Filed with the Securities and Exchange Commission on September 29, 2000
1933 Act Registration File No. 333-43792
1940 Act File No. 811-10057
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. -----1----- [X]
Post-Effective Amendment No.----- [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. -----1----- [X]
EVEREST FUNDS
-------------
(Exact Name of Registrant as Specified in Charter)
5711 S. 86th Circle
Omaha, Nebraska 68127
(Address of Principal Executive Offices) (Zip Code)
(402) 593-4513
(Registrant's Telephone Numbers, Including Area Code)
Vinod Gupta
5711 S. 86th Circle
Omaha, Nebraska 68127
(Name and Address of Agent for Service)
Copies to:
John Baker, Esq.
Stradley, Ronon, Stevens & Young, LLP
1220 19th Street, N.W., Suite 700
Washington, DC 20036
As soon as practicable after this Registration Statement is declared effective.
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b).
[ ] on (date) pursuant to paragraph (b).
[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a)(1).
[ ] 75 days after filing pursuant to paragraph (a)(2).
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This Prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
---------------, 2000
Subject to completion, dated September ---, 2000
EVEREST INDEX3 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.
TABLE OF CONTENTS
GOAL.........................................................................1
PRINCIPAL INVESTMENT STRATEGIES..............................................1
PRINCIPAL INVESTMENT RISKS...................................................3
PERFORMANCE INFORMATION......................................................4
FEES AND EXPENSES............................................................4
MANAGEMENT OF THE FUND.......................................................6
DETERMINATION OF NET ASSET VALUE.............................................7
BUYING SHARES................................................................7
REDEEMING SHARES.............................................................9
DISTRIBUTIONS AND TAXES.....................................................11
FINANCIAL HIGHLIGHTS........................................................13
GOAL
The goal of the Everest Index3 Fund (the "Fund") is long-term capital growth.
The Fund may change its goal without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 TRACKED1<F1> INVESTMENT AMOUNTS
---------- ------------------------- ------------------
SPDRS S&P 500 INDEX (a market-value weighted index Between 10% and 80%
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 price- Between 10% and 80%
weighted average of 30 widely held stocks
that are generally the leaders in their
industries)
QQQS NASDAQ-100 INDEX (a modified capitalization- Between 10% and 80%
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)
1<F1> Standard & Poor's Depositary ReceiptsR, SPDRsR, the Standard & Poor's
500 Composite Stock Price IndexR, and S&P 500R 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 IndexR, Nasdaq-100 SharesSM, and The Nasdaq Stock
MarketR are trademarks and service marks of The Nasdaq Stock Market,
Inc. Neither Everest Funds nor Everest Index3 Fund is associated,
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 consist mainly of shares that represent
undivided ownership interests in the portfolio of stocks held by ETFs. ETFs are
trusts that acquire and hold either:
O 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
O 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 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 holders, 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.
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 fair
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 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
You should be aware that you may lose money by investing in the Fund.
O 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. Holders of common stocks of any given issuer incur more risk
than holders of preferred stocks and debt obligations of such issuer because
common stockholders, as owners of such issuer, have generally inferior rights
to receive payments from such issuer in comparison with the rights of
creditors of, or holders of debt obligations or preferred stocks issued by,
such issuer.
O "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.
O 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.
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.
O 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.
O MANAGEMENT ALLOCATION RISK
The share price of the Fund changes daily based on the performance of the
exchange-traded index 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.
O 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
No performance information is available for the Fund at this time because the
Fund recently commenced operations.
FEES AND EXPENSES
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.
SHAREHOLDER FEES (fees paid directly from your investment)
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)<F2>
Maximum Account Fee None(2)<F3>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from Fund assets)
Management Fees 0.50%
Distribution and/or Service (12b-1) Fees None
Other Expenses(3)<F4> 1.86%
Total Annual Fund Operating Expenses 2.36%
Less Expense Reimbursement 1.86%(4)<F5>
Net Annual Fund Operating Expenses 0.50%
(1)<F2> The Fund charges a redemption fee of 0.50% on shares of the Fund that
you have held for less than 90 days.
(2)<F3> IRA accounts are charged a maximum account fee of $12.50 per year.
