MASTER HIGH YIELD INCOME FUND
PROSPECTUS & APPLICATION
JUNE 15, 2000
340 Sunset Drive
Ft. Lauderdale, Florida 33301
Toll free (888) 6-INCOME
(888-646-2663)
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY..........................................................3
FEES AND EXPENSES OF INVESTING IN THE FUND...................................6
HOW TO BUY SHARES............................................................7
HOW TO REDEEM SHARES.........................................................9
DETERMINATION OF NET ASSET VALUE............................................11
DIVIDENDS, DISTRIBUTIONS AND TAXES..........................................11
MANAGEMENT OF THE FUND......................................................12
MORE ABOUT RISK - PRINCIPAL STRATEGIES....................................12
MORE ABOUT RISK - NON-PRINCIPAL STRATEGIES................................15
FOR MORE INFORMATION................................................BACK COVER
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RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The objective of the Fund is to provide a high level of income.
PRINCIPAL STRATEGIES
The Fund invests primarily in a diversified portfolio of publicly traded
common stock of closed-end investment companies whose portfolios consist
primarily of high-yielding corporate debt securities, commonly referred to as
"junk bond funds." The term "junk bond" refers to high yield-high risk
securities that are rated below investment grade by recognized rating agencies
or are unrated securities of comparable quality. While these lower rated
securities generally offer a higher return potential than higher rated
securities, they also involve greater price volatility and greater risk of loss
of income and principal.
Under normal market conditions, the underlying portfolios of junk bond
funds have at least 65% of their assets in junk bonds. Junk bond funds invest in
junk bonds of varying quality, and a significant portion of the underlying
portfolios may consist of lower quality junk bonds. The Fund's adviser
anticipates that the average junk bond fund in the Fund's portfolio will be a
diversified fund with an average effective maturity of approximately eight
years. Junk bonds are typically issued with maturities of ten years or less.
The adviser selects the underlying funds out of the universe of
approximately 80 closed-end junk bond funds. The adviser determines their
weightings in the Fund's portfolio based on the characteristics of each
underlying fund's portfolio. The adviser pays careful attention to the portfolio
of each underlying fund in order to reduce the Fund's exposure to early bond
calls and underperforming securities that would have the effect of diluting the
Fund's current income. Each potential fund purchase is evaluated by the adviser
for its overall credit quality and call risk probability. In addition, all
potential investments are evaluated based upon the experience of each underlying
fund's portfolio manager in various economic and interest rate cycles. The junk
bond funds in the Fund's portfolio may achieve capital appreciation if the
underlying bonds appreciate (due to improved credit quality or a decline in
interest rates), or if investor perception of the junk bond fund or junk bond
market improves.
Since the Fund employs an investment strategy that requires it to invest
in a group of funds, investors will be diversified across a wide spectrum of
companies and sectors of the economy, and the Fund's exposure to any single
issuer of corporate debt, or any single portfolio manager, will be reduced.
Some of the underlying bond funds use leverage to varying degrees. No more than
20% of the Fund will be invested in any one closed-end fund. The Fund will not
own more than 3% of the outstanding shares of any one closed-end fund.
The Fund may sell a position if the adviser identifies another investment
that is yielding higher income or that the adviser believes will outperform a
current position. The Fund may also sell a position if the adviser believes
that the composition of the underlying fund has changed and is no longer
consistent with the Fund's objective or if the underlying fund changes its
objective or investment manager.
PRINCIPAL RISKS OF INVESTING IN THE FUND
o MANAGEMENT RISK. The Fund's performance is dependent on the ability of the
adviser to correctly evaluate junk bond funds. If the adviser's judgment
about the attractiveness or potential return of a particular junk bond fund
proves to be incorrect, the Fund's price may decrease in value. The Fund has
no operating history, and the adviser has no prior experience managing a
mutual fund.
o
o CLOSED-END FUND RISK. Closed-end funds frequently trade at a discount from
their net asset value in the secondary market. The amount of the discount is
subject to change from time to time in response to various factors and can
have a negative effect on the Fund's share price. There is no guarantee that
a closed-end fund will trade at or above its net asset value.
The Fund may be affected by losses of the underlying funds and the level of
risk arising from the investment practices of the underlying funds (such as
the use of leverage by the funds). The Fund has no control over the risks
taken by the underlying funds in which it invests.
o MARKET RISK. Overall stock market risks may also affect the value of the
Fund. Factors such as domestic economic growth and market conditions,
interest rate levels, and political events affect the securities markets and
could cause the Fund's share price to fall.
o LEVERAGE RISK. A significant number of the underlying funds utilize
substantial leveraging in their portfolios. Leverage means the underlying
fund borrows money in order to make additional investments. This leveraging
will cause increased price volatility for those funds' shares, and as a
result, increased volatility in the Fund's share price.
o HIGHER EXPENSES. The Fund may be described as a "fund of funds" because it
pursues its objective by investing primarily in junk bond funds instead of
directly in junk bonds. Your cost of investing in the Fund will generally be
higher than the cost of investing in a mutual fund that invests directly in
junk bonds. By investing in the Fund, you will indirectly bear any fees and
expenses charged by the underlying bond funds in which the Fund invests in
addition to the Fund's direct fees and expenses. Therefore, the Fund will
incur higher expenses, many of which may be duplicative. As a result of the
"fund of funds" structure, you may receive taxable capital gains
distributions to a greater extent than would be the case if you invested
directly in the underlying bond funds
o JUNK BOND RISK. Because the Fund invests in closed-end funds that invest in
junk bonds, the Fund may be subject to greater levels of interest rate,
credit and liquidity risk than funds that do not invest in such securities.
Junk bonds are considered predominately speculative with respect to the
issuer's continuing ability to make principal and interest payments. An
economic downturn or period of rising interest rates could adversely affect
the market for junk bonds, reducing the funds' ability to sell their junk
bonds (liquidity risk) and reducing the funds' share prices. If the value of
the underlying funds decline, the Fund's share price declines.
o INTEREST RATE RISK. The value of your investment may decrease when interest
rates rise. The Fund's exposure to interest rate risk (and the corresponding
effect on the Fund's share price) may be greater because the Fund invests a
significant proportion of its portfolio in junk bond funds.
o CALL RISK. The underlying funds will receive early returns of principal when
bonds are called or sold before they mature. The underlying funds may not be
able to reinvest the money they receive at as high a yield or for as long a
maturity.
o CREDIT RISK. The issuer of a bond may not be able to make interest and
principal payments when due. Generally, the lower the credit rating of a
security, the greater the risk that the issuer will default on its
obligation. Because it invests indirectly in junk bonds, the Fund is subject
to substantial credit risk.
o An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
o The Fund is not a complete investment program.
o As with any mutual fund investment, the Fund's returns will vary and you
could lose money.
