PROSPECTUS
December 1, 2000
EVEREST3 FUND
A Series of the Everest Funds
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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GOAL...........................................................................1
PRINCIPAL INVESTMENT STRATEGIES................................................1
PRINCIPAL INVESTMENT RISKS.....................................................3
PERFORMANCE INFORMATION........................................................5
FEES AND EXPENSES..............................................................6
MANAGEMENT OF THE FUND.........................................................7
DETERMINATION OF NET ASSET VALUE...............................................8
BUYING SHARES..................................................................8
REDEEMING SHARES..............................................................10
DISTRIBUTIONS AND TAXES.......................................................12
FINANCIAL HIGHLIGHTS..........................................................14
GOAL
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The goal of the Everest3 Fund (the "Fund") is long-term capital growth. The Fund
may change its goal without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
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The Fund seeks to meet its goal by investing its assets mainly in shares of
exchange-traded funds ("ETFs"). The Fund will invest primarily in Standard &
Poor's Depositary Receipts(R), or "SPDRs"(R) (sometimes called "Spiders"); in
DIAMONDSSM; and in Nasdaq-100 SharesSM, or "QQQs" (sometimes called "Qubes").
SPDRs, DIAMONDS, and QQQs are shares in ETFs that are intended to provide
investment results that, before expenses, generally correspond to the price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index(R)
(the "S&P 500(R) Index"), the Dow Jones Industrial AverageSM, and the Nasdaq-100
Index(R), respectively.
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EXCHANGE-TRADED FUND: A FUND THAT HOLDS A PORTFOLIO OF COMMON STOCKS DESIGNED TO
TRACK THE PERFORMANCE OF A PARTICULAR INDEX AND WHOSE SHARES TRADE THROUGHOUT
THE TRADING DAY. SEE "EXCHANGE-TRADED FUNDS" BELOW.
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By investing in ETFs that track these three market indices, the Fund will obtain
a broadly diversified, index-based investment portfolio. The expenses associated
with ETFs are typically lower than the expenses associated with investing in all
of the underlying securities that comprise the indices that the ETFs track.
The Fund's manager will allocate its assets in a manner that gives the Fund the
flexibility to participate in overall stock market performance while actively
managing the Fund's portfolio. The manager will allocate the Fund's assets among
ETF shares according to the following general guidelines:
ETF SHARES MARKET INDEX TRACKED* INVESTMENT AMOUNTS
SPDRS S&P 500 INDEX (a market-value Between 10% and 80%
weighted index of 500 stocks chosen
for market size, liquidity, and
industry group representation, widely
regarded as a standard for measuring
large-cap U.S. stock market
performance)
DIAMONDS DOW JONES INDUSTRIAL AVERAGE (a Between 10% and 80%
price-weighted average of 30 widely
held stocks that are generally the
leaders in their industries)
QQQS NASDAQ-100 INDEX (a modified Between 10% and 80%
capitalization-weighted index of the
100 largest and most actively traded
non-financial domestic and
international issues listed on The
Nasdaq Stock Market(R)based on market
capitalization)
*Standard & Poor's Depositary Receipts(R), SPDRs(R), the Standard & Poor's 500
Composite Stock Price Index(R), and S&P 500(R)are trademarks of The McGraw Hill
Companies, Inc. Dow Jones Industrial AverageSM and DIAMONDSSM are trademarks
and service marks of Dow Jones & Company, Inc. Nasdaq-100 Index(R), Nasdaq-100
SharesSM, and The Nasdaq Stock Market(R)are trademarks and service marks of The
Nasdaq Stock Market, Inc. Neither Everest Funds nor Everest3 Fund is
associated with, or sponsored, endorsed, sold or promoted by, The McGraw Hill
Companies, Inc., Dow Jones & Company, Inc., or The Nasdaq Stock Market, Inc.
Under normal conditions, the Fund will invest at least 90% of its assets in a
combination of shares of the three ETFs listed above. In each case, the Fund may
invest, instead of or in addition to these ETFs, in shares of an alternate ETF
tracking the same market index or another market index with the same general
market.
To invest in the manner described above, the Fund's manager will review and
adjust accordingly the asset allocation of the Fund on a quarterly basis. The
manager does not intend to trade actively among the ETFs' shares or intend to
capture short-term market opportunities. Generally, the Fund will sell
securities only in response to redemption requests, to adjust the number of
shares held to maintain the Fund's target asset allocation, or to make the
quarterly adjustment to the Fund's asset allocation. The manager seeks to limit
the amount of securities sold because the turnover rate of the portfolio (the
volume of shares bought and sold by the Fund) affects the Fund's returns.
Typically, the greater the turnover rate of the portfolio, the greater the
impact that brokerage commissions and other transaction costs have on the Fund's
return. High turnover rates are more likely to generate capital gains that must
be distributed to shareholders as income subject to taxes.
EXCHANGE-TRADED FUNDS
The securities in which the Fund invests are shares of ETFs. Each share
represents an undivided ownership interest in the portfolio of stocks held by an
ETF. ETFs are trusts that acquire and hold either:
|X| shares of all of the companies that are represented by a particular
index in the same proportion that is represented in the indices
themselves; or
|X| shares of a sampling of the companies that are represented by a
particular index in a proportion meant to track the performance of
the entire index.
ETFs are intended to provide investment results that, before expenses, generally
correspond to the price and yield performance of the corresponding market index,
and the value of their shares should, under normal circumstances, closely track
the value of the index's underlying component stocks. ETFs generally do not buy
or sell securities, except to the extent necessary to conform their portfolios
to the corresponding index. Because an ETF has operating expenses and
transaction costs, while a market index does not, ETFs that track particular
indices typically will be unable to match the performance of the index exactly.
ETFs generally do not sell or redeem their shares for cash, and most investors
do not purchase or redeem shares directly from an ETF at all. Instead, the ETF
issues and redeems its shares in large blocks (typically 50,000 of its shares)
called "creation units." Creation units are issued to anyone who deposits a
specified portfolio of the ETF's underlying securities, as well as a cash
payment generally equal to accumulated dividends of the securities (net of
expenses) up to the time of deposit, and creation units are redeemed in kind for
a portfolio of the underlying securities (based on the ETF's net asset value)
together with a cash payment generally equal to accumulated dividends as of the
date of redemption. Most ETF investors, however, purchase and sell ETF shares in
the secondary trading market on a securities exchange, in lots of any size, at
any time during the trading day. ETF investors generally must pay a brokerage
fee for each purchase or sale of ETF shares, including purchases made to
reinvest dividends.
Because ETF shares are created from the stocks of an underlying portfolio and
can be redeemed into the stocks of an underlying portfolio on any day, arbitrage
traders may move to profit from any price discrepancies between the shares and
the ETF's portfolio, which in turn helps to close the price gap between the two.
Of course, because of the forces of supply and demand and other market factors,
there may be times when an ETF share trades at a premium or discount to its net
asset value.
The Fund will invest in ETF shares only if the ETF is registered as an
investment company under the Investment Company Act of 1940. If an ETF in which
the Fund invests ceases to be a registered investment company, the Fund will
dispose of the securities of the ETF.
In connection with its investment in ETF shares, the Fund will incur various
costs that you will ultimately bear. The Fund may also realize capital gains
when ETF shares are sold, and the purchase and sale of the ETF shares may
include a brokerage commission that may result in costs to you. In addition, the
Fund is subject to the other fees as an investor in ETFs. Generally, those fees
include, but are not limited to, trustees fees, operating expenses, licensing
fees, registration fees, and marketing expenses, each of which will be reflected
in the net asset value of ETFs and therefore the shares representing a
beneficial interest therein.
TEMPORARY INVESTMENTS
When the manager believes market or economic conditions are unfavorable for
investors, the manager may invest up to 100% of the Fund's assets in a temporary
defensive manner or hold a substantial portion of its assets in cash, cash
equivalents or other high quality short-term investments. Temporary defensive
investments generally may include money market fund shares, money market
instruments, and high quality short-term debt securities. The manager also may
invest in these types of securities or hold cash while looking for suitable
investment opportunities or to maintain liquidity. In these circumstances, the
Fund may be unable to achieve its investment goal.
PRINCIPAL INVESTMENT RISKS
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You should be aware that you may lose money by investing in the Fund. The
Principal risks of the Fund are:
|X| INVESTMENT IN COMMON STOCKS
The Fund invests indirectly in the securities held by the ETFs in which it
holds shares. Those ETFs hold primarily common stocks. Common stocks are
susceptible to general stock market fluctuations and to volatile increases
and decreases in value as market confidence in and perceptions of their
issuers change. These investor perceptions are based on various and
unpredictable factors including expectations regarding government,
economic, monetary, and fiscal policies; inflation and interest rates;
economic expansion or contraction; and global or regional political,
economic, and banking crises. If you held common stocks of any given
issuer, you would incur more risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders generally have
inferior rights to receive payments from issuers in comparison with the
rights of preferred stockholders, bondholders, and other creditors of such
issuers.
|X| "FUND OF FUNDS" STRUCTURE AND EXPENSES
The Fund is a "fund of funds." The term "fund of funds" is typically used
to describe an investment company, such as the Fund, that pursues its
investment objective by investing in other investment companies, such as
ETFs. Federal law generally prohibits the Fund from acquiring shares of an
ETF if, immediately after such acquisition, the Fund and its affiliated
persons would hold more than 3 percent of the ETF's total outstanding
stock. This prohibition may prevent the Fund from allocating its
investments in the manner its manager considers optimal.
Your cost of investing in the Fund will generally be higher than the cost
of investing directly in the ETFs' shares. By investing in the Fund, you
will indirectly bear fees and expenses charged by the underlying ETFs in
which the Fund invests in addition to the Fund's direct fees and expenses.
Furthermore, the use of a fund of funds structure could affect the timing,
amount and character of distributions to you and therefore may increase the
amount of taxes payable by you. Funds of funds are best suited for
long-term investors.
|X| TRACKING RISKS
Investment in the Fund should be made with the understanding that the ETFs
in which the Fund invests will not be able to replicate exactly the
performance of the indexes they track because the total return generated by
the securities will be reduced by transaction costs incurred in adjusting
the actual balance of the securities and other ETF expenses, whereas such
transaction costs and expenses are not included in the calculation of the
total returns of the indexes. Certain securities comprising the indexes
tracked by the ETFs may, from time to time, temporarily be unavailable.
|X| BUYING AND SELLING ETF SHARES
The Fund may not be able to buy or sell ETF shares during any period in
which the applicable exchange halts trading. An exchange may halt trading
as the result of the activation of market-wide "circuit-breakers," or
whenever officials of the applicable exchange determine it is appropriate
in the interest of a fair and orderly market or to protect investors.
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CIRCUIT BREAKERS:
MEASURES INSTITUTED BY THE VARIOUS EXCHANGES TO HALT TRADING TEMPORARILY WHEN
THE MARKET FALLS BY AN AMOUNT BASED ON A SPECIFIED PERCENTAGE DECLINE IN A
SPECIFIED PERIOD.
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|X| NET ASSET VALUE AND MARKET PRICE
The market value of the ETF shares may differ from their net asset value.
