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THE RISA FUND
INSTITUTIONAL CLASS SHARES
PROSPECTUS DATED OCTOBER 1, 1999
This Prospectus describes Institutional Class shares of The RISA Fund. The
investment objective of the Fund is to seek maximum total return by investing in
securities of issuers located in the Republic of South Africa ("South Africa").
The Fund will invest primarily in growth stocks of South African companies which
have demonstrated a commitment to the "new" South Africa.
This Prospectus contains important information about the Fund. Please read it
before investing and keep it for future reference.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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RISK/RETURN SUMMARY......................................... 3
ADDITIONAL INVESTMENT INFORMATION........................... 6
INVESTMENT RISKS............................................ 6
MANAGEMENT OF THE FUND...................................... 7
PRICING OF FUND SHARES...................................... 8
PURCHASE OF SHARES.......................................... 9
SHAREHOLDER ACCOUNTS........................................ 9
REDEMPTION OF SHARES........................................ 10
DISTRIBUTION PLAN........................................... 11
DIVIDENDS, DISTRIBUTIONS AND TAX INFORMATION................ 12
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RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Fund seeks maximum total return by investing in securities of South
African issuers.
PRINCIPAL INVESTMENT STRATEGIES
1. Under normal market conditions, the Fund will invest approximately 75% of its
total assets in publicly traded stocks of South African companies with above
average growth prospects that qualify as "New South Africa Companies," as
described below.
The Fund's strategy for selecting growth stocks begins with a
company-by-company approach emphasizing fundamental stock analysis. This
encompasses industry and competitor analysis, regular management visits,
financial statement and ratio analysis and international comparative
evaluations. The Fund seeks to reduce portfolio risk by research rather than
by diversification. For this reason, the Fund's portfolio will be focused and
will hold no more than 35 companies at a given time, which are actively
reviewed on a regular basis.
Research Criteria Considered by the Fund's Advisers:
o Financial Position and Stability
o Competitive Advantage
o Margin Trends
o Market Share
o Earnings Quality
o Stakeholders
The Fund's Stock Selection Process:
o Reviews 250 New South Africa Companies
o Targets 120 Businesses
o Completes Company Research and Company Visits
o Debates Each Issue Among Investment Team Members
o Maintains the Fund's Portfolio with 25 to 35 Companies
o Portfolio Reviewed Continuously
o Continually Seeking Growth at an Attractive Price
The Fund considers a company to be domiciled in South Africa if the company
derives its revenues mainly from business activities in South Africa or if its
stock is traded principally on a South African exchange.
"New South Africa Companies" are companies that:
o create jobs and train workers;
o encourage economic and social empowerment of the majority population;
o encourage employment equity;
o maintain quality workplace conditions;
o protect the environment;
o enforce high health and safety standards; and
o demonstrate open and effective corporate governance.
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The Labor Research Service of South Africa researches and continually monitors
approximately 250 companies which comprise the universe of New South Africa
Companies. Companies must meet more than half of the above criteria in order
to be approved as New South Africa Companies. Companies not already approved
will be submitted to the Labor Research Service for evaluation. If the company
is not approved, the portfolio manager will not purchase its shares or will
remove existing shares from the Fund's portfolio.
Additionally, the Fund will not invest in companies which are known by the
investment adviser to be deriving more than 10% of their revenues from
tobacco, alcohol or weapons manufacture.
2. The Fund may invest up to 25% of its assets in sovereign debt issued by the
government of South Africa.
3. Additionally, the Fund is permitted to invest up to 20% of its assets in high
quality money market instruments of U.S. and South African issuers. If
adverse market or economic conditions occur, the Fund temporarily may invest
up to 100% of its assets in U.S. money market instruments.
PRINCIPAL RISKS
The Fund's share price will fluctuate with changes in the market value of the
Fund's portfolio securities. You can lose money by investing in the Fund. The
following is a list of the principal risks that apply to the Fund.
1. Stocks are subject to market, economic and business risks that cause their
prices to fluctuate.
2. Investing in South African securities involves additional risks not
associated with investments in U.S. securities.
o The Fund is subject to foreign currency risk, which is the risk that
the U.S. dollar value of its investments may decline due to changes
in foreign currency exchange rates or the imposition of exchange
control regulations
o South Africa is a developing country and its economy is less
diversified and mature than the economies of developed countries.
There is a risk of economic or political instability in South Africa.
o There is less liquidity and higher volatility in the South African
securities markets than in the U.S. and less government supervision
and regulation of exchanges, brokers and issuers in South Africa.
o South African companies are not subject to the same accounting,
auditing and financial reporting standards as U.S. public companies,
and there may be less publicly available information about South
African companies than comparable U.S. companies.
o Government actions may be taken which could negatively affect the
Fund.
3. The Fund's investments in South African sovereign debt obligations are
subject to interest rate risk and credit risk. Interest rate risk is the risk
of market losses caused by changes in interest rates. Generally, when
interest rates rise, the market prices of debt obligations go down. Credit
risk is the risk that the borrower may default or otherwise become unable to
honor its financial obligations.
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ESTIMATED FUND EXPENSES
The following table describes the fees and expenses that you may pay if you buy
and hold Institutional Class shares of the Fund.
Shareholder Fees (paid directly from your investment) The RISA Fund
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Maximum Sales Charge (Load) Imposed on Purchases............ None
Maximum Deferred Sales Charge (Load)........................ None
Redemption Fee (as a percentage of the amount redeemed, if
applicable)............................................... 2%(1)
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee.............................................. 1.25%
Distribution (12b-1) Fees................................... 0.25%
Other Expenses.............................................. 1.25%(2)
Total Annual Fund Operating Expenses...................... 2.75%(3)
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(1) A Redemption Fee, paid directly to the Fund, is imposed on shares redeemed
within two years of purchase.
(2) "Other Expenses" are based on estimated amounts for the current fiscal year.
(3) For the Fund's first two years of operations, the Investment Adviser has
voluntarily agreed to waive its fees and assume certain Fund expenses so
that Total Annual Fund Operating Expenses will not exceed 2.00% of the
Fund's average daily net assets.
EXAMPLE: This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
1 YEAR 3 YEARS
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$483 $853
If you didn't redeem your shares at the end of these periods, your costs would
be:
1 YEAR 3 YEARS
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$278 $853
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ADDITIONAL INVESTMENT INFORMATION
The Fund's investment objective is to seek maximum total return by investing in
the securities of South African issuers. This investment objective may not be
changed without shareholder approval. The Fund will invest in the following:
o Equity Investments. The Fund normally invests at least 75% of its total assets
in growth stocks of New South Africa Companies. While the Fund invests mainly in
common stocks, the Fund also may invest in other types of equity securities such
as preferred stocks, debt securities which are convertible into or exchangeable
for common stock, and warrants or rights that are convertible into common stock.
The Fund's portfolio securities generally will be traded on the Johannesburg
Stock Exchange, but also may be listed in established over-the-counter markets
in South Africa. The Fund is permitted to invest up to 15% of its net assets in
illiquid securities, including restricted securities and publicly traded stocks
with limited marketability.
o Fixed Income Investments. The Fund may invest up to 25% of its total assets,
from time to time, in sovereign debt obligations issued by the government of
South Africa. The sovereign debt obligations in which the Fund invests will be
investment grade.
o Money Market Investments. The Fund is permitted to invest up to 20% of its
total assets as reserves to facilitate the Fund's cash flow needs (e.g.,
redemptions, expenses, and purchases of portfolio securities). The Fund's
reserves will be invested in investment grade money market instruments of U.S.
and South African issuers.
o Defensive Investments. Under adverse investment conditions, the Fund
temporarily may invest up to 100% of its total assets in high quality, short
term U.S. money market instruments. When following such a defensive strategy,
the Fund will be less likely to achieve its investment objective.
The Fund's benchmark is the Johannesburg Stock Exchange All Shares Index
("JSE"). The Fund will not own all, or even most, of the stocks included in the
JSE, and the Fund will invest in additional companies not included in the JSE.
Based upon a market capitalization weighting, the JSE represents more than 10%
of most emerging market equity indices.
INVESTMENT RISKS
o Market Risk. The prices of the securities owned by the Fund will fluctuate in
value. These fluctuations can occur because of general market and economic
conditions, perceptions regarding the industry of the issuer company or the
issuer company's particular circumstances. Changes in the value of the Fund's
portfolio securities will result in changes in the Fund's share price.
Consequently, when you sell Fund shares, they may be worth less than what you
paid for them.
The Fund will own stocks of small companies which are often subject to wider and
more abrupt fluctuations in market price than larger, more established
companies. The reason for this volatility is that these stocks typically are
traded in lower volume, and their issuers typically are more sensitive to
changing economic conditions and subject to greater changes in earnings and
business prospects.
o Foreign Risk. Foreign securities markets generally are not as developed or
efficient as those in the United States. Securities of foreign issuers often are
less liquid and more volatile than securities of comparable U.S. issuers.
Because the Fund invests primarily in South Africa, it will be subject to
foreign investment risks which include possible political and economic
instability, seizure or nationalization of foreign holdings or the adoption of
governmental restrictions that adversely affect or restrict the payment of
principal and interest on securities to investors located outside of South
Africa.
