August 1, 2000
BONFIGLIO & REED OPTIONS FUND
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Advised by
Bonfiglio & Reed, LLC
The Securities and Exchange Commission has not approved or disapproved these
Fund shares or determined whether this prospectus is truthful or complete.
Anyone who tells you otherwise is committing a crime.
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TABLE OF CONTENTS PAGE #
Risk/Return Summary 2
Expense Information 5
Fund Management 6
How to Purchase and Redeem shares 6
Shareholder Information and Services 8
Dividends and Distributions 9
Taxes 10
Calculation of Share Price 10
Risk/Return Summary
INVESTMENT OBJECTIVE
The Fund seeks to provide investors with long term capital appreciation.
The Fund's Trustees may change this objective without a shareholder vote and the
Fund will notify you of any changes that are material. If there is a material
change in the Fund's objective or policies, you should consider whether the Fund
remains an appropriate investment for you. There is no guarantee that the Fund
will meet its objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund will invest at least 65% of its assets in equity options of large
capitalization ("large cap") companies (capitalization of 5 billion and up) that
the investment adviser believes will appreciate in value. The adviser selects
securities offered by or based on companies based in the United States or, to a
limited extent, in foreign countries. Typically these companies include those
that demonstrate an acceleration of earnings and/or profits, positive changes in
management personnel or structure, new product developments and positive changes
in the company's industry. Although, the Fund intends to focus on large cap
companies it may at any time invest in small and mid capitalization ("small cap,
mid cap") companies. The adviser does not focus on any industry sector.
As noted above, the Fund generally does not invest in traditional securities,
such as common stock of companies. Rather, the Fund principally invests in
derivatives, such as options on securities and securities indices. Options, in
the adviser's opinion, may provide a less expensive, quicker or more
specifically focused way for the Fund to invest than traditional common stock
would. Generally, options provide the buyer the right to buy (a call option) or
sell ( a put option) a certain quantity of a security or instrument at a fixed
sum during a specified period or on a specified day. The Fund may also use
options for hedging purposes to offset changes in the value of securities held
or expected to be acquired. Successful use of options is subject to the
adviser's ability to predict correctly movements in the direction of the market.
The Fund may sell short securities of companies that the adviser believes will
underperform in the current market environment. When the Fund sells short, it is
borrowing a security and then selling it. If the price of a stock sold short
decreases before the Fund closes its position, the Fund makes money. However, if
the value of the stock increases, the Fund will lose money. In determining which
stocks to sell short, the adviser will seek out companies that are experiencing
negative changes. These changes may include: deceleration of earnings, profits
or acceleration of loses; negative changes in management personnel or structure;
new product developments by a company's competitors; and negative changes in the
companies industry. In addition, the Fund may engage in short-selling to manage
or hedge the Fund's exposure to perceived market risk in the common stocks held
by the Fund. The Fund will limit its short sales on common stock to 15% of its
total net assets; however, this percentage limitation does not include options
sold short.
When selling securities short, the Fund will be required to maintain a
segregated account with its custodian of cash or high-grade liquid assets equal
to the market value of the securities sold, less any collateral deposited with
its broker. In order to meet its collateral needs, the Fund will maintain high
levels of cash or liquid assets (e.g., U.S.
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Treasury bills, money market funds, repurchase agreements, certificates of
deposit, high quality commercial paper and long equity positions).
The Fund may borrow money from banks, brokers or dealers for investment
purposes. This technique is known as "leverage." Leverage provides a means of
magnifying small market movements, up or down, into large changes in an
investment's value. To the extent the Fund uses leverage, it will limit it to
25% of the Fund's total assets.
Although the Fund will invest principally in securities of U.S. issuers, it may
invest up to 20% of its total assets in the equity securities of foreign
issuers, including common stocks, depositary receipts (ADR) and options on
depository receipts.
The Fund may purchase securities of companies in initial public offerings
("IPO") or shortly thereafter. The adviser generally will make these investments
based on a belief actual or anticipated products or services will produce future
earnings.
When the adviser believes that market, economic or other conditions warrant a
Fund may assume a temporary defensive position. During these periods, the Fund
may invest without limit in cash or cash equivalents, short-term commercial
paper, U.S. government securities, high quality debt securities, including
obligations of banks. When and to the extent the Fund assumes a temporary
defensive position, it may not pursue or achieve its investment objective.
PRINCIPAL INVESTMENT RISKS
Market Risk. Stocks, and the options based on them, fluctuate in price, often
based on factors unrelated to the issuers' value. The Fund's investments in
stock options may experience greater volatility than the underlying stocks
themselves. The value of your investment in the Fund will fluctuate in response
to movements in the stock market and the activities of individual portfolio
companies. As a result, you could lose money by investing in the Fund,
particularly if there is a sudden decline in the value of the Fund's holdings or
an overall decline in the stock market.
Management risks. The Fund is actively managed and, thus, is subject to the risk
that its portfolio management practices might not achieve its goals. This risk
is present to a greater degree due to the minimal operating history of the
investment adviser. The adviser actively manages a hedge fund that concentrates
its investment and stock options. However, the adviser has never managed a
mutual fund. In addition, the adviser employs investment techniques that may be
considered aggressive, in particular short selling stocks, investing in options
and using leverage. Below is a description of some of the risks involved in
employing these techniques:
SHORT SALES: With respect to short sales, the price at the time the Fund
replaces the security borrowed may be more (and the Fund would lose money)
or less (and the Fund would make money) than the price at which the
security was sold by the Fund. The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of any premium or
amounts in lieu of interest the Fund may be required to pay in connection
with a short sale. The risk of price increases is the principal risk of
engaging in short sales. In addition, the Fund may not always be able to
close out an established short position at any particular time or at an
acceptable price. Also, if the Fund's margin account falls below the
required levels of asset coverage or if the broker from whom the stock was
borrowed for a position requires that stock to be repaid, then the Fund
could be forced to cover short positions earlier than the Fund otherwise
would.
OPTIONS: The risks related to the use of options contracts include: (i) the
correlation between movements in the market price of the Fund's investments
(held or intended for purchase) being hedged and in the price of the option
may be imperfect; (ii) possible lack of a liquid secondary market for
closing out options positions; and (iii) losses due to unanticipated market
movements. Options typically have larger spreads, the difference between
the bid and ask price, than common stocks in general. Other risks
associated with investing in options involve "trading halts." The major
exchanges on which option contracts are traded have established limits on
how much an option contract may decline over various time periods during
the day. If an option contract price declines more than the established
limits, trading on the exchange is halted on that instrument. If a trading
halt occurs at the close of a trading day, the Fund may not be able to
purchase or sell options contracts. In such an event, the Fund also may be
required to use a "fair value" method to price its outstanding shares. The
Fund will invest in over-the-counter options for only bona fide hedging
purposes; and
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LEVERAGE: Leveraging is a sophisticated investment technique in which the
Fund purchases securities with borrowed money which amplifies the effect on
net asset value of any increase or decrease in the market value of the
Fund's portfolio. When the Fund uses leverage it is subject to the interest
costs associated with the borrowings. The interest costs may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased.
Small and Mid Capitalization Risks. Stocks of small and mid cap companies may
have more risks than those of larger companies. In general, they have less
experienced management teams, serve smaller markets, and find it more difficult
to obtain financing for growth or potential development than do larger
companies. Due to these and other factors, small and mid cap companies may have
volatile stock prices that are more susceptible to market downturns.
Interest Rate Risk. Increases in interest rates may lower the present value of a
company's future earnings stream. Since the market price of a stock changes
continuously based upon investors' collective perceptions of a variety of
factors, including future earnings, stock prices may decline when investors
anticipate or experience rising interest rates.
Initial Public Offering Risks. The Fund may purchase securities of companies in
initial public offerings or shortly thereafter. The prices of these companies'
securities may be very volatile. The Fund may purchase securities of companies,
which have no earnings or have experienced losses. The adviser generally will
make these investments based on a belief that actual or anticipated products or
services will produce future earnings. If the anticipated event is delayed or
does not occur, or if investor perceptions about the company change, the
company's stock price may decline sharply and its securities may become less
liquid.
