Rule 497(c)
(INTERNET INDEX FUND
TRACKING THE DOW JONES INTERNET INDEXSM LOGO)
PROSPECTUS
OCTOBER 20, 1999
INVESTMENT MANAGER
(IGAM
INTEGRITY GLOBAL ASSET MANAGEMENT LOGO)
(INTERNET INDEX FUND
TRACKING THE DOW JONES INTERNET INDEXSM LOGO)
PROSPECTUS
OCTOBER 20, 1999
INVESTMENT MANAGER
(IGAM
INTEGRITY GLOBAL ASSET MANAGEMENT LOGO)
THE 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.
THE INTERNET INDEX FUND
PROSPECTUS DATED OCTOBER 20, 1999
TABLE OF CONTENTS
Risk/Return Summary 1
Introduction 1
What is the Fund's Investment Objective? 1
What is the Dow Jones Internet IndexSM? 1
What are the Fund's Principal Investment Strategies? 2
What are the Main Risks of Investing in the Fund? 2
Who May Want to Invest in the Fund? 3
What is the Fund's Past Performance? 3
What are the Fund's Fees and Expenses? 4
More Information about the Dow Jones Internet IndexSM 5
More Information about the Fund's Investment Strategies 6
Management of the Fund 7
Pricing of Fund Shares 8
Marketing and Distribution 8
How to Purchase Shares 9
How to Redeem Shares 10
Distributions and Taxation 12
RISK/RETURN SUMMARY
INTRODUCTION
The Internet Index Fund is a "no-load" index mutual fund designed to track
the Dow Jones Internet IndexSM and to provide investors with a convenient and
cost-effective way to invest in the Internet and the Internet industry.
The Internet is a world-wide network of computers that allows users to easily
and efficiently communicate and share data. Currently, the most popular
application on the Internet is the World Wide Web, a graphic-user-interface
that allows information sharing and data transfer through "web-sites." Other
Internet applications include e-mail, Intranet, extranet and electronic
commerce.
The Internet industry consists of various types of companies, including
Internet access providers, software developers, hardware manufacturers,
companies that provide materials or services to access the Internet,
companies that provide content for Internet sites and companies that
specialize in providing security for transactions over the Internet. The
Internet industry also includes companies that engage in electronic commerce
and retailing through Internet web-sites.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The investment objective of the Fund is to provide investment results, using
statistical procedures, that parallel the investment return of the Dow Jones
Internet IndexSM.
WHAT IS THE DOW JONES INTERNET INDEXSM?
The Dow Jones Internet IndexSM (Symbol: DJINETSM) is a diversified index of
stocks designed to be an overall indicator of Internet industry stock
performance, and to provide a benchmark against which to measure Internet
investments, The Index includes stocks of companies whose primary focus is
Internet related. For a company to be eligible for the Index, it must derive
at least 50% of its revenue from Internet commerce or services.
The Index is divided into the following two market subsectors to provide a
balanced representation of the Internet industry.
INTERNET COMMERCE COMPANIES (E*COMMERCE): Companies that derive the
majority of their revenues from providing goods or services through an
open network.
INTERNET SERVICE COMPANIES: Companies that derive the majority of their
revenues from providing access to the Internet or providing services to
people using the Internet.
The Index is market capitalization weighted by subsector and currently
includes 40 stocks. Market capitalization weighting means that the
percentage weighting of the stocks in each subsector of the Index is
determined based on their market capitalization relative to the other stocks
in the subsector. The Index is reviewed quarterly by Dow Jones & Co. to add
or remove stocks as needed in order to consistently cover 80% of the total
market capitalization of the companies in each Internet industry subsector.
To prevent domination by a few large companies, a ceiling weight of 10% is
applied so that no single stock will represent more than 10% of any Index
subsector, regardless of market capitalization.
THE HISTORICAL PERFORMANCE OF THE INDEX AND A COMPLETE LISTING OF THE STOCKS
THAT ARE CURRENTLY INCLUDED IN THE INDEX ARE INCLUDED IN THIS PROSPECTUS IN
THE SECTION ENTITLED "MORE INFORMATION ABOUT THE DOW JONES INTERNET INDEX.SM"
The Fund is neither sponsored by, nor affiliated with Dow Jones & Co.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Fund's investment manager believes that the Internet is revolutionizing
the way individuals and companies around the world obtain information and
communicate, and that Internet and Internet-related companies have
substantial growth potential. Though Internet stocks may be volatile, the
manager believes that the Internet industry as a whole could outperform the
broader securities markets for the foreseeable future.
In view of the rapid pace of development and change within the Internet
industry, it may be very difficult to forecast which companies or industry
sectors will be successful and outperform or outgrow other companies or
sectors. For these reasons, the Fund's investment manager believes that an
"indexing" investment management approach is a particularly effective way for
investors to participate in the investment performance of the Internet
industry over the long term.
An index fund seeks to match, as closely as possible, the performance of an
established securities index. An index fund does this by holding all, or a
representative sample, of the securities in the index. The adviser to an
index fund generally does not buy and sell securities based on research and
analysis in an attempt to outperform the particular index. Instead, an index
fund seeks to mirror what the target index does, for better or worse. Index
funds have operating expenses and transaction costs, and generally keep a
portion of their assets in cash or cash equivalent investments, in order to
be ready to meet redemption requests. Therefore, while the performance of an
index fund is expected to track the target index closely, the performance of
an index fund will generally be less than that of the index itself.
In order to track the Dow Jones Internet IndexSM as closely as possible, the
Fund seeks to invest substantially all (more than 95%) of its total assets in
the stocks that make up the Index, in roughly the same proportions as the
stocks are represented in the Index. As the Fund receives cash from new
investors, or processes redemption requests from shareholders, the Fund will
purchase or sell securities in an effort to attempt to approximate the return
of the Index. Also, the Fund's investments are reviewed and adjusted each
quarter to reflect any quarterly adjustments in the Index, in an effort to
track the Index as closely as possible.
Because the Fund is an index fund, it generally takes a buy-and-hold approach
to investing. The Fund normally sells portfolio securities only to respond
to redemption requests or to adjust the number of its shares to track the
weighting or composition of the Index. As a result, the Fund's portfolio
turnover rate is expected to be extremely low. A low portfolio turnover rate
usually results in low transaction costs and provides tax efficiencies for
shareholders.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
The Fund may involve significantly greater risks than a mutual fund that
diversifies its investments among many industries, or one that does not
invest in the Internet industry. The share price of the Fund will go up and
down and you could lose money.
Any investment in the Internet industry involves special risks because the
Internet industry is subject to rapid technological changes and developments.
Companies in the industry are exposed to a high degree of risk that their
products or services may quickly become obsolete. Also, increasing
competition, rapidly changing markets, frequent mergers or acquisitions of
Internet companies and changes in strategic alliances among various Internet
businesses, all may have a significant effect on the financial condition of
companies in the Internet industry. Changes in government policies, such as
telephone and cable regulations and antitrust enforcement and the need for
regulatory approvals, can also have a material effect on companies in the
industry.
Many of the companies included in the Index have a smaller market
capitalization (less than $1 billion) and may be unseasoned companies (those
with less than a three year operating history). Investments in smaller and
unseasoned companies present greater risks than securities of larger or more
established companies. Small or unseasoned companies may be developing or
marketing new products or services for which markets are not yet established
and may never be established. They also may lack depth or experience of
management and may have difficulty generating or obtaining funds necessary
for growth and development of their businesses. Due to these and other
factors, small and unseasoned companies may suffer significant losses, as
well as realize substantial growth. Historically, the prices of stocks of
smaller companies have been more volatile than stocks of larger companies and
are, therefore, more speculative than stocks of larger companies. You should
expect that the price of the Fund's shares will also fluctuate more than
shares of a mutual fund that invests primarily in larger stocks.
The Fund is classified as "non-diversified" under the Investment Company Act
of 1940, as amended (the "1940 Act"), which means that, compared to other
funds, it may invest a greater percentage of its assets in a single issuer.
A non-diversified fund may be more susceptible to price volatility resulting
from changes in the prices of securities that it holds. The Fund will,
however, always seek to match the level of diversification of the Index and,
in any event, intends to meet the minimum diversification levels required to
qualify as a regulated investment company for purposes of the Internal
Revenue Code.
The Fund is authorized to invest a portion of its assets in futures and
options contracts. Losses (or gains) involving these investments can be
substantial in relation to the amount of money deposited to enter into the
contract. For this reason, the Fund will not use these types of investments
as leveraged investments.
