As filed with the Securities and Exchange Commission on March 8, 2000
File Nos. 333-90513 and 811-09691
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Pre-Effective Amendment No. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 2
iMillennium Capital Trust
17225 El Camino Real
Suite 415
Houston, Texas 77058
(281) 990-7485
With copies to:
Max Berueffy, Esq.
American Data Services, Inc.
150 Motor Parkway
Hauppauge, NY 11788-0132
Steven B. Boehm, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2415
Title of Securities Being Registered: iMillennium Fund
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration 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 Commission, acting pursuant to Section 8(a), may
determine.
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PROSPECTUS
March 9, 2000
iMILLENNIUM FUND
A non-diversified mutual fund that invests in
internet and internet-related companies
with the potential for long-term growth.
Shares of the Fund are offered to investors
without any sales charges.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES OF THE FUND OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS PAGE
AN OVERVIEW OF THE FUND......................................................1
Investment Objective.........................................................1
Principal Investment Strategies..............................................1
Principal Risks of Investing in the Fund.....................................1
Who May Want to Invest in the Fund...........................................2
PERFORMANCE..................................................................2
FEE TABLES...................................................................3
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RISKS.........................4
OTHER INVESTMENTS AND RISKS..................................................5
MANAGEMENT...................................................................8
DISTRIBUTION AND SHAREHOLDER SERVICE FEES....................................9
YOUR ACCOUNT................................................................10
How to Contact the Fund.....................................................10
General Information.........................................................10
When and How NAV is Determined..............................................10
How to Open an Account and Buy Shares of the Fund...........................11
Types of Accounts...........................................................11
Investment Minimums.........................................................14
How to Sell (Redeem) Shares of the Fund.....................................14
OTHER INFORMATION...........................................................18
Distributions...............................................................18
Taxes.......................................................................18
ORGANIZATION AND SHAREHOLDER MEETINGS.......................................19
FOR MORE INFORMATION........................................................20
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iMILLENNIUM FUND
AN OVERVIEW OF THE FUND
INVESTMENT GOAL. iMillennium Fund (the "Fund") seeks to provide investors with
long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES. The Fund will invest primarily in common stocks
and securities convertible into common stocks of domestic and foreign companies
engaged in internet and internet-related activities. When seeking investments
for the Fund, its investment adviser, iMillennium Capital Management, Inc. (the
"Adviser"), seeks companies with growth potential that the market has not yet
recognized, and looks for stocks with strong earnings and cash flow momentum
(earnings before depreciation and non-cash charges). The Adviser also employs
measures of intrinsic value such as the company's price to earnings ratio (the
price of a stock divided by its earnings per share), or price/cash flow ratio.
The Fund will sell its holding in a particular company when the Adviser believes
the company's stock price has reached its maximum growth potential, or when the
company has experienced a fundamental shift in its core business processes and
objectives.
PRINCIPAL RISKS OF INVESTING IN THE FUND. The Fund is subject to the following
principal investment risks:
-- STOCK MARKET VOLATILITY. Stock markets can be volatile. In other words,
the prices of stocks can rise or fall rapidly in response to
developments affecting a specific company or industry, or to changing
economic, political or market conditions. The Fund is subject to the
general risk that the value of the Fund's investments may decline if
the stock markets perform poorly. There is a risk that a Fund's
investments will under-perform either the securities markets generally
or particular segments of the securities markets.
-- ISSUER SPECIFIC CHANGES. The value of an individual security can be
more volatile, and can perform differently, than the market as a whole.
The price of an individual issuer's securities can rise or fall
dramatically in response to such things as better or worse than
expected earnings reports, news about the development of a promising
product, or the loss of key management personnel. There is also the
risk that the Adviser's assessment of the growth potential of a
specific security may prove incorrect.
-- CONCENTRATION IN INTERNET AND INTERNET-RELATED COMPANIES. As a
fundamental investment policy that can be changed only by a vote of the
shareholders, the Fund invests at least 65% of its assets in companies
engaged in internet and internet related businesses, its performance is
closely tied to internet and technology developments. Companies in the
same industry often face similar obstacles, issues and regulatory
burdens. As a result, the securities owned by the Fund may react
similarly with one another. Because the internet and technology is
developing rapidly, and the number of companies and product offerings
continues to expand, these companies could become increasingly
sensitive to short product cycles, aggressive pricing and intense
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competition. Many of these companies are generally subject to the rate
of change in technology, which is higher than the rate in other
industries. In addition, many products and services of companies
engaged in the internet and internet- related activities are also
subject to relatively high risks of rapid obsolescence caused by
progressive scientific and technological advances.
-- "GROWTH INVESTING." "Growth" stocks can perform differently than the
market as a whole and other types of stocks and can be more volatile
than other types of stocks.
-- FOREIGN EXPOSURE. Although the Fund expects to invest primarily in
domestic companies, it may invest without limit in foreign companies.
Investing in the securities of foreign companies may be riskier than
U.S. investment because of factors such as unstable international
political and economic conditions, currency fluctuations, foreign
controls on investment and currency exchange, withholding taxes, a lack
of adequate company information, less liquid and more volatile markets,
and a lack of governmental regulations.
-- NON-DIVERSIFICATION. As a non-diversified fund, the Fund may invest a
greater percentage of its assets in a particular company than other,
"diversified," mutual funds. Therefore, investors should consider this
greater risk versus the safety that may come with a more diversified
portfolio.
-- INEXPERIENCE OF ADVISER. Although the Adviser does have experience
managing private equity capital, it has no previous experience managing
a mutual fund.
YOU COULD LOSE MONEY ON YOUR INVESTMENT IN THE FUND,
OR THE FUND MAY NOT PERFORM AS WELL AS OTHER POSSIBLE INVESTMENTS.
WHO MAY WANT TO INVEST IN THE FUND
You may want to purchase shares of the Fund if:
-- You want to invest for the long term
-- You want to diversify your portfolio by allocating some portion of your
long-term investments to aggressive equity investing
-- You are willing to accept a high degree of volatility and risk
The Fund may NOT be appropriate for you if:
-- You need regular income or stability of principal
-- You are pursuing a short-term goal or investing emergency reserves
PERFORMANCE
No information regarding the Fund's performance is included because, as of the
date of this Prospectus, the Fund had not commenced operations.
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FEE TABLES
The following tables describe the various fees and expenses that you will bear
if you invest in the Fund.
================================================================================
SHAREHOLDER TRANSACTION FEES None (paid directly from your investment):
- --------------------------------------------------------------------------------
Redemption Fee (on shares held less than two years) 2.00%
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ANNUAL FUND OPERATING EXPENSES:
(expenses that are deducted from Fund assets, as a percentage of net assets)
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Management Fees(1) 1.50%
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Distribution and/or Service (Rule 12b-1) Fees 0.25%
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Other Expenses (1, 2, 3) 1.00%
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Total Fund Operating Expenses(3) 2.75%
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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.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Neither the 5% rate of
return nor the expenses shown above should be considered indications of past or
future returns and expenses. Although your actual costs may be higher or lower,
based on these assumptions your cost would be:
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(1) The Adviser has agreed to waive some or all of its advisory fees or
reimburse certain expenses of the Fund so that Total Operating Expenses will not
exceed 2.75% of its net assets. The Adviser may, in its discretion, cease
waiving fees or reimbursing Fund expenses at any time.
(2) Other Expenses include, but are not limited to, administrative,
custody, transfer agency and shareholder servicing fees.
(3) Other Expenses and Total Fund Operating Expenses are estimated for
the current fiscal year.
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1 YEAR $478 3 YEARS $853
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
This section of the prospectus describes the investment objective of iMillennium
Fund, how the Adviser tries to achieve that objective, and the principal risks
of investing in the Fund.
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term growth
of capital.
PRINCIPAL INVESTMENT STRATEGIES. Under normal market conditions, the Fund will
invest at least 65% of its total assets in the common stocks (securities having
the characteristics of common stocks, such as convertible securities, rights and
warrants) of domestic and foreign companies that are engaged in internet and
internet-related businesses. The Fund defines an "internet and internet-related
company" as a company which derives at least 50% of its revenues or earnings
from, or devotes at least 50% of its assets to, the following activities:
>> Connection: Companies involved in providing online access to
businesses and consumers, as well as the companies that provide the
necessary hardware, software, equipment, consulting services, and
outsourcing services necessary to connect to the internet.
>> Commercials: Companies involved in providing or facilitating online
advertising on the internet in the form of ad banners or streaming
commercials on websites.
>> Commerce: Companies involved in online business-to-business
commerce, business-to-consumer commerce, and consumer-to-consumer
commerce.
>> Content: Companies involved in providing or facilitating the
dissemination of information, news, and editorial content online.
>> Community: Companies that provide online websites for chat services
and message boards.
The Fund may invest in the common stocks of companies without regard to a
company's market capitalization. The market capitalization of a company is the
price of a share of the company's stock multiplied by the number of shares of
stock it has outstanding. The Fund will not invest in companies with a market
capitalization less than $25 million.
Although the Fund expects to invest primarily in domestic companies, it may also
invest without limit in the securities of foreign companies.
In seeking investments for the Fund, the Adviser uses a "bottom-up" stock
selection approach. The Adviser looks for individual companies with earnings
and/or revenue growth potential that may not be recognized by the market at
large. In determining whether a particular company is suitable for investment by
the Fund, the Adviser focuses on a number of different attributes, including the
company's specific market expertise or dominance; its franchise durability and
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pricing power; solid fundamentals (e.g., a strong balance sheet, improving
returns on equity, improving returns on capital invested, strong revenue growth,
and the ability to generate free cash flow); strong management, and reasonable
valuations in the context of projected growth rates.
The Fund generally will not make investments with income as a consideration.
During normal market conditions, however, the Fund may seek to enhance its
earnings by investing up to 10% of its total assets in all types of fixed income
securities, including corporate bonds and notes, and short-term investments such
as commercial paper and variable rate demand notes.
OTHER INVESTMENTS AND RISKS
FUTURES AND OPTIONS. The Fund may purchase or write (sell) put and call options
on securities and financial indices. These are derivative instruments that give
the Fund the right (where the Fund purchases the option), or the obligation
(where the Fund writes the option) to buy or sell a particular security, such as
a stock or group of stocks in the future at a pre-determined price. The Fund may
also invest in futures on financial indices, another derivative instrument. The
Adviser may use these derivatives for a variety of reasons: to hedge against the
risk of fluctuations in the prices of securities that a Fund holds or may
purchase; as an efficient means to adjust a Fund's overall exposure to certain
markets; in an effort to enhance income; as a cash management tool.
>> RISKS. Options and futures contracts are not always successful
hedges. The Fund's ability to use these instruments successfully
will depend on the Adviser's ability to predict accurately movements
in the prices of securities, interest rates and the securities
markets. The prices of options can be very volatile. Investing for
hedging purposes may result in certain transaction costs, which may
reduce the Fund's total return.
FOREIGN CURRENCY HEDGING. The Adviser may employ currency forwards and options
to hedge the risk to the portfolio when foreign exchange movements are expected
to be unfavorable for U.S. investors. In general, these instruments allow the
Adviser to lock in a specified exchange rate for a stated period of time. The
Fund normally does not engage in extensive currency hedging.
>> RISK. If the Adviser's forecasts currency exchange rates
incorrectly, the Fund could lose money.
LENDING SECURITIES. The Fund may lend its portfolio securities to brokers,
dealers or other financial institutions. The Fund may not loan more than
one-third of its total assets.
>> RISK. The principal risk of securities lending is that the
institution borrowing the securities may become insolvent. In this
event, the Fund could experience delays in recovering its securities
and possibly capital losses.
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SHORT SELLING. The Fund may sell securities short by borrowing securities it
does not own and selling them. The Fund is then obligated to replace the
securities borrowed by purchasing them at the market price at the time of
replacement. If the securities decline in value, the Fund may repurchase them at
a lower price and realize a profit.
>> RISK. If the securities sold short increase in value between the
time of sale and the time the Fund purchases them, the Fund will
incur a loss.
BORROWING MONEY. The Fund may borrow money as a temporary measure for emergency
purposes, to facilitate redemption requests, or for "leverage," in other words,
so that the Fund may purchase additional securities. The Fund may borrow up to
one-third of its total assets.
>> RISKS. The use of leverage involves special risk considerations that
may not be associated with other funds having similar objectives and
policies that do not use leverage. Because substantially all of the
Fund's assets fluctuate in value, while the interest obligation
resulting from a borrowing will be fixed by the loan agreement, the
net asset value per share of the Fund will tend to increase more
when its portfolio assets decrease in value than would otherwise be
the case if the Fund did not borrow funds. In addition, interest
costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on
borrowed funds. Under adverse market conditions, the Fund might have
to sell portfolio securities to meet interest or principal payments
at a time when fundamental investment considerations would not favor
such sales.
SMALL COMPANIES. The Fund may invest a significant portion of its assets in
small companies with market capitalizations of less than $500 million.
>> RISKS. Investing in small companies involves greater risk than is
customarily associated with more established companies. Stocks of
small companies are subject to more abrupt or erratic price
movements than the stocks of larger companies. Small companies often
have limited product lines, markets, or financial resources, and
their managements may lack depth and experience. Such companies
usually do not pay significant dividends that could cushion returns
in a falling market. To the extent that the Fund does invest in
small capitalization stocks, there is the risk that its portfolio
will be less marketable and may be subject to greater fluctuations
in price than a portfolio holding stocks of larger issuers. Small
capitalization stocks often pay no dividends, but income is not a
primary goal of the Fund.
PORTFOLIO TURNOVER. The Fund generally does not trade in securities for
short-term profits, but, when circumstances warrant, may buy or sell securities
without regard to the length of time held.
>> RISK. In general, the higher the volume of buying and selling, the
greater the impact of brokerage commissions and other transaction
costs on a fund's return. Also, the greater the portfolio turnover
rate, the more likely it is that a fund will generate capital gains
that must be distributed to shareholders as income subject to
taxation.
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CASH POSITIONS AND DEFENSIVE STRATEGIES. The Fund may maintain a cash position
to retain flexibility in meeting redemptions and paying expenses. In addition,
pending investment (for example, if the Adviser is unable to find investments
selling at a discount to their intrinsic value), a significant portion of the
Fund's assets may be invested in money market mutual funds and cash or cash
equivalents such as high quality money market instruments.
The Fund may also employ temporary defensive strategies in response to
unfavorable economic, market, political or other conditions. At such times, the
Fund may increase its cash reserves without limit by holding high quality,
short-term debt securities and money market instruments and by entering into
repurchase agreements.
>> RISKS. Large cash positions and defensive strategies are
inconsistent with the Fund's primary investment strategies. Thus, if
and when the Fund employs a temporary defensive strategy, it may not
achieve its investment objective.
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MANAGEMENT
iMillennium Fund is a series of iMillennium Capital Trust (the "Trust"). The
business of the Fund is managed under the direction of the Trust's Board of
Trustees (the "Board"). The Board formulates the general policies of the Fund
and meets periodically to review the Fund's performance, monitor investment
activities and practices, and discuss other matters affecting the Fund.
Additional information regarding the Trust and the Board, as well as the Fund's
executive officers, may be found in SAI.