This difference in price may be due to the fact that the supply and demand
in the market for ETF shares at any point in time is not always identical
to the supply and demand in the market for the underlying basket of
securities.
|X| TECHNOLOGY RISK
To the extent that the Fund invests in ETFs that are invested in technology
related stocks, the Fund is subject to special technology risks. Technology
related companies face risks such as competitive pressures and
technological obsolescence and may be subject to greater governmental
regulation than many other industries. The value of the Fund's shares may
be susceptible to factors affecting the technology areas and to greater
risk and market fluctuation than an investment in a fund that invests in a
broader range of portfolio securities not concentrated in any particular
industry. Furthermore, companies within the technology industries face
greater risks of competition from new market entrances and increased
research and development costs. Companies in these areas are often
dependent upon consumer and business acceptance as new technologies evolve.
|X| PRICE VOLATILITY RISKS
The ETF shares in which the Fund invests represent segments of the stock
market as a whole and generally will be more volatile than the stock market
as a whole. To the extent that the Fund invests in Nasdaq-100 Shares, the
Fund is subject to the price volatility risks associated with an investment
in a portfolio of equity securities concentrated in the technology sector.
In addition, both the Dow Jones Industrial Average and the Nasdaq-100 Index
include individual securities representing more than five percent of the
index's value, giving rise to the possibility that changes in the value of
individual securities may result in significant changes in the value of
DIAMONDS or Nasdaq-100 Shares.
|X| MANAGEMENT ALLOCATION RISK
The share price of the Fund changes daily based on the performance of the
ETF shares in which it invests. The ability of the Fund to meet its
investment objective is directly related to the manager's allocation of the
Fund's assets. There is no guarantee that the manager's allocation
techniques will produce the desired results. It is possible that the
manager will over-emphasize ETFs that perform poorly or underperform other
ETFs under various market conditions. Furthermore, the manager's judgments
about the attractiveness, value and potential appreciation of particular
companies' stocks in which the Fund is invested indirectly through ETFs may
prove to be incorrect.
|X| NON-DIVERSIFICATION RISK
The Fund is a non-diversified fund because it may invest up to all of its
assets in the shares of as few as three ETFs. A decline in the value of any
of these ETFs as a result of a decline in the related index would have a
greater effect on the Fund than if the Fund were diversified or invested
its assets in a greater number of issuers.
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.
PERFORMANCE INFORMATION
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No performance information is available for the Fund at this time because the
Fund recently commenced operations.
FEES AND EXPENSES
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The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The annual Fund operating expenses are based on
estimated expenses.
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SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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Maximum Sales Charge (Load) on Purchases None
Maximum Deferred Sales Charge (Load) on Redemptions None
Redemption Fee (AS A PERCENTAGE OF AMOUNT REDEEMED) 0.50%(1)
Maximum Account Fee None(2)
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND
ASSETS)
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Management Fees 0.50%
Distribution and/or Service (12b-1) Fees None
Other Expenses(3) 1.86%
Total Annual Fund Operating Expenses 2.36%
Less Expense Reimbursement 1.86%(4)
Net Annual Fund Operating Expenses 0.50%
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(1) The Fund charges a redemption fee of 0.50% on shares of the Fund that you
have held for less than 90 days. (2) IRA accounts are charged a maximum account
fee of $12.50 per year. (3) Other expenses are based on estimates for the
current fiscal year. You will indirectly bear your proportionate share of any
fees and expenses charged by the ETFs in which the Fund invests. Of the three
ETFs that track market indices and in which the Fund intends to principally
invest, their total expenses as of the date of this Prospectus range from 0.12%
to 0.18%. These fees are subject to change at the ETF sponsors' discretion.
Actual underlying ETF expenses for the Fund are expected to vary with changes in
the allocation of the Fund's assets among various ETFs. These expenses are not
included in the table above or the example below. (4) Under the investment
management agreement dated November 3, 2000, the manager has contractually
agreed that in the event that the Fund's operating expenses (including the
investment advisory and management fee but excluding taxes, interest, brokerage
and extraordinary expenses, if any) exceed 0.50% of the Fund's average daily net
assets on an annual basis, the manager shall reduce the amount of the investment
advisory and management fee or assume expenses of the Fund in the amount of such
excess. This arrangement is definite for two years until November 3, 2002, and
will continue thereafter as long as the Fund's Board of Trustees annually
reviews and renews the investment management agreement.
EXAMPLE
The example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The example assumes that:
1. You invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares of the Fund at the end of those periods,
2. You reinvested all dividends and capital gain distributions,
3. Your investment has a 5% return each year, and
4. The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 Year 3 Years
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$51 $366
MANAGEMENT OF THE FUND
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MANAGER
The manager, EVEREST FUNDS MANAGEMENT, LLC, subject to the general supervision
of the Everest Funds' Board of Trustees, is the investment adviser to the Fund
and is responsible for the day-to-day management of the Fund in accordance with
its objectives and policies. This includes making investment decisions, and
buying and selling securities. The manager is located at 5711 S. 86th Circle,
Omaha, Nebraska 68127. As of the date of this Prospectus, the only discretionary
assets under management of the manager are the assets of the Fund.
In exchange for its services, the manager is entitled to receive an annual
management fee from the Fund, calculated daily and payable monthly, equal to
0.50% of the average daily net assets of the Fund. The manager has contractually
agreed that in the event that the Fund's operating expenses (including the
management fee but excluding taxes, interest, brokerage and extraordinary
expenses, if any) exceed 0.50% of the Fund's average daily net assets on an
annual basis, the manager will reduce the amount of the management fee or assume
expenses of the Fund in the amount of such excess. No sales charges or
commissions are payable in connection with the sale of the Fund's shares. The
expenses incurred in the sale of Fund shares, including advertising and
promotion, are included among the organizational expenses which will be paid by
the manager.
SUB-ADVISER
The manager has entered into a sub-advisory agreement with PFLUG KOORY, LLC, to
assist it in the day-to-day management and provide other advisory services to
the Fund. These services include developing and maintaining an investment
program for the Fund, making investment decisions with the assets of the Fund,
and placing all orders for the purchase and sale of securities on behalf of the
Fund. The sub-adviser is located at 14441 Dupont Court, Suite 100, Omaha,
Nebraska 68144.
In exchange for its services to the manager, the sub-adviser is entitled to
receive an annual management fee calculated daily and payable monthly, equal to
0.15% of the average daily net assets of the Fund. The sub-adviser fees are paid
directly by the manager out of the manager's annual advisory fees.
PORTFOLIO MANAGERS
|X| DOUGLAS M. LARSON, Chief Investment Officer of the manager, serves as lead
portfolio manager to the Fund and is primarily responsible for the
day-to-day management of the Fund's portfolio. From June 1999 through April
2000, Mr. Larson served as a Vice President and Senior Trust Officer of
Commercial Federal Bank in Omaha, Nebraska, before which he served as
Senior Vice President and Senior Trust Officer at Marquette Bank from April
1996 through June 1999. Prior to that, Mr. Larson served as a Trust
Department Manager and Trust Officer in two community banks in central
Iowa.
|X| THOMAS F. PFLUG, President of the sub-adviser, serves as co-portfolio
manager to the Fund. Mr. Pflug has been President of the sub-adviser and
its predecessor entity, Pflug Investment Management, Inc., since its
inception in 1992. Mr. Pflug was a Vice President at Wallace R. Weitz &
Co., an investment adviser in Nebraska, from 1989 through 1992.
TRANSFER AGENT, DISTRIBUTION AND OTHER SERVICES
Firstar Mutual Fund Services, LLC (the "Transfer Agent"), located in Milwaukee,
Wisconsin, provides administrative, accounting and transfer agent services to
the Fund. Firstar Bank, N.A. serves as custodian for the Fund. Quasar
Distributors, LLC provides distribution services to the Fund.
DETERMINATION OF NET ASSET VALUE
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The value of a single share of the Fund is the net asset value per share ("NAV")
calculated by adding the value of the Fund's investments, cash and other assets
less liabilities, and dividing by the total number of outstanding shares of the
Fund. The Fund's NAV is normally calculated as of the close of business of the
New York Stock Exchange (the "NYSE") (usually 4:00 p.m. Eastern time) Monday
through Friday, except on days the NYSE is not open. If the NYSE closes at any
other time, or if an emergency exists, the Fund's NAV may be calculated at a
different time. The Fund is open for business each day the NYSE is open. The
NYSE is closed most national holidays and Good Friday.
The assets of the Fund consist primarily of ETF shares, which are all traded on
a securities exchange. Unlike shares of the Fund that are only valued once a
day, ETF shares are valued on an ongoing basis on the basis of market
quotations. To the extent that the Fund's assets are traded in other markets on
days in which the NYSE is closed, the value of the Fund's assets may be affected
on days when the Fund is not open for business. In addition, trading in some of
the Fund's assets may not occur on days in which the Fund is open for business.
BUYING SHARES
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To open an account, you must invest at least the minimum amount.
MINIMUM INVESTMENTS TO OPEN TO ADD TO
YOUR ACCOUNT YOUR ACCOUNT
Regular accounts $10,000 $250
IRA accounts $2,000 $100
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Shares of the Fund may be purchased by check or by wire transfer of funds
through a bank or through one or more brokers authorized by the Fund to receive
purchase orders. The minimum initial investment for regular accounts is $10,000
and $2,000 for IRA accounts. Initial investments may be made in any amount in
excess of these amounts. To add to existing accounts, regular accounts require a
minimum investment of $250, and IRA accounts require a $100 investment.
Short-term or excessive trading into and out of the Fund may harm performance by
disrupting management strategies and by increasing expenses. Accordingly, the
Fund may reject your purchase order if in the manager's opinion, you have a
pattern of short-term or excessive trading, your trading has been or may be
disruptive to the Fund, or rejection otherwise would be in the Fund's best
interest.
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WHEN MAKING A PURCHASE REQUEST, MAKE SURE YOUR REQUEST IS IN GOOD ORDER. "GOOD
ORDER" MEANS YOUR PURCHASE REQUEST INCLUDES:
|X| THE NAME OF THE FUND
|X| THE DOLLAR AMOUNT OF SHARES TO BE PURCHASED
|X| PURCHASE APPLICATION OR INVESTMENT STUB
|X| CHECK PAYABLE TO "EVEREST FUNDS"
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TIMING OF REQUESTS
Your share price will be the next NAV calculated after the Transfer Agent
receives your request in good order. All requests received in good order before
4:00 p.m. (Eastern time) will be processed on that same day. Requests received
after 4:00 p.m. will receive the next business day's NAV.
METHODS OF BUYING
THROUGH AN You can purchase shares of the Fund through any
AUTHORIZED broker-dealer organization that has been authorized by
BROKER-DEALER the Fund. These broker-dealers are further authorized
to designate other intermediaries to receive purchase
and redemption orders on the Fund's behalf. A purchase
order is deemed received by the Fund when an authorized
broker-dealer, or, if applicable, a broker-dealer's
authorized designee, receives the request in good
order. Please keep in mind that your broker-dealer may
charge additional fees for its services.
