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As filed with the Securities and Exchange Commission on November 16, 1999
Registration No. 333-84885
Registration No. 811-09531
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. 2
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Post-Effective Amendment No.
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and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 2 ---
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(Check appropriate box or boxes)
DLJdirect MUTUAL FUNDS
(Exact name of registrant as specified in charter)
277 Park Avenue
New York, New York 10172
(Address of Principal Executive Offices)
(800) 825-5723
(Registrant's Telephone Number, Including Area Code)
Brian A. Kammerer
One Pershing Plaza, 10th Floor
Jersey City, NJ 07399
(Name and Address of Agent for Service)
Copy to:
Philip H. Harris, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Approximate date of proposed public offering:
As soon as practicable after the effective date of this
Registration Statement.
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Pursuant to the provisions of Rule 24f-2(a) under the Investment Company Act of
1940, Registrant hereby elects to register an indefinite number of securities
under the Securities Act of 1933. The Registrant will file a Rule 24f-2 Notice
within six months after the close of its current fiscal year.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
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N-1A ITEM NO. LOCATION
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PART A
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Item 1. Front and Back Cover Pages.................................... Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments, Risks
and Performance............................................... The Funds' Risk/Return Summary
Item 3. Risk/Return Summary: Fee Table............................... Summary of Fund Expenses
Item 4. Investment Objectives, Principal Investment
Strategies and Related Risks.................................. The Funds' Investment Objectives
and Policies
Item 5. Management's Discussion of Fund Performance................... Not Applicable
Item 6. Management, Organization, and Capital Structure............... Fund Management
Item 7. Shareholder Information....................................... Purchases, Redemption and Share-
holder Services, Other Shareholder
Information, Taxes
Item 8. Distribution Arrangements..................................... Dividend and Distribution Informa-
tion
Item 9. Financial Highlights Information.............................. Not applicable
PART B
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Item 10. Cover Page and Table of Contents.............................. Cover Page
Item 11. Fund History.................................................. Fund History
Item 12. Description of the Fund and Its Investments and Risks......... Investment Policies and Restric-
tions
Item 13. Management of the Fund ....................................... Management
Item 14. Control Persons and Principal Holders of Securities........... Shares of Beneficial Interest
Item 15. Investment Advisory and Other Services........................ Management, Expenses of the
Funds
Item 16. Brokerage Allocation and Other Practices...................... Expenses of the Funds, Portfolio
Transactions
Item 17. Capital Stock and Other Securities............................ General Information, Purchases,
Redemptions, Exchanges and Sys-
tematic Withdrawal Plan
Item 18. Purchase, Redemption and Pricing of Shares.................... Purchases, Redemptions, Ex-
changes and Systematic With-
drawal Plan, Net Asset Value
Item 19. Taxation of the Fund.......................................... Dividends, Distributions and Taxes
Item 20. Underwriters.................................................. Expenses of the Funds
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N-1A ITEM NO. Location
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Item 21. Calculation of Performance Data............................... Not applicable
Item 22. Financial Statements.......................................... Not Applicable
PART C
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Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
3
<PAGE>
DLJdirect Mutual Funds
Prospectus
November 16, 1999
DLJdirect Choice Technology Fund
DLJdirect Strategic Growth Fund
This prospectus provides information about the Funds. Each Fund has a separate
investment objective and portfolio of investments.
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.
An investment in any of the Funds is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
TABLE OF CONTENTS
The DLJdirect Funds' Risk/Return Summary
Summary of DLJdirect Fund Expenses
Annual Fund Operating Expenses
Purchases, Redemptions and Shareholder Services
The DLJdirect Funds' Investment Objectives and Policies
Additional Information on Investment Policies and Risks
Fund Management
Distribution Charges
Shareholder Servicing
Dividend and Distribution Information
Taxes
For More Information
DLJdirect
DLJdirect, Inc.
Member NASD and SIPC
A Donaldson, Lufkin & Jenrette Company
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This part of the prospectus summarizes each Fund's investment objective,
principal investment strategies and principal risks. More information about the
DLJdirect Mutual Funds ("DLJdirect Funds") is contained in "The DLJdirect Funds'
Investment Objectives and Policies" and "Additional Information on Investment
Policies and Risks." Please read the entire prospectus carefully before
investing and save it for future reference.
THE DLJdirect FUNDS' RISK/RETURN SUMMARY
THE DLJdirect CHOICE TECHNOLOGY FUND
The DLJdirect CHOICE TECHNOLOGY FUND's investment objective is growth of
capital. The Fund seeks to achieve this objective by investing in a broad number
of industries that comprise the U.S. domestic technology sector. The Fund seeks
to create a blend of stocks in companies that include the computer hardware,
computer software, electronics, semiconductor, semiconductor capital equipment,
telecommunication equipment, telecommunication services, and internet
industries.
Like any investment, an investment in the Choice Technology Fund is subject to
risk and you could lose money. While the Fund seeks investments that will
appreciate in value, DLJ Investment Management Corp. ("DLJIM"or the "Adviser")
could select securities that will decline in value and provide no income.
Technology stocks, especially those of smaller, less-seasoned companies tend to
be more volatile than the overall stock market. As with most stock funds, the
most important factor with this Fund is how stock markets perform. When stock
prices fall, you should expect the value of your investment to fall as well. The
fact that the Fund concentrates in a single sector increases this risk, because
factors affecting that sector could affect Fund performance. For example,
technology companies could be hurt by such factors as market saturation, price
competition, and the advent of competing technologies. The Fund is also subject
to risks that affect equity securities markets in general, such as general
economic conditions and adverse changes (generally increases) in interest rates.
These and other factors could adversely affect your investment.
THE DLJdirect STRATEGIC GROWTH FUND
The DLJdirect STRATEGIC GROWTH FUND's investment objective is long-term growth
of capital. The Fund seeks to achieve this objective by investing in equity
securities of a limited number of large, carefully selected companies that the
Adviser believes will achieve superior growth. The Fund intends to hold
securities of approximately 50-60 companies, which may fluctuate depending on
the Adviser's view of market conditions. The Fund seeks to achieve superior
performance as compared to other U.S. domestic growth funds. Growth
companies are typically characterized by higher price-to-earnings and
price-to-book ratios, lower dividend yields, greater volatility, and higher
historical and predicted earnings.
Like any investment, an investment in the Strategic Growth Fund is subject to
risk, and you could lose money. While the Adviser believes that the investments
it selects will experience long-term appreciation, their value could decline.
The Fund is subject to risks that affect equity securities markets in general,
such as general economic conditions and adverse changes (generally increases) in
interest rates. Because the Fund normally invests in a smaller number of
securities than many other equity funds, an investment in this Fund has the risk
that changes in the value of a single security may have a more significant
effect, either negative or positive, on the Fund's net asset value. These and
other factors could adversely affect your investment.
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The DLJdirect Funds are new Funds and therefore do not have any performance
history.
SUMMARY OF DLJdirect FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the DLJdirect Funds.
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Shareholder fees:
(These fees are paid directly from your investment.) NONE*
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* The Funds impose no separate charge for transactions. However, investors will
be charged a transaction fee by DLJdirect, Inc. as follows:
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on purchases or exchanges less than $5,000 (does not apply for retirement accounts) $35 Transaction Fee
on shares redeemed or exchanged within six months of purchase or deposit date $35 Transaction Fee
</TABLE>
In determining the transaction fee to be charged on shares exchanged, DLJdirect,
Inc. treats an exchange as a separate purchase and redemption transaction.
Accordingly, a $70 transaction fee will be charged on shares exchanged for less
than $5,000 ($1,000 for retirement accounts) within six months of purchase or
deposit date.
ANNUAL FUND OPERATING EXPENSES
These examples help you compare the cost of investing in the Funds with the cost
of investing in other mutual funds. They assume that you invest $10,000 in a
Fund for the periods indicated and then sell all of your shares at the end of
those periods. The examples also assume that your investment has a 5% return
each year and that the Fund's operating expenses would remain the same. The
Adviser has made a written undertaking, to limit the Total Annual Fund Operating
Expenses of each Fund through October 31, 2002. Accordingly, the After 1 Year
Examples and the After 3 Years Examples reflect the waived fees. Prior to the
date of this prospectus, the Funds have not commenced operations and therefore
the percentages referenced below are estimates. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
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Annual Fund Operating Expenses Examples
(Expenses that are deducted from Fund assets)
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DLJdirect CHOICE TECHNOLOGY FUND After 1 Year $142
After 3 Years $440
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Management Fee .88%
Distribution (12b-1) and Service Fees(a) .25%
Shareholder Servicing Fees.................. .25%
Other Expenses(b) .30%
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Total Annual Fund Operating Expenses(b) 1.68%
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Waived Fees(c) (.29%)
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Total Expenses less Waived Fees 1.39%
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DLJdirect STRATEGIC GROWTH FUND After 1 Year $121
Management Fee .75% After 3 Years $378
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Distribution (12b-1) and Service Fees(a) .25%
Shareholder Servicing Fees.................. .25%
Other Expenses(b) .30%
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Total Annual Fund Operating Expenses(b) 1.55%
Waived Fees(c) (.36%)
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Total Expenses less Waived Fees 1.19%
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3
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(a) The maximum allowable amount payable for distributing shares is .50 of 1%
of the average daily net assets of each Fund. The Board of Trustees has
currently limited the amount payable to .25 of 1% of the average daily net
assets of each Fund.
(b) Prior to the date of this prospectus, the Funds have not commenced
operations. Accordingly, these percentages are estimates.
(c) The Adviser has undertaken, in writing, to limit Total Expenses of the
Choice Technology Fund and Strategic Growth Fund to 1.39% and 1.19% per
year, respectively. This arrangement will remain in place at least until
October 31, 2002 as long as the Adviser continues to act as adviser to the
Funds and may be extended thereafter at the discretion of the Adviser, and
may only be terminated by the Board of Trustees.
PURCHASES, REDEMPTIONS AND SHAREHOLDER SERVICES
Purchases. The minimum initial investment in each Fund is $1,000 . The minimum
for additional investments is $1,000. DLJdirect, Inc. ("DLJdirect"), a
subsidiary of DLJ Holdings Inc., is an online broker-dealer. DLJdirect account
holders may purchase and redeem shares of the DLJdirect Funds through any of
these means:
1. Through our Web site at www.DLJdirect.com;
2. MarketSpeed, our proprietary Windows-based software;
3. Via TradeTalk'TM' our touch-tone trading services at
1.888.999.7236;
4. By calling a DLJdirect Trading Representative at 1.800.825.5873
When you place your trade online, enter "DLJdirect" in the fund name
look-up box and select the DLJdirect Fund you wish to buy. Prior to
placing an order you need to have enough money in your DLJdirect
Account to cover the purchase. Investment in the Funds are offered on a
continuous basis at the Net Asset Value per share ("NAV") of each Fund
without the imposition of any sales charges. See calculation of NAV on
this page. Shares of the Funds purchased through a DLJdirect Account
are eligible for our No Transaction Fee (NTF) program. However, shares
of the Funds redeemed or exchanged within six months of the purchase
date or deposit will incur a transaction fee imposed by DLJdirect. In
addition, investors will be charged a transaction fee by DLJdirect
on purchases or exchanges less than $5,000 ($1,000 for retirement
accounts).
Share certificates will not be issued for full or fractional shares of
the Funds. DLJdirect reserves the right to reject any initial or
subsequent investment at its sole discretion.
Additional information is available by contacting a DLJdirect Investor
Services Representative at 1.800.825.5723 or via e-mail at
[email protected].
IMPORTANT NOTE: NEVER PLACE ORDERS BY E-MAIL! IN ADDITION, SHAREHOLDERS
MAY NOT PURCHASE OR REDEEM SHARES BY MAIL. THEY WILL NOT BE ACCEPTED.
Redemptions. The value of shares redeemed may be more or less than the cost of
such shares to the shareholder. This depends on the value of the Fund's
portfolio securities at the time of such redemption or repurchase.
Shareholders that have Fund balances of less than $1,000 may be requested to
increase their holdings to at least $1,000 within 60 days. If you fail to do so,
DLJdirect reserves the right to redeem your shares of the Fund and send the
proceeds to you. IRAs and other qualified retirement accounts are not subject to
mandatory redemption. DLJdirect will not redeem involuntarily any Fund with an
aggregate balance of less than $1,000 based solely on the market movement of the
Fund's shares.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after shares are tendered in
proper form for redemption, except for any period when the New York Stock
Exchange is closed or restricted. Generally, redemptions will be made in cash or
by check.
Exchanges. You may exchange holdings in one DLJdirect Fund for holdings in
another DLJdirect Fund. (The exchange privilege for our Funds is available only
in states in which shares of the Funds may be legally sold.) Exchanges are made
on the basis of each Fund's relative NAV per share next computed after receipt
of an order for the exchange.
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The Funds impose no separate charge for exchanges. However, investors may be
charged a transaction fee on exchanges made through DLJdirect.
The exchange privilege is intended to provide you with a convenient way to
switch your investments when your objectives or perceived market conditions
suggest a change. DLJdirect reserves the right to reject any exchange request or
otherwise modify, restrict or terminate the exchange privilege at any time upon
60 days notice. The exchange privilege is not intended to enable shareholders to
play short-term swings in the stock market by engaging in frequent transactions
in and out of the Funds. Shareholders who in the opinion of the Adviser engage
in such frequent transactions may be prohibited or restricted from placing
future exchange orders. You should be aware that for federal income tax purposes
an exchange is treated as a sale and a purchase of shares which may result in
recognition of a gain or loss.
Timing of Redemptions and Exchanges. If a redemption or transfer order in a
DLJdirect Account is received on a Fund Business Day prior to the close of the
New York Stock Exchange (generally 4:00p.m.), the proceeds will be transferred
as soon as possible. Shares within a DLJdirect Account will be priced that Fund
Business Day. If the redemption or transfer order is received after the close of
the New York Stock Exchange, the shares of the Fund will be priced on the next
Fund Business Day. The proceeds will be transferred as soon as possible after
such pricing in accordance with industry settlement procedures.
THE DLJdirect FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THESE FUNDS IF
YOU ARE A MARKET-TIMER. DLJdirect RESERVES THE RIGHT TO IMPOSE REDEMPTION FEES
TO DISCOURAGE MARKET-TIMING IN THE FUNDS.
