AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON August
29, 2000
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [ ]
(Check appropriate box or boxes)
GRAHAM & CO. FUNDS INC.
(Exact name of Registrant as specified in charter)
1700 WEST KATELLA, 2ND FLOOR , ORANGE, CA 92867
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 628-
5200
GRAHAM & CO. FUNDS, INC. C/O
MDR RESIDENT AGENTS, INC.
343 N. CHARLES STREET
BALTIMORE, MARYLAND 21201
(Name and Address of Agent for Service)
Copies to:
Counsel for the Fund:
Gerald Wolfe, Esq.
LAW IN PROGRESS, APC
2102 Business Center Drive
Irvine, CA 92612
(949)253-5750
(949)253-5753 facsimile
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the
Registration Statement.
TITLE OF SECURITIES BEING REGISTERED: Shares of Common Stock,
par value $0.0001 per share.
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 said Section 8(a), may determine.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 29, 2000
Graham & Co. Funds, Inc.
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE
INVESTING, INCLUDING INFORMATION ABOUT RISKS. PLEASE READ IT
BEFORE YOU INVEST AND KEEP IT FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS - AUGUST 29, 2000
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT USE THIS PROSPECTUS TO SELL SECURITIES UNTIL
THE REGISTRATION STATEMENT CONTAINING THIS PROSPECTUS, WHICH HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Document dated AUGUST 29, 2000
[OUTSIDE FRONT COVER]
PROSPECTUS
AUGUST 29, 2000
THE GRAHAM GROWTH COVERED CALL FUND
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
TABLE OF CONTENTS
SUMMARY 6
WHAT IS THE FUND? 6
WHAT IS THE FUND'S PRIMARY GOAL? 6
WHAT IS THE FUND'S MAIN STRATEGY? 6
WHAT ARE THE FUND'S MAIN RISKS? 7
WHO MAY WANT TO INVEST IN THE FUND? 8
RISK/RETURN BAR CHART AND TABLE 8
FEES AND EXPENSES OF THE FUND 8
SHAREHOLDER FEES 8
ANNUAL FUND OPERATING EXPENSES 9
MAIN STRATEGY 10
OTHER STRATEGIES 11
MAIN RISKS 12
MANAGEMENT OF THE FUND 13
INVESTMENT ADVISER 13
PORTFOLIO MANAGER 14
DISTRIBUTION PLAN 14
YOUR INVESTMENT 14
HOW TO BUY SHARES 14
HOW TO SELL SHARES 18
TRANSACTION POLICIES 19
SHAREHOLDER SERVICES 21
DISTRIBUTIONS AND TAXES 22
ADDITIONAL INFORMATION 24
Shareholder Reports: 24
Statement of Additional Information (SAI): 24
THE GRAHAM & CO. GROWTH COVERED CALL FUND
SUMMARY
WHAT IS THE FUND?
The GRAHAM & CO. GROWTH COVERED CALL FUND (the "Fund") is the
first of a diversified series of Graham & Co. Funds, Inc., an
open-end management investment company, commonly known as a
mutual fund.
WHAT IS THE FUND'S PRIMARY GOAL?
The Fund's primary goal is to maximize realized gains from
writing covered options on some of the S&P 500 stocks. As with
any mutual fund, there is no guarantee that the Fund will achieve
its goal.
WHAT IS THE FUND'S MAIN STRATEGY?
The Fund's main strategy is to purchase the common shares of a
limited number of S&P 500 companies and to continually sell or
"write" the related covered call options against substantially
all the shares of stock it owns.
When the Fund purchases a stock, it simultaneously or at a later
time determined by the manager, writes covered call options on
the stock. The options written by the Fund are considered
"covered" because the Fund owns the stock against which the
options are written. As a result, the number of covered call
options the Fund can write against any particular stock is
limited by the number of shares of that stock the Fund holds.
To maximize premiums generated, Graham & Co. Funds, Inc. (the
"Adviser") writes as many covered call options on the stocks the
Fund owns as it sees fit for that time. The Adviser writes
options of the duration and strike price which provide the Fund
with the highest expected return. To assist the Adviser in
selecting which companies to buy, the Adviser utilizes, as a
guide the S&P 500 index.
The Options Clearing Corporation (the "OCC") sets option
expiration dates and strike prices, which depend on the range of
prices in the underlying stock's recent trading history. Option
periods usually range from 30 days to 120 days but can have
longer durations and when the range is one year or longer the
option is generally called a LEAP. Strike prices are set below,
equal to or above the current market price of the underlying
stock. The premium the Fund receives for writing an option will
depend on, among other things, the current market price of the
underlying security, the relationship of the strike price to the
market price, the historical price volatility of the underlying
security, the option period, supply and demand and interest
rates.
The Fund will typically hold no more than five hundred common
stocks as tracked by the S&P 500 , though this number and common
stock may fluctuate and not be necessarily included in the S&P
500, at the discretion of the Adviser. The issuers of stocks
selected for investment by the Fund will be based on the S&P 500
index, having market capitalizations and other statistics
representative of the S&P 500 and will tend to have most of the
following characteristics:
? Considered to be industry leaders
? Have strong financial fundamentals
? Are widely-held and have a high daily trading volume
The stocks selected will usually fall into the S&P 500 group of
stocks.
The Adviser generally seeks over time to maintain a balance of
the Fund's assets invested among the S&P 500. The specific
companies may differ from the S&P 500 and may or may not be
included in the Fund's portfolio.
WHAT ARE THE FUND'S MAIN RISKS?
As with any mutual fund, the value of the Fund's investments, and
therefore the value of the Fund's shares, will fluctuate. If the
net asset value of your shares declines below the price you paid,
you will lose money. The performance of the Fund may also vary
substantially from year to year. The principal risks associated
with an investment in the Fund include:
Risks of investing in stocks:
? stock market risk, or the risk that the price of the
securities owned by the Fund may fall due to changing
economic, political or market conditions
? selection risk, or the risk that the stocks selected by the
Fund will underperform the stock market as a whole or
certain sectors of the stock market
? risk of reduction in the amount of dividends a stock pays
Risks of writing covered call options:
? risk of limiting gains on stocks in a rising market
? risk of unanticipated exercise of the option
? lack of liquid options market
? decreases in option premiums, including but not limited to a
flat or declining market
Other risks:
? lack of liquidity in connection with purchases and sales of
portfolio securities
? payment to the Adviser of brokerage commissions on stocks
and options
? relatively higher cost of options trades
? taxable income to the investor
? forced liquidation of securities underlying the options
? limited prior operating history of the Fund, and of the
Adviser as a fund adviser
? adverse effects of year 2000 issues on the Fund
WHO MAY WANT TO INVEST IN THE FUND?
The Fund may be appropriate for you if you:
? are seeking to maximize short-term capital gains and are
willing to assume more risk to increase the level of those
gains
? can accept the risks of investing in a portfolio of S&P 500
related common stocks and their related options
? are seeking a disciplined and continual reinvestment of
premiums generated from writing options
? can tolerate performance which can vary substantially from
year to year
? are prepared to receive taxable distributions of income
? have a longer-term investment horizon
YOU SHOULD NOT INVEST IN THIS FUND IF YOU ARE SEEKING PREDICTABLE
LEVELS OF INCOME OR ARE INVESTING FOR A SHORT PERIOD OF TIME.
RISK/RETURN TABLE
Although past performance of a fund is no guarantee of how it
will perform in the future, historical performance may give you
some indication of the risks of investing in a mutual fund.
Performance demonstrates how a mutual fund's returns have varied
over time. The Fund is recently organized and therefore has no
performance history. Once the Fund has performance for at least
one calendar year, a Performance Table will be included in the
prospectus. The Fund's annual returns will also be compared to
the returns of a benchmark index, including the S&P 500.
FEES AND EXPENSES OF THE FUND
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY
IF YOU BUY AND HOLD SHARES OF THE FUND.
SHAREHOLDER FEES
(fees paid directly from your investment):
Class A
Maximum Sales Charge (Load) imposed on Purchases (as a percentage
of offering price)......4.75%*
Maximum Deferred Sales Charge (Load)..................... None
Maximum Sales Charge (Load) imposed on Reinvested Dividends.. None
Redemption Fees (as a percentage of amount redeemed)......... **
*Reduced to 2 3/4 for new accounts opened within the first
three months of the funds existence. .
**If you redeem your shares by wire transfer, the Fund's transfer
agent charges a fee (currently $15.00) for each wire redemption.
Purchases and redemptions not made directly through the Fund's
principal distributor may be made through broker-dealers,
financial advisors or other nominees who may charge a commission
or other transaction fee for their services.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Class
Management Fees .................................. 1.00
Distribution and Service (12b-1) Fees.. 0.25
Other Expenses........................................ 4%
-
---
Total Annual Fund Operating Expenses... 5.25%
====
* "Other Expenses" are based on the estimated expenses
that the Fund expects to incur in its initial fiscal year.
Expenses may be more in the first year due to the time associated
with gathering assets.
EXAMPLE
This example is designed so that you may 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;
? YOU REDEEM ALL OF YOUR SHARES AT THE END OF THE TIME
PERIODS;
? YOUR INVESTMENT HAS A HYPOTHETICAL 5% RETURN EACH YEAR;
? ALL DISTRIBUTIONS ARE REINVESTED; AND
? THE FUND'S OPERATING EXPENSES REMAIN THE SAME.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be approximately:
1 YEAR 3 YEARS
Class A.................. $682 $1207
MAIN STRATEGY
To generate option premiums, the Fund purchases certain common
stocks from the S&P 500 or related growth companies and
simultaneously or at a later time determined by the manager,
writes covered call options on these stocks. As the options the
Fund writes are exercised or expire, and the proceeds or
underlying stock become available for reinvestment or re-write
the covered calls, the Fund repeats the process. The
fundamentals of selling covered call options are as follows:
The Fund Sells the Option
Selling a call option is selling the right to an option buyer to
purchase a specified number of shares (normally 100 shares equals
one option contract) from the Fund, at a specified price (the
"strike price") on or before a specified date (the "expiration
date"). The call option is covered because the Fund owns, and has
segregated, the shares of stock on which the option is based.
This eliminates certain risks associated with selling uncovered,
or "naked" call options.
The Fund Collects a Premium
For the right to purchase the underlying stock, the buyer of a
call option pays a "premium" to the Fund. The premium is paid at
the time the option is sold, and is not refundable to the buyer,
regardless of what happens to the stock price. The fund collects
this money regardless.
If the Option is Exercised
The buyer of the option may elect to purchase the stock
(exercise, or "call" the option) at the strike price at any time
before the option expires. The Fund is then obligated to deliver
the shares at that price. Options can be exercised on or before
the expiration date if the market price of the stock exceeds the
strike price of the option. Generally, if the strike price plus
the option premium are higher than the price the Fund originally
paid to purchase the stock, the Fund will realize a gain on the
sale of the stock; if the strike price and premium are lower, the
Fund will realize a loss. By selling a covered call option, the
Fund foregoes the opportunity to benefit from an increase in
price of the underlying stock above the strike price.
If the Option Expires
If the market price of the stock does not exceed the strike
price, the call option will likely expire without being
exercised. The Fund keeps the premium and the stock. The Fund
then expects to sell new call options against those same shares
of stock. This process is repeated until: a) an option is
exercised, or b) the stock is sold because it no longer meets the
Adviser's investment criteria, a corporate event such as a merger
or reorganization has occurred or it is used to fund redemptions.
Other Features
The call options written by the Fund are listed for trading on
one or more domestic securities exchanges and are issued by the
OCC. If a dividend is declared on stock underlying a covered call
option written by the Fund, the dividend is still paid to the
Fund.
To decrease the risks of volatile or reduced premiums, the
Adviser seeks to select underlying common stocks of the S&P 500
index which have high trading volumes and relatively stable
prices and dividends in the Growth industry sector. To reduce
stock selection risk, the companies the Adviser selects from the
S&P 500 index generally are considered to be industry leaders and
to have strong financial fundamentals.
To reduce transaction costs and to avoid realizing capital gains
or losses on portfolio stocks, the Adviser seeks, when practical,
to hold portfolio stocks and to enter into closing purchase
transactions before call options the Fund writes are exercised.
It may be impractical in certain circumstances to effect such
closing purchase transactions in a timely or advantageous manner,
for example, if the option is exercised unexpectedly or if the
market for the option is illiquid.
TEMPORARY DEFENSIVE POSITION
The Fund may, from time to time, take a temporary defensive
position that is inconsistent with the Fund's principal
investment strategies in attempting to respond to adverse market,
economic, political or other conditions. When the Fund takes a
temporary defensive position, it may not achieve its stated
investment objective. A principal defensive investment position
would be the purchase of cash equivalents.
OTHER STRATEGIES
SECURED PUT OPTIONS
The Fund may also write secured put options either to earn
additional option premiums (anticipating that the price of the
underlying security will remain stable or rise during the option
period and the option will therefore not be exercised) or to
acquire the underlying security at a net cost below the current
value. Secured put option writing entails the Fund's sale of a
put option to a third party for a premium and the Fund's
concurrent deposit of liquid assets into a segregated account
equal to the option's strike price and totaled shares involved. A
put option gives the buyer the right to put (sell) the stock
underlying the option to the Fund at the strike price at any time
during a specified time period.
The Fund will only write secured put options in circumstances
where it desires to acquire the security underlying the option at
the strike price specified in the option and to earn additional
option premium. Put options written by the Fund are listed for
trading on one or more domestic securities exchanges and are
issued by the OCC.
When the Fund writes secured put options, it bears the risk of
loss if the value of the underlying stock declines below the
strike price. If the option is exercised, the Fund could incur a
loss if it is required to purchase the stock underlying the put
option at a price greater than the current market price of the
stock. While the Fund's gain on a put option is limited to the
interest earned on the liquid assets securing the put option plus
the premium received from the purchaser of the put option, the
Fund risks the entire loss in the value of the stock, potentially
to zero.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment
companies, including money market mutual funds. In making such
investments, the Fund seeks to acquire interests in portfolios of
securities that are more diversified or with more specialized
characteristics than in those that could be efficiently acquired
directly by the Fund. By investing in shares of other investment
companies, the Fund indirectly pays a portion of the operating
expenses and brokerage costs of such companies as well as its own
operating expenses.