(3)<F4> 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 ETFs 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)<F5> Pursuant to the investment management agreement between the Fund and
its manager, the manager will reimburse the Fund for all expenses
other than management fees but excluding taxes, interest, brokerage
and extraordinary expenses, if any.
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
$51 $160
MANAGEMENT OF THE FUND
MANAGER
The manager, EVEREST FUNDS MANAGEMENT, LLC, subject to the general supervision
of the Everest Fund's (the "Trust's") 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. 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
O 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.
O 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, and 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
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
To open an account, you Minimum To Open To Add to
must invest at least the Investments Your Account Your Account
minimum amount. ----------- ------------ ------------
Regular accounts $10,000 $250
IRA accounts $2,000 $100
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.
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.
When making a purchase request, make sure your request is in good order. "Good
order" means your purchase request includes:
O The name of the Fund
O The dollar amount of shares to be purchased
O Purchase application or investment stub
O Check payable to "Everest Funds"
METHODS OF BUYING
THROUGH AN You can purchase shares of the Fund through any
AUTHORIZED broker-dealer organization that has been authorized by the
BROKER-DEALER 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
Everest Index3 Fund
c/o Firstar Mutual Funds Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Delivery
Everest Funds
Everest Index3 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, Everest Index3 Fund
(your name or the title on the account)
(your account #)
REDEEMING SHARES
METHODS OF SELLING
THROUGH A If you purchased your shares through a broker-dealer or other
BROKER-DEALER financial organization, your redemption order may be placed
ORGANIZATION 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
Everest Index3 Fund
c/o Firstar Mutual Funds Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Delivery
Everest Funds
Everest Index3 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 in
which you are invested 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:
O that you correctly state the Fund account number
O the name in which your account is registered
O the social security or tax identification number under which
the account is registered
O 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.
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.
When making a redemption request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
O The name of the Fund
O The dollar amount of shares to be redeemed
O Signatures of all registered shareholders exactly as the shares are
registered
O The account number
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.
GENERAL TRANSACTION POLICIES
Some of the following policies are mentioned above. In general, the Fund
reserves the right to:
O Vary or waive any minimum investment requirement.
O Refuse, change, discontinue, or temporarily suspend account services,
including purchase, exchange, or telephone redemption privileges, for
any reason.
O 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).
O 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.
O Delay paying redemption proceeds for up to seven days after receiving a
request, if an earlier payment could adversely affect the Fund.
O 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:
O 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;
O 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
O 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.
TAXES ON DISTRIBUTIONS
Distributions that you receive from the Fund are subject to federal income tax,
and may also be subject to state or local taxes. This is true whether you
reinvest your distributions in additional Fund shares or receive them in cash.
For federal tax purposes, the Fund's dividends and distributions of short-term
capital gains are taxable to you as ordinary income, while the Fund's
distributions of long-term capital gains are taxable to you generally as capital
gains.
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.
Any taxable distributions you receive from the Fund will normally be taxable to
you when you receive them, regardless of your distributions.
By law, the Fund must withhold 31% of your taxable distributions and redemptions
proceeds if you do not provide your correct 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.
TAXES ON TRANSACTIONS
Your redemptions may result in a capital gain or loss for federal income tax
purposes. A capital gain or loss on your investment in the Fund generally is
the difference between the cost of your shares and the price you receive when
you sell them.
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 ---------------, 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
Everest Index3 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
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission becomes effective.
This Statement of Additional Information is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
STATEMENT OF ADDITIONAL INFORMATION
DATED ---, 2000
Subject to completion, dated September ---, 2000
Everest Index3 Fund
A Series of the Everest Funds
This Statement of Additional Information ("SAI") relates to Everest Index3 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
September 29, 2000 (the "Prospectus") of the Everest Index3 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 12
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 25
FINANCIAL STATEMENTS 26
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 net 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.
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.
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 holds 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.
POSITIONS WITH PRINCIPAL OCCUPATION
NAME, AGE, ADDRESS THE TRUST DURING PAST 5 YEARS
------------------ -------------- --------------------
*<F6>Vinod Gupta (54) President, Founder of infoUSA Inc., a company
5711 S. 86th Circle Chairperson of that compiles and updates the
Omaha, NE 68127 the Board, proprietary databases of 12 million
Trustee businesses and 200 million
Treasurer and consumers in the United States and
Secretary Canada; Chairman of the Board of
infoUSA Inc. since 1972 and Chief
Executive Officer from 1972 until
September 1997 and since August
1998.