GENERAL
The investment objective of the Fund may be changed without shareholder
approval.
From time to time, the Fund may take temporary defensive positions which are
inconsistent with the Fund's principal investment strategies, in attempting to
respond to adverse market, economic, political, or other conditions. For
example, the Fund may hold all or a portion of its assets in money market
instruments, money market funds or repurchase agreements. If the Fund invests in
shares of a money market fund, the shareholders of the Fund generally will be
subject to duplicative management fees. As a result of engaging in these
temporary measures, the Fund may not achieve its investment objective. The Fund
may also invest in such instruments at any time to maintain liquidity or pending
selection of investments in accordance with its policies.
HOW THE FUND HAS PERFORMED
Although past performance of a fund is no guarantee of how it will perform
in the future, historical performance may give you some indication of the risk
of investing in the fund because it demonstrates how its returns have varied
over time. The Bar Chart and Performance Table that would otherwise appear in
this prospectus have been omitted because the Fund is recently organized and has
a limited performance history.
FEES AND EXPENSES OF INVESTING IN THE FUND
The tables describe the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)Institutional Class C
------------- -------
Maximum Sales Charge (Load) Imposed on Purchases .........NONE...........NONE
Maximum Deferred Sales Charge (Load)......................NONE...........NONE
Redemption Fee............................................NONE...........NONE
Exchange Fee..............................................NONE...........NONE
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)1
Management Fees..........................................0.50%............0.50%
Distribution (12b-1) Fees.................................NONE............0.25%
Other Expenses 2.........................................0.27%............0.27%
Total Annual Fund Operating Expenses 1, 2................0.77%............1.02%
Expense Reimbursement 2,3................................0.27%
Net Expenses (after reimbursement).......................0.50%
1 Operating expenses are estimated for the Fund's first fiscal year.
2 The Fund invests principally in junk bond funds and other types of
investment companies. You will indirectly bear your proportionate share of
any fees and expenses charged by such investment companies, in addition to
the fees and expenses you pay directly to the Fund. Of the approximately 80
closed-end junk bond funds that the adviser considers for the Fund's
portfolio, the funds' total expenses, as of the date of this Prospectus,
range from 0.70% - 3.23%. These expenses are not included in the table above
or example below.
3 The adviser has contractually agreed to permanently limit total annual
operating expenses of the institutional class shares to 0.50% of average net
assets.
EXAMPLE:
The example below is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example uses the
same assumptions as other mutual fund prospectuses: a $10,000 initial investment
for the time periods indicated, reinvestment of dividends and distributions, 5%
annual total return, constant operating expenses, and sale of all shares at the
end of each time period. Although your actual expenses may be different, based
on these assumptions your costs will be:
1 YEAR 3 YEARS
INSTITUTIONAL CLASS $51 $161
CLASS C $105 $326
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HOW TO BUY SHARES
o The minimum initial investment in Class C shares of the Fund is $1,000 and
minimum subsequent investments are $100.
o The minimum initial investment in Institutional Class shares of the Fund is
$10 million and minimum subsequent investments are $10,000. This minimum has
been reduced to $1 million for the first year of Fund operations or until the
Institutional Class reaches $100 million in assets (which ever occurs first).
o If your investment is aggregated into an omnibus account established by an
investment adviser, broker or other intermediary, the account minimums apply
to the omnibus account, not to your individual investment.
o If you purchase or redeem shares through a broker/dealer or another
intermediary, you may be charged a fee by that intermediary.
INITIAL PURCHASE
BY MAIL. To be in proper form, your initial purchase request must
include:
o A completed and signed investment application form (which accompanies
this Prospectus); and
o A check (subject to the minimum amounts) made payable to the Fund.
Mail the application and check to:
U.S. Mail: Master High Yield Income Fund Overnight:
Master High Yield Income Fund
c/o Unified Fund Services, Inc. c/o Unified
Fund Services, Inc.
P.O. Box 6110 431 North
Pennsylvania Street
Indianapolis, Indiana 46206-6110
Indianapolis, Indiana 46204
BY WIRE. You may also purchase shares of the Fund by wiring federal funds
from your bank, which may charge you a fee for doing so. To wire money, you must
call Unified Fund Services, Inc. the Fund's transfer agent at (888) 646-2663 to
set up your account and obtain an account number. You should be prepared at that
time to provide the information on the application. You should then provide your
bank with the following information for purposes of wiring your investment:
Firstar Bank, N.A.
ABA #0420-0001-3
Attn: Master High Yield Income Fund
Account Name _________________(write in shareholder name) For the Account
# ______________(write in account number) D.D.A.#821662681
You must mail a signed application to Unified Fund Services, Inc., the
Fund's transfer agent, at the above address in order to complete your initial
wire purchase. Wire orders will be accepted only on a day on which the Fund,
custodian and transfer agent are open for business. A wire purchase will not be
considered made until the wired money is received and the purchase is accepted
by the Fund. Any delays which may occur in wiring money, including delays which
may occur in processing by the banks, are not the responsibility of the Fund or
the transfer agent. There is presently no fee for the receipt of wired funds,
but the Fund may charge shareholders for this service in the future.
ADDITIONAL INVESTMENTS
You may purchase additional shares of the Fund at any time (subject to
minimum investment requirements) by mail, wire, or automatic investment. Each
additional mail purchase request must contain:
o Your name
o The name of your account(s)
o Your account number(s)
o A check made payable to Master High Yield Income Fund
Checks should be sent to the Master High Yield Income Fund at the address listed
above. A bank wire should be sent as outlined above.
AUTOMATIC INVESTMENT PLAN
You may make regular investments in Class C shares with an Automatic
Investment Plan by completing the appropriate section of the account application
and attaching a voided personal check. Investments may be made monthly to allow
dollar-cost averaging by automatically deducting $100 or more from your bank
checking account. You may change the amount of your monthly purchase at any
time.
DISTRIBUTION PLAN
The Fund's Class C has adopted a plan under Rule 12b-1 that allows the
Class to pay distribution fees for the sale and distribution of its shares and
allows the Class to pay for services provided to shareholders. Shareholders of
the Class pay annual 12b-1 expenses of up to 0.25%. Because these fees are paid
out of Class assets on an on-going basis, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges. The Institutional Class has not adopted a Rule 12b-1 Plan.
