and expenses of the Value Fund, the composite's performance would have been
lower.
The sub-adviser calculated its performance using standards different than the
SEC method. Had the adviser calculated its performance using the SEC's methods,
its results might have differed.
The separately managed accounts are not subject to investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act and
Internal Revenue Code. If they were, their returns might have been lower. The
performance of these separate accounts is not intended to predict or suggest the
performance of the Value Fund. In addition, the performance of the Value Fund is
reflected below beginning with the calendar year ended December 31, 1999.
------------------------ ------------- ---------- ----------------
Calendar Year Ended Value Fund Cambiar S&P 500 Index
------------------------ ------------- ---------- ----------------
1975 34.80% 37.20%
------------------------
1976 32.40% 23.80%
------------------------
1977 14.40% (7.20)%
------------------------
1978 22.50% 6.60%
------------------------
1979 24.00% 18.40%
------------------------
1980 25.50% 32.40%
------------------------
1981 9.80% (4.90)%
------------------------
1982 33.30% 21.60%
------------------------
1983 22.60% 22.40%
------------------------
1984 2.90% 6.10%
------------------------
1985 29.30% 31.57%
------------------------
1986 23.67% 18.21%
------------------------
1987 6.10% 5.17%
------------------------
1988 17.11% 16.50%
------------------------
1989 23.23% 31.43%
------------------------
1990 2.83% (3.19)%
------------------------
1991 31.51% 30.55%
------------------------
1992 9.56% 7.68%
------------------------
1993 13.66% 10.00%
------------------------
1994 1.00% 1.33%
------------------------
1995 33.54% 37.50%
------------------------
1996 23.92% 23.25%
------------------------
1997 33.69% 33.36%
------------------------
1998 13.57% 28.58%
------------------------
1999 46.73% 22.10% 21.04%
------------------------ ------------- ---------- ----------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Summary of Performance
------------------------------------------------------------------------------------------------
Value Fund Cambiar S&P 500 Index
---------------------------------------------------
<S> <C> <C> <C>
Cumulative (1/1/75-12/31/99) N/A 9081.70% 5186.09%
---------------------------------------------------
1-year period ended 12/31/99 (average annual) 46.73% 22.10% 21.04%
---------------------------------------------------
5-year period ended 12/31/99 (average annual) N/A 25.13% 28.60%
---------------------------------------------------
15
<PAGE>
------------------------------------------------------------------------------------------------
10-year period ended 12/31/99 (average annual) N/A 17.96% 18.23%
---------------------------------------------------
24-Year average annual return (1/1/75-12/31/99) N/A 19.82% 17.20%
---------------------------------------------------
Value of $1 invested during (1/1/75-12/31/99) N/A $91.82 $52.86
--------------------------------------------------- ---------- ---------------- ------------------
<FN>
Notes:
1. The annualized return is calculated from monthly data, allowing for
compounding. This method of calculating returns is different than the SEC
Standard, which may produce different results.
2. The cumulative return means that $1 invested in the account on January 1,
1975 had grown to $91.82 by December 31, 1999.
3. The 24-year mean is the arithmetic average of the annual returns for the
calendar years listed.
4. The S&P 500 Index is an unmanaged index which assumes reinvestment of
dividends and is generally considered representative of securities similar
to those invested in by the sub-adviser for the purpose of the composite
performance numbers set forth above.
5. During the period shown (1/1/75-12/31/99), fees on the sub-adviser's
individual accounts ranged from 0.25% to 2.0% (25 basis points to 200 basis
points). The sub-adviser's returns presented above are net of the maximum
fee of 2.0%. Net returns to investors vary depending on the management fee.
</FN>
</TABLE>
INFORMATION ABOUT INVESTMENTS
In addition to its principal investment strategies, each Fund's portfolio may
use the investment strategies described below. It may also employ investment
practices that this prospectus does not describe, such as investing in other
equity securities, foreign securities, futures and options, short sales,
repurchase agreements, when-issued and delayed delivery securities, borrowing
and other techniques. For information concerning these investment practices and
their risks, you should read the Funds' Statement of Additional Information
(SAI).
AMERICAN DEPOSITARY RECEIPTS. Each Fund may invest up to 25% of its assets in
foreign equity securities by purchasing American Depository Receipts ("ADRs").
ADRs are certificates evidencing ownership of shares of a foreign-based issuer
held in trust by a bank or similar financial institution. They are alternatives
to the direct purchase of the underlying securities in their national markets
and currencies.
GENERAL
The investment objective of any Fund may be changed without shareholder
approval.
From time to time, a Fund may take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market, economic, political, or other conditions. For
example, a Fund may hold all or a portion of its assets in money market
instruments, securities of other no-load mutual funds or repurchase agreements.
If a Fund invests in shares of another mutual fund, the shareholders of the Fund
generally will be subject to duplicative management fees. As a result of
engaging in these temporary measures, a Fund may not achieve its investment
objectives.
16
<PAGE>
FINANCIAL STATEMENTS
The following tables are intended to help you better understand
financial performance of the Value Fund and the Digital Future Fund since their
inception. Certain information reflects financial results for a single Fund
share. The total returns represent the rate you would have earned (or lost) on
an investment in a Fund, assuming reinvestment of all dividends and
distributions. This information has been audited by McCurdy & Associates CPA's,
Inc., whose report, along with the financial statements of the Value Fund and
the Digital Future Fund, are included in the Funds' annual report, which is
available upon request.