[side bar]
Net Asset Value: Net asset value per share ("NAV") is determined
separately for each Fund by taking the total assets of a Fund and subtracting
its total liabilities and then dividing the difference by the total number of
shares outstanding. The NAV is determined at the close of the New York Stock
Exchange each day that the New York Stock Exchange is open for trading. The
price at which a purchase or redemption is effected is based on the next
calculation of NAV after the order is placed. In calculating NAV, each Funds'
Investments are valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily available, such other
method as the Trustees of the Funds believe in good faith would accurately
reflect their fair value.
[side bar]
The investment objectives and policies of each Fund are set forth below. There
can be, of course, no assurance that either of the Funds will achieve its
investment objective. The Funds' investment objectives are fundamental policies
that cannot be changed without the approval of the shareholders of the
applicable Fund. The Board of Trustees of the Funds may change non-fundamental
policies without shareholder approval.
THE DLJdirect FUNDS' INVESTMENT OBJECTIVES AND POLICIES
DLJdirect CHOICE TECHNOLOGY FUND
Goal: The DLJdirect CHOICE TECHNOLOGY FUND's investment objective is growth of
capital.
Strategy: The Choice Technology Fund seeks to achieve this objective by
investing in a broad number of industries that comprise the U.S. domestic
technology sector. The Fund seeks to create a blend of stocks in companies that
include the computer hardware, computer software, electronics, semiconductor,
semiconductor capital equipment,
5
<PAGE>
telecommunication equipment, telecommunication services and internet industries.
Stock selection reflects a growth approach and is based on fundamental research
that assesses a company's prospects for above-average earnings. The research
applied by the Adviser is conducted primarily by research analysts employed by
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"). In addition, the
Adviser also obtains research from other investment firms.
Investments: The Choice Technology Fund invests in common stock, preferred stock
and securities convertible into common stock. The Fund will normally invest 80%
of its assets in securities of companies principally engaged in offering,
developing products, processes or services that will provide technological
advances and improvements. The types of companies include computer hardware,
computer software, electronics, semiconductor, telecommunication equipment,
telecommunication services and internet industries. The Fund may invest in
listed and unlisted securities, well-known and established companies and in new
and unseasoned companies. The Fund will not invest more than 25% of its total
assets in any one industry. The Fund may also:
attempt to minimize the effect of a market decline on the value of its
securities, subject to market conditions, by writing covered call
options on securities or stock indices;
invest up to 10% of its assets in non-U.S. securities;
invest up to 15% of its net assets in illiquid securities;
invest in investment-grade fixed income securities, including bonds,
debentures, notes and money market instruments such as commercial paper
and bankers-acceptances and other financial instruments.
[side bar]
Risks: Like any investment, an investment in the Choice Technology Fund or
Strategic Growth Fund is subject to risk and you could lose money. While the
Funds seek investments that will appreciate in value, the value of the
securities could decline and provide no income. The Funds are subject to market
risks that affect equity securities markets in general, such as general economic
conditions and adverse changes in interest rates (generally increases). If the
value of equity markets in general declines, you can expect the value of your
investment in the Funds to decline, possibly to a greater extent than the
decline in equity markets generally. The Funds are also subject to investment
risk, which is the possibility that the returns from a specific type of stock
will perform worse than the overall stock market or other market sectors. Other
general risks include the following:
The Choice Technology Fund invests in technology companies. The fact that the
Fund concentrates in a single sector increases risk as compared to a fund with
a more diversified portfolio. Certain factors or market conditions that affect
technology companies could have an impact on the Fund's net asset value and
performance. For example, companies in the rapidly changing technology sector
often face unusually high price volatility, both in terms of gains and losses.
Products or services that at first appear promising may not prove commercially
successful or may become obsolete quickly. Earnings disappointments could also
result in sharp price declines. In addition, stocks of small, less seasoned
companies, tend to be more volatile than the overall market.
The Strategic Growth Fund will limit the number of companies in its portfolio.
Changes in the value of one security may have a greater effect on the Fund's net
asset value than other U.S. domestic growth funds with more diversified
portfolios.
In addition, each Fund may from time to time take temporary defensive positions
that are inconsistent with a Fund's investment strategies in attempting to
respond to adverse market conditions. If a Fund takes a temporary defensive
position, the Fund may not achieve its investment objective.
[end side bar]
DLJdirect STRATEGIC GROWTH FUND
Goal: The investment objective of the Strategic Growth Fund is long-term growth
of capital. Investments are made based on their potential for superior growth.
6
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Strategy: The Fund seeks to achieve this objective by investing in equity
securities of a limited number of large, carefully selected companies that the
Adviser believes will achieve superior growth. Unlike most equity funds, the
Fund focuses on a relatively small number of intensely researched companies. The
Fund seeks to achieve superior performance as compared to other U.S. domestic
growth funds. Growth companies are typically characterized by higher
price-to-earnings and price-to-book ratios, lower dividend yields, greater
volatility and higher historical and predicted earnings.
The Adviser applies extensive research that has been conducted primarily by
research analysts employed by DLJSC on the growth prospects of stocks that are
considered for the Fund's portfolio. Unlike many equity funds, the Strategic
Growth Fund seeks to limit the number of Fund holdings to companies that offer
the highest potential for capital appreciation. The Fund intends to hold
securities of approximately 50-60 companies, which may fluctuate depending on
the Adviser's view of market conditions. The growth companies tend to be
concentrated in the technology, health care, consumer, financial,
telecommunications and commercial services sectors. By emphasizing DLJSC
research in the portfolio stock selection, this Fund will try to deliver
superior performance as compared to the U.S. domestic growth fund peer universe.
Other factors considered in the selection of securities include the economic and
political outlook, the value of a particular security relative to another
security, trends in the determinants of corporate profits, and management
capability and practices. (See "Additional Information on Investment Policies
and Risks.")
Investments: Under normal circumstances, the Strategic Growth Fund invests at
least 85% of its total assets in equity securities in U.S. companies that the
Adviser believes have above-average long-term capital appreciation potential.
The Adviser expects the average market capitalization of companies in the
portfolio to be in the range of companies that are included in the Standard &
Poor's 500 Index. The Fund may invest in both listed and unlisted securities and
may also:
invest up to 10% of the value of its total assets in non-U.S. securities;
invest no more than 15% of its net assets in illiquid securities;
invest up to 5% of its total assets in warrants;
attempt to minimize the effect of a market decline on the value of its
securities, subject to market conditions, by writing covered call options on
securities or stock indices (See "Additional Information on Investment
Policies and Risks."); and
invest in investment-grade fixed income securities, including bonds,
debentures, notes and money market instruments such as commercial paper and
bankers acceptances and other financial instruments.
For additional information on the use, risks and costs of the above referenced
policies and practices, see "Additional Information on Investment Policies and
Risks."
[side bar for the Funds]
ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISKS
The following general investment policies and risks supplement those set forth
above for each Fund.
Equity Securities. "Equity securities" include common stock, preferred stock
(including convertible preferred stock), bonds convertible into common or
preferred stock, rights and warrants, equity interests in trusts and depositary
receipts for equity securities.
Convertible Securities. A "convertible security" is a bond or preferred stock
which may be converted at a stated price within a specified period of time into
a certain quantity of the common or preferred stock of the same or a different
issuer. Convertible securities have characteristics of both bonds and equity
securities. Like a bond, a convertible security tends to increase in market
value when interest rates decline and tends to decrease in market
7
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value when interest rates rise. However, the price of a convertible security is
also influenced by the market value of the underlying stock. The price of a
convertible security tends to increase as the market value of the underlying
stock rises, whereas it tends to decrease as the market value of the underlying
stock declines.
Warrants. A "warrant" gives the holder thereof the right to buy equity
securities at a specific price during a specified period of time. Warrants tend
to be more volatile than the underlying security, and if at a warrant's
expiration date the security is trading at a price below the price set in the
warrant, the warrant will expire worthless. Conversely, if at the expiration
date the underlying security is trading at a price higher than the price set in
the warrant, the holder of the warrant can acquire the stock at a price below
its market value.
Investment-Grade Debt Securities. Each Fund may invest in debt securities of
investment-grade quality. "Investment-grade debt securities" are debt securities
rated in one of the four highest rating categories by a nationally recognized
statistical rating organization. Investment-grade debt securities may also
include debt securities believed by the Adviser (on the basis of criteria
believed by the Adviser to be comparable to that applied by such rating
agencies) to be of comparable quality to debt securities so rated by the rating
agencies.
Debt securities rated Baa or higher by Moody's or BBB or higher by S&P are
investment-grade securities. Securities rated BBB are regarded by S&P as having
an adequate capacity to pay interest and repay principal; while such securities
normally exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely, in the opinion of S&P, to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Securities rated Baa by Moody's are considered to be medium-grade obligations.
These securities are neither highly protected nor poorly secured. The rating
organization determines that interest payments and principal security appear to
be adequate for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time. For a more
complete description of Moody's and S&P's ratings, see the "Appendix to the
Statement of Additional Information of the Funds."
The investment-grade limitations referenced for each Fund are applicable at the
time of initial investment and a Fund may determine to retain securities of
issuers which have had their credit characteristics downgraded.
Equity-Linked Debt Securities. "Equity-linked debt securities" are securities on
which the issuer is obligated to pay interest and/or principal that are linked
to the performance of a specified index of equity securities. The interest or
principal payments may be significantly greater or less than payment obligations
for other types of debt securities. Adverse changes in equity securities indices
and other adverse changes in the securities markets may reduce payments made
under, and/or the principal of, equity-linked debt securities held by a Fund. As
with any debt securities, the values of equity-linked debt securities will
generally vary inversely with changes in interest rates. A Fund's ability to
dispose of equity-linked debt securities will depend on the availability of
liquid markets for such securities. Investment in equity-linked debt securities
may be considered to be speculative.
Repurchase Agreements. The Funds may enter into "repurchase agreements" with
member banks of the Federal Reserve System or "primary dealers" (as designated
by the Federal Reserve Bank of New York) in such securities. Repurchase
agreements permit a Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Adviser requires continual maintenance of collateral with the Fund's custodian
in an amount equal to, or in excess of, the market value of the securities that
are the subject of a repurchase agreement. In the event a vendor defaults on its
repurchase obligation, a Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral are less than the repurchase price. If
the vendor becomes the subject of bankruptcy proceedings, the Fund might be
delayed in selling the collateral.
Non-U.S. Securities. Each Fund may invest in "non-U.S. securities." There are
additional risks involved in investing in non-U.S. securities. These risks
include those resulting from fluctuations in currency exchange rates,
revaluation of currencies, and the possible imposition of currency exchange
blockages. In addition, there are risks associated with future adverse political
and economic developments and a limited availability of public information
concerning issuers. Non-U.S. issuers typically are subject to different
accounting, auditing and financial reporting standards. Securities of many
non-U.S. companies may be less liquid and their prices more volatile than those
of
8
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domestic companies. There is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of a non-U.S. issuer, including the withholding of dividends. In
addition, non-U.S. issuers may have computer systems that are not Year 2000
compliant.
Non-U.S. securities may be subject to taxes imposed by foreign governments that
would reduce the net yield on such securities. Investment in non-U.S. securities
may result in higher expenses due to the cost of converting foreign currency
into U.S. dollars, the payment of fixed brokerage commissions on foreign
exchanges (which generally are higher than commissions on U.S. exchanges) and
the expense of maintaining securities with non-U.S. custodians.
Investments in non-U.S. securities include securities issued by European
issuers. On January 1, 1999, the countries participating in the European
Monetary Union ("EMU") implemented a new currency unit, the Euro, which is
reshaping financial markets, banking systems and monetary policies in Europe and
other parts of the world. Although it is not possible to predict the eventual
impact of the Euro implementation plan on the Funds, the transition to the Euro
may change the economic environment and behavior of investors, particularly in
European markets. Certain European investments may be subject to additional
risks as a result of this conversion. These risks include adverse tax and
accounting consequences, as well as difficulty in processing transactions.
Depositary Receipts. American Depositary Receipts ("ADRs") are receipts issued
by a U.S. bank or trust company for the shares of a non-U.S. based corporation
held in the vault of a U.S. bank and entitling the shareholder to all dividends
and capital gains. ADRs may not necessarily be denominated in U.S. dollars,
rather they may be denominated in the currency of the underlying issuers'
country. Issuers of the stock of unsponsored depositary receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the depositary receipts. For purposes of determining the country of issuance,
investments in ADRs are deemed to be investments in U.S. securities if the
underlying issuer is organized under the laws of the U.S, has its principal
trading market in the U.S., or derives at least 50% of its assets, revenues or
profits from the U.S.
Illiquid Securities. The Funds will limit their investments in illiquid
securities to no more than 15% of their net assets. Some examples of illiquid
securities are the following:
1. direct placements or other securities that are subject to legal or
contractual restrictions on resale or for which there is no readily
available market;
2. over-the-counter options; and
3. repurchase agreements not terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund may
not be able to realize their full value upon sale. Alternatively, a Fund may not
be able to readily sell the securities. The Adviser will monitor the liquidity
of a Fund's investments in illiquid securities. Generally, less public
information is available about the issuers of these securities than about
companies whose securities are traded on an exchange. To the extent that these
securities are foreign securities, there is no law in many of the countries in
which a Fund may invest similar to the Securities Act of 1933 requiring an
issuer to register the sale of securities with a governmental agency or imposing
legal restrictions on resales of securities, either as to length of time the
securities may be held or manner of resale. However, there may be contractual
restrictions on resales of non-publicly traded foreign securities. Rule 144A
securities will not be treated as "illiquid" for purposes of this limit on
investments.
Investment Companies. The Funds may invest a limited amount of their assets in
shares of other investment companies which have similar objectives to the Funds'
permitted investments. Investments in other mutual funds may involve the payment
of substantial premiums above the value of such investment companies' portfolio
securities. As a shareholder in an investment company, the Funds would bear
their proportionate share of that investment company's expenses, including its
advisory and administrative fees. At the same time the Choice Technology Fund or
the Strategic Growth Fund would continue to generate its own management fees and
other expenses. In addition, such investments are subject to limitations under
the Investment Company Act of 1940 ("1940 Act") and market availability.
9
<PAGE>
Options. A call option is a contract that gives the holder the right to buy from
the seller the security underlying the call option at a pre-determined price
while a put option is a contract that gives the buyer the right to require the
seller to purchase the security underlying the put option at a pre-determined
price.
The Funds may write covered call options on individual securities or stock
indices. For the Funds, this practice will only be used to minimize the effect
of a market decline in the value of securities in their respective portfolios.