MAIN RISKS
INVESTING IN EQUITY SECURITIES
Investing in equity securities includes the risks inherent in
investing in stocks and the stock market generally. The value of
securities in which the Fund invests, and therefore the Fund's
net asset value, will fluctuate due to economic, political and
market conditions. As with any mutual fund which invests in
equity securities, there is also the risk that the securities or
sectors selected by the Fund will underperform the stock market
or certain sectors of the market or that the amount of any
dividends paid on the securities will be reduced.
WRITING COVERED CALL OPTIONS
When the Fund writes covered call options, it foregoes the
opportunity to benefit from an increase in the value of the
underlying stock above the strike price, but continues to bear
the risk of a decline in the value of the underlying stock.
While the Fund receives a premium for writing the call option,
the price the Fund realizes from the sale of the stock upon
exercise of the option could be substantially below its
prevailing market price. The purchaser of the call option may
exercise the call at any time during the option period (the time
between when the call is written and when it expires).
Alternatively, if the value of the stock underlying the call
option is below the strike price, the call is not likely to be
exercised, and the Fund could have an unrealized loss on the
stock, offset by the amount of the premium received by the Fund
when it wrote the option.
There is no assurance that a liquid market will be available at
all times for the Fund to write call options or to enter into
closing purchase transactions. In addition, the premiums the
Fund receives for writing call options may decrease as a result
of a number of factors, including a reduction in interest rates
generally, a decline in stock market volumes or a decrease in the
price volatility of the underlying securities.
LACK OF LIQUIDITY
The Fund's investment strategy may result in a lack of liquidity
in connection with purchases and sales of portfolio securities.
Because the Adviser will seek generally to hold the underlying
stocks in the Fund's portfolio, the Fund may be less likely to
sell the existing stocks in its portfolio to take advantage of
new investment opportunities, and the cash available to the Fund
to purchase new stocks may consist primarily of proceeds received
from the sale of new Fund shares.
BROKERAGE COMMISSIONS
It is anticipated that the Fund will place substantially all of
its transactions, both in stocks and options, with the Adviser in
its capacity as a broker-dealer. As the level of option writing
increases, the level of commissions paid by the Fund to the
Adviser increases. Because the Adviser receives compensation
based on the amount of transactions completed, there is an
incentive on the part of the Adviser to effect as many
transactions as possible. While the Fund does not intend to
trade the stocks in its portfolio actively, it is in the interest
of the Fund to write as many options as possible, thereby
maximizing the premiums it receives. In practice, the number of
options written at any time will be limited to the value of the
stocks and other assets in the Fund's portfolio used to cover or
secure those options. Brokerage commissions are often greater in
relation to options premiums than in relation to the price of the
underlying stocks.
TAX CONSEQUENCES
The Fund expects to generate a high level of premiums. Income
from these premiums is typically in the form of short-term
capital gains and will usually be taxable as ordinary income to
the investor. Because the Fund will have no control over the
exercise of options, shareholder redemptions and corporate events
(such as mergers or reorganizations), it may be forced to realize
capital gains or losses at inopportune times.
LIMITED OPERATING HISTORY
The Fund has a limited operating history, as does the Adviser in
its capacity as an investment adviser for a mutual fund.
YEAR 2000 ISSUES
Like all mutual funds, the Fund's operations depend heavily on
the functioning of computer systems, including those used by its
Adviser, custodian, fund accounting agent, and transfer agent.
The failure of these computer systems to properly process data
containing dates occurring after December 31, 1999 (the "Year
2000 problem") could adversely affect the Fund. While the Adviser
and other service providers have advised the Fund that they are
taking steps they believe are reasonably designed to address the
Year 2000 problem, there is no assurance that these steps will be
sufficient. In addition, there is no assurance that the Year 2000
problem will not have an adverse effect on the companies whose
securities are held by the Fund or the securities markets and
their participants generally.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
B.B. Graham & Co., Inc. serves as the investment adviser to the
Fund and is responsible for the selection and ongoing monitoring
of the securities in the Fund's investment portfolio and for the
management of the Fund's business affairs. The Adviser is a
registered investment adviser and broker-dealer that was
established in 1997 by Bruce Edwin Graham, who is the principal
shareholder. The Adviser offers brokerage personalized services
to individual clients, trusts, corporations, and institutions
using the same investment strategy that the Fund employs. The
Adviser has not previously advised or managed a mutual fund. The
Adviser's principal address is 1700 West Katella Avenue, 2nd
floor, Orange CA 92867
The Fund pays the Adviser a monthly fee at the annual rate of
1.00% of the Fund's average daily net assets. The Adviser
reserves the right to terminate this undertaking at any time, in
its sole discretion. Any waiver or reimbursement by the Adviser
is subject to reimbursement by the Fund within the following
three years, to the extent such reimbursement by the Fund would
not cause total operating expenses to exceed any current expense
limitation.
PORTFOLIO MANAGER
The primary portfolio manager for the Fund is Bruce Edwin Graham.
Mr. Graham founded B.B. Graham & Co. in 1997 and currently serves
as Chairman of the Board, President and Chief Executive Officer.
With covered calls in mind Mr. Graham designed B.B. Graham & Co.
to be a brokerage firm that not only had the desire but the
ability to conduct specifically this type of trading. After
meeting with great success Mr. Graham is now focusing his efforts
on extending to the mutual fund market what he believes is the
best way to trade. Previously, Mr. Graham was a Vice-president
with Interfirst Capital, a Broker-Dealer, from 1995 to 1997.
DISTRIBUTION PLAN
The Fund has, on behalf of the Class A shares, an adopted plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended, that allow the Fund to pay distribution and service
fees for the sale and distribution of its shares and for services
provided to shareholders. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time, these fees will
increase the cost of your investment and may cost more than
paying other types of sales charges.
YOUR INVESTMENT
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers,
directly through the Adviser, or through the Automatic Investment
Plan. Shares of the Fund are offered only to residents of states
in which the shares are registered or qualified. No share
certificates will be issued in connection with the purchase of
Fund shares.
PURCHASE AMOUNTS
WITHIN THE FIRST 30 DAYS:
MINIMUM INITIAL INVESTMENT: $100
MINIMUM ADDITIONAL INVESTMENTS: $100 ($25 if using the automatic
investment plan)
MINIMUM INITIAL INVESTMENT: $100
MINIMUM ADDITIONAL INVESTMENTS: $100 ($25 if using the automatic
investment plan)
Classes
The Fund offers at this time only Class A shares.
Class A Shares
Sales of Class A shares of the Fund include a front-end sales
charge (expressed as a percentage of the offering price) as shown
in the following table:
Front-End
Sales Charge
--------------------------------------
-----------------
Approximate
Percentage of
Percentage of Dealer
Amount of Transaction Offering Price Amount
Invested Concession
-----------------------------------------------------------------
-----------------
All amounts 4.75% 4.99% 4.25%
Shares acquired as a result of reinvestment of distributions will
not be subject to any sales charge. Class A shares are subject
to a 12b-1 fee of 0.25%, payable to the Broker of Record.
The fund may pay a dealer concession to those selected dealers
who have entered into an agreement with the fund. The dealer's
concession may be changed from time to time. The fund may from
time to time offer incentive compensation to dealers which sell
shares of the Fund subject to sales charges, allowing such
dealers to retain an additional portion of the sales charge.
Currently, dealers receive the concession set forth in the table
above, as well as the 12b-1 fee. On some occasions, such
incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of the Fund during a
specified period of time. A dealer who receives all or
substantially all of the sales charge may be considered an
"underwriter" under the Securities Act of 1933, as amended. All
such sales charges are paid to the securities dealer involved in
the trade, if any.
Reduced Sales Charges
The sales charge for purchases of Class A shares of the Fund may
be reduced for a single purchaser through a Right of Accumulation
or a Letter of Intent. To qualify for a reduced sales charge, you
must notify your dealer, Graham & Co. Funds, Inc. or the Fund.
The term "single purchaser" refers to (i) an individual, (ii) an
individual and spouse purchasing shares of the Fund for their own
account or for trust or custodial accounts of their minor
children, or (iii) a fiduciary purchasing for any one trust,
estate or fiduciary account, including employee benefit plans of
a single employer.
Right of Accumulation
If you already hold Class A shares of the Fund, a reduced sales
charge based on the sales charge schedule for Class A shares may
apply to subsequent purchases. The sales charge on each
additional purchase is determined by adding the current market
value of the shares you currently own to the amount being
invested. The reduced sales charge is applicable only to current
purchases. It is your responsibility to notify Graham & Co.
Funds, Inc. at the time of subsequent purchases that the purchase
is eligible for the reduced sales charge under the Right of
Accumulation. You must also give the account numbers of your
accounts, and of those accounts held in the name of your spouse
or for minor children, the age of such children and the specific
relationship of each such person.
Letter of Intent
You may qualify for a reduced sales charge immediately by
signing a non-binding Letter of Intent stating your intention to
invest during the next 13 months a specified amount which, if
made at one time, would qualify for a reduced sales charge. The
first investment cannot be made more than 90 days prior to the
date of the Letter of Intent. Any redemptions made during the 13-
month period will be subtracted from the amount of purchases in
determining whether the Letter of Intent has been satisfied.
During the term of the Letter of Intent, Graham & Co. Funds, Inc.
will hold shares representing 5% of the indicated amount in
escrow for payment of a higher sales charge if the full amount
indicated in the Letter of Intent is not purchased. The escrowed
shares will be released when the full amount indicated has been
purchased. If the full amount indicated is not purchased within
the 13-month period, your escrowed shares will be redeemed in an
amount equal to the difference in the dollar amount of sales
charge actually paid and the amount of sales charge you would
have had to pay on your aggregate purchases if the total of such
purchases had been made at a single time. It is your
responsibility to notify Graham & Co. Funds, Inc. at the time the
Letter of Intent is submitted that there are prior purchases that
may apply.
Sales at Net Asset Value
The Fund may sell Class A shares at net asset value (i.e.,
without any initial sales charge) to certain categories of
investors, including:(1) investment advisory clients of the
Adviser or its affiliates; (2) officers and present or former
Trustees/Directors of the Fund; directors and full-time employees
of selected dealers or agents; the spouse, sibling, direct
ancestor or direct descendant (collectively "relatives") of any
such person; any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative; if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (3) the Adviser and its affiliates
and certain employee benefit plans for employees of the Adviser;
(4) employer sponsored qualified pension or profit-sharing plans
(including Section 401(k) plans),custodial accounts maintained
pursuant to Section 403(b)(7), retirement plans and individual
retirement accounts (including individual retirement accounts to
which simplified employee pension ("SEP") contributions are
made), if such plans or accounts are established or administered
under programs sponsored by administrators or other persons that
have been approved by the Adviser; (5) fee-based financial
planners and registered investment advisors who are purchasing on
behalf of their clients; (6) broker-dealers who have entered into
selling agreements with the Adviser for their proprietary
accounts; and (7) participants in no-transaction-fee programs of
brokers that maintain an omnibus account with the Fund.
TO OPEN AN ACCOUNT
BY MAIL
- Complete the application.
- Mail the application and your check to:
Graham & Co. Funds
1700 W. Katella Ave
2nd Floor
Orange CA 92867
- Please make check payable to "Graham & Co. Growth Covered Call
Fund."
- Please make sure your check is for at least $100.
BY WIRE
- To make a same-day wire investment, call toll-free [ADS #] by
4:00 p.m. Eastern time. An account number will be assigned to
you.
- Call your bank with instructions to transmit funds to:
[ADS address]
- Your bank may charge a wire fee. Please make sure your wire is
for at least $1,000. Mail your completed application to Graham &
Co. Funds, Inc. at the address under "To Open an Account - By
Mail".
TO ADD TO AN ACCOUNT
BY MAIL
Fill out an investment slip from a previous confirmation and
write your account number on your check. Mail the slip and your
check to:
Graham & Co. Funds
1700 W. Katella Ave
2nd Floor
Orange CA 92867
- Please make check payable to "Graham & Co.Growth Covered Call
Fund."
- Please make sure your additional investment is for at least
$100.
BY WIRE
- Call toll-free [ADS number]. The wire must be received by 4:00
p.m. Eastern time for same day processing.
- Follow the instructions under "To Open an Account - By Wire."
Your bank may charge a wire fee. Please make sure your wire is
for at least $1000.
Automatic Investment Plan
Once an account has been opened, you can make additional
purchases of shares of the Fund through an automatic investment
plan. The automatic investment plan provides a convenient method
to have monies deducted directly from your bank account for
investment in the Fund. You may authorize the automatic
withdrawal of funds from your bank account for any amount. The
Fund may alter, modify or terminate this plan at any time. To
begin participating in this plan, please complete the Automatic
Investment Plan Section found on the application or contact the
Fund at [ADS number].
PURCHASE PRICE
Class A shares are sold at the offering price which is the NAV
next determined after the request is received in good order plus
a sales charge of up to 4.75%.
RIGHTS RESERVED BY THE FUND
The Fund reserves the right to:
? reject any purchase order
? suspend the offering of shares
? vary the initial and subsequent investment minimums
? waive the minimum investment requirement for any investor
HOW TO SELL SHARES
GENERAL
You may "redeem", that is, sell your shares on any day the New
York Stock Exchange is open, either directly through the Adviser
or through your broker-dealer. The price you receive will be the
NAV next calculated after receipt of the request in good order by
Graham & Co. Funds, Inc.
BY MAIL
To redeem your shares by mail, write a letter of
instruction that includes:
1) The name of the Fund,
2) Your account number,
3) The name(s) in which the account is registered,
4) The class of shares and
5) The dollar value or number of shares you wish to sell.
6) Include all signatures and any additional documents
that may be required.
7) Mail your request to:
Graham & Co. Funds
1700 W. Katella Ave
2nd Floor
Orange CA 92867
8) A check will be mailed to the name(s) and address
in which the account is registered within seven days.
BY TELEPHONE
Call toll-free [ADS number]. The proceeds will be paid to the
registered owner: (1) by mail at the address on the account, or
(2) by wire to the bank account designated on the form. To use
the telephone redemption privilege, you must have selected this
service on your original account application or submitted a
subsequent request in writing to add this service to your
account. The Fund and Graham & Co. Funds, Inc. reserve the right
to refuse any telephone transaction when they are unable to
confirm to their satisfaction that a caller is the account owner
or a person preauthorized by the account owner. Graham & Co.
Funds, Inc. has established security procedures to prevent
unauthorized account access. The telephone transaction privilege
may be suspended, limited, modified or terminated at any time
without prior notice by the Fund or Graham & Co. Funds, Inc..
