1933 ACT REGISTRATION NO. 333-83871
1940 ACT REGISTRATION NO. 811-09495
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 .................................. X
PRE-EFFECTIVE AMENDMENT NO. ................................ 3
POST-EFFECTIVE AMENDMENT NO. ...............................
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY OF 1940............................... X
AMENDMENT NO. .............................................. 3
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THE LEGACY FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
61 BROADWAY
NEW YORK, NEW YORK 10006-2802
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 269-7862
JAMES H. BLUCK
HUGHES HUBBARD & REED LLP
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of the Registration Statement.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR
VALUE $.001 PER SHARE
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<PAGE>
THE LEGACY FUNDS, INC.
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CROSS REFERENCE SHEET
N-1A ITEM NO. LOCATION
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PART A INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Front and Back Cover Pages................... Front and Back Cover
Pages of the
Prospectus
Item 2. Risk/Return Summary: Investments, Risks,
and Performance.............................. Investment Objective;
Investment Process
and Strategy;
Principal Risks
Item 3. Risk/Return Summary: Fee Table.............. Fees and Expenses
Item 4. Investment Objectives, Principal Strategies, Additional Information
and Related Risks............................ about the Fund's
Investments;
Additional Risk
Information
Item 5. Management's Discussion of Fund Performance.. Not Applicable
Item 6. Management, Organization, and Capital Investment Adviser;
Structure.................................... Portfolio Manager
Item 7. Shareholder Information...................... Share Price--Net Asset
Value; Purchasing
Shares; Redeeming
Shares; Retirement
Investing; Account
Instructions;
Distributions and
Taxation
Item 8. Distribution Arrangements.................... Marketing,
Distribution and
Administration
Item 9. Financial Highlights Information............. Not Applicable
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page and Table of Contents............ Cover Page and Table of
Contents of the
Statement of
Additional Information
Item 11. Fund History................................ General Information
Item 12. Description of the Fund and Its Investments
and Risks.................................. Additional Information
About the Fund's
Investments; Investment
Restrictions; Portfolio
Transactions and
Turnover
Item 13. Management of the Fund..................... Management of the Trust
Item 14. Control Persons and Principal Holders of
Securities................................. Management of the Trust
Item 15. Investment Advisory and Other Services..... Management of the
Trust; Service
Agreements
Item 16. Brokerage Allocation and Other Practices... Service Agreements;
Portfolio Transactions
and Turnover
<PAGE>
Item 17. Capital Stock and Other Securities.......... Shares of Beneficial
Interest
Item 18. Purchase, Redemption and Pricing of Shares.. Additional Information
About Purchases and
Sales
Item 19. Taxation of the Fund........................ Dividends
Item 20. Underwriters................................ Service Agreements
Item 21. Calculation of Performance Data............. Investment Performance
Item 22. Financial Statements........................ Financial Statements
PART C OTHER INFORMATION
INFORMATION REQUIRED TO BE INCLUDED IN PART C IS SET FORTH UNDER THE
APPROPRIATE ITEM, SO NUMBERED, IN PART C TO THIS REGISTRATION STATEMENT.
<PAGE>
[LOGO]
LEGACY GROWTH FUND
A diversified fund of growth-oriented equity securities
having the objective of long term growth of capital
PROSPECTUS
February 4, 2000
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THE LEGACY FUNDS, INC.
61 Broadway
New York, NY 10006
31st Floor
(800) 221-2598
Shares of the Legacy Growth Fund are sold through the Fund's Distributor,
Ingalls & Snyder LLC. Shares are available for IRAs and retirement plans. The
Fund is not available in all states; please call the Fund or your investment
professional for details. This prospectus does not constitute an offer to sell
or the solicitation of an offer to sell securities in any jurisdiction where the
offer or sale is not permitted.
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE INVESTING, INCLUDING
INFORMATION ABOUT RISKS. PLEASE READ IT BEFORE YOU INVEST AND KEEP IT FOR FUTURE
REFERENCE.
AS WITH ALL MUTUAL FUNDS, THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Risk/Return Summary; Investments,
Risks and Performance 6
Investment Objective 6
Investment Process and
Strategy 6
Principal Risks 7
Performance Summary 8
Fees and Expenses 8
Investment Adviser 9
Portfolio Manager 9
Advisory Board 10
Additional Information about the
Fund's Investments 11
Additional Risk Information 12
Share Price -- Net Asset Value 13
Purchasing Shares 14
Redeeming Shares 14
Retirement Investing 15
Account Instructions 17
Marketing, Distribution and
Administration 18
Distributions and Taxation 18
Inquiries 20
Additional Information 21
<PAGE>
RISK/RETURN SUMMARY; INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The objective of the Fund is to achieve long-term growth of capital for
its shareholders.
INVESTMENT PROCESS AND STRATEGY
The Fund's investment adviser, Ingalls & Snyder LLC, was founded in 1924.
The investment adviser regularly monitors the financial and investment outlook
in the United States and abroad in an effort to anticipate and understand
changing business, economic and political trends that may affect the Fund's
investments.
The Fund seeks to achieve its investment objective by investing primarily
in a diversified portfolio of common stocks and to a lesser extent other equity
securities (such as preferred stock) of growth-oriented companies, i.e.
companies whose growth, cash flow and earnings prospects are promising in the
opinion of the Fund's investment adviser. The investment adviser performs
comprehensive research designed to identify companies that offer attractive
investment opportunities. In particular, the Fund seeks companies having strong
balance sheets, highly capable managements, unique aspects to their businesses
(such as unique products, franchises or unique services), positive and growing
cash flows, high returns on equity and superior rates of growth of earnings over
an extended period. The growth-oriented companies in which the Fund invests
consist primarily of U.S. domestic companies with significant foreign sales or
operations or significant overseas growth opportunities. The investment adviser
believes that investments in these types of companies permit the Fund to
participate in both domestic and overseas growth opportunities without the
additional risks of investing directly in foreign securities. Many growth
companies pay low or no dividends, and investors should not invest in the Fund
for current income.
In evaluating investment opportunities, the investment adviser employs
fundamental, qualitative, statistical and quantitative analysis of individual
companies as well as research concerning industries and industry segments. The
investment adviser considers the following factors, among other things, in
evaluating a company's growth prospects: the company's historical performance
and growth strategy, the growth rate of the industries in which it operates and
the markets into which it sells, the nature of its competitive environment,
technological developments and trends in its market share. In evaluating the
quality of a company's management, the investment adviser considers, among other
things, the historical financial performance of the company as well as the
management's reputation in the relevant industry. From time to time the
investment adviser seeks to meet with the management of companies in which the
Fund invests or may consider investing. There is no guarantee, however, that the
investment adviser will be able to meet with the management of these companies.
The majority of the holdings in the Fund will be in large capitalization
common stocks (over $10 billion market capitalization). The Fund also may invest
in foreign securities and securities of medium and small sized companies.
Holdings of medium and small sized companies normally would not represent over
fifteen percent of the net assets of the Fund. Holdings of foreign securities
normally would not represent over ten percent of the Fund's net assets.
Under normal market conditions, it is the Fund's policy to invest
substantially all of its assets in common stocks and to a lesser extent other
equity securities. However, if the Fund's investment adviser deems it beneficial
for defensive purposes during adverse market, economic or other conditions, the
Fund may invest up to 100% of its assets temporarily in short-term non-equity
securities, such as investment grade corporate bonds, commercial paper and U.S.
government securities. These defensive actions would reduce the benefit from any
upswing in the equity markets and, if the investment adviser does not correctly
anticipate fluctuations in the equity and debt securities markets, may not
contribute to achieving the Fund's investment objective.
The investment adviser anticipates that it will employ leverage by
borrowing money for the purpose of making additional investments. The Fund may
borrow from banks or other lenders and may enter into reverse repurchase
agreements. The Fund normally will limit borrowings for leverage purposes to a
maximum of ten percent of the net assets of the Fund. Money borrowed is subject
to interest costs.
<PAGE>
In the management of the Fund's investments the investment adviser employs
a long term, limited turnover investment approach. The Fund seeks to achieve its
long term growth objective primarily by purchasing and holding common stocks and
to a lesser extent other equity securities over an extended period. This limited
turnover approach tends to reduce transaction costs and reduce the realization
of short term capital gains which, when distributed to U.S. shareholders, would
be taxable to them as ordinary income.
This investment approach, however, could result in the accumulation over
time of a substantial amount of unrealized capital gains. If the Fund sells an
investment with substantial unrealized gains, those gains, when distributed to
the shareholders of the Fund will be taxable to U.S. shareholders owning shares
at that time, even though the shareholder may not have been a shareholder of the
Fund during all or a portion of the period during which the unrealized gains
were accumulated.
See "Additional Information about the Fund's Investments" on page 7.
PRINCIPAL RISKS
All investments involve some level of risk. Simply defined, risk is the
possibility that you will lose money or not make money. Loss of money is a risk
of investing in the Fund. The principal risk factors for the Fund are discussed
below. Before you invest, please make sure you understand the risks that apply
to your investment.
MARKET AND INVESTMENT RISKS. The principal risk of investing in the Fund
is that common stock prices are subject to market, economic and business risks
that will cause their prices to fluctuate over time. While common stocks have
historically been a leading choice of long-term growth-oriented investors, stock
prices may decline over short or even extended periods. Therefore, the value of
your investment in the Fund may go up and down and you could lose money.
PORTFOLIO STRATEGY RISKS. The Fund's investment success depends on the
skill of the investment adviser in evaluating, selecting and monitoring the
Fund's assets. If the investment adviser's conclusions about growth rates or
stock values are incorrect, the Fund may not perform as anticipated.
SMALL CAPITALIZATION STOCK RISK. To the extent the Fund invests in
securities of small sized companies, the Fund's investments are subject to
certain risks of small capitalization companies. These risks include the risk
that stocks of smaller companies may be subject to more abrupt or erratic market
movements than stocks of larger, more established companies. Small companies may
have limited product lines or financial resources, or may be dependent upon a
small or inexperienced management group. In addition, small cap stocks typically
are traded in lower volume, and their issuers typically are subject to greater
degrees of changes in their earnings and prospects.
MEDIUM CAPITALIZATION STOCK RISK. To the extent the Fund invests in
securities of medium sized companies, the Fund's investments are subject to
certain risks of medium capitalization companies. These risks include the risk
that stocks of mid-sized companies may be subject to more abrupt or erratic
market movements than stocks of larger, more established companies. Mid-sized
companies may have limited product lines or financial resources, and may be
dependent upon a particular niche of the market.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS OF PORTFOLIO COMPANIES AND
FOREIGN COMPANIES. To the extent the Fund invests in companies with significant
foreign sales or operations, the Fund's investments are subject to certain risks
of foreign markets. These risks include the risk of currency fluctuations,
nationalization, expropriation, confiscatory taxation, political changes and
diplomatic developments that could adversely affect the foreign operations of
companies in which the Fund invests and the value of the Fund's investments.
RISKS OF LEVERAGE. The Fund may employ leverage by borrowing money for the
purpose of making additional investments. This could have the effect of
magnifying the Fund's gains or losses or could result in increased volatility of
the Fund's share price. In order to limit such risks, the Fund normally limits
borrowings for leverage purposes to a maximum of ten percent of the net assets
of the Fund. Money borrowed is subject to interest costs.
<PAGE>
YEAR 2000 RISKS. The Fund could be adversely affected if the computer
systems used by the Fund or its service providers do not function properly when
processing date-related information on or after January 1, 2000. This is
commonly known as the "Year 2000 Issue." The Fund has taken steps it believes
are reasonably designed to address the Year 2000 Issue with respect to the
computer systems it uses, and has received representations from its software and
service providers that they have adapted their mission critical customer
applications for a successful conversion to the millennium change date. However,
there can be no assurance that the operations of and services provided to the
Fund and its shareholders will not be adversely affected.
The Year 2000 Issue affects practically all companies, organizations and
markets, including companies in which the Fund invests and the markets in which
they trade. At this time, no one knows precisely what the degree of impact of
the Year 2000 Issue will be. To the extent impact of the Year 2000 Issue on
investments made by the Fund or on the securities markets or the economy is
negative, it could seriously affect the Fund's investment performance.
Businesses in foreign countries generally may have undertaken less extensive
efforts than U.S. companies to identify and correct Year 2000 problems affecting
them. Accordingly, there may be a greater risk that the Year 2000 Issue will
result in adverse consequences in foreign economies and markets, which could
adversely affect companies, such as the ones in which the Fund invests, that
have significant foreign sales or operations.
The Fund and its service providers do not appear to have been adversely
affected by computer problems related to the transition to the Year 2000.
However, there remains a risk that such problems could arise or be discovered in
the future. The Fund's service providers have informed the Fund that they intend
to monitor and correct any Year 2000 problems that may arise or be discovered
affecting the computer systems relied on by the Fund.
PERFORMANCE SUMMARY
The bar chart and performance table customarily contained in mutual fund
prospectuses is not included because the Fund is new and does not have a full
fiscal year of operating history.
FEES AND EXPENSES
The following tables describe the fees and estimated expenses that you may
pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)..... None+
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Management Fees............................................. 1.00%
Distribution and Service (12b-1) Fees....................... 0.50%
Other Expenses.............................................. 0.90%
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Total Annual Fund Operating Expenses........................ 2.40%*
Less fee waiver and expense reimbursement................... (0.70%)**
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Net Expenses................................................ 1.70%
+ Currently there is a $25.00 wire redemption fee assessed by the Fund, which
is subject to change. There is no fee for redemptions where proceeds are sent
by check.
* The Fund is new. Therefore, the amount of "Other Expenses" and "Total Annual
Operating Expenses" are based on estimated amounts for the first year of
operations and do not reflect any fee waiver or expense limitation.
** Ingalls & Snyder has contractually agreed to waive its advisory fee or
reimburse the Fund's expenses to the extent necessary to ensure that Total
Annual Fund Operating Expenses on an annualized basis do not exceed 1.70% of
the Fund's average net assets for the first twelve months of operations. This
<PAGE>
contractual fee waiver may not be discontinued or modified by Ingalls &
Snyder during the stated period.
EXAMPLE
The following example is intended to help you to compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The example
assumes you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS
$173 $682*
* This example assumes that Ingalls & Snyder's agreement to waive fees and
reimburse the Fund's expenses is not extended beyond its initial period.
INVESTMENT ADVISER
Ingalls & Snyder LLC, 61 Broadway, New York, NY 10006-2802, serves as the
investment adviser for the Fund and is responsible for managing the Fund's
portfolio of securities. As investment adviser, Ingalls & Snyder identifies
companies for investment, determines when securities should be purchased or sold
by the Fund and selects brokers or dealers, which may include Ingalls & Snyder,
to execute transactions for the Fund's portfolio. For its services the
investment adviser receives an annual fee equal to 1.00% of the Fund's average
net assets. Ingalls & Snyder has contractually agreed to waive its advisory fee
or reimburse the Fund's expenses to the extent necessary to ensure that Total
Annual Fund Operating Expenses on an annualized basis do not exceed 1.70% of the
Fund's average net assets for the first year of operations. This contractual fee
waiver may not be discontinued or modified by Ingalls & Snyder during the stated
period.
Ingalls & Snyder was founded in 1924. Registered as an investment adviser
with the U.S. Securities and Exchange Commission under the Investment Advisors
Act of 1940, the firm provides investment services to clients of substance,
including retirement plans, IRAs, corporations, individuals, trusts, estates,
and charitable organizations located in the United States and abroad. Ingalls &
Snyder also is a registered broker-dealer and a member of the New York and
American Stock Exchanges and the National Association of Securities Dealers.
Almost 6,000 client accounts, valued at $3 billion, are entrusted to
Ingalls & Snyder for investment management, research, or the execution of
transactions. Of that amount, approximately $2 billion is managed on a
discretionary or investment advisory basis. Ingalls & Snyder is wholly owned by
its directors, who are actively involved in all phases of the firm's operations.
PORTFOLIO MANAGER
The Portfolio Manager of the Fund is Robert E. Belknap, a Managing
Director of Ingalls & Snyder LLC. As Portfolio Manager, Mr. Belknap has primary
responsibility for managing the Fund's investment portfolio.
Mr. Belknap has over thirty-four years experience as an investment adviser
to individuals, charitable organizations, corporations, trusts and retirement
accounts in the United States and abroad. At the date of this prospectus, he
manages discretionary portfolios using techniques substantially the same as
those to be used by the Fund with aggregate assets in excess of $200 million.
Mr. Belknap graduated from the University of Virginia in 1961, served as a line
officer in the U.S. Navy and specialized in finance and investments at the New
York University Graduate School of Business. He is a Senior Security Analyst of
the New York Society of Security Analysts, a North American Member of the
International Society of Financial Analysts, and a Fellow Member of the
Financial Analysts Federation and of the Association of Investment Management
and Research. Prior to joining Ingalls & Snyder as a Principal in 1993, Mr.
Belknap was a Senior Vice President of Seligman Securities, Inc. with
<PAGE>
responsibility for managing client investment portfolios and concurrently
Principal of Robert E. Belknap & Co.
ADVISORY BOARD
The Advisory Board consists of persons who are, in the judgment of the
investment adviser, knowledgeable about business, trade, political and economic
matters. The Portfolio Manager may consult with individual members of the
Advisory Board from time to time concerning business, trade, political and
economic matters in the United States or abroad. Members of the Advisory Board
do not possess any authority or responsibility with respect to the Fund's
investments. The Portfolio Manager does not discuss specific investments with
members of the Advisory Board, nor do members of the Advisory Board give
investment advice to the Fund. The members of the Advisory Board are listed
below.