DESCRIPTION OF CLASSES
The Fund currently offers two classes of shares: Institutional Class
shares and Class C shares. Each Class is subject to a different expense
structure. The Institutional Class shares pay no distribution expenses, and the
Fund's adviser has agreed to permanently limit total operating expenses at 0.50%
of Institutional Class shares average net assets. The Class C shares pay
distribution expenses of up to 0.25% annually, and the Fund's adviser has made
no agreement to limit Class C shares total operating expenses. The differing
expenses applicable to the different Classes may affect the performance of those
Classes. Broker/dealers and others entitled to receive compensation for selling
or servicing Fund shares may receive more with respect to one Class than
another.
TAX SHELTERED RETIREMENT PLANS
Since the Fund is oriented to longer-term investments, the Fund may be an
appropriate investment medium for tax-sheltered retirement plans, including:
individual retirement plans (IRAs); simplified employee pensions (SEPs); 401(k)
plans; qualified corporate pension and profit-sharing plans (for employees); tax
deferred investment plans (for employees of public school systems and certain
types of charitable organizations); and other qualified retirement plans. You
should contact the Fund's transfer agent for the procedure to open an IRA or SEP
plan, as well as more specific information regarding these retirement plan
options. Please consult with an attorney or tax advisor regarding these plans.
You must pay custodial fees for your IRA by redemption of sufficient shares of
the Fund from the IRA unless you pay the fees directly to the IRA custodian.
Call the Fund's transfer agent about the IRA custodial fees.
OTHER PURCHASE INFORMATION
The Fund may limit the amount of purchases and refuse to sell to any
person. If your check or wire does not clear, you will be responsible for any
loss incurred by the Fund. If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the Fund as reimbursement for
any loss incurred. You may be prohibited or restricted from making future
purchases in the Fund.
The Fund has authorized certain broker-dealers and other financial
institutions (including their designated intermediaries) to accept on its behalf
purchase and sell orders. The Fund is deemed to have received an order when the
authorized person or designee accepts the order, and the order is processed at
the net asset value next calculated thereafter. It is the responsibility of the
broker-dealer or other financial institution to transmit orders promptly to the
Fund's transfer agent.
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HOW TO REDEEM SHARES
You may receive redemption payments by check or federal wire transfer. The
proceeds may be more or less than the purchase price of your shares, depending
on the market value of the Fund's securities at the time of your redemption.
Presently there is no charge for wire redemptions; however, the Fund may charge
for this service in the future. Any charges for wire redemptions will be
deducted from your Fund account by redemption of shares. If you redeem your
shares through a broker/dealer or other institution, you may be charged a fee by
that institution.
BY MAIL. You may redeem any part of your account in the Fund at no
charge by mail. Your request should be addressed to:
Master High Yield Income Fund
c/o Unified Fund Services, Inc.
P.O. Box 6110
Indianapolis, Indiana 46206-6110
Requests to sell shares are processed at the net asset value next
calculated after we receive your order in proper form. To be in proper form,
your request for a redemption must include your letter of instruction, including
the Fund name, account number, account name(s), the address, and the dollar
amount or number of shares you wish to redeem. This request must be signed by
all registered share owner(s) in the exact name(s) and any special capacity in
which they are registered. The Fund may require that signatures be guaranteed by
a bank or member firm of a national securities exchange. Signature guarantees
are for the protection of shareholders. At the discretion of the Fund or the
Fund's transfer agent, a shareholder, prior to redemption, may be required to
furnish additional legal documents to insure proper authorization.
BY TELEPHONE. You may redeem any part of your account in the Fund by
calling the Fund's transfer agent at (888) 646-2663. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the transfer agent and the custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The Fund or the transfer agent may terminate the telephone redemption
procedures at any time. During periods of extreme market activity, it is
possible that shareholders may encounter some difficulty in telephoning the
Fund, although neither the Fund nor the transfer agent has ever experienced
difficulties in receiving and in a timely fashion responding to telephone
requests for redemptions. If you are unable to reach the Fund by telephone, you
may request a redemption by mail.
ADDITIONAL INFORMATION. If you are not certain of the requirements for a
redemption please call the Fund's transfer agent at (888) 646-2663. Redemptions
specifying a certain date or share price cannot be accepted and will be
returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has been collected, which
normally may take up to fifteen calendar days. Also, when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closing, or under any emergency circumstances (as
determined by the Securities and Exchange Commission) the Fund may suspend
redemptions or postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund may require you to redeem all of your shares in the Fund on
30 days' written notice if the value of your shares in the Fund is less than
$1,000 due to redemption, or such other minimum amount as the Fund may determine
from time to time. An involuntary redemption constitutes a sale. You should
consult your tax advisor concerning the tax consequences of involuntary
redemptions. You may increase the value of your shares in the Fund to the
minimum amount within the 30-day period. Your shares are subject to redemption
at any time if the Board of Trustees determines in its sole discretion that
failure to so redeem may have materially adverse consequences to all or any of
the shareholders of the Fund.
DETERMINATION OF NET ASSET VALUE
The price you pay for your shares is based on the Fund's net asset value
per share (NAV). The NAV is calculated at the close of trading (normally 4:00
p.m. Eastern time) on each day the New York Stock Exchange is open for business
(the Stock Exchange is closed on weekends, Federal holidays and Good Friday).
The NAV is calculated by dividing the value of the Fund's total assets
(including interest and dividends accrued but not yet received) minus
liabilities (including accrued expenses) by the total number of shares
outstanding.
The Fund's assets are generally valued at their market value. If market
prices are not available, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued by the Fund's
adviser at their fair value, according to procedures approved by the Fund's
Board of Trustees.
Requests to purchase and sell shares are processed at the NAV next
calculated after we receive your order in proper form.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. The Fund typically distributes substantially
all of its net investment income in the form of dividends and taxable capital
gains to its shareholders. These distributions are automatically reinvested in
the Fund unless you request cash distributions on your application or through a
written request. The Fund expects that its distributions will consist primarily
of income.
TAXES. In general, selling shares of the Fund and receiving distributions
(whether reinvested or taken in cash) are taxable events. Depending on the
purchase price and the sale price, you may have a gain or a loss on any shares
sold. Any tax liabilities generated by your transactions or by receiving
distributions are your responsibility. You may want to avoid making a
substantial investment when a Fund is about to make a capital gains distribution
because you would be responsible for any taxes on the distribution regardless of
how long you have owned your shares.
Early each year, the Fund will mail to you a statement setting forth the
federal income tax information for all distributions made during the previous
year. If you do not provide your taxpayer identification number, your account
will be subject to backup withholding.
The tax considerations described in this section do not apply to
tax-deferred accounts or other non-taxable entities. Because each investor's tax
circumstances are unique, please consult with your tax advisor about your
investment.
