As filed with the Securities and Exchange Commission on September 7, 1999
Securities Act File No. 333-78815
Investment Company Act File No. 811-09345
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. ___ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
(Check appropriate box or boxes.)
WOODLAWN FUNDS TRUST
--------------------
(Exact Name of Registrant as Specified in Charter)
105 North Washington Street, P.O. Box 69, Rocky Mount, NC 27802-0069
--------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (252) 972-9922
--------------
C. Frank Watson, III
105 North Washington Street, P.O. Box 69, Rocky Mount, NC 27802-0069
--------------------------------------------------------------------
(Name and Address of Agent for Service)
With copies to:
---------------
Jane A. Kanter
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006-2401
Approximate Date of Proposed Public Offering: As soon as practicable after the
Effective Date of this Amendment
--------------------------------
The Registrant hereby amends this Registration Statement, which shall become
effective in accordance with Section 8(a) of the Securities Act of 1933 on the
20th day after the filing of this amendment or on such earlier date as the
Commission, acting pursuant to said Section 8(a), may determine.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
WOODLAWN FUNDS TRUST
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
The Internet 100 Funds
-Part A - Prospectus
-Part B - Statement of Additional Information
Part C - Other Information and Signature Page
Exhibit Index
Exhibit
<PAGE>
PART A
======
Internet 100 Fund Cusip Number ______________
Internet 100 Equal Weighted Fund Cusip Number ___________
________________________________________________________________________________
THE INTERNET 100 FUNDS^SM
No Load Funds
________________________________________________________________________________
PROSPECTUS
September __, 1999
The Internet 100 Funds^SM (the "Funds") seek capital appreciation. In seeking to
achieve their objectives, the Funds will invest in equity securities of the 100
largest Internet companies traded on the New York Stock Exchange (the "NYSE"),
the American Stock Exchange (the "AMEX"), and the National Association of
Securities Dealers Automated Quotation stock market (the "NASDAQ").
Investment Advisor
------------------
Internet 100 Advisors, L.L.C.
354 Broadway
New York, New York 10013
1-877-655-1110
www.internet100fund.com
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The Securities and Exchange Commission has not approved or disapproved the
securities being offered by this prospectus or determined whether this
prospectus is accurate and complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
INTRODUCTION...................................................................2
WHAT IS THE INTERNET 100 INDEX^SM?..........................................2
THE FUNDS......................................................................2
INVESTMENT OBJECTIVE........................................................2
PRINCIPAL INVESTMENT STRATEGIES.............................................2
PRINCIPAL RISKS OF INVESTING IN THE FUND.......................................3
MARKET RISK.................................................................3
PASSIVE INVESTMENT MANAGEMENT RISK..........................................3
CONCENTRATION RISK..........................................................4
SECTOR RISK.................................................................4
SMALL COMPANY RISK..........................................................4
DERIVATIVES.................................................................4
YEAR 2000...................................................................4
PERFORMANCE INFORMATION........................................................4
FEES AND EXPENSES OF THE FUNDS.................................................5
MANAGEMENT OF THE FUNDS........................................................6
THE INVESTMENT ADVISOR......................................................6
THE ADMINISTRATOR...........................................................6
THE TRANSFER AGENT..........................................................7
THE DISTRIBUTOR.............................................................7
OTHER EXPENSES..............................................................7
INVESTING IN THE FUNDS.........................................................7
MINIMUM INVESTMENT..........................................................7
DETERMINING THE FUNDS'NET ASSET VALUE.......................................8
OTHER MATTERS...............................................................8
PURCHASING SHARES IN THE FUNDS..............................................8
REDEEMING SHARES IN THE FUNDS..............................................10
OTHER IMPORTANT INVESTMENT INFORMATION........................................12
DIVIDENDS, DISTRIBUTIONS AND TAXES.........................................12
FINANCIAL HIGHLIGHTS.......................................................13
ADDITIONAL INFORMATION................................................BACK COVER
<PAGE>
INTRODUCTION
WHAT IS THE INTERNET 100 INDEX^SM?
The Internet 100 Index^SM has been developed by Internet 100 Advisors, L.L.C.,
investment advisor to the Funds. The Internet 100 Index^SM is a portfolio of
stocks comprised of the 100 largest publicly traded "pure play" Internet stocks
in terms of market capitalization. The Advisor defines a "pure play" Internet
company as a company that derives the majority of its sales and customers from
products and/or services directly tied to the Internet. The Internet 100
Index^SM was developed as a proxy for the performance of the entire universe of
Internet stocks. It provides broad exposure to the major sectors of the
Internet, including:
o E-commerce
o Content portals
o Access providers
o Financial services
o Software
o Internet services
o Infrastructure
As this rapidly growing and changing segment of the economy develops, additional
companies and sectors may become relevant. The overriding criteria for inclusion
in the Internet 100 IndexSM will be that a company is primarily dependent on the
Internet for the majority of its revenues.
THE FUNDS
INVESTMENT OBJECTIVE
The Internet 100 Funds seek capital appreciation. In seeking to achieve their
objectives, the Funds will invest in equity securities of the 100 largest
Internet companies traded on the NYSE, the AMEX, and the NASDAQ stock market.
PRINCIPAL INVESTMENT STRATEGIES
The Internet 100 Funds attempt to provide the investor with broad investment
exposure to the Internet sector of our economy. Each Fund will seek capital
appreciation by investing in the equity securities of the stocks included in the
Internet 100 Index^SM, as defined herein, with a variation only as to how each
equity is weighted in its particular portfolio. By varying the composition of
the two funds, the investor is presented with two distinct investment strategies
for participating in the potential growth of Internet companies:
o The Internet 100 Fund holds all stocks in the Internet 100 Index^SM, or a
representative sample, and weights each stock using a formula that is based
on each company's market capitalization.
o The Internet 100 Equal Weighted Fund holds all stocks in the Internet 100
Index^SM, or a representative sample, but equally weights each stock.
The primary difference between the two Funds is the weighting each stock
receives in the two Funds.
Each of the Funds will operate as a non-diversified fund. The Advisor may choose
to limit the holdings of the largest stocks in the portfolio such that stocks
comprising more than 5% of the portfolio will not comprise more than 50% of the
total portfolio. A listing of the stocks in the Internet 100 and their relative
capitalization weighting will be available on the Funds' website at
www.internet100fund.com.
2
<PAGE>
Each Fund intends to remain fully invested at all times, investing approximately
95% of its net assets in equity securities. Approximately 5% will be left in
cash to meet liquidity needs of each Fund. As shareholder purchases are received
by the Funds, the percentage of cash will increase temporarily, while those
funds await investment in additional equity securities.
Internet 100 Fund - Modified Capitalization Weighting
The Internet 100 Fund consists of securities included in the Internet 100
Index^SM. The Internet 100 Index^SM is a portfolio of stocks comprised of the
100 largest publicly traded "pure play" Internet stocks. Each stock is weighted
using a formula that is based on market capitalization.
In order to enhance diversification, while still retaining the general
characteristics of a capitalization weighted portfolio, the Internet 100 Fund
utilizes a modified capitalization weighting methodology. This methodology
places a maximum limit on the percentage weighting each holding represents in
the portfolio. The end result is a more diversified portfolio than would have
been achieved under a strict market capitalization weighting methodology.
Internet 100 Equal Weighted Fund-Equal Weighting
As the name implies, this methodology equally weights each stock in the
portfolio. For a 100 stock portfolio, this means that each stock receives
approximately a 1% weighting at the beginning of each rebalancing period. The
Internet 100 listing of stocks will be reviewed on a quarterly basis although
this rebalancing period may be changed in the future.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested, and there can be no assurance that the
Fund will be successful in meeting its objective. The following sections
describe some of the risks involved with portfolio investments of the Fund.
MARKET RISK
Market risk refers to the risk related to investments in securities in general
and the daily fluctuations in the securities markets. Each Fund's performance
per share will change daily based on many factors, including fluctuation in
interest rates, the quality of the instruments in the Funds' investment
portfolio, national and international economic conditions, and general market
conditions.
PASSIVE INVESTMENT MANAGEMENT RISK
The Funds are not actively managed through traditional methods of stock
selection; rather they invest in stocks included in the Internet 100 Index^SM
developed by the Advisor, or in a representative sample of those stocks,
regardless of their investment merit. The Funds may be unable to modify their
investment strategies to respond to changes in the economy and may be
particularly susceptible to a general decline in internet-related stocks. The
Advisor is responsible for managing the Internet 100 Index^SM and the Internet
100 Funds.
CONCENTRATION RISK
Due to the concentration of the Funds in the Internet sector, shares of the
Funds are also subject to risks other than those associated with an investment
in a broad market portfolio. Because of their concentration in Internet stocks,
shares of the Funds do not represent a complete investment program.
3
<PAGE>
SECTOR RISK
The Internet is a small and highly volatile sub-sector of the economy that is
still in its infancy. Internet companies are subject to intense competition,
obsolescence, and rapid rate of change, which can lead to above average
fluctuations in the market value of these companies. Many Internet stocks have
risen in value based on anticipation of future earnings and company viability.
If these future projections prove to be overly optimistic, shares of the
corresponding companies may experience significant declines in market value.
Many Internet companies are currently operating at a loss and it is not known
when or if they will turn profitable. It is probable that some of today's public
Internet companies will not exist in the future.