*<F7>Thomas F. Pflug (42) Trustee President of Pflug Koory, LLC, Sub-
14441 Dupont Court Advisor and its predecessor entity,
Omaha, NE 68144 Pflug Investment Management, Inc.,
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
5711 S. 86th Circle executive with the Omaha World-
Omaha, NE 68127 Herald from 1946 to the present
where he has served as director,
president and chairman of the board
of directors.
Richard M. Krasno (58) Trustee President of the Monterey Institute
P.O. Box 3858 of International Studies since
Chapel Hill, NC 27515 1989. 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
7527 Old Dominion Dr. Trust, a premier builder of single-
McLean, VA 22102 family homes in Central Florida and
is the President and CEO of several
real estate related entities and is
on the Boards of Directors of
several private companies.
*<F6> 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.
*<F7> 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 disinterested members of the Company's Board of Directors receive the
following compensation:
PENSION OR
RETIREMENT ESTIMATED TOTAL
BENEFITS ANNUAL COMPENSATION
AGGREGATE ACCRUED AS BENEFITS FROM COMPANY
NAME OF PERSON, COMPENSATION PART OF FUND UPON PAID TO
POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS
--------------------------------------------------------------------------------
Vinod Gupta None None None None
President,
Chairperson,
Treasurer,
Secretary and
Trustee
Thomas F. Pflug None None None None
Trustee
Harold W. Anderson None None None None
Trustee
Richard M. Krasno None None None None
Trustee
Terence R. McAuliffe None None None None
Trustee
MANAGEMENT OWNERSHIP
As of ---------------, 2000, for organizational purpose only, Vinod Gupta,
President and sole shareholder of the manager, owned 100% of the outstanding
shares of the Fund.
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, the Treasurer and the Secretary of the Fund. Vinod Gupta is the
founder of infoUSA Inc., a company that compiles and updates proprietary
databases of 12 million businesses and 200 million consumers in the United
States and Canada. Mr. Gupta has been Chairman of the Board of infoUSA Inc.
since its incorporation in 1972 and has served as its Chief Executive Officer
from the time of its incorporation in 1972 until September 1997 and since August
1998.
Under the Advisory Agreement between the Trust and the manager, dated as of ----
----------- ---, 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, by unanimous vote, on --------------- ---,
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. The
President of Pflug Koory, LLC is Thomas F. Pflug. 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 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 ---------
------ ---, 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 --------------- ---, 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. As compensation
for these services, the Fund pays Firstar reasonable out-of-pocket expenses plus
fees pursuant to ----- based on the average net assets of the Fund.
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 --------------- ---, 2000 ("Custody Agreement"),
whereby the Custodian provides for fees on a transactional basis plus
out-of-pocket expenses. The Custodian's address is 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202.
Pursuant to a Fund Administration Servicing Agreement and a Fund Accounting
Servicing Agreement, each between Firstar and the Company, Firstar also performs
certain administrative 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
---- of ----% of average net assets.
Stradley, Ronon, Stevens & Young, LLP acts as legal counsel to the Fund. ------
-------------- 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.
Any portfolio transaction may be executed through broker-dealers who are
affiliated with the Fund, the manager or the sub-adviser if, in the sub-
adviser's judgment, the use of such affiliated brokers is likely to result in
price and execution at least as favorable as those of other qualified brokers,
and if, in the transaction, the affiliated broker-dealer charges a commission
rate consistent with those charged by the affiliated broker-dealer to comparable
unaffiliated customers in similar transactions. All transactions with
affiliated broker-dealers will comply with Rule 17e-1 under the 1940 Act.
Since the inception of the Fund, the Fund paid no brokerage commissions to a
broker that is affiliated with the Fund, its manager, sub-adviser, or the
Underwriter.