<TABLE>
<CAPTION>
ALPHA ANALYTICS INVESTMENT TRUST - VALUE FUND
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE YEAR JANUARY 1, 1999(1)
ENDED THROUGH
JULY 31, 2000 JULY 31, 1999
--------------- ---------------
<S> <C> <C>
Net asset value, beginning of Period $ 11.92 $ 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.04) 0.01
Net realized and unrealized gains
(losses) on investments 2.95 1.91
------------ ------------
Total from investment operations 2.91 1.92
------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.01) 0.00
Distribution from realized gains
from security transactions (0.58) 0.00
------------ ------------
Total distributions (0.59) 0.00
------------ ------------
Net asset value, end of period $ 14.24 $ 11.92
============ ============
Total return 24.94% 19.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 4,549 $ 2,385
Ratio of expenses to average net assets,
before reimbursement 1.78% 2.45%(2)
Ratio of expenses to average net assets,
net of reimbursement 1.30% 1.30%(2)
Ratio of net investment income (loss)
to average net assets, before (.76%) (1.03%)(2)
reimbursement
Ratio of net investment income (loss)
to average net assets, net of (.27%) 0.12%(2)
reimbursement
Portfolio turnover rate 101.54% 32.98%
<FN>
(1) Commencement of operations.
(2) Ratios for this period of operations are annualized.
</FN>
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
ALPHA ANALYTICS INVESTMENT TRUST - DIGITAL FUTURE FUND
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
DECEMBER 22, 1999(1)
THROUGH
JULY 31, 2000
------------------
<S> <C>
Net asset value, beginning of Period $ 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.10)
Net realized and unrealized gains (losses) 3.76
on investments
------------
Total from investment operations 3.66
------------
LESS DISTRIBUTIONS:
Dividends from net investment income 0.00
Distribution from realized gains from
security transactions 0.00
------------
Total distributions 0.00
------------
Net asset value, end of period $ 13.66
============
Total return 36.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,419
Ratio of expenses to average net assets,
before reimbursements 2.12%(2)
Ratio of expenses to average net assets,
net of reimbursement 1.30%(2)
Ratio of net investment income (loss)
to average net assets, before reimbursement (2.04)%(2)
Ratio of net investment income (loss)
to average net assets, net of reimbursement (1.21)%(2)
Portfolio turnover rate 16.55%
<FN>
(1) Commencement of operations.
(2) Ratios for this period of operations are annualized.
</FN>
</TABLE>
18
<PAGE>
INVESTMENT ADVISER INVESTMENT SUB-ADVISER
Alpha Analytics Investment Group, LLC (TO THE VALUE FUND)
Corporate Management Group, Inc. Cambiar Investors, Inc.
1901 Avenue of the Stars, Suite 1100 8400 East Prentice Avenue, Suite 460
Los Angeles, CA 90067 Englewood, CO 80111
LEGAL COUNSEL
Brown, Cummins & Brown Co., L.P.A. ADMINISTRATOR
3500 Carew Tower, 441 Vine Street American Data Services, Inc.
Cincinnati, OH 45202 150 Motor Parkway
Hauppauge, New York 11788-5108
CUSTODIAN
Firstar Bank, N.A. DISTRIBUTOR
425 Walnut Street, M.L. 6118 ADS Distributors, Inc.
Cincinnati, Ohio 45202 150 Motor Parkway
Hauppauge, New York 11788-5108
TRANSFER AGENT (ALL PURCHASES AND
ALL REDEMPTION REQUESTS) INDEPENDENT AUDITORS
American Data Services, Inc. McCurdy & Associates, CPA's
P.O. Box 5536 27955 Clemens Road
Hauppauge, New York 11788-0132 Westlake, Ohio 44145
19
<PAGE>
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated by reference into this
prospectus, contains detailed information on Fund policies and operations.
Shareholder reports contain management's discussion of market conditions,
investment strategies and performance results as of the Funds' latest
semi-annual or annual fiscal year end.
Call the Funds toll free at 877-257-4240 to request free copies of the
SAI and the Funds' annual and semi-annual reports, to request other information
about the Funds and to make shareholder inquiries.
You may review and copy information about the Funds (including the SAI
and other reports) at the Securities and Exchange Commission (SEC) Public
Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours
and operation. You may also obtain reports and other information about the Funds
on the EDGAR Database on the SEC's Internet site at HTTP.//WWW.SEC.GOV, and
copies of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: [email protected], or by
writing the SEC's Public Reference Section of the SEC, Washington, D.C.
20549-0102.
Investment Company Act # 811-8061
20
<PAGE>
ALPHA ANALYTICS INVESTMENT TRUST
ALPHA ANALYTICS VALUE FUND
ALPHA ANALYTICS DIGITAL FUTURE FUND
STATEMENT OF ADDITIONAL INFORMATION
November 15, 2000
This Statement of Additional Information ("SAI") is not a prospectus.
It should be read in conjunction with the Prospectus of Alpha Analytics Value
Fund and Alpha Analytics Digital Future Fund dated November 15, 2000. This SAI
incorporates by reference the Fund's Annual Report to Shareholders for the
fiscal year ended July 31, 2000 ("Annual Report"). A free copy of the Prospectus
or Annual Report can be obtained by writing the Transfer Agent at American Data
Services, Inc., at P.O. Box 5536, Hauppauge, New York 11788-0132, or by calling
1-877-257-4240.
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE TRUST AND FUNDS.........................................
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS.............................................................
INVESTMENT LIMITATIONS.....................................................
INVESTMENT ADVISORY ARRANGEMENTS...........................................
TRUSTEES AND OFFICERS......................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................
DETERMINATION OF SHARE PRICE...............................................
TAX STATUS.................................................................
INVESTMENT PERFORMANCE.....................................................
CUSTODIAN..................................................................
