1933 Act Registration No. 811-_____
1940 Act Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
1-800 MUTUAL FUNDS, INC.
(Exact name of registrant as specified in Charter)
Plaza of the Americas
600 North Pearl Street, Suite 2150
Dallas, Texas 75201
(Address of Principle Executive Offices and Zip Code)
214-953-0066
(Registrant's Telephone Number including Area Code)
Terence P. Smith
The Declaration Group
555 North Lane, Suite 6160
Conshohocken, PA 19428
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
The securities being registered by this Registration Statement will be offered
to the public as soon as practicable after this Registration Statement becomes
effective.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall became
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
THE HARRY S. DENT FUND
CROSS-REFERENCE SHEET
(As required by Rule 495)
<TABLE>
<CAPTION>
ITEM NO. ON FORM N-1A CAPTION OR SUBHEADING IN PROSPECTUS
- --------------------- OR STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------
PART A - INFORMATION REQUIRED IN PROSPECTUS
- -------------------------------------------
<S> <C>
1. Front and Back Cover Pages. Cover Page; Back Cover Page
2. Risk/Return Summary: Investments, Summary of the Fund; Fees and Expenses
Risks, and Performance.
3. Risk/Return Summary/ Fee Table. Fees and Expenses
4. Investment Objectives, Principal Summary of the Fund; Investment Objectives
Investment Strategies, and Related and Policies, Primary Investments of the Fund;
Risks Risk Factors
5. Management's Discussion of Not Applicable
Fund Performance
6. Management, Organization and Management of the Fund; Investment Adviser;
Capital Structure General Information
7. Shareholder Information Purchasing Shares; Redeeming Shares;
Plan of Distribution; Federal Taxes; General
Information
8. Distribution Arrangements Redeeming Shares; Plan of Distribution;
9. Financial Highlights Information Not Applicable
<PAGE>
PART B. STATEMENT OF ADDITIONAL INFORMATION
- -------------------------------------------
10. Cover Page and Table of Contents Cover Page; Table of Contents
11. Fund History Not covered in Statement of Additional
Information (covered under Item 6 of
Part A)
12. Description of the Fund and its Investment Policies and Restrictions
Investments and Risks
13. Management of the Fund. Investment Adviser; Directors and
Officers
14. Control Persons and Principal Directors and Officers; Investment Adviser
Holders of Securities.
15. Investment Advisory and other Investment Adviser; Fund Service Providers
Services.
16. Brokerage Allocation and Other Portfolio Transactions
Practices.
17. Capital Stock and Other Capital Stock
Securities.
18. Purchase, Redemption and Pricing Determination of Net Asset Values
of Securities Being Offered Purchasing and Redeeming Shares
19. Taxation of the Fund. Tax Information
20. Underwriters Fund Service Providers
and Transfer Agents
21. Calculations of Performance Data. Performance Information
22. Financial Statements Not Applicable.
</TABLE>
PART C
- ------
Information required to be included in PART C is set forth under the appropriate
Item, so numbered, in PART C of the Registration Statement.
- --------------------------------------------------------------------------------
<PAGE>
PART A
PROSPECTUS
Dated _______________, 1998
The Harry S. Dent Fund
Plaza of the Americas
600 North Pearl Street, Suite 2150
Dallas, Texas 75201
214-953-0066
The Harry S. Dent Fund's (the "Fund") investment objective is capital growth.
The Fund attempts to achieve its investment objective by investing in
growth-oriented securities and the securities of other registered investment
companies whose investment objective is capital growth. The Fund patterns its
investment philosophy on the writings of Mr. Harry S. Dent, a well-known author
who has been chronicling the economic impact of the "baby-boom" generation on
the U.S. economy for over twenty years.
The minimum investment in the Fund is $1,000 for regular accounts and $1000 for
retirement accounts. The minimum subsequent investment is $500 for regular
accounts and $50 for retirement accounts. The Fund is a No-Load Fund. This means
that 100% of your initial investment is invested in shares of the Fund. The Fund
charges an ongoing Rule 12b-1 fee of 0.25% annually on balances held in the
Fund.
THE FUND DESCRIBED IN THIS PROSPECTUS MAY ONLY BE OFFERED IN STATES WHICH HAVE
APPROVED THE OFFERING OF THE FUND. SALES REPRESENTATIVES, DEALERS OR OTHER
PERSONS MAY ONLY GIVE INFORMATION OR MAKE REPRESENTATIONS CONCERNING THE FUND IF
SUCH INFORMATION OR REPRESENTATIONS ARE CONTAINED IN THIS PROSPECTUS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Summary of the Fund
Fees And Expenses.
Investment Objectives And Policies
Primary Investments of the Fund
Risk Factors.
Purchasing Shares.
Redeeming Shares.
Federal Taxes.
Investment Adviser.
Management of the Fund.
Plan of Distribution
General Information.
- --------------------------------------------------------------------------------
<PAGE>
SUMMARY OF THE FUND
The Fund is a No-Load Fund whose investment objective is capital growth. The
Fund seeks to achieve its objective by investing primarily in the securities of
other mutual funds and other growth-oriented securities. The Fund will normally
invest from 50% to 100% of its net assets in the shares of other mutual funds,
but may not purchase more than 3% of the outstanding shares of any one mutual
fund. The Fund may also invest in a variety of other securities, such as common
stock, preferred stock, foreign securities, debt securities, repurchase
agreements and cash.
The Fund models its investment philosophy on the writings of Mr. Harry S. Dent.
Mr. Dent is a noted author who has been studying the impact of the "baby-boom"
generation on the U.S. economy for over twenty years. According to Mr. Dent's
research, baby-boomers' spending and savings habits will have a tremendous
positive impact on U.S. companies, particularly growth-oriented companies. Mr.
Dent also concludes that mutual funds will receive the lion's share of these
investment dollars. Mr. Dent further believes that it is possible to accurately
predict the sectors of the economy that will most actively benefit from
baby-boomer spending. By analyzing the funds and securities in which
baby-boomers invest, Mr. Dent believes it is possible to invest in the best
performers of the group and enjoy above-average capital growth. The Fund will
attempt to invest according to the Dent philosophy.
The principal risks of investing in the Fund are:
(1) You may lose money by investing in the Fund. The Fund invests in
growth-oriented securities, including smaller capitalized companies, young
companies, and aggressive mutual funds. Investing in this manner is riskier
than investing to preserve capital and/or obtain current income.
Investments in smaller and/or younger companies may involve greater risks
than are associated with investments in larger, more established companies,
because smaller companies may be more likely to experience financial
difficulties due to limited product lines and market diversification, fewer
financial resources, and lack of management depth.
(2) Because the Fund may invest heavily in other mutual fund shares, you will
bear the same risks of investment in those funds as investors who have
invested directly in those funds. As a shareholder of another registered
investment company, the Fund will bear its pro rata portion of that
company's advisory fees and other expenses. Such fees and expenses will be
borne indirectly by you.
(3) This is a new Fund without a prior operating history, and this is a new
position for the Adviser to the Fund. The Fund's lack of performance
history and management experience may pose additional risks.