We cannot guarantee that, should a Fund seek to enter into such transactions, it
could do so at all or on terms that are acceptable. The Funds may purchase and
sell put and call options on securities, currencies and financial indices that
are traded on U.S. or non-U.S. securities exchanges or in the over-the-counter
market. (Options traded in the over-the-counter market are considered illiquid
investments.)
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that rather than the right to take or make delivery
of a security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the contract
at a specified price on a specified date. A "purchase" of a futures contract
means the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a specified price on
a specified date. The purchaser of a futures contract on an index agrees to take
or make delivery of an amount of cash equal to the difference between a
specified dollar multiple of the value of the index on the expiration date of
the contract ("current contract value") and the price at which the contract was
originally struck. No physical delivery of the securities underlying the index
is made.
A Fund may purchase options on futures contracts written or purchased by a Fund
that are traded on U.S. or foreign exchanges or over-the-counter. These
investment techniques will be used only to hedge against anticipated future
changes in market conditions and interest or exchange rates which otherwise
might either adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of securities which the Fund intends to purchase at
a later date.
No Fund will enter into any futures contracts or options on futures contracts if
immediately thereafter the market values of the outstanding futures contracts of
the Fund and the currencies and futures contracts subject to outstanding options
written by the Fund would exceed 30% of its total assets.
[side bar]
Year 2000 Readiness Disclosure. Many computer systems used today cannot tell the
year 2000 from the year 1900 because of the way dates are encoded. This could be
a problem when the year 2000 arrives and could affect security trades, interest
and dividend payments, pricing and accounting services.
Although the Funds can't guarantee that this won't be a problem, the Funds'
service providers have been working on adapting their computer systems. They
expect that their systems, and the systems of their service providers, will be
ready for the new millennium. Many foreign governments, as well as many issuers
of non-U.S. securities, may not have computer systems that are ready for the
Year 2000. To the extent either Fund invests in non-U.S. issuers, and such
investments are negatively affected by the Year 2000 issue, that Fund may suffer
a reduction in its net asset value, total return or yield.
In addition, issuers of securities in which the Funds invest may also encounter
Year 2000 problems. If these problems are significant and are not corrected, the
securities markets in general could decline and the issuers that have Year 2000
problems could see the prices for their securities decline. If a Fund owns
securities of an issuer with a Year 2000 problem or securities markets in
general decline, the NAV of the Fund would likely decline and you could lose
money.
[end side bar]
10
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FUND MANAGEMENT
DLJ Investment Management Corp., a Delaware corporation with principal offices
at 277 Park Avenue, New York, New York 10172 ("DLJIM"), serves as the investment
adviser for the Funds. DLJIM is a subsidiary of Donaldson, Lufkin & Jenrette
Securities Corporation, which is a member of the New York Stock Exchange and a
wholly-owned subsidiary of Donaldson, Lufkin & Jenrette, Inc. ("DLJ") a major
international supplier of financial services. DLJ is an independently operated,
indirect subsidiary of AXA Financial Inc., a holding company controlled by AXA,
a member of a large French insurance group. AXA is indirectly controlled by a
group of four French mutual insurance companies.
The following individual is responsible for management of the DLJdirect Funds.
Hugh M. Neuburger, Ph.D., is the primary portfolio manager of the Strategic
Growth Fund and Choice Technology Fund. He has also served as the primary
manager of the DLJ Winthrop Growth Fund and co-portfolio manager of the DLJ
Winthrop Growth and Income Fund and the DLJ Winthrop Small Company Value Fund
since August 1995. Mr. Neuburger is Managing Director and Director of
Quantitative Analysis of the Adviser and has been an employee of an affiliate of
DLJIM since March 1995. From 1992 to March 1995, Mr. Neuburger was the president
of Hugh M. Neuburger, Inc., a consulting firm upon which Mr. Neuburger provided
domestic and global tactical asset allocation advice and other consulting
services to large corporate and state pension plans. From 1986 through 1991, Mr.
Neuburger was Managing Director of Matrix Capital Management, an investment
management firm. Prior to 1986, Mr. Neuburger managed asset allocation
portfolios for Prudential Insurance Company of America.
DISTRIBUTION CHARGES
Each Fund has adopted 12b-1 Plans pursuant to the rules of the 1940 Act. These
plans allow each Fund to collect distribution and service fees for the sale and
servicing of each Fund's shares. Since these fees are paid out of each Fund's
assets on an on-going basis, over time these fees will increase the cost of your
investment. These fees may cost you more than paying other types of sales
charges.
[side bar]
Distribution and Service Fees: Distribution and Service Fees are used to
compensate DLJSC, the Funds' Distributor ("Distributor") for expenses incurred
to promote the sale of shares and the servicing of accounts of each Fund.
The expenses incurred by the Distributor under the 12b-1 Plans include the
preparation, printing and distribution of prospectuses, sales brochures and
other promotional materials sent to prospective shareholders. They also include
purchasing radio, television, newspaper and other advertising and compensating
the Distributor's employees or employees of the Distributor's affiliates for
their distribution assistance.
Distribution fees also allow the Distributor to compensate broker-dealers or
other persons for providing distribution assistance, as well as financial
intermediaries for providing administrative and accounting services for their
account holders.
[end side bar]
SHAREHOLDER SERVICING
The Funds' Shareholder Servicing Plan permits each Fund to pay banks,
broker-dealers or other financial institutions (including DLJSC and its
affiliates) for shareholder support services they provide, at a rate of up to
0.25% of the average daily net assets of each Fund. These services may include,
among other services, providing general shareholder liaison services (including
responding to shareholder inquiries), providing information on shareholder
investments, and establishing and maintaining shareholder accounts and records.
11
<PAGE>
DIVIDEND AND DISTRIBUTION INFORMATION
The Funds distribute at least annually any net investment income and any net
realized capital gains. The Funds may also make distributions on a more frequent
basis to comply with Federal tax requirements. For purposes of this calculation,
net investment income consists of all accrued interest income on Fund assets
less the Fund's expenses applicable to that dividend period.
For your convenience, dividends and capital gains are automatically reinvested
in your Fund. If you ask us to pay the distributions in cash, your DLJdirect
Account will be credited instead of purchasing more shares of your Fund.
TAXES
As with any investment, you should consider how your investment in the Funds
would be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax consequences. For federal income tax
purposes, a Fund's income and short-term capital gain distributions are taxed as
ordinary income. Long-term capital gain distributions are taxed as capital
gains. Your distributions may also be subject to state and local income taxes.
The distributions are taxable when they are paid, whether you receive them in
cash or participate in the dividend reinvestment program. It is anticipated that
each January, DLJdirect will mail you a form indicating the federal tax status
of dividends and capital gains distributions earned from your securities,
including the Funds, held within your DLJdirect Account. For individuals,
long-term capital gains are generally subject to a maximum tax rate of 20%. If
you hold shares in a tax-deferred retirement account, your distributions will be
taxed when you receive a distribution from your tax-deferred account.
When you redeem your shares, the tax treatment of any gains or losses may be
affected by the length of time for which you hold your shares.
As a shareholder, you must provide DLJdirect with a correct taxpayer
identification number (generally your Social Security number) and certify that
you are not subject to backup withholding. If you fail to do so, the IRS can
require DLJdirect to withhold 31% of your taxable distributions and redemptions.
Federal law also requires DLJdirect to withhold 30% or the applicable tax treaty
rate from dividends paid to certain non-resident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
Please see the "Statement of Additional Information" for your Fund for more
information on the tax consequences of your investment. You should also consult
your own tax adviser for further information.
BACK COVER
FOR MORE INFORMATION
General Information and Other Available Information
The Funds will send out a semi-annual report and an annual report to
shareholders of the DLJdirect Funds. These reports include a list of the Fund's
investments and financial statements. The annual report will contain a statement
from the Fund's Adviser discussing market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
The Funds have a Statement of Additional Information that contains additional
information on all aspects of the Funds and are incorporated by reference into
this Prospectus. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is available for review at the SEC's
Public Reference Room in Washington, DC (1-800-SEC-0330) or on the SEC's web
site at http://www.sec.gov. You can also obtain copies of Fund documents filed
with the SEC by writing:
Securities and Exchange Commission
Public Reference Section
12
<PAGE>
Washington, DC 20549-6009
Payment of a duplicating fee may be required.
Shareholders may obtain any of these documents free of charge and may request
other information about the Funds by calling DLJdirect at 800-825-5723 or go to
www.DLJdirect.com. DLJdirect, Inc. is located at Harborside Financial Center,
501 Plaza II, Jersey City, NJ 07311.
DLJdirect is a trademark of DLJ Long Term Investment Corporation
DLJdirect FUNDS
SEC file numbers: 811-09531
13
<PAGE>
DLJdirect Mutual FUNDS
277 PARK AVENUE,
NEW YORK, NEW YORK 10172
Toll Free (800) 825-5723
STATEMENT OF ADDITIONAL INFORMATION
November 16, 1999
This Statement of Additional Information relates to the DLJdirect
Strategic Growth Fund and the DLJdirect Choice Technology Fund. Each Fund is a
series of the DLJdirect Mutual Funds (the "DLJdirect Funds" or the "Funds").
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Funds' current Prospectus dated November , 1999, as
supplemented from time to time, which is incorporated herein by reference. A
copy of the Prospectus may be obtained by contacting the Funds at the address or
telephone number listed above.
14
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
FUND HISTORY.......................................................................................................
INVESTMENT POLICIES AND RESTRICTIONS...............................................................................
MANAGEMENT.........................................................................................................
Adviser.........................................................................................................
EXPENSES OF THE FUNDS..............................................................................................
General.........................................................................................................
Distribution Plan...............................................................................................
PURCHASES, REDEMPTIONS, AND EXCHANGES
Purchases.......................................................................................................
Redemptions.....................................................................................................
Exchanges.......................................................................................................
NET ASSET VALUE....................................................................................................
DIVIDENDS, DISTRIBUTIONS AND TAXES
PORTFOLIO TRANSACTIONS.............................................................................................
PORTFOLIO TURNOVER.................................................................................................
INVESTMENT PERFORMANCE INFORMATION.................................................................................
SHARES OF BENEFICIAL INTEREST......................................................................................
GENERAL INFORMATION................................................................................................
Organization and Capitalization.................................................................................
Counsel and Independent Auditors................................................................................
Additional Information..........................................................................................
Financial Statements............................................................................................
APPENDIX...........................................................................................................
</TABLE>
15
<PAGE>
FUND HISTORY
The DLJdirect Mutual Funds were organized on August 3, 1999 as a
business trust under the laws of the state of Delaware. Its shares are currently
divided into two series, the DLJdirect Strategic Growth Fund (the "Growth Fund")
and the DLJdirect Choice Technology Fund (the "Technology Fund") (collectively
referred to as the "Funds"). The Growth Fund and Technology Fund both operate as
diversified open-end management investment companies. The Funds have an
unlimited number of authorized shares of beneficial interest, par value $.001
per share, which may, without shareholder approval, be divided into an unlimited
number of series and an unlimited number of classes.
INVESTMENT POLICIES AND RESTRICTIONS
The following investment policies and restrictions supplement and
should be read in conjunction with the information set forth under the heading
"The DLJdirect Mutual Funds' Investment Objectives and Policies" in the Funds'
Prospectus. Except as noted in the Prospectus, each Fund's investment policies
are not fundamental and may be changed by the Trustees of the Funds without
shareholder approval. Shareholders will be notified prior to a significant
change in such policies. Each Fund's fundamental investment restrictions may not
be changed without shareholder approval as defined in "Fundamental Investment
Restrictions" in this Statement of Additional Information.
It is the policy of the Technology Fund to seek growth of capital by
investing in a broad number of industries that comprise the U.S. domestic
technology sector. It is the policy of the Growth Fund to seek long-term growth
of capital by investing primarily in a limited number of large, carefully
selected companies that DLJ Investment Management Corp. ("DLJIM" or the
"Adviser") believes will achieve superior growth. In addition, each Fund may
invest in any of the securities described below.
Warrants. The Strategic Growth Fund and the Choice Technology Fund each
may invest up to 5% of their respective total assets in warrants. Warrants may
be considered more speculative than certain other types of investments due to
the following:
(1) Holders are not entitled to dividends or voting rights with respect to
the underlying securities;
(2) Warrants do not represent any rights to the assets of the issuing
company;
(3) A warrant's value does not necessarily change in proportion to the
value of the underlying securities; and
(4) A warrant ceases to have value if it is not exercised prior to the
expiration date.
Non-U.S. Securities. The Growth Fund and the Technology Fund may invest
up to 10% of the value of their respective total assets in non-U.S. securities.
Investment in non-U.S. securities involves certain risks not ordinarily
associated with investments in securities of domestic issuers. These risks
include fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange
16
<PAGE>
controls or other foreign governmental laws or restrictions. With respect to
certain countries, there is also the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect investments in those countries. In
addition, the heightened risk of companies, industries and/or countries not
being prepared for the Year 2000 computer problem, could cause a significant
reduction in a fund's net asset value, total return and yield.
There may be less publicly available information about a non-U.S.
company than about a U.S. company. Non-U.S. companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those to which U.S. companies are subject.
Non-U.S. securities markets, while growing in volume, generally have
substantially less trading volume than securities of comparable U.S. companies.
Transaction costs of investing in non-U.S. securities markets generally are
higher than in the U.S. There is generally less government supervision and
regulation of exchanges, brokers and issuers than there is in the U.S. The Funds
may have greater difficulty taking appropriate legal action in non-U.S. courts.
Non-U.S. markets also have different clearance and settlement procedures which
in some markets have at times failed to keep pace with the volume of
transactions, thereby creating substantial delays and settlement failures that
could adversely affect a Fund's performance. Dividend and interest income from
non-U.S. securities will generally be subject to withholding taxes by the
country in which the issuer is located and may not be recoverable by the Funds
or investors.
Options. The Growth Fund and Technology Fund may purchase and sell call
and put options for the purpose of hedging against a decline in the value of
their respective portfolio securities.
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the securities or currency
subject to the option at a specified price (the exercise price or strike price).
The writer, or seller, of a call option, in return for the premium, has the
obligation, upon exercise of the option, to deliver, depending upon the terms of
the option contract, the underlying securities or a specified amount of cash to
the purchaser upon receipt of the exercise price. When a Fund writes a call
option, that Fund gives up the potential for gain on the underlying securities
or currency in excess of the exercise price of the option during the period that
the option is open.
