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As filed with the Securities and Exchange Commission on June 20, 2000
1933 Act Registration No 333-95817
1940 Act Registration No 811-09749
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 1
LIFETIME ACHIEVEMENT FUND, INC.
(Exact Name of Registrant as Specified in Charter)
11605 West Dodge Road, Omaha, Nebraska 68154
(Address of Principal Executive Offices)
Registrant's Telephone Number: (402) 330-1166
ROLAND R. MANARIN, President
Lifetime Achievement Fund, Inc
11605 West Dodge Road
Omaha, Nebraska 68154
(Name and Address of
Agent for Service)
Copies to:
John D. Ellsworth, Esq.
Michael C. Pallesen, Esq.
Lieben, Whitted, Houghton, Slowiaczek & Cavanagh, P.C.
100 Scoular Building
2027 Dodge Street
Omaha, Nebraska 68102
Telephone: (402) 344-4000
Approximate Date of Proposed Public Offering As soon as practicable after the
effective date of the Registration Statement under the Securities Act of 1933.
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 this
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 Securities and Exchange
Commission, acting pursuant to Section 8(a), may determine.
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Lifetime Achievement Fund, Inc
Contents of Registration Statement
This registration statement consists of the following papers and documents.
Cover Sheet
Contents of Registration Statement
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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Subject to Completion
LIFETIME ACHIEVEMENT FUND, INC.
11605 West Dodge Road
Omaha, Nebraska 68154
(402) 330-1166
Information contained in this Prospectus is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus is not an offer to sell and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
This Prospectus relates to shares of Lifetime Achievement Fund, Inc. (the
"Fund"), a non-diversified, open-end mutual fund which seeks long-term capital
appreciation and growth of investment income primarily by investing in shares of
other open-end and closed-end mutual funds. No assurance can be given that the
Fund will achieve this investment objective.
This Prospectus sets forth concisely the information about the Fund that you, as
a prospective investor, should know before investing in the Fund. It should be
read and retained for future reference.
The Securities of the Fund have not been approved or disapproved by the
Securities and Exchange Commission, nor has the Securities and Exchange
Commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
This Prospectus is dated June 20, 2000.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
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<S> <C>
THE FUND'S INVESTMENT OBJECTIVE 1
THE FUND'S INVESTMENT STRATEGIES 1
THE PRINCIPAL RISKS OF INVESTING IN THE FUND 3
FEES AND EXPENSES OF THE FUND (FEE TABLE) 5
FEE EXAMPLE 6
MANAGEMENT OF THE FUND 7
INVESTING IN THE FUND 8
DISTRIBUTION ARRANGEMENTS 14
</TABLE>
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THIS PROSPECTUS
This Prospectus is designed to help you make an informed decision about whether
investing in the Fund is appropriate for you. To make this Prospectus easy for
you to read and understand, we have divided it into three sections: "The Fund",
"Management of the Fund", and "Investing in the Fund."
The first section, "The Fund", tells you three important things about the Fund
that you need to know before deciding to invest in the Fund. Those three things
are: (1) the Fund's investment objective; (2) the Fund's principal investment
strategies; and (3) the principal risks of investing in the Fund.
The other two sections of this Prospectus, "Management of the Fund" and
"Investing in the Fund" provide you with information about the businesses and
people who manage the Fund, the services and privileges available to you, how
the Fund's shares are priced, and how to buy and sell the Fund's shares.
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is long-term growth of capital and growth of
investment income. This objective may not be changed without shareholder
approval. You will receive advance notice of such a change so that you may
consider whether the Fund would still be an appropriate investment for you.
THE FUND'S INVESTMENT STRATEGIES
1. A "Fund of Funds"
The Fund seeks to achieve its objective by investing primarily in common shares
of other open-end and closed-end investment companies ("underlying funds"). The
Fund will not invest in senior securities of closed-end funds. The underlying
funds that the Fund is most likely to invest in will themselves have as their
investment objective long-term capital appreciation through investing primarily
in the common stock of U.S. and foreign companies
The Fund may purchase shares of underlying open-end funds whether or not
they impose a front-end sales commission ("sales load"). However, the Fund
does not acquire the shares of any underlying fund having a sales load unless
the underlying fund has a policy allowing for the purchase of shares without
the sales load due to the volume of shares purchased (e.g., a cumulative
quality discount or letter of intent program) and the Fund's purchase
qualifies under the policy. Some underlying funds may impose a contingent
deferred sales load in the event shares are redeemed within a certain period
of time, usually 12 months from the date of purchase. The Fund does not
anticipate incurring such charges, nor does the Fund anticipate buying Class B
shares of underlying funds.
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The Fund may also invest in individual fixed income bonds issued by the U.S.
Government, its agencies or instrumentalities with maturities in excess of 10
years ("U.S. Government securities") whenever the Fund's investment adviser,
Manarin Investment Counsel, Ltd. (the "Adviser"), believes that these underlying
funds offer a potential for capital appreciation, such as during periods of
declining interest rates.
The Fund is "non-diversified", which means that the Fund may invest in fewer
securities at any one time than a diversified fund. The Fund may invest up to
10% of its total assets in any one underlying fund. The Fund and its affiliates
may not hold more than 3% of an underlying fund's outstanding voting stock.
The Fund cannot purchase shares of underlying funds that are not registered with
the Securities and Exchange Commission ("SEC"). The Fund only invests in
underlying funds that are represented to be regulated investment companies
("RICs") under the Internal Revenue Code of 1986, as amended (the "Code").
The Adviser selects underlying funds in which to invest based, in part, upon an
analysis of their past performance and their investment objectives, policies,
principal risks, and the investment strategies of their advisers. In selecting
open-end funds in which to invest, the Adviser considers, among other factors,
the underlying fund's size, administrative and other costs, shareholder services
and the reputation and stability of its investment adviser. In selecting
closed-end funds in which to invest, the Adviser also considers the underlying
fund's historical market discount, portfolio characteristics, repurchase, tender
offer and dividend reinvestment terms, and provisions for converting to an
open-end fund. The Fund may invest in the securities of a closed-end fund that
is then either trading at a discount or at a premium to its net asset value.
The underlying funds in which the Fund invests may include new funds or funds
with limited operating histories. Underlying funds may, but need not, have the
same investment objective, policies and limitations as the Fund.
2. Investment in Listed Common Stock.
In addition to investing in other mutual funds, the Fund may invest a portion of
its assets in the purchase of exchange or NASDAQ listed common stocks. Such
individual common stocks purchased by the Fund will represent not more than 20%
of the Fund's total portfolio.
3. Temporary Investments
For liquidity purposes the Fund may temporarily hold up to 10% of its assets in
cash, money market mutual funds or money market instruments, including
repurchase agreements. A repurchase agreement involves a transaction in which
the Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities.
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THE PRINCIPAL RISKS OF INVESTING IN THE FUND
1. Risks of Investing Generally
You could lose money by investing in the Fund. You should consider your personal
investment goals, time horizon, and tolerance of risk before investing in the
Fund. An investment in the Fund may not be appropriate for all investors and is
not intended or designed to be a complete investment program.
2. Risks of Investment in Other Investment Companies (the "Fund of Funds")
Any investment in an open-end or closed-end mutual fund involves investment
risk. Although the Fund invests in a number of underlying funds, this practice
cannot eliminate investment risk. Investment decisions by the investment
advisers of the underlying funds are made independently of the Fund and the
Adviser. For instance, one underlying fund may be purchasing securities of the
same issuer whose securities are being sold by another underlying fund. The
result would be an indirect cost to the Fund while potentially leaving the value
of the Fund's portfolio unchanged. Additionally, an underlying fund may impose a
contingent deferred sales load on sales of shares of that underlying fund that
are not held by the Fund for a specified period of time. Although the Fund
intends to avoid contingent deferred sales charges whenever possible, such
charges may be incurred.
Some underlying funds acquired by the Fund will intentionally assume more
investment risk than others. The risks associated with investments in underlying
funds are further described in the Fund's Statement of Additional Information.
3. Risks of Investment in Closed-End Funds
Shares of closed-end funds generally trade at either a premium or a discount
to their actual net asset value ("NAV"). Accordingly, the Fund could pay more
in a purchase of such shares, or receive less is a sale of such shares, than
the actual NAV of the shares. Additionally, shares of closed-end funds are
typically offered to the public in an initial public offering which includes
an underwriting spread or commission and are typically listed for trading on
an exchange or on NASDAQ where they can be bought and sold by investors. When
the Fund purchases closed-end funds, it will do so in the secondary market
and incur certain brokerage costs.
4. Risks of Investment in Listed Common Stocks
The risks that are associated with investing in listed common stocks include the
financial risk of purchasing individual companies that perform poorly, the risk
that the stock markets in which the Fund invests may experience periods of
turbulence and instability, and the general risk that domestic and foreign
economies may go through periods of decline and cycles of change. Many factors
affect an individual company's performance, such as the strength of its
management or
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the demand for its services or products. You should be aware that the value of a
company's share price may decline as a result of poor decisions made by
management or lower demand for the company's services or products. In addition,
a company's share price may also decline if its earnings or revenues fall short
of expectations. There are also risks associated with the stock market overall.
Overtime, stock markets tend to move in cycles, with periods when stock prices
rise generally and periods when stock prices decline generally. The value of the
Fund's investments may increase or decrease more than the stock market in
general.
5. Risks of Non-Diversification
As previously mentioned, the Fund's portfolio is non-diversified. This means
that the Fund can take larger positions in a smaller number of securities than a
diversified portfolio could take. Non-diversification increases the risk that
the value of the Fund could go down because a single investment performs poorly.
6. Risks of Foreign Investments.
As previously mentioned, the Fund may through investments in underlying funds,
invest in foreign companies. Such investments carry a number of economic,
financial and political considerations that are not associated with the U.S.
markets and that could unfavorably affect the Fund's performance. Among those
risks are the following: greater price volatility; weak supervision and
regulation of securities exchanges, brokers and issuers; higher brokerage costs;
fluctuations in foreign currency exchange rates and related conversion costs;
adverse tax consequences; and settlement delays.
7. Turnover Rate
The Fund's portfolio turnover rate may vary greatly from year to year and will
not be a limiting factor when the Adviser deems portfolio changes appropriate. A
high portfolio turnover rate (100% or more), whether incurred by the Fund or an
underlying fund, involves correspondingly greater transaction costs, which will
be borne directly by the Fund or the underlying fund, and increases the
potential for short-term capital gains and taxes. At this time, the Fund
estimates a turnover rate of 50% or less per year.
8. Additional Costs
Investing in the Fund involves certain additional expenses and certain tax
consequences that would not be present with direct investments in the underlying
funds. You should recognize that you may invest directly in the underlying funds
and that, by investing in the underlying funds indirectly through the Fund, you
will bear not only your proportionate share of the expenses of the Fund
(including operating costs and investment advisory and administrative fees) but
also, indirectly, similar expenses of the underlying funds.
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9. Risks Associated with Lack of Operating History and Experience
The Fund is newly organized and has no history of operations. None of the
principals, officers, or directors of the Fund or the Adviser have ever
registered, operated, or supervised the operation of a registered investment
company. There can be no assurances that management's past experiences will
enable it to successfully manage the Fund.
The information provided above gives some indication of the risks of investing
in the Fund. However, due to the Fund's lack of operating history a comparison
of the Fund's performance with that of the market generally is not possible.
FEES AND EXPENSES OF THE FUND (FEE TABLE)
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
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SHAREHOLDER FEES (fees paid directly from your Percent
investment) of Net
Asset
Value
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<S> <C>
Maximum Sales Charge (Load) imposed on purchases (as a 2.5%
percentage of the offering price) (a)
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Deferred Sales Charge (Load) (as a percentage of net None
asset at time of purchase or sale)
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Sales charge (Load) Imposed on Reinvested Dividends None
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Redemption Fee None
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Exchange Fee None
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ANNUAL FUND OPERATING
EXPENSES (expenses that are deducted
from Fund assets)
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Management Fees .75%
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Distribution and Shareholder Service .25%
(12b-1) Fees
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Other Expenses (b) .50%
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Total Annual Fund Operating Expenses (c)(d) 1.5%
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</TABLE>
(a) The Fund is permitted to charge a sales load in excess of 1.5 % pursuant to
an Order of the SEC dated June 7, 2000, issued under Section 12(d)(1)(J) of the
1940 Act exempting the Fund from the sales load limitation in Section
12(d)(1)(F)(ii) of the 1940 Act.
(b) "Other Expenses" are based on estimated amounts for the current fiscal year.