2
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
Shareholder Transaction Expenses:
- ---------------------------------
Maximum Sales Charges Imposed on Purchases NONE
(as a percentage of offering price)
Maximum Deferred Sales Charges NONE
(as a percentage of offering price)
Maximum Sales Charges Imposed
On Reinvested Dividends NONE
(as a percentage of net asset value)
Redemption Fees NONE*
(as a percentage of amount redeemed)
Exchange Fees NONE
Maximum Account Fee NONE
*You will be charged a redemption fee equal to 1.00% of the NAV if you redeem
your shares less than twelve months after you buy them. If this fee is imposed,
it would raise the expenses of your shares. This fee is imposed only to
discourage short-term trading of Fund shares. Such fees, when imposed, are
credited directly to the assets of the Fund to help defray the expense to the
Fund of such short-term trading activities. These fees are never used to pay for
distribution or sales fees.
Annual Fund Operating Expenses: (expenses that are deducted from Fund assets)
- -------------------------------
This table sets out the regular operating expenses that are paid out of the
Fund's average daily assets. These fees are used to pay for services such as the
investment management of the Fund, maintaining shareholder records and
furnishing shareholder statements. This is a new Fund without a prior operating
history, so the following expense figures are estimates. True expenses may be
greater or lower than those shown below.
Investment Advisory Fees. 0.50%
Operating Service Fees. 0.70%
12b-1 Fees. 0.25%
Other Fees (estimated) 0.02%
------
Total Fund Operating Expenses. 1.50%
3
<PAGE>
Example: This example is intended to help you compare the costs of investing in
the Fund with the costs 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 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:
One Year Three Years Five Years Ten Years
- -------- ----------- ---------- ---------
$----- $----- $------ $------
You would pay the following expenses if you did not redeem your shares:
One Year Three Years Five Years Ten Years
- -------- ----------- ---------- ---------
$----- $----- $------ $------
The Fund's Adviser has agreed to waive receipt of its fees and/or assume certain
expenses of the Fund, to the extent possible, to insure that the Fund's total
expenses do not exceed 1.50% annually. If the Advisor waives fees or assumes
expenses of the Fund, such actions would have the effect of lowering the expense
ratio and increasing the yield to investors. Also, the Fund is required by law
to use a 5% assumed annual rate of return in the example. The Fund's actual
annual rate of return may be higher or lower than the example.
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a diversified No-Load Fund whose investment objective is capital
growth. The Fund seeks to achieve its objective by investing primarily in the
securities of other mutual funds and other growth-oriented securities.
The Fund models its investment philosophy on the writings of Mr. Harry S. Dent.
Mr. Dent is the author of The Great Boom Ahead and The Roaring 2000's. Mr. Dent
has been studying the impact of the "baby-boom" generation on the U.S. economy
for over twenty years. The Fund will attempt to invest according to the Dent
philosophy.
Under normal circumstances, the Fund intends to invest between 50% and 100% of
its assets in mutual fund companies which have capital growth as their
fundamental investment policy. The remaining net assets will normally be
invested in common stock or securities convertible into common stock of
growth-oriented companies. Of course, there is no assurance that the Fund will
achieve its investment objectives, since there is risk involved in any
investment.
The Fund may also, from time to time, invest a portion of its assets in
short-term, high quality debt instruments, options and repurchase agreements.
The Fund may also hold a portion of its assets in cash. The Adviser may invest
in such securities to maintain liquidity and for temporary and defensive
purposes. If the Fund takes a defensive position and invests in these types of
securities, it will not be investing according to its objective, and its returns
will not be the same.
4
<PAGE>
The Fund will attempt to take prompt advantage of changes in market conditions.
This means that the Fund will purchase and sell securities whenever the Adviser
believes such actions will help the Fund achieve its investment objective. You
should be aware that selling securities which have been held for short time
periods might result in the Fund realizing short-term capital gains, and that
may have an impact on your tax status. Please see the SAI for a more detailed
discussion of taxation issues, and consult with your tax advisor to determine
what impact the Fund's investment policies may have on your personal tax
situation.
In determining which securities the Fund will invest in, the Adviser employs the
following analysis:
1. Identify distinct sectors of the economy which are likely to be positively
impacted by baby-boomer spending activity.
2. Rate each identified sector based on its risk-adjusted performance and
forecasted future performance.
3. Include only those sectors with the best overall ratings.
4. Use proprietary analytical models to construct the most efficient
investment portfolio for each risk level.
5. Identify mutual funds that invest in each targeted economic sector.
6. Identify targeted mutual funds in each sector that most closely resemble
the efficient portfolios designed in step 4.
7. Invest in the identified mutual funds, or if no such fund is found, in the
securities making up the efficient portfolio.
PRIMARY INVESTMENTS OF THE FUND
The Fund will normally invest its assets in the following securities:
REGISTERED INVESTMENT COMPANIES. The Fund may invest in securities issued by
other registered investment companies (mutual funds) that qualify under the
Fund's analytical models. As a shareholder of another registered investment
company, the Fund will bear its pro rata portion of that company's advisory fees
and other expenses. Such fees and expenses will be borne indirectly by you. The
Fund will normally invest from 50% to 100% of the Fund's net assets in these
securities. However, the Fund may never own more than 3% of any one investment
company's outstanding securities.
COMMON STOCKS. The Fund may invest in common stock. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
equity interest in the issuing companies. Therefore, the Fund participates in
the success or failure of any company in which it holds common stock. The market
value of common stock can fluctuate significantly, reflecting the business
performance of the issuing company, investor perceptions and general economic or
financial market movements. Smaller companies are especially sensitive to these
factors. Despite the risk of price volatility, however, common stocks
historically have offered the greatest potential for gain on investment,
compared to other classes of financial assets. There is no limit on the amount
of Fund assets that can be invested in common stock.
PREFERRED STOCK. The Fund may invest in Preferred Stock. Preferred stock
generally pays dividends at a specified rate and generally has preference over
common stock in the payments of dividends and the liquidation of the issuer's
assets. Dividends on preferred stock are generally payable at the discretion of
the issuer's board of directors. Accordingly, Shareholders may suffer a loss of
value if dividends are not paid. The market prices of preferred stocks are also
sensitive to changes in interest rates and in the issuer's creditworthiness.
Accordingly, shareholders may experience a loss of value due to adverse interest
rate movements or a decline in the issuer's credit rating.
5
<PAGE>
DEBT SECURITIES. The Fund may invest in corporate or U.S. Government debt
securities including zero coupon bonds. Corporate debt securities may be
convertible into preferred or common stock. In selecting corporate debt
securities for the Fund, the Adviser reviews and monitors the creditworthiness
of each issuer and issue, and will invest only in companies rated "A" or better
by Standard & Poors Rating Service. U.S. Government securities include direct
obligations of the U.S. Government and obligations issued by U.S. Government
agencies and instrumentalities. The market value of such securities fluctuates
in response to interest rates and the creditworthiness of the issuer. In the
case of securities backed by the full faith and credit of the United States
Government, shareholders are only exposed to interest rate risk.