SMALL COMPANY RISK
Investing in the securities of small companies generally involves substantially
greater risk than investing in larger, more established companies. Therefore, an
investment in the Funds may involve a substantially greater degree of risk than
an investment in other mutual funds that seek capital growth by investing in
more established, larger companies. These risks are associated with a number of
factors including:
o volatility in the values of the securities than those securities of larger,
more established companies, or the market averages in general, because
securities of small companies usually have more limited marketability;
o difficulty in buying or selling significant amounts of such shares without
an unfavorable impact on prevailing prices because small companies normally
have fewer shares outstanding to be traded than larger companies;
o limited product lines, markets, or financial resources and possible lack
management depth;
o vunerability to greater changes in earnings and business prospects than
larger, more established companies;
o the fact that small companies often are not well-known to the investing
public, followed by the financial press or industry analysts, or have
institutional ownership; and
o presence of greater vulnerability than larger companies to adverse business
or economic developments.
DERIVATIVES
The Funds may invest in derivative investments (e.g., futures and options) to a
limited extent. Derivatives are financial instruments whose values are derived,
in part, from prices of other securities, indices, or rates. The use of
derivatives is a highly specialized activity and there can be no guarantee that
their use will increase the return of the Funds, or protect their assets from
declining in value. In fact, the use of derivatives may reduce the value of your
investment if they are not timed correctly or are executed under adverse market
conditions.
YEAR 2000
Like other mutual funds, the Funds and the service providers for the Funds rely
heavily on the reasonably consistent operation of their computer systems. Many
software programs and certain computer hardware in use today cannot properly
process information after December 31, 1999, because of the method by which
dates are encoded and calculated in such programs and hardware. This problem,
commonly referred to as the "Year 2000 Issue," could, among other things,
negatively impact the processing of trades, the distribution of securities, the
pricing of securities and other investment-related and settlement activities.
The Trust is currently obtaining and assessing information with respect to the
actions that have been taken and the actions that are planned to be taken by
each of its service providers to prepare their computer systems for the Year
2000. While the Trust expects that each of the Funds' service providers will
have adapted their computer systems to address the Year 2000 Issue, there can be
no assurance that this will be the case or that the steps taken by the Trust
will be sufficient to avoid any adverse impact to the Funds.
PERFORMANCE INFORMATION
Because the Funds have no operating history, there is no performance information
for the Funds to be presented. Once the Funds have an operating history, you may
request this information at no charge by calling the Funds.
4
<PAGE>
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds:
Shareholder Fees for each Fund
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of the offering price) .........................None
Redemption fee .......................................................None
Annual Fund Operating Expenses for each Fund
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees....................................,,,,........0.75%
Distribution and/or Service (12b-1) Fees.......................0.00%^1
Other Expenses.................................................1.25%
----
Total Annual Fund Operating Expenses..........................2.00%^2
Fee Waivers and/or Expense Reimbursement.....................(1.00%)
----
Net Expenses..................................................1.00%
====
1 The Funds have approved a 12b-1 Distribution Plan in which
the Funds may deduct up to 0.25% of the average daily net
assets of each Fund to pay for these fees. However, the
Funds have no intention of paying this fee in the
immediate future and shareholders will be notified at
least 30 days prior to commencement of the 12b-1
Distribution Plan. See "Distribution Plan" for more
detailed information.
2 Since the Internet 100 Fund and the Internet 100 Equal
Weighted Fund will commence operations after September 1,
1999, Other Expenses and Total Annual Fund Operating
Expenses for that Fund are based on amounts estimated for
the current fiscal year. The Advisor has entered into a
contractual agreement with the Fund under which it has
agreed to waive or reduce its fees and to assume other
expenses of the Fund, if necessary, in an amount that
limits Total Fund Operating Expenses (exclusive of
interest, taxes, brokerage fees and commissions,
extraordinary expenses, and payments, if any, under a Rule
12b-1 plan) to not more than 1.00% of the average daily
net assets of each Fund for the fiscal year to end June
30, 2000. See "Expense Limitation Agreement" for more
detailed information.
Example. This Example shows you the expenses you may pay over time by investing
in either Fund. Since all funds use the same hypothetical conditions, it should
help you compare the costs of investing in these Funds versus other mutual
funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
- --------------------------------------- ---------------- ----------------
Period Invested 1 Year 3 Years
- --------------------------------------- ---------------- ----------------
Your Costs $102 $627
- --------------------------------------- ---------------- ----------------
5
<PAGE>
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
Internet 100 Advisors, L.L.C., established as a limited liability corporation in
Virginia in 1999, is the Funds' advisor. The Advisor is a new investment
advisory firm that specializes in investing in Internet companies. They
developed the Internet 100 Index^SM of stocks as a means to replicate the
performance of the overall Internet sector. They also manage the Internet 100
Funds. The Advisor's address is 354 Broadway, New York, New York 10013.
The Advisor has not previously served as an investment manager to any other
registered investment company. However, the executives and members of the
investment advisory staff of the Advisor have extensive experience in other
capacities in managing investments for clients, including mutual funds, trusts,
corporations, foundations, charitable organizations, retirement plans, and
individuals. Paul John de Leon has overall responsibility for the general
management of the Funds. Mr. de Leon has served as President of the Advisor
since 1999 and has served as Vice President and Portfolio Manager for Loomis
Sayles & Co. since 1993.
The Advisor's Compensation
As full compensation for the investment advisory services provided to the Funds,
each Fund pays the Advisor monthly compensation based on that Fund's daily
average net assets at the annual rate of 0.75%.
Expense Limitation Agreement
In the interest of limiting expenses of the Funds, the Advisor has entered into
an expense limitation agreement with the Trust, with respect to each of the
Funds ("Expense Limitation Agreement"), pursuant to which the Advisor has agreed
to waive or limit its fees and to assume other expenses so that the total annual
operating expenses of the Funds (other than interest, taxes, brokerage
commissions, other expenditures which are capitalized in accordance with
generally accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of each Fund's business, and amounts, if any,
payable pursuant to a Rule 12b-1 Plan) are limited to 1.00% of the average daily
net assets of the Funds for the fiscal year to end June 30, 2000.
Each of the Funds may at a later date reimburse the Advisor for the management
fees waived or limited, and/or other expenses assumed and paid by the Advisor
pursuant to the Expense Limitation Agreement during any of the previous five (5)
fiscal years, provided that the particular Fund has reached a sufficient asset
size to permit such reimbursement to be made without causing the total annual
expense ratio of the particular Fund to exceed the percentage limits stated
above. Consequently, no reimbursement by a Fund will be made unless: (i) the
Fund's assets exceed $20 million; (ii) the Fund's total annual expense ratio is
less than the percentage stated above; and (iii) the payment of such
reimbursement has been approved by the Trust's Board of Trustees on a quarterly
basis.
Brokerage Practices
In selecting brokers and dealers to execute portfolio transactions, the Advisor
may consider research and brokerage services furnished to the Advisor. Subject
to seeking the most favorable net price and execution available, the Advisor may
also consider sales of shares of the Funds as a factor in the selection of
brokers and dealers.
THE ADMINISTRATOR
Nottingham Fund Administrators assists the Trust in the performance of its
administrative responsibilities to each Fund, coordinates the services of each
vendor of services to the Funds, and provides the Funds with other necessary
administrative, fund accounting and compliance services. In addition, the
Administrator makes available the office space, equipment, personnel and
facilities required to provide such services to the Funds.
6
<PAGE>
THE TRANSFER AGENT
NC Shareholder Services, L.L.C. ("NCSS") serves as the transfer agent and
dividend-disbursing agent for the Funds. As described in "Investing in the
Fund," NCSS will handle your orders to purchase and redeem shares of the Funds
and will disburse dividends paid by the Funds.
THE DISTRIBUTOR
Capital Investment Group, Inc. (the "Distributor") is the principal underwriter
and distributor of the Funds' shares and serves as each Fund's exclusive agent
for the distribution of Fund shares. The Distributor may sell the Funds' shares
to or through qualified securities dealers or others.
Distribution Plan
Each Fund has adopted a distribution plan in accordance with Rule 12b-1 under
the Investment Company Act of 1940. The Distribution Plan provides that each
Fund will annually pay the Distributor up to 0.25% of the average daily net
assets of each Fund's shares for activities primarily intended to result in the
sale of those shares or the servicing of those shares, including to compensate
entities for providing distribution and shareholder servicing with respect to
the Funds' shares (this compensation is commonly referred to as "12b-1 fees").
Because the 12b-1 fees are paid out of the Fund's assets on an on-going basis,
these fees, over time, will increase the cost of your investment and may cost
you more than paying other types of sales loads.
The Fund does not currently intend to make any 12b-1 payments under the
distribution plan. If the Fund decides to begin making such payments, all
shareholders will be notified at least 30 days in advance of commencing the
accrual for such payments.
OTHER EXPENSES
In addition to the management fees and the 12b-1 fees, the Funds pay all
expenses not assumed by the Funds' Advisor, including, without limitation: the
fees and expenses of its independent auditors and of its legal counsel; the
costs of printing and mailing to shareholders annual and semi-annual reports,
proxy statements, prospectuses, statements of additional information and
supplements thereto; the costs of printing registration statements; bank
transaction charges and custodian's fees; any proxy solicitors' fees and
expenses; filing fees; any federal, state or local income or other taxes; any
interest; any membership fees of the Investment Company Institute and similar
organizations; fidelity bond and Trustees' liability insurance premiums; and any
extraordinary expenses, such as indemnification payments or damages awarded in
litigation or settlements made. All general Trust expenses are allocated among
and charged to the assets of each separate series of the Trust, such as the
Funds, on a basis that the Trustees deem fair and equitable, which may be on the
basis of relative net assets of each series or the nature of the services
performed and relative applicability to each series.