Thomas H. Belknap, Esq.<F1> Mr. C. P. T. Vaughan-Johnson
Member Deputy Chairman
Hill & Barlow, A Professional Corporation Duncan Lawrie Limited
Boston London
Mr. David G. Booth Mr. Wynant D. Vanderpoel
Managing Director, Ret. Private Investor
Morgan Stanley Dean Witter, Inc. New York
New York
Mr. W. Neville Conyers Mr. Lewis M. Weston
Chairman Retired Partner
Bermuda Aviation Services Goldman Sachs & Co.
Hamilton, Bermuda New York
Mr. Christopher Wetherhill Mr. Marc Declerck
Managing Director Havaux & Cie Ltd.
Hemisphere Management Ltd. Brussels
Hamilton, Bermuda
Mr. Christopher Finn Mr. Edward Wheeler
Managing Director-International Senior Vice President
The Carlyle Group Inc. The Buckingham Research Group,
New York New York
Mr. Jolmer D. Gerritse Mr. Robert D. White
Managing Director Chief Operating Officer
SNS Securities N.V. Investor Select Advisors, Inc.
Amsterdam Dublin
Mr. John G. Hunter Roger T. Wickers, Esq.
Managing Director Senior Vice President and
The Management Exchange Inc. General Counsel, Ret.
New York The Keystone Group
Boston
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<F1>
Thomas H. Belknap, Esq. is the brother of Robert E. Belknap, who is a trustee
and the President and Portfolio Manager of the Fund.
<PAGE>
Mr. William J. Loschert Mr. Henry K. Wingate
Chairman Educational Consultant
ACE UK Limited Sandisfield, Mass.
London
Mr. William J. McDonough, Jr. Mr. John S. Wadsworth, Jr.
Executive Vice President Chairman
Foote, Cohn & Belding Morgan Stanley Dean Witter Asia
Limited
New York
Members of the Advisory Board do not receive any compensation from the
Fund for service in that capacity.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
This section contains more detailed information about the Fund's
investments and its investment process. The Fund's investment objective is
long-term capital appreciation. This objective may be changed or modified in the
future by action of the Fund's Board. Shareholder approval is not required to
modify the investment objective; however, shareholders would receive advanced
written notice of any such change.
TYPES OF INVESTMENTS. The Fund seeks to invest primarily in a diversified
portfolio of common stocks and to a lesser extent other equity securities of
growth-oriented companies, i.e. companies whose growth, cash flow and earnings
prospects are promising in the opinion of the Fund's investment adviser.
Specifically, the Fund normally requires that such companies have a strong
balance sheet, a highly capable management, a unique aspect to its business
(such as unique products, franchises or unique services), a positive and growing
cash flow, a high return on equity and a superior rate of growth of earnings
over an extended period. The growth-oriented companies in which the Fund invests
consist primarily of U.S. domestic companies with significant foreign sales or
operations or significant overseas growth opportunities. The investment adviser
believes that investments in these types of companies permit the Fund to
participate in both domestic and overseas growth opportunities without the
additional risks of investing directly in foreign securities. Many growth
companies pay low or no dividends, and investors should not invest in the Fund
for current income.
In addition to common stocks, the equity securities in which the Fund may
invest include preferred stocks, convertible securities (such as convertible
debt securities or convertible preferred stock) that are convertible into common
or preferred stock, and options or warrants to purchase common or preferred
stock or similar securities or interests. Under normal market conditions, it is
the Fund's policy to invest substantially all of its assets in common stocks and
to a lesser extent other equity securities. However, the Fund may invest in
money market instruments during times when excess cash is generated or when cash
is held pending investment in suitable securities or in anticipation of
redemptions. Such money market investments include short-term obligations of the
U.S. government, investment grade corporate bonds, commercial paper or money
market mutual funds. If the Fund's investment adviser deems it beneficial for
defensive purposes during adverse market, economic or other conditions, the Fund
may invest up to 100% of its assets temporarily in non-equity securities, such
as investment grade corporate bonds, commercial paper and government securities.
STOCK SELECTION PROCESS. The investment adviser identifies stocks for
investment using its own research and analysis and the research and analysis of
major U.S. investment and brokerage firms. When analyzing a company's outlook
and prospects, the investment adviser employs fundamental, qualitative,
statistical and quantitative analysis of individual companies as well as
research concerning industries and industry segments and evaluates its ability
to generate sustained above average growth for its business and earnings
relative to other companies. Fundamental analysis is a method of security
valuation which involves examining the company's financials and operations,
especially sales, earnings growth, growth potential, assets, debt, management,
products, and competition. Qualitative analysis is a method of determining the
value of an investment by examining its non-numeric characteristics, such as
management, employee morale, customer loyalty, and brand value. Statistical
analysis involves screening of securities databases for companies having desired
financial and other characteristics. Quantitative analysis is a method of
<PAGE>
determining the value of an investment by examining its numerical, measurable
characteristics such as revenues, earnings, margins and market share.
The investment adviser considers the following factors, among other
things, in evaluating a company's growth prospects: the company's historical
performance and growth strategy, the growth rate of the industries in which it
operates and the markets into which it sells, the nature of its competitive
environment, technological developments and trends in its market share. In
evaluating the quality of a company's management, the investment adviser
considers, among other things, the historical financial performance of the
company as well as the management's reputation in the relevant industry. From
time to time the investment adviser seeks to meet with the management of
companies in which the Fund invests or may consider investing. There is no
guarantee, however, that the investment adviser will be able to meet with the
management of these companies.
Once the Fund identifies a company meeting its criteria, it seeks to
acquire the company's stock at reasonable prices. In attempting to determine
reasonable price levels, the investment adviser utilizes a variety of
measurement methods, including a comparison of a company's price-to-earnings
ratio with its growth rate and an evaluation of its ratio of sales to market
capitalization and evaluates the price of the stock relative to its future
prospects. The Fund may from time to time purchase stocks having minimal or no
current earnings or with high price-to-earnings ratios relative to their growth
rates. The Fund normally seeks to reduce its exposure to risk by concentrating
in larger companies (generally companies with a market capitalization in excess
of $10 billion), but also may invest up to 15% of its assets in medium and
smaller sized companies which in the opinion of the adviser offer good prospects
for future growth.
The Fund employs a long-term investment strategy under which stocks are
normally held for extended periods of time. However, if the price of a stock
owned in the Fund moves up significantly, particularly if this movement occurs
in a short period of time, the investment adviser may sell shares to reduce
exposure to the stock. Likewise if the price of a stock owned in the Fund moves
down, the adviser may take advantage of the decline to purchase additional
shares. In addition, the Fund may sell a particular investment if it no longer
meets the Fund's investment criteria.
In selling securities, the investment adviser seeks to minimize adverse
tax consequences to shareholders by minimizing the requirement for taxable
distributions. For example, when selling securities the investment adviser
generally will select those shares purchased at the highest price in order to
minimize or offset the realization of capital gains. When this approach would
produce short-term gains, however, the Fund may endeavor to convert those gains
to long-term status by selling the highest cost shares having a long term
holding period.
ADDITIONAL RISK INFORMATION
The principal risk of investing in the Fund is that common stock prices
are subject to market, economic and business risks that will cause their prices
to fluctuate over time. While common stocks have historically been a leading
choice of long-term growth-oriented investors, stock prices may decline over
short or even extended periods. Therefore, the value of your investment in the
Fund may go up and down and you could lose money. In addition, the Fund's
investment success depends on the skill of the investment adviser in evaluating,
selecting and monitoring the Fund's assets. If the Adviser's conclusions about
growth rates or stock values are incorrect, the Fund may not perform as
anticipated.
If the adviser determines that the condition of the financial markets
calls for a temporary defensive position, the Fund may invest a substantial
portion (up to 100%) of its assets in short-term fixed income securities such as
investment grade corporate bonds, commercial paper and U.S. government
securities. These defensive actions would reduce the benefit from any upswing in
the equity markets and, if the investment adviser does not correctly anticipate
fluctuations in the equity and debt securities markets, may not contribute to
achieving the Fund's investment objective.
To the extent that the Fund invests in foreign companies or companies with
substantial foreign sales or operations, its investments may involve political,
economic or currency risks not ordinarily associated with U.S. securities or the
<PAGE>
securities of companies with purely domestic operations. Foreign securities may
experience greater and more rapid change in value than investments in U.S.
securities. Foreign securities generally are more volatile and less liquid than
U.S. securities, in part because of greater political and economic risks and
because there is less public information available about foreign companies.
Issuers of foreign securities generally are not subject to the same degree of
regulation as are U.S. issuers. The reporting, accounting and auditing standards
of foreign countries may differ, in some cases significantly, from U.S.
standards. Some foreign countries have or may experience in the future economic
and political problems. Certain countries may impose limitations on the ability
of foreigners to invest in or withdraw assets from their securities markets, and
additional political, economic or financial restrictions may be imposed under
emergency conditions.
To the extent the Fund invests in foreign securities that are denominated
in foreign currencies, the Fund also may be subject to currency risk. This is
the risk of losses that could result from a decline in the value of foreign
currencies relative to the U.S. dollar, which would reduce the value of the
Fund's portfolio securities denominated in those currencies. In addition,
nationalization, expropriation or confiscatory taxation, or political changes or
diplomatic developments could adversely affect the Fund's investments in a
foreign company or the foreign operations of companies in which the Fund
invests. In the event of nationalization, expropriation, or other confiscation
of the Fund's investment, the Fund could lose its entire investment.
The Fund may employ leverage by borrowing money for the purpose of making
additional investments. This could have the effect of magnifying the Fund's
gains or losses or could result in increased volatility of the Fund's share
price. In order to limit such risks, the Fund normally limits borrowings for
leverage purposes to a maximum of ten percent of the total assets of the Fund.
Money borrowed is subject to interest costs.
The Fund could be adversely affected if the computer systems used by the
Fund or its service providers do not function properly when processing
date-related information on or after January 1, 2000. This is commonly known as
the "Year 2000 Issue." The Fund has taken steps it believes are reasonably
designed to address the Year 2000 Issue with respect to the computer systems it
uses, and has received representations from its software and service providers
that they have adapted their mission critical customer applications for a
successful conversion to the millennium change date. However, there can be no
assurance that the operations of and services provided to the Fund and its
shareholders will not be adversely affected.
The Year 2000 Issue affects practically all companies, organizations and
markets, including companies in which the Fund invests and the markets in which
they trade. At this time, no one knows precisely what the degree of impact of
the Year 2000 Issue will be. To the extent impact of the Year 2000 Issue on
investments made by the Fund or on the securities markets or the economy, it
could seriously affect the Fund's investment performance.
The introduction of a new single European currency, the "euro," may result
in uncertainties for European companies, domestic companies with substantial
sales or operations in Europe and European markets. The euro was introduced on
January 1, 1999, by 11 European Union member countries who are participating in
the European Monetary Union ("EMU"). The introduction of the euro results in the
redenomination of certain European debt and equity securities and may result in
differences in various accounting, tax and/or legal treatments that would not
otherwise occur. The euro creates the risk that (i) European markets may become
more volatile, which could adversely affect the value of any securities held by
the Fund which are traded on European securities markets, and (ii) that
companies in which the Fund invests may be adversely affected by their failure
(or the failure of other companies with which they do business) to adequately
address the operational aspects of the conversion to the euro. At this early
stage, no one knows what the degree of impact of the introduction of the euro
will be. To the extent that the market impact or effect on a portfolio holding
is negative, the Fund's investment performance could be hurt.
SHARE PRICE -- NET ASSET VALUe
The price of the Fund's shares is their net asset value per share. The
Fund's net asset value per share is determined by computing the total value of
the Fund's securities, cash and other assets, subtracting all of its expenses
and liabilities, and then dividing by the total number of shares of the Fund
outstanding. The Fund's net asset value is calculated as of the close of the New
York Stock Exchange (usually 4:00 PM Eastern time) every day the exchange is
open. Shares will not be priced on days the New York Stock Exchange is closed.
The Fund's securities are valued at their market value, which usually means the
last quoted sale price on the security's principal exchange on that day. If
market quotations are not readily available, securities will be priced at their
<PAGE>
fair value as determined in good faith by, or under procedures adopted by, the
Board of Trustees. The Fund may use independent pricing services to assist in
calculating the Fund's net asset value.
Because the Fund may invest up to 10% of the Fund's net assets in foreign
securities, which may be traded primarily on foreign securities exchanges that
trade on weekends or other days when the Fund does not price its shares, the net
asset value of the Fund's shares may change on days when shareholders will not
be able to purchase or redeem the Fund's shares.
PURCHASING SHARES
One may purchase shares of the Fund without any sales charge through
Ingalls & Snyder LLC, the Fund's principal underwriter and distributor, by
submitting a completed application along with payment of the purchase price by
check or wire. Please note that purchase instructions, mailing addresses and
telephone numbers are set forth in the Account Instructions chart included on
page 13 of this Prospectus as well as in the Fund's Shareholder Application.
Please call Ingalls & Snyder at 800-221-2598 with any questions.
Shares of the Fund also may be purchased through an investment adviser,
financial planner, broker, dealer or other investment professional or through a
fund supermarket, retirement plan or other intermediary. These parties may
charge transaction fees and may set different minimum investments or limitations
on buying, selling or redeeming shares. The intermediaries are responsible for
transmitting purchase orders and funds and for crediting their customers'
accounts following redemptions made in accordance with their customer agreements
and the Fund's Prospectus. Other persons may receive compensation for the
marketing and shareholder servicing activities in the form of 12b-1 fees payable
by the Fund under its Distribution Plan adopted under Rule 12b-1 under the 1940
Act.
MINIMUM INVESTMENTS. The minimum initial investment is $5,000 and
additional investments must total at least $1,000. The minimum initial
investment for qualified retirement accounts is $1,000 ($500 for Education IRAs)
and there is no minimum for subsequent investments. The Fund may also change or
waive its policies concerning minimum investment amounts at any time.
PURCHASE PRICE. One may purchase shares of the Fund at the Fund's net
asset value per share. Your order will be priced at the net asset value per
share next calculated after receipt of your completed purchase order. Orders are
complete when a purchase order accompanied by payment is received and, in the
case of new accounts, is accompanied by a completed and signed Shareholder
Application. If you make a purchase with a check that does not clear, the
purchase will be cancelled, and you will be responsible for any losses or fees
incurred in that transaction.
GENERAL POLICIES. Shares of the Fund may not be available in all states.
Please ask your investment professional or a Fund representative if shares are
available in your state. If a check or draft submitted for the purchase of
shares is returned unpaid to the Fund, the Fund may impose a $10 charge for each
returned item. The Fund reserves the right to reject any purchase order or to
suspend the offering of its shares.
REDEEMING SHARES
HOW TO REDEEM: You may redeem your shares of the Fund on any business day
that the Fund calculates its net asset value per share. Redemption requests
should be made through Ingalls & Snyder by telephone by calling 800-221-2598 or
by mail. Redemption requests in excess of $50,000 and redemption requests for
IRA accounts must be made in writing and may require a signature guarantee. (See
"Signature Guarantees" below.)
Your shares will be redeemed at the net asset value per share next
calculated after your redemption request is received by Ingalls & Snyder. See
"Account Instructions" below for instructions for submitting redemption requests
in good order. If your redemption request is in good order, the Fund will
normally send you your redemption proceeds no later than seven calendar days
after receipt of the redemption request. The Fund can send payments by wire to
any bank previously designated by you in the Shareholder Application. A $25.00
fee is charged for each wire redemption.
<PAGE>
If you purchase shares by check and request a redemption of those shares
soon after the purchase, the Fund will honor the redemption request, but will
not mail the proceeds until your purchase check has cleared (usually within 10
days). If you make a purchase with a check that does not clear, the purchase
will be cancelled and you will be responsible for any losses or fees incurred in
that transaction.
Checks will be made payable to you and will be sent to your address of
record. If the proceeds of the redemption are requested to be sent to an address
other than the address of record or if the address of record has been changed
within 30 days of the redemption request, the request must be in writing with
your signature(s) guaranteed. The Fund is not responsible for interest on
redemption amounts due to lost or misdirected mail.
SIGNATURE GUARANTEES: Signature guarantees are needed for:
o Redemption requests over $50,000
o Redemption requests to be sent to an address other than the address
of record
o Any redemption request if the address of record has been changed
within 30 days prior to receipt of the redemption request
o Obtaining or changing telephone redemption privileges.
Signature guarantees can be obtained from banks and securities dealers,
but not from a notary public. Ingalls & Snyder may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees and guardians.
GENERAL POLICIES. If the amount you are redeeming is large enough to
affect the Fund operations or if the redemption would otherwise disrupt the
Fund, the Fund reserves the right to make a "redemption in kind." The Fund may
redeem shares in kind if the amount represents more than the lesser of $250,000
or 1% of the Fund's net assets. When the Fund makes a redemption in kind it pays
the seller in portfolio securities rather than in cash. In addition, if your
account balance falls below $1,000, the Fund may request that you increase your
balance. If it is still below $1,000 after 60 days, the Fund may close your
account and send you the proceeds.