Zero coupon bonds do not provide for cash interest payments but instead are
issued at a discount from face value. Each year, a holder of such bonds must
accrue a portion of the discount as income. Because issuers of zero coupon bonds
do not make periodic interest payments, their prices tend to be more volatile
than other types of debt securities when market interest rates change.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements ("Repos")
with broker-dealers, banks and other financial institutions, provided that the
Fund's custodian always has possession of the securities serving as collateral
for the Repos or has proper evidence of book entry receipt of said securities.
In a Repo, the Fund purchases securities subject to the seller's simultaneous
agreement to repurchase those securities from the Fund at a specified time
(usually one day) and price. The repurchase price reflects an agreed-upon
interest rate during the time of investment. All Repos entered into by the Fund
must be collateralized by U.S. Government Securities, the market values of which
equal or exceed 102% of the principal amount of the money invested by the Fund.
If an institution with whom the Fund has entered into a Repo enters insolvency
proceedings, the resulting delay, if any, in the Fund's ability to liquidate the
securities serving as collateral could cause the Fund some loss if the
securities declined in value prior to liquidation. To minimize the risk of such
loss, the Fund will enter into Repos only with institutions and dealers
considered creditworthy.
CASH RESERVES. The Fund may hold a portion of its assets in cash to meet
liquidity needs or for temporary defensive purposes.
6
<PAGE>
OPTIONS. The Fund may write (i.e. sell) covered call options, and may purchase
put and call options, on equity securities traded on a United States exchange or
properly regulated over-the-counter market. The Fund may also enter into such
transactions on Indexes. The Fund may use options to increase or decrease its
exposure to the effects of changes in security prices, to hedge securities held,
to maintain cash reserves while remaining fully invested, to facilitate trading,
to reduce transaction costs, or to seek higher investment returns when an
options contract is priced more attractively than the underlying security or
index. The Fund may enter into these transactions so long as the value of the
underlying securities on which options contracts may be written at any one time
does not exceed 100% of the net assets of the Fund, and so long as the initial
margin required to enter into such contracts does not exceed ten percent (10%)
of the Fund's total net assets. When writing covered call options, to minimize
the risks of entering into these transactions, the Fund will maintain a
segregated account with its custodian consisting of the underlying securities
upon which the option was written, cash, U.S. Government Securities or other
high-grade liquid debt securities in an amount equal to the aggregate fair
market value of the options.
Risk Factors. The primary risks associated with the use of options are; (1)
imperfect correlation between a change in the value of the underlying security
or index and a change in the price of the option or futures contract, and (2)
the possible lack of a liquid secondary market for an options or futures
contract and the resulting inability of the Fund to close out the position prior
to the maturity date. Investing only in those contracts whose price fluctuations
are expected to resemble those of the Fund's underlying securities will minimize
the risk of imperfect correlation. Entering into such transactions only on
national exchanges and over-the-counter markets with an active and liquid
secondary market will minimize the risk that the Fund will be unable to close
out a position.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued basis, and it may purchase or sell securities for
delayed-delivery. These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place at some future date. The Fund
may enter into such transactions when, in the Adviser's opinion, doing so may
secure an advantageous yield and/or price to the Fund that might otherwise be
unavailable. The Fund has not established any limit on the percentage of assets
it may commit to such transactions, but to minimize the risks of entering into
these transactions, the Fund will maintain a segregated account with its
Custodian consisting of cash, cash equivalents, U.S. Government Securities or
other high-grade liquid debt securities, denominated in U.S. dollars or non-U.S.
currencies, in an amount equal to the aggregate fair market value of its
commitments to such transactions.
The investments listed above represent the major focus of the Fund's investment
strategy. A complete listing of the Fund's permissible investments, as well as
the Fund's fundamental investment policies and investment restrictions, is
contained in the SAI in the Section entitled, "Investment Policies and
Restrictions".
7
<PAGE>
RISK FACTORS
You may lose money by investing in the Fund. The likelihood of loss is greater
if you invest for a shorter period of time. The Fund may be appropriate for
aggressive long-term investors who understand the potential risks and rewards of
investing in common stocks and multiple mutual funds. The value of the Fund's
investments will vary from day-to-day, reflecting changes in market conditions,
interest rates and other company, political, and economic news. Over the
short-term, stock prices can fluctuate dramatically in response to these
factors. However, over longer time periods, stocks, although more volatile, have
historically shown greater growth potential than other investments. The Fund has
no operating history, and this may pose additional risks. There is no assurance
that the Fund can achieve its investment objective, since all investments are
inherently subject to market risk.
PURCHASING SHARES
To purchase shares of the Fund, first complete and sign a New Account Purchase
Application and mail it, together with your check for the total purchase price,
to THE HARRY S. DENT FUND, C/O DECLARATION DISTRIBUTORS, INC., 555 NORTH LANE,
SUITE 6160, CONSHOHOCKEN, PA 19428. Checks are accepted subject to collection at
full face value in United States currency. If your check does not clear, your
purchase will be cancelled and you will be subject to any losses or fees
incurred by the Fund with respect to the transaction. If shares are purchased by
check and redeemed by letter within seven business days of purchase, the Fund
may hold redemption proceeds until the purchase check has cleared, a period of
up to fifteen days. You will also be subject to a redemption fee of 1.00% of
total assets in such a circumstance.
You will receive a statement showing the number of shares purchased, the net
asset value at which your shares were purchased, and the new balance of Fund
shares owned each time you purchase shares of the Fund. The Fund does not issue
stock certificates. All full and fractional shares will be carried on the books
of the Fund.
Shares of the Fund are purchased at the net asset value next computed after the
receipt of your purchase order (See, "Determination of Net Asset Value." in the
SAI). The Fund's share price, also called its net asset value, is determined as
of the close of trading (normally 4:00 p.m., Eastern Time) every day the New
York Stock Exchange is open. The Fund calculates its net asset value per share
by dividing the total value of its assets after subtracting liabilities by the
number of its shares outstanding. The Fund generally determines the total value
of its shares by using market prices for the securities comprising its
portfolio. Securities for which quotations are not available and any other
assets are valued at a fair market value as determined in good faith by the
Adviser, subject to the review and supervision of the board of directors. The
Fund is a No-Load Fund. This means that you will not be charged any sales
commissions or underwriting discounts, so 100% of your initial investment is
invested in shares of the Fund. The minimum initial investment is $1,000 for
regular accounts and $1,000 for Individual Retirement Accounts (IRAs). Minimum
subsequent purchases for regular accounts are $500 and $50 for IRA accounts.
All applications to purchase shares of the Fund are subject to acceptance by
authorized officers of the Fund and are not binding until accepted. The Fund
reserves the right to reject purchase orders under circumstances or in amounts
considered disadvantageous to existing shareholders. Please see the SAI Sections
entitled "Purchasing and Redeeming Shares" and "Tax Information" for more
information concerning share purchases.