INVESTING IN THE FUNDS
MINIMUM INVESTMENT
Shares of the Funds are sold and redeemed at net asset value. Shares may be
purchased by any account managed by the Advisor and any other institutional
investor or any broker-dealer authorized to sell shares of the Funds. The
minimum initial investment is $1,000 and the minimum additional investment is
$250 ($100 for those participating in the automatic investment plan.) The Funds
may, in the Advisor's sole discretion, accept certain accounts with less than
the minimum investment.
7
<PAGE>
DETERMINING THE FUNDS' NET ASSET VALUE
The price at which you purchase or redeem shares is based on the next
calculation of net asset value after an order is received in good form. An order
is considered to be in good form if it includes a complete and accurate
application and payment in full of the purchase amount. Each Fund's net asset
value per share is calculated by dividing the value of the Fund's total assets,
less liabilities (including Fund expenses, which are accrued daily), by the
total number of outstanding shares of that Fund. The net asset value per share
of each Fund is normally determined at the time regular trading closes on the
New York Stock Exchange (currently 4:00 p.m. Eastern time, Monday through
Friday), except on business holidays when the New York Stock Exchange is closed.
OTHER MATTERS
All redemption requests will be processed and payment with respect thereto will
normally be made within seven days after tenders. The Funds may suspend
redemption, if permitted by the 1940 Act, for any period during which the New
York Stock Exchange is closed or during which trading is restricted by the
Securities Exchange Commission ("SEC") or if the SEC declares that an emergency
exists. Redemptions may also be suspended during other periods permitted by the
SEC for the protection of the Funds' shareholders. Additionally, during drastic
economic and market changes, telephone redemption privileges may be difficult to
implement. Also, if the Trustees determine that it would be detrimental to the
best interest of the Funds' remaining shareholders to make payment in cash, the
Funds may pay redemption proceeds in whole or in part by a distribution in kind
of readily marketable securities.
PURCHASING SHARES IN THE FUNDS
Regular Mail Orders
Payment for shares must be made by check or money order from a U.S. bank and
payable in U.S. dollars. If checks are returned due to insufficient funds or
other reasons, the Funds will charge a $20 fee or may redeem shares of the Funds
already owned by the purchaser to recover any such loss. For regular mail
orders, please complete the attached Fund Shares Application and mail it, along
with your check made payable to the "Internet 100 Fund" or the "Internet 100
Equal Weighted Fund," to:
The Internet 100 Funds
[Name of Fund]
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Please remember to add a reference to the applicable Fund on your check to
ensure proper credit to your account.
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S. investors if certain IRS requirements
regarding the TIN are met.
8
<PAGE>
Bank Wire Orders
Purchases may also be made through bank wire orders. To establish a new account
or add to an existing account by wire, please call the Funds at 1-877-655-1110,
before wiring funds, to advise the Funds of the investment, dollar amount, and
the account identification number. Additionally, please have your bank use the
following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For credit to either:
The Internet 100 Fund
Account # 2000001293652
OR
The Internet 100 Equal Weighted Fund
Account # 2000001293144
For further credit to (shareholder's name and SS# or TIN#)
Additional Investments
You may also add to your account by mail or wire at any time by purchasing
shares at the then current public offering price. The minimum additional
investment is $250. Before adding funds by bank wire, please call the Funds at
1-877-655-1110 and follow the above directions for wire purchases. Mail orders
should include, if possible, the "Invest by Mail" stub which is attached to your
fund confirmation statement. Otherwise, please identify your account in a letter
accompanying your purchase payment.
Automatic Investment Plan
The automatic investment plan enables shareholders to make regular monthly or
quarterly investment in shares through automatic charges to their checking
account. With shareholder authorization and bank approval, the Funds will
automatically charge the checking account for the amount specified ($100
minimum), which will be automatically invested in shares at the public offering
price on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Funds.
Exchange Feature
You may exchange shares of the Fund for shares of any other series of the Trust
advised by the Advisor and offered for sale in the state in which you reside.
Shares may be exchanged for shares of any other series of the Trust at the net
asset value plus the percentage difference between that series' sales charge and
any sales charge, previously paid by you in connection with the shares being
exchanged. Prior to making an investment decision or giving us your instructions
to exchange shares, please read the prospectus for the series in which you wish
to invest.
The Advisor does not consider a pattern of frequent purchase and redemption
transactions to be in the best interest of the shareholders of the Funds. Such a
pattern may, at the discretion of the Advisor, be limited by the Funds' refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
9
<PAGE>
Stock Certificates
You do not have the option of receiving stock certificates for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
REDEEMING SHARES IN THE FUNDS
Regular Mail Redemptions
Regular mail redemption request should be addressed to:
The Internet 100 Funds
[Name of Fund]
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption requests should include:
1. Your letter of instruction specifying the fund name, your account number,
and number of shares or the dollar amount to be redeemed. This request
must be signed by all registered shareholders in the exact names in which
they are registered;
2. Any required signature guarantees (see "Signature Guarantees" below); and
3. Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 7 days after
receipt of your redemption request. However, a Fund may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions
You may also redeem shares by telephone and bank wire under certain limited
conditions. The Funds will redeem shares in this manner when so requested by the
shareholder only if the shareholder confirms redemption instructions in writing.
The Funds may rely upon confirmation of redemption requests transmitted via
facsimile (# 252-972-1908). The confirmation instructions must include:
1. The name of the Fund;
2. Shareholder name and account number;
3. Number of shares or dollar amount to be redeemed;
4. Instructions for transmittal of redemption funds to the shareholder;
and
5. Shareholder signature as it appears on the application then on file
with the Fund.
10
<PAGE>
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Redemption proceeds cannot be wired on days when
your bank is not open for business. You can change your redemption instructions
anytime you wish by filing a letter including your new redemption instructions
with the Fund. See "Signature Guarantees" below.
The Funds in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Funds $10.00 per transaction for wiring redemption
proceeds. If this cost is passed through to redeeming shareholders by the Funds,
the charge will be deducted automatically from your account by redemption of
shares in your account. Your bank or brokerage firm may also impose a charge for
processing the wire. If wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Funds at 1-877-655-1110. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Funds. Telephone redemption privileges authorize the Funds to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. The Funds will
employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine, and if it does not
follow such procedures, the Funds will be liable for any losses due to
fraudulent or unauthorized instructions. The Funds will not be liable for
following telephone instructions reasonably believed to be genuine.
Small Accounts
The Funds reserve the right to redeem involuntarily any account having a net
asset value of less than $1,000 (due to redemptions, exchanges, or transfers,
and not due to market action) upon 60-days' written notice. If the shareholder
brings his account net asset value up to at least $1,000 during the notice
period, the account will not be redeemed. Redemptions from retirement plans may
be subject to federal income tax withholding.
Systematic Withdrawal Plan
A shareholder who owns shares of the Funds valued at $2,500 or more at the
current offering price may establish a Systematic Withdrawal Plan to receive a
monthly or quarterly check in a stated amount not less than $250. Each month or
quarter, as specified, the Funds will automatically redeem sufficient shares
from your account to meet the specified withdrawal amount. The shareholder may
establish this service whether dividends and distributions are reinvested in
shares of the Funds or paid in cash. Call or write the Funds for an application
form.
Signature Guarantees
To protect your account and the Funds from fraud, signature guarantees are
required to be sure that you are the person who has authorized a change in
registration or standing instructions for your account. Signature guarantees are
required for (1) change of registration requests; (2) requests to establish or
to change exchange privileges or telephone and bank wire redemption service
other than through your initial account application; and (3) redemption requests
in excess of $50,000. Signature guarantees are acceptable from a member bank of
the Federal Reserve System, a savings and loan institution, credit union (if
authorized under state law), registered broker-dealer, securities exchange, or
association clearing agency and must appear on the written request for change of
registration, establishment or change in exchange privileges, or redemption
request.
11
<PAGE>
Redemptions in Kind
The Funds do not intend, under normal circumstances, to redeem its securities by
payment in kind. It is possible, however, that conditions may arise in the
future, which would, in the opinion of the Trustees, make it undesirable for the
Funds to pay for all redemptions in cash. In such case, the Board of Trustees
may authorize payment to be made in readily marketable portfolio securities of
the Funds. Securities delivered in payment of redemptions would be valued at the
same value assigned to them in computing the net asset value per share.
Shareholders receiving them would incur brokerage costs when these securities
are sold. An irrevocable election has been filed under Rule 18f-1 of the 1940
Act, wherein the Funds committed themselves to pay redemptions in cash, rather
than in kind, to any shareholder of record of the Fund who redeems during any
ninety-day period, the lesser of (a) $250,000 or (b) one percent (1%) of the
Funds' net asset value at the beginning of such period.
OTHER IMPORTANT INVESTMENT INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S. taxpayers.
Additional tax information appears in the SAI. Shareholders should rely their
own tax advisers for advice about the particular federal, state and local tax
consequences to them of investing in a Fund.
Each Fund will distribute most of its income and gains to its shareholders every
year. Income dividends, if any, may be paid quarterly and capital gains
distributions, if any, will be made at least annually. Although a Fund will not
be taxed on amounts it distributes, shareholders will generally be taxed,
regardless of whether distributions are received in cash or are reinvested in
additional Fund shares. A particular distribution generally will be taxable as
either ordinary income or long-term capital gains. If a Fund designates a
distribution as a capital gain distribution, it will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares.