RETIREMENT INVESTING
Shares of the Fund may be purchased in all types of tax-deferred qualified
plans such as Individual Retirement Accounts ("IRAs"), employer-sponsored
retirement plans (including 401(k) Plans), and tax sheltered custodial accounts
described in Section 403(b) of the Internal Revenue Code. Distribution of net
investment income and capital gains on shares held in these accounts will be
automatically re-invested. Special applications are required for certain of
these plans or accounts, which can be obtained by calling the Fund. The
following is a brief description of the retirement investing options.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS): If you are not an active
participant (and, if a joint return is filed, your spouse is not an active
participant) in an employer-sponsored retirement plan, or if you have an
adjusted gross income within certain specific limits, you are eligible to make a
tax-deductible contribution to an IRA account. If you are not eligible for
deductible contributions, you may still make non-deductible IRA contributions.
Distributions from qualified retirement plans may be rolled into an IRA account
holding Fund shares. You can continue to defer federal income taxes on your IRA
account, on your rollover contribution and on any income that is earned on that
contribution.
TRADITIONAL IRA: In a traditional IRA, amounts contributed to the IRA may
be tax deductible at the time of contribution depending on your income and
whether you are an "active participant" in an employer-sponsored retirement
plan. Amounts invested are permitted to grow tax-free until they are
distributed, and then distributions will be taxed except to the extent that the
distribution represents a return of your own contributions for which you did not
claim a deduction. If you take distributions before age 59 1/2 or fail to begin
taking distributions after age 70 1/2, you may experience adverse tax
consequences and/or penalties.
<PAGE>
ROTH IRA: In a Roth IRA, amounts contributed to the IRA are not tax
deductible at the time of contribution. Amounts invested are permitted to grow
tax-free and distributions from the IRA are not subject to tax if you have held
the IRA for certain minimum periods of time (generally, until age 59 1/2).
EDUCATION IRA: In an Education IRA, nondeductible contributions of up to
$500 per year per child are permitted to grow tax-free. Distributions used to
pay for secondary education expenses are not subject to tax.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP): A special IRA program is available
for employers under which the employers may establish IRA accounts for their
employees in lieu of establishing tax qualified retirement plans. Known as
SEP-IRA's, they free the employer of many of the record keeping requirements of
establishing and maintaining a tax qualified retirement plan trust.
SIMPLE IRA: An IRA may also be used in connection with a SIMPLE Plan
established by employers or by a self-employed individual. Under a SIMPLE Plan,
you may elect to have your employer make salary reduction contributions or as a
non-elective contribution to all eligible participants whether or not making
salary reduction contributions. A number of special rules apply to SIMPLE Plans,
including: (1) a SIMPLE Plan generally is available only to employees with fewer
than 100 employees; (2) contributions must be made on behalf of all employees of
the employer, other than bargaining unit employees, who satisfy certain minimum
participation requirements; (3) contributions are made to a special SIMPLE IRA
that is separate and apart from the other IRAs of employees; (4) the
distribution excise tax (if otherwise applicable) is increased to 25% on
withdrawals during the first two years of participation in a SIMPLE IRA; and (5)
amounts withdrawn during the first two years of participation may be rolled over
tax-free only into another SIMPLE IRA and not to a traditional IRA or to a Roth
IRA.
403(B) PLANS: The Fund's shares are also available for use by schools,
hospitals, and certain other tax-exempt organizations or associations which wish
to use shares of the Fund as a funding medium for a retirement plan for their
employees. Contributions are made to the 403(b) Plan as a reduction to the
employee's regular compensation. Such contributions, to the extent they do not
exceed applicable limitations (including a generally applicable limitation of
$9,500 per year), are excludable from the gross income of the employee for
federal income tax purposes.
401(K) PLANS AND OTHER QUALIFIED PENSION OR PROFIT-SHARING PLANS: The
Fund's shares may be used for investment in various employer-sponsored
retirement plans by both self-employed individuals (sole proprietorships and
partnerships) and corporations who wish to use shares of the Fund as a funding
medium for a retirement plan qualified under the Internal Revenue Code. Such
plans typically allow investors to make annual deductible contributions, which
may be matched by their employers up to certain percentages based on the
investor's pre-contribution earned income. Fund shares may be purchased by
investors who wish to contribute to a 401(k) or similar Plan already established
through their employer or otherwise. Please contact the Fund for information
about establishing a 401(k) Plan for your company using The Legacy Funds.
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT INSTRUCTIONS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT TO REDEEM SHARES
- -------------------------------------------------------------------------------------------------------------------------
Regular Account Minimum: $5,000 Regular Account Minimum: $1,000 All requests to redeem shares from IRA
Retirement Account Minimum: Retirement Account Minimum: None accounts must be in writing
$1,000 ($500 for Education IRAs)
- -------------------------------------------------------------------------------------------------------------------------
In Writing In Writing In Writing
------------ ------------ ------------
Complete the application. Send a letter of instruction that Send a letter of instruction that
includes: includes:
Make your check* payable to:
"Legacy Growth Fund" - your name(s) and signature(s) - your name(s) and signature(s)
- your account number - your account number
- the Fund name - the Fund name
- the dollar amount you want to buy. - the dollar amount or number of
shares you want to redeem
- a signature guarantee, if applicable.
Mail your application and check to: Mail your letter, along with your Proceeds will be sent to the address of
check made payable to "Legacy record unless specified in the letter
Ingalls & Snyder LLC. Growth Fund" to: and accompanied by a signature guarantee.
61 Broadway
New York, NY 10006 Ingalls & Snyder LLC Mail your letter to:
Attn: Legacy Growth Fund 61 Broadway
New York, NY 10006 Ingalls & Snyder LLC
Attn: Legacy Growth Fund 61 Broadway
New York, NY 10006
Attn: Legacy Growth Fund
- -------------------------------------------------------------------------------------------------------------------------
By Wire By Wire By Wire
--------- --------- ---------
To obtain instructions for wire To obtain instructions for wire Be sure the Fund has your bank account
purchases, please call Ingalls & purchases, please call Ingalls & information on file. Proceeds will be
Snyder LLC at 800-221-2598. Snyder LLC at 800-221-2598. wired to your bank. There is a $25.00
wire fee charged for this service.
- -------------------------------------------------------------------------------------------------------------------------
By Telephone
------------
For accounts redeeming shares (other
than IRA accounts), please call Ingalls
& Snyder at 800-221-2598 and select how
you would like to receive the proceeds:
- Mail check to address of record
- Wire funds to a designated institution
($25 wire fee)
- Mail check to a previously designated
alternative address.
Redemption requests in excess of $50,000
must be made in writing.
- -------------------------------------------------------------------------------------------------------------------------
* All checks should be in U.S. dollars and drawn on U.S. banks. If your check is returned for any reason, you may
be charged for any resulting fees or losses. Third party checks will not be accepted.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MARKETING, DISTRIBUTION AND ADMINISTRATION
Shares of the Fund are offered through Ingalls & Snyder LLC, the Fund's
principal underwriter and distributor. The shares are offered and sold without
any sales charges imposed by the Fund or its distributor. Investment
professionals who offer the Fund's shares generally are paid separately by their
individual clients. If you invest through a third party, the fees may be
different than those described in this Prospectus. For example, third parties
may charge transaction fees or set different minimum investment amounts.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under this plan, the Fund may reimburse the
distributor or others for amounts spent, or to compensate the distributor or
others for their activities, in connection with the sale and distribution of its
shares or for shareholder servicing activities. Distribution activities include
the preparation, printing and mailing of prospectuses, shareholder reports and
sales material for marketing purposes, marketing activities, advertising and
payments to brokers or others who sell shares of the Fund. Shareholder servicing
activities include ongoing maintenance and service of shareholder accounts for
the Fund, responding to inquiries regarding shareholder accounts and acting as
agent or intermediary between shareholders and the Fund or its service
providers. The Fund will pay for these services a distribution fee computed at
an annual rate of 0.50% of the average net assets of the Fund. Because these
fees are paid out of the Fund's assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges. The Fund currently expects that the fees of the
Plan will be used primarily to compensate mutual fund marketers or retirement
plan record keepers for their activities on behalf of the Fund and its
shareholders.
Firstar Mutual Fund Services, LLC serves as the administrator, transfer
agent, and dividend disbursing agent for the Fund. The Fund may also compensate
other parties who provide transfer agency services in addition to those provided
by Firstar Mutual Fund Services, LLC. Firstar Bank Milwaukee, N.A. serves as the
custodian for the Fund.
DISTRIBUTIONS AND TAXATION
The Fund will distribute substantially all of the net investment income
and net capital gains that it has realized on the sale of securities. These
income and gains distributions will generally be paid once each year, on or
before December 31, beginning in December, 2000. Distributions will
automatically be reinvested in additional shares of the Fund unless you elect to
have the distributions paid to you in cash. There are no sales charges or
transaction fees for reinvested dividends, and all shares will be purchased at
the Fund's net asset value per share.
THE FOLLOWING DISCUSSION OF SELECTED FEDERAL INCOME TAX CONSIDERATIONS
THAT MAY AFFECT THE FUND AND ITS SHAREHOLDERS IS BASED UPON THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, TREASURY REGULATIONS, COURT DECISIONS AND IRS RULINGS
NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE. IT DOES NOT PURPORT TO DEAL
WITH ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO THE
FUND AND ITS SHAREHOLDERS. BECAUSE EVERYONE'S TAX SITUATION IS UNIQUE, PLEASE BE
SURE TO CONSULT YOUR TAX PROFESSIONAL REGARDING FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES.
FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. INVESTORS.
Distributions made by the Fund are taxable to most U.S. shareholders whether
received in cash or additional shares. Dividends and short-term capital gains
are taxed to most U.S. shareholders as ordinary income while long-term capital
gains are taxed as such, regardless of how long you own your shares of the Fund.
The tax status of distributions made to you, whether ordinary income or
long-term capital gain, will be detailed in your annual tax statement from the
Fund. If the Fund distributes unrealized gains soon after you purchase shares, a
portion of your investment may be returned as a taxable distribution.
A sale or exchange of Fund shares is a taxable event for most U.S.
shareholders and may result in a capital gain or loss to you if you are subject
to tax. In addition, distributions from the Fund or gains from the sale or
exchange of Fund shares may be subject to state or local taxes. By law, the Fund
must withhold 31% of your taxable distributions and proceeds if (i) you do not
provide a correct taxpayer identification number ("TIN"), (ii) you fail to
<PAGE>
certify that your TIN is correct or to provide other required certifications or
(iii) the IRS instructs the Fund to do so. The Fund will make annual reports to
the Internal Revenue Service and the Fund's shareholders regarding the amount of
distributions.
Redemptions and exchanges of Fund shares of U.S. shareholders are taxable
transactions for federal and state income tax purposes which cause such
shareholders to recognize a gain or loss. If shares are held as a capital asset,
the gain or loss realized will be a capital gain or loss. Any loss incurred on
the redemption or exchange of shares held for six months or less will be treated
as a long-term capital loss to U.S. shareholders to the extent of any long-term
capital gains distributed to such shareholders by the Fund on those shares.
All or a portion of any loss realized upon the redemption of Fund shares
by U.S. shareholders will be disallowed to the extent that such shareholders
purchase other shares in the Fund (through reinvestment of dividends or
otherwise) within 30 days before or after said share REDEMPTION. Any loss
disallowed under these rules will be added to the tax basis of the new shares
purchased.
Any dividends paid by the Fund will generally qualify in part for the 70%
dividends-received deduction for U.S. corporations, but the portion of the
dividends so qualifying depends on the aggregate taxable qualifying dividend
income received by the Fund from domestic (U.S.) sources. The Fund will send to
shareholders a statement each year reporting the amount designated by the Fund
as eligible for such treatment. All dividends (including the deducted portion)
must be included in any alternative minimum taxable income calculation.
FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN INVESTORS. For
purposes of this discussion a "Non-U.S. Investor" is an investor who is not a
United States Person where the term "United States Person" means (i) an
individual who is a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any state thereof, (iii) an estate the income of
which is subject to federal income taxation regardless of its source or (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
Non-U.S. Investors may be subject to U.S. withholding tax on dividends
received from the Fund at the rate of 30% unless the dividends are effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Investor, in which case these amounts will be subject to U.S.
federal income tax on a net income basis at rates that apply to United States
Persons generally. Applicable income tax treaties may provide for a lower rate
of withholding. Distributions of capital gain will not be subject to U.S.
withholding tax. A Non-U.S. Investor generally will not be subject to U.S.
federal income tax on capital gain distributions or gain recognized on the sale
or exchange of Fund shares unless the distributions or gain is effectively
connected with the conduct of a trade or business within the United States or,
in the case of a Non-U.S. Investor who is a nonresident alien individual and
holds the Fund shares as a capital asset, such investor is present in the United
States for 183 or more days in the taxable year of the distribution or sale or
exchange and either has a "tax home" (as defined for U.S. federal income tax
purposes) in the United States or an office or other fixed place of business in
the United States to which its investment activities or the sale or exchange is
attributable.
The Fund will make annual reports to the Internal Revenue Service and the
Fund's shareholders regarding the amount of distributions. A U.S. backup
withholding tax of 31% will not generally apply to dividends distributed to
Non-U.S. Investors outside the United States that are subject to the 30%
withholding discussed above or that are not be subject to backup withholding
because a tax treaty applies that reduces or eliminates such withholding.
Information reporting and backup withholding may apply to capital gain
distributions and gross redemption proceeds unless certification of foreign
residency requirements are met. In addition, information reporting and backup
withholding requirements may apply to gross proceeds paid to a Non-U.S. Investor
upon the sale or exchange of Fund shares by or through a U.S. or foreign office
of a U.S. or foreign broker, unless certain documentary evidence or
certification requirements are met or the investor otherwise establishes an
exemption.
<PAGE>
INQUIRIES
Please contact the Fund's investment adviser, Ingalls & Snyder LLC,
regarding monthly portfolio updates and new prospectus/shareholder report
information as soon as it is available. You may wish to check with Ingalls &
Snyder for the latest information regarding The Legacy Funds.
<PAGE>
LEGACY GROWTH FUND
61 Broadway
New York, NY 10006
800-221-2598
INVESTMENT ADVISER LEGAL COUNSEL
INGALLS & SNYDER LLC HUGHES HUBBARD & REED LLP
61 Broadway One Battery Park Plaza
New York, NY 10006 New York, NY 10004
DISTRIBUTOR AUDITORS
INGALLS & SNYDER LLC ARTHUR ANDERSEN LLP
61 Broadway 100 East Wisconsin Avenue
New York, NY 10006 Milwaukee, WI 53202
ADMINISTRATOR, FUND ACCOUNTANT
& TRANSFER AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
FIRSTAR BANK MILWAUKEE, N.A.
615 East Michigan Street
Milwaukee, WI 53202
ADDITIONAL INFORMATION
The Statement of Additional Information ("SAI") of the Fund contains
additional information about the Fund and is incorporated by reference into this
Prospectus. The Fund's annual and semi-annual reports to shareholders will
contain additional information about the Fund's investments. In the Fund's
annual report you will find a discussion of the market conditions and investment
strategies that impacted on the Fund's performance during the fiscal year.
You may obtain a free copy of these documents by calling or writing the
Fund as shown above. You may also call the telephone number shown above to
request other information about the Fund and to make shareholder inquiries.
You may review and copy the SAI and other information about the Fund by
visiting the Securities and Exchange Commission's Public Reference Room in
Washington, DC, or by visiting the EDGAR Database on the Commission's Internet
site at http://www.sec.gov. Copies of this information may also be obtained,
upon payment of a duplicating fee, by electronic request at the following E-mail
address: [email protected], or by writing to the Commission's Public Reference
Section, Washington, DC 20549-0102. You may call the Commission at
1-202-942-8090 for information about the operation of the Public Reference Room.
Investment Company Act File No. 811-09495
<PAGE>
LEGACY GROWTH FUND
A diversified fund of growth-oriented equity securities
having the objective of long term growth of capital
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 4, 2000
THE LEGACY FUNDS, INC.
61 Broadway
New York, NY 10006
(800) 221-2598
This Statement of Additional Information relates to the Legacy Growth Fund which
is a series of The Legacy Funds, Inc., a registered open-end management
investment company commonly known as a mutual fund. This Statement of Additional
Information is not a prospectus and should be read in conjunction with the
Prospectus for the Fund dated February 4, 2000. The Prospectus may be obtained
by writing or calling the Fund at the address and number shown above.