TRANSFER AGENT.............................................................
ACCOUNTANTS................................................................
DISTRIBUTOR................................................................
FIINANCIAL STATEMENTS......................................................
1
<PAGE>
DESCRIPTION OF THE TRUST AND FUNDS
Alpha Analytics Value Fund (the "Value Fund") and Alpha Analytics
Digital Future Fund (the "Digital Future Fund") (each a "Fund" or collectively,
the "Funds") were organized as diversified series of Alpha Analytics Investment
Trust (the "Trust"). The Trust is an open-end investment company established
under the laws of Ohio by an Agreement and Declaration of Trust dated August 18,
1998 (the "Trust Agreement") and has no prior history. The Trust Agreement
permits the Trustees to issue an unlimited number of shares of beneficial
interest of separate series without par value.
The Fund does not issue share certificates. All shares are held in
non-certificate form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder. Each share of a series represents an equal
proportionate interest in the assets and liabilities belonging to that series
with each other share of that series and is entitled to such dividends and
distributions out of income belonging to the series as are declared by the
Trustees. The shares do not have cumulative voting rights or any preemptive or
conversion rights, and the Trustees have the authority from time to time to
divide or combine the shares of any series into a greater or lesser number of
shares of that series so long as the proportionate beneficial interest in the
assets belonging to that series and the rights of shares of any other series are
in no way affected. In case of any liquidation of a series, the holders of
shares of the series being liquidated will be entitled to receive as a class a
distribution out of the assets, net of the liabilities, belonging to that
series. Expenses attributable to any series are borne by that series. Any
general expenses of the Trust not readily identifiable as belonging to a
particular series are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. No shareholder
is liable to further calls or to assessment by the Trust without his or her
express consent.
Any Trustee of the Trust may be removed by vote of the shareholders
holding not less than two-thirds of the outstanding shares of the Trust. The
Trust does not hold an annual meeting of shareholders. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each whole share he owns and fractional votes for fractional shares he owns.
All shares of the Fund have equal voting rights and liquidation rights. The
Trustees can amend the Declaration of Trust, except that any amendment that
adversely effects the rights of shareholders must be approved by the
shareholders affected. Each share of the Fund is subject to redemption at any
time if the Board of Trustees determines in its sole discretion that failure to
so redeem may have materially adverse consequences to all or any of the Fund's
shareholders.
2
<PAGE>
As of October 27, 2000 the following persons may be deemed to have
beneficially owned five percent (5%) or more of the applicable Fund:
FUND NAME/ADDRESS PERCENTAGE
Value Wildwood Enterprises 51.31%
Attn: Trust Opr/Mutual Funds
P.O. Box 60520
Los Angeles, CA 90060-0520
Value Robert Gipson 23.00%
1901 Ave. of the Stars
Suite 1231
Los Angeles, CA 90067
Value Union Bank Tr Nominee 6.58%
475 Sansome Street, 12th Floor
San Francisco, CA 94111
Digital Future Wildwood Enterprises 23.30%
Attn: Trust Opr/Mutual Funds
P.O. Box 60520
Los Angeles, CA 90060-0520
Digital Future Marvin Cohen, IRA 12.51%
13302 Mulholland Drive
Beverly Hills, CA 90210
Digital Future Union Bank Tr Nominee 10.62%
475 Sansome Street, 12th Floor
San Francisco, CA 94111
Digital Future Robert Gipson 8.79%
1901 Ave. of the Stars
Suite 1231
Los Angeles, CA 90067
Digital Future Yen Family Trust 6.67%
1175 Oak Hammock Trail
Jacksonville, FL 32256
As of October 27, 2000, Robert Gipson may be deemed to control the
Value Fund as a result of his beneficial ownership of the shares of the Fund,
including the shares held in the name of Wildwood Enterprises and Union Bank Tr
Nominee. As a controlling shareholder, he would control the outcome of any
proposal submitted to the shareholders for approval, including changes to the
Fund's fundamental policies or the terms of the management agreement with the
Fund's adviser. As of October 27, 2000 the officers and trustees, as a group,
beneficially owned 82.99% of the Value Fund.
As of October 27, 2000, Robert Gipson may be deemed to control the
Digital Future Fund as a result of his beneficial ownership of the shares of the
Fund, including the shares held in the names of Wildwood Enterprises and Union
Bank Tr Nominee. As a controlling shareholder, he would control the outcome of
any proposal submitted to the shareholders for approval, including changes to
the Fund's fundamental policies or the terms of the management agreement with
the Fund's adviser. As of October 27, 2000 the officers and trustees, as a
group, beneficially owned 46.86% of the Digital Future Fund.
3
<PAGE>
For information concerning the purchase and redemption of shares of the
Fund, see "How to Buy Shares" and "How to Redeem Shares" in the Funds'
Prospectus. For a description of the methods used to determine the share price
and value of a Fund's assets, see "Price of Shares" in the Funds' Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the
investments the Funds may make and some of the techniques they may use (see the
Prospectus, "Information About Investments").
A. FOREIGN SECURITIES. Each Fund may invest up to 25% of its assets in
foreign equity securities by purchasing American Depository Receipts ("ADRs").