The Fund could be adversely affected if the computer systems used by the
Fund, its manager or other 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 is taking steps it believes
are reasonably designed to address the Year 2000 Issue for computer systems
that it uses and has obtained reasonable assurances that similar steps are
being taken by its major service providers. Fund management does not
currently anticipate that the Year 2000 Issue will have any material negative
impact to the Fund.
The Year 2000 Issue is also of critical concern to the companies that are
included in the Index, because they are heavily involved in computer-related
technology. If the Year 2000 Issue has a negative impact on the stock price
of any of the companies in the Index, the Fund will be affected by that
impact.
WHO MAY WANT TO INVEST IN THE FUND?
The Fund may be appropriate for investors who want to participate in the
investment performance of the Internet industry over the long term, by
following a simple, cost-efficient indexing approach.
The Fund is designed for long-term investors who want to allocate a portion
of the investments to aggressive equity investing and who understand and are
willing to accept the risk of loss associated with investing in Internet
stocks. Investors should be willing to accept the above average price
fluctuations that the Fund is expected to experience.
The Fund is not a complete investment program.
WHAT IS THE FUND'S PAST PERFORMANCE?
Since this is a new fund, there is no past performance history. The
performance of the Index since its inception in 1997, however, is set forth
below under the heading "More Information about the Dow Jones Internet
Index.SM"
WHAT ARE THE FUND'S FEES AND EXPENSES?
The following table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charges (Loads) on Purchases None
Deferred Sales Charges (Loads) None
Sales Charges (Loads) on Reinvested Dividends
and Other Distributions None
Redemption Fee (as a percentage of amount redeemed,
if shares are redeemed within 90 days of purchase)1<F1> 1.50%
Account Fees2<F2> None
1<F1> The Fund's custodian charges a $12.00 fee for outgoing wire transfers.
2<F2> IRA accounts are subject to an annual trustee fee of $12.50.
ANNUAL FUND OPERATING EXPENSES (expenses deducted from Fund assets)
Management Fees 0.65%
Distribution and/or Service (12b-1) Fees 0.25%
Other Expenses 0.90%
-----
Total Annual Fund Operating Expenses 1.80%
Less Manager's Fee Waiver/Reimbursement*<F3> (0.40%)
-----
REVISED TOTAL ANNUAL FUND OPERATING EXPENSES 1.40%
-----
-----
*<F3> IGAM has contractually agreed through October 31, 2000 to waive its
management fees and/or make payments to limit expenses of the Fund,
if necessary, to ensure that actual Total Annual Fund Operating
Expenses do not exceed 1.40%.
EXAMPLE
The following Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The Example
assumes that you invest $10,000 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. Please note that only the first
year in each example reflects the effect of the contractual fee waiver.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
ONE YEAR THREE YEARS
$143 $526
MORE INFORMATION ABOUT THE DOW JONES INTERNET INDEXSM
The following table shows the performance of the Index since June 30, 1997.
PLEASE NOTE THAT THE PERFORMANCE SHOWN IS NOT THE PERFORMANCE OF THE FUND AND
---
IS NOT INTENDED TO PREDICT OR SUGGEST THE RETURN THAT MIGHT BE EXPERIENCED BY
AN INVESTOR IN THE FUND. The Fund will attempt to track the Index as closely
as possible, but the performance of the Fund will be less than the
performance of the Index because the Fund is subject to operational and
transaction costs, while the Index is not.
PERIOD TOTAL RETURN
------ ------------
1997 (last six months) 34.07%
1998 168.41%
1999 (first nine months) 56.31%
The average annual return of the Index from its date of initial
calculation (July 1, 1997) through September 30, 1999 was 109.64%
per year.
The following is a list of the names (and trading symbols) of the forty
stocks that comprised the Index after it was last adjusted in September 1999.
The Index can change quarterly, so this listing is only a "snapshot" of the
Index at one point in time.
<TABLE>
DOW JONES E*<F4> COMMERCE INDEX DOW JONES INTERNET SERVICES INDEX
----------------------------------------------- ------------------------------------------------------------
<S> <C>
Amazon.com, Inc. AMZN America Online, Inc. AOL
Ameritrade Holding Corporation (Class A) AMTD AXENT Technologies, Inc. AXNT
Beyond.com Corporation BYND BroadVision, Inc. BVSN
CNET, Inc. CNET Check Point Software Technologies Ltd. *<F4> CHKP
E*trade Group, Inc. EGRP CheckFree Holdings Corporation CKFR
EBay Inc. EBAY CMGI Inc. CMGI
eToys, Inc. ETYS Covad Communications Group, Inc. COVD
Go2Net, Inc. GNET CyberCash, Inc. CYCH
Healtheon Corporation HLTH Doubleclick Inc. DCLK
Infoseek Corporation SEEK Earthlink Network, Inc. ELNK
Lycos Inc. LCOS Excite@Home Corp. ATHM
Net.B@nk Inc. NTBK Exodus Communications, Inc. EXDS
Priceline.com Inc. PCLN High Speed Access Corp. HSAC
Yahoo! Inc. YHOO IDT Corporation IDTC
(c) 1999 Dow Jones & Company InfoSpace.com, Inc. INSP
Inktomi Corporation INKT
MindSpring Enterprises, Inc. MSPG
Network Solutions, Inc. (Class A) NSOL
Open Market, Inc. OMKT
PSINet Inc. PSIX
RealNetworks, Inc. RNWK
Sterling Commerce, Inc. SE
Ticketmaster Online - CitySearch, Inc. (Class B) TMCS
USWeb Corporation USWB
Verio Inc. VRIO
VeriSign, Inc. VRSN
(c) 1999 Dow Jones & Company
*<F4> This security represents the common stock of a foreign company that trades directly on a U.S. national securities
exchange.
</TABLE>
The Index is reviewed quarterly and any changes take effect on the third
Friday of March, June, September and December.
To be eligible for the Index, a company must generate 50% or more of annual
sales/revenues from the Internet. Stocks offered through an initial public
offering must have a minimum of three months' trading history (a spin-off
requires this trading history only if its former parent's stock was trading
for less than three months). To be eligible, a stock must also have a three
month average market capitalization of at least $100 million, a three month
average closing price of at least $10, and sufficient trading activity to
ensure liquidity.
Stocks are selected for the Index based on an equal combination of market
capitalization and trading volume (three month averages for each factor). To
be added to the Index, a new stock must rank in the top two-thirds of the
existing components of the Index at the time of the quarterly review. Once a
stock is included in the Index, it may not be removed for a period of six
months, unless the company is acquired.
"Dow Jones", "Dow Jones Internet IndexSM" and "DJINETSM" are service marks of
Dow Jones Company, Inc. and have been licensed for use by the Fund's manager,
Integrity Global Asset Management, Inc. The Fund is not sponsored, endorsed,
sold or promoted by Dow Jones, and Dow Jones makes no representation
regarding the advisability of investing in the Fund.
Dow Jones does not: sponsor, endorse, sell or promote the Fund; recommend
that any person invest in the Fund or any other securities; have any
responsibility or liability for or make any decisions about the purchase or
redemption prices, or fees of the Fund; have any responsibility or liability
for the administration, management or marketing of the Fund; consider the
needs of the Fund or Fund shareholders in determining, composing or
calculating the Index or have any obligation to do so.
Dow Jones will not have any liability in connection with the Fund.
Specifically, Dow Jones does not make any warranty, express or implied, and
Dow Jones disclaims any warranty about: the results to be obtained by the
Fund, fund shareholders or any other person in connection with the use of the
Index and the data included in the Index, the accuracy or completeness of the
Index and its data or the merchantability and the fitness for a particular
purpose or use of the Index and its data. Dow Jones will have no liability
for any errors, omissions or interruptions in the Index or its data or for
any information prepared by the Fund that is derived from the Index. Under
no circumstances will Dow Jones be liable for any lost profits or indirect,
punitive, special or consequential damages or losses, even if Dow Jones knows
that they might occur. The licensing agreement between the Fund's manager and
Dow Jones is solely for their benefit and not for the benefit of the owners
of the Fund or any other third parties.