8
<PAGE>
REDEEMING SHARES
You may redeem your shares in the Fund at any time and for any reason. Upon
receipt by the Fund of a redemption request in proper form, your shares of the
Fund will be redeemed at their next determined net asset value (See the Sections
entitled "Determination of Net Asset Value" and "Purchasing and Redeeming
Shares" in the SAI). Redemption requests must be in writing and delivered to the
Fund at THE HARRY S. DENT FUND, C/O DECLARATION DISTRIBUTORS, INC., 555 NORTH
LANE, SUITE 6160, CONSHOHOCKEN, PA 19428. To be in "proper form," your
redemption request must:
1. Specify the number of shares or dollar amount to be redeemed, if less than
all shares are to be redeemed;
2. Be signed by all owners exactly as their names appear on the account;
3. If required, include a signature guarantee from any "eligible guarantor
institution" as defined by the rules under the Securities Exchange Act of
1934. Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. A notary public
is not an eligible guarantor.
Further documentation, such as copies of corporate resolutions and instruments
of authority may be requested from corporations, administrators, executors,
personal representatives, trustees, or custodians to evidence the authority of
the person or entity making the redemption request.
Signature Guarantees. A signature guarantee is designed to protect you and the
Fund by verifying your signature. SIGNATURE GUARANTEES ARE REQUIRED WHEN:
(1) establishing certain services after the account is opened;
(2) requesting redemptions in excess of $10,000;
(3) redeeming or exchanging shares, when proceeds are: (i) being mailed to an
address other than the address of record, (ii) made payable to other than
the registered owner(s); or
(4) transferring shares to another owner.
The redemption price per share is net asset value, determined as of the close of
business on the day your redemption order is accepted by the Fund (See the
Sections entitled, "Purchasing and Redeeming Shares" and "Determination of Net
Asset Value" in the SAI). When you redeem your shares, they may be worth more or
less than you paid for them, depending upon the value of the Fund's portfolio
securities at the time of redemption.
If the value of your account falls below $1,000 as a result of previous
redemptions and not market price declines, the Fund may redeem the shares in
your account. However, the Fund will notify you first if such an event occurs,
and you will have 60 days to bring your account balance up to the minimum levels
before the Fund may exercise its option to redeem.
9
<PAGE>
Payment for shares redeemed is made within seven days after receipt by the Fund
of a request for redemption in proper form. The Fund reserves the right to
suspend or postpone redemptions during any period when (a) trading on any of the
major U.S. stock exchanges is restricted, as determined by the Securities and
Exchange Commission, or that the major exchanges are closed for other than
customary weekend and holiday closings, (b) the Commission has by order
permitted such suspension, or (c) an emergency, as determined by the Commission,
exists making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.
FEDERAL TAXES
The Fund intends to qualify each year as a regulated investment company under
the rules and regulations of the Internal Revenue Service (IRS). In any fiscal
year in which the Fund qualifies as a regulated investment company and
distributes to shareholders all of its net investment income and net capital
gains, the Fund will not have to pay any federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash, unless you are exempt from taxation or entitled
to a tax deferral. The Fund intends to pay out any dividends and/or capital
gains at such times and in such amounts that it will avoid all income and excise
taxes. Early each following year, you will be notified as to the amount and
federal tax status of all income distributions paid to you from the prior year.
Such distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
You must provide the Fund with your correct taxpayer identification number, and
certify that you are not subject to backup withholding (your taxpayer
identification number is usually your Social Security number). If you fail to do
so, the IRS may require the Fund to withhold 31% of your taxable distributions
and redemptions. Federal law also requires the Fund to withhold 30% or the
applicable treaty rate from dividends paid to certain nonresident aliens,
non-U.S. partnerships, and non-U.S.
corporations.
This is a brief summary of the tax laws that affect your investment in the Fund.
Please see the Section entitled "Tax Information" in the SAI for additional
information, and consult with your own tax advisor, since every investor's tax
situation is unique.
MANAGEMENT OF THE FUND
The Fund is a series of 1-800 Mutual Funds, Inc. (the "Company"), an open-end,
diversified management investment company organized as a Maryland corporation.
The Company's headquarters are at Plaza of the Americas, 600 North Pearl Street,
Suite 2150, Dallas, Texas 75201. The business and affairs of the Company are
managed by the Company's Board of Directors. The Board establishes policies, and
has certain fiduciary duties and obligations to the Company and the shareholders
under the laws of the state of Maryland and applicable federal securities laws.
Currently, the Company offers a single series: the Harry S. Dent Fund.
10
<PAGE>
The Company is aware of a potential problem that may occur when the year changes
from 1999 to 2000. Many computers and computer programs have been built where
dates are calculated using only two digits. As a result, these computers and
programs cannot tell the difference between 1900 and 2000, and when the year
changes from 1999 to 2000, there may be significant problems. The Company has
taken steps to address this problem, specifically by entering into contracts
only with vendors who are aggressively addressing the problem and by updating
the Company's own systems to address the problem. As of the date of this filing,
the Company does not foresee "The Year 2000 Problem" as having any significant
negative impact on the Company or the Fund.
INVESTMENT ADVISER
1-800 Mutuals, Inc.(the "Adviser") an investment advisory company founded in
1998, is the investment advisor to the Fund. The Adviser is headquartered at
Plaza of the Americas, 600 North Pearl Street, Dallas, TX 75201. Mr. Richard
Sapio is a 70% shareholder of the Adviser and is the portfolio manager for the
Fund. Mr. Sapio is the founder of the Adviser and has been managing investment
portfolios for individuals, corporations, trusts and retirement accounts since
the firm's inception in 1990. Mr. Sapio previously was a top-producing
representative for several broker/dealer firms before founding the Adviser. Mr.
Sapio has earned a B.S. degree from Rutgers University and has earned his Series
7, 24, 27, 65 and Series 63 Securities licenses. You should be aware that this
is a new Fund, and although Mr. Sapio has extensive experience in managing
investment portfolios for individuals, corporations, trusts and retirement
accounts, he has no prior experience in managing a portfolio for an investment
company, and this may result in additional risks for the Fund.
The Adviser manages the investment portfolio and business affairs of the Fund
under an Investment Advisory Agreement with the Fund, and manages, or arranges
to manage, the daily operations of the Fund under an Operational Services
Agreement.
INVESTMENT ADVISORY AGREEMENT. Under the terms of the Advisory Agreement, the
Adviser, subject to the supervision of the Board of Directors, will manage the
investment operations of the Fund in accordance with the Fund's investment
policies. In consideration of the Adviser's investment advisory services, the
Fund will pay to the Adviser on the last day of each month a fee equal to 0.50%
of average net asset value of the Fund, such fee to be computed daily based upon
the net asset value of the Fund.
The Advisor furnishes an investment program for the Fund, determines, subject to
the overall supervision and review of the Board of Directors of the Trust, what
investments should be purchased, sold and held, and makes changes on behalf of
the Trust in the investments of the Fund.