Foreign Security Risks. The Fund may also invest in securities of foreign
issuers (including ADRs). These securities fluctuate in price, often based on
factors unrelated to the issuers' value, and such fluctuations can be
pronounced. Foreign securities tend to be more volatile than U.S. securities
because they include special risks, such as exposure to currency fluctuations, a
lack of comprehensive company information, political instability, and differing
auditing and legal standards.
Non-Diversification Risk. The Fund is classified as "non-diversified" under the
federal securities laws. The adviser may concentrate a relatively high
percentage of the Fund's investments in the securities of a small number of
companies. This would make the performance of the Fund more susceptible to a
single economic, political or regulatory event than a more diversified mutual
fund might be.
Portfolio Turnover. The Fund's investment strategy may involve frequent trading
which leads to increased transaction costs and brokerage commission, both of
which may lower the actual return on your investment. Active trading may also
increase short-term capital gains and loses, which affect the taxes you have to
pay. If the Fund's portfolio turnover rate is 200% for the year that indicates
the Fund's portfolio has completely changed twice during the year.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
EXPENSE INFORMATION
BAR CHART AND TABLE
Because the Fund is new, it has no performance as of the date of this
prospectus.
FEES AND EXPENSE INFORMATION
This table describes the fees and expenses that you may pay if you buy, hold or
sell shares of the Fund. Because the Fund is new, we estimated the Fund's
expenses. Actual expenses may be different from those shown.
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SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
None
ANNUAL FUND OPERATING EXPENSES (FEES PAID FROM FUND ASSETS)
Management fee 2.95%
Distribution (12b-1) fee 0%
Other expenses(estimated expenses) (1) 0.04%
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TOTAL ANNUAL FUND OPERATING EXPENSES 2.99%
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Note 1: Expenses are based on estimated amounts.
EXPENSE EXAMPLE
Use the example below to help you compare the cost of investing in the Fund with
the cost of investing in other mutual funds. It illustrates the amount of fees
and expenses you would pay, assuming the following:
* $10,000 investment
* 5% annual return
* No changes in the Fund's operating expenses
* Reinvestment of all dividends and distributions
* Redemption at the end of each period shown
Your actual costs may be higher or lower.
1 YEAR $302
3 YEARS $924
FUND MANAGEMENT
Investment Adviser. Bonfiglio & Reed, LLC (the "adviser"), located at 1661 E.
Camelback Road, Suite # 280, Phoenix, Arizona, 85016, serves as the Fund's
investment adviser under an Investment Advisory Agreement ("Agreement") with the
Trust. The Agreement provides that the Adviser will be responsible for making
investment decisions for the Fund, placing purchase and sale orders and
providing research, statistical analysis and continuous supervision of the
Fund's investment portfolio. The Adviser is newly formed entity (October 1999)
and has limited operating history upon which investors can evaluate its
performance. In addition to the Fund, the Adviser has provided investment
management services to a hedge fund.
The Adviser manages the Fund, subject to policies adopted by the Trust's Board
of Trustees. Under the agreement, the Adviser, at its own expense and without
reimbursement from the Trust, furnishes office space and all necessary office
facilities, equipment and executive personnel necessary for managing the Fund.
The Adviser also pays transfer agency, pricing, custodial, auditing and legal
services, and general administrative and other operating expenses of the Fund
except brokerage commissions, taxes, interest, fees and expenses of
non-interested Trustees and extraordinary expenses. For its services, the
adviser receives a fee, payable monthly, at an annual rate of 2.95% of the
Fund's average daily net assets.
Portfolio Manager. Reese W. Reed manages the investment program for the Fund.
Mr. Reed has been actively trading in options the past 3 years for personal
accounts, and is currently advising a hedge fund. Mr. Reed has earned his Series
7, 63 and 65 licenses. Prior to forming the Adviser, Mr. Reed worked
approximately 1 year as a salaried broker/investment advisory associate for The
Acacia Group, an insurance/financial planning company. Mr. Reed is also a
student pursuing his degrees in Economics and Political Science. It is important
for you to consider before investing that Mr. Reed has not managed a mutual fund
in the past and his lack of mutual fund management experience may negatively
affect the Fund's results.
HOW TO PURCHASE AND REDEEM SHARES
ACCOUNT TYPE MINIMUM INVESTMENT
Initial Subsequent
Regular (non-retirement) $1,000 $100
Retirement (IRA - Roth, Education;
Keogh; Pension and Profit Sharing Plans, $250 $50
plans containing 401(k) provisions; and
403(b) accounts)
Automatic Investment Plan $250 $50
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You may purchase shares directly through the Fund's Transfer Agent or through a
brokerage firm or financial institution that has agreed to sell the Fund's
shares. Your initial investment in the Fund ordinarily must be at least $1,000
(or $250 for IRAs). The Fund reserves the right to waive the minimum initial
investment requirements. Different minimums may apply to investors purchasing
shares of the Fund through certain brokerage firms. Contact your brokerage firm
for additional information. Shares of the Fund are sold on a continuous basis at
the net asset value next determined after receipt of a purchase order by the
Trust or an agent of the Trust. If an order to purchase shares is cancelled
because your check does not clear, you will be responsible for any resulting
losses or fees incurred by the Trust or the Transfer Agent in the transaction.
The Transfer Agent (or your broker) mails you confirmations of all purchases or
redemptions of Fund shares. Certificates representing shares are not issued. The
Trust reserves the right to limit the amount of investments and to refuse to
sell to any person. An account application is included with this Prospectus.
Brokerage Accounts. Any purchase order placed with a brokerage firm is treated
as if it were placed directly with the Trust. Your shares will be held in a
pooled account in the broker's name, and the broker will maintain your
individual ownership information. In addition, your brokerage firm may charge
you a fee for handling your order. Your brokerage firm is responsible for
processing your order correctly and promptly, keeping you advised of the status
of your individual account, confirming your transactions and ensuring that you
receive copies of the Trust's Prospectus, Semiannual and Annual Reports.
Purchase orders received by such agents prior to 4:00 p.m., eastern time, on any
business day are confirmed at the net asset value ("NAV") determined as of the
close of the regular session of trading on the New York Stock Exchange on that
day if the agent transmits properly completed orders to the Fund's Transfer
Agent.
Opening Accounts by Mail or Wire. You may purchase and add shares to your
account by mail or by bank wire. Checks should be sent to Bonfiglio & Reed
Options Fund, P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be made
payable to "Bonfiglio & Reed Options Fund." Third party checks will not be
accepted. Bank wires should be sent as outlined below. Each additional purchase
request must contain the account name and number to permit proper crediting.
Upon the Trust receiving a completed and signed account application form, you
may purchase shares of the Fund by bank wire. Please telephone the Transfer
Agent (Nationwide call toll-free 1.800.237.2049) for detailed instructions;
however, before you call you should be prepared to give the name in which the
account is to be established, the address, telephone number and taxpayer
identification number for the account, and the name of the bank which will wire
the money. Your investment will be made at the next determined net asset value
after your wire is received together with the account information indicated
above. If the Transfer Agent does not receive timely and complete account
information, there may be a delay in the investment of your money and any
accrual of dividends. To make your initial wire purchase, you must mail a
completed account application to the Transfer Agent. Your bank may impose a
charge for sending your wire. There is presently no fee for receipt of wired
funds, but the Transfer Agent reserves the right to charge shareholders for this
service upon 30 days' prior notice to shareholders.
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HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Trust is open for
business. You will receive the net asset value per share next determined after
receipt by the Transfer Agent of your redemption request in the form described
below. Payment is normally made within 3 business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to 15 days
from the purchase date. To eliminate this delay, you may purchase shares of the
Fund by certified check or wire.
You may change the bank or brokerage account which you have designated at any
time by writing to the Transfer Agent with your signature guaranteed by any
eligible guarantor institution (including banks, brokers and dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations). Further documentation will be
required to change the designated account if shares are held by a corporation,
fiduciary or other organization.
By Telephone. You may sell or redeem shares having a value of less than $25,000
by telephone. The proceeds will be sent by mail to the address designated on
your account or wired directly to your existing account in any commercial bank
or brokerage firm in the United States as designated on your application. To
redeem by telephone, call the Transfer Agent (Nationwide call toll-free
1.800.237.2049). IRA accounts are not redeemable by telephone.
