VALENZUELA CAPITAL TRUST
P R O S P E C T U S
October 1, 2000
VAL CAP MID CAP FUND
VAL CAP SMALL CAP FUND
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Questions?
Call 1-877-309-9062
or your investment representative.
VALCAP
[LOGO]
FUNDS FOR INVESTORS
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TABLE OF CONTENTS
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CAREFULLY REVIEW THIS IMPORTANT SECTION, WHICH SUMMARIZES EACH FUND'S
INVESTMENTS, RISKS, PAST PERFORMANCE, AND FEES.
RISK/RETURN SUMMARY AND FUND EXPENSES
3 Val Cap Mid Cap Fund
3 Val Cap Small Cap Fund
4 Fund Fees and Expenses
REVIEW THIS SECTION FOR INFORMATION ON INVESTMENT STRATEGIES AND THEIR RISKS.
INVESTMENT GOAL AND PRINCIPAL STRATEGY AND RISKS
5 Val Cap Mid Cap Fund
6 Val Cap Small Cap Fund
7 Other Considerations
REVIEW THIS SECTION FOR DETAILS ON THE PEOPLE AND ORGANIZATIONS WHO OVERSEE THE
FUNDS.
FUND MANAGEMENT
7 The Investment Adviser
7 Performance of Similarly Managed Private Accounts
9 The Administrator
REVIEW THIS SECTION FOR DETAILS ON HOW SHARES ARE VALUED, HOW TO PURCHASE, SELL
AND EXCHANGE SHARES, RELATED CHARGES AND PAYMENTS OF DIVIDENDS AND
DISTRIBUTIONS.
SHAREHOLDER INFORMATION
10 How NAV is Calculated
10 Pricing of Fund Shares
10 Avoid 31% Tax Withholding
10 Instructions for Opening or Adding to an Account
11 Selling Your Shares
12 General Policies on Selling Shares
13 Service Organizations
14 Exchanging Your Shares
14 Dividends, Distributions and Taxes
BACK COVER
For More Information
2
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RISK/RETURN SUMMARY AND FUND EXPENSES
================================================================================
The following is a summary of certain key information about the Funds. You will
find additional information about the Funds after this summary. In this summary,
we identify principal risks that apply to the Funds such as market risk, which
is the risk of market fluctuations, and management risk, which is the risk that
a Fund's manager will make poor choices in selecting securities. More detailed
descriptions of these and other risks of an investment in the Funds can be found
further back in the Prospectus.
Other important things for you to note:
o You may lose money by investing in a Fund.
o An investment in a Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
[LOGO] VAL CAP MID CAP FUND
INVESTMENT GOAL
The Fund's objective is capital appreciation primarily through investments in
common stocks of mid-capitalization companies.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in mid-capitalization, or
mid-cap, companies with market values from $1 billion to $10 billion. The Fund
primarily invests in common stocks of U.S. companies using a value strategy,
which emphasizes investments in stocks that have attractive valuations and the
potential for future earnings growth. The Fund selects companies for investment
based on an analysis of financial and other information and uses certain
criteria to determine when to buy and sell a stock including buying stocks that
are expected to appreciate in value and selling stocks that have become fully
valued and appreciated substantially.
PRINCIPAL INVESTMENT RISKS
The principal risks of investing in the Fund are market risk and management
risk. The Fund's investments in mid-cap companies have capitalization risk. The
stocks of mid-cap companies tend to be more volatile than those of
large-capitalization companies and their returns may vary from the stock market
generally. In addition, these companies may have more risk because they often
have more limited product lines, markets, or financial resources. The Fund's use
of a value strategy has the risk that its investments may remain undervalued or
decrease in price.
WHO MAY WANT TO INVEST?
Consider investing in the Fund if you are:
o SEEKING A LONG-TERM GOAL SUCH AS RETIREMENT
o LOOKING TO ADD A VALUE-ORIENTED APPROACH TO YOUR PORTFOLIO
o WILLING TO ACCEPT HIGHER RISKS OF INVESTING IN THE STOCK MARKET IN GENERAL
AND IN MID-CAP STOCKS IN PARTICULAR
This Fund will not be appropriate for anyone:
o SEEKING MONTHLY INCOME
o PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
o SEEKING SAFETY OF PRINCIPAL
BAR CHART AND PERFORMANCE INFORMATION
There is no bar chart or performance information for the Fund because it has not
completed a full year of operations.
[LOGO] VAL CAP SMALL CAP FUND
INVESTMENT GOAL
The Fund's objective is capital appreciation primarily through investments in
common stocks of small-capitalization companies.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests at least 65% of its total assets in small-capitalization, or
small-cap, companies with market values of less than $1.5 billion. The Fund
primarily invests in common stocks of U.S. companies using a value strategy,
which emphasizes investments in stocks that have attractive valuations and the
potential for future earnings growth. The Fund selects companies for investment
based on an analysis of financial and other information and uses certain
criteria to
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determine when to buy and sell a stock including buying stocks that are expected
to appreciate in value and selling stocks that have become fully valued and
appreciated substantially.
PRINCIPAL INVESTMENT RISKS
The principal risks of investing in the Fund are market risk and management
risk. The Fund's investments in small-cap companies have capitalization risk.
The stocks of small-cap companies tend to be more volatile than those of
large-capitalization companies and their returns may vary from the stock market
generally. In addition, these companies may have more risk because they often
have limited product lines, markets, or financial resources. The Fund's use of a
value strategy has the risk that its investments may remain undervalued or
decrease in price.
WHO MAY WANT TO INVEST?
Consider investing in the Fund if you are:
o SEEKING A LONG-TERM GOAL SUCH AS RETIREMENT
o LOOKING TO ADD A VALUE-ORIENTED APPROACH TO YOUR PORTFOLIO
o WILLING TO ACCEPT HIGHER RISKS OF INVESTING IN THE STOCK MARKET IN GENERAL
AND IN SMALL-CAP STOCKS IN PARTICULAR
This Fund will not be appropriate for anyone:
o SEEKING MONTHLY INCOME
o PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
o SEEKING SAFETY OF PRINCIPAL
BAR CHART AND PERFORMANCE INFORMATION
There is no bar chart or performance information for the Fund because it has not
completed a full year of operations.
FUND FEES AND EXPENSES
As an investor in the Funds, you will pay the following fees and expenses when
you buy and hold shares. Shareholder transaction fees are paid from your
account. Annual Fund operating expenses are paid out of Fund assets and are
reflected in the share price.
VAL CAP VAL CAP
MID CAP SMALL CAP
FUND FUND
------ ------
SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID BY YOU DIRECTLY)
Maximum Sales Charge
(Load) Imposed on
Purchases None None
Maximum Deferred Sales
Charge (Load) None None
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS)
Management Fees* 0.75% 0.75%
Other Expenses 11.08% 11.08%
------ ------
Total Fund Operating
Expenses 11.83% 11.83%
Waiver and/or Expense
Reimbursement* 10.38% 10.38%
------ ------
Net Expenses 1.45% 1.45%
====== ======
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* The Adviser has contractually agreed to waive a portion of its advisory
fees or reimburse a portion of the Funds' operating expenses so that each
of the Fund's net expenses do not exceed 1.45% through at least October 1,
2002. Other expenses are based on estimates for the current fiscal year.
EXAMPLE.
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
o $10,000 investment
o 5% annual return
o reinvestment of all dividends and distributions
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
may be higher or lower.
1 Year 3 Years
------ -------
Val Cap Mid Cap Fund $148 $459
Val Cap Small Cap Fund $148 $459
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INVESTMENT GOAL AND PRINCIPAL STRATEGY AND RISKS
================================================================================
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Of course,
there can be no assurance that the Funds will achieve their investment
objectives. The Funds may change their investment objectives without shareholder
approval, although they do not contemplate that there will be any change in the
objectives. Additional descriptions of the Funds' risks, strategies, and
investments, as well as other strategies and investments not described below,
may be found in the Funds' Statement of Additional Information or SAI.
[LOGO] VAL CAP MID CAP FUND
INVESTMENT GOAL
The Fund's objective is capital appreciation primarily through investments in
common stocks of mid-capitalization companies.
PRINCIPAL STRATEGIES
The Fund invests at least 65% of its total assets in equity securities of
mid-cap companies with market valuations from $1 billion to $10 billion. The
Fund primarily invests in common stocks of U.S. companies.
The Fund's investment strategy is based on stock selection and valuation
analysis. The Fund selects mid-cap companies for investment based on both
quantitative and qualitative analysis. The Fund's quantitative analysis uses
statistical financial data, mainly 3-to 5-year historical quarterly ratio
analysis. Normally, the Fund tracks about 180 mid-cap companies using
approximately 25 different ratios calculated from financial statements, which
are updated continuously. The Fund's qualitative analysis of companies for
investment includes interviewing a company's management, on-site if possible, as
well as its customers, competitors, and suppliers, about, in particular, issues
raised by the Fund's quantitative analysis. The Fund uses this process to assess
risk and to identify conditions that can lead to earnings growth.
As a result of this analysis, the Fund compiles a purchase list with buy and
sell target stock prices of about 100 companies, which includes current
portfolio holdings. The Fund uses "investment disciplines" in determining
whether to buy or sell stocks.
The Fund will buy a stock that:
o based on its analysis, may appreciate 50% over a 3-year period;
o has a stock price that has declined to the Fund's buy price; or
o for a current portfolio holding, has a stock price that has declined by
more than 10% when there has been no negative change in the company's
fundamentals.
The Fund will sell a stock that:
o reaches a predetermined price objective and is at a premium market/industry
valuation;
o has a negative change in the company's fundamentals;
o has appreciated substantially to replace it with a stock that may
appreciate 50% over a 3-year period; or
o has appreciated substantially and becomes more than 5% of the total asset
value of the Fund's portfolio.
