<PAGE>
PROSPECTUS
JULY 23, 1999
GAMNA FOCUS FUND
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of securities of this Fund or determined
if this prospectus is accurate or complete. It is a crime to state otherwise.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
THE FUND AT A GLANCE...................................................... 1
THE FUND'S MAIN INVESTMENT STRATEGY....................................... 1
THE MAIN RISKS OF INVESTING IN THE FUND................................... 2
FEES AND EXPENSES......................................................... 3
PAST PERFORMANCE OF PRIVATE ACCOUNTS...................................... 4
MANAGEMENT OF THE FUND.................................................... 6
SHAREHOLDER INFORMATION................................................... 7
DISTRIBUTIONS AND TAXES................................................... 15
GLOSSARY OF INVESTMENT TERMS.............................................. A-1
</TABLE>
<PAGE>
THE FUND AT A GLANCE
The Fund's investment objective is long-term growth of capital. The Fund is
non-diversified and will seek to achieve its objective by normally concentrating
its investments in a core position of 20-30 common stocks. The investment
adviser for the Fund is Groupama Asset Management N.A. (the "Adviser" or
"GAMNA").
THE FUND'S MAIN INVESTMENT STRATEGY
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term growth of capital.
TYPES OF INVESTMENTS
The GAMNA Focus Fund invests primarily in common stocks selected for their
growth potential. The Portfolio Manager utilizes both a "top down" and "bottom
up" approach in constructing the portfolio. The "top down" approach is a
screening process which narrows the available number of stock investments from
thousands of large cap stocks to several hundred potential stock ideas. The "top
down" approach takes into consideration such macro-economic factors as Federal
Reserve Policy, interest rates, inflation, and the domestic economy. This
approach helps the Portfolio Manager focus his analysis on the most attractive
business sectors within the overall market. The "bottom-up" analysis is then
performed on potential stock ideas in these targeted business sectors by
identifying individual companies with both attractive earnings potential and
sustainable growth characteristics that may not be recognized by the market at
large. Twelve month target prices are established for all individual companies
reviewed, with minimum hurdle rates of capital appreciation potential required
before a stock will be added to the portfolio. Realization of income is not a
significant investment consideration. Any income realized on the GAMNA Focus
Fund's investments will be incidental to its objective.
Under normal market conditions, the Fund will invest at least 80% of its
total assets in common stocks and American, Global or other types of Depositary
Receipts of companies with market capitalization of $1 billion or more which the
Adviser believes have growth potential.
The Fund may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Fund's Portfolio Manager, the
securities of a particular issuer will appreciate in value due to a specific
development with respect to that issuer. These are described in more detail
below.
The Fund may invest up to 20% of its total assets in high-quality money
market instruments, and repurchase agreements, U.S. Government obligations, high
quality short-term debt securities and investment grade bonds, notes and
debentures. In addition, the Fund may invest without limit in U.S. Government
obligations and high quality short-term debt securities or money market
instruments if the Adviser determines that a temporary defensive position is
advisable or to meet anticipated redemption requests. When such a defensive
strategy is in effect the Fund may not achieve its investment objective.
The Fund may change any of these investment policies (including its
investment objective) without shareholder approval.
The following questions are designed to help you better understand an
investment in the Fund.
Q: WHAT IS MEANT BY "MARKET CAPITALIZATION"?
A: Market capitalization is the most commonly used measure of the size and
value of a company. It is computed by multiplying the current market price of a
share of the company's stock by the total number of its shares outstanding.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in companies with market capitalization of $1 billion or more.
Q: HOW FREQUENTLY WILL SECURITIES BE PURCHASED AND SOLD?
A: The Fund generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price
1
<PAGE>
or yield objective, changes in interest rates or the credit standing of an
issuer, or by reason of economic or other developments not foreseen at the time
of the initial investment decision. Changes are made in the Fund's portfolio
whenever the Portfolio Manager believes such changes are desirable. Portfolio
turnover rates are generally not a factor in making buy and sell decisions. To a
limited extent, the Fund may purchase securities in anticipation of relatively
short-term price gains.
Q: WHAT IS A "SPECIAL SITUATION"?
A: A special situation arises when the Adviser believes that the securities of
an issuer will appreciate in value due to a specific development with respect to
that issuer. Special situations may include significant changes in a company's
allocation of its existing capital, a restructuring of assets, or a redirection
of free cash flows. For example, issuers undergoing significant capital changes
may include companies involved in spin-offs, sales of divisions, mergers or
acquisitions, companies emerging from bankruptcy, or companies initiating large
changes in their debt to equity ratio. Companies that are redirecting cash flows
may be reducing debt, repurchasing shares or paying dividends. Special
situations may also result from (i) significant changes in industry structure
through regulatory developments or shifts in competition; (ii) a new or improved
product, service, operation or technological advance; (iii) changes in senior
management; or (iv) significant changes in cost structure.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some of the specific risks of investing in the
Fund.
Since the Fund usually invests heavily in common stocks, the fundamental
risk is that the value of the stocks the Fund holds might decrease. Stock values
may fluctuate in response to the activities of an individual company or in
response to general market and/or economic conditions.
The Fund can invest in depositary receipts which are securities issued by
financial institutions (like banks or trust companies) which represent ownership
in underlying securities issued by foreign companies. These securities carry
additional risks associated with investing in foreign securities, such as
changes in currency exchange rates, lack of public information about the foreign
company and political, social and economic instability in the company's country.
Unsponsored depositary receipts may not provide as much information about the
underlying issuer and may not carry the same voting privileges as sponsored
depositary receipts.
If the Fund trades securities actively, transaction costs will be increased
which will lower performance and could increase taxable dividends.
Investment in special situations may carry an additional risk of loss in the
event that the anticipated development does not occur or does not attract the
expected attention.
If the Fund invests a substantial portion of its assets in money market
instruments, repurchase agreements, U.S. Government obligations or short-term
debt securities, it could reduce the Fund's potential returns. In addition, the
value of debt securities tends to fall when prevailing interest rates rise which
could affect the value of the Fund's shares. Short-term debt securities are
generally less sensitive to interest rate changes than longer-term securities.
The Fund is non-diversified and may invest a greater percentage of its
assets in a particular issuer than a diversified fund would. As a result, the
value of its shares will be more sensitive to economic problems affecting those
issuers. Since the Fund may invest in a relatively small number of companies, a
decrease in the value of any one of its investments can have a large impact on
the value of the entire portfolio.
2
<PAGE>
FEES AND EXPENSES
These tables describe the fees and expenses that you may pay if you buy and
hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES
CHARGE (LOAD)(1)IMPOSED
ON
PURCHASES (AS A
MAXIMUM SALES CHARGE PERCENTAGE OF
(LOAD)(1)IMPOSED ON LOWER OF ORIGINAL
PURCHASES (AS A PERCENTAGE PURCHASE PRICE
OF THE OFFERING PRICE)(2) OR REDEMPTION PROCEEDS)
----------------------------- -------------------------
<S> <C> <C>
Class A Shares.................................. 5.75% None
Class B Shares.................................. None 5.00%
Class C Shares.................................. None 1.00%
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
TOTAL ANNUAL
DISTRIBUTION FUND
AND SERVICE OTHER OPERATING NET
CLASS OF SHARES MANAGEMENT FEE (12B-1) FEES EXPENSES EXPENSES FEE WAIVER EXPENSES
- ----------------------------- ------------------- -------------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A...................... 0.55% 0.50% 0.50% 1.55% 0.18% 1.37%
Class B...................... 0.55% 1.00% 0.53% 2.08% 0.18% 1.90%
Class C...................... 0.55% 1.00% 0.53% 2.08% 0.18% 1.90%
</TABLE>
- ------------------------
(1) A reduced sales charge may be available depending on the size of your
investment and other factors.
(2) The offering price is the net asset value of the shares purchased plus any
sales charge.
The Adviser has agreed not to collect a portion of its fees and to reimburse
others so that total operating expenses of the Fund for each of the next three
years will not exceed 1.90%. The Fund may have to repay waivers and
reimbursements for any year to GAMNA in the following two years if the repayment
can be made within the total expense limit.
As of the date of this Prospectus, the Fund had not commenced investment
operations. The amounts set forth for "Other Expenses" are therefore based on
estimates for the current fiscal year and will include fees for shareholder
services, administrative fees, custodial fees, legal and accounting fees,
printing costs and registration fees.
The table does not reflect charges or credits which you might incur if you
invest through a financial institution.
EXAMPLE This example helps 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
- you sell all your shares at the end of the period
- your investment has a 5% return each year, and
- the Fund's net operating expenses, including the fee waiver, remain the
same as shown above.
3
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IF YOU SELL YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
----------- -----------
<S> <C> <C>
Class A Shares*.................. $ 706 $ 984
Class B Shares**................. $ 708 $ 926
Class C Shares**................. $ 296 $ 597
</TABLE>
- ------------------------
* Assumes sales charge is deducted when shares are purchased.
** Assumes applicable deferred sales charge is deducted when shares are sold.
IF YOU DON'T SELL YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
----------- -----------
<S> <C> <C>
Class B Shares................... $ 192 $ 597
Class C Shares................... $ 192 $ 597
</TABLE>
This example is for comparison only. Your actual costs may be higher or
lower, depending on the amount you invest and the Fund's actual rate of return.
PAST PERFORMANCE OF PRIVATE ACCOUNTS
The investment results shown below represent the net historical performance
of Mark Bronzo with respect to non-fee paying proprietary accounts while
employed at SOREMA N.A. Holding Corporation until December 31, 1995 and
thereafter for client accounts at GROUPAMA Asset Management N.A. (formerly named
Sorema Asset Management). These accounts have substantially similar investment
objectives, policies and strategies to those of the Fund. Mr. Bronzo was the
sole portfolio manager responsible for this performance. Mr. Bronzo continues to
be primarily responsible for the equity portfolios for clients of GROUPAMA Asset
Management N.A., with assistance from Daniel Portanova, and intends to utilize a
substantially similar investment approach for the Fund. The performance
information is provided to illustrate the past performance of Mr. Bronzo, in
managing substantially similar accounts and does not represent the performance
of the Fund, which has no history of operations. Investors should realize that
this past performance data is not an indication of future performance of the
Fund.
4
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ANNUALIZED RETURNS AS OF DECEMBER 31,
1998
<S> <C>
GAMNA Equity
12/31/97 33.13
12/31/93 38.73
1/1/90 29.15
S&P 500 Index
12/31/98 28.58
12/31/98 24.06
12/31/98 17.89
</TABLE>
[The following table was depicted as a bar graph in the printed material.]
For the six-month period ending June 30, 1999, results for GAMNA Equity show
an approximate 11.17% return compared to 12.38% for the S & P 500 Index.
The data represents accounts with assets as of December 31, 1998 of $792
million representing 55.4% of total assets under management. The data includes
all accounts with substantially similar investment objectives, policies and
strategies to those of the Fund. The asset-weighted composite dispersion for
1998 was 0.48% (excluding assets managed in sub-advisory accounts through a
wrap-fee program for which dispersion data are not available). Only portfolios
that have been managed for the full year are included in the dispersion
calculation.
The performance numbers above reflect the deduction for investment advisory
fees and are net of all transaction costs and expenses. The performance results
reflect dividend reinvestment and are calculated on a settlement date basis
through December 31, 1995 and on a trade date basis thereafter.
The index used for comparison is the S&P 500 Index, an unmanaged index with
no expenses, which covers 500 industrial, utility, transportation and financial
companies of the U.S. markets. It is a capitalization-weighted index calculated
on a total return basis with dividends reinvested.
The private accounts that are included in the data above are not subject to
the same types of expenses as the Fund and are not subject to the same
diversification requirements, tax restrictions and other investment limitations
imposed on the Fund by the Investment Company Act of 1940 or Subchapter M of the
Internal Revenue Code of 1986. The performance results of the private accounts
could have been adversely affected if the accounts had been regulated as
investment companies under the federal tax and securities laws. In addition,
differences in the Securities and Exchange Commission (the "SEC") and AIMR
methodology for calculating performance could result in different performance
data for identical time periods. The expenses for the private accounts included
in the performance results above are lower than the Fund's anticipated expenses.
If such accounts had expenses similar to the Fund's, the performance of the
composite would have been lower than the results shown above.
5
<PAGE>
MANAGEMENT OF THE FUND
THE FUND'S INVESTMENT ADVISER
GAMNA is the investment adviser to the Fund and is responsible for the
day-to-day management of the investment portfolio and other business affairs of
the Fund. GAMNA is located at 180 Maiden Lane, New York, New York 10038.
GAMNA was formed as a joint venture between Groupama Asset Management and
Sorema N.A. Holding Corporation. The principals of GAMNA originally were the
in-house investment department of Sorema N.A. beginning in 1989. GAMNA became a
separate company and started to manage assets for outside clients in 1995 under
the name Sorema Asset Management Company. In August of 1998, Sorema Asset
Management's name was changed to Groupama Asset Management N.A. Mark Bronzo has
continually managed the equity assets of GAMNA and its predecessor and
affiliates since 1995. GAMNA currently serves as investment adviser to
individual, corporate, charitable and retirement accounts.