Neither the Fund nor any of its service contractors will be
liable for any loss or expense in acting upon telephone
instructions that are reasonably believed to be genuine.
BY WIRE
In the case of redemption proceeds that are wired to a bank, the
Fund will transmit the payment only on days that commercial banks
are open for business and only to the bank and account previously
authorized on your application or your signature-guaranteed
letter of instruction. The Fund and Graham & Co. Funds, Inc. will
not be responsible for any delays in wired redemption proceeds
due to heavy wire traffic over the Federal Reserve System. The
Fund reserves the right to refuse a wire redemption if it is
believed advisable to do so. If you redeem your shares by wire
transfer, Graham & Co. Funds, Inc. charges a fee (currently
$15.00) for each wire redemption.
SELLING RECENTLY PURCHASED SHARES
If you wish to sell shares that were recently purchased by check,
the Fund may delay mailing your redemption check for up to 15
business days after your redemption request to allow the purchase
check to clear.
TRANSACTION POLICIES
TIMING OF PURCHASE OR SALE REQUESTS
All requests received in good order by Graham & Co. Funds, Inc.
before the close of the New York Stock Exchange ("NYSE"),
typically generally by 11:00 a.m. PST, will be executed the same
day, at that day's NAV. Orders received after the close of the
NYSE will be executed the following day, at that day's NAV. All
investments must be in U.S. dollars. Purchase and redemption
orders are executed only on days when the NYSE is open for
trading. If the NYSE closes early, the deadlines for purchase and
redemption orders will be accelerated to the earlier closing
time.
STOCK EXCHANGE CLOSINGS
The NYSE is typically closed for trading on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas.
DETERMINATION OF NAV
The NAV for the Fund is calculated at the close of regular
trading hours of the NYSE, which is normally 4:00 p.m. Eastern
time. The Fund calculates NAV by adding up the total value of the
Fund's investments and other assets, subtracting liabilities, and
then dividing that figure by the number of the Fund's outstanding
shares. The Fund's investments are valued based on market value,
or where market quotations are not readily available, on fair
value as determined in good faith by or at the direction of the
Fund's Trustees/Directors.
INVESTMENTS THROUGH NOMINEES
If you invest through a nominee, such as a broker-dealer or
financial advisor (rather than directly), the policies and fees
may be different than those described here. Nominees may charge
transaction fees and set different minimum investments or
limitations on buying or selling shares. It is the responsibility
of the nominee to promptly forward purchase or redemption orders
and payments to the Fund. You will not be charged fees if you
redeem Class A shares of the Fund directly through the Fund's
principal distributor, B.B. Graham & Co. Inc.
REDEMPTION POLICIES
Payment for redemptions of Fund shares is usually made within one
business day, but not later than seven calendar days after
receipt of your redemption request, unless the check used to
purchase the shares has not yet cleared. The Fund may suspend the
right of redemption or postpone the date of payment for more than
seven days during any period when (1) trading on the NYSE is
restricted or the NYSE is closed for other than customary
weekends and holidays, (2) the Securities and Exchange Commission
("SEC") has by order permitted such suspension for the protection
of the Fund's shareholders, or (3) an emergency exists making
disposal of portfolio securities or valuation of net assets of
the Fund not reasonably practicable. The Fund will automatically
redeem shares if a purchase check is returned for insufficient
funds. The Fund reserves the right to reject any third party
check. The Fund reserves the right to make a "redemption in kind"
payment in portfolio securities rather than cash if the amount
you are redeeming is large enough to affect fund operations.
Large redemptions are considered to exceed $250,000 or 1% of the
Fund's assets.
ACCOUNT MINIMUM
It is suggested you keep at least $100 worth of shares in your
account to keep the account open. If, after giving you thirty
days prior written notice, your account value is still below $100
we may redeem your shares and send you a check for the redemption
proceeds.
SIGNATURE GUARANTEES
The Fund may require additional documentation, or signature
guarantees, on any redemption over $10,000 in value or for the
redemption of corporate, partnership or fiduciary accounts, or
for certain types of transfer requests or account registration
changes. A signature guarantee helps protect against fraud. You
can obtain one from most banks or securities dealers, but not
from a notary public. Please call toll-free at [ADS number] for
information on obtaining a signature guarantee.
OTHER DOCUMENTS
Additional documents may be required for purchases and
redemptions when shares are registered in the name of a
corporation, partnership, association, agent, fiduciary, trust,
estate or other organization. For further information, please
call Graham & Co. Funds, Inc. toll-free at [ADS number].
SHAREHOLDER SERVICES
TELEPHONE INFORMATION
Your Account: If you have questions about your
account, including purchases, redemptions and distributions, call
Graham & Co. Funds, Inc. from Monday through Friday, 9:00 a.m. to
5:00 p.m., Eastern time. Call toll-free [ADS number].
The Fund: If you have questions about the Fund,
call the Fund's telephone representatives Monday through Friday,
9:00 a.m. to 5:00 p.m., Pacific time. Call toll-free [ADS
number].
ACCOUNT STATEMENTS
The Fund provides you with these helpful services and information
about your account:
- a statement after every transaction;
- an annual account statement reflecting all
transactions for the year;
- tax information which will be mailed by January
31 of each year, a copy of which will also be filed with the
Internal Revenue Service, if necessary; and
- financial statements with a summary of
portfolio composition and performance will be mailed at least
once a year.
The Fund provides the above shareholder services without charge,
but may charge for special services such as requests for
historical transcripts of accounts.
INTEGRATED VOICE RESPONSE SYSTEM
You may obtain access to account information by calling toll-free
[number]. The system provides share price and price change
information for the Fund and gives account balances and
information on the most recent transactions and allows sales of
shares.
SYSTEMATIC WITHDRAWAL PLAN
Once you have established an account with $5,000 or more, you may
automatically receive funds from your account on a monthly,
quarterly or semi-annual basis (minimum withdrawal of $100). Call
toll-free at [ADS number] to request a form to start the
Systematic Withdrawal Plan.
RETIREMENT PLANS
Shares of the Fund are available for purchase through individual
retirement accounts ("IRAs") and other retirement plans. An IRA
application and further details about the procedures to be
followed by IRAs and other retirement plans are available by
calling the Advisor toll-free at [ADS number].
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund passes along to your account your share of investment
earnings in the form of dividends and distributions. The Fund
will distribute at least annually any net realized long-term
capital gains obtained through Fund investment transactions. The
Fund will pay monthly distributions from net investment income
and any net realized short-term capital gain. Net investment
income consists of dividends and interest accrued on portfolio
investments less accrued expenses.
Under limited circumstances, certain distributions from the Fund
may be treated as a return of capital. If your distributions are
reinvested, you are largely unaffected by such returns of
capital. If you received your distributions in cash, a return of
capital is equivalent to a partial redemption of your investment.
Unless you elect otherwise, all dividends and distributions paid
by the Fund will be reinvested in additional shares of the Fund.
They will be credited to your account in the Fund at the same NAV
per share as would apply to cash purchases on the applicable
dividend payment date. All distributions the Fund pays to you
will be taxable when paid, regardless of whether they are taken
in cash or reinvested in shares of the Fund. To change your
dividend election, you must notify Graham & Co. Funds, Inc. in
writing at least fifteen days prior to the applicable dividend
record date.
TAXES
The Fund intends to qualify as a regulated investment company.
This status exempts the Fund from paying federal income tax on
the income or capital gains it distributes to its shareholders.
Your investment in the Fund will be subject to the following tax
consequences:
? Dividends from net investment income and distributions from
short-term capital gains are taxable as ordinary income
? Distributions from long-term capital gains, if any, are
taxable as long-term capital gain
? Dividends and distributions may also be subject to state and
local taxes
? Certain dividends paid to you in January will be taxable as
if they had been paid the previous December
If you purchase shares shortly before a record date for a
dividend or distribution, a portion of your investment will be
returned as a taxable distribution.
The tax consequences of the Fund's distributions depends upon the
length of time the Fund holds its assets. Due to the nature of
the Fund's principal investment strategy, the Fund anticipates
that a majority of its distributions will be in the form of
ordinary income. The Fund may at times realize short-term capital
gains on some portfolio securities, while at the same time
seeking to avoid realizing losses on other securities held in the
portfolio. As a result, the Fund's shareholders may receive
taxable distributions from a net realized short-term capital gain
at times when the Fund has unrealized losses in its portfolio
which could have been used to offset such gain. Similarly, the
Fund may at times continue to pay taxable distributions from a
new realized short-term gain which could have been retained by
the Fund and offset by a capital loss carryforward available to
the Fund.
The Fund will generally realize short-term capital gain (or loss)
on a closing purchase transaction with respect to a call or put
previously written by the Fund if the premium, plus commission
costs, paid to purchase the call or put is less (or greater) than
the premium, less commission costs, received on the sale of the
call or put. A short-term capital gain also will be realized if a
call or put which the Fund has written lapses unexercised,
because the Fund would retain the premium. If a call option which
the Fund has written on any equity security is exercised, the
Fund realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased
by the premium originally received. If a put option which the
Fund has written on an equity security is exercised, the amount
of the premium originally received will reduce the cost of the
security which the Fund purchases upon exercise of the option.
You must provide the Fund with your correct taxpayer
identification number and certify that you are not subject to
backup withholding. If you do not, the Fund will be required to
withhold 31% of your taxable distributions and redemptions.
After the end of each calendar year, you will receive a statement
(Form 1099) of the federal income tax status of the Fund's
dividends and other distributions paid during the year. You
should keep all of your Fund statements for accurate tax-
accounting purposes.
You should consult your tax advisor concerning federal, state and
local taxation of Fund dividends and distributions in your
particular circumstances.
[OUTSIDE BACK COVER]
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING AGENT
[ADS]
CUSTODIAN
B.B. Graham & Co, Inc.
1700 W. Katella Ave
2nd Floor
Orange CA 92867
COUNSEL
Gerald L. Wolfe, Esq.
Law In Progress, A Professional Corporation
2102 Business Center Drive
Irvine Ca 92612
INDEPENDENT ACCOUNTANTS
[PRESENTLY UNKNOWN]
ADDITIONAL INFORMATION
Shareholder Reports:
Additional information about the Fund's investments will be
available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, a discussion of the
market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year will
be included.
Statement of Additional Information (SAI):
The SAI contains additional information about the Fund. It is
incorporated by reference into this prospectus.
To request a free copy of the current annual report, semi-annual
report or SAI, or to request other information about the Fund,
please write or call:
B.B. Graham & Co. Inc. or
[ADS ADDRESS]
1700 W. Katella Ave
2nd Floor
Orange CA 92867
Information about the Fund (including the SAI) may be obtained in
person at the SEC's Public Reference Room in Washington, DC. Call
(800) SEC-0330 for information on the operation of the Public
Reference Room. You may also request copies by mail by sending
your request, along with a duplicating fee, to the SEC's Public
Reference Room, Washington, DC 20549-6009. You may also visit the
SEC's Internet site (www.sec.gov) to view reports and other
information about the Fund.
The Fund's SEC file number: [number].
To Learn More
SHAREHOLDER REPORTS
Additional information about the Fund's investments will be
available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report you will find a
discussion of the relevant market conditions and investment
strategies that significantly affected the Fund's performance
during its last fiscal year. You may obtain these reports at no
cost by calling [ADS number].
If you hold your Fund shares through a brokerage account or
directly at the Transfer Agent, you may receive only one copy of
each shareholder report and certain other mailings regardless of
the number of Fund accounts you have. If you prefer to receive
separate shareholder reports for each account (or if you are
receiving multiple copies and prefer to receive only one), call
your financial consultant or write to the Transfer Agent at its
mailing address. Include your name, address, tax identification
number and brokerage or mutual fund account number. If you have
any questions, please call your financial consultant or the
Transfer Agent at [number].
STATEMENT OF ADDITIONAL INFORMATION
The Fund's Statement of Additional Information contains further
information about the Fund and is incorporated by reference
(legally considered to be part of this Prospectus). You may
request a free copy by writing or calling the Fund at Graham &
Co. Funds, Inc., 1700 W. Katella Ave., 2nd Floor, Orange CA 92867
or by calling (714) 628-5200.
Contact your financial consultant or the Fund at the telephone
number or address indicated on the inside back cover of this
Prospectus if you have any questions.
Information about the Fund (including the Statement of
Additional Information) can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330
for information on the operation of the public reference room.
This information is also available on the SEC's Internet Site at
http://www.sec.gov and copies may be obtained upon payment of a
duplicating fee by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NO ONE IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM THE INFORMATION IN THIS PROSPECTUS.
Graham & Co. Funds, Inc.
PROSPECTUS - August 29, 2000
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION
IS NOT COMPLETE AND MAY BE CHANGED. THIS STATEMENT OF ADDITIONAL
INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED August
29, 2000
STATEMENT OF ADDITIONAL INFORMATION
GRAHAM & CO. FUNDS, INC.
1700 W. Katella 2nd Floor Orange, CA 92867 - Phone 714-628-5200
The GRAHAM & CO. GROWTH COVERED CALL FUND (the "Fund") is
the first of a diversified series of Graham & Co. Funds, Inc.,
an open-end management investment company, commonly known as a
mutual fund.
The Fund's primary goal is to maximize realized gains from
writing covered options on some of the S&P 500 stocks. As with
any mutual fund, there is no guarantee that the Fund will
achieve its goal. The Fund's main strategy is to purchase the
common stocks of a limited number of S&P 500 companies and to
continually sell or "write" the related covered call options
against substantially all the shares of stock it owns.
To maximize premiums generated, Graham & Co. Funds, Inc. (the
"Adviser") writes as many covered call options on the stocks the
Fund owns as it sees fit for that time. The Adviser writes
options of the duration and strike price which provide the Fund
with the highest expected return. To assist the Adviser in
selecting which companies to buy, the Adviser utilizes, as a
guide, the S&P 500 index.
No assurance can be given that the investment objective of the
Fund will be realized. For more information on the Fund's
investment objective and policies, see Prospectus.
At the present time, The Fund offers one class of shares, each
with a combination of sales charges, ongoing fees and other
features. See "Purchase of Shares."
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Prospectus of the
Fund, dated August 29, 2000 (the "Prospectus"), which has been
filed with the Securities and Exchange Commission (the
"Commission") and can be obtained, without charge, by calling
[number] or your financial consultant, or by writing to the
address listed above. The Prospectus is incorporated by
reference into this Statement of Additional Information, and
this Statement of Additional Information is incorporated by
reference into the Prospectus.