THE ADVISER
The Fund's investment adviser is iMillennium Capital Management, Inc. (the
"Adviser"), located at 17225 El Camino Real, Suite 415, Houston, Texas 77058.
Pursuant to the Investment Advisory and Management Agreement (the "Agreement")
between the Adviser and the Trust, the Adviser will furnish continuous
investment advisory and management services to the Fund. The entity that became
the Adviser was organized in May 1996 as Rivero Investment Management Company.
The Adviser is a registered investment adviser and has approximately $10 million
under management. Omar S. Rivero is Chairman and Chief Executive Officer of the
Adviser.
The Adviser manages the investment portfolios of the Fund, subject to policies
adopted by the Board. Under the Agreement, the Adviser, at its own expense and
without reimbursement from the Trust, furnishes office space and all necessary
office facilities, equipment and executive personnel necessary for managing the
Fund. The Adviser also pays the salaries and fees of all officers and trustees
of the Trust who are also officers, directors, or employees of the Adviser. The
Trust pays the salaries and fees of all other trustees of the Trust. For its
services, the Adviser receives a fee at an annual rate of 1.50% of the average
daily net assets of the Fund.
PORTFOLIO MANAGER
Mr. Rivero manages the investment program of the Fund and is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Rivero
has been managing private equity capital since May 1996. Prior to forming Rivero
Investment Management Company, the predecessor of iMillennium Capital, Mr.
Rivero served as a Partner in the law firm of Chaves, Gonzales & Hoblit, L.L.P.
from June 1991 through June 1997.
ADMINISTRATOR
American Data Services, Inc. ("ADS"), 150 Motor Parkway, Hauppauge, New York
11788, provides all administrative services necessary for the operations of the
Fund, subject to the supervision of the Board. As of the date of this
Prospectus, ADS provided administrative, fund accounting and stock transfer
services to retail and institutional mutual funds with approximately $6 billion
of total assets through its offices in New York, Denver, Tampa and Los Angeles.
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DISTRIBUTOR
AmeriMutual Fund Distributors, Inc. ("the Distributor"), 150 Motor Parkway,
Hauppauge, New York 11788, an affiliate of the Administrator, is a registered
broker-dealer and member of the National Association of Securities Dealers, Inc.
The Distributor acts as the principal underwriter of the Fund in connection with
the offering of shares of the Fund. The Distributor may enter into arrangements
with banks, broker-dealers or other financial institutions through which
investors may purchase or redeem shares and may, at its own expense, compensate
persons who provide services in connection with the sale or expected sale of
shares of the Fund.
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
The Board has adopted a Distribution Plan pursuant to rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"). The Plan allows the Fund to use
part of its assets to pay for advertising, marketing and other activities
intended to promote the sale of the Fund's shares. The Fund may also pay for
certain shareholder services provided by institutions that have agreements with
the Fund's distributor to provide such services. Under the Plan, these payments
and expenses may not exceed 0.25% of the average annual net assets of the Fund.
BECAUSE THESE FEES ARE PAID OUT OF THE FUND'S ASSETS ON AN
ON-GOING BASIS, OVER TIME THESE FEES WILL INCREASE THE COST
OF AN INVESTMENT IN THE FUND AND MAY COST A SHAREHOLDER
MORE THAN PAYING OTHER TYPES OF SALES CHARGES.
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YOUR ACCOUNT
This section describes how to buy and sell shares of the Fund, and the services
that are available to the Fund's shareholders.
HOW TO CONTACT THE FUNDS
For more information about a Fund or your account, you may write to us at:
iMillennium Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
Or you may call us toll free at 877-881-2747
GENERAL INFORMATION
When you buy or sell ("redeem") shares of the Fund, the price of the shares will
be the net asset value per share, or "NAV," next calculated after we receive a
properly completed purchase or redemption order. For instance, if we receive
your purchase request in proper form before 4 p.m. Eastern time, your
transaction will be priced at that day's NAV. If we receive your purchase
request after 4 p.m. Eastern time, however, your transaction will be priced at
the next day's NAV. The Fund will not accept orders that request a particular
day or price for the transaction or any other special conditions.
WHEN AND HOW NAV IS DETERMINED. The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
except days when the New York Stock Exchange is closed. The time at which NAV is
calculated may be changed in case of an emergency or if the New York Stock
Exchange closes early. The Fund's NAV is determined by taking the market value
of all securities owned by the Fund (plus all other assets such as cash),
subtracting all liabilities and then dividing the result (net assets) by the
number of shares outstanding. The Fund values securities for which market
quotations are readily available at current market value. If market quotations
are not readily available, then securities are valued at fair value, as
determined by the Board.
SHARE CERTIFICATES. The Fund does not issue share certificates.
STATEMENT AND TRANSACTION CONFIRMATIONS. You will receive a confirmation of each
purchase, dividend reinvestment, or redemption in your account as well as
quarterly statements showing the value of your investment in the Fund. You
should verify the accuracy of all transactions in your account as soon as you
receive your confirmation.
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HOW TO OPEN AN ACCOUNT AND BUY SHARES OF THE FUND
TYPES OF ACCOUNTS
If you are making an initial investment in the Fund, you will need to open one
of the following types of accounts.
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS. Individual and sole
proprietorship accounts are owned by one person, while joint accounts can have
two or more owners. Each individual owner of a joint account may give
instructions on purchase, and redemptions without notice to the other owner.
Account Applications and written instructions to the Fund, or requests for
transactions that require a signature guarantee, must be signed by both owners
exactly as their names appear on the account.
UNIFORM GIFT OR TRANSFER TO A MINOR ACCOUNTS (UGMA, UTMA). Depending on the laws
of your state, you can set up a custodial account under the Uniform Gift (or
Transfers) to Minors Act. These custodial accounts provide a way to give money
to a child and obtain tax benefits. You can give up to the Uniform Transfers to
Minors Act $10,000 a year per child without paying Federal gift tax. To open a
UGMA or UTMA account, you must include the minor's social security number on the
application and the custodian, or trustee, of the UGMA or UTMA must sign
instructions in a manner indicating trustee capacity.
CORPORATE AND PARTNERSHIP ACCOUNTS. To open a corporate or partnership account,
or to send instructions to the Fund, the following documents are required:
For corporations, a corporate resolution signed by an authorized person
with a signature guarantee.
For partnerships, a certification for a partnership agreement, or the
pages from the partnership agreement that identify the general
partners.
An authorized officer of the corporation or other legal entity must sign the
application.
TRUST ACCOUNTS. The trust must be established before you can open a trust
account. To open the account you must include the name of each trustee, the name
of the trust and provide a certification for trust, or the pages from the trust
document that identify the trustees.
RETIREMENT ACCOUNTS. The Fund offers IRA accounts, including traditional and
Roth IRAs. Fund shares may also be an appropriate investment for other
retirement plans. Before investing in any IRA or other retirement plan, you
should consult your tax Adviser. When you makes an investment in an IRA, be sure
to indicate the year in which the contribution is made.
The Fund may also available for investment through various employer-sponsored
retirement plans such as 401(k) Plans. If you are eligible to participate in one
of these Plans, you should discuss the possibility of investing in the Fund with
your Plan's sponsor.
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OPENING YOUR ACCOUNT
BY TELEPHONE
To open an account by telephone, call 877-881-2747 to obtain an account number
and instructions. We will take information necessary to open your account,
including social security or tax identification number, over the phone.
After you have obtained an account number, you may purchase shares of the Fund
by wiring federal funds. The Fund will charge you a $10.00 wire fee. Your bank
may also charge a fee for doing this. You should instruct your bank to wire
funds to:
Union Bank of California
ABA # 122000496
Account # 280023680
Attention: DOMESTIC CUSTODY
For further credit to iMillennium Fund
F/B/O Shareholder Account No. ___________________
You will then need to mail a signed account application to:
iMillennium Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
BY MAIL
You may also open an account by mailing a completed and signed account
application, together with a check, to:
iMillennium Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
AUTOMATIC INVESTMENT PLANS
You may invest a specified amount of money in the Fund once or twice a month on
specified dates. These payments are taken from your bank account by automated
clearinghouse payment ("ACH"). Automatic investments must be for at least $100.
There is no charge for this service.
To open an Automatic Investment Plan account ("AIP"), call or write to us to
request an "Automatic Investment" form. Complete and sign the form, and return
it to us together with a voided check for the account from which payments will
be made.
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PURCHASES THROUGH THIRD PARTIES
You may be able to invest in shares of the Fund through a broker or other
financial institution, if the institution has made arrangements with the Fund's
Distributor. If you invest through a financial institution, the institution's
policies may be different than those of the Fund, and the institution may charge
fees in addition to those that the Fund charges. For example, banks, brokers,
retirement plans and financial advisers may charge transaction fees and may set
different minimum investments or limitations on buying or selling shares.
Consult a representative of your financial institution or retirement plan for
further information.
HOW TO PAY FOR YOUR PURCHASE OF SHARES
You may purchase shares of the Fund by check, automated clearinghouse ("ACH")
payment, or wire. All payments must be in U.S. dollars.
CHECKS. All checks must be drawn on U.S. banks and made payable to "iMillennium
Fund." No other method of check payment is acceptable (for instance, you may not
pay by travelers check).
ACH PAYMENTS. Instruct your financial institution to make an ACH payment to us.
These payments typically take two days. Your financial institution may charge
you a fee for this service.
WIRES. Instruct your financial institution to make a Federal funds wire payment
to the Fund's custodian, Union Bank of California. The wire instructions are set
forth above. See "Opening Your Account-- By Telephone." The Fund charges a
$10.00 fee for receipt of a wire. Your financial institution may also charge you
a fee for this service.
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INVESTMENT MINIMUMS
The Fund accepts investments in the following minimum amounts:
- ---------------------------------------- ------------------- --------------
TYPE OF ACCOUNT MINIMUM INITAL MINIMUM SUBSEQUENT
INVESTMENT INVESTMENT
- ---------------------------------------- ------------------- --------------
Individual, Sole proprietorship or $2500 $100
Joint accounts
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Corporate, partnership or trust $2500 $100
accounts
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Uniform Gift or Transfer to a Minor $1000 $100
Accounts
- ---------------------------------------- ------------------- --------------
Individual Retirement Accounts (IRA) $1000 $100
- ---------------------------------------- ------------------- --------------
Automatic Investment Plans $1000 $100
- ---------------------------------------- ------------------- --------------
LIMITATIONS ON PURCHASES
The Fund reserves the right to refuse any purchase request, particularly
requests that could adversely affect the Fund or its operations. This includes
those from any individual or group who, in the Fund's view, is likely to engage
in excessive trading (usually defined as more than four exchanges out of the
Fund within a calendar year).
CANCELED OR FAILED PAYMENTS
The Fund accepts checks and ACH transfers at full value subject to collection.
If your payment for shares is not received or you pay with a check or ACH
transfer that does not clear, your purchase will be canceled. You will be
responsible for any losses or expenses incurred by the Fund or the Transfer
Agent, and the Fund may redeem other shares you own in the account as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase, exchange, or redemption due to nonpayment.
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HOW TO REDEEM SHARES OF THE FUND
You can sell ("redeem") all or any part of your shares subject to certain
restrictions. The Fund will redeem your shares at the net asset value next
determined after the Fund receives your redemption request in good order, less
any redemption fee that applies. This section describes the procedures for
redeeming your shares of the Fund, the restrictions on redemptions, and when the
Fund may charge a redemption fee.
We will mail your redemption proceeds to your current address or transmit them
electronically to your designated bank account. Except under certain emergency
conditions, we will send the proceeds from your redemption to you within seven
days after we receive your redemption request.
If the Fund has not yet collected payment for the shares you are selling,
however, it may delay sending redemption proceeds until payment is collected.
REDEMPTION FEE
The Fund is designed for long-term investors willing to accept the risks
associated with an investment in common stocks of companies engaged in rapidly
developing and volatile industries - the internet and internet-related
businesses. Some of these companies are small, and their stocks may be less
liquid than larger, more established companies. The Fund is not designed for
short-term traders, whose frequent purchases and redemptions can unnecessarily
disrupt the Fund's investment program and drive up its transaction costs. For
these reasons, the Fund assesses a 2.00% fee on redemptions of shares held for
less than two years.
Redemption fees are paid to the Fund to help offset transaction costs and to
protect the Fund's long-term shareholders. The Fund will use the "first-in,
first-out" (FIFO) method to determine the two-year holding period. Under this
method, the date of the redemption will be compared with the earliest purchase
date of shares held in the account. If this holding period is less than two
years, the fee will be charged.
The fee does not apply to any shares purchased through reinvested distributions
(dividends and capital gains) or to shares held in retirement plans such as
401(k) or individual retirement accounts ("IRAs").
To determine the holding period, the Fund will use the anniversary date of a
transaction. Thus, shares purchased on December 1, 1999, for example, will be
subject to the fee if they are redeemed on or before November 30, 2001. If they
are redeemed on or after December 1, 2001, no fee will be charged.
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<PAGE>
BY MAIL
To redeem shares by mail, prepare a written request including:
-- Your name(s) and signature(s)
-- The name of the Fund, and your account number
-- The dollar amount or number of shares you want to redeem
-- How and where to send your proceeds
-- A signature guarantee, if required (see "Signature Guarantee
Requirements" below)
-- Any other required documentation, such as corporate resolutions or
trust documents
Mail your request and documentation to:
iMillennium Fund
c/o American Data Services, Inc.
P.O. Box 5536
Hauppauge, NY 11788-0132
BY WIRE
You may only request payment of your redemption proceeds by wire if you have
previously elected wire redemption privileges on your account application or a
separate form.
Wire requests are only available if your redemption is for $1,000 or more. If
there are any wire charges, they will be deducted from the proceeds of your
redemption. Telephone redemptions are not available for IRA accounts.
To request a wire redemption, mail us your request (See "By Mail"), or call us
with your request. If you wish to make your wire request by telephone, however,
you must have previously elected telephone redemption privileges.
BY TELEPHONE
We accept redemption requests by telephone only if you have elected telephone
redemption privileges on your account application or a separate form.
To redeem shares by telephone, call us with your request. You will need to
provide your account number and the exact name(s) in which the account is
registered. We may also require a password or additional forms of
identification.
Your proceeds will be mailed to you or wired to you (if you have elected wire
redemption privileges - See "By Wire" above)
Telephone redemptions are easy and convenient, but this account option involves
a risk of loss from unauthorized or fraudulent transactions. We will take
reasonable precautions to protect your account from fraud. You should do the
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same by keeping your account information private and by reviewing immediately
any account statement and transaction confirmations that you receive. Neither
the Fund nor the Transfer Agent will be responsible for any losses due to
telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity.
AUTOMATIC REDEMPTION
If you own shares of the Fund with an aggregate value of at least $10,000, you
may request a specified amount of money from your account once a month or once a
quarter on a specified date. These payments are sent from your account to a
designated bank account by ACH payment. Automatic redemptions must be for at
least $50.
To set up periodic redemptions automatically, call or write us for an "Automatic
Redemption" form. You should complete the form and mail it to us with a voided
check for the account into which you would like the redemption proceeds
deposited.