GAMNA furnishes continuous advice and recommendations concerning the Fund's
investments. GAMNA also oversees certain administrative, compliance and
accounting services for the Fund. In addition, GAMNA employees serve as officers
of the Fund and GAMNA provides office space for the Fund and pays the salaries,
fees and expenses of Fund officers and Directors who are affiliated with GAMNA.
PORTFOLIO MANAGER
Mark P. Bronzo is the portfolio manager of the Fund and is responsible for
making investment decisions and for the day-to-day management of the Fund's
portfolio. Mr. Bronzo is assisted by Daniel W. Portanova.
Mark Bronzo is Senior Vice President, Managing Director and Board Member of
GAMNA. Mr. Bronzo is primarily responsible for management of GAMNA's equity
accounts. From 1989 to 1998, Mr. Bronzo served as Vice President, Chief
Investment Officer and Treasurer (from 1989 to 1996) of the Sorema N.A. Group
and served as Vice President from 1989 to 1998 and currently serves as Senior
Vice President of its wholly-owned subsidiary, Sorema North America Reinsurance
Company. From 1989 to 1998, he also served as Director, Vice President and Chief
Investment Officer of its affiliate, Fulcrum Insurance Company. He also served
as Vice President and Chief Investment Officer of another affiliate, C&C
Consultants, Inc., from 1989 to 1997. His responsibilities at each company were
the setting of investment policy and guidelines and supervising broker-dealer
relationships. From 1983 to 1989, Mr. Bronzo worked at General Reinsurance
Corporation where he was an Assistant Secretary from 1987 to 1989 and Assistant
Portfolio Manager from 1986 to 1989. Mr. Bronzo is a Chartered Financial Analyst
and has made numerous appearances on CNBC and Bloomberg television. Mr. Bronzo
has an MBA in Finance from New York University and a BA in Economics from Boston
College.
Daniel Portanova is currently Senior Vice President, Managing Director and
Board Member of GAMNA. Mr. Portanova is primarily responsible for the management
of GAMNA's taxable bond portfolios and for assisting Mr. Bronzo in forecasting
Federal Reserve Board policy and analyzing the economic background and relative
attractiveness of industry sectors in which GAMNA equity accounts, including the
Fund, may invest. From 1993 to 1995, Mr. Portanova was a Managing Director at
General Reinsurance Asset Management, where he was one of two portfolio managers
with investment discretion over more than $4 billion in assets. From 1989 to
1993, Mr. Portanova was a taxable fixed income portfolio manager for General
Reinsurance. Mr. Portanova also worked for Smith Barney, Harris, Upham Inc. from
1984 to 1989 as an Institutional Corporate Bond Trader, primarily in the Yankee
and Canadian sectors. Mr. Portanova earned an MBA from Duke University's Fuqua
School of Business in 1984 and a BA in Economics from Boston College in 1982.
6
<PAGE>
MANAGEMENT FEES
The Fund pays a management fee which is calculated daily and paid monthly.
The advisory agreement with the Fund spells out the management fee and other
expenses that the Fund must pay. The Fund is subject to the following management
fee schedule (expressed as an annual rate):
<TABLE>
<CAPTION>
AVERAGE DAILY NET ANNUAL RATE
ASSETS OF FUND PERCENTAGE (%)
------------------ -----------------
<S> <C>
First $1 Billion................................ 0.55
Over $1 Billion................................. 0.50
</TABLE>
GAMNA and the Fund have entered into an expense limitation agreement. The
agreement sets a limit of 1.90% on the operating expenses of the Fund for the
next three years and requires GAMNA to waive or reimburse fees or expenses if
operating expenses exceed that limit. The Fund is required to repay GAMNA the
amount of expenses waived or reimbursed for any year in the following two years
but only to the extent the Fund's total operating expenses would not exceed the
1.90% limit for those years.
YEAR 2000
Preparing for Year 2000 is a high priority for GAMNA which has established a
policy to address this issue. The Fund, like any business, could be affected if
the computer systems on which it relies fail to properly process information
beginning on January 1, 2000. GAMNA has updated its own systems and is
monitoring the Year 2000 readiness of its service providers, but there's no
guarantee these systems will work properly. Year 2000 problems could also hurt
issuers whose securities the Fund holds or securities markets generally.
SHAREHOLDER INFORMATION
This section will help you become familiar with how to establish an account
with the Fund. It also explains in detail the different share classes and the
types of services and features you can establish on your account, as well as
account policies and fees that may apply to your account. Account policies
(including fees), services and features may be modified or discontinued without
shareholder approval or prior notice.
SALES CHARGES AND CHOOSING A SHARE CLASS
There is a sales charge to buy shares in the Fund. There are also ongoing
charges that all investors pay as long as they own their shares. Investors may
choose Class A, Class B or Class C shares which have different types of charges
and are each described below. There are a number of plans and special discounts
which can decrease or even eliminate certain of these charges.
CLASS A SHARES. When you purchase Class A shares you pay a sales charge at
the time of purchase. The initial sales charge is deducted directly from the
money you invest. As the table shows, the initial sales charge is lower the more
you invest and there is no initial sales charge on purchases of $1 million or
more. Certain purchases of Class A shares qualify for reduced sales charges.
Class A shares are not subject to any sales charges when they are redeemed and
have lower combined 12b-1 and service fees than Class B and Class C shares.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
---------------------------------
AS % OF PUBLIC AS % OF NET
OFFERING PRICE AMOUNT
AMOUNT OF INVESTMENT PER SHARE INVESTED
- --------------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Under $100,000............................................................. 5.75% 6.10%
$100,000 but under $250,000................................................ 3.75% 3.90%
$250,000 but under $500,000................................................ 2.50% 2.56%
$500,000 but under $1,000,000.............................................. 2.00% 2.04%
$1,000,000 or more......................................................... None None
</TABLE>
7
<PAGE>
The public offering price of Class A shares is the net asset value plus the
initial sales charge. Net asset value is the value of everything the Fund owns,
minus everything it owes, divided by the number of shares held by investors.
CLASS B SHARES. Class B shares are sold without an initial sales charge,
but are subject to a deferred sales charge which is deducted directly from your
assets when you sell your shares. It is a percentage of the original purchase
price or the current value of the shares, whichever is lower. As the table
shows, the deferred sales charge gets lower the longer you hold the shares and
disappears altogether after six years. Class B shares have the benefit of
putting all of your dollars to work from the time the investment is made. Class
B shares have higher combined 12b-1 and service fees than Class A shares.
<TABLE>
<CAPTION>
DEFERRED
YEAR SALES CHARGE
- ---------------------------------------- ----------------
<S> <C>
1....................................... 5%
2....................................... 4%
3....................................... 3%
4....................................... 3%
5....................................... 2%
6....................................... 1%
7....................................... None
</TABLE>
Deferred sales charges are calculated from the month you buy your shares.
The Fund always sells the shares with the lowest deferred sales charge first.
Class B shares automatically convert into Class A shares, based on relative
net asset value, at the beginning of the month following the ninth anniversary
of purchase.
CLASS C SHARES. Class C shares are sold without an initial sales charge,
which has the benefit of putting all of your dollars to work from the time the
investment is made. If redeemed within one year after purchase, Class C shares
are subject to a deferred sales charge of 1% which is deducted directly from
your assets when you sell your shares. The sales charge is based on the lesser
of the original cost or the net asset value at the time of the redemption. Class
C shares, like Class B shares, have higher combined 12b-1 and service fees than
Class A shares. Unlike Class B shares, Class C shares do not convert into any
other class of shares of the Fund. That means you keep paying the higher service
and distribution fees as long as you hold your shares. Over the long term, this
can add up to higher total fees than either Class A or Class B shares.
RULE 12b-1 FEES. Provident Distributors, Inc. is the distributor for the
Fund. The Fund has adopted Rule 12b-1 distribution plans under which it pays
annual distribution fees of up to 0.25% of the average daily net assets
attributed to Class A shares and up to 0.75% of the average daily net assets
attributable to Class B and Class C shares. This payment covers such things as
compensation for services provided by broker-dealers and expenses connected to
the sale of shares. Payments are not tied to actual expenses incurred. The Fund
also pays a shareholder servicing fee of up to 0.25% of the average daily net
assets of the shares of each Class. These fees are payable for the
administration and servicing of shareholder accounts and are not costs which are
primarily intended to result in the sale of Fund shares. Because Rule 12b-1
expenses are paid out of the Fund's assets on an ongoing basis, over time these
fees will increase the cost of your investment and may cost you more than other
types of sales charges.
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to which class of shares
provides a more suitable investment for you depends on a number of factors,
including the amount and intended length of the investment. If you are making an
investment that qualifies for reduced sales charges, you might consider Class A
shares. If you prefer not to pay an initial sales charge and anticipate holding
your shares for a number of years, you might consider Class B shares. If you
prefer not to pay an initial sales charge and you are uncertain as to the
intended length of your investment, you might consider Class C shares. In almost
all
8
<PAGE>
cases, if you are a long-term investor planning to purchase $250,000 or more of
the Fund's shares you will pay lower aggregate charges and expenses by
purchasing Class A shares.
PRICING OF FUND SHARES
All purchases and redemptions will be processed at the net asset value or
NAV next calculated after your request is received and approved by the Fund (or
its designated agent). The Fund's NAV is calculated at the close of the regular
trading session of the New York Stock Exchange (the "NYSE") which is normally
4:00 p.m. New York time each day that the NYSE is open. In order to receive a
day's price, your order must be received by the close of the regular trading
session of the NYSE. Securities are valued at market value or, if a market
quotation is not readily available, at their fair value determined in good faith
under procedures established by and under the supervision of the Board of
Directors. Short-term instruments maturing within 60 days are valued at
amortized cost, which approximates market value.
HOW TO OPEN YOUR FUND ACCOUNT
Complete and sign the appropriate application. Please be sure to provide
your Social Security or taxpayer identification number on the application and
make your check payable to GAMNA Focus Fund. Send all items to one of the
following addresses:
For Overnight Carrier
GAMNA Series Funds, Inc.
c/o PFPC Inc.
400 Bellevue Parkway, Suite 108
Wilmington, DE 19809-3710
For All Other Inquiries
GAMNA Series Funds, Inc.
c/o PFPC Inc.
P.O. Box 8940
Wilmington, DE 19899-8940
MINIMUM INVESTMENTS
<TABLE>
<S> <C>
To open a new account....................................... $10,000
To open a new retirement account............................ $ 2,000
To open a new account with an Automatic Investment
Program................................................... $ 2,000
To add to any type of an account............................ $ 1,000
</TABLE>
The Funds reserve the right to change the amount of these minimums from time
to time or to waive them in whole or in part for certain types of accounts.
HOW TO PURCHASE SHARES
PAYING FOR SHARES. When you purchase shares, your request will be processed
at the next NAV calculated after your order is received and accepted. Please
note the following:
- Cash, credit cards, third party checks and credit card checks will not be
accepted.
- All purchases must be made in U.S. dollars.
- Checks must be drawn on U.S. banks and made payable to GAMNA Focus Fund.
- If a check does not clear your bank, the Fund reserves the right to cancel
the purchase.
9
<PAGE>
- If the Fund is unable to debit your predesignated bank account on the day
of purchase, it may make additional attempts or cancel the purchase.
- The Fund reserves the right to reject any specific purchase request.
If your purchase is canceled, you will be responsible for any losses or fees
imposed by your bank and losses that may be incurred as a result of any decline
in the value of the canceled purchase. The Fund (or its agents) has the
authority to redeem shares in your account(s) to cover any losses due to
fluctuations in share price. Any profit on such cancellation will accrue to the
Fund.
PURCHASE BY MAIL. Send your check and written instructions to the address
specified above under "How to Open Your Fund Account". If you are making a
purchase into a retirement account, please indicate whether the purchase is a
rollover or a current or prior year contribution.
PURCHASE BY TELEPHONE. In order to purchase shares by telephone, you must
complete the "Telephone Purchase of Shares Option" section on the application.
If your account is already established, call 888-287-4093 to request the
appropriate form. This option will become effective ten business days after the
form is received. Thereafter, you may call the Fund at 888-287-4093 (toll free)
to execute a telephone purchase of shares, on weekdays, except holidays, between
the hours of 8:00 A.M. and 6:00 P.M., New York time. For your protection and to
prevent fraudulent purchases, your telephone call may be recorded and you will
be asked to provide your personal identification number. A written confirmation
of the purchase transaction will be sent to you. NEITHER THE FUND NOR ITS AGENTS
WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON
INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES.
All purchases will be made on the basis of the net asset value of the Fund next
determined after the funds are received, plus applicable sales charges.
In periods of severe market or economic conditions, the telephone purchase
of shares may be difficult to implement and you should make purchases by mail by
writing to the Transfer Agent at the address noted above.
The Fund may accept telephone orders from broker-dealers which have been
previously approved by the Fund by telephoning 888-287-4093 (toll free). It is
the responsibility of such broker-dealers to promptly forward purchase orders
and payments for such orders to the Fund. The Fund reserves the right to cancel
any purchase order for which payment has not been received by the third business
day following the investment.
Transactions in Fund shares through your broker-dealer may be subject to
transaction or other fees, including postage and handling charges, imposed by
your broker-dealer (in addition to the sales charge imposed by the Fund) which
would otherwise not be charged if the shares were purchased directly from the
Fund.