Graham & Co. Funds, Inc. -- MANAGER
B.B. Graham & Co., Inc. -- DISTRIBUTOR
The date of this Statement of Additional Information is August
29, 2000
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES 3
GROWTH SECURITIES 3
DERIVATIVES 3
OTHER INVESTMENT POLICIES AND PRACTICES 7
INVESTMENT RESTRICTIONS 9
PORTFOLIO TURNOVER 12
MANAGEMENT OF THE FUND 12
DIRECTORS AND OFFICERS 13
COMPENSATION OF DIRECTORS 13
MANAGEMENT AND ADVISORY ARRANGEMENTS 13
CODE OF ETHICS 14
PURCHASE OF SHARES 15
INITIAL SALES CHARGE MODEL -- CLASS A SHARES 15
REDUCED INITIAL SALES CHARGES 16
DISTRIBUTION PLANS 16
REDEMPTION OF SHARES 17
REDEMPTION 18
REPURCHASE 18
REINSTATEMENT PRIVILEGE -- CLASS A SHARES 19
PRICING OF SHARES 19
DETERMINATION OF NET ASSET VALUE 19
PORTFOLIO TRANSACTIONS AND BROKERAGE 20
TRANSACTIONS IN PORTFOLIO SECURITIES 20
DIVIDENDS AND TAXES 23
DIVIDENDS 23
TAXES 24
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE
TRANSACTIONS 25
PERFORMANCE DATA 26
GENERAL INFORMATION 27
DESCRIPTION OF SHARES 27
COMPUTATION OF OFFERING PRICE PER SHARE 28
INDEPENDENT AUDITORS 28
CUSTODIAN 28
TRANSFER AGENT 29
LEGAL COUNSEL 29
REPORTS TO SHAREHOLDERS 29
SHAREHOLDER INQUIRIES 29
ADDITIONAL INFORMATION 29
INDEPENDENT AUDITORS' REPORT 29
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term
capital appreciation. The Fund, a diversified fund, tries to
achieve its investment objective by investing primarily in the
common shares of the S&P 500 family of companies and then
writing covered calls on such companies. Fund management begins
its investment process by creating a universe of rapidly growing
companies that possess certain growth characteristics. That
universe is continually updated. Fund management then ranks each
company within its universe by using research models that focus
on growth characteristics such as positive earnings surprises,
upward earnings estimate revisions, accelerating sales and
earnings growth and the companies cooperation with various
technical indicators. Finally, using its own basic fundamental
research and a bottom-up approach to investing, fund management
evaluates the quality of each company. Fund management believes
that this disciplined investment process enables it to construct
a portfolio of investments with strong growth characteristics.
The Fund is classified as a diversified fund under the
Investment Company Act of 1940, as amended (the "Investment
Company Act").
There can be no assurance that the investment objective of the
Fund will be realized. The investment objective of the Fund is a
fundamental policy of the Fund and may not be changed without
the approval of a majority of the Fund's outstanding voting
securities as defined in the Investment Company Act. Reference
is made to the discussion under "How the Fund Invests" and
"Investment Risks" in the Prospectus for information with
respect to the Fund's investment objective and policies.
Investment emphasis is placed on equities in the S&P 500 and
using covered calls Normally, the Fund will invest in the common
stocks of not less than 5 companies. The Fund may invest in
companies of any size but emphasizes equity securities of
companies having stock market capitalizations in line and
comparable to companies in the S&P 500.
The Fund may hold assets in cash or cash equivalents and
investment grade, short term securities, including money market
securities, in such proportions as, in the opinion of Fund
management, prevailing market or economic conditions warrant or
for temporary defensive purposes.
GROWTH SECURITIES
As set forth this Prospectus and the Statement of Additional
Information, the investment objective of the Fund is to seek
long-term capital appreciation and income from writing covered
calls. The Fund, a diversified fund, tries to achieve its
investment objective by investing primarily in common stocks of
S&P 500 representative companies that Fund management believes
have strong earnings growth and capital appreciation potential.
These "growth securities" may be particularly sensitive to
changes in earnings or interest rate increases because they
typically have higher price-earnings ratios. Moreover, the
growth securities held by the Fund may never reach what Fund
management believes their full value to be and may even go down
in price.
DERIVATIVES
The Fund may use instruments referred to as "Derivatives."
Derivatives are financial instruments the value of which is
derived from another security, a commodity (such as gold or oil)
or an index (a measure of value or rates, such as the Standard &
Poor's 500 Index or the prime lending rate). Derivatives allow
the Fund to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions
in other types of instruments.
Hedging. The Fund may use Derivatives for hedging purposes.
Hedging is a strategy in which a Derivative is used to offset
the risk that other Fund holdings may decrease in value. Losses
on the other investment may be substantially reduced by gains on
a Derivative that reacts in an opposite manner to market
movements. While hedging can reduce losses, it can also reduce
or eliminate gains if the market moves in a different manner
than anticipated by the Fund investing in the Derivative or if
the cost of the Derivative outweighs the benefit of the hedge.
Hedging also involves the risk that changes in the value of the
Derivative will not match those of the holdings being hedged as
expected by the Fund, in which case any losses on the holdings
being hedged may not be reduced. The Fund is not required to use
hedging and may choose not to do so.
The Fund may use the following types of derivative instruments
and trading strategies:
Indexed Securities
The Fund may invest in securities the potential return of
which is based on an index. As an illustration, the Fund may
invest in a debt security that pays interest based on the
current value of an interest rate index, such as the prime rate.
The Fund may also invest in a debt security which returns
principal at maturity based on the level of a securities index
or a basket of securities, or based on the relative changes of
two indices. Indexed securities involve credit risk, and certain
indexed securities may involve leverage risk, liquidity risk,
and currency risk. The Fund may invest in indexed securities for
hedging purposes only. When used for hedging purposes, indexed
securities involve correlation risk.
Options on Securities and Securities Indices
Purchasing Put Options. The Fund may purchase put options on
securities held in its portfolio or on securities or interest
rate indices which are correlated with securities held in its
portfolio. When the Fund purchases a put option in consideration
for an up front payment (the "option premium"), the Fund
acquires a right to sell to another party specified securities
owned by the Fund at a specified price (the "strike price") on
or before a specified date (the "expiration date"), in the case
of an option on securities, or to receive from another party a
payment based on the amount a specified securities index
declines below a specified level on or before the expiration
date, in the case of an option on a securities index. The
purchase of a put option limits the Fund's risk of loss in the
event of a decline in the market value of the portfolio holdings
underlying the put option prior to the option's expiration date.
If the market value of the portfolio holdings associated with
the put option increases rather than decreases, however, the
Fund will lose the option premium and will consequently realize
a lower return on the portfolio holdings than would have been
realized without the purchase of the put. Purchasing a put
option may involve correlation risk, and may also involve
liquidity and credit risk.
Purchasing Call Options. The Fund also may purchase call
options on securities it intends to purchase or securities or
interest rate indices, which are correlated with the types of
securities it intends to purchase. When the Fund purchases a
call option in consideration for the option premium, the Fund
acquires a right to purchase from another party specified
securities at the strike price on or before the expiration date,
in the case of an option on securities, or to receive from
another party a payment based on the amount a specified
securities index increases beyond a specified level on or before
the expiration date, in the case of an option on a securities
index. The purchase of a call option may protect the Fund from
having to pay more for a security as a consequence of increases
in the market value for the security during a period when the
Fund is contemplating its purchase, in the case of an option on
a security, or attempting to identify specific securities in
which to invest in a market the Fund believes to be attractive,
in the case of an option on an index (an "anticipatory hedge").
In the event the Fund determines not to purchase a security
underlying a call option, however, the Fund may lose the entire
option premium. Purchasing a call option involves correlation
risk, and may also involve liquidity and credit risk.
The Fund also is authorized to purchase put or call options in
connection with closing out put or call options it has
previously sold.
Writing Call Options. The Fund's main investment purpose is
to write (i.e., sell) call options on securities held in its
portfolio or securities indices the performance of which
correlates with securities held in its portfolio. When the Fund
writes a call option, in return for an option premium, the Fund
gives another party the right to buy specified securities owned
by the Fund at the strike price on or before the expiration
date, in the case of an option on securities, or agrees to pay
to another party an amount based on any gain in a specified
securities index beyond a specified level on or before the
expiration date, in the case of an option on a securities index.
The Fund may write call options to earn income, through the
receipt of option premiums. In the event the party to which the
Fund has written an option fails to exercise its rights under
the option because the value of the underlying securities is
less than the exercise price, the Fund will partially offset any
decline in the value of the underlying securities through the
receipt of the option premium. By writing a call option,
however, the Fund limits its ability to sell the underlying
securities and gives up the opportunity to profit from any
increase in the value of the underlying securities beyond the
strike price, while the option remains outstanding. Writing a
call option may involve correlation risk.
Secured Put Options. The Fund may also write secured put
options either to earn additional option premiums (anticipating
that the price of the underlying security will remain stable or
rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost
below the current value. Secured put option writing entails the
Fund's sale of a put option to a third party for a premium and
the Fund's concurrent deposit of liquid assets into a segregated
account equal to the option's exercise price. A put option gives
the buyer the right to put (sell) the stock underlying the option
to the Fund at the exercise price at any time during a specified
time period.
The Fund will only write secured put options in circumstances
where it desires to acquire the security underlying the option at
the exercise price specified in the option. Put options written
by the Fund are listed for trading on one or more domestic
securities exchanges and are issued by the OCC.
When the Fund writes secured put options, it bears the risk of
loss if the value of the underlying stock declines below the
exercise price. If the option is exercised, the Fund could incur
a loss if it is required to purchase the stock underlying the put
option at a price significantly greater than the current market
price of the stock. While the Fund's gain on a put option is
limited to the interest earned on the liquid assets securing the
put option plus the premium received from the purchaser of the
put option, the Fund risks the entire loss in the value of the
stock, potentially to zero.
Investments In Other Investment Companies: The Fund may invest
in the securities of other investment companies, including money
market mutual funds. In making such investments, the Fund seeks
to acquire interests in portfolios of securities that are more
diversified or with more specialized characteristics than in
those that could be efficiently acquired directly by the Fund. By
investing in shares of other investment companies, the Fund
indirectly pays a portion of the operating expenses and brokerage
costs of such companies as well as its own operating expenses.
The Fund also is authorized to sell call or put options in
connection with closing out call or put options it has
previously purchased.
Other than with respect to closing transactions, the Fund will
only write call or put options that are "covered." A call or put
option will be considered covered if the Fund has segregated
assets with respect to such option in the manner described in
"Risk Factors in Derivatives" below. A call option will also be
considered covered if the Fund owns the securities it would be
required to deliver upon exercise of the option (or, in the case
of an option on a securities index, securities which
substantially correlate with the performance of such index) or
owns a call option, warrant or convertible instrument which is
immediately exercisable for, or convertible into, such security.
Types of Options. The Fund may engage in transactions in
options on securities or securities indices on exchanges and in
the over-the-counter ("OTC") markets. In general, exchange-
traded options have standardized exercise prices and expiration
dates and require the parties to post margin against their
obligations, and the performance of the parties' obligations in
connection with such options is guaranteed by the exchange or a
related clearing corporation. OTC options have more flexible
terms negotiated between the buyer and the seller, but generally
do not require the parties to post margin and are subject to
greater credit risk. OTC options also involve greater liquidity
risk. See "Additional Risk Factors of OTC Transactions;
Limitations on the Use of OTC Derivatives" below.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks,
including:
Credit risk -- the risk that the counterparty (the party on
the other side of the transaction) on a derivative transaction
will be unable to honor its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate
between two currencies will adversely affect the value (in U.S.
dollar terms) of an investment.
Leverage risk -- the risk associated with certain types of
investments or trading strategies (such as borrowing money to
increase the amount of investment) that relatively small market
movements may result in large changes in the value of an
investment. Certain investments or trading strategies that
involve leverage can result in losses that greatly exceed the
amount originally invested.
Liquidity risk -- the risk that certain securities may be
difficult or impossible to sell at the time that the seller
would like or at the price that the seller believes the security
is currently worth.
Use of Derivatives for hedging purposes involves correlation
risk. If the value of the Derivative moves more or less than the
value of the hedged instruments, the Fund will experience a gain
or loss that will not be completely offset by movements in the
value of the hedged instruments.
The Fund intends to enter into transactions involving
Derivatives only if there appears to be a liquid secondary
market for such instruments or, in the case of illiquid
instruments traded in OTC transactions, such instruments satisfy
the criteria set forth below under "Additional Risk Factors of
OTC Transactions; Limitations on the Use of OTC Derivatives."
However, there can be no assurance that, at any specific time,
either a liquid secondary market will exist for a Derivative or
the Fund will otherwise be able to sell such instrument at an
acceptable price. It may therefore not be possible to close a
position in a Derivative without incurring substantial losses,
if at all.
Certain transactions in Derivatives (such as futures
transactions or sales of put options) involve substantial
leverage risk and may expose the Fund to potential losses, which
exceed the amount originally invested by the Fund. When the Fund
engages in such a transaction, the Fund will deposit in a
segregated account at its custodian liquid securities with a
value at least equal to the Fund's exposure, on a mark-to-market
basis, to the transaction (as calculated pursuant to
requirements of the Securities and Exchange Commission). Such
segregation will ensure that the Fund has assets available to
satisfy its obligations with respect to the transaction, but
will not limit the Fund's exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the
Use of OTC Derivatives
Certain Derivatives traded in OTC markets, including indexed
securities, swaps and OTC options, involve substantial liquidity
risk. The absence of liquidity may make it difficult or
impossible for the Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more
difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC
instruments (i) if the agreement pursuant to which the
instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the
Manager anticipates the Fund can receive on each business day at
least two independent bids or offers, unless a quotation from
only one dealer is available, in which case that dealer's
quotation may be used.
Because Derivatives traded in OTC markets are not guaranteed
by an exchange or clearing corporation and generally do not
require payment of margin, to the extent that the Fund has
unrealized gains in such instruments or has deposited collateral
with its counterparty, the Fund is at risk that its counterparty
will become bankrupt or otherwise fail to honor its obligations.
The Fund will attempt to minimize the risk that a counterparty
will become bankrupt or otherwise fail to honor its obligations
by engaging in transactions in Derivatives traded in OTC markets
only with financial institutions which have substantial capital
or which have provided the Fund with a third-party guaranty or
other credit enhancement.