REDEMPTIONS THROUGH THIRD PARTIES
If you hold shares through a broker or other financial institution, you will
have to redeem your shares through that financial institution. The net asset
value you receive will be the next calculated after receipt of the order from
the dealer. Consult a representative of your financial institution or retirement
plan for further information.
SIGNATURE GUARANTEE REQUIREMENTS
To protect you and the Fund against fraud, signatures on certain requests must
have a "signature guarantee." For requests made in writing a signature guarantee
is required for any of the following:
-- Redemption of over $5,000 worth of shares
-- Changes to a shareholder's record name or address
-- Redemption from an account for which the address or account
registration has changed within the last 30 days
-- Sending proceeds to any person, address, brokerage firm or bank account
not on record
-- Sending proceeds to an account with a different registration (name or
ownership) from yours
-- Changes to automatic investment or redemption programs, distribution
options, telephone or wire redemption privileges, any other election in
connection with your account. A signature guarantee verifies the
authenticity of your signature. You can obtain one from most banking
institutions or securities brokers, but not from a notary public.
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SMALL ACCOUNTS
If the value of your account (not including IRAs) in the Fund falls below $500,
the Fund may ask you to increase your balance. If the account value is still
below $500 after 30 days, the Fund may close your account and send you the
proceeds. The Fund will not close your account if it falls below these amounts
solely as a result of a reduction in your account's market value.
REDEMPTION IN KIND
The Fund reserves the right to make redemptions "in kind" -- payment of
redemption proceeds in portfolio securities rather than cash -- if the amount
requested is the greater of $250,000 or 1% of the Fund's assets.
SUSPENSION OF REDEMPTIONS AND POSTPONEMENT OF PAYMENTS DURING UNUSUAL MARKET
CONDITIONS
Redemptions may be suspended or payment dates postponed when the NYSE is closed
(other than weekends or holidays), when trading on the NYSE is restricted, or as
otherwise permitted by the SEC.
LOST ACCOUNTS
The Transfer Agent will consider your account "lost" if correspondence to your
address of record is returned as undeliverable. If we are not able to locate
you, all distributions on the account will be reinvested in additional shares of
the Fund. In addition, the amount of any outstanding (unpaid for six months or
more) checks for distributions that have been returned to the Transfer Agent
will be reinvested and the checks will be canceled.
TRANSFERRING REGISTRATION
You may transfer the registration of your Fund shares. To do so, call us at
877-881-2747, or write the Fund c/o American Data Services, Inc., P.O. Box 5536,
Hauppauge, NY 11788-0132, to request an account transfer form. You should then
send the completed form to the same address.
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income, if any, semi-annually. Any net
capital gain realized by the Fund will be distributed at least annually. All
distributions are reinvested in additional shares, unless you elect to receive
distributions in cash. You may elect to receive your distributions in cash when
you open your account, or at anytime afterwards. For Federal income tax
purposes, distributions are treated the same whether they are received in cash
or reinvested. Shares become entitled to receive distributions on the day after
the shares are issued.
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TAXES
The following is general information about U.S. Federal income tax liabilities
that you may incur in connection with your purchase, ownership and redemption of
shares of the Fund. It is not intended to be tax advice, nor does it take into
consideration the particular circumstances of any shareholder. You should
consult your tax adviser about the Federal, state and local tax consequences in
your particular circumstances.
TAXES ON DISTRIBUTIONS. The Fund intends to operate in a manner such that it
will not be liable for federal income or excise tax. Distributions of net
investment income or short-term capital gain are taxable to you as ordinary
income. Distributions of long-term capital gain are taxable to you as long-term
capital gain, regardless of how long you have held your shares. The Fund's
distributions to you are subject to federal income tax whether received in cash
or reinvested in additional shares of the Fund. Distributions may also be
subject to state and local taxes.
The Fund will mail reports containing information about the Fund's distributions
during the year to you after December 31 of each year.
TAXES ON REDEMPTIONS OF SHARES. The sale (redemption) of your Fund shares is a
taxable transaction for federal income tax purposes. Your taxable gain or loss
is computed by subtracting your tax basis in the shares from the redemption
proceeds. Because your tax basis depends on the original purchase price and on
the price at which any dividends may have been reinvested, you should keep your
account statement so that you or your tax preparer will be able to determine
whether a sale will result in a taxable gain or loss.
"BUYING A DIVIDEND." All distributions reduce the net asset value of the Fund's
shares by the amount of the distribution. Unless your investment is in a
tax-deferred account, you may wish to avoid buying shares of the Fund shortly
before a distribution. If you do, you will pay the full pre-distribution price
for your shares and then receive part of your investment back as a taxable
distribution.
TAX WITHHOLDING. The Fund may be required to withhold Federal income tax at the
rate of 31 percent from all taxable distributions and form proceeds from certain
sales payable to shareholders who fail to provide the Fund with their correct
taxpayers identification number or to make required certifications, or who have
been notified by the IRS that they are subject to backup withholding. Any such
withheld amounts may be credited against the shareholder's Federal income tax
liability.
ORGANIZATION AND SHAREHOLDER MEETINGS
The Fund is a series of the Trust, a Delaware business trust that is registered
with the Securities Exchange Commission as an open-end, management investment
company (a "mutual fund"). iMillenium Fund is the only current portfolio of the
Trust. It is not intended that meetings of shareholders be held except when
required by Federal or Delaware law and all shareholders of iMillenium Fund are
entitled to vote at shareholders' meetings.
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FOR MORE INFORMATION
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments is available in the Fund's annual and semi-annual reports
to shareholders. In the 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.
STATEMENT OF ADDITIONAL INFORMATION ("SAI"). The SAI provides more
detailed information about the Fund and is incorporated by reference
into this Prospectus.
You can get free copies of both reports and the SAI, request other information
and discuss your questions about the Fund by contacting the Fund at:
iMILLENNIUM FUND
C/O AMERICAN DATA SERVICES, INC.
P.O. BOX 5536
HAUPPAUGE, NEW YORK 11788-0132
1-877-881-2747
You can also review the Fund's reports and SAI by visiting the Public Reference
Room of the Securities and Exchange Commission at 450 Fifth Street, NW,
Washington, DC 20549-0102. Please call 1-202-942-8090 to learn the Public
Reference Room's business hours. You may request copies of the Fund's reports
and SAI, for a fee, by writing to the Public Reference Room at this address, or
by e-mailing your request to [email protected]. You may also download a free,
text-only version from the Commission's Internet website at www.sec.gov.
iMillennium Fund's Investment Company Act File number is 811-9691.
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IMILLENNIUM FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 9, 2000
TABLE OF CONTENTS
PAGE
Glossary............................................................1
Investment Objective, Policies and Restrictions.................... 2
Trustees and Executive Officers....................................19
Investment Advisory and Other Services.............................21
Portfolio Transactions and Allocation of Brokerage.................25
Taxation...........................................................26
Ownership of Shares................................................27
Purchase of Shares.................................................27
Dividends and Distributions........................................28
Net Asset Value ...................................................28
Performance Comparisons............................................28
Redemption of Shares...............................................30
Counsel and Independent Auditors...................................30
Other Information..................................................31
Appendix...........................................................32
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Fund's Prospectus dated March 9, 2000. A copy of the
Prospectus may be obtained from the Fund at the Hauppauge Corporate Center, 150
Motor Parkway, Hauppauge, New York 11788 or telephone (516) 951-0500.
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"ADS" means American Data Services, Inc., the administrator, fund accountant,
and transfer and distribution disbursing agent of the Fund.
"Adviser" means iMillennium Capital Management, Inc.
"Board" means the Board of Trustees of the Trust.
"Trust" means iMillennium Capital Trust, a Delaware business trust is registered
with the SEC as an open-end, management investment company, commonly referred to
as a "mutual fund".
"Custodian" means the custodian of the Fund's assets.
"Fitch" means Fitch IBCA, Inc.
"Fund" means iMillennium Fund, a separate series of the Trust.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The Fund's investment objective is long-term growth of capital. The Fund will
seek to achieve this objective investing primarily in the common stocks and
securities convertible into common stocks of domestic and foreign companies
engaged in the internet and internet-related activities. In seeking investments
for the Fund, the Adviser uses a "bottom-up" stock selection approach. The
Adviser looks for individual companies with earnings and/or revenue growth
potential that may not be recognized by the market at large. In determining
whether a particular company is suitable for investment by the Fund, the Adviser
focuses on a number of different attributes, including the company's specific
market expertise or dominance; its franchise durability and pricing power; solid
fundamentals (e.g., a strong balance sheet, improving returns on equity,
improving returns on capital invested, strong revenue growth, and the ability to
generate free cash flow); strong management, and reasonable valuations in the
context of projected growth rates.
The Fund is designed for investment of that portion of an investor's funds that
can appropriately bear the special risks associated with certain types of
investments (e.g., investments in smaller capitalization companies). The Fund's
investment techniques, strategies and risks are discussed in the Prospectus.
Additional information regarding the types of investments that the Fund makes,
the risks associated with those investments, and the Fund's restrictions are set
forth below. This discussion supplements the disclosure in the prospectus.
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Unless otherwise noted, the policies described in this Statement of Additional
Information are not fundamental and may be changed by the Board.
1. EQUITY SECURITIES
RISKS IN GENERAL. An investment in the Fund should be made with an
understanding of the risks inherent in an investment in equity securities,
including the risk that the general condition of the stock market may
deteriorate. Common stocks are susceptible to general stock market fluctuations
and to volatile increases and decreases in value according to various
unpredictable factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction and global or regional political, economic and banking crises. In
addition to the general risks and considerations of equity investing, the Fund
is subject to the specific risks associated with the specific investments
discussed below.
COMMON AND PREFERRED STOCK. Common stock represents an equity (ownership)
interest in a company, and usually possesses voting rights and earns dividends.
Dividends on common stock are not fixed but are declared at the discretion of
the issuer. Common stock generally represents the riskiest investment in a
company. In addition, common stock generally has the greatest appreciation and
depreciation potential because increases and decreases in earnings are usually
reflected in a company's stock price.
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
The fundamental risk of investing in common and preferred stock is the risk that
the value of the stock might decrease. Stock values fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than preferred stocks,
fixed-income and money market investments. The market value of all securities,
including common and preferred stocks, is based upon the market's perception of
value and not necessarily the book value of an issuer or other objective
measures of a company's worth. If you invest in a Fund, you should be willing to
accept the risks of the stock market and should consider an investment in the
Fund only as a part of your overall investment portfolio.
CONVERTIBLE SECURITIES. Convertible securities include debt securities,
preferred stock or other securities that may be converted into or exchanged for
a given amount of common stock of the same or a different issuer during a
specified period and at a specified price in the future. A convertible security
entitles the holder to receive interest on debt or the dividend on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Convertible securities rank senior to common stock in a company's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities have unique investment characteristics in
that they generally: (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities; (2) are less subject to fluctuation
in value than the underlying stocks since they have fixed income
characteristics; and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases. 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 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.
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Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS") AND DIAMONDS. The Fund may
invest in Standard & Poor's Depositary Receipts ("SPDRs"). SPDRs are units of
beneficial interest in an investment company sponsored by a wholly-owned
subsidiary of the American Stock Exchange, Inc. which represent proportionate
undivided interests in a portfolio of securities consisting of substantially all
of the common stocks, in substantially the same weighting, as the component
common stocks of the Standard & Poor's 500 Stock Index (the "S&P 500 Index").
SPDRs are listed on the American Stock Exchange (the "Exchange") and traded in
the secondary market on a per-SPDR basis.
The Fund may also invest in DIAMONDS. DIAMONDS are units of beneficial interest
in an investment company representing proportionate undivided interests in a
portfolio of securities consisting of all the component common stocks of the Dow
Jones Industrial Average (the "DJIA"). DIAMONDS are listed on the Exchange and
may be traded in the secondary market on a per-DIAMONDS basis.
SPDRs are designed to provide investment results that generally correspond to
the price and yield performance of the component common stocks of the S&P 500
Index. DIAMONDS are designed to provide investors with investment results that
generally correspond to the price and yield performance of the component common
stocks of the DJIA. The value of both SPDRs and DIAMONDS are subject to change
as the values of their respective component common stocks fluctuate according to
the volatility of the market. Investments in SPDRs and DIAMONDS involve certain
inherent risks generally associated with investments in a broadly based
portfolio of common stocks, including the risk that the general level of stock
prices may decline, thereby adversely affecting the value of each unit of SPDRs
and/or DIAMONDS invested in by the Fund. Moreover, the Fund's investment in
SPDRs and DIAMONDS may not exactly match the performance of a direct investment
in the respective indices to which they are intended to correspond. For example,
replicating and maintaining price and yield performance of an index may be
problematic for the Fund due to transaction costs and other expenses.
Additionally, the respective investment company's may not fully replicate the
performance of their respective benchmark indices due to the temporary
unavailability of certain index securities in the secondary market or due to
other extraordinary circumstances such as discrepancies between the investment
company and the indices with respect to the weighting of securities or the
number of, for example, larger capitalized stocks held by an index and the
investment company. Under these type circumstances, the value of the SPDRs or
DIAMONDS held by the Fund will have a negative impact on the net asset value of
the Fund.
2. FOREIGN SECURITIES
DEPOSITARY RECEIPTS. The Fund may invest in American Depositary
Receipts ("ADRs") or other forms of depositary receipts. ADRs are receipts
typically issued in connection with a U.S. or foreign bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. Investments in these types of foreign securities involve certain
inherent risks generally associated with investments in foreign securities,
including the following:
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POLITICAL AND ECONOMIC FACTORS. Investments in securities of non-U.S.
issuers invoke certain risks not present in investments in U.S. issuers.
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, and resource
self-sufficiency, diversification and balance of payments position. The internal
politics of certain foreign countries may not be as stable as those of the
United States. Governments in certain foreign countries also continue to
participate to a significant degree, through ownership interest or regulation,
in their respective economies. Action by these governments could include
restrictions on foreign investment, nationalization, expropriation of goods or
imposition of taxes, and could have a significant effect on market prices of
securities and payment of interest. The economies of many foreign countries are
heavily dependent upon international trade and are accordingly affected by the
trade policies and economic conditions of their trading partners. Enactment by
these trading partners of protectionist trade legislation could have a
significant adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS. A change in the value of any foreign currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of an ADR's underlying portfolio securities denominated in that currency.
Such changes will affect the Fund to the extent that the Fund is invested in
ADRs or directly in foreign securities.
TAXES. The interest and dividends payable on certain foreign securities
comprising an ADR may be subject to foreign withholding taxes, thus reducing the
net amount of income to be paid to the Fund and that may, ultimately, be
available for distribution to the Fund's shareholders.
3. FIXED INCOME INVESTMENTS.
During normal market conditions, the Fund may invest up to 10% of its total
assets in all types of fixed income securities and up to 5% of its total assets
in high-yield bonds and mortgage and asset backed securities.
Yields on fixed income securities are dependent on a variety of factors,
including the general conditions of the money market and other fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. An investment in the Fund that invests
in fixed income securities is subject to risk even if all fixed income
securities in the Fund's portfolio are paid in full at maturity. All fixed
income securities, including U.S. Government Securities, can change in value
when there is a change in interest rates or the issuer's actual or perceived
creditworthiness or ability to meet its obligations.