ADRs are certificates evidencing ownership of shares of a foreign-based issuer
held in trust by a bank or similar financial institution. They are alternatives
to the direct purchase of the underlying securities in their national markets
and currencies. The Digital Future Fund may also purchase the equity securities
of Canadian companies listed on Canadian exchanges. To the extent that a Fund
does invest in foreign securities, such investments may be subject to special
risks. Purchases of foreign securities are usually made in foreign currencies
and, as a result, the Fund may incur currency conversion costs and may be
affected favorably or unfavorably by changes in the value of foreign currencies
against the U.S. dollar. In addition, there may be less information publicly
available about a foreign company then about a U.S. company, and foreign
companies are not generally subject to accounting, auditing and financial
reporting standards and practices comparable to those in the U.S. Other risks
associated with investments in foreign securities include changes in
restrictions on foreign currency transactions and rates of exchanges, changes in
the administrations or economic and monetary policies of foreign governments,
the imposition of exchange control regulations, the possibility of expropriation
decrees and other adverse foreign governmental action, the imposition of foreign
taxes, less liquid markets, less government supervision of exchanges, brokers
and issuers, difficulty in enforcing contractual obligations, delays in
settlement of securities transactions and greater price volatility. In addition,
investing in foreign securities will generally result in higher commissions than
investing in similar domestic securities.
B. EQUITY SECURITIES. Equity securities include common stock, rights
and warrants. Common stocks, the most familiar type, represent an equity
(ownership) interest in a corporation. Warrants are options to purchase equity
securities at a specified price for a specific time period. Rights are similar
to warrants, but normally have a short duration and are distributed by the
issuer to its shareholders. Although equity securities have a history of long
term growth in value, their prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions.
4
<PAGE>
C. OPTION TRANSACTIONS. The Digital Future Fund may invest up to 5% of
its net assets in option transactions involving individual securities and market
indices. An option involves either (a) the right or the obligation to buy or
sell a specific instrument at a specific price until the expiration date of the
option, or (b) the right to receive payments or the obligation to make payments
representing the difference between the closing price of a market index and the
exercise price of the option expressed in dollars times a specified multiple
until the expiration date of the option. Options are sold (written) on
securities and market indices. The purchaser of an option on a security pays the
seller (the writer) a premium for the right granted but is not obligated to buy
or sell the underlying security. The purchaser of an option on a market index
pays the seller a premium for the right granted, and in return the seller of
such an option is obligated to make the payment. A writer of an option may
terminate the obligation prior to expiration of the option by making an
offsetting purchase of an identical option. Options are traded on organized
exchanges and in the over-the-counter market. Options on securities which the
Fund sells (writes) will be covered or secured, which means that it will own the
underlying security (for a call option); will segregate with the Custodian high
quality liquid debt obligations equal to the option exercise price (for a put
option); or (for an option on a stock index) will hold a portfolio of securities
substantially replicating the movement of the index (or, to the extent it does
not hold such a portfolio, will maintain a segregated account with the Custodian
of high quality liquid debt obligations equal to the market value of the option,
marked to market daily). When the Fund writes options, it may be required to
maintain a margin account, to pledge the underlying securities or U.S.
government obligations or to deposit liquid high quality debt obligations in a
separate account with the Custodian.
The purchase and writing of options involves certain risks; for
example, the possible inability to effect closing transactions at favorable
prices and an appreciation limit on the securities set aside for settlement, as
well as (in the case of options on a stock index) exposure to indeterminate
liability. The purchase of options limits the Fund's potential loss to the
amount of the premium paid and can afford the Fund the opportunity to profit
from favorable movements in the price of an underlying security to a greater
extent than if transactions were effected in the security directly. However, the
purchase of an option could result in the Fund losing a greater percentage of
its investment than if the transaction were effected directly. When the Fund
writes a covered call option, it will receive a premium, but it will give up the
opportunity to profit from a price increase in the underlying security above the
exercise price as long as its obligation as a writer continues, and it will
retain the risk of loss should the price of the security decline. When the Fund
writes a covered put option, it will receive a premium, but it will assume the
risk of loss should the price of the underlying security fall below the exercise
price. When the Fund writes a covered put option on a stock index, it will
assume the risk that the price of the index will fall below the exercise price,
in which case the Fund may be required to enter into a closing transaction at a
loss. An analogous risk would apply if the Fund writes a call option on a stock
index and the price of the index rises above the exercise price.
D. FUTURES CONTRACTS. The Digital Future Fund may invest up to 5% of
its net assets in futures contracts. When the Digital Future Fund purchases a
futures contract, it agrees to purchase a specified underlying instrument at a
specified future date. When the Fund sells a futures contract, it agrees to sell
the underlying instrument at a specified future date. The price at which the
purchase and sale will take place is fixed when the Fund enters into the
contract. Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on indices
of securities, such as the Standard & Poor's 500 Composite Stock Price Index
("S&P 500"). Futures can be held until their delivery dates, or can be closed
out before then if a liquid secondary market is available.
5
<PAGE>
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase the Fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Fund sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold. Successful use of futures contracts will
depend on the Adviser's ability to predict the future direction of stock prices
or interest rates and incorrect predictions by the Adviser may have an adverse
effect on the Fund. In this regard, it should be noted that the skills and
techniques necessary to arrive at such predictions are different from those
needed to predict price changes in individual stocks.
E. BORROWING. Each Fund may borrow up to one third of the value of its
total assets as a temporary measure for extraordinary or emergency purposes
(including to meet redemption requests). Because the Funds' investments will
fluctuate in value, whereas the interest obligations on borrowed funds may be
fixed, during times of borrowing, the Funds' net asset value may tend to
increase more when its investments increase in value, and decrease more when its
investments decrease in value. In addition, interest costs on borrowings may
fluctuate with changing market interest rates and may partially offset or exceed
the return earned on the borrowed funds. Also, during times of borrowing under
adverse market conditions, the Funds might have to sell portfolio securities to
meet interest or principal payments at a time when fundamental investment
considerations would not favor such sales. No Fund will purchase any securities
while borrowings representing more than 5% of its assets are outstanding.
F. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Fund may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Fund until
settlement takes place. The Fund maintains with the Custodian a segregated
account containing high grade liquid securities in an amount at least equal to
these commitments. In when-issued and delayed delivery transactions, the Fund
relies on the seller to complete the transaction. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous. A Fund may engage in these types of purchases in order to
buy securities that fit within its investment objective at attractive prices,
not to increase its investment leverage.
6
<PAGE>
G. REPURCHASE AGREEMENTS Each Fund may invest in repurchase agreements
fully collateralized by obligations issued by the U.S. Government or by agencies
of the U.S. Government ("U.S. Government obligations"). A repurchase agreement
is a short term investment in which the purchaser (i.e., the Fund) acquires
ownership of a U.S. Government obligation (which may be of any maturity) and the
seller agrees to repurchase the obligation at a future time at a set price,
thereby determining the yield during the purchaser's holding period (usually not
more than seven days from the date of purchase). Any repurchase transaction in
which the Fund engages will require full collateralization of the seller's
obligation during the entire term of the repurchase agreement. In the event of a
bankruptcy or other default of the seller, the Fund could experience both delays
in liquidating the underlying security and losses in value. However, each Fund
intends to enter into repurchase agreements only with Firstar Bank, N.A. (the
Fund's Custodian), other banks with assets of $1 billion or more and registered
securities dealers determined by the Adviser to be creditworthy. The Adviser
monitors the creditworthiness of the banks and securities dealers with which the
Fund engages in repurchase transactions.
H. SHORT SALES. The Digital Future Fund may sell a security short in
anticipation of a decline in the market value of the security. When the Fund
engages in a short sale, it sells a security which it does not own. To complete
the transaction, the Fund must borrow the security in order to deliver it to the
buyer. The Fund must replace the borrowed security by purchasing it at the
market price at the time of replacement, which may be more or less than the
price at which the Fund sold the security. The Fund will incur a loss as a
result of the short sale if the price of the security increases between the date
of the short sale and the date on which the Fund replaces the borrowed security.
The Fund will realize a profit if the security declines in price between those
dates.
In connection with its short sales, the Digital Future Fund will be
required to maintain a segregated account with the Custodian of cash or high
grade liquid assets equal to the market value of the securities sold less any
collateral deposited with its broker. The Fund will limit its short sales so
that no more than 10% of its net assets (less all its liabilities other than
obligations under the short sales) will be deposited as collateral and allocated
to the segregated account. However, the segregated account and deposits will not
necessarily limit the Fund's potential loss on a short sale, which is unlimited.
INVESTMENT LIMITATIONS
FUNDAMENTAL. The investment limitations described below have been
adopted by the Trust with respect to each Fund and are fundamental
("Fundamental"), I.E., they may not be changed without the affirmative vote of a
majority of the outstanding shares of each Fund. As used in the Prospectus and
the Statement of Additional Information, the term "majority" of the outstanding
shares of the Fund means the lesser of (1) 67% or more of the outstanding shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting; or
(2) more than 50% of the outstanding shares of the Fund. Other investment
practices which may be changed by the Board of Trustees without the approval of
shareholders to the extent permitted by applicable law, regulation or regulatory
policy are considered non-fundamental ("Non-Fundamental").
1. BORROWING MONEY. The Funds will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
7
<PAGE>
2. SENIOR SECURITIES. The Funds will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. UNDERWRITING. The Funds will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. REAL ESTATE. The Funds will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. COMMODITIES. The Funds will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. LOANS. The Funds will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. CONCENTRATION. No Fund will invest 25% or more of its total assets
in a particular industry except that the Digital Future Fund will invest 25% or
more of its total assets in the information technology industry sector. This
limitation is not applicable to investments in obligations issued or guaranteed
by the U.S. government, its agencies and instrumentalities or repurchase
agreements with respect thereto.
8. DIVERSIFICATION. With respect to securities comprising 75% of the
value of its total assets, neither Fund will purchase securities of any one
issuer (other than cash, cash items (including receivables), securities issued
or guaranteed by the U.S. government or it agencies or instrumentalities and
repurchase agreements collateralized by such securities, and securities of other
investment companies) if as a result more than 5% of the value of its total
assets would be invested in the securities of that issuer or the Fund would own
more than 10% of the outstanding voting securities of the issuer.
8
<PAGE>
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment
company, whether organized as a trust, association or corporation, or a personal
holding company, may be merged or consolidated with or acquired by the Trust,
provided that if such merger, consolidation or acquisition results in an
investment in the securities of any issuer prohibited by said paragraphs, the
Trust shall, within ninety days after the consummation of such merger,
consolidation or acquisition, dispose of all of the securities of such issuer so
acquired or such portion thereof as shall bring the total investment therein
within the limitations imposed by said paragraphs above as of the date of
consummation.
NON-FUNDAMENTAL. The following limitations have been adopted by the
Trust with respect to the Fund and are Non-Fundamental (see "Investment
Restrictions" above).
1. PLEDGING. The Funds will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. BORROWING. No Fund will purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
3. MARGIN PURCHASES. No Fund will purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short term
credit obtained by a Fund for the clearance of purchases and sales or redemption
of securities, or to arrangements with respect to transactions involving
options, futures contracts, short sales and other permitted investments and
techniques.
4. SHORT SALES. The Alpha Analytics Value Fund will not effect short
sales of securities.
5. OPTIONS. The Alpha Analytics Value Fund will not purchase or sell
puts, calls, options or straddles.
6. ILLIQUID INVESTMENTS. No Fund will invest in securities for which
there are legal or contractual restrictions on resale and other illiquid
securities.