OTHER INVESTMENT POLICIES AND PRACTICES
Temporary Investments. The Fund reserves the right, as a
temporary defensive measure, and without limitation, to hold in
excess of 35% of its total assets in cash or cash equivalents
and investment grade, short term securities including money
market securities ("Temporary Investments"). Under certain
adverse investment conditions, the Fund may restrict the markets
in which its assets will be invested and may increase the
proportion of assets invested in Temporary Investments.
Investments made for defensive purposes will be maintained only
during periods in which the Manager determines that economic or
financial conditions are adverse for holding or being fully
invested in equity securities. A portion of the Fund normally
will be held in Temporary Investments in anticipation of
investment in equity securities or to provide for possible
redemptions.
Illiquid or Restricted Securities. The Fund may invest up to
15% of its net assets in securities that lack an established
secondary trading market or otherwise are considered illiquid.
Liquidity of a security relates to the ability to dispose easily
of the security and the price to be obtained upon disposition of
the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade
at a discount from comparable, more liquid investments.
Investment of the Fund's assets in illiquid securities may
restrict the ability of the Fund to dispose of such investments
in a timely fashion and for a fair price as well as its ability
to take advantage of market opportunities. The risks associated
with illiquidity will be particularly acute where the Fund's
operations require cash, such as when the Fund redeems shares or
pays dividends, which could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the
sale of illiquid investments.
The Fund may invest in securities that are "restricted
securities". Restricted securities have contractual or legal
restrictions on their resale and include "private placement"
securities that the Fund may buy directly from the issuer.
Restricted securities may be sold in private placement
transactions between issuers and the purchasers and may be
neither listed on an exchange nor traded in other established
markets. Privately placed securities may or may not be freely
transferable under the laws of the applicable jurisdiction or
due to contractual restrictions on resale. As a result of the
absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly
traded securities. To the extent that privately placed
securities may be resold in privately negotiated transactions,
the prices realized from the sales, due to illiquidity, could be
less than those originally paid by the Fund or less than their
fair market value. In addition, issuers whose securities are not
publicly traded may not be subject to the disclosure and other
investor protection requirements that may be applicable if their
securities were publicly traded. In addition, issuers whose
securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may
be applicable if their securities were publicly traded. If any
privately placed securities held by the Fund are required to be
registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to
bear the expenses of registration. Certain of the Fund's
investments in private placements may consist of direct
investments and may include investments in smaller, less
seasoned issuers, which may involve greater risks. These issuers
may have limited product lines, markets or financial resources,
or they may be dependent on a limited management group. In
making investments in such securities, the Fund may obtain
access to material nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such
securities.
144A Securities. The Fund may purchase restricted securities
that can be offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act. The Board has
determined to treat as liquid Rule 144A securities that are
either freely tradable in their primary markets offshore or have
been determined to be liquid in accordance with the policies and
procedures adopted by the Fund's Board of Directors. The Board
of Directors has adopted guidelines and delegated to the Manager
the daily function of determining and monitoring liquidity of
restricted securities. The Board of Directors, however, will
retain sufficient oversight and be ultimately responsible for
the determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Board
will carefully monitor the Fund's investments in these
securities. This investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become for a time
uninterested in purchasing these securities.
When Issued Securities and Delayed Delivery Transactions. The
Fund may purchase or sell securities on a delayed delivery basis
or a when-issued basis at fixed purchase terms. These
transactions arise when securities are purchased or sold by the
Fund with payment and delivery taking place in the future. The
purchase will be recorded on the date the Fund enters into the
commitment and the value of the obligation will thereafter be
reflected in the calculation of the Fund's net asset value. The
value of the obligation on the delivery date may be more or less
than its purchase price. A separate account of the Fund may be
established with its custodian consisting of liquid securities
having a market value at all times at least equal to the amount
of the forward commitment.
Repurchase Agreements and Purchase and Sale Contracts. The
Fund may invest in securities pursuant to repurchase agreements
or purchase and sale contracts. Repurchase agreements and
purchase and sale contracts may be entered into only with
financial institutions which (i) have, in the opinion of Fund
management, substantial capital relative to the Fund's exposure,
or (ii) have provided the Fund with a third-party guaranty or
other credit enhancement. Under a repurchase agreement or a
purchase and sale contract, the seller agrees, upon entering
into the contract with the Fund, to repurchase the security at a
mutually agreed-upon time and price in a specified currency,
thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market
fluctuations during such period although it may be affected by
currency fluctuations. In the case of repurchase agreements, the
price at which the trades are conducted do not reflect accrued
interest on the underlying obligation; whereas, in the case of
purchase and sale contracts, the prices take into account
accrued interest. Such agreements usually cover short periods,
such as under one week. Repurchase agreements may be construed
to be collateralized loans by the purchaser to the seller
secured by the securities transferred to the purchaser. In the
case of a repurchase agreement, as a purchaser, the Fund will
require the seller to provide additional collateral if the
market value of the securities falls below the repurchase price
at any time during the term of the repurchase agreement; the
Fund does not have the right to seek additional collateral in
the case of purchase and sale contracts. In the event of default
by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by
the Fund but only constitute collateral for the seller's
obligation to pay the repurchase price. Therefore, the Fund may
suffer time delays and incur costs or possible losses in
connection with the disposition of the collateral. A purchase
and sale contract differs from a repurchase agreement in that
the contract arrangements stipulate that the securities are
owned by the Fund. In the event of a default under such a
repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate, the rate of return to the
Fund shall be dependent upon intervening fluctuations of the
market value of such securities and the accrued interest on the
securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses
arising from market fluctuations following the failure of the
seller to perform. While the substance of purchase and sale
contracts is similar to repurchase agreements, because of the
different treatment with respect to accrued interest and
additional collateral, Fund management believes that purchase
and sale contracts are not repurchase agreements as such term is
understood in the banking and brokerage community. The Fund may
not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than
seven days together with all other illiquid investments.
Securities Lending. Subject to the investment restrictions
set forth in the Prospectus and herein, the Fund may, from time
to time, lend securities from its portfolio to approved
borrowers and receive therefor collateral in cash or securities
issued or guaranteed by the United States Government. Such
collateral will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower
to use such securities for delivery to purchasers when such
borrower has sold short. If cash collateral is received by the
Fund, it is invested in short-term money market securities, and
a portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered
to the Fund as collateral, the Fund and the borrower negotiate a
rate for the loaned premium to be received by the Fund for
lending its portfolio securities. In either event, the total
yield on the Fund's portfolio is increased by loans of its
portfolio securities. The Fund will have the right to regain
record ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. Such loans are
terminable at any time, and the borrower, after notice, will be
required to return borrowed securities within five business
days. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans. With respect to
the lending of portfolio securities, there is the risk of
failure by the borrower to return the securities involved in
such transactions.
Suitability. The economic benefit of an investment in the
Fund depends upon many factors beyond the control of the Fund,
the Manager and its affiliates. The Fund should be considered a
vehicle for diversification and not as a balanced investment
program. The suitability for any particular investor of a
purchase of shares in the Fund will depend on, among other
things, such investor's investment objectives and such
investor's ability to accept the risks associated with investing
in securities, including the risk of loss of principal.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and policies
relating to the investment of the Fund's assets and its
activities. The fundamental restrictions set forth below may not
be changed without the approval of the holders of a majority of
the Fund's outstanding voting securities (which for this purpose
and under the Investment Company Act means the lesser of (i) 67%
of the shares represented at a meeting at which more than 50% of
the outstanding shares are represented or (ii) more than 50% of
the outstanding shares). Unless otherwise provided, all
references to the Fund's assets below are in terms of current
market value. Provided that none of the following restrictions
shall prevent the Fund from investing all of its assets in
shares of another registered investment company with the same
investment objective (in a master/feeder structure), the Fund
may not:
1. Invest more than 25% of its total assets, taken at
market value at the time of each investment, in the securities
of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control
or management. Investments by the Fund in wholly-owned
investment entities created under the laws of certain countries
will not be deemed the making of investments for the purpose of
exercising control or management.
3. Purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may invest in securities
directly or indirectly secured by real estate or interests
therein or issued by companies that invest in real estate or
interests therein.
4. Make loans to other persons, except that the acquisition
of bonds, debentures or other corporate debt securities and
investment in governmental obligations, commercial paper, pass-
through instruments, certificates of deposit, bankers'
acceptances, repurchase agreements, purchase and sale contracts
or any similar instruments shall not be deemed to be the making
of a loan, and except further that the Fund may lend its
portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law
and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from
time to time.
5. Issue senior securities to the extent such issuance
would violate applicable law.
6. Borrow money, except that (i) the Fund may borrow from
banks (as defined in the Investment Company Act) in amounts up
to 33 1/3% of its total assets (including the amount borrowed),
(ii) the Fund may borrow up to an additional 5% of its total
assets for temporary purposes, (iii) the Fund may obtain such
short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by
applicable law. The Fund may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the Fund's
investment policies as set forth in its Prospectus and Statement
of Additional Information, as they may be amended from time to
time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar
investment strategies.
7. Underwrite securities of other issuers except insofar as
the Fund technically may be deemed an underwriter under the
Securities Act of 1933, as amended (the "Securities Act") in
selling portfolio securities.
8. Purchase or sell commodities or contracts on
commodities, except to the extent that the Fund may do so in
accordance with applicable law and the Fund's Prospectus and
this Statement of Additional Information, as they may be amended
from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
In addition, the Fund has adopted non-fundamental restrictions
that may be changed by the Board of Directors of the Fund
without shareholder approval. Like the fundamental restrictions,
none of the non-fundamental restrictions, including but not
limited to restriction (a) below, shall prevent the Fund from
investing all of its assets in shares of another registered
investment company with the same investment objective (in a
master/feeder structure). Under the non-fundamental investment
restrictions, the Fund may not:
a. Purchase securities of other investment companies,
except to the extent such purchases are permitted by applicable
law. As a matter of policy, however, the Fund will not purchase
shares of any registered open-end investment company or
registered unit investment trust, in reliance on Section
12(d)(1)(F) or (G) (the "fund of funds" provisions) of the
Investment Company Act, at any time its shares are owned by
another investment company that is part of the same group of
investment companies as the Fund.
b. Make short sales of securities or maintain a short
position, except to the extent permitted by applicable law. The
Fund currently does not intend to engage in short sales, except
short sales "against the box."
c. Invest in securities that cannot be readily resold
because of legal or contractual restrictions or that cannot
otherwise be marketed, redeemed or put to the issuer or a third
party, if at the time of acquisition more than 15% of its net
assets would be invested in such securities. This restriction
shall not apply to securities that mature within seven days or
securities that the Directors of the Fund have otherwise
determined to be liquid pursuant to applicable law. Securities
purchased in accordance with Rule 144A under the Securities Act
(which are restricted securities that can be resold to qualified
institutional buyers, but not to the general public) and
determined to be liquid by the Board of Directors of the Fund
are not subject to the limitations set forth in this investment
restriction.
d. Notwithstanding fundamental investment restriction (6)
above, borrow money or pledge its assets, except that the Fund
(a) may borrow from a bank as a temporary measure for
extraordinary or emergency purposes or to meet redemption in
amounts not exceeding 33 1/3% (taken at market value) of its
total assets and pledge its assets to secure such borrowing, (b)
may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (c)
may purchase securities on margin to the extent permitted by
applicable law. However, at the present time, applicable law
prohibits the Fund from purchasing securities on margin. The
deposit or payment by the Fund of initial or variation margin in
connection with financial futures contracts or options
transactions is not considered to be the purchase of a security
on margin. The purchase of securities while a borrowing is
outstanding will have the effect of leveraging the Fund. Such
leveraging or borrowing increases the Fund's exposure to capital
risk and borrowed funds are subject to interest costs which will
reduce net income. The Fund will not purchase securities while
borrowing exceeds 5% of its total assets.
The staff of the Commission has taken the position that
purchased OTC options and the assets used as cover for written
OTC options are illiquid securities. Therefore, the Fund has
adopted an investment policy pursuant to which the Fund will not
purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of the
market value of OTC options currently outstanding that are held
by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding that were sold
by the Fund and margin deposits on the Fund's existing OTC
options on financial futures contracts exceeds 15% of the net
assets of the Fund, taken at market value, together with all
other assets of the Fund that are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized
by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option
from the dealer at a predetermined price, then the Fund will
treat as illiquid such amount of the underlying securities as is
equal to the repurchase price less the amount by which the
option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The
repurchase price with the primary dealers is typically a formula
price that is generally based on a multiple of the premium
received for the option, plus the amount by which the option is
"in-the-money." This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Board
of Directors of the Fund without the approval of the Fund's
shareholders. However, the Directors will not change or modify
this policy prior to the change or modification by the
Commission staff of its position.
In addition, as a non-fundamental policy that may be changed
by the Board of Directors and to the extent required by the
Commission or its staff, the Fund will, for purposes of
fundamental investment restrictions (1) and (2), treat
securities issued or guaranteed by the government of any one
foreign country as the obligations of a single issuer.
As another non-fundamental policy, the Fund will not invest in
securities that are (a) subject to material legal restrictions
on repatriation of assets or (b) cannot be readily resold
because of legal or contractual restrictions or which are not
otherwise readily marketable, including repurchase agreements
and purchase and sales contracts maturing in more than seven
days, if, regarding all such securities, more than 15% of its
net assets, taken at market value would be invested in such
securities.
Diversified Status
The Fund is classified as diversified within the meaning of
the Investment Company Act, which means that the Fund is limited
by such Act in the proportion of its assets that it may invest
in securities of a single issuer. The Fund's investments are
limited, however, in order to allow the Fund to qualify as a
"regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). See "Dividends and Taxes --
Taxes." To qualify as a regulated investment company under the
Code, the Fund complies with certain requirements, including
limiting its investments so that at the close of each quarter of
the taxable year (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a
single issuer and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single
issuer. A fund that elects to be classified as "diversified"
under the Investment Company Act must satisfy the foregoing 5%
and 10% requirements with respect to 75% of its total assets. A
diversified company tends to temper results of changes in the
financial condition or in the market's assessment of the
issuers, and the Fund may be less susceptible to any single
economic, political or regulatory occurrence than a non-
diversified investment company.