The telephone redemption privilege is automatically available to all new
accounts. If you do not want the telephone redemption privilege, you must
indicate this in the appropriate area on your account application or you must
write to the Transfer Agent and instruct them to remove this privilege from your
account.
The Transfer Agent reserves the right to suspend the telephone redemption
privilege with respect to any account if the name(s) or the address on the
account has been changed within the previous 30 days.
Neither the Trust, the Transfer Agent, nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine or for any loss, damage, cost or expenses in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
By Mail. You may redeem any number of shares from your account by sending a
written request to the Transfer Agent. The request must state the number of
shares or the dollar amount to be redeemed and your account number. The request
must be signed exactly as your name appears on the Trust's account records. If
the shares to be redeemed have a value of $25,000 or more, your signature must
be guaranteed by any of the eligible guarantor institutions outlined above. If
the name(s) or the address on your account has been changed within 30 days of
your redemption request, you will be required to request the redemption in
writing with your signature guaranteed, regardless of the value of the shares
being redeemed. Written redemption requests may also direct that the proceeds be
deposited directly in a domestic bank or brokerage account designated on your
account application for telephone redemptions.
Through Broker-Dealers. You may also redeem shares of the Fund by placing a wire
redemption request through a securities broker or dealer. Unaffiliated
broker-dealers may charge you a fee for this service. You will receive the net
asset value per share next determined after receipt by the Trust or its agent of
your wire redemption request. If the amount being redeemed is greater than
$25,000, a signature guarantee is required (see above). It is the responsibility
of broker-dealers to promptly transmit wire redemption orders and follow all
relevant instructions.
Additional Redemption Information. If your instructions request a redemption by
wire, the proceeds will be wired directly to your existing account in any
commercial bank or brokerage firm in the United States as designated on your
application and you will be charged an $11 processing fee by the Fund's
Custodian. The Trust reserves the right, upon 30 days' written notice, to change
the processing fee. All charges will be deducted from your account by redemption
of shares in your account. Your bank or brokerage firm may also impose a charge
for processing the wire. In the event that wire transfer of funds is impossible
or impractical, the redemption proceeds will be sent by mail to the designated
account.
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Redemption requests may direct that the proceeds be deposited directly in your
account with a commercial bank or other depository institution by way of an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization.
To be in a position to eliminate excessive expenses, the Trust reserves the
right to redeem, upon not less than 60 days' notice, all shares of the Fund in
an account (other than an IRA) which has a value below $1,000. However, you will
be allowed to make additional investments prior to the date fixed for redemption
to avoid liquidation of the account. The right of redemption by the Trust will
not apply if the value of your account drops below $1,000 because of market
performance.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than 3 business days under unusual circumstances as
determined by the Securities and Exchange Commission. Under unusual
circumstances, when the Board of Trustees deems it appropriate, the Funds may
make payment for shares redeemed in portfolio securities of the Funds taken at
current value.
SHAREHOLDER INFORMATION AND SERVICES
On-line Services. The Fund may provide services and information to investors
on-line. An interruption in any portion of the technology infrastructure
associated with the BonfiglioReed.com website may impair an investor's ability
to access the BonfiglioReed.com website or otherwise use the BonfiglioReed.com
website.
Since the adviser may make available the Fund's holdings and completed trading
activity, at the discretion of the adviser, there is a risk that investors may
use such information to the detriment of the Fund. The Fund's Board may
discontinue this practice if it is found to be detrimental to the Fund and its
shareholders.
Delivery of Prospectus and Shareholder Reports. The Fund produces financial
reports, which include a list of the Fund's portfolio holdings, semiannually and
updates its prospectus annually. To reduce expenses, the Fund may choose to mail
only one report or prospectus to your household, even if more than one person in
the household has Fund account. Please call 1.800.237.2049 if you would like to
receive additional reports or prospectuses.
Contact the Transfer Agent (nationwide call toll-free 1.800.237.2049) for
additional information about the shareholder services described below.
Tax-Deferred Retirement Plans
Shares of the Fund are available for purchase in connection with the following
tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting
certain requirements of the Internal Revenue Code (the "Code")
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Direct Deposit Plans
Shares of the Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or Social Security checks
transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
By completing the Automatic Investment Plan section of the account application,
you may make automatic monthly investments in the Fund from your bank, savings
and loan or other depository institution account. The minimum initial investment
is $250 and subsequent investments must be $50 under the plan. The Transfer
Agent pays the costs associated with these transfers, but reserves the right,
upon 30 days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Fund. You may change the
amount of the investment or discontinue the plan at any time by writing to the
Transfer Agent.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment income,
if any, on an annual basis. The Fund expects to distribute any net realized
long-term capital gains at least once each year. Management will determine the
timing and frequency of the distributions of any net realized short-term capital
gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains distributions
reinvested in additional shares.
Income Option - income distributions and short-term capital gains
distributions paid in cash; long-term capital gains
distributions reinvested in additional shares.
Cash Option - income distributions and capital gains distributions paid
in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal Service
cannot deliver your checks or if your checks remain uncashed for 6 months, your
dividends may be reinvested in your account at the then current NAV and your
account will be converted to the Share Option. No interest will accrue on
amounts represented by uncashed dividend checks.
If you have received in cash any dividend or capital gains distribution from the
Fund you may return the distribution within 30 days of the distribution date to
the Transfer Agent for reinvestment at the NAV next determined after its return.
You or your dealer must notify the Transfer Agent that a distribution is being
reinvested pursuant to this provision.
TAXES
The Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Code by annually distributing substantially all of its net investment
company taxable income, net tax-exempt income and net capital gains in dividends
to its shareholders and by satisfying certain other requirements related to the
sources of its income and the diversification of its assets. By so qualifying,
the Fund will not be subject to federal income tax or excise tax on that part of
its investment company taxable income and net realized short-term and long-term
capital gains which it distributes to its shareholders in accordance with the
Code's timing requirements.
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Dividends and distributions paid to shareholders (whether received in cash or
reinvested in additional shares) are generally subject to federal income tax and
may be subject to state and local income tax. Dividends from net investment
income and distributions from any excess of net realized short-term capital
gains over net realized capital losses are taxable to shareholders (other than
tax-exempt entities that have not borrowed to purchase or carry their shares of
the Funds) as ordinary income. Distributions are expected to primarily be in the
form of capital gains.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) by the Fund to its shareholders are taxable
to you as capital gains, without regard to the length of time you have held your
Fund shares. Capital gains distributions may be taxable at different rates
depending on the length of time a Fund holds its assets. Redemptions of shares
of the Fund are taxable events on which you may realize a gain or loss.
The Trust will mail a statement to you annually indicating the amount and the
federal income tax status of all distributions made during the year. The Fund's
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions. Please contact your tax
consultant for more information.
CALCULATION OF SHARE PRICE
On each day that the Trust is open for business, 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 (generally 4:00 p.m., eastern
time). The Trust is open for business on each day the New York Stock Exchange is
open for business. The net asset value per share of the Fund is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by the
total number of shares outstanding of the Fund, rounded to the nearest cent. The
price at which a purchase or redemption of Fund shares is effected is based on
the next calculation of net asset value after the order is placed.
Securities held by the Fund may be primarily listed on foreign exchanges or
traded in foreign markets which are open on days (such as Saturdays and U.S.
holidays) when the New York Stock Exchange is not open for business. As a
result, the net asset value per share of the Fund may be significantly affected
by trading on days when the Trust is not open for business. Securities mainly
traded on a non-U.S. exchange are generally valued according to the preceding
closing values on that exchange. However, if an event that may change the value
of a security held in the Fund's portfolio occurs after the time when the
closing value on the non-U.S. exchange was determined, the Board of Trustees
might decide to value the security based on fair value. This may cause the value
of the security on the books of the Fund to be significantly different from the
closing value on the non-U.S. exchange and may affect the calculation of the
Fund's net asset value.
