KIT COLE STRATEGIC GROWTH FUND
A SERIES OF KIT COLE INVESTMENT TRUST
PROSPECTUS
NOVEMBER 1, 2000
MANAGED BY:
Kit Cole Investment Advisory Services
TOLL FREE 1-866-KIT-COLE (548-2653)
WW.KITCOLEFUNDS.COM
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The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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KIT COLE STRATEGIC GROWTH FUND
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THE KIT COLE STRATEGIC GROWTH FUND INVESTS PRIMARILY IN THE COMMON STOCK OF
COMPANIES WITH CAPITAL GROWTH POTENTIAL.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT CONTAINS
IMPORTANT INFORMATION, INCLUDING INFORMATION ON HOW KIT COLE STRATEGIC GROWTH
FUND INVESTS AND THE SERVICES THEY OFFER TO ITS SHAREHOLDERS.
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PROSPECTUS
NOVEMBER 1, 2000
TOLL FREE 1-866-KIT-COLE (548-2653) WWW.KITCOLEFUNDS.COM
TABLE OF CONTENTS
Overview of the Fund...........................................................3
Performance Summary............................................................6
Fees and Expenses..............................................................6
Management.....................................................................8
Distribution of Shares........................................................11
Pricing of Shares.............................................................11
How to Purchase Shares........................................................12
How to Sell Shares............................................................15
Retirement Plans..............................................................17
Distributions and Taxes.......................................................18
Shareholder Reports and Confirmations.........................................18
Financial Highlights..........................................................18
OVERVIEW OF THE FUND
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INVESTMENT OBJECTIVE
The investment objective for the Kit Cole Strategic Growth Fund (the "Fund") is
the long-term growth of your investment capital.
PRINCIPAL INVESTMENT STRATEGY
To achieve the Fund's objective, Kit Cole Investment Advisory Services (the
"Advisor") invests the Fund's assets primarily in the common stock of large,
well managed and well financed domestic or multi-national companies. The Advisor
looks for companies that have a minimum market capitalization of $10 billion and
accelerating projected revenues and earnings for the next one to five-year
periods. The Advisor believes that the stock prices of companies that grow their
revenue and profitability will increase over time. The Advisor's goal is to
minimize financial risk to the Fund by focusing on companies whose operations
will continue to be solvent and profitable even if there is a recession or stock
market decline.
In choosing companies, the Advisor develops a model of future growth trends for
both U.S. and foreign economies. Some key components the Advisor takes into
consideration for its model are demographics, interest rates/level of inflation,
stock market valuations, investor psychology, corporate earnings and corporate
management. The Advisor then identifies and selects the companies it feels best
fit into its model and are expected to benefit from these overall trends.
When deciding whether to purchase or sell securities of a company, the Advisor
looks for companies with rising share prices and strong fundamentals. The
Advisor intends to be rigorous about selling shares of those companies that have
experienced adverse changes in their fundamentals or whose shares under-perform
the rest of the portfolio. The Advisor believes that while the additional
turnover increases transaction costs, the process of eliminating the weakest
stocks will enhance the overall performance of the Fund. Portfolio turnover may
expose shareholders to a higher current realization of capital gains, which
could cause you to pay higher taxes. However, the Advisor will attempt to offset
any gains with losses in under-performing securities in efforts to minimize any
adverse tax consequences to shareholders.
TEMPORARY INVESTMENTS
In attempting to respond to adverse market, economic, political, or other
conditions, the Advisor may adopt temporary defensive positions that are
inconsistent with the Fund's principal investment strategies. During such times,
the Fund may temporarily invest up to 100% of its assets in cash or cash
equivalents, including money market instruments, prime commercial paper,
repurchase agreements, Treasury bills and other short-term obligations of the U.
S. Government, its agencies or instrumentalities. To the extent the Fund invests
in these temporary investments, the Fund may not achieve its investment
objective.
PRINCIPAL RISKS
Investing in the Fund involves certain risks that could cause you to lose money.
The following risks could affect the value of your investment:
STOCK MARKET RISKS: Like all mutual funds that invest in stocks, the Fund is
subject to stock market risks and significant fluctuations in value. If the
stock market declines in value, the Fund is likely to decline in value.
STOCK SELECTION RISKS: The stocks selected by the Advisor may decline in value
or not increase in value when the stock market in general is rising.
Furthermore, stocks may fail to meet the Fund's objective or they may not
achieve the earnings anticipated by the Advisor.
FOREIGN SECURITIES RISKS: The Fund can invest in foreign securities, which
involve more risks than those associated with domestic investments. Additional
risks include currency fluctuations, political and economic instability,
differences in financial reporting standards, and less stringent regulation of
stock markets.
NON-DIVERSIFICATION RISKS: The Fund is a non-diversified Fund. As such, the Fund
has added risk because it may invest a greater percentage of assets in a more
limited number of issuers compared to other mutual funds.
WHO MAY WANT TO INVEST
This Fund may be appropriate for investors who:
|X| are looking for capital gain potential,
|X| want a Fund that can be a core portfolio holding and a complement to other
types of investments, and
|X| are willing to accept higher short-term risk for longer-term growth of
capital.
WHO MAY NOT WANT TO INVEST
This Fund may not be appropriate for investors who:
|X| are looking for a Fund that produces interest or dividend income, or
|X| have a short-term investment horizon.
PERFORMANCE SUMMARY
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There is no operating performance information available for the Fund at this
time because the Fund has recently commenced operations. For additional
information refer to "Historical Investment Results of the Advisor's Private
Accounts."
FEES AND EXPENSES
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As an investor, you may pay certain fees and expenses if you buy and hold shares
of the Fund. These fees are described in the tables below and further explained
in the example that follows.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on None
Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
(as percentage of offering price)
Maximum Sales Charge (Load) Imposed on None
Reinvested Dividends
Redemption Fee 1.00%(1)
Exchange Fee None
(1) The Fund charges a fee of 1.00% on redemptions of shares held for less than
6 months.
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ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
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Management Fees 1.25%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 1.52%
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Total Annual Operating Expenses 3.02%
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Less Expense Reimbursement2 -1.02%
Net Annual Operating Expenses 2.00%
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(2) The Advisor has contractually agreed to absorb expenses of the Fund and/or
waive fees due to the Advisor in order to ensure that total Fund operating
expenses on an annual basis do not exceed 2.00%. This contract expires September
29, 2001, but may be annually renewed by the Board of Trustees. The Advisor may
recapture some or all of the amounts it waives or absorbs on behalf of the Fund
over a period of three to five years if it is able to do so without causing Fund
operating expenses to exceed the 2.00% cap.
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EXAMPLE This example is intended to help compare the cost of investing in this
Fund with the cost of investing in other mutual funds. This example assumes
that:
(1) you invest $10,000 in the Fund for the time period indicated and then
redeem all of your shares at the end of those periods,
(2) your investment has a 5% return each year,
(3) all dividends and distributions have been reinvested, and
(4) the Fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
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1 YEAR* 3 YEARS
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$203 $838
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*Redemptions within 6 months of purchase are subject to a redemption fee of
1.00%.
MANAGEMENT
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INVESTMENT ADVISOR
Kit Cole Investment Advisory Services, Inc. ("Advisor"), 851 Irwin Street, San
Rafael, California, 94901, is the investment advisor for the Fund. The Advisor
has been retained under an Investment Advisory Agreement with Kit Cole
Investment Trust to act as the Fund's investment advisor subject to the
authority of the Board of Trustees. (The Statement of Additional Information
contains more information regarding the Board of Trustees). Under the Investment
Advisory Agreement, the Advisor receives a monthly fee computed at an annual
rate of 1.25% of average daily net assets. The Advisor has signed an Expense
Limitation and Reimbursement Agreement, which contractually requires the Advisor
to either waive fees due to it or subsidize various operating expenses of the
Fund so that the total annual Fund operating expenses do not exceed 2.00% of
average daily net assets. The Agreement expires September 29, 2001, but may be
renewed annually by vote of a majority of the Board of Trustees. The Agreement
permits the Advisor to recapture any waivers or subsidies it makes only if the
amounts can be recaptured within 5 years and without causing the Fund's total
annual operating expenses to exceed the applicable cap. The Board of Trustees
must also approve any recapture.
The Advisor furnishes the Fund with investment advice and, in general,
supervises the management of the Fund. The Advisor provides all necessary
administrative services, office space, equipment, clerical personnel for
servicing the investments of the Fund, investment advisory facilities, and
executive and supervisory personnel for managing the investments and effecting
the securities transactions of the Fund. In addition, the Advisor pays the
salaries and fees of all officers and trustees of Kit Cole Investment Trust who
are affiliated persons of the Advisor. The Advisor has over $180 million of
assets under management, which include privately managed accounts.
PORTFOLIO MANAGER
Kit M. Cole is the portfolio manager of the Fund and is the primary person
responsible for the day-to-day management. Prior to becoming the Fund's
portfolio manager, Ms. Cole managed private investment portfolios since
1978. Ms. Cole has over 30 years of investment experience. Ms. Cole holds a
Master's degree from the University of California, Berkeley in Finance and a
Bachelor's degree from Long Beach State University.
FUND ADMINISTRATION, FUND ACCOUNTING, TRANSFER AGENT, CUSTODY, AUDIT AND LEGAL
SERVICES
Firstar Mutual Fund Services, LLC serves as the Fund's administrator, transfer
agent and fund accountant. As such, Firstar Mutual Fund Services, LLC provides
all necessary recordkeeping services and share transfer services for the Fund.
Firstar Bank, N.A. serves as the Fund's custodian. Arthur Andersen LLP serves as
the independent public accountant for purposes of auditing the Fund. Paul,
Hastings, Janofsky & Walker LLP serves as the Fund's legal counsel.