PORTFOLIO TURNOVER
The Fund may purchase securities for short-term trading
profits. However, the Fund may dispose of securities without
regard to the time they have been held when such actions, for
defensive or other reasons, appear advisable to the Manager in
light of a change in circumstances in general market, economic
or financial conditions. As a result of its investment policies,
the Fund may engage in a substantial number of portfolio
transactions. Accordingly, while the Fund anticipates that its
annual portfolio turnover rate should not exceed 100% under
normal conditions, it is impossible to predict portfolio
turnover rates. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of
portfolio securities (exclusive of purchases or sales of
securities whose maturities at the time of acquisition were one
year or less) by the monthly average value of the securities in
the portfolio during the year. A high portfolio turnover rate
involves certain tax consequences and correspondingly greater
transaction costs in the form of dealer spreads and brokerage
commissions, which are borne by the Fund.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors of the Fund consist of five individuals, three
of whom are not "interested persons" of the Fund as defined in
the Investment Company Act. The Directors of the Fund are
responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors of
investment companies by the Investment Company Act. Information
about the Directors and executive officers of the Fund, their
ages and their principal occupations for at least the last five
years are set forth below. Unless otherwise noted, the address
of each executive officer and Director is 1700 W. Katella 2nd
Floor Orange, CA 92867.
Bruce Edwin Graham (27) (1) - President, Manager and
Director (1) (2)-- President, Founder, CEO and Chairman of the
Board of BB Graham & Co., a bonafied brokerage firm. Fund
manager for the Graham & Co. Covered Call Strategy.
William Louis Graham (55) - Director - Controller of BB
Graham & Co. His background is project management in
aeronautical engineering.
Dennis James Hastings (37) - Director - President, CEO and
Founder of iDirect Marketing and a client of BB Graham & Co.
His specialty is in marketing and advertising
David Louis Thompson (38) - Director - Sales manager for BB
Graham & Co. He is in charge day to day trading operations for
BB Graham & Co. Moreover, he is intimately familiar with the
Graham & Co. Covered Call Strategy.
Gerald Wolfe, Esq. (30) (1) - General Counsel and Director
- President, CEO, Founder, of Law In Progress, A Professional
Law Corporation since 1996 and a client of B. B. Graham & Co
(1) Interested person, as defined in the Investment Company Act,
of the Fund.
COMPENSATION OF DIRECTORS
As of the date of this Statement of Additional Information,
each interested Director receives no cash compensation for
service to the Fund. As of the date of this Statement of
Additional Information, each non-interested Director receives no
compensation whatsoever for his or her services.
The Directors of the Fund may be eligible for reduced sales
charges on purchased shares. See "Reduced Initial Sales Charges
-- Purchase Privileges of Certain Persons."
MANAGEMENT AND ADVISORY ARRANGEMENTS
Management Services and Management Fee. The Fund invests
directly in portfolio securities and requires investment
advisory services. The Fund has entered into an investment
management agreement with Bruce Edwin Graham, as Manager (the
"Management Agreement"). As discussed in "The Management -- Fund
Asset Management" in the Prospectus, the Manager receives
monthly compensation at the annual rate of 1% of the average
daily net assets of the Fund for its services to the Fund.
Payment of Fund Expenses. The Fund pays, or causes an
affiliate to pay, all other expenses incurred in the operation
of the Fund (except to the extent paid by the Distributor, (the
"Distributor"), including, among other things, taxes, expenses
for legal and auditing services, costs of printing proxies,
shareholder reports and prospectuses and statements of
additional information, charges of the custodian, any sub-
custodian and the transfer agent, expenses of redemption of
shares, Commission fees, expenses of registering the shares
under federal, state or non-U.S. laws, fees and actual out-of-
pocket expenses of Directors who are not affiliated persons of
the Manager, or of an affiliate of the Manager, accounting and
pricing costs (including the daily calculation of net asset
value), insurance, interest, brokerage costs, litigation and
other extraordinary or non-recurring expenses, and other
expenses properly payable by the Fund. The Distributor will pay
certain of the promotional expenses of the Fund incurred in
connection with the offering of its shares. Certain expenses
will be financed by the Fund pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act.
Accounting services are provided to the Fund by the Manager, and
the Fund reimburses the Manager for its costs in connection with
such services.
Organization of the Manager. Bruce Edwin Graham as manager,
is a "controlling persons" as defined under the Investment
Company Act because of his ownership of his voting and his power
to exercise a controlling influence over the management or
policies of the Fund.
Duration and Termination. Unless earlier terminated as
described below, the Management Agreement will remain in effect
for two years from its effective date. Thereafter, it will
remain in effect from year to year if approved annually (a) by
the Board of Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as
defined in the Investment Company Act) of any such party. Such
contract is not assignable and may be terminated without penalty
on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
Transfer Agency Services. [ADS INFO]
Distribution Expenses. The Fund has entered into separate
distribution agreements with the Distributor in connection with
the continuous offering of each class of shares of the Fund (the
"Distribution Agreements"). The Distribution Agreements obligate
the Distributor to pay certain expenses in connection with the
offering of each class of shares of the Fund. After the
prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to
shareholders, the Distributor pays for the printing and
distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for
other supplementary sales literature and advertising costs. The
Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management
Agreement described above.
CODE OF ETHICS
The Board of Directors of the Fund each have adopted a Code of
Ethics under Rule 17j-1 of the Investment Company Act that
incorporates the Code of Ethics of the Manager (together, the
"Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as
described below, impose additional, more onerous, restrictions
on fund investment personnel.
The Codes require that all employees of the Manager pre-clear
any personal securities investment (with limited exceptions,
such as government securities). The pre-clearance requirement
and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all
employees of the Manager include a ban on acquiring any
securities in a "hot" initial public offering and a prohibition
from profiting on short-term trading in securities. In addition,
no employee may purchase or sell any security that at the time
is being purchased or sold (as the case may be), or to the
knowledge of the employee is being considered for purchase or
sale, by any fund advised by the Manager. Furthermore, the Codes
provide for trading "blackout periods" that prohibit trading by
investment personnel of the Fund within periods of trading by
the Fund in the same (or equivalent) security (15 or 30 days
depending upon the transaction).
PURCHASE OF SHARES
Reference is made to "Account Choices -- How to Buy, Sell,
Transfer and Exchange Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues one class of shares. These shares are sold to
investors using the initial sales charge model.
The Fund offers its shares at a public offering price equal to
the next determined net asset value per share plus any sales
charge applicable to the class of shares selected by the
investor. The applicable offering price for purchase orders is
based upon the net asset value of the Fund next determined after
receipt of the purchase order by the Distributor. As to purchase
orders received by securities dealers prior to the close of
business on the New York Stock Exchange (the "NYSE") (generally
4:00 p.m., Eastern time) which includes orders received after
the determination of net asset value on the previous day, the
applicable offering price will be based on the net asset value
on the day the order is placed with the Distributor, provided
that the orders are received by the Distributor prior to 30
minutes after the close of business on the NYSE on that day. If
the purchase orders are not received prior to 30 minutes after
the close of business on the NYSE on that day, such orders shall
be deemed received on the next business day. Dealers have the
responsibility of submitting purchase orders to the Fund not
later than 30 minutes after the close of business on the NYSE in
order to purchase shares at that day's offering price.
The Fund or the Distributor may suspend the continuous
offering of the Fund's shares of any class at any time in
response to conditions in the securities markets or otherwise
and may thereafter resume such offering from time to time. Any
order may be rejected by the Fund or the Distributor. Neither
the Distributor nor the dealers are permitted to withhold
placing orders to benefit themselves by a price change. Certain
securities dealers may charge a processing fee to confirm a sale
of shares to such customers.
INITIAL SALES CHARGE MODEL -- CLASS A SHARES
Investors shall incur an initial sales charge to purchase
Class A shares.
The term "purchase," as used in the Prospectus and this
Statement of Additional Information in connection with an
investment in Class A shares of the Fund, refers to a single
purchase by an individual or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by
an individual, his or her spouse and their children under the
age of 21 years purchasing shares for his or her or their own
account and to single purchases by a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary
account although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not
include purchases by any such company that has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount; provided,
however, that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the
participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a
bank or broker-dealer or clients of an investment adviser.
The Distributor may re-allow discounts to selected dealers and
retain the balance over such discounts. At times the Distributor
may re-allow the entire sales charge to such dealers. Since
securities dealers selling Class A shares of the Fund will
receive a concession equal to most of the sales charge, they may
be deemed to be underwriters under the Securities Act.
REDUCED INITIAL SALES CHARGES
Reductions in or exemptions from the imposition of a sales
load are due to the nature of the investors and/or the reduced
sales efforts that will be needed to obtain such investments.
Reinvested Dividends. No initial sales charges are imposed
upon Class A shares issued as a result of the automatic
reinvestment of dividends.
Rights of Accumulation. Reduced sales charges are applicable
through a right of accumulation under which eligible investors
are permitted to purchase shares of the Fund subject to an
initial sales charge at the offering price applicable to the
total of (a) the public offering price of the shares then being
purchased plus (b) an amount equal to the then current net asset
value or cost, whichever is higher, of the purchaser's combined
holdings of all shares of the Fund. For any such right of
accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or the
purchaser's securities dealer, with sufficient information to
permit confirmation of qualification. Acceptance of the purchase
order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the
name of a nominee or custodian under pension, profit-sharing or
other employee benefit plans may not be combined with other
shares to qualify for the right of accumulation.
Purchase Privileges of Certain Persons. Directors of the
Fund, members of the Boards of other investment companies
advised by the Manager or its affiliates, employees and certain
other entities directly or indirectly wholly owned and
controlled by the Fund may purchase Class A shares of the Fund
at net asset value. The Fund realizes economies of scale and
reduction of sales-related expenses by virtue of the familiarity
of these persons with the Fund. Employees and directors wishing
to purchase shares of the Fund must satisfy the Fund's
suitability standards.
Class A shares may also be offered at net asset value to
certain accounts over which the Manager or an affiliate
exercises investment discretion.
Purchases Through Certain Financial Advisers. Reduced sales
charges may be applicable for purchases of Class A shares of the
Fund through certain financial advisers that meet and adhere to
certain standards.
DISTRIBUTION PLANS
The Distribution Plan for Class A shares provides that the
Fund pays the Distributor an account maintenance fee relating to
the shares of the relevant class, accrued daily and paid
quarterly, at the annual rate of 0.25% of the average daily net
assets of the Fund attributable to shares of the relevant class
in order to compensate the Distributor and selected dealers
(pursuant to a sub-agreement) in connection with account
maintenance activities with respect to Class A shares.
The Fund's Distribution Plans are subject to the provisions of
Rule 12b-1 under the Investment Company Act. In their
consideration of each Distribution Plan, the Directors must
consider all factors they deem relevant, including information
as to the benefits of the Distribution Plan to the Fund and the
related class of shareholders. Each Distribution Plan further
provides that, so long as the Distribution Plan remains in
effect, the selection and nomination of non-interested Directors
shall be committed to the discretion of the non- interested
Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the non-interested Directors
concluded that there is reasonable likelihood that each
Distribution Plan will benefit the Fund and its related class of
shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the non-
interested Directors or by the vote of the holders of a majority
of the outstanding related class of voting securities of the
Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the
approval of the related class of shareholders and all material
amendments are required to be approved by the vote of Directors,
including a majority of the non-interested Directors who have no
direct or indirect financial interest in the Distribution Plan,
cast in person at a meeting called for that purpose. Rule 12b-1
further requires that the Fund preserve copies of the
Distribution Plan and any report made pursuant to such plan for
a period of not less than six years from the date of the
Distribution Plan or such report, the first two years in an
easily accessible place.
Among other things, each Distribution Plan provides that the
Distributor shall provide and the Directors shall review
quarterly reports of the disbursement of the account maintenance
and/or distribution fees paid to the Distributor. Payments under
the Distribution Plans are based on a percentage of average
daily net assets attributable to the shares regardless of the
amount of expenses incurred and, accordingly, distribution-
related revenues from the Distribution Plans may be more or less
than distribution-related expenses of the related class.
Information with respect to the distribution-related revenues
and expenses is presented to the Directors for their
consideration in connection with their deliberations as to the
continuance of the Class A Distribution Plan. This information
is presented annually as of December 31 of each year, on a
"fully allocated accrual" basis and quarterly on a "direct
expense and revenue/cash" basis. On the fully allocated accrual
basis, revenues consist of the account maintenance fees, the
distribution fees, and certain other related revenues, and
expenses consist of financial consultant compensation, branch
office and regional operation center selling and transaction
processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct
expense and revenue/cash basis, revenues consist of the account
maintenance fees, the distribution fees and the expenses consist
of financial consultant compensation.
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange
Shares" in the Prospectus for certain information as to the
redemption and purchase of Fund shares.
The Fund is required to redeem for cash all shares of the Fund
upon receipt of a written request in proper form. The redemption
price is the net asset value per share next determined after the
initial receipt of proper notice of redemption. There will be
no charge for redemption if the redemption request is sent
directly to the Transfer Agent. Shareholders liquidating their
holdings will receive upon redemption all dividends reinvested
through the date of redemption.
The right to redeem shares or to receive payment with respect
to any such redemption may be suspended for more than seven days
only for any period during which trading on the NYSE is
restricted as determined by the Commission or during which the
NYSE is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists, as
defined by the Commission, as a result of which disposal of
portfolio securities or determination of the net asset value of
the Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection
of shareholders of the Fund.
The value of shares of the Fund at the time of redemption may
be more or less than the shareholder's cost, depending in part
on the market value of the securities held by the Fund at such
time.
REDEMPTION
A shareholder wishing to redeem shares held with the Transfer
Agent may do so without charge by tendering the shares directly
to the Fund's Transfer Agent [ADS INFO]. Proper notice of
redemption of shares deposited with the Transfer Agent may be
accomplished by a written letter requesting redemption.
Redemption requests delivered other than by mail should be
delivered to [ADS INFO]. Proper notice of redemption of shares
deposited with the Transfer Agent may be accomplished by a
written letter requesting redemption. Proper notice of
redemption of shares for which certificates have been issued may
be accomplished by a written letter as noted above accompanied
by signed certificates for the shares to be redeemed. Redemption
requests should not be sent to the Fund. A redemption request in
either event requires the signature(s) of all persons in whose
name(s) the shares are registered, signed exactly as such
name(s) appear(s) on the Transfer Agent's register.