South Africa is a developing country, and its economy is less diversified and
mature, and its political system is less stable, than those of developed
countries. The markets of developing countries such as South Africa generally
will be more volatile than the markets of more mature economies; however, such
markets may provide higher rates of return to investors.
Furthermore, there may be less publicly available information about South
African companies than about U.S. companies, and South African companies are not
subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject. Brokerage
commissions and other transaction costs on South African securities exchanges
may be higher than in the U.S. Additionally, there is less government
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supervision and regulation of exchanges, brokers and issuers in South Africa
than there is in the U.S.
o Foreign Currency Risk. The value of the Fund's assets, as measured in U.S.
dollars, will fluctuate with changes in currency rates. Currency exchange rates
may fluctuate significantly over a short period of time. They generally are
determined by the forces of supply and demand in the foreign exchange markets
and the relative merits of investments in different countries, actual or
perceived changes in interest rates and other complex factors. Currency exchange
rates also can be affected by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the United States or abroad.
o Fixed Income Security Risk. The market value of fixed income securities, such
as South African government debt obligations, will change in response to
interest rate changes and other factors. During periods of falling interest
rates, the value of outstanding fixed income securities generally rises. During
periods of rising interest rates, the value of such securities generally
declines. While securities with longer maturities tend to produce higher yields,
the prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the credit rating of any fixed income security and in the ability of
an issuer to make payments of interest and principal also affect the value of
these investments. Changes in the value of the Fund's debt securities will
affect the net asset value of the Fund's shares.
o Hedging Risk. Although not a principal investment strategy, the Fund is
permitted to invest in derivatives which are financial instruments that derive
their performance, at least in part, from the performance of an underlying
asset, index, currency or interest rate. The derivatives the Fund may use
include options and futures. While derivatives can be used effectively to
further the Fund's investment objective, under certain market conditions, they
can increase the volatility of the Fund's net asset value, decrease the
liquidity of the Fund's portfolio or make the accurate pricing of the Fund's
portfolio more difficult.
The primary risks associated with the Fund's use of futures and options are (1)
the failure to predict accurately the direction of stock prices, interest rates,
currency movements and other economic factors; (2) the failure as hedging
techniques in cases where the price movements of the securities underlying the
options and futures do not follow the price movements of the portfolio
securities subject to the hedge; (3) the potentially unlimited loss from
investing in futures contracts; and (4) the likelihood of the Fund being unable
to control losses by closing its position where a liquid secondary market does
not exist. The risk that the Fund will be unable to close out a futures position
or options contract will be minimized by the Fund only entering into futures
contracts or options transactions on national exchanges and for which there
appears to be a liquid secondary market.
o Year 2000 Risk. An issue has emerged regarding how the software used by the
Fund's service providers can accommodate the date "2000." Failure to address
this "Year 2000 Problem" could result in major systems failure which could
disrupt the Fund's operations. The Investment Adviser and Sub-Adviser are in the
process of working with the Fund's service providers to prepare for the Year
2000 Problem. Based on information currently available, the Adviser and the
Sub-Adviser do not expect that the Fund will incur significant operating
expenses or be required to incur material costs in order to be Year 2000
compliant. The Fund can not guarantee however, that all Year 2000 issues will be
identified and corrected by January 1, 2000. At this time, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Fund.
Additionally, if an issuer in which the Fund invests is adversely affected by
the Year 2000 Problem, the market price of that issuer's securities likely will
decline, which could seriously affect the Fund's performance. Issuers in
countries outside the U.S., such as South Africa, present a greater Year 2000
risk than domestic issuers.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER AND SUB-ADVISER
The Investment Adviser for the Fund is RISA Investment Advisers, LLC, located at
225 South 15th Street, Suite 930, Philadelphia, PA 19102. The Adviser was formed
in 1997 by Sam Folin who has twenty three years of experience in the investment
industry and extensive experience consulting non-profit organizations on
governance, fund raising, planning and financial management. Mr. Folin is a
Chartered Financial Analyst and his most recent investment advisory experience
was eight years with the large cap equity firm
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Newbold's Asset Management ending in 1995. As a Senior Vice President of
Newbold's, he held responsibility in investment research, portfolio management
and marketing. Mr. Folin has visited South Africa numerous times, studying and
touring that country as well as researching South African investment
opportunities.
The Investment Adviser supervises the activities of the Sub-Adviser (described
below) in investing and reinvesting the Fund's assets. Although the Adviser
delegates the day-to-day decision making with respect to Fund investments to the
Sub-Adviser, the Adviser is responsible for determining the Fund's investment
policies, subject to the approval of the Board of Trustees. For its services,
the Investment Adviser is paid a monthly fee at the annual rate of 1.25% of the
Fund's average daily net assets. This fee is subject to voluntary reductions by
the Investment Adviser which the Adviser may terminate at any time.
African Harvest Asset Managers (Proprietary) Limited, (the "Sub-Adviser"),
located at African Harvest House, Second Floor, Boundary Terrace, #1 Mariendahl
Lane, Newlands, 7700, South Africa, serves as the Fund's sub-investment advisor
pursuant to a Sub-Advisory Agreement with the Investment Advisor. The
Sub-Adviser is a subsidiary of African Harvest Ltd, which was incorporated as a
public company in South Africa in 1997. The Sub-Adviser provides investment
management services to South African clients, including union retirement funds.
The Sub-Adviser will manage the Fund's portfolio investments, for which it will
receive from the Investment Adviser a monthly fee equal to 0.55% of the Fund's
average daily net assets on an annualized basis.
PORTFOLIO MANAGER
Denzil Newman is principally responsible for the day-to-day management of the
Fund's investments. Since 1998, Mr. Newman has been Chief Investment Officer and
Fund Manager of the Sub-Adviser. From 1993 to 1997, he was Senior Fund Manager
at Syfrets Managed Assets Ltd. in Cape Town, South Africa. Mr. Newman has a
Bachelor of Science degree in Accounting from Southern Adventist University in
Collegedale, Tennessee and has been employed in the securities investment field
in South Africa since 1976.
PRICING OF FUND SHARES
The Fund's accounting agent, PFPC Inc., determines the net asset value per share
of the Fund as of 4:00 p.m. Eastern Time on each day that the New York Stock
Exchange ("NYSE") is open for unrestricted trading and on which there is a
purchase or redemption of the Fund's shares. The net asset value is determined
by dividing the value of the Fund's portfolio securities, plus any cash and
other assets, less all liabilities, by the number of shares outstanding.
Expenses and fees of the Fund, including advisory and administration fees, are
accrued daily and taken into account for the purpose of determining the net
asset value. Most of the Fund's portfolio securities are quoted in foreign
currency and will be valued daily in U.S. dollars at the foreign currency
exchange rates prevailing at the close of trading each day. Although the Fund
values its assets in U.S. dollars on a daily basis, it does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
In valuing the Fund's net assets, all securities for which representative market
quotations are available will be valued at the last quoted sales price on the
security's principal exchange on that day. If there are no sales of the relevant
security on such day, the security will be valued at the mean between the
closing bid and asked price on that day, if any. Securities for which market
quotations are not readily available will be valued at their fair market value
as determined in good faith by, or under procedures established by, the Board of
Trustees. In determining fair value, the Trustees may employ an independent
pricing service. Additionally, if an event were to occur after the value of a
portfolio security was established on a foreign exchange, but before the Fund's
net asset value per share was determined, which was likely to materially change
the net asset value, then the security would be valued using fair value
considerations by the Trustees or their delegates.
Securities with less than sixty days remaining to maturity when acquired by the
Fund will be valued on an amortized cost basis by the Fund, excluding unrealized
gains or losses thereon from the valuation. This is accomplished by valuing the
security at cost and then assuming a constant amortization to maturity of any
premium or discount. If the Fund acquires a security with more than sixty days
remaining to its maturity, it will be valued at current market value until the
60th day prior to maturity, and will then be valued
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on an amortized cost basis based upon the value on such date unless the Trustees
determine during such 60-day period that this amortized cost value does not
represent fair market value.
The Fund's securities are primarily listed on foreign exchanges that may trade
on days when the Fund does not price its shares. Therefore, the Fund's net asset
value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares.
PURCHASE OF SHARES
After you open an account with the Fund, you may purchase shares by (a) writing
to the Fund and enclosing your check as payment or (b) by calling (800) 441-7764
to arrange for payment by wire transfer.
To Open an Account. Send a completed application form by regular mail to The
RISA Fund, c/o PFPC Inc., P.O. Box 8950, Wilmington, DE 19899, or by express
mail to The RISA Fund, c/o PFPC Inc., 400 Bellevue Parkway, W3-F400-01-03,
Wilmington, DE 19809. An application form accompanies this Prospectus.
To Purchase by Mail. Your initial purchase may be indicated on your application.
For additional purchases, you may send the Fund a simple letter or use order
forms supplied by the Fund. Please enclose your check drawn on a U.S. bank
payable to "The RISA Fund." Please indicate the amount to be invested in the
Fund and your Fund account number.
To Purchase by Wire Transfer: Please call the Fund at (800) 441-7764 for
instructions and to make specific arrangements before each wire transfer.
Minimum Initial Investment. The minimum initial investment in the Fund is
$5,000, but subsequent investments may be made in any amount. From time to time,
the Investment Adviser, in its sole discretion, may accept less than the minimum
initial investment amount to establish certain shareholder accounts.