BY MAIL To open an account, complete an account application
form and send it together with your check for the
amount you wish to invest in the Fund to the address
below. To make additional investments once you have
opened your account, write your account number on the
check and send it together with the most recent
confirmation statement received from the Transfer
Agent. No third party checks will be accepted. If your
check is returned for any reason, your purchase will be
canceled and a $25 fee will be assessed against your
account by the Transfer Agent.
REGULAR MAIL
Everest Funds
Everest3 Fund
c/o Firstar Mutual Funds Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
OVERNIGHT DELIVERY
Everest Funds
Everest3 Fund
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53202
NOTE: THE FUND DOES NOT CONSIDER THE U.S. POSTAL
SERVICE OR OTHER INDEPENDENT DELIVERY SERVICES TO BE
ITS AGENTS.
BY TELEPHONE To make additional investments by telephone, you must
check the appropriate box on your account application
form authorizing telephone purchases. If you have given
authorization for telephone transactions and your
account has been open for at least 15 days, call the
Transfer Agent toll free at 1-866-232-EVER and you will
be allowed to move money from your bank account to your
Fund account upon request. Only bank accounts held at
U.S. institutions that are Automated Clearing House
(ACH) members may be used for telephone transactions.
For security reasons, requests by telephone will be
recorded.
BY WIRE To open an account or to make additional investments by
wire, call 1-866-232-EVER to obtain a shareholder
account number and instructions. You should then
instruct your bank to wire transfer the intended amount
in federal funds to:
Firstar Bank, N.A.
Milwaukee, WI 53202
ABA #: 042000013
Credit: Firstar Mutual Fund Services, LLC
Account #: 112-952-137
Further Credit: Everest Funds, Everest3 Fund
(your name or the title on the account)
(your account #)
REDEEMING SHARES
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METHODS OF SELLING
THROUGH A If you purchased your shares through a broker-dealer or
BROKER-DEALER other financial organization, your redemption order
ORGANIZATION may be placed through the same organization. The
organization is responsible for sending your redemption
order to the Fund on a timely basis. Please keep in
mind that your broker-dealer may charge additional fees
for its services.
BY MAIL Send your written redemption request to the Transfer
Agent at the address below. Your request should be in
good order and contain the Fund's name, the name(s) on
the account, your account number and the dollar amount
or the number of shares to be redeemed. Be sure to
have all shareholders sign the letter. Additional
documents are required for certain types of
shareholders, such as corporations, partnerships,
executors, trustees, administrators, or guardians
(i.e., corporate resolutions, or trust documents
indicating proper authorization). Please see the
Statement of Additional Information for more
information.
REGULAR MAIL
Everest Funds
Everest3 Fund
c/o Firstar Mutual Funds Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
OVERNIGHT DELIVERY
Everest Funds
Everest3 Fund
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53202
The Transfer Agent may require a SIGNATURE GUARANTEE
for certain redemption requests such as redemption
requests made payable to a name that is different than
on the account statement or an address not on record
with the Fund. A signature guarantee assures that your
signature is genuine and protects you from unauthorized
account redemptions. You may obtain signature
guarantees from most trust companies, commercial banks
or other eligible guarantor institutions. A NOTARY
PUBLIC CANNOT GUARANTEE SIGNATURES.
BY TELEPHONE If you are authorized to perform telephone transactions
(either through your account application form or by
subsequent arrangement in writing with the Fund) you
may redeem shares in any amount, but not less than
$100, by instructing the Fund by phone at
1-866-232-EVER. A signature guarantee is required of
all shareholders in order to qualify for or to change
telephone redemption privileges.
Note: Neither the Fund nor its service providers will
be liable for any loss or expense in acting upon
instructions that are reasonably believed to be
genuine. To confirm that all telephone instructions are
genuine, the Fund will use reasonable procedures, such
as requesting:
|X| that you correctly state the Fund account number
|X| the name in which your account is registered
|X| the social security or tax identification number
under which the account is registered
|X| the address of the account holder, as stated in the
account application form
BY WIRE To redeem shares by wire, call the Fund at
1-866-232-EVER and specify the amount of money you wish
to be wired. Your bank may charge a fee to receive
wired funds. The Transfer Agent charges a $12 outgoing
wire fee.
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WHEN MAKING A REDEMPTION REQUEST, MAKE SURE YOUR REQUEST IS IN GOOD ORDER. "GOOD
ORDER" MEANS YOUR LETTER OF INSTRUCTION INCLUDES:
|X| The name of the Fund
|X| The dollar amount of shares to be redeemed
|X| Signatures of all registered shareholders exactly as the shares are
registered
|X| The account number
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PAYMENT OF REDEMPTION PROCEEDS TO YOU
You may redeem the Fund's shares at a price equal to the NAV next determined
after the Transfer Agent, receives your redemption request in good order. Your
redemption request cannot be processed on days the NYSE is closed. All requests
received in good order by the Fund before the close of the regular trading
session of the NYSE (normally 4:00 p.m. Eastern time) will usually be wired to
the bank you indicate or mailed on the following day to the address of record.
In all cases proceeds will be wired or a check mailed within seven calendar days
after the Fund receives your redemption request.
If you purchase shares using a check and soon after request a redemption, the
Fund will honor the redemption request, but will not mail or wire the proceeds
until your purchase check has cleared (usually within 12 days).
SHORT-TERM TRADING
The Fund will deduct a short-term trading fee of 0.50% from the redemption
amount if you sell your shares after holding them less than 90 days. The
short-term trading fees are designed to offset the brokerage commissions, market
impact, and other costs associated with fluctuations in the Fund asset levels
and cash flow caused by short-term shareholder trading. If you purchased shares
on different days, the shares you held longest will be redeemed first for
purposes of determining whether the short-term trading fee applies. This fee
does not apply to shares acquired through the reinvestment of distributions. The
Fund reserves the right to change the terms and amount of this fee.
GENERAL TRANSACTION POLICIES
Some of the following policies are mentioned above. In general, the Fund
reserves the right to:
|X| Vary or waive any minimum investment requirement.
|X| Refuse, change, discontinue, or temporarily suspend account services,
including purchase, exchange, or telephone redemption privileges, for any
reason.
|X| Reject any purchase or exchange request for any reason. Generally, the Fund
does this if the purchase or exchange is disruptive to the efficient
management of the Fund (due to the timing of the investment or an
investor's history of excessive trading).
|X| Redeem all shares in your account if your balance falls below the Fund's
minimum for the applicable class of shares. If, within 60 days of the
Fund's written request, you have not increased your account balance, you
may be required to redeem your shares. The Fund will not require you to
redeem shares if the value of your account drops below the investment
minimum due to fluctuations of NAV.
|X| Delay paying redemption proceeds for up to seven days after receiving a
request, if an earlier payment could adversely affect the Fund.
|X| Reject any purchase or redemption request that does not contain all
required documentation.
If you elect telephone privileges on the account application or in a letter to
the Fund, you may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify your identity. In addition,
once you place a telephone transaction request, it cannot be canceled or
modified.
During periods of significant economic or market change, telephone transactions
may be difficult to complete. If you are unable to contact the Fund by
telephone, you may also mail the requests to the Fund at the address listed
under "Buying Shares."
Your broker-dealer or other financial organization may establish policies that
differ from those of the Fund. For example, the organization may charge
transaction fees, set higher minimum investments, or impose certain limitations
on buying or selling shares in addition to those identified in this Prospectus.
Contact your broker-dealer or other financial organization for details.
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Generally, the Fund will declare dividends of net investment income annually. If
such day falls on a weekend or holiday on which the NYSE is closed, the dividend
will be distributed on the next succeeding business day. Payments vary in amount
depending on income received from portfolio securities and expenses of operation
of the Fund.
Shares will begin earning dividends on the day after which the Fund receives
payment and shares are issued. Shares or cash continue to earn dividends through
the date they are redeemed or delivered subsequent to reinstatement.
The Fund intends to qualify as a regulated investment company for federal income
tax purposes and intends to make additional distributions to the minimum extent
necessary to distribute the entire annual investment company taxable income of
the Fund, plus any net capital gains and to avoid imposition of the excise tax
imposed by the Internal Revenue Code of 1986, as amended. The additional
distributions, if needed, would consist of the following:
|X| an increase in distribution scheduled for January to include any amount by
which the estimated Fund investment company taxable income and net capital
gains for a fiscal year exceeds the amount of Fund taxable income
previously distributed with respect to such year, or, if greater, the
minimum amount required to avoid imposition of such excise tax;
|X| a distribution soon after actual annual investment company taxable
income and net capital gains of the Fund have been computed of the amount,
if any, by which such actual income exceeds the distributions already made;
or
|X| if, in the reasonable discretion of the Fund's manager, such action is
necessary or advisable to preserve the status of the Fund as a regulated
investment company or to avoid imposition of income or excise taxes on
undistributed income.
Shareholders will be notified annually as to the federal tax status of
distributions and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the NAV of the shares received.
TAXATION
As with any investment, your investment in the Fund could have tax consequences
for you.
The Fund will earn income and gains on its investments, including its
investments in the underlying ETFs. Fund distributions are taxable to you as
either ordinary income or capital gain. This is true whether you reinvest your
distributions in additional Fund shares or receive them in cash. Capital gain
dividends paid by the Fund are taxable to you as long-term capital gain no
matter how long you have owned your shares.
If you buy shares when a Fund has realized but not yet distributed income or
capital gains, you will be "buying a dividend" by paying the full price for the
shares and then receiving a portion of the price back in the form of a taxable
distribution.
By law, the Fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct certified social security or
taxpayer identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the Fund to do so.
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different Everest
Fund (if the opportunity to make such exchanges subsequently becomes available)
is the same as a sale.
Fund distributions and gain from the sale or exchange of your shares generally
will be subject to state and local taxes. Non-U.S. investors may be subject to
U.S. withholding and estate tax. You should consult your tax adviser about the
federal, state, local or foreign tax consequences of your investment in the
Fund.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Because the Fund has no operating history, there are no financial highlights
available at this time.
FOR MORE INFORMATION
You may obtain the following and other information on the Fund free of charge:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated December 1, 2000, provides more details about the Fund's policies
and management. The SAI has been filed with the Securities and Exchange
Commission and is incorporated by reference (is legally a part of this
Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS
After the Fund has been operating for the appropriate time, annual and
semi-annual reports will be made available. The Fund's annual and semi-annual
reports provide the most recent financial reports and portfolio listings. The
annual report will contain a discussion of the market conditions and investment
climate that affected the Fund's performance during the Fund's last fiscal year.