MORE INFORMATION ABOUT THE FUND'S INVESTMENT STRATEGIES
As an alternative to holding all of the stocks in the Index at all times, the
Fund may select stocks to be purchased or sold using "statistical sampling"
techniques intended to be an effective means of substantially duplicating the
performance of the Index. Based on data derived from such techniques, as
well as on information about the issuers (such as size, projected earnings,
financial strength and debt), the manager will make judgments to actively
select which component stocks from the Index are purchased. The idea will be
to select stocks that, together with the remaining stocks in the Fund's
portfolio, will most closely track the performance of the Index. The Fund
will use statistical sampling techniques when the Fund's net cash flow would
make it impractical or costly to attempt to track the Index by purchasing or
selling stocks in the exact quantities needed to cause the Fund's portfolio
to exactly match the weighting and composition of the Index.
In addition to investing directly in the stocks that make up the Index, the
Fund may enter into futures or options contracts, for the purpose of
simulating full investment in the stocks that make up the Index and causing
the same effect as if the Fund held these stocks. These types of investments
are used to quickly and efficiently cause Fund assets to be invested pending
actual purchases of stocks in the Index and/or to keep cash on hand to meet
redemptions or other needs. They are also used to reduce transaction costs
and are used when the Fund's investment manager determines that these
investments are favorably priced when compared to direct purchases of
securities.
The Fund will limit its futures transactions to the extent that, immediately
after any transaction, no more than 5% of the Fund's assets are applied
towards the deposits required on futures contracts, and the value of all
futures contracts in which the Fund acquires an interest cannot exceed 20% of
the Fund's total assets.
In order to increase the Fund's income, the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors.
The lending of securities is a common practice in the securities industry.
The investment objective and policies of the Fund are not fundamental and
therefore may be changed by the Board of Trustees without shareholder
approval. However, shareholders would be notified prior to any material
change.
MANAGEMENT OF THE FUND
IGAM Group Funds was organized as a Delaware business trust on July 16, 1999
and is operated under the supervision of a Board of Trustees. The Fund is
the first mutual fund within the IGAM Group Funds family.
INVESTMENT MANAGER. The Fund's investment manager is Integrity Global Asset
Management, Inc. ("IGAM"). IGAM is a federally registered investment
advisory firm founded in April, 1997 that previously provided asset
management services for individuals and institutional clients. The firm no
longer manages client assets outside of the Fund. IGAM's principal office is
located at South Kingstown Office Park, Suite A5, 24 Salt Pond Road,
Wakefield, Rhode Island 02879.
Eugene Y.W. Lee, Ph.D., CFA, is the President and founder of IGAM and the
Chief Portfolio Manager for the Fund. He is also the President, Treasurer
and Secretary of IGAM Group Funds, and serves on its Board of Trustees. Dr.
Lee is a Chartered Financial Analyst and received his Master of Arts degree
in Mathematics from the University of Texas at Austin in 1986 followed by his
doctoral degree in Finance in 1986. He joined the faculty of the University
of Rhode Island in 1992 and is currently an Associate Professor of Finance.
He has taken an indefinite sabbatical leave in order to devote his full
attention to the operation of the investment manager. Dr. Lee previously was
Assistant Professor of Finance at University of Missouri - Columbia from 1986
to 1992.
IGAM has entered into an Investment Management Agreement with IGAM Group
Funds under which IGAM is responsible for managing the purchase and sale of
securities held by the Fund. IGAM also tracks the composition and weighting
of the stocks in the Index, and continually rebalances the Fund's portfolio
of investments in an effort to track the performance of the Index as closely
as possible. This process also involves the use of statistical sampling
techniques by which IGAM actively selects component stocks for purchase or
sale to most effectively and efficiently track the Index. IGAM is also
responsible for selecting brokers, dealers and/or trading systems to execute
securities transactions for the Fund. IGAM also provides business management
and administrative services for the Fund not provided by others, which
includes the coordination and management of the Fund's business activities
and its relationship with service providers and professionals, as well as the
provision of office space, personnel and materials necessary to act as
investment and business manager.
For its services, IGAM receives annual fees from the Fund equal to 0.65% of
the Fund's average daily net assets. IGAM has, however, contractually agreed
through October 31, 2000 to waive all or a portion of the advisory fee,
and/or to make payments to limit Fund expenses, in order to limit the Fund's
total annual operating expenses to 1.40%. After that date, IGAM may
determine to continue to control Fund operating expenses under a contractual
or voluntary arrangement, or it may end the arrangement. When the Fund's
assets grow to a point where fee waivers are no longer necessary, IGAM may
seek to recoup amounts waived or expense payments that it made. IGAM shall
only be entitled to recoup such amounts for a period of three years from the
date the amount was waived or paid.
FUND ADMINISTRATOR, ACCOUNTING AND TRANSFER AGENT. Firstar Mutual Fund
Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202
("Firstar") serves as the Fund's administrator, accounting agent and transfer
agent.
PRICING OF FUND SHARES
The shares of the Fund are priced at the net asset value per share ("NAV"),
which is determined by the Fund as of the close of regular trading (generally
4:00 p.m. eastern time) on each day that the New York Stock Exchange is open
for unrestricted trading. Purchase and redemption requests are priced at the
next NAV calculated after receipt and acceptance of a completed purchase or
redemption request. The NAV is determined by dividing the value of the
Fund's securities, cash and other assets, minus all expenses and liabilities,
by the number of shares outstanding (assets - liabilities)/no. of shares =
NAV. The expenses and fees of the Fund, which are accrued daily, are
reflected in the calculation of the NAV.
The Fund's portfolio securities are valued each day at their market value,
which usually means the last quoted sale price on the security's principal
exchange that day. If market quotations are not readily available,
securities will be valued at their fair market value as determined in good
faith, or under procedures approved by, the Board of Trustees. The Fund may
use independent pricing services to assist in calculating NAV.
MARKETING AND DISTRIBUTION
The principal underwriter and national distributor for the Fund's shares is
T.O. Richardson Securities, Inc. The distributor is a broker-dealer firm
that is registered with the SEC and in all 50 states and is a member in good
standing of the National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN. Under a plan adopted by the
Fund's Board of Trustees pursuant to Rule 12b-1 under the 1940 Act (the
"Plan"), the Fund is authorized to pay the distributor, the manager or
others, shareholder servicing and/or distribution fees at an annual rate not
to exceed 0.25% of the average daily net assets of the Fund. Such fees will
be used to reimburse persons who provide, or make payments for,
administration, shareholder servicing and distribution assistance for the
Fund, including paying for the preparation of advertising and sales
literature and the printing and distribution of such materials to prospective
investors. Because these fees are paid out of the Fund's assets on an on-
going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Certain broker-dealers, investment advisers, agents and other third parties
are authorized to accept orders on the Fund's behalf. These third parties
may charge transaction fees in connection with Fund transactions. These fees
would be in addition to any amounts paid by the Fund under the Plan.
HOW TO PURCHASE SHARES
GENERAL INFORMATION. You may purchase shares of the Fund at net asset value
without a sales charge. For an application or other information, please call
(800) 234-0849 or visit the Fund's web-site at www.internetindexfund.net.
IRAS AND
REGULAR ACCOUNT RETIREMENT ACCOUNTS
--------------- -------------------
MINIMUM INITIAL PURCHASES $2,500 $1,500
MINIMUM ADDITIONAL PURCHASES $250 $250
The Fund reserves the right to vary or waive the initial and additional
investment minimum requirements at any time.
PURCHASES BY MAIL. You may purchase shares by sending a completed and signed
application, together with a check or money order payable to the Internet
Index Fund to:
REGULAR MAIL: OVERNIGHT OR EXPRESS MAIL:
------------- --------------------------
The Internet Index Fund The Internet Index Fund
c/o Firstar Mutual Fund c/o Firstar Mutual Fund
Services, LLC Services, LLC
P.O. Box 701 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
TRANSACTIONS USING THE INTERNET. You may obtain a prospectus, an account
application and other information regarding the Fund using the Internet by
visiting www.internetindexfund.net. If you elect the online transactions
option on the account application form (or fill out a separate online
transaction request form) you may also use the Internet to purchase (or
redeem) shares, check your account, balance or check your transaction
history.
PAYMENTS BY WIRE. You may also purchase shares of the Fund by wiring federal
funds from your bank. Your bank may charge you a fee for this service. If
money is to be wired, you must call the Fund at (800) 234-0849 to set up your
account and obtain an account number. You should be prepared to provide the
information on the Fund's application form to the telephone representative.
Then, you should provide your bank with the following information for
purposes of wiring your investment.