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(c) The Adviser may elect to waive all or part of its fee. However, it is not
required to do so. Likewise, the Fund may elect to not to seek reimbursement
from the Adviser for expenses reasonably incurred on behalf of the Fund.
Again, however, it is not required to do so. If the Adviser elects to waive
fees or reimbursement for certain expenses, such a waiver is irrevocable and
the amounts cannot be recovered by the Adviser at a later time.
(d) The Fund will also assume a proportional share of the fees and expenses of
the underlying funds in which the Fund invests. The Fund anticipates that the
range of underlying funds' expenses will be 1-2%.
FEE EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
After 1 year - $392.00
After 3 years - $705.00
OTHER INVESTMENT STRATEGIES AND RISKS
1. Investment in Foreign Common Stocks
Although not a principal strategy, the Fund may directly invest in the common
stock of foreign companies in addition to investing in such securities through
an underlying fund. Investments in foreign companies by the Fund itself carry
the same risks as those discussed earlier with regard to the underlying funds.
2. Borrowing
For temporary or emergency purposes, the Fund may borrow up to 10% of the value
of its total assets from qualified banks. Borrowing may exaggerate the effect on
the Fund's share value of any increase or decrease in the value of the
securities it holds. Money borrowed will also be subject to interest costs.
3. Other Temporary Defensive Positions
The Fund may occasionally take a temporary defensive position and invest without
limit in U.S. Government securities, investment-grade debt securities, and cash
and cash equivalents such as commercial paper, short-term notes and other money
market securities, if the Adviser deems
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such positions necessary. When the Fund assumes such a defensive position it may
not achieve its investment objective.
4. Options on Listed Securities
Although not a principal strategy of the Fund, the Fund may, as part of its
strategy of investing in the common stock of exchange or NASDAQ listed
companies, or through its investment in an underlying fund, write (e.g. sell) or
purchase (e.g., buy) options on such common stock. Options are either "call" or
"put" options. When a fund writes a call option it receives a premium and gives
the purchaser the right to buy the underlying security at any time during the
call period (generally nine months or less in the case of common stock) at a
fixed price. If the purchaser exercises its call option, the fund writing the
calloption loses any gain from an increase in the market price over the exercise
price. The Fund itself will write call options only if the Fund owns the
optioned securities (i.e., "covered calls"). When a fund purchases a call it
pays a premium in return for the right to purchase the underlying security at
the exercise price at anytime during the option period. The writing of put
options involves the seller's obligation to purchase the underlying securities
at the exercise price during the option period. The purchasing of put options
involves the purchaser's right to sell the underlying securities at the exercise
price during the option period. There can be no assurance that the Adviser will
accurately predict market conditions such that option positions will be
profitable for the Fund.
More information on option transaction is contained in the Fund's Statement of
Additional Information.
MANAGEMENT OF THE FUND
1. The Adviser
The Adviser, whose address is 11605 West Dodge Road, Omaha, Nebraska
68154, was incorporated under the laws of the State of Nebraska in 1983 and
is controlled by Roland R. Manarin, who serves as the Fund's portfolio
manager. The Adviser presently has approximately $300 million under
management on behalf of approximately 1,200 individual investors. The Adviser
also serves as the investment adviser for two private limited partnership
investment vehicles with a combined value of approximately $50 million. The
Adviser's work on behalf of the Fund is its first on behalf of a public fund.
The Fund pays the Adviser a monthly fee for its services calculated at the
annual rate of .75% of the average daily net assets of the Fund. The fees paid
to the Adviser are reviewed at least annually by the Fund's Board of Directors.
Services provided by the Adviser include, but are not limited to, the provision
of a continuous investment program for the Fund and supervision of all matters
relating to the operation of the Fund. Among other things, the Adviser is
responsible for making investment decisions and placing orders to buy, sell or
hold particular securities.
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2. The Portfolio Manager
Mr. Manarin serves as the Fund's portfolio manager on behalf of the Adviser. He
has served in that capacity since commencement of the Fund's operations. Mr.
Manarin has been a registered investment adviser representative since 1983. In
addition to managing the assets of numerous individual clients, Mr. Manarin is
the portfolio manager of the same two private limited partnership investment
vehicles referred to above. Mr. Manarin's history in the securities industry
dates to 1976 when he first became registered with a large regional brokerage
firm. His role as portfolio manager of the Fund is his first such position with
a public fund.
3. Fund Shares
The Fund was organized as a Maryland corporation on September 2, 1999, under the
name Manarin Diversified Growth Fund, Inc. The Fund subsequently changed its
corporate name to Lifetime Achievement Fund, Inc., by amending its articles of
incorporation in Maryland effective October 20, 1999. The Fund is a new fund and
therefor has no operating history.
The Fund is authorized to issue one billion shares of common stock with a par
value of $.001 per share (aggregate par value of $1,000,000). Shares of common
stock of the Fund, when issued, are fully paid, nonassessable, fully
transferable, redeemable at the option of the shareholder and have equal
dividend and liquidation rights and noncumulative voting rights.
The Fund does not hold annual meetings of shareholders. There will normally be
no meeting of shareholders for the purpose of electing directors unless and
until such time as less than a majority of the directors holding office have
been elected by shareholders, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under the Fund's
Bylaws, a majority vote of shareholders may remove a director.
In accordance with the 1940 Act, if an underlying fund submits a matter to
shareholders for vote, the Fund will either vote the shares (i) in accordance
with instructions received from Fund shareholders or (ii) in the same proportion
as the vote of all other holders of such securities.
INVESTING IN THE FUND
1. The Distributor
Manarin Securities Corporation, a registered broker-dealer owned by Roland R.
Manarin, has been engaged as the distribution agent (the "Distributor") and is
responsible for the marketing, promotion and sale of the Fund's shares to the
public.
The shares of the Fund are offered to prospective investors on behalf of the
Fund by Distributor, an NASD member and registered broker-dealer, as well as
other registered broker-dealer firms that may be selected from time to time by
Distributor and the Fund to assist in the promotion and distribution of the
Fund's shares. The address of Distributor is as follows: Manarin Securities
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Corporation, 11605 West Dodge Road, Omaha, Nebraska, 68154. Distributor is
controlled by Roland R. Manarin, who also controls the Adviser.
2. Pricing of Shares
The price of a share of the Fund, is called the Fund's "net asset value" (NAV).
At the time you purchase shares of the Fund, the NAV plus a 2.5% sales charge
(also called a "front-end sales load") comprises your purchase price. The NAV is
determined as of the close of regular trading (currently 3:00 p.m. Omaha time)
on each day that the New York Stock Exchange ("NYSE") is open for business. In
the event that the NYSE is closed for recognition of holidays, or otherwise, the
NAV will not be calculated on those days. The NAV per share is computed by
dividing the value of the Fund's securities plus any cash and other assets
(including dividends accrued but not yet collected) minus all liabilities
(including accrued expenses) by the total number of the Fund's shares
outstanding.
The assets of the Fund consist primarily of shares of underlying funds. The Fund
values underlying funds at the current reported NAV. Individual securities in
the Fund's portfolio for which market quotations are readily available are
valued at their current market value (generally the last reported sales price).
The Fund values all other securities and assets at fair value pursuant to
methods established in good faith by the Board of Directors of the Fund. Money
market funds with portfolio securities that mature in 397 days or less may use
the amortized cost or penny-rounding methods to value their securities. Shares
of closed-end funds that are listed on U.S. exchanges are valued at the last
sales price on the day the securities are valued or, lacking any sales on such
day, at the last available bid price. Shares of closed-end funds listed on
NASDAQ are valued at the last trade price on NASDAQ at 4:00 p.m. Eastern time;
other shares traded in the OTC market are valued at the last bid price available
prior to valuation.
Other Fund assets are valued at current market value or, where unavailable, at
fair value as determined in good faith by or under the direction of the Board of
Directors. Securities having 60 days or less remaining to maturity are valued at
their amortized cost. Any investments denominated in foreign currency are valued
daily in U.S. dollars on the basis of the then-prevailing exchange rate.
3. How Shares May Be Purchased
Application forms for the purchase of shares of the Fund can be obtained by
contacting the shareholder services department ("Shareholder Services") at the
address or telephone number shown on the back of this Prospectus.
The minimum initial investment in the Fund is $10,000, and the minimum for
additional investments is $500. Exceptions to these minimums can be granted for
investments made pursuant to special plans or if approved by the Distributor.
All orders are executed at the net asset value per share next computed after
receipt and acceptance of the order by Shareholder Services. The Fund and the
Distributor reserve the right to reject any purchase order.
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When you initially purchase shares of the Fund, an account is automatically
established for you. Any shares of the Fund that you subsequently purchase or
that you receive as a distribution are credited directly to your account. No
share certificates are issued unless you specifically request in writing to the
Fund. Certificates are issued in full shares only. In addition, no certificates
are issued for shares purchased by check until 15 days have elapsed, unless the
Fund is reasonably assured that payment for the shares has been collected. There
is no charge for certificate issuance.
4. Systematic Investment Plan
You may purchase Fund shares through a Systematic Investment Plan. Under such a
plan, your bank checking account will automatically be debited monthly or
quarterly in an amount equal to at least the minimum for additional investments
in the Fund (subject to the minimum initial investment for the Fund), as
specified by you. The purchase of Fund shares will be effected at their NAV plus
the 2.5% sales charge at the close of regular trading on the NYSE on or about
the 15th day of the month. You may elect to participate in a Systematic
Investment Plan when filling out the initial application or may elect to
participate later by completing the appropriate form that is available from
Shareholders Services.
5. Qualified Retirement Plans
An investment in Fund shares may be appropriate for individual retirement
accounts (including "Roth IRAs"), tax deferred annuity plans under section
403(b) of the Code, self-employed individual retirement plans (commonly referred
to as "Keogh plans"), simplified employee pension plans and other qualified
retirement plans (including section 401(k) plans). Capital gain distributions
and dividends received on Fund shares held by any of these accounts or plans are
automatically reinvested in additional Fund shares, and taxation thereof is
deferred until distributed by the account or plan. If you are considering
establishing such an account or plan, you may wish to consult your attorney or
other tax adviser. The option of investing in these accounts or plans through
regular payroll deductions may be arranged with Distributor and your employer.
Please call Shareholder Services for further details.
6. How Shares May Be Redeemed
You may redeem your shares in three different ways: (1) by mailing written
redemption requests for a check or wire representing the redemption proceeds to
Shareholder Services; (2) by making a telephone request for redemption by check
(provided that the amount to be redeemed is not more that $25,000 and the check
is being sent to the record address for the account, which has not changed in
the prior three months); (3) or by making a telephone request for redemption
proceeds to be wired to a predesignated bank.
Your written request for redemption must include the following information: your
account number, the exact name(s) in which your shares are registered, the
number of shares or the dollar amount to be redeemed and mailing or wiring
instructions. Upon receipt by Shareholder Services of a redemption request
containing all of the information in the previous sentence, your shares will be
redeemed at the NAV on that day. Redemption requests received after the close of
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regular trading will be executed at the NAV next computed. The signature(s) on
all redemptions of $25,000 or more or redemptions requesting that the proceeds
check be made payable to someone other than the registered owner(s) or sent to
an address other than the record address (or sent to the record address if that
address has been changed in the previous three months) must be guaranteed with
respect to share certificates.
To redeem shares by telephone, call Shareholder Services directly at (402)
330-1166. See "Telephone Transactions." Telephone redemptions are not available
for retirement plans. When a redemption request is made by telephone, a
shareholder may choose to receive redemption proceeds either by having a check
mailed to the address of record on the account, provided the address has not
changed during the past three months and the redemption amount does not exceed
$25,000, or by having a wire sent to a previously designated bank account.
Telephone redemptions by check are available to all shareholders of the Fund
automatically unless this option is declined in the application or in writing.
Shareholders may select the telephone redemption wire service when filling out
the initial application or may select it later by completing the appropriate
form that is available from Shareholder Services.
A telephone redemption request must be received by Shareholder Services prior to
the close of regular trading on the NYSE. If a telephone request is made after
the close of regular trading on the NYSE or on a day when the NYSE is not open
for business, the Fund will accept the request and process it on the next day of
regular trading on the NYSE.
Wire redemptions by telephone may be made only if the bank is a member of the
Federal Reserve System or has a correspondent bank that is a member of such
system. If the account is with a savings bank, it must have only one
correspondent bank that is a member of the Federal Reserve System. A wire fee
(currently $5) will be deducted from the proceeds. If a shareholder decides to
change the bank account to which proceeds are to be wired, the change must be
effected by filling out the appropriate form that is available from Shareholder
Services.
Proceeds resulting from a written or regular telephone redemption request
normally will be mailed to you within seven days after receipt of a request.