11
<PAGE>
OPERATIONAL SERVICES AGREEMENT. Under the terms of the Operational Services
Agreement, the Adviser, subject to the supervision of the Board of Trustees,
will provide day-to-day operational services to the Fund including, but not
limited to, providing or arranging to provide accounting, administrative, legal
(except litigation), dividend disbursing, transfer agent, registrar, custodial,
fund share distribution, shareholder reporting, sub-accounting and record
keeping services. The Services Agreement provides that the Adviser pays all fees
and expenses associated with these and other functions, including but not
limited to, expenses of legal compliance, shareholder communications, and
meetings of the shareholders. Under the Services Agreement, the Fund will pay to
the Adviser on the last day of each month a fee equal to 0.70% of average net
asset value of the Fund, such fee to be computed daily based upon the net asset
value of the Fund. The Adviser has entered into an Investment Company Services
Agreement with Declaration Service Company to provide Transfer Agent and
essentially all administrative services for the Fund. The Adviser has also
entered into a Distribution Agreement with Declaration Distributors, Inc.
("DDI") wherein DDI will act as principal underwriter for the Fund's shares. DDI
and DSC are affiliated companies.
From time to time, the Adviser may waive receipt of its fees and/ or voluntarily
assume certain Fund expenses, which would have the effect of lowering the Fund's
expense ratio and increasing yield to investors during the time such amounts are
waived or assumed. The Fund will not be required to pay the Adviser for any
amounts voluntarily waived or assumed, nor will the Fund be required to
reimburse the Adviser for any amounts waived or assumed during a prior fiscal
year.
The Fund pays all expenses incident to its operations and business not
specifically assumed by the Adviser, including expenses relating to custodial,
legal, and auditing charges; printing and mailing of reports and prospectuses to
existing shareholders; taxes and corporate fees; maintaining registration of the
Fund under the Investment Company Act of 1940, and registration of its shares
under the Securities Act of 1933; and qualifying and maintaining qualification
of its shares under the securities laws of certain states.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution, or "12b-1 Plan" under which it may
finance activities primarily intended to sell shares. Under the 12b-1 Plan, the
Fund may pay a distribution fee at an annual rate of up to 0.25% of average
daily net assets of the Fund to the Adviser for services primarily intended to
sell shares and for providing certain shareholder services. These services
include, among other things, processing new shareholder account applications,
preparing and transmitting to the Fund's Transfer Agent computer processable
tapes of all transactions by customers, and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
and/or shareholder servicing expenses actually incurred by the Adviser, and such
payments may exceed the expenses actually incurred. The Company's Board of
Directors evaluates the Plan on a regular basis.
12
<PAGE>
GENERAL INFORMATION
The Fund will not issue stock certificates evidencing shares. Instead, your
account will be credited with the number of shares purchased, relieving you of
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. Written confirmations are issued to you for all purchases of shares.
You will be provided at least semi-annually with a report showing the Fund's
portfolio and other information and annually after the close of the Fund's
fiscal year, which ends December 31, with a report containing audited financial
statements.
The shares making up the Fund represent an interest in the Fund only and in the
event of liquidation, each share of the Fund would have the same rights to the
distribution of assets as every other share of the Fund.
As a shareholder, you have voting rights with respect to the management and
operation of the Fund and its policies. You are entitled to one vote for each
whole share, and fractional votes for fractional shares held. Shares of the Fund
do not have cumulative voting rights. The Fund's shares are fully paid and
non-assessable, have no pre-emptive or subscription rights, and are fully
transferable, with no conversion rights.
Prior to the public offering made by this prospectus, the Adviser owned (having
purchased for investment), all of the outstanding shares of the Fund and as a
result may be deemed to then control the Fund.
In reports or other communications to investors, or in advertising material, the
Fund may describe general economic and market conditions affecting the Fund and
may compare its performance with other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar nationally recognized
rating services and financial publications that monitor mutual fund performance.
The Fund may also, from time to time, compare its performance to the Standard &
Poors Composite Index of 500 Stocks ("S&P 500"), a widely recognized, unmanaged
index of common stock prices.
According to the law of Maryland, under which the Company is incorporated, and
the Company's bylaws, the Company is not required to hold an annual meeting of
shareholders unless required to do so under the Investment Company Act of 1940.
Inquiries regarding the Fund should be directed to the Fund at its address or
telephone number shown on the front cover of this Prospectus.
The Company will call a meeting of shareholders for the purpose of voting upon
the removal of a director or directors when requested in writing to do so by
record holders of at least 10% of the Fund's outstanding common shares, and in
connection with such meeting will comply with the provisions of section 16(c) of
the Investment Company Act of 1940 concerning assistance with a record
shareholder communication asking other record shareholders to join in that
request.
13
<PAGE>
THE HARRY S. DENT FUND
(A No-Load Fund)
Investment Adviser:
- -------------------
1-800 Mutuals, Inc.
Plaza of the Americas
600 North pearl Street, Suite 2150
Dallas, Texas 89117
Custodian:
- ----------
Distributor:
- ------------
Declaration Distributors, Inc.
555 North Lane, Suite 6160
Conshohocken, PA 19428
Management Services:
- --------------------
1-800 Mutuals, Inc.
Plaza of the Americas
600 North pearl Street, Suite 2150
Dallas, Texas 89117
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
Independent Auditors:
- ---------------------
Legal Counsel:
- --------------
The Law Offices of David D. Jones, P.C., Conshohocken, PA, has passed on certain
legal matters relating to this registration and serves as counsel to the Fund.
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, the statement of
additional information or the fund's official sales literature in connection
with the offering of shares of the fund, and if given or made, such other
information or representations must not be relied upon as having been authorized
by the fund.
A Statement of Additional Information (the "SAI") regarding the Fund, dated
_______, 1998, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. You can get a
copy of the SAI at no charge by writing or calling the Fund at the address or
telephone number listed above. The SEC maintains a web site (www.sec.gov) that
contains the Statement of Additional Information and other information regarding
the Fund.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Dated ______________, 1998
1-800 MUTUAL FUNDS, INC.
Plaza of the Americas
600 North Pearl Street, Suite 2150
Dallas, Texas 75201
214-953-0066
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of The Harry S. Dent Fund, dated
____________. You may obtain a copy of the Prospectus, free of charge, by
writing to 1-800 Mutual Funds Funds, Inc, c/o The Declaration Group, 555 North
Lane, Suite 6160, Conshohocken, PA 19428, phone number 800-___-____..
TABLE OF CONTENTS
Investment Policies and Restrictions Custodian
Investment Adviser Transfer Agent
Directors and Officers Administration
Performance Information Distributor
Purchasing and Redeeming Shares Independent Accountants
Tax Information Independent Auditors Report *
Portfolio Transactions Financial Statements *
* to be filed by amendment
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective and the manner in which the Fund pursues its
investment objective is generally discussed in the prospectus under the captions
"Summary of the Fund", "Investment Objectives and Policies", "Primary Fund
Investments" and "Risk Factors".