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 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.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends to file the requisite election and to satisfy all other
requirements necessary to be characterized as a regulated investment company
("RIC") under Subchapter M of the Code. As a RIC, the Fund will not be subject
to federal income tax on the portion of its net investment income (i.e., its
investment company taxable income, as that term is defined in the Code, without
regard to the deduction for dividends paid ) and net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss) that it
distributes to shareholders, provided that it distributes at least 90% of its
net investment income for the taxable year (the "Distribution Requirement"), and
satisfies certain other requirements of the Code that are described below. In
addition to satisfying the Distribution Requirement for each taxable year, a RIC
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies, to the extent such
currency gains are directly related to the RIC's principal business of investing
in stock or securities, and other income, including but not limited to gains
from options, futures or forward contracts, derived with respect to its business
of investing in such stock, securities or currencies (the "Income Requirement").
In addition, at the close of each quarter of the Fund's taxable year, (a) at
least 50% of the market value of the Fund's assets must be represented by cash,
securities of other regulated investment companies, United States government
securities and other securities, with such other securities limited, in respect
of any one issuer (as contemplated by the Code), to an amount not greater than
5% of the Fund's assets and not greater than 10% of the outstanding voting
securities of such issuer and (b) not more than 25% of the value of its assets
may be invested in the securities, other than United States government
securities or securities of other regulated investment companies, of any one
issuer (as contemplated by the Code) or any two or more issuers that the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses or related trades or businesses.
The Fund may engage in options and futures contracts. The Fund's transactions
in index and interest rate futures contracts and options on these futures
contracts (collectively "section 1256 contracts") will be subject to special
provisions of the Code that, among other things, may affect the character of
gains and losses realized by the Fund (i.e., may affect whether gains or losses
are ordinary or capital), accelerate recognition of income to the Fund and defer
Fund losses. These rules could therefore affect the character, amount and
timing of distributions to shareholders. These provisions also (a) will require
the Fund to mark-to-market certain types of the positions in its portfolio
(i.e., treat them as if they were closed out) and (b) may cause the Fund to
recognize income without receiving cash with which to pay dividends or make
distributions in amounts necessary to satisfy the Distribution Requirement and
avoid the 4% excise tax (described below). The Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it engages in these
transactions in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a RIC.
Although each Fund intends to satisfy or continue to satisfy all the foregoing
requirements, there is no assurance that each Fund will be able to do so. The
investment by a Fund other than a Money Market Fund primarily in options and
futures positions entails some risk that such a Fund might fail to satisfy the
Diversification Requirements. There is some uncertainty regarding the valuation
of such positions for purposes of those requirements; accordingly, it is
possible that the method of valuation used by those Funds, pursuant to which
each of them would be treated as satisfying the Diversification Requirements,
would not be accepted in an audit by the Internal Revenue Service, which might
apply a different method resulting in disqualification of one o more of those
Funds.
All section 1256 contracts held by the Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.
If, in any taxable year, the Fund fails to qualify as a RIC under the Code or
fails to meet the distribution requirement, it would be taxed in the same manner
as a corporation and distributions to its shareholders would not be deductible
by the Fund in computing its taxable income. In addition, in the event of a
failure to qualify, the Fund's distributions, to the extent derived from the
Fund's current or accumulated earnings and profits, would constitute dividends
eligible for the corporate dividends-received deduction, which are taxable to
shareholders as ordinary income, even though those distributions might
otherwise, at least in part, have been treated in the shareholders' hands as
capital gain. If the Fund fails to qualify as a RIC in any year, it must pay
out its earnings and profits accumulated in that year in order to qualify again
as a RIC. In addition, the Fund may be required to recognize any net built-in
gains with respect to certain of its assets (i.e. the excess of the aggregate
gains, including items of income, over aggregate losses that would have been
realized with respect to such assets if the Fund had been liquidated) in order
to qualify as a RIC in a subsequent year.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a RIC that fails to distribute in
each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income for the one-year period ended
on October 31 of such calendar year. At the election of a RIC having a taxable
year ending November 30 or December 31, the required capital gain net income
distribution may be accomplished by the close of the taxable year in lieu of
October 31 of the calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a RIC is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year.
The Fund intends to make sufficient distributions or deemed distributions of its
ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its net investment income
for each taxable year. Such distributions will be taxable to shareholders as
ordinary income and treated as dividends for federal income tax purposes, but
they will qualify for the 70% dividends-received deduction for corporation only
to the extent discussed below.
The Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Under current legislation, the maximum rate of tax on long-term capital gains of
individuals is 20% for long-term capital gains with respect to capital assets
held for more than 12 months. Additionally, beginning after December 31, 2000,
the maximum tax rate for capital assets with a holding period beginning after
that date and held for more than five years will be 18%.
Conversely, if the Fund elects to retain its net capital gain, the Fund will be
taxed thereon, except to the extent of any available capital loss carryovers, at
the 35% corporate tax rate. If the Fund elects to retain its net capital gain,
it is expected that the Fund also will elect to have shareholders of record on
the last day of its taxable year treated as if each received a distribution of
his pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as long-
term capital gain, will receive a refundable tax credit for his pro rata share
of tax paid by the Fund on the gain, and will increase the tax basis for his
shares by an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year will
qualify for the 70% dividends-received deduction generally available to Trusts
to the extent of the amount of qualifying dividends received by the Fund from
domestic Trusts for the taxable year. A dividend received by the Fund will not
be treated as a qualifying dividend (a) if it has been received with respect to
any share of stock that the Fund has held for less than 46 days (91 days in the
case of certain preferred stock) during the 90 day period beginning on the date
which is 45 days before the date on which such share becomes ex-dividend with
respect to such dividend (during the 180 day period beginning 90 days before
such date in the case of certain preferred stock) under Sections 246(c)(3) and
(4) of the Code; (b) to the extent that the Fund is under an obligation
(pursuant to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property; or (c) to the extent the
stock on which the dividend is paid is treated as debt-financed under Section
246A of the Code. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced if the corporate shareholder fails to
satisfy the foregoing requirements with respect to its shares of the Fund. In
the case where the Fund invests all of its assets and the Fund satisfies the
holding period rules pursuant to Section 246(c) of the Code, a corporate
shareholder which satisfies the foregoing requirements with respect to its
shares of the Fund should receive the dividends-received deduction.
For purposes of the corporate alternate minimum tax ("AMT"), the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
Trust's AMT. However, corporate shareholders of the Fund will generally be
required to take the full amount of any dividend received from the Fund into
account, without a dividends-received deduction, in determining its adjusted
current earnings.
Distributions by the Fund that do not constitute ordinary income dividends, or
capital gain dividends will be treated as a return of capital to the extent of,
and in reduction of, the shareholder's tax basis in his or her shares; any
excess will be treated as gain from the sale of his or her shares, as discussed
below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund. Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the amount of cash they could have received had they elected to
receive the distribution in cash. In addition, if the net asset value at the
time a shareholder purchases shares of the Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders, and made by the Fund, on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the federal income
tax consequences of distributions made or deemed made during the year. In
addition, if the Fund declares a dividend prior to the time prescribed by law
for the filing of its return for year and distributes the amount of such
dividend to its shareholders in the 12-month period following the close of the
taxable year, but not later than the date of the first regular dividend payment
made after such declaration, the dividend so declared and distributed shall,
upon election by the Fund, be considered as having been paid during the taxable
year, provided that the Fund makes required elections and provides proper
notices.
The Fund will be required in certain cases to withhold and remit to the United
States Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (a) who has
provided either an incorrect tax identification number or no number at all, (b)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (c) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
Trust or other exempt recipient.
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of shares of
a Fund in an amount equal to the difference between the proceeds of the sale or
redemption and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss so recognized may be disallowed if the shareholder purchases
other shares of the Fund within 30 days before or after the sale or redemption.
In general, any gain or loss arising from or treated as arising from the sale or
redemption of shares of a Fund will be considered capital gain or loss. The
character of the gain or loss as long-term or short-term capital gain or loss
will depend on the shareholder's holding period of the shares sold or redeemed.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign Trust, or foreign partnership
("Foreign Shareholder"), depends on whether the income from the Fund is
"effectively connected" with a United States trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a United States
trade or business carried on by a Foreign Shareholder, dividends paid to a
Foreign Shareholder from net investment income will be subject to United States
withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount
of the dividend. Such a Foreign Shareholder would generally be exempt from
United States federal income tax on gains realized on the sale of shares of the
Fund and capital gain dividends and amounts retained by the Fund that are
designated as undistributed capital gains.