MANAGEMENT OF THE FUND
Riccardi Group LLC, 340 Sunset Drive, Ft. Lauderdale, Florida 33301 serves
as investment adviser to the Fund. Riccardi Group LLC was organized in October
1998 and had developed and advised (in association with Reich & Tang
Distributors) five unit investment trust funds with investments totaling over
$300 million of high yield taxable and tax exempt closed-end bond funds.
Charles Taub, CFA, the Fund's portfolio manager, has been a senior
vice-president of the adviser since joining the firm in June of 1999. He has
been responsible for the day-to-day management of the Fund since its inception.
Mr. Taub has been the Portfolio Manager of Chelsea Asset Management, a privately
held company with equity and fixed income investments totaling $120 million,
since 1997. From 1993 to 1997, he was a Senior Financial Analyst at the Chase
Manhattan Bank. He is a Chartered Financial Analyst, holds an M.B.A. in finance
from Columbia University and is a member of The New York Society of Security
Analysts.
The Fund is authorized to pay the adviser a fee equal to 0.50% of its
average daily net assets. The adviser (not the Fund) may pay certain financial
institutions (which may include banks, brokers, securities dealers and other
industry professionals) a fee for providing distribution related services and/or
for performing certain administrative servicing functions for Fund shareholders
to the extent these institutions are allowed to do so by applicable statute,
rule or regulation.
It is anticipated that the Fund will execute a significant portion of
its brokerage transactions through Thomas J. Herzfeld & Co., Inc. because of
their expertise in the closed-end fund market. As a result, the Fund's
adviser will receive research from Thomas J. Herzfeld & Co., Inc. regarding
various closed-end funds.
MORE ABOUT RISK - PRINCIPAL STRATEGIES
CLOSED-END FUNDS. The value of your shares may increase or decrease depending on
the value of the shares of the underlying funds in the Fund's portfolio. The
underlying funds are closed-end investment companies with managed portfolios.
Shares of closed-end funds frequently trade at a discount from net asset value.
However, a fund's articles of incorporation may contain certain anti-takeover
provisions that may have the effect of inhibiting the fund's possible conversion
to open-end status and limiting the ability of other persons to acquire control
of the fund. In certain circumstances, these provisions might also inhibit the
ability of stockholders (including the Fund ) to sell their shares at a premium
over prevailing market prices. This characteristic is a risk separate and
distinct from the risk that the fund's net asset value will decrease. In
particular, this characteristic would increase the loss or reduce the return on
the sale of those underlying funds whose shares were purchased by the Fund at a
premium.
Should any of the underlying bond funds convert to open-end status, the
Fund will retain such shares unless a determination is made by the adviser that
the retention of such shares would be detrimental to the Fund. In the unlikely
event that a Fund converts to open-end status at a time when its shares are
trading at a premium there would be an immediate loss to the Fund because shares
of open-end funds trade at net asset value. In addition, to the extent that the
converted bond fund creates additional shares when interest rates have declined
and invests in lower yielding securities, the Fund may experience a reduction of
the average yield of its retained shares in that fund caused by the acquisition
of lower coupon investments.
Certain of the underlying bond funds may have in place or may put in place
in the future plans pursuant to which the fund may repurchase its own shares in
the marketplace. Typically, these plans are put in place in an attempt by the
underlying fund's board to reduce a discount on its share price. To the extent
such a plan is implemented and shares owned by the Fund are repurchased by the
underlying fund, the Fund's position in that underlying fund would be reduced.
Similarly, in the event that the Fund does not retain shares of an underlying
fund that converted to open-end status, the Fund's position in that underlying
fund would be eliminated.
Shares of many closed-end bond funds are thinly traded, and therefore may
be more volatile and subject to greater price fluctuations than shares with
greater liquidity. Investors should be aware that there can be no assurance that
the value of the securities in the Fund's portfolio will increase or that the
issuers of those securities will pay dividends on outstanding shares. Any
distributions of income to shareholders will generally depend on the declaration
of dividends by the issuers of the underlying bonds, and the declaration of
dividends depends on several factors including the financial condition of the
issuers included in the portfolios of those securities and general economic
conditions.
JUNK BONDS. The underlying funds in the Fund's portfolio invest primarily in
high yield bonds ("junk bonds"). There are certain risks associated with such
securities that could cause the value of these funds to decrease. This, in turn,
would cause the value of the Fund to decrease.
Junk bonds are regarded as being predominantly speculative as to the
issuer's ability to make payments of principal and interest. Investment in such
securities involves substantial risk. Issuers of lower grade securities may be
highly leveraged and may not have available to them more traditional methods of
financing. Therefore, the risks associated with acquiring the securities of such
issuers generally are greater than is the case with higher-rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of lower grade securities may be more likely to experience
financial stress, especially if such issuers are highly leveraged. During
periods of economic downturn, such issuers may not have sufficient revenues to
meet their interest payment obligations. The issuer's ability to make payments
on its debt obligations also may be adversely affected by specific issuer
developments, the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Therefore, there can be
no assurance that in the future there will not exist a higher default rate
relative to the rates currently existing in the market for lower grade
securities. The risk of loss due to default by the issuer is significantly
greater for the holders of lower grade securities because such securities may be
unsecured and may be subordinate to other creditors of the issuer.
Other than with respect to distressed securities, discussed below, the
lower grade securities in which the underlying funds may invest do not include
instruments which, at the time of investment, are in default or the issuers of
which are in bankruptcy. However, there can be no assurance that such events
will not occur after an underlying fund purchases a particular security, in
which case the underlying fund and the Fund may experience losses and incur
costs. Lower grade securities frequently have call or redemption features that
would permit an issuer to repurchase the security from a underlying funds which
holds it. If a call were exercised by the issuer during a period of declining
interest rates, the particular underlying fund is likely to have to replace such
called security with a lower yielding security, thus decreasing the net
investment income to the underlying fund and the Fund.
Lower grade securities tend to be more volatile than higher-rated
fixed-income securities, so that adverse economic events may have a greater
impact on the prices of lower grade securities than on higher-rated fixed-income
securities. Factors adversely affecting the market value of such securities are
likely to adversely affect an underlying fund's net asset value which, in turn,
may adversely affect the value of your investment.
Like higher-rated fixed-income securities, lower grade securities
generally are purchased and sold through dealers who make a market in such
securities for their own accounts. However, there are fewer dealers in the lower
grade securities market, which market may be less liquid than the market for
higher-rated fixed-income securities, even under normal economic conditions.