HISTORICAL INVESTMENT RESULTS OF THE ADVISOR'S PRIVATE ACCOUNTS
The table below shows certain performance data provided by the Advisor relating
to investment results of a composite of the Advisor's private client accounts
(the "Accounts"). (Private accounts with less than $60,000 in assets are not
included in the performance calculations.) The Accounts constitute portfolios
managed by the Advisor during the four-year period ended December 31, 1999 using
the same investment objective and substantially similar investment strategies
and techniques as those specified for the Fund. The Accounts meet certain
criteria as to minimum account value, discretionary status, taxable status and
period of management of more than one month. The Accounts are not subject to the
same types of expenses to which the Fund is subject, nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Fund by the Investment Company Act of 1940, or the Internal Revenue Code of
1986. The performance of the Accounts would have been adversely affected had
they been subject to the same expenses, restrictions and limitations as the
Fund. The Advisor believes that any adverse effect would not have been
significant. The results presented are not intended to predict or suggest the
return to be experienced by the Fund or the return one might achieve by
investing in the Fund. One should not rely on the following data as an
indication of future performance of the Advisor or of the Fund. If the higher
expense structure of the Fund were used on the Accounts, the performance of the
Accounts would have been lower than shown.
PRIOR PERFORMANCE OF ADVISOR'S PRIVATE ACCOUNTS
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AVERAGE ANNUAL TOTAL ACCOUNTS RUSELL 1000 GROWTH S&P 500(3)
RETURNS AS OF 12/31/99 (NET OF FEES)(1) INDEX (2)
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FOURTH QUARTER 1999 27.7% 25.0% 14.9%
1-YEAR 32.7% 32.3% 21.0%
3-YEAR 37.4% 32.8% 27.6%
SINCE INCEPTION 29.0% 30.9% 28.6%
(12/31/1995)*
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*This date indicates the first date the Accounts were managed using the "growth"
investment style intended to be used with the Fund. Prior to that date, the
Accounts were managed by a different portfolio manager, with a very different
investment style.
Please read the following important notes concerning the Accounts:
(1) The results for the Accounts reflect income, capital appreciation and
depreciation (total return). Dividends and other items of income are
accounted for on a cash basis. Returns are time weighted and represent
the dollar-weighted average of the Accounts.
(2) The Russell 1000 Growth Index measures the growth-oriented half of the
largest 1000 companies by market capitalization included in the New
York Stock Exchange, American Stock Exchange, and the NASDAQ.
(3) The S&P 500 Index consists of 500 stocks chosen by Standard and Poor's
for market size, liquidity and industry group representation. It is a
market-value weighted unmanaged index (stock price times number of
shares outstanding) with each stock's weight in the S&P 500 Index
proportionate to its market value.
SPECIAL NOTE CONCERNING ADVISOR INVESTMENT RETURNS: You should note that the
Fund computes and disclose its average annual total return using the standard
formula set forth in rules promulgated by the Securities and Exchange Commission
("SEC"), which differs in certain respects from the methods used to compute the
returns for the Accounts noted above. The SEC total return calculation method
calls for the computation and disclosure of an average annual compounded rate of
return for one, three, five and ten year periods or shorter periods from
inception. The SEC formula provides a rate of return that equates a hypothetical
initial investment of $10,000 to an ending redeemable value. The returns shown
for the Accounts are reduced to reflect the deduction of advisory fees in
accordance with the SEC calculation formula, which requires that returns shown
for a Fund be net of advisory fees as well as all other applicable Fund
operating expenses. Performance was calculated on a trade date basis.
DISTRIBUTION OF SHARES
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DISTRIBUTOR
Quasar Distributors, LLC ("Distributor") serves as distributor and principal
underwriter for the shares of Kit Cole Investment Trust pursuant to an
Underwriting Agreement.
RULE 12B-1 SERVICES PLAN
The Fund has adopted a Rule 12b-1 Services Plan to provide certain shareholder
servicing activities for the shareholders of the Fund. The maximum level of Rule
12b-1 expenses is 0.25% per year of the Fund's average daily net asset value. As
these fees are paid out of the Fund's assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
PRICING OF SHARES
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Shares of the Fund are sold at their net asset value (NAV). The NAV for all
shares of the Fund is determined as of the close of regular trading on the New
York Stock Exchange ("NYSE") (normally 4:00 p.m., Eastern time) on every
business day. The NAV for the Fund is calculated by dividing the sum of the
value of the securities held plus cash or other assets minus all liabilities by
the total number of shares outstanding of the Fund. The NYSE is closed on
weekends and most national holidays.
The Fund's investments are valued according to market value. When a market quote
is not readily available, the security's value is based on "fair value" as
determined by the Advisor under supervision of the Fund's Board of Trustees.
If your purchase order is in "good order" (see "How to Purchase Shares") and
delivered to the Fund's transfer agent before the close of the regular trading
session of the NYSE on any business day, your order will receive the share price
next determined for the Fund as of that day. If your order is received after the
close of the regular trading session of the NYSE, it will receive the price
determined on the next business day.
HOW TO PURCHASE SHARES
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This open account, you must invest at least the minimum amount.
MINIMUM INVESTMENTS TO OPEN TO ADD TO
YOUR ACCOUNT YOUR ACCOUNT
Regular accounts $1,000 $100
IRA accounts, pension
plans, 401Ks, UTMAs, $ 100 $ 50
etc.
GOOD ORDER PURCHASE REQUESTS
When making a purchase request, make sure your request is in good order. "Good
order" means your purchase request includes:
|X| the NAME of the Fund
|X| the DOLLAR amount of shares to be purchased
|X| account application form or investment stub
|X| check payable to the "Kit Cole Strategic Growth Fund"
THROUGH A You can purchase shares of the Fund through any
BROKER/DEALER broker-dealer organization that agrees to offer share of the
ORGANIZATION Fund. The broker-dealer organization is responsible for
sending your purchase order to the Fund's transfer agent.
Please keep in mind that your broker-dealer may charge
additional fees for its services.
BY MAIL You can purchase shares of the Fund directly from the Fund's
transfer agent, Firstar Mutual Fund Services, LLC. To open
an account, complete an account application form and send it
together with your check to the address below. To make
additional investments once you have opened your account,
send your check together with the detachable form that's
included with your Fund account statement or confirmation.
You may also send a letter stating the amount of your
investment with your name, the name of the Fund and your
account number together with a check to the address below.
Checks should be made payable to "Kit Cole Strategic
Growth Fund." No third party checks will be accepted. If
your check is returned for any reason, a $25 fee will be
assessed against your account.
REGULAR MAIL
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Kit Cole Strategic Growth Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
OVERNIGHT DELIVERY
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Kit Cole Strategic Growth Fund
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53202
NOTE: The Fund does not consider the U.S. Postal Service or
other independent delivery services to be its agents.
BY TELEPHONE To make additional investments by telephone, you
must check the appropriate box on your account application
form authorizing telephone purchases. If you have given
authorization for telephone transactions and your account
has been open for at least 15 days, call the Fund toll free
at 1-866-KIT-COLE and you will be allowed to move money from
your bank account to your Fund account upon request. Only
bank accounts held at domestic institutions that are
Automated Clearing House (ACH) members may be used for
telephone transactions. For security reasons, requests by
telephone will be recorded.
BY WIRE To open an account or to make additional investments by
wire, call 1-866-KIT-COLE to notify the Fund of the incoming
wire using the wiring instructions below:
Firstar Bank, N.A.
Milwaukee, WI 53202
ABA #: 042000013
Credit: Firstar Mutual Fund Services, LLC
Account #: 112-952-137
Further Credit: Kit Cole Investment Trust,
Kit Cole Strategic Growth Fund
(your name or the title on the account)
(your account #)
THROUGH AN Once your account has been opened, you may purchase shares
AUTOMATIC of the Fund through an Automatic Investment Plan ("AIP").
INVESTMENT You can have money automatically transferred from your
PLAN checking or savings account on a weekly, bi-weekly, monthly,
bi-monthly or quarterly basis. To be eligible for this
plan, your bank must be a domestic institution that is an
ACH member. The Fund may modify or terminate the AIP at any
time. The first AIP purchase will take place no earlier than
15 days after the transfer agent has received your request.
HOW TO SELL SHARES
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THROUGH A If you purchased your shares through a broker-dealer or
BROKER/DEALER other financial organization, your redemption order
OR FINANCIAL should be placed through the same organization. Your broker
CONSULTANT or financial consultant is responsible for sending your
redemption order to the Fund's transfer agent on a timely
basis. Please keep in mind that your broker or financial
consultant may charge additional fees for its services.
BY MAIL If you purchased your shares from the Fund's transfer agent,
you should send your written redemption request to the
address below. Your request should contain the Fund's name,
your account number and the number of shares or the dollar
amount of shares to be redeemed. Be sure to have all
account holders sign the letter. Additional documents are
required for shareholders that are corporations,
partnerships, executors, trustees, administrators, or
guardians (I.E., corporate resolutions or trust documents
indicating proper authorization). Please see the
Statement of Additional Information for more information.
REGULAR MAIL
------------
Kit Cole Strategic Growth Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
OVERNIGHT DELIVERY
------------------
Kit Cole Strategic Growth Fund
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53202
The Fund's transfer agent may require a SIGNATURE GUARANTEE
for certain redemption requests such as redemption requests
from IRA accounts, or redemption requests made payable to a
person or an address not on record with the Fund. A
signature guarantee assures that your signature is genuine
and protects you from unauthorized account transfers. You
may obtain signature guarantees from most trust companies,
commercial banks or other eligible guarantor institutions. A
NOTARY PUBLIC CANNOT GUARANTEE SIGNATURES.
BY TELEPHONE If you are authorized to perform telephone transactions
(either through your account application form or by
subsequent arrangement in writing with the Fund) you
may redeem shares in any amount, but not less than $100, by
calling 1-866-KIT-COLE. A signature guarantee is required of
all shareholders to change or add telephone redemption
privileges. For security reasons, requests by telephone will
be recorded.
BY WIRE To redeem shares by wire, call the Fund at 1-866-KIT-COLE
and specify the amount of money you wish to be wired. Your
bank may charge a fee to receive wired funds. The transfer
agent charges a $12 outgoing wire fee.