You can obtain a free copy of these documents, request other information, or
make general inquires about the Fund by calling the Fund at 1-866-232-EVER or by
writing to:
Everest Funds
Everest3 Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53202-0701
Information about the Fund, including the Statement of Additional Information,
can be reviewed and copied at the Commission's Public Reference Room in
Washington, D.C. Information on the operation of the public reference room may
be obtained by calling the Commission at (202) 942-8090. Reports and other
information about the Fund are available on the EDGAR Database on the
Commission's Internet site at http://www.sec.gov. Copies of this information may
be obtained, upon payment of a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
Investment Company Act File No. 811-10057
STATEMENT OF ADDITIONAL INFORMATION
Dated December 1, 2000
EVEREST3 FUND
A Series of the Everest Funds
This Statement of Additional Information ("SAI") relates to Everest3 Fund, which
is a series of Everest Funds, a registered open-end management investment
company, or mutual fund. This SAI is not a prospectus and is intended to
supplement the information provided to investors in the prospectus dated
December 1, 2000 (the "Prospectus") of the Everest3 Fund (the "Fund"). Copies of
the Fund's Prospectus may be obtained by writing the Fund at Firstar Mutual Fund
Services, LLC, P.O. Box 701, Milwaukee, Wisconsin 53201-0701, or calling the
Fund at (800) 232-EVER.
---------------------------------
TABLE OF CONTENTS
---------------------------------
PAGE
Organization of the Trust and the Fund.........................................3
Investments and Risks..........................................................3
Management of the Trust.......................................................13
Advisory Services.............................................................14
Underwriter...................................................................16
Service Providers.............................................................16
Portfolio Transactions........................................................17
Determining Net Asset Value...................................................18
Buying Shares.................................................................19
Redeeming Shares..............................................................19
Tax Considerations............................................................20
Calculation of Performance Data...............................................22
Financial Statements..........................................................23
ORGANIZATION OF THE TRUST AND THE FUND
Everest Funds (the "Trust") is an open-end management investment company, or
mutual fund, organized as a Delaware business trust on August 11, 2000. The Fund
is one of a series that may be formed by the Trust. The Fund is a
non-diversified series and has its own investment objectives and policies. The
Trust may start another series and offer shares of a new fund under the Trust at
any time.
The Trust is authorized to issue an unlimited number of interests (or shares).
Shares of each series have equal voting rights and liquidation rights, and are
voted in the aggregate and not by the series except in matters where a separate
vote is required by the Investment Company Act of 1940 (the "1940 Act") or when
the matter affects only the interest of a particular Fund. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the 1940 Act in order to
facilitate communications among shareholders.
Each share of the Fund represents an equal proportionate interest in the assets
and liabilities belonging to that Fund with each other share of that Fund and is
entitled to such dividends and distributions out of the income belonging to the
Fund as are declared by the Trustees. The shares do not have cumulative voting
rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interests in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees allocate such expenses on the basis of relative net
assets or number of shareholders. No shareholder is liable to further calls or
to assessment by the Trust without his or her express consent.
The assets of the Fund received for the issue or sale of its shares, and all
income, earnings, profits and proceeds thereof, subject only to the rights of
creditors, shall constitute the underlying assets of the Fund. In the event of
the dissolution or liquidation of the Fund, the holders of shares of the Fund
are entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders
INVESTMENTS AND RISKS
The following discussion supplements the description of the Fund's investment
strategies, risks and management policies set forth in the "Goal," "Principal
Investment Strategies" and "Principal Investment Risks" sections of the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.
FUNDAMENTAL INVESTMENT LIMITATIONS
The Fund has adopted the following restrictions as fundamental policies. This
means they may only be changed if the change is approved by (i) more than 50% of
the Fund's outstanding shares or (ii) 67% or more of the Fund's shares present
at a shareholder meeting if more than 50% of the Fund's outstanding shares are
represented at the meeting in person or by proxy, whichever is less.
The Fund may not:
1. Issue securities senior to the Fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the Fund from (a) making any permitted borrowings, loans, mortgages or
pledges, (b) entering into options, futures contracts, forward contracts,
repurchase transactions, or reverse repurchase transactions, or (c) making short
sales of securities to the extent permitted by the 1940 Act and any rule or
order thereunder, or Securities and Exchange Commission ("SEC") staff
interpretations thereof.
2. Borrow money, except that the Fund may borrow money from banks or
affiliated investment companies to the extent permitted by the 1940 Act, or any
exemptions therefrom which may be granted by the SEC, or for temporary or
emergency purposes and then in an amount not exceeding 33 1/3% of the value of
the Fund's total net assets (including the amount borrowed).
3. Act as an underwriter except to the extent the Fund may be deemed to
be an underwriter when disposing of securities it owns or when selling its own
shares.
4. Purchase securities if as a result of such purchase more than 25% of
the Fund's total assets would be invested in any one industry. Investments in
other investment companies shall not be considered an investment in any
particular industry for purposes of this investment limitation. For purposes of
this limitation, there is no limitation on the purchase of securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
5. Purchase or sell real estate and commodities, except that the Fund
may purchase or sell securities of real estate investment trusts, may purchase
or sell currencies, may enter into futures contracts on securities, currencies,
and other indices or any other financial instruments, and may purchase and sell
options on such futures contracts.
6. Make loans to other persons except (a) through the lending of its
portfolio securities, (b) through the purchase of debt securities, loan
participations and/or engaging in direct corporate loans in accordance with its
investment objectives and policies, (c) to the extent the entry into a
repurchase agreement is deemed to be a loan, and (d) to affiliated investment
companies to the extent permitted by the 1940 Act or any exemptions therefrom
which may be granted by the SEC.
7. Invest in other investment companies except as permitted by the 1940
Act, as amended.
INVESTMENT STRATEGIES, POLICIES AND RISKS
In addition to the principal investment strategies that are set forth under the
"Principal Investment Strategies" and the "Principal Investment Risks" sections
of the Prospectus, the Fund has various additional investment strategies and
policies. The following strategies and policies may be changed by the Board of
Trustees without shareholder approval. In addition, you should be aware of the
risks described below. Except for the fundamental investment limitations listed
above, the Fund's investment strategies and policies are not fundamental and may
be changed with the approval of the Company's Board of Trustees.
DIVIDENDS AND DISTRIBUTIONS. The Fund's ability to pay distributions will be
dependent primarily upon the receipt of dividends and distributions from the
equity securities in its portfolio, which in the case of shares of
exchange-traded funds ("ETFs") will be dependent primarily upon the receipt of
dividends from the equity securities in the ETF's portfolio. There can be no
assurance that the issuers of such equity securities will pay dividends or
distributions. In addition, the ETFs in which the Fund invests generally will
pay distributions at different rates, and the manager's asset allocation of the
Fund is likely to affect the Fund's ability to pay distributions.
EQUITY SECURITIES. The Fund may invest in equity securities, both directly and
indirectly through its investment in the shares of ETFs. An equity security, or
stock, represents a proportionate share of the ownership of a company; its value
is based on the success of the company's business, any income paid to
stockholders, the value of its assets, and general market conditions. Common
stocks and preferred stocks are examples of equity securities.
The shares of an ETF may be assembled in a block (typically 50,000 shares) known
as a creation unit and redeemed in kind for a portfolio of the underlying
securities (based on the ETF's net asset value) together with a cash payment
generally equal to accumulated dividends as of the date of redemption.
Conversely, a creation unit may be purchased from the ETF by depositing a
specified portfolio of the ETF's underlying securities, as well as a cash
payment generally equal to accumulated dividends of the securities (net of
expenses) up to the time of deposit. The Fund intends to be a long-term investor
in ETFs and does not intend to purchase and redeem creation units to take
advantage of short-term arbitrage opportunities. However, the Fund may redeem
creation units for the underlying securities (and any applicable cash), and may
assemble a portfolio of the underlying securities and use it (and any required
cash) to purchase creation units, if the manager believes it is in the Fund's
interest to do so. The Fund's ability to redeem creation units may be limited by
the 1940 Act, which provides that the ETFs will not be obligated to redeem
shares held by the Fund in an amount exceeding one percent of their total
outstanding securities during any period of less than 30 days.
There is a risk that the underlying ETFs in which the Fund invests may terminate
due to extraordinary events that may cause any of the service providers to the
ETFs, such as the trustee or sponsor, to close or otherwise fail to perform
their obligations to the ETF. Also, because the ETFs in which the Fund intends
to principally invest are each granted licenses by agreement to use the indexes
as a basis for determining their compositions and/or otherwise to use certain
trade names, the ETFs may terminate if such license agreements are terminated.
In addition, an ETF may terminate if its entire net asset value falls below a
certain amount. Although the Fund believes that, in the event of the termination
of an underlying ETF, it will be able to invest instead in shares of an
alternate ETF tracking the same market index or another market index with the
same general market, there is no guarantee that shares of an alternate ETF would
be available for investment at that time.
To the extent the Fund invests in the equity securities of small or medium-size
companies, directly or through its investments in ETFs, it will be exposed to
the risks of smaller sized companies. Small and medium-size companies often have
narrower markets for their goods and/or services and more limited managerial and
financial resources than larger, more established companies. As a result, their
performance can be more volatile and they face greater risk of business failure,
which could increase the volatility of the Fund's portfolio.
Under the provisions of the 1940 Act, the Fund must either seek instructions
from its shareholders with regard to the voting of all proxies with respect to
its investment in the securities of ETFs and vote such proxies only in
accordance with the instructions, or vote the shares held by it in the same
proportion as the vote of all other holders of the securities. In the event that
there is a vote of ETF shares held by the Fund, the Fund intends to vote such
shares in the same proportion as the vote of all other holders of such ETF's
securities.
FOREIGN SECURITIES. The Fund may invest in foreign securities via the underlying
ETFs in which it invests. Investments in foreign securities involve special
risks that differ from those associated with investments in domestic securities.
The risks associated with investments in foreign securities relate to political
and economic developments abroad, as well as those that result from the
differences between the regulation of domestic securities and issuers and
foreign securities and issuers. These risks may include, but are not limited to,
expropriation, confiscatory taxation, currency fluctuations, withholding taxes
on interest, limitations on the use or transfer of Fund assets, political or
social instability and adverse diplomatic developments. In addition, there are
restrictions on foreign investments in other jurisdictions and there tends to be
difficulty in obtaining judgments from abroad and effecting repatriation of
capital invested abroad. Delays could occur in settlement of foreign
transactions, which could adversely affect shareholder equity. Moreover,
individual foreign economies may differ favorably or unfavorably from the
domestic economy in such respects as growth of gross national product, the rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Furthermore, investing in foreign securities can carry higher returns and risks
than those associated with domestic investments. Foreign securities may be
denominated in foreign currencies. Therefore, the value in U.S. dollars of the
Fund's net assets and income may be affected by changes in exchange rates and
regulations.
Other differences between investing in foreign companies and the U.S. include:
o information is less publicly available
o there is a lack of uniform financial accounting standards applicable to
foreign companies
o market quotations are less readily available
o there are differences in government regulation and supervision of
foreign securities exchanges, brokers, listed companies and banks
o there is generally a lower foreign securities market volume
o it is likely that foreign securities may be less liquid or more volatile
o there are generally higher foreign brokerage commissions
o there may be difficulties in enforcing contractual obligations or
obtaining court judgments abroad because of differences in the legal
systems
o the mail service between countries may be unreliable
o there are political or financial changes that adversely affect
investments in some countries.