Also, there may be significant disparities in the prices quoted for lower grade
securities by various dealers. As a result, during periods of high demand in the
lower grade securities market, it may be difficult to acquire lower grade
securities appropriate for investment by the underlying funds. Adverse economic
conditions and investor perceptions thereof (whether or not based on economic
reality) may impair liquidity in the lower grade securities market and may cause
the prices an underlying fund receives for its lower grade securities to be
reduced. In addition, an underlying fund may experience difficulty in
liquidating a portion of its portfolio when necessary to meet its liquidity
needs or in response to a specific economic event such as deterioration in the
creditworthiness of the issuers. Under such conditions, judgment may play a
greater role in valuing certain of an underlying fund's portfolio instruments
than in the case of instruments trading in a more liquid market. Moreover, an
underlying fund may incur additional expenses to the extent that it is required
to seek recovery upon a default on a portfolio holding or to participate in the
restructuring of the obligation.
LEVERAGE. Leverage is a speculative technique whereby the underlying fund
borrows money in order to make additional investments. The underlying funds may
use leverage to provide their shareholders with a potentially higher return. The
use of leverage by the underlying funds creates an opportunity for increased net
income and capital growth for their shares, but, also creates special risks.
There can be no assurance that a leveraging strategy will be successful during
any period in which it is employed. Leverage creates risks for shareholders
including the likelihood of greater volatility of net asset value and market
price of the shares and the risk that fluctuations in interest rates on
borrowing and debt or in the dividend rates on any preferred shares may affect
the return to shareholders. To the extent the income or capital growth derived
from securities purchased with funds received from leverage exceeds the cost of
leverage, an underlying fund's return will be greater than if leverage had not
been used. Conversely, if the income or capital growth from the securities
purchased with such funds is not sufficient to cover the cost of leverage, the
return to an underlying fund will be less than if leverage had not been used,
and therefore the amount available for distribution to shareholders as dividends
and other distributions will be reduced. This would, in turn, reduce the amount
available for distribution to the Fund as a shareholder.
<PAGE>
MORE ABOUT RISK - NON-PRINCIPAL STRATEGIES
DISTRESSED SECURITIES. The underlying funds may invest a portion of the initial
assets in "Distressed Securities" which are securities that are: the subject of
bankruptcy proceedings or otherwise in default as to the repayment of principal
and/or payment of interest at the time of acquisition rated in the lower rating
categories (Ca or lower by Moody's and CC or lower by S&P), or, if unrated, are
in the opinion of the underlying fund's investment advisor of equivalent
quality. An investment in Distressed Securities is speculative and involves
significant risk. Distressed Securities frequently do not produce income while
they are outstanding and may require the fund to bear certain extraordinary
expenses in order to protect and recover its investment. Therefore, to the
extent an underlying bond fund invests in Distressed Securities, the Fund's
ability to achieve current income for you may be diminished.
FOREIGN SECURITIES. Certain bond funds may invest all or a portion of their
assets in securities of issuers domiciled outside of the United States or that
are denominated in various foreign currencies and multinational foreign currency
units. Investing in securities of foreign entities and securities denominated in
foreign currencies involves certain risks not involved in domestic investments,
including, but not limited to: fluctuations in foreign exchange rates, future
foreign political and economic developments, and different legal systems and
possible imposition of exchange controls or other foreign government laws or
restrictions. Securities prices in different countries are subject to different
economic, financial, political and social factors. Since the underlying funds
may invest in securities denominated or quoted in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may affect the value of
securities in the underlying funds and the unrealized appreciation or
depreciation of investments. Currencies of certain countries may be volatile and
therefore may affect the value of securities denominated in such currencies. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, difficulty in obtaining or
enforcing a court judgment, economic, political or social instability or
diplomatic developments that could affect investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Certain foreign investments also may be subject to foreign
withholding taxes. These risks often are heightened for investments in smaller,
emerging capital markets. Finally, accounting, auditing and financial reporting
standards in foreign countries are not necessarily equivalent to U.S. standards
and therefore disclosure of certain material information may not be made.
<PAGE>
FOR MORE INFORMATION
Several additional sources of information are available to you. The
Statement of Additional Information (SAI), incorporated into this prospectus by
reference, contains detailed information on Fund policies and operations. Annual
and semi-annual reports contain management's discussion of market conditions,
investment strategies and performance results as of the Fund's latest
semi-annual or annual fiscal year end.
Call the Fund at (888) 646-2663 to request free copies of the SAI and the
Fund's annual and semi-annual reports, to request other information about the
Fund and to make shareholder inquiries.
You may review and copy information about the Fund (including the SAI and
other reports) at the Securities and Exchange Commission (SEC) Public Reference
Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and
operation. You may also obtain reports and other information about the Fund on
the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: [email protected], or by
writing the SEC's Public Reference Section of the SEC, Washington, D.C.
20549-0102.
Investment Company Act #811-09541
<PAGE>
Master High Yield Income Fund
STATEMENT OF ADDITIONAL INFORMATION
June 15, 2000
This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the Prospectus of Master High Yield Income
Fund dated June 15, 2000. A free copy of the Prospectus can be obtained by
writing the Transfer Agent at 431 North Pennsylvania Street, Indianapolis,
Indiana 46204, or by calling 1-888-646-2663.
TABLE OF CONTENTS PAGE
DESCRIPTION OF THE TRUST AND THE FUND..........................................2
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS................................................................3
INVESTMENT LIMITATIONS.........................................................4
THE INVESTMENT ADVISER ........................................................6
TRUSTEES AND OFFICERS..........................................................7
PORTFOLIO TRANSACTIONS AND BROKERAGE...........................................8
DISTRIBUTION PLAN..............................................................9
DETERMINATION OF SHARE PRICE..................................................10
INVESTMENT PERFORMANCE........................................................10
CUSTODIAN.....................................................................12
TRANSFER AGENT................................................................12
ACCOUNTANTS...................................................................12
DISTRIBUTOR...................................................................13
ADMINISTRATOR.................................................................13
DESCRIPTION OF THE TRUST AND THE FUND
The Master High Yield Income Fund (the "Fund") was organized as a
diversified series of AmeriPrime Advisors Trust (the "Trust") on June 1, 2000.
The Trust is an open-end investment company established under the laws of Ohio
by an Agreement and Declaration of Trust dated August 3, 1999 (the "Trust
Agreement"). The Trust Agreement permits the Trustees to issue an unlimited
number of shares of beneficial interest of separate series without par value.
The Fund is one of a series of funds currently authorized by the Trustees. The
investment adviser to the Fund is Riccardi Group LLC (the "Adviser").