THROUGH A If you own shares with a value of $10,000 or more, you may
SYSTEMATIC participate in the systematic withdrawal plan. The
WITHDRAWAL PLAN systematic withdrawal plan allows you to make automatic
withdrawals from your Fund account at regular intervals. The
minimum withdrawal amount is $250. Money will be transferred
from your Fund account to the account you choose on your
account application form. If you expect to purchase
additional shares of the Fund, it may not be to your
advantage to participate in the systematic withdrawal plan
because of the possible adverse tax consequences of making
contemporaneous purchases and redemptions. Redemptions made
under the systematic withdrawal plan will not be subject to
the redemption fee.
WHEN REDEMPTION PROCEEDS ARE SENT TO YOU
Your shares will be redeemed at the NAV next determined after the Fund receives
your redemption request in good order. Your redemption request cannot be
processed on days the NYSE is closed.
All requests received in good order by the Fund before the close of the regular
trading session of the NYSE (normally 4:00 p.m. Eastern time) will normally be
wired to the bank you indicate or mailed on the following day to the address of
record. In no event will proceeds be wired or a check mailed more than 7
calendar days after the Fund receives your redemption request.
If you purchase shares using a check and soon after request a redemption, the
Fund will honor the redemption request, but will not mail the proceeds until
your purchase check has cleared (usually within 12 days).
REDEMPTION REQUESTS IN GOOD ORDER
When making a redemption request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
|X| the NAME of the Fund
|X| the DOLLAR AMOUNT or the NUMBER of shares to be redeemed
|X| SIGNATURES of all registered shareholders exactly as the shares are
registered
|X| the ACCOUNT number
REDEMPTION FEE
If you redeem shares of the Fund after holding them for less than 6 months, the
Fund will charge a fee of 1.00% of the value of the shares redeemed. This fee is
paid to the Fund to cover the costs of maintaining accounts that are abnormally
active.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
mail you a notice if your account falls below $1,000 ($100 for IRA accounts)
requesting that you bring the account back up to $1,000 ($100 for IRA accounts)
or close it out. If you do not respond to the request within 30 days, the Fund
may close the account on your behalf and send you the proceeds.
RETIREMENT PLANS
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You may purchase shares of the Fund for your individual retirement accounts
including Traditional IRA, Rollover IRA, Roth IRA, Educational IRA, SEP IRA,
Simple IRA and 401K accounts. To obtain the appropriate disclosure documentation
and complete information on how to open a retirement account, call
1-866-KIT-COLE.
DISTRIBUTIONS AND TAXES
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The Fund will distribute substantially all of the net investment income and net
capital gains that it has realized in the sale of securities. These income and
gains distributions will generally be paid once each year, on or before December
31. Distributions will automatically be reinvested in additional shares of the
Fund, unless you elect to have the distributions paid to you in cash.
In general, Fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional Fund shares or receive them in cash. Any long-term capital gains the
Fund distributes are taxable to you as long-term capital gains no matter how
long you have owned your shares. If the Fund distributes realized gains soon
after you purchase shares, a portion of your investment may be returned as a
taxable distribution.
When you sell your shares of the Fund, you may have a capital gain or loss. The
individual tax rate on any gain from the sale of your shares depends on your
marginal tax rate and on how long you have held your shares.
Fund distributions and gains from the sale of your shares generally will be
subject to state and local income tax. Non-U.S. investors may be subject to U.S.
withholding and estate tax. You should consult your tax advisor about the
federal, state, local or foreign tax consequences of your investment in the
Fund.
SHAREHOLDER REPORTS AND CONFIRMATIONS
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As a shareholder, you will be provided annual and semi-annual reports showing
the Fund's portfolio investments and financial information. You will also
receive confirmations of your purchases and redemptions of Fund shares. Account
statements will be mailed to you on an annual basis.
FINANCIAL HIGHLIGHTS
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The Fund has recently commenced operations therefore no financial highlights are
available for the Fund.
INVESTMENT ADVISOR
Kit Cole Investment Advisory Services
San Rafael, California
DISTRIBUTOR
Quasar Distributors, LLC
Milwaukee, Wisconsin
INDEPENDENT AUDITORS
Arthur Andersen LLP
Milwaukee, Wisconsin
LEGAL COUNSEL
Paul, Hastings, Janofsky & Walker LLP
San Francisco, California
ADMINISTRATOR, TRANSFER AGENT,
AND FUND ACCOUNTANT
Firstar Mutual Fund Services, LLC
Milwaukee, Wisconsin
CUSTODIAN
Firstar Bank, N.A.
Cincinnati, Ohio
WHERE TO FIND MORE INFORMATION:
You can find more information about the Kit Cole Strategic Growth Fund in the
following documents:
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 1, 2000
The Statement of Additional Information for the Fund provides more details about
the Fund's policies and management. The Fund's Statement of Additional
Information is incorporated by reference into this Prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
After the Fund has been operating for the appropriate time, annual and
semi-annual reports will be made available. The Fund's annual and semi-annual
reports provide the most recent financial reports and portfolio listings. The
annual report contains a discussion of the market conditions and investment
strategies that affected the Fund's performance during the last fiscal year.
You can obtain a free copy of these documents or request other information about
the Fund by calling the Fund at 1-866-KIT-COLE or by writing to:
KIT COLE STRATEGIC GROWTH FUND
C/O FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53201-0701
You may write to the Securities and Exchange Commission ("SEC") Public Reference
Room at the regular mailing address or the e-mail address below and ask them to
mail you information about the Fund, including the SAI. They will charge you a
fee for this duplicating service. You can also visit the SEC Public Reference
Room and copy documents while you are there. For more information about the
operation of the Public Reference Room, call the SEC at the telephone number
below.
PUBLIC REFERENCE SECTION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0102
[email protected]
1-202-942-8090
Reports and other information about the Fund are available on the EDGAR Database
on the SEC's Internet site at HTTP://WWW.SEC.GOV.
1940 Act File No. 811-09887
KIT COLE STRATEGIC GROWTH FUND
A SERIES OF KIT COLE INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 2000
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus of the Kit Cole Strategic
Growth Fund dated November 1, 2000, and should be read together with that
Prospectus. To receive a copy of the Prospectus, write to Kit Cole Investment
Trust or call the nationwide toll free number 1-866-KIT-COLE.
KIT COLE INVESTMENT TRUST
C/O FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WISCONSIN 53201-0701
TABLE OF CONTENTS
General Information about Kit Cole Investment Trust............................2
Description of the Kit Cole Strategic Growth Fund..............................2
Investment Restrictions........................................................3
Investments and Risks..........................................................4
Management of the Fund.........................................................8
Control Person and Principal Holders of Securities.............................9
Investment Advisor.............................................................9
Code of Ethics................................................................10
Fund Administration...........................................................11
Custodian.....................................................................11
Legal Counsel.................................................................11
Distributor...................................................................11
Distribution Plan.............................................................11
Portfolio Transactions and Brokerage Allocations..............................12
Purchase of Shares............................................................13
Redemption of Shares..........................................................14
Pricing of Shares.............................................................14
Tax Status....................................................................15
Calculations of Performance Data..............................................16
Independent Accountants.......................................................17
Financial Statements..........................................................18
KIT COLE STRATEGIC GROWTH FUND
GENERAL INFORMATION ABOUT KIT COLE INVESTMENT TRUST
--------------------------------------------------------------------------------
The Kit Cole Strategic Growth Fund is the first of several anticipated
mutual funds that are part of the Fund group called Kit Cole Investment Trust
(the "Trust"). The Trust is an open-end investment management company and was
organized as a Delaware business trust on March 28, 2000. The Trust currently
offers one series of shares to investors, the Kit Cole Strategic Growth Fund
(the "Fund"). The Fund is a non-diversified series and has its own investment
objective and policies. The Trust may start other series and offer shares of new
funds under the Trust at any time. The Fund's registered office in Delaware is
The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801
and its principal office is 851 Irwin Street, San Rafael, California, 94901.
Shares, when issued, will be fully paid and nonassessable. Shares of
the Fund have equal dividend, voting, liquidation and redemption rights, and are
voted in the aggregate and not by class except in matters where a separate vote
is required by the Investment Company Act of 1940 (the "1940 Act") or when the
matter affects only the interest of a particular class. The beneficial interest
of the Trust is divided into an unlimited number of shares, with no par value.
When matters are submitted to shareholders for a vote, each shareholder is
entitled to one vote for each full share owned and fractional votes for
fractional shares owned. The Trust does not normally hold annual meetings of
shareholders. The Trustees shall promptly call and give notice of a meeting of
shareholders for the purpose of voting upon removal of any Trustee when
requested to do so in writing by shareholders holding 10% or more of the Trust's
outstanding shares. The Trust will comply with the provisions of Section 16(c)
of the 1940 Act in order to facilitate communications among shareholders. Shares
will be maintained in open accounts on the books of the Transfer Agent, and
certificates for shares will generally not be issued.
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities belonging to that Fund with each other share of that
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any Fund into a greater or lesser number of shares of that Fund so long as the
proportionate beneficial interests in the assets belonging to that Fund and the
rights of shares of any other Fund are in no way affected. In case of any
liquidation of a Fund, the holders of shares of the Fund being liquidated will
be entitled to receive as a class a distribution out of the assets, net of the
liabilities, belonging to that Fund. Expenses attributable to any Fund are borne
by that Fund. Any general expenses of the Trust not readily identifiable as
belonging to a particular Fund are allocated by or under the direction of the
Trustees in such manner as the Trustees deem equitable. No shareholder is liable
to further calls or to assessment by the Trust without his or her express
consent.
The assets of the Fund received for the issue or sale of its shares,
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, shall constitute the underlying assets of the Fund. In the
event of the dissolution or liquidation of the Fund, the holders of shares of
the Fund are entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
DESCRIPTION OF THE KIT COLE STRATEGIC GROWTH FUND
--------------------------------------------------------------------------------
The Fund is a non-diversified Fund and seeks to achieve the long-term
growth of your investment CAPITAL. The investment objective is fundamental and
therefore cannot be changed without the approval of shareholders.