The Fund also reviews any stock on its purchase list that relatively
underperforms its peer group by 15% over a 6-month rolling period and considers
whether to retain it on the list.
PRINCIPAL RISKS
The Fund's principal risks include market risk, which is the risk that the value
of the Fund's investments will fluctuate as the stock market fluctuates and that
stock prices overall will decline over short- or longer-term periods. The Fund's
investments in mid-cap companies have capitalization risk. These companies'
stocks may be more volatile than the overall market. Mid-cap companies may have
limited resources, product lines, and market share. As a result, their share
prices tend to fluctuate more than those of larger companies. For this reason,
the Fund's returns may vary from the stock market generally.
The Fund also has management risk, which is the possibility that the Fund's
managers may make poor choices in selecting securities and that the
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Fund will not perform as well as other Funds. There also is the risk of using a
value strategy. Stocks in which the Fund invests may remain undervalued during a
given period or continue to decline in price. This may occur because larger
stocks or investments based on the large-stock indices are more appealing to
investors or because value stocks as a category lose favor with investors
compared to growth stocks.
[LOGO] VAL CAP SMALL CAP FUND
INVESTMENT GOAL
The Fund's objective is capital appreciation primarily through investments in
common stocks of small-capitalization companies.
PRINCIPAL STRATEGIES
The Fund invests at least 65% of its total assets in equity securities of
small-cap companies with market valuations of less than $1.5 billion. The Fund
primarily invests in common stocks of U.S. companies.
The Fund's investment strategy is based on stock selection and valuation
analysis. The Fund selects small-cap companies for investment based on both
quantitative and qualitative analysis. The Fund's quantitative analysis uses
statistical financial data, mainly 3-to 5-year historical quarterly ratio
analysis. Normally, the Fund tracks about 180 small-cap companies using
approximately 25 different ratios calculated from financial statements, which
are updated continuously. The Fund's qualitative analysis of companies for
investment includes interviewing a company's management, on-site if possible, as
well as its customers, competitors, and suppliers, about, in particular, issues
raised by the Fund's quantitative analysis. The Fund uses this process to assess
risk and to identify conditions that can lead to earnings growth.
As a result of this analysis, the Fund compiles a purchase list with buy and
sell target stock prices of about 100 companies, which includes current
portfolio holdings. The Fund uses "investment disciplines" in determining
whether to buy or sell stocks.
The Fund will buy a stock that:
o based on its analysis, may appreciate 50% over a 3-year period;
o has a stock price that has declined to the Fund's buy price; or
o for a current portfolio holding, has a stock price that has declined by
more than 10% when there has been no negative change in the company's
fundamentals.
The Fund will sell a stock that:
o reaches a predetermined price objective and is at a premium market/industry
valuation;
o has a negative change in the company's fundamentals;
o has appreciated substantially to replace it with a stock that may
appreciate 50% over a 3-year period; or
o has appreciated substantially and becomes more than 5% of the total asset
value of the Fund's portfolio.
The Fund also reviews any stock on its purchase list that relatively
underperforms its peer group by 15% over a 6-month rolling period and considers
whether to retain it on the list.
PRINCIPAL RISKS
The Fund's principal risks include market risk, which is the risk that the value
of the Fund's investments will fluctuate as the stock market fluctuates and that
stock prices overall will decline over short- or longer-term periods. The Fund's
investments in small-cap companies have capitalization risk. These companies'
stocks may be more volatile than the overall market. Smaller companies tend to
have limited resources, product lines and market share. As a result, their share
prices tend to fluctuate more than those of larger companies. Their shares may
also trade less frequently and in limited volume, negatively affecting the share
price and making them potentially more difficult to sell or less liquid. For
this reason, the Fund's returns may vary from the stock market generally.
The Fund also has management risk, which is the possibility that the Fund's
managers may make poor choices in selecting securities and that the
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Fund will not perform as well as other Funds. There also is the risk of using a
value strategy. Stocks in which the Fund invests may remain undervalued during a
given period or continue to decline in price. This may occur because larger
stocks or investments based on the large-stock indices are more appealing to
investors or because value stocks as a category lose favor with investors
compared to growth stocks.
OTHER CONSIDERATIONS
PORTFOLIO TURNOVER. The Funds are actively managed and, in some cases in
response to market conditions, the Funds' annual portfolio turnover may exceed
100%. While the Funds do not expect a high rate of portfolio turnover, a higher
rate would increase brokerage and other expenses and may affect the Funds'
returns. A higher portfolio turnover rate also may result in the realization of
substantial net short-term gains, which when distributed, are taxable to the
Funds' shareholders.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes in response to
adverse market or other conditions, the Funds may make investments that are
inconsistent with the Funds' primary investment strategies, including
investments in short-term money market instruments or holding substantial cash
reserves. While the Funds are investing for temporary defensive purposes, they
may not meet their investment objectives.
FUND MANAGEMENT
================================================================================
THE INVESTMENT ADVISER
Valenzuela Capital Partners, LLC ("VCP"), 1270 Avenue of the Americas (Suite
508), New York, NY 10020 serves as investment adviser to the Funds. VCP, founded
in 1989, is a registered investment adviser that manages approximately $1
billion in assets, primarily through institutional accounts. Subject to the
Funds' respective investment goals and policies approved by the Trustees of the
Funds, VCP makes the day-to-day investment decisions and continuously reviews,
supervises and administers the Funds' investment programs. VCP utilizes a team
approach in making investment decisions on behalf of each Fund, with 8
professionals working collectively to ensure a disciplined investment process
designed to result in long-term performance consistent with each Fund's
investment goal. No one person is responsible for a Fund's portfolio management.
For its advisory services, the Funds pay VCP an annual advisory fee equal to
0.75%, net of fee waivers and reimbursements, of the average daily net assets of
each Fund.
PERFORMANCE OF SIMILARLY MANAGED PRIVATE ACCOUNTS
The tables and charts that follow present performance data provided by VCP
relating to the historical performance of its mid-cap and small-cap value
products and does not represent performance of either Fund. Information
presented is based on performance data for all accounts ("VCP Accounts") it
manages that have investment objectives, policies, styles and strategies
substantially similar to the ones that will be employed in the Val Cap Mid Cap
Fund and Val Cap Small Cap Fund. The VCP Accounts include VCP's individual and
unregistered accounts from January 1990 for the mid-cap value product and
January 1998 for the small-cap value product. The VCP Accounts are individual
and unregistered accounts primarily managed for institutional tax-exempt
investors, and are not subject to diversification and other requirements that
apply to mutual funds under the Investment Company Act of 1940, and the Internal
Revenue Code of 1986, which, if applicable, could have adversely affected the
historical performance of the VCP Accounts. As a result, portfolio management
strategies used on the VCP Accounts and those used on the Funds may vary in some
respects.
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Also, fees on the VCP Accounts are imposed quarterly rather than daily for
mutual funds, which may inflate performance for the VCP Accounts. The
information should not be interpreted as indicative of the future performance of
the Funds. The actual performance may be higher or lower than that shown.
The tables and charts show the total returns for calendar years through
September 30, 2000 of the VCP Mid Cap Value Institutional Account Composite and
the VCP Small Cap Value Institutional Account Composite as compared to the
Russell Midcap Value Index, and the Russell 2000 Value Index, respectively, each
an unmanaged Index that is representative of the performance of the medium
capitalization and small capitalization sectors of the U.S. securities market.
The performance data shown below has not been adjusted to reflect any fees that
will be payable by the Funds that are higher than the fees imposed on the VCP
Accounts and would result in a higher expense ratio and lower returns for the
Funds.
VCP MID CAP VALUE INSTITUTIONAL ACCOUNT COMPOSITE
ANNUAL RETURNS (through September 30, 2000)
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000(YTD)
-3.99% 36.22% 15.21% 13.75% -1.01% 30.27% 32.41% 39.77% 1.30% -6.46% 11.78%
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPARATIVE ANNUAL RETURNS (through September 30, 2000)
[GRAPHIC OMITTED]
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000(YTD)
----------------------------------------------------------------------------------------------------------------
VCP MID CAP -3.99% 36.22% 15.21% 13.75% -1.01% 30.27% 32.41% 39.77% 1.30% -6.46% 11.78%
RUSSELL MIDCAP
VALUE INDEX* -16.08% 37.92% 21.68% 15.62% -2.13% 34.93% 20.26% 34.37% 5.08% -0.10% 8.90%
----------------------------------------------------------------------------------------------------------------
</TABLE>
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* The Russell Midcap Value Index is an unmanaged index representative of the
performance of the medium-capitalization value sector of the U.S.
securities market.
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VCP SMALL CAP VALUE INSTITUTIONAL ACCOUNT COMPOSITE
ANNUAL RETURNS (through September 30, 2000)
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
1998 1999 2000(YTD)
5.38% 18.72% 28.22%
--------------------------------------------------------------------------------
COMPARATIVE ANNUAL RETURNS (through September 30, 2000)
1998 1999 2000(YTD)
--------------------------------------------------------------------------------
VCP SMALL CAP 5.38% 18.72% 28.22%
--------------------------------------------------------------------------------
RUSSELL 2000
VALUE INDEX* -6.45% -1.49% 13.61%
--------------------------------------------------------------------------------
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* The Russell 2000 Value Index is an unmanaged index representative of the
performance of the small-capitalization value sector of the U.S. securities
market.
THE ADMINISTRATOR
Ultimus Fund Solutions, LLC ("Ultimus"), 135 Merchant Street, Suite 230,
Cincinnati, Ohio 45246, serves as the Funds' administrator and fund accounting
agent. Management and administrative services of Ultimus include (i) providing
office space, equipment and officers and clerical personnel to the Funds, (ii)
obtaining valuations, calculating net asset values and performing other
accounting, tax and financial services, (iii) recordkeeping, (iv) legal and
regulatory services, and (v) supervising custodial and other third party
services.