<PAGE>
TABLE OF CONTENTS
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS 1
PREFERRED STOCK 3
CONVERTIBLE SECURITIES 3
WARRANTS AND RIGHTS 3
ILLIQUID SECURITIES 4
RULE 144A SECURITIES 4
WHEN ISSUED, DELAYED DELIVERY SECURITIES AND
FORWARD COMMITMENTS 4
AMERICAN DEPOSITORY RECEIPTS 5
U.S. GOVERNMENT SECURITIES 5
BANK OBLIGATIONS 6
LOANS OF PORTFOLIO SECURITIES 6
REPURCHASE AGREEMENTS 6
REVERSE REPURCHASE AGREEMENTS 7
BORROWING 7
FUTURES 8
OPTIONS 9
INVESTMENT RESTRICTIONS 14
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS 14
NON-FUNDAMENTAL POLICIES AND RESTRICTIONS 15
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES 15
PURCHASING SHARES 15
REDEEMING SHARES 17
MANAGEMENT OF THE TRUST 19
TRUSTEES AND OFFICERS 19
COMPENSATION OF TRUSTEES; SHAREHOLDINGS 20
ADVISORY BOARD 21
INVESTMENT ADVISER AND ADVISORY AGREEMENT 25
CODE OF ETHICS 26
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 27
SERVICE AGREEMENTS 27
ADMINISTRATOR 27
FUND ACCOUNTING 27
TRANSFER AGENT 28
CUSTODIAN 28
DISTRIBUTOR 28
DISTRIBUTION PLAN 28
INDEPENDENT ACCOUNTANTS 30
PORTFOLIO TRANSACTIONS AND TURNOVER 30
SHARES OF BENEFICIAL INTEREST 32
DIVIDENDS 33
ADDITIONAL INFORMATION CONCERNING DISTRIBUTIONS AND TAXES 33
DISTRIBUTIONS 33
TAXES 33
INVESTMENT PERFORMANCE 34
TOTAL RETURN INFORMATION 34
YIELD INFORMATION 35
PERFORMANCE RANKINGS 36
FINANCIAL STATEMENTS 37
<PAGE>
GENERAL INFORMATION
The Legacy Growth Fund (the "Fund") is a series of The Legacy Funds, Inc.,
a business trust organized in the state of Delaware on July 15, 1999 (the
"Trust"). The Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), which is
authorized to issue multiple series and classes of shares. Each series
represents interests in a separate portfolio of investments. The Trust is
authorized to issue an unlimited number of shares of beneficial interest, par
value $0.001. The Legacy Growth Fund is the first series of the Trust and is
classified as a "diversified" series as that term is defined in the 1940 Act.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
The Fund's investment objective is long-term growth of capital. The Fund
seeks to achieve its objective by investing primarily in a diversified portfolio
of common stocks and to a lesser extent other equity securities (such as
preferred stock) of growth-oriented companies, i.e. companies whose growth, cash
flow and earnings prospects are promising in the opinion of the Fund's
investment adviser. The Fund's investment objective is not fundamental and
therefore may be changed in the future by action of the Board of Trustees of the
Trust without the approval of shareholders. Shareholders would receive written
notice in advance of any such change.
The investment adviser performs comprehensive research designed to
identify companies that offer attractive investment opportunities. In
particular, the Fund seeks companies having strong balance sheets, highly
capable managements, unique aspects to their businesses (such as unique
products, franchises or unique services), positive and growing cash flows, high
returns on equity and superior rates of growth of earnings over an extended
period. The growth-oriented companies in which the Fund invests consist
primarily of U.S. domestic companies with significant foreign sales or
operations or significant overseas growth opportunities. The investment adviser
believes that investments in these types of companies permit the Fund to
participate in both domestic and overseas growth opportunities without the
additional risks of investing directly in foreign securities. Many growth
companies pay low or no dividends, and investors should not invest in the Fund
for current income.
In evaluating investment opportunities, the investment adviser employs
fundamental, qualitative, statistical and quantitative analysis of individual
companies as well as research concerning industries and industry segments and
evaluates a company's ability to generate sustained above average growth for its
business and earnings relative to other companies. Fundamental analysis is a
method of security valuation which involves examining the company's financials
and operations, especially sales, earnings growth, growth potential, assets,
debt, management, products, and competition. Qualitative analysis is a method of
determining the value of an investment by examining its non-numeric
characteristics, such as management, employee morale, customer loyalty, and
brand value. Statistical analysis involves screening of securities databases for
companies having desired financial and other characteristics. Quantitative
analysis is a method of determining the value of an investment by examining its
numerical, measurable characteristics such as revenues, earnings, margins and
market share.
<PAGE>
The investment adviser considers the following factors, among other
things, in evaluating a company's growth prospects: the company's historical
performance and growth strategy, the growth rate of the industries in which it
operates and the markets into which it sells, the nature of its competitive
environment, technological developments and trends in its market share. In
evaluating the quality of a company's management, the investment adviser
considers, among other things, the historical financial performance of the
company as well as the management's reputation in the relevant industry. From
time to time the investment adviser seeks to meet with the management of
companies in which the Fund invests or may consider investing. There is no
guarantee, however, that the investment adviser will be able to meet with the
management of these companies.
The majority of the holdings in the Fund will be in large capitalization
common stocks (over $10 billion market capitalization). The Fund also may invest
in foreign securities and securities of medium and small sized companies.
Holdings of medium and small sized companies normally would not represent over
fifteen percent of the net assets of the Fund. Holdings of foreign securities
normally would not represent over ten percent of the Fund's net assets.
The following discussion of investment techniques and instruments
supplements, and should be read in conjunction with, the investment information
set forth in the Fund's Prospectus. The investment practices described below,
except for the discussion of certain investment restrictions, are not
fundamental and may be changed by the Board of Trustees without the approval of
the shareholders. In seeking to meet its investment objective the Fund invests
primarily in common stocks and to a lesser extent other equity securities but
also may invest in any type of security whose characteristics are consistent
with the Fund's investment program.
In addition to common stocks, the equity securities in which the Fund may
invest include preferred stocks, convertible securities (such as convertible
debt securities or convertible preferred stock) that are convertible into common
or preferred stock, and options or warrants to purchase common or preferred
stock or similar securities or interests. Under normal market conditions, it is
the Fund's policy to invest substantially all of its assets in common stocks and
to a lesser extent other equity securities. However, the Fund may invest in
money market instruments during times when excess cash is generated or when cash
is held pending investment in suitable securities or in anticipation of
redemptions. Such money market investments include short-term obligations of the
U.S. Government, investment grade corporate bonds, commercial paper or money
market mutual funds. If the Fund's investment adviser deems it beneficial for
defensive purposes during adverse market, economic or other conditions, the Fund
may invest up to 100% of its assets temporarily in short-term non-equity
securities, such as investment grade corporate bonds, commercial paper and U.S.
Government securities. These defensive actions would reduce the benefit from any
upswing in the equity markets and, if the investment adviser does not correctly
anticipate fluctuations in the equity and debt securities markets, may not
contribute to achieving the Fund's investment objective.
The Fund also may invest in the following:
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PREFERRED STOCK
The Fund may invest in preferred stock. Preferred stock generally pays
dividends at a specified rate and generally has preference over common stock in
the payments of dividends and the liquidation of the issuer's assets. Dividends
on preferred stock are generally payable at the discretion of the issuer's board
of directors. Accordingly, shareholders may suffer a loss of value if dividends
are not paid. The market prices of preferred stocks are also sensitive to
changes in interest rates and in the issuer's creditworthiness. Accordingly,
shareholders may experience a loss of value due to adverse interest rate
movements or a decline in the issuer's credit rating.
CONVERTIBLE SECURITIES
Traditional convertible securities include corporate bonds, notes and
preferred stocks that may be converted into or exchanged for common stock, and
other securities that also provide an opportunity for equity participation.
These securities are generally convertible either at a stated price or a stated
rate (that is, for a specific number of shares of common stock or other
security). As with other fixed income securities, the price of a convertible
security to some extent varies inversely with interest rates. While providing a
fixed-income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a comparably rated nonconvertible
debt security), a convertible security also affords the investor an opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible. As the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the price of a convertible security tends to
rise as a reflection of the value of the underlying common stock. To obtain such
a higher yield, the Fund may be required to pay for a convertible security an
amount in excess of the value of the underlying common stock. Common stock
acquired by the Fund upon conversion of a convertible security will generally be
held for so long as the Investment Adviser anticipates such stock will provide
the Fund with opportunities that are consistent with the Fund's investment
objective and policies.
WARRANTS AND RIGHTS
The Fund may invest in warrants. However, not more than 5% of the Fund's
total assets (at the time of purchase) will be invested in warrants other than
warrants acquired in units or attached to other securities. Warrants are pure
speculation in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. Warrants
basically are options to purchase equity securities at a specific price valid
for a specific period of time. They do not represent ownership of the
securities, but only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of warrants do not necessarily move in parallel with the prices of the
underlying securities. Rights represent a preemptive right to purchase
additional shares of stock at the time of new issuance, before stock is offered
<PAGE>
to the general public, so that the stockholder can retain the same ownership
percentage after the offering.
ILLIQUID SECURITIES
The Fund may invest up to 5% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities are considered to include generally, among other things, certain
over-the-counter options, securities or other liquid assets being used as cover
for such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests and other securities whose disposition is
restricted under the federal securities laws. The Fund's illiquid investments
may include privately placed securities which are not registered for sale under
the Securities Act of 1933, as amended (the "1933 Act").
RULE 144A SECURITIES
The Fund may invest in securities that are restricted as to resale, but
which are regularly traded among qualified institutional buyers because they are
exempt under Rule 144A from the registration requirements of the 1933 Act. The
Board of Trustees of the Trust has instructed the Investment Adviser to consider
the following factors in determining the liquidity of a security purchased under
Rule 144A: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security, the method of soliciting offers and the
mechanics of transfer). Although having delegated the day to-day functions, the
Board of Trustees will monitor and periodically review the Investment Adviser's
selection of Rule 144A securities, as well as the Investment Adviser's
determinations as to their liquidity. Investing in securities under Rule 144A
could affect the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. After
the purchase of a security under Rule 144A, the Board of Trustees and the
Investment Adviser will continue to monitor the liquidity of that security to
ensure that the Fund has no more than 5% of its net assets in illiquid
securities.
WHEN ISSUED, DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a "when, as and if issued" security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Fund will only enter
into a forward commitment with the intention of actually acquiring the security,
the Fund may sell the security before the settlement date if it is deemed
advisable.
<PAGE>
Securities purchased under a forward commitment are subject to market
fluctuations, and no interest or dividends accrue to the Fund prior to the
settlement date. The Fund will segregate with its custodian cash or liquid
high-grade debt securities in an aggregate amount at least equal to the amount
of its outstanding forward commitments.
AMERICAN DEPOSITORY RECEIPTS
The Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. The Fund may
purchase ADRs whether they are "sponsored" or "unsponsored." "Sponsored" ADRs
are issued under an agreement between the issuer of the underlying security and
a depository, whereas "unsponsored" ADRs are issued without participation of the
issuer of the deposited security. Holders of unsponsored ADRs generally bear all
the costs of such facilities, and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Therefore, there may not be a correlation between information concerning the
issuer of the security and the market value of an unsponsored ADR. Ownership of
ADRs may result in a withholding tax by the foreign country of source which will
have the effect of reducing the income distributable to shareholders.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Fund's shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GMNA"), are supported by the
full faith and credit of the United States. Others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury. Securities of the Federal National Mortgage Association ("FNMA")
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations. Other U.S. Government securities, such as those of the
Student Loan marketing Association, are supported only by the credit of the
instrument. U.S. Government securities include securities that have no coupons,
or have been stripped of their unmatured interest coupons, individual interest
coupons from such securities that trade separately, and evidences of receipt of
such securities. Such securities may pay no cash income, and are purchased at a
deep discount from their value at maturity. Because interest on zero coupon
securities is not distributed on a current basis but is, in effect, compounded,
zero coupon securities tend to be subject to greater market risk than
interest-payment securities, such as CATS and TIGRs, which are not issued or
guaranteed by the U.S. Government, its agents or institutions, and are therefore
not U.S. Government securities even though the underlying bond represented by
such an instrument is a debt obligation of the U.S. Treasury. Other zero coupon
Treasury securities (STRIPs and CUBEs) are direct obligations of the U.S.
Government.
<PAGE>
BANK OBLIGATIONS
Certificates of deposit are short-term obligations of commercial banks. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with international commercial transactions. Certificates
of deposit may have fixed or variable rates.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its investment securities to approved borrowers who need
to borrow securities in order to complete certain transactions, such as covering
short sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its investment securities, the Fund attempts to increase
its income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would be for the account of the Fund. The Fund may lend its investment
securities to qualified brokers, dealers, domestic and foreign banks or other
financial institutions, so long as the terms, the structure and the aggregate
amount of such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the Securities and Exchange Commission (the
"SEC") thereunder, which currently require that: (a) the borrower pledge and
maintain with a Fund collateral consisting of cash, an irrevocable letter of
credit issued by a bank or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loaned; (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis); the loan be made subject to termination by a Fund at any time; and (d)
the Fund receives reasonable interest on the loan (which may include the Fund
investing any cash collateral in interest bearing short-term investments). All
relevant facts and circumstances, including the creditworthiness of the broker,
dealer or institution, will be considered in making decisions with respect to
the lending of securities, subject to review by the Board of Trustees.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities so
long as such fees are set forth in a written contract and approved by the
investment company's Board of Trustees. In addition, voting rights may pass with
the loaned securities, but if a material event occurs affecting an investment on
a loan, the loan must be called and the securities voted.
REPURCHASE AGREEMENTS
When the Fund enters into a repurchase agreement, it purchases securities
from a bank or broker-dealer which simultaneously agrees to repurchase the
securities at a mutually agreed upon time and price, thereby determining the
yield during the term of the agreement. As a result, a repurchase agreement
provides a fixed rate of return insulated from market fluctuations during the
term of the agreement. The term of a repurchase agreement generally is short,
possibly overnight or for a few days, although it may extend over a number of
months (up to one year) from the date of delivery. Repurchase agreements will be
fully collateralized and the collateral will be marked-to-market daily. The Fund
may not enter into a repurchase agreement having more than seven days remaining
to maturity, if as a result, such agreement, together with any other illiquid
<PAGE>
securities held by the Fund, would exceed 5% of the value of the net assets of
the Fund.
In the event of bankruptcy or other default by the seller of the security
under a repurchase agreement, the Fund may suffer time delays and incur costs or
possible losses in connections with the disposition of the collateral. In such
event, instead of the contractual fixed rate of return, the rate of return to
the Fund would be dependent upon intervening fluctuations of the market value of
the underlying security and the accrued interest on the security. Although the
Fund would have rights against the seller for breach of contract with respect to
any losses arising from market fluctuations following the failure of the seller
to perform, the ability of the Fund to recover damages from a seller in
bankruptcy or otherwise in default would be reduced.
Repurchase agreements are securities for purposes of the tax
diversification requirements that must be met for pass-through treatment under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Fund will limit the value of its repurchase agreements, if any,
on each of the quarterly testing dates to ensure compliance with Subchapter M of
the Code.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve sales of portfolio securities of the
Fund to member banks of the Federal Reserve System or securities dealers
believed creditworthy, concurrently with an agreement by the Fund to repurchase
the same securities at a later date at a fixed price which is generally equal to
the original sales price plus interest. The Fund retains record ownership and
the right to receive interest and principal payments on the portfolio securities
involved. In connection with each reverse repurchase transaction, the Fund will
direct its custodian bank to place cash, U.S. Government securities, equity
securities and/or investment and non-investment grade debt securities in a
segregated account of the Fund in an amount equal to the repurchase price. Any
assets held in any segregated securities, options, futures, forward contracts or
other derivative transactions will be liquid, unencumbered and marked-to-market
daily (any such assets held in a segregated account are referred to in this
Statement of Additional Information as "Segregated Assets").
A reverse repurchase agreement involves the risk that the market value of
the securities retained by the Fund may decline below the price of the
securities the Fund has sold but is obligated to repurchase under the agreement.
In the event the buyer of securities under a reverse repurchase agreement files
for the bankruptcy or becomes insolvent, the Fund's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities. Reverse repurchase agreements are considered borrowings and as such
are subject to the Fund's limitations on borrowing.
BORROWING
The Fund may borrow money up to 10% of the value of its total assets
(calculated at the time of the borrowing) from banks for temporary,
<PAGE>
extraordinary or emergency purposes, for the clearance of transactions or for
investment purposes. The Fund may pledge up to 10% of its total assets to secure
these borrowings. If the Fund's asset coverage for borrowings falls below 300%,
the Fund will take prompt action to reduce its borrowings. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell portfolio securities to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.
Borrowing for investment purposes is generally known as "leveraging."
Leveraging exaggerates the effect on net asset value of any increase or decrease
in the market value of the Fund's portfolio. When the income and gains on
securities purchased with the proceeds of borrowings exceed the costs of such
borrowings, the Fund's earnings or net asset value will increase faster than
otherwise would be the case; conversely, if such income and gains fail to exceed
such costs, the Fund's earnings or net asset value would decline faster than
would otherwise be the case. Money borrowed for leveraging will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased and may exceed the income from the securities purchased. In
addition, the Fund may be required to maintain minimum average balances in
connection with such borrowing or pay a commitment fee to maintain a line of
credit, which would increase the cost of borrowing over the stated interest
rate. On an ongoing basis the Fund's borrowing for investment purposes will not
typically exceed 10% of the value of the Fund's total assets.
FUTURES
The Fund may enter into contracts for the purchase or sale for future
delivery of securities. A purchase of a futures contract means the acquisition
of a contractual right to obtain delivery to the Fund of the securities or
foreign currency called for by the contract at a specified price and future
date. When the Fund enters into a futures transaction, it must deliver to the
futures commission merchant selected by the Fund an amount referred to as
"initial margin." This amount is maintained by the futures commission merchant
in a segregated account at the custodian bank. Thereafter, a "variation margin"
may be paid by the Fund to, or drawn by the Fund from, such account in
accordance with controls set for such accounts, depending upon changes in the
price of the underlying securities subject to the futures contract.
The Fund may enter into futures contracts and engage in options on futures
to the extent that no more than 5% of the Fund's total assets are required as
futures contract margin deposits and premiums on options, and may engage in such
transactions to the extent that obligations relating to such futures and related
options on futures transactions represent not more than 10% of the Fund's total
assets.
The Fund may enter into futures transactions on domestic exchanges and, to
the extent such transactions have been approved by the Commodity Futures Trading
Commission for sale to customers in the United States, on foreign exchanges. In
addition, the Fund may sell stock index futures in anticipation of or during a
market decline to attempt to offset the decrease in market value of its common
stocks and other equity securities that might otherwise result, and it may
purchase such contracts in order to offset increases in the cost of common
<PAGE>
stocks and other equity securities that it intends to purchase. Unlike other
futures contracts, a stock index futures contract specifies that no delivery of
the actual stocks making up the index will take place. Instead, settlement in
cash must occur upon the termination of the contract. While futures contracts
(other than stock under futures contracts) provide for the delivery of
securities, deliveries usually do not occur. Contracts generally are terminated
by entering into offsetting transactions.