Firstar Mutual Fund Services, LLC Account Name-----------------------------
ABA # 075 000022 (Write in account registration name)
Attn: IGAM Group -
The Internet Index Fund For the Account #------------------------
D.D.A. # 112-952-137 (Write in account # assigned by the Fund)
When making initial purchases by wire, you must send a signed application to
the Fund by regular or overnight mail at the addresses shown above in order
to complete your initial wire purchase. Wire orders will be accepted only on
a day on which the Fund is open for business. A wire purchase will not be
considered made until the wired money is received and the purchase is
accepted by the Fund. Any delays that may occur in wiring money, including
delays that may occur in processing by the banks, are not the responsibility
of the Fund or its agents. There is presently no fee for the receipt of wire
funds, but the right to charge shareholders for this service is reserved by
the Fund.
PURCHASING THROUGH PROCESSING ORGANIZATIONS. You may also purchase shares of
the Fund through a "Processing Organization," which is a broker-dealer, bank
or other financial institution that purchases shares for its customers. When
you purchase shares this way, the Processing Organization may be listed as
the shareholder of record of the shares. Such shares may be transferred into
your name following procedures established by the Processing Organization and
the Fund. The minimum initial and subsequent for purchases through a
Processing Organization generally will be set by the Processing Organization.
Processing Organizations may also impose other charges and restrictions in
addition to or different from those applicable to investors who remain the
shareholder of record of their shares. Certain Processing Organizations may
receive payments from the Fund under its Distribution and Shareholder
Servicing Plan or payments from the Fund's manager.
TAX SHELTERED RETIREMENT PLANS. Shares of the Fund may be used as
investments in retirement plans such as: individual retirement plans (IRAs);
simplified employee pensions (SEPs); 401(k) plans; qualified corporate
pension and profit sharing plans (for employees); tax deferred investment
plans (for employees of public school systems and certain types of charitable
organizations); and other qualified retirement plans. You should contact the
Fund for the procedure to open an IRA or SEP plan, as well as more specific
information regarding these retirement plan options. Consultation with an
attorney or tax advisor regarding these plans is advisable. Custodial fees
and other processing fees for an IRA will be paid by the shareholder by
redemption of sufficient shares of the Fund from the IRA unless the fees are
paid directly to the IRA custodian. You can obtain information about IRA
fees by calling the Fund at (800) 234-0849.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan permits you to
purchase shares of the Fund (minimum initial investment of $500 and minimum
subsequent investments of $50 per transaction) at regular intervals.
Provided your bank or other financial institution allows automatic
withdrawals, you may purchase shares by transferring funds from the account
you designate. At your option, the account designated will be debited in the
specific amount, and shares will be purchased once a month, on the twentieth
day. Only an account maintained at a domestic financial institution which is
an Automated Clearing House member may be so designated. If you desire to
participate in the Automatic Investment Plan, you should call the Fund at
(800) 234-0849 to obtain the appropriate forms. The Automatic Investment
Plan does not assure a profit and does not protect against loss in declining
markets. The Fund may modify or terminate the Automatic Investment Plan at
any time or charge a service fee. No such fee is currently contemplated.
ADDITIONAL INFORMATION. The Fund reserves the right to limit or reject any
purchase request if, in its opinion, it is in the best interests of the Fund
to do so. Federal regulations require that investors provide a certified
Taxpayer Identification Number (a "TIN") upon opening or reopening an
account.
Dividends begin to accrue after you become a shareholder. The Fund does not
issue share certificates. All shares are held in non-certificate form
registered on the books of the Fund's transfer agent. If your check or wire
does not clear, a service fee of $25 will be deducted from your account and
you will be responsible for any loss incurred. If you are already a
shareholder, the Fund can redeem shares from any identically registered
account in the Fund as reimbursement for any loss incurred. You may be
prohibited or restricted from making future purchases in the Fund.
HOW TO REDEEM SHARES
GENERAL. You may request redemption of your Fund shares at any time. When a
request is received in proper form, the Fund will redeem the shares at the
next determined net asset value, subject to a redemption fee (if applicable -
see below).
The Fund will normally send you your redemption proceeds on the next business
day (and no later than seven calendar days) after receipt of a redemption
request in proper form. However, if you purchase Fund shares by check and
subsequently submit a redemption request, the redemption proceeds will not be
transmitted until your check has cleared, which may take up to 15 days. If
you have any questions about redemptions or need further information, please
call (800) 234-0849 or visit the Fund's web-site at
www.internetindexfund.net.
REDEMPTIONS BY MAIL. Redemption requests by mail must include your signed
letter of instruction (including Fund name, account number(s), account
names(s), address and the dollar amount or number of shares you wish to
redeem) and should be addressed as follows:
REGULAR MAIL: OVERNIGHT OR EXPRESS MAIL:
------------- --------------------------
The Internet Index Fund The Internet Index Fund
c/o Firstar Mutual Fund c/o Firstar Mutual Fund
Services, LLC Services, LLC
P.O. Box 701 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
REDEMPTIONS BY TELEPHONE. If you elect the telephone redemption option on
the shareholder application form, you may make a telephone redemption request
by calling (800) 234-0849. The Fund or its agents may act on telephone
instructions from any person representing himself or herself to be a
shareholder and reasonably believed the Fund or its agents to be genuine.
The Fund and its agents will employ reasonable procedures, such as requiring
a form of personal identification, to confirm that instructions are genuine
and, if such procedures are followed, neither the Fund nor its agents will be
liable for following telephone instructions reasonably believed to be
genuine. IRA account holders can not redeem by telephone.
During times of drastic economic or market conditions, you may experience
difficulty in contacting the Fund by telephone to request a redemption of
Fund shares. In such cases, you should consider using the other redemption
procedures described herein. Use of these other redemption procedures may
result in the redemption request being processed at a later time than it
would have been if telephone redemption had been used. During the delay, the
Fund's net asset value may fluctuate.
TRANSACTIONS USING THE INTERNET. You may obtain a prospectus, an account
application and other information regarding the Fund using the Internet by
visiting www.internetindexfund.net. If you elect the online transactions
option on the account application form (or fill out a separate online
transaction request form) you may also use the Internet to redeem (or
purchase) shares, check your account balance or check your transaction
history.
CONTINGENT REDEMPTION FEE. A redemption fee of 1.5% payable to the Fund may
be imposed if you redeem shares within 90 days of the date of purchase. No
redemption fee will be imposed to the extent that the net asset value of the
shares redeemed does not exceed (1) the current net asset value of shares
acquired through reinvestment of dividends or capital gains distributions,
plus (2) increases in the net asset value of your shares above the dollar
amount of all your payments for the purchase of shares held by you at the
time of redemption. If the aggregate value of shares redeemed has declined
below their original cost as a result of the Fund's performance, the
applicable redemption fee will be applied to the then-current net asset value
rather than the purchase price.
In determining whether a redemption fee is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible
rate. It will be assumed that the redemption is made first of amounts
representing shares acquired pursuant to the reinvestment of dividends and
distributions; then of amounts representing the increase in net asset value
of shares above the total amount of payments for the purchase of shares made
during the preceding year; then of amounts representing shares purchased more
than 90 days prior to the redemption; and finally, of amounts representing
the cost of shares purchased within 90 days prior to the redemption.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. You may have redemption proceeds
wired to your brokerage account or a bank account that you designate. A
transaction fee of $12.00 will be charged for payments by wire. Questions
about this option, or redemption requirements generally, should be directed
to the Fund at (800) 234-0849.
A signature guarantee is required for requests to redeem a large amount of
shares (shares valued at $25,000 or more), if your address of record has been
changed within the past 30 days, or if you ask for proceeds to be sent to a
different address. A signature guarantee is used to help protect you and the
Fund from fraud. You can obtain a signature guarantee from most banks or
securities dealers, but not from a notary public. Please call the Fund to
learn if a signature guarantee is needed or to make sure that it is completed
appropriately in order to avoid processing delays.
If your account falls below $2,500 ($1,500 for qualified retirement accounts)
for other than market reasons, the Fund may request that you increase your
balance. If the account is still below the minimum after 60 days, the Fund
may automatically close your account and send you the proceeds. 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 otherwise disrupt the
Fund. When the Fund redeems-in-kind, it pays the shareholder in portfolio
securities rather than cash, and the shareholder may experience additional
expenses such as brokerage commissions in order to sell the securities.