Telephone wire redemption proceeds normally will be wired to a bank within seven
days following receipt of a proper redemption request. If your Fund shares were
purchased by check and are redeemed within 15 days of such purchase, you may
experience delays in receiving redemption proceeds. The Fund generally will
postpone sending redemption proceeds from such investment until the Fund can
verify that the check has been or will be collected up to 15 days from the
purchase date. There will be no such delay for redemptions following investments
paid for by federal funds wire or by bank cashier's check or certified check.
Other supporting legal documents may be required from corporations or other
organizations, fiduciaries or persons other than the stockholder of record
making the redemption request. If there is a question concerning the redemption
of Fund shares, contact Shareholder Services.
The Fund may not suspend the right of redemption, or postpone payment for more
than seven days, except when the NYSE is closed for other than weekends or
holidays, when trading on the NYSE is restricted during an emergency (as
determined by the SEC) that makes it impracticable
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to dispose or its securities or to determine fairly the value of its net assets,
or during any other period permitted by the SEC for the protection of investors.
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if it falls below $200 NAV as a result of
redemptions or exchanges. If the Fund elects to redeem your shares, it will
notify you of its intention to do so and provide you with the opportunity to
increase the amount invested to $200 or more within 30 days of notice.
7. Systematic Withdrawal Plan
If you make an initial investment of at least $10,000 or otherwise accumulate
shares valued at no less that $10,000, you are eligible for a Systematic
Withdrawal Plan. Under such a plan, you may arrange for fixed withdrawal
payments (minimum payment -- $100; maximum payment - 1% per month or 3% per
quarter of the total NAV of the Fund shares in your account at inception of the
Systematic Withdrawal Plan) at regular monthly or quarterly intervals.
Withdrawal payments are made to you or to beneficiaries designated by you. You
are not eligible for a Systematic Withdrawal Plan if you are making regular
purchase payments pursuant to the Systematic Investment Plan. You may elect to
participate in the Systematic Withdrawal Plan when filling out the initial
application or later by completing the appropriate form that is available from
Shareholder Services.
8. Telephone Transactions
You may initiate three types of transactions by telephone: telephone exchanges;
telephone redemptions by wire; and telephone redemptions by check. The terms and
provisions for each of those services are explained fully earlier in this
Prospectus. Once a telephone transaction request has been placed, it cannot be
revoked.
The telephone exchange privilege and/or telephone redemptions by wire privilege
must be elected by you when you fill out your initial application or you may
select either option later by completing the appropriate form(s) that is
available from Shareholders Services. The telephone redemptions by check
privilege is available to you automatically, unless you decline this option in
the application or in writing.
The Fund will employ reasonable procedures to confirm that instructions received
by telephone (including instructions with respect to changes in addresses) are
genuine, such as request personal identification information that appears on an
account application and recording the telephone conversation. However, you will
bear the risk of loss due to unauthorized or fraudulent instructions regarding
your account. The Fund may nevertheless be liable if reasonable procedures are
not employed.
9. Dividend and Other Distributions
Dividends from the net investment income (including dividends from underlying
funds), if any, of the Fund, are distributed to shareholders at least annually.
Any net capital gain (the excess of net long-term capital gain over net
short-term capital loss) realized from the sale of portfolio
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securities, including shares of underlying funds, by the Fund, as well as gains
from any foreign currency transactions, also are distributed at least annually.
Unless the Fund receives instructions to the contrary from you before the record
date, the Fund will assume you wish to receive both dividends and capital gain
distributions in additional Fund shares. Instructions continue in effect until
you notify the Fund in writing that a change is desired. All reinvested
dividends and capital gain distributions are reinvested in additional Fund
shares on the payment date at those shares' NAV on that day. Account statements
evidencing each reinvestment will be mailed to you. If the Fund has received
instructions that you wish to receive dividends and capital gain distributions
in cash, and the U.S. Postal Service cannot deliver a check representing the
payment thereof, or if you fail to cash any such check for six months, the
check(s) will be reinvested in Fund shares at the then-current NAV per share of
the Fund and your election will be changed so that future distributions will be
received in additional Fund shares.
10. Taxation of the Fund
The Fund intends to qualify for treatment as a Regulated Investment Company
("RIC") under the Internal Revenue Code ("the Code") so that it will be relieved
of federal income tax on the part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions, if any) and net capital
gain that it distributes to its shareholders. To the extent, however, that the
Fund does not distribute to its shareholders by the end of any calendar year
substantially all of its ordinary income for the year and substantially all of
its capital gain net income for the one-year period ending on October 31 of that
year, plus certain other amounts, a 4% excise tax will be imposed on the Fund.
11. Taxation of Underlying Funds
The Fund intends to invest only in underlying funds that intend to qualify for
treatment as RICs under the Code. No assurance can be given, however, that an
underlying fund will qualify for treatment as a RIC. If an underlying fund fails
to qualify as a RIC, it may be subject to federal income tax and may adversely
affect the Fund's ability to satisfy the requirements applicable to RICs and
thereby its ability to qualify as a RIC.
12. Taxation of Shareholders
Dividends from the Fund's taxable income are taxable to its shareholders, other
than tax-exempt entities (including individual retirement accounts and qualified
retirement plans) as ordinary income, whether received in cash or reinvested in
additional Fund shares, to the extent of the Fund's earnings and profits.
Distributions of the Fund's net capital gain, when designated as such, are
taxable to those shareholders as long-term capital gains, whether received in
cash or reinvested in additional Fund shares and regardless of the length of
time the shares have been held. Under the Taxpayer Relief Act of 1997, as
modified by recent legislation, the maximum tax rate applicable to a
non-corporate taxpayer's net capital gain recognized on the disposition of
capital assets held for more than one year is 20% (10% for taxpayers in the 15%
marginal tax bracket).
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If the Fund realizes gain from the disposition of shares of any underlying fund
it held as capital assets for more than one year, or if the Fund receives a
distribution from any underlying fund that is designated as a capital gain
distribution (regardless of how long the Fund held the shares), the amount of
that gain or distribution is included in any capital gain distribution made by
the Fund to its shareholders. Any other gain on disposition of shares of an
underlying fund and any other distribution received therefrom is included in the
Fund's investment company taxable income.
The Fund will advise you of the tax status of distributions following the end of
each calendar year. The Fund is required to withhold 31% of all dividends,
capital gain distributions and redemption proceeds payable to any individuals
and certain other non-corporate shareholders who do not provide the Fund with a
correct taxpayer identification number. Withholding also is required from
dividends and capital gain distributions payable to those shareholders who
otherwise are subject to backup withholding.
If you redeem Fund shares, a taxable gain or loss (to you) will result,
depending upon whether the redemption proceeds are more or less than your
adjusted basis for the redeemed shares. Capital gain on the redemption of Fund
shares held for more than one year will be long-term capital gain, in which
event it will be subject to federal income tax at the rates indicated above. If
you purchase Fund shares within thirty days after redeeming other Fund shares at
a loss, all or part of that loss will not be deductible and instead will
increase the basis of the newly purchased shares.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for a further discussion. Moreover, because
every person's tax situation is different and unique, you should consult your
tax adviser about the tax implications of investing in the Fund.
13. Shareholder Communications
Fund shareholders are kept informed through monthly account statements, and
semi-annual and annual reports. Any inquiries should be directed in writing to
the Fund at 11605 West Dodge Road, Omaha, Nebraska 68154. Shareholders may
direct general telephone inquiries to the Fund at the numbers listed on the back
cover of this Prospectus. Telephone inquiries regarding shareholder account
information should be directed to Shareholder Services at the number listed on
the back cover of this Prospectus.
DISTRIBUTION ARRANGEMENTS
1. Sales Load
Under a plan of distribution (the "Plan") adopted by the Fund's Board of
Directors and approved by the initial shareholder, the Fund pays the Distributor
the sales charge of 2.5% as compensation for its distribution activities. As
noted previously, the price that you pay for purchasing Fund shares is the NAV
plus the 2.5% sales charge.
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The Fund may, from time to time, waive the sales load on shares of the Fund sold
to clients of Distributor, or certain other dealers meeting criteria established
by Distributor. This privilege will apply only to shares of the Fund that are
purchased using proceeds obtained by such clients by redeeming another mutual
fund's shares on which a sales load was paid. Purchasers of Fund shares made
within 60 days of redeeming the other fund's shares.
2. Rule 12b-1 Fee
The Plan was adopted by the Fund pursuant to Rule 12b-1 of the 1940 Act and
includes a fee not to exceed .25% of the average daily net assets of the Fund on
an annual basis. This fee is paid to the Distributor quarterly as reimbursement
for Distributor's marketing and promotional activities with respect to the sale
and distribution of the Fund's shares.
3. Dealer Reallowance
With respect to purchases of shares of underlying funds which normally impose a
front-end sales load at the time of purchase, the Adviser may direct, to the
extent possible, substantially all of the orders to Distributor. In such cases
the underlying funds may pay Distributor a fee (a so-called "dealer
reallowance") of up to a maximum of 1% of the underlying fund's NAV. Distributor
is not designated as the dealer on any sales where such reallowance exceeds 1%
of the underlying fund's NAV . This dealer reallowance is a usual and customary
amount of compensation uniformly paid to brokers. Here, it is paid to
Distributor for acting as broker for the underlying funds in acquiring shares of
those underlying funds for the Fund. Distributor's responsibilities as such
broker include obtaining the best price and execution, processing the trade,
obtaining share certificates (if applicable) and otherwise communicating with
the underlying funds' custodians on the transfers of shares. The dealer
reallowance is not part of the Fund's purchase price of the underlying fund's
shares, and will not be a material factor in the Adviser's decision-making as to
which underlying funds merit the Fund's investment.
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<PAGE>
Lifetime Achievement Fund, Inc.
A Statement of Additional Information for the Fund has been filed with the
Securities and Exchange Commission ("SEC"), and includes more detailed
information about the Fund.
Additional Information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
The Statement of Additional Information and the Fund's annual and semi-annual
reports are available, at no charge, and upon request. Requests for these
documents and for obtaining other shareholder information may be made by calling
toll-free in the U.S. at 1-800-397-1167, or by writing the Fund at the following
address: Lifetime Achievement Fund, Inc., 11605 West Dodge Road, Omaha, Nebraska
68154.
The Statement of Additional Information can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Public Reference Room at
1-800-SEC-0330. The Statement of Additional Information is also available free
from the SEC's Web site at http://www.sec.gov. Copies of the Statement of
Additional Information may be obtained for a fee, by writing or calling the
SEC's Public Reference Section, Washington, D.C. 20549-6009, 1-800-SEC-0330.
Further information about the Fund is available on the Fund's Internet site at
http://manarin.com.
Investment Company Act File No. 811-09749
107278v5
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<PAGE>
LIFETIME ACHIEVEMENT FUND, INC.
11605 West Dodge Road
Omaha, Nebraska 68154
(402) 330-1166
STATEMENT OF ADDITIONAL INFORMATION
Information contained in this Statement of Additional Information is subject
to completion or amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This Statement of
Additional Information is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
This Statement of Additional Information sets forth information regarding the
Lifetime Achievement Fund, Inc., Manarin Investment Counsel, Ltd., (the
"Adviser") is the investment adviser of the Fund. Manarin Securities
Corporation (the "Distributor") is the distributor of the Fund.
-----------------------------
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Fund's current Prospectus, dated June 20,
2000, which may be obtained from:
Lifetime Achievement Fund, Inc.
11605 West Dodge Rd
Omaha, Nebraska 68154
Information from the Adviser's Form ADV filed with the Securities and
Exchange Commission is incorporated by reference into this Statement of
Additional Information.