The SAI has more detailed information about VCP and other service providers to
the Funds.
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SHAREHOLDER INFORMATION
================================================================================
HOW NAV IS CALCULATED
A Fund's net asset value or NAV is calculated by adding the total value of the
Fund's investments and other assets, subtracting its liabilities and then
dividing that figure by the number of outstanding shares of the Fund:
Total Assets - Liabilities
NAV = ----------------------------
Number of Shares Outstanding
Each Fund's NAV is determined and its shares are priced at the close of regular
trading on the New York Stock Exchange or Exchange, normally at 4:00 p.m.,
Eastern time, on days the Exchange is open.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received in good order by the Fund. Shares of the
Funds are sold without any initial or deferred sales charges and are not subject
to any ongoing distribution expenses.
The Funds' securities are generally valued at current market prices. If market
quotations are not available, prices will be based on a fair value estimate,
determined in accordance with methods approved by the Funds' Trustees.
PRICING OF FUND SHARES
You may purchase shares of the Funds directly from the Funds or through banks,
brokers and other financial intermediaries, which may charge additional fees and
may require higher minimum investments or impose other limitations on buying and
selling shares. If you purchase shares through a financial intermediary, that
party is responsible for transmitting orders by close of business and may have
an earlier cut-off time for purchase and sale requests. Consult your investment
representative or institution for specific information.
PURCHASING AND ADDING TO YOUR SHARES
MINIMUM MINIMUM
INITIAL SUBSEQUENT
ACCOUNT TYPE INVESTMENT INVESTMENT
------------ ---------- ----------
Regular $5,000 $250
Individual Retirement Account $2,000 $250
Automatic Investment Plan $2,000 $ 50
All purchases must be in U.S. dollars. A fee may be charged for any checks that
do not clear. Third-party checks are not accepted.
A Fund may waive its minimum purchase requirement and may reject a purchase
order if it considers it in the best interest of the Fund and its shareholders.
You can add to your account by using the convenient options described below. The
Fund reserves the right to change or eliminate these privileges at any time with
60 days' notice.
AVOID 31% TAX WITHHOLDING
Each Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
INSTRUCTIONS FOR OPENING
OR ADDING TO AN ACCOUNT
BY MAIL
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to the ValCap Mid Cap Fund or
the ValCap Small Cap Fund.
3. Send by mail to: Valenzuela Capital Trust, P.O. Box 6110, Indianapolis, IN
46206-6110; or send by overnight service to Valenzuela Capital Trust, c/o
Unified Fund Services, 431 N. Pennsylvania Street, Indianapolis, IN 46204.
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SUBSEQUENT INVESTMENT:
1. Use the investment slip attached to your account statement. Or, if
unavailable, include the following information:
o Fund name
o Share class
o Amount invested
o Account name
o Account number
Include your Fund and account number on your check.
2. See mailing instructions in No. 3 above.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
U.S. Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-877-309-9062. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-877-309-9062 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH) and may take up to eight days to
clear. There is generally no fee for ACH transactions.
WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
Please phone the Funds at 1-877-309-9062 for instructions on opening an account
or purchasing additional shares by wire transfer.
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Funds by choosing the Automatic
Investment option on your account application. Automatic investments are made by
debiting money from a designated bank account through the use of electronic fund
transfers. Automatic investments can be as little as $50, once you've invested
the $2,000 minimum required to open the account.
To invest regularly from your bank account:
o Complete the Automatic Investment Plan portion on your account application.
Make sure you note:
o Your bank name, address and account number
o The amount you wish to invest automatically (minimum $50)
o How often you want to invest (every month, twice a month, 4 times a year,
twice a year or once a year)
o Attach a voided personal check.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends and capital gains are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution.
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the account application, you can elect to
receive your distributions in cash (check) or have distributions (capital gains
and dividends) reinvested in another Val Cap Fund. You must maintain the minimum
balance in each Fund into which you plan to reinvest dividends or the
reinvestment will be suspended and your dividends paid to you. The Funds may
modify or terminate this reinvestment option without notice. You can change or
terminate your participation in the reinvestment option at any time.
SELLING YOUR SHARES
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares" below.
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INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial advisor or broker, ask him or her
for redemption procedures. Your advisor and/or broker may have transaction
minimums and/or transaction times which will affect your redemption.
For all other sales transactions, follow the instructions below.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
SELLING YOUR SHARES
BY TELEPHONE
(unless you have declined telephone sales privileges)
Call 1-877-309-9062 with instructions as to how you wish to receive your funds
(mail, wire, electronic transfer). (See "General Policies on Selling Shares --
Verifying Telephone Redemptions" below)
BY MAIL
(See "General Policies on Selling Shares -- Redemptions in Writing Required"
below)
1. Write a letter of instruction indicating:
o your Fund and account number
o amount you wish to redeem
o address where your check should be sent
o account owner signature
2. Mail to:
Valenzuela Capital Trust
P.O. Box 6110
Indianapolis, IN 46206-6110
BY OVERNIGHT SERVICE (See" General Policies on Selling Shares -- Redemptions in
Writing Required" below)
See instruction 1 above, and Send to:
Valenzuela Capital Trust
c/o Unified Fund Services
431 N. Pennsylvania Street
Indianapolis, IN 46204
BY WIRE TRANSFER
You must indicate this option on your application.
Call 1-877-309-9062 to request a wire transfer. If you call by 4:00 p.m.,
Eastern time, on a day the Exchange is open your payment will normally be wired
to your bank on the next business day.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be a
U.S. bank.
Call 1-877-309-9062 to request an electronic redemption.
If you call by 4:00 p.m., Eastern time, on a day the Exchange is open the NAV of
your shares will normally be determined on the same day and the proceeds
credited within 8 days. Your bank may charge you for this service.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $25. To activate this
feature:
o Make sure you've checked the appropriate box on the account application, or
call 1-877-309-9062.
o Include a voided personal check.
o Your account must have a value of $5,000 or more to start withdrawals.
o If the value of your account falls below the amount of your Systematic
Withdrawal Plan, your Systematic Withdrawal Plan may be terminated.
GENERAL POLICIES ON SELLING SHARES
REDEMPTIONS IN WRITING REQUIRED
You must request a redemption in writing and provide a signature guarantee in
the following situations:
o Redemptions over $50,000
o Your account address has changed via telephonic or faxed request
within the last 10 business days
o The check is not being mailed to the address on your account
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o The check is not being made payable to the owner of the account
o The redemption proceeds are being transferred to another Fund account
with a different registration
o The redemption proceeds are being wired to a bank account other than
the account designated on your application
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Funds' transfer agent may reject any signature guarantee if it
believes the transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
transfer agent may be liable for losses due to unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
If you have made your initial investment by check, your redemption proceeds may
be delayed until the Funds' transfer agent is reasonably satisfied that the
check has cleared (which may take up to 15 days). You can avoid this delay by
purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
Each Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $500 through redemptions, the Fund may ask you to
increase your balance. If it is still below $500 after 30 days, the Fund may
close your account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
If you choose to receive distributions in cash and checks (1) are returned and
marked as "undeliverable," or (2) are not cashed within six months of issuance,
your account will be changed automatically so that future distributions will be
reinvested in your account. Checks that have not been negotiated will be
canceled and the money reinvested in your account in the Fund from which the
distribution was made, as of the cancellation date. No interest is paid during
the time the check is outstanding.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers and other financial organizations
("Service Organization(s)") may provide certain administrative services for its
customers who invest in the Funds through accounts maintained at that Service
Organization. The Funds, under servicing agreements with the Service
Organization, will pay the Service Organization an annual rate up to 0.25% of a
Fund's average daily net assets for these services, which include:
o receiving and processing shareholder orders
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o performing the accounting for customers' sub-accounts
o maintaining retirement plan accounts
o answering questions and handling correspondence for customer accounts
o acting as the sole shareholder of record for customer accounts
o issuing shareholder reports and transaction confirmations
o performing daily "sweep" functions
Investors who purchase, sell or exchange shares of the Funds through a customer
account maintained at a Service Organization may be charged extra for other
services which are not specified in the servicing agreement with a Fund but are
covered under separate fee schedules provided by the Service Organization to
their customers. Customers with accounts at Service Organizations should consult
their Service Organization for information concerning their sub-accounts. VCP
also may pay Service Organizations for rendering services to customers'
sub-accounts.
EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of the same class of another
Val Cap Fund, (see "Notes on Exchanges" below). No transaction fees are charged
for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Valenzuela Capital Trust,
P.O. Box 6110, Indianapolis, IN 46206-6110, or by calling 1-877-309- 9062.
Please provide the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security number)
o Dollar value or number of shares to be exchanged
o The name of the Fund from which the exchange is to be made
o The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to no more than 5 exchanges per
year with no more than 3 per calendar quarter.
NOTES ON EXCHANGES
The registration and tax identification numbers of the two accounts must be
identical.
The exchange privilege may be changed or eliminated at any time upon a 60-day
notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund pays out to shareholders net income and net capital gains. Ordinarily
the Funds make these distributions once a year in December.
When you sell Fund shares, you generally realize a gain or loss. Except for
tax-deferred accounts, any sale or exchange of Fund shares may generate a tax
liability. Of course, withdrawals or distributions from tax-deferred accounts
are taxable when received.
Except for tax-advantaged retirement accounts, distributions you receive are
taxable to you, regardless of whether you take them in cash or additional
shares. Dividends are taxable in the year in which they are paid, even if they
appear on your account statement the following year. Income dividends and
short-term capital gains are generally taxed as ordinary income. Distributions
of capital gains are generally taxed as long-term capital gains. The tax
treatment of capital-gain distributions depends on how long the Fund held the
securities it sold, not when you bought your shares of the Fund or whether you
reinvested your distributions.