SYSTEMATIC WITHDRAWAL PLAN. If you own shares with a value of $10,000 or
more, you may participate in the Systematic Withdrawal Plan. The Systematic
Withdrawal Plan allows you to make automatic withdrawals of $100 or more from
your account at regular intervals. Amounts will be transferred from your
Fund account to the bank account you choose at the interval you select on the
New Account Application form. If you expect to purchase additional shares,
it may not be to your advantage to participate in the Systematic Withdrawal
Plan because of the possible adverse tax consequences of making purchases and
redemptions during the same or similar time periods.
If you are an IRA shareholder, you must indicate on your redemption request
whether or not to withhold federal income tax. Requests that do not indicate
a preference will be subject to withholding. IRA shareholders may not redeem
shares by telephone or Internet. Redemption requests must be in writing.
DISTRIBUTIONS AND TAXATION
The Fund will distribute substantially all of the net investment income and
net capital gains that it has realized in the sale of securities. These
income and gains distributions will generally be paid once each year, on or
before December 31. 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 distributions and all shares will be purchased at NAV.
In general, Fund distributions are taxable to you as either ordinary income
or capital gains. This is true whether you reinvest your distributions in
additional Fund shares or receive them in cash. Any capital gains the Fund
distributes are taxable to you as long-term capital gains no matter how long
you have owned your shares. If the Fund distributes unrealized gains soon
after you purchase shares, a portion of your investment may be returned as a
taxable distribution.
By law, the Fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct social security or taxpayer identification
number, or if the IRS instructs the Fund to do so.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the Fund, you may have a capital gain or loss.
The individual tax rate on any gain from the sale of your shares depends on
your marginal tax rate and on how long you have held your shares.
Fund distributions and gains from the sale of your shares generally will be
subject to state and local income tax. Non-U.S. investors may be subject to
U.S. withholding and estate tax. You should consult your tax advisor about
the federal, state, local or foreign tax consequences of your investment in
the Fund.
BOARD OF TRUSTEES
Edward M. Mazze, Ph.D., Chairman
Eugene Y.W. Lee, Ph.D., CFA, President
Andrew C. Laviano, J.D.
Harris N. Rosen
Bruce Whyte
INVESTMENT MANAGER
Integrity Global Asset Management, Inc.
Wakefield, Rhode Island
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
Philadelphia, Pennsylvania
INDEPENDENT AUDITORS
Arthur Andersen LLP
Milwaukee, Wisconsin
TRANSFER AGENT, FUND ACCOUNTING AGENT
AND FUND ADMINISTRATOR
Firstar Mutual Fund Services, LLC
Milwaukee, Wisconsin
CUSTODIAN
Firstar Bank Milwaukee, N.A.
Milwaukee, Wisconsin
DISTRIBUTOR
T. O. Richardson Securities, Inc.
Farmington, Connecticut
A Statement of Additional Information (SAI) for the Fund contains more
information about the Fund's policies and management 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
and a discussion of the market conditions that significantly affected the Fund
and the Index during each fiscal year. You may obtain free copies of these
documents by:
Telephone: 1-800-234-0849
Internet: WWW.INTERNETINDEXFUND.NET
Mail: REGULAR MAIL:
-------------
Internet Index Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
OVERNIGHT OR EXPRESS MAIL:
--------------------------
Internet Index Fund
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202
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 Commission's Internet site at http://www.sec.gov. Copies of
this information may also be obtained, upon payment of a duplicating fee, by
writing to the Public Reference Section of the Commission, Washington, DC 20549-
6009. You may call the Commission at 1-800-SEC-0330 for information about the
operation of the public reference room.
1940 Act File No. 811-9493
IGAM Group Funds
South Kingstown Office Park, Suite A5
24 Salt Pond Road
Wakefield, RI 02879
(401) 788-0977
Web-site: www.internetindexfund.net
Statement of Additional Information
for the Internet Index Fund
Dated October 20, 1999
This Statement of Additional Information relates to the Internet Index Fund (the
"Fund"), which is the first mutual fund within the IGAM Group Funds family. The
SAI is not a prospectus but should be read in conjunction with the Fund's
current Prospectus dated October 20, 1999. To obtain the Prospectus, please
visit the Fund's web-site, call 1-800-234-0849 or write to the Fund as shown
below:
Regular Mail: Overnight or Express Mail:
Internet Index Fund Internet Index Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
TABLE OF CONTENTS
The Fund 3
Investment Objective and Strategies 3
Investment Restrictions 9
Management of the Fund 11
Investment Manager 14
Code of Ethics 14
Administrative Services 15
Custodian 15
Distributor 15
Distribution and Shareholder Servicing Plan 15
Pricing of Shares 16
Shares of Beneficial Interest 17
Purchasing Shares 17
Redemptions of Shares 18
Portfolio Transactions and Turnover 19
Additional Information on Distributions and Taxes 20
Performance Information 22
Auditors 23
Financial Statements 24
<PAGE>
The Fund
IGAM Group Funds (the "Trust") is a non-diversified, open-end, management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act") which is currently comprised of a single fund called
the Internet Index Fund (the "Fund"). The Trust was organized as a business
trust under the Delaware Business Trust Act on July 16, 1999. The Fund's
registered office in Delaware is The Corporation Trust Company, 1209 Orange
Street, Wilmington, DE 19801 and its principal office is at South Kingstown
Office Park, Suite A5, 24 Salt Pond Road, Wakefield, RI 02879.
Investment Objective and Strategies
The Fund's investment objective is to provide investment results, using
statistical procedures, that parallel the Dow Jones Internet IndexSM, a
diversified index which is comprised of approximately 40 stocks of companies
whose primary focus is Internet related.
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 specified investment policies and 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 may
invest in any type of security whose characteristics are consistent with the
Fund's investment program. The securities in which the Fund may invest include
those described below.
Common and Preferred Stock. Common stocks are units of ownership of a
corporation. Preferred stocks are stocks that often pay dividends at a specific
rate and have a preference over common stocks in dividend payments and
liquidation of assets. Some preferred stocks may be convertible into common
stock. Convertible securities are securities that may be converted into or
exchanged for a specific amount of common stock of the same or different issuer
within a particular period of time at a specified price or formula.
Futures. The Fund may enter into contracts for the purchase or sale for future
delivery of securities including contracts for the purchase or sale for future
delivery of the stocks within an index. The Fund will not use futures contacts
as leveraged investments that magnify the gains and losses of an investment. 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 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 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 20% of the Fund's
assets.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. 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. Brokerage commissions are
incurred when a futures contract is bought or sold.
The Fund will 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.
Index Options. The Fund may purchase exchange-listed put and call options on
stock indices and sell such options in closing sale transactions. The Fund may
purchase call options on 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. While the option is open, the Fund will 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").
The Fund's purchases of options on indices will subject it to the following
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 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 level
of prices in the market generally or in an industry or market segment rather
than movements in the price of a particular security.
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 occurred, 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 occurred 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 holds an index option and exercises it before final
determination of the closing index value for that day, it runs the risk that the
level of the underlying index may change before closing. If such a change causes
the exercised option to fall "out-of-the-money," the Fund will 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. Although 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 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.
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 Funds' shares. Some
U.S. Government securities, such as Treasury bills, notes and bonds, and
securities guaranteed by the Government National Mortgage Association ("GNMA"),
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; others, such as those of the Federal National
Mortgage Association ("FNMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others, such
as those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. 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 by the U.S. Treasury, and are new therefore not U.S. Government
securities, although the underlying bond represented by such receipt 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.
Bank Obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' 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, provided that such loans do not
exceed 33 1/3% of the Fund's total assets at the time of the most recent loan.
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); (c) 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 securities held by the Fund, would
exceed 15% 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 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
shall 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
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 same investment limitations.
Borrowing. The Fund may borrow money as a temporary measure or for extraordinary
purposes or to facilitate redemptions subject to the fundamental investment
restriction described below under the heading "Investment Restrictions." The
Fund will not borrow money in excess of 33 1/3% of the value of its total
assets. Any borrowing above 5% of the Fund's total assets will be done from a
bank with the required asset coverage of at least 300%. In the event that such
asset coverage shall at any time fall below 300%, the Fund shall, within three
days thereafter (not including Sundays or holidays), or such longer period as
the SEC may prescribe by rules and regulations, reduce the amount of its
borrowings to such an extent that the asset coverage of such borrowings shall be
at least 300%.