-----------------------------
June 20, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HISTORY 1
FUND CLASSIFICATION AND POLICIES 1
INVESTMENT STRATEGIES AND RISKS 3
Repurchase Agreements 3
Bank Obligations 3
Commercial Paper 3
Illiquid Securities 4
Short Sales 4
Lending of Portfolio Securities 5
Foreign Securities 5
Warrants 6
Convertible Securities 6
Fixed Income Securities 7
Hedging Strategies, Options, Futures and Forward Currency Exchanges 9
MANAGEMENT OF THE FUND 15
CONTROL PERSONS AND PRINCIPAL HOLDER OF SECURITIES 17
INVESTMENT ADVISORY AND OTHER SERVICES 17
The Adviser 17
Principal Underwriter/Distributor 19
Accounting Services Agent 19
Dealer Reallowances 19
Rule 12b-1 Plan 19
Other Service Providers 20
BROKERAGE ALLOCATIONS AND OTHER PRACTICES 20
PRICING 22
TAXATION OF THE FUND 22
Regulated Investment Company Status 22
Distributions to Shareholders 22
Foreign Income 24
Hedging Transactions 25
CALCULATION OF PERFORMANCE DATA 25
APPENDIX A 27
Description of Moody's Short-Term Debt Ratings 27
Description of Standard & Poor's Commercial Paper Ratings 27
Description of Moody's Long-Term Debt Ratings 27
Description of S & P Corporate Debt Ratings 27
APPENDIX B 30
Foreign Securities 30
Foreign Currency Transactions 30
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PART C. OTHER INFORMATION 32
ITEM 23. EXHIBITS 32
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON
CONTROL WITH THE FUND 32
ITEM 25. INDEMNIFICATION 33
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF
INVESTMENT ADVISER 35
ITEM 27. PRINCIPAL UNDERWRITERS 35
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS 35
ITEM 29. MANAGEMENT SERVICES 36
ITEM 30. UNDERTAKINGS 36
SIGNATURES 37
</TABLE>
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FUND HISTORY
The Fund was organized as a Maryland corporation on September 2, 1999, under
the name Manarin Diversified Growth Fund, Inc. The Fund subsequently changed
its corporate name to Lifetime Achievement Fund, Inc., by amending its
articles of incorporation in Maryland effective October 20, 1999. The Fund is
registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 (the "1940 Act") as an open-end management
investment company.
FUND CLASSIFICATION AND POLICIES
The Fund is an open-end, non-diversified, management investment company.
The following investment restrictions are fundamental and, like the Fund's
investment objectives, may not be changed without the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or
more of the shares of the Fund present at a shareholders' meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy.
The Fund will not as a matter of fundamental policy:
1. Issue securities or other obligations senior to the Fund's shares of
beneficial interest;
2. Borrow for other than temporary or emergency purposes and then only
up to 10% of the value of the Fund's total assets.
3. Underwrite securities of other issuers;
4. Purchase any security if, as a result of such purchase, more than 30%
of the value of the Fund's total assets would be invested in the securities
of issuers concentrated in a particular industry or group of industries.
5. Purchase or sell real estate except that the Fund may invest in the
securities of companies whose business involves the purchase or sale of real
estate;
6. Purchase or sell commodities or commodity contracts including futures
contracts;
7. Make loans, except when (a) purchasing a portion of an issue of debt
securities; or (b) engaging in securities loan transactions limited to 5% of
the Fund's total assets;
8. Purchase any security if, as a result of such purchase, more than 10%
of the value of the Fund's total assets would be invested in the securities
of a single issuer or the Fund would own or hold more than 3% of the
outstanding voting securities of that issuer, provided that this limitation
does not apply to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities");
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<PAGE>
9. Purchase, participate, or otherwise direct interests in oil, gas, or
other mineral exploration or development programs;
10. Purchase any security if, as a result of such purchase, more than 5%
of the value of the Fund's total assets would be invested in the securities
of issuers which at the time of purchase had been in operation for less than
three years, except U.S. Government securities (for this purpose, the period
of operation of any issuer shall include the period of operation of any
predecessor issuer);
11. Invest in companies for the purpose of exercising management or
control;
12. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund's management, the officers or directors of the Fund and the
officers and directors of the Adviser who each own beneficially more than
0.50% of the outstanding securities of such issuer together own beneficially
more than 5% of such securities;
13. Purchase any securities that would cause more than 2% of the value
of the Fund's total assets at the time of such purchase to be invested in
warrants that are not listed, or more than 5% of the value of its total
assets to be invested in warrants or stock options whether or not listed,
such warrants or options in each case to be valued at the lesser of cost or
market, but assigning no value to warrants acquired by the Fund in units with
or attached to debt securities; or
14. Purchase any security if, as a result of such purchase, more than
10% of the value of the Fund's total assets would be invested in illiquid
securities or foreign securities which are not publicly traded in the United
States.
15. Purchase any individual equity security unless the issuer is listed
on the NASDAQ system and has, at the time of purchase, a market
capitalization of at least $200,000,000.
Whenever an investment objective or fundamental policy of the Fund states a
maximum percentage of the Fund's assets that may be invested in any security
or other asset or sets forth a policy regarding quality standards, that
percentage shall be determined, or that standard shall be applied immediately
after the Fund's acquisition of the investment. Accordingly, any later
increase or decrease resulting from a change in the market value of a
security or in the Fund's net or total assets will not cause the Fund to
violate a percentage limitation. Similarly, any later change in quality, such
as a rating downgrade or the de-listing of a warrant, will not cause the Fund
to violate a quality standard.
The following investment limitations may be changed by the vote of the Fund's
Board of Directors (the "Board") without shareholder approval:
2
<PAGE>
The Fund shall not:
1. Purchase or otherwise acquire the securities of any registered
investment company (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, the Fund and all of its affiliates would
own more than 3% of the total outstanding stock of that company; or
2. Invest directly in real estate limited partnerships.
The underlying funds in which the Fund invests may, but need not, have the
same investment objectives and fundamental policies as the Fund.
INVESTMENT STRATEGIES AND RISKS
The following supplements the information contained in the Prospectus
concerning the Fund's investment strategies and risks:
1. Repurchase Agreements
The Fund may invest indirectly in repurchase agreements secured by U.S.
Government securities with U.S. banks and dealers through the Fund's
investments in underlying funds. A repurchase agreement is a transaction in
which the Fund purchases a security from a bank or recognized securities
dealer and simultaneously commits to resell that security to the bank or
dealer at an agreed-upon date and price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the purchased security. The Fund
maintains custody of the underlying security prior to its repurchase; thus,
the obligation of the bank or securities dealer to pay the repurchase price
on the date agreed to is, in effect, secured by such security. If the value
of such security is less than the repurchase price, the other party to the
agreement shall provide additional collateral so that at all times the
collateral is at least equal to the repurchase price.
2. Bank Obligations
The Fund may invest indirectly in instruments (including certificates of
deposit and bankers' acceptances) of U.S. banks and savings associations that
are insured by the Federal Deposit Insurance Corporation through the Fund's
investment in underlying funds. A certificate of deposit is an
interest-bearing negotiable certificate issued by a bank against funds
deposited in the bank. A bankers' acceptance is a short-term draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction. Although the borrower is liable for payment of the
draft, the bank unconditionally guarantees to pay the draft at its face value
on the maturity date.
3. Commercial Paper
The Fund may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance
3
<PAGE>
companies. The commercial paper purchased by the Fund consists of direct
obligations of domestic issuers that, at the time of investment, are (i)
rated Prime-1 by Moody's or A-1 by S&P, (ii) issued or guaranteed as to
principal and interest by issuers or guarantors having an existing debt
security rating of Aa or better by Moody's or AA or better by S&P, or (iii)
securities that, if not rated, are, in the opinion of the Adviser, of an
investment quality comparable to rated commercial paper in which the Fund may
invest. See Appendix A to this Statement of Additional Information for more
information on ratings assigned to commercial paper.
4. Illiquid Securities
The Fund may invest in illiquid securities indirectly through underlying
funds. An underlying open-end fund may invest up to 15% of its net assets in
securities for which no readily available market exists ("illiquid
securities") or securities the disposition of which would be subject to legal
restrictions (so-called "restricted securities") and repurchase agreements
maturing in more than seven days. An underlying closed-end fund may invest
without limit in such securities. A considerable period may elapse between a
decision to sell such securities and the time when such securities can be
sold. If, during such a period, adverse market conditions were to develop, an
underlying fund might obtain a less favorable price than prevailed when it
decided to sell.
5. Short Sales
The Fund may invest in underlying funds that sell securities short. In this
context, a fund sells securities that it does not own, making delivery with
securities "borrowed" from a broker. A fund is then obligated to replace the
borrowed securities by purchasing them at the market price at the time of
replacement. This price may or may not be less than the price at which the
securities were sold by a fund. Until the securities are replaced, a fund is
required to pay to the lender any dividends or interest that accrue during
the period of the loan. In order to borrow the securities, a fund may also
have to pay a premium that would increase the cost of the securities sold.
The proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.
As part of selling short, a short seller (e.g., a fund) must also deposit
with the broker acceptable collateral equal to the difference between (a) the
market value of the securities sold short at the time they were sold short,
and (b) the value of the collateral deposited with the broker in connection
with the sale (not including the proceeds from the short sale). Each day the
short position is open, the fund must maintain the segregated account at such
a level that the amount deposited in it plus the amount deposited with the
broker as collateral (1) equals the current market value of the securities
sold short, and (2) is not less than the market value of the securities at
the time they were sold short. Depending upon market conditions, up to 80% of
the value of a fund's net assets may be deposited as collateral for the
obligation to replace securities borrowed to effect short sales and allocated
to a segregated account in connection with short sales.
A fund will incur a loss as a result of a short sale if the price of the
security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. A fund will realize a gain if the
security declines in price between those dates. The amount of any gain
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<PAGE>
will be decreased and the amount of any loss increased by the amount of any
premium, dividends or interest a fund may be required to pay in connection
with the short sale.
6. Lending of Portfolio Securities
The Fund may lend a portion of its portfolio securities constituting up to 5%
of its respective net assets to brokers, dealers, banks or other
institutional investors, provided that (1) the loan is secured by cash or
equivalent collateral equal to at least 100% of the current market value of
the loaned securities that is maintained with the Fund's custodian while
portfolio securities are on loan, and (2) the borrower pays the Fund an
amount equivalent to any dividends or interest received on such securities.
The Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the
cash or equivalent collateral to the borrower or placing broker. Although the
Fund does not have the right to vote securities on loan, the Fund could
terminate the loan and regain the right to vote if the vote were considered
important. Any underlying fund also may lend its portfolio securities
pursuant to similar conditions in an amount not in excess of one-third of its
total assets. Loans of securities involve a risk that the borrower may fail
to return the securities or may fail to provide additional collateral. In
order to minimize these risks, the Fund will make loans of securities only to
firms deemed creditworthy by the Adviser and only when, in the judgment of
the Adviser, the consideration that the Fund will receive from the borrower
justifies the risk.
7. Foreign Securities
The Fund may invest in securities of foreign issuers directly or through an
underlying fund. Investments in foreign securities involve risks relating to
political and economic developments abroad as well as those that may result
from the differences between the regulation to which U.S. issuers are subject
and that are applicable to foreign issuers. These risks may include
expropriation, confiscatory taxation, withholding taxes on dividends and
interest, limitations on the use or transfer of an underlying fund's assets,
and political or social instability or diplomatic developments. These risks
often are heightened to the extent an underlying fund invests in issuers
located in emerging markets or a limited number of countries.
Individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficient and balance of
payments position. Securities of many foreign companies may be less liquid
and their prices more volatile than securities of comparable U.S. companies.
Moreover, the underlying funds generally calculate their net asset values and
complete orders to purchase, exchange or redeem shares only on days when the
New York Stock Exchange ("NYSE") is open. However, foreign securities in
which the underlying funds may invest may be listed primarily on foreign
stock exchanges that may trade on other days (such as U.S. holidays and
weekends). As a result, the net asset value of an underlying fund's portfolio
may be significantly affected by such trading on days when the Adviser does
not have access to the underlying funds and shareholders do not have access
to the Fund.
Additionally, because foreign securities ordinarily are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect an underlying fund's net asset
5
<PAGE>
value, the value of dividends and interest earned, gains and losses realized
on the sale of securities, and net investment income and capital gain, if
any, to be distributed to shareholders by the underlying fund. If the value
of a foreign currency rises against the U.S. dollar, the value of the
underlying fund's assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
dollar, the value of the underlying fund's assets denominated in that
currency will decrease. The exchange rates between the U.S. dollar and other
currencies are determined by supply and demand in the currency exchange
markets, international balances of payments, government intervention,
speculation and other economic and political conditions. The costs
attributable to foreign investing that an underlying fund must bear
frequently are higher than those attributable to domestic investing. For
example, the costs of maintaining custody of foreign securities exceed
custodian costs related to domestic securities.
Investment income on certain foreign securities in which the funds may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign
taxes to which the funds would be subject. See Appendix B to this Statement
of Additional Information for more information on foreign securities and
currency transactions.
8. Warrants
The Fund may invest in warrants directly or indirectly through an investment
in an underlying fund. Warrants are a type of option to purchase a specified
security, usually an equity security such as common stock, at a specified
price (usually representing a premium over the applicable market value of the
underlying equity security at the time of the warrant's issuance) and usually
during a specified period of time. Moreover, they are usually issued by the
issuer of the security to which they relate. While warrants may be traded,
there is often no secondary market for them. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities. Holders
of warrants have no voting rights, receive no dividends and have no right
with respect to the assets of the issuer. To the extent that the market value
of the security that may be purchased upon exercise of the warrant rises
above the exercise price, the value of the warrant will tend to rise. To the
extent that the exercise price equals or exceeds the market value of such
security, the warrants will have little or no market value. If a warrant is
not exercised within the specified time period, it will become worthless and
the fund will lose the purchase price paid for the warrant and the right to
purchase the underlying security.