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You will be notified in January each year about the federal tax status of
distributions made by a Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements.
There is a penalty on certain pre-retirement distributions from retirement
accounts. Because everyone's tax situation is unique, you should consult your
tax professional about Federal, state and local tax consequences.
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FOR MORE INFORMATION
================================================================================
For more information about the Funds, the following are available free upon
request:
ANNUAL/SEMIANNUAL REPORTS:
The Funds will publish annual and semiannual reports to shareholders that
contain detailed information on the Funds' investments. The annual report will
contain a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during that fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including their
operating and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
You can get free copies of the SAI, or request other information and discuss
your questions about the Funds by contacting a broker or bank that sells the
Funds. Or contact the Funds at:
VALENZUELA CAPITAL TRUST
431 N. PENNSYLVANIA STREET
INDIANAPOLIS, IN 46204
TELEPHONE: 1-877-309-9062
You can review and copy information about the Funds (including the SAI) from the
Securities and Exchange Commission:
o In person at the Commission's Public Reference Room or by writing the
Public Reference Section of the Commission, Washington, D.C. 20549-6009
(duplicating fee required). You may obtain information on the operation of
the Public Reference Room by calling 1-800-SEC-0330.
o By electronic request at publicinfo@ sec.gov (duplicating fee required).
o Free from the Commission's Internet site at http://www.sec.gov.
Investment Company Act File No. 811-09405.
VALENZUELA CAPITAL TRUST
FOR INFORMATION CALL 1-877-309-9062
P R O S P E C T U S
VALCAP
[LOGO]
FUNDS FOR INVESTORS
OCTOBER 1, 2000
<PAGE>
VAL CAP MID CAP FUND
VAL CAP SMALL CAP FUND
Each an Investment Portfolio of
VALENZUELA CAPITAL TRUST
Statement of Additional Information
October 1, 2000
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus for Valenzuela Capital Trust dated
October 1, 2000, which may be supplemented from time to time. This Statement of
Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained without charge, upon
request, by writing Valenzuela Capital Trust at 431 N. Pennsylvania Street,
Indianapolis, Indiana 46204, or by calling toll free 1-877-309-9062.
TABLE OF CONTENTS
FUND OBJECTIVES, INVESTMENTS, STRATEGIES AND RISKS 2
NET ASSET VALUE 10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 11
MANAGEMENT OF THE TRUST 12
INVESTMENT ADVISER 15
PORTFOLIO TRANSACTIONS 16
OTHER SERVICE PROVIDERS 18
GENERAL INFORMATION 21
ADDITIONAL TAX INFORMATION 24
PERFORMANCE INFORMATION 25
MISCELLANEOUS 27
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS 28
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VALENZUELA CAPITAL TRUST
Valenzuela Capital Trust (the "Trust") is an open-end management investment
company which offers two separate and diversified investment portfolios, the Val
Cap Mid Cap Fund and the Val Cap Small Cap Fund (collectively, the "Funds" and
each individually, a "Fund"). The Trust was organized and its Certificate of
Trust was filed with the State of Delaware on June 22, 1999.
FUND OBJECTIVES, INVESTMENTS, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
The Val Cap Mid Cap Fund's objective is capital appreciation primarily
through investments in common stocks of mid-capitalization companies. The Val
Cap Small Cap Fund's objective is capital appreciation primarily through
investments in common stocks of small-capitalization companies.
Information contained in this Statement of Additional Information or SAI
expands upon information contained in the Funds' Prospectus. No investment in
shares of a Fund should be made without first reading the Prospectus.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS, STRATEGIES AND RISKS
The following policies, which are not principal strategies, supplement the
investment policies and strategies of each Fund described in the Prospectus.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. Prior to conversion,
convertible securities have the same general characteristics as non-convertible
debt securities, which generally provide a stable stream of income with yields
that are generally higher than those of equity securities of the same or similar
issuers. The price of a convertible security will normally vary with changes in
the price of the underlying equity security, although the higher yield tends to
make the convertible security less volatile than the underlying equity
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security. As with debt securities, the market value of convertible securities
tends to decrease as interest rates rise and increase as interest rates decline.
While convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality, they offer investors
the potential to benefit from increases in the market price of the underlying
common stock.
FOREIGN SECURITIES
The Funds may invest up to 20% of their total assets in foreign securities.
Investment in foreign securities is subject to special investment risks that
differ from those related to securities of U.S. domestic issuers. Since
investments in the securities of foreign issuers may involve currencies of
foreign countries, the Funds may be affected favorably or unfavorably by changes
in currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not subject to accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies, there may be less publicly available information
about a foreign company than about a U.S. company. Securities of many foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Fixed commissions on foreign securities exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Funds
endeavor to achieve the most favorable net results in their portfolio
transactions. There is generally less government supervision and regulation of
the securities exchanges, brokers, dealers and listed companies than in the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is not invested and no return is
earned thereon. The inability of a Fund to make intended security purchases due
to settlement problems could cause that Fund to miss attractive investment
opportunities. Losses to a Fund due to subsequent declines in the value of
portfolio securities, or losses arising
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out of the Fund's inability to fulfill a contract to sell portfolio securities,
could result in potential liability to the Fund. In addition, with respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect a Fund's investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The conversion of the eleven member states of the European Union to a
common currency, the "euro," occurred on January 1, 1999. As a result of the
conversion, securities issued by the member states are subject to certain risks,
including competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a common
currency and issuers' plans for pricing their own products and services in euro;
an issuer's ability to make any required information technology updates on a
timely basis, and costs associated with the conversion (including costs of dual
currency operations through January 1, 2002); currency exchange rate risk and
derivatives exposure (including the disappearance of price sources, such as
certain interest rate indices); continuity of material contracts and potential
tax consequences. Other risks include the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to currencies other than
the euro; the maintenance of exchange rates for currencies that were converted
into the euro; the fluctuation of the euro relative to other currencies during
the transition period from January 1, 1999 to December 31, 2000 and beyond;
whether the interest rate, tax and labor regimes of European countries
participating in a Fund will converge over time; and whether the conversion of
the currencies of other EU countries such as the United Kingdom, Denmark and
Greece into the euro and the admission of other non-EU countries such as Poland,
Latvia and Lithuania as members of the EU may have an impact on the euro. These
or other factors, including political and economic risks, could cause market
disruptions and could adversely affect the value of securities and foreign
currencies held by the Funds. Commissions on transactions in foreign securities
may be higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep pace
with the
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volume of securities transactions, thus making it difficult to conduct such
transactions.
The Funds may acquire foreign securities only when the Adviser believes
that the risks associated with such investments are minimal relative to those of
securities of domestic issuers.
For many foreign securities, U.S. dollar-denominated American Depository
Receipts ("ADRs"), which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large
liquid market in the United States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, standards which are
more uniform and more exacting than those to which many foreign issuers may be
subject. The Funds also may invest in EDRs which are receipts evidencing an
arrangement with a European bank similar to that for ADRs and are designed for
use in the European securities markets. EDRs are not necessarily denominated in
the currency of the underlying security.
Generally unsponsored ADRs and EDRs require the holders to bear most of the
costs of such facilities while issuers of sponsored facilities normally pay more
of the costs. The depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited securities or to pass through the voting rights to facility
holders with respect to the deposited securities, whereas the depository of a
sponsored facility typically distributes shareholder communications and passes
through the voting rights.
OPTIONS TRADING
Each of the Funds may purchase put and call options. A call option gives
the purchaser of the option the right to buy, and the writer the obligation to
sell, the underlying security or foreign currency at the stated exercise price
at any time prior to the expiration of the option, regardless of the market
price or exchange rate of the security or foreign currency, as the
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<PAGE>
case may be. The premium paid to the writer is consideration for undertaking the
obligations under the option contract. A put option gives the purchaser the
right to sell the underlying security or foreign currency at the stated exercise
price at any time prior to the expiration date of the option, regardless of the
market price or exchange rate of the security or foreign currency, as the case
may be. Put and call options purchased by the Funds are valued at the last sale
price, or in the absence of such a price, at the mean between bid and asked
price.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated expiration
date or if the Fund enters into a closing purchase transaction, it will realize
a gain (or a loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option is exercised, the Fund may deliver
the underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
In order to close out a call option it has written, the Fund will enter
into a "closing purchase transaction" (the purchase of a call option on the same
security or currency with the same exercise price and expiration date as the
call option which such Fund previously has written). When a portfolio security
or currency subject to a call option is sold, the Fund will effect a closing
purchase transaction to close out an existing call option on that security or
currency. If the Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security or currency until the option
expires or that Fund delivers the underlying security or currency upon exercise.
In addition, upon the exercise of a call option by the option holder, the Fund
will forego the potential benefit represented by market depreciation over the
exercise price.
Each Fund also may purchase or sell index options. Index options (or
options on securities indices) are similar in many respects to options on
securities except that an index option
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<PAGE>
gives the holder the right to receive, upon exercise, cash instead of
securities, if the closing level of the securities index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option.
Because index options are settled in cash, a call writer cannot determine
the amount of its settlement obligations in advance and, unlike call writing on
specific securities, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities. A
Fund may be required to segregate assets or provide an initial margin to cover
index options that would require it to pay cash upon exercise.
MONEY MARKET MUTUAL FUNDS
Each of the Funds may invest up to 5% of the value of its total assets in
the securities of any one money market mutual fund, provided that no more than
10% of a Fund's total assets may be invested in the securities of money market
mutual funds in the aggregate. The Funds may incur additional expenses due to
the duplication of expenses as a result of investing in securities of other
unaffiliated money market mutual funds.