The Fund may enter into futures contracts to protect against the adverse
effects of fluctuations in security prices, interest rates or foreign exchange
rates without actually buying or selling the securities or foreign currency. For
example, if interest rates are expected to increase, the Fund might enter into
futures contracts for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the debt securities owned by
the Fund. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of the futures contracts to the Fund
would increase at approximately the same rate thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have. Similarly,
when it is expected that interest rates will decline, futures contracts may be
purchased to hedge in anticipation of subsequent purchases of securities at
higher prices. Since the fluctuations in the value of futures contracts should
be similar to those of debt securities, the Fund could take advantage of the
anticipated rise in value of debt securities without actually buying them until
the market had stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the cash market.
To the extent that market prices move in an unexpected direction, the Fund
may not achieve the anticipated benefits of futures contracts or may realize a
loss. For example, if the Fund is hedged against the possibility of an increase
in interest rates which would adversely affect the price of securities held in
its portfolio and interest rates decrease instead, the Fund would lose part or
all of the benefit of the increased value which it has because it would have
offsetting losses in its futures position. In addition, in such situations, if
the Fund had insufficient cash, it may be required to sell securities from its
portfolio to meet daily variation margin requirements. Such sales of securities
may, but will not necessarily, be at increased prices which reflect the rising
market. The Fund may be required to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS
The Fund may invest in options that are listed on U.S. exchanges or traded
over-the-counter. Certain over-the-counter options may be illiquid. Thus, it may
not be possible to close options positions, and this may have an adverse impact
on the Fund's ability to effectively hedge its securities. The Fund considers
over-the-counter options to be illiquid. Accordingly, the Fund will only invest
in such options to the extent consistent with its 5% limit on investments in
illiquid securities. The Fund may purchase and write call or put options on
securities but will only engage in option strategies for non-speculative
purposes. In addition, the Fund will only engage in option transactions (other
than index options) to the extent that no more than 10% of its total assets are
subject to obligations relating to such options.
<PAGE>
PURCHASING CALL OPTIONS. The Fund may purchase call options on securities.
When the Fund purchases a call option, in return for a premium paid by the Fund
to the writer of the option, the Fund obtains the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option has the obligation to deliver the
underlying security against payment of the exercise price. The advantage of
purchasing call options is that the Fund may alter portfolio characteristics and
modify portfolio maturities without incurring the cost associated with
transactions.
The Fund may, following the purchase of a call option, liquidate its
option position by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Fund will realize a profit from a closing sale transaction if the price received
on the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.
Although the Fund would generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange would exist for any particular option,
or at any particular time; and for some options no secondary market on an
exchange may exist. In such event, it may not be possible to effect closing
transactions in particular options, with the result that the Fund would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of such
options. Further, unless the price of the underlying security changes
sufficiently, a call option purchased by the Fund may expire without any value
to the Fund, in which event it would realize a capital loss which will be
short-term unless the option were held for more than one year.
COVERED CALL WRITING. The Fund may write covered call options from time to
time on such portions of its portfolio as the Investment Adviser determines is
appropriate in seeking to achieve the Fund's investment objective. The advantage
to the Fund of writing covered calls is that it receives a premium which is
additional income. However, if the security rises in value and the option is
exercised, the Fund will forego any market appreciation over the option exercise
price.
During the option period for a covered call option, the writer may be
assigned an exercise notice by the broker-dealer through whom such call option
was sold, requiring the writer to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the expiration
of the option or upon entering a closing purchase transaction. A closing
purchase transaction, in which the Fund, as writer of an option, terminates its
obligation by purchasing an option of the same kind as the option previously
written, cannot be effected with respect to an option once the option writer has
received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
<PAGE>
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security and the
proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.
The Fund may write call options only on a covered basis, which means that
the Fund would own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected. The
Fund would be required to continue to hold a security which it might otherwise
wish to sell or deliver a security it would want to hold. The exercise price of
a call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
PURCHASING PUT OPTIONS. The Fund may purchase put options on securities
owned by the Fund.
A put option purchased by the Fund would give it the right to sell one of
its securities for an agreed price up to an agreed date. The Fund may purchase
put options in order to protect against a decline in the market value of the
underlying security below the exercise price of the option ("protective puts").
The ability to purchase put options would allow the Fund to protect unrealized
gains in an appreciated security in its portfolio without actually selling the
security. If the security does not drop in value, the Fund would lose the value
of the premium paid. The premium paid for a put option and any transactions
costs would reduce any profit from the sale of the security. The Fund may sell a
put option which it has previously purchased prior to the sale of the securities
underlying such option. Such sale would result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option which is sold.
The Fund may sell a put option purchased on individual portfolio
securities. Additionally, the Fund may enter into closing sale transactions. A
closing sale transaction is one in which the Fund, when it is the holder of an
outstanding option, liquidates its position by selling an option of the same
series as the option previously purchased.
<PAGE>
WRITING PUT OPTIONS. The Fund may also write put options on a secured
basis which means that the Fund will maintain in a segregated account with its
custodian segregated assets in an amount not less than the exercise price of the
option at all times during the option period. The amount of segregated assets
held in the segregated account will be adjusted on a daily basis to reflect
changes in the market value of the securities covered by the put option written
by the Fund. Secured put options would generally be written in circumstances
where the Fund wishes to purchase the underlying security for the Fund's
portfolio at a price lower than the current market price of the security. In
such event, the Fund would write a secured put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay.
Following the writing of a put option, the Fund may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This would be accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
STRADDLES. The Fund may write covered straddles consisting of a
combination of a call and a put written on the same underlying security. A
straddle would be covered when sufficient assets are deposited to meet the
Fund's immediate obligations. The Fund may use the same liquid assets to cover
both the call and put options where the exercise price of the call and put are
the same, or the exercise price of the call is higher than that of the put. In
such cases, the Fund would also segregate liquid assets equivalent to the
amount, if any, by which the put is "in the money."
INDEX OPTIONS. The Fund may purchase exchange-listed put and call options
on stock indices and sell such options in closing sale transactions for hedging
purposes. The Fund may purchase call options on broad market indices to
temporarily achieve market exposure when the Fund is not fully invested. The
Fund may also purchase exchange-listed call options on particular market segment
indices to achieve temporary exposure to a specific industry. The Fund may
purchase put options on broad market indices in order to protect its fully
invested portfolio from a general market decline. Put options on market segments
may be bought to protect the Fund from a decline in value of heavily weighted
industries in the Fund's portfolio. Put options on stock indices may be used to
protect the Fund's investments in the case of a an unusually large redemption.
While the option is open, the Fund would maintain a segregated account with its
custodian in an amount equal to the market value of the option.
Options on indices are similar to regular options except that an option on
an index gives the holder the right, upon exercise, to receive an amount of cash
if the closing level of the index upon which the option is based is greater than
(in the case of a call) or lesser than (in the case of a put) the exercise price
of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier").
<PAGE>
RISKS OF OPTIONS. The purchase and writing of options involves certain
risks. During the option period, the writer of a covered call has, in return for
the premium on the option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise price, but, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. The writer of an option has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation under
the option and must deliver the underlying securities at the exercise price. If
a put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will exist when
a Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, the Fund may be
unable to close out a position.
The Fund's purchases of options on indices may subject it to the risks
described below:
First, because the value of an index option depends upon movements in the
level of the index rather than the price of a particular security, whether the
Fund will realize a gain or loss on the purchase of an option on an index
depends upon movements in the level of prices in the market generally or in an
industry or market segment rather than movements in the price of a particular
security. Accordingly, successful use by the Fund of options on indices is
subject to the Fund's ability to predict correctly the direction of movements in
the market generally or in a particular industry. This requires different skills
and techniques than predicting changes in the prices of individual securities.
Second, index prices may be distorted if trading of a substantial number
of securities included in the index is interrupted causing the trading of
options on that index to be halted. If a trading halt were to occur, the Fund
would not be able to close put options which it had purchased and the Fund may
incur losses if the underlying index moved adversely before trading resumed. If
a trading halt were to occur and restrictions prohibiting the exercise of
options were imposed through the close of trading on the last day before
expiration, exercises on that day would be settled on the basis of a closing
index value that may not reflect current price information for securities
representing a substantial portion of the value of the index.
Third, if the Fund were to hold an index option and were to exercise it
before final determination of the closing index value for that day, it would run
the risk that the level of the underlying index may change before closing. If
such a change were to cause the exercised option to fall "out-of-the-money," the
Fund would be required to pay the difference between the closing index value and
the exercise price of the option (times the applicable multiplier) to the
assigned writer. Though the Fund may be able to minimize this risk by
withholding exercise instructions until just before the daily cutoff time or by
selling rather than exercising the option when the index level is close to the
exercise price, it may not be possible to eliminate this risk entirely because
<PAGE>
the cutoff times for index options may be earlier than those fixed for other
types of options and may occur before definitive closing index values are
announced.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which cannot be cannot be changed without the approval of a "majority of the
outstanding voting securities" of the Fund. Under the 1940 Act, a "majority of
the outstanding voting securities of a fund means the vote of: (i) more than 50%
of the outstanding voting securities of the fund; or (ii) 67% or more of the
voting securities of the fund present at a meeting, if the holders of more than
50% of the outstanding voting securities are present or represented by proxy,
which ever is less.
CONCENTRATION. The Fund will not make investments that will result in the
concentration (as that term any be defined in the 1940 Act, any rule or order
thereunder or any SEC staff interpretation thereof) of its investments in the
securities of issuers primarily engaged in the same industry, provided that this
restriction does not limit the Fund from investing in obligations issued or
guaranteed by the U.S. Government, or its agencies or instrumentalities. The SEC
staff currently takes the position that a fund concentrates its investments in a
particular industry if more than 25% of its net assets is invested in issuers
within the industry.
SENIOR SECURITIES. The Fund may not issue senior securities, except as the
1940 Act, any rule or order thereunder, or SEC staff interpretation thereof, may
permit.
UNDERWRITING. The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances where it
may be considered to be an underwriter under the Securities Act of 1933.
REAL ESTATE. The Fund may not purchase or sell real estate, unless
acquired as a result of ownership of securities or other instruments and
provided that this restriction does not prevent the Fund from investing in
issuers which invest, deal or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real estate or
interests therein.
COMMODITIES. The Fund may not purchase or sell physical commodities,
unless acquired as a result of ownership of securities or other instruments and
provided that this restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
BORROWING. The Fund may employ leverage by borrowing money for the purpose
of making additional investments, which could result in increased volatility of
the Fund's net asset value. In order to limit such risk, the Fund is required to
limit the percentage of its assets that can be exposed to such leveraging
techniques to 10% of the asset value of the Fund.
<PAGE>
LENDING. The Fund may not make loans, provided that this restriction does
not prevent the Fund from purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker/dealers or institutional investors and
investing in loans, including assignments and participation interests.
NON-FUNDAMENTAL POLICIES AND RESTRICTIONS
In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
Prospectus, the Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of Trustees
without shareholder approval.
OTHER INVESTMENT COMPANIES. The Fund is permitted to invest in other
investment companies, including open-end, closed-end or unregistered investment
companies, either within the percentage limits set forth in the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, or without regard
to percentage limits in connection with a merger, reorganization, consolidation
or other similar transaction. However, the Fund may not operate as a "fund of
funds" which invests primarily in the shares of other investment companies as
permitted by Section 12(d)(1)(F) or (G) of the 1940 Act, if its own shares are
utilized as investments by such a "fund of funds."
ILLIQUID SECURITIES. The Fund may not invest more than 5% of its net
assets in securities which it cannot sell or dispose of in the ordinary course
of business within seven days at approximately the value at which the Fund has
valued the investment.
In applying the Fund's fundamental policy concerning concentration that is
described above, it is a matter of non-fundamental policy that investments in
certain categories of companies will not be considered to be investments in a
particular industry. For example: (i) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; (ii) technology companies will be divided according to their products
and services, for example, hardware, software, information services and
outsourcing, or telecommunications will each be a separate industry; (iii)
asset-backed securities will be classified according to the underlying assets
securing such securities; and (iv) utility companies will be divided according
to their services, for example, gas, gas transmission, electric and telephone
will each be considered a separate industry.
ADDITIONAL INFORMATION ABOUT PURCHASES AND SALES
PURCHASING SHARES
Shares are sold by the Fund without any sales charge and are offered on a
continuous basis by the distributor.
Shares of the Fund also may be purchased through an investment adviser,
financial planner, broker, dealer or other investment professional or through a
<PAGE>
fund supermarket, retirement plan or other intermediary. These parties may
charge transaction fees and may set different minimum investments or limitations
on buying, selling or redeeming shares. The intermediaries are responsible for
transmitting purchase orders and funds and for crediting their customers'
accounts following redemptions made in accordance with their customer agreements
and the Fund's Prospectus. Other persons may receive compensation for the
marketing and shareholder servicing activities in the form of 12b-1 fees payable
by the Fund under its Distribution and Shareholders Servicing Plan adopted under
Rule 12b-1 under the 1940 Act.
The Fund reserves the right to reject any purchase order and to suspend
the offering of shares of the Fund. The minimum initial investment is $5,000 and
additional investments must total at least $1,000. The minimum initial
investment for qualified retirement accounts is $1,000 ($500 for Education IRAs)
and there is no minimum for subsequent investments in retirement accounts or
Education IRAs. The Fund may change or waive its policies concerning minimum
investment amounts at any time. The Fund's Transfer Agent maintains all
shareholder and shareholder transaction(s) records for the Fund.
The Fund does not intend to issue certificates representing shares
purchased. Shareholders will have the same rights of ownership with respect to
such shares as if certificates had been issued.
Shares of the Fund may be purchased at the Fund's net asset value per
share next computed after receipt of the purchase order. Net Asset Value is
calculated as of the close of the New York Stock Exchange ("NYSE") (usually 4:00
P.M. eastern time) every day the exchange is open.
The Fund's net asset value per share is determined by dividing the total
value of the Fund's securities, cash and other assets, subtracting all of its
expenses and liabilities, and then dividing by the total number of shares
outstanding. Expenses and fees of the Fund, including management, distribution
and shareholder servicing fees, are accrued daily and taken into account for the
purpose of determining the net asset value.
Shares will not be priced on days the New York Stock Exchange is closed.
Cash and any receivables are valued at their realizable amounts. Interest
is recorded as accrued and dividends are recorded on the ex-dividend date. The
Fund's securities are valued at their market value, which usually means the last
quoted sale price on the security's principal exchange on that day. Portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System for which market quotations are readily available are valued at the last
quoted sale price of the day or, if there is no such reported sale, within the
range of the most recent quoted bid and ask prices. The current market value of
any option held by the Fund is its last sale price on the relevant exchange
before the time when assets are valued. Lacking any sales that day or if the
last sale price is outside the bid and ask prices, options are valued within the
range of the current closing bid and ask prices if the valuation is believed to
reflect the contract's market value. The value of a foreign security is
determined as of the close of trading on the foreign exchange on which it is
<PAGE>
traded or as of the scheduled close of trading on the NYSE, if that is earlier.
Generally, trading in corporate bonds, U.S. Government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
net asset value is determined as of such time. If market quotations are not
readily available, securities will be priced at their fair value as determined
in good faith by, or under procedures adopted by, the Board of Trustees. The
Fund may use independent pricing services to assist in calculating the Fund's
net asset value.
Upon purchasing shares of the Fund, if a check or draft is returned unpaid
to the Fund the Fund may impose a $25 charge for each returned item. All checks,
drafts, wires and other payment mediums used to buy or sell shares of the Fund
must be denominated in U.S. dollars. The Fund may, in its sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to a shareholder's
account for the transaction as of a date and with a foreign currency exchange
factor determined by the drawee bank.
REDEEMING SHARES
Shares of the Fund may be redeemed on any business day that the Fund
calculates its net asset value. Shares will not be priced on days the New York
Stock Exchange is closed. The redemption price will be the next net asset value
per share calculated after the redemption order is accepted by the Fund's
transfer agent. No fees are imposed by the Fund when shares are redeemed.
Shares of the Fund may be redeemed by giving instructions to the Fund's
transfer agent by mail or by telephone. The Fund will use reasonable procedures
to confirm that instructions communicated by telephone are genuine and, if such
procedures are followed, will not be liable for any losses due to unauthorized
or fraudulent telephone transactions. During times of drastic economic or market
changes, the telephone redemption privilege may be difficult to implement and
the Fund reserves the right to suspend this privilege.
Certain written requests to redeem or transfer shares require a signature
guarantee. For example, a signature guarantee may be required if shares are sold
worth $50,000 or more if your address of record on the account application has
been changed within the last 30 days, or if you ask that the proceeds be sent to
a different person or address. A signature guarantee is used to help protect you
and the Fund from fraud. You can obtain a signature guarantee from most banks
and securities dealers, but not from a notary public. Signature guarantees must
appear together with the signature(s) of the registered owner(s), on: (1) a
written request for redemption; or (2) a separate instrument of assignment,
which should specify the total number of shares to be redeemed (this "stock
power" may be obtained from the Fund or from most banks or stock brokers).
If shares are sold through a securities dealer or investment professional,
it is such person's responsibility to transmit the order to the Fund in a timely
fashion. Any loss to you resulting from failure to do so must be settled between
you and such person.