A put option gives the purchaser, in return for a premium, the right,
for a specified period of time, to sell securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. A Fund that sells a put option might, therefore, be obligated to
purchase the underlying securities or currency for more than their current
market price.
17
<PAGE>
If a Fund desires to sell a particular security from its portfolio on
which it has written an option, the Fund will seek to effect a closing purchase
transaction prior to or concurrently with the sale of the security. A closing
purchase transaction is a transaction in which an investor who is obligated as a
writer of an option terminates his obligation by purchasing an option of the
same series as the option previously written. (Such a purchase does not result
in the ownership of an option). A Fund may enter into a closing purchase
transaction to realize a profit on a previously written option or to enable the
Fund to write another option on the underlying security with either a different
exercise price or expiration date or both. A Fund realizes a profit or loss from
a closing purchase transaction if the cost of the transaction is less or more,
respectively, than the premium received from the writing of the option.
A Fund will write only fully "covered" options. An option is fully
covered if at all times during the option period, the Fund writing the option
owns either (i) the underlying securities, or securities convertible into or
carrying rights to acquire the optioned securities at no additional cost, or
(ii) an offsetting call option on the same securities at the same or a lower
price.
A Fund may not write a call option if, as a result thereof, the
aggregate of such Fund's portfolio securities subject to outstanding call
options (valued at the lower of the option price or market value of such
securities) would exceed 10% of its total assets. The Funds may also purchase
and sell financial futures contracts and options thereon for hedging and risk
management purposes and to enhance gains as permitted by the Commodity Futures
Trading Commission (the "CFTC").
A Fund may also purchase and sell securities index options. Securities
index options are similar to options on specific securities. However, because
options on securities indices do not involve the delivery of an underlying
security, the option represents the holder's right to obtain from the writer in
cash a fixed multiple of the amount by which the exercise price exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying securities index on the exercise date. When a Fund writes an option
on a securities index, it will establish a segregated account with its custodian
in which it will deposit cash or high quality short-term obligations or a
combination of both with a value equal to or greater than the market value of
the option and will maintain the account while the option is open.
Each Fund's successful use of options and financial futures depends on
the ability of the Adviser to predict the direction of the market and is subject
to various additional risks. The investment techniques and skills required to
use options and futures successfully are different from those required to select
international securities for investment. The ability of a Fund to close out an
option or futures position depends on a liquid secondary market. There is no
assurance that liquid secondary markets will exist for any particular option or
futures contract at any particular time. The inability to close options and
futures positions also could have an adverse impact on each Fund's ability to
effectively hedge its portfolio. There is also the risk of loss by a Fund of
margin deposits
18
<PAGE>
or collateral in the event of bankruptcy of a broker with whom the Fund has an
open position in an option, a futures contract or related option.
To the extent that puts, calls, straddles and similar investment
strategies involve instruments regulated by the CFTC, each Fund is limited to an
investment not in excess of 5% of its total assets, except that each Fund may
purchase and sell such instruments, without limitation, for bona fide hedging
purposes.
Repurchase Agreements. The Funds may enter into "repurchase agreements"
with member banks of the Federal Reserve System, "primary dealers" (as
designated by the Federal Reserve Bank of New York) in such securities or with
any domestic broker/dealer which is recognized as a reporting government
securities dealer. Repurchase agreements permit a Fund to keep all of its assets
at work while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. The Funds require continual maintenance of collateral with
the Custodian in an amount equal to, or in excess of, the market value of the
securities which are the subject of a repurchase agreement. In the event a
vendor defaults on its repurchase obligation, a Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were less than the
repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a
Fund might be delayed in selling the collateral.
Reverse Repurchase Agreements. The Funds may also enter into reverse
repurchase agreements. Under a reverse repurchase agreement a Fund would sell
securities and agree to repurchase them at a mutually agreed upon date and
price. At the time a Fund enters into a reverse repurchase agreement, it would
establish and maintain with an approved custodian a segregated account
containing liquid high-grade securities having a value not less than the
repurchase price. Reverse repurchase agreements involve the risk that the market
value of the securities subject to such agreement could decline below the
repurchase price to be paid by a Fund for such securities. In the event the
buyer of securities under a reverse repurchase agreement filed for bankruptcy or
became insolvent, such buyer or receiver would receive an extension of time to
determine whether to enforce a Fund's obligations to repurchase the securities
and a Fund's use of the proceeds of the reverse repurchase could effectively be
restricted pending such decision. Reverse repurchase agreements create leverage,
a speculative factor, but are not considered senior securities by the Funds or
the Securities and Exchange Commission ("SEC") to the extent liquid high-grade
debt securities are segregated in an amount at least equal to the amount of the
liability.
Illiquid Investments. The Growth Fund and the Technology Fund may
invest up to 15% of its assets in illiquid investments. Under the supervision of
the Trustees, the Adviser determines the liquidity of a Fund's investments. The
absence of a trading market can make it difficult to ascertain a market value
for illiquid investments. Disposing of illiquid investments may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for a Fund to sell them promptly at an acceptable price. The staff of
the SEC currently takes the position that OTC options purchased by a Fund,
19
<PAGE>
and portfolio securities "covering" the amount of that Fund's obligation
pursuant to an OTC option sold by the Fund (the cost of the sell-back plus the
in-the-money amount, if any) are illiquid, and are subject to such Fund's
limitations on investments in illiquid securities.
Borrowing. Each Fund may borrow up to one-third of the value of its
total assets from banks to increase its holdings of portfolio securities or for
other purposes. Under the Investment Company Act of 1940, as amended (the "1940
Act"), each Fund is required to maintain continuous asset coverage of 300% with
respect to such borrowings. Leveraging by means of borrowing may exaggerate the
effect of any increase or decrease in the value of portfolio securities on an
Fund's net asset value, and money borrowed will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds. The Adviser does not currently intend
to engage in borrowing transactions.
Securities Lending. The Funds may seek to receive or increase income by
lending their respective portfolio securities. Under present regulatory
policies, such loans may be made to member firms of the New York Stock Exchange
and are required to be secured continuously by collateral held by the Custodian
consisting of cash, cash equivalents or U.S. Government Securities maintained in
an amount at least equal to the market value of the securities loaned.
Accordingly, the Funds will continuously secure the lending of portfolio
securities by collateral held by the Custodian consisting of cash, cash
equivalents or U.S. Government Securities maintained in an amount at least equal
to the market value of the securities loaned. The Funds have the right to call
such a loan and obtain the securities loaned at any time on five days notice.
Cash collateral may be invested in fixed income securities rated at least A or
better by S&P or Moody's. As is the case with any extension of credit, loans of
portfolio securities involve special risks in the event that the borrower should
be unable to repay the loan, including delays or inability to recover the loaned
securities or foreclose against the collateral. The aggregate value of
securities loaned by a Fund may not exceed 33 1/3% of the value of the Fund's
total assets.
When Issued, Delayed Delivery Securities and Forward Commitments. The
Funds may, to the extent consistent with their other investment policies and
restrictions, enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time
of the commitment, with payment and delivery taking place in the future,
generally a month or more after the date of the commitment. While a Fund will
only enter into a forward commitment with the intention of actually acquiring
the security, such Fund may sell the security before the settlement date if it
is deemed advisable.
20
<PAGE>
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to a Fund prior to the
settlement date. Each Fund will segregate with its Custodian cash or liquid
high-grade securities in an aggregate amount at least equal to the amount of its
respective outstanding forward commitments.
Short Selling. In these transactions, a Fund sells a security it does
not own in anticipation of a decline in the market value of the security. To
complete the transaction, a Fund must borrow the security to make a delivery to
the buyer. A Fund is obligated to replace the security borrowed by purchasing it
subsequently at the market price at the time of replacement. The price at such
time may be more or less than the price at which the security was sold by the
Fund, which would result in a loss or gain, respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed 25%
of the value of the Funds' net assets. The Funds may not make a short salewhich
results in the Funds having sold short in the aggregate more than 10% of the
outstanding securities of any class of an issuer.
The Funds also may make short sales "against the box" in which the Fund
enters into a short sale of a security it owns.
Until the Funds closes out their short position or replace the borrowed
security, they will: (a) maintain a segregated account, containing permissible
liquid assets, at such a level that the amount deposited in the account plus the
amount deposited with the broker as collateral always equals the current value
of the security sold short; or (b) otherwise cover their short position.
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<PAGE>
Fundamental Investment Restrictions
The following fundamental investment restrictions may not be changed
with respect to a Fund without the approval of a majority of the shareholders of
that Fund, which means the affirmative vote of the holders of (a) 67% or more of
the shares of that Fund represented at a meeting at which more than 50% of the
outstanding shares of the Fund are represented or (b) more than 50% of the
outstanding shares of that Fund, whichever is less. Except as set forth in the
Prospectus, all other investment policies or practices are considered by each
Fund not to be fundamental and accordingly may be changed without shareholder
approval. If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of such restriction.
The following investment restrictions are applicable to each of the
Funds. Briefly, these restrictions provide that a Fund may not:
(1) purchase the securities of any one issuer, other than the
United States Government, or any of its agencies or instrumentalities,
if immediately after such purchase more than 5% of the value of its
total assets would be invested in such issuer or the Fund would own
more than 10% of the outstanding voting securities of such issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to such 5% and 10% limitations;
(2) invest 25% or more of the value of its total assets in
any one industry, provided that, for purposes of this policy, consumer
finance companies, industrial finance companies and gas, electric,
water and telephone utility companies are each considered to be
separate industries;
(3) issue senior securities in excess of 33 1/3% of its total
assets (including the amount of senior securities issued but excluding
any liabilities and indebtedness not constituting senior securities) or
pledge its assets other than to secure such issuances or in connection
with hedging transactions, short sales, when-issued and forward
commitment transactions and similar investment strategies. A Fund's
obligations under swaps are not treated as senior securities;
(4) borrow money (including on margin if margin securities are
owned and enter into reverse repurchase agreements) in excess of 33
1/3% of its total assets except that the Fund may borrow up to 5% of
its total assets for temporary purposes; or
(5) make loans of money or property to any person, except
through loans of portfolio securities, the purchase of fixed income
securities consistent with the Fund's investment objectives and
policies or the acquisition of securities subject to repurchase
agreements;
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(6) underwrite the securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities
a Fund may be deemed to be an underwriter;
(7) purchase real estate or interests therein;
(8) purchase or sell commodities or commodities contracts
except for purposes, and only to the extent, permitted by applicable
law without the Fund becoming subject to registration with the CFTC as
a commodity pool;
(9) make any short sale of securities except in conformity
with applicable laws, rules and regulations and unless, giving effect
to such sale, the market value of all securities sold short does not
exceed 25% of the value of the Fund's total assets and the Fund's
aggregate short sales of a particular class of securities do not exceed
25% of the then outstanding securities of that class; or
(10) invest in oil, gas or other mineral leases.
MANAGEMENT
The Trustees and principal officers of the Funds, their ages and their
primary occupations during the past five years are set forth below. Unless
otherwise specified, the address of each such person is 277 Park Avenue, New
York, New York 10172. Those Trustees whose names are preceded by an asterisk are
"interested persons" of the Funds as defined by the 1940 Act.
*G. Moffett Cochran, 49, Chairman of the Board of Trustees and
President of the DLJdirect Mutual Funds, is President and Chief Executive
Officer of the Adviser with which he has been associated with affiliates of the
Adviser since prior to 1994. Prior to his association with the Funds and the
Adviser, Mr. Cochran was a Senior Vice President with Bessemer Trust Companies.
Robert E. Fischer, 69, Trustee of the DLJdirect Mutual Funds, has been
Member at the law firm Wolf, Block, Schorr and Solis-Cohen LLP (or its
predecessor firm) since prior to 1994.
*Martin Jaffe, 52, Trustee, Vice President, Secretary and Treasurer of
the DLJdirect Mutual Funds, is a Managing Director and Chief Operating Officer
of the Adviser, with which he has been associated with affiliates of the Adviser
since prior to 1994.
Wilmot H. Kidd, III, 57, Trustee of the DLJdirect Mutual Funds, has
been President of Central Securities Corporation since prior to 1994.
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John W. Waller, III, 48, Trustee of the DLJdirect Mutual Funds, has
been Chairman of Waller Capital Corporation, an investment banking firm since
prior to 1994.
Hugh M. Neuburger, Ph.D., 56, Vice President of the DLJdirect Mutual
Funds, is the primary portfolio manager of the Funds and Managing Director of
the Adviser with which he has been associated with affiliates of the Adviser
since March 1995. From 1992 to March 1995, Mr. Neuburger was president of a
consulting firm that provided domestic and global tactical asset allocation
advice.
Brian A. Kammerer, 42, Vice President of the DLJdirect Mutual Funds has
been associated with affiliates of the Adviser since prior to 1994.
The following table sets forth certain information regarding compensation of the
Funds' Trustees and officers. Except as disclosed below, no executive officer or
person affiliated with the Funds received compensation from the Funds.
Compensation Table
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement From Trust
Benefits Accrued and Fund
Aggregate As Part of Trust Estimated Annual Complex
Compensation Expenses Benefits Upon Expected to be
From Retirement Paid to
Name and Position Trust(1) Trustees
<S> <C> <C> <C> <C>
G. Moffett Cochran, Trustee $ 0 None None $ 0(13)
Robert E. Fischer, Trustee $5,000 None None $5,000(8)
Martin Jaffe, Trustee $ 0 None None $ 0(8)
Wilmot H. Kidd, III, Trustee $5,000 None None $5,000(8)
John W. Waller, III, Trustee $5,000 None None $5,000(8)
</TABLE>
- -----------
(1) The DLJdirect Funds anticipate paying each independent Trustee
approximately $5,000 in each calendar year.
(2) The parenthetical number represents the number of portfolios (including the
DLJdirect Funds) for which such person acts as Trustee that are considered
part of the same fund complex as the Funds.
------------------
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<PAGE>
The Trustees of the DLJdirect Funds who are officers or employees of
the Adviser or any of its affiliates receive no remuneration from the DLJdirect
Funds. Each of the Trustees who are not affiliated with the Adviser will be paid
a $1,000 fee for each board meeting attended. Messrs. Cochran and Jaffe are
members of the Executive Committee. Messrs. Fisher, Kidd and Waller are members
of the Audit Committee and are paid a $500 fee for each Audit Committee meeting
attended.