PURCHASE BY WIRE. You may purchase Shares (other than initial purchases) by
wire transfer. To do so, you must (i) telephone the Transfer Agent at
888-287-4093 (toll free)(individual shareholders) or 888-287-4093
(toll-free)(broker-dealers) to advise the Transfer Agent that you would like to
purchase shares of the Fund by wire transfer and then (ii) give instructions to
your bank to transfer funds by wire to the following account:
<TABLE>
<S> <C>
Bank Name: PNC Bank, Philadelphia, PA
ABA Number: 031-0000-53
Account Name: GAMNA Series Funds, Inc.
Account No.: 8612822925
Further Credit: [Name of Shareholder and
Account Number]
</TABLE>
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AUTOMATIC INVESTMENT PROGRAMS. The Fund, offers several automatic
investment programs to help you achieve your financial goals as simply and
conveniently as possible.
- Automatic Monthly Investment Program
You select the day each month that your money ($1000 minimum) will be
electronically transferred from your bank account to your Fund account. To
establish this option, complete the "Automatic Monthly Investment Program"
section on the application and attach a "voided" check or deposit slip from
your bank account. If your Fund account is already established, call
888-287-4093 to request the appropriate form.
- Payroll Deduction
If your employer can initiate an automatic payroll deduction, you may have
all or a portion of your paycheck ($1000 minimum) invested directly into
your Fund account. To obtain information on establishing this option, call
888-287-4093.
TYPES OF ACCOUNT OWNERSHIP
If you are investing in the Fund for the first time, you will need to
establish an account. You can establish the following types of accounts by
completing a New Account Application. To request an application, call
888-287-4093.
- INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are owned by one
person. Joint accounts have two or more owners.
- A GIFT OR TRANSFER TO MINOR (UGMA OR UTMA). An UGMA/UTMA account is a
custodial account managed for the benefit of a minor. To open an UGMA or
UTMA account, you must include the minor's Social Security number on the
application.
- TRUST. An established trust can open an account. The names of each
trustee, the name of the trust and the date of the trust agreement must be
included on the application.
- BUSINESS ACCOUNTS. Corporations and partnerships may also open an
account. The application must be signed by an authorized officer of the
corporation or a general partner of the partnership.
TAX-DEFERRED ACCOUNTS
If you are eligible, you may set up one or more tax-deferred accounts. A
tax-deferred account allows you to shelter your investment income and capital
gains from current income taxes. A contribution to certain of these plans may
also be tax deductible. Tax deferred accounts include retirement plans and the
Education IRA. Distributions from these plans are generally subject to income
tax and may be subject to an additional tax if withdrawn prior to age 59 1/2 or
used for a nonqualifying purpose. Investors should consult their tax or legal
counsel before selecting a tax-deferred account.
PFPC Trust Company serves as custodian for the tax-deferred accounts offered
by the Fund. You will be charged an annual account maintenance fee of $10.00 for
each Fund account, up to a maximum of $20.00 for two or more Fund accounts
registered under the same taxpayer identification number. The Fund reserves the
right to change the amount of this fee or to waive it in whole or in part for
certain types of accounts.
The following plans require a special application. For an application and
more details about our Retirement Plans, call 888-287-4093.
- REGULAR AND ROTH INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"): Both types of
IRAs allow most individuals with earned income to contribute up to the
lesser of $2,000 ($4,000 for most married couples) or 100% of compensation
annually.
- EDUCATION IRA: This plan allows individuals, subject to certain income
limitations, to contribute up to $500 annually on behalf of any child
under the age of 18.
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- SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"): This plan allows small business
owners (including sole proprietors) to make tax-deductible contributions
for themselves and any eligible employee(s). A SEP requires an IRA (a
SEP-IRA) to be set up for each SEP participant.
- SECTION 403(b)(7) PLAN: Employees of educational organizations or other
qualifying, tax-exempt organizations may be eligible to participate in a
Section 403(b)(7) Plan.
- SIMPLE PLAN: This is a Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE), a written arrangement that provides you and your
employees with a simplified way to make contributions to provide
retirement income for your employees.
HOW TO REDEEM SHARES
On any business day, you may redeem all or a portion of your shares. If the
shares are held in certificate form, the certificate must be returned with or
before your redemption request. Your transaction will be processed at the next
NAV calculated after your order is received and accepted. The Fund reserves the
right to pay redemptions in the form of readily marketable portfolio securities
rather than in cash.
Depending on how long you have held your shares, redemptions of Class B and
Class C shares may be subject to a deferred sales charge as described above
under "Sales Charges and Choosing a Share Class."
IN WRITING. You may request redemption by writing to the Transfer Agent. If
you hold share certificates, you must sign the certificates in exactly the same
form as appears on the face of the share certificates and deliver them to the
Transfer Agent. If you hold shares in non-certificate form, you must sign the
request in the exact name in which the shares are registered. If you are a
corporation, partnership, trust or fiduciary, you must submit written evidence
of authority acceptable to the Transfer Agent. Direct all correspondence to the
Transfer Agent at GAMNA Series Funds, Inc., P.O. Box 8940, Wilmington, Delaware
19899-8940 or by overnight delivery c/o PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809.
In certain cases, you will need to provide a signature guarantee as
described below under "Signature Guarantee."
The Transfer Agent will pay you by check within seven (7) days after it
receives your certificate and/or written request, except that redemption of
recently purchased shares will be delayed until the Fund or the Transfer Agent
has been advised that the purchase check has been honored, up to fifteen (15)
days from the time of receipt of the purchase check by the Transfer Agent. You
can avoid such a delay by purchasing shares by wire or by certified or official
bank check except as indicated below. Such payment may also be postponed or the
right of redemption suspended at times (i) when the New York Stock Exchange is
closed for other than customary weekends and holidays, (ii) when trading on such
Exchange is restricted, (iii) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or (iv) during any other period when the SEC, by order, so
permits. The SEC's rules and regulations shall be used to determine whether a
condition described in (ii), (iii) or (iv) exists.
BY TELEPHONE. Redemptions by telephone must be in amounts of at least
$1,000 and may not be for more than $10,000. In addition, the proceeds from a
telephone redemption may be paid only to the owner(s) of record any may be sent
only to the address of record or a pre-authorized bank account, and cannot be
made within thirty (30) days after the Transfer Agent has been notified of an
address change. If there are multiple owners of record, the Transfer Agent may
rely upon the instructions of only one owner of record.
In order to redeem shares by telephone, you must authorize telephone
redemptions on your initial application form or by writing to the Transfer
Agent, and you must also hold your shares in non-certificate form. You may call
the Fund at 888-287-4093 (toll free) to execute a telephone redemption of
shares, on weekdays, except holidays, between the hours of 8:00 A.M. and 6:00
P.M., New York time. Redemption requests will be processed at the NAV next
calculated after receipt and acceptance of the request. For your
12
<PAGE>
protection and to prevent fraudulent redemptions, your telephone call may be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the redemption transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES.
SYSTEMATIC REDEMPTION OPTION. The Systematic Redemption Option allows you
to redeem a specific dollar amount from your account on a regular basis. For
more information or to request the appropriate form, please call 888-287-4093.
PAYMENT OF REDEMPTION PROCEEDS
BY CHECK. Redemption proceeds will be sent to the shareholder(s) of record
at the address of record within seven days after receipt of a valid redemption
request.
BY ELECTRONIC TRANSFER. If you have established the electronic redemption
option, your redemption proceeds can be electronically transferred to your
predesignated bank account on the next bank business day after receipt of your
redemption request (wire transfer) or the second bank business day after receipt
of your redemption request (ACH transfer). Wire transfers will be charged a
$15.00 fee per wire and your bank may charge an additional fee to receive the
wire. ACH transfers are made free of charge. Wire redemptions are not available
for retirement accounts.
If you would like to establish the electronic redemption option on an
existing account, please call 888-287-4093 to request the appropriate form.
If the shares being redeemed were purchased by check, telephone or through
the Automatic Monthly Investment Program, the Fund may delay the payment of your
redemption proceeds for up to 15 days from the day of purchase to allow the
purchase to clear.
WRITTEN INSTRUCTIONS
To redeem all or part of your shares in writing, your request should be sent
to one of the addresses listed under "How to Open Your Fund Account" and must
include the following information:
- the name of the Fund
- the account number(s)
- the amount of money or number of shares being redeemed
- the name(s) on the account
- the signature(s) of all registered account owners
- your daytime telephone number
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
- INDIVIDUAL, JOINT TENANTS, TENANTS IN COMMON: Written instructions must
be signed by each shareholder, exactly as the names appear in the account
registration.
- UGMA OR UTMA: Written instructions must be signed by the custodian in
his/her capacity as it appears in the account registration.
- SOLE PROPRIETOR, GENERAL PARTNER: Written instructions must be signed by
an authorized individual in his/her capacity as it appears on the account
registration.
- CORPORATION, ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. In addition, a certified copy
of the corporate resolution authorizing the signer to act must accompany
the request.
13
<PAGE>
- TRUST: Written instructions must be signed by the trustee(s). If the name
of the current trustee(s) does not appear in the account registration, a
certificate of incumbency dated within 60 days must also be submitted.
- IRA: Written instructions must be signed by the account owner. If you do
not want federal income tax withheld from your redemption, you must state
that you elect not to have such withholding apply. In addition, your
instructions must state whether the distribution is normal (after age
59 1/2) or premature (before age 59 1/2) and, if premature, whether any
exceptions such as death or disability apply with regard to the 10%
additional tax on early distributions.
SIGNATURE GUARANTEE
In addition to the signature requirements, you must provide a signature
guarantee by an "eligible guarantor institution" of the signature on the
redemption request and the certificates, if any, or stock powers, if any:
- if the proceeds of the redemption exceed $10,000 (unless you have
submitted a Shareholder Redemption Option form authorizing the Transfer
Agent to redeem shares of the fund upon written instructions without a
signature guarantee);
- if the proceeds are to be paid to a person other than the record owner or
sent to an address other than that on the Transfer Agent's records (or
within 30 days after the Transfer Agent has been notified of the address
change); or
- if the proceeds are to be paid to a corporation, partnership, trust or
fiduciary.
An "eligible guarantor institution" includes any domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Agents Association. The
three recognized medallion programs are Securities Transfer Agents Medallion
Program (STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock
Exchange, Inc. Medallion Signature Program (MSP). Signature guarantees that are
not a part of these programs will not be accepted. The Transfer Agent reserves
the right to request additional information from, and make reasonable inquiries
of, any eligible guarantor institution.
The Fund reserves the right to require a signature guarantee under other
circumstances or to reject or delay a redemption in accordance with its rights
under the Investment Company Act of 1940. For more information pertaining to
signature guarantees, please call 888-287-4093.
HOW TO OBTAIN A SIGNATURE GUARANTEE
A signature guarantee assures that a signature is genuine. The signature
guarantee protects shareholders from unauthorized account transfers. The
following financial institutions may guarantee signatures: banks, savings and
loan associations, trust companies, clearing agencies, broker-dealers, and
member firms of a national securities exchange who are participants in a
medallion program recognized by the Securities Transfer Agents Association. Call
your financial institution to see if they have the ability to guarantee a
signature. A signature guarantee may not be provided by a notary public.
SHAREHOLDER SERVICES AND ACCOUNT POLICIES
WEB SITE. You may access information on the Fund at a Web site located at
http://www.gamna.com. You can access information such as your account balance
and the Fund's NAVs through the Web site. In addition, you may request and/or
download a prospectus for the Fund.
SMALL ACCOUNTS. Due to the proportionately higher costs of maintaining
small accounts, the Fund reserves the right to close your Fund account if your
account balance falls below $250.00 because you've sold shares. This policy does
not apply to accounts that fall below the minimums solely as a result of market
value fluctuations. You will receive notice before we close your account so that
you may increase your account balance to the required minimum.
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<PAGE>
SHARE CERTIFICATES. The Fund will issue share certificates upon written
request only. Share certificates will not be issued until the shares have been
held for at least 15 days.
TEMPORARY SUSPENSION OF SERVICES. The Fund or its agents may, in case of
emergency, temporarily suspend telephone transactions and other shareholder
services.
ADDRESS CHANGES. To change the address on your account, call 888-287-4093
and send a written request signed by all account owners. Include the name of the
Fund, the account number(s), the name(s) on the account and both the old and new
addresses. Certain options may be suspended for 10 days following an address
change unless a signature guarantee is provided.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund will generally distribute its income annually. The Fund's income
from dividends and interest and any net realized short-term capital gain are
paid to shareholders as ordinary income dividends. Net realized long-term gain
is paid to shareholders as capital gain dividends.
DISTRIBUTION OPTIONS
When you open an account, you must specify on your application how you want
to receive your distributions. You may change your distribution option at any
time by writing the Fund at one of the addresses on page 9 or calling
888-287-4093. The Fund offers the following options:
1. REINVESTMENT OPTION. You may reinvest your income dividends and capital
gain dividends in additional shares of the same class. This option is
assigned automatically if no other choice is made.
2. CASH OPTION. You may receive your income dividends and capital gain
dividends in cash.
3. REINVEST AND CASH OPTION. You may receive either your income dividends
or capital gain dividends in cash and reinvest the other in additional
shares of the same class.