If a Fund declares a dividend in October, November or December but pays it in
January, it may be taxable to shareholders as if they received it in the year it
was declared. Each year each shareholder will receive a statement detailing the
tax status of any Fund distributions for that year.
Distributions may be subject to state and local taxes, as well as federal taxes.
Shareholders who hold Fund shares in a tax-deferred account, such as a
retirement plan, generally will not have to pay tax on Fund distributions until
they receive distributions from the account.
A shareholder that sells or redeems shares will generally realize a capital gain
or loss, which will be long-term or short-term, generally depending upon the
shareholder's holding period for the Fund shares.
An exchange of shares may be treated as a sale.
As with all mutual funds, each Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
12
<PAGE>
FINANCIAL HIGHLIGHTS
Because the Internet 100 Funds are new funds, there are no financial or
performance information included in this prospectus. Once the information
becomes available, you may request this information at no charge by calling the
Funds.
13
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
THE INTERNET 100 FUNDS
No Load Funds
________________________________________________________________________________
Additional information about the Funds is included in the Funds' Statement of
Additional Information, available free of charge upon request by contacting us:
By telephone: 1-877-655-1110
By mail: The Internet 100 Funds
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.internet100fund.com
Information about the Funds can also be reviewed and copied at the Securities
Exchange Commission's ("Commission") Public Reference Room in Washington, D.C.
Inquiries on the operations of the public reference room may be made by calling
the Commission at 1-800-SEC-0330. Reports and other information about the Funds
are available on the Commission's Internet site at http://www.sec.gov and copies
of this information may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
Investment Company Act file number 811-09345
<PAGE>
PART B
======
STATEMENT OF ADDITIONAL INFORMATION
THE INTERNET 100 FUNDS
September __, 1999
Series of the
WOODLAWN FUNDS TRUST (the "Trust")
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-877-655-1110
Table of Contents
-----------------
OTHER INVESTMENT POLICIES....................................................B-1
INVESTMENT LIMITATIONS.......................................................B-5
PORTFOLIO TRANSACTIONS.......................................................B-7
NET ASSET VALUE..............................................................B-8
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................B-9
DESCRIPTION OF THE TRUST....................................................B-10
ADDITIONAL INFORMATION CONCERNING TAXES.....................................B-11
MANAGEMENT OF THE FUNDS.....................................................B-12
SPECIAL SHAREHOLDER SERVICES................................................B-15
ADDITIONAL INFORMATION ON PERFORMANCE.......................................B-17
FINANICAL STATEMENTS........................................................B-18
APPENDIX A - DESCRIPTION OF RATINGS.........................................B-19
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
This Statement of Additional Information (the "SAI") is meant to be read in
conjunction with the Prospectus, dated September __, 1999, for the Internet 100
Fund and the Internet 100 Equal Weighted Fund (collectively, the "Funds") and is
incorporated by reference in its entirety into the Prospectus. Because this SAI
is not itself a prospectus, no investment in shares of the Funds should be made
solely upon the information contained herein. Copies of the Funds' Prospectus
may be obtained at no charge by writing or calling the Funds at the address and
phone number shown above. Capitalized terms used but not defined herein have the
same meanings as in the Prospectus.
<PAGE>
OTHER INVESTMENT POLICIES
The Funds were organized in 1999 as non-diversified, open-end management
companies. The following policies supplement the Funds' investment objectives
and policies as set forth in the Prospectus. Attached to this SAI is Appendix A,
which contains descriptions of the rating symbols used by Rating Agencies for
securities in which the Funds may invest.
Repurchase Agreements. Each Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to seven days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Funds will consider the creditworthiness of the vendor. If
the vendor fails to pay the agreed upon resale price on the delivery date, the
Fund will retain or attempt to dispose of the collateral. A Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Funds will not enter into any repurchase agreement which will
cause more than 10% of their net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
Money Market Instruments. Money market instruments may include U.S. Government
Securities or corporate debt securities (including those subject to repurchase
agreements), provided that they mature in thirteen months or less from the date
of acquisition and are otherwise eligible for purchase by the Funds. Money
market instruments also may include Banker's Acceptances and Certificates of
Deposit of domestic branches of U.S. banks, Commercial Paper and Variable Amount
Demand Master Notes ("Master Notes"). Banker's Acceptances are time drafts drawn
on and "accepted" by a bank. When a bank "accepts" such a time draft, it assumes
liability for its payment. When a Fund acquires a Banker's Acceptance the bank
which "accepted" the time draft is liable for payment of interest and principal
when due. The Banker's Acceptance carries the full faith and credit of such
bank. A Certificate of Deposit ("CD") is an unsecured interest-bearing debt
obligation of a bank. Commercial Paper is an unsecured, short-term debt
obligation of a bank, corporation or other borrower. Commercial Paper maturity
generally ranges from two to 270 days and is usually sold on a discounted basis
rather than as an interest-bearing instrument. The Funds will invest in
Commercial Paper only if it is rated one of the top two rating categories by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps ("D&P") or, if
not rated, of equivalent quality in the Advisor's opinion. Commercial Paper may
include Master Notes of the same quality. Master Notes are unsecured obligations
which are redeemable upon demand of the holder and which permit the investment
of fluctuating amounts at varying rates of interest. Master Notes are acquired
by the Funds only through the Master Note program of the Funds' custodian bank,
acting as administrator thereof. The Advisor will monitor, on a continuous
basis, the earnings power, cash flow and other liquidity ratios of the issuer of
a Master Note held by the Funds.
Illiquid Investments. Each Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of a Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of a Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Funds to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, a Fund were in a position where more than 10% of
its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity. The Funds may not purchase restricted
securities, which are securities that cannot be sold to the public without
registration under the federal securities laws.
Futures Contracts. A futures contract is a bilateral agreement to buy or sell a
security (or deliver a cash settlement price, in the case of a contract relating
to an index or otherwise not calling for physical delivery at the end of trading
in the contracts) for a set price in the future. Futures contracts are
designated by boards of trade which have been designated "contracts markets" by
the Commodities Futures Trading Commission ("CFTC"). No purchase price is paid
or received when the contract is entered into. Instead, the Fund upon entering
into a futures contract (and to maintain the Fund's open positions in futures
contracts) would be required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of cash, United States
Government securities, suitable money market instruments, or liquid, high-grade
debt securities, known as "initial margin." The margin required for a particular
futures contract is set by the exchange on which the contract is traded, and may
be significantly modified from time to time by the exchange during the term of
the contract. Futures contracts are customarily purchased and sold on margin
that may range upward from less than 5% of the value of the contract being
traded. By using futures contracts as a risk management technique, given the
greater liquidity in the futures market than in the cash market, it may be
possible to accomplish certain results more quickly and with lower transaction
costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Fund. These subsequent payments called "variation margin,"
to and from the futures broker, are made on a daily basis as the price of the
underlying assets fluctuate making the long and short positions in the futures
contract more or less valuable, a process known as "marking to the market." The
Funds expect to earn interest income on their initial and variation margin
deposits.
The Funds will incur brokerage fees when they purchase and sell futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by the Funds will usually be liquidated in this manner, the
Funds may instead make or take delivery of underlying securities whenever it
appears economically advantageous for the Funds to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect the Funds' current or
intended investments from broad fluctuations in securities prices. A securities
index futures contract does not require the physical delivery of securities, but
merely provides for profits and losses resulting from changes in the market
value of the contract to be credited or debited at the close of each trading day
to the respective accounts of the parties to the contract. On the contract's
expiration date a final cash settlement occurs and the futures positions are
simply closed out. Changes in the market value of a particular index futures
contract reflect changes in the specified index of securities on which the
future is based.
By establishing an appropriate "short" position in index futures, the Funds may
also seek to protect the value of its portfolio against an overall decline in
the market for such securities. Alternatively, in anticipation of a generally
rising market, the Funds can seek to avoid losing the benefit of apparently low
current prices by establishing a "long" position in securities index futures and
later liquidating that position as particular securities are in fact acquired.
To the extent that these hedging strategies are successful, the Funds will be
affected to a lesser degree by adverse overall market price movements than would
otherwise be the case.
Options on Futures Contracts. The Funds may purchase exchange-traded call and
put options on futures contracts and write exchange-traded call options on
futures contracts. These options are traded on exchanges that are licensed and
regulated by the CFTC for the purpose of options trading. A call option on a
futures contract gives the purchaser the right, in return for the premium paid,
to purchase a futures contract (assume a "long" position) at a specified
exercise price at any time before the option expires. A put option gives the
purchaser the right, in return for the premium paid, to sell a futures contract
(assume a "short" position), for a specified exercise price, at any time before
the option expires.
The Funds will write only options on futures contracts which are "covered." The
Funds will be considered "covered" with respect to a put option it has written
if, so long as it is obligated as a writer of the put, the Funds segregate with
its custodian cash, United States Government securities or liquid securities at
all times equal to or greater than the aggregate exercise price of the puts it
has written (less any related margin deposited with the futures broker). The
Funds will be considered "covered" with respect to a call option they have
written on a debt security future if, so long as it is obligated as a writer of
the call, the Funds own a security deliverable under the futures contract. The
Funds will be considered "covered" with respect to a call option it has written
on a securities index future if the Funds own, so long as the Funds are
obligated as the writer of the call, the Funds of securities the price changes
of which are, in the opinion of the Manager, expected to replicate substantially
the movement of the index upon which the futures contract is based.