Purchase Price and Timing. Shares of the Fund are offered at their net asset
value next determined after a purchase order is received in good order. Purchase
orders received in good order by the Fund before 4:00 p.m. Eastern time, on any
Business Day of the Fund will be priced at the net asset value per share for
that Business Day. Purchase orders received after this deadline will be priced
as of the deadline on the following Business Day of the Fund. A "Business Day of
the Fund" is any day on which the NYSE and Federal Reserve Bank are open for
business. The Fund and the Distributor each reserves the right to reject any
purchase order and may suspend the offering of shares for a period of time.
In Kind Purchases. If accepted by the Fund, shares may be purchased in exchange
for securities that are eligible for acquisition by the Fund. Such securities
will be valued in accordance with the procedures for valuing the Fund's assets
as described under "Pricing of Fund Shares." Please contact the Fund about the
availability of this purchase method.
SHAREHOLDER ACCOUNTS
Shareholder Inquiries. Shareholder inquiries may be made by writing the Fund,
c/o PFPC Inc., 400 Bellevue Parkway, W3-F400-01-03, Wilmington, DE 19809 or by
calling (800) 441-7764.
Shareholder Statements. The Fund will mail a statement at least quarterly
showing all purchases, redemptions and balances in your account. Shareholdings
are expressed in terms of full and fractional shares of the Fund rounded to the
nearest 1/1000th of a share. In the interest of economy and convenience, the
Fund does not issue share certificates.
Non-Individual Accounts. Corporations, partnerships, fiduciaries and other
non-individual investors may be required to furnish certain additional
documentation to make purchases, exchanges and redemptions.
Minimum Account Size. Due to the relatively high cost of maintaining small
shareholder accounts, the Fund reserves the right to automatically close any
account with a current value of less than $5,000 by involuntarily redeeming all
shares in the account and mailing the proceeds to the shareholder. Shareholders
will be notified if their account value is less than $5,000 and will be allowed
60 days in which to increase their account balance to $5,000 or more to prevent
the account from being closed. Reductions in account value that result solely
from market activity will not trigger an involuntary redemption.
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REDEMPTION OF SHARES
Redemption Fee. The Fund imposes a redemption fee on shares redeemed within two
years of purchase. The redemption fee equals 2% of the amount redeemed and is
paid directly to the Fund. The purpose of this fee, which is not a sale charge,
is to discourage short-term trading in the Fund's shares and to allocate the
transaction costs associated with redemptions to those investors redeeming Fund
shares. Such transaction costs include brokerage commissions and odd lot
premiums, administration costs and custodian fees.
You may redeem shares by mailing instructions to the Fund or calling the Fund at
(800) 441-7764. The Fund will promptly mail you a check or wire transfer funds
to your bank, as described below.
To Redeem By Mail: You may send written instructions, with signature guarantees,
by regular mail to: The RISA Fund, c/o PFPC Inc., P.O. Box 8950, Wilmington, DE
19899-9752, or by express mail to The RISA Fund, c/o PFPC Inc., 400 Bellevue
Parkway, W3-F400-01-03, Wilmington, DE 19809. The instructions should include
the name of the Fund, the number of shares or dollar amount to be redeemed, the
Fund account number and the name of the person in whose name the account is
registered. A SIGNATURE AND A SIGNATURE GUARANTEE ARE REQUIRED FOR EACH PERSON
IN WHOSE NAME THE ACCOUNT IS REGISTERED. A SIGNATURE MAY BE GUARANTEED BY AN
ELIGIBLE INSTITUTION ACCEPTABLE TO THE FUND, SUCH AS A BANK, BROKER, DEALER,
MUNICIPAL SECURITIES DEALER, GOVERNMENT SECURITIES DEALER, CREDIT UNION,
NATIONAL SECURITIES EXCHANGE, REGISTERED SECURITIES ASSOCIATION, CLEARING AGENCY
OR SAVINGS ASSOCIATION.
TO REDEEM BY TELEPHONE: IF YOU WANT TO REDEEM YOUR SHARES BY TELEPHONE YOU MUST
ELECT TO DO SO BY CHECKING THE APPROPRIATE BOX OF YOUR INITIAL APPLICATION OR BY
CALLING THE FUND AT (800) 441-7764 TO OBTAIN A SEPARATE APPLICATION FOR
TELEPHONE REDEMPTIONS. In order to redeem by telephone, you must call the Fund
Monday through Friday during normal business hours of 9 a.m. to 4 p.m., Eastern
time, and indicate your name, the Fund's name, your Fund account number and the
number of shares you wish to redeem. The Fund will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine and will not
be liable for any losses to a shareholder due to unauthorized or fraudulent
telephone transactions. If the Fund, the Investment Adviser, PFPC or any of
their employees fails to abide by their procedures, the Fund may be liable to a
shareholder for losses he/she suffers from any resulting unauthorized
transactions. During times of drastic economic or market changes, the telephone
redemption privilege may be difficult to implement. In the event that you are
unable to reach the Fund by telephone, you may make a redemption request by
mail.
Additional Redemption Information. You may redeem all or any part of the value
of your account on any Business Day. Redemptions are made at the net asset value
next calculated after a redemption request, in good order, is received by the
Fund. (See "Pricing Of Fund Shares.")
Redemption checks are mailed on the next Business Day of the Fund following
receipt of redemption instructions but in no event later than 7 days following
such receipt. Amounts redeemed by wire from the Fund are normally wired on the
next business day after receipt of redemption instructions. In no event are
redemption proceeds wired later than 7 days following such receipt. If the
shares to be redeemed were purchased by check, the Fund reserves the right not
to make the redemption proceeds available until it has reasonable grounds to
believe that the check has been collected (which could take up to 10 days).
Redemption proceeds exceeding $1,000 may be wired to your predesignated bank
account in any commercial bank in the United States. The receiving bank may
charge a fee for this service. Alternatively, proceeds may be mailed to your
bank or, for amounts of less than $1,000, mailed to your Fund account address of
record if the address has been established for a minimum of 60 days. In order to
authorize the Fund to mail redemption proceeds to your Fund account address of
record, complete the appropriate section of the application for telephone
redemptions or include your Fund account address of record when you submit
written instructions. You may change the account that you have designated to
receive amounts redeemed at any time. Any request to change the account
designated to receive redemption proceeds should be accompanied by a guarantee
of the shareholder's signature by an eligible institution. A signature and a
signature guarantee are required for each person in whose name the account is
registered. Further documentation will be required to change the designated
account when shares are held by a
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corporation, partnership, fiduciary or other non-individual investor.
For more information on redemption services, call the Fund at (800) 441-7764.
Redemption Policies. Redemption payments in cash will ordinarily be made within
seven days after receipt of the redemption request in good form. However, the
right of redemption may be suspended or the date of payment postponed in
accordance with the Investment Company Act of 1940. The amount received upon
redemption may be more or less than the amount paid for the shares depending
upon the fluctuations in the market value of the assets owned by the Fund. If
the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make a particular
redemption payment in cash, the Fund may pay all or part of the redemption price
by distributing the Fund's portfolio securities to the redeeming shareholder.
Investors may incur brokerage charges and other transaction costs selling
securities that were received in payment of redemptions.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan in accordance with Rule 12b-1 under the
Investment Company Act of 1940 with respect to the distribution of Institutional
Class shares. The Plan allows the Fund to pay distribution fees for the sale and
distribution of these shares. Because these fees are paid out of the Fund's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
DIVIDENDS, DISTRIBUTIONS AND TAX INFORMATION
The Fund will pay a dividend from its net investment income, if any, once a
year. Additionally, the Fund will distribute any net realized securities gains
once a year. Your distributions will be reinvested in additional Fund shares
unless you instruct the Fund otherwise.
The Fund intends to distribute substantially all of its net investment income
and net capital gains. Dividends from net investment income or net short-term
capital gains will be taxable to you as ordinary income, whether received in
cash or in additional shares. For corporate investors, dividends from net
investment income will generally qualify in part for the corporate
dividends-received deduction. However, the portion of the dividends so qualified
depends on the aggregate qualifying dividend income received by the Fund from
domestic (U.S.) sources.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or in additional shares, are taxable to those investors subject to income
tax as long-term capital gains, regardless of the length of time an investor has
owned shares in the Fund. Capital gains distributions may be expected to vary
considerably from year to year. Also, for those investors subject to tax, if
purchases of shares in the Fund are made shortly before the record date for a
dividend or capital gains distribution, a portion of the investment will be
returned as a taxable distribution.
Dividends which are declared in October, November or December to shareholders of
record in such a month but which, for operational reasons, may not be paid to
the shareholder until the following January, will be treated for tax purposes as
if paid by the Fund and received by the shareholder on December 31 of the
calendar year in which they are declared.
Any time you sell Fund shares, it is considered a taxable event for you and may
result in a capital gain or loss to you depending on the purchase price and sale
price of the shares you sell. You are responsible for tax liabilities on your
transactions in Fund shares.
Each year, the Fund will mail information to shareholders on the tax status of
the Fund's dividends and distributions. The Fund is required to withhold 31% of
taxable dividends, capital gains distributions, and redemptions paid to
shareholders who have not complied with Internal Revenue Service taxpayer
identification regulations. You may avoid this withholding requirement by
certifying on your account registration form your proper taxpayer identification
number and by certifying that you are not subject to backup withholding.