Other Investments. The Board of Trustees may, in the future, authorize the Fund
to invest in securities other than those listed in this SAI and in the
prospectus, provided such investment would be consistent with the Fund's
investment objective and that it would not violate any fundamental investment
policies or restrictions.
Investment Restrictions
Fundamental Investment Policies and Restrictions. The Fund has adopted the
following fundamental investment policies and restrictions which 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, whichever
is less.
Concentration. The Fund has adopted a policy of concentrating in securities
issued by companies within the Internet industry but will, otherwise, not make
investments that result in the concentration (as that term may be defined in the
1940 Act, any rule or order thereunder, or U.S. Securities and Exchange
Commission ("SEC") staff interpretation thereof) of its investments in the
securities of issuers primarily engaged in the same industry. This restriction,
however, 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 & Borrowing. The Fund may not borrow money or 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.
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 and this SAI, 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 15% of its net assets in
securities which it can not 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.
Non-Diversified Fund. The Fund is non-diversified under the 1940 Act, which
means that there is no restriction under the 1940 Act on how much the Fund may
invest in the securities of any one issuer. However, to qualify for tax
treatment as a regulated investment company under the Internal Revenue Code
("Code"), the Fund intends to comply, as of the end of each taxable quarter,
with certain diversification requirements imposed by the Code. Pursuant to these
requirements, the Fund will, among other things, limit its investments in the
securities of any one issuer (other than U. S. Government securities or
securities of other regulated investment companies) to no more than 25% of the
value of the Fund's total assets. In addition, the Fund, with respect to 50% of
its total assets, will limit its investments in the securities of any issuer to
5% of the Fund's total assets, and will not purchase more than 10% of the
outstanding voting securities of any one issuer.
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.
Management of the Fund
The Trust is governed by a Board of Trustees. The Board of Trustees consists of
four individuals, three of whom are not "interested persons" of the Trust as
that term is defined in Section 2(a)(19) of the 1940 Act. The Trustees are
experienced business persons who meet throughout the year to oversee the Trust's
activities, review contractual arrangements with companies that provide services
to the Fund, and review performance. 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.
- ----------------------------------------------------------------------
Name and Address Age Position Principal Occupations
during the Past Five Years
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Edward M. Mazze, Ph.D. 58 Chairman Presently, Dean, College
The University of of the of Business Administration
Rhode Island Board of of the University of Rhode
College of Business Trustees Island since 1998;
Administration Director, Technitrol
7 Lippit Road Incorporated since 1985;
301 Ballentine Hall Director, McGettigan
Kingston, RI Partners, 1989-1993, 1997
02881-0802 to present; Honorary Board
Member, Delaware Valley College of
Science and Agriculture, since 1997;
Accreditation Panel Member, Middle
States Association of Colleges and
Secondary School Commission of Higher
Education, since 1981; Previously, Dr.
Mazze held the position of Dean at the
University of North Carolina at
Charlotte's Belk College of Business
Administration (1993-1998), at the
School of Business and Management at
Temple University (1979-1986,
professor from 1979-1993) and at Seton
Hall University's W. Paul Stillman
School of Business (1975-1979). From
1984 to 1997, Dr. Mazze was a
Bankruptcy Trustee for the United
States Bankruptcy Court in the Eastern
District of Pennsylvania and from 1985
to 1987, he served as the Chairman of
the Board and Chief Executive Officer
of the William Penn Bank in
Philadelphia (now part of Mellon
Bank). He also previously served on
the Boards of numerous public and
private businesses, educational
organizations and foundations and held
numerous governmental, professional
and academic appointments.
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Eugene Y.W. Lee, Ph.D.* 48 Trustee, President, Integrity
Integrity Global Asset President,Global Asset Management,
Management, Inc. Treasurer Inc. since 1997; Associate
South Kingstown Office and Professor of Finance,
Park Secretary University of Rhode Island
Suite A5 (faculty member since
24 Salt Pond Road 1992).
Wakefield, RI 02879
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Andrew Laviano 57 Trustee Professor, University of
The University of and Rhode Island since 1976;
Rhode Island Chairman previously, attorney in
College of Business of Audit private practice.
Administration Committee
7 Lippit Road
349 Ballentine Hall
Kingston, RI
02881-0802
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Harris N. Rosen 66 Trustee At the University of Rhode
76 Sundance Trail Island, presently serves
Wakefield, RI 02879 as Special Assistant to
the Dean of the University, and in
1998, as Executive in Residence,
teaching courses in Supervision,
Management and Introduction to
Business; previously, President of
School House Candy Company, Pawtucket,
RI since 1969; Mr. Rosen also serves
as the Director of the Jewish
Federation of Rhode Island and has
served in various capacities since
1970; Trustee of Women and Infants'
Hospital, Rhode Island, since 1978;
Corporator of Rhode Island Hospital
since 1982; and has held numerous
business and community service
positions in the Rhode Island area
over the years.
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Bruce Whyte 58 Trustee Self-employed Marketing
331 Stratfield Road Consultant since 1992;
Fairfield, CT 06432 Director of Business
Development, First Alert (disaster
recovery emergency services),
1998-1999, and Managing Consultant,
EverColor Fine Art (printing and fine
art publishing company), 1998-1999;
Executive Vice President and Director,
Sanctuary Inc. (product and service
provider to older adults and their
families), 1996-1997; President,
Ulster Arts Alliance, Inc.
(professional service organization),
1992-1996; Chairman, Center for Arts
and Technology, 1992-1996; Treasurer
and Marketing Director,
Entrepreneurial Catalyst Forum, Inc.,
1992-1996; President, Bruce Whyte
Enterprises, Inc. (marketing and
business development consulting
company), 1984-1992. Mr. Whyte has
served as an advisor and business
consultant to both the United States
Congress and United States Treasury
Department, as well as to the New York
Department of State, New York Attorney
General, New York State Senate and
Assembly, and New York State Council
on the Arts.
- ----------------------------------------------------------------------
* This trustee is deemed to be an "interested person" of the Trust as that term
is defined in Section 2(a)(19) of the 1940 Act.
Trustee Compensation. For their service as trustees, the independent trustees
receive annual fees of $8,000, as well as reimbursement for expenses incurred in
connection with attendance at Board meetings. The Chairman of the Board receives
additional annual compensation of $8,000 for his service as chairman, and the
Chairman of the Audit Committee receives additional compensation of $2,000 for
his service as chairman. Dr. Lee is an interested trustee and, therefore, is
paid by the investment manager and does not receive any compensation from the
Fund for his service as a trustee.
Control Persons, Principal Holders of Securities and Management Ownership. As of
September 30, 1999, which was prior to the public offering of the Fund's shares,
Dr. Eugene Lee was the holder of 100% of the Fund's shares, and there were
otherwise no control persons or principal holders of securities of the Fund.
Control persons are persons deemed to control the Fund because they own
beneficially over 25% of the outstanding equity securities. Principal holders
are persons that own beneficially 5% or more of the Fund's outstanding equity
securities.
Investment Manager
Integrity Global Asset Management, Inc., is a Delaware corporation that serves
as an investment manager to the Fund pursuant to an Investment Management
Agreement dated as of September 13, 1999.
This Investment Management Agreement is effective for an initial term of two
years and will continue on a year-to-year basis thereafter, provided that
specific approval is voted at least annually by the Board of Trustees of the
Trust or by the vote of the holders of a majority of the outstanding voting
securities of the Fund. In either event, it must also be approved by a majority
of the trustees of the Trust who are neither parties to the Agreement nor
interested persons of any such party as defined in the 1940 Act at a meeting
called for the purpose of voting on such approval. The Investment Manager's
decisions are made subject to direction of the Board of Trustees. The Agreement
may be terminated at any time, without the payment of any penalty, by vote of a
majority of the outstanding voting securities of the Fund.
For the services provided by the Investment Manager under the Agreement, the
Trust, on behalf of the Fund, has agreed to pay to Integrity Global Asset
Management, Inc. an annual fee of 0.65% of the Fund's average daily net assets.
All fees are computed on the average daily closing net asset value of the Fund
and are payable monthly. The fee is higher than the fee paid by most other index
mutual funds.
Code of Ethics
Both the Trust and the Investment Manager have adopted Codes of Ethics that
govern the conduct of employees of the Trust and Investment Manager who may have
access to information about the Fund's securities transactions. The Codes
recognize that such persons owe a fiduciary duty to the Fund's shareholders and
must place the interests of shareholders ahead of their own interests. Among
other things, the Codes require preclearance of personal securities
transactions; certain blackout periods for personal trading of securities which
may be considered for purchase or sale by the Fund or other clients of the
Investment Manager; annual and quarterly reporting of personal securities
holdings; and limitations on personal trading of initial public offerings.