Upon the exercise of a call option, the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a put, the
writer of the option is obligated to purchase the futures contract (deliver a
"short" position to the option holder) at the option exercise price which will
presumably be higher than the current market price of the contract in the
futures market. When the holder of an option exercises it and assumes a long
futures position, in the case of a call, or a short futures position, in the
case of a put, its gain will be credited to its futures margin account, while
the loss suffered by the writer of the option will be debited to its account and
must be immediately paid by the writer. However, as with the trading of futures,
most participants in the options markets do not seek to realize their gains or
losses by exercise of their option rights. Instead, the holder of an option will
usually realize a gain or loss by buying or selling an offsetting option at a
market price that will reflect an increase or a decrease from the premium
originally paid.
If Funds write options on futures contracts, the particular Fund will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the particular Fund will realize a
gain in the amount of the premium, which may partially offset unfavorable
changes in the value of securities held in or to be acquired for the Fund. If
the option is exercised, the Fund will incur a loss in the option transaction,
which will be reduced by the amount of the premium it has received, but which
will offset any favorable changes in the value of its portfolio securities or,
in the case of a put, lower prices of securities it intends to acquire.
Options on futures contracts can be used by the Funds to hedge substantially the
same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If the Funds purchase an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself. Purchases of options on futures contracts may
present less risk in hedging than the purchase and sale of the underlying
futures contracts since the potential loss is limited to the amount of the
premium plus related transaction costs.
The purchase of put options on futures contracts is a means of hedging the Funds
of securities against a general decline in market prices. The purchase of a call
option on a futures contract represents a means of hedging against a market
advance when the particular Fund is not fully invested.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the underlying securities. If the futures price at
expiration is below the exercise price, the Fund will retain the full amount of
the option premium, which provides a partial hedge against any decline that may
have occurred in the value of the Fund's holdings of securities. The writing of
a put option on a futures contract is analogous to the purchase of a futures
contract in that it hedges against an increase in the price of securities the
Fund intends to acquire. However, the hedge is limited to the amount of premium
received for writing the put.
Limitations on Purchase and Sale of Futures Contracts and Options on Futures
Contracts. The Fund will not engage in transactions in futures contracts and
related options for speculation. In addition, the Fund will not purchase or sell
futures contracts or related options unless either (1) the futures contracts or
options thereon are purchased for "bona fide hedging" purposes (as that term is
defined under the CFTC regulations) or (2) if purchased for other purposes, the
sum of the amounts of initial margin deposits on the Fund's existing futures and
premiums required to establish non-hedging positions, less the amount by which
any such options positions are "in-the-money" (as defined under CFTC
regulations) would not exceed 5% of the liquidation value of the Fund's total
assets. In instances involving the purchase of futures contracts or the writing
of put options thereon by the Fund, an amount of cash and cash equivalents,
equal to the cost of such futures contracts or options written (less any related
margin deposits), will be deposited in a segregated account with its custodian,
thereby insuring that the use of such futures contracts and options is
unleveraged. In instances involving the sale of futures contracts or the writing
of call options thereon by the Fund, the securities underlying such futures
contracts or options will at all times be maintained by the Fund or, in the case
of index futures and related options, the Fund will own securities the price
changes of which are, in the opinion of the Manager, expected to replicate
substantially the movement of the index upon which the futures contract or
option is based.
Options. A call option is a contract which gives the purchaser of the option (in
return for a premium paid) the right to buy, and the writer of the option (in
return for a premium received) the obligation to sell, the underlying security
at the exercise price at any time prior to the expiration of the option,
regardless of the market price of the security during the option period. A call
option on a security is covered, for example, when the writer of the call option
owns the security on which the option is written (or on a security convertible
into such a security without additional consideration) throughout the option
period.
Writing Call Options. The Funds will write covered call options both to reduce
the risks associated with certain of its investments and to increase total
investment return through the receipt of premiums. In return for the premium
income, the Fund will give up the opportunity to profit from an increase in the
market price of the underlying security above the exercise price so long as its
obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, the Fund will retain
the risk of loss should the price of the security decline. The premium is
intended to offset that loss in whole or in part. Unlike the situation in which
the Fund owns securities not subject to a call option, the Fund, in writing call
options, must assume that the call may be exercised at any time prior to the
expiration of its obligation as a writer, and that in such circumstances the net
proceeds realized from the sale of the underlying securities pursuant to the
call may be substantially below the prevailing market price.
The Funds may terminate its obligation under an option it has written by buying
an identical option. Such a transaction is called a "closing purchase
transaction." The Fund will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Fund. When an underlying security is sold from the Fund's securities portfolio,
the Fund will effect a closing purchase transaction so as to close out any
existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. If the Funds
write a put option, the Fund will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, U.S.
Government securities or other liquid securities having a value equal to or
greater than the exercise price of the option.
The Funds may write put options either to earn additional income in the form of
option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Fund, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which the Fund receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates. The Fund may effect a closing
purchase transaction to realize a profit on an outstanding put option or to
prevent an outstanding put option from being exercised.
Purchasing Put and Call Options. The Funds may purchase put options on
securities to protect their holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Fund to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Fund will
continue to receive interest or dividend income on the security. The Fund may
also purchase call options on securities to close out positions. The Fund may
sell put or call options they have previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put or call option
which was bought.
Securities Index Options. The Funds may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Fund's securities or securities it intends to purchase. The Fund writes only
"covered" options. A call option on a securities index is considered covered,
for example, if, so long as the Fund is obligated as the writer of the call, it
holds securities the price changes of which are, in the opinion of the Manager,
expected to replicate substantially the movement of the index or indexes upon
which the options written by the Fund are based. A put on a securities index
written by the Fund will be considered covered if, so long as it is obligated as
the writer of the put, the Fund segregates with its custodian cash, United
States Government securities or other liquid high-grade debt obligations having
a value equal to or greater than the exercise price of the option. Unlike a
stock option, which gives the holder the right to purchase or sell a specified
stock at a specified price, an option on a securities index gives the holder the
right to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying stock
index on the exercise date, multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 Index or the NYSE Composite Index, or a
narrower market index such as the S&P 100 Index. Indexes may also be based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index.
Forward Commitment & When-Issued Securities. The Funds may purchase securities
on a when-issued basis or for settlement at a future date if the Fund holds
sufficient assets to meet the purchase price. In such purchase transactions, the
Fund will not accrue interest on the purchased security until the actual
settlement. Similarly, if a security is sold for a forward date, the Fund will
accrue the interest until the settlement of the sale. When-issued security
purchases and forward commitments have a higher degree of risk of price movement
before settlement due to the extended time period between the execution and
settlement of the purchase or sale. As a result, the exposure to the
counterparty of the purchase or sale is increased. Although the Funds would
generally purchase securities on a forward commitment or when-issued basis with
the intention of taking delivery, the Funds may sell such a security prior to
the settlement date if the Advisor felt such action was appropriate. In such a
case, the Fund could incur a short-term gain or loss.
INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose, means, with respect to
a Fund, the lesser of (i) 67% of the Fund's outstanding shares represented in
person or by proxy at a meeting at which more than 50% of its outstanding shares
are represented, or (ii) more than 50% of its outstanding shares. Unless
otherwise indicated, percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Internet 100 Fund and the Internet 100
Equal Weighted Fund:
1. Will not deviate from the Funds' fundamental investment objective and
policy that it will concentrate the Funds' investments in the Internet
sector.
2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the 1940 Act which may
involve a borrowing, provided that the combination of (i) and (ii)
shall not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed), less the Fund's liabilities (other
than borrowings), except that the Fund may borrow up to an additional
5% of its total assets (not including the amount borrowed) from a bank
for temporary or emergency purposes (but not for leverage or the
purchase of investments).
3. May not issue senior securities, except as permitted under the 1940
Act.
4. May not act as an underwriter of another issuer's securities, except to
the extent that the Fund may be deemed to bean underwriter within the
meaning of the 1933 Act in connection with the purchase and sale of
portfolio securities.
5. May not 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 purchasing or selling options, futures
contracts, or other derivative instruments, or from investing in
securities or other instruments backed by physical commodities).
6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i)
purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
7. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prohibit the Fund from purchasing or selling securities or other
instruments backed by real estate or of issuers engaged in real estate
activities).
8. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and restrictions as the
Fund.
Non-Fundamental Policies
The following are the Fund's non-fundamental operating policies, which may be
changed by the Board of Trustees of the Fund without shareholder approval.
The Fund may not:
1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short,
or unless it covers such short sale as required by the current rules
and positions of the SEC or its staff, and provided that transactions
in options, futures contracts, options on futures contracts, or other
derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with futures contracts,
options on futures contracts, or other derivative instruments shall not
constitute purchasing securities on margin.
3. Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities, or
such other amounts as may be permitted under the 1940 Act. This
percentage restriction is with respect to the Fund's current holdings
of illiquid securities.
4. Purchase securities of other investment companies except in compliance
with the 1940 Act.
5. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act
and, in accordance with Rule 4.5, will use futures or options on
futures transactions solely for bona fide hedging transactions (within
the meaning of the Commodity Exchange Act); provided, however, that the
Fund may, in addition to bona fide hedging transactions, use futures
and options on futures transactions if the aggregate initial margin and
premiums required to establish non-hedging positions, less the amount
by which any such options positions are in the money (within the
meaning of the Commodity Exchange Act), do not exceed 5% of the
liquidation value of the Fund's total assets.
6. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities
when bank borrowing exceed 5% of its total assets.
7. Make any loans other than loans of portfolio securities, except through
(i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.