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<PAGE>
Adviser
DLJIM, a Delaware corporation with principal offices at 277 Park
Avenue, New York, New York 10172, has been retained under an Investment Advisory
Agreement as the Funds' investment adviser (see "Fund Management" in the
Prospectus). The Adviser was established in 1996 to serve a select group of
individuals and institutional investors.
The Adviser is (since 1996) a wholly-owned subsidiary of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ Securities" or the
"Distributor"), the distributor of the Fund's shares, which is a wholly-owned
subsidiary of Donaldson, Lufkin & Jenrette, Inc., which is in turn an
independently operated, indirect subsidiary of AXA Financial Inc. ("AXA
Financial"), a holding company controlled by AXA, a French insurance and
financial services holding company. The Adviser along with its affiliates are an
integral part of the DLJ Securities family, and as one of the oldest money
management firms in the country, they maintain a tradition of personalized
service and performance. The address of DLJ Securities, Inc. is 277 Park Avenue,
New York, New York 10172. The address of ECI is 787 Seventh Avenue, New York,
New York 10019.
As of August 1, 1999, AXA owns 59.6% of the outstanding shares of the
common stock of AXA Financial. AXA is the holding company for an international
group of insurance and related financial services companies. AXA's insurance
operations include activities in life insurance, property and casualty insurance
and reinsurance. The insurance operations are diverse geographically, with
activities principally in Western Europe, North America and the Asia/Pacific
region and to a lesser extent, in Africa and South America. AXA is the second
largest insurance group in the world based on worldwide revenue in 1997 and the
largest French Insurance group based on worldwide gross premiums in 1997. AXA is
the largest insurance group in the world based on assets under management at
December 31, 1997. In addition to insurance and asset management. AXA is engaged
in investment banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States, as well as in
Europe and the Asia/Pacific region. Based on information provided by AXA, as of
August 1, 1999, 20.8% of the issued ordinary shares (representing 32.7% of the
voting power) of AXA were directly or indirectly owned by Finaxa, a French
holding company ("Finaxa"). Such percentage of interest includes the interest of
les Ateliers de Construction du Nord de la France-ANF ("ANF"), a 95.4% owned
subsidiary of Finaxa, which owned 0.4% of the issued ordinary shares
(representing 0.4% of the voting power) of AXA. As of August 1, 1999, 61.7% of
the issued ordinary shares (representing 72.3% of the voting power) of Finaxa
were owned by four French mutual insurance companies -- (the "Mutuelles AXA")
and 22.7% of the issued ordinary shares (representing 13.7% of the voting power)
of Finaxa were owned by Paribas, a French bank. Including the ordinary shares
owned by Finaxa and its subsidiary on August 1, 1999, the Mutuelles AXA directly
and indirectly owned 23.9% of the issued ordinary shares of AXA (representing
37.6% of the voting power). Acting as a group, the Mutuelles AXA will continue
to control AXA and Finaxa.
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<PAGE>
The Investment Advisory Agreement was approved by the Board of Trustees
of the Funds on July 15, 1999 and by the then shareholder on November , 1999
and became effective on the same date. The Investment Advisory Agreement
continues in force for and initial twenty four month period and then in
successive twelve month periods provided that such continuation is specifically
approved by a majority vote of the Trustees who neither are interested persons
of the Funds nor have any direct or indirect financial interest in the
Investment Advisory Agreement, cast in person at a meeting called for the
purpose of voting on such approval.
Under its Advisory Agreement with the Funds, the Advisor will provide
investment advisory services, order placement facilities and pay all
compensation of Trustees of the Funds who are affiliated persons of the Advisor.
The Funds will pay the Advisor at the following annual percentage rates of the
average daily net assets of each Fund: Growth Fund, .750 of 1% of the first
$500,000,000, .625% of 1% of the balance; and the Technology Fund, .875 of 1% of
the first $500,000,000, .750 of 1% of the next $500,000,000. and .625 of 1% of
the balance.
Pursuant to the terms of the Investment Advisory Agreement, the Adviser
may retain, at its own expense, a subadviser to assist in the performance of its
services to the Funds.
Distribution Plan
Pursuant to Rule 12b-1 adopted by the SEC under the 1940 Act, the Funds
have adopted a Distribution Agreement (the "Distribution Agreement") and a Rule
12b-1 Plan for shares of each Fund (the "12b-1 Plans") to permit such Fund
directly or indirectly to compensate the Distributor for activities with the
distribution of shares.
Pursuant to the Distribution Agreement and the 12b-1 Plans, the
Treasurer of the Funds reports the amounts expended under the Distribution
Agreement and the purposes for which such expenditures were made to the Trustees
of the Funds on a quarterly basis. Also, the 12b-1 Plans provide that the
selection and nomination of disinterested Trustees (as defined in the 1940 Act)
are committed to the discretion of the disinterested Trustees then in office.
The Distribution Agreement and 12b-1 Plans may be continued annually if approved
by a majority vote of the Trustees, including a majority of the Trustees who
neither are interested persons of the Funds nor have any direct or indirect
financial interest in the Distribution Agreement, the 12b-1 Plans or in any
other agreements related to the 12b-1 Plans, cast in person at a meeting called
for the purpose of voting on such approval. The Distribution Agreement and 12b-1
Plans were initially approved by the Funds' Trustees including a majority of the
disinterested Trustees, on July 15, 1999 and by the then shareholders on
November , 1999. All material amendments to the 12b-1 Plans must be approved
by a vote of the Trustees, including a majority of the Trustees who neither are
interested persons of the Funds nor have any direct or indirect financial
interest in the 12b-1 Plans or any related agreement, cast in person at a
meeting called for the purpose of voting on such approval. In addition to such
Trustee approval, the 12b-1 Plans may not be amended in order to increase
materially the costs which the Funds may bear pursuant to the 12b-1 Plans
without the approval of a majority of the outstanding
27
<PAGE>
shares of such Funds. Each Fund's 12b-1 Plan or Plans may be terminated without
penalty at any time by a majority vote of the disinterested Trustees, by a
majority vote of the outstanding shares of a Fund or by the Adviser. Any
agreement related to the 12b-1 Plans may be terminated at any time, without
payment of any penalty, by a majority vote of the independent Trustees or by
majority vote of the outstanding shares of a Fund on not more than 60 days
notice to any other party to the agreement, and will terminate automatically in
the event of assignment.
Pursuant to the provisions of the 12b-1 Plans and the Distribution
Agreement, the maximum allowable amount payable for distributing shares is
.50 of 1% of the average daily net assets of each Fund. The Board of Trustees
has currently limited the amount payable to .25 of 1% of the average daily net
assets of each Fund.
Under the Agreements, the Adviser may make payments to the Distributor from the
Adviser's own resources, which may include the management fees paid by the
Funds. In addition to the maintenance fee paid to dealers or agents, the
Distributor may from time to time pay additional compensation to dealers or
agents in connection with the sale of shares. Such additional amounts may be
utilized, in whole or in part, in some cases together with other revenues of
such dealers or agents, to provide additional compensation to registered
representatives of such dealers or agents who sell shares of the Fund. On some
occasions, such compensation will be conditioned on the sale of a specified
minimum dollar amount of the shares of the Funds during a specific period of
time. Such incentives may take the form of payment for meals, entertainment, or
attendance at educational seminars and associated expenses such as travel and
lodging. Such dealer or agent may elect to receive cash incentives of equivalent
amounts in lieu of such payments.
PURCHASES, REDEMPTIONS, AND EXCHANGES
The following information supplements that set forth in the Funds' Prospectus
under the heading "Purchases, Redemptions and Shareholder Services."
Purchases
Shares of the Funds are offered at the net asset value per share next
determined following receipt of a purchase order in proper form by DLJdirect,
Inc. ("DLJdirect"). The Funds calculate net asset value per share as of the
close of the regular session of the New York Stock Exchange, (the "NYSE") which
is generally 4:00 p.m. New York City time on each day that trading is conducted
on the NYSE.
All shares purchased are confirmed to each shareholder and are credited
to such shareholder's account at net asset value. Share certificates will not be
issued for full or fractional shares of the Funds. This eliminates the
requirement of share certificates being presented upon redemption and relieves
the shareholder of the responsibility and inconvenience of preventing the share
certificates from becoming lost or stolen.
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<PAGE>
Shareholders maintaining accounts through brokerage firms and other
institutions should be aware that such institutions may necessarily set
deadlines for receipt of transaction orders from their clients that are earlier
than the transaction times of the Fund itself so that the institutions may
properly process such orders prior to their transmittal to the Fund or the
Distributor. Should an investor place a transaction order with such an
institution after its deadline, the institution may not effect the order with
the Fund until the next business day. Accordingly, an investor should
familiarize himself or herself with the deadlines set by his or her institution.
(For example, a brokerage firm may accept purchase orders from its customers up
to 2:15 p.m. for issuance at the 4:00 p.m. transaction time and price.) A
brokerage firm acting on behalf of a customer in connection with transactions in
Fund shares is subject to the same legal obligations imposed on it generally in
connection with transactions in securities for a customer, including the
obligation to act promptly and accurately.
Redemptions
Shares of the Funds may be redeemed at a redemption price equal to the
net asset value per share, as next computed as of the regular trading session of
the NYSE following the receipt in proper form by the Funds of the shares
tendered for redemption.
Payment of the redemption price may be made either in cash or in
portfolio securities (selected in the discretion of the Trustees and taken at
their value used in determining the redemption price), or partly in cash and
partly in portfolio securities. However, payments will be made wholly in cash
unless the Trustees believe that economic conditions exist which would make such
a practice detrimental to the best interest of the Funds. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash.
The right of redemption may not be suspended or the date of payment
upon redemption postponed for more than seven days after shares are tendered in
proper form for redemption, except for any period during which the NYSE is
closed (other than customary weekend and holiday closings) or during which
trading on the exchange is deemed to be restricted under rules of the SEC, or
for any period during which an emergency (as determined by the SEC) exists as a
result of which disposal by the Growth Fund or Technology Fund of its portfolio
securities is not reasonably practicable, or as a result of which it is not
reasonably practicable for the Growth Fund or Technology Fund to determine the
value of its net assets, or for such other period as the SEC may by order permit
for the protection of shareholders. Generally, redemptions will be made by
payment in cash or by check.
29
<PAGE>
Exchanges
The Shares of a DLJdirect Fund can be exchanged for shares of the other
DLJdirect Fund. Shareholders may exchange shares by calling an Investor Services
Representative at 1.800.825.5873 or through the DLJdirect website
(www..DLJdirect.com).
The exchange privilege is available only in those jurisdictions where
shares of such Fund may be legally sold.
The minimum initial exchange into another Fund is $1,000. The Funds
impose no separate charge for exchanges. However, investors may be charged a
transaction fee for exchanges made through DLJdirect.
The exchange privilege is intended to provide shareholders with a
convenient way to switch their investments when their objectives or perceived
market conditions suggest a change. The exchange privilege is not meant to
afford shareholders an investment vehicle to play short-term swings in the stock
market by engaging in frequent transactions in and out of all the Funds.
Shareholders who engage in such frequent transactions may be prohibited from or
restricted in placing future exchange orders.
Exchanges of shares are subject to the other requirements of the Fund
into which exchanges are made. Annual fund operating expenses for such fund may
be higher. See "Annual Fund Operating Expenses" and "Purchases, Redemptions and
Shareholder Services-Exchanges "in the Prospectus for a description of these
expense differences.
NET ASSET VALUE
Shares of each Fund will be priced at the net asset value per share as
computed each Fund Business Day in accordance with the Funds' Agreement and
Declaration of Trust and By-Laws. For this purpose, a Fund Business Day is any
day on which the NYSE is open for business, typically, Monday through Friday
exclusive of New Year's Day, Martin Luther King Jr. Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and
Good Friday.
The net asset value of the shares of each Fund is determined as of the
close of the regular session on the NYSE, which is generally at 4:00 p.m., New
York City time, on each day that trading is conducted on the NYSE. The net asset
value per share is calculated by taking the sum of the value of each Fund's
investments and any cash or other assets, subtracting liabilities, and dividing
by the total number of shares outstanding. All expenses, including the fees
payable to the Adviser, are accrued daily.
For purposes of the computation of net asset value, each of the Funds
values securities held in its respective portfolios as follows: readily
marketable portfolio securities listed on an exchange are valued, except as
indicated below, at the last sale price at the close of the exchange on the
business day as of which such value is being
30
<PAGE>
determined. If there has been no sale on such day, the securities are valued at
the mean of the closing bid and asked prices on such day. If no bid or asked
prices are quoted on such day, then the security is valued by such method as the
Trustees of the Funds shall determine in good faith to reflect its fair value.
Readily marketable securities, including certain options, not listed on
an exchange but admitted to trading on the National Association of Securities
Dealers Automatic Quotations, Inc. ("NASDAQ") National Market System (the
"System") are valued in like manner. Portfolio securities traded on more than
one exchange are valued at the last sale price on the business day as of which
such value is being determined at the close of the exchange representing the
principal market for such securities.
Readily marketable securities, including certain options traded only in
the over-the-counter market and listed securities whose primary market is
believed by the Adviser to be over-the-counter (excluding those admitted to
trading on the List) are valued at the mean of the current bid and asked prices
as reported by such sources as the Trustees of the Funds deem appropriate to
reflect their fair market value. However, fixed-income securities (except
short-term securities) may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Adviser to reflect the fair
market value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. The money market securities in which each Fund
invests are traded primarily in the over-the-counter market and are valued at
the mean between most recent bid and asked prices as obtained from dealers that
make markets in such securities, except for securities having 60 days or less
remaining until maturity which are stated at amortized cost. Portfolio
securities underlying listed call options will be valued at their market price
and reflected in net assets accordingly. Premiums received on call options
written by a Fund will be included in the liability section of the Statement of
Assets and Liabilities as a deferred credit and subsequently adjusted
(marked-to-market) to the current market value of the option written.
Investments for which market quotations are not readily available are valued at
fair value as determined in good faith by the Trustees of the Funds.
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<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Funds intend to distribute to shareholders of the Funds on an
annual basis, substantially all of such respective periods' investment company
taxable income, if any, for each respective Fund. Such distributions generally
will be taxable to shareholders as ordinary income for federal income tax
purposes. Since each Fund is treated as a single entity for Federal income tax
purposes, the performance of one Fund will have no effect on the income tax
liability of shareholders of another Fund.