The Fund is a diversified Fund, meaning that as to 75% of the Fund's assets
(valued at the time of investment), the Fund will not invest more than 5% of its
assets in securities of any one issuer, except in obligations of the United
States Government and its agencies and instrumentalities, thereby reducing the
risk of loss. The Fund normally will invest between 50% and 100% of its net
assets in the shares of other mutual funds, but may not purchase more than 3% of
the outstanding shares of any one mutual fund. The Fund may also invest in a
variety of other securities, such as common stock, preferred stock, foreign
securities, debt securities, repurchase agreements and cash. However, for
temporary and defensive purposes, the Fund may ordinarily invest in a variety of
other securities. The complete list of securities in which the Fund may
ordinarily invest is listed below, along with any restrictions on such
investments, and, where necessary, a brief discussion of any risks unique to the
particular security.
1
<PAGE>
REGISTERED INVESTMENT COMPANIES. The Fund may invest in securities issued by
other registered investment companies (mutual funds) that qualify under the
Fund's analytical models. As a shareholder of another registered investment
company, the Fund will bear its pro rata portion of that company's advisory fees
and other expenses. Such fees and expenses will be borne indirectly by you. The
Fund will normally invest from 50% to 100% of the Fund's net assets in these
securities. However, the Fund may never own more than 3% of any one investment
company's outstanding securities.
COMMON STOCKS. The Fund may invest in common stock. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
equity interest in the issuing companies. Therefore, the Fund participates in
the success or failure of any company in which it holds common stock. The market
value of common stock can fluctuate significantly, reflecting the business
performance of the issuing company, investor perceptions and general economic or
financial market movements. Smaller companies are especially sensitive to these
factors. Despite the risk of price volatility, however, common stocks
historically have offered the greatest potential for gain on investment,
compared to other classes of financial assets. There is no limit on the amount
of Fund assets that can be invested in common stock.
PREFERRED STOCK. The Fund may invest in Preferred Stock. Preferred stock
generally pays dividends at a specified rate and generally has preference over
common stock in the payments of dividends and the liquidation of the issuer's
assets. Dividends on preferred stock are generally payable at the discretion of
the issuer's board of directors. Accordingly, Shareholders may suffer a loss of
value if dividends are not paid. The market prices of preferred stocks are also
sensitive to changes in interest rates and in the issuer's creditworthiness.
Accordingly, shareholders may experience a loss of value due to adverse interest
rate movements or a decline in the issuer's credit rating.
DEBT SECURITIES. The Fund may invest in corporate or U.S. Government debt
securities including zero coupon bonds. Corporate debt securities may be
convertible into preferred or common stock. In selecting corporate debt
securities for the Fund, the Adviser reviews and monitors the creditworthiness
of each issuer and issue, and will invest only in companies rated "A" or better
by Standard & Poors Rating Service. U.S. Government securities include direct
obligations of the U.S. Government and obligations issued by U.S. Government
agencies and instrumentalities. The market value of such securities fluctuates
in response to interest rates and the creditworthiness of the issuer. In the
case of securities backed by the full faith and credit of the United States
Government, shareholders are only exposed to interest rate risk.
Zero coupon bonds do not provide for cash interest payments but instead are
issued at a discount from face value. Each year, a holder of such bonds must
accrue a portion of the discount as income. Because issuers of zero coupon bonds
do not make periodic interest payments, their prices tend to be more volatile
than other types of debt securities when market interest rates change.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements ("Repos")
with broker-dealers, banks and other financial institutions, provided that the
Fund's custodian always has possession of the securities serving as collateral
for the Repos or has proper evidence of book entry receipt of said securities.
In a Repo, the Fund purchases securities subject to the seller's simultaneous
agreement to repurchase those securities from the Fund at a specified time
(usually one day) and price. The repurchase price reflects an agreed-upon
interest rate during the time of investment. All Repos entered into by the Fund
must be collateralized by U.S. Government Securities, the market values of which
equal or exceed 102% of the principal amount of the money invested by the Fund.
If an institution with whom the Fund has entered into a Repo enters insolvency
proceedings, the resulting delay, if any, in the Fund's ability to liquidate the
securities serving as collateral could cause the Fund some loss if the
securities declined in value prior to liquidation. To minimize the risk of such
loss, the Fund
2
<PAGE>
will enter into Repos only with institutions and dealers considered
creditworthy.
CASH RESERVES. The Fund may hold a portion of its assets in cash to meet
liquidity needs or for temporary defensive purposes.
OPTIONS. The Fund may write (i.e. sell) covered call options, and may purchase
put and call options, on equity securities traded on a United States exchange or
properly regulated over-the-counter market. The Fund may also enter into such
transactions on Indexes. The Fund may use options to increase or decrease its
exposure to the effects of changes in security prices, to hedge securities held,
to maintain cash reserves while remaining fully invested, to facilitate trading,
to reduce transaction costs, or to seek higher investment returns when an
options contract is priced more attractively than the underlying security or
index. The Fund may enter into these transactions so long as the value of the
underlying securities on which options contracts may be written at any one time
does not exceed 100% of the net assets of the Fund, and so long as the initial
margin required to enter into such contracts does not exceed ten percent (10%)
of the Fund's total net assets. When writing covered call options, to minimize
the risks of entering into these transactions, the Fund will maintain a
segregated account with its custodian consisting of the underlying securities
upon which the option was written, cash, U.S. Government Securities or other
high-grade liquid debt securities in an amount equal to the aggregate fair
market value of the options.
Risk Factors. The primary risks associated with the use of options are; (1)
imperfect correlation between a change in the value of the underlying security
or index and a change in the price of the option or futures contract, and (2)
the possible lack of a liquid secondary market for an options or futures
contract and the resulting inability of the Fund to close out the position prior
to the maturity date. Investing only in those contracts whose price fluctuations
are expected to resemble those of the Fund's underlying securities will minimize
the risk of imperfect correlation. Entering into such transactions only on
national exchanges and over-the-counter markets with an active and liquid
secondary market will minimize the risk that the Fund will be unable to close
out a position.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued basis, and it may purchase or sell securities for
delayed-delivery. These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place at some future date. The Fund
may enter into such transactions when, in the Adviser's opinion, doing so may
secure an advantageous yield and/or price to the Fund that might otherwise be
unavailable. The Fund has not established any limit on the percentage of assets
it may commit to such transactions, but to minimize the risks of entering into
these transactions, the Fund will maintain a segregated account with its
Custodian consisting of cash, cash equivalents, U.S. Government Securities or
other high-grade liquid debt securities, denominated in U.S. dollars or non-U.S.
currencies, in an amount equal to the aggregate fair market value of its
commitments to such transactions.
FOREIGN SECURITIES. The Fund may invest up to 25% of its assets in common stock
of foreign issuers which are publicly traded on U.S. exchanges, either directly
or in the form of American Depository Receipts (ADRs). The Fund will only invest
in ADRs that are issuer sponsored. Sponsored ADRs typically are issued by a U.S.