Except for the fundamental investment limitations listed above and the Funds'
investment objective, all other investment policies, limitations and
restrictions described in the Prospectus and this Statement of Additional
Information are not fundamental and may be changed with approval of the Fund's
Board of Trustees. Unless noted otherwise, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from a change in the Fund's assets (i.e., due to cash inflows or
redemptions) or in market value of the investment or the Fund's assets will not
constitute a violation of that restriction.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Funds.
The annualized portfolio turnover rate for each Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of each Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and each Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Funds are made from dealers,
underwriters and issuers. The Funds currently do not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, which may include a dealer mark-up, or otherwise involve
transactions directly with the issuer of an instrument.
The Funds may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will engage
in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for each Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
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, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Funds. In addition, the Advisor is authorized to cause the
Funds to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Funds. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Funds. The Trustees will periodically review
any commissions paid by the Funds to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Funds. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by the Advisor. Conversely, the Funds may be the primary beneficiary
of the research or services received as a result of securities transactions
effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Funds will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Funds will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Funds will be made independently from those for any
other Fund and any other series of the Trust, if any, and for any other
investment companies and accounts advised or managed by the Advisor. Such other
investment companies and accounts may also invest in the same securities as a
Fund. To the extent permitted by law, the Advisor may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for
another Fund or other investment companies or accounts in executing
transactions. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another investment company
or account, the transaction will be averaged as to price and available
investments allocated as to amount, in a manner which the Advisor believes to be
equitable to the Funds and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund.
NET ASSET VALUE
The net asset value per share of each Fund is determined at the time normal
trading closes on the New York Stock Exchange (currently 4:00 p.m., New York
time), Monday through Friday, except on business holidays when the New York
Stock Exchange is closed. The New York Stock Exchange recognizes the following
holidays: New Year's Day, Martin Luther King, Jr., Day, President's Day, Good
Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, and Christmas
Day. Any other holiday recognized by the New York Stock Exchange will be deemed
a business holiday on which the net asset value of each Class of the Funds will
not be calculated.
The net asset value per share of each Fund is calculated separately by adding
the value of the Fund's securities and other assets belonging to the Fund,
subtracting the liabilities charged to the Fund, and dividing the result by the
number of outstanding shares. "Assets belonging to" a Fund consist of the
consideration received upon the issuance of shares of the Fund together with all
net investment income, realized gains/losses and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a particular
investment Fund. Assets belonging to a Fund are charged with the direct
liabilities of the Fund and with a share of the general liabilities of the
Trust, which are normally allocated in proportion to the number of or the
relative net asset values of all of the Trust's series at the time of allocation
or in accordance with other allocation methods approved by the Board of
Trustees. Subject to the provisions of the Declaration of Trust, determinations
by the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets, with respect to a Fund are conclusive.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of each Fund are offered and sold on a continuous basis and
may be purchased through authorized investment dealers or directly by contacting
the Distributor or the Funds. Selling dealers have the responsibility of
transmitting orders promptly to the Funds. The public offering price of shares
of each Fund equals net asset value. Capital Investment Group, Inc. (the
"Distributor") serves as distributor of shares of the Funds.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution (the "Plan")
for each of the Funds pursuant to Rule 12b-1 under the 1940 Act (see "Management
of the Funds - The Distributor - Distribution Plan" in the Funds' Prospectus).
Under the Plan the Fund may expend a percentage of the Funds' Shares average net
assets annually to finance any activity which is primarily intended to result in
the sale of shares of the Funds and the servicing of shareholder accounts,
provided the Trust's Board of Trustees has approved the category of expenses for
which payment is being made. The current fee paid under the Plan are 0.25% of
the average net assets of the Funds' Shares, respectively. Such expenditures
paid as service fees to any person who sells shares of the Fund may not exceed
0.25% of the average annual net asset value of such shares. Potential benefits
of the Plan to the Fund include improved shareholder servicing, savings to the
Fund in transfer agency costs, benefits to the investment process from growth
and stability of assets and maintenance of a financially healthy management
organization.
All of the distribution expenses incurred by the Distributor and others, such as
broker-dealers, in excess of the amount paid by the Fund will be borne by such
persons without any reimbursement from the Fund. Subject to seeking best
execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plan.
From time to time, the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plan and the Distribution Agreement with the Distributor have been approved
by the Board of Trustees of the Trust, including a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust and who
have no direct or indirect financial interest in the Plan or any related
agreements, by vote cast in person or at a meeting duly called for the purpose
of voting on the Plan and such Agreement. Continuation of the Plan and the
Distribution Agreement must be approved annually by the Board of Trustees in the
same manner as specified above.
Each year the Trustees must determine whether continuation of the Plan is in the
best interest of shareholders of the Fund and that there is a reasonable
likelihood of its providing a benefit to the Fund, and the Board of Trustees has
made such a determination for the current year of operations under the Plan. The
Plan, the Distribution Agreement and the Dealer Agreement with any
broker/dealers may be terminated at any time without penalty by a majority of
those trustees who are not "interested persons" or, with respect to a particular
Fund, by a majority vote of the Fund's outstanding voting stock relating to that
particular Fund. Any amendment materially increasing the maximum percentage
payable under the Plan, with respect to a particular Fund, must likewise be
approved by a majority vote of that Class of Investor Shares' outstanding voting
stock relating to that particular Class, as well as by a majority vote of those
trustees who are not "interested persons." Also, any other material amendment to
the Plan must be approved by a majority vote of the trustees including a
majority of the noninterested Trustees of the Trust having no interest in the
Plan. In addition, in order for the Plan to remain effective, the selection and
nomination of Trustees who are not "interested persons" of the Trust must be
effected by the Trustees who themselves are not "interested persons" and who
have no direct or indirect financial interest in the Plan. Persons authorized to
make payments under the Plan must provide written reports at least quarterly to
the Board of Trustees for their review.
The Fund does not currently intend to make any 12b-1 payments under the
distribution plan. If the Fund decides to begin making such payments, all
shareholders will be notified at least 30 days in advance of commencing the
accrual for such payments.
Redemptions. Under the 1940 Act, each Fund may suspend the right of redemption
or postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. Each Fund may also suspend or
postpone the recordation of the transfer of shares upon the occurrence of any of
the foregoing conditions.
In addition to the situations described in the Prospectus under "Investing in
the Funds Redeeming Shares in the Funds," each Fund may redeem shares
involuntarily to reimburse the Fund for any loss sustained by reason of the
failure of a shareholder to make full payment for shares purchased by the
shareholder or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to Fund shares as provided in the
Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust, which is an unincorporated business trust organized under Delaware
law on May 19, 1999, is an open-end non-diversified management investment
company. The Trust's Declaration of Trust authorizes the Board of Trustees to
divide shares into series, each series relating to a separate portfolio of
investments, and to classify and reclassify any unissued shares into one or more
classes of shares of each such series. The Declaration of Trust currently
provides for the shares of two series: the Internet 100 Fund and the Internet
100 Equal Weighted Fund. The Funds are managed by Internet 100 Advisors, L.L.C.
of Arlington, Virginia. The number of shares of each series shall be unlimited.
The Trust does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as each Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust will vote together and not
separately on a series-by-series basis except as otherwise required by law or
when the Board of Trustees determines that the matter to be voted upon affects
only the interests of the shareholders of a particular series or class. Rule
18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each series
or class affected by the matter. A series or class is affected by a matter
unless it is clear that the interests of each series or class in the matter are
substantially identical or that the matter does not affect any interest of the
series or class. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a series only if approved by a majority of the
outstanding shares of such series. However, the Rule also provides that the
ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting together, without regard to a
particular series or class.
When used in the Prospectus or this SAI, a "majority" of shareholders means the
vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class.
When issued for payment as described in the Prospectus and this SAI, shares of
each Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting each Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof, such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
Each series of the Trust, including each Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. Each
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including each Fund, will designate any distribution
of long-term capital gains as a capital gain dividend in a written notice mailed
to shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long-term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including each Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including each Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Dividends paid by the Funds derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Funds will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
MANAGEMENT OF THE FUNDS
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses, ages, and their principal occupations for the last five years are as
follows:
TRUSTEES
<TABLE>
<S> <C> <C>
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Name, Age and Address Position Principal Occupation(s)
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Jack E. Brinson, 67 Trustee President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina; and
Independent Trustee-New Providence
Investment Trust, Gardner Lewis
Investment Trust, and Nottingham
Investment Trust II,
Rocky Mount, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Theo H. Pitt, Jr., 63 Chairman, Trustee Senior Partner, Community Financial
116 Candlewood Road Institutions Consulting,
Rocky Mount, North Carolina 27804 Rocky Mount, North Carolina, since 1997;
previously, Chairman & CEO, Standard
Insurance & Realty Corporation,
Rocky Mount, North Carolina; 1992-1997
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Paul John de Leon, 32* Trustee President, Internet 100 Advisors, L.L.C.,
1530 North Key Boulevard, #826 Arlington, Virginia, since 1999;
Arlington, Virginia 22209 Vice President and Portfolio Manager,
Loomis Sayles & Co., L.P., Washington,
District of Columbia, since 1993
- ----------------------------------------------- -------------------------------- ---------------------------------------------
* Indicates that Trustee is an "interested person" of the Trust for
purposes of the 1940 Act because of his position with one of the
investment advisors to the Trust.