Upon a redemption or other disposition of shares of a Fund, a
shareholder will generally recognize gain or loss in an amount equal to the
difference between the amount realized and the shareholder's tax basis in such
shares. Generally, such gain or loss will be capital gain or loss, if the shares
are held as capital assets and will be long-term capital gain or loss if the
shareholder's holding period for such shares exceeds one year.
Capital gains, if any, realized by each of the Funds during their
fiscal year will be distributed to the respective shareholders shortly after the
end of such fiscal year. Distributions of the Funds' net capital gain, when
designated as such, will be taxable to shareholders as long-term capital gain,
regardless of how long the shareholders have held their shares.
Each income dividend and capital gains distribution, if any, declared
by the Funds on the outstanding shares of any Fund will, at the election of each
shareholder, be paid in cash or reinvested in additional full and fractional
shares of that Fund at the net asset value as of the close of business on the
date identified for reinvestment. Such distributions, to the extent they would
otherwise be taxable, will be taxable to shareholders regardless of whether paid
in cash or reinvested in additional shares. An election to receive dividends and
distributions in cash or shares is made at the time of the initial investment
and may be changed by notice received by the Funds from a shareholder at least
30 days prior to the record date for a particular dividend or distribution on
shares of each Fund. There is no charge in connection with the reinvestment of
dividends and capital gains distributions.
For Federal income tax purposes, dividends that are declared by a Fund
in October, November or December of any year and payable to shareholders of
record on a specified date in such a month and actually paid in January of the
following year will be treated as if they were paid on December 31 of the year
in which they were declared. Therefore, such dividends will generally be taxable
to a shareholder in the year declared rather than the year paid.
Shareholders will be advised annually as to the Federal tax status of
dividends and capital gains distributions made by each Fund for the preceding
year.
There is no fixed dividend rate and there can be no assurance that a
Fund will pay any dividends or realize any gains. The amount of any dividend or
distribution paid by each Fund depends upon the realization by the Fund of
income and capital gains from
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<PAGE>
that Fund's investments. All dividends and distributions will be made to
shareholders of a Fund solely from assets of that Fund.
Payment (either in cash or in portfolio securities) received by a
shareholder upon redemption of his shares, or an exchange of shares in one Fund
for shares in another fund, assuming the shares constitute capital assets in his
hands, will result in long-term or short-term capital gains (or losses)
depending upon the shareholder's holding period and basis in respect of shares
redeemed. Any loss realized by a shareholder on the sale of Fund shares held for
six months or less will be treated for Federal income tax purposes as a
long-term capital loss to the extent of any distributions of long-term capital
gains received by the shareholder with respect to such shares. Note that any
loss realized on the sale of shares will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before the
disposition of such shares. In such case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.
Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), so that it will not be liable for Federal income taxes to the extent
that its net taxable income and net capital gains are distributed to
shareholders. Accordingly, each Fund must, among other things, (a) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or other foreign currencies, or other income
(including but not limited to gains from futures and forward contracts) derived
with respect to its business of investing in stock, securities or currencies;
and (b) diversify its holdings so that, at the end of each fiscal quarter, (i)
at least 50% of the market value of the Fund's assets is represented by cash,
cash items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect of any one issuer, to
an amount not greater than 5% of the value of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other RICs) or of two or more
issuers which the Fund controls and which are engaged in the same or related
trades or businesses. Foreign currency gains that are not 'directly related' to
the Fund's principal business of investing in stock or securities may be
excluded by Treasury Regulations from income that counts toward the 90% of gross
income requirement described above. The Treasury Department has not yet issued
any such regulations.
A dividend or capital gains distribution with respect to shares of any
Fund held by a tax-deferred or qualified retirement plan, such as an IRA, Keogh
Plan or corporate pension or profit sharing plan, will not be taxable to the
plan. Distributions from such plans will be taxable to individual participants
under applicable tax rules without regard to the character of the income earned
by the qualified plan.
As a regulated investment company, each Fund will not be subject to
Federal income tax on income and gains distributed to shareholders if it
distributes at least 90% of its investment company taxable income to
shareholders each year but will be subject to
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<PAGE>
tax on its income and gains to the extent that it does not distribute to its
shareholders an amount equal to such income and gains. In addition, each Fund
will be subject to a nondeductible 4% excise tax on the excess, if any, of
certain required distribution amounts over the amounts actually distributed by
that Fund. To the extent practicable, each Fund intends to make such
distributions as may be necessary to avoid this excise tax.
Some of the investment practices of each Fund are subject to special
provisions that, among other things, may defer the use of certain losses of such
Funds and affect the holding period of the securities held by the Funds and,
particularly in the case of transactions in or with respect to foreign
currencies, and in the case of certain hedges or appreciated securities, the
character of the gains or losses realized. These provisions may also require the
Fund to mark-to-market some of the positions in their respective portfolios
(i.e., treat them as if they were closed out), which may cause such Funds to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the distribution requirements for qualification as
a regulated investment company and for avoiding income and excise taxes. Each
Fund will monitor its transactions and may make certain tax elections in order
to mitigate the effect of these rules and prevent disqualification of the Fund
as a regulated investment company.
Each Fund is required to withhold and remit to the U.S. Treasury 31% of
the dividends, capital gain distributions or the proceeds of any redemptions or
exchanges of shares with respect to any shareholder who fails to furnish the
Funds with a correct taxpayer identification number, who under-reports dividend
or interest income or who fails to certify to the Funds that he or she is not
subject to such withholding. An individual's tax identification number is his or
her social security number.
The foregoing is only a brief summary of some of the material U.S.
federal income tax considerations generally relating to an investment in the
Funds. It is based upon the Code, applicable Treasury regulations and
administrative rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof and which are subject to change, possibly with
retroactive effect. This summary is directed to investors who are U.S. persons
(as determined for U.S. federal income tax purposes) and does not purport to
discuss all of the income tax consequences applicable to the Funds or to all
categories of investors, some of whom may be subject to special rules (including
dealers in securities, insurance companies, non-U.S. persons and tax-exempt
entities). Investors are urged to consult their tax advisers regarding the
specific U.S. federal income tax consequences of an investment in the Funds, as
well as the effects of state, local and foreign tax laws and any proposed tax
law changes.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Trustees of the
Funds, the Adviser is responsible for the investment decisions and the placing
of the orders for portfolio transactions for the Funds. Portfolio transactions
for the Funds are normally effected by brokers.
34
<PAGE>
The Funds have no obligation to enter into transactions in portfolio
securities with any broker, dealer, issuer, underwriter or other entity. In
placing orders, it is the policy of the Funds to obtain the best price and
execution for its transactions. Where best price and execution may be obtained
from more than one broker or dealer, the Adviser may, in its discretion,
purchase and sell securities through brokers and dealers who provide research,
statistical and other information to the Adviser. Such services may be used by
the Adviser for all of their investment advisory accounts, and accordingly, not
all such services may be used by the Adviser in connection with the Funds. If a
Fund determines in good faith that the amount of transaction costs charged by a
broker or dealer is reasonable in relation to the value of the brokerage and
research and statistical services provided by the executing broker or dealer,
the Fund may utilize such broker or dealer although the transaction costs of
another broker or dealer are lower. The supplemental information received from a
broker or dealer is in addition to the services required to be performed by the
Adviser under the Investment Advisory Agreement, and the expenses of the Adviser
will not necessarily be reduced as a result of the receipt of such information.
Neither the Funds, nor the Adviser on behalf of the Funds have entered
into agreements or understandings with any broker or dealer regarding the
placement of securities transactions. Because of research or information to the
Adviser for use in rendering investment advice to the Funds, such information
may be supplied at no cost to the Adviser and, therefore, may have the effect of
reducing the expenses of the Adviser in rendering advice to the Funds. While it
is impossible to place an actual dollar value on such investment information,
its receipt by the Adviser probably does not reduce the overall expenses of the
Adviser to any material extent.
The investment information provided to the Adviser is of the types
described in Section 28(e)(3) of the Securities Exchange Act of 1934 and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. Research and statistical services furnished by brokers through
which the Funds effect securities transactions are used by the Adviser in
carrying out their investment management responsibilities with respect to all
their client accounts but not all such services may be utilized by the Adviser
in connection with the Funds.
The Funds may deal in some instances in equity securities which are not
listed on an exchange but are traded in the over-the-counter market. Where
transactions are executed in the over-the-counter market, the Funds seek to deal
with the primary market-makers, but when necessary in order to obtain the best
price and execution, it utilizes the services of others. In all cases, the Funds
will attempt to negotiate best execution.
The Funds may from time to time place orders for the purchase or sale
of securities (including listed call options) with DLJ Securities, the Funds'
Distributor or other affiliates in accordance with the provisions of Section
11(a) of the Securities Exchange Act of 1934 referred to below. With respect to
orders placed with DLJ Securities for execution on a national securities
exchange, commissions received must conform to Section 17(e)(2)(A) of the 1940
Act and Rule 17e-1 thereunder, which permit
35
<PAGE>
an affiliated person of a registered investment company (such as the Funds), or
any affiliated person of such person, to receive a brokerage commission from
such registered investment company provided that such commission is reasonable
and fair compared to the commissions received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, DLJ
Securities and its affiliates are restricted as to the nature and extent of the
brokerage services they may perform for the Funds. The SEC has adopted rules
under Section 11(a) which permit an investment adviser to a registered
investment company, or the adviser's affiliates, to receive compensation for
effecting, on a national securities exchange, transactions in portfolio
securities of such investment company, including causing such transactions to be
transmitted, executed, cleared and settled and arranging for unaffiliated
brokers to execute such transactions.
To the extent permitted by such rule, DLJ Securities and its affiliates
may receive compensation relating to transactions in portfolio securities of the
Funds provided that each Fund enters into a written agreement, as required by
such rules, with that firm authorizing it to retain compensation for such
services. The Trustees of the Funds have granted authorization conforming to the
requirements of Section 11(a) to the Adviser to effect transactions in portfolio
securities of the Funds through their affiliates, DLJ Securities and Autranet,
Inc.
PORTFOLIO TURNOVER
Each Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less. Each
Fund does not anticipate a portfolio turnover rate in excess of 100%. A higher
rate involves greater transaction costs to a Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed.
INVESTMENT PERFORMANCE INFORMATION
Each Fund may furnish data about its investment performance in
advertisements, sales literature and reports to shareholders. "Total return"
represents the change in value of $1,000 invested at the maximum public offering
price for a period assuming reinvestment of all dividends and distributions.
Quotations of average annual total return will reflect only the
performance of an investment in any Fund during the particular time period
shown. Each Fund's total return and current yield may vary from time to time
depending on market conditions, the compositions of its portfolio and operating
expenses. These factors and possible differences in the methods used in
calculating yield should be considered when
36
<PAGE>
comparing each Fund's current yield to yields published for other investment
companies and other investment vehicles. Average annual total return and yield
should also be considered relative to change in the value of each Fund's shares
and the risks associated with each Fund's investment objectives, policies and
risk considerations. At any time in the future, average annual total returns and
yield may be higher or lower than past total returns and yields and there can be
no assurance that any historical return or yield will continue.
From time to time evaluations of performance are made by independent
sources that may be used in advertisements concerning each Fund. These sources
include Lipper, Inc., Weisenberger Investment Company Service, Barron's,
Business Week, Kiplinger's Personal Finance, Financial World, Forbes, Fortune,
Money, Personal Investor, Sylvia Porter's Personal Finance, Bank Rate Monitor,
Morningstar and The Wall Street Journal.
In connection with communicating its yield or average annual total
return to current or prospective shareholders, each Fund may also compare these
figures to the performance of other mutual funds tracked by mutual fund rating
services or to other unmanaged indexes which may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
Quotations of each Fund's average annual total return will represent
the average annual compounded rate of return of a hypothetical investment in
each Fund over periods of 1, 5, and 10 years (or up to the life of each Fund),
and are calculated pursuant to the following formula:
P(1+T)n'pp'=ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the redeemable value at the end
of the period of a $1,000 payment made at the beginning of the period). All
average annual total return figures will reflect the deduction of Fund expenses
(net of certain expenses reimbursed by the Adviser) on an annual basis, and will
assume that all dividends and distributions are reinvested.
GENERAL INFORMATION
Organization and Capitalization
The Trust was formed on August 3, 1999, as a 'business trust' under the
laws of the State of Delaware.
The Agreement and Declaration of Trust provides that no Trustee,
officer, employee or agent of the Funds is liable to the Funds or to a
shareholder, nor is any Trustee, officer, employee or agent liable to any third
persons in connection with the
37
<PAGE>
affairs of the Funds, except as such liability may arise from his or its own bad
faith, willful misfeasance, gross negligence or reckless disregard of his or her
duties. It also provides that all third parties shall look solely to the
property of a Fund or the property of such appropriate Fund for satisfaction of
claims arising in connection with the affairs of a Fund. With the exceptions
stated, the Agreement and Declaration of Trust permits the Trustees to provide
for the indemnification of Trustees, officers, employees or agents of the Funds
against all liability in connection with the affairs of the Funds.
All shares of the Funds when duly issued will be fully paid and
non-assessable. The Trustees are authorized to re-classify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, the Trustees in the future, for reasons such as the desire to
establish one or more additional Funds with different investment objectives,
policies, risk considerations or restrictions, may create additional series or
classes of shares. Any issuance of shares of such additional series would be
governed by the 1940 Act and the laws of the State of Delaware.
Counsel and Independent Auditors
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York 10022, serves as legal counsel for the Funds.
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has
been appointed as independent auditors for the Funds.
Custodian and Transfer Agent
Citibank, N.A., 111 Wall Street, New York, New York 10043 serves as
custodian to the Funds.
First Data Investor Services Group, Inc., 211 S. Gulph Road, King of
Prussia, PA 19406-3101 serves as Transfer Agent for the Funds.
Additional Information
This Statement of Additional Information does not contain all the
information set forth in the Registration Statement filed by the Funds with the
SEC under the Securities Act of 1933. Copies of the Registration Statement may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the offices of the SEC in Washington, D.C.