<PAGE>
Delivery of the proceeds of a redemption of shares purchased and paid for
by check shortly before the receipt of the request may be delayed until the Fund
determines that the custodian has completed collection of the purchase check,
which may take up to 10 days. The Board of Trustees may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the New York Stock Exchange is restricted as determined by the SEC or such
exchange is closed for other than weekends and holidays, (b) the SEC has by
order permitted such suspension, or (c) an emergency, as defined by rules of the
SEC, exists during which time the sale of Fund shares or valuation of securities
held by the Fund are not reasonably practicable.
If dividend checks are returned to the Fund as undeliverable or marked
"unable to forward" by the postal service, the Fund will consider this a request
by the shareholder to change the dividend option to reinvest all contributions.
The proceeds will be reinvested in additional shares at their net asset value
until the Fund receives new instructions.
If mail is returned as undeliverable or the Fund is unable to locate you
or verify your current mailing address, it may deduct the costs of any efforts
to find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Distribution or redemption checks sent to a shareholder do not earn
interest or any other income during the time the checks remain uncashed. Neither
the Fund nor its affiliates will be liable for any loss caused by a
shareholder's failure to cash such checks.
The Fund also reserves the right to make a "redemption in-kind" if the
amount you are redeeming is large enough to affect Fund operations or if the
redemption would otherwise disrupt the Fund. For example, the Fund may redeem
shares in-kind if the amount represents more than the lesser of $250,000 or 1%
of the Fund's net assets. When the Fund makes a "redemption in-kind" it pays the
Seller in portfolio securities rather than cash. If shares are redeemed in kind,
the redeeming shareholder may incur brokerage costs in converting the assets to
cash. The method of valuing securities used to make redemptions in kind will be
the same as the method of valuing portfolio securities is described above. Such
valuation will be made as of the same time the redemption price is determined.
In addition, if a shareholder's account balance falls below $1,000, the
Fund may request the balance be increased. If it is still below $1,000 after 60
days, the Fund may automatically close the account and forward the proceeds to
the shareholder.
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trust is governed by a Board of Trustees, which has overall
responsibility for management of the Trust. The Trustees are experienced
business persons who meet periodically throughout the year to oversee the
Trust's activities, review contractual arrangements with companies that provide
services to the Fund and review the performance of the Fund. The names and
business addresses of the Trustees and officers of the Trust, together with
information as to their principal occupations during the past five years, are
listed below. The Trustees who are considered "interested persons" of the
investment adviser or of the Trust, as defined in Section 2(a)(19) of the 1940
Act, are noted with an asterisk (*).
<TABLE>
<CAPTION>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE REGISTRANT DURING THE PAST 5 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
Theodore F. Ells, Esq. Chairman of the Board of Partner of the Law Firm
28 West 44th Street Trustees of Craig & Ells
New York, NY 10036
Age 59
Robert E. Belknap*<F1> Trustee, President and Managing Director of
61 Broadway Portfolio Manager Ingalls & Snyder LLC
New York, NY 10006
Age 61
Steven M. Foote* Trustee Managing Director of
61 Broadway Ingalls & Snyder LLC
New York, NY 10006
Age 38
<FN>
- --------------------
Mr. Belknap is the brother of Thomas H. Belknap, Esq., who serves on the Fund's
Advisory Committee.
</FN>
<PAGE>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE REGISTRANT DURING THE PAST 5 YEARS
- --------------------------------------------------------------------------------
Barnabas B. B. Breed, Esq. Trustee, Treasurer, Principal of the Law
Tower Suite 3500 Secretary Firm of Breed &
The French Building Associates
551 Fifth Avenue
New York, NY 10017
Age 55
Joseph Neuberger Treasurer Senior Vice President of
Firstar Mutual Fund
Services, LLC,
Administrator of the Fund
Erin Probst Secretary Compliance Administrator
of Firstar Mutual Fund
Services, LLC,
Administrator of the Fund
The following individual has agreed to serve as a Trustee of the Fund upon the
effectiveness of the Fund's Registration Statement:
Steven L. Wood Trustee Managing Director of the
2250 Century Square Real Estate Development
1501 Fourth Avenue Firm of Century Pacific,
Seattle, WA 98101 L.P.
Age 52
</TABLE>
COMPENSATION OF TRUSTEES; SHAREHOLDINGS
The Trust does not compensate the Trustees who are officers or employees
of the Investment Adviser or its affiliates. The "independent" Trustees receive
a fee of $250 for each meeting of the Trustees which they attend in person or by
telephone. Trustees are reimbursed for travel and other out-of-pocket expenses.
The Board of Trustees is expected to hold regular quarterly meetings, and would
receive the annual compensation shown below from the Trust for serving on the
<PAGE>
Board and attending all such meetings. The Trust does not offer any retirement
benefits for Trustees.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
NAME OF TRUSTEE TITLE FROM TRUST
- --------------------------------------------------------------------------------
<S> <C> <C>
Theodore F. Ells, Esq. Chairman of the Board of $1,000
Trustees
Steven L. Wood Trustee $1,000
Steven M. Foote Trustee None
Barnabas B. B. Breed, Esq. Trustee $1,000
Robert E. Belknap Trustee and President None
</TABLE>
As of the date of this Statement of Additional Information, all the
outstanding shares of the Fund are owned by Ingalls & Snyder, and none are owned
individually by the officers and Trustees of the Fund.
ADVISORY BOARD
The Fund has an Advisory Board whose members are experienced in many
different types of business and who assist the Fund's portfolio manager in the
ongoing assessment of economic, political and social developments as they may
effect the investment strategy of the Fund. The members of the Advisory Board
are not compensated, do not give investment advice to the Fund, and are as
follows:
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE DURING THE PAST 5 YEARS
- ---------------------------------------------------------------------------------
<S> <C>
Thomas H. Belknap, Esq.<F1> Partner of the Law firm of
One International Place Hill & Barlow
Boston, MA 02110-2607
Age 59
Mr. David G. Booth Managing Director, Ret., of the
15 Garden Place investment firm Morgan Stanley Dean
Brooklyn, NY 11201 Witter, Inc.
Age 45
Mr. W. Neville Conyers Chairman of Bermuda Aviation Services
PO Box HM 1554 Limited/Aircraft Services Bermuda
Hamilton HM FX Limited
Bermuda
Age 70
Mr. Marc Declerck Agent Delegue of the investment firm
Place du Champs de Mars of
2 Marsveldplain Havaux & Cie
Brussels 1050, Belgium
Age 41
Mr. Christopher Finn Managing Director - International
20 Berkeley Square of the merchant banking firm The
London W1X 6NB Carlyle Group
United Kingdom
Age 42
<FN>
- --------------------
Mr. Belknap is the brother of Robert E. Belknap, who serves as a trustee and as
the President and Portfolio Manager of the Fund.
</FN>
<PAGE>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE DURING THE PAST 5 YEARS
- ---------------------------------------------------------------------------------
Mr. Jolmer D. Gerritse Managing Director of the
Nieuwezijds Voorburgwal 162 investment firm SNS Securities N.V.
1012 SJ Amsterdam
The Netherlands
Age 48
Mr. John G. Hunter Managing Director of the conference
123 East 54th Street management company The Management
New York, NY 10022 Exchange, Inc.
Age 62
Mr. William J. Loschert Chairman of the insurance company
Crosby Court ACE UK Limited
38 Bishopsgate
London EC2N 4DL
United Kingdom
Age 60
Mr. Wynant D. Vanderpoel President of private investment company
79 East 79th Street The Vanderpoel Group
New York, N.Y. 10021
Age 60
Mr. C. P. T. Vaughan-Johnson Deputy Chairman of the private bank
1 Hobart Place Duncan Lawrie Limited
London SW1W 0HU
England
Age 65
<PAGE>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE DURING THE PAST 5 YEARS
- ---------------------------------------------------------------------------------
Mr. John S. Wadsworth, Jr. Chairman of Morgan Stanley Dean Witter
Queens Garden Tower A, 3102 Asia Limited
9 Old Peak Road
Hong Kong
Age 61
Mr. Lewis M. Weston Retired Partner of the investment
85 Broad Street banking firm Goldman, Sachs & Co.
New York, NY 10004
Age 73
Mr. Christopher Wetherhill Managing Director of the mutual fund
P. O. Box HM 951 services firm Hemisphere Management
Hamilton HM DX Ltd.
Bermuda
Age 51
Mr. Edward W. Wheeler Senior Vice President of the
630 3rd Avenue investment
New York, NY 10017 research firm The Buckingham Research
Age 56 Group, Inc.
Mr. Robert D. White Chief Operating Officer of the
28 Lower Ormond Quay investment firm Investor Select
Dublin 1 Advisors, Inc.
Republic of Ireland
Age 30
<PAGE>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE DURING THE PAST 5 YEARS
- ---------------------------------------------------------------------------------
Roger T. Wickers, Esq. Senior Vice President and General
99 Springfield Point Counsel, Ret., of the mutual fund
Wolfeboro, NH 03894 management company The Keystone Group
Age 64
Mr. Henry K. Wingate Independent Educational Consultant
P.O. Box 197
Sandisfield, MA 01255
Age 61
</TABLE>
INVESTMENT ADVISER AND ADVISORY AGREEMENT
Ingalls & Snyder LLC ("Ingalls & Snyder" or the "Investment Adviser")
having its principal offices located at 61 Broadway, New York, NY 10006, is the
Fund's investment adviser. Ingalls & Snyder is registered as an investment
adviser under the Investment Advisers Act of 1940 (as amended, the "Advisers
Act"). Ingalls & Snyder also is a registered broker-dealer and a member of the
New York and American Stock Exchanges and the National Association of Securities
Dealers. Ingalls & Snyder serves as investment adviser to the Fund pursuant to
an Investment Advisory Agreement with the Trust dated as of February 4, 2000
(the "Advisory Agreement"). The Advisory Agreement was approved by the sole
shareholder of the Fund on February 3, 2000.
Under the Advisory Agreement, the Investment Adviser, subject to the
supervision of the Trustees, provides a continuous investment program for the
Fund, including investment research and management with respect to securities,
investments and cash equivalents, in accordance with the Fund's investment
objective, policies and restrictions as set forth in its Prospectus, this
Statement of Additional Information and the resolutions of the Trustees. The
Investment Adviser is responsible for effecting all security transactions on
behalf of the Fund, including the allocation of principal business and portfolio
brokerage and the negotiation of commissions. The Investment Adviser also
maintains books and records with respect to the securities transactions of the
Fund and furnishes to the Trustees such periodic or other reports as the
Trustees may request.
The Fund is obligated to pay the Investment Adviser a monthly fee equal to
an annual rate of 1.00% of the Fund's average daily net assets. The Investment
Adviser has contractually agreed to waive its advisory fee or reimburse the
Fund's expenses to the extent necessary to ensure that the total operating
expenses of the Fund on an annualized basis do not exceed 1.70% of average daily
<PAGE>
net assets during the Fund's first year of operations, which ends on October 31,
2000, on an annualized basis. This contractual arrangement may not be terminated
by the Investment Adviser during the stated period.
During the term of the Advisory Agreement, the Investment Adviser will pay
all expenses incurred by it in connection with its activities thereunder except
the cost of securities (including brokerage commissions, if any) purchased for
the Fund. The services furnished by the Investment Adviser under the Advisory
Agreement are not exclusive, and the Investment Adviser is free to perform
similar services for others.
Ingalls & Snyder is an independent, privately owned firm. Its shareholders
consist of twenty-five directors, none of whom owns more than 25% of its
outstanding stock.
Unless sooner terminated in accordance with its terms, the Advisory
Agreement is initially effective for a period of two years and may be continued
from year to year, provided that such continuance is approved at least annually
by a vote of the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund, or by the Trustees, and in either
event by vote of a majority of the Trustees who are not parties to the Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
The Advisory Agreement will automatically terminate in the event of its
"assignment" as that term is defined in the 1940 Act, and may be terminated
without penalty at any time upon 60 days' written notice to the other party: (i)
by the majority vote of all the Trustees or by majority vote of the outstanding
voting securities of the Fund; or (ii) by the Investment Adviser.
The Advisory Agreement may be amended by the parties, provided, in most
cases, that any such amendment is specifically approved by the vote of a
majority of the outstanding voting securities of the Fund and by the vote of a
majority of the Trustees who are not interested persons of the Fund or of the
Investment Adviser, cast in person at a meeting called for the purpose of voting
upon such approval.
Under the terms of the Advisory Agreement, the Investment Adviser will be
liable to the Fund only for losses resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services, willful misfeasance,
bad faith, gross negligence or reckless disregard of duty.
The Investment Adviser and the Trust have agreed that the Fund will use
the name "Legacy," and that other funds with differing investment objectives may
also be formed under the Legacy name.
CODE OF ETHICS
Both the Fund and the Investment Adviser have adopted a Code of Ethics
that governs the conduct of employees of the Fund and the Investment Adviser who
may have access to information about the Fund's securities transactions. The
Code recognizes that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of their own
<PAGE>
interests. Among other things, the Code requires pre-clearance of trading of
initial public offerings and limited offerings and requires reporting of
personal securities transactions. Violations of the code are subject to review
by the Trustees and could result in severe penalties.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Ingalls & Snyder provided the initial capital for the Fund by purchasing
10,000 shares for $100,000. These shares were acquired for investment and can be
disposed of only by redemption. As of the date of this Statement of Additional
Information Ingalls & Snyder owned 100% of the outstanding shares of the Fund.
So long as Ingalls & Snyder owns more than 25% of the outstanding shares of the
Fund, it will be deemed to control the Fund. As a controlling shareholder,
Ingalls & Snyder would be able to exercise a controlling or substantial
influence over the outcome of each matter submitted to a vote of the
shareholders of the Fund, including the election of Trustees.
SERVICE AGREEMENTS
As more fully described below, the Trust has entered into a number of
agreements with Firstar Mutual Funds Services, LLC ("Firstar"), a Wisconsin
limited liability company, pursuant to which Firstar performs management-related
and other services for the Fund. Firstar serves as the Administrator, Transfer
Agent, Dividend Disbursing Agent and Fund Accountant. Firstar Bank Milwaukee,
N.A. ("Firstar Bank"), which is an affiliate of Firstar, serves as the Fund's
custodian. The principal offices of Firstar and Firstar Bank are located at 615
East Michigan Street, Milwaukee, WI 53202.
ADMINISTRATOR
Pursuant to a Fund Administration Servicing Agreement with the Trust (the
"Administration Agreement"), Firstar serves as Administrator of the Fund and
subject to the direction and control of the Trustees, supervises all aspects of
the operation of the Fund except those performed by the Fund's Investment
Adviser. As Administrator, Firstar receives asset-based fees at the annual rate
of 0.06% of the first $200 million of average daily net assets, 0.05% of the
next $500 million of average daily net assets and 0.03% of average daily net
assets above $700 million, subject to a minimum annual fee of $30,000.
Under the Administration Agreement, Firstar provides certain
administrative services and facilities for the Fund. These services include
preparing and maintaining books, records, tax and financial reports, and
monitoring compliance with state and federal regulatory requirements.
FUND ACCOUNTING
Pursuant to a Fund Accounting Servicing Agreement with the Trust, Firstar
is responsible for accounting relating to the Fund and its investment
transactions, maintaining certain books and records of the Fund, determining
daily the net asset value per share of the Fund, calculating yield, dividends
and capital gain distributions and providing certain tax accounting services.
<PAGE>
Under the Fund Accounting Servicing Agreement, Firstar receives
asset-based fees at the annual rate of $23,000 for the first $40 million of
average daily net assets, 0.015% of the next $200 million of average daily net
assets and 0.01% of average daily net assets above $240 million.
TRANSFER AGENT
Pursuant to a Transfer Agent Servicing Agreement with the Trust (the
"Transfer Agent Agreement"), Firstar acts as the Trust's transfer agent and
dividend disbursing agent. In that capacity, Firstar is responsible for
processing orders for Fund shares and for performing certain shareholder
services for the Fund, including maintenance of shareholder records. Firstar is
compensated based on an annual fee of $15 per shareholder account outside of the
omnibus account plus a minimum annual fee of the greater of $15,000 or .005% of
the average net assets of the Fund.
CUSTODIAN
Pursuant to a Custodian Servicing Agreement with the Trust, Firstar Bank
acts as the custodian of the Fund's securities and cash and in that capacity
delivers and receives payment for portfolio securities sold, receives and pays
for portfolio securities purchased, collects income from investments. Firstar
Bank is compensated on the basis of an annual fee based on the market value of
the assets of the Fund and on fees for certain transactions. Firstar Bank
receives asset-based fees at the annual rate of 0.01% of the average net assets
of the Fund plus specified charges for portfolio transactions.
DISTRIBUTOR
Ingalls & Snyder LLC (the "Distributor"), located at 61 Broadway, New
York, NY 10006, serves as the principal underwriter and distributor for the
shares of the Fund pursuant to a Distribution Agreement with the Trust dated as
of February 3, 2000 (the "Distribution Agreement"). The distributor is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and each state's securities laws and is a member of the National
Association of Securities Dealers ("NASD"). The offering of the Fund's shares is
continuous. The Distribution Agreement provides that the Distributor, as agent
in connection with the distribution of Fund shares, will use appropriate efforts
to solicit orders for the sale of Fund shares and undertake such advertising and
promotion as it deems reasonable, including, but not limited to, advertising,
compensation to underwriters, dealers and sales personnel, printing and mailing
prospectuses to persons other than current Fund shareholders, and printing and
mailing sales literature.