There is normally an inverse relationship between the market value of securities
sensitive to prevailing interest rates and actual changes in interest rates. In
other words, an increase in interest rates produces a decrease in market value.
The longer the remaining maturity (and duration) of a security, the greater will
be the effect of interest rate changes on the market value of that security.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of the debt securities of that issuer. Obligations of issuers
of fixed income securities (including municipal securities) are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of municipal issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. The
possibility exists, therefore, that, the ability of any issuer to pay, when due,
the principal of and interest on its debt securities may become impaired.
-5-
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The corporate debt securities in which the Fund may invest include corporate
bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliate's current obligations and is
frequently unsecured. Variable and floating rate demand notes are unsecured
obligations redeemable upon not more than 30 days' notice. These obligations
include master demand notes that permit investment of fluctuating amounts at
varying rates of interest pursuant to a direct arrangement with the issuer of
the instrument. The issuer of these obligations often has the right, after a
given period, to prepay the outstanding principal amount of the obligations upon
a specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations. To
the extent a demand note does not have a 7-day or shorter demand feature and
there is no readily available market for the obligation, it is treated as an
illiquid security.
4. SHORT-TERM INVESTMENTS AND TEMPORARY DEFENSIVE POSITIONS.
While seeking desirable equity or other investments for the Fund, or for
temporary defensive purposes during periods of market instability, the Fund may
invest without limit in money market mutual funds, commercial paper and other
money market instruments that are of prime quality. Prime quality instruments
are those instruments that are rated in one of the two highest short-term rating
categories by an NRSRO or, if not rated, determined by the Adviser to be of
comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include U.S. Government Securities, time deposits, banker's acceptances and
certificates of deposit of depository institutions (such as banks), corporate
notes and short-term bonds and money market mutual funds.
BANK CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. The Fund may acquire
certificates of deposit, bankers' acceptances and time deposits. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning in effect that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit and bankers'
acceptances acquired by the Fund will be dollar-denominated obligations of
domestic banks or financial institutions which at the time of purchase have
capital, surplus and undivided profits in excess of $100 million (including
assets of both domestic and foreign branches), based on latest published
reports, or less than $100 million if the principal amount of such bank
obligations are fully insured by the U.S. Government.
Domestic banks are subject to different governmental regulations with respect to
the amount and types of loans, which may be made, and interest rates, which may
be charged. In addition, the profitability of the banking industry depends
largely upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of the
banking industry.
As a result of federal and state laws and regulations, domestic banks are, among
other things, required to maintain specified levels of reserves, limited in the
amount which they can loan to a single borrower, and subject to other
regulations designed to promote financial soundness.
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GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. Government obligations. Such
obligations include Treasury bills, certificates of indebtedness, notes and
bonds, and issues of such entities as the Government National Mortgage
Association ("GNMA"), Export-Import Bank of the United States, Tennessee Valley
Authority, Resolution Funding Corporation, Farmers Home Administration, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Federal Land Banks, Federal Housing Administration, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, and the Student
Loan Marketing Association.
Certain of these obligations, such as those of the GNMA, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of United States, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the FNMA, are supported by
the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it were not obligated to do so
by law.
MASTER DEMAND NOTES. The money market instruments in which the Fund may invest
may have variable or floating rates of interest. These obligations include
master demand notes that permit investment of fluctuating amounts at varying
rates of interest pursuant to direct arrangement with the issuer of the
instrument. The issuer of these obligations often has the right, after a given
period, to prepay the outstanding principal amount of the obligations upon a
specified number of days' notice. These obligations generally are not traded,
nor generally is there an established secondary market for these obligations.
Thus, to the extent a demand note does not have a 7-day or shorter demand
feature, it will be treated as an illiquid security.
5. SHORT SALES.
The Fund is authorized to make short sales of securities it owns or has the
right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box"). The Fund may
not make short sales of securities, which it does not currently own, or have the
right to acquire (I.E., short sales that are not "against the box").
If the Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. To secure its obligation to deliver securities sold short, the Fund will
deposit in escrow in a separate account with the Custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
The Fund's decision to make a short sale "against the box" may be a technique to
hedge against market risks when the Adviser believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund or a security convertible into or exchangeable for such security. In such
case, any future losses in the Fund's long position would be reduced by a gain
in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of securities sold short
relative to the amount of the securities the Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities, changes
in the investment values or conversion premiums of such securities.
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Short sales transactions may sometimes be executed by borrowing securities from
margin accounts established by the Adviser for this purpose. Some interest may
be charged within these margin accounts as a result of price fluctuations of
boxed positions, even though no leverage is employed, since the offsetting long
and short positions within that boxed position will generally offset each
other's market risk.
6. HEDGING AND OPTION INCOME STRATEGIES
The Fund may seek to hedge against a decline in the value of securities it owns
or an increase in the price of securities which it plans to purchase by
purchasing and writing (i.e., selling) covered options on securities in which it
has invested and on any securities index based in whole or in part on securities
in which that fund may invest. The Fund's options may be traded on an exchange
or in an over-the-counter market.
The Fund will not hedge more than 30% of the value of its total assets by buying
put options and writing call options.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency or an index of
securities).
An option is covered if, as long as the Fund is obligated under the option, it
owns an offsetting position in the underlying security or maintains cash, U.S.
Government Securities or other liquid, high-grade debt securities with a value
at all times sufficient to cover the Fund's obligation under the option.
IN GENERAL. A call option is a contract pursuant to which the purchaser of the
call option, in return for a premium paid, has the right to buy the security (or
index) underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option, who receives the premium,
has the obligation upon exercise of the option to deliver the underlying
security (or a cash amount equal to the value of the index) against payment of
the exercise price during the option period.
A put option gives its purchaser, in return for a premium, the right to sell the
underlying security (or index) at a specified price during the term of the
option. The writer of the put option, who receives the premium, has the
obligation to buy the underlying security (or receive a cash amount equal to the
value of the index), upon exercise at the exercise price during the option
period.
The amount of premium received or paid for an option is based upon certain
factors, including the market price of the underlying security or index, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security or index, the option period and interest
rates.
There are a limited number of option contracts on securities indices and option
contracts may not be available on all securities that the Fund may own or seek
to own.
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RISKS. The Fund's use of options subjects the Fund to certain investment risks
and transaction costs to which it might not otherwise be subject. These risks
include: (1) dependence on the Adviser's ability to predict movements in the
prices of individual securities and fluctuations in the general securities
markets; (2) imperfect correlations between movements in the prices of options
and movements in the price of the securities (or indices) hedged or used for
cover which may cause a given hedge not to achieve its objective; (3) the fact
that the skills and techniques needed to trade these instruments are different
from those needed to select the securities in which the Fund invests; and
(4)lack of assurance that a liquid secondary market will exist for any
particular instrument at any particular time, which, among other things, may
hinder the Fund's ability to limit exposures by closing its positions.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund.
7. WARRANTS
The Fund may invest in warrants. A warrant gives the holder a right to purchase
at any time during a specified period a predetermined number of shares of common
stock at a fixed price. Unlike convertible debt securities or preferred stock,
warrants do not pay a fixed dividend. Investments in warrants involve certain
risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of the Fund's entire investment therein).
8. FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the prospectus, the
Fund may invest without limit in futures contracts and related options for
hedging and non-hedging purposes, such as to manage the effective duration of
the Fund's portfolio or as a substitute for direct investment. A financial
futures contract sale creates an obligation by the seller to deliver the type of
financial instrument called for in the contract in a specified delivery month
for a stated price. A financial futures contract purchase creates an obligation
by the purchaser to take delivery of the type of financial instrument called for
in the contract in a specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date are not
determined until on or near that date. The determination is made in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made. Futures contracts are traded in the United States only on commodity
exchanges or boards of trade -- known as "contract markets" -- approved for such
trading by the Commodity Futures Trading Commission (the "CFTC"), and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant contract market.
Although futures contracts (other than index futures) by their terms call for
actual delivery or acceptance of commodities or securities, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.
Closing out a futures contract sale is affected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. If the Fund is unable to enter into a closing transaction, the amount of
the Fund's potential loss is unlimited. The closing out of a futures contract
purchase is affected by the purchaser's entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the purchaser realizes
a gain, and if the purchase price exceeds the offsetting sale price, he realizes
a loss. In general, 40% of the gain or loss arising from the closing out of a
futures contract traded on an exchange approved by the CFTC is treated as
short-term gain or loss, and 60% is treated as long-term gain or loss.
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Unlike when the Fund purchases or sells a security, no price is paid or received
by the Fund upon the purchase or sale of a futures contract. Upon entering into
a contract, the Fund is required to deposit with its custodian in a segregated
account in the name of the futures broker an amount of liquid assets. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of Funds to finance the
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit, which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Futures
contracts also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin," to and
from the broker (or the custodian) are made on a daily basis as the price of the
underlying security or commodity fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures contract on a
security and the price of the underlying security has risen, that position will
have increased in value and the Fund will receive from the broker a variation
margin payment based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the underlying security
has declined, the position would be less valuable and the Fund would be required
to make a variation margin payment to the broker.
The Fund may elect to close some or all of its futures positions at any time
prior to their expiration in order to reduce or eliminate a hedge position then
currently held by the Fund. The Fund may close its positions by taking opposite
positions, which will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then made, additional
cash is required to be paid by or released to a Fund, and the Fund realizes a
loss or a gain. Such closing transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts it may buy or sell and enter into closing
transactions with respect to such options to terminate existing positions.
Options on futures contracts give the purchaser the right in return for the
premium paid to assume a position in a futures contract at the specified option
exercise price at any time during the period of the option. The Fund may use
options on futures contracts in lieu of writing or buying options directly on
the underlying securities or purchasing and selling the underlying futures
contracts. For example, to hedge against a possible decrease in the value of its
portfolio securities, the Fund may purchase put options or write call options on
futures contracts rather than selling futures contracts. Similarly, the Fund may
purchase call options or write put options on futures contracts as a substitute
for the purchase of futures contracts to hedge against a possible increase in
the price of securities which the Fund expects to purchase. Such options
generally operate in the same manner as options purchased or written directly on
the underlying investments.
As with options on securities, the holder or writer of an option may terminate
his position by selling or purchasing an offsetting option. There is no
guarantee that such closing transactions can be affected.
The Fund will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements similar to those described above in connection with the
discussion of futures contracts.
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RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use
of futures contracts by the Fund is subject to the Adviser's ability to predict
movements in various factors affecting securities markets, including interest
rates. There may be circumstances, however, when the purchase of a call or put
option on a futures contract would result in a loss to the Fund when the
purchase or sale of a futures contract would not, such as when there is no
movement in the prices of the hedged investments. The writing of an option on a
futures contract involves risks similar to those risks relating to the sale of
futures contracts.
The use of options and futures strategies also involves the risk of imperfect
correlation among movements in the prices of the securities underlying the
futures and options purchased and sold by the Fund, of the options and futures
contracts themselves, and, in the case of hedging transactions, of the
securities which are the subject of a hedge. The successful use of these
strategies further depends on the ability of the Adviser to forecast interest
rates and market movements correctly.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain market clearing facilities
inadequate, and thereby result in the institution by exchanges of special
procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a position held by the Fund, the Fund may seek to close
out such position. The ability to establish and close out positions will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid secondary market
on an exchange include the following: (i) there may be insufficient trading
interest in certain contracts or options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of contracts or options, or underlying securities;
(iv) unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of contracts or options (or a particular
class or series of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or series of
contracts or options) would cease to exist, although outstanding contracts or
options on the exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in accordance
with their terms.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as buying or purchasing a contract or holding a long position in the
index. Entering into a contract to sell units of an index is commonly referred
to as selling a contract or holding a short position. A unit is the current
value of the index. The Fund may enter into stock index futures contracts, debt
index futures contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index futures
contracts.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500 Index assigns
relative weightings to the common stocks included in the Index, and the value
fluctuates with changes in the market values of those common stocks. In the case
of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value
of the S&P 500 Index were $150, one contract could be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no delivery of the actual
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stocks making up the index will take place. Instead, settlement in cash must
occur upon the termination of the contract, with the settlement being the
difference between the contract price and the actual level of the stock index at
the expiration of the contract. For example, if the Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a specified future date
at a contract price of $150 and the S&P 500 Index is at $152 on that future
date, the Fund will lose $1,000 (500 units x loss of $2).
There are several risks in connection with the use by the Fund of index futures.
One risk arises because of the imperfect correlation between movements in the
prices of the index futures and movements in the prices of securities, which are
the subject of the hedge. The Adviser will, however, attempt to reduce this risk
by buying or selling, to the extent possible, futures on indices the movements
of which will, in its judgment, have a significant correlation with movements in
the prices of the securities sought to be hedged.
Successful use of index futures by the Fund is also subject to the Adviser's
ability to predict movements in the direction of the market. For example, it is
possible that, where the Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written may advance
and the value of securities held in the Fund's portfolio may decline. If this
occurred, the Fund would lose money on the futures and also experience a decline
in value in its portfolio securities. It is also possible that, if the Fund has
hedged against the possibility of a decline in the market adversely affecting
securities held in its portfolio and securities prices increase instead, the
Fund will lose part or all of the benefit of the increased value of those
securities it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash,
it may have to sell securities to meet daily variation margin requirements at a
time when it is disadvantageous to do so.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the portion of
the Fund's portfolio being hedged, the prices of index futures may not correlate
perfectly with movements in the underlying index due to certain market
distortions. 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, which could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures market are less
onerous than margin requirements in the securities market, and as a result the
futures market may attract more speculators than the securities market does.
Increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and also because of the imperfect correlation between movements
in the index and movements in the prices of index futures, even a correct
forecast of general market trends by the Adviser may still not result in a
profitable position over a short time period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are similar to options
on securities except that options on index futures give the purchaser the right,
in return for the premium paid, to assume a position in an index futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index futures contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the index future. If an option is
exercised on the last trading day prior to its expiration date, the settlement
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will be made entirely in cash equal to the difference between the exercise price
of the option and the closing level of the index on which the future is based on
the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
INDEX WARRANTS. The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If the Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant.
The Fund will normally use index warrants in a manner similar to its use of
options on securities indices. The risks of the Fund's use of index warrants are
generally similar to those relating to its use of index options. Unlike most
index options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution which issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Fund will normally
invest only in exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing agency. In
addition, the terms of index warrants may limit the Fund's ability to exercise
the warrants at such time, or in such quantities, as the Fund would otherwise
wish to do.
9. ILLIQUID AND RESTRICTED SECURITIES.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of the value of its
net assets in securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. In general, a security is
considered illiquid if it cannot be sold within seven days at the price at which
is carried on the Fund's books. The Adviser will monitor the amount of illiquid
securities in the Fund's portfolio, under the supervision of the Board, to
ensure compliance with the Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933 (the "Securities Act"), securities
that are otherwise not readily marketable and repurchase agreements having a
maturity of longer than seven days. Securities which have not been registered
under the Securities Act are referred to as private placement or restricted
securities and are purchased directly from the issuer or in the secondary
market. Mutual funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and the Fund might be unable
to dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemption requests
within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
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In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Board may determine that such securities are not illiquid securities
notwithstanding their legal or contractual restrictions on resale. In all other
cases, however, securities subject to restrictions on resale will be deemed
illiquid.