In addition to federal taxes, shareholders may be subject to state and local
taxes on distributions. It is recommended that shareholders consult their tax
advisers regarding specific questions as to federal, state, local or foreign
taxes. The tax discussion set forth above is included for general information
only, prospective investors should consult their own tax advisers concerning the
federal, state, local or foreign tax consequences of an investment in the Fund.
11
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<PAGE>
THE RISA FUND
RETURN THIS COMPLETED FORM TO:
THE RISA FUND
C/O PFPC INC.
P.O. BOX 8950
WILMINGTON, DE 19899
APPLICATION & NEW ACCOUNT REGISTRATION
INSTRUCTIONS
For wiring instructions or for assistance in completing this form call (800)
441-7764.
ACCOUNT REGISTRATION
Joint tenants use Lines 1 and 2; custodian for a minor, use Lines 1 and 3;
corporation, trust or other organization or any fiduciary capacity, use Line 4.
<TABLE>
<S> <C> <C>
1. Individual __________________________________ ___ _______________________________ _____________________________
First Name MI Last Name S.S. or Tax ID No.*
2. Joint Tenancy** _____________________________ ___ _______________________________ _____________________________
First Name MI Last Name S.S. or Tax ID No.*
3. Gifts to Minors+ ________________________________ ____________________________________ _______
Minor's Name Minor's S.S. No.* State
4. Other Registration_________________________________________________________________ ___________________________
Name S.S. or Tax ID No.*
5. If Trust, Date of Trust Instrument: ___________________________________________________________________________
6. _______________________________________________________ _______________________________________________________
Your Occupation Employer's Name and Address
ADDRESS OR RECORD AND TELEPHONE NUMBER(S)
__________________________________________________________________________________________________________________
Street City State Zip
</TABLE>
(_____) __________________________ (_____) _________________________
Daytime Phone Number Evening Phone Number
PURCHASE METHOD ($5,000 MINIMUM)
[_] By check. (Make payable to The RISA Fund.)
[_] By wire. Account number(s) assigned by PFPC Inc. ____________________
Bank from which funds will be wired__________________________________
Date wired ______________
Total Amount to be Invested $__________________
DISTRIBUTION OPTIONS
All dividends and distributions will be automatically reinvested in additional
shares at net asset value unless otherwise indicated by checking the box(es)
below.
[_] Dividends in Cash [_] Capital Gains in Cash
<PAGE>
TELEPHONE REDEMPTIONS
Check the following if you would like to use the telephone redemption privilege.
[_] I hereby authorize the redemption of shares from my account according
to telephone instructions from any of the authorized signers of the
account. I understand that redemption proceeds will be mailed to my
address of record.
CERTIFICATIONS
1. I have received and read the Prospectus for The RISA Fund and agree to
its terms; I am of legal age.
2. If a corporate customer, I certify that appropriate corporate
resolutions authorizing investment in The RISA Fund have been duly
adopted.
3. I certify under penalties of perjury that the Social Security number
or taxpayer identification number shown above is correct.
4. Unless the box below is checked, I certify under penalties of perjury
that I am not subject to backup withholding because the Internal
Revenue Service (a) has not notified me that I am subject to backup
withholding as a result of failure to report all interest or
dividends, or (b) has notified me that I am no longer subject to
backup withholding.
The certifications in this paragraph are required from all non-exempt
persons to prevent backup withholding of 31% of all taxable
distributions and gross redemption proceeds under the federal income
tax law.
[_] Check here if you are subject to backup withholding.
SIGNATURES
Please sign exactly as registered under "Account Registration."
Signature _______________________________ Date_____________________________
Signature _______________________________ Date_____________________________
Joint Owner/Trustee
Check one: [_] Owner [_] Trustee [_] Custodian [_] Other
* Customer Tax Identification No.: (a) for an individual, joint tenants, or a
custodial account under the Uniform Gifts/Transfers to Minors Act, supply
the Social Security number of the registered account owner who is to be
taxed; (b) for a trust, a corporation, a partnership, an organization, a
fiduciary, etc., supply the Employer Identification number of the legal
entity or organization that will report income and/or gains.
** "Joint Tenants with Rights of Survivorship" unless otherwise specified.
+ Regulated by the Uniform Gifts/Transfers to Minor's Act.
<PAGE>
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<PAGE>
THE RISA FUND
The Fund's Statement of Additional Information ("SAI"), dated October 1, 1999,
contains additional information about the Fund which has been incorporated by
reference into this Prospectus (legally the SAI is part of the Prospectus). A
copy of the SAI is available without charge upon request by calling
1-800-441-7764.
Information about the Fund, including the SAI, can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 for details). Reports and other information about the Fund
are also available on the Commission's Internet site at http://www.sec.gov and
copies of this information may be obtained, upon payment of a duplicating fee,
by writing to the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
INVESTMENT ADVISER
RISA Investment Advisers, LLC
225 South 15th Street, Suite 930
Philadelphia, PA 19102
SUB-INVESTMENT ADVISER
African Harvest Asset Managers (Proprietary) Limited
African Harvest House, Second Floor
Boundary Terrace
#1 Mariendahl Lane
Newlands, 7700, South Africa
DISTRIBUTOR
BOE Securities, Inc.
225 South 15th Street, Suite 928
Philadelphia, PA 19102
SHAREHOLDER SERVICES
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
LEGAL COUNSEL
Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
SEC File No. 811-09211
PROSPECTUS
OCTOBER 1, 1999
[RISA LOGO]
Reinvest in South Africa
THE RISA FUND
<PAGE>
THE RISA FUND
Institutional Class Shares
STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 1, 1999
This Statement of Additional Information ("SAI"), which is not a
prospectus, describes The RISA Fund, a series of Harvest Funds. The SAI should
be read in conjunction with The RISA Fund's current Prospectus dated October 1,
1999. No investment in shares should be made without first reading the
Prospectus. You may obtain a copy of the Prospectus without charge by contacting
the Fund at the address or telephone number listed below.
400 Bellevue Parkway
W3-F400-01-03
Wilmington, DE 19809
(800) 441-7764
<PAGE>
TABLE OF CONTENTS
FUND HISTORY AND CAPITAL STOCK...........................................3
INVESTMENT STRATEGIES AND RISKS..........................................3
INVESTMENT RESTRICTIONS.................................................10
MANAGEMENT OF THE FUND..................................................11
INVESTMENT ADVISORY AND OTHER SERVICES..................................13
ALLOCATION OF PORTFOLIO BROKERAGE.......................................14
DISTRIBUTION OF FUND SHARES.............................................15
PURCHASE OF SHARES......................................................15
REDEMPTIONS.............................................................16
TAXATION................................................................16
CALCULATION OF PERFORMANCE DATA.........................................18
FINANCIAL STATEMENTS....................................................20
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<PAGE>
FUND HISTORY AND CAPITAL STOCK
Harvest Funds was organized as a Delaware business trust under an Agreement
and Declaration of Trust dated December 30, 1998. The Agreement and Declaration
of Trust permits the Trustees to issue an unlimited number of shares of
beneficial interest with a $0.001 par value per share. The Board of Trustees has
the power to designate one or more series or classes of shares of beneficial
interest and to classify or reclassify any unissued shares with respect to such
series. Currently, Harvest Funds offers only one series, The RISA Fund.
The shares of the Fund, when issued, will be fully paid and non-assessable
and within each series or class, have no preference as to conversion, exchange,
dividends, retirement or other features. The shares of Harvest Funds which the
Trustees may, from time to time, establish, shall have no preemptive rights. The
shares have non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of trustees can elect 100% of the
trustees if they choose to do so. A shareholder is entitled to one vote for each
full share held (and a fractional vote for each fractional share held), then
standing in his name on the books of Harvest Funds. On any matter submitted to a
vote of shareholders, all shares of Harvest Funds then issued and outstanding
and entitled to vote on a matter shall vote without differentiation between
separate series on a one-vote-per-share basis. Each whole share is entitled to
one vote and each fractional share is entitled to a proportionate fractional
vote. If a matter to be voted on does not affect the interests of all series of
Harvest Funds, then only the shareholders of the affected series shall be
entitled to vote on the matter. Harvest Funds' Agreement and Declaration of
Trust also gives shareholders the right to vote (i) for the election or removal
of trustees; (ii) with respect to additional matters relating to Harvest Funds
as required by the Investment Company Act of 1940 (the AInvestment Company
Act"); and (iii) on such other matters as the Trustees consider necessary or
desirable.
INVESTMENT STRATEGIES AND RISKS
The Fund is a diversified, open-end management investment company. The
Prospectus describes the Fund's investment objective and the principal
strategies to be employed to achieve that objective. This section contains
supplemental information concerning certain types of securities in which the
Fund will invest, the Fund's investment policies and strategies, and certain
risks associated with such investments and strategies.