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation.. Investments in foreign securities may involve greater
risks compared to domestic investments. Foreign companies are not subject to the
regulatory requirements of U.S. companies and, as a result, there may be less
publicly available information about issuers than is available in the reports
and ratings published about companies in the U.S. Additionally, foreign
companies are not subject to uniform accounting, auditing and financial
reporting standards. Dividends and interest on foreign securities may be subject
to foreign withholding taxes. Such taxes
3
<PAGE>
may reduce the net return to shareholders. Although the Fund intends to invest
in securities of foreign issuers domiciled in nations which the Adviser
considers as having stable and friendly governments, there is the possibility of
expropriation, confiscation, taxation, currency blockage or political or social
instability which could affect investments of foreign issuers domiciled in such
nations. Further, there is the risk of loss due to fluctuations in the value of
a foreign corporation's currency relative to the U.S. dollar.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real estate investment
trusts (REITs). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed the REITs taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from such REITs in
its distribution to its shareholders and, accordingly, a portion of the Fund's
distributions may also be designated as a return of capital. The Fund will not
invest more than 10% of its assets in REITS.
PORTFOLIO TURNOVER. The Fund has no operating history and therefore has no
reportable portfolio turnover. Higher portfolio turnover rates may result in
higher rates of net realized capital gains to the Fund, thus the portion of the
Fund's distributions constituting taxable gains may increase. In addition,
higher portfolio turnover activity can result in higher brokerage costs to the
Fund. The Fund anticipates that its annual portfolio turnover will be not
greater than 50%.
Under normal circumstances, the Fund will not invest more than 5% of its net
assets, in the aggregate, in money market instruments, repurchase agreements,
REITS, options, or debt securities. However, for temporary and defensive
purposes, the Fund may invest up to 100% The complete list of the Fund's
investment restrictions is as follows:
The Fund will not:
1. To the extent of 50% of its assets (valued at time of investment), invest
more than 5% of its assets in securities of any one issuer, except in
obligations of the United States Government and its agencies and
instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Borrow money, except from banks for temporary or emergency purposes in
amounts not exceeding 5% of the value of the Fund's assets at the time of
borrowing;
5. Underwrite the distribution of securities of other issuers, or acquire
"restricted" securities that, in the event of a resale, might be required
to be registered under the Securities Act of 1933;
6. Make margin purchases or short sales of securities;
4
<PAGE>
7. Invest in companies for the purpose of management or the exercise of
control;
8. Lend money (but this restriction shall not prevent the Fund from investing
in debt securities or repurchase agreements, or lend its portfolio
securities).
9. Acquire or retain any security issued by a company, an officer or director
of which is an officer or director of the Company or an officer, director
or other affiliated person of the Advisor.
10. Invest in oil, gas or other mineral exploration or development programs,
although it may invest in marketable securities of companies engaged in
oil, gas or mineral exploration;
11. Purchase or sell real estate or real estate loans or real estate limited
partnerships, although it may invest in marketable securities of companies
that invest in real estate or interests in real estate.
12. Purchase warrants on securities.
13. Issue senior securities.
14. Invest in commodities, or invest in futures or options on commodities.
Restrictions 1 through 14 listed above are fundamental policies, and may be
changed only with the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940.
The Fund has also adopted the following restrictions that may be changed by the
Board of Directors without shareholder approval:
The Fund may not:
a. Invest more than 25% of its assets (valued at time of investment) in
securities of issuers with less than three years' operation (including
predecessors);
b. Invest more than 15% of its net assets in securities that are not readily
marketable;
c. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission and
(b) where acquisition results from a dividend or merger, consolidation or
other reorganization.
d. purchase more than 3% of the voting securities of any one investment
company;
e. Pledge, mortgage or hypothecate its assets, except for temporary or
emergency purposes and then to an extent not greater than 5% of its total
assets at cost;
f. Invest more than 10% of the Fund's assets (valued at time of investment) in
initial margin deposits of options or futures contracts;
INVESTMENT ADVISER
1-800 Mutuals, Inc. (the "Adviser") was organized under the laws of the State of
Texas as an investment advisory corporation in 1998. The Advisor is also
registered as an Investment Advisor with the Securities and Exchange Commission.
The Advisor provides financial management services to individuals, corporations,
and professional organizations in Texas and throughout the United States. The
Advisor manages the investment
5
<PAGE>
portfolio and the general business affairs of the Fund pursuant to an investment
services agreement with the Fund dated ______________ 1998 (the "Agreement").
The Agreement provides that the adviser shall not be liable for any loss
suffered by the Fund or its shareholders as a consequence of any act or omission
in connection with services under the Agreement, except by reason of the
adviser's willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations and duties under the Advisory Agreement.
The Agreement has a term of two years, but may be continued from year to year so
long as its continuance is approved annually (a) by the vote of a majority of
the Directors of the Fund who are not "interested persons" of the Fund or the
adviser cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors as a whole or by the vote of a
majority (as defined in the 1940 Act) of the outstanding shares of the Fund. The
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
DIRECTORS AND OFFICERS
The board of directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Fund are managed by the Advisor,
subject to the bylaws of the Company and review by the Board of Directors. The
directors of the Company, including those directors who are also officers, are
listed below:
Name, Age, Address, Position Principal Occupation For the
with Fund Last Five Years
(1)
(2)
(3)
(4)
(5)
(6)
(7)
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
1-800 Mutual Funds, Inc. (the "Company") was organized as a Maryland Corporation
on _______, 1998 (See the Sections titled "Management of the Fund" and "General
Information" in the Fund's Prospectus). The table below sets forth the
compensation anticipated to be paid by the Company to each of the directors of
the Company during the fiscal year ending ___________________.
6
<PAGE>
Name of Director Compensation Pension Annual Total Compensation
from Company Benefits Benefits Paid to Director
- ---------------- ------------ -------- -------- ----------------
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The Adviser intends to purchase substantially all of the shares the Fund prior
to the effective date of the Fund's registration and will be deemed initially to
control the Fund.
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Company's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
Average Annual Total Return is computed as follows:
n
P(1+T) = ERV
Where: P = a hypothetical initial investment of $1000]
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at the end of the period
Yield. The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
7
<PAGE>
6
Yield = 2[(a-b/cd + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period
that they were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
The Fund imposes no sales charges. Income taxes are not taken into account. The
Fund's performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as that
shown above is useful in reviewing the Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods.
In sales literature, the Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, the Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Redemptions will be made at net asset value. The Fund's net asset value is
determined on days on which the New York Stock Exchange is open for trading. For
purposes of computing the net asset value of a share of the Fund, securities
traded on security exchanges, or in the over-the-counter market in which
transaction prices are reported, are valued at the last sales price at the time
of valuation or, lacking any reported sales on that day, at the most recent bid
quotations. Securities for which quotations are not available and any other
assets are valued at a fair market value as determined in good faith by the
Advisor, subject to the review and supervision of the board of directors. The
price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order.