7. LOANS OF PORTFOLIO SECURITIES. No Fund will make loans of portfolio
securities (the Funds have no current intention to loan portfolio securities).
9
<PAGE>
INVESTMENT ADVISORY ARRANGEMENTS
INVESTMENT ADVISER. The investment adviser to each Fund is Alpha
Analytics Investment Group LLC, 1901 Avenue of the Stars, Suite 1100, Los
Angeles, CA 90067 (the "Adviser"). Robert E. Gipson, is a Trustee and the
President of the Trust. He is also the President and managing member of the
Adviser and, as such, controls the Adviser. As a result, he is an affiliate of
the Trust and the Adviser.
Under the terms of each Fund's management agreement (each an
"Agreement" or collectively the "Agreements"), the Adviser manages each Fund's
investments subject to approval of the Board of Trustees and pays all of the
expenses of each Fund except brokerage, taxes, interest, fees and expenses of
the non-interested person trustees and extraordinary expenses. As compensation
for its management services and agreement to pay the Fund's expenses, each Fund
is obligated to pay the Adviser a fee computed and accrued daily and paid
monthly at an annual rate of 1.50% of the average daily net assets of the Fund.
The Adviser may waive all or part of its fee, at any time, and at its sole
discretion, but such action shall not obligate the Adviser to waive any fees in
the future. For the fiscal year ended July 31, 2000, and for the period January
1, 1999 (commencement of operations) through July 31, 1999, the Value Fund paid
advisory fees of $52,544 and $14,090, respectively. For the period December 22,
1999 (commencement of operations) through July 31, 2000, the Digital Future Fund
paid advisory fees of $21,348.
The Adviser retains the right to use the name "Alpha Analytics" or any
variation thereof in connection with another investment company or business
enterprise with which the Adviser is or may become associated. The Trust's right
to use the name "Alpha Analytics" in connection with each Fund automatically
ceases ninety days after termination of the respective Agreement and may be
withdrawn by the Adviser on ninety days written notice.
The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. If a bank
were prohibited from continuing to perform all or a part of such services,
management of the Funds believes that there would be no material impact on any
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. Each Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Funds, no preference will be shown for
such securities.
10
<PAGE>
SUB-ADVISER. Cambiar Investors, Inc., (the "Sub-Adviser") is the
sub-adviser to the Value Fund. Cambiar is a wholly-owned subsidiary of United
Asset Management Corporation, a holding company, which in turn is a wholly owned
subsidiary of Old Mutual Plc. Under the terms of the sub-advisory agreement, the
Sub-Adviser receives a fee from the Adviser computed and accrued daily and paid
monthly at an annual rate of 0.50% of the average daily net assets of the Fund.
Subject always to the control of the Board of Trustees, the
Sub-Adviser, at its expense, furnishes continuously an investment program for
the Value Fund. The Sub-Adviser must use its best judgment to make investment
decisions on behalf of the Value Fund, place all orders for the purchase and
sale of portfolio securities and execute all agreements related thereto. The
Sub-Adviser makes its officers and employees available to the Adviser from time
to time at reasonable times to review investment policies of the Value Fund and
to consult with the Adviser regarding the investment affairs of the Fund. The
Sub-Adviser maintains books and records with respect to the securities
transactions of the Value Fund and renders to the Adviser such periodic and
special reports as the Adviser or the Trustees may request. The Sub-Adviser pays
all expenses incurred by it in connection with its activities under this
Agreement other than the cost (including taxes and brokerage commissions, if
any) of securities and investments purchased for the Value Fund.
11
<PAGE>
TRUSTEES AND OFFICERS
The Board of Trustees supervises the business activities of the Trust.
The names of the Trustees and executive officers of the Trust are shown below.
Each Trustee who is an "interested person" of the Trust, as defined in the
Investment Company Act of 1940, is indicated by an asterisk.
<TABLE>
<CAPTION>
============================== ================ ======================================================================
NAME, ADDRESS AND AGE POSITION PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
------------------------------ ---------------- ----------------------------------------------------------------------
<S> <C> <C> <C>
Robert E. Gipson* President and Vice President of Sundance Group, Inc., a holding company, from 1993
1901 Avenue of the Stars Trustee to present; Chairman of National Mercantile Bancorp from June 1997
Suite 1100 to present; Director of National Mercantile Bancorp from October
Los Angeles, CA 90067 1996 to present; Of Counsel at Gipson, Hoffman & Pancione from July
Year of Birth: 1946 1997 to present; Officer at Gipson, Hoffman & Pancione from December
1983 to July 1997; Owner/Officer of Corporate Management Group, Inc., a
business and financial consulting company, from August 1988 to present;
President of Sundance Catalog Co., an enterprise selling merchandise
through catalogs, a retail store, an outlet store and an Internet website,
from May 2000 to present.
------------------------------ ---------------- ----------------------------------------------------------------------
John M. Gipson Vice-President Senior Scientist, NVI Inc., from 1993 to January 1999.
1201 Mimosa Lane Vice-President of Alpha Analytics Investment Group, LLC, February
Silver Springs, MD 20904 1999 to present.
Year of Birth: 1955
------------------------------ ---------------- ----------------------------------------------------------------------
Jack P. McNally* Secretary, Vice President of Corporate Management Group, Inc. from 1989 to
1901 Avenue of the Stars Treasurer and present.
Suite 1100 Trustee
Los Angeles, CA 90067
Year of Birth: 1955
------------------------------ ---------------- ----------------------------------------------------------------------
Donald J. Alschuler Trustee Partner of Donlyn Company, a private investment company, from 1962
13104 Nimrod Place to present; Vice President of Lyndon Distribution Services, Inc., a
Los Angeles, CA 90049 warehousing and distribution company, from 1988 to 1998; Chairman of
Year of Birth: 1935 Wisdom, Inc., a business advisory services company, from 1991 to
present; President of Modern Service Office Supply Co., Inc., an
office products marketer and distributor, from 1963 to 1993.