ILLIQUID AND RESTRICTED SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restrictions on resale and otherwise
restricted securities. The Board of Trustees has adopted liquidity guidelines
and delegated to the Investment Adviser and Sub-Adviser the daily function of
determining and monitoring liquidity of restricted securities. The Board of
Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
SECURITIES LENDING
The Fund may lend its investment securities to approved borrowers who need
to borrow securities in order to complete certain transactions, such as covering
short sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its investment securities, the Fund attempts to increase
its income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would be for the account of the Fund. The Fund may lend its investment
securities to qualified brokers, dealers, domestic and foreign banks or other
financial institutions, so long as the terms, the structure and the aggregate
amount of such loans are not inconsistent with the Investment Company Act, or
the rules and regulations or interpretations of the U.S. Securities and Exchange
Commission (the "SEC") thereunder. At the present time, the staff of the SEC
does not object if an investment company pays reasonable negotiated fees in
connection with loaned securities so long as such fees are set forth in a
written contract and approved by the
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<PAGE>
investment company's Board of Trustees. In addition, voting rights may pass
with the loaned securities, but if a material event occurs affecting an
investment on a loan, the loan must be called and the securities voted.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Under a repurchase
agreement, the Fund acquires a debt instrument for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Fund to resell such debt instrument at a fixed price. The
resale price is in excess of the purchase price so that it reflects an agreed
upon market interest rate effective for the period of time during which the
Fund's money is invested. The Fund's risk is limited to the ability of the
seller to pay the agreed upon sum on the delivery date. When the Fund enters
into a repurchase agreement, it obtains collateral having a value at least equal
to the amount of the purchase price. Repurchase agreements can be considered
loans collateralized by the underlying securities. The collateral underlying a
repurchase agreement will be marked to market every business day so that the
value of the collateral is at least equal to the value of the loan, including
accrued interest earned. In evaluating whether to enter into a repurchase
agreement, the Fund's Investment Adviser and Sub-Adviser will carefully consider
the creditworthiness of the seller. If the seller defaults and the value of the
collateral securing the repurchase agreement declines, the Fund may incur a
loss.
WHEN-ISSUED, FORWARD COMMITMENTS AND DELAYED SETTLEMENT SECURITIES
The Fund may invest in securities whose terms and characteristics are
already known but which have not been issued. These are so-called "when-issued"
or "forward commitments." Delayed settlements occur when the Fund agrees to buy
securities at some time in the future, making no payment until the transaction
is actually completed. The Fund engages in these transactions to buy securities
that fit with its investment objective at attractive prices, not to increase the
Fund's investment leverage. Securities purchased on a when-issued basis involve
a risk of loss if they decline in market value prior to their actual delivery to
the Fund. The Fund will establish with its custodian, a segregated account, in
which it will maintain cash or liquid securities equal in value to its
obligations for when-issued securities.
HEDGING STRATEGIES
The Fund may engage in various portfolio strategies to hedge against
adverse movements in the equity, debt and currency markets. The Fund may buy or
sell futures contracts, write (i.e., sell) covered call and put options on its
portfolio securities, purchase put and call options on securities and engage in
transactions in related options on such futures. Each of these portfolio
strategies is described below. Although certain risks are involved in options
and futures transactions, the Investment Adviser and Sub-Adviser believe that,
because the Fund will engage in options and futures transactions only for
hedging purposes, these transactions will not subject it to the risks frequently
associated with the speculative use of options and futures transactions. While
the Fund's use of hedging strategies is intended to reduce the volatility of the
net asset value of the Fund's shares, the Fund's net asset value will fluctuate.
There can be no assurance that the Fund's hedging transactions will be
effective. Also, the Fund may not necessarily be engaging in hedging activities
when movements in any equity, debt or currency market occur.
Forward Foreign Currency Exchange Contracts. The U.S. dollar value of the
assets of the Fund may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various currencies. The
Fund will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward contracts to purchase or sell foreign
currencies. A forward foreign currency exchange contract involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
-4-
<PAGE>
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when the Fund anticipates that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract for a fixed amount of dollars, to sell the amount
of foreign currency approximating the value of some or all of the Fund's
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible since the future value of securities in foreign currencies
will change as a consequence of market movements in the value of these
securities between the date on which the forward contract is entered into and
the date it matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. From time to time, the Fund may enter into forward
contracts to protect the value of portfolio securities and enhance Fund
performance. The Fund will not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund securities or other assets denominated in that currency.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Fund entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund would suffer a loss to the extent that the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not required
to enter into such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the value
of portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which one can achieve at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
-5-
<PAGE>
Futures Contracts. The Fund may enter into futures contracts for purposes
of hedging, remaining fully invested and reducing transaction costs. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Although most futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract previously
"purchased") in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith initial margin deposit in
cash or acceptable securities with a broker or custodian to initiate and
maintain open positions in futures contracts. An initial margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish initial deposit requirements
which are higher than the exchange minimums. Futures contracts are customarily
purchased and sold on initial margin that may range upward from less than 5% of
the value of the contract being traded. After a futures contract position is
opened, the value of the contract is marked to market daily. A second type of
deposit called variation margin is used to adjust the futures position account
for the daily marked to market variations. If the marked to market value
declines, additional deposits in cash are required to balance this decline
(variation margin). Conversely, if the marked to market value increases,
deposits in cash may be withdrawn from the account to the extent of the
increase. Variation margin payments are made to and from the futures broker for
as long as the contract remains open. The Fund expects to earn interest income
on their initial margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade and use
futures contracts with the expectation of realizing profits from a fluctuation
in interest rates. The Fund intends to use futures contracts only for hedging
purposes.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Fund will incur commission expenses in both opening and closing out future
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
The Fund will only sell futures contracts to protect securities it owns
against price declines or purchase contracts to protect against an increase in
the price of securities it intends to purchase. As evidence of this hedging
interest, the Fund expects that approximately 75% of its futures contracts
purchases will be "completed," that is, equivalent amounts of related securities
will have been purchased or are being purchased by the Fund upon sale of open
futures contracts.
Risks Associated with Futures Transactions. Positions in futures contracts
may be closed out only on an exchange which provides a market for such futures.
However, there can be no assurance that a liquid market will exist for any
particular futures contract at any specific time. Thus, it may not be possible
to close a futures position. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments to maintain its
required margin. In such situations, if the Fund has insufficient cash, it may
have to sell securities to meet daily margin requirements at a time when it may
be disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The inability
to close futures positions also could have an adverse impact on the Fund's
ability to effectively hedge.
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<PAGE>
The Fund will minimize the risk that it will be unable to close out a
futures position by only entering into futures for which there appears to be a
liquid market. There can be no assurance, however, that a liquid market will
exist for a particular futures contract at any given time.
The risk of loss in trading futures contracts in some strategies can be
substantial due both to the low margin deposits required and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in a total loss
of the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in excess of the amount
invested in the contract. However, because the Fund engages in futures
strategies only for hedging purposes, the Investment Adviser does not believe
that the Fund is subject to the risks of loss frequently associated with futures
transactions. The Fund would presumably have sustained comparable losses if,
instead of the futures contract, it had invested in the underlying financial
instrument and sold it after the decline.
Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying the futures
contracts have different maturities than the Fund securities being hedged. It is
also possible that the Fund could both lose money on futures contracts and also
experience a decline in value of portfolio securities. There is also the risk of
loss on margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and, therefore, does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
Options on Futures. Although the Fund is permitted to purchase and sell put
and call options on futures contracts for hedging purposes, it has no present
intention of using this technique. Investments in options involve some of the
same considerations that are involved in connection with investments in futures
contracts (e.g., the existence of a liquid market). In addition, the purchase of
an option also entails the risk that changes in the value of the underlying
security or contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract on which it is based or the price of the securities being hedged, an
option may or may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contract or
securities.
Writing Covered Call Options. Although the Fund is permitted to write call
options, it has no present intention of doing so. The general reason for writing
call options is to attempt to realize income. By writing covered call options,
the Fund gives up the opportunity, while the option is in effect, to profit from
any price increase in the underlying security above the option exercise price.
In addition, the Fund's ability to sell the underlying security will be limited
while the option is in effect unless the Fund effects a closing purchase
transaction. A closing purchase transaction cancels out the Fund's position as
the writer of an option by means of offsetting purchase of an identical option
prior to the expiration of the option it has written. Covered call options serve
as a partial hedge against the price of the underlying security declining. The
Fund writes only covered options, which means that so long as the Fund is
obligated as the writer of the option it will, through its custodian, have
deposited the underlying security of the option or, if there is a commitment to
purchase the security, a segregated reserve of cash or liquid
-7-
<PAGE>
securities denominated in U.S. dollars or non-U.S. currencies with a
securities depository with a value equal to or greater than the exercise price
of the underlying securities. By writing a put, the Fund will be obligated to
purchase the underlying security at a price that may be higher than the market
value of that security at the time of exercise for as long as the option is
outstanding. The Fund may engage in closing transactions in order to terminate
put options that it has written.
Purchasing Options. While the Fund is permitted to purchase put and call
options, it has no present intention of doing so. A put option may be purchased
to partially limit the risks of the value of an underlying security or the value
of a commitment to purchase that security for forward delivery. The amount of
any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from a sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the
Fund's position as purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its investment portfolio on which it has written call options or on securities
which it intends to purchase.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminution in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency does decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same types of
hedging purposes. For example, where the Fund anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the anticipated decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
-8-
<PAGE>
The Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by the Fund is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by the Custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash or liquid securities
in a segregated account with the Custodian.
The Fund may write call options on foreign currencies that are not covered
for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such circumstances, the
Fund collateralized the option by maintaining in a segregated account with the
Custodian, cash or liquid securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked to market daily.