If we are unable to deliver to you any dividend or distribution check and it
remains outstanding for six months, we reserve the right to cancel the check and
reinvest the dividend or distribution in shares of the Fund for your account. If
a check representing the Fund distribution is not cashed within a specified
period, the Fund will notify the investor that he or she has the option of
requesting another check or reinvesting the distribution in the Fund. If the
Fund does not receive the investor's election, the distribution will be
reinvested in the Fund. Similarly, if the Fund sends the investor correspondence
returned as "undeliverable," distributions will automatically be reinvested in
the Fund. We will use the NAV next computed after the check is canceled.
Subsequent distributions may also be reinvested.
TAXES
The Fund intends to qualify as a "regulated investment company" for federal
income tax purposes under Subchapter M of the Code and to meet all other
requirements that are necessary for it to be relieved of federal taxes on income
and gain it distributes to shareholders. If the Fund does not qualify as a
regulated investment company for any taxable year or does not meet certain other
requirements, the Fund will be subject to tax on all of its taxable income and
gains.
The taxation of dividends will not be affected by the form in which you
receive them (cash or additional shares). Ordinary dividends are usually taxable
as ordinary income at the federal, state and local levels. Capital gain
dividends will be taxable as long-term capital gain regardless of on how long
you have owned your shares. If you buy shares just before a distribution, you
will pay tax on the entire amount of the taxable distribution you receive, even
though the NAV will be higher on that date because it includes the distribution
amount.
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<PAGE>
A portion of the ordinary income dividends paid by the Fund may qualify for
the 70% dividends-received deduction for corporate shareholders, subject to
certain limitations.
Ordinarily, you are required to take distributions by the Fund into account
in the year in which the distributions are made. However, dividends declared in
October, November or December of any year and payable to you in such a month
will be deemed to have been received by you (and made by the Fund) on December
31 of such calendar year if such dividends are actually paid in January of the
following year.
You will recognize gain or loss on the sale or redemption of shares of the
Fund in an amount equal to the difference between the proceeds of the sale or
redemption and your adjusted tax basis in the shares. In general, any gain or
loss arising from the sale or redemption of shares of the Fund will be
considered capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, any capital loss arising
from the sale or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent of any capital gain dividends
received on such shares.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to you if (1) you provide either an
incorrect taxpayer identification number or no number at all, (2) you are
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or (3) you have
failed to certify to the Fund that you are not subject to backup withholding or
that you are a corporation or other "exempt recipient."
Early in each calendar year, the Fund will send you a notice showing the
amount of distributions you received in the proceeding year and the tax status
of those distributions. The above is a general summary of tax implications of
investing in the Fund. Please consult your tax adviser to see how investing in
the Fund will affect your own tax situation.
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<PAGE>
APPENDIX A
GLOSSARY OF CERTAIN INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the Fund may invest. The Fund may
invest in these instruments to the extent permitted by its investment objectives
and policies. The Fund is not limited by this discussion and may invest in any
other types of instruments not precluded by the policies discussed elsewhere in
this Prospectus. Please refer to the Statement of Additional Information (SAI)
for a more detailed discussion of certain instruments.
Bonds, notes and debentures are debt securities issued by a company,
municipality, government or government agency. The issuer of a bond is required
to pay the holder the amount of the loan (or par value of the bond) at a
specified maturity and to make scheduled interest payments.
Commercial paper is a short-term debt obligation with a maturity ranging
from 1 to 270 days issued by banks, corporations and other borrowers to
investors seeking to invest idle cash.
Common stock represents a share of ownership in a company and usually
carries voting rights and earns dividends. Unlike preferred stock, dividends on
common stock are not fixed but are declared at the discretion of the issuer's
board of directors.
Depositary receipts are receipts for shares of a foreign-based corporation
that entitle the holder to dividends and capital gains on the underlying
security. Receipts include those issued by domestic banks (American Depositary
Receipts), foreign banks (Global or European Depositary Receipts) and broker-
dealers (depositary shares).
Investment grade debt securities are debt securities rated in the category
BBB- or higher by Standard & Poor's Corporation or Baa3 or higher by Moody's
Investors Services, Inc. or the equivalent by another national rating
organization or, if unrated, determined by GAMNA to be of comparable quality.
Money market instruments may include U.S. Government securities, commercial
paper and obligations of banks.
Repurchase agreements involve the purchase of a security by the Fund and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Fund at a specified date or upon demand. This technique
offers a method of earning income on idle cash. These securities involve the
risk that the seller will fail to repurchase the security, as agreed. In that
case, the Fund will bear the risk of market value fluctuations until the
security can be sold and may encounter delays and incur costs in liquidating the
security.
Reverse repurchase agreements involve the sale of a security by the Fund to
another party (generally a bank or dealer) in return for cash and an agreement
by the Fund to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually high
redemption requests, or for other temporary or emergency purposes.
A-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information about the Fund and its policies.
It is incorporated by reference into this prospectus. That means that by law it
is considered to be a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
The Fund will issue annual and semi-annual reports. These reports will
contain more information about the Fund's investments and performance. The
annual report will also include details about the market conditions and
investment strategies that had a significant effect on the Fund's performance
during the last fiscal year. The first report the Fund will issue will be its
semi-annual report for the period ending December 31, 1999.
CONTACTING THE FUND
You can get a free copy of these documents or ask us any questions by
calling 888-287-4093 or writing:
GAMNA Focus Fund
c/o PFPC INC.
P.O. Box 8940
Wilmington, DE 19899-8940
888-287-4093
If you buy your shares through a financial institution, you should contact
that institution directly for more information. You can also find information
on-line at www.gamna.com on the internet.
SECURITIES AND EXCHANGE COMMISSION (SEC)
You can write the SEC's Public Reference Room and ask them to mail you
information about the Fund, including the SAI. They will charge you a copying
fee for this service. You can also visit the Public Reference Section and copy
the documents while you are there.
Public Reference Section of the SEC
Washington, D.C. 20549-6009
1-800-SEC-0330
Reports, a copy of the SAI and other information about the Fund is also
available on the SEC's website at http://www.sec.gov.
INVESTMENT COMPANY ACT FILE NO. 811-9275
<PAGE>
GAMNA SERIES FUNDS, INC.
GAMNA FOCUS FUND
STATEMENT OF
ADDITIONAL INFORMATION
JULY 23, 1999
This Statement of Additional Information sets forth information about GAMNA
Series Funds, Inc. and its portfolio, GAMNA Focus Fund, which may be of interest
to investors but which is not necessarily included in the prospectus dated July
23, 1999 (the "Prospectus") offering shares of GAMNA Focus Fund. This Statement
of Additional Information should be read in conjunction with the Prospectus.
Copies of the Prospectus may be obtained by an investor without charge by
contacting Provident Distributors, Inc., the Fund's distributor (the
"Distributor"), at the address or phone number listed below.
This Statement of Additional Information is not a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus.
For more information about your account, simply call or write GAMNA Focus
Fund at:
1-888-287-4093
GAMNA Focus Fund
Four Falls Corporate Center
Sixth Floor
West Conshohocken, PA 19428-2961
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
THE FUND.................................................................. 1
INVESTMENT POLICIES AND RESTRICTIONS...................................... 1
PERFORMANCE INFORMATION................................................... 6
DETERMINATION OF NET ASSET VALUE.......................................... 7
PURCHASES, REDEMPTIONS AND EXCHANGES...................................... 7
DISTRIBUTIONS; TAX MATTERS................................................ 10
MANAGEMENT OF THE COMPANY AND THE FUND.................................... 14
DISTRIBUTION PLANS........................................................ 16
DISTRIBUTION AGREEMENT.................................................... 18
TRANSFER AGENT AND CUSTODIAN.............................................. 18
INDEPENDENT ACCOUNTANTS................................................... 18
COUNSEL................................................................... 18
EXPENSES.................................................................. 18
GENERAL INFORMATION....................................................... 19
</TABLE>
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THE FUND
GAMNA Series Funds, Inc. (the "Company") is an open-end investment company
which was organized as a corporation under the laws of the State of Maryland on
March 18, 1999. The Company presently consists of a single series, GAMNA Focus
Fund (the "Fund"). The Fund is non-diversified, as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The shares of the
Fund are collectively referred to in this Statement of Additional Information as
the "Shares."
The Board of Directors of the Company provides broad supervision over the
affairs of the Company including the Fund. Groupama Asset Management, N.A.
("GAMNA" or the "Adviser") is the investment adviser for the Fund. PFPC Inc.
serves as the Company's administrator (the "Administrator") and supervises the
overall administration of the Company, including the Fund.
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT POLICIES
The Prospectus sets forth the various investment policies of the Fund. The
following information supplements and should be read in conjunction with the
related sections of the Prospectus. Except as specifically set forth below under
"Investment Restrictions", the investment policies of the Fund (including the
Fund's investment objective) are non-fundamental and may be changed without the
approval of the shareholders of the Fund. In the event of a change in the Fund's
investment objective, shareholders will be given at least 30 days' written
notice prior to such a change. For descriptions of the securities ratings of
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P") see Appendix A.
DEPOSITARY RECEIPTS. The Fund may invest in securities of multinational
companies in the form of American Depositary Receipts or other similar
securities representing securities of foreign issuers, such as European
Depositary Receipts, Global Depositary Receipts and other similar securities
representing securities of foreign issuers (collectively, "Depositary
Receipts"). These securities carry additional risks associated with investing in
foreign securities. These investment risks may involve, among other
considerations, risks relating to future political and economic developments,
more limited liquidity than comparable domestic securities, the possible
imposition of withholding taxes on income, the possible seizure or
nationalization of foreign assets and the possible establishment of exchange
controls or other restrictions. There may be less publicly available information
concerning foreign issuers, there may be difficulties in obtaining or enforcing
a judgment against a foreign issuer and accounting, auditing and financial
reporting standards and practices may differ from those applicable to U.S.
issuers. The Fund treats Depositary Receipts as interests in the underlying
securities for purposes of its investment policies.
MONEY MARKET INSTRUMENTS. The Fund may invest in cash or high-quality,
short-term money market instruments. These may include U.S. Government
securities, commercial paper of domestic issuers and obligations of domestic
banks.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. Government
Securities. U.S. Government Securities include (1) U.S. Treasury obligations,
which generally differ only in their interest rates, maturities and times of
issuance, including U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years); and (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are supported
by any of the following: (a) the full faith and credit of the U.S. Treasury, (b)
the right of the issuer to borrow any amount listed to a specific line of credit
from the U.S. Treasury, (c) discretionary authority of the U.S. Government to
purchase certain obligations of the U.S. Government agency or instrumentality or
(d) the credit of the agency or instrumentality. Agencies and instrumentalities
of the U.S. Government include but are not limited to: Federal Land Banks,
Federal Financing Banks, Banks for Cooperatives, Federal Intermediate Credit
Banks, Farm Credit Banks, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal National Mortgage Association, Student Loan Marketing
Association, United States Postal Service, Chrysler Corporate Loan Guarantee
1
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Board, Small Business Administration, Tennessee Valley Authority and any other
enterprise established or sponsored by the U.S. Government. Certain U.S.
Government Securities, including U.S. Treasury bills, notes and bonds, are
supported by the full faith and credit of the United States. Other U.S.
Government Securities are issued or guaranteed by federal agencies or government
sponsored enterprises and are not supported by the full faith and credit of the
United States. These securities include obligations that are supported by the
right of the issuer to borrow from the U.S. Treasury and obligations that are
supported by the creditworthiness of the particular instrumentality.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
BANK OBLIGATIONS. Investments in bank obligations are limited to those of
U.S. banks which have total assets at the time of purchase in excess of $1
billion and the deposits of which are insured by either the Bank Insurance Fund
or the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation and such other U.S. commercial banks which are judged by GAMNA to
meet comparable credit standing criteria.
Bank obligations include negotiable certificates of deposit, bankers'
acceptances, fixed time deposits and deposit notes. A certificate of deposit is
a short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by
a borrower, usually in connection with an international commercial transaction.
The borrower is liable for payment as is the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Fixed time
deposits are obligations of branches of United States banks which are payable at
a stated maturity date and bear a fixed rate of interest. Although fixed time
deposits do not have a market, there are no contractual restrictions on the
right to transfer a beneficial interest in the deposit to a third party. Fixed
time deposits subject to withdrawal penalties and with respect to which a Fund
cannot realize the proceeds thereon within seven days are deemed "illiquid" for
the purposes of its restriction on investments in illiquid securities. Deposit
notes are notes issued by commercial banks which generally bear fixed rates of
interest and typically have original maturities ranging from eighteen months to
five years.