DISTRIBUTION PLAN
The Board of Trustees has adopted a Distribution Plan ("the Plan") on
behalf of the Fund, in accordance with Rule 12b-1 (the "Rule") under the 1940
Act. The Fund is authorized under the Plan to use the assets of the Fund to
compensate the Distributor or others for certain activities relating to the
distribution of shares of the Fund to investors and the provision of shareholder
<PAGE>
services. The amount payable under the Plan is 0.50% of the Fund's average net
assets on an annual basis. Because these fees are paid out of the Fund's assets
on an ongoing basis, over time these fees will increase the cost of an
investor's investment.
The NASD's maximum sales charge rule relating to mutual fund shares
establishes limits on all types of sales charges, whether front-end, deferred or
asset-based. This rule may operate to limit the aggregate distribution fees to
which shareholders may be subject under the terms of the Plan.
The Plan authorizes the use of distribution fees to pay, or reimburse
expenses incurred by, banks, broker/dealers and other institutions which provide
distribution assistance and/or shareholder services including, but not limited
to, printing and distributing prospectuses to persons other than Fund
shareholders, printing and distributing advertising and sales literature and
reports to shareholders used in connection with selling shares of the Fund,
furnishing personnel and communications equipment to service shareholder
accounts and prospective shareholder inquiries. Such services may be performed
by the Distributor, the Investment Adviser or others.
The Plan requires that any person authorized to direct the disposition of
monies paid or payable by the Fund pursuant to the Plan or any related agreement
prepare and furnish to the Trustees for their review, at least quarterly,
written reports complying with the requirements of the Rule and setting out the
amounts expended under the Plan and the purposes for which those expenditures
were made. The Plan provides that so long as it is in effect the selection and
nomination of Trustees who are not interested persons of the Trust will be
committed to the discretion of the Trustees then in office who are not
interested persons of the Trust.
Neither the Plan nor any related agreements can take effect until approved
by a majority vote of both all the Trustees and those Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan
cast in person at a meeting called for the purpose of voting on the Plan and the
related agreements. The Trustees approved the Plan on November 22, 1999.
The Plan will continue in effect only so long as its continuance is
specifically approved at least annually by the Trustees in the manner described
above for Trustee approval of the Plan. The Plan may be terminated at any time
by a majority vote of the Trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreement related to the Plan or by vote of a majority of the
outstanding voting securities of the Fund.
The Plan may not be amended so as to materially increase the amount of the
distribution fees for the Fund unless the amendment is approved by a vote of at
least a majority of the outstanding voting securities of the Fund. In addition,
no material amendment may be made unless approved by the Trustees in the manner
described above for Trustee approval of the Plan.
<PAGE>
INDEPENDENT ACCOUNTANTS
The Fund's independent accountants, Arthur Andersen LLP, will audit the
Fund's annual financial statements and review the Fund's tax returns. Arthur
Andersen LLP is located at 100 East Wisconsin Avenue, Milwaukee, WI 53202.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Investment Adviser is responsible for decisions to buy and sell
securities and other investments for the Fund, the selection of brokers, dealers
and futures commission merchants to effect the transactions and the negotiation
of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio
transactions, including options and the purchase and sale of underlying
securities upon the exercise of options. On foreign securities exchanges,
commissions may be fixed. Orders may be directed to any broker or futures
commission merchant including, to the extent and in the manner permitted by
applicable law, Ingalls & Snyder. Brokerage commissions on United States
securities, options and futures exchanges or boards of trade are subject to
negotiation between the Investment Adviser and the broker or futures commission
merchant. In the over-the-counter markets, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments and U.S. Government agency securities may be purchased
directly from the issuer, in which case no commissions or discounts are paid.
The Fund will not deal with Ingalls & Snyder in any transaction in which Ingalls
& Snyder (or any affiliate) acts as principal, except in accordance with rules
of the SEC. Thus, it will not deal in the over-the-counter market with Ingalls &
Snyder acting as market maker, and it will not execute a negotiated trade with
Ingalls & Snyder if execution involves Ingalls & Snyder acting as principal with
respect to any part of the Fund's order.
In placing orders for portfolio securities of the Fund, the Investment
Adviser's primary objective is to obtain the best combination of favorable price
and efficient execution consistent with obtaining investment research and
research related services at reasonable cost. There is no pre-existing
commitment to place orders with any broker, dealer or futures commission
merchant. In selecting a particular broker, dealer or futures commission
merchant, the Investment Adviser considers a number of factors, including: the
broker's, dealer's or futures commission merchant's commission rate and other
transaction costs; the nature of the portfolio transaction; the size of the
transaction; the desired timing of the trade; trading patterns and activity
expected in the market for the particular transaction; confidentiality; the
execution, clearance and settlement capabilities of the firms; the firm's
ability to handle difficult trades; the availability of research and research
related services through such firms; the Investment Adviser's knowledge of the
financial stability of the firms; the Investment Adviser's knowledge of actual
or apparent operational problems of firms; and prior performance in servicing
the Investment Adviser and its clients. In consideration of these factors, the
Fund may pay transaction costs in excess of that which another broker, dealer or
<PAGE>
futures commission merchant might have charged for effecting the same
transaction.
In transactions with respect to equity securities and U.S. Government
securities executed in the over-the-counter market, purchases and sales are
transacted directly with principal market-makers except in those circumstances
where, in the opinion of the Adviser, better prices and executions are available
elsewhere.
The allocation of orders among firms and the commission rates paid will be
reviewed periodically by the Fund's Trustees.
The research and research related services considered by the Investment
Adviser in selecting brokers, dealers and futures commission merchants include,
among other things, information as to the availability of securities for
purchase or sale, statistical or factual information or opinions pertaining to
investments, research reports, research compilations, economic data, and
investment related periodicals and seminars. The Investment Adviser may use
research and research related services provided by brokers and dealers in
servicing all its clients, including the Fund, and not all such services will be
used by the Investment Adviser in connection with the Fund. Brokerage may also
be allocated to dealers in consideration of the Fund's share distribution but
only when execution and price are comparable to that offered by other brokers.
Subject to the above considerations, Ingalls & Snyder may act as
securities broker for the Fund, and there is no limit on the percentage of the
Fund's orders that may be directed to Ingalls & Snyder. In order for Ingalls &
Snyder (or any affiliate) to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by Ingalls & Snyder (or any
affiliate) must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other firms in connection with comparable
transactions involving similar securities being purchased or sold on an exchange
or board of trade during a comparable period of time. This standard would allow
Ingalls & Snyder (or any affiliate) to receive no more than the remuneration
which would be expected to be received by an unaffiliated firm in a commensurate
arm's-length transaction. Furthermore, the Trustees of the Fund, including a
majority of the non-interested Trustees, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to Ingalls & Snyder (or any affiliate) are consistent with the foregoing
standard. In accordance with Section 11(a) of the Securities Exchange Act of
1934, as amended, Ingalls & Snyder may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation. Ingalls & Snyder must
furnish to the Fund at least annually a statement setting forth the total amount
of all compensation retained by Ingalls & Snyder from transactions effected for
the Fund during the applicable period. Brokerage and futures transactions with
Ingalls & Snyder (or any affiliate) also are subject to such fiduciary standards
as may be imposed upon Ingalls & Snyder (or such affiliate) by applicable law.
The Investment Adviser provides investment advisory services to
individuals and other institutional clients, including corporate pension plans,
<PAGE>
profit-sharing and other employee benefit trusts, and other investment pools.
There may be occasions when other investment advisory clients advised by the
Investment Adviser may also invest in the same securities as the Fund. When
these clients buy or sell the same securities at substantially the same time,
the Investment Adviser may average the transactions as to price and allocate the
amount of available investments in a manner which it believes to be equitable to
each client, including the Fund. As well, to the extent permitted by law, the
Investment Adviser may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other clients managed by it in order
to obtain lower brokerage commissions.
The Fund does not normally engage in frequent trading activities for
short-term gains; however, the Investment Adviser will effect portfolio
transactions without regard to holding period if, in its judgment, such
transactions are advisable in light of a change in circumstances of a particular
company or within a particular industry or in general market, economic or
financial conditions. While the Fund anticipates that its annual portfolio
turnover rate should not exceed 50% under normal conditions, it is impossible to
predict portfolio turnover rates. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year.
SHARES OF BENEFICIAL INTEREST
The Trust is a series business trust that currently offers one series of
shares. The beneficial interest of the Trust is divided into an unlimited number
of shares, with a par value of $0.001 each. Each share has equal dividend,
voting, liquidation and redemption rights. There are no conversion or preemptive
rights. Shares, when issued, will be fully paid and nonassessable. Fractional
shares have proportional voting rights. Shares of the Fund do not have
cumulative voting rights, which means that the holders of a majority of the
shares voting for the election of trustees can elect all of the trustees if they
choose to do so and, in such event, the holders of the remaining shares will not
be able to elect any person to the Board of Trustees. Shares will be maintained
in open accounts on the books of the Transfer Agent, and stock certificates
representing shares of the Fund will not be issued.
If they deem it advisable and in the best interests of shareholders, the
Trustees may create additional funds, each of which represents interests in a
separate portfolio of investments and is subject to separate liabilities, and
may create multiple classes of shares of such funds, which may differ from each
other as to expenses and dividends. If additional funds are created, shares of
each fund will be entitled to vote only to the extent required by the 1940 Act
or as permitted by the Trustees. Upon the Trust's liquidation, all shareholders
of a fund would share pro-rata in the net ASSETS of such fund available for
distribution to shareholders of that fund, but, as shareholders of such a fund,
would not be entitled to share in the distribution of assets belonging to any
other fund.
<PAGE>
DIVIDENDS
A shareholder will automatically receive all dividend and capital gain
distributions in additional full and fractional shares of the Fund unless the
shareholder elects to receive such dividends or distributions in cash.
Shareholders will receive a confirmation of each new transaction in their
account. The Fund will confirm all account activity, including the payment of
dividend and capital gain distributions and all Fund share transactions.
Shareholders may rely on these statements in lieu of stock certificates.
ADDITIONAL INFORMATION CONCERNING DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The Fund receives income generally
in the form of dividends and interest on its investments. This income, less
expenses incurred in the operation of the Fund, constitute its net investment
income from which dividends may be paid to shareholders. Any distributions by
the Fund from such income will be taxable to most U.S. shareholders as ordinary
income, whether such income is taken in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS. The Fund may derive capital gains and
losses in connection with sales or other dispositions of its portfolio
securities. Distributions derived from the excess of net short-term capital gain
over net long-term capital loss will be taxable to most U.S. shareholders as
ordinary income. Distributions paid from long-term capital gains realized by the
Fund will be taxable to most U.S. shareholders as long-term capital gain,
regardless of how long the shares have been held. Any net short-term or
long-term capital gains realized by the Fund (net of any capital loss
carryovers) generally will be distributed once each year, and may be distributed
more frequently, if necessary, in order to reduce or eliminate federal excise or
income taxes on the Fund.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Fund will inform
all shareholders of the amount and character of all distributions at the time
they are paid, and will advise shareholders of the tax status for federal income
tax purposes of such distributions shortly after the close of each calendar
year. If shareholders have not held Fund shares for a year, said shareholders
may have designated and distributed to them as ordinary income or capital gain a
percentage of income that is not equal to the actual amount of such income
earned during the period of their investment in the Fund.
TAXES
THE FOLLOWING IS A SUMMARY OF SELECTED FEDERAL INCOME TAX CONSIDERATIONS THAT
MAY AFFECT THE FUND AND ITS SHAREHOLDERS AND IS BASED UPON THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE "CODE"), TREASURY REGULATIONS, COURT DECISIONS AND
IRS RULINGS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE. IT DOES NOT
PURPORT TO DEAL WITH ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO THE FUND AND ITS SHAREHOLDERS. BECAUSE EVERYONE'S TAX SITUATION IS
UNIQUE, PLEASE BE SURE TO CONSULT YOUR TAX PROFESSIONAL REGARDING FEDERAL,
STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES.
<PAGE>
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The Fund intends
to be treated as a regulated investment company under Subchapter M of the Code
and intends to so qualify during the current fiscal year. As a regulated
investment company, the Fund generally pays no federal income tax on the income
and gains it distributes to shareholders. The Board of Trustees reserves the
right not to maintain the qualification of the Fund as a regulated investment
company if it determines such course of action to be beneficial to the
shareholders. In such case, the Fund would be subject to federal, and possibly
state, corporate taxes on its taxable income and gains, and distributions to
shareholders would be taxed as ordinary dividend income to the extent of the
Fund's available earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to shareholders by December 31 of each year in order to avoid
federal excise taxes. The Fund intends to declare and pay sufficient dividends
in December (or in January that are treated by shareholders as received in
December) but does not guarantee and can give no assurances that such
distributions will be sufficient to eliminate all such taxes.
INVESTMENT PERFORMANCE
For purposes of quoting and comparing the performance of the Fund to other
mutual funds and to relevant indices in advertisements or in reports to
shareholders, performance will be stated in terms of total return or yield. Both
"total return" and "yield" figures will be based on the historical performance
of the Fund.
TOTAL RETURN INFORMATION
The Fund may from time to time provide or advertise performance
information, including its total return and average annual total return. Total
return shows the percentage change in the value of an investment in the Fund
over a specified period, assuming (i) a hypothetical investment of $1,000 at the
beginning of the period, (ii) reinvestment of all dividends and distributions
and (iii) deduction of all applicable charges and expenses, including sales
charges, if any. Average annual total return represents the annual compounded
growth rate that would produce the total return achieved over the applicable
period. Under rules of the SEC, the performance information presented by the
Fund must include the Fund's average annual total return. Under the rules of the
SEC, the Fund's total return information must be calculated according to the
following formula:
<PAGE>
P (1 + T)N = ERV
In advertising its total return and average annual total
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the applicable periods.
When the period covered by the performance information is less than one
year, the return quoted will be the total return rather than average annual
total return. The performance information provided or advertised by the Fund
would not reflect any deduction or adjustment for sales or other charges that
may be imposed by any investment adviser, financial planner, broker, dealer or
other investment professional or through a fund supermarket, retirement plan or
other intermediary other than the Distributor.
The Fund also may compare its total return and average annual total return
to the performance of various indices including, but not limited to, the Dow
Jones Industrial Average, the Standard & Poor's 500 Stock Index, Russell
Indices, and the Value Line Composite Index.
YIELD INFORMATION
From time to time, the Fund also may advertise a yield figure. A
portfolio's yield is a way of showing the rate of income the portfolio earns on
its investments as a percentage of the portfolio's share price. Under the rules
of the SEC, yield must be calculated according to the following formula:
((a - b )6 )
YIELD = 2 x((----- + 1 ) - 1 )
(( cd ) )
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
Yields for the Fund used in advertising are computed by dividing the
Fund's interest and dividend income for a given 30-day period, net of expenses,
by the average number of shares entitled to receive distributions during the
period, dividing this figure by a Fund's offering price at the end of the period
and annualizing the result (assuming compounding of income) in order to arrive
at an annual percentage rate. Income is calculated for purposes of yield
<PAGE>
quotations in accordance with standardized methods applicable to all stock and
bond mutual funds. Dividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield calculations. In
general, interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. Capital gains and losses
generally are excluded from the calculation. Income calculated for the purpose
of calculating a Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yield quoted for a
Fund may differ from the rate of distributions paid by the Fund over the same
period or the rate of income reported in the Fund's financial statements.
PERFORMANCE RANKINGS
The Fund may also advertise the performance rankings assigned by various
publications and statistical services, including but not limited to SEI, Lipper
Mutual Fund Performance Analysis, Intersect Research Survey of Non-U.S. Equity
Fund Returns, Frank Russell International Universe, and any other data which may
be presented from time to time by such analysts as Dow Jones, Morningstar, Inc.,
Chase Investment Performance, Wilson Associates, Stanger, CDA Investment
Technologies, Inc., the Consumer Price Index ("CPI"), The Bank Rate Monitor
National Index, IBC/Donaghue's Average/U.S. Government and Agency, or as they
appear in various publications including but not limited to THE WALL STREET
JOURNAL, FORBES, BARRON'S, FORTUNE, MONEY Magazine, THE NEW YORK TIMES,
FINANCIAL WORLD, FINANCIAL SERVICES WEEK, USA TODAY and other regional
publications.
<PAGE>
FINANCIAL STATEMENTS
LEGACY GROWTH FUND
Statement of Assets and Liabilities
January 11, 2000
ASSETS:
Cash $100,000
Prepaid Registration Fees 4,900
Prepaid Insurance 10,947
--------
Total Assets $115,847
--------
LIABILITIES:
Payable to Adviser $15,847
-------
Total Liabilities $15,847
-------
NET ASSETS: $100,000
========
Capital shares, $0.001 par value; 10,000
indefinite shares authorized ======
Net asset value offering and redemption $10.00
price per share (net assets/shares ======
outstanding)
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
<PAGE>
LEGACY GROWTH FUND
Notes to the Financial Statements
1. ORGANIZATION
------------
The Legacy Funds, Inc. (the "Trust") was organized as a Delaware Business
Trust on July 14, 1999 and is registered under the Investment Company Act
of 1940, as amended (the "1940 act"), as an open-end management investment
company issuing its shares in series, each series representing a distinct
portfolio with its own investment objectives and policies. The series
presently authorized is the Legacy Growth Fund, (the "Fund"). Pursuant to
the 1940 Act, the Fund is a "diversified" series of the Trust. The Fund
has had no operations other than those related to organizational matters,
including the sale of 10,000 shares for cash in the amount of $100,000 of
the Fund to capitalize the Fund, which were sold to Ingalls & Snyder LLC
(the "Adviser") on January 7, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
(a) ORGANIZATION AND PREPAID INITIAL REGISTRATION EXPENSE
Expenses incurred by the Trust in connection with the organization
have been paid on behalf of the Trust by the Adviser and will not be
reimbursed by the Trust.