Portfolio securities are valued as follows:
(1) securities which are traded on stock exchanges or are quoted by NASDAQ are
valued at the last reported sale price as of the close of the regular
session of trading on the New York Stock Exchange on the day the securities
are being valued, or, if not traded on a particular day, at the most recent
bid price,
(2) securities traded in the over-the-counter market, and which are not quoted
by NASDAQ, are valued at the last sale price (or, if the last sale price is
not readily available, at the most recent bid price as quoted by brokers
that make markets in the securities) as of the close of the regular session
of trading on the New York Stock Exchange on the day the securities are
being valued,
(3) securities which are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most representative
market, and
(4) securities (and other assets) for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under
the general supervision of the Board of Trustees. The net asset value per
share of the Fund will fluctuate with the value of the securities it holds.
<PAGE>
BONFIGLIO & REED INVESTMENT TRUST
1661 East Camelback Rd.
Suite 280
Phoenix, Arizona 85016
INVESTMENT ADVISER
Bonfiglio & Reed LLC
1661 East Camelback Rd
Suite 280
Phoenix, Arizona 85016
UNDERWRITER
IFS Fund Distributors, Inc
312 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaze NW
Dayton, Ohio 45402
CUSTODIAN
Firstar Bank
425 Walnut Street
Cincinnati, Ohio 45201-5354
TRANSFER AGENT
Integrated Fund Services, Inc
312 Walnut Street
Cincinnati, Ohio 45202
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is hereby incorporated by reference in its entirety.
Additional information about the Fund's investments will be included in the
Fund's annual and semiannual reports to shareholders. The Fund's annual report
will include a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during the last fiscal year.
You can get free copies of the SAI or request other information and discuss your
questions about the Fund on the Fund's Internet site, by e-mail:
[email protected] or by phone at 1.800.237.2049
Internet: http://www.bonfiglioreed.com
Shareholders that provide the Fund with an e-mail address will be alerted by
e-mail when a prospectus amendment, annual or semi-annual report, or proxy
materials are available. It is the shareholder's obligation to provide the Fund
with any changes made to an e-mail address.
You can review and copy information about the Fund, including the Fund's SAI, at
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. Information on the operation of the public reference room may
be obtained by calling 1-202-942-8090. Reports and other information about the
Fund is available on the Commission's Internet site at http://www.sec.gov. *
Free from the Commission's Web site at http:www.sec.gov.
Copies of information on the Commission's Internet site may be obtained upon
payment of a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
Investment Company Act file no. 811-9905.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
BONFIGLIO & REED OPTIONS FUND
August 1, 2000
Series of
The Bonfiglio & Reed Investment Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
1.800.237.2049
TABLE OF CONTENTS
DESCRIPTION OF THE TRUST................................................
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..........................
INVESTMENT LIMITATIONS..................................................
TRUSTEES AND OFFICERS...................................................
INVESTMENT ADVISER......................................................
TRANSFER AGENT AND DISTRIBUTOR..........................................
OTHER SERVICES..........................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................
SHARES OF THE FUND......................................................
DETERMINATION OF SHARE PRICE............................................
ADDITIONAL TAX INFORMATION..............................................
DISTRIBUTION PLANS......................................................
PERFORMANCE INFORMATION.................................................
FINANCIAL STATEMENTS....................................................
This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the Prospectus of the Bonfiglio & Reed Options
Fund dated August 1, 2000. A Prospectus can be obtained by writing the Transfer
Agent at 312 Walnut Street, Cincinnati, Ohio 45202, by calling 1.800.237.2049,
or by email at [email protected]
<PAGE>
DESCRIPTION OF THE TRUST
The Bonfiglio & Reed Options Fund ( the "Fund") was organized as a series
of The Bonfiglio & Reed Investment Trust (the "Trust"). The Trust is an
open-end, management investment company established under the laws of Ohio by an
Agreement and Declaration of Trust dated April 13, 2000 (the "Trust Agreement").
The Trust Agreement permits the Trustees to issue an unlimited number of shares
of beneficial interest of separate series without par value.
Each share of a series represents an equal proportionate interest in the
assets and liabilities belonging to that series with each other share of that
series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
Any Trustee of the Trust may be removed by vote of the shareholders holding
not less than two-thirds of the outstanding shares of the Trust. The Trust does
not hold an annual meeting of shareholders. When matters are submitted to
shareholders for a vote, each shareholder is entitled to one vote for each whole
share he owns and fractional votes for fractional shares he owns. All shares of
the Fund have equal voting rights and liquidation rights. The Declaration of
Trust can be amended by the Trustees, except that any amendment that adversely
affects the rights of shareholders must be approved by the shareholders
effected.
For other information concerning the purchase and redemption of shares of
the Fund, see "How to Purchase and Redeem Shares" in the Fund's Prospectus. For
a description of the methods used to determine the share price and value of the
Fund's assets, see "Calculation of Share Price" in the Fund's Prospectus.
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DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
This section contains a more detailed discussion of some of the investments
the Fund may make and some of the techniques it may use, as described in the
Prospectus.
A. Equity Securities.
The Fund may invest in common stock, in addition to which, the Fund may
invest in preferred stock and common stock equivalents (such as convertible
preferred stock and convertible debentures). Convertible preferred stock is
preferred stock that can be converted into common stock pursuant to its terms.
Convertible debentures are debt instruments that can be converted into common
stock pursuant to their terms. The adviser intends to invest only in preferred
stock rated A or higher by Standard & Poor's Ratings Group ("S&P") or by Moody's
Investors Service, Inc. ("Moody's").
B. U.S. Government Obligations.
The Fund may invest in U.S. Government obligations. These securities may be
backed by the credit of the government as a whole or only by the issuing agency.
U.S. Treasury bonds, notes, and bills and some agency securities, such as those
issued by the Federal Housing Administration and the Government National
Mortgage Association (GNMA), are backed by the full faith and credit of the U.S.
Government as to payment of principal and interest and are the highest quality
government securities. Other securities issued by U.S. Government agencies or
instrumentalities, such as securities issued by the Federal Home Loan Banks and
the Federal Home Loan Mortgage Corporation, are supported only by the credit of
the agency that issued them, and not by the U.S. Government. Securities issued
by the Federal Farm Credit System, the Federal Land Banks, and the Federal
National Mortgage Association (FNMA) are supported by the agency's right to
borrow money from the U.S. Treasury under certain circumstances, but are not
backed by the full faith and credit of the U.S. Government.
C. Repurchase Agreements.
The Fund may invest in repurchase agreements fully collateralized by U.S.
Government obligations. A repurchase agreement is a short-term investment in
which the purchaser (i.e., the Fund) acquires ownership of a U.S. Government
obligation (which may be of any maturity) and the seller agrees to repurchase
the obligation at a future time at a set price, thereby determining the yield
during the purchaser's holding period (usually not more than seven days from the
date of purchase). Any repurchase transaction in which the Fund engages will
require full collateralization of the seller's obligation during the entire term
of the repurchase agreement. In
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the event of a bankruptcy or other default of the seller, the Fund could
experience both delays in liquidating the underlying security and losses in
value. However, the Fund intends to enter into repurchase agreements only with
banks with assets of $1 billion or more and registered securities dealers
determined by the adviser (subject to review by the Board of Trustees) to be
creditworthy. The adviser monitors the creditworthiness of the banks and
securities dealers with which the Fund engages in repurchase transactions.
D. Illiquid Securities.
The Fund may invest up to 15% of its net assets (valued at the purchase
date) in illiquid securities. Illiquid securities generally include securities
that cannot be disposed of promptly and in the ordinary course of business
without taking a reduced price. Securities may be illiquid due to contractual or
legal restrictions on resale or lack of a ready market. The following securities
are considered to be illiquid: repurchase agreements maturing in more than seven
days, nonpublicly offered securities and restricted securities. Restricted
securities are securities the resale of which is subject to legal or contractual
restrictions. Restricted securities may be sold only in privately negotiated
transactions, in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 or pursuant to Rule 144
or Rule 144A promulgated under the Act. Where registration is required, the Fund
may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision to sell and the
time such security may be sold under an effective registration statement. If
during such a period adverse market conditions were to develop, the Fund might
obtain a less favorable price than the price it could have obtained when it
decided to sell.