Investments in the banking industry may involve certain credit risks, such
as defaults or downgrades, if at some future date adverse economic conditions
prevail in such industry. Banks are subject to extensive governmental
regulations that may limit both the amounts and types of loans and other
financial commitments that may be made and the interest rates and fees that may
be charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. Also, general economic
conditions play an important part in the operations of this industry and
exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations. Bank
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligations or by government
regulation.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements. The
Fund will enter into repurchase agreements only with member banks of the Federal
Reserve System and securities dealers believed creditworthy, and only if fully
collateralized by securities in which the Fund is permitted to invest. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase the instrument and the Fund
to resell the instrument at a fixed price and time, thereby determining the
yield during the Fund's holding period. This procedure results in a fixed rate
of return insulated from market fluctuations during such period. A repurchase
agreement is subject to the risk that the seller may fail to repurchase the
security. Repurchase agreements are considered under the 1940 Act to be loans
collateralized by the underlying securities. All repurchase agreements entered
into by the Fund will be fully
2
<PAGE>
collateralized at all times during the period of the agreement in that the value
of the underlying security will be at least equal to 100% of the amount of the
loan, including the accrued interest thereon, and the Fund or its custodian will
have possession of the collateral, which the Board of Directors believes will
give it a valid, perfected security interest in the collateral. Whether a
repurchase agreement is the purchase and sale of a security or a collateralized
loan has not been conclusively established. This might become an issue in the
event of the bankruptcy of the other party to the transaction. In the event of
default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities would not be owned by the Fund,
but would only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, the Fund may suffer time delays and incur costs in
connection with the disposition of the collateral. The collateral underlying
repurchase agreements may be more susceptible to claims of the seller's
creditors than would be the case with securities owned by the Fund. Repurchase
agreements maturing in more than seven days are treated as illiquid for purposes
of the Fund's restrictions on purchases of illiquid securities.
BORROWINGS. The Fund may borrow money from banks for temporary or
short-term purposes. But the Fund may not borrow money to buy additional
securities, which is known as "leveraging."
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements. Reverse repurchase agreements involve the sale of securities held by
the Fund with an agreement to repurchase the securities at an agreed upon price
and date. The Fund may use this practice to generate cash for shareholder
redemptions without selling securities during unfavorable market conditions.
Whenever the Fund enters into a reverse repurchase agreement, it will establish
a segregated account in which it will maintain liquid assets on a daily basis in
an amount at least equal to the repurchase price (including accrued interest).
The Fund would be required to pay interest on amounts obtained through reverse
repurchase agreements, which are considered borrowings under federal securities
laws. The repurchase price is generally equal to the original sales price plus
interest. Reverse repurchase agreements are usually for seven days or less and
cannot be repaid prior to their expiration dates. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities transferred
may decline below the price at which the Fund is obliged to purchase the
securities.
OTHER INVESTMENT COMPANIES. The Fund may invest up to 10% of its total
assets in shares of other investment companies when consistent with its
investment objective and policies, subject to applicable regulatory limitations.
Additional fees may be charged by other investment companies.
SECURITIES LOANS. The Fund is permitted to lend its securities to
broker-dealers and other institutional investors in order to generate additional
income. Such loans of portfolio securities may not exceed 30% of the value of
the Fund's total assets. In connection with such loans, the Fund will receive
collateral consisting of cash, cash equivalents, U.S. Government securities or
irrevocable letters of credit issued by financial institutions. Such collateral
will be maintained at all times in an amount equal to at least 100% of the
current market value plus accrued interest of the securities loaned. The Fund
can increase its income through the investment of such collateral. The Fund
continues to be entitled to the interest payable or any dividend-equivalent
payments received on a loaned security and, in addition, to receive interest on
the amount of the loan. However, the receipt of any dividend-equivalent payments
by the Fund on a loaned security from the borrower will not qualify for the
dividends-received deduction. Such loans will be terminable at any time upon
specified notice. The Fund might experience risk of loss if the institutions
with which it has engaged in portfolio loan transactions breach their agreements
with the Fund. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower experience financial difficulty. Loans will
be made only to firms deemed by GAMNA to be of good standing and will not be
made unless, in the judgment of GAMNA, the consideration to be earned from such
loans justifies the risk.
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<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which may not be
changed without approval by a "majority of the outstanding shares" of the Fund
which, as used in this Statement of Additional Information, means the vote of
the lesser of (i) 67% or more of the shares of the Fund present or represented
by proxy at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The Fund may not:
(1) borrow money, except that the Fund may borrow money for temporary or
emergency purposes, or by engaging in reverse repurchase transactions, in an
amount not exceeding 33 1/3% of the value of its total assets at the time
when the loan is made and may pledge, mortgage or hypothecate no more than
1/3 of its net assets to secure such borrowings;
(2) make loans, except that the Fund may: (i) purchase and hold debt
instruments (including without limitation, bonds, notes, debentures or other
obligations and certificates of deposit, bankers' acceptances and fixed time
deposits) in accordance with its investment objectives and policies; (ii)
enter into repurchase agreements with respect to portfolio securities; (iii)
lend portfolio securities with a value not in excess of one-third of the
value of its total assets; and (iv) delays in the settlement of securities
transactions will not be considered loans;
(3) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured thereby) if, as a
result, more than 25% of the Fund's total assets would be invested in the
securities of companies whose principal business activities are in the same
industry;
(4) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments but this shall not prevent the
Fund from investing in securities or other instruments backed by physical
commodities;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments. Investments by the Fund in
marketable securities of companies engaged in such activities are not hereby
precluded;
(6) issue any senior security (as defined in the 1940 Act), except that
(a) the Fund may engage in transactions that may result in the issuance of
senior securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act; (b) the Fund may acquire other securities,
the acquisition of which may result in the issuance of a senior security, to
the extent permitted under applicable regulations or interpretations of the
1940 Act; and (c) subject to the restrictions set forth above, the Fund may
borrow money as authorized by the 1940 Act; or
(7) underwrite securities issued by other persons except insofar as the
Fund may technically be deemed to be an underwriter under the Securities Act
of 1933 in selling a portfolio security.
The following investment restrictions of the Fund may be changed without the
approval of the shareholders of the Fund. The Fund may not:
(1) hold more than 25% of its total assets in securities of any single
issuer and, with respect to 50% of its total assets, hold more than 10% of
the outstanding voting securities of any issuer or invest more than 5% of
its total assets in the securities of any one issuer other than obligations
of the U.S. government, its agencies and instrumentalities.
(2) make short sales of securities, including short sales "against the
box," or purchase securities on margin except for short-term credit
necessary for clearance of portfolio transactions.
(3) invest more than 15% of its net assets in illiquid securities.
(4) write, purchase or sell any put or call option or any combination
thereof.
If a percentage or rating restriction on investment or use of assets set
forth herein or in a Prospectus is adhered to at the time a transaction is
effected, later changes in percentage resulting from any cause other
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<PAGE>
than actions by the Fund will not be considered a violation; provided, however,
that the Fund will be required to reduce its outstanding borrowings in
accordance with the requirements of the 1940 Act if its asset coverage falls
below 300%. If the value of the Fund's holdings of illiquid securities at any
time exceeds the percentage limitation applicable at the time of acquisition due
to subsequent fluctuations in value or other reasons, the Board of Directors
will consider what actions, if any, are appropriate to maintain adequate
liquidity.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Specific decisions to purchase or sell securities for the Fund are made by
the Portfolio Manager. Changes in the Fund's investments are reviewed by the
Board of Directors of the Company. The Portfolio Manager may serve other clients
of GAMNA in a similar capacity.
The frequency of the Fund's portfolio transactions--the portfolio turnover
rate--will vary from year to year depending upon market conditions. The Fund
estimates that its portfolio turnover rate will not exceed 300%. A high turnover
rate may increase transaction costs, including brokerage commissions and dealer
mark-ups, and the possibility of taxable short-term gains. A high turn-over rate
could thus make it more difficult for the Fund to qualify as a registered
investment company under federal tax law. Therefore, GAMNA will weigh the added
costs of short-term investment against anticipated gains, and the Fund will
engage in portfolio trading if the Adviser believes a transaction, net of costs
(including custodian charges), will help it achieve its investment objective.
Under the Advisory Agreement, GAMNA shall use its best efforts to seek to
execute portfolio transactions at prices which, under the circumstances, result
in total costs or proceeds being the most favorable to the Fund. In assessing
the best overall terms available for any transaction, GAMNA considers all
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, research services provided to GAMNA, and the
reasonableness of the commissions, if any, both for the specific transaction and
on a continuing basis. GAMNA is not required to obtain the lowest commission or
the best net price for the Fund on any particular transaction, and is not
required to execute any order in a fashion either preferential to the Fund
relative to other accounts they manage or otherwise materially adverse to such
other accounts.
Debt securities are traded principally in the over-the-counter market
through dealers acting on their own account and not as brokers. In the case of
securities traded in the over-the-counter market (where no stated commissions
are paid but the prices include a dealer's markup or markdown), GAMNA normally
seeks to deal directly with the primary market makers unless, in its opinion,
best execution is available elsewhere. In the case of securities purchased from
underwriters, the cost of such securities generally includes a fixed
underwriting commission or concession.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, GAMNA may cause the Fund to pay a broker-dealer
which provides brokerage and research services to GAMNA, the Fund and/or other
accounts for which they exercise investment discretion an amount of commission
for effecting a securities transaction for the Fund in excess of the amount
other broker-dealers would have charged for the transaction if they determine in
good faith that the greater commission is reasonable in relation to the value of
the brokerage and research services provided by the executing broker-dealer
viewed in terms of either a particular transaction or their overall
responsibilities to accounts over which they exercise investment discretion. Not
all of such services are useful or of value in advising the Fund. GAMNA reports
to the Board of Directors regarding overall commissions paid by the Fund and
their reasonableness in relation to the benefits to the Fund. The term
"brokerage and research services" includes advice as to the value of securities,
the advisability of investing in, purchasing or selling securities, and the
availability of securities or of purchasers or sellers of securities, furnishing
analyses and reports concerning issues, industries, securities, economic factors
and trends, portfolio strategy and the performance of accounts, and effecting
securities transactions and performing functions incidental thereto such as
clearance and settlement.
5
<PAGE>
The management fees that the Fund pays to GAMNA will not be reduced as a
consequence of GAMNA's receipt of brokerage and research services. To the extent
the Fund's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid by an amount which cannot be presently determined. Such services generally
would be useful and of value to GAMNA in serving one or more of their other
clients and, conversely, such services obtained by the placement of brokerage
business of other clients generally would be useful to GAMNA in carrying out its
obligations to the Fund. While such services are not expected to reduce the
expenses of GAMNA, GAMNA would, through use of the services, avoid the
additional expenses which would be incurred if it should attempt to develop
comparable information through its own staff.
In certain instances, there may be securities that are suitable for one or
more of the accounts advised by GAMNA. Investment decisions for the Fund and for
other clients are made with a view to achieving their respective investment
objectives. It may develop that the same investment decision is made for more
than one client or that a particular security is bought or sold for only one
client even though it might be held by, or bought or sold for, other clients.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling that same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Fund is concerned.
However, it is believed that the ability of the Fund to participate in volume
transactions will generally produce better executions for the Fund.
No portfolio transactions are executed with any affiliate of GAMNA or the
Distributor, acting either as principal or as broker.
PERFORMANCE INFORMATION
From time to time, the Fund may use hypothetical investment examples and
performance information in advertisements, shareholder reports or other
communications to shareholders. Performance is calculated separately for each
class of Shares. Because such performance information is based on past
investment results, it should not be considered as an indication or
representation of the performance of any classes of the Fund in the future. From
time to time, the performance of classes of the Fund may be quoted and compared
to those of other mutual funds with similar investment objectives, unmanaged
investment accounts, including savings accounts, or other similar products and
to stock or other relevant indices or to rankings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the performance of the Fund or its
classes may be compared to data prepared by Lipper Analytical Services, Inc. or
Morningstar Mutual Fund on Disc, widely recognized independent services which
monitor the performance of mutual funds. Performance data as reported in
national financial publications including, but not limited to, Money Magazine,
Forbes, Barron's, The Wall Street Journal and The New York Times, or in local or
regional publications, may also be used in comparing the performance of the Fund
or its classes. The Fund's performance may be compared with indices such as the
S&P 500 Index, the Dow Jones Industrial Average or any other commonly quoted
index of common stock prices. Additionally, the Fund may, with proper
authorization, reprint articles written about the Fund and provide them to
prospective shareholders.
The Fund may provide period and average annual "total rates of return." The
"total rate of return" refers to the change in the value of an investment in the
Fund over a period (which period shall be stated in any advertisement or
communication with a shareholder) based on any change in net asset value per
share including the value of any Shares purchased through the reinvestment of
any dividends or capital gains distributions declared during such period. For
Class A Shares, the average annual total rate of return figures will assume
payment of the maximum initial sales load at the time of purchase. For Class B
and Class C Shares, the average annual total rate of return figures will assume
deduction of the applicable
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<PAGE>
contingent deferred sales charge imposed on a total redemption of Shares held
for the period. One-, five-, and ten-year periods will be shown, unless the
class has been in existence for a shorter period.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yields and the net asset values of the classes of
Shares will vary based on market conditions, the current market value of the
securities held by the Fund and changes in the Fund's expenses.
Advertising or communications to shareholders may contain the views of GAMNA
as to current market, economic, trade and interest rate trends, as well as
legislative, regulatory and monetary developments, and may include investment
strategies and related matters believed to be of relevance to the Fund.
For purposes of quoting and comparing the performance of each class of the
Fund to that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in terms
of total return. Total return quotations are computed separately for each class
of Shares of the Fund. Under the rules of the SEC, funds advertising performance
must include average annual total return quotes calculated according to the
following formula:
<TABLE>
<C> <C> <S>
P(1 + T) TO THE = ERV
POWER OF
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5, or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5, or 10 year periods at the end of
the 1, 5, or 10 year period (or fractional portion thereof).