ILLIQUID INVESTMENTS. The Fund may invest not more than 10% of its net assets in
illiquid securities. Illiquid securities are generally securities that cannot be
sold within seven days in the normal course of business at approximately the
amount at which the Fund has valued them. The Fund does not presently intend to
invest in any illiquid securities. In addition, the ETFs in which the Fund
invests are subject to liquidity risk. Liquidity risk exists when particular
investments are difficult to purchase or sell, possibly preventing an ETF from
selling out of these illiquid securities at an advantageous time or price. To
the extent the ETFs invest in securities of companies with smaller market
capitalizations or securities with substantial market risk, they will have a
greater exposure to liquidity risk.
OPTIONS, FUTURES, AND OPTIONS ON FUTURES. A stock option is a contract that
provides the holder the right to buy or sell shares of the stock at a fixed
price, within a specified period of time. An option on a stock index is a
contract that allows the buyer of the option the right to receive from the
seller cash, in an amount equal to the difference between the index's closing
price and the option's exercise price. A futures contract is an obligation to
buy or sell a specified security or currency at a set price on a specified
future date. A stock index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and end of the contract period. Options, futures, and
options on futures are considered "derivative securities." The Fund may buy and
sell options on securities and securities indices and may buy and sell futures
contracts for securities and currencies. The Fund may invest in futures
contracts only to hedge against changes in the value of its securities or those
it intends to buy.
OPTIONS. The Fund may buy or write (sell) put and call options on securities
listed on a national securities exchange and in the over-the-counter ("OTC")
market. All options written by the Fund will be covered.
A call option written by the Fund is covered if the Fund (a) owns the underlying
security that is subject to the call or (b) has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian
bank) upon conversion or exchange of other securities held in its portfolio. A
call option is also covered if the Fund holds a call on the same security and in
the same principal amount as the call written where the exercise price of the
call held is (a) equal to or less than the exercise price of the call written or
(b) greater than the exercise price of the call written if the difference is
held in cash or high-grade debt securities in a segregated account with the
Fund's custodian bank.
A put option written by the Fund is covered if the Fund maintains cash or
high-grade debt securities with a value equal to the exercise price of the
written put in a segregated account with its custodian bank. A put is also
covered if the Fund holds a put on the same security and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written.
The premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand, and
interest rates.
The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, or purchased, in the case of a put
option, since the writer may be assigned an exercise notice at any time prior to
the termination of the obligation. Whether or not an option expires unexercised,
the writer retains the amount of the premium. This amount may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer experiences a profit or loss from the sale of the underlying security. If
a put option is exercised, the writer must fulfill the obligation to buy the
underlying security at the exercise price, which will usually exceed the market
value of the underlying security at that time.
If the writer of an option wants to terminate its obligation, the writer may
effect a "closing purchase transaction" by buying an option of the same series
as the option previously written. The effect of the purchase is that the
clearing corporation will cancel the writer's position. However, a writer may
not effect a closing purchase transaction after being notified of the exercise
of an option. Likewise, the holder of an option may liquidate its position by
effecting a "closing sale transaction" by selling an option of the same series
as the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction may be made at the time desired by the
Fund.
Effecting a closing transaction in the case of a written call option allows the
Fund to write another call option on the underlying security with a different
exercise price, expiration date or both. In the case of a written put option, a
closing transaction allows the Fund to write another covered put option.
Effecting a closing transaction also allows the cash or proceeds from the sale
of any securities subject to the option to be used for other Fund investments.
If the Fund wants to sell a particular security from its portfolio on which it
has written a call option, it will effect a closing transaction prior to or at
the same time as the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to buy the option. Likewise, the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to buy
the option. Increases in the market price of a call option will generally
reflect increases in the market price of the underlying security. As a result,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by the
Fund.
The writing of covered put options involves certain risks. For example, if the
market price of the underlying security rises or otherwise is above the exercise
price, the put option will expire worthless and the Fund's gain will be limited
to the premium received. If the market price of the underlying security declines
or otherwise is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price. The Fund's
return will be the premium received from the put option minus the amount by
which the market price of the security is below the exercise price.
The Fund may buy call options on securities it intends to buy in order to limit
the risk of a substantial increase in the market price of the security before
the purchase is effected. The Fund may also buy call options on securities held
in its portfolio and on which it has written call options. Prior to its
expiration, a call option may be sold in a closing sale transaction. Profit or
loss from the sale will depend on whether the amount received is more or less
than the premium paid for the call option plus any related transaction costs.
The Fund may buy put options on securities in an attempt to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option. The ability to buy put options allows the
Fund to protect the unrealized gain in an appreciated security in its portfolio
without actually selling the security. In addition, the Fund continues to
receive interest or dividend income on the security. The Fund may sell a put
option it has previously purchased prior to the sale of the security underlying
the option. The sale of the option will result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid for the put option. Any gain or loss may be wholly
or partially offset by a change in the value of the underlying security that the
Fund owns or has the right to acquire.
The Fund may write covered put and call options and buy put and call options
that trade in the OTC market to the same extent that it may engage in
exchange-traded options. Like exchange-traded options, OTC options give the
holder the right to buy, in the case of OTC call options, or sell, in the case
of OTC put options, an underlying security from or to the writer at a stated
exercise price. However, OTC options differ from exchange-traded options in
certain material respects.
OTC options are arranged directly with dealers and not with a clearing
corporation. Thus, there is a risk of non-performance by the dealer. Because
there is no exchange, pricing is typically done based on information from market
makers. OTC options are available for a greater variety of securities and in a
wider range of expiration dates and exercise prices, however, than
exchange-traded options, and the writer of an OTC option is paid the premium in
advance by the dealer.
FUTURES CONTRACTS FOR SECURITIES AND CURRENCIES. The Fund may buy and sell
futures contracts for securities and currencies. The Fund may also enter into
closing purchase and sale transactions with respect to these futures contracts.
The Fund will engage in futures transactions only for bona fide hedging or other
appropriate risk management purposes. All futures contracts entered into by the
Fund are traded on U.S. exchanges or boards of trade licensed and regulated by
the Commodity Futures Trading Commission (the "CFTC") or on foreign exchanges,
and the Fund's futures transactions must constitute permissible transactions
pursuant to regulations promulgated by the CFTC.
When securities prices are falling, the Fund may offset a decline in the value
of its current portfolio securities through the sale of futures contracts. When
prices are rising, the Fund can attempt to secure better prices than might be
available when it intends to buy securities through the purchase of futures
contracts. Similarly, the Fund can sell futures contracts on a specified
currency in an attempt to protect against a decline in the value of that
currency and its portfolio securities denominated in that currency. The Fund can
buy futures contracts on a foreign currency to fix the price in U.S. dollars of
a security denominated in that currency that the Fund has purchased or expects
to buy.
Positions taken in the futures markets are not normally held to maturity, but
are liquidated through offsetting transactions that may result in a profit or a
loss. While the Fund's futures contracts on securities and currencies will
usually be liquidated in this manner, the Fund may instead make or take delivery
of the underlying securities or currencies whenever it appears economically
advantageous to do so. A clearing corporation associated with the exchange on
which futures on securities or currencies are traded guarantees that, if still
open, the sale or purchase will be performed on the settlement date.
To the extent the Fund enters into a futures contract, it will deposit in a
segregated account with its custodian bank cash or U.S. Treasury obligations
equal to a specified percentage of the value of the futures contract (the
initial margin), as required by the relevant contract market and futures
commission merchant. The futures contract will be marked-to-market daily. Should
the value of the futures contract decline relative to the Fund's position, the
Fund, if required by law, will pay the futures commission merchant an amount
equal to the change in value.
FUTURES CONTRACTS - GENERAL. Although financial futures contracts by their terms
call for the actual delivery or acquisition of securities, or the cash value of
the index, in most cases the contractual obligation is fulfilled before the date
of the contract without having to make or take delivery of the securities or
cash. A contractual obligation is offset by buying (or selling, as the case may
be) on a commodities exchange an identical financial futures contract calling
for delivery in the same month. This transaction, which is effected through a
member of an exchange, cancels the obligation to make or take delivery of the
securities or cash. Since all transactions in the futures market are made,
offset or fulfilled through a clearinghouse associated with the exchange on
which the contracts are traded, the Fund will incur brokerage fees when it buys
or sells financial futures contracts.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in the area of
options, futures, and options on futures and any other derivative investments
that are not presently contemplated for use by the Fund or that are not
currently available but which may be developed, to the extent such opportunities
are consistent with the Fund's investment goals and legally permissible for the
Fund.
DERIVATIVE SECURITIES RISKS. The Fund's transactions in options, futures, and
options on futures involve certain risks. These risks include, among others, the
risk that the effectiveness of a transaction depends on the degree that price
movements in the underlying securities, index, or currency correlate with price
movements in the relevant portion of the Fund's portfolio. The Fund bears the
risk that the prices of its portfolio securities will not move in the same
amount as the option or future it has purchased, or that there may be a negative
correlation that would result in a loss on both the underlying securities and
the derivative security.
In addition, adverse market movements could cause the Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position.
Positions in exchange-traded options and futures may be closed out only on an
exchange that provides a secondary market. There can be no assurance that a
liquid secondary market will exist for any particular option or futures contract
at any specific time. Thus, it may not be possible to close an option or futures
position. The inability to close options or futures positions may have an
adverse impact on the Fund's ability to effectively hedge its securities.
Furthermore, if the Fund is unable to close out a position and if prices move
adversely, the Fund will have to continue to make daily cash payments to
maintain its required margin. If the Fund does not have sufficient cash to do
this, it may have to sell portfolio securities at a disadvantageous time. The
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market for the options or futures.
Similarly, there can be no assurance that a continuous liquid secondary market
will exist for any particular OTC option at any specific time. Consequently, the
Fund may be able to realize the value of an OTC option it has purchased only by
exercising it or by entering into a closing sale transaction with the dealer
that issued it. When the Fund writes an OTC option, it generally can close out
that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it.
REPURCHASE AGREEMENTS. The Fund generally will have a portion of its net assets
in cash or cash equivalents for a variety of reasons, including waiting for a
suitable investment opportunity or taking a defensive position. To earn income
on this portion of its net assets, the Fund may enter into repurchase
agreements. Under a repurchase agreement, the Fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or its
agencies from a qualified bank or broker-dealer and then to sell the securities
back to the bank or broker-dealer after a short period of time (generally, less
than seven days) at a higher price. The bank or broker-dealer must transfer to
the Fund's custodian securities with an initial market value of at least 100% of
the dollar amount invested by the Fund in each repurchase agreement. The manager
will monitor the value of such securities daily to determine that the value
equals or exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
Fund's ability to sell the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
The Fund may also enter into reverse repurchase agreements. Under a reverse
repurchase agreement, the Fund agrees to sell a security in its portfolio and
then to repurchase the security at an agreed-upon price, date, and interest
payment. The Fund will maintain cash or high-grade liquid debt securities with a
value equal to the value of the Fund's obligation under the agreement, including
accrued interest, in a segregated account with the Fund's custodian bank. The
securities subject to the reverse repurchase agreement will be marked-to-market
daily. Although reverse repurchase agreements are borrowings under the 1940 Act,
the Fund does not treat these arrangements as borrowings under its investment
restrictions so long as the segregated account is properly maintained.