The Fund does not issue share certificates. All shares are held in
non-certificate form registered on the books of the Fund and the Fund's transfer
agent for the account of the Shareholder. Each share of a series represents an
equal proportionate interest in the assets and liabilities belonging to that
series with each other share of that series and is entitled to such dividends
and distributions out of income belonging to the series as are declared by the
Trustees. The shares do not have cumulative voting rights or any preemptive or
conversion rights, and the Trustees have the authority from time to time to
divide or combine the shares of any series into a greater or lesser number of
shares of that series so long as the proportionate beneficial interest in the
assets belonging to that series and the rights of shares of any other series are
in no way affected. In case of any liquidation of a series, the holders of
shares of the series being liquidated will be entitled to receive as a class a
distribution out of the assets, net of the liabilities, belonging to that
series. Expenses attributable to any series are borne by that series. Any
general expenses of the Trust not readily identifiable as belonging to a
particular series are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. No shareholder
is liable to further calls or to assessment by the Trust without his or her
express consent.
It is anticipated that prior to the public offering of the Fund,
AmeriPrime Financial Securities, Inc., 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092, will purchase all of the outstanding shares of the Fund
and may be deemed to control the Fund. As the controlling shareholder,
AmeriPrime Financial Securities, Inc. could control the outcome of any proposal
submitted to the shareholders for approval, including changes to the Fund's
fundamental policies or the terms of the Management Agreement. After the public
offering commences, it is anticipated that AmeriPrime Financial Securities, Inc.
will no longer control the Fund.
For information concerning the purchase and redemption of shares of the
Fund, see "How to Buy Shares" and "How to Redeem Shares" in the Fund's
Prospectus. For a description of the methods used to determine the share price
and value of each Fund's assets, see "Determination of Net Asset Value" in the
Fund's Prospectus and this Statement of Additional Information.
<PAGE>
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS
This section contains a discussion of some of the investments the Fund may make
and some of the techniques they may use.
A. Investment Companies. In addition to the closed-end bond funds
described in the Fund's Prospectus, the Fund may invest to a limited extent in
other types of investment companies, such as open-end bond funds and open-end
and closed-end convertible bond funds. Convertible bonds may be converted into
or exchanged for a prescribed amount of common stock. . Prior to conversion,
convertible securities have the same general characteristics as non-convertible
debt securities and provide a stable stream of income with generally higher
yields than those of equity securities of the same or similar issuers. When the
market price of a common stock underlying a convertible security increases, the
price of the convertible security increasingly reflects the value of the
underlying common stock and may rise accordingly. As the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities are ranked senior to common
stock on an issuer's capital structure and they are usually of higher quality
and normally entail less risk than the issuer's common stock, although the
extent to which risk is reduced depends in large measure to the degree to which
convertible securities sell above their value as fixed income securities.
B. Borrowing. Although the Fund intends to limit borrowings to 5% of its
total assets, the Fund is permitted to borrow money up to one-third of the value
of total assets for the purpose of investment as well as for temporary or
emergency purposes. Borrowing for the purpose of investment is a speculative
technique that increases both investment opportunity and the Fund's ability to
achieve greater diversification. However, it also increases investment risk.
Because the Fund's investments will fluctuate in value, whereas the interest
obligations on borrowed funds may be fixed, during times of borrowing, the
Fund's net asset value may tend to increase more when its investments increase
in value, and decrease more when its investments decrease in value. In addition,
interest costs on borrowings may fluctuate with changing market interest rates
and may partially offset or exceed the return earned on the borrowed funds.
Also, during times of borrowing under adverse market conditions, the Fund might
have to sell portfolio securities to meet interest or principal payments at a
time when fundamental investment considerations would not favor such sales.
C. U.S. Government Securities. The Fund may invest in securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities (U.S.
Government Securities"). U.S. Government Securities may be backed by the credit
of the government as a whole or only by the issuing agency. U.S. Treasury bonds,
notes, and bills and some agency securities, such as those issued by the Federal
Housing Administration and the Government National Mortgage Association (GNMA),
are backed by the full faith and credit of the U.S. government as to payment of
principal and interest and are the highest quality government securities. Other
securities issued by U.S. government agencies or instrumentalities, such as
securities issued by the Federal Home Loan Banks and the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the agency that issued
them, and not by the U.S. government. Securities issued by the Federal Farm
Credit System, the Federal Land Banks, and the Federal National Mortgage
Association (FNMA) are supported by the agency's right to borrow money from the
U.S. Treasury under certain circumstances, but are not backed by the full faith
and credit of the U.S. government.
D. Repurchase Agreements The Fund may invest in repurchase agreements
fully collateralized by U.S. Government obligations. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a U.S. Government obligation (which may be of any maturity) and the seller
agrees to repurchase the obligation at a future time at a set price, thereby
determining the yield during the purchaser's holding period (usually not more
than seven days from the date of purchase). Any repurchase transaction in which
the Fund engages will require full collateralization of the seller's obligation
during the entire term of the repurchase agreement. In the event of a bankruptcy
or other default of the seller, the Fund could experience both delays in
liquidating the underlying security and losses in value. However, the Fund
intends to enter into repurchase agreements only with Star Bank, N.A. (the
Fund's Custodian), other banks with assets of $1 billion or more and registered
securities dealers determined by the Advisor (subject to review by the Board of
Trustees) to be creditworthy. The Advisor monitors the creditworthiness of the
banks and securities dealers with which the Fund engages in repurchase
transactions.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been adopted
by the Trust with respect to the Fund and are fundamental ("Fundamental"), i.e.,
they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. As used in the Prospectus and the Statement of
Additional Information, the term "majority" of the outstanding shares of the
Fund means the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices which may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund have an asset coverage
of 300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. Underwriting. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. Commodities. The Fund will not purchase or sell commodities unless
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will invest no more than 25% of its total
assets in any investment company that concentrates, although the Fund will
itself concentrate its investments in investment companies. This limitation is
not applicable to investments in obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities or repurchase agreements with
respect thereto.
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment company,
whether organized as a trust, association or corporation, or a personal holding
company, may be merged or consolidated with or acquired by the Trust, provided
that if such merger, consolidation or acquisition results in an investment in
the securities of any issuer prohibited by said paragraphs, the Trust shall,
within ninety days after the consummation of such merger, consolidation or
acquisition, dispose of all of the securities of such issuer so acquired or such
portion thereof as shall bring the total investment therein within the
limitations imposed by said paragraphs above as of the date of consummation.
Non-Fundamental. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions"
above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than one third of
its total assets are outstanding.
3. Margin Purchases. The Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. Options. The Fund will not purchase or sell puts, calls, options or
straddles.
5. Illiquid Investments. The Fund will not invest in securities for which
there are legal or contractual restrictions on resale and other illiquid
securities.
6. Short Sales. The Fund will not effect short sales of securities.
-----------
THE INVESTMENT ADVISER
The Fund's investment adviser is Riccardi Group LLC, 340 Sunset Dr., Ft.