Violations of the Codes are subject to review by the Trustees and could result
in severe penalties.
Administrative Services
Firstar Mutual Fund Services, LLC, a subsidiary of Firstar Bank Milwaukee, N.A.,
provides administrative personnel and services (including blue-sky services) to
the Fund. Administrative services include, but are not limited to, providing
office space, equipment, telephone facilities, various personnel, including
clerical and supervisory, and computers, as is necessary or beneficial to
provide compliance services to the Fund. Firstar Mutual Fund Services, LLC also
will serve as fund accountant and transfer agent under separate agreements.
Custodian
Firstar Bank Milwaukee, N.A. is custodian for the securities and cash of the
Fund. Under the Custodian Agreement, Firstar Bank Milwaukee, N.A. holds the
Fund's portfolio securities in safekeeping and keeps all necessary records
and documents relating to its duties.
Distributor
T.O. Richardson Securities, Inc. serves as the principal underwriter and
national distributor for the shares of the Fund pursuant to a Distribution
Agreement with the Trust dated as of September 13, 1999 (the "Distribution
Agreement"). T.O. Richardson Securities, Inc. is registered as a
broker-dealer under the Securities Exchange Act of 1934 and each state's
securities laws and is a member of the 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 its best efforts to distribute the Fund's shares.
Distribution and Shareholder Servicing Plan. The Board of Trustees has adopted a
Distribution and Shareholder Serving Plan on behalf of the Fund, in accordance
with Rule 12b-1 (the "Plan") under the 1940 Act. The Fund is authorized under
the Plan to use the assets of the Fund to reimburse the Investment Manager, the
Distributor or others for certain activities relating to the distribution of
shares of the Fund to investors and the provision of shareholder services. The
maximum amount payable under the Plan is 0.25% of the Fund's average net assets
on an annual basis.
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 Fund assets 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.
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 Trust 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 September 13, 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 for the Fund may be terminated at any
time by a majority vote of the Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operations 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.
Pricing of Shares
Shares of the Fund are sold on a continual basis at the net asset value per
share next computed following acceptance of an order by the Fund. The Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at the close of normal trading (currently 4:00 p.m. Eastern Time)
on each day the New York Stock Exchange is open for trading. The NYSE is closed
on the following holidays: New Year's Day, Martin Luther King, Jr.'s Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Securities listed on a U. S. securities exchange or Nasdaq for which market
quotations are readily available at the last quoted sale price on the day the
valuation is made. Price information on listed securities is taken from the
exchange where the security is primarily traded. Options, futures, unlisted
U. S. securities and listed U. S. securities not traded on the valuation date
for which market quotations are readily available are valued at the most
recent quoted bid price.
Fixed-income securities (other than obligations having a maturity of 60 days or
less) are normally valued on the basis of quotes obtained from pricing services,
which take into account appropriate factors such as institutional sized trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. Fixed-income securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost if it reflects fair value. In the event that amortized cost does not
reflect market, market prices as determined above will be used. Other assets and
securities for which no quotations are readily available (including restricted
securities) will be valued in good faith at fair value using methods determined
by the Board of Trustees of the Fund.
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 no par value. 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 more than 50% 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 certificates for shares will
generally not be issued.
If they deem it advisable and in the best interests of shareholders, the
Trustees may create additional series of shares, 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 series, which may
differ from each other as to expenses and dividends. If additional series or
classes of shares are created, shares of each series or class are entitled to
vote as a series or class only to the extent required by the 1940 Act or as
permitted by the Trustees. Upon the Trust's liquidation, all shareholders of a
series would share pro-rata in the net assets of such series available for
distribution to shareholders of the series, but, as shareholders of such series,
would not be entitled to share in the distribution of assets belonging to any
other series.
Purchasing Shares
Shares of the Fund are sold in a continuous offering and may be purchased on any
business day through authorized investment dealers or directly from the Fund.
Stock Certificates and Confirmations
The Fund does not intend to issue stock certificates representing shares
purchased. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by the Fund to the stockholder's
address of record.
Special Incentive Programs
At various times the Fund may implement programs under which a dealer's sales
force may be eligible to win nominal awards for certain sales efforts or
recognition program conforming to criteria established by the Fund, or
participate in sales programs sponsored by the Fund. In addition, the investment
manager or distributor, in their discretion may from time to time, pursuant to
objective criteria, sponsor programs designed to reward selected dealers for
certain services or activities that are primarily intended to result in the sale
of shares of the Fund. These programs will not change the price you pay for your
shares or the amount that the Fund will receive from the sale.
Redemption of Shares
To redeem shares, shareholders may send a written request to:
Regular Mail: Overnight or Express Mail:
The Internet Index Fund The Internet Index Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund
Services, LLC
P.O. Box 701 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
The written letter of instructions must include
o the investor's social security number or tax identification number,
o the fund name,
o the account number,
o the share or dollar amount to be redeemed, and
o signature by all shareholders on the account.
The proceeds will be wired to the bank account of record or sent to the address
of record within seven days.
If a shareholder requests that redemption proceeds be sent to an address other
than that on record with the Fund or proceeds be made payable to someone other
than to the shareholder(s) of record, the written request must have signatures
guaranteed by:
o a trust company or commercial bank whose deposits are insured by the
BIF, which is administered by the FDIC;
o a member of the New York, Boston, American, Midwest, or Pacific Stock
Exchange;
o a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
o any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantor program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Portfolio Transactions and Turnover
The Fund's portfolio securities transactions are placed by the Investment
Manager. The objective of the Fund is to obtain the best available execution in
its portfolio transactions, taking into account the costs, promptness of
executions and other qualitative considerations. There is no pre-existing
commitment to place orders with any broker, dealer or member of an exchange. The
Investment Manager evaluates a wide range of criteria in seeking the most
favorable price and market for the execution of transactions, including the
broker's commission rate, execution capability, positioning and distribution
capabilities, information in regard to the availability of securities, trading
patterns, statistical or factual information, opinions pertaining to trading
strategy, back office efficiency, ability to handle difficult trades, financial
stability, and prior performance in servicing the Investment Manager and its
clients. In transactions on 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 Investment Manager, better prices and executions are
available elsewhere.
The Investment Manager, when effecting purchases and sales of portfolio
securities for the account of the Fund, will seek execution of trades either (i)
at the most favorable and competitive rate of commission charged by any broker,
dealer or member of an exchange, or (ii) at a higher rate of commission charges,
if reasonable, in relation to brokerage and research services provided to the
Fund or the Investment Manager by such member, broker, or dealer. Such services
may include, but are not limited to, any one or more of the following;
information as to the availability of securities for purchase or sale,
statistical or factual information, or opinions pertaining to investments. The
Investment Manager may use research and 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 Manager in connection with the Fund. In accordance
with the provisions of Section 28(e) of the 1934 Act, the Manager may from
time-to-time receive services and products which serve both research and
non-research functions. In such event, the Manager makes a good faith
determination of the anticipated research and non-research use of the product or
service and allocates brokerage only with respect to the research component.
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.
If the Investment Manager provides investment advisory services to individuals
and other institutional clients, there may be occasions on which other
investment advisory clients advised by the Investment Manager 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 Manager may average
the transactions as to price and allocate the amount of available investments in
a manner which is believes to be equitable to each client, including the Fund.
On the other hand, to the extent permitted by law, the Investment Manager 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, if any.
Because of the Fund's indexing investment strategy, it generally only sells
securities to generate cash to satisfy redemption requests, or to rebalance its
portfolio to track the target index. As a result, the Fund's portfolio turnover
rate is expected to be extremely low. However, the Fund is not managed in a
manner designed to maximize tax efficiencies or reduce transaction costs, and
securities will be purchased and sold without regard to such factors as the
manager deems appropriate. Of course, when selling portfolio securities, the
manager will attempt to minimize taxable gains. 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.
Additional Information on Distributions and Taxes
Distributions.
A shareholder will automatically receive all income dividends and capital gain
distributions in additional full and fractional shares of the Fund at their net
asset value as of the date of payment unless the shareholder elects to receive
such dividends or distributions in cash. The reinvestment date normally precedes
the payment date by about seven days although the exact timing is subject to
change. Shareholders will receive a confirmation of each new transaction in
their account. The Trust will confirm all account activity, including the
payment of dividend and capital gain distributions and transactions made as a
result of an Automatic Withdrawal Plan or an Automatic Investment Plan.