9. Convertible Securities
The Fund may indirectly, through an underlying fund, invest in a convertible
security, which is a bond, debenture, note, preferred stock or other security
that may be converted into or exchanged for a prescribed amount of common
stock of the same or a different issuer within a particular period of time at
a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividends paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities have characteristics
similar to non-convertible debt securities in that they ordinarily provide a
stable stream of income with generally higher yields than those of common
stocks of the same or similar issuers. Convertible securities rank senior to
common stock in a
6
<PAGE>
corporation's capital structure but are usually subordinated to comparable
non-convertible securities. While no securities investment is without some
risk, investments in convertible securities generally entail less risk than
the issuer's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security. Convertible securities have
unique investment characteristics in that they generally (1) have higher
yields than common stocks, but lower yields than comparable nonconvertible
securities, (2) are less subject to fluctuation in value than the underlying
stock since they have fixed income characteristics, and (3) provide the
potential for capital appreciation if the market price of the underlying
common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted
into the underlying common stock). The investment value of a convertible
security is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates
decline. The credit standing of the issuer and other factors also may have an
effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment
value, the price of the conversion value decreases as the convertible
security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price
of the convertible security will be increasingly influenced by its conversion
value. In addition, a convertible security generally will sell at a premium
over its conversion value determined by the extent to which investors place
value on the right to acquire the underlying common stock while holding a
fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the fund is called for
redemption, the fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party.
10. Fixed Income Securities
The market value of fixed-income securities is affected by changes in
interest rates. If interest rates fall, the market value of fixed-income
securities tends to rise; if interest rates rise, the value of fixed-income
securities tends to fall. Moreover, the longer the remaining maturity of a
fixed-income security, the greater the effect of interest rate changes on the
market value of the security. This market risk affects all fixed-income
securities, but U.S. Government securities are generally subject to less
market risk.
The Fund may indirectly, through an underlying fund, invest in debt
securities rated at least investment grade (BBB and above/Baa and above) by
Standard & Poor's Ratings Services ("S&P") or Moody's Investors Service, Inc.
("Moody's"), or in debt securities that are rated below investment grade by
S&P or Moody's. Investment grade debt securities are those that at the time
of purchase have been assigned one of the four highest ratings by S&P or
Moody's or, if unrated, are determined by the underlying fund's investment
adviser to be of comparable quality.
7
<PAGE>
This includes debt securities rated BBB by S&P or Baa by Moody's. Moody's
considers securities rated Baa to have speculative characteristics. Changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity for such securities to make principal and interest payments
than is the case for higher grade debt securities. Debt securities rated
below investment grade (commonly referred to as "junk bonds"), which include
debt securities rated BB, B, CCC and CC by S&P and Ba, B, Caa, Ca and C by
Moody's, are deemed by these agencies to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal and may
involve major risk exposure to adverse conditions. Debt securities rated
lower than B may include securities that are in default or face the risk of
default with respect to principal or interest.
Ratings of debt securities represent the rating agencies' opinions regarding
their quality and are not a guarantee of quality. Subsequent to its purchase
by an underlying fund, the rating of an issue of debt securities may be
reduced below the minimum rating required for purchase by that fund. Credit
ratings attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating
agencies may fail to make timely changes in credit ratings in response to
subsequent events, so that an issuer's current financial condition may be
better or worse than the rating increases. See Appendix A to this Statement
of Additional Information for more information about S&P and Moody's ratings.
Lower rated debt securities generally offer a higher current yield than that
available from higher grade issues. However, lower rated securities involve
higher risks, in that they are especially subject to adverse changes in
general economic conditions and in the industries in which the issuers are
engaged, to changes in the financial condition of the issuers and to price
fluctuation in response to changes in interest rates.
Accordingly, the yield on lower rated debt securities will fluctuate over
time. During periods of economic downturn or rising interest rates, highly
leveraged issuers may experience financial stress that could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default. In addition, the market for lower rated securities
has expanded rapidly in recent years, and its growth paralleled a long
economic expansion. In the past, the prices of many lower rated debt
securities declined substantially, reflecting an expectation that many
issuers of such securities might experience financial difficulties. As a
result, the yields on lower rated debt securities rose dramatically, but such
higher yields did not reflect the value of the income stream that holders of
such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers'
financial restructuring or default. The market for lower rated debt
securities may be thinner and less active than that for higher quality
securities, which may limit an underlying fund's ability to sell such
securities at their fair value in response to changes in the economy or the
financial markets. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of
lower rated securities, especially in a thinly traded market.
An underlying fund may invest in zero coupon securities and payment-in-kind
securities. Zero coupon securities pay no interest to holders prior to
maturity and payment-in-kind securities pay interest in the form of
additional securities. However, a portion of the original issue discount on
8
<PAGE>
the zero coupon securities, and the "interest" on payment-in-kind securities,
must be included in the underlying fund's income. Accordingly, to continue to
qualify for tax treatment as a regulated investment company and to avoid
certain excise taxes, these funds may be required to distribute as a dividend
an amount that is greater than the total amount of cash they actually
receive. These distributions must be made from a fund's cash assets or, if
necessary, from the proceeds of sales portfolio securities. A fund will not
be able to purchase additional income-producing securities with cash used to
make such distributions, and its current income ultimately may be reduced as
a result. Zero coupon and payment-in-kind securities usually trade at a deep
discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of
interest in cash.
11. Hedging Strategies, Options, Futures and Forward Currency Exchanges
The Fund may indirectly through an investment in an underlying fund engage in
certain hedging strategies involving options, futures and forward currency
exchange contracts. Of these strategies, the Fund itself may engage in the
purchase of put or call options. These hedging strategies are described in
detail in the following paragraphs, and are collectively termed "Hedging
Strategies."
Hedging Strategies are used to hedge against price movements in one or more
particular securities positions. Hedging Strategies on stock indices, in
contrast, generally are used to hedge against price movements in broad equity
market sectors in which a fund has invested or expects to invest. Hedging
Strategies on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.
The use of Hedging Strategies is subject to applicable regulations of the
SEC, the several options and futures exchanges upon which they are traded,
the Commodity Futures Trading Commission ("CFTC") and various state
regulatory authorities. In addition, a fund's ability to use Hedging
Strategies will be limited by tax considerations.
The use of Hedging Strategies involves special considerations and risks, as
described below. Risks pertaining to particular instruments are described in
the sections that follow:
(a) Successful use of most Hedging Strategies depends upon the
particular fund's ability to predict movements of the overall securities and
interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. There can be no assurance
that any particular strategy adopted will succeed.
(b) There might be imperfect correlation, or even no correlation,
between price movements of the Hedging Strategy and price movements of the
investments being hedged. For example, if the value of an instrument used in
a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which hedging instruments are traded.
9
<PAGE>
The effectiveness of Hedging Strategies on indices will depend on the degree
of correlation between price movements in the index and price movements in
the securities being hedged.
(c) Hedging Strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable price movements in
the investments being hedged. However, Hedging Strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the underlying fund
entered into a short hedge because of a projected decline in the price of a
security in the fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the hedging instrument. Moreover, if the price of the
hedging instrument declined by more than the increase in the price of the
security, the fund could suffer a loss. In either such case, the fund would
have been in a better position had it not hedged at all.
(d) The underlying fund might be required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when it takes positions
in hedging instruments involving obligations to third parties (I.E., hedging
instruments other than purchased options). If the fund were unable to close
out its positions in such hedging instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
positions expired or matured. These requirements might impair the fund's
ability to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that the fund sell a
portfolio security at a disadvantageous time. The fund's ability to close out
a position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the opposite party to the transaction to enter
into a transaction closing out the position. Therefore, there is no assurance
that any hedging position can be closed out at a time and price that is
favorable to the fund.
An underlying fund may use Hedging Strategies for speculative purposes or for
purposes of leverage. Hedging Strategies, other than purchased options,
expose the underlying fund to an obligation to another party. The Fund will
not enter into any such transactions unless they own either (1) an offsetting
("covered") position in securities or other options or futures contracts, or
(2) cash, receivables and short-term debt securities, with a value sufficient
at all times to cover its potential obligations to the extent not covered as
provided in (1) above. The Fund will comply with SEC guidelines regarding
cover for Hedging Strategies and will, if the guidelines so require, set
aside cash or liquid, high-grade debt securities in a segregated account with
their custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding instrument is open, unless they are replaced
with similar assets. As a result, the commitment of a large portion of the
underlying fund's assets to cover segregated accounts could impede portfolio
management or the fund's ability to meet redemption requests or other current
obligations.
The Fund may itself or through an underlying fund write (I.E., sell) call
options ("calls"). The Fund itself will write calls only if the calls are
"covered" throughout the life of the option. A call
10
<PAGE>
is "covered" if the Fund owns the optioned securities. When a fund writes a
call, it receives a premium and gives the purchaser the right to buy the
underlying security at anytime during the call period (usually not more than
nine months in the case of common stock) at a fixed exercise price regardless
of market price changes during the call period. If the call is exercised, the
fund will forego any gain from an increase in the market price of the
underlying security over the exercise price. The Fund may also, either itself
or through an underlying fund, purchase (i.e., buy) call options. When a fund
purchases a call, it pays a premium in return for the right to purchase the
underlying security at the exercise price at any time during the option
period.
The Fund, either itself or through an underlying fund, may also write and
purchase put options ("puts"). When a fund writes a put, it receives a
premium and gives the purchaser of the put the right to sell the underlying
security to the fund at the exercise price at any time during the option
period. When a fund purchases a put, it pays a premium in return for the
right to sell the underlying security at the exercise price at any time
during the option period. A fund also may purchase stock index puts, which
differ from puts on individual securities in that they are settled in cash
based on the values of the securities in the underlying index rather than by
delivery of the underlying securities. Purchase of a stock index put is
designed to protect against a decline in the value of the portfolio generally
rather than an individual security in the portfolio. If any put is not
exercised or sold, it will become worthless on its expiration date.
A fund's option positions may be closed out only on an exchange that provides
a secondary market for options, but there can be no assurance that a liquid
secondary market will exist at any given time for any particular option. In
this regard, trading in options on certain securities (such as U.S.
Government securities) is relatively new, so that it is impossible to predict
to what extent liquid markets will develop or continue. The fund, or an
underlying fund may suffer material losses as the result of option positions.
For example, because the Fund must maintain a covered position with respect
to any call option it writes on a security or stock index, the Fund may not
sell the underlying security or invest any cash, U.S. Government securities
or short-term debt securities used to cover the option during the period it
is obligated under such option. This requirement may impair the Fund's
ability to sell a portfolio security or make an investment at a time when
such a sale or investment might be advantageous.
A fund's custodian, or a securities depository acting for it, generally acts
as escrow agent as to the securities on which the fund has written puts or
calls, or as to other securities acceptable for such escrow so that no margin
deposit is required of the fund. Until the underlying securities are released
from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation ("OCC") has the
authority to permit other generally comparable securities to be delivered in
fulfillment of option exercise obligations. If the OCC exercises its
discretionary authority to allow such other securities to be delivered, it
may also adjust the exercise prices of the affected options by setting
different prices at which otherwise ineligible securities may be delivered.
As an alternative to permitting such substitute deliveries, the OCC may
impose special exercise settlement procedures.
11
<PAGE>
The Fund may, through an underlying fund, enter into futures contracts for
the purchase or sale of debt securities and stock indexes. A futures contract
is an agreement between two parties to buy and sell a security or an index
for a set price on a future date. Futures contracts are traded on designated
"contract markets" that, through their clearing corporation, guarantee
performance of the contracts.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for
the sale of debt securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
easily and quickly. For example, if an underlying fund holds long-term U.S.
Government securities and it anticipates a rise in long-term interest rates
(and therefore a decline in the value of those securities), it could, in lieu
of disposing of those securities, enter into futures contracts for the sale
of similar long-term securities. If rates thereafter increase and the value
of the fund's portfolio securities thus declines, the value of the fund's
futures contracts would increase, thereby protecting the fund by preventing
the net asset value from declining as much as it otherwise would have.