OFFICERS
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Name, Age and Address Position Principal Occupation(s)
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Paul John de Leon, 32 President President, Internet 100 Advisors, L.L.C.,
1530 North Key Boulevard, #826 Arlington, Virginia, since 1999;
Arlington, Virginia 22209 Vice President and Portfolio Manager,
Loomis Sayles & Co., L.P., Washington,
District of Columbia, since 1993
- ----------------------------------------------- -------------------------------- ---------------------------------------------
C. Frank Watson, III, 28 Secretary and Assistant Chief Operating Officer, The Nottingham
105 North Washington Street Treasurer Company, Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Julian G. Winters, 30 Treasurer and Assistant Legal and Compliance Director, The
105 North Washington Street Secretary Nottingham Company, Rocky Mount,
Rocky Mount, North Carolina 27802 North Carolina, since 1996; previously,
Operations Manager, Tar Heel Medical,
Nashville, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year plus $250
per series of the Trust per meeting attended in person and $100 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
Compensation Table *
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------- ------------------ --------------------- ------------------- --------------------
Pension
Aggregate Retirement Estimated Total
Compensation Benefits Accrued Annual Compensation
from each of As Part of Fund Benefits Upon from the Trust
Name of Person, Position the Funds Expenses Retirement Paid to Trustees
- ------------------------------- ------------------ --------------------- ------------------- --------------------
Jack E. Brinson, Trustee $1,550 None None $3,100
- ------------------------------- ------------------ --------------------- ------------------- --------------------
Theo H. Pitt, Jr., Trustee $1,550 None None $3,100
- ------------------------------- ------------------ --------------------- ------------------- --------------------
</TABLE>
* Figures are estimates for the fiscal year to end June 30, 2000.
Principal Holders of Voting Securities. As of August 1, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) 0.000% of the then outstanding shares of the Internet 100
Fund, and 0.000% of the Internet 100 Equal Weighted Fund. On the same date the
following shareholders owned of record more than 5% of the outstanding shares of
the Funds. Except as provided below, no person is known by the Trust to be the
beneficial owner of more than 5% of the outstanding shares of the Funds as of
August 1, 1999.
INTERNET 100 FUND
- ---------------------- ------------------------------------ --------------------
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
- ---------------------- ------------------------------------ --------------------
NONE
INTERNET 100 EQUAL WEIGHTED FUND
- ---------------------- ------------------------------------ --------------------
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
- ---------------------- ------------------------------------ --------------------
NONE
Investment Advisor. Information about Internet 100 Advisors, L.L.C., 354
Broadway, New York, New York 10013 (the "Advisor") and its duties and
compensation as Advisor is contained in the Prospectus.
Compensation of the Advisor with regards to the Internet 100 Fund and the
Internet 100 Equal Weighted Fund, based upon the Funds' average daily net
assets, is at the annual rate of 0.75% for each fund.
The Advisor has entered into an expense limitation agreement with the Trust,
with respect to the both the Funds, pursuant to which the Advisor has agreed to
waive or limit its fees and to assume other expenses so that the total annual
operating expenses of the Fund (other than interest, taxes, brokerage
commissions, other expenditures which are capitalized in accordance with
generally accepted accounting principles, other extraordinary expenses not
incurred in the ordinary course of the Fund's business, and amounts, if any,
payable pursuant to a Rule l2b-1 Plan) are limited to 1.00% of the average daily
assets of each of the Funds.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company, Inc. (the
"Administrator"), a North Carolina corporation, whose address is 105 North
Washington Street, Post Office Drawer 69, Rocky Mount, North Carolina
27802-0069.
The Administrator performs the following services for the Fund: (1) coordinate
with the Custodian and monitor the services it provides to the Fund; (2)
coordinate with and monitor any other third parties furnishing services to the
Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the SEC and other federal and state regulatory authorities as may
be required by applicable law; (8) review and submit to the officers of the
Trust for their approval invoices or other requests for payment of Fund expenses
and instruct the Custodian to issue checks in payment thereof; and (9) take such
other action with respect to the Fund as may be necessary in the opinion of the
Administrator to perform its duties under the agreement. The Administrator will
also provide certain accounting and pricing services for the Fund.
Compensation of the Administrator, based upon the average daily net assets of
each fund, is at the following annual rates: 0.175% of the Fund's first $125
million, 0.150% on the next $125 million, and 0.125% on average daily net assets
over $250 million, subject to a minimum fee of $1,000 per month, per fund. In
addition, the Administrator currently receives a monthly fee of $2,250 per Fund
for accounting and recordkeeping services and an additional fee of $750 per
month for each additional Class of shares. The Administrator also charges the
Trust for certain costs involved with the daily valuation of investment
securities and is reimbursed for out-of-pocket expenses.
Transfer Agent. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC (the "Transfer Agent"), a
North Carolina limited liability company, to serve as transfer, dividend paying,
and shareholder servicing agent for the Funds. The address of the Transfer Agent
is 107 North Washington Street, Post Office Box 4365, Rocky Mount, North
Carolina 27803-0365. The Transfer Agent is compensated for its services based
upon a $15 fee per shareholder per year, subject to a minimum fee of $1,000 per
month, per fund.
Distributor. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
each Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement (the "Distribution Agreement") approved by
the Board of Trustees of the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
each Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60-days' prior
written notice to the other party.
Custodian. First Union National Bank of North Carolina (the "Custodian"), Two
First Union Center, Charlotte, North Carolina 28288-1151, serves as custodian
for each Fund's assets. The Custodian acts as the depository for each Fund,
safekeeps its portfolio securities, collects all income and other payments with
respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties as Custodian. For its services
as Custodian, the Custodian is entitled to receive from each Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
Independent Auditors. Deloitte & Touche LLP, 2500 One PPG Place, Pittsburgh,
Pennsylvania 15222-5401, serves as independent auditors for the Funds, audits
the annual financial statements of the Funds, prepares each Fund's federal and
state tax returns, and consults with each Fund on matters of accounting and
federal and state income taxation. A copy of the most recent annual report of
the Fund will accompany this SAI whenever it is requested by a shareholder or
prospective investor.
Legal Counsel. Dechert Price & Rhoads serves as legal counsel to the Woodlawn
Funds Trust and the Funds.
SPECIAL SHAREHOLDER SERVICES
Each Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year-to-date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Funds will automatically charge the checking account for the amount specified
($100 minimum) which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Funds.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Funds to redeem the necessary number of shares periodically
(each month, or quarterly in the months of March, June, September and December)
in order to make the payments requested. Each Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Funds. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Investing in the Funds - Redeeming Shares in the Funds -
Signature Guarantees" in the Prospectus). A corporation (or partnership) must
also submit a "Corporate Resolution" (or "Certification of Partnership")
indicating the names, titles and required number of signatures authorized to act
on its behalf. The application must be signed by a duly authorized officer(s)
and the corporate seal affixed. No redemption fees are charged to shareholders
under this plan. Costs in conjunction with the administration of the plan are
borne by the Funds. Shareholders should be aware that such systematic
withdrawals may deplete or use up entirely their initial investment and may
result in realized long-term or short-term capital gains or losses. The
Systematic Withdrawal Plan may be terminated at any time by the Funds upon sixty
days written notice or by a shareholder upon written notice to the Funds.
Applications and further details may be obtained by calling the Funds at
1-877-655-1110, or by writing to:
The Internet 100 Funds
[Name of fund]
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. Each Fund may accept securities in lieu of cash in payment
for the purchase of shares in the Fund. The acceptance of such securities is at
the sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long-term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "Investing in the Funds - Determining the Funds' Net Asset Value"
in the Prospectus.
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Funds to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein each Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the applicable Fund at the address shown herein. Your request should
include the following: (1) the Fund name and existing account registration; (2)
signature(s) of the registered owner(s) exactly as the signature(s) appear(s) on
the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) signature guarantees (See the Prospectus under the
heading "Signature Guarantees"); and (5) any additional documents which are
required for transfer by corporations, administrators, executors, trustees,
guardians, etc. If you have any questions about transferring shares, call or
write the Funds.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each Fund may be quoted in
advertisements, sales literature, shareholder reports or other communications to
shareholders. Each Fund computes the "average annual total return" of each Fund
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by determining the ending redeemable value of a
hypothetical $ 1,000 initial payment. This calculation is as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of $1,000 from which the maximum
sales load is deducted.
n = period covered by the computation, expressed in terms of years.
Each Fund may also compute the aggregate total return of each Fund, which is
calculated in a similar manner, except that the results are not annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. Each Fund may also quote other total
return information that does not reflect the effects of the sales load.
Each Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, each Fund may compare its performance to
the S&P 500 Total Return Index. Comparative performance may also be expressed by
reference to a ranking prepared by a mutual fund monitoring service or by one or
more newspapers, newsletters or financial periodicals. Each Fund may also
occasionally cite statistics to reflect its volatility and risk. Each Fund may
also compare its performance to other published reports of the performance of
unmanaged portfolios of companies. The performance of such unmanaged portfolios
generally does not reflect the effects of dividends or dividend reinvestment. Of
course, there can be no assurance that any Fund will experience the same
results. Performance comparisons may be useful to investors who wish to compare
a Fund's past performance to that of other mutual funds and investment products.
Of course, past performance is not a guarantee of future results.
Each Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, each Fund may advertise its performance
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Funds' Prospectus to obtain a
more complete view of each Fund's performance before investing. Of course, when
comparing a Fund's performance to any index, factors such as composition of the
index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for each Fund may quote total returns that are calculated
on nonstandardized base periods. The total returns represent the historic change
in the value of an investment in the Fund based on monthly reinvestment of
dividends over a specified period of time.