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
In addition to the investment objectives and policies set forth in the
Prospectus, the Fund is subject to certain investment policies and restrictions,
as set forth below. The Fund's investment objective and fundamental policies and
restrictions may not be changed without the vote of a majority of the Fund's
outstanding shares. "Majority," as used in the Prospectus and in this Statement
of Additional Information, means the lesser of (a) 67% of the Fund's outstanding
shares voting at a meeting of shareholders at which more than 50% of the
outstanding shares are represented in person or by proxy or (b) a majority of
the Fund's outstanding shares. Unless specifically identified as fundamental,
each investment policy discussed in the Prospectus or this Statement of
Additional Information is not fundamental and may be changed by the Fund's Board
of Trustees without shareholder approval.
For purposes of the investment restrictions, all percentage and rating
limitations apply at the time of acquisition of a security, and any subsequent
change in any applicable percentage resulting from market fluctuations or in a
rating by a rating service will not require elimination of any security from the
Fund.
As fundamental policies, unless otherwise specified below, the Fund
will not:
1. Invest in the securities of companies in any one industry, with
the exception of securities issued or guaranteed by the U.S.
Government, its agencies, and instrumentalities, if as a result,
more than 25% of the Fund's total assets would be invested in such
industry. Various types of technology and utilities companies are
considered to be in separate industries.
2. Issue any senior securities except as permitted by the 1940 Act.
3. Underwrite securities of other issuers, except that the Fund may
acquire portfolio securities under circumstances where if sold,
the Fund might be deemed an underwriter for purposes of the
Securities Act of 1933.
4. Borrow money except:
(a) from banks to purchase or carry securities or other investments,
(b) from banks for temporary or emergency purposes, or
(c) by entering into reverse repurchase agreements,
if, immediately after any such borrowing, the value of the Fund's
assets, including all borrowings then outstanding less its
liabilities, is equal to at least 300% of the aggregate amount of
borrowings then outstanding (for the purpose of determining the
300% asset coverage, the Fund's liabilities will not include
amounts borrowed). Any such borrowings may be secured or
unsecured. The Fund may issue securities (including senior
securities) appropriate to evidence the indebtedness, including
reverse repurchase agreements, which the Fund is permitted to
incur.
5. Purchase or sell commodities or commodity futures contracts,
except that the Fund may purchase no more than the aggregate of 5%
of stock and bond index options, financial futures contracts and
options on such contracts.
6. Purchase or sell real estate or real estate mortgage loans, except
that the Fund may invest no more than 5% of its assets in
securities secured by real estate or interests therein or issued
by companies that invest in real estate or interests therein.
7. Make loans, except that the Fund may (a) purchase and hold debt
obligations in accordance with its investment objective and
policies, (b) enter into repurchase agreements, (c) lend portfolio
securities on a collateralized basis, and (d) engage in similar
cash management and income enhancement transactions.
The Fund has also adopted the following restrictions for the Fund that
are not fundamental policies and may be changed by the Board of Trustees without
shareholder approval. The Fund shall not:
1. Invest in companies for the purpose of exercising control or
management.
2. Purchase the securities of other investment companies except as
permitted by the 1940 Act.
3. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions.
4. Invest more than 15% of its net assets in illiquid securities,
such as restricted securities, repurchase agreements with a
maturity of more than seven days, or securities with no readily
available market quotation.
INVESTMENTS AND RISKS
--------------------------------------------------------------------------------
Although not part of the Fund's principal strategy, the Fund may invest
in small or medium-size companies that meet the Advisor's criteria and display
the potential for long-term capital growth. The Fund may also invest in
securities convertible into common stock. If the Advisor sees an opportunity for
capital growth within foreign markets, the Fund may also invest a portion of its
assets in common stock of foreign companies. These non-principal strategies, as
well as others, are further discussed below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government Securities, which are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Obligations issued by the U.S. Treasury include Bills, Notes
and Bonds ("Treasury Securities") which differ from each other mainly in their
interest rates and the length of their maturity at original issue. In this
regard, Treasury Bills have a maturity of one year or less, Treasury Notes have
maturities of one to ten years and Treasury Bonds generally have maturities
greater than ten years. Such Treasury Securities are backed by the full faith
and credit of the U.S. Government. As with all fixed-income securities, various
market forces influence the value of such securities. There is an inverse
relationship between the market value of such securities and yield. As interest
rates rise, the value of the securities falls; conversely, as interest rates
fall, the market value of such securities rises.
BOND SECURITIES
To the extent the Fund invests in bonds, it will be exposed to the
risks of bond investing. A bond's market value is affected significantly by
changes in interest rates. Generally, when interest rates rise, the bond's
market value declines and when interest rates decline, its market value rises.
Also, the longer a bond's maturity, the greater the risk and the higher its
yield. Conversely, the shorter a bond's maturity, the lower the risk and the
lower its yield. A bond's value can also be affected by changes in the bond's
credit quality rating or its issuer's financial condition.
CONVERTIBLE SECURITIES
To the extent the Fund invests in convertible securities, it will be
exposed to the risks of convertible securities. Convertible securities are
securities that may be exchanged or converted into a predetermined number of the
issuer's underlying common shares at the option of the holder during a specified
time period. Convertible securities may take the form of convertible preferred
stock, convertible bonds or debentures, or a combination of the features of
these securities. As with all fixed-income securities, various market forces
influence the market value of convertible securities, including changes in the
prevailing level of interest rates. As the level of interest rates increases,
the market value of convertible securities tends to decline and, conversely, as
interest rates decline, the market value of convertible securities tends to
increase. The unique investment characteristic of convertible securities (the
right to exchange for the issuer's common stock) causes the market value of the
convertible securities to increase when the value of the underlying common stock
increases. However, because security prices fluctuate, there cannot be an
assurance of capital appreciation. Most convertible securities will not reflect
as much capital appreciation as their underlying common stocks.
OPTIONS TRANSACTIONS
The Fund may write exchange-traded covered call and put options on or
relating to specific securities in order to earn additional income or to
minimize or hedge against anticipated declines in the value of the Fund's
securities. All call options written by the Fund are covered, which means that
the Fund will own the securities subject to the option as long as the option is
outstanding. All put options written by the Fund are covered, which means that
the Fund has deposited with the Trust's custodian cash or liquid securities with
a value at least equal to the exercise price of the option. Call and put options
written by the Fund may also be covered to the extent that the Fund's
liabilities under such options are offset by its rights under call or put
options purchased by the Fund (E.G. closing purchase transactions) and call
options written by the Fund may also be covered by depositing cash or liquid
securities with the Trust's custodian in the same manner as written puts are
covered. Some of the more frequently used stock indices for which options are
currently traded include the S&P 500 Index, Value Line Index, National OTC
Index, Major Market Index, and NYSE Beta Index. The Fund may also use options on
such other indices as may now or in the future be available.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements on U.S. Government
Securities or other liquid securities to invest cash awaiting investment and/or
for temporary defensive purposes. A repurchase agreement involves the purchase
by the Fund of liquid securities, usually U.S. Government Securities with the
condition that after a stated period of time (usually seven days or less) the
original seller will buy back the same securities ("collateral") at a
predetermined price or yield. Repurchase agreements involve certain risks not
associated with direct investments in securities. In the event the original
seller defaults on its obligation to repurchase, as a result of its bankruptcy
or otherwise, the Fund will have to sell the collateral, which action could
involve costs or delays. In such case, the Fund's ability to dispose of the
collateral to recover such investment may be restricted or delayed. While
collateral will at all times be maintained in an amount equal to the repurchase
price under the agreement (including accrued interest due thereunder), to the
extent proceeds from the sale of collateral were less than the repurchase price,
the Fund would suffer a loss.
MONEY MARKET INSTRUMENTS
Under normal market conditions, the Fund will stay fully invested in
stocks. However, the Fund may temporarily depart from its principal investment
strategy by making short term investments in cash equivalents in response to
adverse markets, economic or political conditions. This may result in the Fund
not reaching its investment objective. The Fund may invest in money market
instruments, which include:
(a) U.S. Treasury Bills;
(b) U.S. Treasury Notes with maturities of 18 months or less;
(c) U.S. Government Securities subject to repurchase agreements;
(d) Obligations of domestic branches of U.S. banks (including
certificates of deposit and bankers' acceptances with maturities
of 18 months or less) which, at the date of investment, have
capital, surplus, and undivided profits (as of the date of their
most recently published financial statements) in excess of
$10,000,000 and obligations of other banks or savings and loan
associations if such obligations are insured by the Federal
Deposit Insurance Corporation ("FDIC");
(e) Commercial paper which at the date of investment is rated A-1 by
S&P or P-1 by Moody's or, if not rated, is issued or guaranteed as
to payment of principal and interest by companies which, at the
date of investment, have an outstanding debt issue rated AA or
better by S&P or Aa or better by Moody's;
(f) Short-term (maturing in one year or less) corporate obligations
which, at the date of investment, are rated AA or better by S&P or
Aa or better by Moody's; and
(g) Shares of no-load money market mutual funds (subject to the
ownership restrictions of the 1940 Act). Investment by the Fund in
shares of a money market mutual fund indirectly results in the
investor paying not only the advisory fee and related fees charged
by the Fund, but also the advisory fees and related fees charged
by the Advisor and other entities providing services to the money
market mutual fund.
SMALL AND MEDIUM-SIZED COMPANIES
To the extent the Fund invests in small or medium-size companies, it
will be exposed to the risks of smaller sized companies. Small and medium-size
companies often have narrower markets for their goods and/or services and more
limited managerial and financial resources than larger, more established
companies. As a result, their performance can be more volatile and they face
greater risk of business failure, which could increase the volatility of the
Fund's portfolio.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase short-term obligations on a when-issued or
delayed delivery basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause Fund to miss a price
or yield considered advantageous.