COMMERCIAL PAPER
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than 9
months and fixed rates of return.
The Funds may invest in commercial paper rated in any rating category or
not rated by a Nationally Recognized Statistical Rating Organization ("NRSRO").
In general, investment in lower-rated instruments is more risky than investment
in instruments in higher-rated categories. The Funds also may invest in Canadian
commercial paper issued by a Canadian Corporation or counterpart of a U.S.
Corporation and Europaper.
ILLIQUID SECURITIES
The Funds will limit their investments in illiquid securities to no more
than 15% of their net assets. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market
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<PAGE>
(e.g., when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and most
privately negotiated investments in state enterprises that have not yet
conducted an initial equity offering, (ii) over-the-counter options and assets
used to cover over-the-counter options, and (iii) repurchase agreements not
terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund
may not be able to realize their full value upon sale. The Adviser will monitor
the liquidity of the Funds' investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for purposes of this limit on
investments in accordance with procedures assumed by a Fund's Board.
A Fund that invests in securities for which there is no ready market may
not be able to readily sell such securities. Such securities are unlike
securities that are traded in the open market and can be expected to be sold
immediately if the market is adequate. The sale price of illiquid securities may
be lower or higher than the Adviser's most recent estimate of their fair market
value. Generally, less public information is available about the issuers of such
securities than about companies whose securities are traded on an exchange. To
the extent that these securities are foreign securities, there is no law in many
of the countries in which the Funds may invest similar to the Securities Act of
1933 requiring an issuer to register the sale of securities with a governmental
agency or imposing legal restrictions on resales of securities, either as to
length of time the securities may be held or manner of resale. However, there
may be contractual restrictions on resales of non-publicly traded foreign
securities.
REPURCHASE AGREEMENTS
Securities held by the Funds may be subject to repurchase agreements. Under
the terms of a repurchase agreement, a Fund acquires securities from member
banks of the Federal Deposit Insurance Corporation and registered broker-dealers
which the Adviser deems creditworthy, subject to the seller's agreement to
repurchase such securities at a mutually agreed upon date and price. The
repurchase price generally equals the price paid by a Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement
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<PAGE>
maintains at all times the value of collateral held pursuant to the agreement at
not less than the repurchase price (including accrued interest). If the seller
defaults on its repurchase obligations or becomes insolvent, the Fund holding
the obligation suffers a loss to the extent that the proceeds from the sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of the securities by the
Fund were delayed pending court action. Additionally, there is no controlling
legal precedent confirming that a Fund would be entitled, as against the claim
by the seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Trustees of the Trust believe that, under the regular
procedures normally in effect for the custody of a Fund's securities subject to
repurchase agreements, and under federal laws, a court of competent jurisdiction
would rule in favor of the Trust if presented with the question. Securities
subject to repurchase agreements are held by the Trust's Custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry system.
Repurchase agreements are considered to be loans by a Fund under the Investment
Company Act of 1940 (the "1940 Act").
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may, from time to
time, lend its portfolio securities to broker-dealers, banks or institutional
borrowers of securities. A Fund must receive 100% collateral in the form of cash
or U.S. government securities. This collateral must be valued daily by the
Adviser and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination by the Fund
or the borrower at any time. While the Fund does not have the right to vote
securities on loan, it intends to terminate the loan and regain the right to
vote if that is considered important with respect to the investment. In the
event the borrower defaults in its obligation to a Fund, the Fund bears the risk
of delay in the recovery of its portfolio securities and the risk of loss of
rights in the collateral. The Fund will only enter into loan arrangements with
broker-dealers, banks or other institutions which the Adviser has determined are
creditworthy under guidelines established by the Trustees.
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<PAGE>
INVESTMENT RESTRICTIONS
Each Fund's investment objective may be changed without a vote of the
holders of a majority of the Fund's outstanding shares. In addition, each Fund
is subject to the following investment restrictions, which may be changed with
respect to a particular Fund by the Trustees without the vote of shareholders.
No Fund may:
1. Purchase securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal
business activities in the same industry.
2. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets if such borrowings or other transactions
would exceed more than 33 1/3% of the value of its total assets
and except to the extent permitted under the 1940 Act or the
rules, regulations or interpretations thereof.
3. Purchase securities of companies for the purpose of exercising
control.
4. Purchase or sell real estate or commodities.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Funds is calculated by dividing
the lesser of a Fund's purchases or sales of portfolio securities for the year
by the monthly average value of the securities. The portfolio turnover rates for
the Funds may vary greatly from year to year as well as within a particular
year, and may also be affected by cash requirements for redemption of shares.
High portfolio turnover rates will generally result in higher transaction costs
to a Fund, including brokerage commissions, and may result in additional tax
consequences to a Fund's shareholders.
NET ASSET VALUE
The net asset value of each Fund is determined and the shares of each Fund
are priced, as of the close of trading on
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each day on which the New York Stock Exchange (the "NYSE") is open for trading.
Currently, the NYSE will not be open in observance of the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
VALUATION OF THE FUNDS
If the principal market for a security held by a Fund is a securities
exchange, the security will be priced or valued at the closing sales price on
that exchange on the day of computation. If there have been no sales during the
day, it will be priced at the last bid quotation. If the principal market for a
portfolio security is not a securities exchange, it will be valued at its latest
bid quotation in the principal market in which it traded.
All other assets and securities, including securities for which market
quotations are not readily available, will be valued at their fair value as
determined in good faith under the general supervision of and pursuant to
procedures approved by, the Trustees of the Trust.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis. Shares of the Funds are
sold and redeemed at their net asset value as next determined after receipt of
the purchase or redemption order.
The Funds may suspend the right of redemption or postpone the date of
payment for shares during a period when: (a) trading on the NYSE is restricted
by applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
these suspensions; or (d) an emergency exists as a result of which: (i) disposal
by a Fund of securities owned by it is not reasonably practicable, or (ii) it is
not reasonably practicable for a Fund to determine the fair market value of its
net assets.
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<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Overall responsibility for management of the Trust rests with its Trustees,
who are elected by the Funds shareholders. The initial Trustees were elected by
the Adviser as the initial shareholders of the Trust. The Trustees elect the
officers of the Trust to actively supervise its day-to-day operations. Certain
officers of the Trust also may serve as a Trustee.
The Trust will be managed by the Trustees in accordance with the laws of
the State of Delaware governing business trusts. There are currently eight
Trustees, five of whom are not "interested persons" of the Trust within the
meaning of that term under the 1940 Act. The disinterested Trustees receive
compensation for their services as a Trustee and attendance at meetings of the
Trustees. Officers of the Trust receive no compensation from the Trust for
performing the duties of their offices.
The Trustees and Officers of the Trust, their addresses and their principal
occupations during the past five (5) years are as follows:
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH THE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
ADDRESS TRUST AND OTHER AFFILIATIONS
<S> <C> <C>
Dennis J. Bertrum* President and From 1999 to present, Managing Director
1270 Avenue of the Americas Trustee of Valenzuela Capital Partners LLC
New York, NY 10020 ("VCP"); 1996 to present, President and
Age 51 CEO of Bank Street Advisors. Previously
Senior Vice President and Director of
Client Advisory Services Group at
Prudential Securities Inc. and Managing
Director of Consulting Services Division
at E. F. Hutton.
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<PAGE>
Hendrik J. Laverge* Vice President From 1997 to present, COO and Managing
1270 Avenue of the Americas and Trustee Director of VCP; from 1995 to 1997,
New York, NY 10020 founding Managing Director of Concordia
Age 59 Agritrading Pte. Ltd. (commodity trading
and financial services); from 1992 to
1995, consulted for the Nidera Group
(commodities trading company); Trustee
of the Leiden University Fund.
Thomas M. Valenzuela* Chairman and From 1989 to present, President and
1270 Avenue of the Americas Trustee Chief Investment Officer of VCP.
New York, NY 10020 Previously with Lazard Freres & Co. and
Age 46 Morgan Stanley & Co.
Darlene DeRemer Trustee Owner of DeRemer & Associates, a
155 South Street consultant for the financial services
Wrentham, MA 02093 industry; Managing Director, Internet
Age 44 Advisory Services of New River, a
consulting firm; Trustee of the Jurika &
Voyles Funds and the Nicholas-Applegate
Funds.
Stephen D. Gresham Trustee Principal of The Gresham Company, LLC, a
54 Liberty Street consulting firm for mutual fund
Madison, CT 06443 distributors; Director of the Institute
Age 39 for Investment Management Consultants;
Member of the Editorial Board and the
Marketing Practices Committee of the
National Association for Variable
Annuities.
Clint J. Kendrick Trustee From 1996 to present, Co-founder,
465 Long Ridge Road Chairman and CEO of Matrix Global
Bedford, NY 10506 Investments, Inc., a private equity
Age 57 firm; from 1993 to 1996 Managing
Director of Lehman Brothers, Inc. and
Chief Operating Officer of Lehman
Brothers Global Asset Management.
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<PAGE>
Jonathan H. Kagan Trustee From 1995 to present, Managing Director
30 Rockfeller Plaza - of Centre Partners Management,
50th Fl. LLC(investment manager); 1990 to
New York, NY 10020 present, Managing Director of Corporate
Age 44 Advisers, LP; 1986 to 1998, Managing
Director of Lazard Freres & Co. LLC.
Serves as Director of Firearms Training
Systems, Inc. and Staff Leasing, Inc.
Steven C. Rockefeller Trustee Principal of Bankers Trust Company;
Bankers Trust Company previously with Milestone Capital;
280 Park Avenue - MS 1224 Prudential Securities, Inc.; and Morgan
New York, New York 10017 Stanley & Co.
Age 40
Robert G. Dorsey Vice President Managing Director of Ultimus Fund
135 Merchant Street, Suite 230 Solutions, LLC; prior to March 1999,
Cincinnati, Ohio 45246 President of Countrywide Fund Services,
Age 43 Inc. (mutual fund services company).