The signature(s) on the redemption request may require a
guarantee by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), the existence and validity of which may be
verified by the Transfer Agent through the use of industry
publications. In the event a signature guarantee is required,
notarized signatures are not sufficient. In general, signature
guarantees are waived on redemptions of less than $50,000 as
long as the following requirements are met: (i) all requests
require the signature(s) of all persons in whose name(s) shares
are recorded on the Transfer Agent's register; (ii) all checks
must be mailed to the stencil address of record on the Transfer
Agent's register and (iii) the stencil address must not have
changed within 30 days. Certain rules may apply regarding
certain account types such as but not limited to UGMA/UTMA
accounts, Joint Tenancies With Rights of Survivorship, contra
broker transactions and institutional accounts. In certain
instances, the Transfer Agent may require additional documents
such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming
directly with the Transfer Agent, payments will be mailed within
seven days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares
for which it has not yet received good payment (e.g., cash,
Federal funds or certified check drawn on a U.S. bank). The Fund
may delay or cause to be delayed the mailing of a redemption
check until such time as good payment (e.g., cash, Federal funds
or certified check drawn on a U.S. bank) has been collected for
the purchase of such Fund shares, which will usually not exceed
10 days.
REPURCHASE
The Fund also will repurchase its shares through a
shareholder's listed securities dealer. The Fund normally will
accept orders to repurchase shares by wire or telephone from
dealers for their customers at the net asset value next computed
after the order is placed. Shares will be priced at the net
asset value calculated on the day the request is received,
provided that the request for repurchase is submitted to the
dealer prior to the regular close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) and such
request is received by the Fund from such dealer not later than
30 minutes after the close of business on the NYSE on the same
day. Dealers have the responsibility of submitting such
repurchase requests to the Funds not later than 30 minutes after
the close of business on the NYSE in order to obtain that day's
closing price.
The foregoing repurchase arrangements are for the convenience
of shareholders and do not involve a charge by the Fund.
Securities firms that do not have selected dealer agreements
with the Distributor, however, may impose a transaction charge
on the shareholder for transmitting the notice of repurchase to
the Fund. Certain securities dealers may charge a processing fee
to confirm a repurchase of shares. Repurchases made directly
through the Transfer Agent, on accounts held at the Transfer
Agent, are not subject to the processing fee. The Fund reserves
the right to reject any order for repurchase, which right of
rejection might adversely affect shareholders seeking redemption
through the repurchase procedure. A shareholder whose order for
repurchase is rejected by the Fund, however, may redeem shares
as set forth above.
REINSTATEMENT PRIVILEGE -- CLASS A SHARES
Shareholders of the Fund who have redeemed their Class A
shares have a privilege to reinstate their accounts by
purchasing Class A shares of the Fund at net asset value without
a sales charge up to the dollar amount redeemed. The
reinstatement privilege may be exercised by sending a notice of
exercise along with a check for the amount to be reinstated to
the Transfer Agent within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the
Distributor. Alternatively, the reinstatement privilege may be
exercised through the investor's financial consultant within 30
days after the date the request for redemption was accepted by
the Transfer Agent or the Distributor. The reinstatement will be
made at the net asset value per share next determined after the
notice of reinstatement is received and cannot exceed the amount
of the redemption proceeds.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
Reference is made to "How Shares are Priced" in the
Prospectus.
The net asset value of the shares of all classes of the Fund
is determined once daily Monday through Friday as of the close
of business on the NYSE on each day the NYSE is open for trading
based on prices at the time of closing. The NYSE generally
closes at 4:00 p.m., Eastern Standard Time. Any assets or
liabilities initially expressed in terms of non-U.S. dollar
currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the
day of valuation. The NYSE is not open for trading on New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value is computed by dividing the value of the
securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total
number of shares of the Fund outstanding at such time, rounded
to the nearest cent. Expenses, including the fees payable to the
Manager and the Distributor, are accrued daily.
Securities that are held by the Fund, that are traded on stock
exchanges are valued at the last sale price (regular way) on the
exchange on which such securities are traded, as of the close of
business on the day the securities are being valued or, lacking
any sales, at the last available bid price for long positions,
and at the last available ask price for short positions. In
cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the
authority of the Board of Directors of the Fund as the primary
market. Long positions in securities traded in the OTC market
are valued at the last available bid price in the OTC market
prior to the time of valuation. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market. Short
positions in securities traded in the OTC market are valued at
the last available ask price in the OTC market prior to the time
of valuation. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the
broadest and most representative market. When the Fund writes an
option, the amount of the premium received is recorded on the
books of the Fund as an asset and an equivalent liability. The
amount of the liability is subsequently valued to reflect the
current market value of the option written, based on the last
sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last ask price.
Options purchased by the Fund are valued at their last sale
price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last bid price. Other
investments, including financial futures contracts and related
options, are stated at market value. Securities and assets for
which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction
of the Board of Directors of the Fund. Such valuations and
procedures will be reviewed periodically by the Board of
Directors of the Fund.
Each investor may add to or reduce its investment on each day
the NYSE is open for trading. The value of each investor's
interest will be determined after the close of business on the
NYSE by multiplying the net asset value of the Fund by the
percentage, effective for that day, that represents that
investor's share of the aggregate interests in the Fund. The
close of business on the NYSE is generally 4:00 p.m., Eastern
Standard Time. Any additions or withdrawals to be effected on
that day will then be effected. The investor's percentage of the
aggregate beneficial interests in the Fund will then be
recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in
the Fund as of the time of determination on such day plus or
minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Fund effected
on such day, and (ii) the denominator of which is the aggregate
net asset value of the Fund as of such time on such day plus or
minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in the Fund by all
investors in the Fund. The percentage so determined will then be
applied to determine the value of the investor's interest in the
Fund after the close of business of the NYSE on the next
determination of net asset value of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
TRANSACTIONS IN PORTFOLIO SECURITIES
Subject to policies established by the Board of Directors, the
Manager is primarily responsible for the execution of the Fund's
portfolio transactions and the allocation of brokerage. The Fund
has no obligation to deal with any broker or group of brokers in
the execution of transactions in portfolio securities, however,
Manager intends on executing trades through B.B. Graham & Co.,
Inc. In executing transactions with brokers and dealers, the
Manager seeks to obtain the best net results for the Fund,
taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the
firm and the firm's risk in positioning a block of securities.
While the Manager generally seeks reasonably competitive
commission rates, the Fund does not necessarily pay the lowest
spread or commission available. In addition, consistent with the
Conduct Rules of the NASD and policies established by the Board
of Directors of the Fund, the Manager may consider sales of
shares of the Fund as a factor in the selection of brokers or
dealers to execute portfolio transactions for the Fund.
Subject to obtaining the best net results, brokers who provide
supplemental investment research to the Manager may receive
orders for transactions by the Fund. Such supplemental research
services ordinarily consist of assessments and analyses of the
business or prospects of a company, industry or economic sector.
Information so received will be in addition to and not in lieu
of the services required to be performed by the Manager under
the Management Agreement, and the expenses of the Manager will
not necessarily be reduced as a result of the receipt of such
supplemental information. If in the judgment of the Manager the
Fund will benefit from supplemental research services, the
Manager is authorized to pay brokerage commissions to a broker
furnishing such services that are in excess of commission that
another broker may have charged for effecting the same
transactions. Certain supplemental research services may
primarily benefit one or more other investment companies or
other accounts for which the Manager exercises investment
discretion. Conversely, the Fund may be the primary beneficiary
of the supplemental research services received as a result of
portfolio transactions effected for such other accounts or
investment companies.
The Fund anticipates that its brokerage transactions involving
securities of issuers domiciled in countries other than the
United States generally will be conducted primarily on the
principal stock exchanges of such countries if a company is in
the S&P 500 it will trade here under what is called an ADR on a
US exchange.. Brokerage commissions and other transaction costs
on foreign stock exchange transactions generally are higher than
in the United States, although the Fund will endeavor to achieve
the best net results in effecting its portfolio transactions.
There generally is less governmental supervision and regulation
of foreign stock exchanges and brokers than in the United
States.
Under the Investment Company Act, persons affiliated with the
Fund and persons who are affiliated with such affiliated persons
are prohibited from dealing with the Fund as principal in the
purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Commission.
However, an affiliated person of the Fund may serve as its
broker in OTC transactions conducted on an agency basis provided
that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or
commission received by non-affiliated brokers in connection with
comparable transactions. See "Investment Objective and Policies
-- Investment Restrictions."
Section 11(a) of the Exchange Act generally prohibits members
of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional
accounts that they manage unless the member (i) has obtained
prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with
a statement setting forth the aggregate compensation received by
the member in effecting such transactions, and (iii) complies
with any rules the Commission has prescribed with respect to the
requirements of clauses (i) and (ii).
The Board of Directors has considered the possibility of
seeking to recapture for the benefit of the Fund brokerage
commissions and other expenses of possible portfolio
transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received
by affiliated brokers could be offset against the advisory fee
paid by the Fund on behalf of the Portfolio to the Manager.
After considering all factors deemed relevant, the Board of
Directors made a determination not to seek such recapture. The
Board of Directors will reconsider this matter from time to
time.
Because of different objectives or other factors, a particular
security may be bought for one or more clients of the Manager or
its affiliates when one or more clients of the Manager or its
affiliates are selling the same security. If purchases or sales
of securities arise for consideration at or about the same time
that would involve other clients or funds for which the Manager
or an affiliate act as investment adviser, transactions in such
securities will be made, insofar as feasible, for the respective
funds and clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of
the Manager or its affiliates during the same period may
increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on
price.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described
below that are designed to facilitate investment in its shares.
Full details as to each such service and copies of the various
plans or how to change options with respect thereto, can be
obtained from the Fund, by calling the telephone number on the
cover page hereof, or from the Distributor or your selected
dealer. Certain of these services are available only to U.S.
investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer
Agent has an Investment Account and will receive statements, at
least quarterly, from the Transfer Agent. These statements will
serve as transaction confirmations for automatic investment
purchases and the reinvestment of dividends. The statements also
will show any other activity in the account since the preceding
statement. Shareholders also will receive separate confirmations
for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of dividends. A
shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by
mailing a check directly to the Transfer Agent. The Fund does
not issue share certificates.
Shareholders considering transferring their Class A shares
from a selected dealer to another brokerage firm or financial
institution should be aware that, if the firm to which the Class
A shares are to be transferred will not take delivery of shares
of a Fund, a shareholder either must redeem the Class A shares
so that the cash proceeds can be transferred to the account at
the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A
shares.
Certain shareholder services may not be available for the
transferred shares. After the transfer, the shareholder may
purchase additional shares of funds owned before the transfer,
and all future trading of these assets must be coordinated by
the new firm.
Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account,
from a selected dealer to another brokerage firm or financial
institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery
of shares of the Fund, a shareholder must either redeem the
shares so that the cash proceeds can be transferred to the
account at the new firm, or such shareholder must continue to
maintain a retirement account at a selected dealer for those
shares.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at
any time by purchasing Class A shares at the applicable public
offering price. These purchases may be made either through the
shareholder's securities dealer or by mail directly to the
Transfer Agent, acting as agent for such securities dealer. The
current minimum for such additional investments is $100. This
minimum may be waived or revised under certain circumstances
that create a automatic deposit to the fund.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Shareholders may, at any time, by written notification to
their selected dealer if their account is maintained with a
selected dealer, or by written notification or by telephone [ADS
info] to the Transfer Agent, if their account is maintained with
the Transfer Agent, elect to have subsequent dividends of
ordinary income and/or capital gains paid in cash, rather than
reinvested in shares of the Fund (provided that, in the event
that a payment on an account maintained at the Transfer Agent
would amount to $10.00 or less, a shareholder will not receive
such payment in cash and such payment will automatically be
reinvested in additional share). Commencing ten days after the
receipt by the Transfer Agent of such notice, those instructions
will be effected. The Fund is not responsible for any failure of
delivery to the shareholder's address of record and no interest
will accrue on amounts represented by uncashed dividend checks.
Cash payments can also be directly deposited to the
shareholder's bank account.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawals from
his or her Investment Account by check or through automatic
payment by direct deposit to his or her bank account on either a
monthly or quarterly basis as provided below. Quarterly
withdrawals are available for shareholders who have acquired
shares of the Fund having a value, based on cost or the current
offering price, of $5,000 or more, and monthly withdrawals are
available for shareholders with shares having a value of $10,000
or more. [Must Be Verified with ADS]
At the time of each withdrawal payment, sufficient shares are
redeemed from the shares on deposit in the shareholder's account
to provide the withdrawal payment specified by the shareholder.
The shareholder may specify the dollar amount and class of
shares to be redeemed. Redemptions will be made at net asset
value as determined after the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) on the
24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the net
asset value determined at the close of business on the following
business day. The check for the withdrawal payment will be
mailed, or the direct deposit for withdrawal payment will be
made on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and
distributions on all shares in the Investment Account are
reinvested automatically in Fund shares. A shareholder's
systematic withdrawal plan may be terminated at any time,
without a charge or penalty, by the shareholder, the Fund, the
Transfer Agent or the Distributor.
Withdrawal payments should not be considered as dividends.
Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholder's
original investment may be reduced correspondingly. Purchases of
additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and
tax liabilities. The Fund will not knowingly accept purchase
orders for shares of the Fund from investors who maintain a
systematic withdrawal plan unless such purchase is equal to at
least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic
withdrawals. [Must Be Verified with ADS]
DIVIDENDS AND TAXES
DIVIDENDS
The Fund intends to distribute substantially all of its net
investment income, if any. Dividends from such net investment
income will be paid at least annually. All net realized capital
gains, if any, will be distributed to the Fund's shareholders at
least annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in
order to comply with Federal tax requirements that certain
percentages of its ordinary income and capital gains be
distributed during the year. If in any fiscal year, the Fund has
net income from certain foreign currency transactions, such
income will be distributed at least annually. See "Shareholder
Services -- Automatic Dividend Reinvestment Plan" for
information concerning the manner in which dividends may be
reinvested automatically in shares of the Fund. A shareholder
whose account is maintained at the Transfer Agent or whose
account is maintained through his or her selected dealer may
elect in writing to receive any such dividends in cash.
Dividends are taxable to shareholders, as discussed below,
whether they are reinvested in shares of the Fund or received in
cash. See "Pricing of Shares -- Determination of Net Asset
Value."
TAXES
The Fund intends to elect and to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under
the Internal Revenue Code of 1986, as amended (the "Code"). As
long as the Fund so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the
part of its net ordinary income and net realized capital gains
that it distributes to Class A shareholders (together, the
"shareholders"). The Fund intends to distribute substantially
all of such income.