E. Loans of Securities.
The Fund may make short and long term loans of its portfolio securities in
order to realize additional income. Under the lending policy authorized by the
Board of Trustees and implemented by the adviser in responses to requests of
broker-dealers or institutional investors which the adviser deems qualified, the
borrower must agree to maintain collateral, in the form of cash or U.S.
Government obligations, with the Fund on a daily mark-to-market basis in an
amount at least equal to the value of the loaned securities. The Fund will
continue to receive dividends or interest on the loaned securities and may
terminate such loans at any time or reacquire such securities in time to vote on
any matter which the adviser determines to be important. With respect to loans
of securities, there is the risk that the borrower may fail to return the loaned
securities or that the borrower may not be able to provide additional
collateral.
F. Reverse Repurchase Agreements.
The Fund may use reverse repurchase agreements as part of the Fund's
investment strategy. Reverse repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price. Generally, the effect of such a
transaction is that the Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while the Fund will be able to keep the interest income associated
with those portfolio securities. Such transactions
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<PAGE>
are advantageous only if the interest cost to the Fund is less than the cost of
obtaining the cash otherwise. When participating in these transactions the Fund
will establish a segregated account with its custodian bank in which the Fund
will maintain cash or liquid instruments equal in value to the Fund's
obligations in respect of reverse repurchase agreements.
G. Borrowing
The Fund may borrow money for cash management purposes or investment
purposes. The Fund may also enter into reverse repurchase agreements, which may
be viewed as a form of borrowing, with financial institutions. However, to the
extent the Fund covers its repurchase obligations as described in the "Reverse
Repurchase Agreements," such agreement will not be considered to be a "senior
security" and, therefore, will not be subject to the 300% asset coverage
requirement otherwise applicable to borrowings by the Fund. Borrowing for
investment purposes is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but may also increase investment opportunity. Since
substantially all of the Fund's assets will fluctuate in value, whereas the
interest obligations on borrowings may be fixed, the net asset value per share
of the Fund will increase more when the Fund's portfolio assets increase in
value and decrease more when the Fund's portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse conditions, the Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales.
As required by the 1940 Act, the Fund must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds, less
liabilities exclusive of borrowings) of 300% of all amounts borrowed. If at any
time the value of the Fund's assets should fail to meet this 300% coverage test,
the Fund, within 3 days (not including Sundays and holidays), will reduce the
amount of the Fund's borrowings to the extent necessary to meet this test.
Complying with this limitation may result in the sale of portfolio securities at
a time when investment considerations otherwise indicate that it would be
disadvantageous to do so. In addition to the foregoing, the Fund is authorized
to borrow money for extraordinary or emergency purposes in amounts not in excess
of 5% of the value of the Fund's total assets. This borrowing is not subject to
the foregoing 300% asset coverage requirement. The Fund is authorized to pledge
portfolio securities as the adviser deems appropriate in connection with any
borrowings.
H. Foreign Securities
The Fund may invest up to 20% of its total net assets in foreign
securities. Foreign fixed-income securities include corporate debt obligations
issued by foreign companies and debt obligations of foreign governments or
international organizations. This category may include floating rate
obligations, variable rate obligations, Yankee dollar obligations (U.S. dollar
denominated obligations issued by foreign companies and traded on U.S. markets)
and Eurodollar obligations (U.S. dollar denominated obligations issued by
foreign companies and American depository receipts ("ADRs"). ADRs are
certificates of ownership issued by a U.S.
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<PAGE>
bank as a convenience to investors in lieu of the underlying shares which its
holds in custody. The Fund may invest in options based on ADR's.
There may be less information publicly available about a foreign company
than about a U.S. company, and foreign companies are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the U.S. Other risks associated with investments in foreign
securities include changes in the administrations or economic and monetary
policies of foreign governments, the imposition of exchange control regulations,
the possibility of expropriation decrees and other adverse foreign governmental
action, the imposition of foreign taxes, less liquid markets, less government
supervision of exchanges, brokers and issuers, difficulty in enforcing
contractual obligations, delays in settlement of securities transactions and
greater price volatility. In addition, investing in foreign securities will
generally result in higher commissions than investing in similar domestic
securities.
I. Portfolio Turnover
The Fund may sell any portfolio security (without regard to the length of
time it has been held) when the adviser believes that market conditions,
creditworthiness factors or general economic conditions warrant such action. The
portfolio turnover rate is not expected to exceed 300% for the Fund. The Fund's
high turnover rate will result in correspondingly greater brokerage commissions,
transaction costs and other expenses. In addition, high portfolio turnover rates
may result in the realization of additional capital gains for tax purposes.
The Securities and Exchange Commission defines "portfolio turnover rate" as
the value of securities purchased or securities sold, excluding all securities
whose maturities at time of acquisition were one year or less, divided by the
average monthly value of securities owned during the year. Pursuant to the above
definition, the Fund's portfolio turnover rate is calculated without regard to
instruments, including futures and options contracts, having a maturity of less
than one year.
J. Investments in other Investment Companies
The Fund may invest in the securities of other investment companies to the
extent that such an investment would be consistent with the requirements of the
1940 Act. If the Fund invests in, and, thus, is a shareholder of, another
investment company, the Fund's shareholders will indirectly bear the Fund's
proportionate share of the fees and expenses paid by such other investment
company, including advisory fees, in addition to both the management fees
payable directly by the Fund to the Fund's own investment adviser and the other
expenses that the Fund bears directly in connection with the Fund's own
operations.
K. Options, Futures and Currency Transactions
The Fund may utilize various other investment strategies as described
below. Such strategies are generally accepted by modern portfolio managers and
are regularly utilized by many
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<PAGE>
mutual funds and other institutional investors. Techniques and instruments may
change over time as new instruments and strategies are developed or regulatory
changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell financial futures contracts and options thereon, and enter
into various interest rate transactions such as swaps, caps, floors or collars.
Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any techniques is a function of numerous variables including
market conditions. The ability of the Fund to utilize these techniques
successfully will depend on the adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.
These techniques have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
adviser's view as to certain market movements is incorrect, the risk that the
use of such techniques would result in losses greater than if they had not been
used. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Finally, the daily
variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of such techniques would reduce net asset value, and possible income,
and such losses can be greater than if the techniques had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many hedging transactions involving options
require segregation of the Fund's assets in special accounts, as described below
under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For example, the Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
the Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. The Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect the
Fund against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may purchase
such instrument. The Fund is authorized to purchase and sell exchange-listed
options and over-the-counter options ("OTC options"). Exchange-listed options
are issued by
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a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
With certain exceptions, OCC-issued and exchange-listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange-listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange-listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly,
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<PAGE>
the adviser must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC option will be satisfied. While this type
of arrangement allows the Fund greater flexibility to tailor an option to their
needs, OTC options generally involve greater credit risk than exchange-traded
options, which are guaranteed by the clearing organization of the exchanges
where they are traded. The risk of illiquidity also is greater with OTC options,
since these options generally can be closed out only by negotiation with the
other party to the option.
If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio) and
on securities indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the fund may be required to buy the underlying
security at a disadvantageous price above the market price.
GENERAL CHARACTERISTICS OF FUTURES
The Fund may enter into financial futures contracts, or purchase or sell
put and call options on such futures, as a hedge against anticipated interest
rate, currency or equity market changes, for duration management, and for risk
management purposes. Futures are generally bought and sold on the commodities
exchanges where they are listed with payment of initial and variation margin as
described below. The sale of a futures contract creates a firm obligation by the
Fund, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific
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future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract and obligates the seller to deliver such option.
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark-to-market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract, it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting
transaction, but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur. The
segregation requirements with respect to futures contracts and options thereon
are described below.
The Fund intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Funds will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into. Although a Fund will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to the Fund immediately upon closing out the futures position, while
settlement of securities transactions could take several days. However, because
the Fund's cash that may otherwise be invested would be held uninvested or
invested in other liquid assets so long as the futures position remains open,
such Fund's return could be diminished due to the opportunity losses of
foregoing other potential investments.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
The Fund also may purchase and sell call and put options on securities
indices and other financial indices and in so doing can achieve many of the same
objectives it would achieve through the sale or purchase of options on
individual securities or other instruments. Options on securities indices and
other financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement, i.e., an option on an index gives
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the index upon which the option is based exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the excess of the closing price of
the index over the exercise price of the option, which also may be multiplied by
a formula value. The seller of the option is obligated, in return for the
premium received, to make delivery of this amount. The gain or loss of an option
on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.