Mark J. Seger Treasurer Managing Director of Ultimus Fund
135 Merchant Street, Suite 230 Solutions, LLC; prior to March 1999,
Cincinnati, Ohio 45246 First Vice President of Countrywide Fund
Age 38 Services, Inc.
Robert B. Van Grover Secretary Attorney with Seward & Kissel LLP (a law
Seward & Kissel LLP firm)
One Battery Park Plaza
New York, New York 10004
Age 41
John F. Splain Assistant Managing Director of Ultimus Fund
135 Merchant Street, Suite 230 Secretary Solutions, LLC; prior to March 1999,
Cincinnati, Ohio 4246 First Vice President and Secretary of
Age 44 Countrywide Fund Services, Inc. and
affiliated companies.
</TABLE>
* "Interested Person" of the Trust, as defined in the 1940 Act.
Each Trustee who is not an affiliated person of the Adviser receives an
annual fee of $1,000 for services as a Trustee to the Trust, plus a per meeting
fee of $1,000 for each meeting attended. Trustees are reimbursed for expenses
incurred in attending such meetings.
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<PAGE>
CODE OF ETHICS
The Trust and the Adviser have adopted Codes of Ethics (the "Codes") under
Rule 17j-1 of the 1940 Act. The Codes permit personnel subject to the Codes to
invest in securities, including securities that may be purchased or held by the
Funds, under certain circumstances. Prior to any personal trade of a security, a
person subject to the Codes must verify that no Fund has traded or expects to
trade in the security and must wait two full business days after the last
purchase or sale of a security by the Funds before executing a personal trade in
the same security. In addition, no person subject to the Codes may purchase
securities in an initial public offering or a private offering without prior
written approval.
INVESTMENT ADVISER
Valenzuela Capital Partners LLC (the "Adviser"), 1270 Avenue of the
Americas, Suite 508, New York, NY 10020 serves as investment adviser to the
Funds under an investment advisory agreement dated as of October 1, 1999 (the
"Advisory Agreement"). The Adviser, founded in 1989, is a registered investment
adviser that manages $985 million in assets, primarily through institutional
accounts. Subject to the Funds' respective investment objectives and policies
approved by the Trustees of the Funds, the Adviser makes the day-to-day
investment decisions and continuously reviews, supervises and administers the
Funds' investment programs. The Adviser utilizes a team approach in making
investment decisions on behalf of each Fund, with eight professionals working
collectively to ensure a disciplined investment process designed to result in
long-term performance consistent with each Fund's investment objective. No one
person is responsible for a Fund's portfolio management.
For its advisory services, the Funds pay the Adviser an annual advisory fee
equal to 0.75%, net of fee waivers and reimbursements of the average daily net
assets of each Fund.
Pursuant to the Advisory Agreement, the Adviser will pay all expenses
(including as applicable, the compensation of any subadvisers directly appointed
by it) incurred by it in connection with its activities under the Advisory
Agreement other than the cost of securities (including brokerage commissions)
purchased for the Trust.
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<PAGE>
Unless sooner terminated, the Advisory Agreement shall continue in effect
for each Fund for a period of two years, and thereafter, shall continue for
successive one-year periods if continuance is approved at least annually (i) by
the Trustees or by vote of a majority of the outstanding voting securities of
the Fund and (ii) by vote of a majority of the Trustees who are not parties to
the Advisory Agreements, or interested persons (as defined in the 1940 Act) of
any of these parties, cast in person at a meeting called for this purpose. The
Advisory Agreement is terminable as to a particular Fund at any time on 60 days'
prior written notice without penalty by the Trustees, by vote of a majority of
outstanding shares of that Fund, or by the Adviser. The Agreement also
terminates automatically in the event of its assignment, as defined in the 1940
Act.
The Advisory Agreement provides that the Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of its duties, except a loss suffered by a Fund
resulting from a breach of fiduciary duty with respect to the Adviser's receipt
of compensation for services, a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties, or from reckless disregard of its duties and obligations thereunder.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreement, the Adviser determines, subject to the
general supervision of the Trustees of the Trust and in accordance with each
Fund's objective, policies and restrictions, which securities are to be
purchased and sold by a Fund and which brokers are eligible to execute such
Fund's portfolio transactions.
Purchases and sales of portfolio securities that are debt securities
usually are principal transactions in which portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers, serving as market makers may include the spread between
the bid and asked prices. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Trust, where possible will deal directly with the
dealers who make a
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<PAGE>
market in the securities involved except under those circumstances where better
price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various brokers
and dealers is determined by the Adviser in its best judgment and in a manner
deemed fair and reasonable to shareholders. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price. Subject
to this consideration, brokers and dealers who provide investment research to
the Adviser may receive orders for transactions on behalf of the Trust.
Information so received is in addition to and not in lieu of services required
to be performed by the Adviser and does not reduce the fees payable to the
Adviser by the Trust. Such information may be useful to the Adviser in serving
both the Trust and other clients and, conversely supplemental information
obtained by the placement of business of other clients may be useful to the
Adviser in carrying out its obligations to the Trust.
While the Adviser generally seeks competitive commissions, the Trust may
not necessarily pay the lowest commission available on each brokerage
transaction for the reasons discussed above.
Investment decisions for each Fund in the Trust are made independently from
those made for the other Funds, or for other portfolios, investment companies or
accounts managed by the Adviser. Any other portfolio, investment company or
account may also invest in the securities in which a Fund invests. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another Fund, portfolio, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which the Adviser believes to be equitable to
the Fund(s) and such other portfolio, 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 by the Fund. To the
extent permitted by law, the Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other Funds or for
other portfolios, investment companies, or accounts in order to obtain best
execution.
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<PAGE>
OTHER SERVICE PROVIDERS
ADMINISTRATOR AND FUND ACCOUNTANT
Ultimus Fund Solutions, LLC ("Ultimus"), 135 Merchant Street, Suite 230,
Cincinnati, Ohio 45246, serves as the Administrator and the Fund Accountant to
the Trust pursuant to service agreements dated as of December 29, 1999 (the
"Service Agreements"). As Administrator, Ultimus assists in supervising all
operations of each Fund (other than those performed by the Adviser under the
Advisory Agreement, by The Bank of New York (the "Custodian") under the Custody
Agreement, and by Unified Fund Services, Inc. (the "Transfer Agent") under the
Transfer Agent and Shareholder Service Agreement).
Under the Service Agreements, the Administrator has agreed to perform or
arrange for the performance of the following services (under the Service
Agreements, the Administrator may delegate all or any part of its
responsibilities thereunder):
-- prepares and assembles reports required to be sent to the Funds'
shareholders and arranges for the printing and dissemination of such
reports;
-- assembles reports required to be filed with the SEC and files such
completed reports with the SEC;
-- arranges for the dissemination to shareholders of the Funds' proxy
materials and oversees the tabulation of proxies by the Transfer
Agent;
-- reviews the provision of dividend disbursing services to the Funds;
-- calculates, or arranges for the calculation of, the NAV of the Funds'
shares;
-- determines the amounts available for distribution as dividends and
distributions to be paid by the Funds to its shareholders; prepares
and arranges for the printing of dividend notices to shareholders; and
provides the Funds' Transfer Agent and Custodian with such information
as is required for them to effect the payment of dividends and
distributions;
-- assists in providing to the Funds' independent accountants such
information as is necessary for such
- 18 -
<PAGE>
accountants to prepare and file the Funds' federal income and excise
tax returns and the Funds' state and local tax returns;
-- monitors compliance of the Funds' operation with the 1940 Act and with
its investment policies and limitations;
-- provides accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Funds as may be
required by Section 31(a) of the 1940 Act and the rules and
regulations thereunder); and
-- makes such reports and recommendations to the Trust's Board of
Trustees as the Board reasonably requests or deems appropriate.
As Fund Accountant, Ultimus maintains the accounting books and records for
the Funds, including journals containing an itemized daily record of all
purchases and sales of portfolio securities, all receipts and disbursements of
cash and all other debits and credits, general and auxiliary ledgers reflecting
all asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts. The Fund Accountant also maintains a monthly trial balance of all
ledger accounts; performs certain accounting services for the Funds, including
calculation of the net asset value per share, calculation of the dividend and
capital gain distributions, reconciles cash movements with the Custodian,
verifies and reconciles with the Custodian all daily trade activities; provides
certain reports; obtains dealer quotations, prices from pricing services, matrix
prices or "fair value" computations on all portfolio securities in order to mark
the portfolio to the market; and prepares an interim balance sheet, statement of
income and expense, and statement of changes in net assets for the Funds.
Ultimus receives a fee from each Fund for its services as Administrator and
Fund Accountant, and expenses assumed pursuant to the Service Agreements. The
fee payable to Ultimus as Administrator is calculated daily and paid monthly, at
the annual rate of 0.15% of the combined average daily net assets of the Funds
up to $50 million; 0.125% of such assets between $50 million and $100 million;
0.10% of such assets between $100 million and $250 million; 0.075% of such
assets between $250 million and $500 million; and 0.05% of such assets over $500
- 19 -
<PAGE>
million; subject, however, to a minimum fee of $3,000 per month. The fee payable
by each Fund to Ultimus as Fund Accountant is $2,500 per month plus an asset
based fee at the annual rate of 0.01% of a Fund's average daily net assets up to
$500 million and 0.005% of such assets over $500 million.
Unless sooner terminated as provided therein, the Service Agreements
between the Trust and Ultimus will continue in effect until December 29, 2001.
The Service Agreements thereafter, unless otherwise terminated as provided in
the Service Agreements, shall be renewed automatically for successive one-year
periods.