(b) FEDERAL INCOME TAXES
The Fund intends 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 income and capital gains
to its shareholders sufficient to relieve it from all or
substantially all Federal income taxes.
3. INVESTMENT ADVISER
------------------
The Trust has an Investment Advisory Agreement (the "Agreement") with the
Adviser, Ingalls & Snyder, with whom certain Officers and Trustees of the
Trust are affiliated, to furnish investment advisory services to the Fund.
Under the terms of the Agreement, the Trust, on behalf of the Fund,
compensates the Adviser for its management services at the annual rate of
1.00% of the Fund's average daily assets.
The Adviser has agreed contractually to waive its management fee and/or
reimburse the Fund's other expenses, to the extent necessary, to ensure
that the Fund's operating expenses do not exceed 1.70% of its average
daily net assets for the first year of operations.
<PAGE>
4. DISTRIBUTION PLAN
-----------------
The Trust, on behalf of the Fund, has adopted a distribution plan pursuant
to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), which provides that
the Fund will pay distribution fees to Ingalls & Snyder LLC (the
"Distributor") at an annual rate of 0.50% of the average daily net assets
attributable to its shares. Payments under the distribution plan shall be
used to compensate or reimburse the Fund's distributor for services
provided and expenses incurred in connection with the sales of shares.
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees
of the Legacy Growth Fund:
We have audited the statement of assets and liabilities of the Legacy Growth
Fund (the "Fund", a Delaware Business Trust), a series of The Legacy Funds, Inc.
as of January 11, 2000. This financial statement is the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial 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 audits provide a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the net assets of the Legacy Growth
Fund as of January 11, 2000, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 12, 2000
<PAGE>
PART C. OTHER INFORMATION
-------------------------
Item 23. Exhibits
(a) Certificate of Trust of the Registrant
(1) Agreement and Declaration of Trust of Registrant dated
July 14, 1999. (Previously filed as Exhibit 23(a)(1) to
Pre-Effective Amendment No. 2 on December 27, 1999.)
(2) Certificate of Trust of Registrant dated July 14, 1999.
(Previously filed as Exhibit 23(a)(2) to the
Registration Statement on July 27, 1999.)
(b) By-Laws of the Registrant. (Previously filed as Exhibit 23(b) to the
Registration Statement on July 27, 1999.)
(c) Instruments Defining Rights of Security Holders
(1) Agreement and Declaration of Trust. (Previously
filed as Exhibit 23(a)(1) to Pre-Effective Amendment
No. 2 on December 27, 1999.)
(2) Certificate of Trust. (Previously filed as Exhibit
23(a)(2) to the Registration Statement on July 27,
1999.)
(3) By-Laws of Registrant. (Previously filed as Exhibit
23(b) to the Registration Statement on July 27,1999.)
(d) Investment Advisory Agreement between the Registrant and Ingalls &
Snyder, LLC. (Previously filed as Exhibit 23(d) to Pre-Effective
Amendment No. 2 on December 27, 1999.)
(e) Distribution Agreement between the Registrant and Ingalls & Snyder,
LLC. (Previously filed as Exhibit 23(e) to Pre-Effective Amendment
No. 2 on December 27, 1999.)
(f) Not Applicable
(g) Custodian Servicing Agreement between the Registrant and Firstar
Bank Milwaukee, N.A. (Previously filed as Exhibit 23(g)(1) to
Pre-Effective Amendment No. 2 on December 27, 1999.)
<PAGE>
(h) Other Material Contracts
(1) Fund Administration Servicing Agreement between the
Registrant and Firstar Mutual Fund Services, LLC.
(Previously filed as Exhibit 23(h)(1) to Pre-Effective
Amendment No. 2 on December 27, 1999.)
(2) Fund Accounting Servicing Agreement between the
Registrant and Firstar Mutual Fund Services, LLC.
(Previously filed as Exhibit 23(h)(2) to Pre-Effective
Amendment No. 2 on December 27, 1999.)
(3) Transfer Agent Servicing Agreement between the
Registrant and Firstar Mutual Fund Services, LLC.
(Previously filed as Exhibit 23(h)(3) to Pre-Effective
Amendment No. 2 on December 27, 1999.)
(i) Legal Opinion and Consent of Hughes Hubbard & Reed LLP.
(j) Consent of independent auditors.
(k) Not Applicable
(l) Initial Capital Agreement.
(m) Distribution Plan. (Previously filed as Exhibit 23(m) to
Pre-Effective Amendment No. 2 on December 27, 1999.)
(n) Not Applicable
(o) Not Applicable
(p) Secretary's Certificate and Powers of Attorney. (Previously filed as
Exhibit 23(p) to Pre-Effective Amendment No. 2 on December 27,
1999.)
Item 24. Persons Controlled by or under Common Control with Fund
Prior to the commencement of the public offering of the shares of the Fund
all of the outstanding shares of the Trust will be owned by Ingalls & Snyder,
LLC.
Thomas O. Boucher, Jr. and Robert L. Gipson, who are a Managing Director
and a Senior Director, respectively, of Ingalls & Snyder are general partners of
Ingalls & Snyder Value Partners, L.P. ("Value Partners"). Value Partners is a
private investment fund organized as a New York limited partnership for which
Ingalls & Snyder acts as investment adviser.
<PAGE>
Item 25. Indemnification
Reference is made to Section 7.02 of the Registrant's Agreement and
Declaration of Trust, which provides that, subject to the provisions of the
Fund's Bylaws, the Trust out of its assets may indemnify and hold harmless each
and every Trustee and officer of the Trust from and against any and all claims,
demands, costs, losses, expenses, and damages whatsoever arising out of or
related to such Trustee's performance of his or her duties as a Trustee or
officer of the Trust, except that the Trust is not obligated to indemnify, hold
harmless or protect any Trustee or officer from or against any liability to the
Trust or any shareholder to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
Article VI of the Fund's Bylaws provide that the Trust is obligated to
indemnify the Trustees and officers of the Trust if the Trustee or officer was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Trust) by reason of the fact that such the
Trustee or officer is or was a Trustee or officer of the Trust, against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding, if it is determined that
the Trustee or officer acted in good faith and reasonably believed: (a) in the
case of conduct in his official capacity, that his conduct was in the Trust's
best interests and (b) in all other cases, that his conduct was at least not
opposed to the Trust's best interests and (c) in the case of a criminal
proceeding, that he had no reasonable cause to believe the conduct of that
person was unlawful.
In the case of actions by or in the right of the Trust, the Trust is
obligated to indemnify any Trustee or officers who was or is a party or is
threatened to be made a party to any such proceeding by or in the right of the
Trust to procure a judgment in its favor by reason of the fact that that person
is or was a Trustee or officer of the Trust, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of that action if the Trustee or officer acted in good faith, in a manner that
he believed to be in the best interests of the Trust and with such care,
including reasonable inquiry, as an ordinarily prudent person in a like position
would use under similar circumstances.
There is no right to indemnification for any liability arising by reason
of willful misfeasance, bad faith, gross negligence, or the reckless disregard
of the duties involved in the conduct of the Trustee's or officer's office with
the Trust. Indemnification may not be made:
(i) In respect of any proceeding as to which the Trustee or officer
shall have been adjudged to be liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity; or
(ii) In respect of any proceeding as to which that person shall have
been adjudged to be liable in the performance of that person's duty to the
Trust, unless and only to the extent that the court in which that action was
brought shall determine upon application that in view of all the relevant
circumstances of the case, that person is fairly and reasonably entitled to
indemnity for the expenses which the court shall determine; however, in such
case, indemnification with respect to any proceeding by or in the right of the
<PAGE>
Trust or in which liability shall have been adjudged by reason of the disabling
conduct set forth in the preceding paragraph shall be limited to expenses; or
(iii) Of amounts paid in settling or otherwise disposing of a
proceeding, with or without court approval, or of expenses incurred in defending
a proceeding which is settled or otherwise disposed of without court approval,
unless the indemnification is approved based on a determination that
indemnification of the Trustee or officer is proper in the circumstances because
the Trustee or officer has met the applicable standard of conduct and is not
prohibited from indemnification because of the disabling conduct described
above, by:
(A) a majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of the Trust;
(B) a written opinion by an independent legal counsel; or
(C) the shareholders.
To the extent that a Trustee or officer has been successful, on the merits
or otherwise, in the defense of any proceeding before the court or other body
before whom the proceeding was brought, the Trustee or officer shall be
indemnified against expenses actually and reasonably incurred by the Trustee or
officer in connection therewith, provided that the Board of Trustees, including
a majority who are disinterested, non-party Trustees, also determines that based
upon a review of the facts, the Trustee or officer was not liable by reason of
the disabling conduct described above.
Expenses incurred in defending any proceeding may be advanced by the Trust
before the final disposition of the proceeding if (a) receipt of a written
affirmation by the Trustee or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification and a written undertaking
by or on behalf of the Trustee or officer to repay the amount of the advance if
it is ultimately determined that he has not met those requirements, and (b) a
determination that the facts then known to those making the determination would
not preclude indemnification.
The Trust intends to purchase and maintain insurance which will insure
Trustees and officers of the Trust against any liability asserted against or
incurred by the Trustee or officer in such capacity or arising out of the
Trustee's or officer's status as such to the fullest extent permitted by law.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
Insofar as indemnification for liability arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
<PAGE>
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
The name and address of each director, officer and partner of Ingalls &
Snyder, LLC, together with their positions with Ingalls & Snyder, their
positions, if any, with the Fund and their other business connections for the
past two years are set forth below.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS AND
BUSINESS ADDRESS WITH INGALLS & SNYDER, LLC WITH FUND OTHER CONNECTIONS
<S> <C> <C> <C>
Roscoe Cuningham Ingalls Managing Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
Lawton Storrs Lamb Managing Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
William Reed Simmons Managing Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
Edward H. Oberst Managing Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS AND
BUSINESS ADDRESS WITH INGALLS & SNYDER, LLC WITH FUND OTHER CONNECTIONS
D. Roger B. Liddell Managing Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
Thomas O. Boucher, Jr. Managing Director None General Partner of
Ingalls & Snyder, LLC Ingalls & Snyder Value
61 Broadway Partners, L.P.
New York, New York 10006 61 Broadway
New York, New York 10006
John Joseph Dougherty Managing Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
Steven Michael Foote Managing Director Trustee None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
Robert E. Belknap Managing Director Trustee, President and None
Ingalls & Snyder, LLC portfolio manager
61 Broadway
New York, New York 10006
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS AND
BUSINESS ADDRESS WITH INGALLS & SNYDER, LLC WITH FUND OTHER CONNECTIONS
Alexander M. Blanton Senior Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
Horace S. Boone Senior Director None None
Ingalls & Snyder, LLC
61 Broadway
New York, New York 10006
Robert Livingston Gipson Senior Director None General Partner of
Ingalls & Snyder, LLC Ingalls & Snyder Value
61 Broadway Partners, L.P.
New York, New York 10006 61 Broadway
New York, New York 10006
</TABLE>
<PAGE>
Item 27. Principal Underwriters
(a) Not Applicable.
(b) Please see Item 26.
(c) Not applicable.
Item 28. Location of Accounts and Records
The books and other documents required to be maintained pursuant to Rule
31a-1(b) (4) and (b) (10) are in the physical possession of the Fund's
Investment Adviser, Ingalls & Snyder LLC, 61 Broadway, New York, New York,
10006; accounts, books and other documents required by Rule 31a-1(b) (5) through
(7) and (b) (11) and Rule 31a-1(f) are in the physical possession of Ingalls &
Snyder LLC, 61 Broadway, New York, New York, 10006; all other books, accounts
and other documents required to be maintained under Section 31(a) of the
Investment Company Act of 1940 and the Rules promulgated thereunder are in the
physical possession of Firstar Mutual Fund Services, LLC and Firstar Bank
Milwaukee, N.A., 615 East Michigan Street, P.O. Box 701, Milwaukee, Wisconsin,
53201-0701.
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
See Item 25.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement or amendment to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York, and State of New York, on February 3,
2000.
THE LEGACY FUNDS, INC.
By: /S/ ROBERT E. BELKNAP *
--------------------------------------
Robert E. Belknap
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment has been signed below by the following
persons in the capacities and on the dates indicated:
/S/ ROBERT E. BELKNAP * President and Trustee February 3, 2000
- ------------------------------ (Principal Executive
(Robert E. Belknap) Officer)
/S/ JOSEPH NEUBERGER * Treasurer (Principal February 3, 2000
- ------------------------------ Financial Officer)
(Joseph Neuberger)
/S/ THEODORE F. ELLS * Chairman of the Board February 3, 2000
- ------------------------------ of Trustees and Trustee
(Theodore F. Ells)
/S/ STEVEN M. FOOTE * Trustee February 3, 2000
- ------------------------------
(Steven M. Foote)
/S/ BARNABAS B. B. BREED * Trustee February 3, 2000
- ------------------------------
(Barnabas B. B. Breed)
* By: /S/ ELIZABETH LARSON
------------------------
Elizabeth Larson
Attorney-in-Fact
EXHIBIT 23(I)
OPINION AND CONSENT OF HUGHES HUBBARD & REED LLP
<PAGE>
Hughes Hubbard & Reed LLP One Battery Park Plaza
New York, New York 10004-1482
Telephone: 212-837-6000
Facsimile: 212-422-4726
February 2, 2000
The Legacy Funds, Inc.
61 Broadway
New York, New York 10006
Dear Sirs:
You have requested our opinion in connection with the filing of
Pre-Effective Amendment No. 3 on Form N-1A to the Registration Statement of The
Legacy Funds, Inc. (the "Company") filed under the Securities Act of 1933
(Registration No. 333-83871) and the Investment Company Act of 1940 (File No.
811-09495) and pertaining to shares of beneficial interest of the Company, par
value $0.001 per share (the "Shares").
In this connection, we have examined such records and documents, including
a certificate of an officer of the Company on which we have relied as to factual
matters, and have made such examination of law as we have deemed appropriate.
Based upon the foregoing, it is our opinion that the Shares to be sold pursuant
to Registration Statement No. 333-83871 as amended by Pre-Effective Amendment
No. 3, upon delivery of certificates for Shares or crediting of Shares to a
shareholder's account as provided for in Registration Statement No. 333-83871,
as amended, and payment therefor in accordance with the provisions of such
Registration Statement, will be legally issued, fully paid and non-assessable.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to
Pre-Effective Amendment No. 3 to Registration Statement No. 333-83871.
Very truly yours,
/S/ HUGHES HUBBARD & REED LLP
HUGHES HUBBARD & REED LLP
EXHIBIT 23(J)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
and to all references to our firm, included in or made a part of this Form N1-A
registration statement of the Legacy Growth Fund.
/S/ ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 12, 2000
EXHIBIT 23(L)
INITIAL CAPITAL AGREEMENT
<PAGE>
SUBSCRIPTION AGREEMENT
The Legacy Funds, Inc.
61 Broadway
New York, NY 10006-2802
Gentlemen:
The undersigned ("Subscriber") hereby subscribes for and agrees to acquire
from The Legacy Funds, Inc., a business trust organized under the laws of the
State of Delaware (the "Company"), the number of shares of $.001 par value
common stock of the Legacy Growth Fund (the "Shares") of the Company shown below
in consideration of a cash contribution of $100,000 ($10.00 per share).
Subscriber hereby represents and warrants to the Company that:
(a) Subscriber hereby acknowledges and agrees that the shares will be
issued in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act of 1933 (the "Securities Act"), and
that such Shares will or may also be issued in reliance upon the
exemptions from registration contained in relevant sections of the
Delaware Securities Act and/or comparable exemptions contained in the
securities laws of other jurisdictions to the extent applicable, and
that the transfer of such shares may be restricted or limited as a
condition to the availability of such exemptions.
(b) The shares are being purchased for investment for the account of the
undersigned and without the intent of participating directly or indirectly
in a distribution of such Shares, and the Shares will not be transferred
except in a transaction that is in compliance with any and all applicable
securities laws.
(c) Subscriber has been supplied with, or has had access to, all information,
including financial statements and other financial information, of the
Company, to which a reasonable investor would attach significance in
making investment decisions, and has had the opportunity to ask questions
of, and receive answers from, knowledgeable individuals concerning the
Company and the Shares.
(d) Subscriber understands that no registration statement or prospectus with
respect to the Company or the shares is yet effective, and Subscriber has
made his own inquiry and analysis with respect to the Company and the
shares.
(e) Subscriber personally, or together with his purchaser representative, has
such knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the Company
and the Shares.
<PAGE>
(f) Subscriber is financially able to bear the economic risk of this
investment, can afford to hold the shares for an indefinite period and can
afford a complete loss of this investment
SHARES OF THE LEGACY GROWTH FUND SUBSCRIBED PURCHASE AMOUNT
- ------------------------------------------- ---------------
10,000 $100,000
SUBSCRIBED BY:
/S/ EDWARD H. OBERST
- --------------------
Ingalls & Snyder LLC
By: Edward H. Oberst
Its: Managing Director
ACCEPTED BY:
THE LEGACY FUNDS, INC.
/S/ ROBERT E. BELKNAP
- ---------------------
By: Robert E. Belknap
Its: President
Dated as of the 7th day of January, 2000.