38
<PAGE>
<TABLE>
PART C
Other Information
Item 23 EXHIBITS
<S> <C> <C>
(a) Form of Agreement and Declaration of Trust**
(b) Form of Bylaws**
(c) Not Applicable
(d) Form of Investment Advisory Agreement**
(e) Form of Distribution Agreement**
(f) Not Applicable
(g) Form of Custody Services Agreement**
(h) Form of Services Agreement
(1) Services Agreement with First Data Investor Services
Group, Inc.**
(2) Services Agreement with Pershing
(i) Form of Legal Opinion**
(j) Consent of Independent Auditors
(k) Financial Statements
(l) Form of Subscription Agreement with initial shareholders**
(m) (1) Rule 12b-1 Plan for the DLJdirect Strategic Growth Fund**
(2) Rule 12b-1 Plan for the DLJdirect Choice Technology Fund**
(n) Rule 18f-3 Plan**
Item 24 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable
Item 25 INDEMNIFICATION
</TABLE>
Registrant's Agreement and Declaration of Trust provides that
the Trust (for the appropriate Fund) shall indemnify each person who is or has
been a trustee or officer of the Trust (including persons who serve, or have
served, at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants and counsel fees, incurred in
connection with the defense or disposition of any action, suit or proceeding,
whether civil or criminal, before any court or administrative or legislative
body, in which such person may be or may have been threatened, while in office
or thereafter, by reason of being or having been such a person,
- --------
** Previously filed
II-1
<PAGE>
except with respect to any matter as to which it has been determined that such
person (i) did not act in good faith in the reasonable belief that such person's
action was in the best interests of the Trust or (ii) had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office.
The Investment Advisory Agreement between Registrant and DLJ
Investment Management Corp. (the "Advisor") provides that Advisor will not be
liable thereunder for any mistake of judgment or in any event whatsoever except
for lack of good faith and that nothing therein shall be deemed to protect
Advisor against any liability to Registrant or its security holders to which it
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties thereunder, or by reason of reckless
disregard of its duties and obligations thereunder.
The Distribution Agreement between the Registrant and
Donaldson, Lufkin & Jenrette Securities Corporation provides that Registrant
will indemnify, defend and hold Donaldson, Lufkin & Jenrette Securities
Corporation, and any other person who controls it within the meaning of Section
15 of the Investment Company Act of 1940, free and harmless from and against any
and all claims, demands, liabilities and expenses which Donaldson, Lufkin &
Jenrette Securities Corporation or any controlling person may incur arising out
of or based upon any alleged untrue statement of a material fact contained in
Registrant's Registration Statement, Prospectus or Statement of Additional
Information or arising out of, or based upon any alleged omission to state a
material fact required to be stated in any one of the foregoing or necessary to
make the statements in any one of the foregoing not misleading.
The foregoing summaries are qualified by the entire text of
Registrant's Agreement and Declaration of Trust, the Investment Advisory
Agreement between Registrant and the Advisor and the Distribution Agreement
between Registration and Donaldson, Lufkin & Jenrette Securities Corporation.
The Registrant's Investment Advisory Agreement, the Agreement and Declaration of
Trust and the Distribution Agreement are being filed as exhibits to this
Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification may be against
public policy as expressed in the Securities Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnifica tion by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Equitable Life Assurance Society of the United States (the
parent of Advisor's parent) carries for itself and its subsidiaries Directors
and Officers Liability Insurance. Coverage under this policy has been extended
to directors and officers of the investment companies managed by the Advisor.
Under this policy, outside trustees would be covered up to the limits specified
for any claim against them for acts committed in their capacities as members of
the Board.
II-2
<PAGE>
Item 26 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
The description of the Advisor under the caption "Management"
in the Prospectus and in the Statement of Additional Information constituting
Parts A and B, respectively, of this Registration Statement as well as the
Advisor's respective current Forms ADV are incorporated by reference herein.
Item 27 PRINCIPAL UNDERWRITERS
(a) Donaldson, Lufkin & Jenrette Securities Corporation, the
Registrant's Distributor (Underwriter) also acts as
Distributor for the following investment companies:
DLJ Winthrop Focus Funds: DLJ Winthrop Aggressive Growth Fund,
DLJ Winthrop Fixed Income Fund, DLJ Winthrop Growth and Income
Fund, DLJ Winthrop Municipal Trust Fund and DLJ Winthrop
Growth Fund.
DLJ Winthrop Opportunity Funds: DLJ Winthrop Developing
Markets Fund, DLJ Winthrop International Equity Fund, DLJ
Winthrop High Income Fund, DLJ Winthrop Municipal Money
Fund and DLJ Winthrop U.S. Government Money Fund.
(b) For information required with respect to the directors and
officers of the Funds' Distributor, reference is made to the
Form BD filed by the Distributor under the Securities Exchange
Act of 1934.
(c) Not Applicable
Item 28 LOCATION OF ACCOUNTS AND RECORDS
The majority of accounts, books and other documents required
to be maintained by Section 31(a) of the Investment Company Act of 1940 and the
rules thereunder are maintained at the offices of the DLJdirect Mutual Funds at
277 Park Avenue, New York, New York 10172 (see "Management" in the Prospectus).
Additional records are maintained at the offices of Citibank, N.A., the
Registrant's Custodian, 111 Wall Street, New York, New York 10043.
Item 29 MANAGEMENT SERVICES
Not applicable
Item 30 UNDERTAKINGS
Not applicable
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused the
Pre-Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of New York and the
State of New York on the 16th day of November, 1999.
DLJdirect Mutual Funds
By: /s/ G. Moffett Cochran
-----------------------------
Name: G. Moffett Cochran
Title: President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to its Registration Statement has been signed below pursuant to
a power of attorney previously filed with the Commission by the following
persons in the capacities and on the date included:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Martin Jaffe Trustee and Vice President, November 16, 1999
- --------------------------------- Secretary and Treasurer
Martin Jaffe
/s/ Robert E. Fischer Trustee November 16, 1999
- ---------------------------------
Robert E. Fischer
/s/ Wilmot H. Kidd III Trustee November 16, 1999
- ---------------------------------
Wilmot H. Kidd III
/s/ John W. Waller III Trustee November 16, 1999
- ---------------------------------
John W. Waller III
</TABLE>
II-4
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-1A
Exhibits
(h)(2) Services Agreement with Pershing
(j) Consent of Independent Auditors
(k) Financial Statements
3
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as.................................'TM'
Characters normally expressed as superscript shall be preceded by......... 'pp'
<PAGE>
FundVest - No Transaction Fee Agreement
This Agreement is made as of____________________________ 1999, between Pershing
Division of Donaldson, Lufkin & Jenrette Securities Corporation ("Pershing"), a
Delaware Corporation, and DLJdirect Mutual Funds ("Fund").
WHEREAS it is understood that Pershing functions primarily as a clearing agent
for introducing broker-dealers/correspondents and in such capacity performs
traditional operational functions, including execution and clearance of trades
and holding Client/Shareholders funds and securities, and that certain of these
broker-dealers/correspondents have agreed to participate in Pershing's FundVest
no transaction fee program ("FundVest") under the terms and conditions as set
forth in an agreement between Pershing and the broker-dealers/correspondents
("Participating Correspondent(s)");
WHEREAS the terms and conditions set forth herein apply to mutual fund
transactions effected either on behalf of Client/Shareholders of Participating
Correspondents or direct Client/Shareholders of Pershing
("Client/Shareholders");
WHEREAS Fund wishes to have Pershing or Participating Correspondents provide on
its behalf certain administrative services with respect to Client/Shareholders
of such Funds which Pershing makes available to Client/Shareholders through
FundVest
WHEREAS such services will be performed pursuant to the terms and conditions as
set forth herein;
WHEREAS both Fund and Pershing agree to transact business in the manner
prescribed in Schedule II attached hereto;
NOW THEREFORE, in consideration of the foregoing and the mutual promises set
forth below, the parties agree as follows:
1. Services
During the term of this Agreement, Pershing or Participating Correspondents
will perform services as set forth in Schedule III attached hereto (the
"Services"). Such Schedule may be amended from time to time with mutual
consent of the parties.
2. Fees
a. For performance of Services, Pershing shall receive a fee (the "Fee")
which will be calculated and paid as provided in Schedule IV attached
hereto. Fees are solely for shareholder servicing and other
administrative services provided by Pershing or Participating
Correspondents and do not constitute payment in any manner for
investment advisory, distribution, trustee, or custodial services. Fees
shall be payable on all shares of the Fund being held by Pershing for -
Client/Shareholders of Participating Correspondents, excluding: (i)
shares held by Pershing for such Client/Shareholders prior to the
effective date of the Agreement as to such Fund (ii) shares first
placed into a brokerage account with Pershing after the termination of
the Agreement as to the Fund issuing such shares (iii) shares on which
Pershing or Participating Correspondent has, upon purchase, assessed to
Client/Shareholders any transaction fee. The total number of shares
of the funds
Page 1
<PAGE>
upon which Fees are due Pershing are referred to within the Agreement
as program shares ("Program Shares").
b. The Fund's sole responsibility for fee payment shall be to Pershing.
Pershing shall be solely responsible for payment of a portion of such fee
to Participating Correspondents pursuant to separate agreements with such
correspondents.
Fund represents that fees paid to Pershing will be paid out of shareholder
servicing or other fees presently being charged to the Funds as set forth
in the current prospectus of each of the Funds.
c. In the event that Schedule III is revised, the parties agree, in good
faith, to negotiate a revision of fees set forth in Schedule IV.
3. Transaction Charges.
Pershing or any Participating Correspondent shall not, during the term of
this Agreement, assess against, or collect from, Client/Shareholders, any
transaction fee upon the purchase or redemption of any Fund's shares that
meet the minimum purchase criteria set forth in this Agreement, except as
noted in Section 4 below. Client/Shareholder purchases not meeting the
criteria as set forth herein may be charged a transaction fee by the
Participating Correspondent or Pershing, as the case may be, and will not
be included in service fee invoices presented to Fund for payment.
4. Short Term Redemptions and Transfers
a. It is hereby understood that Pershing or Participating Correspondents
may apply a redemption fee for any short-term redemption of shares
purchased within specified time frames.
b. Pershing or the Participating Correspondent, as the case may be,
reserves the right to apply a fee for the transfer of any Fund position
purchased within specified time frames.
5. Indemnification.
a. Pershing shall indemnify and hold harmless each of the Funds, their
directors, officers, employees, and agents (hereinafter, "Indemnified
Parties") from and against any and all losses, claims, liabilities
and expenses (including, but not limited to, reasonable attorney's
fees) incurred by any of them and arising as a result of: (i)
Pershing's dissemination of information (oral or written) regarding
any Fund, that is materially incorrect and that was not provided to
Pershing, or approved by such Fund, the Fund or any of their
affiliated persons (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")) (affiliates) or agents; or (ii)
Pershing's willful misconduct or negligence in the performance of, or
failure to perform, its obligations under this Agreement, except to
the extent the losses are a result of the negligence, willful
misconduct, or breach of this Agreement by an Indemnified Party or
(iii) the failure of Pershing to comply with any provision hereof or
the breach of any representation or warranty herein (including the
schedules hereto).
Page 2
<PAGE>
b. Pershing has obtained from each Participating Correspondent an
agreement with Pershing regarding the Program which contains the
following clause:
The Participating Correspondent shall indemnify and hold harmless
each of the Participating Funds, as identified on Schedule A as may
be amended from time to time, their directors, officers, employees,
and agents (hereinafter, "Indemnified Parties") from and against
any and all losses, claims, liabilities and expenses (including,
but not limited to, reasonable attorney's fees) incurred by any of
them and arising as a result of Participating Correspondents (i)
violation of any law, rule or regulation, including any related to
or in connection with the sale of Fund shares, (ii) dissemination
of information regarding any Fund, that is materially incorrect or
misleading and which was not provided in writing to Participating
Correspondent by such fund or approved in writing, or any of their
affiliated persons (as defined in the Investment company Act of
1940, as amended (the "1940 Act")) or (iii) Participating
Correspondents willful misconduct or negligence in the performance
of , or failure to perform, its obligations under this Agreement,
except to the extent the losses are a result of the negligence,
willful misconduct, or breach of the Agreement by an Indemnified
Party.
c. Fund hereby agrees to indemnify Pershing and Participating
Correspondents against any and all losses, claims, damages and
liabilities to which Pershing may become subject as a result of any
untrue or alleged untrue statement of a material fact contained in
the prospectus or statement of additional information, as amended or
supplemented from time to time, or the omission of a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The participating fund shall indemnify and
hold harmless Pershing and the Participating Correspondents and their
directors, officers, employees, and agents (hereinafter, "Indemnified
Parties") from and against any and all losses, claims, damages,
liabilities and expenses (including, but not limited to , reasonable
attorney's fees) incurred by any of them and arising as a result of
Participating Fund's (i) violation of any law, rule or regulation, at
common law or otherwise, including any related to or in connection
with the offering for sale of Fund shares, (ii) dissemination of any
information, advertising or promotional material regarding any Fund,
that is inaccurate or misleading and which was provided or generated
by the Fund or any of its affiliated persons (as defined in the
Investment Company of 1940, as amended (the "1940 Act")) or (iii)
willful misconduct or negligence in the performance of, or failure to
perform, its obligations pursuant to the underlying Service Agreement
between Participating Fund and the Pershing Division of Donaldson,
Lufkin and Jenrette, except to the extent the losses are a result of
the negligence or willful misconduct of an Indemnified Party.
d. In any event, no party shall be liable for any special, consequential
or incidental damages.
e. In order that the indemnification provisions contained herein shall
apply, upon the assertion of a claim or loss for which any party
(the "Indemnitor") may be required to indemnify another party (the
"Indemnitee"), the Indemnitee shall promptly notify the Indemnitor of
such assertion or loss, and shall keep the
Page 3
<PAGE>
Indemnitor advised with respect to all developments concerning any
such claim. The Indemnitor shall have the option to participate at
its expense with the Indemnitee in the defense of any such claim. The
Indemnitee shall in no case confess any claim or make any compromise
in any case in which the Indemnitor may be required to indemnify it
except with the Indemnitor's prior written consent.
f. This section 5 shall survive termination of this Agreement.
6. Role of Parties
The parties acknowledge and agree that the Services under this Agreement
are recordkeeping, shareholder communication, and related services only
and are not the services of an underwriter or a principal underwriter
within the meaning of the Securities Act of 1933, as amended, or the
Investment Company Act of 1940. This Agreement does not grant Pershing or
Participating Correspondents any right to purchase shares from any Fund
(although it does not preclude them from purchasing any such shares), nor
does it constitute Pershing or Participating Correspondent an agent of
the Fund for purposes of selling shares of any Fund to any dealer or to
the public. To the extent Pershing or Participating Correspondent is
involved in the purchase of shares of any Fund by Client/Shareholders,
such involvement will be as agent of such Client/Shareholders only.