The Service Agreements provide that Ultimus shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Service Agreements relate, except a
loss from willful misfeasance, bad faith or negligence in the performance of its
duties, or from the reckless disregard by Ultimus of its obligations and duties
thereunder.
TRANSFER AGENT
Unified Fund Services, Inc., 431 N. Pennsylvania Street, Indianapolis,
Indiana 46204, serves as Transfer Agent to the Trust pursuant to a Transfer
Agent and Shareholder Servicing Agreement dated as of December 31, 1999.
The Transfer Agent performs the following services in connection with the
Funds' shareholders of record: maintains shareholder records for each of the
Fund's shareholders of record; processes shareholder purchase and redemption
orders; processes transfers and exchanges of shares of the Funds on the
shareholder files and records; processes dividend payments and reinvestments;
and assists in the mailing of shareholder reports and proxy solicitation
materials.
CUSTODIAN
The Bank of New York, 101 Barclay Street, New York, New York 10286, serves
as Custodian to the Trust pursuant to a Custody Agreement dated as of October 1,
1999. The Custodian's responsibilities include safeguarding and controlling the
Funds' cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on the Funds' investments. The Custodian is
paid an annual custody fee of 0.02% of each Fund's average daily net assets up
to $50 million,
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<PAGE>
0.01% of each Fund's next $250 million of average daily net assets and 0.005% of
the average daily net assets of each Fund which exceed $300 million, exclusive
of out-of-pocket expenses and transaction charges. Custody fees shall be
calculated daily and paid monthly.
INDEPENDENT AUDITORS
The Trust has selected Arthur Andersen LLP, 425 Walnut Street, Cincinnati
Ohio 45202 to serve as independent auditors for the Trust and to audit the
financial statements of the Trust for its first fiscal period ending September
30, 2000.
TRUST COUNSEL
The Trust has selected Seward & Kissel LLP, One Battery Park Plaza, New
York, New York 10004, to serve as counsel for the Funds.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Trust is a Delaware business trust. The Trust was organized and its
Certificate of Trust was filed with the Secretary of State of the Delaware on
June 22, 1999. The Trustees have authorized the issuance of shares in two
series, each representing interests in two separate portfolios: the Val Cap Mid
Cap Fund and the Val Cap Small Cap Fund.
The governing document of the Trust (the "Trust Instrument") authorizes the
Trustees to issue an unlimited number of shares and to classify or re-classify
any unissued shares into one or more additional classes without shareholder
approval. Accordingly, the Trustees may create additional classes or series of
shares for reasons such as the desire to establish one or more additional
portfolios with different investment objectives, policies or restrictions. Any
issuance of shares of another class or series would be governed by the 1940 Act
and the law of the State of Delaware. If shares of another series were issued in
connection with the creation of an additional portfolio, each share of the
portfolios would normally be entitled to one vote for all purposes. Shareholders
are entitled to one vote for each whole share (as defined in the Trust
Instrument) invested and a proportionate fractional vote for any fraction of a
share, and will vote in the aggregate, and not by class or series except as
otherwise required by the 1940
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<PAGE>
Act or other applicable law, or when the matter to be voted upon only affects
the interests of shareholders of a particular class or series. The rights of
shareholders of a series may not be modified except by the vote of majority of
the outstanding shares of that series.
Voting rights are not cumulative, and, accordingly, the holders of more
than 50% of the Trust's outstanding shares may elect all of the Trustees. The
Trust does not intend to hold annual shareholder meetings except as may be
required by the 1940 Act.
The Trust's shares have no pre-emptive rights and only such conversion or
exchange rights as Trustees may grant in their discretion. When issued for
payment as described in the Prospectus, the Trust's shares will be fully paid
and non-assessable. In the event of the liquidation or dissolution of the Trust
or an individual Fund, shareholders of a Fund are entitled to receive the assets
available for distribution belonging to the particular Fund, and a proportionate
distribution, based on the relative asset values of the respective Funds, of any
general assets of the Trust not belonging to any particular Fund which are
available for distribution.
The Trust Instrument authorizes the Trustees, without shareholder approval
(unless otherwise required by applicable law) to (a) sell and convey the assets
of a class of shares to another management investment company for consideration
which may include securities issued by the purchaser and, in connection
therewith, to cause all outstanding shares of the class to be redeemed at a
price which is equal to their net asset value and which may be cash or by
distribution of the securities or other consideration received from the sale and
conveyance; (b) sell and convert the assets belonging to a class of shares into
money and, in connection therewith, to cause all outstanding shares of the class
to be redeemed at their net asset value; or (c) combine the assets belonging to
a class of shares with the assets belonging to one or more other classes of
shares of the Trust if the Board of Trustees reasonably determines that the
combination will not have a material adverse effect on the shareholders of any
class participating in the combination and, in connection therewith, to cause
all outstanding shares of any class to be redeemed at their net asset value or
converted into shares of another class of the Trust's shares at their net asset
value. The exercise of this authority by the Trustees may be subject to certain
restrictions
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<PAGE>
under the 1940 Act. The Trustees may authorize the termination of any class of
shares after the assets belonging to the class have been distributed to its
shareholders.
DISTRIBUTION ARRANGEMENTS
The Funds have adopted a plan under Rule 12b-1 under the 1940 Act (the
"Rule 12b-1 Plan") to permit the Funds to pay distribution expenses to defray
expenses associated with the distribution of their shares. Under the Rule 12b-1
Plan, the Funds may pay distribution fees for advertising, printing, and mailing
of prospectuses to other than current shareholders, compensation to
broker-dealers and other financial intermediaries, compensation to sales
personnel, printing of sales literature, travel, entertainment, due diligence,
and other promotional expenses. The Funds do no currently pay distribution
expenses under the Rule 12b-1 Plan. The Adviser may from time to time from its
own resources make payments for distribution expenses to brokers or other
persons for their distribution services.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware law, shareholders of beneficial interest in a business trust
may, under certain circumstances, be held personally liable as partners for the
obligations of the Trust. However, the Trust Instrument provides that the
shareholders shall not be subject to any personal liability for the obligations
of the Trust, and that every written agreement, obligation, instrument or
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Trust Instrument provides
for indemnification out of the Trust property of any shareholder held personally
liable solely by reason of his being or having been a shareholder. The Trust
Instrument also provides that the Trust shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligations of the
Trust, and shall satisfy any judgment thereon. Thus, the risk of the shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations.
The Trust Instrument states further that no Trustee, officer or agent of
the Trust shall be personally liable in connection with the administration or
preservation of the assets of the Trust or the conduct of the Trust's business;
nor shall any Trustee, officer or agent be personally liable to any person
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<PAGE>
for any action or failure to act except for bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Trust Instrument also
provides that all persons having any claim against the Trustees or the Trust
shall look solely to the assets of the Trust for payment.
ADDITIONAL TAX INFORMATION
Each Fund intends to qualify as a "regulated investment company" or "RIC"
under the Internal Revenue Code of 1986, as amended (the "Code"). Qualification
generally will relieve the Funds of liability for federal income taxes to the
extent their earnings are distributed in accordance with the Code. However,
taxes may be imposed on the Funds by foreign countries with respect to income
received on foreign securities. Depending on the extent of each Fund's
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located, or in which it is
otherwise deemed to be conducting business, each Fund may be subject to the tax
laws of these states or localities. If for any taxable year the Fund does not
qualify for the special tax treatment afforded regulated investment companies,
all of its taxable income will be subject to a federal tax at regular corporate
rates (without any deduction for distributions to its shareholders). In such
event, dividend distributions would be taxable to shareholders to the extent of
earnings and profits, and would be eligible for the dividends-received deduction
for corporations. To qualify as a RIC, a Fund must comply with certain
distribution, diversification, source of income and other applicable
requirements.
Information set forth in the Prospectus and this SAI which relates to
federal taxation is only a summary of some of the important federal tax
considerations generally affecting shareholders. No attempt has been made to
present a detailed explanation of the federal income tax treatment of a Fund or
its shareholders and this description is not intended as a substitute for
federal tax planning. Accordingly, potential shareholders of a Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the Prospectus and this SAI is based on tax
laws and regulations which are in effect on the date of the Prospectus and this
SAI; these laws and regulations may be changed by legislative or administrative
action.
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<PAGE>
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their
average annual total return and aggregate total return may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a Fund will be calculated for the
period since the establishment of the Fund and will reflect the imposition of
the maximum sales charge. Average annual total return is measured by comparing
the value of an investment in a Fund at the beginning of the relevant period to
the redemption value of the investment at the end of the period (assuming
immediate reinvestment of any dividends or capital gains distributions) and
annualizing the result. Aggregate total return is calculated similarly to
average annual total return except that the return figure is aggregated over the
relevant period instead of annualized. Each Fund may also present its average
annual total return and aggregate total return as the case may be, excluding the
effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates in shareholder reports and in supplemental sales literature
which is accompanied or preceded by a Prospectus. Distribution rates will be
computed by dividing the distribution per share over a twelve-month period by
the maximum offering price per share. The calculation of income in the
distribution rate includes both income and capital gains dividends and does not
reflect unrealized gains or losses, although a Fund may also present a
distribution rate excluding the effect of capital gains. Distribution rates may
also be presented excluding the effect of a sales charge, if any.
Total return is a function of the type and quality of instruments held in
the portfolio, levels of operation expenses and changes in market conditions.
Consequently, total return will fluctuate and is not necessarily representative
of future results. Any fees charged by financial intermediaries with respect to
customer accounts for investing in shares of the Funds will not be included in
performance calculations. These fees, if charged, will reduce the actual
performance from that quoted. If the Adviser voluntarily waives all or a part of
its fees, the total return of a Fund will be higher than it would otherwise be
in the absence of such voluntary waiver.