</TABLE>
DETERMINATION OF NET ASSET VALUE
As of the date of this Statement of Additional Information, the New York
Stock Exchange is open for trading every weekday except for the following
holidays: New Year's Day, Martin Luther King Jr.'s Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Equity securities in the Fund's portfolio are valued at the last sale price
on the exchange on which they are primarily traded or on the NASDAQ National
Market System, or at the last quoted bid price for securities in which there
were no sales during the day or for other unlisted (over-the-counter) securities
not reported on the NASDAQ National Market System. Bonds and other fixed income
securities (other than short-term obligations, but including listed issues) in
the Fund's portfolio are valued on the basis of valuations furnished by a
pricing service, the use of which has been approved by the Board of Directors.
In making such valuations, the pricing service utilizes both dealer-supplied
valuations and electronic data processing techniques that take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon quoted
prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations which mature in 60 days or less are valued at amortized
cost, which approximates market value. Portfolio securities (other than
short-term obligations) for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Board of Directors.
Interest income on long-term obligations in the Fund's portfolio is
determined on the basis of coupon interest accrued plus amortization of discount
(the difference between acquisition price and stated redemption price at
maturity) and premiums (the excess of purchase price over stated redemption
price at maturity). Interest income on short-term obligations is determined on
the basis of interest and discount accrued less amortization of premium.
PURCHASES, REDEMPTIONS AND EXCHANGES
The Fund has established certain procedures and restrictions, subject to
change from time to time, for purchase, redemption, and exchange orders,
including procedures for accepting telephone instructions and effecting
automatic investments and redemptions. The Fund's Transfer Agent may defer
acting on a
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<PAGE>
shareholder's instructions until it has received them in proper form. In
addition, the privileges described in the Prospectus are not available until a
completed and signed account application has been received by the Transfer
Agent. Telephone transaction privileges are made available to shareholders
automatically upon opening an account unless the privilege is declined on the
Account Application. The Telephone Exchange Privilege is not available if you
were issued certificates for Shares that remain outstanding.
Upon receipt of any instructions or inquiries by telephone from a
shareholder or, if held in a joint account, from either party, or from any
person claiming to be the shareholder, the Fund or its agent is authorized,
without notifying the shareholder or joint account parties, to carry out the
instructions or to respond to the inquiries, consistent with the service options
chosen by the shareholder or joint shareholders in his or their latest account
application or other written request for services, including purchasing,
exchanging, or redeeming Shares and depositing and withdrawing monies from the
bank account specified in the shareholder's latest account application or as
otherwise properly specified to the Fund in writing.
Subject to compliance with applicable regulations, the Fund has reserved the
right to pay the redemption price of its Shares, either totally or partially, by
a distribution in kind of readily marketable portfolio securities (instead of
cash). The Company has filed an election under Rule 18f-1 committing to pay in
cash all redemptions by a shareholder of record up to amounts specified by the
rule (approximately $250,000). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the Shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash.
Class B Shares automatically convert to Class A Shares (and thus are then
subject to the lower expenses borne by Class A Shares) after the beginning of
the ninth year after the date of purchase (the "CDSC Period"), together with the
pro rata portion of all Class B Shares representing dividends and other
distributions paid in additional Class B Shares attributable to the Class B
Shares then converting. At the time of the conversion the net asset value per
share of the Class A Shares may be higher or lower than the net asset value per
share of the Class B Shares; as a result, depending on the relative net asset
values per share, a shareholder may receive fewer or more Class A Shares than
the number of Class B Shares converted.
The Fund may require signature guarantees for changes that shareholders
request be made in Fund records with respect to their accounts, including but
not limited to, changes in bank accounts, for any written requests for
additional account services made after a shareholder has submitted an initial
account application to the Fund, and in certain other circumstances described in
the Prospectus. The Fund may also refuse to accept or carry out any transaction
that does not satisfy any restrictions then in effect. A signature guarantee may
be obtained from a bank, trust company, broker-dealer or other member of a
national securities exchange. Please note that a notary public cannot provide a
signature guarantee.
Investors may incur a fee if they effect transactions through a broker or
agent.
REDUCED SALES CHARGES
Class A Shares may be purchased by any person at a reduced initial sales
charge which is determined by (a) aggregating the dollar amount of the new
purchase and the greater of the purchaser's total (i) net asset value or (ii)
cost of any Shares acquired and still held in the Fund and (b) applying the
initial sales charge applicable to such aggregate dollar value (the "Cumulative
Quantity Discount"). The privilege of the Cumulative Quality Discount is subject
to modification or discontinuance at any time with respect to all Class A Shares
purchased thereafter.
An individual who is a member of a qualified group (as hereinafter defined)
may also purchase Class A Shares at the reduced sales charge applicable to the
group taken as a whole. The reduced initial sales charge is based upon the
aggregate dollar value of Class A Shares previously purchased and still owned by
the group plus the securities currently being purchased and is determined as
stated in the preceding paragraph. In order to obtain such Discount, the
purchaser or investment dealer must provide the Transfer Agent with sufficient
information, including the purchaser's total cost, at the time of purchase to
permit verification that the purchaser qualifies for a Cumulative Quantity
Discount, and confirmation of the order is subject to such verification.
Information concerning the current initial sales charge applicable to a group
may be obtained by contacting the Transfer Agent.
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<PAGE>
A "qualified group" is one which (i) has been in existence for more than six
months, (ii) has a purpose other than acquiring Class A Shares at a discount and
(iii) satisfies uniform criteria which enables the Distributor to realize
economies of scale in its costs of distributing Class A Shares. A qualified
group must have more than 10 members, must be available to arrange for group
meetings between representatives of the Fund and the members must agree to
include sales and other materials related to the Fund in its publications and
mailings to members at reduced or no cost to the Distributor, and must seek to
arrange for payroll deduction or other bulk transmission of investments in the
Fund. This would include, but it not limited to, retirement plans under Section
401 or 408 of the Internal Revenue Code. This privilege is subject to
modification or discontinuance at any time with respect to all Class A Shares
purchased thereafter.
The Fund may sell Class A Shares without an initial sales charge to (i) the
Directors of the Company (and their immediate families), (ii) GAMNA, its
affiliates and their employees (and their immediate families), (iii) the Fund's
Distributor and transfer agent or any affiliates or subsidiaries thereof,
registered representatives and other employees (and their immediate families) of
broker-dealers having selected dealer agreements with the Fund's Distributor,
(iv) employees (and their immediate families) of financial institutions having
selected dealer agreements with the Fund's Distributor (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to sales
of GAMNA Focus Fund Shares), (v) participants in "wrap-fee" or asset allocation
programs or other fee-based arrangements sponsored by broker-dealers and other
financial institutions that have entered into agreements with GAMNA, (vi) and
financial institution trust departments investing an aggregate of $1 million or
more in GAMNA Focus Fund.
Purchases of the Fund's Class A Shares may be made with no initial sales
charge (i) by an investment adviser, broker or financial planner, provided
arrangements are preapproved and purchases are placed through an omnibus account
with the Fund or (ii) by clients of such investment adviser or financial planner
who place trades for their own accounts, if such accounts are linked to a master
account of such investment adviser or financial planner on the books and records
of the broker or agent.
Initial sales charges on Class A Shares may be waived if the investor is
using redemption proceeds received within the prior ninety days from non-GAMNA
funds to buy his or her Shares, and on which he or she paid a front-end or
contingent deferred sales charge.
Some participant-directed employee benefit plans participate in a
"multi-fund" program which offers both GAMNA and non-GAMNA mutual funds. The
money that is invested in GAMNA Focus Fund may be combined with the other mutual
funds in the same program when determining the plan's eligibility to buy Class A
Shares for purposes of the discount privileges and programs described above.
No initial sales charge will apply to the purchase of the Fund's Class A
Shares if (i) one is investing proceeds from a qualified retirement plan where a
portion of the plan was invested in GAMNA Focus Fund, (ii) one is investing
through any qualified retirement plan with 50 or more participants or (iii) one
is a participant in certain qualified retirement plans and is investing (or
reinvesting) the proceeds from the repayment of a plan loan made to him or her.
Purchases of the Fund's Class A Shares may be made with no initial sales
charge in accounts opened by a bank, trust company or thrift institution which
is acting as a fiduciary exercising investment discretion, provided that
appropriate notification of such fiduciary relationship is reported at the time
of the investment to the Fund or the Fund's Distributor.
The contingent deferred sales charge for Class B and Class C Shares will be
waived for redemptions in connection with the Fund's systematic redemption plan.
In addition, subject to confirmation of a shareholder's status, the contingent
deferred sales charge will be waived for: (i) a total or partial redemption made
within one year of the shareholder's death or initial qualification for Social
Security disability payments; (ii) a redemption in connection with a Minimum
Required Distribution from an IRA, Keogh or custodial account under section
403(b) of the Internal Revenue Code or a mandatory distribution from a qualified
plan; (iii) redemptions made from an IRA, Keogh or custodial account under
section 403(b) of the Internal Revenue Code through an established Systematic
Redemption Plan; (iv) a redemption
9
<PAGE>
resulting from an over-contribution to an IRA; (v) distributions from a
qualified plan upon retirement; (vi) an involuntary redemption of an account
balance under $500; (vii) the redemption of Shares by participants in certain
wrap-fee or asset allocation programs sponsored by broker-dealers and other
financial institutions that have entered into agreements with GAMNA.
The Fund reserve the right to change any of these policies at any time and
may reject any request to purchase Shares at a reduced sales charge.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Fund's Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussions here and in
the Fund's Prospectus are not intended as substitutes for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and to meet all other requirements that are necessary for it to be
relieved of federal taxes on income and gains it distributes to shareholders. As
a regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., its investment company taxable
income, as that term is defined in the Code, without regard to the deduction for
dividends paid ) and net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) that it distributes to shareholders,
provided that it distributes at least 90% of its net investment income for the
taxable year (the "Distribution Requirement"), and satisfies certain other
requirements of the Code that are described below. Distributions by the Fund
made during the taxable year or, under specified circumstances, within twelve
months after the close of the taxable year, will be considered distributions of
income and gains of the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement for each taxable
year, a regulated investment company must derive at least 90% of its gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income derived with respect to its business of investing
in such stock, securities or currencies (the "Income Requirement").
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
The Fund may make investments that produce income that is not matched by a
corresponding cash distribution to the Fund, such as investments having original
issue discount (i.e., an amount equal to the excess of the stated redemption
price of the security at maturity over its issue price) or market discount
(i.e., an amount equal to the excess of the stated redemption price of the
security over the basis of such bond immediately after it was acquired), if the
Fund elects to accrue market discount on a current basis. In addition, income
may continue to accrue for federal income tax purposes with respect to a
non-performing investment. Any such income would be treated as income earned by
the Fund and therefore would be subject to the distribution requirements of the
Code. Because such income may not be matched by a
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<PAGE>
corresponding cash distribution to the Fund, the Fund may be required to borrow
money or dispose of other securities to be able to make distributions to its
investors.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to or exceeding
the sum of 98% of ordinary taxable income for the calendar year and 98% of
capital gain net income generally computed for the one-year period ended on
October 31 of such calendar year and 100% of any amount undistributed from the
prior calendar year. For the foregoing purposes, a regulated investment company
is treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its net investment
income for each taxable year. Such distributions will be taxable to shareholders
as ordinary income and treated as dividends for federal income tax purposes, but
they will qualify for the 70% dividends-received deduction for corporations only
to the extent discussed below. Dividends paid on Class A, Class B and Class C
Shares are calculated at the same time.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a "capital gain
dividend," it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his Shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his Shares.
The maximum rate of tax on long-term capital gains of individuals is 20%
(10% for gains otherwise taxed at 15%) with respect to capital assets held for
more than one year.
If the Fund elects to retain its net capital gain, the Fund will be taxed
thereon (except to the extent of any available capital loss carryovers) at the
35% corporate tax rate. If the Fund elects to retain its net capital gain, it is
expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his Shares by an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations to the extent of the amount of qualifying dividends received by the
Fund from domestic corporations for the taxable year. A dividend received by the
Fund will not be treated as a qualifying dividend (1) if it has been received
with respect to any share of stock that the Fund has held for less than 46 days
(91 days in the case of certain preferred stock) during the 90 day period
beginning on the date which is 45 days before the date on which such share
becomes ex-dividend with respect to such dividend (during the 180 day period
beginning 90 days before such date in the case of certain preferred stock) under
the rules of Code Section 246(c)(3) and (4); (2) to the extent
11
<PAGE>
that the Fund is under an obligation to make related payments with respect to
positions in substantially similar or related property; or (3) to the extent the
stock on which the dividend is paid is treated as debt-financed under the rules
of Code Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced if the corporate shareholder fails to
satisfy the foregoing requirements with respect to its Shares.
Distributions by the Fund that do not constitute ordinary income dividends,
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his Shares; any excess
will be treated as gain from the sale of his Shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional Shares. Shareholders receiving a distribution in the form of
additional Shares will be treated as receiving a distribution in an amount equal
to the fair market value of the Shares received, determined as of the
reinvestment date. In addition, if the net asset value at the time a shareholder
purchases Shares reflects undistributed net investment income or net capital
gain, or unrealized appreciation in the value of the assets of the Fund,
distributions of such amounts will be taxable to the shareholder in the manner
described above, although such distributions economically constitute a return of
capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of Shares, paid to any shareholder (1) who has provided
either an incorrect taxpayer identification number or no number at all, (2) who
is subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation or
other "exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
Shares in an amount equal to the difference between the proceeds of the sale or
redemption and the shareholder's adjusted tax basis in the Shares. All or a
portion of any loss so recognized may be disallowed if the shareholder purchases
other Shares within 30 days before or after the sale or redemption. In general,
any gain or loss arising from (or treated as arising from) the sale or
redemption of Shares will be considered capital gain or loss and will be
long-term capital gain or loss if the Shares were held for longer than one year.