SECURITIES LENDING
The Fund may lend portfolio securities up to 50% of the value of its
total assets, on a short- or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The collateral received when the Fund
lends portfolio securities must be valued daily and, should the market value of
the loaned securities increase, the borrower must furnish additional collateral
to the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Fund would not have the right
to vote securities on loan, but would terminate the loan and regain the right to
vote if that were considered important with respect to the investment. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions that the Advisor has determined are creditworthy under guidelines
established by the Fund's Board of Trustees. The Fund must also receive
collateral in the form of cash or U.S. government securities equal to at least
100% of the securities loaned at all times.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in a limited amount of restricted securities.
Restricted securities are securities that are thinly traded or whose resale is
restricted by federal securities laws. Restricted securities are any securities
in which the Fund may invest pursuant to their investment objective and policies
but which are subject to restrictions on resale under federal securities laws.
The Fund's Board of Trustees has established criteria that allows the Advisor to
consider certain restricted securities as liquid.
BORROWING
The Fund may borrow up to 50% of the value of its total assets as a
temporary, extraordinary, or emergency measure or to facilitate management of
the Fund by enabling the Fund to meet redemption requests when the liquidation
of portfolio securities is deemed to be inconvenient or disadvantageous.
Interest paid on borrowed funds would decrease the net earnings of that Fund.
The Fund will not purchase portfolio securities while outstanding borrowings
exceed 5% of the value of the Fund's total assets. The Fund may mortgage,
pledge, or hypothecate its assets in an amount not exceeding 10% of the value of
its total assets to secure temporary or emergency borrowing.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. This transaction
is similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration, plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a specific period of
time. If the market price of the common stock does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be greater
than the percentage increase or decrease in the market price of the optioned
common stock.
REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in equity or mortgage real estate investment trusts
(REITs) that together produce income. A REIT is a managed portfolio of real
estate investments. An equity REIT holds equity positions in real estate and
provides its shareholders with income from the leasing of its properties and
capital gains from any sales of properties. A mortgage REIT specializes in
lending money to developers of properties and passes any interest income earned
to its shareholders. Risks associated with real estate investments include the
fact that equity and mortgage real estate investment trusts are dependent upon
management skill and are not diversified, and are, therefore, subject to the
risk of financing single projects or unlimited number of projects. They are also
subject to heavy cash flow dependency, defaults by borrowers, and
self-liquidation.
OVER-THE-COUNTER OPTIONS
The Fund may generally purchase over-the-counter options on portfolio
securities in negotiated transactions with the writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchase options only with investment dealers and other
financial institutions (such as commercial banks or savings associations) deemed
creditworthy by the Advisor.
INVESTMENTS IN FOREIGN SECURITIES
The Fund may invest in foreign securities, which may include other
investment companies that invest primarily in international securities. The
international securities include equity securities of non-U.S. companies and
corporate and government fixed-income securities denominated in currencies other
than U.S. dollars. The international equity securities may be traded
domestically or abroad through various stock exchanges, American Depositary
Receipts (ADRs), International Depositary Receipts (IDRs) European Depositary
Receipts ("EDRs"), Global Depository Receipts ("GDRs"), and other similar global
instruments available in emerging markets, or other securities convertible into
securities of eligible issuers. Generally, ADRs in registered form are designed
for use in U.S. securities markets, and EDRs and other similar global
instruments in bearer form are designed for use in European securities markets.
For purposes of the Fund's investment policies, the Fund's investments in ADRs,
EDRs and similar instruments will be deemed to be investments in the equity
securities representing the securities of foreign issuers into which they may be
converted. The international fixed-income securities include ADRs, IDRs, and
government securities of other nations and must be rated Baa or better by
Moody's or BBB or better by S&P. If the securities are unrated, the Advisor must
determine that they are of similar quality to the rated securities before the
Fund may invest in them. The Fund does not intend to invest more than 20% of its
assets in international securities.
Investments in foreign securities involve special risks that differ
from those associated with investments in domestic securities. The risks
associated with investments in foreign securities relate to political and
economic developments abroad, as well as those that result from the differences
between the regulation of domestic securities and issuers and foreign securities
and issuers. These risks may include, but are not limited to, expropriation,
confiscatory taxation, currency fluctuations, withholding taxes on interest,
limitations on the use or transfer of Fund assets, political or social
instability and adverse diplomatic developments. In addition, there are
restrictions on foreign investments in other jurisdictions and there tends to be
difficulty in obtaining judgments from abroad and effecting repatriation of
capital invested abroad. Delays could occur in settlement of foreign
transactions, which could adversely affect shareholder equity. Moreover,
individual foreign economies may differ favorably or unfavorably from the
domestic economy in such respects as growth of gross national product, the rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Other differences between investing in foreign companies and in U.S.
companies, depending on the specific security and foreign market, may include:
o information is less publicly available
o there is a lack of uniform financial accounting standards applicable to
foreign companies o market quotations are less readily available
o there are differences in government regulation and supervision of
foreign securities exchanges, brokers, listed companies and banks
o there is generally a lower foreign securities market volume
o it is likely that foreign securities may be less liquid or more
volatile
o there are generally higher foreign brokerage commissions
o there may be difficulties in enforcing contractual obligations or
obtaining court judgments abroad because of differences in the legal
systems
o the mail service between countries may be unreliable
o there are political or financial changes that adversely affect
investments in some countries.
FOREIGN CURRENCY TRANSACTIONS
The Fund may use foreign currency transactions to settle securities
transactions. Because foreign securities may be denominated in foreign
currencies, changes in foreign currency exchange rates could affect the Fund's
net asset value, the value of interest earned, gains and losses realized on the
sale of securities, and net investment income and capital gain. If the value of
a foreign currency rises against the U.S. dollar, the value of an the Fund's
assets denominated in that currency will increase. If the value of the foreign
currency declines against the U.S. dollar, the value of the Fund assets
denominated in that currency decrease. Although the Fund values its assets daily
in U.S. dollars, it will not convert its holdings of foreign currencies to U.S.
dollars daily. When the Fund converts its holdings to another currency, it may
incur currency conversion costs. Foreign exchange dealers realize a profit on
the difference between the prices at which they buy and sell currencies.
TEMPORARY DEFENSIVE POSITIONS
The Fund may deviate from its fundamental and non-fundamental
investment policies during periods of adverse or abnormal market, economic,
political and other circumstances requiring immediate action to protect assets.
In such cases, the Fund may invest up to 100% of its assets in U.S. Government
Securities and any money market investment described above.
MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------
BOARD OF TRUSTEES
The Fund is managed by a Board of Trustees. The Fund's Board of
Trustees consists of four individuals, two of whom are not "interested persons"
of the Fund as that term is defined in the 1940 Act. The Trustees are
fiduciaries of the Fund's shareholders and are governed by the laws of the state
of Delaware. They establish policies for the operation of the Fund and appoint
the officers who conduct the daily business of the Fund.
MANAGEMENT INFORMATION
The names, addresses and principal occupations during the past five
years of the Trustees and executive officers of the Fund are as follows:
<TABLE>
<CAPTION>
------------------------------- -------- ------------------- ------------------------------------------------
POSITION WITH THE
NAME AND ADDRESS AGE FUND PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
------------------------------- -------- ------------------- ------------------------------------------------
<S> <C> <C> <C>
Kit M. Cole, M.B.A.* 59 Chairperson and CEO and Founder, Kit Cole Investment Advisory
851 Irwin Street Trustee Services, 1977 - Present.
San Rafael, CA 94901
------------------------------- -------- ------------------- ------------------------------------------------
Jeff Tappan** 35 Chief Executive Project Manager and Fixed Income Manager, Kit
851 Irwin Street Officer Cole Investment Advisory Services, 1989 -
San Rafael, CA 94901 Present.
------------------------------- -------- ------------------- ------------------------------------------------
Jamison L. Tappan, M.B.A.* 32 Chief Financial Chief Operations Officer, Kit Cole Investment
851 Irwin Street Officer, Advisory Services, 1998 - Present; Senior
San Rafael, CA 94901 Secretary and Research Analyst, Westpac Bank (commercial
Trustee bank in Sydney, Australia), 1995 - 1998.
------------------------------- -------- ------------------- ------------------------------------------------
Lilly Stamets 53 Disinterested Retail Operations Manager, The Academy Store
16 Underhill Road Trustee (retail store at the California Academy of
Mill Valley, CA 94941 Sciences), 1995 - Present; Principal, Premier
Consulting Services (retailer consultants), 1995
- Present.
------------------------------- -------- ------------------- ------------------------------------------------
Deborah J. Magowan 54 Disinterested Chairperson, San Francisco Fall Antique show,
2760 Divisidero Trustee 1996 to present; Trustee, The Hamlin's School,
San Francisco, CA 94123 1990-1996.
------------------------------- -------- ------------------- ------------------------------------------------
</TABLE>
*This trustee is deemed to be an "interested person" of the Fund by virtue of
her affiliation with Kit Cole Advisory Services, Inc. Kit Cole is the CEO and
Founder of the Advisor. Jamison L. Tappan is Kit Cole's daughter and is the
Chief Operations Officer of the Advisor.
**Jeff Tappan, Chief Executive Officer of the Trust, is Kit Cole's son and is a
Project Manager and Fixed Income Portfolio Manager with the Advisor.
COMPENSATION
For their services as Trustees, the independent or disinterested
Trustees will receive compensation consisting of $500 for each meeting attended
and will be reimbursed for the expenses of attending such meetings. Neither the
Trust nor the Fund pays any fees to the trustees who are considered "interested
persons" of the Trust, the Fund or the Advisor, as defined in the 1940 Act.
Neither the Trust nor the Fund maintains any deferred compensation, pension or
retirement plans, and no pension or retirement benefits are accrued as part of
Trust or Fund expenses. The table below details the ESTIMATED amount of
compensation the Trustees may receive from the Trust for the next fiscal year.
Presently, none of the executive officers receive compensation from the Fund.