The Code requires a RIC to pay a nondeductible 4% excise tax
to the extent the RIC does not distribute, during each calendar
year, 98% of its ordinary income, determined on a calendar year
basis, and 98% of its capital gains, determined, in general on a
October 31 year end, plus certain undistributed amounts from
previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to minimize imposition
of the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such
event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or from an
excess of net short term capital gains over net long term
capital losses (together referred to hereafter as "ordinary
income dividends") are taxable to shareholders as ordinary
income. Distributions made from an excess of net long term
capital gains over net short term capital losses (including
gains or losses from certain transactions in warrants, futures
and options) ("capital gain dividends") are taxable to
shareholders as long term capital gains, regardless of the
length of time the shareholder has owned Fund shares. Any loss
upon the sale or exchange of Fund shares held for six months or
less will be treated as long term capital loss to the extent of
any capital gain dividends received by the shareholder.
Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and,
after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are
held as a capital asset). Certain categories of capital gains
are taxable at different rates. Generally not later than 60 days
after the close of its taxable year, the Fund will provide its
shareholders with a written notice designating the amount of any
capital gain dividends as well as any amount of capital gain
dividends in the different categories of capital gain referred
to above.
Dividends are taxable to shareholders even though they are
reinvested in additional shares of the Fund. A portion of the
Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the
Code, if certain requirements are met. For this purpose, the
Fund will allocate dividends eligible for the dividends received
deduction in the Class A shareholders that is based on the gross
income allocable to Class A shareholders during the taxable
year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was
declared in the previous October, November or December to
shareholders of record on a specified date in one of such
months, then such dividend will be treated for tax purposes as
being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
If a shareholder exercises an exchange privilege within 90
days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain
increased) to the extent any sales charge paid on the exchanged
shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund
will be disallowed if such shares are acquired (whether through
the automatic reinvestment of dividends or otherwise) within a
61-day period beginning 30 days before and ending 30 days after
the date that the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Ordinary income dividends paid to shareholders who are non-
resident aliens or foreign entities will be subject to a 30%
U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of
the United States withholding tax.
Under certain provisions of the Code, some shareholders may be
subject to a 31% withholding tax on ordinary income dividends,
capital gain dividends and redemption payments ("backup
withholding"). Generally, shareholders subject to backup
withholding will be those for whom no certified taxpayer
identification number is on file with the Fund or who, to the
Fund's knowledge, have furnished an incorrect number. When
establishing an account, an investor must certify under penalty
of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the U.S. may reduce or
eliminate such taxes.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE
TRANSACTIONS
The Fund may write, purchase or sell options, futures and
forward foreign exchange contracts. Options and futures
contracts that are "Section 1256 contracts" will be "marked to
market" for Federal income tax purposes at the end of each
taxable year, i.e., each such option or futures contract will be
treated as sold for its fair market value on the last day of the
taxable year. Unless such contract is a forward foreign exchange
contract, or is a non-equity option or a regulated futures
contract for a non-U.S. currency for which the Fund elects to
have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256
contracts will be 60% long-term and 40% short-term capital gain
or loss. Application of these rules to Section 1256 contracts
held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of changes in price
or interest or currency exchange rates with respect to its
investments.
A forward foreign exchange contract that is a Section 1256
contract will be marked to market, as described above. However,
the character of gain or loss from such a contract will
generally be ordinary under Code Section 988. In certain
instances, the Fund may, nonetheless, elect to treat the gain or
loss from certain forward foreign exchange contracts as capital.
In this case, gain or loss realized in connection with a forward
foreign exchange contract that is a Section 1256 contract will
be characterized as 60% long-term and 40% short-term capital
gain or loss.
Code Section 1092, which applies to certain "straddles," may
affect the taxation of the Fund's sales of securities and
transactions in options, futures and forward foreign exchange
contracts. Under Section 1092, the Fund may be required to
postpone recognition for tax purposes of losses incurred in
certain sales of securities and certain closing transactions in
options, futures and forward foreign exchange contracts.
PERFORMANCE DATA
From time to time the Fund may include its average annual
total return and other total return data in advertisements or
information furnished to present or prospective shareholders.
Total return is based on the Fund's historical performance and
is not intended to indicate future performance.
Average annual total return quotations for the specified
periods are computed by finding the average annual compounded
rates of return (based on net investment income and any realized
and unrealized capital gains or losses on portfolio investments
over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all
dividends and distributions are reinvested and taking into
account all applicable recurring and nonrecurring expenses,
including the maximum sales charge in the case of Class A
shares. Dividends paid by the Fund with respect to all shares,
to the extent any dividends are paid, will be calculated in the
same manner at the same time on the same day and will be in the
same amount, except that account maintenance and the
distribution charges and any incremental transfer agency cost
relating to each class of shares will be borne exclusively by
that class. The Fund will include performance data for all
classes of shares of the Fund in any advertisement or
information including performance data of the Fund.
Yield quotations will be computed based on a 30-day period by
dividing (a) the net income based on the yield of each security
earned during the period by (b) the average daily number of
shares outstanding during the period that were entitled to
receive dividends multiplied by the maximum offering price per
share on the last day of the period. Tax equivalent yield
quotations will be computed by dividing (a) the part of the
Fund's yield that is tax-exempt by (b) one minus a stated tax
rate and (c) adding the result to that part, if any, of the
Fund's yield that is not tax-exempt.
The Fund also may quote annual, average annual and annualized
total return and aggregate total return performance data, both
as a percentage and a dollar amount based on a hypothetical
$1,000 investment, for various periods other than those noted
below. Such data will be computed as described above, except
that (1) as required by the periods of the quotations, actual
annual, annualized or aggregate data, rather than average annual
data, may be quoted and (2) the maximum applicable sales charges
will not be included with respect to annual or annualized rates
of return calculations. Aside from the impact on the performance
data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total
return data generally will be lower than average annual total
return data since the average rates of return reflect
compounding of return; aggregate total return data generally
will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer
period of time. The Fund's total return may be expressed either
as a percentage or as a dollar amount in order to illustrate
such total return on a hypothetical $1,000 investment in the
Fund at the beginning of each specified period.
In order to reflect the reduced sales charges in the case of
Class A shares applicable to certain investors, as described
under "Purchase of Shares" and "Redemption of Shares,"
respectively, the total return data quoted by the Fund in
advertisements directed to such investors may take into account
the reduced, and not the maximum, sales charge and therefore may
reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of
expenses is deducted.
On occasion, the Fund may compare its performance to various
indices, including the Standard & Poor's 500 Index, the Value
Line Composite Index, the Dow Jones Industrial Average, or to
other published indices, or to data contained in publications
published by Lipper Analytical Services, Inc., Morningstar
Publications, Inc. ("Morningstar"), or to data contained in
publications such as Money Magazine, U.S. News & World Report,
Business Week, Forbes Magazine, Fortune Magazine and CDA
Investment Technology, Inc. When comparing its performance to a
market index, the Fund may refer to various statistical measures
derived from the historic performance of the Fund and the index,
such as standard deviation and beta. As with other performance
data, performance comparisons should not be considered
indicative of the Fund's relative performance for any future
period. From time to time the Fund may include the Fund's
Morningstar risk-adjusted performance ratings assigned by
Morningstar in advertising or supplemental sales literature.
From time to time the Fund may quote in advertisements or other
materials other applicable measures of performance and may also
make reference to awards that may be given to the Manager.
The Fund's total return will vary depending on market
conditions, the securities held by the Fund, the value of the
options, the Fund's operating expenses, the Fund's operating
expenses and the amount of realized and unrealized net capital
gains or losses during the period. The value of an investment in
the Fund will fluctuate and an investor's shares, when redeemed,
may be worth more or less than their original cost.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on January 21,
2000. It has an authorized capital of 400,000,000 shares of
Common Stock, par value $0.10 per share.
Shareholders are entitled to one vote for each full share held
and fractional votes for fractional shares held in the election
of Directors (to the extent hereinafter provided) and on other
matters submitted to the vote of shareholders, except that
shareholders of the class bearing distribution expenses as
provided above shall have exclusive voting rights with respect
to matters relating to such distribution expenditures (except
that Class B shareholders may vote upon any material changes to
expenses charged under the Class A Distribution Plan). Voting
rights are not cumulative, so that the holders of more than 50%
of the shares voting in the election of Directors can, if they
choose to do so, elect all the Directors of the Fund, in which
event the holders of the remaining shares would be unable to
elect any person as a Director.
There normally will be no meeting of shareholders for the
purpose of electing Directors unless and until such time as less
than a majority of the Directors holding office have been
elected by the shareholders, at which time the Directors then in
office will call a shareholders' meeting for the election of
Directors. Shareholders may, in accordance with the terms of the
Articles of Incorporation, cause a meeting of shareholders to be
held for the purpose of voting on the removal of Directors.
Also, the Fund will be required to call a special meeting of
shareholders in accordance with the requirements of the
Investment Company Act to seek approval of new management and
advisory arrangements, of a material increase in account
maintenance fees or of a change in fundamental policies,
objectives or restrictions. Except as set forth above, the
Directors shall continue to hold office and appoint successor
Directors. Each issued and outstanding share is entitled to
participate equally in dividends and distributions declared and
in net assets upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities, except for any expenses
which may be attributable to only one Class. Shares issued are
fully-paid and non-assessable by the Fund. Voting rights for
Directors are not cumulative.
The Manager provided the initial capital for the Fund by
purchasing the common stock of the Fund. Such shares were
acquired for investment and can only be disposed of by
redemption. As of the date of this Statement of Additional
Information, the Manager Bruce Edwin Graham will own 100% of the
outstanding common stock of the Fund. The Manager may be deemed
to control the Fund until such time as it owns less than 25% of
the outstanding shares of the Fund.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for
Class A shares of the Fund based on the hypothetical value of
the Fund's net assets and number of shares outstanding on the
date of this Statement of Additional Information is as follows:
CLASS A
------
Net Assets..........................................
$25,000
=======
Number of Shares Outstanding............... 2,500
=======
Net Asset Value Per Share(net assets divided by
number of shares outstanding...................... $10.00
Sales Charge (for Class A Shares:
4.75% of Offering Price )*.............................
.475
-----------
Offering Price......................................
$10.475
=======
* Rounded to the nearest one-hundredth percent; assumes maximum
sales charge is applicable.
INDEPENDENT AUDITORS
[PRESENTLY UNKNOWN] has been selected as the independent
auditors of the Fund. The independent auditors are responsible
for auditing the annual financial statements of the Fund.
CUSTODIAN
[PRESENTLY UNKNOWN] (the "Custodian") acts as the custodian of
the Fund's assets. Under its contracts with the Fund, the
Custodian is authorized to establish separate accounts in
foreign currencies and to cause foreign securities owned by the
Fund to be held in its offices outside the United States and
with certain foreign banks and securities depositories. The
Custodian is responsible for safeguarding and controlling the
Fund's cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Fund's
investments.
TRANSFER AGENT
[PRESENTLY UNKNOWN] acts as the Fund's Transfer Agent pursuant
to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement").
The Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening, maintenance and servicing
of shareholder accounts.
LEGAL COUNSEL
Gerald Wolfe, Esq., Law In Progress, APC, 2102 Business Center
Drive, Irvine CA 92612, is counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on December 30 of each year.
The Fund sends to its shareholders at least semi-annually
reports showing information related to the Fund and other
information. An annual report, containing financial statements
audited by independent auditors, is sent to shareholders each
year. After the end of each year, shareholders will receive
Federal income tax information regarding dividends and capital
gains distributions.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the
address or telephone number set forth on the cover page of this
Statement of Additional Information.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do
not contain all the information set forth in the Registration
Statement and the exhibits relating thereto, which the Fund has
filed with the Commission, Washington, D.C., under the
Securities Act and the Investment Company Act, to which
reference is hereby made.
As of the date of this Statement of Additional Information,
the Manager, Bruce Edwin Graham owns 100% of the outstanding
common stock of the Fund. General Counsel, The Manager may be
deemed to control the Fund until such time as it owns less than
25% of the outstanding shares of the Fund.
INDEPENDENT AUDITORS' REPORT
There currently exists no accompanying statement of assets and
liabilities of Graham & Co. Funds, Inc. as of August 29, 2000.
ITEM 1. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's Articles
of Incorporation, Article VI of the Registrant's By-Laws, and
Section 2-418 of the Maryland General Corporation Law.
Insofar as the conditional advancing of indemnification moneys
for actions based on the Investment Company Act of 1940, as
amended (the "1940 Act") may be concerned, Article VI of the
Registrant's By-Laws provides that such payments will be made
only on the following conditions: (i) advances may be made only
on receipt of a written affirmation of such person's good faith
belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to repay
any such advance if it is ultimately determined that the
standard of conduct has not been met; and (ii) (a) such promise
must be secured by a security for the undertaking in form and
amount acceptable to the Registrant, (b) the Registrant is
insured against losses arising by receipt by the advance, or (c)
a majority of a quorum of the Registrant's disinterested non-
party Directors, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily
available facts, that at the time the advance is proposed to be
made, there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to
indemnification.
Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to Directors, officers and controlling
persons of the Registrant and the principal underwriter pursuant
to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in
connection with the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the
shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
ITEM 2. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be
maintained by section 31(a) of the 1940 Act and the rules
thereunder are maintained at the offices of the Registrant (1700
West Katella Avenue, 2nd Floor, Orange CA 92867), and its
transfer agent, ADS(address).
ITEM 3. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of
the Fund - Management and Advisory Arrangements" in the
Statement of Additional Information constituting Part B of the
Registration Statement, The Registrant is not a party to any
management-related service contact.
ITEM 4. UNDERTAKINGS.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Orange County, and
State of California, on the 29th day of August, 2000.
GRAHAM & CO. FUNDS, INC.
(Registrant)
By: __________________
(Bruce Graham, President)
GRAHAM & CO. FUNDS, INC.
(Registrant)
By: __________________
(Gerald Wolfe, Esq. Counsel and
Director)
Each person whose signature appears below hereby authorizes
Gerald Wolfe, as attorney-in-fact, to sign on his or her behalf,
individually and in each capacity stated below, any amendment to
this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
SIGNATURES
TITLE DATE
----------
----- ----
President
AUGUST 29, 2000
-----------------------------------------------------------
and Director
(Bruce Graham)
General
AUGUST 29, 2000
-----------------------------------------------------------
Counsel
(Gerald Wolfe, Esq. )
and
Director
INDEX TO EXHIBITS
EXHIBIT
NUMBER
-------
1 -- Articles of Incorporation, dated December 28,
1999.
2 -- By-Laws of the Registrant.