Similarly, entering into futures contracts for the purchase of debt
securities has an effect similar to the actual purchase of the underlying
securities, but permits the continued holding of securities other than the
underlying securities. For example, if an underlying fund expects long-term
interest rates to decline, it might enter into futures contracts for the
purchase of long-term securities so that it could gain rapid market exposure
that may offset anticipated increases in the cost of securities it intends to
purchase while continuing to hold higher-yield short-term securities or
waiting for the long-term market to stabilize.
A stock index futures contract may be used to hedge an underlying fund's
portfolio with regard to market risk as distinguished from risk relating to a
specific security. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs. Changes in the market value of a particular stock index
futures contract reflect changes in the specified index of equity securities
on which the contract is based.
There are several risks in connection with the use of futures contracts. In
the event of an imperfect correlation between the futures contract and the
portfolio position that is intended to be protected, the desired protection
may not be obtained and the fund may be exposed to risk of loss. Further
unanticipated changes in interest rates or stock price movements may result
in a poorer overall performance for the fund than if it had not entered into
futures contracts on debt securities or stock indexes.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions that could distort the normal relationship between
the securities and futures markets. Second, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities
12
<PAGE>
market. Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions.
Positions in futures contracts may be closed out only on an exchange or board
of trade that provides a secondary market for such futures. There is no
assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract at any particular time. In such event,
it may not be possible to close a futures position, and in the event of
adverse price movements, the underlying fund would continue to be required to
make variation margin deposits.
An underlying fund may purchase and write (sell) put and call options on
futures contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position of the
option is a put), at a specified exercise price at any time during the option
period. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of
the option. A fund may purchase put options on futures contracts in lieu of,
and for the same purpose as, a sale of a futures contract. It also may
purchase such put options in order to hedge a long position in the underlying
futures contract in the same manner as it purchases "protective puts" on
securities.
An underlying fund, also may purchase put options on interest rate and stock
index futures contracts. As with options on securities, the holder of an
option on a futures contract may terminate its position by selling an option
of the same series. There is no guarantee that such closing transactions can
be effected. An underlying fund is required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those applicable
to futures contracts described above and, in addition, net option premiums
received will be included as initial margin deposits.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. There can be no
certainty that liquid secondary markets for all options on futures contracts
will develop. Compared to the use of futures contracts, the purchase of
options on futures contracts involves less potential risk to an underlying
fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the use of
a futures contract would not, such as when there is no movement in the prices
of the underlying securities. Writing an option on a futures contract
involves risks similar to those arising in the sale of futures contracts, as
described above.
An underlying fund may use forward or foreign currency contracts to protect
against uncertainty in the level of future foreign currency exchange rates.
Additionally, an underlying fund may enter into forward currency contracts
with respect to specific transactions. For example, when a fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, or the fund anticipates the receipt in a foreign currency of
dividend or interest payments on a security that it holds or anticipates
purchasing, the fund may desire to "lock in"
13
<PAGE>
the U.S. dollar price of the security or the U.S. dollar equivalent of such
payment, as the case may be, by entering into a forward currency, of the
amount of foreign currency involved in the underlying transaction. The fund
will thereby be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the currency exchange rates
during the period between the date on which the security is purchased or
sold, or on which the payment is declared, and the date on which such
payments are made or received. These contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. Although
such contracts tend to minimize the risk of loss due to a decline in the
value of the subject currency, they tend to limit commensurately any
potential gain that might result should the value of such currency increase
during the contract period.
An underlying fund also may hedge by using forward currency contracts in
connection with portfolio positions to lock in the U.S. dollar value of those
positions, to increase the fund's exposure to foreign currencies that may
rise in value relative to the U.S. dollar or to shift the fund's exposure to
foreign currency fluctuations from one country to another. For example, when
the underlying fund believes that the currency of a particular foreign
country may suffer a substantial decline relative to the U.S. dollar or
another currency, it may enter into a forward contract to sell the amount of
the former foreign currency approximating the value of some or all of the
fund's portfolio securities denominated in such foreign currency. This
investment practice generally is referred to as "cross-hedging" when another
foreign currency is used.
The precise matching of the forward amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. Accordingly, it may be
necessary for the fund to purchase additional foreign currency on the spot
(that is, cash) market (and bear the expense of such purchase) if the market
value of the security is less than the amount of foreign currency the fund is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if the market value of the security exceeds the amount of
foreign currency the fund is obligated to deliver. The projection of
short-term currency market movements is extremely difficult and the
successful execution of a short-term hedging strategy is highly uncertain.
Forward contracts involve the risk that anticipated currency movements will
not be accurately predicted, causing the fund to sustain losses on these
contracts and transactions costs.
The cost to the fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate
fluctuations in the prices of the underlying securities the fund owns or
intends to acquire, but it does fix a rate of exchange in advance. In
addition, although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase.
14
<PAGE>
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on
a daily basis. The Fund may convert foreign currency from time to time and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize
a profit based on the difference between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to sell that currency to the dealer.
MANAGEMENT OF THE FUND
The business of the Fund is managed under the direction of its Board of
Directors (the "Board"), pursuant to the Fund's Amended and Restated Articles
of Incorporation ("Articles") filed with the state of Maryland, and the
Fund's By-Laws. Both of these documents are exhibits to this Statement of
Additional Information. Pursuant to the provisions of the Articles and
By-Laws, the Board elects officers, including a president, secretary and
treasurer.
Information concerning the Directors and officers of the Fund is set forth
below.
<TABLE>
<CAPTION>
---------------------------------------- -----------------------------------------------------------------------------
Name, Age, Position(s) Held With the Principal Occupation(s)
Fund and Address During the Past Five Years
---------------------------------------- -----------------------------------------------------------------------------
<S> <C>
Roland R. Manarin* (54) President, Director and Investment Adviser Representative, Manarin
President, Treasurer and Director Investment Counsel, Ltd Registered Representative Manarin Securities
11605 West Dodge Road Corporation - President
Omaha, Nebraska 68154
---------------------------------------- -----------------------------------------------------------------------------
Charles H. Richter* (42) Chief Operating Officer, Manarin Securities Corporation; President,
Vice President, Secretary, Investors First Securities, Principal, Broker-dealer Services, LLC;
and Director Principal, Kuehl Capital Corporation
11605 West Dodge Road
Omaha, Nebraska 68154
---------------------------------------- -----------------------------------------------------------------------------
David C. Coker (52) Development Director, Nebraska Lutheran Outreach Ministries (non-profit
Director religious organization)
11605 West Dodge Road
Omaha, Nebraska 68154
---------------------------------------- -----------------------------------------------------------------------------
Jerry Vincentini (59) Sales Marketing Manager, Willsie Company (graduation supplies)
Director
11605 West Dodge Road
Omaha, Nebraska 68154
---------------------------------------- -----------------------------------------------------------------------------
Dr. Bodo Treu (42) Physician, Alegent Family Care Clinic (family practice clinic)
Director
11605 West Dodge Road
Omaha, Nebraska 68154
---------------------------------------- -----------------------------------------------------------------------------
</TABLE>
*"Interested Person" of the Fund as defined in the 1940 Act by virtue of his
position with the Adviser.
15
<PAGE>
Because the Adviser performs substantially all of the services necessary for
the operation of the Fund, the Fund requires no employees. No officer,
director or employee of the Adviser currently receives any compensation from
the Fund for acting as a Director or officer.
The Fund pays Directors who are not "interested persons" of the Fund $100.00
per meeting of the Board. There is no pension or retirement benefits accrued
as part of the Fund's expenses and there are no estimated annual benefits to
be paid upon retirement.
16
<PAGE>
Compensation Table*
<TABLE>
<CAPTION>
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Name of Person, Position Aggregate of Pension or Retirement Estimated Annual Total Compensation
Compensation from Benefits Accrued as Benefits Upon from Fund and Fund
Fund Part of Fund Expenses Retirement Complex Paid to
Directors
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Roland R. Manarin, $0 $0 $0 N/A
Director
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Charles H. Richter, $0 $0 $0 N/A
Director
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
David C. Coker, Director $500 $0 $0
$500
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Jerry Vincentini, $500 $0 $0
Director $500
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Dr. Bodo Treu, Director $500 $0 $0
$500
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
*The Fund has not completed its first full year since organization. Therefore
the information provided in the foregoing Compensation Table is for the
current fiscal year and estimates payments that would be made under an
existing agreement or understanding. The period for which the information is
given is fiscal 1999.
CONTROL PERSONS AND PRINCIPAL HOLDER OF SECURITIES
On June 20, 2000, Roland R. Manarin owned all of the outstanding shares of
the Fund which were issued privately to him in connection with the
organization of the Fund. The other Directors and officers of the Fund, as a
group owned beneficially, or may be deemed to have owned beneficially, none
of the outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
1. The Adviser.
The Adviser provides investment advisory services for the Fund pursuant to an
Investment Advisory Agreement ("Advisory Agreement") with the Fund. The
Adviser is controlled by Roland R. Manarin, who owns all of its outstanding
shares. Mr. Manarin is the President, Treasurer and Chairman of the Fund.
Additionally, Charles H. Richter is indirectly affiliated with the Adviser in
his capacity as Chief Operating Officer of Distributor, which is wholly owned
by Mr. Manarin. Mr. Richter also serves as a Director, Vice President and
Secretary of the Fund.
The Advisory Agreement provides that, subject to overall supervision by the
Board, the Adviser shall act as investment adviser and shall manage the
investment and reinvestment of the assets of the Fund, obtain and evaluate
pertinent economic data relative to the investment policies of the Fund,
place orders for the purchase and sale of securities on behalf of the Fund,
and report to the Board periodically to enable it to determine that the
investment policies of the Fund and all other provisions of its Advisory
Agreement are being properly observed and implemented. The Adviser is paid a
monthly fee for its services calculated at the annual rate of .75% of the
average
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daily net assets of the Fund. No fees were paid by the Fund to the Adviser
during the last fiscal year.
The Advisory Agreement provides that it will remain in effect for two years
and may be renewed from year to year thereafter, provided that renewal is
specifically approved at least annually by the vote of a majority of the
outstanding voting securities of the Fund, or by the Board, including a
majority of the Directors who are not parties to the Advisory Agreement or
"interested persons" of any such party (by vote cast in person at a meeting
called for that purpose).
The Advisory Agreement provides that the Adviser will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of the Adviser in the performance of its duties or from reckless disregard of
its duties and obligations thereunder. The Advisory Agreement may be
terminated at any time without penalty by the Board or by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, on 60 days' written notice to the Adviser or by the Adviser on 60
days' written notice to the Fund. The Advisory Agreement may not be
terminated by the Adviser unless another investment advisory agreement has
been approved by the Fund in accordance with the 1940 Act. The Advisory
Agreement terminates automatically upon assignment (as defined in the 1940
Act).
In addition to the advisory fees, the Fund is obligated to pay certain
expenses that are not assumed by the Adviser or Manarin Securities
Corporation, the initial distributor of the Funds' shares. These expenses
include, among others, securities registration fees, compensation for
non-interested directors, interest expense, taxes, brokerage fees,
commissions and sales loads, custodian charges, transfer agency fees, certain
distribution expenses pursuant to a plan of distribution adopted in the
manner prescribed under Rule 12b-1 under the 1940 Act (a "Distribution
Plan"), if any, legal expenses, insurance expenses, association membership
dues, and the expense of reports to the shareholders, shareholders' meetings
and proxy solicitations. The Fund is also liable for nonrecurring expenses as
may arise, including litigation to which the Fund may be a party.
Although it is not specifically provided for in the Advisory Agreement, the
Adviser may elect to waive all or any portion of its fee otherwise owed to
Adviser by the Fund. The Adviser may also elect not to seek reimbursement
from the Fund for expenses reasonably incurred on behalf of the Fund and
otherwise properly reimbursable to the Adviser. In the event the Adviser
elects to waive its fees or reimbursement for expenses, it will so notify the
Fund's management in writing and in a timely manner. Any such waiver is
irrevocable and forever releases the Fund from any payment obligation.
The reason the Adviser may elect to waive such payments is to avoid the
Fund's costs (including the Adviser's fees and reimbursable expenses) from
constituting an unduly large amount in relation to the size of the Fund
during the Fund's initial start-up period (e.g. the first twelve to eighteen
months). The waiver of fees and reimbursements by the Adviser will improve
the Fund's performance for the period(s) in which the waivers are applicable
compared to the Fund's performance if it had incurred and paid the waived
fees and reimbursements.
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2. Principal Underwriter/Distributor
The principal underwriter and distributor of the Fund's shares is Manarin
Securities Corporation ("Distributor"), 11605 West Dodge Road, Omaha,
Nebraska 68154, an SEC registered and NASD member broker-dealer. Distributor
is wholly owned by Roland R. Manarin, and is an affiliate of the Adviser.