<TABLE>
<CAPTION>
---------------------------- ----------------- ----------------------- ---------------------- ------------------------
NAME AND POSITION ESTIMATED PENSION OR RETIREMENT ESTIMATED ANNUAL ESTIMATED TOTAL
AGGREGATE BENEFITS ACCRUED AS BENEFITS UPON COMPENSATION FROM
COMPENSATION PART OF TRUST EXPENSES RETIREMENT TRUST AND FUND COMPLEX
FROM TRUST PAID TO TRUSTEES
---------------------------- ----------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Kit M. Cole, Trustee* None None None None
Jeff Tappan, Chief None None None None
Executive Officer
Jamison L. Tappan, None None None None
Trustee, Chief Financial
Officer, and Secretary*
Lilly Stamets, $4,000 None None $4,000
Disinterested Trustee
Deborah J. Magowan, $4,000 None None $4,000
Disinterested Trustee
-------------------------------------------------------------------------------------------------------------------
</TABLE>
*This trustee is deemed to be an interested person as defined in the 1940 Act.
CONTROL PERSON AND PRINCIPAL HOLDERS OF SECURITIES
As of November 1, 2000, which was prior to the public offering of the
Fund's shares, Kit Cole Family Trust was the holder of 100% of the Fund's
shares, and there were otherwise no control persons or principal holders of
securities of the Fund. Kit M. Cole is a trustee of the Kit Cole Family Trust.
Control persons are persons deemed to control the Fund because they own
beneficially over 25% of the outstanding equity securities. Principal holders
are persons that own beneficially 5% or more of the Fund's outstanding equity
securities.
INVESTMENT ADVISOR
-------------------------------------------------------------------------------
Kit Cole Investment Advisory Services, Inc., a California corporation,
is an investment management and financial planning firm that specializes in
helping women and families reach their lifetime financial goals through a
collaborative, comprehensive and education-oriented approach to investment
management. From its headquarters in San Rafael, California, Kit Cole Investment
Advisory Services assists clients throughout the country.
Founded in 1977, Kit Cole Investment Advisory Services offers a
well-developed and time-proven investment philosophy, a talented professional
staff, and superior client service. Kit Cole Investment Advisory Services is
recognized as a leader in providing investment advisory services to women and
families. Its philosophy, however, has a very broad-based appeal and, as a
result, has a diverse customer base (40% of its current clients are men).
Kit Cole Investment Advisory Services serves as an investment advisor
to the Fund pursuant to an Investment Advisory Agreement dated as of September
29, 2000. This Investment Advisory Agreement is effective for a maximum initial
term of two years and will be continued on a year-to-year basis thereafter,
provided that specific approval is voted at least annually by the Board of
Trustees of the Trust or by the vote of the holders of a majority of the
outstanding voting securities of the Fund. In either event, it must also be
approved by a majority of the trustees of the Trust who are neither parties to
the Agreement nor interested persons of any such party as defined in the 1940
Act at a meeting called for the purpose of voting on such approval. The
Advisor's decisions are made subject to direction of the Board of Trustees. The
Agreement may be terminated at any time, without the payment of any penalty, by
vote of a majority of the outstanding voting securities of the Fund.
For the services provided by the Advisor under the Agreement, the
Trust, on behalf of the Fund, has agreed to pay to Kit Cole Investment Advisory
Services an annual fee of 1.25% of the Fund's average daily net assets. All fees
are computed on the average daily closing net asset value of the Fund and are
payable monthly. The Fund has an Expense Limitation and Reimbursement Agreement
with the Advisor, under which the Advisor has agreed to limit the Fund's total
annual operating expenses inclusive of advisory and 12b-1 fees to 2.00% of
average daily net assets. The Expense Limitation and Reimbursement Agreement
allows the Advisor to recapture amounts reimbursed to the Fund and/or fees
waived by the Advisor over a three to five-year period if the amounts to be
recaptured are approved by the Board of Trustees and can be recaptured without
causing the Fund to exceed the applicable expense cap after paying all current
expenses. The Expense Limitation and Reimbursement Agreement expires in June
2001 and can be renewed annually by action of a majority of the Board of
Trustees (including a majority of the independent members of the Board).
Subsidies relating to year one remain eligible for recapture for five years --
i.e., through the end of the sixth fiscal year of the Fund's operations.
Subsidies relating to years two and three remain eligible for recapture for four
years -- i.e., though the end of the Fund's sixth and seventh fiscal years of
operations, respectively. Subsidies relating to year four and later remain
eligible for recapture for three years -- i.e., for year four, through the end
of the seventh fiscal year of operations; for year five, through the end of the
eighth fiscal year of operations, etc.
MORE INFORMATION ABOUT THE ADVISOR
Kit M. Cole, MBA, Founder and CEO of Kit Cole Investment Advisory
Services, has managed marketable securities for over 20 years. Ms. Cole was one
of the first women in the country to be hired as a stockbroker at a major
brokerage firm. In 1977, she founded Kit Cole Investment Advisory Services
(formerly known as Cole Financial Group, Inc.) which specializes in providing
investment management and financial counseling to women and families. Ms. Cole
also has a broad range of experience in income taxation, banking, estate and
personal financial planning. Ms. Cole is also the Chairman/CEO and co-founder
of Tamalpais Bank, one of Marin County's most profitable financial institutions
and Chairman Emeritus of Novato Community Bank. Ms. Cole also co-founded
and served as Chairman of the Board of New Horizons Savings & Loan, which was
acquired by Luther Burbank Savings in 1996. Ms. Cole has been active in
community affairs. Ms. Cole has served on the Marin Women's Commission both as
a Commissioner and as the Chairperson. In 1997, Ms. Cole was inducted to the
Marin County Women's Hall of Fame for her achievements in the financial
industry. Ms. Cole received her BA in English from California State University,
Long Beach with honors and her MBA in Finance from U.C. Berkeley's Haas School
of Business.
CODE OF ETHICS
-------------------------------------------------------------------------------
Both the Trust and the Advisor have adopted Codes of Ethics that govern
the conduct of employees of the Trust and Advisor who may have access to
information about the Fund's securities transactions. The Codes recognize that
such persons owe a fiduciary duty to the Fund's shareholders and must place the
interests of shareholders ahead of their own interests. Among other things, the
Codes require pre-clearance of personal securities transactions; certain
blackout periods for personal trading of securities which may be considered for
purchase or sale by the Fund or other clients of the Advisor; annual and
quarterly reporting of personal securities holdings; and limitations on personal
trading of initial public offerings. Violations of the Codes are subject to
review by the Trustees and could result in severe penalties.
FUND ADMINISTRATION
--------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC, a subsidiary of Firstar Bank, N.A.,
provides administrative personnel and services (including blue-sky services) to
the Fund. Administrative services include, but are not limited to, providing
office space, equipment, telephone facilities, various personnel, including
clerical and supervisory, and computers, as is necessary or beneficial to
provide compliance services to the Fund. Firstar Mutual Fund Services, LLC also
will serve as fund accountant and transfer agent under separate agreements.
CUSTODIAN
--------------------------------------------------------------------------------
The Custodian for the Trust and the Fund is Firstar Bank, N.A., 425
Walnut Street, Cincinnati, Ohio 45202. Firstar Bank, N.A., as Custodian, holds
all of securities and cash owned by the Fund.
LEGAL COUNSEL
--------------------------------------------------------------------------------
The Fund's legal counsel is Paul, Hastings, Janofsky & Walker LLP
located at 345 California Street, San Francisco, California 94104.
DISTRIBUTOR
--------------------------------------------------------------------------------
Quasar Distributors, LLC serves as the principal underwriter and
national distributor for the shares of the Fund pursuant to a Distribution
Agreement with the Trust dated as of June 29, 2000 (the "Distribution
Agreement"). Quasar Distributors, LLC is registered as a broker-dealer under the
Securities Exchange Act of 1934 and each state's securities laws and is a member
of the NASD. The offering of the Fund's shares is continuous. The Distribution
Agreement provides that the Distributor, as agent in connection with the
distribution of Fund shares, will use its best efforts to distribute the Fund's
shares.
RULE 12B-1 SERVICES PLAN
--------------------------------------------------------------------------------
The Board of Trustees has adopted a Rule 12b-1 Services Plan on behalf
of the Fund, in accordance with Rule 12b-1 (the "Plan") under the 1940 Act. The
Fund is authorized under the Plan to use the assets of the Fund to compensate
the Advisor as plan disbursement agent for certain activities relating to
shareholder servicing and distribution of shares of the Fund to investors and
the provision of shareholder services. The maximum amount payable under the Plan
is 0.25% of the Fund's average net assets on an annual basis.
The NASD's maximum sales charge rule relating to mutual fund shares
establishes limits on all types of sales charges, whether front-end, deferred or
asset-based. This rule may operate to limit the aggregate distribution fees to
which shareholders may be subject under the terms of the Plan.
The Plan authorizes the use of Fund assets to pay the Advisor, banks,
broker/dealers and other institutions that provide distribution assistance
and/or shareholder services such as:
|X| printing and distributing prospectuses to persons other than Fund
shareholders,
|X| printing and distributing advertising and sales literature and reports
to shareholders used in connection with selling shares of the Fund, and
|X| furnishing personnel and communications equipment to service
shareholder accounts and prospective shareholder inquiries.
The Plan requires the Fund to prepare and furnish to the Trustees for
their review, at least quarterly, written reports complying with the
requirements of the Rule and setting out the amounts expended under the Plan and
the purposes for which those expenditures were made. The Plan provides that so
long as it is in effect the selection and nomination of Trustees who are not
interested persons of the Trust will be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
Neither the Plan nor any related agreements can take effect until
approved by a majority vote of both all the Trustees and those Trustees who are
not interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on the Plan and the
related agreements. The Trustees approved the Plan on June 29, 2000.
The Plan will continue in effect only so long as its continuance is
specifically approved at least annually by the Trustees in the manner described
above for Trustee approval of the Plan. The Plan may be terminated at any time
by a majority vote of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operations of the
Plan or in any agreement related to the Plan or by vote of a majority of the
outstanding voting securities of the Fund.