If the income from the Fund is effectively connected with a United States trade
or business carried on by a Foreign Shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to United States federal income tax at the rates applicable
to United States citizens or domestic Trusts.
In the case of foreign noncorporate shareholders, the Fund may be required to
withhold United States federal income tax at a rate of 31% on distributions that
are otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a Foreign Shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
Shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund, including the
applicability of foreign taxes.
STATE AND LOCAL TAX MATTERS
Depending on the residence of the shareholder for tax purposes, distributions
may also be subject to state and local taxes or withholding taxes. Most states
provide that a RIC may pass through without restriction to its shareholders
state and local income tax exemptions available to direct owners of certain
types of United States government securities, such as United States Treasury
obligations. Thus, for residents of these states, distributions derived from a
Fund's investment in certain types of United States government securities should
be free from state and local income taxes to the extent that the interest income
from such investments would have been exempt from state and local income taxes
if such securities had been held directly by the respective shareholders
themselves. Certain states, however, do not allow a RIC to pass through to its
shareholders the state and local income tax exemptions available to direct
owners of certain types of United States government securities unless the RIC
holds at least a required amount of United States government securities.
Accordingly, for residents of these states, distributions derived from a Fund's
investment in certain types of United States government securities may not be
entitled to the exemptions from state and local income taxes that would be
available if the shareholders had purchased United States government securities
directly.
Shareholders' dividends attributable to the Fund's income from repurchase
agreements generally are subject to state and local income taxes, although
states and regulations vary in their treatment of such income. The exemption
from state and local income taxes does not preclude states from asserting other
taxes on the ownership of United States government securities. To the extent
that the Fund invests to a substantial degree in United States government
securities that are subject to favorable state and local tax treatment,
shareholders of the Fund will be notified as to the extent to which
distributions from the Fund are attributable to interest on such securities.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies may differ from the rules for
federal income taxation in other respects.
Because everyone's tax situation is unique, you are urged to consult your tax
adviser as to the consequences of these and other state, local, as well as
federal tax rules before investing in the Fund.
EFFECT OF FUTURE LEGISLATION
The foregoing general discussion of federal income tax consequences is based on
the Code and the Treasury Regulations promulgated thereunder as in effect on the
date of this Prospectus. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
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:
n
P(1+T) = 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
Audited financial statements will be filed by a pre-effective amendment.
THE EVEREST FUNDS
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Declaration of Trust
(i) Amended and Restated Certificate of Trust 2<F9>
(ii) Agreement and Declaration of Trust 1<F8>
(b) Bylaws 1<F8>
(c) Instruments Defining Rights of Security Holders -- Incorporated by
reference to the Declaration of Trust and Bylaws.
(d) Investment Advisory Agreements
(i) Form of Investment Advisory Agreement 1<F8>
(ii) Form of Investment Sub-Advisory Agreement 1<F8>
(e) Form of Underwriting Agreement 1<F8>
(f) Bonus or Profit Sharing Contracts 4<F11>
(g) Form of Custody Agreement 1<F8>
(h) Other Material Contracts
(i) Form of Fund Administration Servicing Agreement 1<F8>
(ii) Form of Transfer Agent Servicing Agreement 1<F8>
(iii) Form of Fund Accounting Servicing Agreement 1<F8>
(iv) Form of Fulfillment Servicing Agreement 1<F8>
(i) Opinion and Consent of Counsel 3<F10>
(j) Consent of Independent Public Accountants 3<F10>
(k) Omitted Financial Statements 4<F11>
(l) Agreement Relating to Initial Capital 3<F10>
(m) Rule 12b-1 Plan 4<F11>
(n) Rule 18f-3 Plan 4<F11>
(o) Reserved
(p) Code of Ethics
(i) Adviser 3<F10>
(ii) Registrant 3<F10>
1<F8> Previously Filed and Incorporated by Reference.
2<F9> Filed Herewith.
3<F10> To be Filed by Subsequent Amendment.
4<F11> Not Applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is directly or indirectly controlled by or under common control
with the Registrant.
ITEM 25. INDEMNIFICATION.
Reference is made to Article V of the Registrant's Declaration of Trust.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking: "Insofar as indemnification for
liability arising under the Securities Act of 1933 (the "Act") may be permitted
to trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue."