From time to time each Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the reflects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. Each Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). Each Fund may also depict the historical performance
of the securities in which the Fund may invest over periods reflecting a variety
of market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
Each Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited Statement of Assets and Liabilities as of August 27, 1999 for the
Internet 100 Fund is incorporated and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Funds may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment Grade Debt Securities") or, if
unrated, are in the Advisor's opinion comparable in quality to Investment Grade
Debt Securities. The various ratings used by the nationally recognized
securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Funds may invest should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating is evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation
is very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-I+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or 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 that 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 - Debt which is rated A possesses many favorable investment
attributes and is to be considered as an upper medium grade obligation.
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 - Debt which is rated Baa is considered as a medium grade
obligation, i.e., it is 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 debt
lacks outstanding investment characteristics and in fact has
speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated 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 bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered Investment-Grade Debt Securities by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
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.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory 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 earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-1; VMIG-1 - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S.
Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The
risk factors are more variable and greater in periods of economic
stress.
BBB - Bonds rated BBB have below-average protection factors but are
still considered sufficient for prudent investment. There is
considerable variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff 1 is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff 1+, Duff 1 and
Duff 1- within the highest rating category. Duff 1+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff l- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
Investment-Grade Debt Securities by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-l+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
<PAGE>
Internet 100 Fund
Statement of Assets and Liabilities
August 27, 1999
- --------------------------------------------------------------------------------
Assets:
- -------------------------------------------------------
Cash $ 100,000
- -------------------------------------------------------
Total Assets 100,000
- -------------------------------------------------------
Liabilities: ---------
- -------------------------------------------------------
Net Assets for 10,000 shares outstanding $ 100,000
- ------------------------------------------------------- =========
Net Assets Consist of:
- -------------------------------------------------------
Paid in Capital $ 100,000
- ------------------------------------------------------- =========
Net Asset Value, Offering Price and Redemption Proceeds
Per Share:
- -------------------------------------------------------
$100,000 / 10,000 shares outstanding $10.00
- ------------------------------------------------------- =========
Notes:
(1) Internet 100 Fund (the "Fund") is the only existing open-end management
investment company (a mutual fund) in a diversified series of the Woodlawn
Funds Trust (the "Trust"). The Trust was established as a Delaware
business trust under a Declaration of Trust on May 19, 1999 and is
registered under the investment company Act of 1940, as amended. The Fund
has had no operations since that date other than those relating to
organizational matters, including the issuance of 10,000 shares at $10.00
per share. Organizational fees of approximately $26,000 are to be paid by
the Investment Advisor.
(2) Reference is made to the "Management of the Fund" (on page 6),
"Administration of the Fund" (on page 6) and Tax Information (on page 12)
in the prospectus for descriptions of the investment advisory fee,
administrative and other services and federal tax aspects of the Fund.
(3) Certain Officers and Trustees of the Trust are Officers and Directors or
Trustees of the Advisor and the Administrator.
(4) Investment Valuations - Short-term securities are valued at cost which
approximates fair market value.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of the WOODLAWN FUNDS TRUST and the Shareholders of
INTERNET 100 FUND:
We have audited the accompanying statement of assets and liabilities of Internet
100 Fund as of August 27, 1999. The financial statement is the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement 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 financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Internet
100 Fund as of August 27, 1999, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
August 30, 1999
<PAGE>
PART C
======
WOODLAWN FUNDS TRUST
FORM N-1A
OTHER INFORMATION
ITEM 23. Exhibits
--------
(a) Declaration of Trust.^1
(b) By-Laws.^1
(c) Certificates for shares are not issued. Articles II and VII of the
Declaration of Trust, previously filed as Exhibit (a) hereto, define
the rights of holders of Shares.^1
(d) Investment Advisory Agreement between the Woodlawn Funds Trust and
Internet 100 Advisors, L.L.C., as Advisor.^2
(e) Distribution Agreement between the Woodlawn Funds Trust and Capital
Investment Group, Inc., as Distributor.^2
(f) Not applicable.
(g) Custodian Agreement between the Woodlawn Funds Trust and First Union
National Bank of North Carolina, as Custodian.^2
(h)(1) Fund Accounting and Compliance Administration Agreement between the
Woodlawn Funds Trust and The Nottingham Company, Inc., as
Administrator.^2
(h)(2) Dividend Disbursing and Transfer Agent Agreement between the Woodlawn
Funds Trust and NC Shareholder Services, LLC, as Transfer Agent.^2
(h)(3) Expense Limitation Agreement between the Woodlawn Funds Trust and
Internet 100 Advisors, L.L.C.^2
(i) Opinion and Consent of Dechert Price & Rhoads regarding the legality of
securities registered.^2
(j)(1) Opinion of Deloitte & Touche LLP, Independent Public Accountants.^2
(j)(2) Consent of Deloitte & Touche LLP, Independent Public Accountants.
(k) Balance Sheet.^2
(l) Subscription Agreements.^2
(m) Distribution Plan under Rule 12b-1 for the Woodlawn Funds Trust.^2
(n) Not applicable.
(o) Not applicable.
(p) Power of Attorneys.^2
- -----------------------
1. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A filed May 19, 1999 (File No. 333-78815).
2. Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A Pre-Effective Amendment No. 2 filed September 2, 1999 (File No.
333-78815).
ITEM 24. Persons Controlled by or Under Common Control with the Registrant
-----------------------------------------------------------------
No person is controlled by or under common control with the Woodlawn
Funds Trust.
ITEM 25. Indemnification
---------------
Reference is made to Article X of the Registrant's Trust Instrument.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
ITEM 26. Business and other Connections of the Investment Advisor
--------------------------------------------------------
The description of Internet 100 Advisors, L.L.C., under the caption of
"Management of the Funds - The Investment Advisor" in the Prospectus and under
the caption "Management and Other Service Providers - Investment Advisor" in the
Statement of Additional Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by reference herein. Information
concerning the directors and officers of Internet 100 Advisors, L.L.C. as set
forth in Internet 100 Advisors, L.L.C.'s Form ADV filed with the Securities and
Exchange Commission on July 19, 1999 (File No. 801-*****), and amended through
the date hereof, is incorporated by reference herein.
ITEM 27. Principal Underwriter
---------------------
(a) Capital Investment Group, Inc., the Registrant's distributor, is also
the underwriter and distributor for the Chesapeake Aggressive Growth
Fund, Chesapeake Growth Fund, Chesapeake Core Growth Fund, WST Growth &
Income Fund, CarolinasFund, Capital Value Fund, Investek Fixed Income
Trust, The Brown Capital Management Equity Fund, The Brown Capital
Management Balanced Fund, The Brown Capital Management Small Company
Fund, The Brown Capital Management International Equity Fund, Blue
Ridge Total Return Fund, SCM Strategic Growth Fund, New Providence
Capital Growth Fund, and the Wisdom Fund.
(b) Set forth below is certain information regarding the directors and
officers of Capital Investment Group, Inc.
POSITION(S) AND OFFICE(S)
NAME AND PRINCIPAL WITH CAPITAL INVESTMENT POSITION(S) AND OFFICE(S)
BUSINESS ADDRESS GROUP, INC. WITH REGISTRANT
================== ========================= =========================
Richard K. Bryant President None
17 Glenwood Avenue
Raleigh, NC 27622
E.O. Edgerton, Jr. Vice President None
17 Glenwood Avenue
Raleigh, NC 27622
(c) Not applicable.
ITEM 28. Location of Accounts and Records
--------------------------------
All account books and records not normally held by First Union National
Bank of North Carolina, the Custodian to the Woodlawn Funds Trust, are held by
the Woodlawn Funds Trust, in the offices of The Nottingham Company, Inc., Fund
Accountant and Administrator; NC Shareholder Services, LLC, Transfer Agent; or
Internet 100 Advisors, L.L.C., the Investment Advisor to the Woodlawn Funds
Trust.
The address of The Nottingham Company, Inc. is 105 North Washington
Street, Post Office Box 69, Rocky Mount, North Carolina 27802-0069. The address
of NC Shareholder Services, LLC is 107 North Washington Street, Post Office Box
4365, Rocky Mount, North Carolina 27803-0365. The address of Internet 100
Advisors, L.L.C. is 1530 N. Key Blvd. #826, Arlington, Virginia 22209. The
address of First Union National Bank of North Carolina is Two First Union
Center, Charlotte, North Carolina 28288-1151.
ITEM 29. Management Services
-------------------
Not Applicable.
ITEM 30. Undertakings
------------
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Rocky Mount, and State of North Carolina on this
7th day of September, 1999.
WOODLAWN FUNDS TRUST
By: /s/ C. Frank Watson, III
__________________________
C. Frank Watson, III
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
* Trustee September 7, 1999
_________________________
Jack E. Brinson
* Trustee September 7, 1999
_________________________
Theo H. Pitt, Jr.
* Trustee September 7, 1999
_________________________
Paul John de Leon
/s/ Julian G. Winters Treasurer September 7, 1999
_________________________
Julian G. Winters
*By: /s/ C. Frank Watson, III Dated: September 7, 1999
___________________________
C. Frank Watson, III
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
(FOR PRE-EFFECTIVE AMENDMENT NO. 3)
-----------------------------------
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- ------------ ---------------
(j)(2) Consent of Deloitte & Touche LLP, Independent Public
Accountants
Exhibit (j)(2): Consent of Deloitte & Touche LLP, Independent Public Accountants
- --------------
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of the WOODLAWN FUNDS TRUST
and the Shareholders of INTERNET 100 FUND:
We consent to the use in this Pre-Effective Amendment No. 3 to Registration
Statement No. 333-78815 of Internet 100 Fund of our report dated August 30,
1999, appearing in the Statement of Additional Information, which is a part of
such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
September 7, 1999