The Plan may not be amended so as to materially increase the amount of
the Rule 12b-1 fees for the Fund unless the amendment is approved by a vote of
at least a majority of the outstanding voting securities of the Fund. In
addition, no material amendment may be made unless approved by the Trustees in
the manner described above for Trustee approval of the Plan.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
--------------------------------------------------------------------------------
The Advisor is responsible for decisions to buy and sell securities for
the Fund, the selection of broker-dealers to effect the transactions and the
negotiation of brokerage commissions, if any. In placing orders for securities
transactions, the primary criterion for the selection of a broker-dealer is the
ability of the broker-dealer, in the opinion of the Advisor, to secure prompt
execution of the transactions on favorable terms, including the reasonableness
of the commission (if any) and considering the state of the market at the time.
The primary consideration in effecting transactions for the Fund is
execution at the most favorable prices. The Advisor has complete freedom as to
the markets in and the broker-dealers through or with which (acting on an agency
basis or as principal) they seek execution. The Advisor may consider a number of
factors in determining which broker-dealers to use for the Fund's transactions.
These factors include research services, the reasonableness of commissions, and
the quality of services and execution. Fund transactions for the Fund may be
effected through the Distributor if the commissions, fees or other remuneration
received by the Distributor are reasonable and fair compared to the commissions,
fees or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an exchange
during a comparable period of time. In effecting portfolio transactions through
the Distributor, the Fund intends to comply with Section 17(e)(1) of the 1940
Act, as amended.
When consistent with these objectives, business may be placed with
broker-dealers, including the Distributor, who furnish investment research
and/or services to the Advisor. Such research or services include advice, both
directly and in writing, as to the value of securities; the advisability of
investing in, purchasing or selling securities; and the availability of
securities, or purchasers or sellers of securities; as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. This allows the Advisor to
supplement its own investment research activities and enables the Advisor to
obtain the views and information of individuals and research staffs of many
different securities firms prior to making investment decisions for the Fund. To
the extent portfolio transactions are effected with broker-dealers who furnish
research services to the Advisor, the Advisor may receive a benefit, not capable
of evaluation in dollar amounts, without providing any direct monetary benefit
to the Fund from these transactions. The Advisor believes that most research
services obtained by it generally benefit several or all of the accounts that it
manages, as opposed to solely benefiting one specific managed fund or account.
Normally, research services obtained through managed funds or accounts investing
in common stocks would primarily benefit the managed funds or accounts which
invest in common stock; similarly, services obtained from transactions in
fixed-income securities would normally be of greater benefit to the managed
funds or accounts which invest in debt securities.
The Advisor may also purchase securities from time to time from
broker-dealers who are participating as underwriters in a firm commitment
underwriting of municipal securities where the Distributor is also a member of
the selling syndicate. The Board of Trustees of the Fund has adopted a policy
pursuant to Rule 10f-3 under the 1940 Act governing such purchases. The purchase
of such municipal securities shall only be made pursuant to the requirements of
Rule 10f-3 and the policies adopted by the Board of Trustees of the Fund.
In determining the commissions to be paid to the Distributor, it is the
policy of the Fund that such commissions, will, in the judgment of the Advisor,
subject to review by the Board of Trustees, be both (a) at least as favorable as
those which would be charged by other qualified brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time, (b) at least as
favorable as commissions contemporaneously charged by the Distributor on
comparable transactions for its most favored comparable unaffiliated customers,
and (c) conform to the requirements of Rule 17e-1 under the 1940 Act. While the
Advisor does not deem it practicable and in the best interest of the Fund to
solicit competitive bids for commission rates on each transaction, consideration
will regularly be given to posted commission rates as well as to other
information concerning the level of commissions charged on comparable
transactions by other qualified brokers.
In certain instances, there may be securities that are suitable for the
Fund as well as for that of one or more of the advisory clients of the Advisor.
Investment decisions for the Fund and for such advisory clients are made by the
Advisor with a view to achieving the investment objective. It may develop that a
particular security is bought or sold for only one client of the Advisor even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients of one of the Advisor
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment advisor, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients of
the Advisor are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed by the
Advisor to be equitable to each (and may result, in the case of purchases, in
allocation of that security only to some of those clients and the purchase of
another security for other clients regarded by the Advisor as a satisfactory
substitute). It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned. At the same time, however, it is believed that the ability of the
Fund to participate in volume transactions will sometimes produce better
execution prices.
The Board of Trustees of the Fund has also adopted a policy pursuant to
Rule 17a-7 under the 1940 Act that allows certain principal transactions between
certain remote affiliates of the Fund and the Fund. Such transactions could
include purchases of securities for the Fund from private accounts managed by
the Advisor or sales of securities from the Fund to private accounts managed by
the Advisor. These transactions will only be effected in accordance with the
provisions of Rule 17a-7 under the 1940 Act and are further restricted by the
policies adopted by the Board of Trustees pursuant thereto. Under the policies,
the Board must, on a quarterly basis, determine that all transactions effected
in reliance on Rule 17a-7 during the preceding quarter were in compliance with
the procedures. The Board must also review the procedures as necessary.
PURCHASE OF SHARES
--------------------------------------------------------------------------------
Orders for shares received by the Trust in good order prior to the
close of business on the New York Stock Exchange (the "Exchange") on each day
during such periods that the Exchange is open for trading are priced at net
asset value per share computed as of the close of the regular session of trading
on the Exchange. Orders received in good order after the close of the Exchange,
or on a day it is not open for trading, are priced at the close of such Exchange
on the next day on which it is open for trading at the next determined net asset
value per share. No share certificates will be issued unless requested in
writing.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
The Trust will redeem all or any portion of a shareholder's shares of
the Fund when requested in accordance with the procedures set forth in the "How
to Sell Shares" section of the Prospectus. Under the 1940 Act , a shareholder's
right to redeem shares and to receive payment therefore may be suspended at
times:
(a) when the New York Stock Exchange is closed, other than customary
weekend and holiday closings;
(b) when trading on that exchange is restricted for any reason;
(c) when an emergency exists as a result of which disposal by the Fund
of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Fund fairly to determine the
value of its net assets, provided that applicable rules and
regulations of the Securities and Exchange Commission (or any
succeeding governmental authority) will govern as to whether the
conditions prescribed in (b) or (c) exist; or
(d) when the Securities and Exchange Commission by order permits a
suspension of the right to redemption or a postponement of the
date of payment on redemption.
In case of suspension of the right of redemption, payment of a
redemption request will be made based on the net asset value next determined
after the termination of the suspension.
CORPORATE, PARTNERSHIP, EXECUTOR, TRUSTEE, ADMINISTRATORS, OR GUARDIAN
SHAREHOLDERS
Supporting documents in addition to those listed under "How to Sell
Shares" in the Fund's prospectus will be required from executors,
administrators, trustees, or if redemption is requested by one other than the
shareholder of record. Such documents include, but are not restricted to, stock
powers, trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waiver of tax required in some states
when settling estates.
REDEMPTION IN-KIND
The Fund does not intend to redeem shares in any form except cash.
However, if the amount you are redeeming is over the lesser of $250,000 or 1% of
the Fund's net asset value, the Fund has the right to redeem your shares by
giving you the amount that exceeds $250,000 or 1% of the Fund's net asset value
in securities instead of cash.
PRICING OF SHARES
-------------------------------------------------------------------------------
The net asset value per share of the Fund will be determined on each
day when the New York Stock Exchange is open for business and will be computed
by taking the aggregate market value of all assets of the Fund less its
liabilities, and dividing by the total number of shares outstanding. Each
determination will be made by valuing portfolio securities, including open short
positions, which are traded on the New York Stock Exchange, American Stock
Exchange and on the NASDAQ National Market System at the last reported sales
price on that exchange; by valuing put and call options which are traded on the
Chicago Board Options Exchange or any other domestic exchange at the last sale
price on such exchange; by valuing listed securities and put and call options
for which no sale was reported on a particular day and securities traded on the
over-the-counter market at the mean between the last bid and asked prices; and
by valuing any securities or other assets for which market quotations are not
readily available at fair value in good faith and under the supervision of the
Trustees, although others may do the actual calculation.
The Advisor reserves the right to value securities, including options,
at prices other than last-sale prices when such last-sale prices are believed
unrepresentative of fair market value as determined in good faith by the
Advisor.
The share price (net asset value) of the shares of the Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern Time), on each day the Trust is
open for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
In valuing the Fund's assets for the purpose of determining net asset
value, readily marketable portfolio securities listed on a national securities
exchange are valued at the last sale price on such exchange on the business day
as of which such value is being determined. If there has been no sale on such
exchange on such day, the security is valued at the closing bid price on such
day. If no bid price is quoted on such exchange on such day, then the security
is valued by such method as the Advisor under the supervision of the Board of
Trustees determines in good faith to reflect its fair value. Readily marketable
securities traded only in the over-the-counter market are valued at the last
sale price, if available, otherwise at the most recent bid price. If no bid
price is quoted on such day, then the security is valued by such method as the
Advisor under the supervision of the Board of Trustees determines in good faith
to reflect its fair value. All other assets of the Fund, including restricted
securities and securities that are not readily marketable, are valued in such
manner as the Advisor under the supervision of the Board of Trustees in good
faith deems appropriate to reflect their fair value.
Trading in foreign securities may be completed at times that vary from
the closing of the NYSE. In computing the net asset value, the Fund values
foreign securities at the latest closing price on the exchange on which they are
traded immediately prior to the closing of the NYSE. Certain foreign currency
exchange rates may also be determined at the latest rate prior to the closing of
the NYSE. Foreign securities quoted in foreign currencies are translated into
U.S. dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the NYSE. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Fund's Board of Trustees, although the actual calculation may
be done by others.
TAX STATUS
--------------------------------------------------------------------------------
The Fund will qualify and intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), so as to be relieved of federal income tax on
its capital gains and net investment income distributed to shareholders. To
qualify as a regulated investment company, the Fund must, among other things,
receive at least 90% of its gross income each year from dividends, interest,
gains from the sale or other disposition of securities and certain other types
of income including, with certain exceptions, income from options and futures
contracts. The Code also requires a regulated investment company to diversify
its holdings. The Internal Revenue Service has not made its position clear
regarding the treatment of futures contracts and options for purposes of the
diversification test, and the extent to which the Fund could buy or sell futures
contracts and options may be limited by this requirement.