Risks Associated with Options Transactions. The Fund's purchase and sale of
exchange-traded foreign currency options in the U.S. is subject to the risks of
the availability of a liquid secondary market, as well as the risks regarding
adverse market movements, margining of options written, the nature of the
foreign currency market, possible intervention by governmental authorities and
the effect of other political and economic events. In addition, exchange-traded
options of foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of such options in
the U.S. must be made exclusively through the Options Clearing Corporation
("OCC"), which has established banking relationships in applicable foreign
countries for this purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the orderly settlement
of foreign currency option exercises, or would result in undue burdens on the
OCC or its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of delivery of currency,
the fixing of dollar settlement prices or prohibitions, on exercise.
For the most part, the Fund's futures contracts, options on futures
contracts, forward contracts and options of foreign currencies will be traded on
foreign exchanges which would subject the Fund to the following risks. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
PORTFOLIO TURNOVER
The Fund generally will not engage in trading securities for short-term
gains. However, the Adviser and the Sub-Adviser may effect portfolio
transactions without regard to holding periods if, in their judgement, such
transactions are advisable due to a change in circumstances of a particular
company or industry or in general market or economic conditions.
-9-
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions set forth below, which are
fundamental policies of the Fund and cannot be changed without the approval of a
majority of the outstanding voting securities. As provided in the Investment
Company Act, a "vote of a majority of the outstanding voting securities" means
the affirmative vote of the lesser of (i) more than 50% of the outstanding
shares, or (ii) 67% or more of the shares present at a meeting if more than 50%
of the outstanding shares are represented at the meeting in person or by proxy.
The Fund may not:
1. As to 75% of its total assets, purchase the securities of any one
issuer if, immediately after and as a result of such purchase,
more than 5% of the Fund's total assets would be invested in the
securities of such issuer, or the Fund would own or hold 10% or
more of the outstanding voting securities of such issuer, except
that this restriction shall not apply to cash and cash items or
securities issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities;
2. Invest more than 25% of its total assets (taken at market value
at the time of each investment) in the securities of issuers in
any particular industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government
or their agencies or instrumentalities; utility companies will be
divided according to their services; financial services companies
will be classified according to the end-users of their services;
3. Issue senior securities, except that the Fund may borrow money
in accordance with (7) below, purchase securities on a
when-issued, delayed settlement or forward delivery basis, sell
securities short and enter into reverse repurchase agreements;
4. Purchase or sell real estate or commodities; provided that the
Fund may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
5. Purchase any securities on margin, except that the Fund may
obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities, or make
short sales of securities or maintain a short position. The
payment by the Fund of initial or variation margin in connection
with futures or related options transactions shall not be
considered the purchase of a security on margin. Also, engaging
in futures transactions and related options will not be deemed a
short sale or maintenance of a short position in securities;
6. Make loans to other persons; provided that for purposes of this
restriction the acquisition of bonds, debentures, or other
corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of
deposit, bankers' acceptances, repurchase agreements and any
fixed-income obligations in which the Fund may invest consistent
with its investment objective and policies shall not be deemed to
be the making of a loan;
7. Borrow amounts in excess of 20% of its total assets, taken at
market value, and then only from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of
Fund shares. Utilization of borrowings may exaggerate increases
or decreases in an investment company's net asset value. However,
the Fund will not purchase securities while borrowings exceed 5%
of its total assets, except to honor prior
-10-
<PAGE>
commitments and to exercise subscription rights when outstanding
borrowings have been obtained exclusively for settlements of
other securities transactions; or
8. Underwrite securities of other issuers.
MANAGEMENT OF THE FUND
Under Delaware law, Harvest Funds' Board of Trustees is responsible for
establishing the Fund's policies and for overseeing the management of the Fund.
The Board also elects the Fund's officers who conduct and supervise the daily
business operations of Harvest Funds. The Trustees and executive officers of
Harvest Funds, their ages and their principal occupations for the past five
years are listed below. The address of each such person is c/o Harvest Funds,
112 Ballymeade Drive, Wilmington, DE 19810. Trustees who are "interested
persons" as defined in the Investment Company Act are designated with an
asterisk (*).
<TABLE>
<CAPTION>
Position and Office Principal Occupation
Name Age with Harvest Funds During the Past Five Years
---- --- ------------------ --------------------------
<S> <C> <C> <C>
Oliver St. C. Franklin* 53 Chairman of the Board of President, RISA Investment Advisers,
Trustees LLC (1998-Present); Consultant (11/96-
7/98); Senior Vice President,
Fidelity Institutional Services,
(1/94 - 11/96)
O. Sam Folin* 50 Trustee, President and Managing Director, RISA Investment
Chief Financial Officer Advisers, LLC (1997-Present); Senior
Vice Pres. & Portfolio Manager, Newbold's
Asset Management (12/88 - 6/95)
Carolyn B. Lewis 62 Trustee Consultant, The CBL Group
(5/98-Present); Assistant Director,
U.S. Securities and Exchange
Commission (9/85-3/97)
James L. McDonald 51 Trustee International Policy Analyst, Bread
for the World, (5/98-Present);
Professorial Lecturer, American
University (6/91-8/98)
Denzil Newman 46 Vice President Director and Chief Investment
Officer, African Harvest Asset
Managers (Pty.) Ltd. (1/98-Present);
Fund Manager, Syfrets Managed Assets
(1993-1997); Fund Manager, Southern
Asset Management (1986-1993)
Norman Van Horn 52 Treasurer Vice President, Director of
Accounting, PFPC Inc.
-11-
<PAGE>
<CAPTION>
Position and Office Principal Occupation
Name Age with Harvest Funds During the Past Five Years
---- --- ------------------ --------------------------
<S> <C> <C> <C>
Marie Levinsky 33 Secretary Vice President/Compliance, RISA
Investment Advisers, LLC
(1998-Present); Marketing Associate,
Newbold's Asset Management
(11/92-9/95)
</TABLE>
COMPENSATION OF TRUSTEES AND OFFICERS
The Fund pays each Trustee, who is not an "interested person" a $1,000
fee for each Board of Trustees meeting attended plus reimbursement for travel
and other expenses incurred while attending Board meetings. Trustees who are
also officers or affiliated persons receive no remuneration for their service as
Trustees. The Fund's officers and employees are paid by either the Adviser or
the Administrator and receive no compensation from the Fund. The following table
shows aggregate compensation that is expected to be paid to each of the Trustees
by the Fund in the fiscal year ending September 30, 2000.
<TABLE>
<CAPTION>
COMPENSATION TABLE
==================================================================================================================
(1) (2) (3) (4) (5)
Name of Person Aggregate Pension or Estimated Annual Total Compensation
Position Compensation from Retirement Benefits Benefits upon from Registrant and
Registrant Accrued as Part of Retirement Fund Complex Paid
Fund Expenses to Trustees
==================================================================================================================
<S> <C> <C> <C> <C>
Oliver St. C. Franklin
Trustee -0- -0- -0- -0-
O. Sam Folin
Trustee -0- -0- -0- -0-
Carolyn B. Lewis
Trustee $4,000 -0- -0- $4,000
James L. McDonald
Trustee $4,000 -0- -0- $4,000
</TABLE>
-12-
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Harvest Funds, on behalf of the Fund, has entered into an Investment
Advisory Agreement with RISA Investment Advisers, LLC, for the provision of
investment advisory services, subject to the supervision and direction of the
Board of Trustees. Pursuant to the Investment Advisory Agreement, the Fund is
obligated to pay the Investment Adviser a monthly fee equal to an annual rate of
1.25% of the Fund's average daily net assets. The Investment Advisor has
voluntarily agreed to waive its advisory fee and/or assume certain Fund expenses
monthly so that the Fund's total operating expenses, on an annual basis, do not
exceed 2.00% of the Fund's average daily net assets.
The Investment Advisory Agreement became effective on September 30, 1999
and is effective for an initial two-year period. Such Agreement may be renewed
after its initial term only so long as such renewal and continuance is
specifically approved at least annually by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund, and only if the terms
of the renewal thereof have been approved by the vote of a majority of the
Trustees who are not parties thereto or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement will terminate automatically in the event of
its assignment.
SUB-INVESTMENT ADVISER
African Harvest Asset Managers (Proprietary) Limited, (the "Sub-Adviser")
an affiliate of the Investment Adviser, serves as the Fund's sub-investment
adviser. The Sub-Adviser was formed in 1997 and as of December 31, 1998 managed
over $500 million in assets. The Sub-Adviser, subject to the supervision and
approval of the Investment Adviser, provides investment advisory assistance and
the day-to-day management of the Fund's portfolio.
African Harvest Capital, an affiliate of the Sub-Adviser, owns 40% of the
equity interests of RISA Investment Advisers.
ADMINISTRATOR, TRANSFER AGENT, ACCOUNTING AGENT AND CUSTODIAN
PFPC Inc., ("PFPC") 400 Bellevue Parkway, Wilmington, DE 19809, serves as
Administrator, Transfer Agent and Dividend Paying Agent of the Fund and also
provides accounting services to the Fund.
As Administrator, PFPC supplies office facilities, non-investment related
statistical and research data, stationery and office supplies, executive and
administrative services, internal auditing and regulatory compliance services.