However, any capital loss arising from the sale or redemption of Shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such Shares. For this purpose,
special holding period rules may apply in determining the holding period of
Shares. Capital losses in any year are deductible only to the extent of capital
gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
12
<PAGE>
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, dividends paid to a foreign
shareholder from net investment income will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Such a foreign shareholder would generally be exempt from U.S. federal income
tax on gains realized on the sale of Shares and capital gain dividends and
amounts retained by the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of Shares will be
subject to U.S. federal income tax at the rates applicable to U.S. citizens or
domestic corporations. In the case of foreign noncorporate shareholders, the
Fund may be required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless such shareholders furnish the Fund with proper
notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
STATE AND LOCAL TAX MATTERS
Depending on the residence of the shareholder for tax purposes,
distributions may also be subject to state and local taxes or withholding taxes.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in the Fund.
EFFECT OF FUTURE LEGISLATION
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
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<PAGE>
MANAGEMENT OF THE COMPANY AND THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Corporation shall be managed under the
direction of its Board of Directors. The Directors and officers of the Company
and their principal occupations for at least the past five years are set forth
below.
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS POSITION HELD WITH FUND PRINCIPAL OCCUPATION(S) PAST 5 YEARS
- ------------------------------------- ---------------------------- ---------------------------------------------
<S> <C> <C>
Robert T. Adams (age 44) Director Attorney, Wilson, Elser, Moskowitz, Edelman &
150 E. 42nd Street Dicker, 1986-present.
New York, NY 10017-5639
Vincent Benefico (age 38) Director Manager, Fixed Income Product Management,
263 Tresser Blvd., 14th Fl. Reuters America Holdings, Inc. ("Reuters"), a
Stamford, CT 06901 vendor of financial news and information,
1999-present; Product Support Manager,
Reuters, 1997-1999; Technical Specialist,
Reuters, 1995-1997; Manager, Quality Control,
Reuters, 1992-1997.
Mark Bronzo (age 38)* Director, President and Senior Vice President (1998-present), Vice
180 Maiden Lane Chief Executive Officer President (1995-1998), Managing Director and
New York, NY 10038 Board Member (1998-present) of GAMNA
(formerly Sorema Asset Management
Company)--1995-present; Chief Investment
Officer of Sorema N.A. Group--1989-1998
James S. Carluccio (age 45) Director Independent consultant, 2/99-present;
70 Wearimus Road Executive Vice President, Technology
Ho-Ho-Kus, NJ 07423 Solutions Company, 1992-1999
Edward Fogarty, Jr. (age 40) Director Attorney, White & McSpedon, P.C.,
875 Avenue of the Americas 4/19/1999-present; attorney, Fogarty &
New York, NY 10001 Fogarty PC, 1984-1999
Daniel Portanova (age 38)* Director, Treasurer and Senior Vice President, Managing Director and
180 Maiden Lane Chief Operating Officer Board Member of GAMNA--1998-present; Vice
New York, NY 10038 President and Managing Director of Sorema
Asset Management Company, 1995-1998; Managing
Director-- General Reinsurance Asset
Management--1993-1995
Jonathan M. Rather (age 39) Director General Partner and Chief Financial Officer
425 Park Avenue, 28th Floor of Welsh, Carson, Anderson & Stowe, a private
New York, NY 10022 equity investment firm in health care and
information services--currently; Chief
Operating Officer and Chief Financial Officer
of Goelet Corporation, 1985-1999
Iona Watter (age 46) Secretary Second Vice President (1999), Corporate
Secretary and Compliance Officer, GAMNA
1995-present; Second Vice President and
Corporate Secretary of Sorema N.A. Group
(1994-1999); AVP and Assistant Corporate
Secretary (1989-1994).
</TABLE>
- ------------------------
* Asterisks indicate those Directors that are "interested persons" (as defined
in the 1940 Act).
The Board of Directors of the Company presently has an Audit Committee and a
Nominating Committee. The members of the Audit and Nominating Committees are
Messrs. Adams, Benefico,
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<PAGE>
Carluccio, Fogarty and Rather. The function of the Audit Committee is to
recommend independent auditors and monitor accounting and financial matters. The
Nominating Committee nominates directors.
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
Each Director who is not an affiliate of GAMNA receives a fee which consists
of an annual retainer of $3,000 and a meeting fee of $500 for each meeting
attended. Each Director is also reimbursed for expenses incurred in attending
each meeting of the Board of Directors or any committee thereof.
The Articles of Incorporation provide that the Company will indemnify its
Directors and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Company, unless, as to liability to the Company or its shareholders, it is
finally adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices or with
respect to any matter unless it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best interest
of the Company. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination based upon a
review of readily available facts, by vote of a majority of disinterested
Directors or in a written opinion of independent counsel, that such officers or
Directors have not engaged in willful misfeasance, bad faith, gross negligence
or reckless disregard of their duties.
GAMNA
GAMNA acts as investment adviser to the Fund pursuant to an Investment
Advisory Agreement, (the "Advisory Agreement"). Subject to such policies as the
Board of Directors may determine, GAMNA is responsible for investment decisions
for the Fund. Pursuant to the terms of the Advisory Agreement, GAMNA provides
the Fund with such investment advice and supervision as it deems necessary for
the proper supervision of the Fund's investments. GAMNA provides a continuous
investment program and determines from time to time what securities shall be
purchased, sold or exchanged and what portion of the Fund's assets shall be held
uninvested. GAMNA also oversees certain administrative, compliance and
accounting services for the Fund. GAMNA furnishes, at its own expense, all
services, facilities and personnel necessary in connection with managing the
investments and effecting portfolio transactions for the Fund. The Advisory
Agreement for the Fund will continue in effect for an initial two year period
and thereafter for successive annual periods provided that such continuance is
specifically approved at least annually by (i) the Board of Directors or by vote
of a majority of the Fund's outstanding voting securities and (ii) by a majority
of the Directors who are not parties to the Advisory Agreement or interested
persons of any such party, at a meeting called for the purpose of voting on such
Advisory Agreement.
Pursuant to the terms of the Advisory Agreement, GAMNA is permitted to
render services to others. The Advisory Agreement is terminable without penalty
by the Company on behalf of the Fund on not more than 60 days', nor less than 30
days', written notice when authorized either by a majority vote of the Fund's
shareholders or by a vote of a majority of the Board of Directors of the
Company, or by GAMNA on not more than 60 days', nor less than 30 days', written
notice, and will automatically terminate in the event of its "assignment" (as
defined in the 1940 Act). The Advisory Agreement provides that GAMNA shall not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Fund, except for wilful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties thereunder.
GAMNA (formerly Sorema Asset Management Company) was formed as a joint
venture between Groupama Asset Management and Sorema N.A. Holding Corporation.
GAMNA is 80% owned by Groupama Asset Management N.A. and 20% owned by Sorema
N.A. Holding Corporation. Groupama Asset Management N.A. is 96.1% owned by
Banque Financiere Groupama, which is in turn owned 67.7% by Groupama Finance and
28.7% by AMACAM. Groupama Finance is 100% owned by Groupama S.A.
15
<PAGE>
AMACAM is 50% owned by Groupama S.A., 25% owned by SACAM S.A. and 25% owned by
CNCA S.A. CNCA S.A. and SACAM S.A. are both controlled by Credit Agricoles.
Sorema N.A. Holding Corporation is 100% owned by Sorema (Paris) which is in turn
owned 100% by Financiere Sorema. Financiere Sorema is 93.5% owned by Groupama
Reassurance. Groupama Reassurance is 36.2% owned by Groupama S.A., 23.45% owned
by Groupama Assurances and Services and 40.35% owned by Groupama. Groupama
Assurances and Services is 96.03% owned by Groupama S.A. Groupama S.A. is 100%
owned by Groupama.
In consideration of the services provided by GAMNA pursuant to the Advisory
Agreement, GAMNA is entitled to receive from the Fund an investment advisory fee
computed daily and paid monthly based on a rate equal to a percentage of the
Fund's average daily net assets specified in the Prospectus. However, GAMNA has
agreed to waive a portion of the fees payable to it for a period of three years.
The Fund will be required to reimburse GAMNA for any advisory fees waived during
the two years following a waiver if it can do so within its 1.90% expense
limitation.
GAMNA may from time to time, at its own expense out of compensation retained
by it from the Fund or other sources available to it, make additional payments
to certain selected dealers or other shareholder servicing agents for performing
administrative services for their customers. These services include maintaining
account records, processing orders to purchase, redeem and exchange Shares and
responding to certain customer inquiries. The amount of such compensation may be
up to an additional 0.10% annually of the average net assets of the Fund
attributable to Shares held by customers of such shareholder servicing agents.
Such compensation does not represent an additional expense to the Fund or its
shareholders, since it will be paid by GAMNA.
ADMINISTRATOR
Pursuant to an Administration Agreement (the "Administration Agreement"),
PFPC Inc. is the administrator of the Fund. The Administrator provides certain
administrative services to the Fund, including, among other responsibilities,
certain accounting, clerical and bookkeeping services, assistance in the
preparation of reports to shareholders, coordinating the negotiation of
contracts and fees with, and the monitoring of performance and billing of, the
Fund's independent contractors and agents; preparation for signature by an
officer of the Company of documents required to be filed for compliance by the
Company with applicable laws and regulations including those of the Securities
and Exchange Commission and the securities laws of various states; arranging for
the computation of performance data, including net asset value; and arranging
for the maintenance of books and records of the Fund and providing, at its own
expense, office facilities, equipment and personnel necessary to carry out its
duties. The Administrator does not have any responsibility or authority for the
management of the Fund, the determination of investment policy, or for any
matter pertaining to the distribution of Shares.
In consideration of the services provided pursuant to the Administration
Agreement, the Administrator receives from the Fund a fee computed daily and
paid monthly at an annual rate equal to .120% of the Fund's first $250 million
of average daily net assets; .095% of the next $250 million; .070% of the next
$250 million; and .050% of the average daily net assets in excess of $750
million. Certain class, base and minimum fees also apply.
DISTRIBUTION PLANS
The Company has adopted separate plans of distribution pursuant to Rule
12b-1 under the 1940 Act (a "Distribution Plan") on behalf of each class of
Shares as described in the Prospectus. The Distribution Plans provide that each
class of Shares shall pay for distribution services a distribution fee (the
"Distribution Fee"), including payments to the Distributor, at annual rates not
to exceed the amounts set forth in the Prospectus. The Distributor may use all
or any portion of such Distribution Fee to pay for Fund expenses of printing
prospectuses and reports used for sales purposes, expenses of the preparation
and
16
<PAGE>
printing of sales literature and other distribution-related expenses, including
payments to selected securities dealers. Promotional activities for the sale of
each class of Shares may be conducted generally, and activities intended to
promote one class of Shares may also benefit the Fund's other Shares.
Class A Shares pay a Distribution Fee of up to 0.25% and Class B and Class C
Shares pay a Distribution Fee of up to 0.75% of average daily net assets. The
Distributor currently expects to pay sales commissions to a dealer at the time
of sale of Class B and Class C Shares of up to 4.00% and 1.00%, respectively, of
the purchase price of the Shares sold by such dealer. The Distributor will use
its own funds (which may be borrowed or otherwise financed) to pay such amounts.
Because the Distributor will receive a maximum Distribution Fee of 0.75% of
average daily net assets with respect to Class B Shares, it will take the
Distributor several years to recoup the sales commissions paid to dealers and
other sales expenses.
Some payments under the Distribution Plans may be used to compensate
broker-dealers with trail or maintenance commissions in an amount not to exceed
0.25% annualized of the average net asset value of Class A Shares, or 0.25%
annualized of the average net asset value of the Class B Shares, or 0.75%
annualized of the average net asset value of the Class C Shares, maintained in
the Fund by such broker-dealers' customers. Trail or maintenance commissions on
Class B and Class C Shares will be paid to broker-dealers beginning the 13th
month following the purchase of such Class B or Class C Shares. Since the
distribution fees are not directly tied to expenses, the amount of distribution
fees paid by the Fund during any year may be more or less than actual expenses
incurred pursuant to the Distribution Plans. For this reason, this type of
distribution fee arrangement is characterized by the staff of the Securities and
Exchange Commission as being of the "compensation variety" (in contrast to
"reimbursement" arrangements by which a distributor's payments are directly
linked to its expenses). With respect to Class B and Class C Shares, because of
the 0.75% annual limitation on the compensation paid to the Distributor during a
fiscal year, compensation relating to a large portion of the commissions
attributable to sales of Class B or Class C Shares in any one year will be
accrued and paid by the Fund to the Distributor in fiscal years subsequent
thereto. In determining whether to purchase Class B or Class C Shares, investors
should consider that compensation payments could continue until the Distributor
has been fully reimbursed for the commissions paid on sales of Class B and Class
C Shares. However, the Shares are not liable for any distribution expenses
incurred in excess of the Distribution Fee paid.