The Code requires that all regulated investment companies pay a
nondeductible 4% excise tax to the extent the regulated investment company does
not distribute 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end.
The required distributions are based only on the taxable income of a regulated
investment company.
By law, the Fund must withhold 31% of your taxable distributions and
proceeds if you do not provide your correct social security or taxpayer
identification number, or if the IRS instructs the Fund to do so. Ordinarily,
distributions and redemption proceeds earned by Fund shareholders are not
subject to withholding of federal income tax. However, if a shareholder fails to
furnish a tax identification number or social security number, or certify under
penalties of perjury that such number is correct, the Fund may be required to
withhold federal income tax ("backup withholding") from all dividend, capital
gain and/or redemption payments to such shareholder. Dividends and capital gain
distributions may also be subject to backup withholding if a shareholder fails
to certify under penalties of perjury that such shareholder is not subject to
backup withholding due to the underreporting of certain income. These
certifications are contained in the purchase application enclosed with the
Prospectus.
CALCULATIONS OF PERFORMANCE DATA
--------------------------------------------------------------------------------
Average annual total return is the average annual compounded rate of
return for periods of one year, five years and ten years, all ended on the last
day of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of a Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by computing the average
annual compounded rates of return of a hypothetical investment over such
periods, according to the following formula (average annual total return is then
expressed as a percentage):
P(1 + T)n = ERV
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value; ERV is the value, at the end of
the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
The Fund's performance will vary from time to time and your shares,
when redeemed, may be worth more or less than their original cost. You should
not consider past results as representative of future performance. Factors
affecting the Fund's performance include, among other things, general market
conditions, the composition of the Fund's portfolio, and operating expenses. In
reporting performance, the Fund makes no adjustment for taxes payable by
shareholders on reinvested income dividends and capital gains distributions.
The Fund may also advertise comparative performance information
obtained from industry or financial publications. The Fund may compare its
performance to that of other mutual funds with similar investment objectives and
to stock or other relevant indices. From time to time, articles about the Fund
regarding its performance or ranking may appear in national publications. Some
of these publications may publish their own rankings or performance reviews of
mutual funds, including the Fund. Reference to or reprints of such articles may
be used in the Fund's promotional literature.
COMPARISONS
LIPPER ANALYTICAL SERVICES, INC. ("LIPPER") AND OTHER INDEPENDENT
RANKING ORGANIZATIONS. From time to time, in marketing and other fund
literature, the Fund's performance may be compared to the performance of other
mutual funds in general or to the performance of particular types of mutual
funds with similar investment goals, as tracked by independent organizations.
Among these organizations, Lipper, a widely used independent research firm which
ranks mutual funds by overall performance, investment objectives, and assets,
may be cited. Lipper performance figures are based on changes in net asset
value, with all income and capital gains dividends reinvested. Such calculations
do not include the effect of any sales charges imposed by other funds. The Fund
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings. The Fund's performance may also be compared to
the average performance of its Lipper category.
MORNINGSTAR, INC. The Fund's performance may also be compared to the
performance of other mutual funds by Morningstar, Inc., which rates funds on the
basis of historical risk and total return. Morningstar's ratings range from five
stars (highest) to one star (lowest) and represent Morningstar's assessment of
the historical risk level and total return of a fund as a weighted average for
3, 5, and 10 year periods. Ratings are not absolute and do not represent future
results.
INDEPENDENT SOURCES. Evaluations of fund performance made by
independent sources may also be used in advertisements concerning the Fund,
including reprints of, or selections from, editorials or articles about the
Fund, especially those with similar objectives. Sources for fund performance and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Smart Money, Financial World, Business Week, U.S. News and World
Report, The Wall Street Journal, Barron's and a variety of investment
newsletters.
INDICES. The Fund may compare its performance to a wide variety of
indices. There are differences and similarities between the investments that a
Fund may purchase and the investments measured by the indices.
HISTORICAL ASSET CLASS RETURNS. From time to time, marketing materials
may portray the historical returns of various asset classes. Such presentations
will typically compare the average annual rates of return of inflation, U.S.
Treasury bills, bonds, common stocks, and small stocks. There are important
differences between each of these investments that should be considered in
viewing any such comparison. The market value of stocks will fluctuate with
market conditions, and small-stock prices generally will fluctuate more than
large-stock prices. Stocks are generally more volatile than bonds. In return for
this volatility, stocks have generally performed better than bonds or cash over
time. Bond prices generally will fluctuate inversely with interest rates and
other market conditions, and the prices of bonds with longer maturities
generally will fluctuate more than those of shorter-maturity bonds. Interest
rates for bonds may be fixed at the time of issuance, and payment of principal
and interest may be guaranteed by the issuer and, in the case of U.S. Treasury
obligations, backed by the full faith and credit of the U.S. Treasury.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin,
53202, serves as the Fund's independent accountants. Their services include
examination of the Fund's financial statements.
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
KIT COLE STRATEGIC GROWTH FUND
Statement of Assets and Liabilities
September 27, 2000
ASSETS
Cash $ 100,000
Receivable from Adviser 80,743
Prepaid Expenses 5,726
---------------
Total Assets 186,469
---------------
LIABILITIES
Payable to Adviser 86,469
---------------
Total Liabilities 86,469
---------------
NET ASSETS $ 100,000
===============
Capital Shares outstanding, no par value;
unlimited number of shares authorized 10,000
===============
Net asset value, offering and redemption
price per share (net assets/shares outstanding) $ 10.00
===============
See accompanying notes to the financial statements.
KIT COLE STRATEGIC GROWTH FUND
Statement of Operations
For the Period March 27, 2000 (Inception) through September 27, 2000
EXPENSES:
Organization expenses $ 80,743
Less: Expenses reimbursed by Adviser (80,743)
-------------
Change in net assets $ 0
=============
See accompanying notes to the financial statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders and Board of Trustees of the Kit Cole Strategic Growth Fund:
We have audited the accompanying statement of assets and liabilities of The Kit
Cole Strategic Growth Fund (the "Fund") as of September 27, 2000, and the
statement of operations for the period March 27, 2000 (inception) through
September 27, 2000. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
present fairly, in all material respects, the net assets of the Fund as of
September 27, 2000, and the results of its operations for the period from
inception (March 27, 2000) to September 27, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Anderson LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
September 28, 2000
Kit Cole Strategic Growth Fund
Notes to the Financial Statements
As of September 27, 2000
1. Organization
The Kit Cole Investment Trust (the "Trust") was organized as a Delaware business
trust on March 27, 2000 and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
issuing its shares in series, each series representing a distinct portfolio with
its own investment objectives and policies. The series presently authorized is
the Kit Cole Strategic Growth Fund (the "Fund"). The Fund has had no operations
other than those related to organizational matters, including the sale of 10,000
shares of the Fund for cash in the amount of $100,000 to the initial investors
through September 27, 2000. The fiscal year end of the Fund is June 30.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of the financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP").
(a) Investment Valuation
Portfolio securities which are traded on stock exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued, or, lacking any sales, at the latest bid price. Each over-the-counter
security for which the last sale price on the day of valuation is available from
NASDAQ and falls within the latest bid and asked quotations is valued at that
price. All other securities traded in the over-the-counter market are valued at
the most recent bid prices as obtained from one or more dealers that make
markets in the securities. Securities that are traded in both the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Securities for which quotations are not
readily available will be valued at their fair market value as determined by the
Board of Trustees.
(b) Organization and Prepaid Initial Registration Expense
Expenses incurred by the Trust in connection with the organization and initial
public offering are expensed as incurred. These expenses were advanced by the
Adviser, and the Adviser has agreed to reimburse the Fund for these expenses,
subject to potential recovery (see Note 3). Prepaid initial registration
expenses are deferred and amortized over the period benefited.
(c) Federal Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
necessary to qualify as a regulated investment company and to make the requisite
distributions of income and capital gains to its shareholders sufficient to
relieve it from all or substantially all Federal income taxes.
(d) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(e) Distribution to Shareholders
The Fund will distribute any net investment income and any net realized long or
short-term capital gains at least annually. Distributions to shareholders are
recorded on the ex-dividend date. The Fund may also pay a special distribution
at the end of the calendar year to comply with federal tax requirements, which
may differ from generally accepted accounting principles.
(f) Expenses
A shareholder may pay both transaction and operating fees and expenses when
buying and holding shares of the Fund. Shareholder transaction expenses are fees
paid directly from an investment in the Fund. Annual fund operating expenses are
expenses that are deducted from Fund assets, such as advisory and distribution
fees.
3. Investment Adviser
The Trust has an Investment Advisory Agreement (the "Agreement") with Kit Cole
Investment Advisory Services (the "Adviser"), with whom certain officers and
directors of the Trust are affiliated, to furnish investment advisory services
to the Fund. Under the terms of the Agreement, the Trust, on behalf of the Fund,
compensates the Adviser for its management services at the annual rate of 1.25%
of the Fund's average daily assets.
The Adviser has agreed to waive, through June 30, 2001, its management fee
and/or reimburse the Fund's other expenses, including organization expenses, to
the extent necessary to ensure that the Fund's operating expenses do not exceed
2.00% of its average daily net assets. Any such waiver or reimbursement is
subject to later adjustment to allow the Adviser to recoup amounts waived or
reimbursed to the extent actual fees and expenses for a fiscal year are less
than the expense limitation cap of 2.00%, provided, however, that the Adviser
shall only be entitled to recoup such amounts for a period of five years from
the date such amount was waived or reimbursed.
4. Capital Stock
The Trust is authorized to issue an unlimited number of shares, with no par
value.
5. Distribution Plan
The Trust, on behalf of the Fund, has adopted a distribution plan pursuant to
Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), which provides that the Fund
will pay distribution fees to Kit Cole Investment Advisory Services at an annual
rate of up to 0.25% of the average daily net assets of the Fund. Payments under
the distribution plan shall be used to compensate persons who provide support
services in connection with the distribution of the Fund's shares and servicing
of the Fund's shareholders.