CURRENCY TRANSACTIONS
The Fund may engage in currency transactions with Counterparties in order
to hedge the value of portfolio holdings denominated in particular currencies
against fluctuations in relative value. Currency transactions include forward
currency contracts, exchange-listed currency futures,
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exchange-listed and OTC options on currencies, and currency swaps. A forward
currency contract involves a privately negotiated obligation to purchase or sell
(with delivery generally required) a specific currency at a future date, at a
price set at the time of the contract. A currency swap is an agreement to
exchange cash flows based on the notional difference among two or more
currencies and operates similarly to an interest rate swap, which is described
below. The Fund may enter into currency transactions with Counterparties which
have received (or the guarantors of the obligations of such Counterparties have
received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or that
have an equivalent rating from an NRSRO or (except for OTC currency options) are
determined to be of equivalent credit quality by the adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended to wholly or partially
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currency convertible into such currently
other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering to a forward contract to sell a currency whose changes
in value are generally considered to be linked to a currency or currencies in
which some or all of the Fund's portfolio securities are or are expected to be
denominated, and to buy U.S. dollars. The amount of the contract would not
exceed the value of the Fund's securities denominated in linked currencies. For
example, if the adviser considers the Austrian schilling linked to the German
deutschemark (the "D-mark"), the Fund holds securities denominated in schillings
and the adviser believes that the value of schillings will decline against the
U.S. dollar, the adviser may enter into a contract to sell D-marks and buy
dollars. Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
If the Fund enters into a currency hedging transaction, the Fund will comply
with the asset segregation requirements described below.
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<PAGE>
RISKS OF CURRENCY TRANSACTIONS
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risk that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market that may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts) and any combination of futures, options
and currency transactions ("component" transactions), instead of a single
hedging transaction, as part of a single or combined strategy when, in the
opinion of the adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its competent transactions. Although combined transactions are normally
entered into based on the adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the hedging transactions into which the Fund may enter are interest
rate, currency and index swaps and the purchase or sale of related caps, floors
and collars. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a
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specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
rating from an NRSRO or is determined to be of equivalent credit quality by the
adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors, and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
EURODOLLAR INSTRUMENTS
The Fund may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed- income
instruments are linked.
RISKS OF HEDGING TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, hedging transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during nonbusiness hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, and (v) lower
trading volume and liquidity.
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<PAGE>
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Many hedging transactions, in addition to other requirements, require that
the Fund segregate liquid high-grade assets with its Custodian to the extent
Fund obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. In general, either the full amount
of any obligation by the Fund to pay or deliver securities or assets must be
covered at all times by the securities, instruments or currency required to be
delivered, or, subject to any regulatory restriction, an amount of cash or
liquid high grade securities at least equal to the current amount of the
obligation must be segregated with the Custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid high-grade securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate liquid high grade assets equal to the
excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate liquid, high-grade
assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract that obligates the Fund to buy or sell currency
will generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate liquid high-grade assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC-issued and exchange-listed
index options will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a noncash settled put, the same as an
OCC-guaranteed listed option sold by the Fund, or the in-the-money amount plus
any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC-issued and exchange-listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement, will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
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<PAGE>
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlement with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high-grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Hedging transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its position, coupled with any segregated assets, equals
its net outstanding obligation in related options and Hedging Transactions. For
example, the Fund could purchase a put option if the strike price of that option
is the same or higher than the strike price of a put option sold by the Fund.
Moreover, instead of segregating assets if the Fund held a futures or forward
contract, it could purchase a put option on the same futures or forward contract
with a strike price as high or higher than the price of the contract held. Other
hedging transactions may also be offset in combinations. If the offsetting
transaction terminates at the time of or after the primary transaction no
segregation is required, but if it terminates prior to such time, assets equal
to any remaining obligation would need to be segregated.
INVESTMENT LIMITATIONS
FUNDAMENTAL. The investment limitations described below have been adopted
by the Trust with respect to the Fund and are fundamental ("Fundamental"), that
is, they may not be changed without the affirmative vote of a majority of the
outstanding shares of the Fund. As used in the Prospectus and this Statement of
Additional Information, the term "majority" of the outstanding shares of the
Fund means the lesser of (1) 67% or more of the outstanding shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented at such meeting; or (2) more than 50% of
the outstanding shares of the Fund. Other investment practices that may be
changed by the Board of Trustees without the approval of shareholders to the
extent permitted by applicable law, regulation or regulatory policy are
considered non-fundamental ("Non-Fundamental").
1. BORROWING MONEY. The Fund will not borrow money, except (a) from a banks
(as defined in the Investment Company Act of 1940), provided that immediately
after such borrowing there is an asset coverage of 300% for all borrowings of
the Fund, (b) from a bank or other persons for temporary purposes only, provided
that such temporary borrowings are in an amount not exceeding 5% of the Fund's
total assets at the time when the borrowing is made, (c) may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities, (d) may purchase securities on margin to the extent
permitted by applicable law. This limitation does not preclude the Fund from
entering into reverse repurchase transactions, provided that the Fund has an
asset coverage of 300% for all borrowings and repurchase commitments of the Fund
pursuant to reverse repurchase transactions. For purposes of this Investment
Restriction, the entry into options, shall not constitute borrowing.
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<PAGE>
2. SENIOR SECURITIES. The Fund will not issue senior securities. This
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
3. UNDERWRITING. The Fund will not act as underwriter of securities issued
by other persons. This limitation is not applicable to the extent that, in
connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. REAL ESTATE. The Fund will not purchase or sell real estate. This
limitation is not applicable to investments in marketable securities that are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. COMMODITIES. The Fund will not purchase or sell commodities except as
described in the Prospectus and Statement of Additional Information. This
limitation does not preclude the Fund from acquiring commodities as a result of
ownership of securities or other investments; from entering into options,
futures, currency, swap, cap, floor, collar or similar transactions; from
investing in securities or other instruments backed by commodities; or from
investing in companies that are engaged in a commodities business or have a
significant portion of their assets in commodities.
6. LOANS. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. CONCENTRATION. The Fund will not invest 25% or more of its total assets,
taken at market value at the time of each investment, in any particular
industry. This limitation is not applicable to investments in obligations issued
or guaranteed by the U.S. Government, its agencies and instrumentalities or
repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum limitations
on its investment policies and limitations, an excess above the fixed percentage
will not be a violation of the policy or limitation unless the excess results
immediately and directly from the acquisition of any security or the action
taken. This paragraph does not apply to the borrowing policy set forth in
paragraph 1 above.
The Fund's classification as a "non-diversified" investment company means
that the proportion of the Fund's assets that may be invested in the securities
of a single issuer is not limited by the 1940 Act. A "diversified" investment
company is required by the 1940 Act, generally, with respect to 75% of its total
assets, to invest not more than 5% of such assets in the securities of a
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single issuer. Since a relatively high percentage of the Fund's assets may be
invested in the securities of a limited number of issuers, some of which may be
in the same industry, the Fund's portfolio may be more sensitive to changes in
the market value of a single issuer or industry. However, to meet federal tax
requirements, at the close of each quarter the Fund may not have more than 25%
of its total assets invested in any one issuer and, with respect to 50% of its
total assets, not more than 5% of its total assets invested in any one issuer.
These limitations do not apply to U.S. Government securities.
NON-FUNDAMENTAL. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (see "Investment Limitations"
above).
1. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. BORROWING. The Fund will not purchase any security while borrowings
(including reverse repurchase agreements) representing more than 5% its total
assets are outstanding.
3. ILLIQUID SECURITIES. The Fund will not invest more than 15% of its
assets in securities that are restricted as to resale or otherwise illiquid. For
this purpose, illiquid securities generally include securities that cannot be
disposed of within seven days in the ordinary course of business without taking
a reduced price.
