ALPHA ANALYTICS INVESTMENT TRUST
ALPHA ANALYTICS VALUE FUND
ALPHA ANALYTICS SMALL CAP QUANT FUND
ALPHA ANALYTICS DIGITAL FUTURE FUND
STATEMENT OF ADDITIONAL INFORMATION
January 24, 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, Alpha Analytics Small Cap Quant Fund and Alpha Analytics Digital Future
Fund dated January 24, 2000. This SAI incorporates by reference the Fund's
Annual Report to Shareholders for the fiscal year ended June 30, 1999 ("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
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DESCRIPTION OF THE TRUST AND FUNDS.........................................1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS.............................................................2
INVESTMENT LIMITATIONS.....................................................5
INVESTMENT ADVISORY ARRANGEMENTS...........................................7
TRUSTEES AND OFFICERS......................................................9
PORTFOLIO TRANSACTIONS AND BROKERAGE......................................10
DETERMINATION OF SHARE PRICE..............................................11
TAX STATUS................................................................12
INVESTMENT PERFORMANCE....................................................13
CUSTODIAN.................................................................14
TRANSFER AGENT............................................................14
ACCOUNTANTS...............................................................14
DISTRIBUTOR.......................................................BACK COVER
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DESCRIPTION OF THE TRUST AND FUNDS
Alpha Analytics Value Fund (the "Value Fund"), Alpha Analytics Small
Cap Quant Fund (the "Small Cap Quant 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
Declaration of Trust can be amended by the Trustees, 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.
As of December 1, 1999 the following persons may be deemed to have
beneficially owned five percent (5%) or more of the Fund:
FUND NAME/ADDRESS PERCENTAGE
- ---- ------------ ----------
Small Cap Quant Wildwood Enterprises 42.80%
Attn: Trust Opr/Mutual Funds
P.O. Box 60520
Los Angeles, CA 90060-0520
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Small Cap Quant Robert Gipson 41.09%
1901 Ave. of the Stars
Suite 1231
Los Angeles, CA 90067
Small Cap Quant John Gipson 8.33%
1201 Mimosa Lane
Silver Springs, MD 20904
Value Wildwood Enterprises 38.03%
Attn: Trust Opr/Mutual Funds
P.O. Box 60520
Los Angeles, CA 90060-0520
Value Robert Gipson 34.41%
1901 Ave. of the Stars
Suite 1231
Los Angeles, CA 90067
As of December 1, 1999 the officers and trustees, as a group,
beneficially owned 41.62% of the Small Cap Quant Fund and 34.72% of the Value
Fund.
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 Small Cap Quant Fund and 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
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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.
C. OPTION TRANSACTIONS. Each of the Small Cap Quant Fund and 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 a 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 a 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 a Fund's potential loss to the amount
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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 a Fund losing a greater percentage of its
investment than if the transaction were effected directly. When a 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 a 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 a 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 a Fund writes a call option on a stock
index and the price of the index rises above the exercise price.
D. FUTURES CONTRACTS. Each of the Small Cap Quant Fund and the Digital
Future Fund may invest up to 5% of its net assets in futures contracts. When the
Small Cap Quant Fund or the Digital Future Fund purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When a 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.
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 a Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a 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 Funds. 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
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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.
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. Both the Small Cap Quant Fund and the Digital Future Fund
may sell a security short in anticipation of a decline in the market value of
the security. When a Fund engages in a short sale, it sells a security which it
does not own. To complete the transaction, a 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. A 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. A Fund will realize a profit if the security declines in
price between those dates.
In connection with their short sales, the Small Cap Quant Fund and the
Digital Future Fund will each 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. Each 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
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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.
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.
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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, the Digital Future Fund will not 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.
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.
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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).
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 period January 1, 1999 (commencement of operations) through
July 31, 1999, the Value Fund paid advisory fees of $14,090 and the Small Cap
Quant Fund paid advisory fees of $7,782.
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
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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. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Funds believes that
the Glass-Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. 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.