RESTRICTED SECURITIES. The SEC Staff currently takes the view that any
delegation by a fund's board of the authority to determine that a restricted
security is readily marketable (as described in the investment restrictions of
the Fund) must be pursuant to written procedures established by the Board. It is
the present intention of the Board that, if the Board decides to delegate such
determinations to the Adviser or another person, they would do so pursuant to
written procedures, consistent with the Staff's position. Should the Staff
modify its position in the future, the Board would consider what action would be
appropriate in light of the Staff's position at that time.
DETERMINATION OF LIQUIDITY. The Board has the ultimate responsibility for
determining whether specific securities are liquid or illiquid and has delegated
the function of making determinations of liquidity to the Adviser, pursuant to
guidelines approved by the Board. The Adviser determines and monitors the
liquidity of the portfolio securities and reports periodically on its decisions
to the Board. The Adviser takes into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
and quotations for the security; (2) the number of dealers willing to purchase
or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer. If a security is eligible for purchase by institutional buyers in
accordance with Rule 144A under the 1933 Act or other exemptions, the Adviser
may determine that the security is not illiquid.
10. REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. A repurchase agreement involves
the purchase by the Fund of the securities with the condition that after a
stated period of time the original seller will buy back the same securities at a
predetermined price or yield. The Fund's custodian will hold the securities
underlying any repurchase agreement or such securities will be part of the
Federal Reserve Book Entry System. The market value of the collateral underlying
the repurchase agreement will be determined on each business day. If at any time
the market value of the Fund's collateral falls below the repurchase price of
the repurchase agreement (including any accrued interest), the Fund will
promptly receive additional collateral (so the total collateral is an amount at
least equal to the repurchase price plus accrued interest).
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11. SECURITIES LOANS
The Fund may make secured loans of its portfolio securities, on either a
short-term or long-term basis, amounting to not more than 25% of its total
assets, thereby realizing additional income. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss rights in the collateral should the
borrower fail financially. As a matter of policy, securities loans are made to
broker-dealers pursuant to agreements requiring that the loans be continuously
secured by collateral consisting of cash or short-term debt obligations at least
equal at all times to the value of the securities on loan, "marked-to-market"
daily. The borrower pays to the Fund an amount equal to any dividends or
interest received on securities lent. The Fund retains all or a portion of the
interest received on investment of the cash collateral or receives a fee from
the borrower. Although voting rights, or rights to consent, with respect to the
loaned securities may pass to the borrower, the Fund retains the right to call
the loans at any time on reasonable notice, and it will do so to enable the Fund
to exercise voting rights on any matters materially affecting the investment.
The Fund may also call such loans in order to sell the securities.
SECURITY RATINGS INFORMATION
The Fund's investments in fixed income securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund invests no more than 5% of its assets
in debt securities that are considered non-investment grade. Investment grade
means rated in the top four long-term rating categories or top two short-term
rating categories by an NRSRO, or unrated and determined by the Adviser to be of
comparable quality.
The lowest long-term ratings that are investment grade for corporate bonds,
including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the
case of S&P and Fitch; for preferred stock are "Baa" in the case of Moody's and
"BBB" in the case of S&P and Fitch; and for short-term debt, including
commercial paper, are "Prime-2" (P-2) in the case of Moody's, "A-2" in the case
of S&P and "F-2" in the case of Fitch.
Unrated securities may not be as actively traded as rated securities. The Fund
may retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Fund may
use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by the Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by an
NRSRO may change as a result of changes in such organizations or their rating
systems, the Adviser will attempt to substitute comparable ratings. 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. An issuer's current financial
condition may be better or worse than a rating indicates.
-15-
<PAGE>
INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund cannot be changed without the affirmative vote
of the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented. A nonfundamental policy of the Fund may be changed by the Board
without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following fundamental investment policies.
1. ISSUANCE OF SENIOR SECURITIES
The Fund may not issue senior securities, including the borrowing of money
except pursuant to Section 18 of the 1940 Act and except that the Fund may
borrow money subject to its investment limitation on borrowing.
2. UNDERWRITING ACTIVITIES
The Fund may not act as an underwriter of securities of other issuers, except to
the extent that, in connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter for purposes of the 1933 Act.
3. BORROWING
The Fund may not borrow money, except that the Fund may (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) and(ii)
engage in reverse repurchase agreements for any purpose; provided that (i) and
(ii) in combination do not exceed 33 1/3% of the fund's total assets (including
the amount borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33 1/3%
limitation;
4. CONCENTRATION
The Fund will invest at least 65% of its assets in companies engaged in internet
and internet-related businesses as those businesses are defined in the
Prospectus.
-16-
<PAGE>
5. PURCHASES AND SALES OF REAL ESTATE
The Fund not may purchase or sell real estate or any interest therein, except
that the Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such as
mortgage pass-throughs and collateralized mortgage obligations, or issued by
companies that invest in real estate or interests therein.
6. PURCHASES AND SALES OF COMMODITIES
The Fund may not purchase or sell physical commodities or contracts, options or
options on contracts to purchase or sell physical commodities.
7. MAKING LOANS
The Fund may not make loans to other persons except for the purchase of debt
securities that are otherwise permitted investments or loans of portfolio
securities through the use of repurchase agreements.
8. DIVERSIFICATION
The Fund is considered "non-diversified" under the 1940 Act. In order to qualify
as a "regulated investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended, each Fund currently intends to comply with certain
diversification limits imposed by Subchapter M.
Subchapter M currently requires a fund to invest no more than 25% of its total
assets in securities of any one issuer and to invest at least 50% of its total
assets so that no more than 5% of the fund's total assets are invested in
securities of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter M) and
securities of other investment companies. These tax requirements are generally
applied at the end of each quarter of a fund's taxable year.
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following nonfundamental investment policies. The Fund
may not:
1. PLEDGE, MORTGAGE & HYPOTHECATE
Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted to be incurred by the Fund. The deposit in escrow of securities in
connection with the writing of put and call options, collateralized loans of
securities and collateral arrangements with respect to margin for futures
contracts are not deemed to be pledges or hypothecations for this purpose.
2. SHORT SALES
Make short sales of securities except short sales against the box.
3. PURCHASES ON MARGIN
Purchase securities on margin except for the use of short-term credit necessary
for the clearance of purchases and sales of portfolio securities, but the Fund
may make margin deposits in connection with permitted transactions in options.
-17-
<PAGE>
4. ILLIQUID SECURITIES
Purchase a security if, as a result, more than 15% of its net assets would be
invested in illiquid securities. If the 15% limit on illiquid securities is
exceeded by virtue of other than a change in market values, the condition will
be reported by the Adviser to the Board.
5. HISTORY OF ISSUER
Invest more than 5% of its net assets in securities (other than
fully-collateralized debt obligations) issued by companies that have conducted
continuous operations for less than three years, including the operations of
predecessors, unless guaranteed as to principal and interest by an issuer in
whose securities the Fund could invest.
6. OFFICERS' AND TRUSTEES' HOLDINGS
Invest in or hold securities of any issuer if officers and Trustees of the Trust
or the Adviser, individually owning beneficially more than 1/2 of 1% of the
securities of the issuer, in the aggregate own more than 5% of the issuer's
securities.
7. OIL, GAS & MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral exploration or
development programs.
-18-
<PAGE>
TRUSTEES AND EXECUTIVE OFFICERS
The Board is responsible for overseeing the general operations of the Trust and
the services of the Adviser and other companies that provide necessary services
to the Fund. Among other things, the Board approves the contractual arrangements
with these service providers, ensures the Funds' compliance with applicable
securities laws and that sees dividends and capital gains are distributed to
shareholders. The Trustees have appointed officers to provide many of the
functions necessary for day-to-day operations of the Fund.
Trustees and officers of the Trust, together with information as to their
principal business occupations during the last five years, are shown below. Each
Trustee who is considered an "interested person" of the Trust (as defined in
Section 2(a)(19) of the 1940 Act) is indicated by an asterisk next to his name.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE COMPANY FOR LAST FIVE YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
*Omar S. Rivero Trustee, President, iMillennium Capital
17225 El Camino Real Chairman and Management, Inc., formerly Rivero
Suite 415 President Investment Management Company,
Houston, Texas 77058 Houston, Texas, since 1996. Prior to
that, Partner, Chaves, Gonzales &
Hoblit, L.L.P., Corpus Christi, Texas
since 1991 (law firm).
- -----------------------------------------------------------------------------------------
Douglas E. Chaves Trustee Partner, Chaves, Gonzales & Hoblit,
2000 Frost Plaza 2000 Frost Plaza, 802 North
802 North Carancahua Carancahua, Corpus Christi, TX 78470
Corpus Christi, TX 78470 (law firm), since 1985
- -----------------------------------------------------------------------------------------
-19-
<PAGE>
*Don Alan Crosier, Jr. Trustee and Vice-president and Chief Operating
17225 El Camino Real Vice-President Officer, iMillennium Capital
Suite 415 Management, Inc., 17225 El Camino
Houston, Texas 77058 Real, Suite 415, Houston, TX 77058
(investment management), since
February 2000; Assistant District
Attorney, Harris County District
Attorney's Office, Houston, TX
77002, from 1989 to 2000.
- -----------------------------------------------------------------------------------------
Stephen F. Gillioz Trustee Senior Analyst and CFO, The Catalyst
Three Riverway, Suite 770 Group, Three Riverway, Suite 770,
Houston, TX 77056 Houston, TX 77056 (venture capital),
since 1995; Vice-President (Finance),
Compressor Dynamics, Inc., Houston, TX
(energy service), from 1992 until 1995.
- -----------------------------------------------------------------------------------------
Gregory A. Goodman Trustee Kaffie, Goodman & Pitcairn, Inc., 800
800 N. Shoreline N. Shoreline 2800 South Tower, Corpus
2800 South Tower Christi, Texas 78401 (investment
Corpus Christi, Texas 78401 adviser) since June 1996; Vice
President - New Business/Investments,
PaineWebber, Inc., Corpus Christi,
Texas (broker-dealer) from 1993
until June 1996.
- -----------------------------------------------------------------------------------------
Michael Wagner Vice President Senior Vice President - Operations,
150 Motor Parkway and Treasurer American Data Services, 150 Motor
Hauppauge, New York Parkway, Hauppauge, New York11788-0132
11788-0132 (mutual fund administration) since
1987.
- -----------------------------------------------------------------------------------------
-20-
<PAGE>
Max Berueffy Vice President General Counsel, American Data
150 Motor Parkway and Secretary Services, 150 Motor Parkway,
Hauppauge, New York Hauppauge, New York11788-0132 (mutual
11788-0132 fund administration) since June 1999;
Senior Counsel, Forum Financial
Services, Two Portland Square,
Portland, Maine 04101 from May 1994
until August 1998 (mutual fund
administration)
- -----------------------------------------------------------------------------------------
Administrator, American Data Services,
Denise Cantela Asst. Treasurer 150 Motor Parkway, Hauppauge, New
150 Motor Parkway York11788-0132 (mutual fund
Hauppauge, New York administration) since June 1999;
11788-0132 Accountant, Lake Grove Family Golf
Centers, 538 Broadhollow Road,
Melville, New York 11747
(Entertainment facilities) from
November 1997 until June 1999;
Student, St. Joseph's College,
Patchogue, New York from 1992
to 1997.
- -----------------------------------------------------------------------------------------
Michelle LoCascio Asst. Secretary Manager - Blue Sky Administration,
150 Motor Parkway American Data Services, 150 Motor
Hauppauge, New York Parkway, Hauppauge, New York11788-0132
11788-0132 (mutual fund administration) since
July 1981
- -------------------------------------------------------------------------------------------
</TABLE>
The members of the Audit Committee of the Board of Trustees are Douglas E.
Chaves, Stephen F. Gillioz and Gregory A. Goodman. Mr. Gillioz acts as the
chairperson of the Audit Committee. The Audit Committee oversees the Fund's
financial reporting process, reviews audit results and recommends annually to
the Trust a firm of independent certified public accountants.
Those Trustees who are officers or employees of the Administrator or its
affiliates receive no remuneration from the Fund. Each disinterested Trustee
receives a fee from the Fund for each regular quarterly and in-person special
meeting of the Board of Trustees attended. Members of the Board who are not
affiliated with the Adviser or the Administrator receive a annual fee $150 for
each Board meeting attended. In addition, each Trustee who is not affiliated
with the Adviser or the Administrator is reimbursed for expenses incurred in
connection with attending meetings.
The following table sets forth the estimated compensation expected to be
received by each Trustee from the Trust during the fiscal year ending as of
February 28, 2001.
-21-
<PAGE>
================================================================================
TRUSTEE AGGREGATE ANNUAL ESTIMATED COMPENSATION
FROM THE TRUST
- --------------------------------------------------------------------------------
Douglas E. Chaves $600
- --------------------------------------------------------------------------------
Stephen F. Gillioz $600
- --------------------------------------------------------------------------------
Gregory A. Goodman $600
================================================================================
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The investment adviser for the Fund is iMillennium Capital Management, Inc. The
Adviser will act as such pursuant to a written agreement which, after its
initial two-year period, must be annually re-approved by the Board of Trustees.
The address of the Adviser is 17225 El Camino Real, Suite 415, Houston, Texas
77058. The Adviser can also be contacted by telephone at (281) 990-7485.
CONTROL OF THE ADVISER. The majority of the stock of the Adviser is owned by
Omar S. Rivero. Mr. Rivero is also the Chairman and Chief Executive Officer of
the Adviser. Mr. Rivero manages the investment program of the Fund and is
primarily responsible for the day-to-day management of the Fund's portfolio.
INVESTMENT ADVISORY AGREEMENT. The Adviser acts as the investment adviser of the
Fund under an Investment Advisory Agreement (the "Agreement") which has been
approved by the Board of Trustees (including a majority of the Trustees who are
not parties to the agreement, or interested persons of any such party).
The Agreement will terminate automatically in the event of its assignment. In
addition, the Agreement is terminable at any time, without penalty, by the Board
or by vote of a majority of the Fund's outstanding voting securities on not more
than 60 days' written notice to the Adviser, and by the Adviser on 60 days'
written notice to the Trust. Unless sooner terminated, the Agreement shall
continue in effect for more than two years after its execution only so long as
such continuance is specifically approved at least annually by either the Board
or by a vote of a majority of the outstanding shares of the Fund, provided that
in either event such continuance is also approved by a vote of a majority of the
Trustees who are not parties to such Agreement, or interested persons of such
parties, cast in person at a meeting called for the purpose of voting on such
approval.
Pursuant to the Agreement, the Fund will pay the Adviser monthly an advisory fee
equal, on an annual basis, to 1.50% of its average daily net assets. The Adviser
may waive a portion of its fees from time to time.
Under the Agreement, the Adviser provides the Fund with advice and assistance in
the selection and disposition of the Fund's investments. All investment
decisions are subject to review by the Board. The Adviser is obligated to pay
the salaries and fees of any affiliates of the Adviser serving as officers of
the Trust.