The Fund is open for business on each day that the New York Stock Exchange
("NYSE") is open. The Fund's share price or net asset value per share ("NAV") is
normally determined as of 4:00 p.m., New York time. The Fund's share price is
calculated by subtracting its liabilities from the closing fair market value of
its total assets and dividing the result by the total number of shares
outstanding on that day. Fund liabilities include accrued expenses and dividends
payable, and its total assets include the market value of the portfolio
securities as well as income accrued but not yet received. Since the Fund
generally does not charge sales or redemption fees, the NAV is the offering
price for shares of the Fund. For shares redeemed prior to being held for at
least six months, the redemption value is the NAV less a redemption fee equal to
1.00% of the NAV.
TAX INFORMATION
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code so as to be relieved of federal income tax on its capital gains and
net investment income currently distributed to its shareholders. To qualify as a
regulated investment company, the Fund must, among other things, derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities,
or other income derived with respect to its business of investing in such stock
or securities.
8
<PAGE>
If the Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
The Fund intends to distribute to shareholders, at least annually, substantially
all net investment income and any net capital gains realized from sales of the
Fund's portfolio securities. Dividends from net investment income and
distributions from any net realized capital gains are reinvested in additional
shares of the Fund unless the shareholder has requested in writing to have them
paid by check.
Dividends from investment income and net short-term capital gains are generally
taxable to the shareholder as ordinary income. Distributions of long-term
capital gains are taxable as long-term capital gains regardless of the length of
time shares in the Fund have been held. Distributions are taxable, whether
received in cash or reinvested in shares of the Fund.
Each shareholder is advised annually of the source of distributions for federal
income tax purposes. A shareholder who is not subject to federal income tax will
not be required to pay tax on distributions received.
If shares are purchased shortly before a record date for a distribution, the
shareholder will, in effect, receive a return of a portion of his investment,
but the distribution will be taxable to him even if the net asset value of the
shares is reduced below the shareholder's cost. However, for federal income tax
purposes the original cost would continue as the tax basis.
If a shareholder fails to furnish his social security or other tax
identification number or to certify properly that it is correct, the Fund may be
required to withhold federal income tax at the rate of 31% (backup withholding)
from dividend, capital gain and redemption payments to him. Dividend and capital
gain payments may also be subject to backup withholding if the shareholder fails
to certify properly that he is not subject to backup withholding due to the
under-reporting of certain income.
Taxation of the Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Fund during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax advisor regarding the
effect of federal, state, local, and foreign taxes on an investment in the Fund.
9
<PAGE>
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
Capital Gain Distribution. Long-term capital gains earned by the Fund from the
sale of securities and distributed to shareholders are federally taxable as
long-term capital gains, regardless of the length of time shareholders have held
their shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund, and subsequently such shares are sold at a loss, the portion
of the loss equal to the amount of the long-term capital gain distribution may
be considered a long-term loss for tax purposes. Short-term capital gains
distributed by the Fund are taxable to shareholders as dividends, not as capital
gains. Taxation issues are complex and highly individual. You should consult
with your tax advisor concerning the effects of transactions in the Fund.
PORTFOLIO TRANSACTIONS
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, the rate of portfolio
turnover may be substantial. However, the Fund expects that its annual portfolio
turnover rate will not exceed 50% under normal conditions. However, there can be
no assurance that the Fund will not exceed this rate, and the portfolio turnover
rate may vary from year to year.
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Fund are made by the Adviser
subject to review by the Company's Board of Directors. In placing purchase and
sale orders for portfolio securities for the Fund, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluations of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Adviser feels that better prices
are available from non-principal market makers that are paid commissions
directly.
10
<PAGE>
CUSTODIAN
_____________________________ acts as custodian for the Fund. As such,
_______________ holds all securities and cash of the Fund, delivers and receives
payment for securities sold, receives and pays for securities purchased,
collects income from investments and performs other duties, all as directed by
officers of the Company. CoreStates Bank does not exercise any supervisory
function over the management of the Fund, the purchase and sale of securities or
the payment of distributions to shareholders.
TRANSFER AGENT
Declaration Services Company ("DSC") acts as transfer, dividend disbursing, and
shareholder servicing agent for the Fund pursuant to a written agreement with
the Advisor and Fund. Under the agreement, DSC is responsible for administering
and performing transfer agent functions, dividend distribution, shareholder
administration, and maintaining necessary records in accordance with applicable
rules and regulations.
ADMINISTRATION
DSC also provides services as Administrator to the Fund pursuant to a written
agreement with the Advisor and Fund. The Administrator supervises all aspects of
the operations of the Fund except those performed by the Adviser under the
Fund's investment advisory agreement. The Administrator is responsible for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
DISTRIBUTOR
Declaration Distributors, Inc., 555 North Lane, Suite 6160, Conshohocken, Pa
19428, a wholly-owned subsidiary of The Declaration Group, serves as distributor
and principal underwriter of the Fund's shares pursuant to a written agreement
with the Advisor and Fund.
INDEPENDENT ACCOUNTANTS
________________________ will serve as the Company's independent auditors for
its first fiscal year.
11
<PAGE>
PART C
OTHER INFORMATION
Item 23 Exhibits
A. Articles of Incorporation of Registrant*
B. Bylaws of Registrant*
C. None [Not Applicable]
D. Investment Advisory Agreement with 1-800 Mutuals, Inc.*
E. Distribution Agreement with Declaration Distributors, Inc.*
F. None [Not Applicable]
G. Custodian Agreement with ______________*
H. (1) Operating Services Agreement with 1-800 Mutuals, Inc.*
(2) Investment Services Agreement with Declaration Service Company*
I. Opinion of Counsel*
J. Consent of Independent Auditors*
Power of Attorney*
K. None [Not Applicable]
L. Subscription Agreement*
M. Plan of Distribution Pursuant to Rule 12b-1*
N. Financial Data Schedule*
O. Not Applicable
* To be filed by amendment
Item 24. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
No person is directly or indirectly controlled by, or under common control with
the Registrant.
Item 25. Indemnification.
----------------
Section 2-418 of the General Corporation Law of Maryland authorizes the
registrant to indemnify its directors and officers under specified
circumstances. Section 7 of Article VII of the bylaws of the Registrant (exhibit
2 to the registration statement, which is incorporated herein by reference)
provides in effect that the registrant shall provide certain indemnification to
its directors and officers. In accordance with section 17(h) of the Investment
Company Act, this provision of the bylaws shall not protect any person against
any liability to the registrant or its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office. With respect to the indemnification provisions of any agreement
entered into by the Company, to the extent that such indemnification provisions
may be inconsistent with, or unenforceable, under any federal or state
securities law, the Company shall not be liable therefore.
Item 26. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
The Advisor has no other business or other connections.
Item 27. Principal Underwriters.
----------------------
Declaration Distributors, Inc., 555 North Lane, Suite 6160, Conshohocken, PA
will be the Fund's principal underwriter.
Item 28. Location of Accounts and Records.
--------------------------------
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA
Item 29. Management Services
-------------------
Declaration Service Company.
555 North Lane, Suite 6160
Conshohocken, PA
Item 30. Undertakings.
-------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Dallas and State of Texas on the 2nd day of November.
1-800 Mutual Funds, Inc.
(Registrant)
By: /s/ Richard A. Sapio, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
Name Title Date
<PAGE>
EXHIBIT INDEX