PFPC also assists in the preparation of reports to shareholders, prepares proxy
statements, updates prospectuses and makes filings with the SECand state
securities authorities. PFPC performs certain budgeting and financial reporting
and compliance monitoring activities. As Accounting Agent, PFPC determines the
Fund's net asset value per share and provides accounting services to the Fund
pursuant to an Accounting Services Agreement with Harvest Funds. For
administration and accounting services, the Fund has agreed to pay PFPC a fee,
payable monthly and based upon the Fund's average daily net assets, at the
following annual rates:
.135% of the Fund's first $250 million of average daily net assets
.10% of the Fund's next $250 million of average daily net assets
.08% of the Fund's next $250 million of average daily net assets
.06% of the Fund's average daily net assets in excess of $750 million
The minimum monthly fee payable to PFPC for administration and accounting
services is $9,500.
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<PAGE>
For transfer agency services, the Fund has agreed to pay PFPC a monthly
service fee based upon the number of shareholder accounts and transactions. The
Fund's minimum monthly fee service fee is $2,500, exclusive of transaction
charges, out-of-pocket expenses and miscellaneous fees.
The custodian for the Fund is PFPC Trust Company, located at 200 Stevens
Drive, Lester, PA 19113, and the Fund's sub-custodian is Citibank. Citibank in
turn employs foreign sub-custodians to maintain the Fund's foreign assets
outside the United States subject to the Board of Trustees' annual review of
those foreign custody arrangements.
LEGAL COUNSEL
Pepper Hamilton LLP, 3000 Two Logan Square, Eighteenth and Arch Streets,
Philadelphia, PA 19103, serves as counsel to Harvest Funds.
INDEPENDENT ACCOUNTANTS
The accounts of Harvest Funds are audited each year by
PricewaterhouseCoopers LLP, independent certified public accountants.
Shareholders receive unaudited semi-annual and audited annual reports of Harvest
Funds including the annual audited financial statements and a list of securities
owned.
ALLOCATION OF PORTFOLIO BROKERAGE
The Investment Adviser and Sub-Adviser, when effecting the purchases and
sales of portfolio securities for the account of the Fund, will seek execution
of trades either (i) at the most favorable and competitive rate of commission
charged by any broker, dealer or member of an exchange, or (ii) at a higher rate
of commission charges if reasonable in relation to brokerage and research
services provided to the Fund, the Investment Adviser or the Sub-Adviser, by
such member, broker, or dealer when viewed in terms of either a particular
transaction or the Investment Adviser's overall responsibilities to Harvest
Funds. Such services may include, but are not limited to, any one or more of the
following: information as to the availability of securities for purchase or
sale, statistical or factual information, or opinions pertaining to investments.
The Investment Adviser may use research and services provided to it by brokers
and dealers in servicing all its clients; however, not all such services will be
used by the Investment Adviser or the Sub-Adviser in connection with the Fund.
Brokerage may also be allocated to dealers in consideration of the sale of the
Fund's shares, but only when execution and price are comparable to that offered
by other brokers.
The Sub-Adviser is responsible for making the Fund's day-to-day portfolio
decisions. The Board of Trustees, however, imposes limitations on the allocation
of portfolio brokerage.
It is anticipated that the Fund's brokerage transactions involving
securities of South African issuers will be conducted primarily on the principal
stock exchanges of South Africa. Brokerage commissions and other transaction
costs on stock exchange transactions in South Africa are generally higher than
in the U.S., although the Fund will endeavor to achieve the best net results in
effecting their portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges and brokers in South
Africa than in the U.S.
Foreign equity securities may be held by the Fund in the form of ADRs,
EDRs, GDRs or other securties convertible into foreign equity securities. ADRs,
EDRs and GDRs may be listed on stock exchanges or traded in over-the-counter
markets in the U.S. or Europe, as the case may be. ADRs, like other securities
traded in the U.S., as well as GDRs traded in the U.S., will be subject to
negotiated commission rates.
-14-
<PAGE>
DISTRIBUTION OF FUND SHARES
PRINCIPAL UNDERWRITER
BOE Securities, Inc., a registered broker-dealer firm located at 225 South
15th Street, Suite 928, Philadelphia, PA 19102, (the "Distributor") serves as
the principal underwriter of the Fund's shares pursuant to a Distribution
Agreement with Harvest Funds. Under the terms of the Distribution Agreement, the
Distributor agrees to assist in securing purchasers for shares of the Fund. The
Investment Adviser will pay the Distributor $12,000 per annum for distribution
of shares of the Fund, plus reimbursement of out-of-pocket expenses.
The Distribution Agreement provides that the Distributor, in the absence of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
the agreement, will not be liable to Harvest Funds or the Fund's shareholders
for losses arising in connection with the sale of Fund shares.
The Distribution Agreement became effective on September 30, 1999, and will
remain in effect an initial period of two years. Thereafter, the Distribution
Agreement continues in effect from year to year as long as its continuance is
approved at least annually by a majority of the Trustees, including a majority
of the trustees who are not parties to the Distribution Agreement or interested
persons of any such party (the "Independent Trustees"). The Distribution
Agreement terminates automatically in the event of its assignment. The
Distribution Agreement is also terminable without payment of any penalty with
respect to the Fund (i) by the Fund (by vote of a majority of the Independent
Trustees or by vote of a majority of the outstanding voting securities of the
Fund) on sixty (60) days' written notice to the Distributor, or (ii) by the
Distributor on sixty (60) days' written notice to the Fund.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act. Under the Plan, the Fund pays a monthly
fee to the Distributor for undertaking marketing activities and incurring
distribution expenses to promote the sale of Institutional Class shares.
Payments made under the Plan are not tied to the distribution expenses actually
incurred by the Distributor, and such payments may exceed the Distributor's
expenses. Expenses incurred by the Distributor pursuant to the Plan may include,
but are not limited to, commissions paid to broker-dealers who have executed
selling agreements with the Distributor, advertising expenses and the costs of
printing and distributing the Fund's prospectuses and reports used for sales
purposes. The maximum fee which may be paid to the Distributor under the Plan
shall not exceed 0.25% per annum of the average daily net assets of the Fund's
Institutional Class shares. The Board of Trustees has determined that there is a
reasonable likelihood that the Plan will benefit the Institutional Class
shareholders by increasing the assets of the Institutional Class, which could
lead to economies of scale and certain operating efficiencies.
Under its terms, the Plan remains in effect so long as its continuance is
specifically approved at least annually by vote of the Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan. A quarterly report of the amounts expended by the Distributor pursuant to
the Plan and the purposes for such expenditures must be provided to the Board of
Trustees for their review. The Plan may not be amended to increase materially
the amount to be paid under the Plan without the approval of a majority of the
outstanding Institutional Class shares.
PURCHASE OF SHARES
IN KIND PURCHASES
At the discretion of the Fund, shares may be purchased in exchange for
securities which are eligible for acquisition by the Fund. All dividends,
interest, subscriptions, or other rights pertaining to such securities shall
become the property of the Fund and must be delivered to the Fund by the
investor upon receipt
-15-
<PAGE>
from the issuer. The Fund will not accept securities in exchange for its
shares unless (1) such securities are, at the time of exchange, eligible to be
included in the Fund's portfolio and current market quotations are readily
available for such securities; and (2) the investor represents and agrees that
the securities exchanged are not subject to any restrictions upon their sale by
the Fund under the laws of the country in which the principal market for such
securities exists.
REDEMPTIONS
Under normal circumstances, you may redeem your shares at any time, subject
to a 2% redemption fee on shares redeemed within two years of purchase. The
redemption price will be based upon the net asset value per share next
determined after receipt of the redemption request, provided it has been
submitted in the manner described in the Prospectus of the Fund. See "Redemption
of Shares" in the Prospectus. The redemption price may be more or less than your
cost, depending upon the net asset value per share at the time of redemption.
Payment for shares tendered for redemption is made by check within seven
days after receipt and acceptance of your redemption request by the transfer
agent, except that the Fund reserves the right to suspend the right of
redemption, or to postpone the date of payment upon redemption beyond seven
days, (i) for any period during which trading on the New York Stock Exchange is
restricted, (ii) for any period during which an emergency exists as determined
by the SEC as a result of which disposal of securities owned by the Fund is not
reasonably predictable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or (iii) for such other periods as the
SEC may by order permit for the protection of Fund shareholders.
TAXATION
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
In order to so qualify, the Fund must, among other things (i) derive at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (ii) distribute at least 90% of its
dividends, interest and certain other taxable income each year; and (iii) at the
end of each fiscal quarter maintain at least 50% of the value of its total
assets in cash, government securities, securities of other regulated investment
companies, and other securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and with no more than 25% of its
assets invested in the securities (other than those of the government or other
regulated investment companies) of any one issuer or of two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades and businesses.
To the extent the Fund qualifies for treatment as a regulated investment
company, it will not be subject to federal income tax on income and net capital
gains paid to shareholders in the form of dividends or capital gains
distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distributions" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of the Fund's ordinary
income for the calendar year plus 98% of its capital gain net income recognized
during the one-year period ending on October 31 plus undistributed amounts from
prior years. The Fund intends to make distributions sufficient to avoid
imposition of the excise tax. Distributions declared by the Fund during October,
November or December to shareholders of record during such month and paid by
January 31 of the following year will be taxable to shareholders in the calendar
year in which they are declared, rather than the calendar year in which they are
received.
-16-
<PAGE>
The Fund will provide an information return to shareholders describing the
federal tax status of the dividends paid by the Fund during the preceding year
within 60 days after the end of each year as required by present tax law.