Shareholders may rely on these statements in lieu of stock certificates. Stock
certificates representing shares of the Fund will not be issued.
Taxes
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, constitutes the Fund's net
investment income from which dividends may be paid to you. Any distributions by
the Fund from such income will be taxable to you as ordinary income, whether you
take them 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 from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the Fund. Any net capital gains realized by the Fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate excise or income taxes on the Fund.
Information on the tax character of distributions. The Fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held Fund shares for a full year, the Fund may designate and distribute to
you, 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 your
investment in the Fund.
Election to be taxed as a regulated investment company. The Fund intends to
elect to be treated as a regulated investment company under Subchapter M of the
Internal Revenue 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 you. The board 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 shareholders. In such
case, the Fund will be subject to federal, and possibly state, corporate taxes
on its taxable income and gains, and distributions to you will be taxed as
ordinary dividend income to the extent of the Fund's earnings and profits.
Excise tax distribution requirements. To avoid federal excise taxes, the
Internal Revenue Code requires the Fund to distribute to you by December 31 of
each year, at a minimum, the following amounts: 98% of its taxable ordinary
income earned during the calendar year; 98% of its capital gain net income
earned during the twelve month period ending October 31; and 100% of any
undistributed amounts from the prior year. The Fund intends to declare and pay
these amounts in December (or in January that are treated by you as received in
December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
Redemption of Fund shares. Redemptions and exchanges of Fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your Fund
shares, the IRS will require that you report a gain or loss on your redemption
or exchange. If you hold your shares as a capital asset, the gain or loss that
you realize will be capital gain or loss and will be long-term or short-term,
generally depending on how long you hold your shares. 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 the extent of any long-term capital gains
distributed to you by the Fund on those shares.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you buy other shares in the Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.
U.S. government obligations. Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the Fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
Dividends-received deduction for corporations. If you are a corporate
shareholder, you should note that it is expected that a portion of the dividends
paid by the Fund will qualify for the dividends-received deduction. In some
circumstances, you will be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these dividends.
The dividends-received deduction will be available only with respect to
dividends designated by the Fund as eligible for such treatment. All dividends
(including the deducted portion) must be included in your alternative minimum
taxable income calculation.
Investment in complex securities. The Fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the Fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the Fund and/or defer the Fund's ability to recognize losses. In turn, these
rules may affect the amount, timing or character of the income distributed to
you by the Fund.
Performance Information
Total Return. Average annual total return quotations used in the Fund's
advertising and promotional materials are calculated according to the
following formula:
P(1 + R)n = ERV
where P equals a hypothetical initial payment of $1,000; R equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1,000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication. Average annual total
return, or "T" in the above formula, is computed by finding the average annual
compounded rates of return over the period that would equate the initial amount
invested to the ending redeemable value. Average annual total return assumes the
reinvestment of all dividends and distributions.
Cumulative Total Return. Cumulative total return represents the simple change in
value of an investment over a stated period and may be quoted as a percentage or
as a dollar amount. Total returns may be broken down into their components or
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship between these factors and their contributions to
total return.
Other Information. The Fund's performance data quoted in advertising and other
promotional materials represents past performance and is not intended to predict
or indicate future results. The return and principal value of an investment in a
Fund will fluctuate, and an investor's redemption proceeds may be more or less
than the original investment amount.
If permitted by applicable law, the Fund may be compared to data prepared by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Morningstar, Inc., the Donoghue Organization, Inc. or other independent services
which monitor the performance of investment companies, and may be quoted in
advertising in terms of its ranking in each applicable universe. In addition,
the Fund may use performance data reported in financial and industry
publications, including Barron's, Business Week, Forbes, Fortune, Investor's
Daily, IBC/Donoghue's Money Fund Report, Money Magazine, The Wall Street Journal
and USA Today.
In addition to the Index, the Fund may from time to time use the following
unmanaged indices for performance comparison purposes:
o S&P 500 - The S&P 500 is an index of 500 stocks designed to track the
overall equity market's industry weightings. Most, but not all, large
capitalization stocks are in the index. There are also some small
capitalization names in the index. The list is maintained by Standard &
Poor's Corporation. It is market capitalization weighted. There are always
500 issuers in the S&P 500. Changes are made by Standard & Poor's as
needed.
o Russell 2000 - The Russell 2000 is composed of the 2,000 smallest stocks
in the Russell 3000, a market value weighted index of the 3,000 largest
U. S. publicly-traded companies.
o The Nasdaq Composite Index - The Nasdaq Composite Index is a broad-based
market capitalization-weighted index of all Nasdaq stocks.
Auditors
Arthur Andersen, LLP serves as the Fund's independent auditors, whose services
include examination of the Fund's financial statements and the performance of
other related audit and tax services.
<PAGE>
Financial Statements
The Internet Index Fund
Statement of Assets and Liabilities
As of September 22, 1999
ASSETS:
Cash $100,000.00
Receivable from Manager 50,322.30
Prepaid Blue Sky 20,955.00
Prepaid Insurance 16,552.00
---------
Total Assets $187,829.30
LIABILITIES:
Payable to Manager $87,829.30
Total Liabilities $87,829.30
NET ASSETS $100,000.00
Capital Shares, no par value; unlimited 10,000
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>
The Internet Index Fund
Statement of Operations
For the Period July 15, 1999 through September 22, 1999
EXPENSES:
Organizational expenses $50,322.30
Less: Expenses to be paid by ($50,322.30)
------------
Manager
Net income/(loss) $0.00
See accompanying notes to the financial statements.
The Internet Index Fund
Notes to the Financial Statements
1. Organization
IGAM Group Funds (the "Trust") was organized as a Delaware business trust
on July 15, 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 Internet Index Fund (the "Fund"). The Fund
will be non-diversified. 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 the President of the Trust,
Dr. Eugene Lee, on September 17, 1999.
2. Significant Accounting Policies
(a) Organization and Prepaid Initial Registration Expense
Expenses incurred by the Trust in connection with the organization
are expensed as incurred. These expenses were advanced by
Integrity Global Asset Management, Inc. ("IGAM" also referred to as
the "Manager"), and the Manager has contractually agreed to bear
these expenses, subject to potential recovery (see Note 3).
Prepaid initial state registration and prepaid insurance expenses
are deferred and amortized over the period of benefit.
(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 shareholders sufficient to relieve it from all or substantially
all Federal income taxes.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and use assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
3. Investment Manager
The Trust has entered into an Investment Management Agreement (the
"Agreement") with the Manager, with whom certain Officers and Trustees of
the Trust are affiliated, to furnish investment and business management
services to the Fund. Under the terms of the Agreement, the Trust, on
behalf of the Fund, compensates the Manager for its management services at
the annual rate of 0.65% of the Fund's average daily assets.
The Manager has contractually agreed to waive, through 9/30/2000, its
management fee and/or to make payments to limit the Fund's other expenses,
including organization expenses, to the extent necessary to ensure that
the Fund's annual operating expenses, do not exceed 1.40% of its average
daily net assets. Any such waiver or payment is subject to later
adjustment to allow the Manager to recoup amounts waived or paid to the
extent actual fees and expenses for a period are less than the expense
limitation cap of 1.40%, provided, however, that the Manager shall only be
entitled to recoup such amounts for a period of three (3) years from the
date such amount was waived or paid.
4. Distribution Plan
The Trust, on behalf of the Fund, has adopted a Distribution and
Shareholder Servicing Plan pursuant to Rule 12b-1 under the 1940 Act (the
"12b-1 Plan"), which authorizes the Fund to reimburse the Manager, the
Fund's distributor, or others for amounts expended for distribution or
shareholder servicing activities in amounts not to exceed an annual rate
of 0.25% of the average daily net assets of the Fund. Payments made under
the 12b-1 Plan are tied to actual expenses incurred.
<PAGE>
Arthur Andersen LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of the IGAM Group Funds:
We have audited the statement of assets and liabilities of the Internet Index
Fund (the "Fund"), a series of IGAM Group Funds (a Delaware business trust), as
of September 22,1999 and the statement of operations for the period July 15,
1999 through September 22, 1999. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the net assets of the Fund as of
September 22, 1999 and the results of its operations for the period then ended,
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
September 23, 1999.
<PAGE>