The use of repurchase agreements by the Fund involves certain risks. For
example, if the other party to a repurchase agreement defaults on its obligation
to repurchase the underlying security at a time when the value of the security
has declined, the Fund may incur a loss upon disposition of the security. If the
other party to the agreement becomes insolvent and subject to liquidation or
reorganization under the bankruptcy code or other laws, a court may determine
that the underlying security is collateral for the loan by the Fund not within
the control of the Fund, and therefore the realization by the Fund on the
collateral may be automatically stayed. Finally, it is possible that the Fund
may not be able to substantiate its interest in the underlying security and may
be deemed an unsecured creditor of the other party to the agreement. While the
manager acknowledges these risks, it is expected that if repurchase agreements
are otherwise deemed useful to the Fund, these risks can be controlled through
careful monitoring procedures.
SECURITIES LENDING. The Fund may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) in order to increase
the return on its portfolio. The value of the loaned securities may not exceed
one-third of the Fund's total net assets and loans of portfolio securities are
fully collateralized based on values that are marked-to-market daily. The Fund
will not enter into any portfolio security lending arrangement having a duration
of longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. The Fund may pay reasonable
administrative and custodial fees in connection with loans of portfolio
securities and may pay a portion of the interest or fee earned thereon to the
borrower or a placing broker.
In determining whether or not to lend a security to a particular broker, dealer
or financial institution, the manager considers all relevant facts and
circumstances, including the size, creditworthiness and reputation of the
broker, dealer, or financial institution. Any loans of portfolio securities are
fully collateralized based on values that are marked to market daily. The Fund
does not enter into any portfolio security lending arrangement having a duration
of longer than one year. Any securities that the Fund may receive as collateral
will not become part of the Fund's investment portfolio at the time of the loan
and, in the event of a default by the borrower, the Fund will, if permitted by
law, dispose of such collateral except for such part thereof that is a security
in which the Fund is permitted to invest. During the time securities are on
loan, the borrower will pay the Fund any accrued income on those securities, and
the Fund may invest the cash collateral and earn income or receive an
agreed-upon fee from a borrower that has delivered cash-equivalent collateral.
TEMPORARY INVESTMENTS. When the Fund's manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100% of
the Fund's net assets in a temporary defensive manner or hold a substantial
portion of its net assets in cash, cash equivalents, or other high quality
short-term investments. Unfavorable market or economic conditions may include
excessive volatility or a prolonged general decline in the securities markets,
the securities in which the Fund normally invests, or the U.S. economy.
Temporary defensive investments generally may include U.S. government
securities, certificates of deposit, high-grade commercial paper, repurchase
agreements, money market fund shares, and other money market equivalents. The
manager also may invest in these types of securities or hold cash while looking
for suitable investment opportunities or to maintain liquidity.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in various types of U.S.
Government obligations. U.S. Government obligations include securities issued
or guaranteed as to principal and interest by the U.S. Government, its agencies
or instrumentalities. U.S. Treasury obligations differ mainly in the length of
their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including
government-sponsored enterprises.
Payment of principal and interest on U.S. Government obligations may be backed
by the full faith and credit of the United States or may be backed solely by the
issuing or guaranteeing agency or instrumentality itself. In the latter case,
the investor must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government would provide financial support to its agencies or instrumentalities
(including government-sponsored enterprises) where it is not obligated to do so.
In addition, U.S. Government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. Government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trust's Board of Trustees supervises and manages the affairs of the Fund. In
accordance with Delaware's Business Trust Act, a trustee of the Trust is
responsible for performing his or her duties in good faith, in a manner such
trustee reasonably believes to be in the best interests of the Trust and with
the care that an ordinarily prudent person in a like position would use under
similar circumstances. The Trust is not required to hold annual shareholder
meetings.
The names, business addresses and ages of the directors and officers of the
Trust together with information as to their principal business occupations
during at least the past five years are shown below. Each director who is an
"interested person" of the Fund, as defined in the 1940 Act, is indicated by an
asterisk.
<TABLE>
<CAPTION>
------------------------------------ -------------------- ---------------------------------------------
NAME, AGE, ADDRESS POSITIONS WITH THE PRINCIPAL OCCUPATION DURING PAST 5 YEARS
TRUST
------------------------------------ -------------------- ---------------------------------------------------------
<S> <C> <C>
*Vinod Gupta (54) President, President of Everest Funds Management, LLC, the Fund's
5711 S. 86th Circle Chairperson of the manager, since its inception in May, 2000, Founded of
Omaha, NE 68127 Board, Treasurer infoUSA Inc., a company that complies and updates the
and Trustee proprietary databases of 12 million businesses
and 200 million consumers in the United States and
Canada; Chairman of the Board of infoUSA Inc. since
1972 and Chief Executive Officer from 1972 until
September 1997 and since August 1998.
------------------------------------ -------------------- -------------------------------------------------------
*Thomas F. Pflug (42) Trustee President of Pflug Koory, LLC, sub-adviser, and its
14441 Dupont Court predecessor entity, Pflug Investment Management, Inc.,
Omaha, NE 68144 since its organization in 1992. Mr. Pflug previously
was the Vice-President of Wallace R. Weitz & Co. (a
Nebraska investment adviser) from May of 1989 through
April of 1992.
------------------------------------ -------------------- ---------------------------------------------------------
Harold W. Andersen (77) Trustee Contributing editor and newspaper executive with the
5711 S. 86th Circle Omaha World-Herald from 1946 to the present where he
Omaha, NE 68127 has served as director, president and chairman of the
board of directors.
------------------------------------ -------------------- ----------------------------------------------------------
Richard M. Krasno (58) Trustee President of William R. Kenan, Jr. Fund since 1999;
P.O. Box 3858 President of the Monterey Institute of International
Chapel Hill, NC 27515 Studies from 1998 to 1999. From 1981 to 1998, Mr. Krasno
served for the Institute of International Education as its
President-Chief Executive Officer from 1983 to 1998
and as an Executive Vice President and its Chief Operating
Officer from 1981 to 1983.
------------------------------------ -------------------- -----------------------------------------------------------------
Terence R. McAuliffe (43) Trustee Chairman of American Heritage Trust, a premier builder of
7527 Old Dominion Dr. single-family homes in Central Florida and is the President
McLean, VA 22102 and CEO of several real estate related entities and is on
the Boards of Directors of several private companies.
------------------------------------ -------------------- -----------------------------------------------------------------
</TABLE>
* Vinod Gupta is an "interested person" of the Fund, as defined in the
1940 Act. He serves as the President of the manager of the Fund.
* Thomas F. Pflug is also an "interested person" of the Fund, as
defined in the 1940 Act. He is the President of the sub-adviser of the Fund.
Trustees of the Trust who are not "interested persons" of the Fund are not paid
by the Fund, but are reimbursed for expenses incurred in attending meetings of
the Board of Trustees. None of the trustees of the Trust or the highest paid
executives received over $60,000 in compensation.
The members of the Trust's Board of Trustees receive the following compensation:
<TABLE>
<CAPTION>
---------------------------- ------------------- ---------------------- ----------------------- --------------------
NAME OF PERSON AGGREGATEION PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION FROM RETIREMENT BENEFITS BENEFITS UPON FROM COMPANY PAID
FUND ACCRUED AS PART OF RETIREMENT TO TRUSTEES
FUND EXPENSES
---------------------------- ------------------- ---------------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Vinod Gupta None None None None
President, Chairperson,
Treasurer, and Trustee
Thomas F. Pflug None None None None
Trustee
Harold W. Andersen None None None None
Trustee
Richard M. Krasno None None None None
Trustee
Terence R. McAuliffe None None None None
Trustee
---------------------------- ------------------- ---------------------- ----------------------- --------------------
</TABLE>
MANAGEMENT OWNERSHIP
As of December 1, 2000, for organizational purpose only, Vinod Gupta Revocable
Trust owned 100% of the outstanding shares of the Fund. Vinod Gupta, trustee of
the Vinod Gupta Revocable Trust, is the president and sole shareholder of the
manager.
ADVISORY SERVICES
INVESTMENT MANAGER
Everest Funds Management, LLC (the "manager"), a Delaware limited liability
company, is the investment adviser to the Fund. The manager is under the control
of Vinod Gupta, who has voting control and is the sole manager of the manager.
Vinod Gupta is also the Chairperson of the Board of Trustees, the President and
the Treasurer of the Fund.
Under the Advisory Agreement between the Trust and the manager, dated as of
November 3, 2000 (the "Advisory Agreement"), and subject to the control of the
Board of Trustees, the manager manages the day-to-day operations of the Fund,
including overseeing the purchases and sales of Fund securities consistent with
the Fund's investment objectives and policies. In addition, the manager is
responsible for overseeing the administration of the Fund's daily business
affairs such as providing accurate accounting records, computing accrued income
and expenses of the Fund, computing the daily net asset value of the Fund,
assuring proper dividend disbursements, proper financial information to
investors, notices of all shareholders' meetings and providing sufficient office
space, storage, telephone services and personnel to accomplish these
responsibilities. The Advisory Agreement provides that the manager may enter
into sub-advisory agreements but that the ultimate responsibility for managing
the net assets of the Fund rests with the Advisor. The Board of Trustees of the
Fund approved the Advisory Agreement on October 26, 2000 in the manner required
by the 1940 Act.
The Advisory Agreement provides that the manager will not be liable to the Fund
for any error of judgment or mistake of law, or for any loss suffered by the
Fund or its shareholders in connection with matters to which the Advisory
Agreement relates, except for willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties under the Advisory
Agreement.
In exchange for its services, the manager is entitled to receive an annual
management fee from the Fund, calculated daily and payable monthly, equal to
0.50% of the average daily net assets of the Fund. No sales charges or
commissions are payable in connection with the sale of the Fund's shares. The
expenses incurred in the sale of Fund shares, including advertising and
promotion, are included among the organizational expenses which will be paid by
the manager. From the inception of the Fund to the date hereof, the manager has
been paid a total of $0.
SUB-ADVISER
The manager has entered into a Sub-Advisory Agreement with Pflug Koory, LLC (the
"sub-adviser"), to assist it in the day-to-day management of the Fund. Thomas F.
Pflug is the President, manger, and majority shareholder of the sub-adviser. Mr.
Pflug is also a member of the Board of Trustees of the Trust. Pursuant to the
Sub-Advisory Agreement between the manager and the sub-adviser, the sub-adviser
will provide certain advisory services to the Fund, subject to the control of
the manager and the Board of Trustees. While the ultimate responsibility for the
day-to-day operations of the Fund remain with the manager, the sub-adviser will
develop and maintain an investment program for the Fund and will make investment
decisions for all of the assets of the Fund and will place all orders for the
purchase and sale of securities, all on behalf of the Fund. The sub-adviser will
pay all expenses incurred by it in connection with its activities under the
Sub-Advisory Agreement other than the cost of securities (including brokerage
commission, if any) purchased for the Fund.