Lauderdale, Florida 33301. Richard Riccardi and Susan T. Warner may each be
deemed to control the Adviser due to their respective share of ownership of the
Adviser.
Under the terms of the management agreement (the "Management Agreement"),
the Adviser manages the Fund's investments subject to approval of the Board of
Trustees. The Fund is obligated to pay the Adviser a fee computed and accrued
daily and paid monthly at an annual rate of 0.50% of the average daily net
assets of the Fund.
The Adviser retains the right to use the names "Riccardi" and "High Yield"
or any variation thereof in connection with another investment company or
business enterprise with which the adviser is or may become associated. The
Trust's right to use the names " Riccardi" and "High Yield" automatically ceases
ninety days after termination of the Management Agreement and may be withdrawn
by the adviser on ninety days written notice.
The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. If a bank
or other financial institution were prohibited from continuing to perform all or
a part of such services, management of the Fund believes that there would be no
material impact on the Fund or its shareholders. Banks may charge their
customers fees for offering these services to the extent permitted by applicable
regulatory authorities, and the overall return to those shareholders availing
themselves of the bank services will be lower than to those shareholders who do
not. The Fund may from time to time purchase securities issued by banks which
provide such services; however, in selecting investments for the Fund, no
preference will be shown for such securities.
<PAGE>
TRUSTEES AND OFFICERS
The Board of Trustees supervises the business activities of the Trust. The
names of the Trustees and executive officers of the Trust are shown below. Each
Trustee who is an "interested person" of the Trust, as defined in the Investment
Company Act of 1940, is indicated by an asterisk.
<TABLE>
<CAPTION>
=====================================================================================
NAME, AGE AND ADDRESS POSITION PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
-------------------------------------------------------------------------------------
<S> <C> <C>
*Kenneth D. Trumpfheller President, President, Treasurer and Secretary of
1793 Kingswood Drive Secretary, AmeriPrime Financial Services, Inc., the
Suite 200 Treasurer Fund's administrator, and AmeriPrime Financial
Southlake, Texas 76092 and Trustee Securities, Inc., the Fund's distributor,
Year of Birth: 1958 since 1994. President and Trustee of
AmeriPrime Funds and AmeriPrime Insurance
Trust. Prior to December, 1994, a senior
client executive with SEI Financial Services
-------------------------------------------------------------------------------------
Mark W. Muller Trustee Account Manager for Clarion Technologies, a
175 Westwood Drive manufacturer of automotive, heavy truck, and
Suite 300 consumer goods, from 1996 to present. From
Southlake, Texas 76092 1986 to 1996, an engineer for Sicor, a
Year of Birth: 1964 telecommunication hardware company.
-------------------------------------------------------------------------------------
Richard J. Wright, Jr. Trustee Various positions with Texas Instruments, a
8505 Forest Lane technology company, since 1995, including the
MS 8672 following: Program Manager for Semi-Conductor
Dallas, Texas 75243 Business Opportunity Management System, 1998
Year of Birth: 1962 to present; Development Manager for web-based
interface, 1999 to present; Systems Manager
for Semi-Conductor Business Opportunity
Management System, 1997 to 1998;
Development Manager for Acquisition
Manager, 1996-1997; Operations Manager for
Procurement Systems, 1994-1997.
=====================================================================================
</TABLE>
The following table estimates the Trustees' compensation for the first
full fiscal year. Trustee fees are Trust expenses and each series of the Trust
pays a portion of the Trustee fees.
=================================================================
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST (THE TRUST
NAME FROM TRUST IS
NOT IN A FUND COMPLEX)
-----------------------------------------------------------------
Kenneth D. Trumpfheller 0 0
-----------------------------------------------------------------
Mark W. Muller $6,000 $6,000
-----------------------------------------------------------------
Richard J. Wright $6,000 $6,000
=================================================================
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust, the
Adviser is responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions. In placing portfolio transactions, the Adviser
seeks the best qualitative execution for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to its obligation of seeking best qualitative execution, the
Adviser may give consideration to sales of shares of the Trust as a factor in
the selection of brokers and dealers to execute portfolio transactions.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion. The Fund has no
obligation to deal with any broker or dealer in the execution of its
transactions. However, it is contemplated that Thomas J. Herzfeld & Co., Inc.,
in its capacity as a registered broker-dealer, will effect a significant amount
of the Fund's securities transactions because of their expertise in the
closed-end fund market.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effect securities transactions may
also be used by the Adviser in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the Adviser in connection with its services to the Fund.
Although research services and other information are useful to the Fund and the
Adviser, it is not possible to place a dollar value on the research and other
information received. It is the opinion of the Board of Trustees and the Adviser
that the review and study of the research and other information will not reduce
the overall cost to the Adviser of performing its duties to the Fund under the
Management Agreement.
While the Fund does not deem it practicable and in its best interests to
solicit competitive bids for commission rates on each transaction, consideration
is regularly given to posted commission rates as well as other information
concerning the level of commissions charged on comparable transactions by
qualified brokers.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
Purchases include a concession paid by the issuer to the underwriter and the
purchase price paid to a market maker may include the spread between the bid and
asked prices.
To the extent that the Trust and another of the Adviser's clients seek to
acquire the same security at about the same time, the Trust may not be able to
acquire as large a position in such security as it desires or it may have to pay
a higher price for the security. Similarly, the Trust may not be able to obtain
as large an execution of an order to sell or as high a price for any particular
portfolio security if the other client desires to sell the same portfolio
security at the same time. On the other hand, if the same securities are bought
or sold at the same time by more than one client, the resulting participation in
volume transactions could produce better executions for the Trust. In the event
that more than one client wants to purchase or sell the same security on a given
date, the purchases and sales will normally be made by random client selection.
DISTRIBUTION PLAN
The Fund's Class C has adopted a plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which permits the Fund to pay for certain
distribution and promotion expenses related to marketing Class C shares. The
amount payable annually by Class C shares is 0.25% of its average daily net
assets.
Under the Plan, the Trust may engage in any activities related to the
distribution of Fund shares, including without limitation the following: (a)
payments, including incentive compensation, to securities dealers or other
financial intermediaries, financial institutions, investment advisors and others
that are engaged in the sale of Class C Shares, or that may be advising
shareholders of the Trust regarding the purchase, sale or retention of Class C
Shares; (b) expenses of maintaining personnel (including personnel of
organizations with which the Trust has entered into agreements related to this
Plan) who engage in or support distribution of Class C Shares; (c) costs of
preparing, printing and distributing prospectuses and statements of additional
information and reports of the Fund for recipients other than existing
shareholders of the Fund; (d) costs of formulating and implementing marketing
and promotional activities, including, but not limited to, sales seminars,
direct mail promotions and television, radio, newspaper, magazine and other mass
media advertising; (e) costs of preparing, printing and distributing sales
literature; (f) costs of obtaining such information, analyses and reports with
respect to marketing and promotional activities as the Trust may, from time to
time, deem advisable; and (g) costs of implementing and operating this Plan. The
Fund does not participate in any joint distribution activities with other mutual
funds.