Each class of Shares is entitled to exclusive voting rights with respect to
matters concerning its Distribution Plan.
Each Distribution Plan provides that it will continue in effect indefinitely
if such continuance is specifically approved at least annually by a vote of both
a majority of the Directors and a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Distribution Plans
or in any agreement related to such Plan ("Qualified Directors"). Each
Distribution Plan was approved by the Board of Directors on July 20, 1999 and by
the Sole Shareholder on July 22, 1999. Each Distribution Plan requires that the
Company shall provide to the Board of Directors, and the Board of Directors
shall review, at least quarterly, a written report of the amounts expended (and
the purposes therefor) under the Distribution Plan. Each Distribution Plan
further provides that the selection and nomination of Qualified Directors shall
be committed to the discretion of the disinterested Directors (as defined in the
1940 Act) then in office. Each Distribution Plan may be terminated at any time
by a vote of a majority of the Qualified Directors or by vote of a majority of
the outstanding voting shares of the class of the Fund. Each Distribution Plan
may not be amended to increase materially the amount of permitted expenses
thereunder without the approval of shareholders and may not be materially
amended in any case without a vote of the majority of both the Directors and the
Qualified Directors. The benefit the Fund anticipates from the Distribution
Plans is that the Fund will obtain the Distributor's services as underwriter and
its best efforts at selling Shares of the Fund.
17
<PAGE>
DISTRIBUTION AGREEMENT
The Company has entered into a Distribution Agreement (the "Distribution
Agreement") with the "Distributor", pursuant to which the Distributor serves as
the Fund's exclusive underwriter and has agreed to use its best efforts to
promote and arrange for the sale of each class of Shares and enters into dealer
agreements with broker-dealers to sell shares. The shares will be offered
continuously. The Company pays for all of the expenses for qualification of the
Shares for sale in connection with the public offering of such Shares, and all
legal expenses in connection therewith.
The Distribution Agreement will continue in effect for an initial two year
period and thereafter for successive annual periods only if such continuance is
specifically approved at least annually by (i) the Board of Directors or by vote
of a majority of the Fund's outstanding voting securities and (ii) by a majority
of the Directors who are not parties to the Distribution Agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Distribution Agreement is terminable without penalty by the Company on behalf of
the Fund on 60 days' written notice when authorized either by a majority vote of
the Fund's shareholders or by vote of a majority of the Board of Directors of
the Company, including a majority of the Directors who are not "interested
persons" (as defined in the 1940 Act) of the Company, or by the Distributor on
60 days' written notice, and will automatically terminate in the event of its
"assignment" (as defined in the 1940 Act). The Distribution Agreement also
provides that neither the Distributor nor its personnel shall be liable for any
act or omission in the course of, or connected with, rendering services under
the Distribution Agreement, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties.
TRANSFER AGENT AND CUSTODIAN
The Company has also entered into a Transfer Agency Agreement pursuant to
which PFPC Inc. serves as transfer agent and dividend-paying agent for the
Company. The Transfer Agent's address is 400 Bellevue Parkway, Wilmington, DE
19809.
Pursuant to a Custodian Agreement, PFPC Trust Company serves as the
Custodian of the assets of the Fund and receives such compensation as is agreed
upon from time to time. As Custodian provides oversight and record keeping for
the assets held in the portfolios of the Fund. The Custodian is located at 200
Stevens Drive, Lester, Pennsylvania 19113.
INDEPENDENT ACCOUNTANTS
KPMG LLP provides the Fund with audit services, tax return preparation and
assistance and consultation with respect to the preparation of filings with the
Securities and Exchange Commission. The financial statement included in this
Statement of Additional Information has been included in reliance upon the
report of KPMG LLP, 757 Third Avenue, New York, New York 10017, independent
accountants of the Fund, given on the authority of that firm as experts in
accounting and auditing.
LEGAL COUNSEL
Simpson Thacher & Bartlett serves as counsel to the Company and the Fund.
Piper & Marbury L.L.P., Baltimore, Maryland has issued an opinion regarding the
valid issuance of Shares being offered pursuant to the Fund's Prospectus.
EXPENSES
The Fund pays the expenses incurred in its operations, including its pro
rata share of expenses of the Company. These expenses include investment
advisory and administrative fees; the compensation of the Directors;
registration fees; interest charges; taxes; expenses connected with the
execution, recording and settlement of security transactions; fees and expenses
of the Fund's custodian for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
18
<PAGE>
preparing and mailing reports to investors and to government offices and
commissions; expenses of meetings of investors; fees and expenses of independent
accountants, of legal counsel and of any transfer agent, registrar or dividend
disbursing agent of the Company; insurance premiums; and expenses of calculating
the net asset value of, and the net income on, Shares. Distribution fees are
allocated to specific classes of the Fund. In addition, the Fund may allocate
transfer agency and certain other expenses by class. Service providers to the
Fund may, from time to time, voluntarily waive all or a portion of any fees to
which they are entitled.
GENERAL INFORMATION
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
GAMNA Series Funds, Inc. is an open-end management investment company
organized as corporation under the laws of the State of Maryland on March 18,
1999. The Company currently consists of one series of Shares of common stock,
par value $.01 per share, relating to the GAMNA Focus Fund. The Company has
reserved the right to create and issue additional series or classes. Each share
of a series or class represents an equal proportionate interest in that series
or class with each other share of that series or class. The Shares of each
series or class participate equally in the earnings, dividends and assets of the
particular series or class. Expenses of the Company which are not attributable
to a specific series or class are allocated among all the series in a manner
believed by management of the Company, under the supervision of the Board of
Directors, to be fair and equitable. Shares have no pre-emptive or conversion
rights. Shareholders are entitled to one vote for each whole share held, and
each fractional share shall be entitled to a proportionate fractional vote,
except that Shares held by the Company shall not be voted. Shares of each series
or class generally vote together, except when required under the 1940 Act to
vote separately on matters that only affect a particular class, such as the
approval of distribution plans for a particular class.
The Fund offers Class A, Class B and Class C Shares. The classes of Shares
have several different attributes relating to sales charges and expenses, as
described herein and in the Prospectus. In addition to such differences,
expenses borne by each class of the Fund may differ slightly because of the
allocation of other class-specific expenses. For example, a higher transfer
agency fee may be imposed on certain classes. The relative impact of initial
sales charges, contingent deferred sales charges, and ongoing annual expenses
will depend on the length of time a share is held.
Selected dealers and financial consultants may receive different levels of
compensation for selling one particular class of Shares rather than another.
The business and affairs of the Company are managed under the general
direction and supervision of the Company's Board of Directors. The Company is
not required to and does not currently intend to hold annual meetings of
shareholders but will hold special meetings of shareholders of a series or class
when required by the 1940 Act and when, in the judgment of the Directors, it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have, under certain circumstances, the right to communicate with other
shareholders in connection with requesting a meeting of shareholders. No
material amendment may be made to the Company's Articles of Incorporation
without the affirmative vote of the holders of a majority of the outstanding
shares of each portfolio affected by the amendment. Shares have no preemptive or
conversion rights.
Stock certificates are issued only upon the written request of a
shareholder. No certificates are issued for Class B Shares due to their
conversion feature.
The Board of Directors has adopted a code of ethics addressing personal
securities transactions by investment personnel and access persons and other
related matters. The code has been designated to address potential conflicts of
interest that can arise in connection with personal trading activities of such
persons. Persons subject to the code are generally permitted to engage in
personal securities transactions, subject to certain prohibitions, pre-clearance
requirements and blackout periods.
19
<PAGE>
CONTROL PERSONS, PRINCIPAL HOLDERS AND MANAGEMENT OWNERSHIP
As of the date of this Statement of Additional Information, 100% of the
issued and outstanding common stock of the Company is owned by GAMNA.
As of the date hereof, the Directors and officers as a group own less than
1% of the Fund's outstanding Shares, all of which were acquired for investment
purposes.
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
GAMNA Series Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of
GAMNA Focus Fund of the GAMNA Series Funds, Inc. as of July 19, 1999, and the
related statement of operations for the period from March 18, 1999 (date of
inception) to July 19, 1999. These 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GAMNA Focus Fund as of July
19, 1999, and the results of its operations for the period from March 18, 1999
to July 19, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
New York, New York
July 20, 1999
21
<PAGE>
GAMNA FOCUS FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 19, 1999
<TABLE>
<S> <C>
ASSETS:
Cash............................................................................ $ 100,400
Receivable from advisor......................................................... 20,440
Deferred offering costs......................................................... 39,024
---------
TOTAL ASSETS.................................................................. 159,864
---------
LIABILITIES:
Organization costs payable...................................................... 59,500
Offering costs payable.......................................................... 364
---------
TOTAL LIABILITIES............................................................. 59,864
---------
NET ASSETS $ 100,000
---------
---------
NET ASSETS CONSISTED OF THE FOLLOWING AT JULY 19, 1999:
Paid-in capital................................................................. $ 100,000
---------
NET ASSETS.................................................................... $ 100,000
---------
---------
Shares Outstanding:
Class A......................................................................... 9,998
Class B......................................................................... 1
Class C......................................................................... 1
Net Asset Value:
Class A......................................................................... $10.00
Class B......................................................................... $10.00
Class C......................................................................... $10.00
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
22
<PAGE>
GAMNA FOCUS FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 18, 1999 (DATE OF INCEPTION) TO JULY 19, 1999
<TABLE>
<S> <C>
Expenses:
Organization costs.............................................................. $ 59,500
Expense reimbursements.......................................................... (59,500)
---------
Expenses net of reimbursements.................................................... $ --
---------
---------
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
23
<PAGE>
GAMNA SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 19, 1999
NOTE 1. ORGANIZATION
GAMNA Series Funds, Inc (the "Company"), an open-end management investment
company, has one portfolio, GAMNA Focus Fund (the "Fund"). The Series was
incorporated in Maryland on March 18, 1999. The Fund is classified as a
non-diversified fund under the Investment Company Act of 1940, as amended (the
"1940 Act").
As of July 19, 1999, the Series had no other activity except for matters
relating to its organization and the purchase by Groupama Asset Management N.A.
("GAMNA"), the Fund's investment adviser, of Shares of the Fund.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
NOTE 2. MANAGEMENT AND ADVISORY FEES AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement with GAMNA.
Pursuant to the agreement, GAMNA manages the investment and reinvestment of the
Fund's assets. GAMNA also furnishes office space, personnel and certain
facilities required for the performance by GAMNA of the services provided by it
to the Fund under the management contract.
As compensation for its services, the Fund will pay GAMNA a monthly fee at
an annual rate of 0.55% of the Fund's average daily net assets up to $1 billion
and at an annual rate of 0.50% thereafter.
GAMNA has agreed to impose an expense cap on the total operating expenses
(exclusive of taxes, interest and extraordinary expenses such as litigation and
indemnification expenses) for the Fund at 1.9% for the fiscal year ending June
30, 2000.
NOTE 3. ORGANIZATION AND OFFERING COSTS
Organization expenses estimated at $59,500 have been charged to expense. The
Fund will be reimbursed by GAMNA for organization expenses incurred. As of July
19, 1999 the Fund had a $20,400 receivable from GAMNA for unreimbursed
organization expenses.
Offering costs incurred by the Fund are accounted for as a deferred charge
until operations begin and thereafter amortized to expense over twelve months on
a straightline basis. The Fund estimates that it will incur $145,000 in
additional offering costs within the next three months.
24
<PAGE>
SPECIMEN COMPUTATIONS OF OFFERING PRICES PER SHARE
<TABLE>
<S> <C>
A Shares:
Net Asset Value and Redemption Price per Share at an assumed net asset
value of $10.00 per share........................................... $10.00
Maximum Offering Price per Share (an assumed net value of $10.00 per
share divided by .9425) (reduced on purchases of $100,000 or
more)............................................................... $10.61
B Shares:
Net Asset Value and Redemption Price per Share at an assumed net asset
value of $10.00 per share........................................... $10.00
C Shares:
Net Asset Value and Redemption Price per Share at an assumed net asset
value of $10.00 per share........................................... $10.00
</TABLE>
25
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
A description of the rating policies of Moody's and S&P with respect to
bonds and commercial paper appears below.
MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated "A" possess many favorable investment qualities and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance and
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative
in high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers "1", "2", and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to repay principal and pay
interest.
A-1
<PAGE>
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and differs from "AAA" issues only
in small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS
Prime-1--Issuers (or related supporting institutions) rated "Prime-1" have a
superior ability for repayment of senior short-term debt obligations. "Prime-1"
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries, high
rates of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated "Prime-2" have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
Prime-3--Issuers (or related supporting institutions) rated "Prime-3" have
an acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime--Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
S&P commercial paper rating is current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded in several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The four categories are as follows:
A-2
<PAGE>
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-13"
A-3--Issues carrying this designation have adequate capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
After purchase by the Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the Fund. Neither
event will require a sale of such security by the Fund. However, the Fund's
Adviser will consider such event in its determination of whether the Fund should
continue to hold the security. To the extent the ratings given by Moody's or S&P
may change as a result of changes in such organizations or their rating systems,
the Fund will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Prospectus and in the
Statement of Additional Information.
A-3