The Sub-Advisory Agreement provides that the sub-adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund,
its shareholders or by the manager in connection with the matters to which the
Sub-Advisory Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
Sub-Advisory Agreement.
The Fund is responsible for paying all its expenses other than those assumed by
the manager incurred in the operation of the Fund and any public offering of the
Fund's shares, including, among others, any interest, taxes, brokerage fees and
commissions, or fees of the trustees who are not employees of the manager, or
any of their affiliates, expenses of trustees and shareholders' meetings,
including the cost of printing and mailing proxies, expenses of insurance
premiums for fidelity and other coverage, expenses of redemption of Fund shares,
expenses of issue and sale of Fund shares, expenses of printing and mailing
stock certificates representing shares of the Fund, association membership dues,
advertising promotional expenses in connection with the distribution of the Fund
shares, including paying for prospectuses for new shareholders, charges of
custodian, transfer agent, dividend disbursing agent, accounting services agent,
investor servicing agent, and bookkeeping, auditing, and legal expenses. The
Fund will also pay the fees and bear the expense of registering and maintaining
the registration of the Fund and its shares with the Commission and registering
or qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders.
The Advisory Agreement and the Sub-Advisory Agreement will continue in effect
from year to year if such continuance is approved in the manner required by the
1940 Act (i.e., (a) by a vote of a majority of the Board of Trustees or of the
outstanding voting securities of the Fund and (b) by a vote of a majority of the
Trustees who are not parties to the Advisory Agreement or the Sub-Advisory
Agreement, as applicable, or interested persons of any such party), and if the
manager shall not have notified the Fund at least 60 days prior to the
anniversary date of the previous continuance that it does not desire such
continuance. The Advisory Agreement or the Sub-Advisory Agreement may be
terminated by the Fund, without penalty, on 60 days' written notice to the
manager or the sub-adviser, as applicable, and will terminate automatically in
the event of its assignment, as applicable.
CODE OF ETHICS
The Trust, the manager and the sub-adviser have adopted Codes of Ethics that
govern the conduct of employees of the Trust and manager who may have access to
information about the Fund's securities transactions. The Codes recognize that
such persons owe a fiduciary duty to the Fund's shareholders and must place the
interests of shareholders ahead of their own interests. Among other things, the
Codes require pre-clearance of certain personal securities transactions; certain
blackout periods for personal trading of securities which may be considered for
purchase or sale by the Fund or other clients of the manager; annual and
quarterly reporting of personal securities holdings; and limitations on personal
trading of initial public offerings. Violations of the Codes are subject to
review by the Trustees and could result in severe penalties.
UNDERWRITER
Quasar Distributors, LLC is the principal underwriter (the "Underwriter") and
the general distributor of the shares of the Fund pursuant to a Distribution
Agreement among the Underwriter, the Trust and the manager dated as of November
3, 2000 (the "Distribution Agreement"). The Underwriter is an affiliate of
Firstar Mutual Fund Services, LLC. The Distribution Agreement was approved by
the Board of Trustees, on October 26, 2000 in the manner required by the 1940
Act. See "Management of the Fund--Trustees and Officers."
SERVICE PROVIDERS
The Trust entered into a series of agreements whereby certain parties will
provide various services to the Fund.
Firstar Mutual Fund Services, LLC ("Firstar") will provide accounting and
administrative services and shareholder servicing to the Fund as transfer agent
and dividend disbursing agent. Firstar's address is 615 E. Michigan Street,
Milwaukee, Wisconsin 53202. The services to be provided under the Transfer Agent
Servicing Agreement include processing purchase and redemption transactions,
establishing and maintaining shareholder accounts and records, disbursing
dividends declared by the Fund, day-to-day administration of matters related to
the corporate existence of the Fund (other than rendering investment advice),
maintenance of its records and preparation, mailing and filing of reports,
assistance in monitoring the total number of Shares sold in each State for "Blue
Sky" purposes and assistance in the preparation of the Fund's registration
statement under federal and state securities laws.
Pursuant to the Fulfillment Servicing Agreement between Firstar and the Fund,
Firstar will also provide fulfillment services to the Fund, including
shareholder and prospective shareholder customer service.
Firstar Bank, N.A., an affiliate of Firstar, is the custodian of the assets of
the Fund (the "Custodian") pursuant to a custody agreement between the Custodian
and the Trust dated as of November 3, 2000 ("Custody Agreement"), whereby the
Custodian provides for fees on a transactional basis plus out-of-pocket
expenses. The Custodian's address is 425 Walnut Street, Cincinnati, Ohio 45202.
Pursuant to a Fund Administration Servicing Agreement and a Fund Accounting
Servicing Agreement, each between Firstar and the Company, Firstar also performs
certain administrative, accounting and tax reporting functions for the Fund,
including preparation and filing federal and state tax returns, preparing and
filing securities registration compliance filings with various states compiling
data for and preparing notices to the Commission, preparing financial statements
for the Annual and Semi-Annual Reports to the Commission and current investors,
monitoring the Fund's expense accruals and performing securities valuations and,
from time to time, monitoring the Fund's compliance with the Fund's investment
objective and restrictions. Pursuant to the Fund Administration Servicing
Agreement, Firstar is entitled to receive from the Fund a fee, computed daily
and payable monthly, based on the Fund's average net assets at an annual rate of
.08% of the first $200 million, .07% of the next $500 million, and .05% of the
remaining balance, subject to an annual minimum of $55,000.
Stradley Ronon Stevens & Young, LLP acts as legal counsel to the Fund. Arthur
Andersen LLP is the auditor of the Trust.
PORTFOLIO TRANSACTIONS
Subject to the review of the manager, the sub-adviser will be authorized to
allocate the Fund's securities transactions to the Underwriter and to other
broker-dealers who help distribute the Fund's shares. In connection with its
duties to arrange for the purchase and sale of portfolio securities, the
sub-adviser will select such broker-dealers who will, in the sub-adviser's
judgment, implement the Fund's policy to achieve best execution at the best
available price. Consistent with the rules of the National Association of
Securities Dealers, Inc., the sub-adviser will allocate transactions to such
broker-dealers only when it reasonably believes that the commissions and
transaction quality is comparable to that available from other qualified
broker-dealers, subject to seeking the best available price and execution
available and such other policies as the Board of Trustees may determine.
When allocating transactions to broker-dealers, the sub-adviser is authorized to
consider, in determining whether a particular broker-dealer will provide best
execution, the broker-dealer's reliability, integrity, financial condition and
risk in positioning the securities involved, as well as the difficulty of the
transaction in question, and thus need not pay the lowest spread or commission
available if the manager determines in good faith that the amount of commission
is reasonable in relation to the value of the brokerage and research services
provided by the broker-dealer, viewed either in terms of the particular
transaction or the sub-adviser's overall responsibilities as to the accounts as
to which it exercises investment discretion. If, on the foregoing basis, the
transaction in question could be allocated to two or more broker-dealers, the
sub-adviser is authorized in making such allocation, to consider, (a) whether a
broker-dealer has provided research services, as further discussed below; and
(b) whether a broker-dealer has sold Fund shares or the shares of any other
investment company or companies having the sub-adviser as its adviser or having
the same sub-manager, administrator or principal underwriter as the Fund. Such
research may be in written form or through direct contact with individuals and
may include quotations on portfolio securities and information on particular
issuers and industries, as well as on market, economic or institutional
activities, and may also include comparison of the performance of the Fund to
the performance of various indices and investments for which reliable
performance data is available and similar information prepared by recognized
mutual fund statistical services. The Fund recognizes that no dollar value can
be placed on such research services or on execution services, that such research
services may or may not be useful to the Fund or other accounts of the
sub-adviser, and that such research received by such other accounts may or may
not be useful to the Fund.
The manager will cause the Fund to deal directly with the selling or purchasing
principal or market maker without incurring brokerage commissions unless the
manager determines that a better price or execution may be obtained by paying
such commissions. Purchases from underwriters include a commission or concession
paid by the issuer to the underwriter and principal transactions placed through
broker-dealers include a spread between the bid and asked prices.
Under the 1940 Act, the Fund may not purchase portfolio securities from any
underwriting syndicate of which the Underwriter, as principal, is a member
except under certain limited circumstances set forth in Rule 10f-3 thereunder.
These conditions relate, among other things, to the reasonableness of the
broker-dealer spread, the amount of securities that may be purchased from any
one issuer, and the amount of the Fund's assets that may be invested in a
particular issue. The rule also requires that any purchase made subject to its
provisions be reviewed at least quarterly by the Fund's Board of Directors,
including a majority of the Fund's Board of Directors who are not interested
persons of the Fund as defined by the 1940 Act.
The Board of Trustees will review quarterly the manager's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund. Such review is conducted for the purpose of determining if
the markups and commissions, if any, paid by the Fund are reasonable in relation
to the benefits received by the Fund taking into account the competitive
practices in the industry.
DETERMINING NET ASSET VALUE
The net asset value of the Fund will be determined as of the close of trading
(normally 4:00 p.m. Eastern time) on each day the New York Stock Exchange
("NYSE") is open for trading. The NYSE is open for trading Monday through Friday
except New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Additionally, if any of the aforementioned holidays falls on a
Saturday, the NYSE will not be open for trading on the preceding Friday, and
when any holiday observed by the NYSE falls on a Sunday, the NYSE will not be
open for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
Securities which are traded on a recognized securities exchange are valued at
the last sale price on the securities exchange on which such securities are
primarily traded or at last sale price on the national securities market. Put
options are valued at the last sales price on the valuation date if the last
sales price is between the closing bid and asked prices. Otherwise, put options
are valued at the mean of the closing bid and asked prices. Debt securities
(other than short-term instruments) are valued at prices furnished by a national
pricing service, subject to review by the manager and determination of the
appropriate price whenever a furnished price is significantly different from the
previous day's furnished price. Debt instruments maturing within 60 days are
valued by the amortized cost method. Any securities for which market quotations
are not readily available are valued at their fair value as determined in good
faith by the Board of Trustees.
To the extent the Fund obtains securities for which market quotations are not
readily available, those securities are valued on the basis of information
furnished by a pricing service or services, approved by the Fund's Board of
Trustees (the "Board"), which furnishes the manager with valuations based in
each case upon information concerning market transactions and quotations from
recognized securities broker-dealers. The methods used by such pricing service
and the valuations so established are reviewed regularly by officers of the Fund
under the general supervision of the Board. The use of such service by the Fund
is the method selected by the Board for obtaining a fair determination of the
value of securities for which quotations are not readily available.
If market quotations or information furnished by a pricing service is not
available for a security or if the value of a security has been materially
affected by events occurring after the close of the exchange or market on which
the security is principally traded (for example, a foreign exchange or market),
that security may be valued by another method that the Board believes accurately
reflects fair value. A securities valuation may differ depending on the method
used for determining value.
BUYING SHARES
As described in the prospectus, shares of the Fund may be purchased by check, by
wire transfer of funds through a bank or through one or more brokers authorized
by the Fund to receive purchase orders. The minimum initial investment is
$10,000 on regular accounts and $2,000 on IRA accounts. Investments may be made
in any amount in excess of these amounts. To add to existing accounts, regular
accounts require a minimum investment of $250, and IRA accounts require a $100
investment.