The same security may be suitable for the Fund or other private accounts managed
by the Adviser. If and when the Fund or two or more accounts simultaneously
purchase or sell the same security, the transactions will be allocated as to
price and amount in accordance with arrangements equitable to the Fund or
account. The simultaneous purchase or sale of the same securities by the Fund
and other accounts may have a detrimental effect on the Fund, as this may affect
the price paid or received by the Fund or the size of the position obtainable or
able to be sold by the Fund.
-22-
<PAGE>
ADMINISTRATOR
The Administrator for the Fund is American Data Services, Inc. (the
"Administrator"), which has its principal office at The Hauppauge Corporate
Center, 150 Motor Parkway, Hauppauge, New York 11788, and is primarily in the
business of providing administrative, fund accounting and stock transfer
services to retail and institutional mutual funds through its offices in New
York, Denver and Los Angeles.
Pursuant to an Administration and Fund Accounting Services Agreement (the
"Service Agreement") with the Fund, the Administrator provides all
administrative services necessary for the Fund, subject to the supervision of
the Board. The Administrator will provide persons to serve as officers of the
Fund. Such officers may be Trustees, officers or employees of the Administrator
or its affiliates.
The Service Agreement is terminable by the Board of the Trust or the
Administrator on sixty days' written notice and may be assigned provided the
non-assigning party provides prior written consent. The Service Agreement shall
remain in effect for two years from the date of its initial approval, and
subject to annual approval of the Board for one-year periods thereafter. The
Service Agreement provides that in the absence of willful misfeasance, bad faith
or gross negligence on the part of the Administrator or reckless disregard of
its obligations thereunder, the Administrator shall not be liable for any action
or failure to act in accordance with its duties thereunder.
Under the Service Agreement, the Administrator is responsible for all
administrative services, including, without limitation: (i) providing services
of persons competent to perform such administrative and clerical functions as
are necessary to provide effective administration of the Fund; (ii) overseeing
the performance of administrative and professional services to the Fund by
others, including the Fund's Custodian; (iii) preparing, but not paying for, the
periodic updating of the Fund's Registration Statement, Prospectus and Statement
of Additional Information in conjunction with Fund counsel, including the
printing of such documents for the purpose of filings with the Securities and
Exchange Commission and state securities administrators, preparing the Fund's
tax returns, and preparing reports to the Fund's shareholders and the Securities
and Exchange Commission; (iv) preparing in conjunction with Fund counsel, but
not paying for, all filings under the securities or "Blue Sky" laws of such
states or countries as are designated by the Distributor, which may be required
to register or qualify, or continue the registration or qualification, of the
Fund and/or its shares under such laws; (v) preparing notices and agendas for
meetings of the Board of Trustees and minutes of such meetings in all matters
required by the 1940 Act to be acted upon by the Board; and (vi) monitoring
daily and periodic compliance with respect to all requirements and restrictions
of the 1940 Act, the Internal Revenue Code and the Prospectus.
The Administrator, pursuant to the Service Agreement, provides the Fund with all
accounting services, including, without limitation: (i) daily computation of net
asset value; (ii) maintenance of security ledgers and books and records as
required by the Investment Trust Act; (iii) production of the Fund's listing of
portfolio securities and general ledger reports; (iv) reconciliation of
accounting records; (v) calculation of yield and total return for the Fund; (vi)
maintaining certain books and records described in Rule 31a-1 under the 1940
Act, and reconciling account information and balances among the Fund's Custodian
and Adviser; and (vii) monitoring and evaluating daily income and expense
accruals, and sales and redemptions of shares of the Fund.
-23-
<PAGE>
ADMINISTRATOR'S FEES. For the services rendered to the Fund by the
Administrator, the Fund pays the Administrator a monthly fee based on the Fund's
average net assets. The Fund also pays the Administrator for any out-of-pocket
expenses. These fees are set forth in the Fund's Prospectus.
In return for providing the Fund with all accounting related services, the Fund
pays the Administrator a monthly fee based on the Fund's average net assets,
plus any out-of-pocket expenses for such services.
CUSTODIAN
Union Bank of California serves as custodian for the Fund's cash and securities
(the "Custodian"). Pursuant to a Custodian Agreement, it is responsible for
maintaining the books and records of the Fund's portfolio securities and cash.
The Custodian does not assist in, and is not responsible for, investment
decisions involving assets of the Fund.
TRANSFER AGENT AND DIVIDEND AGENT
The Administrator also acts as the Fund's transfer and dividend agent.
DISTRIBUTOR
Pursuant to a Distribution Agreement, AmeriMutual Fund Distributors, Inc. (the
"Distributor") has agreed to act as the principal underwriter for the Fund in
the sale and distribution to the public of shares of the Fund, either through
dealers or otherwise. The Distributor has agreed to offer such shares for sale
at all times when such shares are available for sale and may lawfully be offered
for sale and sold.
The Fund has adopted a Distribution Plan (the "Plan"), which was reviewed and
approved by a majority of the disinterested Trustees of the Trust, pursuant to
Rule 12b-1 under the Act (the "Rule"). The Rule provides that an investment
company, which bears any direct or indirect expense of distributing its shares,
must do so only in accordance with a plan permitted by the Rule. The Plan
provides that the Fund will compensate the Distributor for certain expenses and
costs incurred in connection with providing marketing and promotional support to
the Fund, shareholder servicing and maintaining shareholder accounts, to
compensate parties with which it has written agreements and whose clients own
shares of the Fund for providing servicing to their clients ("shareholder
servicing") and financial institutions with which it has written agreements and
whose clients are Fund shareholders (each a "broker-dealer") for providing
distribution assistance and promotional support to the Fund, which is subject to
a maximum of 0.25% per annum of the Fund's average daily net assets. Fees paid
under the Plan may not be waived for individual shareholders.
Each shareholder servicing agent and broker-dealer will, as agent for its
customers, among other things: answer customer inquiries regarding account
status and history, the manner in which purchases and redemptions of shares of
the Fund may be effected and certain other matters pertaining to the Fund;
assist shareholders in designating and changing dividend options, account
designations and addresses; provide necessary personnel and facilities to
establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder designated accounts;
furnish quarterly and year-end statements and confirmations within five business
days after activity in the account; transmit to shareholders of the Fund proxy
statements, annual reports, updated prospectuses and other communications;
receive, tabulate and transmit proxies executed by shareholders with respect to
meetings of shareholders of the Fund; and provide such other related services as
the Fund or a shareholder may request.
-24-
<PAGE>
The Plan, the shareholder servicing agreements and the form of distribution
agreement each provide that the Adviser or the Distributor may make payments
from time to time from their own resources which may include the advisory fee
and the asset based sales charges and past profits for the following purposes:
(i) to defray the costs of and to compensate others, including financial
intermediaries with whom the Distributor has entered into written agreements,
for performing shareholder servicing and related administrative functions of the
Fund; to compensate certain financial intermediaries for providing assistance in
distributing Fund shares; (ii) to pay the costs of printing and distributing the
Fund's prospectus to prospective investors; and (iii) to defray the cost of the
preparation and printing of brochures and other promotional materials, mailings
to prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's shares. The Distributor will determine the amount
of such payments made pursuant to the Plan with the shareholder servicing agents
and broker-dealers with whom it has contracted, provided that such payments made
pursuant to the Plan will not increase the amount which the Fund is required to
pay the Distributor for any fiscal year under the shareholder servicing
agreements or otherwise.
Shareholder servicing agents and broker-dealers may charge investors a fee in
connection with their use of specialized purchase and redemption procedures
offered to investors by the shareholder servicing agents and broker-dealers. In
addition, shareholder servicing agents and broker-dealers offering purchase and
redemption procedures similar to those offered to shareholders who invest in the
fund directly may impose charges, limitations, minimums and restrictions in
addition to or different from those applicable to shareholders who invest in the
Fund directly. Accordingly, the net yield to investors who invest through
shareholder servicing agents and broker-dealers may be less than realized by
investing in the Fund directly. An investor should read the Prospectus in
conjunction with the materials provided by the shareholder servicing agent and
broker-dealer describing the procedures under which Fund shares may be purchased
and redeemed through the shareholder servicing agent and broker-dealer.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into by the Fund, the Distributor or the Adviser,
and the shareholder servicing agents, broker-dealers, or other organizations,
must be in a form satisfactory to the Board of Trustees. In addition, the Plan
requires the Fund and the Distributor to prepare, at least quarterly, written
reports setting forth all amounts expended for distribution purposes by the Fund
and the Distributor pursuant to the Plan and identifying the distribution
activities for which those expenditures were made for review by the Board of
Trustees.
OTHER EXPENSES
The Fund pays certain operating expenses that are not assumed by the Adviser,
the Administrator or any of their respective affiliates. These expenses,
together with fees paid to the Adviser, the Administrator, the Distributor and
the Transfer Agent, are deducted from income of the Fund before dividends are
paid. These expenses include, but are not limited to, organizational costs, fees
and expenses of officers and Trustees who are not affiliated with the Adviser,
the Administrator or any of their respective affiliates, taxes, interest, legal
fees, custodian fees, audit fees, brokerage fees and commissions, fees and
expenses of registering and qualifying the Fund and its shares for distribution
under federal and state securities laws, the expenses of reports to
shareholders, shareholders' meetings and proxy solicitations.
-25-
<PAGE>
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
The Fund's assets are invested by the Adviser in a manner consistent with its
investment objective, policies, and restrictions and with any instructions the
Board may issue from time to time. Within this framework, the Adviser is
responsible for making all determinations as to the purchase and sale of
portfolio securities and for taking all steps necessary to implement securities
transactions on behalf of the Fund.
U.S. Government securities generally are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank that makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread.
In placing orders for the purchase and sale of portfolio securities for the
Fund, the Adviser will use its best efforts to obtain the best possible price
and execution and will otherwise place orders with broker-dealers subject to and
in accordance with any instructions the Board may issue from time to time. The
Adviser will select broker-dealers to execute portfolio transactions on behalf
of the Fund primarily on the basis of best price and execution.
When consistent with the objectives of prompt execution and favorable net price,
business may be placed with broker-dealers who furnish investment research or
services to the Adviser. Such research or services include advice, both directly
and in writing, as to the value of securities; the advisability of investing in,
purchasing or selling securities; and the availability of securities, or
purchasers or sellers of securities; as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. To the extent portfolio transactions are
effected with broker-dealers who furnish research services to the Adviser, the
Adviser receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Fund from these transactions. The
Adviser believes that most research services obtained by it generally benefit
several or all of the investment companies and private accounts, which it
manages, as opposed to solely benefiting one specific managed fund or account.
Transactions on U.S. stock exchanges, commodities markets and futures markets
and other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. A
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. Transactions in foreign investments
often involve the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, but the price paid by
the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive brokerage and research services (as defined in the Securities Exchange
Act of 1934, as amended (the "1934 Act") from broker-dealers that execute
portfolio transactions for the clients of such advisers and from third parties
with which such broker-dealers have arrangements. Consistent with this practice,
the Adviser may receive brokerage and research services and other similar
services from many broker-dealers with which the Adviser may place the Fund's
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
-26-
<PAGE>
magazines, pricing services, quotation services, news services and personal
computers utilized by the Adviser. Where the services referred to above are not
used exclusively by the Adviser for research purposes, the Adviser, based upon
its own allocations of expected use, bears that portion of the cost of these
services which directly relates to their non-research use. Some of these
services are of value to the Adviser and its affiliates in advising various of
their clients (including the Fund), although not all of these services are
necessarily useful and of value in managing the Fund. The management fee paid by
the Fund is not reduced because the Adviser and its affiliates receive these
services even though the Adviser might otherwise be required to purchase some of
these services for cash.
As permitted by Section 28(e) of the 1934 Act, the Adviser may cause the Fund to
pay a broker-dealer which provides "brokerage and research services" (as defined
in the 1934 Act) to the Adviser an amount of disclosed commission for effecting
securities transactions on stock exchanges and other transactions for the Fund
on an agency basis in excess of the commission which another broker-dealer would
have charged for effecting that transaction. The Adviser's authority to cause
the Fund to pay any such greater commissions is also subject to such policies as
the Trustees may adopt from time to time. The Adviser does not currently intend
to cause any Fund to make such payments. It is the position of the SEC staff
that Section 28(e) does not apply to the payment of such greater commissions in
"principal" transactions. Accordingly, the Adviser will use its best effort to
obtain the most favorable price and execution available with respect to such
transactions, as described above.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Trustees may determine, the Adviser may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
TAXATION
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Code. By so qualifying, the Fund will not incur federal
income or state taxes on its net investment income and on net realized capital
gains to the extent distributed as dividends to shareholders. If in any taxable
year the Fund should not qualify as a "regulated investment company" under the
Code, the Fund would be taxes at normal corporate rates on the entire amount of
its taxable income without deduction for dividends or other distributions to its
shareholders and the Fund's distributions to shareholders would be taxable as
ordinary dividends to the extent of the Fund's current or accumulated earnings
and profits.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar year
an amount equal to the sum of (a) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (b) at
least 98% of its capital gains in excess of capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31st of the
calendar year, and (c) all ordinary income and capital gains for previous years
that were not distributed during such years.
Under the Code, dividends derived from interest, and any short-term capital
gains, are taxable to shareholders as ordinary income for federal and state tax
purposes, regardless of whether such dividends are taken in cash or reinvested
in additional shares. Distributions made from the Fund's net realized long-term
capital gains (if any) and designated as capital gain dividends are taxable to
shareholders as long-term capital gains, regardless of the length of time Fund
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shares are held. Corporate investors are not eligible for the dividends-received
deduction with respect to distributions derived from interest on short-or
long-term capital gains from the Fund but may be entitled to such a deduction in
respect to distributions attributable to dividends received by the Fund. A
distribution will be treated as paid on December 31st of a calendar year if it
is declared by the Fund in October, November or December of the year with a
record date in such a month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders in the calendar year
the distributions are declared, rather than the calendar year in which the
distributions are received.
Distributions paid by the Fund from net long-term capital gains (excess of
long-term capital gains over long-term capital losses), if any, whether received
in cash or reinvested in additional shares, are taxable as long-term capital
gains, regardless of the length of time you have owned shares in the Fund.
Distributions paid by the Fund from net short-term capital gains (excess of
short-term capital gains over short-term capital losses), if any, whether
received in cash or reinvested in additional shares are taxable as ordinary
income. Capital gains distributions are made when the Fund realizes net capital
gains on sales of portfolio securities during the year. Realized capital gains
are not expected to be a significant or predictable part of the Fund's
investment return.
Any redemption of the Fund shares is a taxable event and may result in a capital
gain or loss.
Income received by the Fund from sources within various foreign countries may be
subject to foreign withholding or income tax. Shareholders will not be able to
claim a foreign tax credit or deduction for these foreign taxes.
Ordinarily, distributions and redemption proceeds paid to Fund shareholders are
not subject to withholding of federal income tax. However, 31% of the Fund's
distributions and redemption proceeds must be withheld if a Fund shareholder
fails to supply the Fund or its agent with such shareholder's taxpayer
identification number or if the Fund shareholder who is otherwise exempt from
withholding fails to properly document such shareholder's status as an exempt
recipient.
The information above is only a summary of some of the federal income tax
considerations generally affecting the Fund and its shareholders. Dividend
distributions, capital gains distributions, and capital gains or losses from
redemptions and exchanges may also be subject to state and local taxes. No
attempt has been made to discuss individual tax consequences. To determine
whether the Fund is a suitable investment based on his or her tax situation, a
prospective investor may wish to consult a tax adviser.