3. Accounting Services Agent
Mackenzie Investment Management, Inc. ("MIM") provides certain accounting and
record keeping services to the Fund pursuant to the terms of a Master Fund
Accounting Services Agreement between MIM and the Fund. No fees were paid to
MIM by the fund during the past fiscal year.
4. Dealer Reallowances
Because the Distributor will be the exclusive distributor of Fund shares, the
entire 2,5% front-end sales load may be retained by Distributor on sales of
Fund Shares.
5. Rule 12b-1 Plan
Distributor acts as the exclusive distributor of shares of the Fund under a
Distribution Agreement with the Fund ("Distribution Agreement") that requires
Distributor to use its best efforts to sell shares of the Fund. Shares of the
Fund are offered continuously. Payments by the Fund to compensate the
Distributor for its activities are authorized under the Distribution
Agreement. The Distribution Agreement provides for the Fund to pay to the
Distributor a sales charge in an amount provided for in the Fund's Prospectus
and to reimburse the Distributor for certain distribution expenses as set
forth in the Distribution Plan which accompanies the Distribution Agreement.
Under the Distribution Plan (adopted under Rule 12b-1 of the 1940 Act), the
Fund pays Distributor, in reimbursement for certain Distributor expenses
actually incurred in connection with the Distributor's activities on behalf
of the Fund, a fee of up to 0.25% per annum, accrued daily and paid monthly,
based on the Fund's average daily net assets.
The Distribution Agreement, including the Distribution Plan, was unanimously
approved by all of the Directors, including those Directors who are not
"interested persons" of the Fund, on October 15, 1999. In approving the
Distribution Agreement, the Board considered that the compensation to be
received by Distributor under the Distribution Agreement and the benefits
that accrue to the Adviser, in that the Adviser receives advisory fees that
are calculated based upon a percentage of the average net assets of the Fund,
which fees increase to the extent that the Distribution Agreement causes the
Fund to attain higher asset levels.
The Distribution Agreement continues in effect for successive periods of one
year each so long as such continuance is specifically approved by a vote of a
majority of both (a) the Board and (b) those Directors who are not
"interested persons" of the Fund, as defined in the 1940 Act, and have no
direct or indirect financial interest in the operation of the Distribution
Agreement or any
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agreements related to it, cast in person at a meeting called for the purpose
of voting on the Distribution Agreement and such related agreements. In any
event, the Distribution Agreement may be terminated at any time by vote of a
majority of the disinterested Directors or by vote of a majority of the
outstanding voting securities of the Fund. To date there have been no
unreimbursed expenses incurred under the Distribution Plan.
Both Mr. Manarin and Mr. Richter, interested persons of the Fund, had
interest in the operation of the Distribution Plan by virtue of their
respective positions with Distributor.
6. Other Service Providers
Ivy Mackenzie Services Corp., Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432, is the Fund's transfer and
shareholder services agent. Brown Brothers Harriman & Company, 40 Water
Street, Boston, Massachusetts, is the custodian for the Fund.
Dolleck & Frederes, P.C., was appointed by the Directors to serve as the
Fund's independent certified public accountants, providing professional
services including (1) audit of the annual financial statements, (2)
assistance and consultation in connection with SEC filings and semi-annual
reports, including semi-annual financial statements, and (3) preparation of
the federal income tax returns filed on behalf of the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to policies established by the Board, the Adviser is responsible for
the execution of the Fund's portfolio transactions and the allocation of
brokerage transactions. In effecting portfolio transactions, the Adviser
seeks to obtain the best net results for the Fund. This determination
involves a number of considerations, including the economic effect on the
Fund (involving both price paid or received and any commissions and other
costs), the efficiency with which the transaction is effected where a large
block is involved, the availability of the broker to stand ready to execute
potentially difficult transactions, and the financial strength and stability
of the broker. Such considerations are judgmental and are weighed by the
Adviser in determining the overall reasonableness of brokerage commissions
paid. Purchases from underwriters include an underwriting commission or
concession, and purchases from dealers serving as market makers include the
spread between the bid and asked price. Where transactions are made in the
over-the-counter market, the Fund will deal with the primary market makers
unless more favorable prices are obtainable elsewhere.
Under the 1940 Act, a mutual fund must sell its shares at the price
(including sales load, if any) described in its prospectus, and current rules
under the 1940 Act do not permit negotiations of sales loads. However, the
Fund will not acquire securities of an underlying fund that has a sales load
unless the size of the acquisition is significant enough to eliminate the
sales load in accordance with the terms of the prospectus of the underlying
fund. The Adviser, to the extent possible, also seeks to eliminate the sales
load imposed by purchasing shares pursuant to (i) letters of intent,
permitting purchases over time; (ii) rights of accumulation, permitting it to
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<PAGE>
waive sales charges as it purchases additional shares of an underlying fund;
and (iii) rights to waive sales charges by aggregating its purchases of
several funds within a "family" of mutual funds. The Adviser also takes
advantage of exchange or conversion privileges offered by any "family" of
mutual funds.
With respect to purchases of shares of underlying funds which normally impose
a front-end sales load at the time of purchase , the Adviser may direct, to
the extent possible, substantially all of the orders to Distributor. In such
cases Distributor may be paid a fee (a so-called "dealer reallowance") by the
underlying fund of up to a maximum of 1% of the underlying fund's NAV.
Distributor is not designated as the dealer on any sales where such
reallowance exceeds 1% of the underlying fund's NAV . This dealer reallowance
is not part of the Fund's purchase price of the underlying fund's shares and
will not be a material factor in the Adviser's decision - making as to which
underlying funds merit the Fund's investment. In the event the Distributor is
unable to execute a particular transaction, the Adviser will direct such order
to another broker-dealer.
Distributor may assist in the execution of Fund portfolio transactions to
purchase underlying fund shares for which it may receive distribution
payments from the underlying funds or their underwriters or sponsors in
accordance with the normal distribution arrangements of those funds. These
payments are separate from the dealer reallowances noted above. In providing
execution assistance, Distributor receives orders from the Adviser; places
them with the underlying fund's distributor, transfer agent or other person,
as appropriate; confirms the trade, price and number of shares purchased; and
assures prompt payment by the Fund and proper completion of the order.
A factor in the selection of brokers to execute the Fund's portfolio
transactions is the receipt of research, analysis, advice and similar
services. To the extent that research services of value are provided by
brokers with or through whom the Adviser places the Fund's portfolio
transactions, the Adviser may be relieved of expenses that it might otherwise
bear. Research and other services provided by brokers to the adviser of the
Fund is in addition to, and not in lieu of, services required to be performed
by the Adviser under its Advisory Agreement.
The Fund expects that purchases and sales of money market instruments will
usually be principal transactions, and purchases and sales of other debt
securities may be principal transactions. Thus, the Fund will normally not
pay brokerage commissions in connection with principal transactions. Money
market instruments are generally purchased directly from the issuer, an
underwriter or market maker for the securities, and other debt securities may
be purchased in a similar manner. Purchases from underwriters include an
underwriting commission or concession, and purchases from dealers serving as
market makers include the spread between the bid and asked price. Where
transactions are made in the over-the-counter market, the Fund will deal with
the primary market makers unless more favorable prices are obtainable
elsewhere.
In the event that the Fund acquires or sells U.S. Government securities, it
will pay a commission to Distributor of not more than 1% of the acquisition
price. In the event that the Fund acquires or sells directly stocks or bonds
of an issuer that is not a registered investment company, Distributor
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will receive no commission with its activities as a broker in effectuating
the transaction on behalf of the Fund, but may be entitled to recover its
costs associated with acquiring the security (e.g., clearing fees).
The Distributor's principals may receive expense paid travel in connection
with due diligence meetings, which expenses are paid for by the underlying
funds or other issues of securities acquired by the Fund.
The policy of the Fund with respect to brokerage is reviewed by the Board
from time to time. Because of the possibility of further regulatory
developments affecting the securities exchanges and brokerage practices
generally, the foregoing practices may be modified.
The portfolio turnover rate may vary greatly from year to year for the Fund
and will not be a limiting factor when the Adviser deems portfolio changes
appropriate. The annual portfolio turnover rate is calculated by dividing the
lesser of the Fund's annual sales or purchases of portfolio securities
(exclusive of purchases or sales of securities whose maturities at the time
of acquisition were one year or less) by the monthly average value of the
securities in the Fund during the year.
PRICING
Shares of the Fund are sold on a continual basis at the offering price, which
is a sum of the NAV per share next computed following receipt of an order and
the applicable sales charge (load). For more information on how to purchase
or redeem shares, please see the Prospectus.
TAXATION OF THE FUND
1. Regulated Investment Company Status
To qualify for treatment as a regulated investment company ("RIC") under the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund must
distribute annually to its shareholders at least 90% of its investment
company taxable income (generally, net investment income plus net short-term
capital gain and net gains from certain foreign currency transactions, if
any) ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of securities or foreign currencies and other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or those currencies
("Income Requirement"); (2) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with these other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value
of the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (3) at the close of each quarter
of the Fund's taxable year, not
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more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or securities of other RICs) of any
one issuer.
2. Distributions to Shareholders
Dividends and other distributions declared by the Fund in October, November
and December of any year and payable to shareholders of record on a date in
any one of these months will be deemed to have been paid by the Fund and
received by the shareholders on December 31 of that year if the distributions
are paid by the Fund during the following January. Accordingly, those
distributions will be taxed to shareholders for the year in which that
December 31 falls.
A portion of the dividends from the Fund's investment company taxable income
(whether paid in cash or reinvested in additional Fund shares) may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion for the Fund may not exceed the aggregate dividends it
receives either directly from U.S. corporations (excluding RIC, among others)
or indirectly from such corporations through underlying funds in which it
invests. However, dividends received by a corporate shareholder and deducted
by it pursuant to the dividends-received deduction are subject indirectly to
the alternative minimum tax.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus
certain other amounts.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for any dividend or capital gain distribution, the
shareholder will pay full price for the shares and receive some portion of
the price back as a taxable distribution.
Generally, a redemption by the Fund of an underlying fund's shares will
result in taxable gain or loss to the Fund, depending on whether the
redemption proceeds are more or less than the Fund's adjusted basis for the
redeemed shares (which normally includes any sales charge paid); an exchange
of an underlying fund's shares for shares of another underlying fund normally
will have similar tax consequences. However, if the Fund disposes of an
underlying fund's shares ("original shares") within 90 days after its
purchase thereof and subsequently reacquires shares of that underlying fund
or acquires shares of another underlying fund on which a sales charge
normally is imposed ("replacement shares"), without paying the sales charge
(or paying a reduced charge) due to an exchange privilege or a reinstatement
privilege, then (1) any gain on the disposition of the original shares will
be increased, or the loss thereon decreased, by the amount of the sales
charge paid when the original shares were acquired, and (2) that amount will
increase the adjusted basis of the replacement shares that were subsequently
acquired.
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3. Foreign Income
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation - other than a "controlled foreign
corporation" (I.E., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S.
persons that individually own, directly, indirectly, or constructively, at
least 10% of that voting power) as to which the Fund is a U.S. shareholder -
that, in general, meets either of the following tests: (1) at least 75% of
its gross income is passive, or (2) an average of at least 50% of its assets
produce, or are held for the production of, passive income. Under certain
circumstances, the Fund will be subject to federal income tax on a portion of
any "excess distribution" received on the stock of a PFIC or of any gain from
disposition of that stock (collectively "PFIC income"), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend
to its shareholders. The balance of the PFIC income will be included in the
Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain - which
probably would have to be distributed to satisfy the Distribution Requirement
and avoid imposition of the Excise Tax - even if those earnings and gain were
not received by the Fund from the QEF. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
The Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the PFIC's stock
over the Fund's adjusted basis therein as of the end of that year. Pursuant
to the election, the Fund also will be allowed to deduct (as an ordinary, not
capital, loss) the excess, if any, of its adjusted basis in PFIC stock over
the fair market value thereof as of the taxable year-end, but only to the
extent of any net mark-to-market gains with respect to that stock included by
the Fund for prior taxable years. The Fund's adjusted basis in each PFIC's
stock with respect to which it makes this election will be adjusted to
reflect the amounts of income included and deductions taken under the
election. Regulations proposed in 1992 provided a similar election with
respect to the stock of certain PFICs.
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4. Hedging Transactions
The use of hedging strategies, such as writing (selling) and purchasing
options, involves complex rules that will determine for income tax purposes
the amount, character and timing of recognition of the gains and losses a
Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options derived by the Fund with respect to its business of
investing in securities or those currencies, will qualify as permissible
income under the Income Requirement.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal
property; for these purposes, options and futures contracts are personal
property. Section 1092 generally provides that any loss from the disposition
of a position in a straddle may be deducted only to the extent the loss
exceeds the unrealized gain on the offsetting position(s) of the straddle.