SUB-ADVISER. Cambiar Investors, Inc., ("Cambiar") is the Sub-adviser to the
Value Fund. Cambiar is a wholly-owned subsidiary of United Asset Management
Corporation, a holding company. 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 judgement 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.
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, AGE AND ADDRESS POSITION PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ------------------------------------- ----------------- ----------------------------------------------------------------------------
<S> <C> <C>
Robert E. Gipson* President and Vice President of Sundance Group, Inc., a holding company, from 1993 to
Age: 53 Trustee present; Chairman of National Mercantile Bancorp from June 1997 to present;
1901 Avenue of the Stars Director of National Mercantile Bancorp from October 1996 to present; Of
Suite 1100 Counsel at Gipson, Hoffman & Pancione from July 1997 to present; Officer at
Los Angeles, CA 90067 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.
- ------------------------------------- ----------------- ----------------------------------------------------------------------------
Jack P. McNally* Secretary, Vice President of Corporate Management Group, Inc. from 1989 to present.
Age: 44 Treasurer and
1901 Avenue of the Stars Trustee
Suite 1100
Los Angeles, CA 90067
- ------------------------------------- ----------------- ----------------------------------------------------------------------------
Donald J. Alschuler Trustee Partner of Donlyn Company, a private investment company, from 1962 to
Age: 64 present; Vice President of Lyndon Distribution Services, Inc., a warehousing
13104 Nimrod Place and distribution company, from 1988 to 1998; Chairman of Wisdom, Inc., a
Los Angeles, CA 90049 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 Securities, a
Age: 39 broker/dealer, from January 1998 to present; Vice President of Mellon
550 South Hope Street Private Asset Management from November 1993 to April 1997.
Suite 1025
Los Angeles, CA 90071
- ------------------------------------- ----------------- ----------------------------------------------------------------------------
Felice R. Cutler Trustee Retired Partner at the Law Offices of Cutler & Cutler from 1966 to 1998;
Age: 62 Director of Aegis Consumer Funding Group, Inc., a consumer finance company,
813 Greenway Drive from 1996 to 1998; Trustee of Astra Institutional Securities Trust and Astra
Beverly Hills, CA 90210 Institutional Trust from 1995 to 1997; Director and Trustee of Pilgrim Group
Family of Funds
from 1986 to 1995.
===================================== ================= ============================================================================
</TABLE>
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 period of the Trust ended July 31, 1999.
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TOTAL COMPENSATION
FROM TRUST (THE TRUST IS
NAME NOT IN A FUND COMPLEX)
- ------------------------------------ ---------------------------------------
Robert E. Gipson $0
- ------------------------------------ ---------------------------------------
Jack P. McNally $0
- ------------------------------------ ---------------------------------------
Donald J. Alschuler $6,000
- ------------------------------------ ---------------------------------------
Michelle M. Schoeffel $6,000
- ------------------------------------ ---------------------------------------
Felice R. Cutler $6,000
==================================== =======================================
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.
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 in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Adviser in connection with its services to the Funds.
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Although research services and other information are useful to the Funds and the
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
that the review and study of the research and other information will not reduce
the overall cost to the Adviser of performing its duties to the Funds under the
Agreement.
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 period January 1, 1999 (commencement of operations) through July 31,
1999, the Value Fund paid brokerage commissions of $2,932 and the Small Cap
Quant Fund paid brokerage commissions of $3,293.
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. For a description of the methods
used to determine the net asset value (share price), see "Price of Shares" in
the Prospectus.
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.
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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.
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.
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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:
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 period January
1, 1999 (commencement of operations) through July 31, 1999, the Value Fund's
average annual total return was 19.20% and the Small Cap Quant Fund's average
annual total return was 11.40%.
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.
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 period January 1,
1999 (commencement of operations) through July 31, 1999, the Adviser paid fees
of $25,664 on behalf of the Value Fund, and $25,626 on behalf of the Small Cap
Quant 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, 2000. 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.
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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, 1999. The Trust will provide the Annual Report without charge by
calling the Fund at 877-ALPHA40 (877-257-4240).