OWNERSHIP OF SHARES
Each share has one vote in the election of Trustees. Cumulative voting is not
authorized. This means that the holders of more than 50% of the shares voting
for the election of Trustees can elect 100% of the Trustees if they choose to do
so, and, in that event, the holders of the remaining shares will be unable to
elect any Trustees.
PURCHASE OF SHARES
Shares of the Fund may be purchased at the net asset value per share next
determined after receipt of an order by the Fund's Distributor in proper form
with accompanying check or other bank wire payment arrangements satisfactory to
the Fund. The Fund's minimum initial investment is $2,500.00 (except for
retirement accounts for which the minimum initial investment is $1,000.00) and
the minimum subsequent investment is $100.00.
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DIVIDENDS AND DISTRIBUTIONS
Net investment income, if any, is declared as dividends and paid annually.
Substantially all the realized net capital gains for the Fund, if any, are also
declared and paid on an annual basis. Dividends and distributions are payable to
shareholders of record at the time of declaration.
Distributions are automatically reinvested in additional Fund shares unless the
shareholder has elected to have them paid in cash.
The net investment income of the Fund for each business day is determined
immediately prior to the determination of net asset value. Net investment income
for other days is determined at the time net asset value is determined on the
prior business day. See "Purchase of Shares" and "Redemption of Shares" in the
Prospectus.
NET ASSET VALUE
The method for determining the Fund's net asset value is summarized in the
Prospectus in the text following the heading "Valuation of Shares." The net
asset value of the Fund's shares is determined on each day on which the New York
Stock Exchange is open, provided that the net asset value need not be determined
on days when no Fund shares are tendered for redemption and no order for Fund
shares is received. The New York Stock Exchange is not open for business on the
following holidays (or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
PERFORMANCE COMPARISONS
Total return quoted in advertising and sales literature reflects all aspects of
the Fund's return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value during the
period.
The Fund's total return must be displayed in any advertisement containing the
Fund's yield. Total return is the average annual total return for the 1-, 5- and
10-year period ended on the date of the most recent balance sheet included in
the Statement of Additional Information, computed by finding the average annual
compounded rates of return over 1-, 5- and 10-year periods that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
P(1 + T)n = ERV
Where:
P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment made at
the beginning of the 1-, 5- or 10-year periods at the end of the 1-,
5-or 10-year periods (or fractions thereof).
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Because the Fund has not had a registration in effect for 1, 5 or 10 years, the
period during which the registration has been effective shall be substituted.
Average annual total return is calculated by determining the growth or decline
in value of a hypothetical historical investment in the Fund over a stated
period and then calculating the annual compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual total return of 7.18%, which is
the steady annual rate that would result in 100% growth on a compounded basis in
10 years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount and may be calculated for a single
investment, a series of investments, or a series of redemptions over any time
period. Performance information may be quoted numerically or in a table, graph,
or similar illustration.
The Fund's performance may be compared with the performance of other funds with
comparable investment objectives, tracked by fund rating services or with other
indices of market performance. Sources of economic data that may be considered
in making such comparisons may include, but are not limited to, rankings of any
mutual fund or mutual fund category tracked by Lipper Analytical Services, Inc.
or Morningstar, Inc.; data provided by the Investment Trust Institute; major
indexes of stock market performance; and indices and historical data supplied by
major securities brokerage or investment advisory firms. The Fund may also
utilize reprints from newspapers and magazines furnished by third parties to
illustrate historical performance.
The agencies listed below measure performance based on their own criteria rather
than on the standardized performance measures described in the preceding
section.
Lipper Analytical Services, Inc. distributes mutual fund rankings monthly. The
rankings are based on total return performance calculated by Lipper, generally
reflecting changes in net asset value adjusted for reinvestment of capital gains
and income dividends. They do not reflect deduction of any sales charges. Lipper
rankings cover a variety of performance periods, including year-to-date, 1-year,
5-year, and 10-year performance. Lipper classifies mutual funds by investment
objective and asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. The ratings are
divided into five groups: highest, above average, neutral, below average and
lowest. They represent the fund's historical risk/reward ratio relative to other
funds in its broad investment class as determined by Morningstar, Inc.
Morningstar ratings cover a variety of performance periods, including 1-year,
3-year, 5-year, 10-year and overall performance. The performance factor for the
overall rating is a weighted-average assessment of the fund's 1-year, 3-year,
5-year, and 10-year total return performance (if available) reflecting deduction
of expenses and sales charges. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund. The ratings are derived from
a purely quantitative system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard & Poor's and Moody's
Investor Service, Inc.
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<PAGE>
CDA/Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return calculated
by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and
10-year. Mutual funds are ranked in general categories (e.g., international
bond, international equity, municipal bond, and maximum capital gain).
Weisenberger rankings do not reflect deduction of sales charges or fees.
Independent publications may also evaluate the Fund's performance. The Fund may
from time to time refer to results published in various periodicals, including
Barrons, Financial World, Forbes, Fortune, Investor's Business Daily,
Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The
Wall Street Journal.
REDEMPTION OF SHARES
Redemption of shares, or payment for redemptions, may be suspended at times (a)
when the New York Stock Exchange ("NYSE") is closed for other than customary
weekend or holiday closings, (b) when trading on the NYSE is restricted, (c)
when an emergency exists, as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable, or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during any other period when the SEC, by order, so permits, provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (b) or (c) exist.
Shareholders who purchased shares through a broker-dealer other than the
Distributor may also redeem such shares by written request to the Transfer Agent
which shares are held by the Transfer Agent at the address set forth in the
Prospectus. To be considered in "good order", written requests for redemption
should indicate the dollar amount or number of shares to be redeemed, and refer
to the shareholder's Fund account number, including either the social security
or tax identification number. The request should be signed in exactly the same
way the account is registered. If there is more than one owner of the shares,
all owners must sign. If shares to be redeemed have a value of $5,000 or more or
redemption proceeds are to be paid by someone other than the shareholder at the
shareholder's address of record, the signature(s) must be guaranteed by an
"eligible guarantor institution," which includes a commercial bank that is a
member of the Federal Deposit Insurance Corporation, a trust company, a member
firm of a domestic stock exchange, a savings association or a credit union that
is authorized by its charter to provide a signature guarantee. The Transfer
Agent may reject redemption instructions if the guarantor is neither a member of
nor a participant in a signature guarantee program. Signature guarantees by
notaries public are not acceptable. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud. Further documentation
will be requested from corporations, administrators, executors, personal
representatives, trustees and custodians. Redemption requests given by facsimile
will not be accepted. Unless other instructions are given in proper form, a
check for the proceeds of the redemption will be sent to the shareholder's
address of record.
Share purchases and redemptions are governed by Delaware law.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of shares of common stock of the
Fund are passed upon by Sutherland Asbill & Brennan LLP, 1275 Pennsylvania
Avenue, NW, Washington, DC 20004-2415. McCurdy & Associates, CPAs, Inc., 2795
Clemens Road, Westlake, Ohio 44145 have been selected as independent accountants
for the Fund.
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OTHER INFORMATION
The Adviser has been continuously registered with the SEC under the Investment
Advisers Act of 1940, as amended, since February 2000. The Trust has filed a
registration statement under the Securities Act of 1933 and the 1940 Act with
respect to the shares offered. Such registrations do not imply approval or
supervision of the Fund or the Adviser by the SEC.
For further information, please refer to the registration statement and exhibits
on file with the SEC in Washington, D.C. These documents are available upon
payment of a reproduction fee. Statements in the Prospectus and in this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
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APPENDIX
SECURITY RATINGS
The following rating services describe rated securities as follows:
MOODY'S INVESTORS SERVICE, INC.
BONDS
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
to be 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 sometime in the future.
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.
STANDARD & POOR'S
BONDS
AAA--Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
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 highest rated issues only in small degree.
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A--Debt rated 'A' has a strong capacity to pay interest and repay principal
although somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit 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
bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC-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. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major 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 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.
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PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Copy of the Trust Instrument of iMillennium Capital Trust (the
"Registrant") dated October 28, 1999 (See Note 1).
(b) Not Applicable.
(c) Not Applicable.
(d) Form of Investment Advisory Agreement between Registrant and
iMillennium Capital Management, Inc., (See Note 2).
(e) Form of Distribution Agreement between Registrant and AmeriMutual Fund
Distributors, Inc. (See Note 2).
(f) Not Applicable.
(g) Form of Custody Agreement between Registrant and Union Bank of
California (See Note 2).
(h) (1) Form of Administration Agreement between Registrant and American
Data Services, Inc. (See Note 1)
(2) Form of Transfer Agency Agreement between Registrant and American
Data Services, Inc. (See Note 1).
(3) Form of Fund Accounting Agreement between Registrant and American
Data Services, Inc. (See Note 1).
(i) Opinion of Counsel to Registrant (filed herewith)
(j) Consent of Independent Auditors (filed herewith)
(k) Financial Statements and Report of Independent Certified Public
Accountants (filed herewith)
(l) Investment Representation letter of original purchaser of shares of
Registrant (filed herewith)
(m) Form of Rule 12b-1 Plan adopted by the Registrant (See Note 2).
<PAGE>
(n) Not Applicable
(o) Not Applicable
Notes:
(1) Exhibit incorporated herein by reference as filed in the Initial
Registration Statement on November 11, 1999 via EDGAR, accession
number: 0000909012-99-000577 ("Initial Registration").
(2) Exhibit incorporated herein by reference as filed in Pre-Effective
Amendment No. 1 to Initial Registration on February 15, 2000 via EDGAR,
accession number: 0000909012-00-000175
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 25. INDEMNIFICATION
IN ACCORDANCE WITH SECTION 3803 OF THE DELAWARE BUSINESS TRUST ACT, SECTION
10.02 OF THE REGISTRANT'S TRUST INSTRUMENT PROVIDES AS FOLLOWS:
SECTION 10.01 LIMITATION OF LIABILITY. A Trustee, when acting in such
capacity, shall not be personally liable to any Person other than the
Trust or beneficial owner for any act, omission or obligation of the
Trust or any Trustee. A Trustee shall not be liable for any act or
omission or any conduct whatsoever in his capacity as Trustee, provided
that nothing contained herein or in the Delaware Act shall protect any
Trustee against any liability to the Trust or to Shareholders to which
he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of the office of Trustee hereunder.
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b): (i) every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof; (ii) the words "claim," "action,"
"suit," or "proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals), actual or
threatened while in office or thereafter, and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
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(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or (ii)
in the event of a settlement, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office, (x) by the court or other body approving the
settlement; (y) by at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or (z) by written opinion of independent legal
counsel based upon a review of readily available facts (as opposed to a
full trial-type inquiry); provided, however, that any Shareholder may,
by appropriate legal proceedings, challenge any such determination by
the Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a Person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a Person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other Persons may be
entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection 10.02(a) may be paid by the Trust or Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount
will be paid over by him to the Trust or Series if it is ultimately
determined that he is not entitled to indemnification under this
Section 10.02; provided, however, that either (i) such Covered Person
shall have provided appropriate security for such undertaking, (ii) the
Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under Section 10.02.
SECTION 14 OF THE INVESTMENT ADVISORY AGREEMENT PROVIDES AS FOLLOWS:
It is expressly acknowledged and agreed that the obligations of the
Trust shall not be binding upon any of the shareholders, trustees,
officers, employees or agents of the Trust, personally, but shall bind
only the trust property of the Trust, as provided in its Trust
Instrument. The execution and delivery of this Agreement has been
authorized by the Board and such authorization shall not be deemed to
have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the trust property of
the Trust as provided in its Trust Instrument.
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SECTION 7 OF THE DISTRIBUTION SERVICES AGREEMENT PROVIDES:
(a) The Trust authorizes AmeriMutual and any dealers with whom
AmeriMutual has entered into dealer agreements to use any Prospectus in
the form furnished by the Trust in connection with the sale of Shares.
The Trust agrees to indemnify, defend and hold AmeriMutual, its several
officers and directors, and any person who controls AmeriMutual within
the meaning of Section 15 of the Securities Act free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the reasonable cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred
in connection therewith) which AmeriMutual, its officers and directors,
or any such controlling persons, may incur under the Securities Act,
the 1940 Act, or common law or otherwise, arising out of or based upon
(i) any untrue statement, or alleged untrue statement, of a
material fact required to be stated in either any Registration
Statement or any Prospectus,
(ii) any omission, or alleged omission, to state a material fact
required to be stated in any Registration Statement or any Prospectus
or necessary to make the statements in any of them not misleading,
(b) The Trust's agreement to indemnify AmeriMutual, its officers
or directors, and any such controlling person will not be deemed to
cover any such claim, demand, liability or expense to the extent that
it arises out of or is based upon
(i) any such untrue statement, alleged untrue statement, omission
or alleged omission made in any Registration Statement or any
Prospectus in reliance upon information furnished by AmeriMutual, its
officers, directors or any such controlling person to the Trust or its
representatives for use in the preparation thereof, or
(ii) willful misfeasance, bad faith or gross negligence in the
performance of AmeriMutual's duties, or by reason of AmeriMutual's
reckless disregard of its obligations and duties under this Agreement
("Disqualifying Conduct").
(c) The Trust's agreement to indemnify AmeriMutual, its officers
and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Trust's being notified of any action
brought against AmeriMutual, its officers or directors, or any such
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controlling person, such notification to be given by letter, by
facsimile or by telegram addressed to the Trust at its address set
forth above within a reasonable period of time after the summons or
other first legal process shall have been served; provided, however,
that the failure to notify the Trust of any such action shall not
relieve the Trust from any liability which the Trust may have to the
person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission,
otherwise than on account of the Trust's indemnity agreement contained
in this Section.
(d) The Trust will be entitled to assume the defense of any suit
brought to enforce any such claim, demand or liability, but, in such
case, such defense shall be conducted by counsel of good standing
chosen by the Trust and approved by AmeriMutual, which approval shall
not be unreasonably withheld. If the Trust elects to assume the defense
of any such suit and retain counsel of good standing approved by
AmeriMutual, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them;
but in case the Trust does not elect to assume the defense of any such
suit, the Trust will reimburse AmeriMutual, its officers and directors,
or the controlling person or persons named as defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel
retained by them.
(e) The Trust's indemnification agreement contained in this
Section and the Trust's representations and warranties in this
Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of AmeriMutual,
its officers and directors, or any controlling person, and shall
survive the delivery of any Shares. This agreement of indemnity will
inure exclusively to AmeriMutual's benefit, to the benefit of its
several officers and directors, and their respective estates, and to
the benefit of any controlling persons and their successors. The Trust
agrees promptly to notify AmeriMutual of the commencement of any
litigation or proceedings against the Trust or any of its officers or
Board members in connection with the issue and sale of Shares.