------------------------------ ---------------- ----------------------------------------------------------------------
Michelle M. Schoeffel Trustee Chief Executive Officer and Chairwoman of Pacific American
550 South Hope Street Securities, a broker/dealer, from January 1998 to present; Vice
Suite 1025 President of Mellon Private Asset Management from November 1993 to
Los Angeles, CA 90071 April 1997.
Year of Birth: 1960
------------------------------ ---------------- ----------------------------------------------------------------------
Felice R. Cutler Trustee Retired Partner at the Law Offices of Cutler & Cutler from 1966 to
813 Greenway Drive 1998; Director of Aegis Consumer Funding Group, Inc., a consumer
Beverly Hills, CA 90210 finance company, from 1996 to 1998; Trustee of Astra Institutional
Year of Birth: 1937 Securities Trust and Astra Institutional Trust from 1995 to 1997;
Director and Trustee of Pilgrim Group Family of
Funds from 1986 to 1995.
============================== ================ ======================================================================
</TABLE>
12
<PAGE>
Trustee fees are Trust expenses and each series of the Trust pays a
portion of the Trustee fees. The following table sets forth the Trustees'
compensation for the first fiscal year of the Trust ended July 31, 2000.
==================================== =================================
TOTAL COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX)
------------------------------------ ---------------------------------
Robert E. Gipson $0
------------------------------------ ---------------------------------
Jack P. McNally $0
------------------------------------ ---------------------------------
Donald J. Alschuler $8000
------------------------------------ ---------------------------------
Michelle M. Schoeffel $8000
------------------------------------ ---------------------------------
Felice R. Cutler $8000
==================================== =================================
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for each Fund's portfolio decisions and the placing
of each Fund's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for each Fund, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to its obligation of seeking best qualitative execution, the
Adviser may give consideration to sales of shares of the Trust as a factor in
the selection of brokers and dealers to execute portfolio transactions.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Funds and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
13
<PAGE>
Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Funds effect securities
transactions may also be used by the Adviser (or the Sub-Adviser) in servicing
all of its accounts. Similarly, research and information provided by brokers or
dealers serving other clients may be useful to the Adviser (or the Sub-Adviser)
in connection with its services to the Funds. Although research services and
other information are useful to the Funds and the Adviser (or the Sub-Adviser),
it is not possible to place a dollar value on the research and other information
received. It is the opinion of the Board of Trustees and the Adviser (and the
Sub-Adviser) that the review and study of the research and other information
will not reduce the overall cost to the Adviser (or the Sub-Adviser) of
performing its duties to the Funds under the Agreement. Due to research services
provided by brokers, the Value Fund directed to brokers $5,961,392 of brokerage
transactions (on which commissions were $8,524) during the fiscal year ended
July 31, 2000.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.
To the extent that the Trust and another of the Adviser's clients seek
to acquire the same security at about the same time, the Trust may not be able
to acquire as large a position in such security as it desires or it may have to
pay a higher price for the security. Similarly, the Trust may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the other client desires to sell the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one client, the resulting
participation in volume transactions could produce better executions for the
Trust. In the event that more than one client wants to purchase or sell the same
security on a given date, the purchases and sales will normally be made by
random client selection. For the fiscal year ended July 31, 2000, and for the
period January 1, 1999 (commencement of operations) through July 31, 1999, the
Value Fund paid brokerage commissions of $12,203 and $2,932, respectively. For
the period December 22, 1999 (commencement of operations) through July 31, 2000,
the Digital Future Fund paid brokerage commissions of $3,179.
The Trust, Adviser, Sub-Adviser and Fund's distributor have each
adopted a Code of Ethics (the "Code") under Rule 17j-1 of the Investment Company
Act of 1940. The personnel subject to the Code are permitted to invest in
securities, including securities that may be purchased or held by the Fund. You
may obtain a copy of the Code from the Securities and Exchange Commission.
14
<PAGE>
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of each Fund is determined as
of 4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
Securities that are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Adviser's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Adviser determines the last bid
price does not accurately reflect the current value, or when restricted
securities are being valued, such securities are valued as determined in good
faith by the Adviser, in conformity with guidelines adopted by and subject to
review of the Board of Trustees of the Trust.
Fixed income securities generally are valued by using market
quotations, but may be valued on the basis of prices furnished by a pricing
service when the Adviser believes such prices accurately reflect the fair market
value of such securities. A pricing service utilizes electronic data processing
techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. When prices are not
readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities are valued at fair value as determined
in good faith by the Adviser, subject to review of the Board of Trustees. Short
term investments in fixed income securities with maturities of less than 60 days
when acquired, or which subsequently are within 60 days of maturity, are valued
by using the amortized cost method of valuation, which the Board has determined
will represent fair value.
TAX STATUS
TAXATION OF THE FUNDS
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Fund will not be liable for federal income taxes on its taxable
net investment income and capital gain net income that are distributed to
shareholders, provided that the Fund distributes at least 90% of its net
investment income and net short term capital gain for the taxable year and
satisfies certain other requirements.