The Trustees expect that the Plan will significantly enhance the Fund's
ability to expand distribution of Class C shares. It is also anticipated that an
increase in the size of the Fund will facilitate more efficient portfolio
management and assist the Fund in seeking to achieve its investment objective.
The Plan has been approved by the Fund's Board of Trustees, including a
majority of the Trustees who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the Plan or any related
agreement, by a vote cast in person. Continuation of the Plan and the related
agreements must be approved by the Trustees annually, in the same manner, and
the Plan or any related agreement may be terminated at any time without penalty
by a majority of such independent Trustees or by a majority of the outstanding
shares of the applicable class. Any amendment increasing the maximum percentage
payable under the Plan or other material change must be approved by a majority
of the outstanding shares of the applicable class, and all other material
amendments to the Plan or any related agreement must be approved by a majority
of the independent Trustees.
<PAGE>
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as of
4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Fund's adviser's opinion, the last bid price does not accurately reflect the
current value of the security. All other securities for which over-the-counter
market quotations are readily available are valued at their last bid price. When
market quotations are not readily available, when the Fund's adviser determines
the last bid price does not accurately reflect the current value or when
restricted securities are being valued, such securities are valued as determined
in good faith by the Fund's adviser, subject to review of the Board of Trustees
of the Trust.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when the
Fund's adviser believes such prices accurately reflect the fair market value of
such securities. A pricing service utilizes electronic data processing
techniques based on yield spreads relating to securities with similar
characteristics to determine prices for normal institutional-size trading units
of debt securities without regard to sale or bid prices. When prices are not
readily available from a pricing service, or when restricted or illiquid
securities are being valued, securities are valued at fair value as determined
in good faith by the Fund's adviser, subject to review of the Board of Trustees.
Short term investments in fixed income securities with maturities of less than
60 days when acquired, or which subsequently are within 60 days of maturity, are
valued by using the amortized cost method of valuation, which the Board has
determined will represent fair value.
INVESTMENT PERFORMANCE
The Fund may periodically advertise "average annual total return."
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the applicable period
of the hypothetical $1,000 investment made at the beginning
of the applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period. If the Fund has been in existence
less than one, five or ten years, the time period since the date of the initial
public offering of shares will be substituted for the periods stated.
The Fund's "yield" is determined in accordance with the method defined by
the Securities and Exchange Commission. A yield quotation is based on a 30 day
(or one month) period and is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
Yield = 2[(a-b/cd+1)6-1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity of
each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day prior
to the start of the 30-day (or one month) period for which yield is being
calculated, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest). With respect to the treatment of
discount and premium on mortgage or other receivable-backed obligations which
are expected to be subject to monthly paydowns of principal and interest, gain
or loss attributable to actual monthly paydowns is accounted for as an increase
or decrease to interest income during the period and discount or premium on the
remaining security is not amortized.
The Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from average annual total return. A
non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for average annual total
return. In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of the Fund's shares) as of the end of a specified period. These
non-standardized quotations do not include the effect of the applicable sales
load which, if included, would reduce the quoted performance. A non-standardized
quotation of total return will always be accompanied by the Fund's average
annual total return as described above.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
that Fund. These factors and possible differences in the methods and time
periods used in calculating non-standardized investment performance should be
considered when comparing the Fund's performance to those of other investment
companies or investment vehicles. The risks associated with the Fund's
investment objective, policies and techniques should also be considered. At any
time in the future, investment performance may be higher or lower than past
performance, and there can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the bond market in general. These may include
the Merrill Lynch Master, C.S. First Boston or Lipper Bond Indexes or the Dow
Jones Industrial Average.
In addition, the performance of the Fund may be compared to other groups
of mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and ratings reported periodically in
national financial publications such as Barron's and Fortune also may be used.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street M.L 6118, Cincinnati, Ohio 45202, is
custodian of the Fund's investments. The custodian acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Fund's request and
maintains records in connection with its duties.
TRANSFER AGENT
Unified Fund Services, Inc. ("Unified"), 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, acts as the Fund's transfer agent and, in such
capacity, maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other transfer agency and shareholder service functions. For
its services as transfer agent, Unified receives a monthly fee from the Adviser
of $1.20 per shareholder (subject to a minimum monthly fee of $900). In
addition, Unified provides the Fund with fund accounting services, which include
certain monthly reports, record-keeping and other management-related services.
For its services as fund accountant, Unified receives an annual fee from the
Adviser equal to 0.0275% of the Fund's assets up to $100 million, 0.0250% of the
Fund's assets from $100 million to $300 million, and 0.0200% of the Fund's
assets over $300 million (subject to various monthly minimum fees, the maximum
being $2,100 per month for assets of $20 to $100 million).
ACCOUNTANTS
The firm of McCurdy & Associates CPA's, Inc., 27955 Clemens Road,
Westlake, Ohio 44145, has been selected as independent public accountants for
the Fund for the first fiscal year. McCurdy & Associates performs an annual
audit of the Fund's financial statements and provides financial, tax and
accounting consulting services as requested.
<PAGE>
DISTRIBUTOR
AmeriPrime Financial Securities, Inc., 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092 (the "Distributor"), is the exclusive agent for
distribution of shares of the Fund. Kenneth D. Trumpfheller, a Trustee and
Officer of the Trust, is an affiliate of the Distributor. The Distributor is
obligated to sell the shares of the Fund on a best efforts basis only against
purchase orders for the shares. Shares of the Fund are offered to the public on
a continuous basis.
ADMINISTRATOR
The Fund retains AmeriPrime Financial Services, Inc., 1793 Kingswood
Drive, Suite 200, Southlake, TX 76092, (the "Administrator") to manage the
Fund's business affairs and provide the Fund with administrative services,
including all regulatory reporting and necessary office equipment, personnel and
facilities. The Administrator receives a monthly fee from the Adviser equal to
an annual average rate of 0.10% of the Fund's average daily net assets up to
fifty million dollars, 0.075% of the Fund's average daily net assets from fifty
to one hundred million dollars and 0.050% of the Fund's average daily net assets
over one hundred million dollars. The Administrator, the Distributor, and
Unified (the Fund's transfer agent) are controlled by Unified Financial
Services, Inc.