No stock certificates will be issued for the purchase of Fund shares. Instead,
an account will be established for each investor and all shares purchased or
received, including those obtained through reinvestment of distributions, will
be registered on the books of the Fund and credited to such account. The Fund
has the right to limit the amount of purchases and to refuse to sell shares to
any person.
REDEEMING SHARES
Redemption proceeds are normally wired or mailed on the next business day
following receipt of wired or telephoned instructions, but in no event later
than seven days following receipt of such requests. Redemptions may be suspended
or payment dates postponed more than seven days when
(a) the NYSE is closed (other than weekends or holidays),
(b) when trading on the NYSE is restricted during any period when an emergency
exists as a result of which (i) disposal of the Fund's investments is not
reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of the Fund's net assets, or
(c) for such other periods as the Commission may by order permit for the
protection of the Fund's shareholders.
If you designate a savings and loan association as the bank to receive your
telephone redemption proceeds, please note that if the savings and loan
association is not a participant in the Federal Reserve System, redemption
proceeds must be wired to a commercial bank which is a correspondent of the
savings and loan association. You should discuss wire procedures and costs with
their savings and loan association before completing the telephone redemption
authorization on the account application form.
REDEMPTION IN KIND
The Fund does not intend to redeem shares in any form except cash. The Fund,
however, has filed a notice of election under Rule 18f-1 of the 1940 Act that
allows the Fund to redeem in-kind redemption requests of a certain amount.
Specifically, if the amount you are redeeming is over the lesser of $250,000 or
1% of the Fund's net asset value, the Fund has the right to redeem your shares
by giving you the amount that exceeds $250,000 or 1% of the Fund's net asset
value in securities instead of cash.
TAX CONSIDERATIONS
The following is a summary of certain tax considerations generally affecting the
Fund and its shareholders. No attempt is made to present a detailed explanation
of the tax treatment of the Fund or its shareholders, and the discussions here
are not intended as substitutes for careful tax planning.
DISTRIBUTIONS OF NET INVESTMENT INCOME
The Fund receives income generally in the form of dividends and interest on its
investments. This income, less expenses incurred in the operation of the Fund,
constitutes the Fund's net investment income from which dividends may be paid to
you. Any distributions by the Fund from such income will be taxable to you as
ordinary income, whether you receive them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAIN
The Fund may derive capital gain or loss in connection with sales or other
dispositions of its interests in the underlying ETFs. Distributions of net
short-term capital gain will be taxable to you as ordinary income. Distributions
from net long-term capital gain will be taxable to you as long-term capital
gain, regardless of how long you have held your shares in the Fund. An
underlying ETF may also derive capital gain or loss as a result of a
re-balancing of its portfolio in response to a change in the underlying index
which the ETF seeks to replicate. Distributions of the ETF's net short-term
capital gain will be ordinary income to the Fund, and, in turn to you, upon its
distribution by the Fund. Distributions of the ETF's net long-term capital gain
to the Fund will be long-term capital gain to the Fund, and, in turn, to you
upon its distribution by the Fund, regardless of how long you have held your
shares in the Fund. Any net capital gain realized by the Fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, to reduce or eliminate excise or income taxes on the Fund.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain dividends from the Fund's sale of securities held for more than
five years may be subject to a reduced rate of tax.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS
Most foreign exchange gain realized on the sale of debt securities is treated as
ordinary income by the Fund. Similarly, foreign exchange loss realized on the
sale of debt securities generally is treated as ordinary loss. This gain when
distributed will be taxable to you as ordinary income, and any loss will reduce
the Fund's ordinary income otherwise available for distribution to you. This
treatment could increase or decrease the Fund's ordinary income distributions to
you, and may cause some or all of the Fund's previously distributed income to be
classified as a return of capital.
The Fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions to
you. If more than 50% of the Fund's total assets at the end of the fiscal year
is invested in securities of foreign corporations, the Fund may elect to pass
through to you your pro rata share of foreign taxes paid by the Fund. If this
election is made, the year-end statement you receive from the Fund will show
more taxable income than was actually distributed to you. However, you will be
entitled to either deduct your share of such taxes in computing your taxable
income or (subject to limitations) claim a foreign tax credit for such taxes
against your U.S. federal income tax. The Fund will provide you with the
information necessary to complete your individual income tax return if it makes
this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS
The Fund will inform you of the amount of your ordinary income and capital gain
dividends at the time they are paid, and will advise you of their tax status for
federal income tax purposes shortly after the close of each calendar year. If
you have not held Fund shares for a full year, the Fund may designate and
distribute to you, as ordinary income or capital gain, a percentage of income
that is not equal to the actual amount of such income earned during the period
of your investment in the Fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY
The Fund intends to elect to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code") and intends to so qualify
during the current fiscal year. As a regulated investment company, the Fund
generally pays no federal income tax on the income and gain it distributes to
you. The Board of Trustees reserves the right not to maintain the qualification
of the Fund as a regulated investment company if it determines such course of
action to be beneficial to shareholders. In such case, the Fund will be subject
to federal, and possibly state, corporate taxes on its taxable income and gain,
and distributions to you will be taxed as ordinary dividend income to the extent
of the Fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS
To avoid federal excise taxes, the Code requires the Fund to distribute to you
by December 31 of each year, at a minimum, the following amounts: 98% of its
taxable ordinary income earned during the calendar year; 98% of its capital gain
net income earned during the twelve-month period ending October 31; and 100% of
any undistributed amounts from the prior year. The Fund intends to declare and
pay these distributions in December (or to pay them in January, in which case
you must treat them as received in December) but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES
Redemptions (including redemptions in kind) and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. If you redeem
your Fund shares, or exchange your Fund shares for shares of a different Everest
Fund, the IRS will require that you report any gain or loss on your redemption
or exchange. If you hold your shares as a capital asset, the gain or loss that
you realize will be capital gain or loss and will be long-term or short-term,
generally depending on how long you hold your shares.
Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of Fund shares held for more than five years may be subject
to a reduced rate of tax.
Any loss incurred on the redemption or exchange of shares held for six months or
less will be treated as long-term capital loss to the extent of any long-term
capital gain distributed to you by the Fund on those shares. All or a portion of
any loss that you realize upon the redemption of your Fund shares will be
disallowed to the extent that you buy other shares in the Fund (through
reinvestment of dividends or otherwise) within 30 days before or after your
share redemption. Any loss disallowed under these rules will be added to your
tax basis in the new shares you buy.
U.S. GOVERNMENT SECURITIES
States grant tax-free status to dividends paid to you from interest earned on
certain U.S. government securities, subject in some states to minimum investment
or reporting requirements that must be met by the Fund. Investments in
Government National Mortgage Association or Federal National Mortgage
Association securities, bankers' acceptances, commercial paper and repurchase
agreements collateralized by U.S. government securities generally do not qualify
for tax-free treatment. The rules on exclusion of this income are different for
corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS
If you are a corporate shareholder, you should note that it is expected that a
portion of the dividends paid by the Fund will qualify for the
dividends-received deduction. You may be allowed to deduct these qualified
dividends, thereby reducing the tax that you would otherwise be required to pay
on these dividends. The dividends-received deduction will be available only with
respect to dividends designated by the Fund as eligible for such treatment. All
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES
The Fund may invest in complex securities that may be subject to numerous
special and complex tax rules. These rules could affect whether gain or loss
recognized by the Fund is treated as ordinary or capital, or as interest or
dividend income. These rules could also accelerate the recognition of income to
the Fund (possibly causing the Fund to sell securities to raise the cash for
necessary distributions) and/or defer the Fund's ability to recognize a loss,
and, in limited cases, subject the Fund to U.S. federal income tax on income
from certain foreign securities. These rules could therefore affect the amount,
timing or character of the income distributed to you by the Fund.
CALCULATION OF PERFORMANCE DATA
The Fund may publish certain performance figures in advertisements from time to
time. These performance figures may include average annual total return figures.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if the Fund's
performance had been constant over the entire period, and is computed according
to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years in the base period.
ERV = ending redeemable value of the hypothetical $1,000
payment made at the beginning of the base period (reduced
by the maximum sales charge) assuming reinvestment of all
dividends and distributions.
All performance figures are based on historical results and are not intended to
indicate future performance.
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of the Everest3 Fund:
We have audited the statement of assets and liabilities of the Everest3 Fund
(the "Fund" a series of the Everest Funds) as of October 31, 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. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the statement of assets and liabilities referred to above
present fairly, in all material respects, the net assets of Everest3 Fund (the
"Fund") as of October 31, 2000, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
November 3, 2000
Everest3 Fund
Statement of Assets and Liabilities
October 31, 2000
ASSETS
Cash $100,000
--------
Total Assets $100,000
--------
LIABILITIES 0
--------
Total Liabilities 0
--------
NET ASSETS $100,000
========
Capital Shares outstanding, no par value; $ 10,000
=========
unlimited number of shares authorized
Net asset value per share (net assets/shares $ 10.00
=========
outstanding)
See accompanying notes to the financial statements
EVEREST FUNDS (the "Trust")
EVEREST3 FUND (the "Fund")
NOTES TO THE FINANCIAL STATEMENT
October 31, 2000
ORGANIZATION
The Trust is an open-end management investment company, or mutual fund,
organized as a Delaware business trust on August 11, 2000. The Fund is a
non-diversified mutual fund series of the Trust. The goal of the fund is
long-term capital growth. The Trust has had no operations other than those
relating to organizational matters and the sale of 10,000 shares of its common
stock to its original shareholder, Vinod Gupta, President and sole shareholder
of the investment manager, for cash in the amount of $100,000.
Significant Accounting Policies
(a) Organization costs
Costs incurred by the Fund in connection with the organization,
registration and the initial public offering of shares, are being assumed by the
investment adviser, Everest Funds Management, LLC.
(b) Federal Income Taxes
The Fund intends to comply with the requirements of the Internal
Revenue Code necessary to qualify as a regulated investment company and to make
the requisite distributions of income and capital gains to their shareholders
sufficient to relieve it from all or substantially all Federal income taxes.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Advisor
The Trust, which consists solely of the Fund, has an agreement with the
Investment Advisor, with whom certain officers and Trustees of the Trust are
affiliated, to furnish investment advisory services to the Fund. Under the terms
of this agreement, the Investment Advisor will receive a fee, accrued daily and
payable monthly at the annual rate of 0.50% of the Fund's average daily net
assets.
The Investment Advisor has an agreement with a Sub-Advisor, with whom
certain officers and Trustees of the Trust are affiliated, to furnish investment
advisory services to the Fund. Under the terms of this agreement, the
Sub-Advisor will receive a fee from the Investment Advisor, accrued daily and
payable monthly at the annual rate of 0.15% of the Fund's average daily net
assets.
The Investment Advisor has contractually agreed, pursuant to the
investment management agreement, to absorb all ordinary operating expenses of
the Fund, other than the fee payable to the Investment Advisor, but excluding
taxes, interest, brokerage and extraordinary expenses.