TRUSTEES AND OFFICERS
The Trust's Board of Trustees is responsible for the management and supervision
of the Fund. The Board approves all significant agreements with those companies
that furnish services to the Fund. These companies are as follows:
Bonfiglio & Reed LLC. Investment Adviser
Integrated Fund Services, Inc. Administrator and Transfer Agent
IFS Fund Distributors, Inc. Distributor
Firstar Bank Custodian
Trustees and officers of the Trust, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Trustee who is an "interested person" of the Trust, as defined in
the 1940 Act, is indicated by an asterisk.
POSITION(S)
NAME, ADDRESS HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH COMPANY DURING PAST 5 YEARS
*Chad Eaton Bonfiglio Trustee, CEO of Bonfiglio & Reed, LLC; CIO at
8911 E. Kalil President Getabusiness.com; Provided Technology
Scottsdale, AZ Consulting Services to Company Nurse;
Age: 25 Manager of Radiology File Room at
Scottsdale Healthcare.
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*Reese Whitman Reed Trustee, Portfolio Manager, Bonfiglio & Reed,
942 S. Ash Vice President LLC; 1999, Salaried Broker/Investment
Suite 110 and Treasurer Advisory Associate with the Acacia
Tempe, AZ 85281 Group; Mr. Reed is currently pursuing
Age: 22 his degrees in Economics and
Political Science at Arizona State
University. He has earned his Series
7, 63 and 65 licenses.
William T. O'Donnell, Sr. Trustee Mr. O'Donnell is professor at the
8650 Ease Via del Arbor Univeristy of Phoenix. He has been
Scottsdale, AZ with the University since 1984.
Age: 60 Mr. O'Donnell has over 30 years of
marketing and management experience.
Frank Scarpone Trustee Mr. Scarpone is Vice President of
7950 Ease Thunderhawk Rd Sales at K-Sun Corp. He joined K-
Scottsdale, AZ Sun in November of 1998. Prior to
Age: 53 joining K-Sun, he was Vice President
and General Manager of Typetronics
business systems from June of 1996
to September of 1998. From June 1985
to April of 1996, he was Vice
President and General Manager of
Sales at Kroy, Inc.
Barry L. Van Hook Trustee Mr. Van Hook is a Professor of
Department of Management Management and Entrepreneurship at
Arizon State University Arizona State University. He has been
Tempe, AZ with the University since 1976,
Age: 57 teaching classes in entrepreneurship
and advising area small businesses.
Wade Bridge Secretary Mr. Bridge is an attorney at
312 Walnut Street Integrated Fund Services, Inc.
Cincinnati, OH 45202
Age: 31
The Trust has a standing nominating committee comprised of its Trustees who are
not "interested persons" of the Trust, as defined in the 1940 Act. The function
of the nominating committee is to select and nominate all candidates who are not
"interested persons" of the Trust for election to the Trust's Board. The Trust
has an audit committee comprised of its Trustees who are not "interested
persons" of the Trust, as defined in the 1940 Act. The primary functions of the
audit committee is to select the Trust's independent auditor and review the
audited financial statements for the Trust. The Trust does not pay any
remuneration to its officers and Trustees other than fees and expenses to those
Trustees who are not directors, officers or employees of the Adviser or the
Administrator or any of their affiliates. The aggregate amount of compensation
estimated to be paid to each such Trustee by the Trust for the fiscal year
ending June 30, 2001 is as follows:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE PENSION OR RETIREMENT FROM FUND AND
NAME OF BOARD COMPENSATION FROM BENEFITS ACCRUED AS FUND COMPLEX
MEMBER COMPANY PART OF FUND EXPENSES PAID TO BOARD MEMBERS
<S> <C> <C> <C>
William T. O'Donnell, Sr. 1,000 -0- 1,000
Frank Scarpone 1,000 -0- 1,000
Barry L. Van Hook 1,000 -0- 1,000
</TABLE>
THE INVESTMENT ADVISER
Bonfiglio & Reed LLC (the "adviser"), located at 1661 E. Camelback Road, Suite
280, Phoenix, Arizona 85016, a registered investment adviser, serves as the
Fund's investment adviser. The adviser is an Arizona limited liability
corporation formed under Arizona law in October 1999. Reese W. Reed and Chad E.
Bonfiglio each may be deemed a "control person" of the adviser as such term is
defined in the 1940 Act by virtue of their ownership of interests in Bonfiglio &
Reed LLC. The adviser provides investment advisory services pursuant to the
Investment Advisory Agreement (the "Agreement") dated July 21, 2000 with the
Trust. The Agreement is subject to annual approval by (i) the Trust's Board or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund, provided that in either event the continuance also is
approved by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust or the adviser, by vote cast in person at
a meeting called for the purpose of voting on such approval. The Agreement was
approved by the Trust's sole shareholder on
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July 21, 2000. The Agreement is terminable without penalty, on 60 days' notice,
by the Trustee's Board or by vote of the holders of a majority of the Fund's
shares, or, on not less than 90 days' notice, by the adviser. The Agreement will
terminate automatically, as to the Fund, in the event of its assignment (as
defined in the 1940 Act).
Under the terms of the Agreement, the Trust has agreed to pay the adviser a
monthly fee at the annual rate of 2.95% of the Fund's average daily net assets.
The adviser will pay all transfer agency, distribution related fees and any fees
associated with listing the Fund on a mutual fund sales platform.
From time to time, the adviser may waive receipt of its fees, which would have
the effect of lowering the overall expense ratio of the Fund and increasing
yield to its investors. The Fund will not pay the adviser at a later time for
any amounts it may waive, nor will the Fund reimburse the adviser for any
amounts it may assume.
TRANSFER AGENT AND DISTRIBUTOR
The Fund retains Integrated Fund Services, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202 (the "Transfer Agent"), to serve as transfer agent,
dividend paying agent and shareholder service agent. The Fund also retains the
Transfer Agent to provide the Fund with administrative services, including
regulatory reporting and necessary office equipment, personnel and facilities.
For its services as administrator, the Transfer Agent receives a monthly fee at
an annual rate of 15% of the Fund's average daily net assets up to $25 million;
.125% of such assets from $25 million to $50 million; and .10% of such assets in
excess of $50 million, subject to a minimum monthly fee of $2,000.
The Fund retains IFS Fund Distributors, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202 (the "Distributor"), to act as the exclusive agent for
distribution of the Fund's shares. The Distributor is obligated to sell shares
of the Fund on a best efforts basis only against purchase orders for the shares.
Shares of the Fund are offered to the public on a continuous basis. The Transfer
Agent and the Distributor are wholly-owned subsidiaries of The Western and
Southern Life Insurance Company.
OTHER SERVICES
The firm of Deloitte & Touche LLP, has been selected as independent
auditors for the Trust for the fiscal year ending June 30, 2001.
Firstar Bank, N.A., is Custodian of the Fund's investments. The Custodian
holds all cash and securities of the Fund (either in the Custodian's possession
or in its favor through "book entry systems" authorized by the Trustee in
accordance with the Investment
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Company Act of 1940), collects all income and effects all securities
transactions on behalf of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust, the
adviser is responsible for the Fund's portfolio decisions and the placing of the
Fund's portfolio transactions. In placing portfolio transactions, the adviser
seeks the best qualitative execution for the Fund, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions.
The adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and economic
analyses, statistical services and information with respect to the availability
of securities or purchasers or sellers of securities and analyses of reports
concerning performance of accounts. The research services and other information
furnished by brokers through whom the Fund effects securities transactions may
also be used by the adviser in servicing all of its accounts. Similarly,
research and information provided by brokers or dealers serving other clients
may be useful to the adviser in connection with its services to the Fund.
Although research services and other information are useful to the Fund and the
adviser, it is not possible to place a dollar value on the research and other
information received. It is the opinion of the Board of Trustees and the adviser
that the review and study of the research and other information will not reduce
the overall cost to the adviser of performing its duties to the Fund under the
Agreement.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers, if the same or a better price, including
commissions and executions, is available. Fixed income securities are normally
purchased directly from the issuer, an underwriter or a market maker. Purchases
include a concession paid by the issuer to the underwriter and the purchase
price paid to a market maker may include the spread between the bid and asked
prices.