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<PAGE>
CALCULATION OF TOTAL RETURN
Average annual total return is a measure of the change in value of the
investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of shares purchased by a hypothetical $1,000
investment in the Fund and all additional shares which would have been purchased
if all dividends and distributions paid or distributed during the period had
immediately been reinvested, (2) calculating the value of the hypothetical
initial investment of $1,000 as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value per
share on the last trading day of the period, (3) assuming redemption at the end
of the period, and (4) dividing this account value for the hypothetical investor
by the initial $1,000 investment and annualizing the result for periods of less
than one year.
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing the
performance to other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc., Standard & Poor's Corporation, Lehman Brothers, Inc.,
Morgan Stanley Capital International and Frank Russell Company, as well as data
prepared by Lipper, Inc. and Morningstar, Inc., widely recognized independent
services which monitor the performance of mutual funds, and the Consumer Price
Index. Comparisons may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, Pensions & Investments, and USA Today. In addition to performance
information, general information about the Funds that appears in a publication
such as those mentioned above, may be included in advertisements and in reports
to shareholders.
From time to time, the Funds (or the Adviser) may include the following
types of information in advertisements, supplemental sales literature and
reports to shareholders: (1) discussions of general economic or financial
principles (such as the effects of compounding and the benefits of dollar-cost
averaging); (2) discussions of general economic trends; (3) presentations of
statistical data to supplement these discussions; (4) descriptions of past or
anticipated portfolio
- 26 -
<PAGE>
holdings for one or more of the Funds within the Trust; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment policies (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations. The Funds may also
include calculations, such as hypothetical compounding examples which describe
hypothetical investment results in such communications. These performance
examples will be based on an expressed set of assumptions and are not indicative
of the performance of any of the Funds.
Morningstar, Inc., Chicago, Illinois, rates mutual funds on a one- to
five-star rating scale with five stars representing the highest rating. Such
ratings are based on a fund's historical risk/reward ratio as determined by
Morningstar, Inc. relative to other funds in that fund's investment objective
category or class. The one- to five-star ratings represent the following ratings
by Morningstar, Inc. respectively: Lowest, Below Average, Neutral, Above Average
and Highest.
MISCELLANEOUS
Trustees are elected by the shareholders and serve for a term lasting until
the next meeting of shareholders at which Trustees are elected. These meetings
are not required to be held at any specific intervals.
The Trust is registered with the SEC as a open-end management investment
company. Such registration does not involve supervision of the management
policies of the Trust.
The Prospectus and this SAI omit certain of the information contained in
the Registration Statement filed with the SEC. Copies of that information may be
obtained from the SEC by payment of the prescribed fee.
The Prospectus and this SAI are not an offering of the securities herein
described in any state in which an offering may not lawfully be made. No
salesman, dealer or other person is authorized to give any information or make
any representation other than those contained in the Prospectus and this SAI.
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<PAGE>
FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT AUDITORS
VALENZUELA CAPITAL TRUST
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 1, 1999
VAL CAP VAL CAP
MID CAP SMALL CAP
FUND FUND
---------- ---------
ASSETS
Cash $ 50,000 $ 50,000
Total Assets 50,000 50,000
---------- ---------
NET ASSETS $ 50,000 $ 50,000
========== =========
NET ASSETS CONSIST OF:
Capital $ 50,000 $ 50,000
---------- ---------
NET ASSETS $ 50,000 $ 50,000
========== =========
CLASS I SHARES
Net Assets $ 25,000 $ 25,000
Shares Outstanding 2,500 2,500
Offering and Redemption price
per share $ 10.00 $ 10.00
========== =========
CLASS A SHARES
Net Assets $ 25,000 $ 25,000
Shares Outstanding 2,500 2,500
Redemption price per share $ 10.00 $ 10.00
========== =========
Maximum sales charge 5.75% 5.75%
---------- ---------
Maximum offering price per share
(100%/(100% - Maximum sales
charge) of net asset value
adjusted to the nearest cent $ 10.61 $ 10.61
========== =========
See Notes to Financial Statements
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<PAGE>
VALENZUELA CAPITAL TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 1, 1999*
VAL CAP VAL CAP
MID CAP SMALL CAP
FUND FUND
---------- ---------
INVESTMENT INCOME
none $ -- $ --
EXPENSES
Organization costs 100,000 100,000
Reimbursement of expenses (100,000) (100,000)
---------- ---------
Net expenses -- --
NET INVESTMENT INCOME $ -- $ --
========== =========
* The commencement of operations was October 1, 1999
See Notes to Financial Statements.
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<PAGE>
VALENZUELA CAPITAL TRUST
VAL CAP FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 1, 1999
1. ORGANIZATION
The Valenzuela Capital Trust (the "Trust") was organized as a Delaware
business trust on June 22, 1999. The Trust is a diversified open-end
management investment company registered under the Investment Company Act
of 1940 (the "1940 Act"). The Trust consists of two series, the Val Cap Mid
Cap Fund ("Mid Cap") and the Val Cap Small Cap Fund ("Small Cap")
(collectively the "Funds" and individually a "Fund"). The Trust is
authorized to issue an unlimited number of shares. Currently, both Funds
are authorized to issue two classes of shares, Class I Shares and Class A
Shares.
The Mid Cap Fund's objective is capital appreciation primarily through
investments in common stocks of mid-capitalization companies. The Fund will
seek to achieve this objective by investing in the common stock of mid-cap
U.S. companies with market capitalizations from $1.5 billion to $10
billion.
The Small Cap Fund's objective is capital appreciation primarily through
investments in common stocks of small-capitalization companies. The Fund
will seek to achieve this objective by investing in the common stock of
small-cap U.S. companies with market capitalizations less than $1.5
billion.
2. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION EXPENSE. All costs incurred by the Trust in connection with
the organization of the Funds and the initial public offering of shares of
the Funds, principally professional fees and printing, has been reimbursed
by Valenzuela Capital Partners LLC (the "Advisor") and is subject to
recovery by the Advisor pursuant to the Expense Limitation Agreement (See
Note 3).
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<PAGE>
FEDERAL INCOME TAXES: The Funds intend to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and to make the requisite distributions of taxable income to its
shareholders which will be sufficient to relieve it from all or
substantially all federal income taxes.
USE OF ESTIMATES: Estimates and assumptions are required to be made
regarding assets and liabilities and the reported amounts of income and
expenses for the period when financial statements are prepared. Changes in
the economic environment, financial markets and any other parameters used
in determining these estimates could cause actual results to differ from
these amounts.
3. RELATED PARTY TRANSACTIONS
Valenzuela Capital Partners LLC, (the "Investment Adviser") will serve as
the investment adviser of the Fund. Under the terms of an investment
advisory agreement between the Trust and the Investment Adviser, the
Investment Adviser will be entitled to receive fees based on a percentage
of the average net assets of each Fund. The Mid Cap Fund will pay the
Investment Adviser an annual rate of 0.75% of the Funds average daily net
assets. The Small Cap Fund will pay the Investment Adviser an annual rate
of 0.75% of the Funds average daily net assets.
Pursuant to the Expense Limitation Agreement, the Investment Adviser has
contractually agreed to waive a portion of its advisory fees and if
necessary reimburse each Fund's organizational and operational expenses so
that each of the Fund's Class I Share's and Class A Share's net expenses do
not exceed 1.20% and 1.45% (the "Caps"), respectively until October 1,
2002. If at any point during the period prior to October 1, 2002, the
operational expenses of the Funds fall below the Caps, the Investment
Adviser may recoup fees previously waived or reimbursed so long as the
amount of recouped fees does not 1) cause the Funds' aggregate expenses on
an annualized basis to exceed the Caps, and 2) exceed the fees previously
waived or reimbursed by the Investment Adviser prior to October 1, 2002 and
organizational costs incurred by the
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<PAGE>
Investment Adviser prior to October 1, 2000, and provided that no such
payments shall be made to the Investment Adviser after October 1, 2004.
As part of the Trust's organization, each Fund has issued in a private
placement 2,500 shares of beneficial interest of each class (Class I and
Class A Shares) to the Investment Adviser at $10.00 a share. The Trust has
had no operations except for the initial issuance of Class I and Class A
Shares to each fund and organizational expenses incurred and reimbursed.
BISYS Fund Services Ohio, Inc. ("BISYS"), a wholly-owned subsidiary of The
BISYS Group, Inc., will serve as the administrator, transfer agent and fund
accountant to the Funds. BISYS will also serve as principal underwriter and
distributor of the Funds' shares.
Certain Trustees and officers of the Trust are affiliated with the
Investment Adviser or BISYS. Such persons are not paid directly by the
Trust for serving in those capacities.
Pursuant to the Shareholder Service Plan, the Funds pay BISYS for the
provision of certain services at an annual rate of 0.25% of the value of
the average daily net assets of each Fund. The services provided may
include personal services relating to shareholder accounts and services
related to the maintenance of such shareholder accounts. BISYS may pay
financial institutions, including the Investment Adviser, broker/dealers
and other institutions in respect to these services. Pursuant to the
Distribution Plan, each Fund's Class A Shares pays BISYS for advertising,
marketing and distributing such shares at an annual rate of 0.25% of the
value of the average daily net assets represented by Class A Shares. BISYS
may pay financial institutions, broker/dealers and other institutions, in
respect of these services.
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholder and Board of Trustees of
Valenzuela Capital Trust
We have audited the accompanying statement of assets and liabilities of
Valenzuela Capital Trust (comprised of Val Cap Mid Cap Fund and Val Cap Small
cap Fund) (the "Funds") as of October 1, 1999 and the related statement of
operations for the period then ended. These financial statements are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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
represents fairly, in all material respects, the financial position of each of
the portfolios comprising Valenzuela Capital Trust at October 1, 1999, and the
results of their operations for the period then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
October 13, 1999