Section 1092 also provides certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position
is acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the Fund makes certain elections, the amount, character, and
timing of recognition of the gains and losses from the affected straddle
positions would be determined under rules that vary according to the
elections made. Because only a few of the regulations implementing the
straddle rules have been promulgated, the tax consequences to the Fund of
straddle transactions are not entirely clear.
If the Fund has an "appreciated financial position" - generally, an interest
(including an interest through an option, futures or forward contract or
short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that
time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract or futures or forward contract entered into by
the Fund or a related person with respect to the same or substantially
similar property. In addition, if the appreciated financial position is
itself a short sale or such a contract, acquisition of the underlying
property or substantially similar property will be deemed a constructive sale.
CALCULATION OF PERFORMANCE DATA
Average annual total return quotes ("Standardized Return") used in the Fund's
Performance Advertisements are calculated according to the following formula:
n
P (1 + T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
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the 1, 5 or 10 year periods, at the
end of the 1, 5, or 10 year period (a
fractional portion)
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the
last day of the most recent quarter prior to submission of the advertisement
for publication. In calculating the ending redeemable value, all dividends
and distributions by the Fund are assumed to have been reinvested at net
asset value on the reinvestment dates during the period. Total return, or "T"
in the formula above, is computed by finding the average annual compounded
rate of return over the period that would equate the initial amount invested
to the ending redeemable value.
In addition to Standardized Return, the Fund also may include other total
return performance data in Performance Advertisements ("Non-Standardized
Return"). Non-Standardized Return is calculated separately and may be
calculated according to several different formulas. Non-Standardized Returns
may be quoted for the same or different time periods for which Standardized
Returns are quoted.
In addition, the Fund may include aggregate Non-Standardized Return in
Performance Advertisements. Aggregate Non-Standardized Return is calculated
by subtracting the beginning value of an investment in the Fund from the
value of the investment at the end of the period and dividing the remainder
by the beginning value. For purposes of the calculation, it is assumed that
the beginning value is $1,000 and that dividends and other distributions are
reinvested.
In connection with communicating the Fund's performance information to
current or prospective shareholders, the Fund also may compare these figures
to the performance of other mutual funds tracked by mutual fund rating
services or other unmanaged indexes that may assume reinvestment of
distributions but generally do not reflect deductions for administrative and
management costs.
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APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER
AND BOND RATINGS
1. Description of Moody's Short-Term Debt Ratings
Prime-1. Issuers (or supporting institutions) rated Prime-1 ("P-1") have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization structure
with moderate reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; well-established access to a range of financial markets and
assured sources of alternate liquidity. Prime-2. Issuers (or supporting
institutions) rated Prime-2 ("P-2") have a strong ability for repayment of
senior short-term debt obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
2. Description of Standard & Poor's Commercial Paper Ratings
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety. A-1. This
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation. A-2. Capacity
for timely payment on issues with this designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
3. Description of Moody's Long-Term Debt Ratings
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities. A. Bonds which are rated A possess many favorable
investment attributes and are considered as upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment some
time in the future.
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Baa. Bonds which are rated Baa are considered as medium-grade obligations
(I.E., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Ba.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class. B. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Caa. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca. Bonds which are rated C are
present obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. C. Bonds which are rated
C are the lowest rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment
standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the Company ranks
in the higher end of its general rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
4. Description of S & P Corporate Debt Ratings
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. AA. Debt rated AA has a
very strong capacity to pay interest and repay principal and differs from the
higher rated issues only in small degree. A. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions that debt in higher rated categories. BBB. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than
in higher rated categories. BB, B, CCC, CC and C. Debt rated BB, B, CCC, CC,
and C is regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions. BB. Debt rated BB has less
near-term vulnerability to default than other speculative issues. However, it
faces major ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating. B. Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair
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capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied BB or BB- rating. CCC. Debt rated CCC has a currently
identifiable vulnerability to default, and is dependent upon favorable
business, financial and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the capacity to
pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or
B- rating. CC. The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. C. The rating C
is typically applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service
payments are continued. CI. The rating CI is reserved for income bonds on
which no interest is being paid. D. Debt rated D is in payment default. The D
rating category is used when interest payments or principal payments are not
made on the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace period.
The D rating also will be used upon the filing of a bankruptcy petition if
debt service payments are in jeopardy.
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APPENDIX B
FOREIGN SECURITIES AND
FOREIGN CURRENCY TRANSACTIONS
1. Foreign Securities
Through an underlying fund, the Fund may invest in foreign securities.
Investments in foreign securities involve risks relating to political and
economic developments abroad as well as those that may result from the
differences between the regulations to which U.S. issuers are subject and
that applicable to foreign issuers. These risks may include expropriation,
confiscatory taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of a fund's assets and political or social
instability or diplomatic developments. These risks often are heightened to
the extent a fund invests in issuers located in emerging markets.
Individual foreign economics may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Securities of many foreign companies may be less liquid
and their prices more volatile than securities of comparable U.S. companies.
Moreover, funds generally calculate their net asset values and complete
orders to purchase, exchange or redeem shares only on days when the NYSE is
open. However, foreign securities in which funds may invest may be listed
primarily on foreign stock exchanges that may trade on other days (such as
U.S. holidays and weekends). As a result, the net asset value of a fund's
portfolio may be significantly affected by such trading on days when the NYSE
is not open and shareholders do not have access to a fund.
Additionally, because foreign securities ordinarily are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect a fund's net asset value, the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and capital gain, if any, to be distributed to shareholders
by the fund. If the value of a foreign currency rises against the U.S.
dollar, the value of the fund's assets denominated in that currency will
increase; correspondingly, if the value of a foreign currency declines
against the U.S. dollar, the value of the fund's assets denominated in that
currency will decrease. The exchange rates between the U.S. dollar and other
currencies are determined by supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. The costs
attributable to foreign investing that a fund must bear frequently are higher
than those attributable to domestic investing. For example, the costs of
maintaining custody of foreign securities exceed custodian costs related to
domestic securities.
2. Foreign Currency Transactions
In connection with its portfolio transactions in securities traded in a
foreign currency, a fund may enter into forward contracts to purchase or sell
an agreed upon amount of a specific currency at a future date that may be any
fixed number of days from the date of the contract agreed upon by
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the parties at a price set at the time of the contract. Under such an
arrangement, concurrently with the entry into a contract to acquire a foreign
security for a specified amount of currency, the fund would purchase with
U.S. dollars the required amount of foreign currency for delivery at the
settlement date of the purchase; the fund would enter into similar forward
currency transactions in connection with the sale of foreign securities. The
effect of such transactions would be to fix a U.S. dollar price for the
security to protect against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign currency
during the period between the date the security is purchased or sold and the
date on which payment is made or received, the normal range of which is three
to fourteen days. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. Although such
contracts tend to minimize the risk of loss due to a decline in the value of
the subject currency, they tend to limit commensurately any potential gain
that might result should the value of such currency increase during the
contract period.
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PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation as now in effect. Submitted herewith.
(b) By-laws. Submitted herewith.
(c) Specimen of common share certificate to be issued. Submitted
herewith.
(d) Investment Advisory Agreement. Submitted herewith.
(e) Distribution Agreement. Submitted herewith.
(f) Bonus, Profit Sharing, Pension or Other Similar Contracts -
Not applicable.
(g) Custodian Agreement. Submitted herewith.
(h)(1) Transfer Agency and Shareholder Services Agreement.
Submitted herewith.
(h)(2) Master Fund Accounting Services Agreement. Submitted herewith.
(i) Opinion and Consent of Counsel. Submitted herewith.
(j) Consent of Independent Accountants. Submitted herewith.
(k) Financial Statements. Submitted herewith
(l) Initial Capitalization Agreements. Submitted herewith.
(m) Rule 12b-1 Plan. Submitted herewith.
(n) Rule 18f-3 Plan - Not applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
(a) The Fund, a Maryland corporation, was founded in 1999 by
Roland R. Manarin, who is the sole initial shareholder.
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(b) Manarin Investment Counsel, Ltd., a Nebraska corporation, and
the Fund's Investment Adviser is controlled by Roland R.
Manarin, the President, Treasurer, and Chairman of the Fund.
Mr. Manarin owns 100% of the outstanding stock of Manarin
Investment Counsel, Ltd.
(c) Manarin Securities Corporation, a Nebraska corporation and the
exclusive distributor of the Fund's shares is controlled by
Roland R. Manarin, the President, Treasurer, and Chairman of
the Fund. Mr. Manarin owns 100% of the outstanding stock of
Manarin Securities Corporation.
(d) Charles H. Richter, Vice President, Secretary, and Director of
the Fund, is employed by Manarin Securities Corporation as its
Chief Operating Officer.
ITEM 25. INDEMNIFICATION
The Fund's corporate charter provides for limiting the liability of
officers and directors to the full extent permitted by Maryland General
Corporation Law and that the officers and directors are to be indemnified or
have expenses advanced to the fullest extent permitted by Maryland General
Corporation Law. However, notwithstanding the foregoing, the Charter states
that the Fund will not protect any officer or director against liability to
the Fund and its shareholders by reason of its willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such officer's or director's office. The Bylaws of the Fund
contain a similar provision.
The Investment Advisory Agreement provides that the Adviser will not be
liable for any of its actions (e.g., errors of judgment, mistakes of law, losses
arising out of investments) on behalf of the Fund, provided that nothing shall
protect, or purport to protect, the Adviser against
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any liability to the Fund or to the security holders of the Fund to which it
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties. No provision of the Investment
Advisory Agreement is to be construed to protect any director or officer of
the Fund, or Investors, from liability in violation of Section 17(h), 17(i),
or 36B of the 1940 Act.
The Distribution Agreement provides that the Fund shall indemnify, defend
and hold Distributor harmless from any and all claims, demands, liabilities and
expenses (including certain costs of investigation and attorneys' fees) incurred
under the Securities Act of 1933 (the "1933 Act"), or under the common law or
otherwise, arising out of or based upon any alleged untrue statements of a
material fact contained in the Fund's Registration Statement and Exhibits,
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 such
documents or necessary to make these statements in them not misleading except
for the same is determined by a court of competent jurisdiction to be against
public policy as expressed in the 1933 Act, or where the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence, and the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under the Distribution Agreement.
Registrant undertakes to carry out all indemnification provisions of its
Bylaws, and the above-described contracts in accordance with the Investment
Company Act Release No. 11330 (September 4, 1980) and successor releases.
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ITEM 26: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information regarding the officers and directors of the Fund's Adviser,
Manarin Investment Counsel, Ltd., is included in its Form ADV (as amended) filed
on March 26, 1999 with the Securities and Exchange Commission (registration
number 80119624) and is incorporated herein by reference. A copy of the Form ADV
is available from the Adviser, without charge, upon request.
ITEM 27: PRINCIPAL UNDERWRITERS
Manarin Securities Corporation is the Distributor of the Fund's shares and
does not act as a principal underwriter, depositor or investment adviser for any
other investment company at this time. The Directors of the Distributor are
Roland R. Manarin and Charles H. Richter. Mr. Manarin also serves as President
and Treasurer, and Mr. Richter serves as Chief Operating Officer and Secretary
of the Distributor. Mr. Manarin is a Director, the President and Treasurer
(Principal Executive Officer) of the Fund. Mr. Richter is a Director, Vice
President and Secretary of the Fund.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Mackenzie Investment Management, Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, Florida 33432, maintains the
books, accounts, and records required to be maintained by Section 31(a) of the
1940 Act and the rules promulgated thereunder.
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ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
None.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Lifetime Achievement Fund, Inc.,
certifies that it meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this registration statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Omaha and State of
Nebraska on the 20th day of June, 2000.
LIFETIME ACHIEVEMENT FUND, INC.
By: Roland R. Manarin *
----------------------------
Roland R. Manarin, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
Roland R. Manarin * Director, President June 20 , 2000
---------------------------- and Treasurer (Principal
Roland R. Manarin Executive Officer)
/s/ Charles H. Richter Director, Vice President June 20, 2000
---------------------------- and Secretary
Charles H. Richter
David C. Coker * Director June 20 , 2000
----------------------------
David C. Coker
Jerry Vincentini * Director June 20, 2000
----------------------------
Jerry Vincentini
Dr. Bodo W. Treu * Director June 20, 2000
----------------------------
Dr. Bodo W. Treu
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* By /s/ Charles H. Richter
----------------------------
Charles H. Richter
Attorney-in-Fact
107281v2
38