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Position with Everest
Name Funds Management, LLC1<F12> Other Businesses, Etc.
--------------------------------------------------------------------------------
Vinod Gupta President and Manager Founder of infoUSA Inc., a company
that compiles and updates the
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.
Douglas M. Chief Investment Officer From June, 1999 through April, 2000,
Larson 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.
1<F12> The principal business address is 5711 S. 86th Circle, Omaha, Nebraska
68127.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Quasar Distributors, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin, 53202, the Distributor for shares of the Registrant,
will also act as principal underwriter for other open-end
investment companies not yet under registration as of the date of
filing.
(b) To the best of Registrant's knowledge, the directors and executive
officers of Quasar Distributors, LLC are as follows:
NAME AND PRINCIPAL POSITION AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS QUASAR DISTRIBUTORS, LLC WITH REGISTRANT
--------------------------------------------------------------------------------
James R. Schoenike President, Board Member None
Donna J. Berth Treasurer None
James J. Barresi Secretary None
Joe Redwine Board Member None
Bob Kern Board Member None
Paul Rock Board Member None
Jennie Carlson Board Member None
The address of each of the foregoing is 615 East Michigan Street, Milwaukee,
Wisconsin, 53202.
(c) The following table sets forth the commissions and other compensation
received, directly or indirectly, from the Fund during the last fiscal year by
the principal underwriter who is not an affiliated person of the Fund.
(2) (3)
(1) Net Compensation
Name of Underwriting on Redemption (4) (5)
Principal Discounts and and Brokerage Other
Underwriter Commission Repurchases Commissions Compensation
--------------------------------------------------------------------------------
Quasar Distributors, LLC None None None None
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The books and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 are maintained at the following locations:
Records Relating to: Are located at:
---------------------------------------------------------------------------
Registrant's fund accountant, Firstar Mutual Fund Services, LLC
administrator and transfer agent 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202
Registrant's custodian Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Registrant's investment advisor Everest Funds Management, LLC
5711 S. 86th Circle
Omaha, NE 68127
Registrant's sub-investment advisor Pflug Investment Management, Inc.
14441 Dupont Court Suite 100
Omaha, NE 68144
ITEM 29. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A AND B.
Inapplicable
ITEM 30. UNDERTAKINGS.
The Fund hereby undertakes to file an amendment to the registration statement
with certified financial statements showing the initial capital received
before accepting subscriptions from more than 25 persons if the Fund intends
to raise initial capital under Section 14(a)(3) of the Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Trust has duly caused this Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha and State of Nebraska, on the 29th day of
September, 2000.
EVEREST SERIES FUNDS, INC.
By: /s/ Vinod Gupta
--------------------------------
Vinod Gupta, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on September 29, 2000.
Signature Title
--------- -----
/s/ Vinod Gupta President, Secretary, Treasurer, Chairperson
-------------------- of the Board and Trustee
Vinod Gupta
EXHIBIT INDEX
Exhibit Status
------- ------
Registrant's Amended and Restated Certificate of Trust Filed Herewith
Registrant's Agreement and Declaration of Trust *<F13>
Registrant's Bylaws *<F13>
Investment Management Agreement between Everest Funds *<F13>
Management, LLC and the Registrant on behalf of the
Everest Index3 Fund
Distribution Agreement between Quasar Distributors, *<F13>
LLC and the Registrant on behalf of the Everest
Index3 Fund
Custodian Agreement between Registrant and Firstar *<F13>
Bank, N.A.
Fund Administration Servicing Agreement between *<F13>
Registrant and Firstar Mutual Funds Services, LLC
Fund Transfer Agent Servicing Agreement between *<F13>
Registrant and Firstar Mutual Funds Services, LLC
Fund Accounting Servicing Agreement between *<F13>
Registrant and Firstar Mutual Fund Services, LLC
Opinion and Consent of Counsel To be Filed by
Subsequent
Amendment
Consent of Arthur Andersen LLP To be Filed by
Subsequent
Amendment
Power of Attorney To be Filed by
Subsequent
Amendment
Code of Ethics for Everest Funds To be Filed by
Subsequent
Amendment
Code of Ethics for Everest Funds Management, LLC To be Filed by
Subsequent
Amendment
*<F13> Previously filed and incorporated by reference.