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The adviser makes investment decisions for the Fund independently from
those of the other accounts the adviser manages; investments of the type the
Fund may make, however, may also be made by those other accounts. When the Fund
and one or more other accounts the adviser manages are prepared to invest in, or
desire to dispose of, the same security, the adviser will allocate available
investments or opportunities for sales in a manner the adviser believes to be
equitable to each. In some cases, this procedure may adversely affect the price
paid or received by the Fund or the size of the position obtained or disposed of
by the Fund. Orders placed for the Fund will not be combined ("blocked") with
other orders.
SHARES OF THE FUND
The Fund does not issue share certificates. All shares are held in
non-certificate form registered on the books of the Fund and the Transfer Agent
for the account of the shareholder. The rights to limit the amount of purchases
and to refuse to sell to any person are reserved by the Fund. If your check or
wire does not clear, you will be responsible for any loss incurred by the Fund.
If you are already a shareholder, the Fund can redeem shares from any
identically registered account in the Fund as reimbursement for any loss
incurred. You may be prohibited or restricted from making future purchases in
the Fund.
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as of
4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day,
President's Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. For a description of
the methods used to determine the net asset value (share price), see
"Calculation of Share Price" in the Prospectus.
For valuation purposes, quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the time of pricing. In
computing the net asset value of the Fund, the values of foreign portfolio
securities are generally based upon market quotations which, depending upon the
exchange or market, may be last sale price, last bid price, or the average of
the last bid and asked prices as of, in each case, the close of the appropriate
exchange or another designated time.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day on which the New York Stock Exchange is open. Trading of
these securities may not take place on every New York Stock Exchange business
day. In addition, trading may take place in various foreign markets on Saturdays
or on other days when the New York Stock Exchange is not open and on which the
Fund's share price is not calculated. Therefore, the value of the portfolio of
the
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<PAGE>
fund holding foreign securities may be significantly affected on days when
shares of the Fund may not be purchased or redeemed.
The calculation of the share price of the Fund when it holds foreign
securities in its portfolio does not take place contemporaneously with the
determination of the values of many of the foreign portfolio securities used in
such calculation. Events affecting the values of foreign portfolio securities
that occur between the time their prices are determined and the calculation of
the Fund's share price will not be reflected in the calculation unless the
adviser determines, subject to review by the Board of Trustees, that the
particular event would materially affect net asset value, in which case an
adjustment will be made.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUND. The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Among its requirements to qualify under Subchapter M, the Fund
must distribute annually at least 90% of its net investment income. In addition
to this distribution requirement, the Fund must derive at least 90% of its gross
income each taxable year from dividends, interest, payments with respect to
securities' loans, gains from the disposition of stock or securities, and
certain other income.
While the above requirements are aimed at qualification of the Fund as a
regulated investment company under Subchapter M of the Code, the Fund also
intends to comply with certain requirements of the Code to avoid liability for
federal income and excise tax. If the Fund remains qualified under Subchapter M,
it will not be subject to federal income tax to the extent it distributes its
taxable net investment income and net realized capital gains. A nondeductible 4%
federal excise tax will be imposed on the Fund to the extent it does not
distribute at least 98% of its ordinary taxable income for a calendar year, plus
98% of its capital gain net taxable income for the one year period ending each
October 31, plus certain undistributed amounts from prior years. While the Fund
intends to distribute its taxable income and capital gains in a manner so as to
avoid imposition of the federal excise and income taxes, there can be no
assurance that the Fund indeed will make sufficient distributions to avoid
entirely imposition of federal excise or income taxes.
Should additional series, or funds, be created by the Trustees, each fund
would be treated as a separate tax entity for federal income tax purposes.
PERFORMANCE INFORMATION
"Average annual total return," as defined by the Securities and Exchange
Commission, is computed by finding the average annual compounded rates of return
for the period indicated that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
n
P(1+T) =ERV
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Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the applicable
period of the hypothetical $1,000 investment made at
the beginning of the applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates and that a complete redemption
occurs at the end of the applicable period.
The Fund may also advertise performance information (a "non-standardized
quotation") which is calculated differently from "average annual total return."
A non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also be an average annual compounded rate of return over a specified period,
which may be a period different from those specified for "average annual total
return." In addition, a non-standardized quotation may be an indication of the
value of a $10,000 investment (made on the date of the initial public offering
of the Fund's shares) as of the end of a specified period. A non-standardized
quotation will always be accompanied by the Fund's "average annual total return"
as described above.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's respective portfolios and operating
expenses of the Fund. These factors and possible differences in the methods and
time periods used in calculating non-standardized investment performance should
be considered when comparing the Fund's performance to those of other investment
companies or investment vehicles. The risks associated with the Fund's
investment objective, policies and techniques should also be considered. At any
time in the future, investment performance may be higher or lower than past
performance, and there can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or to prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Funds or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index, the Nasdaq Composite Index, the Dow Jones
Industrial Average and the Value Line Stock Index.
In addition, the performance of the Fund may be compared to other groups of
mutual funds tracked by any widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, such as
Lipper Analytical Services, Inc. or Morningstar, Inc. The objectives, policies,
limitations and expenses of other mutual funds in a group may not be the same as
those of the Fund. Performance rankings and ratings reported periodically in
national financial publications such as Barron's and Fortune also may be used.
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<PAGE>
The Fund may also include in advertisements data comparing performance with
other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index, the Dow Jones Industrial Average or the Russell 2000
Index.
The advertised performance data of the Fund is based on historical
performance and is not intended to indicate future performance. Rates of total
return quoted by the Fund may be higher or lower than past quotations, and there
can be no assurance that any rate of total return will be maintained. The
principal value of an investment in the Fund will fluctuate so that a
shareholder's shares, when redeemed, may be worth more or less than the
shareholder's original investment.
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<PAGE>
FINANCIAL STATEMENTS
The Financial Statement and Independent Auditor's Report of the Bonfiglio &
Reed Options Fund are attached to this document.
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of the
Bonfiglio & Reed Options Fund:
We have audited the accompanying statement of assets and liabilities of the
Bonfiglio & Reed Options Fund (the "Fund"), as of July 19, 2000. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. 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, such financial statement presents fairly, in all material
respects, the financial position of the Bonfiglio & Reed Options Fund at July
19, 2000, in conformity with accounting principles generally accepted in the
United States of America.
Dayton, Ohio
July 19, 2000
<PAGE>
THE BONFIGLIO & REED OPTIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 19, 2000
ASSETS
Cash $ 100,000
----------
TOTAL ASSETS 100,000
----------
LIABILITIES
----------
TOTAL LIABILITIES 0
----------
NET ASSETS FOR SHARES OF BENEFICIAL
INTEREST OUTSTANDING $ 100,000
==========
SHARES OUTSTANDING 10,000
==========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $ 10.00
==========
The accompanying notes are an integral part of this statement.
<PAGE>
BONFIGILIO & REED OPTIONS FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
AS OF JULY 19, 2000
NOTE 1 - ORGANIZATION AND REGISTRATION
The Bonfiglio & Reed Options Fund (the "Fund") is a diversified series of the
Bonfiglio & Reed Investment Trust (the "Trust"), an open-end management
investment company established as a Ohio business trust under a Declaration of
Trust dated April 13, 2000. On July 19, 2000, 10,000 shares of the Fund were
issued for cash at $10.00 per share. The Fund has had no operations except for
the initial issuance of shares. As of July 19, 2000, all outstanding shares were
held by RWR, LLC, which purchased these initial shares in order to provide the
Fund with its required capital. Certain officers of RWR, LLC are affiliated with
Bonfiglio & Reed, LLC (the "Advisor").
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statement. These
policies are in conformity with accounting principles generally accepted in the
United States of America ("GAAP").
A. USE OF ESTIMATES
The preparation of a financial statement in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statement. Actual results
could differ from those estimates.
B. ORGANIZATION AND PREPAID INITIAL REGISTRATION EXPENSES
Expenses incurred by the Trust in connection with the organization and the
initial public offering of shares have been or will be paid by the Advisor.
C. FEDERAL INCOME TAXES
The Fund intends to qualify annually for treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended, and, if so qualified, will not be liable for federal income taxes to
the extent earnings are distributed to shareholders on a timely basis.