15
<PAGE>
The Code imposes a non-deductible 4% excise tax on a regulated
investment company that fails to distribute during each calendar year an amount
equal to the sum of (1) at least 98% of its ordinary income for the calendar
year, (2) at least 98% of its net capital gains for the twelve-month period
ending on October 31 of the calendar year and (3) any portion (not taxable to
the Fund) of the respective balance from the preceding calendar year. Each Fund
intends to make such distributions as are necessary to avoid imposition of this
excise tax.
16
<PAGE>
TAXATION OF THE SHAREHOLDER
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. However, dividends
declared in October, November or December and made payable to shareholders of
record in such a month will be deemed to have been received on December 31, if
the Fund pays the dividends during the following January. To the extent net
investment income of the Fund arises from dividends on domestic common or
preferred stock, some of the Fund's distributions will qualify for the 70%
corporate dividends-received deduction. All Shareholders will be notified
annually regarding the tax status of distributions received from a Fund.
Distributions by a Fund will result in a reduction in the fair market
value of the Fund's shares. Should a distribution reduce the fair market value
below a shareholder's cost basis, such distribution nevertheless would be
taxable to the shareholder as ordinary income or long term capital gain, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should be careful to consider the tax
implications of buying shares of the Fund just prior to a distribution. The
price of such shares purchased at that time includes the amount of any
forthcoming distribution. Those investors purchasing the Fund's shares just
prior to a distribution may receive a return of investment upon distribution
which will nevertheless be taxable to them.
A shareholder of a Fund should be aware that a redemption of shares
(including any exchange into another Portfolio) is a taxable event and,
accordingly, a capital gain or loss may be recognized. If a shareholder of the
Fund receives a distribution taxable as long term capital gain with respect to
shares of the Fund and redeems or exchanges shares before he has held them for
more than six months, any loss on the redemption or exchange (not otherwise
disallowed as attributable to an exempt-interest dividend) will be treated as
long term capital loss to the extent of the long term capital gain recognized.
OTHER TAX CONSIDERATIONS
Distributions to shareholders may be subject to additional state, local
and non-U.S. taxes, depending on each shareholder's particular tax situation.
Shareholders subject to tax in certain states may be exempt from state income
tax on distributions made by the Fund to the extent such distributions are
derived from interest on direct obligations of the United States Government.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in shares of a Fund.
INVESTMENT PERFORMANCE
Each Fund may periodically advertise "average annual total return."
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
17
<PAGE>
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end
of the applicable period of the
hypothetical $1,000 investment made
at the beginning of the applicable
period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
In addition to providing average annual total return, the Funds may
also provide non-standardized quotations of total return for differing periods
and may provide the value of a $10,000 investment (made on the date of the
initial public offering of the Funds' shares) as of the end of a specified
period.
Each Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with each Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue. For the fiscal year
ended July 31, 2000, and for the period January 1, 1999 (commencement of
operations) through July 31, 2000, the Value Fund's average annual total return
was 24.94% and 28.65%, respectively. For the period December 22, 1999
(commencement of operations) through July 31, 2000, the Digital Future Fund's
average annual total return was 36.60%.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of any of the
Funds may be compared to indices of broad groups of unmanaged securities
considered to be representative of or similar to the portfolio holdings of the
Funds or considered to be representative of the stock market in general. The
Funds may use the Standard & Poor's 500 Stock Index or the Dow Jones Industrial
Average.
In addition, the performance of any of the Funds may be compared to
other groups of mutual funds tracked by any widely used independent research
firm which ranks mutual funds by overall performance, investment objectives and
assets, such as Lipper Analytical Services, Inc. or Morningstar, Inc. The
objectives, policies, limitations and expenses of other mutual funds in a group
may not be the same as those of any of the Funds. Performance rankings and
ratings reported periodically in national financial publications such as
Barron's and Fortune also may be used.
18
<PAGE>
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is
Custodian of the Funds' investments. The Custodian acts as the Funds'
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Funds' request and
maintains records in connection with its duties.
TRANSFER AGENT
American Data Services, Inc. ("ADS"), P.O. Box 5536, Hauppauge, New
York 11788-0132, acts as the Funds' transfer agent and, in such capacity,
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Funds' shares, acts as dividend and distribution disbursing agent and performs
other accounting and shareholder service functions. In addition, ADS, in its
capacity as Fund Administrator, provides the Funds with certain monthly reports,
record-keeping and other management-related services. For the fiscal year ended
July 31, 2000, the Adviser paid fees of $48,153 on behalf of the Value Fund to
ADS for these services. For the period December 22, 1999 (commencement of
operations) through July 31, 2000, the Adviser paid fees of $32,257 on behalf of
the Digital Future Fund to ADS for these services.
ACCOUNTANTS
The firm of McCurdy & Associates, CPA's, 27955 Clemens Road, Westlake,
Ohio 44145, has been selected as independent public accountants for the Trust
for the fiscal year ending July 31, 2001. McCurdy & Associates performs an
annual audit of the Funds' financial statements and provides financial, tax and
accounting consulting services as requested.
DISTRIBUTOR
AmeriMutual Fund Distributors, Inc. (the "Distributor"), P.O. Box 5536,
Hauppauge, New York 11788-0132, is the exclusive agent for distribution of
shares of the Funds. The Distributor is obligated to sell the shares of the
Funds on a best efforts basis only against purchase orders for the shares.
Shares of the Funds are offered to the public on a continuous basis. The
Distributor is an affiliated company of ADS, the Funds' transfer agent.
19
<PAGE>
FINANCIAL STATEMENTS
The financial statements and independent auditor's report required to
be included in the statement of additional information are hereby incorporated
by reference to the Funds' Annual Report to the shareholders for the period
ended July 31, 2000. The Trust will provide the Annual Report without charge by
calling the Fund at 877-ALPHA40 (877-257-4240).
20