SECTION 7 OF THE DISTRIBUTION SERVICES AGREEMENT PROVIDES:
(a) AmeriMutual agrees to indemnify, defend and hold the Trust,
its several officers and Board members, and any person who controls the
Trust within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the reasonable cost of investigating or defending
such claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which the Trust, its officers or
Board members, or any such controlling person, may incur under the
Securities Act, the 1940 Act, or under common law or otherwise, but
only to the extent that such liability or expense incurred by the
Trust, its officers or Board members, or such controlling person
resulting from such claims or demands
(i) shall arise out of or be based upon any unauthorized sales
literature, advertisements, information, statements or representations
or any Disqualifying Conduct in connection with the offering and sale
of any Shares, or
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(ii) shall arise out of or be based upon any untrue, or alleged
untrue, statement of a material fact contained in information furnished
in writing by AmeriMutual to the Trust specifically for use in the
Trust's Registration Statement and used in the answers to any of the
items of the Registration Statement or in the corresponding statements
made in the Prospectus, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in connection
with such information furnished in writing by AmeriMutual to the Trust
and required to be stated in such answers or necessary to make such
information not misleading.
(b) AmeriMutual's agreement to indemnify the Trust, its officers
and Trustees, and any such controlling person, as aforesaid, is
expressly conditioned upon AmeriMutual's being notified of any action
brought against the Trust, its officers or Trustees, or any such
controlling person, such notification to be given by letter, by
facsimile or by telegram addressed to AmeriMutual at its address set
forth above within a reasonable period of time after the summons or
other first legal process shall have been served.
(c) The failure so to notify AmeriMutual of any such action shall
not relieve AmeriMutual from any liability which its may have to the
person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission,
otherwise than on account of AmeriMutual's indemnity agreement
contained in this Section.
(d) AmeriMutual will be entitled to assume the defense of any
suit brought to enforce any such claim, demand or liability, but, in
such case, such defense shall be conducted by counsel of good standing
chosen by AmeriMutual and approved by the Trust, which approval shall
not be unreasonably withheld. If AmeriMutual elects to assume the
defense of any such suit and retain counsel of good standing approved
by the Trust, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them;
but in the case AmeriMutual does not elect to assume the defense of any
such suit, AmeriMutual will reimburse the Trust, the Trust's officers
and directors, or the controlling person or persons named as defendant
or defendants in such suit, for the reasonable fees and expenses of any
counsel retained by the Trust or them. \
(e) AmeriMutual's indemnification agreement contained in this
Section and AmeriMutual's representations and warranties in this
Agreement shall remain operative and in full force and effect
regardless of any investigation made by AmeriMutual or on behalf of
AmeriMutual, its officers and directors, or any controlling person, and
shall survive the delivery of any Shares. This agreement of indemnity
will inure exclusively to the Trust's benefit, to the benefit of the
Trust's officers and trustees, and their respective estates, and to the
benefit of any controlling persons and their successors. AmeriMutual
agrees promptly to notify the Trust of the commencement of any
litigation or proceedings against AmeriMutual or any of its officers or
trustees in connection with the issue and sale of Shares.
C-6
<PAGE>
SECTION 5 OF THE ADMINISTRATION SERVICES AGREEMENT PROVIDES AS FOLLOWS:
(a) Standard OF CARE. ADS shall be under no duty to take any
action except as specifically set forth herein or as may be
specifically agreed to by ADS in writing. ADS shall use its best
judgment and efforts in rendering the services described in this
Agreement. ADS shall not be liable to the Trust or any of the Trust's
shareholders for any action or inaction of ADS relating to any event
whatsoever in the absence of bad faith, willful misfeasance or gross
negligence in the performance of ADS's duties or obligations under this
Agreement or by reason of ADS's reckless disregard of its duties and
obligations under this Agreement.
(b) INDEMNIFICATION BY THE TRUST. The Trust agrees to
indemnify and hold harmless ADS, its employees, agents, directors,
officers and managers and any person who controls ADS within the
meaning of section 15 of the Securities Act or section 20 of the
Securities Exchange Act of 1934, as amended, ("ADS Indemnitees")
against and from any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character arising
out of or in any way related to ADS's actions taken or failures to act
with respect to a Fund that are consistent with the standard of care
set forth in Section 3(a) or based, if applicable, on good faith
reliance upon an item described in Section 3(d)(a "Claim"). The Trust
shall not be required to indemnify any ADS Indemnitee if, prior to
confessing any Claim against the ADS Indemnitee, ADS or the ADS
Indemnitee does not give the Trust written notice of and reasonable
opportunity to defend against the claim in its own name or in the name
of the ADS Indemnitee.
(c) INDEMNIFICATION BY ADS. ADS agrees to indemnify and hold
harmless the Trust, its employees, agents, trustees and officers
against and from any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character arising
out of ADS's actions taken or failures to act with respect to a Fund
that are not consistent with the standard of care set forth in Section
3(a). ADS shall not be required to indemnify the Trust if, prior to
confessing any Claim against the Trust, the Trust does not give ADS
written notice of and reasonable opportunity to defend against the
claim in its own name or in the name of the Trust.
(d) RELIANCE UPON INSTRUCTIONS. An ADS Indemnitee shall not be
liable for any action taken or failure to act in good faith reliance
upon:
(i) the advice of the Trust or of counsel, who may be
counsel to the Trust or counsel to ADS, and upon statements of
accountants, brokers and other persons reasonably believed in
good faith by ADS to be expert in the matters upon which they
are consulted;
(ii) any oral instruction which it receives and which
it reasonably believes in good faith was transmitted by the
person or persons authorized by the Board to give such oral
instruction. ADS shall have no duty or obligation to make any
inquiry or effort of certification of such oral instruction;
C-7
<PAGE>
(iii) any written instruction or certified copy of
any resolution of the Board, and ADS may rely upon the
genuineness of any such document or copy thereof reasonably
believed in good faith by ADS to have been validly executed;
or
(iv) any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other document
reasonably believed in good faith by ADS to be genuine and to
have been signed or presented by the Trust or other proper
party or parties;
and no ADS Indemnitee shall be under any duty or obligation to inquire
into the validity or invalidity or authority or lack thereof of any
statement, oral or written instruction, resolution, signature, request,
letter of transmittal, certificate, opinion of counsel, instrument,
report, notice, consent, order, or any other document or instrument
which ADS reasonably believes in good faith to be genuine.
(e) ERRORS OF OTHER SERVICE PROVIDERS. ADS shall not be liable
for the errors of other service providers to the Trust, including the
errors of pricing services (other than to pursue all reasonable claims
against the pricing service based on the pricing services' standard
contracts entered into by ADS) and errors in information provided by an
investment adviser (including prices and pricing formulas and the
untimely transmission of trade information), custodian or transfer
agent to the Trust.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The descriptions of iMillennium Capital Management, Inc., under the caption
"Management-Adviser" in the Prospectus and Statement of Additional Information
are incorporated by reference herein.
The following are the directors and officers of iMillennium Capital Management,
Inc., 17225 El Camino Real, Suite 415, Houston, Texas 77058, including their
business connections which are of a substantial nature. Unless otherwise stated,
all addresses are 17225 El Camino Real, Suite 415, Houston, Texas 77058.
C-8
<PAGE>
- ----------------------------- --------------------------- ---------------------
Name Position with Adviser Business Connection
- ----------------------------- --------------------------- ---------------------
Omar Rivero Director, Chairman, and None
Chief Executive Officer
- ----------------------------- --------------------------- ---------------------
Don Alan Crosier, Jr. Vice-president and Chief None
Operating Officer
- ----------------------------- --------------------------- ---------------------
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The principal underwriter of the Company's shares, AmeriMutual
Funds Distributors, Inc., currently acts as a principal underwriter,
depositor or investment adviser for the following other investment
companies:
Alpha Analytics Investment Trust
DCM Series Trust
Questar Funds, Inc.
AmeriMutual Funds Distributors, Inc. is registered with the Securities
and Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers. AmeriMutual Funds
Distributors, Inc. is an indirect wholly-owned subsidiary of Orbitex
Financial Services Group, Inc.
(b) The following table contains information with respect to each
director, officer or partner of AmeriMutual Funds Distributors, Inc.:
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT
----------------- ---------------- ---------------
Christopher Klutch Director, President, CEO None
Vali Nasr General Principal, Financial None
and Operations Principal
Nathan O'Steen Vice President, General None
Principal, Chief Compliance
Officer
Richard E. Stierwalt Director, Chief Operations None
Officer
* Unless otherwise indicated, all addresses are: The Hauppauge
Corporate Center, 150 Motor Parkway, Hauppauge, NY 11788
(c) Not Applicable.
C-9
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of American Data Services, Inc., 150
Motor Parkway, Hauppauge, New York 11788-0132. The records required to be
maintained under Rule 31a-1(b)(1) with respect to journals of receipts and
deliveries of securities and receipts and disbursements of cash are maintained
at the offices of the Registrant's custodian, Union Bank of California, N.A. 350
California Street, San Francisco, CA 94104. The records required to be
maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at the offices of
iMillennium Capital Management, Inc., 17225 El Camino Real, Suite 415, Houston,
Texas 77058.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of Registrant's latest annual report to shareholders relating to the
portfolio or class thereof to which the prospectus relates upon request and
without charge.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Pre-effective Amendment
No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Houston, and State of Texas
on the 6th day of March, 2000.
IMILLENNIUM CAPITAL TRUST
By: /S/ OMAR S. RIVERO
-------------------------
Omar S. Rivero, President
Pursuant to the requirements of the Securities Act of 1933, this Pre-effective
Amendment No. 2 to its Registration Statement has been signed below by the
following persons on the 6th day of March 2000.
SIGNATURES TITLE
- ---------- -----
(a)Principal Executive Officer
/S/ OMAR S. RIVERO
- ----------------------------
Omar S. Rivero President and Trustee
(b)Principal Financial and Accounting Officer
/S/ MICHAEL J. WAGNER
- -----------------------------
Michael J. Wagner Vice-President and
Treasurer
(c) All of the Trustees
/S/ OMAR S. RIVERO
- -------------------------------
Omar S. Rivero Trustee
/S/ DOUGLAS E. CHAVES
- ------------------------------
Douglas E. Chaves Trustee
/S/ DON ALAN CROZIER
- ------------------------------
Don Alan Crozier, Jr. Trustee
/S/ STEPHEN F. GILLIOZ
- ------------------------------
Stephen F. Gillioz Trustee
/S/ GREGORY A. GOODMAN
- ------------------------------
Gregory A. Goodman Trustee
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
(i) Opinion of Counsel to Registrant
(j) Consent of Independent Auditors
(k) Financial Statements and Report of Independent Certified Public
Accountants
(l) Investment Representation letter of original purchaser of shares of
Registrant
EXHIBIT (I)
OPINION OF COUNSEL TO REGISTRANT
STEVEN B. BOEHM
DIRECT LINE: 202.383.0176
Internet: [email protected]
March 6, 2000
Board of Trustees
iMillennium Capital Trust
17225 El Camino Real, Suite 415
Houston, TX 77058
Re: FORM N-1A REGISTRATION STATEMENT
(FILE NOS. 333-90513 AND 811-9691)
----------------------------------
Trustees:
We have acted as counsel to iMillennium Capital Trust (the "Trust"), a
business trust organized under the laws of the State of Delaware, in connection
with its registration as an open-end management investment company under the
Investment Company Act of 1940, as amended, and in connection with its
registration of an indefinite number of shares of beneficial interest in the
Trust (the "Shares") under the Securities Act of 1933, as amended (the "1933
Act"). In this connection, we have assisted in the preparation of the initial
registration statement, and Pre-Effective Amendment No. 1 thereto (the
"registration statement"), both as filed with the Securities and Exchange
Commission on Form N-1A (File Nos. 333-90513 and 811-9691).
We have examined such Trust records, certificates and other documents
and reviewed such questions of law as we have considered necessary or
appropriate for purposes of this opinion. In our examination of such materials,
we have assumed the genuineness of all signatures and the conformity to the
original documents of all copies submitted to use. As to certain questions of
fact material to our opinion, we have relied upon statements of officers of the
Trust and upon representations of the Trust made in the registration statement.
Based upon the foregoing, we are of the opinion that the Shares, when
issued and sold in the manner described in the registration statements, will be
legally issued, fully paid and non-assessable.
<PAGE>
Board of Trustees
March 6, 2000
Page 2
This opinion is limited to the business trust laws of the State of
Delaware, and we express no opinion on any laws of any jurisdiction.
We hereby consent to the reference to our name in the prospectuses and
statement of additional information filed as part of the registration statement.
In giving this consent, we do not admit that we are in the category if persons
whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By:_________________________________
Steven B. Boehm
EXHIBIT (J)
CONSENT OF INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 29, 2000 and to all references to our firm included in or made a
part of this Pre-Effective Amendment Number 2 to the iMillennium Fund's
Registration Statement on Form N-1A (File No. 811-9691), including the
references to our firm under the heading "Counsel and Independent Auditors" in
the Statement of Additional Information.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
March 7, 2000
EXHIBIT (K)
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
iMILLENNIUM CAPITAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
iMILLENNIUM
FUND
-----------
ASSETS
Cash ......................................................... $100,000
--------
NET ASSETS ................................................... $100,000
--------
Units of Beneficial Interest outstanding
(no par value) ............................................... 10,000
========
Net asset value, offering price and
redemption price per share .................................. $ 10.00
========
The accompanying notes are an integral part of this statement
<PAGE>
iMILLENNIUM CAPITAL TRUST
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000
- --------------------------------------------------------------------------------
1. iMillennium Capital Trust (the "Trust"), is a no-load, diversified,
open-end management investment company consisting initially of one series,
iMillennium Fund (the "Fund"), organized as a Delaware business trust under
a trust agreement dated October 28, 1999. On February 29, 2000, 10,000
shares of the Fund were issued for cash at a purchase price of $10.00 per
share. The Fund has had no operations except for the initial issuance of
shares.
2. Expenses incurred in connection with the organization of the Fund and the
initial offering of shares will be permanently absorbed by iMillennium
Capital Management, Inc. (the "Manager"). As of March 2, 2000, all
outstanding shares of the Fund were held by a principal of the Manager, who
purchased these initial shares in order to provide the Fund with its
required capital.
3. Reference is made to the Prospectus and the Statement of Additional
Information for a description of the Management Agreement, the
Administration Agreement, the Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement, tax aspects of the Fund and the
calculation of the net asset value of the shares of the Fund.
EXHIBIT (L)
INVESTMENT REPRESENTATION LETTER
OMAR S. RIVERO
17225 El Camino Real, Suite 415
HOUSTON, TEXAS 77058
FEBRUARY 16, 2000
Board of Trustees of
iMillennium Capital Trust
17225 El Camino Real, Suite 415
HOUSTON, TEXAS 77058
Ladies and Gentlemen:
I, Omar S. Rivero, hereby subscribe for 10,000 shares of beneficial
interest of the iMillennium Fund, a series of iMillennium Capital Trust at
$10.00 per share for an aggregate purchase price of $100,000.
I hereby represent and agree that I am purchasing these shares for
investment purposes, for my own account and risk and not with a view to any
sale, division or other distribution thereof within the meaning of the
Securities Act of 1933 as amended, nor with any present intention of
distributing or selling such shares.
Very truly yours,
/s/ OMAR S. RIVERO
------------------
Omar S. Rivero
ACCEPTED:
iMillennium Capital Trust
By: /S/ MICHAEL WAGNER
------------------------
Michael Wagner, Treasurer