7. Information to be provided
The Fund shall provide to Pershing, prior to the effectiveness of this
Agreement, or as soon thereafter as possible, a copy of the current
prospectus and statement of additional information for each Fund
participating in the program described herein. The Fund shall provide
Pershing with written copies of any amendments to, or changes in such
documents as soon as possible after such amendments or changes become
available.
8. Notices
All notices required under this Agreement (not including the Operating
Agreement, if any) must be in writing and delivered either personally or
via first class mail. Such notices will be deemed to be received as of
the date of actual receipt, or three (3) days after deposit, first class
postage prepaid, in the United States mail, whichever is earlier.
All such notices shall be made:
if to Pershing, to: Pershing Division of Donaldson, Lufkin
& Jenrette Securities Corporation
One Pershing Plaza
Jersey City, New Jersey 07399
with a copy to: Attention: General Counsel (at the same address);
if to the Fund, to the address as given below in the signature block, with a
copy to the Fund: Attention: General Counsel (at the same address).
Page 4
<PAGE>
9. Nonexclusivity
Each Party acknowledges that the other may enter into agreements, similar
to this one, with other parties, for the performance of services similar
to those to be provided under this Agreement, unless otherwise agreed to
in writing by the parties.
10. Assignability
This Agreement is not assignable by any party without the other party's
prior written consent. Any attempted assignment in contravention hereof
shall be null and void; provided, however, that Pershing or the Fund may
assign its rights and obligations under this Agreement to any affiliate.
11. Schedules.
All Schedules attached to this Agreement (as they may be amended from
time to time) are, by this reference, incorporated into, and made a part
of, this Agreement.
12. Entire Agreement--Amendment.
This Agreement (including the Schedules attached hereto), together with
the Operating Agreement, if any, constitute the entire agreement between
the parties with regard to the subject matter herein. Additionally, these
materials supersede any and all agreements, representations and
warranties, whether written or oral, made prior to the execution of this
Agreement . This Agreement and the Schedules attached hereto may be
amended only by a writing executed by each party to be bound by the
amendment.
13. Governing Law
This Agreement will be governed by, and interpreted under, the laws of
the State of New York as applied to contracts entered into and to be
performed entirely within that state.
14. Counterparts
This Agreement may be executed in one or more counterparts, each of which
will be deemed an original, but all of which together shall constitute
one instrument.
15. Effectiveness of Agreement--Termination.
a. This Agreement will become effective as to a Fund as of: (i) the date
set forth on Schedule I opposite the name of the Fund; or (ii) such
later date as Pershing may, in its discretion, designate.
b. This Agreement shall have an initial term of one (1) year after which
it may be terminated, as to one or more Funds (as reflected in
Schedule I), by either party (i) upon one hundred twenty (120) days
written notice to the other parties; or (ii) upon such shorter notice
as is required by law, order, or instruction from a court of
competent jurisdiction, regulatory body, or self-regulatory
organization with jurisdiction over the terminating party; or (iii)
automatically, effective on the day following termination of any plan
of distribution ("Rule 12b-1 Plan") adopted and maintained pursuant
to Rule 12b-1 under the 1940 Act by any fund that has a Rule 12b-1
Plan in effect as of the effective date of this Agreement, provided
that a portion of the Fee is paid pursuant to the Rule 12b-1 Plan.
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c. Upon termination as to a Fund, Fund will not be obligated to pay the
fee with respect to any shares of the Fund that become part of a
Pershing Client/Shareholders account after the date of such
termination. However, notwithstanding any such termination, the Fund
will remain obligated to pay Pershing the fee as to each share of
such fund that was considered when calculating the fee as of the
date of termination (a "Pre-Termination Share"), for so long as such
Pre-Termination Share is held in any Pershing brokerage account and
Pershing or Participating Correspondent continues to perform the
Services as to such shares. The Fund shall reimburse Pershing
promptly for any reasonable expenses Pershing incurs in effecting
any termination of this Agreement, including, but not limited to,
delivery to the Fund of any records, instruments, or documents
reasonably requested by the Fund.
16. Confidentiality
Each party acknowledges and understands that any and all technical, trade
secret, or business information, including, without limitation, financial
information, business or marketing strategies or plans, product
development or customer information, which is disclosed to the other or
is otherwise obtained by the other, its affiliates, agent or
representatives during the term of this Agreement (the "Proprietary
Information") is confidential and proprietary, constitutes trade secrets
of the owner, and is of great value and importance to the success of the
owner's business. Each party agrees to use its best efforts (the same
being not less than that employed to protect his own proprietary
information) to safeguard the Proprietary Information and to prevent the
unauthorized, negligent or inadvertent use or disclosure thereof. Neither
party shall, without the prior written approval of any officer of the
other, directly or indirectly, disclose the Proprietary Information to
any person or business entity except for a limited number of employees,
attorneys, accountants and other advisors of the other on a need-to-know
basis or as may be required by law or regulation. Each party shall
promptly notify the other in writing of any unauthorized, negligent or
inadvertent use or disclosure of Proprietary information. Each party
shall be liable under this Agreement to the other for any use or
disclosure in violation of this Agreement by its employees, attorneys,
accountants, or other advisors or agents. This section shall continue in
full force and effect notwithstanding the termination of this Agreement.
17. Custody
Fund acknowledges that Fund shares maintained by the Fund for
Client/Shareholders hereunder are held in custody for the exclusive
benefit of Client/Shareholders of Pershing or Participating
Correspondents and shall be held free of any right, charge, security
interest, lien or claim against Pershing or Participating Correspondents
in favor of the Fund or its agents acting on behalf of the Fund.
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<PAGE>
IN WITNESS WHEREOF, duly authorized representatives of the parties hereto have
executed this Agreement.
Fund:______________________ Pershing Division of Donaldson,
Lufkin & Jenrette Securities
Corporation
By:__________________________ By:________________________________
Print Name:__________________ Print Name:________________________
Title:_______________________ Title:_____________________________
Address:
Page 7
<PAGE>
Schedule I
Fund Name CUSIP Trading Symbol
- --------- ----- --------------
Page 8
<PAGE>
Schedule II
Operational Procedures Relevant to the Agreement
Unless processed using the NSCC FundServ and/or Networking interfaces in the
customary manner as prescribed by the NSCC, or as amended by mutual agreement
whether verbally or in writing, operational responsibilities will be executed as
outlined below in paragraphs (1), (2), and (3).
(1) Purchase and Redemption Orders
Pershing will aggregate and calculate purchase and redemption orders for shares
of a Fund that it has accepted as placed by Client/Shareholders prior to the
close of trading on the New York Stock Exchange, and will communicate to Fund
such orders for each Fund for each business day. Such orders will receive the
applicable Fund's closing net asset value for that business day, provided they
are communicated to Fund by 5:00 p.m. Eastern Time.
(2) Settlement of Trades
Both Pershing and Fund will use their best efforts to cause to be transmitted by
wire on the Business Day immediately following trade date (settlement date) to
an account as directed by the counterpart, the proceeds of all redemption orders
and the purchase price of all purchase orders.
(3) Account Activity and Distribution Information
(a) Fund shall cause to be provided to Pershing confirmations of Fund activity
in the form of statements detailing activity no less frequently than monthly, as
well as other information as may reasonably be requested by Pershing.
(b) Fund shall cause to be provided to Pershing all distribution announcement
information (ex dates, record dates, payable dates, distribution rate per share,
record date share balances, etc.) as soon as it is announced by each Fund.
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<PAGE>
Schedule III
Schedule of services to be performed by Pershing or Participating
Correspondent(s) pursuant to this Agreement.
1. Pershing/Participating Correspondent represents and warrants that it has
and will continue at all times to have the necessary facilities, equipment
and personnel to perform the services hereunder in a businesslike and
competent manner and its system complies with any applicable laws, rules
and regulations related to the services to be provided under this
Agreement, including the maintenance and preservation of all records and
registrations required by any applicable laws, rules and regulations.
2. Client-Shareholders are aware that they are transacting business with
Pershing/Participating Correspondent and not the Fund, and will look to
Pershing/Participating Correspondent and not the Fund for resolution of
problems or discrepancies in their accounts.
3. Pershing/Participating Correspondent agrees that it will perform various
services for the Client-Shareholders in those accounts, including where
applicable:
Establishing and maintaining records of Client-Shareholders' accounts;
Processing purchase and redemption transactions;
Confirming Client-Shareholder transactions;
Answering routine client inquires regarding the Fund;
Assisting clients in changing dividend options, accounts
designations and addresses; withholding taxes on non-resident
alien accounts;
Disbursing income dividends and capital gains distributions;
Reinvesting dividends and distributions;
Preparing and delivering to Client-Shareholders and state and
federal authorities, including the United States Internal Revenue
Service, such information respecting dividends and distributions
paid by the Funds as may be required by law, rule or regulation;
Withholding on dividends and distributions as may be required by
state or Federal authorities from time to time;
And such other services as Fund may reasonably request.
Pershing/Participating Correspondent shall maintain all historical
Client-Shareholder records, consistent with requirements of all applicable
laws, rules and regulations. (a) Upon the request of the Fund, Pershing
shall provide copies of all the historical records relating to transactions
between the Funds and the Shareholders, written communications regarding
the Funds to or from the Shareholders and other materials, in each case (1)
as are maintained by Pershing in the ordinary course of its business, and
(2) as may reasonably be requested to enable the Fund including without
limitation its auditors or legal counsel to (A) monitor and review the
Services, (B) comply with any request of a governmental or self regulatory
organization, (C) verify compliance by Pershing with the terms of this
agreement, (D) make required regulatory reports, or (E) perform general
customer supervision. Pershing agrees that it will permit the Fund to have
reasonable access to its personnel and records in order
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<PAGE>
to facilitate the monitoring of the services.(b)Upon the request of
Pershing, Fund shall provide copies of all the historical records relating
to transactions between the Funds and Pershing, written communications
regarding the Funds to or from Pershing and other materials, in each case
(1) as are maintained by the Fund in the ordinary course of its business
and in compliance with applicable law, and (2) as may be requested to
enable Pershing to (A) comply with the request of any governmental body or
self regulatory organization, (B) verify compliance by the Fund with the
terms of this Agreement, (C) make required regulatory reports, or (D)
perform general customer supervision.
4. Pershing/Participating Correspondent shall make available to Fund (if
requested) records or communications necessary to determine the number of
Client-Shareholders in each Pershing/Participating Correspondent omnibus
account, if applicable.
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Schedule IV
For performance of Services as outlined in Schedule III (attached hereto),
Pershing shall receive a service fee calculated as follows:
An annual service fee rate of 25 basis points of the average daily market value
of Program Shares, to be paid monthly upon receipt of invoice by the Fund from
Pershing. Total market value of Program Shares will be calculated daily and
averaged throughout the exact number of days in the month to arrive at the
average daily market value.
Payment shall be made by the Fund to Pershing within 30 days after Fund's
receipt of such invoice. Unless otherwise agreed to by Pershing and Fund, such
payment shall be by wire transfer and shall be separate from other wire transfer
payments from the fund to Pershing.
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CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "General
Information-Counsel and Independent Auditors" and to the use of our report dated
November 12, 1999 in this Registration Statement (Form N-1A No. 333-84885) of
DLJdirect Mutual Funds.
/s/ ERNST & YOUNG LLP
-------------------------------
ERNST & YOUNG LLP
New York, New York
November 12, 1999
<PAGE>
DLJDIRECT MUTUAL FUNDS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 12, 1999
<TABLE>
<CAPTION>
DLJdirect DLJdirect
Choice Strategic
Technology Fund Growth Fund
--------------------- ---------------------
<S> <C> <C>
ASSETS
Cash $ 50,000 $ 50,000
--------- --------
LIABILITIES
- -
-- -
NET ASSETS $ 50,000 $ 50,000
========= ========
Shares of Beneficial Interest outstanding (unlimited
number of authorized shares of beneficial interest,
no par value) 5,000 5,000
====== =====
NET ASSET VALUE per share: $10.00 $10.00
======= ======
</TABLE>
See notes to statement of assets and liabilities.
<PAGE>
DLJDIRECT MUTUAL FUNDS
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 12, 1999
NOTE A - ORGANIZATION
DLJdirect Mutual Funds (the "Funds") were organized on August 3, 1999 as a
business trust under the laws of the state of Delaware. Its shares are currently
divided into two series, the DLJdirect Strategic Growth Fund and the DLJdirect
Choice Technology Fund. Both Funds operate as open-end, diversified management
investment companies registered under the Investment Company Act of 1940. The
Funds have had no operations since that date other than the sale and issuance to
each of DLJ Asset Management Group (the "Adviser") and DLJdirect Inc. of 2,500
shares of beneficial interest of each of the DLJdirect Choice Technology Fund
and the DLJdirect Strategic Growth Fund.
NOTE B - AGREEMENTS
Under its Advisory Agreement with the Funds, the Advisor will provide investment
advisory services, order placement facilities and pay all compensation of
Trustees of the Funds who are affiliated persons of the Advisor. The Funds will
pay the Advisor at the following annual percentage rates of the average daily
net assets of each Fund: Strategic Growth Fund, .750 of 1% of the first
$500,000,000 and .625 of 1% of the balance; and the Choice Technology Fund, .875
of 1% of the first $500,000,000, .750 of 1% of the next $500,000,000 and .625 of
1% of the balance.
Under certain conditions, the Advisor may voluntarily reimburse a Fund for
certain of such Fund's expenses. Commencing at the inception of each Fund, the
Advisor intends to reimburse, through October 31, 2002, all operating expenses
in excess of 1.19% and 1.39% of the average daily net assets of the Strategic
Growth Fund and the Choice Technology Fund, respectively. After October 31,
2002, the Advisor may discontinue this practice with respect to either Fund.
The Fund has entered into a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 with Donaldson,
Lufkin & Jenrette Securities Corporation (the "Distributor"), an affiliate of
the Advisor. The maximum allowable amount payable for distributing shares is .50
of 1% of the average daily net assets of each Fund. The Board of Trustees has
currently limited the amount payable to .25 of 1% of the average daily net
assets of each Fund.
<PAGE>
Costs incurred in connection with the Funds' organization will be absorbed by
the Advisor.
NOTE C -- FEDERAL INCOME TAXES
The Strategic Growth Fund and the Choice Technology Fund each intend to qualify
as a "regulated investment company" and as such (and by complying with the
applicable provisions of the Internal Revenue Code of 1986, as amended) will not
be subject to Federal income tax on taxable income (including realized capital
gains) that is distributed to shareholders.