Individual shareholders will receive Form 1099-DIV and Form 1099-B as required
by present tax law during January of each year. If the Fund makes a distribution
after the close of its fiscal year which is attributable to income or gains
earned in such earlier fiscal year, then the Fund shall send a notice to its
shareholders describing the amount and character of such distribution within 60
days after the close of the year in which the distribution is made. Shareholders
should consult their tax advisors concerning the state or local taxation of such
dividends, and the federal, state and local taxation of capital gains
distributions.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative action at any time, and retroactively.
Dividends and distributions also may be subject to state and local taxes.
PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" (a "PFIC"), it may be subject to United
States federal income tax on a portion of any "excess distribution" or gain from
the disposition of such shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on the Fund in respect of deferred taxes arising from
such distributions or gains. If the Fund were to invest in a PFIC and elected to
treat the PFIC as a "qualified electing fund" under the Code, in lieu of the
foregoing requirements, the Fund might be required to include in income each
year a portion of the ordinary earnings and the net capital gains of the
qualified electing fund, even if not distributed to the Fund, and such amounts
would be subject to the 90% and excise tax distribution requirements described
above. In order to make this election, the Fund would be required to obtain
certain annual information from the passive foreign investment companies in
which it invests, which may be difficult or not possible to obtain.
Alternatively, the Fund may make a mark-to-market election that will result
in the Fund being treated as if it had sold and repurchased all of the PFIC
stock at the end of each year. In this case, the Fund would report gains as
ordinary income and would deduct losses as ordinary losses to the extent of
previously recognized gains. The election, once made, would be effective for all
subsequent taxable years of the Fund, unless revoked with the consent of the
IRS. By making the election, the Fund could potentially ameliorate the adverse
tax consequences with respect to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in excess of the
distributions received from the PFICs owned and the proceeds from dispositions
of PFIC company stock. The Fund may have to distribute this "phantom" income and
gain to satisfy its distribution requirement and to avoid imposition of the 4%
excise tax. The Fund will make the appropriate tax elections, if possible, and
take any additional steps that are necessary to mitigate the effect of these
rules.
FEDERAL TAX TREATMENT OF FORWARD CURRENCY AND FUTURES CONTRACTS
Except for transactions the Fund has identified as hedging transactions,
the Fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency and
futures contracts as of the end of each taxable year as well as those actually
realized during the year. In most cases, any such gain or loss recognized with
respect to a regulated futures contract is considered to be 60% long-term
capital gain or loss and 40% short-term capital gain or loss without regard to
the holding period of the contract. Realized gain or loss attributable to a
foreign currency forward contract is treated as 100% ordinary income.
Furthermore, foreign currency futures contracts which are intended to hedge
against a change in the value of securities held by the Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
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In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company under the Code, at least 90% of the
Fund's gross income for a taxable year must be derived from certain qualifying
income, i.e., dividends, interest, income derived from loans of securities and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other related income, including gains from options, futures and
forward contracts, derived with respect to its business investing in stock,
securities or currencies. Any net gain realized from the closing out of futures
contracts will, therefore, generally be qualifying income for purposes of the
90% requirement.
The Fund will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's taxable year) on futures transactions. Such
distribution will be combined with distributions of capital gains realized on
the Fund's other investments, and shareholders will be advised on the nature of
the payment.
Shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state and local taxes.
CALCULATION OF PERFORMANCE DATA
Current yield and total return may be quoted in advertisements, shareholder
reports or other communications to shareholders. Yield is the ratio of income
per share derived from the Fund's investments to a current maximum offering
price expressed in terms of percent. The yield is quoted on the basis of
earnings after expenses have been deducted. Total return is the total of all
income and capital gains paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price. Occasionally, the
Fund may include its distribution rate in advertisements. The distribution rate
is the amount of distributions per share made by the Fund over a 12-month period
divided by the current maximum offering price.
The SEC rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information computed
as required by the SEC. Current yield and total return quotations used by the
Fund are based on the standardized methods of computing performance mandated by
the SEC. An explanation of those and other methods used by the Fund to compute
or express performance follows.
As indicated below, current yield is determined by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all shareholders
during the 30-day base period. According to the SEC formula:
Yield = 2 [(a-b/cd+1)(6) - 1]
where
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
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As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by the
average annual compound rate of return (including capital appreciation/
depreciation and dividends and distributions paid and reinvested) for the
stated period less any fees charged to all shareholder accounts and annualizing
the result. The calculation assumes the maximum sales load is deducted from the
initial $1,000 purchase order and that all dividends and distributions are
reinvested at the public offering price on the reinvestment dates during the
period. The quotation assumes the account was completely redeemed at the end of
each one, five and ten-year period and assumes the deduction of all applicable
charges and fees. According to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10-year periods,
determined at the end of the 1, 5 or 10-year periods (or
fractional portion thereof).
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to shareholders
only for the limited historical period used.
COMPARISONS AND ADVERTISEMENTS
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss yield or total return for the Fund as reported by various financial
publications. Advertisements may also compare yield or total return to yield or
total return as reported by other investments, indices, and averages. The
following publications, indices, and averages may be used:
JSE All Shares Index
JSE All Bond Index
JSE Industrial Index
Lipper Mutual Fund Indices
Lipper Mutual Fund Performance Analysis
Morgan Stanley Capital International Emerging Markets Free Index
Morningstar, Inc.
The Fund may also from time to time along with performance advertisements,
present its investments, as of a current date, in the form of the "Schedule of
Investments" included in the Semi-Annual and Annual Reports to the shareholders
of Harvest Funds.
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FINANCIAL STATEMENTS
THE RISA FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 8, 1999
ASSETS:
Cash............................................................ $100,000
Deferred offering costs......................................... 41,448
--------
TOTAL ASSETS................................................ 141,448
LIABILITIES:
Offering costs payable.......................................... 41,448
--------
TOTAL LIABILITIES........................................... 41,448
NET ASSETS........................................................... $100,000
========
SHARES OUTSTANDING................................................... 10,000
--------
NET ASSET VALUE PER SHARE............................................ $ 10.00
========
NET ASSETS CONSISTED OF THE FOLLOWING AT JULY 8, 1999:
Paid-in-capital................................................. $100,000
NET ASSETS.................................................. $100,000
========
Notes to Financial Statements are an integral part of this Statement.
The RISA Fund
NOTES TO FINANCIAL STATEMENTS
1. Organization
The RISA Fund (the "Fund") is an open-end management investment company. The
Fund was established as a Delaware business trust under a Declaration of Trust
dated December 30, 1998. The Fund is authorized to offer an unlimited number of
shares of beneficial interest with a par value of $0.001. The Fund currently
offers one series.
Certain costs incurred and to be incurred in connection with the initial
offering of shares of the Fund, estimated at $41,448 will be paid initially by
the Fund's Adviser, RISA Investment Advisers, LLC. The Fund will reimburse the
Adviser for such costs, which will be deferred and amortized by the Fund over
the period of benefit, not to exceed 12 months from the date the Fund commences
operations. The Fund has no operations to date, other than the sale to RISA
Investment Advisers, LLC of 10,000 shares on July 8, 1999.
2. Organizational Costs
The Fund incurred organizational expenses of $34,651, comprised of $6,000 for
auditing, and $28,651 for legal and consulting. The full amount of
organizational expenses were assumed by RISA Investment Advisers, LLC, and the
Fund is not required to reimburse RISA Investment Advisers, LLC.
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3. Agreements
Pursuant to an advisory agreement between the Fund and RISA Investment Advisers,
LLC, RISA Investment Advisers, LLC will manage the Fund's business and
investment affairs. As compensation under the Advisory Agreement, RISA
Investment Advisers, LLC will receive from the Fund an advisory fee, which is
computed daily and paid monthly, equal to 1.25% of the Fund's average daily net
assets on an annualized basis. The adviser has voluntarily agreed to waive its
fees and, if necessary, reimburse expenses for the period July 8, 1999 to
December 31, 2000, exceeding the annual rate of 2.00% of average daily net
assets.
The Adviser will supervise the activities of the Fund's Sub-Adviser, African
Harvest Asset Managers Ltd., an affiliate of the Investment Adviser. The
Sub-Adviser will manage the Fund's portfolio investments, for which it will
receive from the Investment Adviser a monthly fee equal to 0.55% of the Fund's
average daily net assets on an annualized basis.
Pursuant to an Administrative and Accounting Service agreement, the Fund retains
PFPC Inc. ("PFPC"), an indirect wholly-owned subsidiary of PNC Bank N.A., as
Administrator and Accounting Service Agent. In addition, PFPC Trust Company
serves as the Fund's custodian and PFPC serves as transfer and dividend
disbursing agent.
Pursuant to a Distribution Agreement, BOE Securities, Inc. ("BOE"), a registered
broker-dealer firm, serves as the Distributor of the Fund's shares. Under the
terms of the Distribution Agreement BOE agrees to assist in securing purchasers
for shares of the Fund. BOE will receive $12,000 per annum from RISA Investment
Advisers, LLC for distribution of shares of the Fund plus reimbursement of
out-of-pocket expenses.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees of The RISA Fund:
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The RISA Fund (the
"Fund") at July 8, 1998, in conformity with generally accepted accounting
principles. The financial statements are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
July 19, 1999
